The Board of Directors (the “Board”) of Max Sound Corporation (the “Company”) has adopted the following Corporate Governance Guidelines (the “Guidelines”) to assist the Board in the exercise of its responsibilities and to serve the interests of the Company and its stockholders. The Guidelines should be interpreted in the context of all applicable laws and regulations and the Company’s Articles of Incorporation, as may be amended and restated (the “Articles of Incorporation”), the Company’s by-laws, as may be amended and restated (the “By-Laws”), and other corporate governance documents. The Guidelines acknowledge the leadership exercised by the Board’s standing committees and their chairpersons and are intended to serve as a flexible framework within which the Board may conduct its business and not as a set of legally binding obligations. The Guidelines are subject to modification from time to time by the Board as the Board may deem appropriate in the best interests of the Company and its stockholders or as required by applicable laws and regulations.
The Guidelines shall be made available on the Company’s website at http://MAXD.audio
and to any stockholder who otherwise requests a copy.
The Board will review annually the relationships that each director has with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company). The standards used for determining director independence will be disclosed in accordance with applicable rules and regulations, including the Listing Standards when applicable.
Separate Sessions of Non-Management Directors
The Non-Management Directors will meet in executive session without management directors or management present on a periodic basis, but not less than one time each calendar year or as otherwise required under the Listing Standards when applicable. The Non-Management Directors will review the Company’s implementation of, and compliance with, its Guidelines and consider such matters as they may deem appropriate at such meetings. “Non- Management Directors” are all directors who are not Company officers (as that term is defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended). For the purposes of this Guideline Non-Management Directors include such directors who are not independent by virtue of a material relationship, former status, family membership, or for any other reason.
In addition, if the Non-Management Directors include directors who are not also Independent Directors, the Independent Directors shall also meet separately at least once per year in executive session or as otherwise required under the Listing Standards when applicable.
Director Qualification Standards
The Board is responsible for reviewing on an annual basis the appropriate characteristics, skills, and experience required for the Board as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current Board members), in recommending candidates for election, and in approving (and, in the case of vacancies, appointing) such candidates, the Board will take into account many factors, including the ability to make independent analytical inquiries, general understanding of marketing, finance, and other elements relevant to the success of a publicly-traded company in today’s business environment, understanding of the Company’s business on the technical level, other board service, and educational and professional background. Each candidate nominee must also possess fundamental qualities of intelligence, honesty, good judgment, high ethics, high standards of integrity, fairness, and responsibility. The Board evaluates such individual in the context of the Board as a whole, with the objective of assembling a group that can best perpetuate the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas. In determining whether to recommend a director for re-election, the Board also considers the director’s past attendance at meetings and participation in and contributions to the activities of the Board.
Selection of New Directors
During annual meetings of stockholders, the Board will recommend a slate of directors for election by the stockholders. In accordance with the Certificate of Incorporation and By-Laws, the Board will also be responsible for filing vacancies or newly-created directorships on the Board that may occur between annual meetings of stockholders. The Board is responsible for identifying, screening, and recommending candidates for Board membership.
No Specific Limitation on Other Board Service
The Board does not believe that its members should be prohibited from serving on boards of other organizations and has not adopted any guidelines limiting such activities, except with respect to members serving on the Audit Committee, as described below. However, the Board will take into account the nature of and time involved in a director’s service on other boards and/or committees in evaluating the suitability of individual director candidates and current directors and making its recommendations to the Company’s stockholders.
Due to the demanding nature of service on the Audit Committee, the members of the Audit Committee may not serve on the audit committees of the boards of directors of more than two other companies at the same time as they are serving on the Audit Committee.
Service on other boards and/or committees must be consistent with the Company’s conflict of interest policies set forth below.
Directors Who Resign Their Current Positions with the Company
When a director who is currently an officer or employee of the Company, resigns or materially changes his or her position with the Company, such director will also submit his or her resignation from the Board, which the Board may accept or reject.
The Board does not believe it is in the best interests of the Company to establish term limits at this time. Additionally, such term limits may cause the Company to lose the contribution of directors who have been able to develop, over a period of time, increasing insight into the Company’s business and therefore can provide an increasingly significant contribution to the Board.
The business and affairs of the Company will be managed by or under the direction of the Board, including through one or more of its committees as set forth in the By-Laws and committee charters. Each director is expected to spend the time and effort necessary to properly discharge his or her responsibilities. These include:·
Overseeing the conduct of the Company’s business to evaluate whether the business is being properly managed Reviewing and, where appropriate, approving the Company’s major financial objectives, plans, and actions.·
Reviewing and, where appropriate, approving major changes in, and determinations under the Company’s Guidelines, Code of Ethical Business Conduct (and any separate code of ethics for directors and/or senior officers), and other Company policies.·
Reviewing and, where appropriate, approving actions to be undertaken by the Company that would result in a material change in the financial structure or control of the Company, the acquisition or disposition of any businesses or asset(s) material to the Company, or the entry of the Company into any major new line of business.·
Together with the Compensation Committee, regularly evaluating the performance and approving the compensation of the chief executive officer·
With the input of the chief executive officer and the Compensation Committee, regularly evaluating the performance of principal senior executives.·
Investigating suggestions for candidates for membership on the Board, including shareholders’ nominations, and shall recommend prospective directors, as required, to provide an appropriate balance of knowledge, experience and capability on the Board.·
Keeping informed as to current trends in corporate governance, identifying best practices and developing and recommending corporate governance principles applicable to the Company.
Recommending Board committee assignments.
Planning for succession of the chief executive officer, in the event of an emergency or retirement, and monitoring management’s succession planning for other key executives.
Ensuring that the Company’s business is conducted with the highest standards of ethical conduct and in conformity with applicable laws and regulations.
The Company’s executive officers may receive additional compensation for their service as directors. Upon the request of the Compensation Committee, senior management of the Company will report to the Compensation Committee regarding the status of the Company’s non-employee director compensation in relation to other United States companies of comparable size and the Company’s competitors. Such report will include consideration of both direct and indirect forms of compensation to the Company’s directors, including any charitable contributions by the Company to organizations in which a director is involved. Following a review of the report, the Compensation Committee will recommend changes in director compensation to the Board, which changes will be approved or disapproved by the Board after full discussion.
The Company encourages directors to purchase shares of the Company’s stock. However, the number of shares of the Company’s stock owned by any director is a personal decision and, at this time, the Board has chosen not to adopt a policy requiring ownership by directors of a minimum number of shares.
Conflicts of Interest
Directors are required to avoid any action, position, or interest that conflicts or appears to conflict with the interests of the Company. If an actual or potential conflict of interest develops, the director shall immediately report the matter to the Board. Any significant conflict must be resolved or the director will be required to resign. If a director has a personal interest in a matter before the Board, the director will disclose the interest to the Board. The Board shall discuss the matter outside the presence of the Director posing the conflict of Interest. Such Director shall not vote on the matter.
Board Orientation and Continuing Education of Board Matters
The Company provides new directors with the director orientation program to familiarize them with, among other things, the Company’s business, strategic plans, significant financial, accounting and management issues, compliance programs, conflicts policies, Code of Ethical Business Conduct (and any separate code of ethics for directors and/or senior officers), these Guidelines, principal officers, internal auditors, and independent auditors. The Company will make available to directors continuing education programs, and each director is expected to participate in such programs, as management or the Board determines desirable.
Interaction with Institutional Investors, the Press, and Customers
The Board believes that management speaks for the Company. Each director should refer all inquiries from institutional investors, the press, and customers to management. Individual Board members may, from time to time and at the request of the management, meet or otherwise communicate with various constituencies that are involved with the Company.
Board Access to Senior Management
The Board will have complete access to Company management in order to ensure that directors can ask any questions and receive all information necessary to perform their duties. Directors should exercise judgment to ensure that their contact with management does not distract managers from their jobs or disturb the business operations of the Company. Such contact, if in writing, should be copied to the chief executive officer of the Company.
Board Access to Independent Advisors
Board committees may hire independent advisors as set forth in their applicable charters. The Board as a whole shall have access to such advisors and such other independent advisors that the Company retains or that the Board considers necessary or desirable to discharge its responsibilities.
Each fiscal year, the Board will conduct an annual assessment of itself and its committees, as well as considering other corporate governance principles that may, from time to time, merit consideration by the Board.
The assessment should include review of any areas in which the Board or management believes the Board can make better contribution to the governance of the Company, as well as a review of the committee structure and an assessment of the Board’s compliance with the principles set forth in the Guidelines. The purpose of the review will be to improve the performance of the Board as a unit, and not to target the performance of any individual Board member. The Board will utilize the results of this evaluation process is assessing and determining the characteristics and critical skills required of prospective candidates for election to the Board.
Frequency of Meetings
The Board will meet at least twelve times each calendar year or as otherwise deemed necessary by the Board. In addition, special meetings may be called from time to time as determined by the needs of the business. It is the responsibility of the directors to attend meetings.Director Attendance
A director is expected to spend the time and effort necessary to properly discharge his or her responsibilities. Accordingly, a director is expected to regularly prepare for and attend meetings of the Board and all committees on which the director sits (including separate meetings of Non-Management Directors or Independent Directors), with the understanding that, on occasion, a director may be unable to attend a meeting. A director who is unable to attend a meeting is expected to notify the Board or the chairman of the appropriate committee in advance of such meeting and, whenever possible, participate in such meeting via teleconference.
Attendance of Non-Directors The Board encourages the directors and members of the committees to bring Company management and outside advisors or consultants from time to time into Board and/or committee meetings to (1) provide insight into items being discussed by the Board which involved the manager, advisor or consultant, (2) make presentations to the Board on matters which involve the manager, advisor or consultant, and (3) bring managers with high potential into contact with the Board. Attendance of non-directors at Board meetings is at the discretion of the Board.
Advance Receipt of Meeting Materials Information regarding the topics to be considered at a meeting is essential to the Board’s understanding of the business and the preparation of the directors for a productive meeting. To the extent feasible, the meeting agenda and any written materials relating to each Board meeting will be distributed to the directors sufficiently in advance of each meeting to allow for meaningful review of such agenda and materials by the directors. Directors are expected to have reviewed and be prepared to discuss all materials distributed in advance of any meeting.
Number, Name, Responsibilities, and Independence of Committees
The Board currently has three standing committees. From time to time, the Board may form a new committee or disband a current committee, depending upon the circumstances. Each committee will perform its duties as assigned by the Board in compliance with the By-Laws and the committee’s charter.
The current committees are:Audit Committee
The Audit Committee’s responsibilities are more fully set forth in the Audit Committee Charter, and include, but are not limited to, the following:
a. Overseeing accounting and financial reporting processes;
b. Reviewing the Company’s systems of internal controls;
c. Assessing the processes relating to the determination and mitigation of financial risks;
d. Monitoring compliance with all applicable rules and regulations;
e. Monitoring the independence of the Company’s public accountants;
f. Overseeing and reviewing the audits and audit process of the Company’s financial statements; and
g. Establish procedure pursuant to Section 301 of the Sarbanes Oxley Act related to Whistleblower Programs. · Compensation Committee
The Compensation Committee’s responsibilities are more fully set forth in the Compensation Committee Charter, and include, but are not limited to, the following:
a. Review and approve CEO compensation;
b. Determine or recommend all other officer compensation;
c. Recommend and oversee incentive compensation plans;
d. Oversee regulatory compliance with respect to compensation matters;
e. Review and approve severance or other termination payments;
f. Recommend appropriate Board compensation that corresponds to the Company’s goals and objectives; and g. Prepare annual report on executive compensation for inclusion in the Company’s annual report on Form 10-K or any annual proxy statement to the extent required in accordance with applicable rules and regulationsLegal Committee
The Legal Committee is to oversee all legal and compliance issues of the Company, including, but not limited to the following: recommendations regarding minimum thresholds for Board approval of Company contracts and agreements; ongoing review of Company litigation matters; review of Company contracts, including but not limited to employment; review of all Company stock, option and warrant agreements; review of internal policies and procedures; review of regulatory compliance issues; recommendations relating to liability avoidance. recommendations regarding corporate structure.
Assignment and Rotation of Committee Members
The Board appoints committee members and committee chairs according to criteria set forth in the applicable committee charter and such other criteria that the Board determines to be appropriate in light of the responsibilities of each committee. Committee membership and the position of committee chair will not be rotated on a mandatory basis unless the Board determines that rotation is in the best interest of the Company.
The Board affirmatively states that each member of the Audit Committee must be financially literate, as determined by the Board in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment, and that at least one member of the Audit Committee must have accounting or related financial management expertise as determined by the Board in its business judgment.
Frequency of Committee Meetings
Each committee will meet at least as frequently as specified in such committee’s charter; provided, however, that each committee shall meet at least four times annually unless the Board determines otherwise. In addition, special meetings may be called by the chairperson of the committee or by the Board from time to time as determined by the needs of the business, or such number of committee members as specified in such committee’s charter. It is the responsibility of the directors to attend the meetings of the committees on which they serve. The Audit Committee will meet at least quarterly to review financial results for the quarter under consideration.
The Chairperson of each committee, in consultation with the appropriate members of the Committee, will develop his or her committee’s agenda.
Annual Review of Chief Executive Officer
The Compensation Committee, with input from the chief executive officer, shall annually establish the performance criteria (including both long-term and short-term goals) to be considered in connection with the chief executive officer’s next annual performance evaluation. At the end of each year, the chief executive officer shall make a presentation or furnish a written report to the Board indicating his or her progress against such established performance criteria. Thereafter, with the chief executive officer absent, the Compensation Committee shall meet to review the chief executive officer’s performance. The results of the review and evaluation shall be communicated to the chief executive officer by the Chairperson of the Compensation Committee.
The Board works on a periodic basis with the chief executive officer to develop, review, maintain and revise, if necessary, the Company’s succession plan upon chief executive officer’s retirement and in the event of an unexpected occurrence. The chief executive officer shall report annually to the Board on succession planning for the chief executive officer and senior management positions, including a discussion of assessments, leadership development plans and other relevant factors. There should also be available to the Board, on a continuing basis, the chief executive officer’s recommendations regarding his or her successor should he or she be unexpectedly disabled.
The Board will determine that a satisfactory system is in effect for the education, development, and orderly succession of senior and mid-level managers throughout the Company.