SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant / /
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Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/X/ Soliciting Material under Rule 14a-12
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Liquid Audio, Inc.
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(Name of Registrant as Specified In Its Charter)
musicmaker.com, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.001 per share
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
musicmaker.com, Inc.
c/o Barington Capital Group, L.P.
888 Seventh Avenue
17th Floor
New York, New York 10019
April 4, 2002
To Stockholders of Liquid Audio, Inc.
Dear Fellow Stockholder:
As you may know, musicmaker.com, Inc. and others in our group beneficially
own an aggregate of approximately 6.9% of Liquid Audio's outstanding common
stock. Together we are the Company's second largest stockholder.
We have repeatedly written to, and on one occasion met with, members of
the Company's management and Board of Directors to express our deep concerns
regarding the Company's financial situation and strategic direction. In our
correspondence, as well as the one brief meeting to which management consented,
we have indicated that we do not believe that management's current plans for the
Company are viable. We think it is unlikely that the Company will realize any
economic value from the license agreements it is entering into or the expensive
litigation it is pursuing to protect technology which it is not able to
successfully exploit. In fact, based on the experience of musicmaker's own
business under its prior management, we question the business model underlying
all of these license agreements and fear that they will yield little or no
revenue for the Company.
We are convinced that the only reasonable path to preserving what value
remains for stockholders is a sale of the Company, either to us or, if a more
attractive opportunity emerges, to a third party. We also believe that, in all
events, it is crucial that the interests of all shareholders be adequately
represented on the Company's Board of Directors at the earliest possible time.
In October 2001, we wrote to the Company to indicate our interest in
pursuing a potential acquisition of Liquid Audio at a price we then anticipated
could be in the range of $3.00 per share - a premium of more than 25% over the
market price at that time. Management eventually responded by rejecting out of
hand what we believe was an attractive offer. Unfortunately, we believe the
Company's situation has deteriorated further over the past four months.
Despite this deterioration, and the fact that the Company has lost 95% of
its equity market value in the last two years while continuing to deplete cash
rapidly under its current operating strategy, we believe that there is still
value inherent in the Company. Accordingly, last month we wrote again to the
Company to state our willingness to acquire the Company on a negotiated basis,
through a merger with an appropriate acquisition entity, for a price of $2.50
per share in cash. This proposal is higher than the current market price of the
Company's stock, and would provide the Company's stockholders with an immediate
opportunity to realize value from
their investment in the Company in excess of any presently available
alternative. Once again, however, our proposal has been ignored by management.
Neither we nor any other potentially interested party can effectively
pursue an acquisition proposal by, for example, making a tender offer directly
to Liquid Audio's stockholders as long as management retains its so-called
"poison pill" or shareholders' rights plan. However, assuming no further
acceleration in the Company's deterioration, we are willing to commit to making
a tender offer for the Company's stock if management would eliminate the "poison
pill" and permit such an offer to proceed.
In the meantime, it is vital that the interests of all stockholders be
recognized at the Board level. We have given notice, in accordance with the
Company's by-laws, of stockholder nominations for directors at the Company's
2002 Annual Meeting. We have also requested that management hold that meeting as
soon as possible. Last year's annual meeting was held on June 1, and the
Company's by-laws require the meeting to be held on the second Tuesday of May
unless the Board of Directors has set a different date. In a February 12, 2002
letter to the Board of Directors, we indicated that if management did not commit
to an expeditious meeting schedule by February 22, we must take that as a sign
that management will attempt to delay holding an annual meeting. From
management's continued silence on the subject, we fear the worst.
We told the Company months ago that we believed time was of the essence in
addressing the Company's problems. That is more true than ever now. With every
passing day, the Company expends substantial additional cash, the Company's
perceived value declines, and the Company's alternatives and prospects are
correspondingly reduced. The time for action has come.
Management's apparent indifference to stockholders - the real owners of
the Company - is deeply disturbing. For two successive quarterly conference
calls with the investor community management has ignored prevailing business
practice and refused to accept questions. Management does not return phone calls
or e-mails. Management's ownership interest in the Company, meanwhile, is
minimal. It is your investment and our investment as stockholders that is at
risk. Where management seems to lack both the will and the economic incentive to
act, then we believe all stockholders must become more involved, and be prepared
to protect their own interests through participation on the Board of Directors.
We believe the Company's public stockholders risk additional substantial
losses if management continues to deplete cash, at a rate of approximately $5.5
million per quarter, while refusing to either discuss serious offers to acquire
the Company at a premium or consider any other potential alternative to maximize
value for the Company and its stockholders. Management has adopted an "ostrich
strategy" of sticking its head in the sand, ignoring the realities facing the
Company and hoping no one will notice. We notice, and we hope other stockholders
will notice as well when they focus on the facts.
In your own best interests, we urge you to make your views known to
management now. If you agree with us, let them know that stockholders will not
tolerate a delay in this year's crucial annual meeting. Let them know that
stockholders want the opportunity to consider and
accept or reject for themselves a cash offer for their shares. We understand
that Mr. Kearby and the other senior officers and directors of the Company may
be contacted as follows:
Gerald W. Kearby, President & Chief Executive Officer
Liquid Audio, Inc.
800 Chesapeake Drive
Redwood City, California 94063
(650) 549-2000
Robert Flynn, Senior Vice President Business Development
Liquid Audio, Inc.
800 Chesapeake Drive
Redwood City, California 94063
(650) 549-2000
Raymond A. Doig, President
EMV Partners Corporation
c/o Liquid Audio, Inc.
800 Chesapeake Drive
Redwood City, California 94063
Stephen V. Imbler, President and Chief Financial Officer
Hyperion Solutions Corporation
1344 Crossman Avenue
Sunnydale, California 94089
(408) 744-9500
Ann L. Winblad
Hummer Winblad Venture Partners
2 South Park, 2nd Floor
San Francisco, California 94109
(415) 979-9600
If you have any questions or comments, please call me at (212) 974-5701 or
write to me via e-mail at jmitarotonda@barington.com.
Very truly yours,
/s/ James A. Mitarotonda
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James A. Mitarotonda
President and Chief Executive Officer
CERTAIN INFORMATION CONCERNING PARTICIPANTS
The following is a list of the names and stockholdings, if any, of persons
who may be deemed to be "participants" in any solicitation that musicmaker may
make in the future with respect to the shares of Liquid Audio. musicmaker, a
Delaware corporation, beneficially owns 655,900 shares of the Company's
outstanding Common Stock. Jewelcor Management, Inc., a Nevada corporation,
beneficially owns 475,500 shares of the Company's outstanding Common Stock.
Barington Companies Equity Partners, L.P. a Delaware limited partnership,
beneficially owns 339,200 of the Company's outstanding Common Stock. Barington
Companies Investors, LLC is the general partner of Barington Companies Equity
Partners, L.P. James Mitarotonda is the managing member of Barington Companies
Investors, LLC. Domrose Sons Partnership, a New York partnership, beneficially
owns 8,000 shares of the Company's outstanding Common Stock. Each of James
Mitarotonda, Mario Mitarotonda and Mike Mitarotonda is a partner in Domrose Sons
Partnership. Certain others who for certain purposes have joined in the filing
of a Schedule 13D with the foregoing disclaim participation in any such
prospective solicitation.
If musicmaker engages in any solicitation with respect to the shares of
Liquid Audio it will prepare and disseminate a proxy statement with respect to
this solicitation. Shareholders should read this proxy statement if and when it
becomes available because it will contain important information. Shareholders
will be able to obtain copies of the proxy statement, related materials and
other documents filed with the Securities and Exchange Commission's web site at
http//:www.sec.gov without charge when these documents become available.
Shareholders will also be able to obtain copies of that proxy statement and
related materials without charge, when available, from musicmaker.com, Inc. by
oral or written request to: musicmaker.com, Inc. Attention: James Mitarotonda,
President and Chief Executive Officer, c/o Barington Capital Group, L.P., 888
Seventh Avenue, 17th floor, New York, New York 10019.