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 [ ]
Filed by a party other than the registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement.
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)).
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12.
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LIQUID AUDIO, INC.
(Name of Registrant as Specified in Its Charter)
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MUSICMAKER.COM, INC.,
JEWELCOR MANAGEMENT, INC., BARINGTON COMPANIES EQUITY PARTNERS, L.P., RAMIUS
SECURITIES, LLC, DOMROSE SONS PARTNERSHIP,
JAMES A. MITAROTONDA and SEYMOUR HOLTZMAN
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
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PRELIMINARY COPY; SUBJECT TO COMPLETION
DATED May ___, 2002
2002 ANNUAL MEETING OF
STOCKHOLDERS OF LIQUID AUDIO, INC.
PROXY STATEMENT
OF
THE MUSICMAKER.COM, INC. GROUP
This proxy statement and the enclosed WHITE proxy card are being furnished
to you, the holders of shares of common stock, par value $.001 per share, of
Liquid Audio, Inc., a Delaware corporation, in connection with the solicitation
by musicmaker.com, Inc. and other entities participating with musicmaker.com for
use at the 2002 annual meeting of stockholders of the Company, and at any
adjournments or postponements of the meeting. The other entities participating
with musicmaker.com are Jewelcor Management, Inc., Barington Companies Equity
Partners, L.P., Ramius Securities, LLC and Domrose Sons Partnership who,
together with musicmaker.com, are referred to as the musicmaker.com group.
The musicmaker.com group is soliciting proxies to obtain control of the
Company's board of directors. Our goal is to discontinue the Company's current
operations, to arrest the continuing depletion of the Company's cash, to
distribute excess cash to the Company's stockholders and to install management
that is guided by the interests of stockholders and the maximization of
stockholder value. Our nominees for director are committed to this platform. If
elected, our nominees for director also intend to eliminate the stockholder
rights plan adopted by the current board in 2001 and to propose amendments to
the Company's charter and restated By-laws that would eliminate the staggered
board, eliminate supermajority voting requirements and allow stockholders to act
by written consent. The purpose of these actions is to promote corporate
democracy and place control of the corporation firmly in the hands of
stockholders acting by majority vote. Further, we believe our nominees will
bring to the board the judgment, experience, energy and objectivity needed to
produce the maximum value for the Company's stockholders.
The Company currently has five directors divided into three classes. The
terms of the two Class III directors expire at the 2002 annual meeting. The
musicmaker.com group is nominating two directors, Seymour Holtzman and James A.
Mitarotonda, for election to this class.
In addition, we are proposing to amend the Company's By-laws to expand the
board of directors by four positions and to provide that only stockholders can
take action to fill the positions created by vacancies, including vacancies
created by an expansion of the board. In order to adopt the amendments to the
By-laws, a vote of two-thirds of the outstanding shares is required. Subject to
the passage of these amendments, we are proposing four additional nominees,
Joseph R. Wright, Jr., Jesse H. Choper, William J. Fox and Thomas E. Constance,
for election as directors. If our proposed amendments to the By-laws are adopted
and all of our nominees are elected, our nominees will represent six of the nine
members of the Company's board of directors.
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See "The Proposals" for a complete description of the actions that we
propose. See "Information About The Musicmaker.com Group" and "Certain Other
Information Regarding The Musicmaker.com Nominees" for information about the
musicmaker.com group and about our nominees.
The Company has announced that the 2002 annual meeting will be held at
10:00 a.m. pacific time on July 1, 2002 in Redwood, California. The Company has
also announced that the record date for determining stockholders entitled to
notice of and to vote at the 2002 annual meeting is May 20, 2002.
The musicmaker.com group recommends that you vote for each of the
proposals.
Your vote is important, no matter how many or how few shares of common
stock you own. musicmaker.com urges you to sign, date and return the enclosed
WHITE proxy card promptly in accordance with the instructions set forth below.
Please do NOT sign any proxy card you may receive from the Company.
You are urged to sign and date the enclosed WHITE proxy card and return
it in the enclosed envelope whether or not you plan to attend the 2002 annual
meeting. If you need assistance in voting your shares of common stock,
please call musicmaker.com's information agent, D.F. King & Co., Inc.,
toll-free at 1-800-431-9643 or if you are a bank or broker please call
collect at 1-212-269-5550.
This Proxy Statement and the accompanying WHITE proxy card are first being
furnished to the Company's stockholders on or about June ___, 2002.
INTRODUCTION
The musicmaker.com group seeks to maximize value for all of the Company's
stockholders. The musicmaker.com group does not believe that such value can be
achieved through the Company's current business model, under which the Company
is spending almost $2 million each month while generating virtually no revenues.
The musicmaker.com group has expressed its concerns to the Company and has
requested representation on the Company's board of directors. To date, apart
from one brief meeting, the Company has refused to meet with the musicmaker.com
group or take any action to address our concerns.
The Failure of the Current Business Plan
Since its inception in 1996, the Company has depleted $103 million of the
$189 million that it has raised. The Company has accumulated a deficit of $116
million on total revenues of just $10 million, not including so-called "business
development" revenues from related parties. It is no wonder that the Company's
equity market value has declined by approximately 95% in the last two years.
There is no indication that the fortunes of the Company are improving. In
fact, contrary to what one would expect for a successful development stage
company, the Company's revenues have been declining over the past several
quarters. Indeed, in the most recently completed
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quarter ended March 31, 2002, the Company realized a grand total of $136,000 in
revenues and a cash burn of $5,236,000. In its report on Form 10-Q filed for the
quarter, the Company concedes:
"We expect to incur additional losses and negative cash flow from
operations through at least mid-2003. Our revenues may not increase or
even continue at their current levels and we may not achieve or maintain
profitability or generate cash flow from operations in future periods. The
digital music market may never develop to the extent that we are able to
generate positive cash flows."
In a nod to this bleak outlook, in its report on Form 10-Q for the period
ended June 2001 the Company disclosed that in May 2001 it adopted "a corporate
restructuring program to reduce expenses to preserve the Company's cash position
while the digital music market develops." In the three quarters since adoption
of this plan, the Company has squandered an additional $17 million of its cash
and accumulated losses of over $16 million on revenues of just $720,000, not
including so-called "business development" revenues from related parties.
The musicmaker.com group believes that the Company's recent operating
results confirm its view that the Company's plan of continuing to pursue the
business of digital delivery of music over the internet is not viable. We
believe that if this plan is not terminated, it is likely to result in the
gradual but inevitable exhaustion of the Company's remaining cash reserves.
Our representatives have on various occasions voiced our deep-seated
concerns about the Company's strategic direction, prospects and cash drain with
current management. Over a period of approximately eight months, we sent a
series of letters to the Company. Please see "Background of And Reasons For The
Solicitation" for the text of several of our letters to the Company. These
letters spoke of the continuing depletion of the Company's assets, our belief of
the absence of any realistic prospects under the current business plan and our
forceful recommendation that the plan should immediately be terminated. We asked
to meet or speak with the Company about these matters. Management did not
respond to our letters or take actions to address our concerns. Both the
musicmaker.com group and another significant stockholder of the Company, Steel
Partners II, L.P., made offers to current management to acquire all the
oustanding shares of the Company at a price in excess of the public trading
value of the Company's shares. Management did not respond to these offers.
Instead, management has characterized spending at a rate of over $20 million a
year while it waits for the development of fee generation within the digital
music market as a "restructuring program." While management waits, our Company's
remaining cash is being steadily depleted. By failing to address this reality,
in our view, management has been ignoring both the lack of any genuine prospects
for the Company's business plan and the attention that stockholders like
ourselves have focussed on the Company's deteriorating fortunes.
We believe stockholder value continues to suffer. In our view,
stockholders must elect individuals to the Company's board whose focus will be
first and foremost to eliminate the Company's cash drain, stabilize the
deterioration in stockholder equity, terminate the Company's failed business
plan and prudently pursue avenues for the enhancement of stockholder value. The
musicmaker.com group does not believe that the current board has the focus or
the incentive to achieve these goals because:
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o Having developed and presided over the Company's failed business plan,
the current board lacks the objectivity to redirect the Company's
business plan to one focused on stockholder value and returns.
o The current board has a demonstrated inattentiveness to stockholder
concerns. In the Company's three most recent earnings calls, Gerald W.
Kearby, a founding director and chief executive officer of the Company
whose term as a Class III director expires at the 2002 annual meeting,
did not even entertain questions from analysts and stockholders.
o The members of the current board and their affiliated entities own in
the aggregate 1,877,338 shares or approximately 8.3% of the
outstanding shares as compared with the 6,179,679 shares or
approximately 28.9% of the outstanding shares that board members and
their affiliated entities owned immediately following the Company's
initial public offering. The collective financial incentive of the
board members as stockholders in the Company to grow the value of its
equity is declining.
o Only two of the six directors who served on the Company's board at the
time of its public offering less than three years ago are still in
office. A revolving board room door suggests disaffection with the
current board and its strategic direction at the highest levels.
Our Platform
In contrast, the musicmaker.com group is focused on the goal of achieving
the greatest return to stockholders in which we will share on a pro rata basis.
We have selected nominees with broad management, professional and financial
experience. They are committed to the principles of our platform, with the goal
of promoting stockholder value in the near term. In furtherance of these
principles, if elected, our nominees intend to pursue:
o immediate steps to slash the Company's general and administrative
overhead and facility costs and drastically reduce the Company's use
of operating cash;
o avenues for the licensing or sale of the Company's technology,
monetizing these assets in a manner that does not burden the Company's
financial resources;
o opportunities for using the Company's cash to acquire one or more
businesses with positive cash flow and current profitability; and
o a dividend to stockholders of cash that is not reasonably required for
the Company's operations and acquisition program.
In addition to these actions designed to first preserve and then enhance
the investment of stockholders in the Company, our nominees will act to
eliminate the burdens that the Company's charter documents and current board
have imposed on the exercise of corporate democracy at the Company. These steps
include:
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o termination of the Company's stockholder rights plan, which imposes
draconian penalties on stockholders or stockholder groups that
beneficially own more than 15% of the Company's stock. Not only does
such plan effectively prohibit accumulation of stockholdings in excess
of this threshold, it may also have the effect of discouraging
stockholders from collectively exercising their corporate democracy
rights out of concern that they will be deemed to be a group owning
more than 15% of the Company's shares.
o subject to stockholder approval, amending the Company's charter to
eliminate the staggered board and allow the Company's stockholders to
elect the entire board on an annual basis;
o subject to stockholder approval, amending the Company's charter to
eliminate the requirement that a two-thirds vote of stockholders is
required to modify the Company's By-laws and certain provisions of the
charter, thereby allowing stockholders to act by no more than a simple
majority of the outstanding shares; and
o subject to stockholder approval, amending the Company's charter to
eliminate the prohibition on stockholder action by written consent.
The nominees of the musicmaker.com group do not intend to hide behind the
barricades erected by the Company's current board that restrict the power of
stockholders to control their corporation. Unlike the current board, our
director nominees are prepared to submit their performance to the judgment of
stockholders, acting freely in the exercise of their electoral rights.
THE PROPOSALS
The musicmaker.com group is soliciting proxies from the holders of shares
of common stock to elect nominees who will constitute a majority of the
Company's board of directors. As described in more detail below, the proposals
would accomplish this in two steps:
o first, by electing two directors to fill the seats of the two existing
Class III directorships that expire at the 2002 annual meeting; and
o second, by amending the By-laws to expand the board of directors and
authorize only stockholders to fill the newly created directorships,
and by electing the four nominees of the musicmaker.com group to fill
these new board positions.
The election of directors to fill the seats of the Class III directorships
requires a plurality of the votes cast in the election. The election of
directors to fill the newly created board positions requires a vote of the
majority of shares outstanding on the record date for the 2002 annual meeting.
The amendments to the By-laws to expand the board and authorize only
stockholders to fill vacancies requires a 66 2/3% majority of the shares
outstanding on the record date for the 2002 annual meeting.
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The musicmaker.com group recommends that you vote for each of the
proposals by signing, dating and returning the enclosed WHITE proxy card.
Election of the Existing Class III Directors
Proposal No. 1 -- Election of musicmaker.com nominees as Class III Directors
Proposal No. 1 provides for the election of James A. Mitarotonda and
Seymour Holtzman to serve as Class III directors until the 2005 annual
meeting of stockholders. See "Certain Other Information Regarding The
Musicmaker.com Nominees" for information concerning the background and
experience of Messrs. Mitarotonda and Seymour Holtzman.
Ratification of the Appointment of Independent Accountants
Proposal No. 2 -- Ratification of PricewaterhouseCoopers LLP as the Company's
independent accountants
Proposal No. 2 provides for the ratification of the appointment by the
Company's board of directors of PricewaterhouseCoopers LLP as the Company's
independent auditors to audit the Company's financial statements for its fiscal
year ending December 31, 2002. See "Auditors" for further information regarding
PricewaterhouseCoopers LLP.
Amendment of the By-laws and Election of an Additional Four Directors
Proposal No. 3 -- Modification of Provision Regarding the Size of the Board
of Directors
Proposal No. 3 provides for the amendment of Article III, Section 3.2 of
the Restated By-laws of the Company to set the number of members of the board of
directors at nine. The Restated By-laws currently provide that the board of
directors shall consist of five (5) members, which number may be changed by an
amendment to the Restated By-laws duly adopted by the board of directors or the
stockholders or an amendment to the Company's Restated Certificate of
Incorporation. In particular, the amendment would delete the first sentence of
Article III, Section 3.2 and substitute in its place the sentence "The board of
directors shall consist of nine members."
The musicmaker.com group is proposing to increase the size of the board to
facilitate the election of the musicmaker.com nominees to a majority of the
positions on the board.
Proposal No. 4 -- Modification of Provision for Filling Board Vacancies
Proposal No. 4 provides for the amendment of Article III, Section 3.4 of
the Restated By-laws to provide that any vacancies on the board of directors and
newly created directorships may not be filled by the board of directors but only
by action of the stockholders. The Restated By-laws currently provide that
vacancies and newly created directorships resulting from any increase in the
authorized number of directors elected by the stockholders may be filled by a
majority of the directors then in office. In addition, the Restated By-laws
currently provide that whenever the holders of any class of stock or series
thereof are entitled to elect one or more directors by the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or series thereof then in office.
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Proposal No. 3 would eliminate the power of the board of directors to fill all
vacancies and newly created directorships and vest such power in the
stockholders. In particular, the amendment would delete the text of Article III,
Section 3.4 and replace it with the following:
"Any director may resign at any time upon written notice to the attention
of the Secretary of the corporation. When one or more directors shall
resign from the board of directors, effective at a future date, such
vacancy may only be filled by the stockholders entitled to vote thereon.
(a) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders
having the right to vote as a single class may only be filled by a
majority of the stockholders entitled to vote thereon.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may only be filled by a majority of the stockholders
entitled to vote thereon. If at any time, by reason of death or
resignation or other cause, the corporation should have no directors in
office, then any officer, or any stockholder, or any executor,
administrator, trustee or guardian of a stockholder, or other fiduciary
entrusted with like responsibility for the person or estate of a
stockholder may call a special meeting of the stockholders in accordance
with the provisions of the certificate of incorporation or bylaws, or may
apply to the Court of Chancery for a decree summarily ordering an election
as provided in Section 211 of Delaware General Corporation Law."
The musicmaker.com group understands that many if not most Delaware
corporations empower both stockholders and existing board members with the
ability to fill vacancies and newly created directorships in the board of
directors, and the inability of the Company's stockholders to do so is
symptomatic of the entrenchment strategy implemented by current management. In
the future, it may be advisable to vest a concurrent power in the board to fill
vacancies. At this time, however, we are proposing that only stockholders may
fill vacancies to facilitate the election of the musicmaker.com nominees under
Proposal No. 5.
Proposal No. 5 -- Election of musicmaker.com Nominees to fill the Four Newly
Created Board seats
Proposal No. 5 provides for the election of Jesse H. Choper and William
J. Fox to serve as Class I directors until the 2003 annual meeting of
stockholders, the election of Thomas E. Constance to serve as a Class II
director until the 2004 annual meeting of stockholders and the election of
Joseph R. Wright, Jr. to serve as a Class III director until the 2005 annual
meeting of stockholders. See "Certain Other Information Regarding The
Musicmaker.com Nominees" for information concerning the background and
experience of Messrs. Choper, Fox, Constance and Wright.
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While Proposal No. 5 requires the vote of only a majority of the shares
outstanding on the record date for the 2002 annual meeting, it is contingent
on the adoption of Proposals No. 3 and 4, which each require a 66 2/3% vote
of the shares outstanding on the record date for the 2002 annual meeting.
General
Each of the musicmaker.com nominees has consented to being named herein as
a nominee for director of the Company and has agreed to stand for election as a
director.
Although the musicmaker.com group has no reason to believe that any of the
musicmaker.com nominees will be unable to serve as a director, if any
musicmaker.com nominee is not available to serve, the musicmaker.com group
expects that the remaining musicmaker.com nominees, upon taking office, will
fill the vacancy with an individual willing to consider and implement the
musicmaker.com group's proposals to maximize stockholder value.
INFORMATION ABOUT THE MUSICMAKER.COM GROUP
Members of the musicmaker.com group, the musicmaker.com nominees and
certain other persons named below may be deemed to be "participants" in this
Proxy Solicitation as such term is defined in Schedule 14A promulgated under the
Securities Exchange Act of 1934. musicmaker.com is a Delaware corporation that
was formerly engaged in the business of marketing customized compact discs over
the internet and is presently exploring alternative business opportunities. The
address of the principal business and principal offices of musicmaker.com is c/o
Barington Capital Group, L.P., 888 Seventh Avenue, 17th Floor, New York, New
York 10019. The officers and directors of musicmaker.com and their principal
occupations and business addresses are set forth on Schedule I attached to this
Proxy Statement.
Jewelcor Management, Inc. is a Nevada corporation primarily involved in
investment and management services. The address of the principal business
and principal offices of Jewelcor Management, Inc. is 100 North Wilkes Barre
Blvd., Wilkes Barre, Pennsylvania 18702. The officers and directors of
Jewelcor Management, Inc. and their principal occupations and business
addresses are set forth on Schedule II attached to this Proxy Statement.
Barington Companies Equity Partners, L.P. is a Delaware limited
partnership formed to engage in the business of acquiring, holding and
disposing of investments in various companies. The address of the principal
business and principal offices of Barington Companies Equity Partners, L.P.
is 888 Seventh Avenue, 17th Floor, New York, New York 10019.
The general partner of Barington Companies Equity Partners, L.P. is
Barington Companies Investors, LLC. Barington Companies Investors, LLC is a
Delaware limited liability company formed to be the general partner of
Barington Companies Equity Partners, L.P. The address of the principal
business and principal offices of Barington Companies Investors, LLC is 888
Seventh Avenue, 17th Floor, New York, New York 10019. James A. Mitarotonda
is the Managing Member of Barington Companies Investors, LLC. The business
address of Mr. Mitarotonda is c/o Barington Capital Group, L.P., 888 Seventh
Avenue, 17th Floor, New York, New York 10019.
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Ramius Securities, LLC is a Delaware limited liability company and a
registered broker-dealer. The address of the principal business and principal
offices of Ramius Securities, LLC is 666 Third Avenue, 26th Floor, New York, New
York 10017.
The Managing Member of Ramius Securities, LLC is Ramius Capital Group,
LLC, a Delaware limited liability company that is engaged in money management
and investment advisory services for third parties and proprietary accounts. The
address of the principal business and principal offices of Ramius Capital Group,
LLC is 666 Third Avenue, 26th Floor, New York, New York 10017.
The Managing Member of Ramius Capital Group, LLC is C4S, LLC, a Delaware
limited liability company formed to be the managing member of Ramius Capital
Group, LLC. The address of the principal business and principal offices of C4S,
LLC is 666 Third Avenue, 26th Floor, New York, New York 10017. Each of Peter A.
Cohen, Morgan B. Stark and Thomas W. Strauss is a Managing Member of C4S, LLC.
The business address of each of Messrs. Cohen, Stark and Strauss is 666 Third
Avenue, 26th Floor, New York, New York 10017.
Domrose Sons Partnership is a New York partnership formed to engage in the
business of acquiring, holding and disposing of investments in various
companies. The address of the principal business and principal offices of
Domrose Sons Partnership is c/o Barington Capital Group, L.P., 888 Seventh
Avenue, 17th Floor, New York, New York 10019.
James Mitarotonda and his brothers Mario Mitarotonda and Mike Mitarotonda
are partners in Domrose Sons Partnership. The business address of each of Mario
Mitarotonda and Mike Mitarotonda is c/o Vincci, 70-39 Austin Street, Forest
Hills, New York 11375.
As of the date of this Proxy Statement, the musicmaker.com group owns an
aggregate of 1,568,100 shares of common stock representing approximately 6.9% of
the outstanding shares of the common stock based upon 22,745,624 shares of
common stock reported by the Company in the Schedule 14A, filed with the
Securities and Exchange Commission on May 28, 2002, to be issued and outstanding
as of May 6, 2002.
Additional information about musicmaker.com, the musicmaker.com group and
the musicmaker.com nominees including information regarding the beneficial
ownership of common stock is set forth under the heading "Certain Other
Information Regarding The Musicmaker.com Nominees" and in Annex A attached to
this Proxy Statement.
The musicmaker.com group has retained D.F. King to act as an advisor
and to provide consulting and analytic services and solicitation services in
connection with this Proxy Solicitation. D.F. King is a proxy service
company. It mails documents to stockholders, responds to stockholder
questions and solicits stockholder votes for many companies. D.F. King does
not believe that it or any of its directors, officers, employees, affiliates
or controlling persons, if any, is a "participant" in this Proxy Solicitation
or that Schedule 14A requires the disclosure of certain information
concerning D.F. King. The business address of D.F. King is 77 Water Street,
20th Floor, New York, New York 10005. D.F. King has informed musicmaker.com
that, as of the date of this Proxy Statement, it does not hold any shares of
the Company's common stock for its own account or for the accounts of others.
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BACKGROUND OF AND REASONS FOR THE PROXY SOLICITATION
Background
On various dates from August 14, 2001 through March 5, 2002, members of
the musicmaker.com group purchased a total of 1,568,100 shares of common stock
in the open market for a total purchase price of $3,457,711, excluding
commissions and related costs. The details of these purchases are set forth in
Annex A attached to this Proxy Statement. All of the purchases were funded by
working capital, which may have included margin loans made by brokerage firms in
the ordinary course of business.
On October 8, 2001, musicmaker.com issued a press release indicating that
it and certain other parties had acquired a 6.3% stock ownership stake in the
Company and intended to acquire up to approximately an additional 8.6% stock
ownership stake in the Company. On October 8, 2001, musicmaker.com also sent a
letter to Gerald W. Kearby, the President and Chief Executive Officer of the
Company, informing the Company of the acquisition of stock by musicmaker.com and
certain other reporting persons and the intention of such group to acquire
additional shares. In the letter, musicmaker.com requested that the number of
directors on the Company's board of directors be increased from five to six and
that individuals proposed by musicmaker.com be appointed to fill two current
vacancies on the Company's board of directors and the one newly created seat.
musicmaker.com also requested that the Company meet with musicmaker.com in order
to discuss ways to enhance stockholder value.
On October 9, 2001, the musicmaker.com group filed with the SEC its
Schedule 13D disclosing that the group members had acquired in excess of 5% of
the outstanding shares of the common stock.
musicmaker.com received no response to its letter of October 8, 2001.
On October 15, 2001, musicmaker.com sent a letter to Robert G. Flynn,
Secretary of the Company, and Gerald W. Kearby, President and Chief Executive
Officer of the Company. In the letter, musicmaker.com requested that the Company
call a special meeting of stockholders of the Company on November 27, 2001 to
elect Seymour Holtzman to fill the existing vacancy on the Company's board of
directors, to replace the two directors currently on the board of directors
whose term expires in 2002 with James A. Mitarotonda and Joseph R. Wright,, Jr.
and to make certain amendments to the Company's Restated By-laws. In addition,
musicmaker.com requested that the Company give musicmaker.com the opportunity to
inspect and make copies of a complete list of the Company's stockholders.
On October 22, 2001, Steel Partners II, L.P., an existing stockholder of
the Company, delivered a letter to the Company offering to acquire all the
outstanding stock of the Company for $3.00 per share in cash.
On October 26, 2001, musicmaker.com sent a letter to Gerald W. Kearby,
President and Chief Executive Officer of the Company, requesting that the
Company meet with musicmaker.com to discuss, among other things, an offer by
musicmaker.com to acquire the Company on terms at least comparable to those
proposed by Steel Partners II, L.P.
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On November 5, 2001, the Company issued a press release announcing that
two individuals had been elected to fill the existing vacancies on the Company's
board of directors and that the Company was not interested in pursuing the
acquisition offer previously made by Steel Partners II, L.P. or musicmaker.com.
As a result of the Company's announcement, musicmaker.com sent the
following letter to Gerald W. Kearby, President and Chief Executive Officer of
the Company, on November 9, 2001:
Dear Mr. Kearby:
As the second largest stockholders of Liquid Audio, Inc., we at
musicmaker.com, Inc. and the others in our group have become increasingly
concerned about Liquid Audio's situation, and management's apparent failure to
respond to the very serious issues facing the Company.
In particular, we were disturbed to see that management has decided to
completely ignore both the premium acquisition proposal publicly announced by
Steel Partners II, L.P., and our own offer to acquire the Company on terms at
least comparable to the Steel Partners proposal (or, alternatively, to work with
you on other approaches to enhance shareholder value). We were also taken aback
to first learn of management's position through public news reports, rather than
receiving the courtesy of a direct response to our October 26 letter to you and
the Board. In fact, since we first contacted you privately more than one month
ago to inform you of our stock ownership, you have refused to respond in any way
to our repeated requests to meet with you.
Our interests are the same as any other public stockholder. Liquid Audio
has never shown a profit and is losing extraordinary amounts of money with each
passing day. In two years, the Company's stock has lost a staggering 95% of its
market value. The consensus of the financial community seems to be that Liquid
Audio's business model will never be successful and that the Company's value
will only decline as it continues to spend money without results. We understand
that at least two separate lawsuits have already been filed by Liquid Audio
stockholders against the Company and its directors individually, alleging
serious breaches of management's fiduciary duties.
In the face of this crisis, investors see management doing nothing to stem
the Company's losses or promote shareholder value. At the same time, management
has rejected out-of-hand serious offers to acquire the Company at a premium of
more than 25% over the prior market price, and is refusing to even communicate
with the Company's two largest stockholders.
Moreover, three weeks ago we requested that all Liquid Audio stockholders
be given an immediate opportunity to vote as a group to fill the long-existing
vacancies on the Company's Board of Directors. Instead of permitting the
Company's stockholders to exercise their franchise, management reacted to our
request by suddenly announcing last Monday that management had privately filled
those long-vacant Board seats with its own designees.
The present situation cannot be good for management or for the Company's
public stockholders, who continue to suffer from management's actions. We are
writing separately, as concerned stockholders, to pursue our request under
Delaware corporate law to inspect certain books and records of the Company. We
also urge you once again to seriously and responsibly consider the acquisition
proposals that have been presented to the Company, and to schedule a meeting
with us promptly to discuss our own acquisition offer as well as other potential
alternatives for the Company and its stockholders.
13
We look forward to hearing from you soon.
Sincerely,
/s/ Seymour Holtzman
--------------------------
Seymour Holtzman
Chairman
/s/ James Mitarotonda
--------------------------
James Mitarotonda
President and Chief Executive Officer
MUSICMAKER.COM, INC.
On December 6, 2001, James Mitarotonda met with management of the Company
and expressed concerns about the continuing viability of the Company.
On December 18, 2001, musicmaker.com sent a letter to Robert G. Flynn,
Secretary of the Company, and Gerald W. Kearby, President and Chief Executive
Officer of the Company, informing the Company that at the 2002 annual meeting
musicmaker.com intended to nominate certain individuals as directors and to
propose certain amendments to the Company's Restated Certificate of
Incorporation and Restated By-laws. In addition, musicmaker.com requested that
it be given an opportunity to inspect the stockholder list.
As a follow-up to its letter of December 18, 2001, musicmaker.com sent a
letter to Robert G. Flynn, Secretary of the Company, and Gerald W. Kearby,
President and Chief Executive Officer of the Company, on December 20, 2001
notifying the Company that at the 2002 annual meeting musicmaker.com intended to
propose an amendment to the Company's Restated By-laws increasing the size of
the board of directors to ten and to fill the four newly created directorships
with designated individuals.
On February 6, 2002, the Company announced that Silvia Kessel had resigned
as a member of the Company's board of directors.
In response to such announcement, on February 12, 2002 musicmaker.com sent
a letter to the Company's board of directors requesting that the Company
schedule the 2002 annual meeting at the earliest possible date.
On February 22, 2002, musicmaker.com sent a letter to Gerald Kearby,
President and Chief Executive Officer of the Company, setting forth
musicmaker.com's willingness to acquire the Company at a price of $2.50 per
share in cash.
In light of the Company's failure to schedule an annual meeting and to
consider musicmaker.com's proposal to acquire the Company, on April 4, 2002,
musicmaker.com sent the following letter to the Company's stockholders:
14
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
15
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
16
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
---------------------------------
James A. Mitarotonda
President and Chief Executive Officer
On May 3, 2002, musicmaker.com filed a lawsuit against the Company in the
Court of Chancery in the State of Delaware to compel the Company to hold its
2002 annual meeting and to require the Company to accept the nominations for
directors and other proposals previously submitted by musicmaker.com.
On May 14, 2002, musicmaker.com sent the following letter to Robert G.
Flynn, Secretary of the Company, Gerald W. Kearby, President and Chief Executive
Officer of the Company, and the board of directors of the Company:
Gentlemen:
We understand that Liquid Audio, Inc. has set July 1, 2002 as the date for
its 2002 Annual Meeting of Stockholders. Accordingly, we will suspend our
lawsuit to compel a meeting, which is currently pending against the Company in
Delaware Chancery Court.
As you are aware, on December 18, 2001 and December 20, 2001, we notified
the Company of our intention to nominate certain individuals as directors of the
Company and to present certain proposals at the 2002 Annual Meeting. For the
avoidance of any doubt, we reaffirm our intention to nominate the named persons
and to present our proposals, as set forth in our prior correspondence (copies
of which are attached), except for the following. We will not be presenting our
proposals to amend the Company's Restated Certificate of Incorporation and to
rescind the Company's "shareholder rights plan." While we continue to believe
that these actions are essential for the Company, we intend to focus our
campaign on the key issue facing the stockholder electorate -- installing
management that is guided by the interests of stockholders and not an
unattainable business (or should we say "non-business") plan.
As we have previously indicated to you, we and other stockholders who have
contacted us to express their views are deeply concerned about the ongoing
depletion of the Company's cash and the other critical issues facing the
Company. We expect that between now and the 2002 Annual Meeting the Company's
board of directors and its management will take no action that will prejudice
the rights of stockholders, including entering into any transaction to buy or
sell the Company or any material amount
17
of its assets or taking action that would deplete the Company's already
dwindling cash supply. On the contrary, we demand that, even in advance of the
Annual Meeting, management close down the Company's money losing operations and
arrest the Company's senseless cash drain.
We also advise you that we will hold the current board and management
strictly accountable for any action taken in advance of the Annual Meeting that
would effectively thwart the exercise of the right of the stockholder electorate
to choose directors who will be responsive to the public owners of the Company
and who will be guided first and foremost by their interests.
Very truly yours, musicmaker.com, Inc.
By: /s/ James A. Mitarotonda
---------------------------------
James A. Mitarotonda
President and Chief Executive Officer
On May 15, 2002, based on the Company's public announcement that the
Company's 2002 annual meeting was scheduled to be held on July 1, 2002,
musicmaker.com suspended its lawsuit to compel a meeting.
On May 30, 2002, musicmaker.com sent a letter to Robert G. Flynn,
Secretary of the Company, Gerald W. Kearby, President and Chief Executive
Officer of the Company, and the board of directors of the Company, in which it
expressed its concern that the Company had filed a proxy statement with the SEC
on May 28, 2002 without disclosing musicmaker.com's proposed solicitation of
proxies in connection with the Company's 2002 annual meeting. In such letter,
musicmaker.com noted that such failure constituted a significant omission and
demanded that the Company not mail its proxy materials to stockholders without
correcting its materials to accurately disclose the proxy contest to
stockholders.
On May 30, 2002, musicmaker.com filed a lawsuit against the Company in the
Court of Chancery in the State of Delaware pursuant to Section 220(b) of the
Delaware General Corporation Law to compel the Company to permit musicmaker.com
to inspect and make copies of a complete list of the Company's stockholders and
related materials. A hearing has been set on this matter for June 14, 2002.
CERTAIN OTHER INFORMATION REGARDING
THE MUSICMAKER.COM NOMINEES
Set forth below are the name, age, business address, present principal
occupation, employment history and directorships of each of the musicmaker.com
nominees for at least the past five years. This information has been furnished
to musicmaker.com by the respective musicmaker.com nominees. Each of the
musicmaker.com nominees has consented to serve as a director of the Company.
Each of the musicmaker.com nominees is at least 18 years of age. None of the
entities referenced below is a parent or subsidiary of the Company.
18
Present Principal Occupation, Five Year
Name, Age and Business Address Employment History and Directorships
------------------------------ ---------------------------------------
Jesse H. Choper, 64 Mr. Choper has been the Earl Warren
University of California at Berkeley Professor of Public Law at the
School of Law University of California at Berkeley
Berkeley, California 94720 School of Law since 1965. Professor
Choper was the Dean of the Law School
from 1982 to 1992. In 1996, he was a
visiting Professor at Harvard Law
School, University of Milan in Italy
Law School and Universitad Autonoma in
Barcelona, Spain. From 1960 to 1961,
Professor Choper was a law clerk for
Chief Justice Earl Warren. Mr. Choper
is a member of the board of directors
of Designs, Inc. (NASDAQ:DESI) and
musicmaker.com, Inc. (OTCBB:HITS).
William J. Fox , 45 Mr. Fox is Chairman, President and
c/o Arcade Marketing Inc. Chief Executive Officer of Arcade
120 East 56th Street Marketing Inc., a company which
Suite 1200 specializes in consumer product
New York, New York 10022 multi-sensory marketing sample systems
and related consumer communication
printing. Mr. Fox was President,
Strategic and Corporate Development of
Revlon Worldwide, Senior Executive
Vice President of Revlon, Inc. and
Revlon Consumer Products Corporation
("RCPC") (collectively, "Revlon") and
Chief Executive Officer, Revlon
Technologies, a division of Revlon,
from January 1998 through January
1999. He was Executive Vice President
from 1991 through January 1997 and
Senior Executive Vice President from
January 1997 through January 1999 and
Chief Financial Officer of Revlon from
1991 to 1997. Mr. Fox served as a
director from November 1995 of Revlon,
Inc. and from September 1994 of RCPC,
until April 1999. He was Senior Vice
President of MacAndrews and Forbes
Holding Inc., the indirect majority
shareholder of Revlon, from August
1990 through January 1999. Mr. Fox
currently serves as a director,
Co-Chairman of the board and Chairman
of the Audit Committee of Loehmanns
Holdings Inc. (OTCBB:LHMS.OB). Mr.
Fox also is a member of the board of
directors of the Fragrance Foundation,
the Executive Board of
19
Present Principal Occupation, Five Year
Name, Age and Business Address Employment History and Directorships
------------------------------ ---------------------------------------
the Dwight Englewood School, the
Executive Board of the Federal Drug
Agents Foundation and the Advisory
Board of the Hope & Hero's Children's
Cancer Fund at Columbia University NY
Presbyterian Medical Center.
Seymour Holtzman, 66 Mr. Holtzman has been involved in the
100 North Wilkes Barre Blvd. retail business for over 30 years.
4th Floor For many years he has been the
Wilkes Barre, Pennsylvania 18702 President and Chief Executive Officer
of Jewelcor, Inc., a former New York
Stock Exchange company that operated a
chain of retail stores. From 1986 to
1988, Mr. Holtzman was the Chairman of
the Board and the Chief Executive
Officer of Gruen Marketing
Corporation, an American Stock
Exchange company involved in the
nationwide distribution of watches.
For at least the last five years, Mr.
Holtzman has served as Chairman and
Chief Executive Officer of each of
Jewelcor Management, Inc., a company
primarily involved in investment and
management services; C.D. Peacock,
Inc., a Chicago, Illinois retail
jewelry establishment; and S.A. Peck &
Company, a retail and mail order
jewelry company based in Chicago,
Illinois. Mr. Holtzman is currently
the Chairman of the Board of two
publicly traded companies: Designs,
Inc. (NASDAQ:DESI) and musicmaker.com,
Inc. (OTCBB:HITS). Mr. Holtzman is a
former Chairman of the Board and a
current director of Little
Switzerland, Inc. (OTCBB:LSVI), a
leading jewelry retailer in the
Caribbean, Alaska and Key West,
Florida. In addition, Mr. Holtzman is
a member of the board of directors of
Northeast Pennsylvania Financial
Group, Inc. (AMEX:NEP), the holding
company for First Federal Bank, an
$800 million bank based in Hazleton,
Pennsylvania. Mr. Holtzman is a
well-known shareholder activist who
specializes in the banking industry
and the retail industry.
James A. Mitarotonda, 48 Mr. Mitarotonda is Chairman of the
c/o Barington Capital Group, L.P. Board, President and Chief Executive
888 Seventh Avenue Officer of Barington Capital Group,
17th Floor L.P., an investment firm which he
New York, New York 10019 co-founded in November 1991.
20
Present Principal Occupation, Five Year
Name, Age and Business Address Employment History and Directorships
------------------------------ ---------------------------------------
Mr. Mitarotonda is also President and
Chief Executive Officer of Barington
Companies Investors, LLC, the general
partner of Barington Companies Equity
Partners, L.P., a small capitalization
value fund which seeks to be actively
involved with its portofolio companies
in order to enhance shareholder value.
Mr. Mitarotonda is also President,
Chief Executive Officer and a director
of musicmaker.com, Inc. (OTCBB:HITS).
In May 1988, Mr. Mitarotonda co-founded
Commonwealth Associates, an investment
banking, brokerage and securities
trading firm. Mr. Mitarotonda served as
Chairman of the Board and Co-Chief
Executive Officer of JMJ Management
Company Inc., the general partner of
Commonwealth Associates. From December
1984 to May 1988, Mr. Mitarotonda was
employed as Senior Vice
President/Investments by D.H. Blair &
Co., an investment bank, brokerage and
securities trading firm focused on
micro-capitalization companies. From
July 1981 to November 1984, Mr.
Mitarotonda was employed by Citibank,
N.A. with management responsibility for
two of Citibank's business banking
branches and became Regional Director
of Citibank's Home Equity Financing and
Credit Services. Mr. Mitarotonda is a
member of the Alumni Advisory Council
of New York University's Stern School
of Business and is a member of the
Executive Committee and Co-Chairman of
Membership of the Gotham Chapter of the
Young President's Organization. He
graduated from Queens College with a BA
honors degree in economics and with an
MBA from New York University's Graduate
School of Business Administration (now
known as the Stern School of Business).
Joseph R. Wright, Jr., 63 Mr. Wright is President and Chief
c/o PanAmSat Corp. Executive Officer of PanAmSat Corp.
20 Westport Road (NASDAQ:SPOT), a public company that
Wilton, Connecticut 06897 provides global video and data
broadcasting services via satellite.
Mr. Wright is also Vice Chairman of
Terremark Worldwide Inc. (AMEX:TWW), a
public company that
21
Present Principal Occupation, Five Year
Name, Age and Business Address Employment History and Directorships
------------------------------ ---------------------------------------
develops and operates Network Access
Point (NAP) telecommunications data
centers in the U.S. and
internationally. From 1995 to May 2000,
Mr. Wright was Chairman, CEO and
Director of AmTec, Inc., a public
company providing telecommunications
and Internet services to and from the
U.S. and the Far East, which merged
with Terremark Holdings, Inc. From 1996
to May 2000, Mr. Wright was Chairman
and Director of GRC International,
Inc., a public information technology
company which was sold to AT&T. From
1989 to 1994, Mr. Wright was Vice
Chairman, EVP and Director of W. R.
Grace & Company, Chairman and Director
of Grace Energy Company, and President
of Grace Environmental Company. Prior
to his tenure at Grace, he was Deputy
Director then Director of the Federal
Office of Management and Budget (OMB)
under President Reagan, serving in the
Cabinet and the Executive Office of the
President from 1982 to 1989. He was
Deputy Secretary of the Department of
Commerce, with oversight of the
International Trade Administration,
from 1981 to 1982 and later was on the
President's Export Council as Chairman
of the Export Control Subcommittee.
Prior to the 1980s, Mr. Wright was
President of Citicorp Retail Services
and Retail Consumer Services, credit
card subsidiaries of Citibank, N.A.,
following positions in the Departments
of Commerce and Agriculture in various
management and economic roles,
including acting Assistant Secretary
for Economic Affairs. He began his
career at Booz, Allen and Hamilton,
Inc. Mr. Wright is Chairman of the
Advisory Board of Barington Companies
Equity Partners, L.P. Mr. Wright also
currently serves on the board of
directors of PanAmSat Corp., Titan
Corporation, Baker & Taylor, Verso
Technologies, Inc., Jefferson
Consulting Group, RealMed and
Fairmarket, Inc. (NASDAQ:FAIM) and the
AT&T Washington Advisory Board.
22
Present Principal Occupation, Five Year
Name, Age and Business Address Employment History and Directorships
------------------------------ ---------------------------------------
Thomas E. Constance, 65 Mr. Constance is of the law Chairman
Chairman firm of Naftalis & Frankel LLP Frankel
Kramer Levin Naftalis & Kramer LLP in New York City. Prior to joining
Levin LLP Kramer Levin, Mr. Constance was
919 Third Avenue formerly Chairman of Shea & Gould, a
New York, New York 10022 New York City based law firm. He serves
as a director of St. Vincent's Services
Inc. and MD Sass Foundation. He also is
a director of Uniroyal Technologies,
Inc., Kroll-O'Gara and Siga and a
member of the advisory board of
Barington Companies Equity Partners,
L.P. The number of shares of the
Company's common stock beneficially
owned and percentage beneficial
ownership of each of the musicmaker.com
nominees as of the date of this Proxy
Statement are as follows:
Number of Shares Percentage
Musicmaker.com Nominee Beneficially Owned (1)(2) Ownership (3)
------------------------- ------------------------- -------------
Jesse H. Choper 0 0%
Thomas E. Constance 0 0%
William J. Fox 0 0%
Seymour Holtzman 1,131,400(4)(6) 4.1%
James A. Mitarotonda 1,003,100(5)(6) 4.4%
Joseph R. Wright, Jr. 0 0%
----------------------- -------------
Total 1,478,600(7) 6.5%
-----------------------
(1) Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Shares of common stock subject to stock options and
warrants currently exercisable or exercisable within 60 days are deemed
outstanding for purposes of computing the percentage ownership of any
group of which the holder is a member, but are not deemed outstanding
for computing the percentage ownership of any other person. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.
(2) Under the rules of the SEC, the musicmaker.com nominees may be deemed
to be members of a group and, as a result, each musicmaker.com nominee
may be deemed to beneficially own shares of common stock beneficially
owned by each of the other musicmaker.com nominees. Each of the
musicmaker.com nominees disclaims beneficial ownership of the shares of
common stock beneficially owned by any of the other musicmaker.com
nominees.
(3) Calculated based on 22,745,624 shares of common stock outstanding as of
May 6, 2002 as reported in the Company's Schedule 14A filed with the
SEC on May 28, 2002.
23
(4) Includes 475,500 shares of common stock owned by Jewelcor
Management, Inc. Mr. Holtzman is the Chairman and Chief Executive
Officer of Jewelcor Management, Inc. and has shared voting and
dispositive power with respect to the 475,500 shares of common stock
owned by Jewelcor Management, Inc.
(5) Includes 339,200 shares of common stock owned by Barington Companies
Equity Partners, L.P. and 8,000 shares of common stock owned by Domrose
Sons Partnership. Mr. Mitarotonda is the Managing Member of the general
partner of Barington Companies Equity Partners, L.P. and has sole
voting and dispositive power with respect to the 339,200 shares of
common stock owned by Barington Companies Equity Partners, L.P. Mr.
Mitarotonda is a partner of Domrose Sons Partnership and has shared
voting and dispositive power with respect to the 8,000 shares of common
stock owned by Domrose Sons Partnership.
(6) Includes 655,900 shares owned by musicmaker.com, of which Mr.
Holtzman is the Chairman of the Board and Mr. Mitarotonda is
President and Chief Executive Officer.
(7) Consists of 655,900 shares owned by musicmaker.com, 475,500 shares of
common stock owned by Jewelcor Management, Inc., 339,200 shares of
common stock owned by Barington Companies Equity Partners, L.P. and
8,000 shares of common stock owned by Domrose Sons Partnership.
Except as set forth in this Proxy Statement or in the Annexes hereto, to
the best knowledge of musicmaker.com, none of the musicmaker.com nominees is
employed by the Company. All of the musicmaker.com nominees are citizens of the
United States.
Except as set forth in this Proxy Statement or in the Annexes hereto, to
the best knowledge of musicmaker.com, none of musicmaker.com, any of the persons
participating in this Proxy Solicitation on behalf of musicmaker.com, the
musicmaker.com nominees and, with respect to items (i), (vii) and (viii) of this
paragraph, any associate (within the meaning of Rule 14a-1 of the Securities
Exchange Act of 1934) of the foregoing persons (i) owns beneficially, directly
or indirectly, any securities of the Company, (ii) owns beneficially, directly
or indirectly, any securities of any parent or subsidiary of the Company, (iii)
owns any securities of the Company of record but not beneficially, (iv) has
purchased or sold any securities of the Company within the past two years, (v)
has incurred indebtedness for the purpose of acquiring or holding securities of
the Company, (vi) is or has within the past year been a party to any contract,
arrangement or understanding with respect to any securities of the Company,
(vii) since the beginning of the Company's last fiscal year has been indebted to
the Company or any of its subsidiaries in excess of $60,000 or (viii) has any
arrangement or understanding with respect to future employment by the Company or
with respect to any future transactions to which the Company or any of its
affiliates will or may be a party. In addition, except as set forth in this
Proxy Statement or in the Annexes hereto, to the best knowledge of
musicmaker.com, none of musicmaker.com, any of the persons participating in this
Proxy Solicitation on behalf of musicmaker.com, the musicmaker.com nominees and
any associates of the foregoing persons, has had or is to have a direct or
indirect material interest in any transaction or proposed transaction with the
Company in which the amount involved exceeds $60,000, since the beginning of the
Company's last fiscal year.
24
Except as set forth in this Proxy Statement or in the Annexes hereto, to
the best knowledge of musicmaker.com, none of the musicmaker.com nominees, since
the beginning of the Company's last fiscal year, has been affiliated with (i)
any entity that made or received, or during the Company's current fiscal year
proposes to make or receive, payments to or from the Company or its subsidiaries
for property or services in excess of five percent of either the Company's or
such entity's consolidated gross revenues for its last full fiscal year, or (ii)
any entity to which the Company or its subsidiaries were indebted at the end of
the Company's last full fiscal year in an aggregate amount exceeding five
percent of the Company's total consolidated assets at the end of such year. None
of the musicmaker.com nominees is or during the Company's last fiscal year has
been affiliated with any law or investment banking firm that has performed or
proposes to perform services for the Company.
To the best knowledge of musicmaker.com, none of the corporations or
organizations in which the musicmaker.com nominees have conducted their
principal occupation or employment was a parent, subsidiary or other affiliate
of the Company, and the musicmaker.com nominees do not hold any position or
office with the Company or have any family relationship with any executive
officer or director of the Company or have been involved in any proceedings,
legal or otherwise, of the type required to be disclosed by the rules governing
this solicitation.
musicmaker.com has agreed to indemnify each of the musicmaker.com nominees
against certain liabilities, including liabilities under the federal securities
laws, in connection with this Proxy Solicitation and such person's involvement
in the operation of the Company and to reimburse such musicmaker.com nominee for
his out-of-pocket expenses.
AUDITORS
According to information contained in the Company's proxy statement, the
Company's board of directors has appointed PricewaterhouseCoopers LLP as the
independent accountants to audit the Company's financial statements for the
fiscal year ending December 31, 2002. PricewaterhouseCoopers LLP has audited the
Company's financial statements since 1996. The Company has stated in its proxy
statement that a representative of PricewaterhouseCoopers LLP is expected to be
available at the 2002 annual meeting and will have an opportunity to make a
statement if such representative so desires and is expected to bbe available to
respond to appropriate questions. The Company also has stated in its proxy
statement that in the event the stockholders fail to ratify the appointment, the
Company's board of directors and its audit committee will reconsider whether or
not to retain PricewaterhouseCoopers LLP and than even if the selection is
ratified by the Company's stockholders, the board of directors of the company,
at its discretion, may direct the appointment of a different independent
accounting firm at any time during the year if it determines that such a change
would be in the best interests of the Company and its stockholders.
The musicmaker.com group recommends that you vote for the ratification
of the appointment of PricewaterhouseCoopers LLP as the Company's independent
auditors for the fiscal year ended December 31, 2002. See Proposal No. 2
under "The Proposals."
25
SOLICITATION OF PROXIES
musicmaker.com has retained D.F. King to act as an advisor in connection
with this Proxy Solicitation. In connection with its retention by
musicmaker.com, D.F. King has agreed to provide consulting and analytic services
and solicitation services with respect to banks, brokers, institutional
investors and individual stockholders. musicmaker.com has agreed to pay D.F.
King a fee for its services estimated to be not more than $____ and to reimburse
D.F. King for its reasonable out-of-pocket expenses. musicmaker.com has also
agreed to indemnify D.F. King against certain liabilities and expenses in
connection with this Proxy Solicitation, including liabilities under the federal
securities laws. Approximately __ employees of D.F. King will engage in the
solicitation. Proxies may be solicited by mail, advertisement, telephone,
facsimile or in person. Solicitations may be made by persons employed by or
affiliated with the members of the musicmaker.com group. However, no person will
receive additional compensation for such solicitation other than D.F. King.
Banks, brokerage houses and other custodians, nominees and fiduciaries
will be requested to forward the proxy materials to the beneficial owners of
shares of common stock for which they hold of record and the musicmaker.com
group will reimburse them for their reasonable out-of-pocket expenses.
The expenses related directly to this Proxy Solicitation are expected to
aggregate approximately $_____ and will be borne by the musicmaker.com group.
These expenses include fees and expenses for attorneys, proxy solicitors,
printing, postage, filing expenses and other costs incidental to the
solicitation. Of this estimated amount, approximately $____ has been spent to
date. The actual costs and expenses could be materially different than the
estimated amounts and, in particular, could be substantially higher if for any
reason litigation is instituted in connection with the matters related to this
Proxy Statement.
The purpose of the proposals in this Proxy Statement is to advance the
interests of all the Company's stockholders. Therefore, musicmaker.com believes
that its expenses related to this Proxy Solicitation should be borne by the
Company and it intends to seek reimbursement of such expenses from the Company
whether or not this Proxy Solicitation is successful. The question of
reimbursement of the expenses of the musicmaker.com group by the Company will
not be submitted to a stockholder vote.
If you have any questions about this Proxy Solicitation or voting your
shares or require assistance, please contact:
D.F. King & Co., Inc.
77 Water Street, 20th Floor
New York, New York 10005
Toll Free: (800) 431-9643
Banks and Brokers call collect: (212) 269-5550
26
OTHER MATTERS
This proxy solicitation is being made by the musicmaker.com group and not
on behalf of the board of directors or management of the Company. The
musicmaker.com group is not aware of any other matters to be brought before the
Company's 2002 annual meeting, except as set forth herein. Should other matters
be brought before the 2002 annual meeting, by having signed and returned the
enclosed WHITE proxy card, you will have authorized the persons named as proxies
in the enclosed WHITE proxy card to vote on all such matters in their
discretion.
The Company's proxy statement relating to the 2002 annual meeting contains
information regarding (1) securities ownership of certain beneficial owners and
management of the Company; (2) the committees of the board of directors; (3) the
meetings of the board of directors and all committees thereof; (4) the business
background and employment biographies of the Company's nominees for election to
the board of directors; (5) the compensation and remuneration paid and payable
to the Company's directors and management; and (6) the Company's stock price
performance in relation to an assumed group of "peers" or market-based indices.
The Company's stockholders are referred to the Company's proxy statement in
connection with the 2002 annual meeting for such information.
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
The Company's proxy statement with respect to the 2002 annual meeting
indicates that proposals of the Company's stockholders intended to be presented
at the Company's 2003 annual meeting must be received by the Company no later
than January 15, 2003 in order for them to be considered for inclusion in the
Company's proxy statement The Company's stockholders are hereby referred to the
Company's proxy statement in connection with the 2002 annual meeting for such
information.
If you have any questions, or if you require assistance, please contact
D.F. King at (800) 431-9643 or collect at (212) 269-5550
INFORMATION REGARDING THE COMPANY
The information concerning the Company contained in this Proxy Statement
has been taken from or is based upon documents and records on file with the SEC
and other publicly available information. musicmaker.com has no knowledge that
would indicate that statements relating to the Company contained in this Proxy
Statement in reliance upon publicly available information are inaccurate or
incomplete. musicmaker.com, however, has not been given access to the books and
records of the Company, was not involved in the preparation of such information
and statements, and is not in a position to verify, or make any representation
with respect to the accuracy or completeness of, any such information or
statements.
27
VOTING PROCEDURES
Who is entitled to vote?
If the Company's stock records show that you are a stockholder as of the
close of business on the record date for the 2002 annual meeting, you are
entitled to vote the shares of common stock that you held on such date. Even if
you sell your shares after the record date for the 2002 annual meeting, you will
retain the right to execute a proxy in connection with the 2002 annual meeting.
Each outstanding share of common stock entitles its holder to cast one vote for
each matter to be voted upon.
Can I attend the meeting?
All stockholders of record of the Company's common stock at the close of
business on May 20, 2002, the record date for the 2002 annual meeting, or their
designated proxies, are authorized to attend the 2002 annual meeting. If your
shares are held of record by a bank, broker or other nominee, you will need to
obtain a "legal proxy" form from your bank or broker if you wish to vote at the
2002 annual meeting.
What constitutes a quorum?
The holders of a majority of the Company's common stock outstanding and
entitled to vote, present in person or represented by proxy, will constitute a
quorum at the 2002 annual meeting. Votes cast in person or by proxy at the 2002
annual meeting will be tabulated by the inspector of elections appointed for the
2002 annual meeting to determine whether or not a quorum is present. The
inspector of elections will treat abstentions as shares that are present and
entitled to vote for purposes of determining the presence of a quorum, but
abstentions will neither be counted as votes for, nor the withholding of
authority for, the election of directors, but will have the effect of a vote
against any other matter submitted to a vote of stockholders.
Shares held by nominees for beneficial owners will be counted for purposes
of determining whether a quorum is present if the nominee has the discretion to
vote on at least one of the matters presented at the 2002 annual meeting, even
if the nominee may not exercise discretionary voting power with respect to other
matters and voting instructions have not been received from the beneficial owner
(a "broker non-vote"). Broker non-votes will not be counted as votes for or
against any matter submitted to a vote of stockholders.
28
How do I vote?
Voting by proxy for holders of shares registered in the name of a
brokerage firm or bank. If your shares are held by a broker, bank or other
nominee (i.e., in "street name"), only your bank or broker can give a proxy with
respect to your shares. You should receive a proxy card from your bank or broker
which you must return in the envelope provided in order to have your shares
voted. If you have not received a proxy card from your bank or broker, you may
contact it directly to provide it with instructions on how you wish to vote. If
you need assistance in dealing with your bank or broker, please contact D.F.
King at (800) 431-9643 or collect at (212) 269-5550.
Voting by proxy for holders of shares registered directly in the name of
the stockholder. If you hold your shares in your own name as a holder of record,
you may vote your shares by marking, signing, dating and mailing the WHITE proxy
card in the postage-paid envelope that has been provided to you by the
musicmaker.com group. To vote your shares in accordance with your instructions
at the 2002 annual meeting, we must receive your proxy as soon as possible but,
in any event prior to the 2002 annual meeting.
Vote in person. If you are a registered stockholder and attend the 2002
annual meeting you may deliver your completed WHITE proxy card in person.
"Street name" stockholders who wish to vote at the 2002 annual meeting will need
to obtain a "legal proxy" form from the broker, bank or other nominee that holds
their shares of record and must bring that document to the meeting in order to
vote in person at the 2002 annual meeting. If you need assistance, please
contact D.F. King at (800) 431-9643 or collect at (212) 269-5550.
What should I do if I receive a proxy card which is not WHITE?
If you submit a proxy to us by signing and returning the enclosed WHITE
proxy card, do NOT sign or return the proxy card or follow any voting
instructions provided by the Company's board of directors unless you intend to
change your vote, because only your latest-dated proxy will be counted.
Can I revoke my proxy instructions?
You may revoke your proxy at any time before it has been exercised by:
o submitting a written revocation with the Corporate Secretary of
the Company or D.F. King;
o submitting a duly executed proxy bearing a later date with the
Corporate Secretary of the Company or D.F. King; or
o appearing in person and voting by ballot at the 2002 annual
meeting as described above under "How do I vote? -- Vote in
Person."
29
Any stockholder of record as of the record date of the 2002 annual meeting
attending the 2002 annual meeting may vote in person whether or not a proxy has
been previously given, but the presence (without further action) of a
stockholder at the 2002 annual meeting will NOT constitute revocation of a
previously given proxy.
If you choose to revoke a proxy by giving written notice or a later-dated
proxy to the Corporate Secretary of the Company, we would appreciate if you
would assist us in representing the interests of stockholders on an informed
basis by sending us a copy of your revocation or proxy or by calling D.F. King,
at (800) 431-9643 or collect at (212) 269-5550. Remember, your latest-dated
proxy is the only one that counts.
Will other matters be voted on at the annual meeting?
We are not now aware of any matters to be presented at the 2002 annual
meeting other than the election of directors and the ratification of the
appointment of the Company's independent auditors. If any other matters not
described in the proxy statement are properly presented at the 2002 annual
meeting, including matters incidental to the conduct of the 2002 annual meeting,
proxies will be voted in accordance with the best judgment of the proxy holders.
If I plan to attend the annual meeting, should I still submit a proxy?
Whether you plan to attend the 2002 annual meeting or not, we urge you to
submit a proxy. Returning the enclosed WHITE proxy card will not affect your
right to attend the 2002 annual meeting.
How will my shares be voted?
If you give a proxy on the accompanying WHITE proxy card, your shares will
be voted as you direct. If you submit a proxy to us without instructions, our
representatives will vote your shares in favor of the Proposals. Submitting a
WHITE proxy card will entitle our representatives to vote your shares in
accordance with their discretion on matters not described in this proxy
statement that may arise at the 2002 annual meeting, including matters incident
to the conduct of the 2002 annual meeting. Unless a proxy specifies otherwise,
it will be presumed to relate to all shares held of record on the record date
for the 2002 annual meeting by the person who submitted it.
30
How can I receive more information?
If you have any questions about giving your proxy or about our
solicitation, or if you require assistance, please call D.F. King at (800)
431-9643 or collect at (212) 269-5550.
--------------------------------------
Your vote is important. No matter how many or how few shares you own, please
vote to amend the Restated By-laws to set the number of directors at nine and to
authorize stockholders to fill vacancies on the board of directors and newly
created directorships, and to elect the musicmaker.com nominees by marking,
signing, dating and mailing the enclosed WHITE proxy card promptly.
MUSICMAKER.COM, INC.
JEWELCOR MANAGEMENT, INC.
BARINGTON COMPANIES EQUITY PARTNERS, L.P.
RAMIUS SECURITIES, LLC
DOMROSE SONS PARTNERSHIP
June ___, 2002
31
SCHEDULE I
Directors and Officers of musicmaker.com, Inc.
Name and Position Principal Occupation Principal Business Address
----------------- -------------------- --------------------------
James Mitarotonda, Chairman and Chief c/o Barington Capital Group,
President, Chief Executive Officer, L.P.
Executive Officer and Barington Capital 888 Seventh Avenue, 17th
Director Group, L.P. Floor
New York, New York 10019
Jesse Choper, Professor of Public Univ. of California Law
Director Law, University of School
California at Berkeley Boalt Hall
School of Law Berkeley, California 94720
Seymour Holtzman, Chairman and Chief 100 North Wilkes Barre Blvd.
Chairman Executive Officer, Wilkes Barre, Pennsylvania
Jewelcor Management, 18702
Inc.
Devarajan S. Puthukarai, Former Chief Executive musicmaker.com, Inc.
Director Officer, President and c/o Barington Capital Group,
Chief Operating L.P.
Officer, 888 Seventh Avenue, 17th
musicmaker.com, Inc. Floor
New York, New York 10019
William Scranton III, Head of Scranton 201 Penn Avenue
Director Family Office PNE Bank Building
Scranton, PA 18503
Irwin Steinberg, Former Vice Chairman, musicmaker.com, Inc.
Director musicmaker.com, Inc. c/o Barington Capital Group,
L.P.
888 Seventh Avenue, 17th
Floor
New York, New York 10019
Joseph Wright, Jr., President & Chief c/o PanAmSat Corp.
Director Executive Officer, 20 Westport Road
PanAmSat Corp. Wilton, Connecticut 06897
Melvyn Brunt, Chief Financial c/o Barington Capital Group,
Chief Financial Officer Officer, L.P.
Barington Capital 888 Seventh Avenue, 17th
Group, L.P. Floor
New York, New York 10019
32
SCHEDULE II
Directors and Officers of Jewelcor Management, Inc.
Name and Position Principal Occupation Principal Business Address
----------------- -------------------- --------------------------
Seymour Holtzman, Chairman, Chief 100 North Wilkes Barre Blvd.
Chairman, Chief Executive Officer, Wilkes Barre, Pennsylvania
Executive Officer, President Jewelcor 18702
President Management, Inc.
Joseph F. Litchman, Vice 100 North Wilkes Barre Blvd.
Director, Vice President/Treasurer Wilkes Barre, Pennsylvania
President/Treasurer 18702
Maria Sciandra, Corporate Secretary 100 North Wilkes Barre Blvd.
Corporate Secretary, Wilkes Barre, Pennsylvania
Director 18702
33
ANNEX A
TRANSACTIONS IN COMMON STOCK
The following table sets forth information with respect to all purchases
of common stock of the Company by the musicmaker.com group during the past two
years. Except as set forth below, to the knowledge of musicmaker.com, no
participant in this solicitation or musicmaker.com Nominee has purchased or sold
securities of the Company within the past two years.
Transaction Number Price Per
Name Date Type of Shares Share
------------- ------- ------------ --------- ---------
musicmaker.com 8/14/01 Purchase 2,000 $2.25*
musicmaker.com 8/15/01 Purchase 100,000 $2.33*
musicmaker.com 8/16/01 Purchase 5,000 $2.30*
musicmaker.com 8/21/01 Purchase 10,000 $2.30*
musicmaker.com 8/27/01 Purchase 20,000 $2.33*
musicmaker.com 8/28/01 Purchase 15,000 $2.38*
musicmaker.com 8/28/01 Purchase 5,000 $2.28*
musicmaker.com 9/4/01 Purchase 12,000 $2.37*
musicmaker.com 9/5/01 Purchase 2,500 $2.31*
musicmaker.com 9/5/01 Purchase 1,000 $2.32*
musicmaker.com 9/6/01 Purchase 10,000 $2.33*
musicmaker.com 9/17/01 Purchase 7,000 $2.14*
musicmaker.com 9/17/01 Purchase 5,000 $2.06*
musicmaker.com 9/18/01 Purchase 10,000 $2.135*
musicmaker.com 9/19/01 Purchase 10,000 $2.197*
musicmaker.com 9/20/01 Purchase 10,000 $2.18*
musicmaker.com 9/21/01 Purchase 6,500 $2.07*
musicmaker.com 9/24/01 Purchase 25,000 $2.12*
musicmaker.com 9/24/01 Purchase 10,000 $2.10*
musicmaker.com 9/25/01 Purchase 50,000 $2.048*
musicmaker.com 9/26/01 Purchase 25,000 $2.035*
musicmaker.com 9/27/01 Purchase 30,000 $2.052*
musicmaker.com 9/28/01 Purchase 27,500 $2.07*
34
Transaction Number Price Per
Name Date Type of Shares Share
------------- ------- ------------ --------- ---------
musicmaker.com 10/1/01 Purchase 30,000 $2.075*
musicmaker.com 10/4/01 Purchase 30,000 $2.13*
musicmaker.com 10/5/01 Purchase 50,000 $2.135*
musicmaker.com 10/5/01 Purchase 7,000 $2.13*
musicmaker.com 11/16/01 Purchase 25,000 $2.34*
musicmaker.com 11/21/01 Purchase 5,000 $2.35*
musicmaker.com 11/30/01 Purchase 3,600 $2.32*
musicmaker.com 12/14/01 Purchase 3,000 $2.31*
musicmaker.com 12/17/01 Purchase 50,000 $2.33*
musicmaker.com 12/18/01 Purchase 25,000 $2.34*
musicmaker.com 12/28/01 Purchase 5,000 $2.31*
musicmaker.com 12/28/01 Purchase 2,900 $2.31*
musicmaker.com 12/28/01 Purchase 5,000 $2.31*
musicmaker.com 12/31/01 Purchase 3,200 $2.30*
musicmaker.com 2/25/02 Purchase 1,500 $2.22*
musicmaker.com 2/27/02 Purchase 2,000 $2.23*
musicmaker.com 2/27/02 Purchase 2,000 $2.21*
musicmaker.com 2/27/02 Purchase 3,800 $2.24*
musicmaker.com 2/27/02 Purchase 2,000 $2.24*
musicmaker.com 2/28/02 Purchase 1,200 $2.21*
musicmaker.com 3/5/02 Purchase 200 $2.25*
Jewelcor Management, Inc. 8/16/01 Purchase 10,000 $2.30*
Jewelcor Management, Inc. 8/16/01 Purchase 50,000 $2.32*
Jewelcor Management, Inc. 8/20/01 Purchase 20,000 $2.30*
Jewelcor Management, Inc. 8/21/01 Purchase 20,000 $2.30*
Jewelcor Management, Inc. 8/22/01 Purchase 12,500 $2.29*
Jewelcor Management, Inc. 8/23/01 Purchase 13,000 $2.30*
Jewelcor Management, Inc. 8/24/01 Purchase 10,000 $2.312*
Jewelcor Management, Inc. 8/27/01 Purchase 25,000 $2.33*
Jewelcor Management, Inc. 9/7/01 Purchase 10,000 $2.316*
Jewelcor Management, Inc. 9/17/01 Purchase 3,000 $2.03*
35
Transaction Number Price Per
Name Date Type of Shares Share
------------- ------- ------------ --------- ---------
Jewelcor Management, Inc. 9/17/01 Purchase 7,000 $2.14*
Jewelcor Management, Inc. 9/18/01 Purchase 20,000 $2.135*
Jewelcor Management, Inc. 9/19/01 Purchase 12,000 $2.197*
Jewelcor Management, Inc. 9/20/01 Purchase 10,500 $2.18*
Jewelcor Management, Inc. 9/25/01 Purchase 75,000 $2.048*
Jewelcor Management, Inc. 9/26/01 Purchase 25,000 $2.035*
Jewelcor Management, Inc. 9/27/01 Purchase 40,000 $2.052*
Jewelcor Management, Inc. 9/28/01 Purchase 10,000 $2.07*
Jewelcor Management, Inc. 10/1/01 Purchase 27,500 $2.0752*
Jewelcor Management, Inc. 10/4/01 Purchase 50,000 $2.13*
Jewelcor Management, Inc. 10/5/01 Purchase 25,000 $2.13*
Barington Companies Equity Partners, 8/16/01 Purchase 50,000 $2.32*
L.P.
Barington Companies Equity Partners, 8/16/01 Purchase 10,000 $2.30*
L.P.
Barington Companies Equity Partners, 8/20/01 Purchase 15,000 $2.30*
L.P.
Barington Companies Equity Partners, 8/20/01 Purchase 2,000 $2.30*
L.P.
Barington Companies Equity Partners, 8/21/01 Purchase 20,000 $2.30*
L.P.
Barington Companies Equity Partners, 8/22/01 Purchase 12,500 $2.29*
L.P.
Barington Companies Equity Partners, 8/23/01 Purchase 10,000 $2.30*
L.P.
Barington Companies Equity Partners, 8/24/01 Purchase 7,500 $2.312*
L.P.
Barington Companies Equity Partners, 8/27/01 Purchase 15,000 $2.33*
L.P.
Barington Companies Equity Partners, 8/29/01 Purchase 1,500 $2.31*
L.P.
Barington Companies Equity Partners, 9/6/01 Purchase 5,000 $2.30*
L.P.
Barington Companies Equity Partners, 9/7/01 Purchase 10,000 $2.316*
L.P.
Barington Companies Equity Partners, 9/10/01 Purchase 2,500 $2.25*
L.P.
Barington Companies Equity Partners, 9/17/01 Purchase 5,000 $2.01*
L.P.
Barington Companies Equity Partners, 9/18/01 Purchase 20,000 $2.135*
L.P.
Barington Companies Equity Partners, 9/19/01 Purchase 14,000 $2.197*
L.P.
Barington Companies Equity Partners, 9/25/01 Purchase 25,000 $2.048*
L.P.
Barington Companies Equity Partners, 9/26/01 Purchase 25,000 $2.035*
L.P.
Barington Companies Equity Partners, 9/27/01 Purchase 30,000 $2.052*
L.P.
Barington Companies Equity Partners, 9/28/01 Purchase 10,000 $2.07*
L.P.
36
Transaction Number Price Per
Name Date Type of Shares Share
------------- ------- ------------ --------- ---------
Barington Companies Equity Partners, 10/1/01 Purchase 10,000 $2.075*
L.P.
Barington Companies Equity Partners, 10/4/01 Purchase 14,200 $2.11*
L.P.
Barington Companies Equity Partners, 10/4/01 Purchase 20,000 $2.13*
L.P.
Barington Companies Equity Partners, 10/5/01 Purchase 2,000 $2.12*
L.P.
Barington Companies Equity Partners, 10/5/01 Purchase 3,000 $2.12*
L.P.
Ramius Securities, LLC 8/20/01 Purchase 15,000 $2.30*
Ramius Securities, LLC 8/21/01 Purchase 20,000 $2.30*
Ramius Securities, LLC 8/23/01 Purchase 10,000 $2.30*
Ramius Securities, LLC 8/24/01 Purchase 7,500 $2.312*
Ramius Securities, LLC 8/27/01 Purchase 15,000 $2.33*
Ramius Securities, LLC 9/6/01 Purchase 10,000 $2.33*
Ramius Securities, LLC 9/7/01 Purchase 12,000 $2.316*
Domrose Sons Partnership 9/27/01 Purchase 8,000 $2.04*
* Excludes commissions and execution related costs
37
ANNEX B
OWNERSHIP OF COMMON STOCK
Each share of common stock is entitled to one vote on each of the
proposals and the common stock is the only class of securities of the Company
entitled to vote on the proposals. According to the Company's Schedule 14A filed
with the SEC on May 28, 2002, as of May 6, 2002 there were 22,745,624 shares of
common stock outstanding.
The following table sets forth the share ownership of all persons who, to
the knowledge of musicmaker.com, beneficially own more than 5% of the
outstanding shares of common stock as of the date of this Proxy Statement. The
information with respect to each stockholder is derived from the Schedule 14A
filed by the Company with the SEC on May 28, 2002.
Number of Shares Percentage
Stockholder Beneficially Owned Ownership
(1)
------------------------ ------------------- -----------
Steel Partners II, L.P. 1,866,366 8.2%
The musicmaker.com group 1,568,100 6.9%
----------------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Shares of common stock subject to stock options and warrants
currently exercisable or exercisable within 60 days are deemed outstanding
for purposes of computing the percentage ownership of the person holding
the options and the percentage ownership of any group of which the holder
is a member, but are not deemed outstanding for computing the percentage
ownership of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, to the knowledge of
musicmaker.com, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.
38
ANNEX C
FORM OF PROXY SOLICITED ON BEHALF OF
THE MUSICMAKER.COM INC. GROUP
The undersigned stockholder of Liquid Audio, Inc., a Delaware corporation
(the "Company"), on May 20, 2002 (the "record date"), hereby appoints James A.
Mitarotonda or Seymour Holtzman or either of them, each with full power of
substitution to act as proxies for the undersigned, and to vote all shares of
common stock, par value $.001 per share, of the Company, which the undersigned
would be entitled to vote if personally present at the 2002 Annual Meeting of
Stockholders of the Company to be held on July 1, 2002, and at any and all
postponements and adjournments thereof as indicated on this proxy.
IF YOU SIGN, DATE AND RETURN THIS CARD WITHOUT INDICATING YOUR VOTE ON ONE
OR MORE OF THE FOLLOWING PROPOSALS, YOU WILL BE DEEMED TO HAVE VOTED IN FAVOR OF
SUCH PROPOSALS. IF YOU VOTE OR ABSTAIN WITH RESPECT TO ONE OR MORE OF THE
FOLLOWING PROPOSALS, THIS PROXY CARD WILL REVOKE ANY PREVIOUSLY EXECUTED
REVOCATION OF PROXY WITH RESPECT TO SUCH PROPOSALS.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
THE MUSICMAKER.COM GROUP STRONGLY RECOMMENDS THAT STOCKHOLDERS VOTE IN
FAVOR OF ALL THE FOLLOWING PROPOSALS:
Proposal No. 1 -- Election of Seymour Holtzman and James A.
Mitarotonda as Class III directors
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Instruction: If you wish to vote for the election of one of the nominees,
but not both of them, check the "FOR" box above and write the name of the person
you do not wish elected in the following
space:________________________________________. If no box is marked above with
respect to this Proposal, the undersigned will be deemed to vote for such
Proposal, except that the undersigned will not be deemed to vote for the
election of any candidate whose name is written in the space provided above.)
Proposal No. 2 -- Ratification of Appointment of PricewaterhouseCoopers
LLP as Independent Accountants
FOR [ ] AGAINST [ ] ABSTAINS [ ]
Proposal No. 3-- Increase the Size of the Board of Directors from Five
to Nine
FOR [ ] AGAINST [ ] ABSTAINS [ ]
39
Proposal No. 4 -- Authorize Only Stockholders to Fill Board Vacancies
and Newly Created Directorships
FOR [ ] AGAINST [ ] ABSTAINS [ ]
Proposal No. 5 -- Election of Jesse H. Choper and William J. Fox as
Class I directors, Thomas E. Constance as a Class II director and Joseph R.
Wright, Jr. as a Class III director, contingent upon the approval of Proposal
2 and Proposal 3.
FOR [ ] AGAINST [ ] ABSTAINS [ ]
(Instruction: If you wish to vote for the election of certain of the
nominees, but not all of them, check the "FOR" box above and write the name of
each such person you do not wish elected in the following
space:________________________________________. If no box is marked above with
respect to this Proposal, the undersigned will be deemed to vote for such
Proposal, except that the undersigned will not be deemed to vote for the
election of any candidate whose name is written in the space provided above.)
And in the discretion of the proxies appointed hereunder, on such other
business as may properly come before the meeting.
IMPORTANT: THIS PROXY MUST BE SIGNED AND DATED TO BE VALID.
Dated:
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Signature:
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Signature (if held jointly):
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Title or Authority
Please sign exactly as name appears hereon. If shares are registered in more
than one name, the signature of all such persons should be provided. A
corporation should sign in its full corporate name by a duly authorized officer,
stating his or her title. Trustees, guardians, executors and administrators
should sign in their official capacity, giving their full title as such. If a
partnership, please sign in the partnership name by an authorized person. The
proxy card votes all shares in all capacities.
PLEASE MARK, SIGN AND DATE THIS PROXY BEFORE MAILING THE PROXY IN THE ENCLOSED
ENVELOPE.
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If you have any questions or need assistance in voting your shares,
please contact D.F. King & Co., Inc. toll-free at 1-800-431-9643 or if you
are a bank or broker please call collect at 1-212-269-5550.
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