SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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1934
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14a-6(e)(2)).
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[X] 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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[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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On June 14, 2002, musicmaker.com, Inc. sent the following letter to
Alliance Entertainment Corp.:
musicmaker.com, Inc.
c/o Barington Capital Group, L.P.
888 Seventh Avenue
17th Floor
New York, New York 10019
June 14, 2002
Alliance Entertainment Corp.
4250 Coral Ridge Drive
Coral Springs, Florida 33065
Attention: Eric Weisman
President and CEO
Re: Liquid Audio, Inc.
Dear Mr. Weisman:
Your company, Alliance Entertainment, has purported to enter into an
agreement for the acquisition of a majority interest in Liquid Audio, Inc.
through a merger transaction. Well before you and Liquid Audio announced the
agreement yesterday, musicmaker.com, Inc. and other members of its group
announced and then commenced a proxy solicitation for election of directors of
Liquid Audio and control of its board at an annual meeting of stockholders
scheduled for July 1, 2002. We also publicly cautioned Liquid Audio not to enter
into any agreement or take other action that would commit Liquid Audio to a
major corporate transaction in advance of the stockholders meeting. You
undoubtedly knew both of our solicitation and our cautionary notice to the
company at the time you and Liquid Audio purported to execute your agreement.
You should have known as well that Wilson, Sonsini, Goodrich & Rosati, who
represented Liquid Audio in its negotiations with Alliance Entertainment, has
represented and continues to represent musicmaker.com. In our view Wilson
Sonsini's representation of Liquid Audio in the circumstances is adverse to the
interests of musicmaker.com and a violation of applicable principles of
professional conduct. We have so informed Wilson Sonsini, and this should have
been apparent to you as well.
We note further that the breakup fee provisions of your purported
agreement unconscionably seek to penalize Liquid Audio stockholders for
exercising their rights to reject your transaction and a properly constituted
board of Liquid Audio for exercising its fiduciary duties to do the same.
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We therefore inform you that we do not regard your agreement with Liquid
Audio as binding on the company and we will conduct ourselves accordingly.
Very truly yours,
/s/ James Mitarotonda
--------------------------------
James Mitarotonda
President and Chief Executive Officer
On June 14, 2002, musicmaker.com, Inc. sent the following letter to Ann
Winblad, a member of the board of directors of Liquid Audio, Inc.:
musicmaker.com, Inc.
c/o Barington Capital Group, L.P.
888 Seventh Avenue
17th Floor
New York, New York 10019
VIA FEDERAL EXPRESS
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June 14, 2002
Ann L.Winblad
Hummer Winblad Venture Partners
2 South Park, 2nd Floor
San Francisco, CA 94109
Dear Ms. Winblad:
The reason I am writing to you is that telephonic and written
communications to Mr. Kearby have been fruitless because Mr. Kearby has failed
to respond.
Although shareholders do not have the specific financial information
regarding the proposed transaction with Alliance Entertainment Corp., many
respected individuals in the industry have indicated that Alliance is involved
in an industry that operates on very thin margins, which makes profitability
very difficult. As you may be aware, Alliance filed bankruptcy in 1997, and was
then acquired by Yucaipa Companies in 1998. Furthermore, Yucaipa gave Alliance
an additional $25 million in November 2000, to fund its digital properties.
Why would a company with $600 million in revenues in its most recent
fiscal year merge with Liquid Audio, who only had revenues of $136,000 in the
most recent quarter? I would speculate that Yucaipa's interest in Liquid Audio
is for the approximate $85 million in cash that Liquid Audio has in the bank. I
also suspect that Alliance has a substantial amount of debt, and desperately
needs a cash infusion to continue to operate its business.
The proposed transaction has onerous and ridiculous breakup fees, which in
my opinion, are clearly designed to entrench Liquid Audio's current management
and permit Mr. Kearby to
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maintain his position with the company and continue wasting corporate assets.
The inclusion of a provision to pay Alliance an additional $750,000 if the
Company decides to liquidate within six months if the transaction is not
approved by shareholders is unconscionable.
I am sure you realize the anger Liquid Audio's shareholders have toward
management and the Board of Directors, as they have lost hundreds of millions of
dollars in market value. We have received numerous calls from large and small
shareholders who are outraged and disgusted with the shabby treatment they have
received from the management of the Company.
It seems to me that as a venture capitalist you would require the
management of the Company to be sensitive to shareholder concerns, especially as
the Company lost over $37 million last year, and had a cash burn in the recent
quarter of $5 million.
The Company did not announce or hold its 2002 Annual Meeting of
Stockholders on a timely basis and has wasted substantial sums of money in an
effort to frustrate and thwart the shareholder process. I respectfully request
that you and your fellow directors permit the Annual Meeting of Shareholders to
occur on Monday, July 1, 2002, as the Company had originally scheduled. The
Company has already spent the money for this meeting and filed its preliminary
proxy with the Securities and Exchange Commission.
I sincerely believe that two substantial outside directors, such as James
Mitarotonda and myself, would provide shareholders an avenue in which to express
their views. The Company needs input from "truly independent directors."
In the investment banking industry, your reputation should be sacred. In
my opinion, you have done yourself and your firm a great disservice by
permitting yourself to be involved in the wasteful acts carried out by
management and the Board of Directors of Liquid Audio, Inc. How could you in
good conscience allow the Company to potentially pay up to $3 million in breakup
fees, when you know the shareholders want the Company to liquidate its assets?
The shareholders spoke clearly yesterday when the stock dropped by 10% and
traded more than three times its normal volume.
If you would like to discuss this matter, I can be reached at (570)
822-6277, ext. 23.
Sincerely,
/s/ Seymour Holtzman
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Seymour Holtzman
Chairman of the Board
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