Liquidation Audio

Liquid Audio has been under attack for most of its short life, first from competitors and then from its own shareholders and corporate raiders. But the tumultuous journey may finally be coming to an end as the company reports that it is settling some of its lawsuits and shareholder claims while selling its remaining assets.

The company was formed in 1996 and rode the dot.com wave as it provided record labels, artists, and retail websites the software, infrastructure, and services for the secure digital delivery of media over the Internet. The company peaked in November of 1999 with a market capitalization of over $1 billion, but competitors such as RealAudio and the overwhelming acceptance of MP3 as the lingua franca of online music trading frustrated its plans.

Liquid previously announced that its board of directors unanimously approved a cash distribution of $2.50/share to stockholders of record as of December 10, 2002, payable on December 20, 2002. On December 16, 2002, BeMusic filed a lawsuit against Liquid seeking to enjoin the cash distribution to stockholders.

On January 24, Liquid announced that it had entered into a settlement agreement with BeMusic, a unit of Bertelsmann AG, by which each side has agreed to dismiss its claims against the other "with prejudice." Accordingly, the board of directors of Liquid Audio unanimously approved a payment date of Wednesday, January 29, 2003 for a cash distribution of $2.50/share to stockholders of record as of December 10, 2002. As part of the settlement with BeMusic, Liquid also agreed to set aside a cash reserve of $7 million to share in the defense of the patent action brought by SightSound that is presently pending.

Also on January 24, Liquid revealed that it had sold its digital music fulfillment business to Geneva Media, an affiliate of CD and tape distributor Anderson Merchandisers, for $3.2 million. Liquid says that it has also transferred ownership of "Liquid Audio"—related trademarks to Geneva. The transaction is expected to be completed in exactly one year.

Anderson, based in Amarillo, TX, reports that its agreement with Liquid includes the transfer of essential employees located at the company's research and development headquarters in Redwood City, CA. In addition, Liquid's co-founder, Gerry Kearby, will head Anderson's new digital media division.

Playing up the importance of the deal, Universal Music Group's Doug Morris said, "This is a significant moment in the history of the music business. The fact that one of the largest distributors of physical product has recognized the unlimited potential of the electronic sale of music clearly demonstrates that this will be a huge part of our industry's future. Anderson's announcement is similar to the first flicker of an electric light bulb . The music business has always been a packaged goods business and now it will be complemented by electronic distribution."

Anderson Merchandiser's Charlie Anderson adds, "This acquisition provides the perfect promotion vehicle for our physical distribution business. In addition, it will strategically position retailers to participate in the industry's legitimate downloading future."

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