Liquid Audio, Inc., a leading provider of technology, services and infrastructure for Internet media delivery, sent a special letter to its stockholders regarding its proposed merger with Alliance Entertainment Corp. The definitive merger agreement between Liquid Audio and Alliance Entertainment, one of the largest home entertainment product distribution, fulfillment and infrastructure companies in the U.S., was announced on June 13.
In the letter to all Liquid Audio stockholders, Gerald Kearby, President and Chief Executive Officer of Liquid Audio, described Alliance Entertainment as "an established, strong, rapidly growing company with significant revenue and cash flow, a strong balance sheet, and an experienced and dynamic management team."
A partial text of Mr. Kearby's letter to Liquid Audio stockholders follows:
June 19, 2002
Dear Liquid Audio Stockholder:
The Board of Directors and management of Liquid Audio are committed to building the Company's value for you.
Reflecting that commitment, we have signed a definitive agreement to merge with Alliance Entertainment Corp., one of the largest home entertainment product distribution, fulfillment and infrastructure companies in the United States.
After reviewing all strategic alternatives available to our Company, and holding discussions with numerous potential partners over the past year, we strongly believe that a strategic business combination with Alliance Entertainment (specifically, with Alliance Entertainment's core distribution and fulfillment services business) offers the most significant return of value to all Liquid Audio stockholders.
Alliance Entertainment is an established, strong, rapidly growing company with significant revenue and cash flow, a strong balance sheet, and an experienced and dynamic management team.
Combining Liquid Audio and Alliance Entertainment into a new public company makes compelling sense strategically, operationally and financially.
— Strategically, it will create a combined enterprise well-positioned to
become a leading provider of commerce solutions for entertainment media
through both physical and digital channels — the total solutions
provider.
— It will enable that combined enterprise to provide a unique and
complete solution for both content owners and retailers of home
entertainment products as their digital and physical delivery needs
converge.
— Operationally, the merger will combine Alliance Entertainment's
physical media distribution base of more than 5,000 retailers operating
more than 25,000 physical and online stores, with Liquid Audio's
leading portfolio of technology and intellectual property for digital
media distribution and rights management.
— Financially, the merger combines Alliance Entertainment's significant
EBITDA with Liquid Audio's strong cash position to form a
well-capitalized market share leader in the $46 billion U.S. home
entertainment market.
Terms of the Transaction
Under the terms of the proposed transaction, the stockholders of Alliance Entertainment would receive approximately 46.2 million newly issued shares of Liquid Audio common stock, and Liquid Audio would assume all outstanding stock options and warrants to purchase shares of Alliance Entertainment.
The current stockholders of Alliance Entertainment would own approximately 67% of the new company's outstanding shares and 33% would be held by Liquid Audio stockholders. The proposed stock-for-stock transaction would be accounted for as a purchase and is intended to qualify as tax-free to all Liquid Audio stockholders.
Creating the Total Solutions Provider — a Physical and Digital Entertainment Media Delivery Powerhouse
As the entertainment retail market progresses, customers need a flexible end-to-end solution that meets their growing needs. Traditional retailers are expanding their in-store product lines to stay competitive, selling a variety of entertainment goods from CDs to video games. Retailers are also increasing their online presence and need a custom commerce solution that isn't costly and is easy to implement with their existing site. In addition, non-traditional retailers such as consumer electronics companies and hardware manufacturers are looking for ways to derive ongoing revenue from their customers. This market evolution creates the need for a total solutions provider that can help retailers not only distribute physical media but help them create commerce and delivery solutions to securely sell digital media as well.
The merger of Alliance Entertainment and Liquid Audio brings together two companies with strong competencies and complementary strengths that can address this market need:
— Alliance Entertainment is a leading distributor of physical media
products and accessories, including audio CDs, DVDs and VHS movies, and
video games. Liquid Audio is a leading provider of software, services
and infrastructure for the secure delivery of digital media, including
music.
— Both companies serve essentially the same entertainment media
constituency groups-content owners and retailers. Alliance
Entertainment provides an array of commerce and fulfillment solutions
to traditional retail channels, including Barnes & Noble, Transworld
Entertainment, Wherehouse Entertainment, Circuit City, Toys R' Us and
CVS as well as emerging retail channels, including Barnes&Noble.com,
CDNow, Amazon.com, CircuitCity.com, WherehouseMusic.com,
TowerRecords.com, Univision.com and QVC.com. Today, more than 1,800
record labels and 17,000 artists use Liquid Audio's distribution
solution to digitize, syndicate and account for the delivery of digital
music to retail and content websites as well as consumer electronics
manufacturers, including Amazon.com, Barnes & Noble, BestBuy, CDNow,
Palm, and Sanyo.
— Alliance Entertainment has developed its e-commerce service solution,
theStore24(TM), to help traditional and non-traditional retailers sell
and deliver a wide variety of physical entertainment media, including
music, video and games through the Internet. Liquid Audio has
developed its Liquid Store commerce solution to enable retail and OEM
channel partners to distribute and sell digital music from their
existing websites.
— In physical fulfillment, Alliance Entertainment commands a leading
market share for national retail chains, independent retailers,
consumer direct fulfillment services, and plug-in e-commerce engines
for retail. In digital fulfillment, Liquid Audio commands leading
market share for secure music files and online retail integration.
By combining both of these commerce solutions, and the companies' respective infrastructures and technologies, the new company expects to expand its customer base and revenue opportunities, delivering the industry's only end-to-end distribution infrastructure that can transport all types of media, in both physical and digital formats — the total solutions provider.
ncG1vNJzZmiblaGyo77IrbCam5OawLR6wqikaJuRlr%2BktMivnGikmabCqrCMmqydoZ%2Boeq6x0aCcq2WnnsGpecClo6KZnpiybrHNrZyrrJGeu66xza1knrCgoa6qusSdZg%3D%3D