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Liquid Audio proxy count challenged

A week after shareholders apparently voted to oust key members of the board of directors, last-minute maneuvers continue to cloud the company's future.

A week after Liquid Audio shareholders apparently voted to oust key members of the board of directors, last-minute maneuvers continue to cloud the future of the once-prominent digital music company.

According to a dissident shareholder group seeking to replace Liquid's board, more than 80 percent of shareholders last week voted for a new slate of directors. Liquid, however, is challenging the vote and calling for a review of the voting process.

Complicating matters is a deal announced Monday, several days after the vote, to sell Liquid Audio's slate of digital music technology patents to Microsoft for $7 million.

The dissident group, which is seeking to close much of the company's operations and distribute its cash among shareholders, hasn't openly objected to the sale. But it's charging that Liquid's management is wasting money in challenging the results of a clear shareholder vote.

"The request for a review...in these circumstances is outrageous," James Mitarotonda and Seymour Holzman, shareholders and apparent board members-elect and the principals of investment group MM Companies, wrote in a letter to Liquid's management released Friday. "We can only assume that management has other motives in putting off certification of the vote."

MM Companies, formerly known as Musicmaker.com, is leading a charge to dismantle Liquid Audio and distribute tens of million of dollars in corporate assets to shareholders. The management has bitterly fought the efforts, instead backing a merger with an offline music fulfillment company.

The bitter proxy battle, along with the still-respected Liquid Audio technology, has kept the company's travails in the news where many other failing technology companies have fallen into obscurity. Both sides have swapped lawsuits, insults and challenges in press releases and headlines for months, even as the company's revenue stream has dwindled dramatically.

Last week's shareholder vote won't serve as a final statement on either side's wishes. Preliminary results indicated that shareholders had voted to replace two members of Liquid's board--venture capitalist Raymond Doig and Liquid Chief Executive Gerald Kearby--with Mitarotonda and Holzman, by an overwhelming margin. Another dissident proposal to expand the number of seats on the board did not pass.

According to Mitarotonda, Liquid's management has asked for a review of the ballots, a common procedure in cases of close votes. The final vote has not yet been certified as valid by IVS Associates, an independent proxy tabulating service well-known from other corporate control struggles including the recent fight over the Hewlett-Packard merger with Compaq Computer.

"What this means is it will take another week and spending of shareholder dollars, all for no reason at all," Mitarotonda said.

Liquid Audio management did not return calls for comment.

Mitarotonda said he was not immediately opposed to the Microsoft sale, saying that it appeared "positive" but that he and his associate had asked the existing board not to do anything that would change the corporate governance structure until the new board was seated.