Steel Partners II, L.P. Sends Letter to Liquid Audio, Inc. Board of Directors

Business Wire, April 17, 2002

Business Editors

BEVERLY HILLS, Calif.--(BUSINESS WIRE)--April 17, 2002

Steel Partners II, L.P., which owns approximately 8.2% of the common shares of Liquid Audio, Inc. (NASDAQ: LQID), announced today that it sent the following letter to the company's Board of Directors:

                            STEEL PARTNERS
                         150 SOUTH RODEO DRIVE
                               SUITE 100
                    BEVERLY HILLS, CALIFORNIA 90212


April 16, 2002

The Board of Directors
Liquid Audio, Inc.
800 Chesapeake Drive
Redwood City, CA 94063

Ladies and Gentlemen:

      Steel Partners II, L.P., the largest shareholder of Liquid Audio,
Inc. (the "Company"), remains alarmed by the continuing cash burn of
the Company and the Board of Directors' apparent indifference to the
many important issues raised by the musicmaker.com group and other
shareholders of the Company. We fear that the Board intends to allow
management to continue to pursue its flawed business plan and
potentially waste hundreds of thousands of dollars on a protracted
proxy fight with the musicmaker.com group at the next annual meeting
of shareholders.
      Because we are convinced that shareholders will overwhelmingly
elect musicmaker.com's slate of directors, we propose that the Board
ask Seymour Holtzman and James Mitarotonda to join the Board now and
not waste more money on a pointless proxy fight. Additionally, we
believe it would be embarrassing to the Company and its shareholders
if Gerald Kearby, Chairman, Chief Executive and Co-Founder and Robert
Flynn, Senior Vice President and Co-Founder lose the election by such
a wide margin.
      An alternative for enhancing shareholder value would be to declare
a $3.00 per share cash distribution to all shareholders, a suggestion
we have made many times. As per the guidance issued by management on
their most recent conference call, the Company had a cash balance of
approximately $85 million as of March 31, 2002, or $3.75 per share. If
the Board declared this $3.00 per share cash distribution, the Company
would have approximately $17 million to pursue its business strategy.
We firmly believe that if the Company cannot operate on this budget,
then the Board must acknowledge the business plan is severely flawed
and should immediately explore other options such as selling the
Company to the highest bidder.
      Recently, we reiterated our suggestion to the Company and its
advisors and were told that a cash distribution would not solve the
Company's "problem" which is the large ownership by unhappy
shareholders; in simple terms, a cash distribution will not get rid of
the dissatisfied owners. The Board should understand that by making
this distribution, many of the current issues raised by shareholders
are likely to go away. Instead of wasting valuable cash on a business
plan destined for failure and an unwinnable proxy fight at the
shareholders' expense, we suggest that you should immediately focus on
maximizing shareholder value.
      Finally, we remain perplexed as to why directors or officers have
not acquired a greater stake in the Company when its shares trade near
an all-time low and at a 62% discount to its cash balance as of April
15, 2002. Why should we have any confidence in the Board when it has
such nominal ownership in the Company? We suspect the answer is that
it lacks confidence in its own business plan.
      We believe by inviting musicmaker.com's slate of directors to join
the Board and making a $3.00 cash distribution, all shareholders will
benefit. If neither of these alternatives is palatable to you, we ask
that you hold the annual shareholders meeting immediately and allow
the shareholders to promptly decide the appropriate fate of the
Company. We ask that you act responsibly by not frivolously wasting
shareholders' money on a proxy contest that is very likely a fait
accompli.
      If you would like to further discuss any of the above ideas,
please call me at (310) 246-3741.

Very truly yours,


Josh Schechter
Steel Partners