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Alliance To Merge With Liquid Audio

13 Jun, 2002 By: Holly J. Wagner

Internet mediacompany Liquid Audio, Inc. will merge with packaged media distributor Alliance Entertainment Corp., in a stock swap.

"This merger will firmly position the combined company to become a leading provider of commerce solutions for entertainment media through physical and digital channels," said Eric Weisman, president and CEO of Alliance. Combining the two businesses enables us to provide a unique solution for both content owners and retailers of home entertainment products as we see their digital and physical delivery needs converging. We believe that our core fulfillment business will serve as a stable cash flow generating platform, enabling us to continue deploying the Liquid Audio technology as the digital media delivery market matures."

Alliance provides an commerce and fulfillment services to brick-and-mortar retailers, including Barnes & Noble, Transworld Entertainment, Wherehouse Entertainment, Circuit City, Toys R' Us and CVS as well as online retailers, including Barnes&Noble.com, CDNow, Amazon.com,CircuitCity.com, WherehouseMusic.com, TowerRecords.com, Univision.com and QVC.com.

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.

Under the terms of the agreement, Alliance stockholders 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, leaving Alliance stockholders with approximately 67 percent of the new company's outstanding shares. Liquid Audio stockholders would own the remaining 33 percent. The proposed stock-for-stock transaction would be accounted for as a purchase and is intended to qualify as tax-free to both companies' stockholders.

For the fiscal year ended 2001 and 2000, Alliance generated approximately $687 million and $538 million in gross sales, respectively, and $21 million and $16 million in EBITDA, respectively, representing 28 percent annual revenue growth and 31percent annual EBITDA growth, Weisman said.

“We have been in discussions with numerous potential partners over the last year and believe that the combination with Alliance offers the most significant return of value to Liquid Audio stockholders," said Gerald Kearby, president and CEO of Liquid Audio. "Financially, the merger combines Alliance'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. Operationally, the merger combines Alliance'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."

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