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"This merger will firmly position the combined company to become a leading provider of commerce solutions for entertainment media through physical and digital channels."
——Eric Weisman, Alliance President/CEO
IT’S A LIQUID ALLIANCE
Deal Between Technology Company and Product Distributor Marks New Era for Entertainment Commerce
Technology and commerce are now not-so-strange bedfellows. In fact, they're officially joined at the hip.

Liquid Audio, one of the leading providers of Internet media delivery, is merging its operations with privately held Alliance Entertainment Corp., among the largest home entertainment product distribution and fulfillment companies in the U.S.

Under terms of the agreement, the stockholders of Alliance will receive approximately 46.2 million newly issued shares of Liquid Audio common stock, while Liquid Audio will assume all outstanding stock options and warrants to purchase shares of Alliance Entertainment. Alliance shareholders will control 67% of the new company, while 33% will be controlled by Liquid Audio investors.

The news comes amid word that Universal Music Group and Sony Music Entertainment will begin offering single selections from their catalog online in conjunction with retailers through Liquid Audio and Rioport.

Said Alliance President/CEO Eric Weisman: "This merger will firmly position the combined company to become a leading provider of commerce solutions for entertainment media through physical and digital channels. It better or we’re all becoming shoe salesmen."

For the past two fiscal years ended 2001 and 2000, Alliance generated $687 million and $538 million in gross sales, with $21 million and $16 million respectively, EBITDA, representing 28% annual revenue growth and 31% annual EBITDA growth.

Liquid Audio President/CEO Gerald Kearby acknowledged the company had been in discussion with numerous potential partners over the last year. "We believe that the combination with Alliance offers the most significant return of value."

The merger will combine Alliance physical media distribution base of more than 5,000 retailers and 25,000 physical and online stores with Liquid Audio’s secure digital media distribution and rights management. Alliance’s brick-and-mortal retailers include Barnes & Noble, Transworld Entertainment, Wherehouse Entertainment and Circuit City as well as an array of online retailers. Alliance is a limited liability company with tycoon Ron Burkle's The Yucaipa Companies as its controlling shareholder.

The merger is subject to the approval of Liquid Audio stockholders and the appropriate regulatory agencies. At the close of the merger, Liquid Audio’s new Board will be increased to nine positions, six of which will be designated by Alliance shareholders. Weisman will become President/CEO of the new company, while Kearby remains CEO of Liquid Audio and the new company’s digital businesses. The transaction is expected to close in fall 2002.

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