Press Release



QSound Labs to Acquire StremMagic, Inc.



$100 Million Acquisition to Form First Enhanced Audio And Video Broadband Streaming Media Company



Calgary, Alberta - March 21, 2000 -- QSound Labs, Inc. (NASDAQ: QSND), the leading provider of enhanced Internet audio solutions announced today that it has signed a letter of agreement to acquire 100% of Los Angeles based StreamMagic, Inc., a leading provider of Internet video streaming, in a stock-for-stock transaction valued today at approximately $100 million.

The combination of QSound's enhanced audio and StreamMagic's broadband video delivery solutions will enable content publishers to deliver rich media via the Internet in a cost effective manner.

With access to high speed Internet connectivity on the rise - T1 lines and home-based DSL - end users are being drawn to sites that offer high quality audio and video streaming on a full time basis. QSound will empower clients to capitalize on the "impulsive" nature of the Internet by providing "on demand" enhanced audio and video, live Webcasts and high end interactive advertising - leading to increased site traffic, enduser satisfaction and increased revenue.

"The formation of this merger could not be more timely," stated Nolan Quan, President of StreamMagic. "Content providers are constantly seeking better ways to present their media rich content on the Web. When we first met with QSound, we were amazed by the high quality sound they could generate from two computer speakers. With demand for audio and video content on the Internet increasing daily we knew immediately this was the perfect match for our world class video and content delivery service."

Immediately prior to this transaction, the Company plans to spin off its non-Internet audio business segment and its e-commerce business segment to QSound shareholders in a new company that QSound intends to list publicly. More information regarding the spin-off will be forthcoming in a future press release.

"This is the first step in QSound's previously announced plan to unlock shareholder value by monetizing our intellectual property assets through corporate reorganization and strategic alliances," stated David Gallagher, President and Chief Executive Officer. "We believe the combination of the two companies will have much more leverage than the sum of the two operating independently. By combining with StreamMagic we will capitalize on StreamMagic's high performance Internet server management solutions and QSound's leading edge enhanced Internet audio to create a new generation of streaming content."

Under the terms of the letter of agreement, QSound will acquire Stream Magic, Inc. by issuing 26.5 million preferred shares for all of the outstanding stock of StreamMagic. Each preferred share is convertible into one common share of QSound. Forty percent of the preferred shares will be convertible to QSound common shares on the effective date of the transaction and, subject to certain QSound share price commitments, the remaining 60% will become convertible over the following 270 days. In addition, QSound will convert outstanding StreamMagic options into approximately 5 million QSound options. The acquisition, which will be accounted for as a purchase, is subject to certain closing conditions including satisfactory completion of due diligence by each party, satisfaction with the tax consequences of the transaction, approval of each party's Board of Directors, approval of QSound's shareholders, any necessary government approvals and execution of the Definitive Agreement. The acquisition is expected to close in the second quarter of 2000.

QSound will hold a conference call today at 4:30 Eastern time to discuss the acquisition. Investors may participate in the conference call by phoning (904) 779-4748, password "QSound". The conference call will be available in streaming audio from and starting March 23, 2000.

About StreamMagic, Inc. :
StreamMagic uses proprietary streaming and monitoring technology to provide "on demand" and live streaming services to content owners for delivery of entertainment, sports, news, corporate communications and distance educational services over the Internet. StreamMagic utilizes a nationwide network of ISP's to route bandwidth intensive content "on demand". In addition, StreamMagic is a major participant in streaming live events in conjunction with companies such as Akamai Technologies, Inc. (NASDAQ: AKAM), INTERVU, Inc. (NASDAQ: ITVU) and Digital Island, Inc. (NASDAQ: ISLD). The Company supports all major Internet audio and video formats including Microsoft (NASDAQ: MSFT) Windows Media Player™, RealNetworks (NASDAQ: RNWK) RealPlayer™, Apple (NASDAQ: AAPL) QuickTime™, MPEG1 and streaming JPEG. For more information, visit our Web site at

This release contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995 concerning, among other things, the anticipated acquisition of StreamMagic, QSound's proposed reorganization, and future expectations, plans and prospects of QSound Labs and the anticipated benefit of the proposed transactions for QSound and its shareholders. Investors are cautioned that such forward-looking statements involve risk and uncertainties, which could cause actual results, performance or achievements of QSound, or industry results, to differ materially from those reflected in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following: risks associated with the completion of the transaction, such as the possibility that shareholder or regulatory approvals will not be obtained in a timely manner or at all, risk that a party will not be satisfied with its due diligence investigation, or that the transaction cannot be structured in a way that is satisfactory from the point of view of tax consequences, and risks associated with the carrying out of business plans and strategies, including availability of funds to do so timely and cost effectively, market acceptance for StreamMagic's specialized services, rapid technological change, intense competition, system failures, virus and security vulnerability, continued growth of the Internet, dependence upon intellectual property, general economic and business conditions and other risks which may be detailed from time to time in the Company's periodic reports filed with the Securities and Exchange Commission. Forward-looking statements are based on the current expectations, projections and opinions of the Company's management, and the Company undertakes no obligation to publicly release the results of any revisions to such forward-looking statements which may be made, for example to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.





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