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SONICblue Seeks Chapter 11 Protection

In its latest bid for survival, SONICblue Friday filed for Chapter 11 bankruptcy and moved to sell three of its subsidiaries for $52.5 million.

The embattled Santa Clara, Calif. maker of consumer electronics, which has been bleeding cash for more than a year and trying to get in the black, also agreed to sell its ReplayTV and Rio business units to D&M Holdings for $40 million in a non-binding agreement. D&M Holdings is the parent firm of audio equipment makers Denon and Marantz Japan.

But the firm didn't stop there in its effort to get leaner, as it definitively agreed to sell its GoVideo unit to consumer products concern Opta Systems for approximately $12.5 million. The terms of the sale of these business units will require the approval of the U.S. Bankruptcy Court of the Northern District of California, San Jose Division.

"We have great confidence in our business units, and worked to develop a plan that would permit SONICblue to continue operating within the significant constraints imposed by our debt and legacy liabilities," said Gregory Ballard, Chief Executive Officer, SONICblue. "We believe the proposed sale transactions will offer SONICblue's current product lines a stable and financially strong base that will enable product development and current services to carry on."

To facilitate cash liquidity, SONICblue's senior lender has also granted it $4 million in additional financing. The company intends to file motions with the court to support its employees, vendors and customers and to retain Houlihan Lokey Howard & Zukin Capital as financial advisors and Pillsbury Winthrop LLP as legal counsel. As dictated by bankruptcy code, SONICblue will also file a motion to open itself up to be bought vis-á-vis auction by other interested businesses.

SONICblue said the sale of its business units should be completed by the end of April.

Best known for its first-of-its-kind Rio MP3 players, SONICblue's brands include ProGear information appliances, ReplayTV digital recorders and software and Go-Video DVD+VCRs combos, dual-deck VCRs and digital home theater systems. Digital video recorders let users customize television viewing and record shows on a computer hard drive in a set-top box, allowing viewers to skip commercials. ReplayTV's customer service center said their service would continue unimpeded -- just provided by the acquiring firm.

Once a darling to Wall Street and consumer device fanatics, SONICblue's safety measure marks another sour spot in the long decline of the firm, which admitted last January that it was considering putting itself on the auction block.

With bad elements seemingly at every turn in the latter half of 2002, that concession followed a November 2002 filing with the Securities and Exchange Commission, in which the firm said it had a debt of $335.5 million. In September, the firm slashed 25 percent of its work force a month after President and CEO Kenneth Potasher was canned over a loan dispute with the company's board of directors.

That problem and the layoffs sandwiched positive news in the form of a patent suit settlement with digital recorder rival TiVo, but SONCIblue has spent the better part of two years fending off lawsuits, most notably perhaps for its ReplayTV brand, which manufactured a dual deck VCR that media giants CBS, NBC, Viacom and Disney said infringed on their copyrights. That suit was also settled.