Network Engines Buys Alliance Systems

October 10, 2007

If you have been in the telecommunications market for any period of time you are no doubt aware of Jon Shapiro the founder of Alliance Systems the company responsible for building bullet-proof communications servers. Alliance Systems has great industry partnerships with vendors like Interactive Intelligence, AudioCodes and Dialogic.

Alliance Systems was just sold to Network Engines for about $40 million dollars and according to the acquiring company, this addition of telecommunications products and services blends nicely with the company’s storage and security business.

As always, stay tuned for more.

Here is a letter Jon just sent out:

Dear Friends

I am very pleased to share some exciting news with you. This morning, Network Engines announced that it has entered into a definitive agreement to acquire Alliance Systems, Inc., a leading provider of server appliances and computer infrastructure that support telecommunications and enterprise communications solutions.

This acquisition represents a major milestone for Network Engines and Alliance Systems. From a strategic perspective, it brings Network Engines into new vertical markets -- specifically telecommunications and enterprise communications. It also combines Alliance’s expertise in these segments with Network Engines’ capability in storage and security to create new solutions for customers that take advantage of major trends we see in the market From a financial perspective, Alliance adds more than $100 million to Network Engines’ annual revenue, diversifies its customer base and is immediately accretive to earnings per share on a non-GAAP basis.

The two companies are both in the business of providing server appliances to OEM customers. As such, the operations and financial models of both companies are similar, but have very little overlap. Each company has concentrations of business in different vertical markets which are complementary. Network Engines has focused on storage and security, while Alliance has telecommunications and enterprise communications as its main vertical markets. The capabilities of both companies are also complementary. For example, Alliance has on-site service capabilities in the Americas, EMEA and Asia, while NEI has developed its own appliance management framework (NEWS), a Linux distribution and package management service (ACE Linux) and a Virtual Appliance service. All of this means that Network Engines will be a stronger and higher value add partner to our customers.

It is important for our customers to know that we will take no action that will adversely affect our ability to meet your needs. Our goal is that the new company will immediately benefit from the increased technical and support resources to better serve our customers.

There is more information about the acquisition on our website, www.networkengines.com. If you have any questions please feel free to contact your sales representative or simply reply to this message, and we will respond or call you with the requested information.

We appreciate your business and value the partnership we have with your company. Thank you.

Best regards,

Jon Shapiro

CEO

Alliance Systems