This menu option provides two sub options :
Merge To New Clip
The selected clips will be merged into one new clip, which will appear at the top of the current category, and will be titled 'Merged Clip'.
Merge To File
When this option is chosen you will be presented with a Save As dialog to specify the new file name. You can select to save to a rich text file or plain text file. The selected clips will then be merged into the new file.
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