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Avid Technology, Inc., the leading provider of computer-based video, film and audio solutions for entertainment and information applications, announced today that it has signed a definitive agreement to acquire the SOFTIMAGE subsidiary of Microsoft Corporation.

The acquisition will strengthen Avid's presence in the television market by allowing Avid to offer its customers comprehensive solutions for television finishing and will add leading 3D animation technology to Avid's product line.

SOFTIMAGE is a leading developer of 3D animation, video production, 2D cel animation and compositing software solutions for creative professionals. Located in Montreal, Quebec and employing approximately 300 people worldwide, SOFTIMAGE was founded in 1986 and purchased by Microsoft in 1994.

"The acquisition of SOFTIMAGE by Avid is one of the most significant milestones in the history of our company," said William J Miller, Avid's Chairman and CEO. "Both Avid and SOFTIMAGE have independently recoginized the need for integrated nonlinear solutions and have shared a common goal to provide editors and artists with the creative freedom necessary for television finishing and special effects that can only be achieved with digital technology. We are extremely excited about this acquisition and believe that combining SOFTIMAGE's products, technology and talent with Avid's will provide our customers with the most powerful digital content creation tools available today."

According to Miller, this acquisition will support Avid's goal to provide the most powerful comprehensive solutions for finishing television programming of all types. The SOFTIMAGE/DS video production solution is ideally suited for finishing short-form television projects such as special effect-intensive commercials and music videos. It will complement Avid's recently announced Avid Symphony solution, designed to edit and finish long-form television programmes such as sitcoms and movies of the week which are less effects-laden and require a high degree of media management. SOFTIMAGES/DS and Avid Symphony both offer strong links to the Avid Media ComposerR off-line/on-line editing solution and Avid intends to provide greater levels of interoperability over time.

"This deal is a win-win for all involved," said Craig Mundie, Microsoft's Senior Vice President of its Consumer Platform Division. "Avid gains the benefit of rapid expansion into the 3D market, a video production solution which ideally complements its current offerings and a stronger alliance with Microsoft. SOFTIMAGE joins the team of a proven industry leader that will help the company continue to grow and be a force in the digital media space. Microsoft gains a strategic ally for continued development on Windows NT and our digital media initiatives." Under the terms of the transaction, the total value of the consideration to be paid by Avid to Microsoft and to employees of SOFTIMAGE in substitution of their stock options is valued at $285 (US) million.

This will consist of cash, a subordinated note, Avid common stock and a warrant and options to puchase Avid common stock. Microsoft will receive $ million in cash, a subordinated note in the amount of $5 million, Avid common stock valued at $93 million and a warrant valued at $32 million. The Avid common stock in the transaction will consist of approximately 2.344 million shares valued at $39.71 per share. The warrant, which has a life of ten years and is exercisable beginning in the third year, will permit Microsoft to purchase 1.155 million shares of Avid common stock at $47.65 per share. Upon completion of this transaction, Microsoft will own approximately 9.1 percent of Avid outstanding common stock, excluding the unexercised warrant. As part of the agreement, Microsoft has agreed not to purchase any additional shares of Avid common stock for a period of five years. Furthermore, as a demonstration of Microsoft's commitment to the strategic alliance, Microsoft has agreed to maintain its investment for a minimum of three years.

Additionally, Avid will issue options valued at $76 million to purchase 1.912 million shares of Avid common stock at a nominal purchase price of $.01 per share, to SOFTIMAGE employees in consideration of their unvested Microsoft stock options which will be forfeited in the transaction. SOFTIMAGE will become a wholly-owned subsidiary of Avid under the terms of the agreement. While the acquisition is subject to clearance under antitrust laws and other customary closing conditions, it is expected to close during the latter part of July.

"We believe the alliance of these companies will provide significant future economic value for our shareholders," said William L. Flaherty, Senior Vice President and CFO of Avid. "While this acqusition will be dilutive for the remainder of 1998, we expect based on current projections that it will be accretive for the full year 1999, excluding merger-related charges such as goodwill amortization." The transaction is expected to be recorded in the third quarter as a purchase for accounting purposes, the results of which are subject to the completion of fair valuation analyses and the allocation of the pruchase price.

"Microsoft's investment in Avid demonstrates their commitment to support Avid and our common objects," CEO Miller added. "We are already working with a Microsoft on initiatives in digital television and multimedia file formats, and recently demonstrated a collaborative solution to add interactive content to television programmes. This new strategic alliance underscores Microsoft's ongoing commitment to drive the distribution of media content in all-digital environments and to make any computer a visual media platform. We look forward to an even closer working relationship in the future."

SOFTIMAGE develops software for media-rich applications including video, film, interactive games and CD-ROM applications. Products include SOFTIMAGE/DS (video production), SOFTIMAGE/3D (high-end animation), SOFTIMAGE/EDDIE (compositing) and TOONZ (2-D cel animation). Additional information about SOFTIMAGE can be found on the Internet at http:/// .

The above may include forward-looking statements based on current expectations that involve a number of risks and uncertainties, including but not limited to operational integration associated with mergers and acquisitions. Actual results may differ materially from those described therein, depending on such factors as are described under "Certain Factors That May Affect Future Results" in the Company's Annual Report on Form 10-K for 1997 and the Form 10-Q for March 31, 1998 filed with the SEC.

Avid Technology, Inc. is an international, industry-leading provider of digital video, film, and audio tools for creating content for information and entertainment applications. The company's products are used by customers ranging from corporate communications professionals to film, television and interactive content producers to broadcast news organizations. For more information, visit Avid's World Wide Web site at .

Avid and Media Composer are registered trademarks and Avid Symphony is a trademark of Avid Technology, Inc. All other trademarks contained herein are the properties of their respective owners, c-1998 Avid Technology, Inc. All rights reserved.


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