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Pinnacle Systems Board Reaffirms Recommendation of Pending Merger With Avid Technology (26/7/2005)

Rejects Unsolicited Vector Capital Proposal to Acquire One of Pinnacle's Business Units

Pinnacle Systems(R), Inc. (NASDAQ:PCLE) , a leader in digital video solutions, today announced the following additional information with respect to the pending merger transaction with Avid Technology, Inc. (NASDAQ:AVID) .

Late on Friday, July 22, 2005, Pinnacle received a letter from Vector Capital (which has previously been referred to as "Company C" in the Joint Proxy Statement/Prospectus filed with the SEC by Avid and Pinnacle), co-signed by Tennenbaum Capital, offering to acquire the assets of the Business and Consumer division of Pinnacle for $200 million in cash, subject to updated due diligence and completion of contract negotiations.

Pinnacle's board of directors met on July 24, 2005 and after a thorough discussion, determined to reject Vector's proposal for reasons that include the following:

-- First, the Vector proposal is not comparable to the pending Avid transaction. Vector offers only to buy the assets of one division -- the division that generates most of Pinnacle's net sales and gross profit -- with the risks and costs of the balance of the business being left to Pinnacle and its shareholders.

-- Second, based on assumptions regarding Pinnacle's remaining cash and the potential value of its remaining Broadcast and Professional division, Vector suggests that the implied value of its proposal to Pinnacle shareholders was between $418 million and $438 million; however, when these costs and values are more realistically taken into consideration, the value of the Vector proposal is significantly reduced.
* The proposal overlooks significant costs -- including the continuing operating expenses and corporate overhead, restructuring costs, professional fees and transaction costs that Pinnacle would bear -- and that an asset sale by Pinnacle would not be a tax efficient structure for providing value to Pinnacle shareholders.
* Vector has assumed a value of $100 million to $120 million for the remaining Broadcast and Professional division of Pinnacle; however, all risks of realizing that value would be borne by Pinnacle shareholders.

-- Third, the proposal entails a number of significant and unacceptable risks, including uncertainty relating to financing for the transaction, and the negotiating uncertainties and time necessary to pursue a succession of complex transactions and corporate restructuring, with no assurance of success or ultimate value to Pinnacle shareholders.

The Pinnacle board has also given further consideration to the pending transaction with Avid. On July 13, 2005 and July 21, 2005, Avid made public announcements concerning its results for the quarter ended June 30, 2005, and held a publicly-webcast teleconference to explain the results and provide further detail. The announcements indicated a shortfall in Avid's revenue and net income for the latest quarter from previous expectations, and a reduction in the forecast by Avid's management as to anticipated revenue and net income in upcoming periods.

In light of that situation, Pinnacle's board of directors instructed management and the financial advisors to Pinnacle to meet with representatives from Avid for the purpose of investigating and understanding the causes underlying the revenue and net income shortfall. Pinnacle's board of directors subsequently met with management and the financial advisors to Pinnacle to review and discuss the results of their investigation, and to review the strategic and business considerations relating to the Avid transaction, the change in value to Pinnacle shareholders, and other factors. Following that review and those discussions, the Pinnacle board of directors unanimously concluded that the proposed merger transaction with Avid remains in the best interest of Pinnacle's shareholders.

For all of these reasons, the Pinnacle board of directors continues to recommend that Pinnacle shareholders vote to approve the terms of the proposed merger with Avid.

Patti Hart, Chairman of the Board of Pinnacle, said, "The board concluded that the proposed offer from Vector Capital lacked comparability to the pending transaction. We found the proposal to be speculative and incomplete creating obvious risks to our shareholders. Based on these factors and our past experience with Vector relative to certainty of funding, we continue to strongly recommend that our shareholders vote in favor of the pending merger with Avid."

The special meeting of Pinnacle shareholders for the purpose of voting to approve the terms of the proposed merger with Avid remains scheduled to take place on Wednesday, July 27, 2005, at the time and place set forth in the Joint Proxy Statement/Prospectus previously distributed to shareholders.

Pinnacle shareholders should take note that the proposed merger would not qualify as a reorganization for United States federal income tax purposes if the fair market value of Avid common stock were below approximately $47 per share at the effective time of the merger. A discussion of potential tax consequences of the merger can be found in the Joint Proxy Statement/Prospectus. Shareholders are urged to consult their own tax advisors as to the specific tax consequence to them of the merger.

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