ARC Acquires Alarity Corporation; Establishes Multimedia Development Center in St. Petersburg, Russia

Alarity’s World Class Multimedia Development Team Boosts ARC’s High Definition (HD) Product Development and Custom Engineering Capabilities

ST. ALBANS, England — ARC International (LSE:ARK) today announced that it has acquired Alarity Corporation. Alarity is a privately held U.S. multimedia company that has a renowned team of close to 40 personnel based in St. Petersburg, Russia specializing in codec software, firmware, and advanced multimedia architectures. The acquisition includes all of Alarity’s employees and its vast library of optimized solutions for standard definition (SD) and HD video, hi-fidelity audio, imaging, DSP, and information security applications.

Alarity’s development team already plays a key role in select engagements with “Tier 1” customers creating multimedia solutions based upon ARC’s configurable processors and subsystems. The acquisition will make available Alarity’s full set of resources to a broader number of ARC customers and prospects, enhance ARC’s ongoing multimedia product development efforts, and bolster its customer-specific engineering capabilities.

Alarity’s engineers are experts in HD video and image processing, hi-fidelity audio algorithms, coding and compression, A/V pre- and post-processing, encryption, digital watermarking, and digital rights management. All of these technologies are essential to create a complete next-generation system for HD DVD, BluRay DVD, next-generation iPTV, and HDTV broadcast standards.

As part of the acquisition ARC has established a multimedia development center in St. Petersburg, which complements ARC’s existing centers in Cambridge and St. Albans, England, and Silicon Valley. Dr. Eugene Metlitski, co-founder and CTO of Alarity, will join ARC’s Office of the CTO currently staffed by Dr. Akash Deshpande, Dr. David Greaves, Dr. Tom Pennello, and Dr. Nigel Topham. Renowned in the field of signal processing, computer architecture, and information security, Dr. Metlitski has authored more than 50 books and papers, holds 9 patents in the field of computer science, and is a member of the editorial board of an international technical journal.

Carl Schlachte, president and CEO of ARC International, said, “The acquisition of Alarity supports ARC’s strategy of providing comprehensive, integrated SoC solutions for advanced multimedia applications. In engagements with major customers, Alarity has proven its ability to optimize algorithms, software, and system architectures for highly efficient and ultra-low power operations. By being a full-time member of the growing ARC team, a broader set of customers will benefit from the ability to quickly leverage Alarity’s world-class offerings for their high-volume SoC designs.”

“This is an exciting time in ARC’s history as the company grows its capabilities in optimized multimedia hardware, software, and development tools,” said Felix Litvinsky, co-founder and CEO of Alarity, who also joins ARC as a vice president of the company. “We are very pleased to be joining ARC, and look forward to extending the joint development work already underway to customers globally.”

The consideration will be £2 million in cash. An additional consideration of £900,000 will be paid over two and half years based upon completion of certain performance targets. The acquisition may have a cost impact of up to £450,000 on ARC’s financial year 2007 operations.