PINNACLE SYSTEMS INC, DEF 14A, 1997-03-05

PINNACLE SYSTEMS INC
DEF 14A, 1997-03-05
PHOTOGRAPHIC EQUIPMENT & SUPPLIES

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SCHEDULE 14A INFORMATION
------------------------

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
|X| Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12

PINNACLE SYSTEMS, INC
- --------------------------------------------------------------------------------
(Name of Registrant as specified in its charter)

PINNACLE SYSTEMS, INC
- --------------------------------------------------------------------------------
(Name of person(s) filing proxy statement)

Payment of Filing Fee (Check the appropriate box)

[ ] $125 per Exchange Act Rules -11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)
(2) of Schedule A
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A

<PAGE>

PINNACLE SYSTEMS, INC.

--------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 10, 1997

TO THE SHAREHOLDERS:

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of PINNACLE
SYSTEMS, INC., a California corporation (the "Company"), will be held on
Thursday, April 10, 1997 at 1:00 p.m. local time, at the Company's principal
executive offices, 280 North Bernardo Avenue, Mountain View, California 94043
for the following purposes:

1. To approve an amendment to the Company's 1994 Employee Stock Purchase Plan
to increase the number of shares reserved for issuance thereunder by 250,000
shares.

2. To transact such other business as may properly come before the meeting
or any adjournment thereof.

The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only shareholders of record at the close of
business on February 14, 1997 are entitled to notice of and to vote at the
meeting.

All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he or she has returned a Proxy.

Sincerely,

Arthur D. Chadwick
Secretary

Sunnyvale, California
March 5, 1997

- --------------------------------------------------------------------------------

YOUR VOTE IS IMPORTANT.

IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENCLOSED ENVELOPE.

- --------------------------------------------------------------------------------

<PAGE>

PINNACLE SYSTEMS, INC.

--------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 10, 1997

INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

The enclosed Proxy is solicited on behalf of the Board of Directors of
PINNACLE SYSTEMS, INC., a California corporation (the "Company"), for use at a
Special Meeting of Shareholders to be held Thursday, April 10, 1997 at 1:00 p.m.
local time, or at any adjournment thereof, for the purposes set forth herein and
in the accompanying Notice of Special Meeting of Shareholders. The Special
Meeting will be held at the Company's principal executive offices located at 280
North Bernardo Avenue, Mountain View, California 94043. Its telephone number at
that location is (415) 526-1600.

These proxy solicitation materials were first mailed on or about March 5,
1997 to all shareholders entitled to vote at the meeting.

RECORD DATE AND PRINCIPAL SHARE OWNERSHIP

Shareholders of record at the close of business on February 14, 1997 entitled
to notice of and to vote at the meeting. The Company has one series of Common
Shares outstanding, designated Common Stock, no par value. At the record date,
7,251,480 shares of the Company's Common Stock were issued and outstanding and
held of record by 89 shareholders. No shares of the Company's Preferred Stock
were outstanding.

The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of February 14, 1997 as to (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the executive officers named in the Summary Compensation Table below and
(iv) all directors and executive officers as a group.

Capital Research and Management Company ...........

Capital Guardian Trust Company ....................

SMALLCAP World Fund, Inc. .........................
333 South Hope Street
Los Angeles, CA 90071

Franklin Resources, Inc.(3) ....................... 543,650 7.5
777 Mariners Island Blvd.
San Mateo, CA 94404

Irwin J. Jacobs(4) ................................ 525,800 7.2
100 South Fifth Street, Suite 2500
Minneapolis, MN 55402

J.P. Morgan & Co. Incorporated(5) ................. 440,510 6.1
60 Wall Street
New York, NY 10260

<PAGE>

COMMON STOCK APPROXIMATE
FIVE PERCENT SHAREHOLDERS, DIRECTORS BENEFICIALLY PERCENTAGE
AND CERTAIN EXECUTIVE OFFICERS OWNED OWNED(1)
------------------------------- -------------- -------------
PaineWebber Group, Inc.(6) ...................... 415,100 5.7
1285 Avenue of the Americas
New York, NY 10019-6028
Wilke/Thompson Capital Management, Inc.(7) ...... 393,400 5.4
3800 Norwest Center
90 South 7th Street
Minneapolis, MN 55402
Mark L. Sanders(8) .............................. 243,069 3.4
Ajay Chopra(9) .................................. 214,086 3.0
Charles J. Vaughn(10) ........................... 47,305 *
Glenn E. Penisten(11) ........................... 44,359 *
Nyal D. McMullin(12) ............................ 31,536 *
Brian Conner(13) ................................ 13,943 *
Walter E. Werdmuller ............................ 5,000 *
John Lewis(14) .................................. 1,770 *
Kevin McDonald .................................. -- *
All directors and executive officers as
a group (15 persons)(15).................... 706,411 9.7

- ------------------
* Less than one percent.

(1) Applicable percentage of ownership is based on 7,251,480 shares of Common
Stock outstanding as of February 14, 1997 together with applicable options
for such shareholder. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission, and includes voting
and investment power with respect to shares. Shares of Common Stock subject
to options currently exercisable or exercisable within 60 days after
February 14, 1997 are deemed outstanding for computing the percentage
ownership of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.

(2) Reflects ownership as reported on Schedule 13G dated February 12, 1997
filed with the Securities and Exchange Commission by The Capital Group
Companies, Inc., Capital Research and Management Company, SMALLCAP World
Fund, Inc. and Capital Guardian Trust Company (collectively, "Capital
Guardian"). Capital Guardian has sole dispositive power as to 515,000 of
these shares and has sole voting power as to 315,000 of such shares. The
Company does not have knowledge as to where voting or dispositive power
with respect to the remaining shares resides.

(3) Reflects ownership as reported on Schedule 13G dated February 12, 1997
filed with the Securities and Exchange Commission by Franklin Resources,
Inc. ("Franklin"). Franklin has sole dispositive power and sole voting
power as to 442,500 of these shares. Sole dispositive power and voting
power of the remaining shares is held by one or more open or closed-end
investment companies or other managed accounts which are advised by direct
or investment advisory subsidiaries of Franklin.

(4) Reflects ownership as reported on Schedule 13G dated February 2, 1997 filed
with the Securities and Exchange Commission. Represents shares beneficially
owned by Irwin L. Jacobs ("ILJ"), Alexandra Jacobs ("AJ"), Melinda A.
Jacobs-Grodnick ("MJG"), Randi F. Jacobs ("RFJ"), Trisha L. Jacobs ("TLJ"),
the Irwin L. Jacobs Irrevocable Trust for the Benefit of Melinda A.
Jacobs-Grodnick (the "MJG Trust"), the Irwin L. Jacobs Irrevocable Trust
for the Benefit of Randi F. Jacobs (the "RFJ Trust"), the Irwin L. Jacobs
Irrevocable Trust for the Benefit of Trisha L. Jacobs (the "TLJ Trust" and
collectively with the MJG Trust and the RFJ Trust, the "Trusts"), Jacobs
Management Corporation ("JMC") Roger R. Cloutier, II ("RRC"), Daniel T.
Lindsay ("DTL") and Grant E. Oppegaard ("GEO"). ILJ is the beneficial owner
of 295,800 shares, or 4.1% of the outstanding shares

2
<PAGE>

of Common Stock as of February 14, 1997. ILJ has sole dispositive powers
and sole voting power over such 295,800 shares, and has shared voting power
with RRC, DTL and GEO over 47,000 shares of Common Stock. AJ is the
beneficial owner of 10,000 shares, MJG is the beneficial owner of 5,000
shares, RFJ is the beneficial owner of 10,000 shares, TLJ is the beneficial
owner of 20,000 shares, the MJG Trust is the beneficial owner of 8,000
shares, the RFJ Trust is the beneficial owner of 60,000 shares and the TLJ
Trust is the beneficial owner of 50,000 shares, with each beneficial owner
holding less than 1% of the outstanding shares of Common Stock as of
February 14, 1997. Each of these entities holds sole voting and dispositive
power over the shares held by them.

(5) Reflects ownership as reported on Schedule 13G dated January 31, 1997 filed
with the Securities and Exchange Commission by J.P. Morgan & Co.
Incorporated ("J.P. Morgan"). J.P. Morgan has sole dispositive power as to
all of these shares and sole voting power as to 234,900 of such shares. The
Company does not have knowledge as to where voting power with respect to
the remaining shares resides.

(6) Reflects ownership as reported on Schedule 13G dated February 13, 1997
filed with the Securities and Exchange Commission by PaineWebber Group,
Inc. ("PaineWebber"). PaineWebber has sole dispositive power as to all of
the shares and sole voting power as to 396,300 of such shares. The Company
does not have knowledge as to where voting power with respect to the
remaining shares resides.

(7) Reflects ownership as reported on Schedule 13G dated January 21, 1997 filed
with the Securities and Exchange Commission by Wilke/Thompson Capital
Management, Inc. ("Wilke/Thompson"). Wilke/Thompson has sole dispositive
power and sole voting power as to all of the shares.

(8) Includes 227,186 shares of Common stock that may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
with 60 days of February 14, 1997.

(9) Includes 39,666 shares of Common stock that may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of February 14, 1997.

(10) Includes 1,770 shares of Common Stock that may be acquired upon exercise of
stock options which are presently exercisable or will become exercisable
within 60 days of February 14, 1997.

(11) Includes 1,770 shares of Common stock that may be acquired upon exercise of
stock options which are presently exercisable or will become exercisable
within 60 days of February 14, 1997.

(12) Includes 22,266 shares of Common Stock that may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of February 14, 1997.

(13) Includes 13,458 shares of Common Stock that may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of February 14, 1997.

(14) Includes 1,770 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of February 14, 1997.

(15) Includes 376,073 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of February 14, 1997.

REVOCABILITY OF PROXIES

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.

VOTING AND SOLICITATION

Each shareholder is entitled to one vote for each share held. A quorum
comprising the holders of the majority of the outstanding shares of Common Stock
on the record date must be present or represented for the transaction of
business at the Special Meeting. Abstentions and broker non-votes will be
counted in establishing the quorum.

This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing

3
<PAGE>

beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram.

DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS

Proposals of shareholders of the Company that are intended to be presented by
such shareholders at the Company's 1997 Annual Meeting of Shareholders must be
received by the Company no later than May 23, 1997 in order that they may be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.

PROPOSAL ONE
AMENDMENT OF 1994 EMPLOYEE STOCK PURCHASE PLAN

At the Special Meeting, the shareholders are being asked to approve an
amendment of the Company's 1994 Employee Stock Purchase Plan (the "Purchase
Plan") to increase the number of shares reserved for issuance thereunder by
250,000 shares. The adoption of the Purchase Plan was approved by the Board of
Directors in August 1994 and by the shareholders in September 1994. A total of
100,000 shares of Common Stock have been reserved for issuance under the
Purchase Plan. As of February 14, 1997, a total of 71,534 shares had been issued
to employees at an average purchase price of $11.72 per share pursuant to four
(4) offerings under the Purchase Plan and 28,466 shares remain available for
future issuance. The fair market value of the Common Stock of the Company on the
first day of the most recent offering period was $10.88 per share. See "Purchase
Price."

The total number of shares subject to options granted at the beginning of the
offering period which ends April 30, 1997 exceeds the number of shares remaining
available for issuance under the Purchase Plan. As a result, the number of
shares remaining available for issuance under the Purchase Plan is not
sufficient to allow for the purchase of the full number of shares that would be
purchased during the current purchase period. Therefore, the Board of Directors
has approved the amendment to the Purchase Plan and proposed that it be approved
by the shareholders at this Special Meeting.

The Board of Directors believes that in order to continue to attract and
retain qualified employees for the Company, it is necessary to continue to allow
employees to purchase Common Stock under the Purchase Plan. The remaining shares
available for issuance under the Purchase Plan is insufficient to satisfy this
purpose.

VOTE REQUIRED

The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to the Purchase Plan. For this purpose, the "Votes Cast"
are defined to be the shares of the Company's Common Stock represented and
"voting" at the Special Meeting. In addition, the affirmative votes must
constitute at least a majority of the required quorum, which quorum is a
majority of the shares outstanding at the record date. Votes that are cast
against the proposal will be counted for purposes of determining both (i) the
presence or absence of a quorum and (ii) the total number of Votes Cast with
respect to the proposal. Abstentions will be counted for purposes of determining
both (i) the presence or absence of a quorum for the transaction of business and
(ii) the total number of Votes Cast with respect to the proposal. Accordingly,
abstentions will have the same effect as a vote against the proposal. Broker
non-votes, if any, will be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, but will not be counted for
purposes of determining the number of Votes Cast with respect to this proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE AMENDMENT TO
THE PURCHASE PLAN.

The essential terms of the Purchase Plan, as amended, are summarized as
follows:

PURPOSE

The purposes of the Purchase Plan is to provide employees of the Company and
of any subsidiary which is designated by the Board of Directors to participate
in the Purchase Plan with an opportunity to

<PAGE>

purchase Common Stock of the Company through accumulated payroll deductions. The
Purchase Plan is intended to qualify under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code").

ADMINISTRATION

The Purchase Plan provides for administration by the Board of Directors of
the Company or a committee appointed by the Board. All questions of
interpretation or application of the Purchase Plan are determined by the Board
of Directors or its appointed committee, and its decisions are final and binding
upon all participants. No charge for administrative or other costs may be made
against the payroll deductions of a participant in the Purchase Plan. Members of
the Board receive no additional compensation for their services in connection
with the administration of the Purchase Plan.

OFFERING PERIODS

The Purchase Plan has offering periods of approximately twenty-four months,
each divided into four six-month purchase periods. The offering periods commence
on or after May 1 and November 1 of each year. The Board of Directors has the
power to alter the duration of the offering periods without shareholder
approval.

ELIGIBILITY

Any person who (i) is a regular employee scheduled to work at least twenty
hours per week and at least five months per year and (ii) was employed by the
Company immediately preceding the enrollment date (or by any subsidiary
designated from time to time by the Board of Directors) is eligible to
participate in the Purchase Plan. Eligible employees become participants in the
Purchase Plan by delivering to the Company's payroll office a subscription
agreement authorizing payroll deductions. An employee who becomes eligible to
participate in the Purchase Plan after the commencement of an offering may not
participate in the Purchase Plan until the commencement of the next offering
period.

PURCHASE PRICE

The price at which shares are sold to participating employees is eighty-five
percent (85%) of the lower of the fair market value per share of the Common
Stock on (i) the first day of the offering period or (ii) the last day of the
purchase period. The fair market value of the Common Stock on a given date is
determined by reference to the closing sales price of the Nasdaq National
Market. The closing sale price per share of the Company's Common Stock on the
Nasdaq National Market on February 14, 1997 was $12.00.

PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS

The purchase price of the shares is accumulated by payroll deductions over
the offering period. The deductions may not exceed 15% of a participant's
compensation. A participant may discontinue his or her participation in the
Purchase Plan and may decrease the rate of payroll deductions at any time during
the offering period. A participant may increase the rate of payroll deductions
at the beginning of each purchase period. Payroll deductions shall commence on
the first payday following the offering date and shall continue at the same rate
until the end of the offering period unless sooner terminated as provided in the
Purchase Plan.

PURCHASE OF STOCK; EXERCISE OF OPTION

By executing a subscription agreement to participate in the Purchase Plan,
the employee is entitled to have shares placed under option to him or her. The
maximum number of shares placed under option to a participant in an offering is
that number arrived at by dividing the amount of his or her compensation which
he or she has elected to have withheld for the purchase period by the lower of
(i) 85% of the fair market value of a share of Common Stock at the beginning of
the offering period, or (ii) 85% of the fair market value of a share of Common
Stock on the last day of the purchase period as long as the total number of
shares issued to a participant for any purchase period does not exceed a number
determined by dividing $12,500 by the market value of a share of Common Stock at
the beginning of the offering

<PAGE>

period. Unless the employee's participation is discontinued, the option for the
purchase of shares will be exercised automatically at the end of the purchase
period at the applicable price.

Notwithstanding the forgoing, no employee shall be permitted to subscribe for
shares under the Purchase Plan (a) if, immediately after the grant of the
option, the employee would own, and/or hold outstanding options to purchase, 5%
or more of the voting stock or value of all classes of stock of the Company or
(b) which permits his or her rights to purchase stock under all employees stock
purchase plans of the Company and its subsidiaries to accrue at a rate which
exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the
fair market value of the shares at the time such option is granted) for each
calendar year in which such option is outstanding at any time. Furthermore, if
the number of shares which would otherwise be placed under option at the
beginning of an offering period exceeds the number of shares then available
under the Purchase Plan, a pro rata allocation of the shares remaining shall be
made in as equitable a manner as is practicable.

WITHDRAWAL

While each participant in the Purchase Plan is required to sign a
subscription agreement authorizing payroll deductions, the participant's
interest in a given offering may be terminated in whole, but not in part, by
signing and delivering to the Company a notice of withdrawal from the Purchase
Plan. Such withdrawal may be elected at any time prior to the end of the
applicable offering period. Any withdrawal by the employee during a given
offering automatically terminates the employee's interest in that offering.

TERMINATION OF EMPLOYMENT

Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the Purchase Plan
immediately. In such event, the payroll deductions credited to the participant's
account will be returned without interest to such participant, or, in the case
of death, to the person or persons entitled thereto as specified by the employee
in the subscription agreement.

CAPITAL CHANGES

In the event of any changes in the capitalization of the Company, such as
stock splits or stock dividends, resulting in an increase or decrease in the
number of shares of Common Stock, effected without receipt of consideration by
the Company, appropriate adjustments will be made by the Company in the shares
subject to purchase and in the purchase price per share.

NONASSIGNABILITY

No rights or accumulated payroll deductions of an employee under the Purchase
Plan may be pledged, assigned, or transferred for any reason and any such
attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.

AMENDMENT AND TERMINATION OF THE PURCHASE PLAN

The Board of Directors may at any time amend or terminate the Purchase Plan,
except that such termination shall not affect options previously granted nor may
any amendment make any changes in an option granted prior thereto which
adversely affects the rights of any participant. No amendment may be made to the
Purchase Plan without prior approval of the shareholders of the Company if such
amendment would increase the number of shares reserved under the Purchase Plan,
materially modify the eligibility requirements, or materially increase the
benefits which may accrue to participants under the Purchase Plan.

CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION

The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 423 of the
Code. Under these provisions, no income will be taxable to a participant until
the shares purchased under the Purchase Plan are sold or otherwise disposed of.
Upon sale or other disposition of the shares, the participant will generally be
subject to tax and the amount of the tax will depend upon the holding period. If
the shares are sold or otherwise disposed of more than two

<PAGE>

years from the first day of the offering period and more than one year from the
date of the shares are purchased, the participant will recognize ordinary income
measured as the lesser of (a) the excess of the fair market value of the shares
at the time of such sale or disposition over the purchase price, or (b) an
amount equal to 15% of the fair market value of the shares as of the first day
of the offering period. Any additional gain will be treated as long-term capital
gain. If the shares are sold or otherwise disposed of before the expiration of
these holding periods, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss of
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period. Generally, the Company is entitled to a
deduction for ordinary income recognized by participants upon a sale or
disposition of shares prior to the expiration of the holding period(s) described
above.

The foregoing is only a summary of the effect of federal income taxation upon
the participant and the Company with respect to the shares purchased under the
Purchase Plan. Reference should be made to the applicable provisions of the
Code. In additional, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.

PARTICIPATION IN THE PURCHASE PLAN

Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her determination as to
the level of payroll deductions. Accordingly, future purchases under the
Purchase Plan are not determinable. Non-employee directors are not eligible to
participate in the Purchase Plan.

The following table sets forth certain information regarding shares purchased
during the fiscal year ended June 30, 1996 by each of the executive officers
named in the Summary Compensation Table below who participated in the Purchase
Plan, all current executive officers as a group, and all other employees who
participated in the Purchase Plan as a group:

NUMBER OF
NAME OF INDIVIDUAL OR IDENTITY SHARES DOLLAR VALUED
OF GROUP AND POSITION PURCHASED (#)($)(1)
----------------------- ------- -------

Mark L. Sanders .................................. 398 $ 1,537
Brian Conner ..................................... -- --
Kevin McDonald(2) ................................ 1,327 17,253
Ajay Chopra ...................................... -- --
Walter E. Werdmuller(2) .......................... 1,079 17,008
All current executive officers as a group 6,788 98,418
All other employees .............................. 27,027 384,034
Non-Executive Officer Directors as a group * *

- -----------------
* Not eligible to participate in the Purchase Plan.

(1) Market value of shares on date of purchase minus the purchase price under
the Purchase Plan.

(2) Mr. Werdmuller and Mr. McDonald resigned all positions with the Company
effective in September 1996.

<PAGE>

EXECUTIVE COMPENSATION AND OTHER MATTERS

EXECUTIVE COMPENSATION

The following table sets forth total compensation for the fiscal years ended
June 30, 1996, 1995 and 1994 for the Chief Executive Officer and each of the
next four most highly compensated executive officers during the fiscal year
ended June 30, 1996 (the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
AWARDS
ANNUAL --------------
COMPENSATION NUMBER OF
---------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(2)
- --------------------------- ---------- ---------- -------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Sanders ............ 1996 $176,500 $6,000 $ -- 9,000 $ --
President, Chief Executive 1995 150,604 7,672 -- 40,000 --
Officer and Director 1994 133,250 -- -- -- --

Brian Conner ............... 1996 146,553 6,000 -- 9,000 --
Vice President, Europe, 1995(1) 58,815 2,940 -- 20,000 --
African and Middle East 1994 -- -- -- -- --

Kevin McDonald(3) .......... 1996 138,500 5,000 -- 9,000 --
Vice President, Marketing 1995(2) 45,000 3,544 -- 54,000 --
and Domestic Sales 1994 -- -- -- -- --

Ajay Chopra ................ 1996 133,500 6,000 -- 9,000 --
Vice President, Strategic 1995 122,365 5,460 -- 47,000 --
Marketing and Chairman of 1994 108,000 -- -- -- --
the Board of Directors

Walter E. Werdmuller(3) ... 1996 132,106 4,000 -- 9,000 --
Vice President, Sales-- 1995 133,885 4,275 -- 25,000 --
Americas and Far East 1994 108,956 -- -- -- --
<FN>
- ---------------------

(1) Mr. Conner joined the Company in February 1995.
(2) Mr. McDonald joined the Company in March 1995.
(3) Mr. Werdmuller and Mr. McDonald resigned all positions with the Company
effective in September 1996.
</FN>
</TABLE>

<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information concerning each grant of options to
purchase the Company's Common Stock made during the fiscal year ended June 30,
1996 to the Named Executive Officers:

POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------- MINUS EXERCISE PRICE
AT
ASSUMED ANNUAL RATES
OF
NUMBER OF % OF TOTAL EXERCISE STOCK PRICE
SECURITIES OPTIONS PRICE PER APPRECIATION
UNDERLYING GRANTED TO SHARE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN ($/SH) EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR (2)(3)(4) DATE 5% 10%
- ------------------------ ------------ -------------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Sanders ......... 9,000 1.85% $16.00 01/17/06 $90,561 $229,499
Brian Conner ............ 9,000 1.85% 16.00 01/17/06 90,561 229,499
Kevin McDonald(5) ....... 9,000 1.85% 16.00 01/17/06 90,561 229,499
Ajay Chopra ............. 9,000 1.85% 16.00 01/17/06 90,561 229,499
Walter E. Werdmuller(5).. 9,000 1.85% 16.00 01/17/06 90,561 229,499
<FN>
- ----------------
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the 10 year option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.
(2) All options shown granted in fiscal 1996 become exercisable as to 25% of the
option shares on the first anniversary of the date of grant and as to 1/48
th of the option shares each month thereafter, with full vesting occurring
on the fourth anniversary of the date of grant. Under the 1987 Stock Option
Plan, the Board of Directors retains the discretion to modify the terms,
including the price, of outstanding options.
(3) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by reference to the closing sale
price of the Common Stock on the Nasdaq National Market on the date of
grant.
(4) Exercise price may be paid in cash, promissory note, by delivery of
already-owned shares subject to certain conditions, or pursuant to a
cashless exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the Company, out of the sale proceeds, an amount equal to the exercise
price plus all applicable withholding taxes.
(5) Mr. Werdmuller and Mr. McDonald resigned all positions with the Company
effective in September 1996.
</FN>
</TABLE>

9
<PAGE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

The following table sets forth certain information regarding the exercise of
stock options by the Named Executive Officers in the fiscal year ended June 30,
1996 and the value of stock options held as of June 30, 1996 by such
individuals.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
JUNE 30, 1996 ($)(1)
-----------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT JUNE 30, 1966 (#) AT JUNE 30, 1996 ($)(1)
EXERCISE REALIZED ----------------------------- -----------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ------------- ------------ ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Sanders ......... 148,308 $3,389,872 216,228 31,500 $4,082,378 $369,000
Brian Conner ............ -- -- 6,666 22,334 68,327 179,424
Kevin McDonald(2) ....... 3,000 42,000 14,375 48,625 100,241 316,349
Ajay Chopra ............. -- -- 27,250 36,750 415,348 376,193
Walter E. Werdmuller(2).. 14,483 323,766 2,842 24,000 31,603 211,013

<FN>
- --------------
(1) Fair market value of the Common Stock as of the date of exercise or June 30,
1996, as the case may be, determined by reference to the closing sale price
of the Common Stock on the Nasdaq National Market minus the exercise price.
(2) Mr. Werdmuller and Mr. McDonald resigned all positions with the Company
effective in September 1996.
</FN>
</TABLE>

EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS

In September 1994, the Company and Mark L. Sanders, President, Chief
Executive Officer and a Director, entered into an agreement (the "Agreement")
providing that in the event of Mr. Sanders' resignation or termination of
employment, the Company will retain him as a part-time employee to render
services to the Company on an as-needed basis for up to one full day per month.
As compensation for his services, the Company will pay Mr. Sanders a fee of
$1,000 per month. The Agreement becomes effective upon Mr. Sanders' resignation
or termination of employment with the Company and terminates in September 1999.
The Agreement may not be terminated by the Company.

The Company currently has no other employment contracts with any of the Named
Executive Officers, and the Company has no other compensatory plan or
arrangement with such Named Executive Officers where the amounts to be paid
exceed $100,000 and which are activated upon resignation, termination or
retirement of any such executive officer upon a change in control of the
Company.

COMPENSATION OF DIRECTORS

Non-employee members of the Company's Board of Directors receive an annual
retainer of $8,000 and an additional $500 for each committee meeting attended.
The Company's 1994 Director Option Plan provides that options may be granted to
non-employee directors of the Company who do not represent shareholders holding
more than 1% of the Company's outstanding Common Stock pursuant to an automatic
nondiscretionary grant mechanism. Pursuant to the 1994 Director Option Plan, in
November 1995, an option to purchase 5,000 shares of the Company's Common Stock
at an exercise price of $31.75 per share was granted to each of Nyal D.
McMullin, Glenn E. Penisten, and Charles J. Vaughan. Pursuant to the 1994
Director Option Plan, in December 1995, an option to purchase 5,000 shares of
the Company's Common Stock at an exercise price of $30.25 per share was granted
to John Lewis.

<PAGE>

OTHER MATTERS

The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.

THE BOARD OF DIRECTORS

Dated: March 5, 1997

<PAGE>
PROXY PINNACLE SYSTEMS, INC PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF SHAREHOLDERS
APRIL 10, 1997

The undersigned shareholder of PINNACLE SYSTEMS, INC., a California
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Shareholders and Proxy Statement, each dated March 5, 1997, and hereby appoints
Mark L. Sanders and Arthur D. Chadwick, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Special Meeting of
Shareholders of PINNACLE SYSTEMS, INC. to be held on April 10, 1997 at 1:00
p.m. local time, at the Company's principal executive offices, 280 North
Bernardo Avenue, Mountain View, California and at any adjournment or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse and, in their discretion, upon such other
matter or matters which may properly come before the meeting or any adjournment
or adjournments thereof.

(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE)

<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
[X] Please mark
your votes
as this

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY 1. AMENDMENT OF 1994 EMPLOYEE STOCK PURCHASE FOR AGAINST ABSTAIN
DIRECTION IS INDICATED, WILL BE VOTED FOR THE AMENDMENT PLAN TO INCREASE THE NUMBER OF SHARES OF [ ] [ ] [ ]
TO THE 1994 EMPLOYEE STOCK PURCHASE PLAN AND AS SAID COMMON STOCK RESERVED FOR ISSUANCE
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY THEREUNDER BY 250,000 SHARES.
PROPERLY COME BEFORE THE MEETING.

SIGNATURE(S) DATED , 1997
---------------------------------------------------- --------------

THIS PROXY SHOULD BE MARKED, DATED AND SIGNED BY THE SHAREHOLDER(S) EXACTLY AS HIS OR HER NAME APPEARS HEREON, AND
RETURNED PROMPTLY IN THE ENCLOSED ENVELOPE. PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO INDICATE. IF SHARES ARE
HELD BY JOINT TENANTS OR AS COMMUNITY PROPERTY, BOTH SHOULD SIGN.
</TABLE>

<PAGE>

PINNACLE SYSTEMS, INC.

1994 EMPLOYEE STOCK PURCHASE PLAN
(as amended January 20, 1997)

The following constitute the provisions of the 1994 Employee Stock
Purchase Plan of Pinnacle Systems, Inc.

1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.

2. Definitions.

(a) "Board" shall mean the Board of Directors of the Company.

(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.

(d) "Company" shall mean Pinnacle Systems, Inc. and any
Designated Subsidiary of the Company.

(e) "Compensation" shall mean all base straight time gross
earnings, excluding commissions, payments for overtime, shift premium, variable
compensation, incentive payments, bonuses, and other cash compensation.

(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.

(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds ninety (90)
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.

(h) "Enrollment Date" shall mean the first day of each
Offering Period.

(i) "Exercise Date" shall mean the last day of each Purchase
Period.

<PAGE>

(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:

(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sale price for the Common Stock (or the mean of the closing bid and
asked prices, if no sales were reported), as quoted on such exchange (or the
exchange with the greatest volume of trading in Common Stock) or system on the
date of such determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;

(2) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;

(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.

For purposes of the Enrollment Date under the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final Prospectus included within the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock.

(k) "Offering Period" shall mean the period of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the period ending
twenty-four (24) months later. The first Offering Period shall begin on the
effective date of the Company's initial public offering of its Common Stock that
is registered with the Securities and Exchange Commission and shall end on the
last Trading Day on or before October 31, 1996. The duration and timing of
Offering Periods may be changed pursuant to Section 4 of this Plan.

(l) "Plan" shall mean this Employee Stock Purchase Plan.

(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.

(n) "Purchase Period" shall mean the approximately six (6)
month period commencing after one Exercise Date and ending with the next
Exercise Date, except that the first Purchase Period of any Offering Period
shall commence on the Enrollment Date and end with the next Exercise Date. The
first Purchase Period of the first Offering Period shall begin on the effective
date of the Company's initial

-2-
<PAGE>

public offering of its Common Stock that is registered with the Securities and
Exchange Commission and shall end on the last Trading Day on or before April 30,
1995.

(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.

(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.

(q) "Trading Day" shall mean a day on which national stock
exchanges and the National Association of Securities Dealers Automated Quotation
(Nasdaq) System are open for trading.

3. Eligibility.

(a) Any Employee (as defined in Section 2(g)) who shall be
employed by the Company immediately preceding a given Enrollment Date shall be
eligible to participate in the Plan; provided, however, that with respect to the
first Offering Period, any Employee who shall be employed by the Company five
(5) business days prior to the first Enrollment Date shall be eligible to
participate in the Plan. Notwithstanding the foregoing, however, any Employee
shall be eligible to participate in the Plan who was employed by the Company as
of the effective date of registration statement filed with the Securities and
Exchange Commission for the initial offering of shares of Common Stock of the
Company to the public.

(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) which permits his or her rights to purchase stock under
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.

4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods. Except for the first Offering Period, a new
Offering Period shall commence on the first Trading Day on or after May 1 and
November 1 each year, or on such other date as the Board shall determine, and
continue thereafter until terminated in accordance with Section 19 hereof. The
first Offering Period shall begin on the effective date of the Company's initial
public offering of its Common Stock that is registered with the Securities and
Exchange Commission. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings

-3-
<PAGE>

without shareholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected
thereafter.

5. Participation.

(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
five (5) business days prior to the applicable Enrollment Date.

(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.

6. Payroll Deductions.

(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period, and the aggregate of such payroll deductions during the Offering Period
shall not exceed fifteen percent (15%) of the participant's Compensation during
said Offering Period.

(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into such
account.

(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof. A participant may decrease the rate
of his or her payroll deductions to 0% during the Offering Period by completing
and filing with the Company a new subscription agreement authorizing the
reduction in payroll deduction rate. A participant may resume participation by
completing and filing with the Company a new subscription agreement at least
five (5) days prior to the commencement of the next Offering Period or Purchase
Period, as applicable. A participant's subscription agreement shall remain in
effect for successive Offering Periods unless terminated as provided in Section
10 hereof.

(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to 0% at such time during any
Purchase Period which is scheduled to end during the current calendar year (the
"Current Purchase Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Purchase Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.

-4-

<PAGE>

(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.

7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than a
number of Shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.

8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.

9. Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, a certificate representing the shares
purchased upon exercise of his or her option.

10. Withdrawal; Termination of Employment.

(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account will be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period will be automatically terminated, and

-5-
<PAGE>

no further payroll deductions for the purchase of shares will be made for such
Offering Period. If a participant withdraws from an Offering Period, payroll
deductions will not resume at the beginning of the succeeding Offering Period
unless the participant delivers to the Company a new subscription agreement.

(b) Upon a participant's ceasing to be an Employee (as defined
in Section 2(g) hereof), for any reason, he or she will be deemed to have
elected to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option will be automatically terminated.

11. Interest. No interest shall accrue on the payroll deductions
of a participant in the Plan.

12. Stock.

(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be three hundred
fifty thousand (350,000) shares, subject to adjustment upon changes in
capitalization of the Company as provided in Section 18 hereof. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.

(b) The participant will have no interest or voting right in
shares covered by his option until such option has been exercised.

(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.

13. Administration.

(a) Administrative Body. The Plan shall be administered by the
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.

(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-

-6-
<PAGE>

3, no discretion concerning decisions regarding the Plan shall be afforded to
any committee or person that is not "disinterested" as that term is used in Rule
16b-3.

14. Designation of Beneficiary.

(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.

(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.

15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.

16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.

17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.

18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.

(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the Reserves as well as the price per share
of Common Stock covered by each option under

-7-
<PAGE>

the Plan which has not yet been exercised shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of shares of Common Stock effected without receipt of consideration
by the Company; provided, however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.

(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Periods will end
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board, and all options granted thereunder will be exercised at
such time. Such exercise shall take place according to the provisions of Section
8 hereof.

(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Periods then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the Board shortens the
Offering Periods then in progress in lieu of assumption or substitution in the
event of a merger or sale of assets, the Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for his option has been changed to the New Exercise Date and
that his option will be exercised automatically on the New Exercise Date, unless
prior to such date he has withdrawn from the Offering Period as provided in
Section 10 hereof. For purposes of this paragraph, an option granted under the
Plan shall be deemed to be assumed if, following the sale of assets or merger,
the option confers the right to purchase, for each share of option stock subject
to the option immediately prior to the sale of assets or merger, the
consideration (whether stock, cash or other securities or property) received in
the sale of assets or merger by holders of Common Stock for each share of Common
Stock held on the effective date of the transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that if such consideration received in the sale of assets or merger was
not solely common stock of the successor corporation or its parent (as defined
in Section 424(e) of the Code), the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.

19. Amendment or Termination.

-8-
<PAGE>

(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 18
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.

(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.

20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.

21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended (the "1933 Act"), the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.

22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.

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<PAGE>

24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the Fair
Market Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically withdrawn
from such Offering Period immediately after the exercise of their option on such
Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.

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<PAGE>

EXHIBIT A

PINNACLE SYSTEMS, INC.

1994 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

Enrollment Date: _____________________________

_____ Original Application
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)

1. ____________________________ hereby elects to participate in the
Pinnacle Systems, Inc. 1994 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement
and the Employee Stock Purchase Plan.

2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (1-15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)

3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.

4. I have received a copy of the complete "Pinnacle Systems, Inc. 1994
Employee Stock Purchase Plan." I understand that my participation in
the Employee Stock Purchase Plan is in all respects subject to the
terms of the Plan. I understand that my ability to exercise the option
under this Subscription Agreement is subject to obtaining shareholder
approval of the Employee Stock Purchase Plan.

5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and spouse only):
______________________________________.

6. I understand that if I dispose of any shares received by me pursuant to
the Plan within two (2) years after the Enrollment Date (the first day
of the Offering Period during which I purchased such shares) or one (1)
year after the Exercise Date, I will be treated for federal income tax
purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value
of the shares at the time such shares were purchased over the price
which I paid for the shares. I hereby agree to notify the Company in
writing within

<PAGE>

thirty (30) days after the date of any disposition of my shares and I
will make adequate provision for Federal, state or other tax
withholding obligations, if any, which arise upon the disposition of
the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the two (2)
year and one (1) year holding periods, I understand that I will be
treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares,
or (2) 15% of the fair market value of the shares on the first day of
the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.

7. I hereby agree not to sell or otherwise transfer any shares or other
securities of the Company during the one hundred eighty (180) day
period following the effective date of a registration statement of the
Company filed under the Securities Act of 1933, as amended (the "1933
Act"); provided, however, that such restriction shall only apply to the
first two registration statements of the Company to become effective
under the 1933 Act which include securities to be sold on behalf of the
Company to the public in an underwritten public offering under the 1933
Act. I hereby acknowledge that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing
restrictions until the end of such one hundred eighty (180) day period.

8. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.

9. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:

NAME: (Please print) _________________________________________________________
(First) (Middle) (Last)

_______________________________ ___________________________________________
Relationship

___________________________________________
(Address)

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<PAGE>

Employee's Social
Security Number: ___________________________________________

Employee's Address: ___________________________________________

___________________________________________

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:__________________ _____________________________________________________
Signature of Employee

_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)

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<PAGE>

EXHIBIT B

PINNACLE SYSTEMS, INC.

1994 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

The undersigned participant in the Offering Period of the Pinnacle
Systems, Inc. 1994 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.

Name and Address of Participant:

___________________________________________

Signature:

___________________________________________

Date: _____________________________________