Filed pursuant to
Rule 424(b)(3)
PROSPECTUS
307,534 Shares
PINNACLE SYSTEMS, INC.
COMMON STOCK
(no par value)
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This Prospectus may be used in connection with the offer and sale, from
time to time, of up to 307,534 shares (the "Shares") of Common Stock, no par
value (the "Common Stock"), of Pinnacle Systems, Inc. ("Pinnacle" or the
"Company"), for the account of Miro Computer Products AG, a corporation
organized under the laws of Germany (the "Selling Shareholder"). All of the
Shares covered hereby are to be sold by the Selling Shareholder. The Company
will not receive any of the proceeds of sales made hereunder. The expenses
incurred in registering the Shares, including legal and accounting fees, will be
borne by the Company. None of the shares offered pursuant to this Prospectus
have been registered prior to the filing of the Registration Statement of which
this Prospectus is a part.
The Shares offered hereby were acquired by the Selling Shareholder from
the Company in connection with an earnout payment relating to the acquisition by
the Company of certain of the assets of the Selling Shareholder and certain
subsidiaries of the Selling Shareholder in August 1997. The Shares may be
offered and sold from time to time by the Selling Shareholder directly or
through broker-dealers or underwriters who may act solely as agents, or who may
acquire the Shares as principals. The distribution of the Shares may be effected
in one or more transactions that may take place through the Nasdaq National
Market, including block trades or ordinary broker's transactions, or through
privately negotiated transactions, or through a combination of any such methods
of sale, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Usual and customary or
specially negotiated brokerage fees or commissions may be paid by the Selling
Shareholder in connection with such sales. See "Plan of Distribution."
The Common Stock of Pinnacle is traded on the Nasdaq National Market
under the symbol "PCLE." On October 16, 1998, the closing sale price of a share
of Pinnacle's Common Stock on the Nasdaq National Market was $28.50.
See "Risk Factors" on page 5 for a discussion of certain factors that
should be considered by prospective purchasers of the Common Stock offered
hereby.
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The Selling Shareholder and any broker executing selling orders on
behalf of the Selling Shareholder may be deemed to be an "underwriter" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act").
Commissions received by any such broker may be deemed to be underwriting
commissions under the Securities Act.
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No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering described herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, nor shall there be any sale of these securities by any
person in any jurisdiction in which it is unlawful for such person to make such
offer, solicitation or sale. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create an implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is October 19, 1998
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TABLE OF CONTENTS
Page
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Available Information....................................................... 3
Information Incorporated by Reference....................................... 4
Forward Looking Information................................................. 4
The Company................................................................. 5
Risk Factors................................................................ 5
Use of Proceeds............................................................. 11
Selling Shareholder......................................................... 11
Plan of Distribution........................................................ 12
Experts..................................................................... 13
Legal Matters............................................................... 13
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith, files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at its office at Room 1034,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. The address of the site is http://www.sec.gov. The Company's Common
Stock is quoted on the Nasdaq National Market. Reports, proxy statements and
other information concerning the Company can also be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C.
20002.
The Company has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
to the exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
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INFORMATION INCORPORATED BY REFERENCE
There are hereby incorporated by reference in this Prospectus the
following documents and information heretofore filed with the Commission:
1. the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998;
2. the description of the Company's Common Stock contained in its
Registration Statement on Form 8-A as filed with the Commission on September 9,
1994; and
3. the description of the Company's Preferred Share Purchase Rights
contained in its Registration Statement on Form 8-A as filed with the Commission
on December 19, 1996, as amended May 19, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of securities contemplated hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein, therein or in any
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person, a copy of any and all of the documents referred to above
which have been or may be incorporated in this Prospectus by reference (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference therein). Requests for such copies should be directed
to: Chief Financial Officer, Pinnacle Systems, Inc., 280 North Bernardo Avenue,
Mountain View, California 94043; telephone number (650) 526-1600.
FORWARD LOOKING INFORMATION
This Prospectus, including the information incorporated by reference
herein, contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth below. Reference is made in particular to
the discussion set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report on Form 10-K
for the fiscal year ended June 30, 1998, incorporated herein by reference. In
connection with forward-looking statements which appear in these disclosures,
prospective purchasers of the Common Stock offered hereby should carefully
consider the factors set forth in this Prospectus under "Risk Factors."
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THE COMPANY
Pinnacle Systems, Inc. ("Pinnacle" or the "Company") designs,
manufactures, markets and supports video post-production tools for high quality
real time video processing. The Company's products combine computer based and
specialized video processing technologies which perform a variety of video
post-production functions such as the addition of special effects, graphics and
titles to multiple streams of live or previously recorded video material. The
Company has sold over 10,000 post-production systems since the company's
inception in 1986 to customers in more than 60 countries. In 1994 the Company
introduced Alladin, its first PC-based product that connected directly to an
external computer and offered real-time video manipulation and special effects
capabilities with performance comparable to traditional video products but at a
substantially lower price. The Company has since introduced additional video
products which address needs in the broadcast, desktop and consumer video
post-production markets.
The Company was incorporated in California in 1986. The Company
maintains its executive offices at 280 North Bernardo Avenue, Mountain View,
California 94043, and its telephone number is (650) 526-1600.
RISK FACTORS
Significant Fluctuations in Operating Results. The Company's quarterly
and annual operating results have in the past varied significantly and are
expected to vary significantly in the future as a result of a number of factors,
including the timing of significant orders from and shipments to major OEM
customers, in particular Avid Technology, Inc. ("Avid"), the timing and market
acceptance of new products or technological advances by the Company and its
competitors, the Company's success in developing, introducing and shipping new
products, such as AlladinPRO, ReelTime, DV300, DC50 and Studio 400, the mix of
distribution channels through which the Company's products are sold, changes in
pricing policies by the Company and its competitors, the accuracy of the
Company's and resellers' forecasts of end user demand, the timing and amount of
any inventory write downs, the ability of the Company to obtain sufficient
supplies of the major subassemblies used in its products from its
subcontractors, the ability of the Company and its subcontractors to obtain
sufficient supplies of sole or limited source components for the Company's
products, the timing and level of product returns, particularly from the
consumer distribution channels, foreign currency fluctuations, costs associated
with the acquisition of other companies, businesses or products, the ability of
the Company to integrate acquired companies, businesses or products, such as the
product lines acquired in the Company's acquisition of the Digital Video Group
of Miro Computer Products AG (the "Miro Acquisition"), and general economic
conditions, both domestically and internationally. The Company's operating
expense levels are based, in part, on its expectations of future revenue and, as
a result, net income would be disproportionately affected by a shortfall in net
sales.
The Company also experiences significant fluctuations in orders and
sales due to seasonal fluctuations, the timing of major trade shows and the sale
of consumer products in anticipation of the holiday season. Sales usually slow
down during the summer months of July and August, especially in Europe. The
Company attends a number of annual trade shows which can influence the order
pattern of products, including the NAB convention held in April, the IBC
convention held in September and the COMDEX exhibition held in November. Due to
these factors and the potential quarterly fluctuations in operating results, the
Company believes that quarter-to-quarter comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indicators of future performance.
Risks Associated with Potential Future Acquisitions. In August 1997,
the Company completed the Miro Acquisition. In addition, the Company purchased
the Deko product line and technology from Digital GraphiX, Inc. in April 1997
and the VideoDirector product line from Gold Disk, Inc. in June 1996. Future
acquisitions
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by the Company may result in the diversion of management's attention from the
day-to-day operations of the Company's business and may include numerous other
risks, including difficulties in the integration of the operations, products and
personnel of the acquired companies. Future acquisitions by the Company have the
potential to result in dilutive issuances of equity securities, the incurrence
of debt and amortization expenses related to goodwill and other intangible
assets. The Company management frequently evaluates the strategic opportunities
available to it and may in the near- or long-term pursue acquisitions of
complementary businesses, products or technologies.
Risks Associated with the Consumer Market. The Company entered the
consumer market with the purchase of the VideoDirector product line in June
1996. The Company began shipping its first internally developed consumer
product, the VideoDirector Studio 200, in March 1997 and began shipping a
successor product, the Studio 400 in June 1998. In addition, in connection with
the Miro Acquisition in August 1997, the Company acquired certain of Miro's
consumer products, as well as Miro's European sales organization. The Company
anticipates expending considerable resources to develop, market and sell
products into the consumer market. The Company has limited experience marketing
and selling products through the consumer distribution channels. To be
successful in this market, the Company must establish and maintain effective
consumer distribution channels including distributors, electronic retail stores
and telephone and Internet orders. Because many of the Company's consumer
products must be used with a personal computer, a camcorder and a VCR, none of
which is supplied by the Company, consumer acceptance will be adversely affected
to the extent end users experience difficulties installing the Company's
products with these other electronic components. In addition, the Company faces
additional or increased risks associated with inventory obsolescence and
inventory returns as products sold into the consumer channel typically provide
stock rotation and price protection rights to the reseller. There can be no
assurance that the consumer video market will continue to develop, or that the
Company can successfully compete against current and future competitors in this
market. The failure of the Company to successfully develop, introduce and sell
products in this market could have a material adverse effect on the Company's
business, financial condition and results of operations. See "--Dependence on
Resellers; Absence of Direct Sales Force; Expansion of Distribution Channels."
Concentration of Sales to OEMs. The Company has been highly dependent
on sales of its Alladin and Genie products to OEMs, in particular Avid. Sales to
Avid accounted for approximately 10.7% of net sales in fiscal 1998, 26.4% of
sales in fiscal 1997, and 43.3% of net sales in fiscal 1996. Though this
concentration has lessened during the last two fiscal years, it still subjects
the Company to a number of risks, in particular the risk that its operating
results will vary on a quarter-to-quarter basis as a result of variations in the
ordering patterns of OEM customers, in particular Avid. The Company's results of
operations have in the past and could in the future be materially adversely
affected by the failure of anticipated orders to materialize, by deferrals or
cancellations of orders, or if overall OEM demand were to decline. For example,
since sales to Avid began in fiscal 1996, quarterly sales to Avid have
fluctuated substantially from a high of $5.6 million to a low of $1.0 million,
and the Company anticipates that such fluctuations may continue. If sales to OEM
customers, in particular Avid, were to decrease, the Company's business,
financial condition and results of operations could be materially adversely
affected.
Technological Change and Obsolescence; Risks Associated with
Development and Introduction of New Products. The video post-production
equipment industry is characterized by rapidly changing technology, evolving
industry standards and frequent new product introductions. The introduction of
products embodying new technologies or the emergence of new industry standards
can render existing products obsolete or unmarketable. The development of new,
technologically advanced products incorporating proprietary hardware and
software is a complex and uncertain process requiring high levels of innovation,
as well as accurate
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anticipation of technological and market trends. The Company is critically
dependent on the successful introduction, market acceptance, manufacture and
sale of new products that offer its customers additional features and enhanced
performance at competitive prices. These products include those that the Company
has recently introduced, such as DV300 and Reeltime, which began shipping in the
third fiscal quarter of 1998, as well as products that began shipping in the
fourth fiscal quarter of 1998, such as AlladinPRO, Studio 400 and miroVIDEO
DC50. Once a new product is developed, the Company must rapidly commence volume
production, a process that requires accurate forecasting of customer
requirements and the attainment of acceptable manufacturing costs. The
introduction of new or enhanced products also requires the Company to manage the
transition from older, displaced products in order to minimize disruption in
customer ordering patterns, avoid excessive levels of older product inventories
and ensure that adequate supplies of new products can be delivered to meet
customer demand. For example, the introduction of DVExtreme and Lightning has
resulted in a significant decline in sales of Prizm and Flashfile and a write
down of inventory. The Company has experienced delays in the shipment of new
products in the past, and these delays adversely affected sales of existing
products and results of operations. Delays in the introduction or shipment of
new or enhanced products, the inability of the Company to timely develop and
introduce such new products, the failure of such products to gain significant
market acceptance or problems associated with new product transitions could
adversely affect the Company's business, financial condition and results of
operations, particularly on a quarterly basis. In addition, as is typical with
any new product introduction, quality and reliability problems may arise and any
such problems could result in reduced bookings, manufacturing rework costs,
delays in collecting accounts receivable, additional service warranty costs and
a limitation on market acceptance of the product.
Competition. The market for the Company's products is highly
competitive. The Company anticipates increased competition in each of the
broadcast, desktop and consumer video production markets, particularly since the
industry is undergoing a period of consolidation. Competition for the Company's
broadcast products is generally based on product performance, breadth of product
line, service and support, market presence and price. The Company's competitors
in the broadcast market include companies with substantially greater financial,
technical, marketing, sales and customer support resources, greater name
recognition and larger installed customer bases than the Company. In addition,
these competitors have established relationships with current and potential
customers of the Company and some offer a wide variety of video equipment which
can be bundled in certain large system sales. In the desktop market, the Company
faces competition from traditional video suppliers, providers of desktop editing
solutions, video software applications, and others. In addition, suppliers of
video manipulation software may develop products which compete directly with
those of the Company. The consumer market in which VideoDirector Studio 200,
Studio 400 and certain miroVideo products compete is an emerging market and the
sources of competition are not yet well defined. There are several established
video companies that are currently offering products or solutions that compete
directly or indirectly with the Company's consumer products by providing some or
all of the same features and video editing capabilities. In addition, the
Company expects that existing manufacturers and new market entrants will develop
new, higher performance, lower cost consumer video products that may compete
directly with the Company's consumer products. The Company expects that
potential competition in this market is likely to come from existing video
editing companies, software application companies, or new entrants into the
market, many of which have the financial resources, marketing and technical
ability to develop products for the consumer video market. Increased competition
in any of these markets could result in price reductions, reduced margins and
loss of market share, any of which could materially and adversely affect the
Company's business, financial condition and results of operations.
Dependence on Contract Manufacturers and Single or Limited Source
Suppliers. The Company relies on subcontractors to manufacture its consumer
products and the major subassemblies of its broadcast and desktop
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products. The Company and its manufacturing subcontractors are dependent upon
single or limited source suppliers for a number of components and parts used in
the Company's products, including certain key integrated circuits. The Company's
strategy to rely on subcontractors and single or limited source suppliers
involves a number of significant risks, including the loss of control over the
manufacturing process, the potential absence of adequate capacity, potential
delays in lead times, the unavailability of certain process technologies and
reduced control over delivery schedules, manufacturing yields, quality and
costs. The Company and its subcontractors have in the past experienced delays in
receiving adequate supplies of sole source components. In the event that any
significant subcontractor or single or limited source suppliers were to become
unable or unwilling to continue to manufacture these subassemblies or provide
critical components in required volumes, the Company would have to identify and
qualify acceptable replacements or redesign its products with different
components. No assurance can be given that any additional sources would be
available to the Company or that product redesign would be feasible on a timely
basis. Also, because of the reliance on these single or limited source
components, the Company may be subject to increases in component costs, which
could have an adverse effect on the Company's business financial condition and
results of operations. Any extended interruption in the supply of or increase in
the cost of the products, subassemblies or components manufactured by third
party subcontractors or suppliers could materially and adversely affect the
Company's business, financial condition and results of operations.
Dependence on Resellers; Absence of Direct Sales Force; Expansion of
Distribution Channels. The Company distributes its products primarily through a
network of dealers, OEMs, retailers and other resellers. Accordingly, the
Company is dependent upon these resellers to assist in promoting market
acceptance of its products. There can be no assurance that these dealers, OEMs
and retailers will devote the resources necessary to provide effective sales and
marketing support to the Company. The Company's dealers and retailers are
generally not contractually committed to make future purchases of the Company's
products and therefore could discontinue carrying the Company's products in
favor of a competitor's product or for any other reason. Because the Company
sells a significant portion of its products through dealers and retailers, it is
difficult to ascertain current demand for existing products and anticipated
demand for newly introduced products such as DV300, ReelTime, AlladinPro, DC50
and Studio 400, regardless of the level of dealer inventory for the Company's
products. Moreover, initial orders for a new product may be caused by the
interest of dealers in having the latest product on hand for potential future
sale to end users. As a result, initial stocking orders for a new product, such
as DV300, ReelTime, AlladinPro, DC50 and Studio 400 may not be indicative of
long-term end user demand. In addition, the Company is dependent upon the
continued viability and financial stability of these dealers and retailers, some
of which are small organizations with limited capital. The Company believes that
its future growth and success will continue to depend in large part upon its
dealer and retail channels. Accordingly, if a significant number of its dealers
and/or retailers were to experience financial difficulties, or otherwise become
unable or unwilling to promote, sell or pay for the Company's products, the
Company's results of operations could be adversely affected.
Recently, as the Company has increased its consumer products offerings,
the Company has expanded its distribution network to include several consumer
channels, including large distributors of products to computer software and
hardware retailers, which in turn sell products to end users. The Company also
sells its consumer products directly to some retailers. The Company's agreements
with retailers and distributors generally obligate the Company to provide price
protection to such retailers and distributors and, while the agreements limit
the conditions under which product can be returned to the Company, there can be
no assurance that the Company will not be faced with significant product returns
or price protection obligations. In the event the Company experiences
significant product returns or price protection obligations, the Company's
business, financial condition and results of operations could be materially
adversely affected. There can be no assurance
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that the distributors or retailers will continue to stock and sell the Company's
consumer products. Moreover, distribution channels for consumer retail products
have been characterized by rapid change and financial difficulties of
distributors. The termination of one or more of the Company's relationships with
retailers or retail distributors could have a material adverse effect on the
Company's business, financial condition and results of operations. To the extent
that the Company successfully establishes and expands its retail distribution
channels, its agreements or arrangements are unlikely to be exclusive and
retailers and retail distributors are likely to carry competing products. Any of
the foregoing events could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Key Personnel. The Company's success depends in part upon
the continued service of its senior management and key technical personnel. Only
one of the Company's senior management or key technical personnel is bound by an
employment agreement and none are the subject of key man life insurance. The
Company's success is also dependent upon its ability to attract and retain
qualified technical and managerial personnel. Significant competition exists for
such personnel and there can be no assurance that the Company can retain its key
technical and managerial employees or that it will be able to attract,
assimilate and retain such other highly-qualified technical and managerial
personnel as may be required in the future. There can be no assurance that
employees will not leave the Company and subsequently compete against the
Company, or that contractors will not perform services for competitors of the
Company. If the Company is unable to retain key personnel, its business,
financial condition and results of operations could be adversely affected.
Dependence on Proprietary Technology. The Company's ability to compete
successfully and achieve future revenue growth will depend, in part, on its
ability to protect its proprietary technology and operate without infringing the
intellectual property rights of others. The Company relies on a combination of
patent, copyright, trademark and trade secret laws and other intellectual
property protection methods to protect its proprietary technology. In addition,
the Company generally enters into confidentiality and nondisclosure agreements
with its employees and OEM customers and limits access to and distribution of
its proprietary technology. The Company currently holds two United States
patents covering certain aspects of its technologies for digital video effects
and has an application pending for a third patent. There can be no assurance
that the Company's pending patent application or any future patent applications
will be allowed or that issued patents will provide the Company with a
competitive advantage. In addition, there can be no assurance that others will
not independently develop substantially equivalent intellectual property or
otherwise gain access to the Company's trade secrets or intellectual property,
or disclose such intellectual property or trade secrets, or that the Company can
meaningfully protect its intellectual property. A failure by the Company to
meaningfully protect its intellectual property could have a material adverse
effect on the Company's business, financial condition and results of operations.
Risks of Third-Party Claims of Infringement. There has been substantial
litigation regarding patent, trademark and other intellectual property rights
involving technology companies. In the future, litigation may be necessary to
enforce any patents issued to the Company, to protect its trade secrets,
trademarks and other intellectual property rights owned by the Company, or to
defend the Company against claimed infringement. Any such litigation could be
costly and may result in a diversion of management's attention, either of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determination in such litigation
could result in the loss of the Company's proprietary rights, subject the
Company to significant liabilities, require the Company to seek licenses from
third parties or prevent the Company from manufacturing or selling its products,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. In the course of its business,
the Company has in the past and may in the future receive communications
asserting that the Company's products infringe
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patents or other intellectual property rights of third parties. The Company's
policy is to investigate the factual basis of such communications and to
negotiate licenses where appropriate. While it may be necessary or desirable in
the future to obtain licenses relating to one or more of its products, or
relating to current or future technologies, there can be no assurance that the
Company will be able to do so on commercially reasonable terms or at all. There
can be no assurance that such communications can be settled on commercially
reasonable terms or that they will not result in protracted and costly
litigation.
International Sales Risks. Sales of the Company's products outside of
North America represented approximately 57.6%, 39.7% and 38.7% of the Company's
net sales in fiscal 1998, 1997 and 1996, respectively. The Company expects that
international sales will continue to represent a significant portion of its net
sales, particularly in light of it's increased European sales as a result of the
Miro Acquisition and the addition of the Miro European sales channel. The
Company makes foreign currency denominated sales in many, primarily European,
countries, exposing itself to risks associated with currency exchange
fluctuations. Although the dollar amount of such foreign currency denominated
sales was nominal during fiscal 1997, it increased substantially during fiscal
1998, especially for sales of consumer and desktop products into Europe. In
fiscal 1999 any beyond, the Company expects that a majority of its European
sales will be denominated in local foreign currency. International sales and
operations may also be subject to risks such as the imposition of governmental
controls, export license requirements, restrictions on the export of critical
technology, generally longer receivable collection periods, political
instability, trade restrictions, changes in tariffs, difficulties in staffing
and managing international operations, potential insolvency of international
dealers and difficulty in collecting accounts receivable. There can be no
assurance that these factors will not have an adverse effect on the Company's
future international sales and, consequently, on the Company's business,
financial condition and results of operations.
Year 2000 Compliance. Like many other companies, the Year 2000 computer
issue creates risks for Pinnacle Systems. If internal systems do not correctly
recognize and process date information beyond the Year 1999, there could be an
adverse impact on the Company's operations. There are two other related issues
which could also lead to incorrect calculations or failures, i) some systems'
programming assigns special meaning to certain dates, such as 9/9/99, and ii)
the Year 2000 is a leap year. To address these Year 2000 issues with its
internal systems, the Company has initiated a program designed to deal with the
Company's internal management information systems. Assessment and remediation
are proceeding in parallel and the Company currently plans to have changes to
those management and critical systems completed and tested by mid-1999. These
activities are intended to encompass all major categories of systems used by the
Company, including manufacturing, sales and financial systems. The Company is
also working with key suppliers of products and services to determine that their
operations and products are Year 2000 capable, or to monitor their progress
toward Year 2000 capability. In addition, the Company has begun internal
discussions concerning contingency planning to address potential problem areas
with internal systems and with suppliers and other third parties. It is expected
that assessment, remediation and contingency planning activities will be
on-going throughout 1998 and 1999 with the goal of appropriately resolving all
material internal systems and third party issues. The Company also has begun a
program to assess the capability of its products to handle the Year 2000. To
assist customers in evaluating their Year 2000 issues, the Company is currently
assessing the capability of its current products and products no longer being
produced, to handle the Year 2000, and expects to complete that assessment by
early 1999. Products will be assigned to one of the four following categories:
"Year 2000 Compliant", "Year 2000 Compliant with minor issues" "Year 2000
non-compliant", "No evaluation done - will not test". Testing has not yet been
completed, but based on preliminary tests, the Company believes that all current
products shipping, which run under Microsoft Windows NT or Windows 95, will be
"Year 2000 compliant". Testing of older products which are no longer shipping
has only recently been initiated and the Company considers it likely that some
older products may not be Year 2000 Compliant.
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Except as implied in any Limited Product Warranty, the Company does not
believe it is legally responsible for costs incurred by customers related to
ensuring their Year 2000 capability. Nevertheless, the Company is incurring
various costs to provide customer support and customer satisfaction services
regarding Year 2000 issues and it is anticipated that these expenditures will
continue through 1999 and thereafter. As used by Pinnacle Systems, "Year 2000
Compliant" means that when used properly and in conformity with the product
information provided by the Company, and when used with "Year 2000 Compliant"
computer systems, the product will accurately store, display, process, provide,
and/or receive data from, into, and between the twentieth and twenty-first
centuries, including leap year calculations, provided that all other technology
used in combination with the Pinnacle Systems product properly exchanges date
data with the Pinnacle Systems product. The costs incurred to date related to
these programs have not been material. The cost which will be incurred by the
Company regarding the implementation of Year 2000 compliant internal information
systems, testing of current or older products for Year 2000 compliance, and
answering and responding to customer requests related to Year 2000 issues,
including both incremental spending and redeployed resources, is currently not
expected to exceed $500,000. The total cost estimate does not include potential
costs related to any customer or other claims or the cost of internal software
and hardware replaced in the normal course of business. In some instances, the
installation schedule of new software and hardware in the normal course of
business is being accelerated to also afford a solution to Year 2000 capability
issues. The total cost estimate is based on the current assessment of the
projects and is subject to change as the project progress. Based on currently
available information, management does not believe that the Year 2000 matters
discussed above related to internal systems or products sold to customers will
have a material adverse impact on the Company's financial condition or overall
trends in results of operations; however, it is uncertain to what extent the
Company may be affected by such matters. In addition, there can be no assurance
that the failure to ensure Year 2000 capability by a supplier or another third
party would not have a material adverse effect on the Company.
No Assurance that Company Can Manage Growth. The Company has in the
past experienced rapid growth. For example, net sales in fiscal 1998 were $105.3
million compared to $37.5 million and fiscal 1997. The Company anticipates that
it may grow at a rapid pace in the future. Such growth could cause significant
strain on management and other resources. The Company's ability to manage its
growth effectively will require it to continue to improve and expand its
management, operational and financial systems and controls. As a result of
recent acquisitions, the Company has increased the number of its employees
substantially, which increases the difficulty in managing the Company,
particularly as employees are now geographically dispersed in North America and
Europe. If the Company's management is unable to manage growth effectively, the
Company's ability to retain key personnel and its business, financial condition
and results of operations could be adversely affected.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Shareholder.
SELLING SHAREHOLDER
Miro Computer Products AG (the "Selling Shareholder") acquired the
Shares in connection with an earnout payment relating to the acquisition (the
"Acquisition") by the Company of certain of the assets of the Selling
Shareholder and certain of its subsidiaries effective August 31, 1997. All of
the Shares offered hereby are being sold by the Selling Shareholder. The Shares
held by the Selling Shareholder represent approximately 3% of the outstanding
shares of the Company's Common Stock as of September 30, 1998 and upon
completion of this offering, the Selling Shareholder will own none of the
outstanding shares of Common Stock of Pinnacle.
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Pursuant to the terms of the Registration Rights Agreement dated as of
August 29, 1997 (the "Registration Rights Agreement"), between the Company and
the Selling Shareholder, the Company undertook to use commercially reasonable
efforts to register the Shares held by the Selling Shareholder within fourteen
days of the date of issuance of shares in connection with the closing of the
Acquisition. The Registration Rights Agreement also includes certain
indemnification arrangements with the Selling Shareholder. Pursuant to the terms
of the Registration Rights Agreement, the Selling Shareholder has agreed to
effect any sale of shares covered by the Registration Rights Agreement through
the offices of Hambrecht & Quist.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Shareholder or
by pledgees, donees, transferees or other successors in interest. Such sales may
be made in any one or more transactions (which may involve block transactions)
on the Nasdaq National Market, or any exchange on which the Common Stock may
then be listed, in the over-the-counter market or otherwise in negotiated
transactions or a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Shareholder may effect such
transactions by selling shares to or through broker-dealers, and such
broker-dealers may sell the Shares as agent or may purchase such Shares as
principal and resell them for their own account pursuant to this Prospectus.
Such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Shareholder and/or
purchasers the Shares, for whom they may act as agent (which compensation may be
in excess of customary commissions). In connection with such sales, the Selling
Shareholder and any participating brokers or dealers may be deemed to be
"underwriters" as defined in the Securities Act.
The Registration Rights Agreement provides that the Company will
indemnify the Selling Shareholder against certain liabilities, including
liabilities under the Securities Act.
The Company may suspend the use of this Prospectus for a discrete
period of time, not exceeding 30 days, if, in the good faith determination of
its Board of Directors, a development has occurred or condition exists as a
result of which the Registration Statement or the Prospectus contains or
incorporates by reference a material misstatement or omission, the correction of
which would require the premature disclosure of confidential information that
would, in the good faith determination of the Board of Directors, materially and
adversely affect the Company. The Company may not exercise this delay right more
than once in any twelve-month period. The Company is obligated in the event of
such suspension to use its reasonable efforts to ensure that the use of the
Prospectus may be resumed as soon as practicable. This offering will terminate
on the earliest of (a) two years from the date of issuance of the Shares or (b)
the date on which all Shares offered hereby have been sold by the Selling
Shareholder or (c) such time as all of the shares can be sold by the Selling
Shareholder within a three-month period without compliance with the registration
requirements of the Securities Act pursuant to Rule 144 thereunder.
Any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under that Rule rather
than pursuant to this Prospectus.
There can be no assurance that the Selling Shareholder will sell any or
all of the shares of Common Stock offered by it hereunder.
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EXPERTS
The consolidated financial statements and schedule of the Company as of
June 30, 1998 and 1997 and for each of the years in the three-year period ended
June 30, 1998 have been incorporated by reference herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
auditors, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been
passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
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