<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
PINNACLE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3861 94-3003809
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
PINNACLE SYSTEMS, INC.
280 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 237-1600
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
ARTHUR D. CHADWICK
CHIEF FINANCIAL OFFICER AND VICE PRESIDENT, FINANCE AND ADMINISTRATION
PINNACLE SYSTEMS, INC.
280 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 237-1600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT P. LATTA, ESQ. LEE F. BENTON, ESQ.
CHRIS F. FENNELL, ESQ. JULIA L. DAVIDSON, ESQ.
Wilson Sonsini Goodrich & Rosati Cooley Godward LLP
Professional Corporation Five Palo Alto Square
650 Page Mill Road 3000 El Camino Real
Palo Alto, California 94304 Palo Alto, California 94306
(650) 493-9300 (650) 843-5000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: UPON
CONSUMMATION OF THE MERGER DESCRIBED HEREIN.
--------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE(3)
<S> <C> <C> <C> <C>
Common Stock, no par value (and associated
preferred stock purchase rights).......... 504,666 shares $1.016 $16,381,458 $4,554
</TABLE>
(1) Represents the number of shares of the Common Stock (and associated
preferred stock purchase rights) of the Registrant which may be issued to
stockholders of Truevision, Inc., a Delaware corporation, pursuant to the
merger described herein.
(2) Pursuant to Rule 457(c) and 457(f) under the Securities Act of 1933, as
amended, the registration fee has been calculated based on the average of
the high and low prices per share of Truevision Inc.'s Common Stock on
February 5, 1999 as reported on the Nasdaq National Market.
(3) A fee of $2,621 was previously paid by the Registrant pursuant to Rule 14a-6
promulgated under the Securities Exchange Act of 1934, as amended, in
connection with the filing of a preliminary Proxy Statement/Prospectus on
January 25, 1999. Pursuant to Rule 457(b) under the Securities Act, such fee
is being credited against the registration fee, and accordingly, an
additional $1,933 is being paid in connection with the Registration
Statement.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
----------------
SPECIAL MEETING OF STOCKHOLDERS
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
---------------------
The Board of Directors of Truevision, Inc. has unanimously approved a merger
combining Truevision and Pinnacle Systems, Inc. The Boards of Directors of
Truevision and Pinnacle Systems have determined that, as a combined company,
both will have the potential to realize long-term improved operating and
financial results and a stronger competitive position in the video products
market. Truevision and Pinnacle Systems believe that there is a strategic fit
between their respective video application products. As a combined company,
Truevision and Pinnacle Systems believe that they will be a stronger competitor,
better able to react to changes in technology and in the marketplace, better
able to cross-sell each other's products, and able to offer a broader array of
products. They also believe they will have a critical mass of development
resources, sales personnel and professional services resources. After the
merger, the stockholders of Truevision will own approximately 3.7% of the
outstanding common stock of Pinnacle Systems.
The Board of Directors of Truevision is asking you to approve and adopt the
merger agreement and approve the merger at a special meeting of the stockholders
to be held on Thursday, March 11, 1999 at 10:00 a.m., local time, at
Truevision's offices located at 2500 Walsh Avenue Santa Clara, California 95051.
The vote of a majority of the outstanding shares of Truevision common stock is
required to approve and adopt the merger agreement and approve the merger.
If the merger is completed, holders of Truevision common stock will receive
0.0313 of a share of Pinnacle Systems common stock and the associated preferred
stock purchase rights for each share of Truevision common stock they own. The
value of Pinnacle Systems common stock to be received in the merger will be the
market value of Pinnacle Systems common stock when the merger occurs.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO
STOCKHOLDERS AND IS IN YOUR BEST INTERESTS. THE BOARD OF DIRECTORS THEREFORE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND APPROVE THE MERGER.
The enclosed Proxy Statement/Prospectus provides you with detailed
information about the proposed merger. In addition, you may obtain other
information about Truevision and Pinnacle Systems from documents filed with the
Securities and Exchange Commission. We encourage you to read the entire Proxy
Statement/Prospectus carefully.
Whether or not you plan to attend the Truevision meeting, please take the
time to vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy card without indicating how you wish to vote,
your proxy will be counted as a vote in favor of the approval and adoption of
the merger agreement and approval of the merger. If you fail to return your
card, the effect will be a vote against the proposal to approve and adopt the
merger agreement and approve the merger. YOUR VOTE IS VERY IMPORTANT.
ON BEHALF OF THE BOARD OF DIRECTORS OF TRUEVISION, WE URGE YOU TO VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
/s/ LOUIS J. DOCTOR
LOUIS J. DOCTOR
CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
2500 WALSH AVENUE
SANTA CLARA, CA 95051
(408) 562-4200
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 11, 1999
------------------------
To the stockholders of Truevision, Inc.:
A special meeting of stockholders of Truevision, Inc., a Delaware
corporation, will be held on March 11, 1999 at 10:00 a.m., local time, at 2500
Walsh Avenue, Santa Clara, California for the following purpose:
To consider and vote upon a proposal to approve and adopt the Agreement and
Plan of Reorganization, dated as of December 16, 1998, among Pinnacle Systems,
Inc., a California corporation, Bernardo Merger Corporation, a Delaware
corporation and a wholly owned subsidiary of Pinnacle Systems, Walsh Merger
Corporation, a Delaware corporation and wholly owned subsidiary of Bernardo
Merger Corporation, and Truevision, and to approve the merger. Pursuant to the
merger agreement, Walsh Merger Corporation will be merged with and into
Truevision. Truevision will become an indirect, wholly owned subsidiary of
Pinnacle Systems and, among other things, each share of common stock of
Truevision outstanding immediately prior to the effective time of the merger
will be converted into 0.0313 of a share of common stock and associated
preferred stock purchase rights of Pinnacle Systems. The merger is more fully
described in the materials that follow this notice.
The Board of Directors of Truevision has fixed the close of business on
February 4, 1999 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the special meeting and any adjournment
thereof. Only holders of record of shares of Truevision common stock at the
close of business on the record date are entitled to notice of, and to vote at,
the special meeting. Because the Truevision common stock is quoted for trading
on the Nasdaq National Market, holders of Truevision common stock are not
entitled to any appraisal or dissenters' rights under the Delaware General
Corporation Law in respect of the merger.
YOUR VOTE IS IMPORTANT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF
THE OUTSTANDING SHARES OF TRUEVISION COMMON STOCK IS REQUIRED FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. EVEN IF YOU PLAN TO
ATTEND THE SPECIAL MEETING IN PERSON, WE REQUEST THAT YOU SIGN AND RETURN THE
ENCLOSED PROXY TO ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL
MEETING IF YOU ARE UNABLE TO ATTEND. IF YOU DO ATTEND THE SPECIAL MEETING AND
WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS,
/S/ R. JOHN CURSON
R. JOHN CURSON
SECRETARY
Santa Clara, California
February 11, 1999
<PAGE>
[LOGO]
[LOGO]
PROXY STATEMENT OF TRUEVISION, INC./
PROSPECTUS OF PINNACLE SYSTEMS, INC.
The Board of Directors of Pinnacle Systems, Inc., a California corporation,
and the Board of Directors of Truevision, Inc., a Delaware corporation, have
agreed to merge an indirect subsidiary of Pinnacle Systems with and into
Truevision. After the merger, Truevision will operate as an indirect, wholly
owned subsidiary of Pinnacle Systems. Under the terms of the merger, each
outstanding share of Truevision common stock, other than treasury shares and
shares owned by Pinnacle Systems or its subsidiaries, will be converted into the
right to receive 0.0313 of a share of Pinnacle common stock and the associated
preferred stock purchase rights (collectively, "Pinnacle common stock").
Similarly, each option and warrant to purchase Truevision common stock will, as
a result of the merger, convert into an option or warrant, as appropriate, to
purchase 3.13% as many shares of Pinnacle common stock at an adjusted exercise
price. Based upon the number of shares of Pinnacle common stock and Truevision
common stock outstanding at the record date, February 4, 1999, an aggregate of
411,742 shares of Pinnacle common stock would be issued in connection with the
merger, representing approximately 3.7% of the total number of shares of
Pinnacle common stock outstanding after giving effect to such issuance but
excluding options and warrants to purchase Pinnacle common stock.
Truevision has scheduled a special meeting for the Truevision stockholders
to vote on a proposal to adopt and approve the merger agreement and approve the
merger. THIS VOTE IS VERY IMPORTANT. If you are a Truevision stockholder,
whether or not you plan to attend the special meeting, please take the time to
vote by completing and mailing the enclosed proxy card to Truevision. If you
sign, date and mail your proxy card without indicating how you want to vote,
your proxy will count as a vote in favor of the proposal. You may vote at the
Truevision meeting if you own shares as of the close of business on February 4,
1999. The date time and place of the Truevision meeting is as follows:
Thursday, March 11, 1999
10:00 a.m., local time
2500 Walsh Avenue
Santa Clara, CA 95051
No vote is required by the Pinnacle Systems' shareholders. This Proxy
Statement/Prospectus constitutes the prospectus of Pinnacle Systems for use in
connection with the offer and issuance of shares of Pinnacle common stock
pursuant to the merger.
This Proxy Statement/Prospectus provides you with detailed information about
the proposed merger. Pinnacle Systems provided the information concerning
Pinnacle Systems. Truevision provided the information concerning Truevision.
The outstanding shares of Pinnacle common stock are listed on the Nasdaq
National Market ("Nasdaq") under the symbol "PCLE." The outstanding shares of
Truevision common stock are listed on Nasdaq under the symbol "TRUV."
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER
"RISK FACTORS" BEGINNING AT PAGE 18.
THE SHARES OF PINNACLE COMMON STOCK TO BE ISSUED IN THE MERGER 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 PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus is dated February 11, 1999, and was first
mailed to stockholders on February 11, 1999.
<PAGE>
This document incorporates important business and financial information
about Pinnacle Systems and Truevision that is not included in or delivered with
this document. You may obtain documents that are filed with the Securities and
Exchange Commission and incorporated by reference in this document by written
request or by telephone from Pinnacle Systems and Truevision at the following
address:
PINNACLE SYSTEMS, INC.
280 North Bernardo Avenue
Mountain View, California 94043
Attn: Investor Relations
(650) 237-1600
TRUEVISION, INC.
2500 Walsh Avenue
Santa Clara, California 95051
Attn: Investor Relations
(408) 562-4200
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM PINNACLE SYSTEMS OR TRUEVISION,
PLEASE DO SO BY MARCH 5, 1999 IN ORDER TO RECEIVE THEM BEFORE THE TRUEVISION
MEETING.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION................................... 1
FORWARD-LOOKING STATEMENTS............................................ 2
TRADEMARKS............................................................ 2
QUESTIONS AND ANSWERS ABOUT THE PINNACLE SYSTEMS/TRUEVISION MERGER.... 3
SUMMARY............................................................... 5
The Companies....................................................... 5
Reasons for the Merger.............................................. 5
Truevision Stockholders' Meeting.................................... 6
Recommendation to the Truevision Stockholders....................... 6
Vote Required....................................................... 7
Voting Agreements................................................... 7
Share Ownership of Management and Certain Holders................... 7
Terms of the Merger................................................. 7
When the Merger Will Occur.......................................... 7
What Truevision Stockholders Will Receive in the Merger............. 7
Ownership of Pinnacle Systems Following the Merger.................. 8
Material Federal Income Tax Consequences............................ 8
Opinion of Financial Advisor........................................ 8
Interests of Certain Persons in the Merger.......................... 8
Conditions to the Merger............................................ 9
Termination of the Merger Agreement................................. 9
Expenses and Termination Fees....................................... 10
Affiliate Agreements................................................ 10
Accounting Treatment................................................ 10
Regulatory Approvals................................................ 10
Rights of Holders of Pinnacle Common Stock Following the Merger..... 10
Rights of Dissenting Shareholders................................... 10
Markets and Market Prices........................................... 11
PINNACLE SYSTEMS AND TRUEVISION SELECTED HISTORICAL AND PRO FORMA
FINANCIAL DATA...................................................... 12
PINNACLE SYSTEMS SELECTED HISTORICAL FINANCIAL DATA................... 13
TRUEVISION SELECTED HISTORICAL FINANCIAL DATA......................... 14
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA........................... 15
COMPARATIVE (UNAUDITED) PER SHARE DATA................................ 16
COMPARATIVE MARKET PRICE DATA......................................... 17
RISK FACTORS.......................................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risks Related to the Merger......................................... 18
Risks Related to the Business and Operations of Pinnacle Systems.... 20
THE COMPANIES......................................................... 29
Business of Pinnacle Systems........................................ 29
Business of Truevision.............................................. 29
Bernardo Merger Corporation and Walsh Merger Corporation............ 30
THE TRUEVISION MEETING................................................ 31
Purpose of the Truevision Meeting................................... 31
Proxies............................................................. 31
Date, Time and Place of Meeting..................................... 31
Voting Rights and Outstanding Shares................................ 31
Solicitation........................................................ 31
Vote Required....................................................... 32
Revocability of Proxies............................................. 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
TRUEVISION.......................................................... 33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
PINNACLE SYSTEMS.................................................... 35
THE MERGER AND RELATED TRANSACTIONS................................... 37
General............................................................. 37
Reasons for the Merger.............................................. 39
Truevision Board Recommendation..................................... 43
Material Contacts and Board Deliberations........................... 44
Opinion of Truevision's Financial Advisor........................... 47
Interests of Certain Persons in the Merger.......................... 51
Voting Agreements................................................... 53
Representations and Covenants....................................... 53
Conditions to Consummation of the Merger............................ 55
Regulatory Approvals Required....................................... 55
Limitation on Negotiations.......................................... 56
Waiver and Amendment................................................ 57
Termination; Breakup Fees........................................... 57
Certain Federal Income Tax Matters.................................. 58
Accounting Treatment................................................ 59
Restrictions on Resale of Pinnacle Common Stock..................... 59
Dissenters' Rights.................................................. 59
Stock Exchange Listing of Pinnacle Common Stock..................... 59
Expenses............................................................ 59
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Surrender of Truevision Common Stock Certificates................... 59
TRUEVISION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................... 61
UNAUDITED PRO FORMA FINANCIAL INFORMATION AND NOTES THERETO........... 72
COMPARISON OF RIGHTS OF SHAREHOLDERS.................................. 78
DESCRIPTION OF PINNACLE SYSTEMS CAPITAL STOCK......................... 86
DESCRIPTION OF TRUEVISION CAPITAL STOCK............................... 88
EXPERTS............................................................... 88
LEGAL MATTERS......................................................... 89
INDEX TO FINANCIAL STATEMENTS......................................... F-1
APPENDICES
APPENDIX A Agreement and Plan of Reorganization..................... A-1
APPENDIX B Form of Voting Agreement................................. B-1
APPENDIX C Form of Affiliate Agreement.............................. C-1
APPENDIX D Noncompetition Agreement................................. D-1
APPENDIX E Opinion of BancBoston Robertson Stephens................. E-1
</TABLE>
iii
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Pinnacle Systems and Truevision file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission, or SEC. You may inspect and copy such material at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the SEC's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. You may also obtain copies of such
material from the SEC at prescribed rates by writing to the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for more information on the operation
of the public reference rooms. You can also find our SEC filings at the SEC's
website at "www.sec.gov."
The SEC's rules and regulations allow Pinnacle Systems and Truevision to
"incorporate by reference" the information contained in documents that they
filed with the SEC, which means that Pinnacle Systems and Truevision can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this Proxy
Statement/Prospectus. Information in this Proxy Statement/Prospectus supersedes
information incorporated by reference that we filed with the SEC prior to the
date of this Proxy Statement/Prospectus, while information that we file later
with the SEC will automatically update and, in some cases, supersede this
information.
Pinnacle Systems incorporates by reference the documents listed below and
any future filings it will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act")
subsequent to February 11, 1999:
1. The description of Pinnacle Systems common stock contained in the
Registration Statement on Form 8-A filed with the SEC on September 9, 1994;
2. The description of Pinnacle Systems' Rights Agreement contained in the
Registration Statement on Form 8-A filed with the SEC on December 19, 1996, and
as amended on May 19, 1998;
3. Pinnacle Systems' Annual Report on Form 10-K for the fiscal year ended
June 30, 1998, as amended; and
4. Pinnacle Systems' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998; and
5. Pinnacle System's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998.
You may request a copy of these filings, at no cost to you, by writing or
telephoning Pinnacle Systems at:
PINNACLE SYSTEMS, INC.
280 North Bernardo Avenue
Mountain View, California 94043
Attn: Investor Relations
Telephone: (650) 237-1600
Truevision incorporates by reference the documents listed below and any
future filings it will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to February 11, 1999:
1. Registration Statement on Form 8-A filed with the SEC on March 27, 1990;
2. Truevision's Annual Report on Form 10-K for the fiscal year ended June
27, 1998;
3. Truevision's Quarterly Report on Form 10-Q for the period ended
September 26, 1998;
1
<PAGE>
4. Truevision's Quarterly Report on Form 10-Q for the period ended December
26, 1998; and
5. Truevision's Current Report on Form 8-K filed with the SEC on December
18, 1998.
You may request a copy of these filings, at no cost to you, by writing or
telephoning Truevision at:
TRUEVISION, INC.
Attn: Investor Relations
2500 Walsh Avenue
Santa Clara, California 95051
Telephone: (408) 562-4200
If you are a Truevision stockholder, you should make your request by March
5, 1999 to ensure delivery prior to the Truevision meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/ PROSPECTUS. WE HAVE AUTHORIZED NO ONE TO
PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE ON THE FRONT OF THE DOCUMENT.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Proxy Statement/Prospectus, including
statements as to the anticipated closing date of the merger, the anticipated tax
treatment of the merger, the benefits expected to result from the merger, the
future performance of the combined company following the merger and the analysis
performed by the financial advisor to Truevision, are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act. Any statements contained herein (including
without limitation statements to the effect that Pinnacle Systems, Truevision or
their respective management "believes," "expects," "anticipates," "plans,"
"may," "will," "projects," "continues" or "estimates," or statements concerning
"potential," or "opportunity" or other variations thereof or comparable
terminology or the negative thereof) that are not statements of historical fact
should be considered forward-looking statements. Actual results could differ
materially and adversely from those anticipated in such forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" beginning on page 18, which stockholders should carefully review.
TRADEMARKS
Pinnacle Systems is a registered trademark of Pinnacle Systems, Inc., and
Pinnacle Systems believes that all of its product names, other than Alladin, are
trademarks of Pinnacle Systems, Inc. TRUEVISION is a registered trademark of
Truevision, Inc.; Truevision owns trademarks in a variety of other product names
as well. This Proxy Statement/Prospectus also includes trademarks, service marks
or tradenames of companies other than Pinnacle Systems and Truevision, which are
the property of their respective owners.
2
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PINNACLE SYSTEMS/TRUEVISION MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: We believe that the merger of an indirect subsidiary of Pinnacle Systems with
and into Truevision will create a combined company that will:
- Have a leadership position in providing products for the computer-based
video post-production market
- Compete more effectively in the desktop video editing and post-production
market
- Develop new products and provide greater functionality for existing
products
- Achieve potential product and operational synergies between Truevision and
Pinnacle Systems
- Respond more quickly to technological change in the video editing industry
- Create a larger customer base
- Provide more efficient support coverage to its customers
- Increase market penetration
Q: AS A TRUEVISION STOCKHOLDER, WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is consummated, you will receive 0.0313 of a share of Pinnacle
common stock in exchange for each share of Truevision common stock that you
own. For example, if you own 1000 shares of Truevision common stock, you
will receive 31.3 shares of Pinnacle common stock in exchange for your
shares. You will receive only whole shares and will receive cash for any
fractional shares.
Similarly, each option to purchase Truevision common stock will convert into
an option to purchase 3.13% as many shares of Pinnacle common stock at an
adjusted exercise price. Pinnacle Systems will assume each Truevision option
in accordance with the terms of the stock option plan under which the option
was issued and the related stock option agreement. Likewise, each
outstanding warrant to purchase Truevision common stock will convert into a
warrant to purchase 3.13% as many shares of Pinnacle common stock at an
adjusted exercise price. Pinnacle Systems will assume each warrant in
accordance with its terms. The terms and conditions that apply to your new
option or warrant will be substantially the same as the terms and conditions
that apply to your existing option or warrant. For more information on stock
options and warrants, see "The Merger and Related Transactions--General"
beginning on page 37.
Q: WHEN IS THE STOCKHOLDER MEETING RELATING TO THE MERGER AND WHAT SPECIFIC
PROPOSALS WILL I BE ASKED TO CONSIDER?
A: The Truevision meeting will take place on Thursday, March 11, 1999 at 10:00
a.m. At the Truevision meeting, Truevision stockholders will be asked to
approve and adopt the Agreement and Plan of Reorganization, dated as of
December 16, 1998 (the "Merger Agreement") among Pinnacle Systems, Bernardo
Merger Corporation, a Delaware corporation and a wholly owned subsidiary of
Pinnacle Systems, Walsh Merger Corporation, a Delaware corporation and
wholly owned subsidiary of Bernardo ("Merger Sub") and Truevision, and
approve the merger. The Truevision Board unanimously recommends voting in
favor of this proposal.
If you are Pinnacle Systems shareholder, you will not need to attend a
special shareholder's meeting because approval by Pinnacle Systems
shareholders is not required.
Q: IF I AM A TRUEVISION STOCKHOLDER AND AM NOT GOING TO ATTEND THE TRUEVISION
MEETING, SHOULD I RETURN MY PROXY CARD?
A: Yes. Please fill out and sign your proxy card and return it in the enclosed
envelope as soon as possible. Returning your proxy card ensures that your
shares will be represented at the Truevision meeting.
3
<PAGE>
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will only vote your shares if you provide instructions on how to
vote. Without instructions, your shares will not be voted. You should
instruct your broker to vote your shares by following the directions
provided by your broker. If you do not instruct your broker to vote your
shares, this will have the effect of a vote against the proposal relating to
approval and adoption of the Merger Agreement and approval of the merger.
Q: AS A TRUEVISION STOCKHOLDER, WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Send in a later-dated, signed proxy card to Truevision's Secretary before the
Truevision meeting or attend the Truevision meeting and vote in person.
Q: AS A TRUEVISION STOCKHOLDER, SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Pinnacle Systems' exchange agent will send
you written instructions for exchanging their stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible and hope to
complete it by March 12, 1999.
Q: DO I HAVE DISSENTERS' RIGHTS IN CONNECTION WITH THE MERGER?
A: No. Neither shareholders of Pinnacle Systems nor Truevision are entitled to
dissenters' rights in connection with the merger.
Q: WHAT ARE THE TAX CONSEQUENCES TO TRUEVISION STOCKHOLDERS OF THE MERGER?
A: The merger will be a taxable transaction for federal income tax purposes. In
general, a Truevision stockholder who receives shares of Pinnacle common
stock in exchange for shares of Truevision common stock in the merger will
recognize gain or loss for federal income tax purposes equal to the
difference between the value of the shares of Pinnacle common stock received
and the stockholder's tax basis in the shares of Truevision common stock
exchanged. Tax matters, however, are very complicated and the tax
consequences of the merger to you will depend on the facts of your
particular situation. We encourage you to contact your tax advisors to
determine the tax consequences of the merger to you. To review the tax
consequences to Truevision stockholders in greater detail, see "The Merger
and Related Transactions--Certain Federal Income Tax Matters" beginning on
page 58.
4
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FOUND IN GREATER DETAIL
ELSEWHERE IN THIS PROXY STATEMENT/ PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL
OF THE INFORMATION THAT IS IMPORTANT TO YOU. WE URGE YOU TO READ THE ENTIRE
DOCUMENT (INCLUDING THE APPENDICES) AND THE DOCUMENTS WHICH PINNACLE SYSTEMS AND
TRUEVISION HAVE INCORPORATED BY REFERENCE BEFORE YOU DECIDE HOW TO VOTE.
THE COMPANIES
PINNACLE SYSTEMS, INC.
280 North Bernardo Avenue
Mountain View, California 94043
(650) 237-1600
Pinnacle Systems designs, manufactures, markets and supports computer-based
video products to serve the broadcast, desktop and consumer markets. Pinnacle
Systems' products permit professionals and consumers to:
- Edit and manipulate video
- Add special effects to video
- Manage, capture and store video images
- Create titles and graphics
These functions may be performed on-air real-time or post-production. Pinnacle
Systems' products are used by broadcast video professionals, consumers and
desktop professionals. Pinnacle Systems' computer-based products are intended to
replace the traditional complex and expensive video editing suites.
Pinnacle Systems was incorporated in California in 1986. For more
information on Pinnacle Systems, see "Where You Can Find More Information" on
page 1.
TRUEVISION, INC.
2500 Walsh Avenue
Santa Clara, California 95051
(408) 562-4200
Truevision designs, develops, manufactures, and markets professional-quality
digital video products for Windows- and Macintosh-compatible computers and
operating systems. Truevision's products convert and compress analog or digital
video and permit users to:
- Edit and manipulate video
- Combine video with graphics
- Combine video with animation
- Display video creations
Truevision's products are used by video professionals, corporate
communicators, and amateur video enthusiasts, who use the equipment in a variety
of ways, including:
- - Replacing or supplementing traditional stand-alone video editing systems
- - Creating training or Web applications
- - Creating personal videography
Truevision was incorporated in California in 1987 and reincorporated in Delaware
in 1995. For more information on Truevision, see "Where You Can Find More
Information" on page 1.
BERNARDO MERGER CORPORATION
280 North Bernardo Avenue
Mountain View, California 94043
(650) 237-1600
Bernardo was incorporated in Delaware in December 1998 for the purpose of
effecting the merger. Bernardo is a wholly owned subsidiary of Pinnacle.
WALSH MERGER CORPORATION
280 North Bernardo Avenue
Mountain View, California 94043
(650) 237-1600
Walsh Merger Corporation, a Delaware corporation and a wholly owned
subsidiary of Bernardo, was incorporated in Delaware in December 1998 for the
purpose of effecting the merger. Walsh Merger Corporation is referred to in this
document as "Merger Sub."
REASONS FOR THE MERGER
The Boards of Directors of Pinnacle Systems and Truevision believe that the
merger may
5
<PAGE>
result in a number of benefits to Pinnacle Systems' and Truevision's
shareholders. The Pinnacle Systems and Truevision Boards believe that the
combined Company will, among other things:
- - Have a leadership position in providing products for the computer-based video
post production market
- - Compete more effectively in the desktop video editing and post-production
market
- - Develop new products and provide greater functionality for existing products
- - Achieve potential product and operational synergies between Truevision and
Pinnacle Systems
- - Respond more quickly to technological change in the video editing industry
- - Create a larger customer base
- - Provide more efficient support coverage to its customers
- - Increase market penetration
In addition, the Pinnacle Systems Board believes that the merger may result
in a number of benefits to Pinnacle Systems' shareholders, including, among
other benefits:
- - Enhanced opportunity to become the leading company in the desktop video market
- - Expand Pinnacle Systems' line of video editing solutions to serve a broader
array of customers and applications
- - Enhanced opportunity to become the leader in the next generation architecture
for video editing
- - Ability to offer customers a broader choice of video capture and editing
solutions
In addition, the Truevision Board believes that the merger may result in a
number of benefits to Truevision and its stockholders, including, among other
benefits:
- - Ability for Truevision to commit greater resources to product development
efforts and to fund future growth, given Pinnacle Systems' financial strength
- - Ability for Truevision to leverage Pinnacle Systems' customer base and sales
force to increase sales of Truevision products
- - Opportunity for Truevision, as part of the combined company, to compete more
effectively in an increasingly competitive and rapidly changing industry
- - Opportunity for greater liquidity and diversification of risk from Pinnacle
common stock
To review the background and reasons for the merger in greater detail, as
well as the risks of the merger, see "The Merger and Related Transactions--Joint
Reasons for the Merger" beginning on page 39, "--Pinnacle Systems' Reasons for
the Merger" beginning on page 40, "--Truevision's Reasons for the Merger"
beginning on page 41, "--Material Contacts and Board Deliberations" beginning on
page 44, "--Opinion of Truevision's Financial Advisor" beginning on page 47 and
"Risk Factors--Risks Related to the Merger" beginning on page 18.
TRUEVISION STOCKHOLDERS' MEETING
The Truevision meeting will be held at Truevision's offices located at 2500
Walsh Avenue, Santa Clara, CA 95051 on March 11, 1999 at 10:00 local time. At
the meeting, Truevision will ask its stockholders to approve and adopt the
Merger Agreement and approve the merger.
You are entitled to vote at the Truevision meeting if you owned shares of
Truevision as of the close of business on February 4, 1999, the record date.
At the close of business on the record date, 13,154,692 shares of Truevision
common stock were outstanding and entitled to vote at the Truevision meeting.
You will have one vote at the Truevision meeting for each share of Truevision
common stock you owned as of the record date.
RECOMMENDATION TO THE TRUEVISION STOCKHOLDERS
The Truevision Board believes that the merger is fair to, and is in the best
interests of, both you and Truevision. The Truevision Board unanimously
recommends that you vote "for"
6
<PAGE>
the proposal to approve and adopt the Merger Agreement and approve the merger.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Truevision common stock
entitled to vote at the Truevision meeting is required to approve and adopt the
Merger Agreement and to approve the merger.
VOTING AGREEMENTS
Certain officers and directors of Truevision, who beneficially owned
approximately 5.6% of the outstanding shares of Truevision common stock,
including certain options and warrants, as of the record date, have agreed that,
subject to certain exceptions, they will vote their shares of Truevision common
stock in favor of approval of the Merger Agreement and the merger. See "The
Truevision Meeting--Vote Required," beginning on page 32. These stockholders
have also delivered proxies with respect to such matters to Pinnacle Systems
that cannot be revoked. The form of the voting agreement that these Truevision
stockholders signed and the related irrevocable proxy are included as Appendix B
to this Proxy Statement/Prospectus. For more information on these voting
agreements, see "The Merger and Related Transactions--Voting Agreements"
beginning on page 53.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN HOLDERS
As of the record date, the directors and executive officers of Truevision,
as a group, beneficially owned approximately 1,060,950 shares of Truevision
common stock.
TERMS OF THE MERGER
For more information on terms of the merger, see "The Merger and Related
Transactions" beginning on page 37.
THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT. IT IS THE
LEGAL DOCUMENT GOVERNING THE MERGER.
WHEN THE MERGER WILL OCCUR
Assuming that both companies satisfy or waive all of the conditions in the
Merger Agreement, we anticipate that the merger will occur on or before March
12, 1999. For more information on conditions and regulatory matters of the
merger, see "The Merger and Related Transactions--Conditions to Consummation of
the Merger" beginning on page 55 and "The Merger and Related
Transactions--Regulatory Approvals Required" beginning on page 55.
WHAT TRUEVISION STOCKHOLDERS WILL RECEIVE IN THE MERGER
If the merger is consummated, Truevision stockholders will receive 0.0313 of
a share of Pinnacle common stock in exchange for each share of Truevision common
stock they own prior to the merger. Truevision stockholders will receive only
whole shares and will receive cash for any fractional shares.
Similarly, each option to purchase Truevision common stock will convert into
an option to purchase 3.13% as many shares of Pinnacle common stock at an
adjusted exercise price. Pinnacle Systems will assume each Truevision option in
accordance with the terms of the stock option plan under which the option was
issued and the related stock option agreement. Likewise, each outstanding
warrant to purchase Truevision common stock will convert into a warrant to
purchase 3.13% as many shares of Pinnacle common stock at an adjusted exercise
price. Pinnacle Systems will assume each warrant in accordance with its terms.
For more information on conversion of shares and on stock options and warrants,
see "The Merger and Related Transactions--General" beginning on page 37.
Soon after the merger occurs, Pinnacle Systems' exchange agent will mail to
the holders of Truevision common stock a letter of transmittal with respect to
the surrender of valid certificates representing Truevision common stock, along
with instructions for use of the letter of transmittal.
Truevision stockholders should not surrender their Truevision stock
certificates until after the merger and until they receive the letter of
7
<PAGE>
transmittal. For information on exchanging shares, see "The Merger and Related
Transactions--Surrender of Truevision Common Stock Certificates" beginning on
page 60.
OWNERSHIP OF PINNACLE SYSTEMS FOLLOWING THE MERGER
Based on the capitalization of Truevision on the record date, Pinnacle
Systems will issue an aggregate of 411,742 shares of Pinnacle common stock
(excluding shares that may be issued in the future upon exercise of Truevision
options or
Truevision warrants) in connection with the merger. In addition, by virtue of
the merger, Pinnacle Systems will be obligated to issue an additional aggregate
of 92,454 shares of Pinnacle common stock upon exercise, if and when exercised,
of the Truevision options and Truevision warrants assumed in the Merger. Based
further on the capitalization of Pinnacle Systems on the record date (not
including outstanding options or warrants), and the number of additional shares
of Pinnacle common stock that Pinnacle Systems will issue to Truevision
stockholders in connection with the merger, the former holders of Truevision
common stock will hold approximately 3.7% of the total number of shares of
Pinnacle common stock issued and outstanding after consummation of the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The merger will be treated as a taxable transaction for federal income tax
purposes. In general, a Truevision stockholder who receives shares of Pinnacle
common stock in exchange for shares of Truevision common stock in the merger
will recognize gain or loss for federal income tax purposes equal to the
difference between the value of the shares of Pinnacle common stock received and
the stockholder's tax basis in the shares of Truevision common stock exchanged.
For more information, see "The Merger and Related Transactions--Certain Federal
Income Tax Matters" beginning on page 58.
TAX MATTERS ARE VERY COMPLICATED. THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE STOCKHOLDERS TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
OPINION OF FINANCIAL ADVISOR
In deciding to approve the merger, the Truevision Board considered the
opinion of its financial advisor, BancBoston Robertson Stephens, that the
aggregate merger consideration was fair, from a financial point of view to
Truevision's stockholders. More information on this opinion is provided in the
section of this Proxy Statement/Prospectus entitled "The Merger and Related
Transactions--Opinion of Truevision's Financial Advisor" beginning on page 47
and the opinion, which is attached as Appendix E to this Proxy
Statement/Prospectus. We encourage you to read that section and the opinion
carefully and in their entirety.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Truevision stockholders should note that certain members of Truevision
management and the Truevision Board have interests in the merger as employees
and/or directors that are different from, or in addition to, your interest as a
stockholder.
The Merger Agreement provides that the employment of Louis J. Doctor,
Truevision's President and Chief Executive Officer, and R. John Curson,
Truevision's Chief Financial Officer, will be terminated other than for cause.
After the merger, Messrs. Doctor and Curson will each be retained as a part-time
employee or consultant of the surviving entity in the merger. The
change-of-control provisions in their existing employment agreements with
Truevision provide that both Messrs. Doctor and Curson will receive cash bonuses
as provided under the current Truevision executive bonus plan, assuming targets
had been met for the full 1999 fiscal year. These bonuses will be paid at the
time of the merger. Their options will remain in effect through their original
terms.
All shares of Truevision common stock underlying the options granted to
Messrs. Doctor and Curson and the other members of the Truevision Board, and an
outstanding warrant to Mr. Doctor will accelerate and vest immediately upon
completion of the merger. Immediately
8
<PAGE>
after completion of the merger, Bernardo, as the sole stockholder of the
surviving entity, will approve the amendment of all of the option agreements
granted to members of the Truevision Board and the warrant held by Mr. Doctor to
provide that such options and warrants may be exercisable for 10 years from the
original date of grant.
In connection with the merger, Mr. Doctor has also entered into an agreement
not to compete with Pinnacle Systems. This agreement is attached as Appendix D
to this Proxy Statement/ Prospectus.
If Pinnacle Systems and Truevision complete the merger, Pinnacle Systems
will continue certain indemnification arrangements for persons serving as
directors and officers of Truevision at the time of the merger for at least six
years following the consummation of the merger. Also, subject to certain
limitations, Pinnacle Systems will maintain a policy of directors' and officers'
liability insurance for the benefit of those persons for six years after the
merger.
For more information see "The Merger and Related Transactions--Interests of
Certain Persons in the Merger" beginning on page 51.
CONDITIONS TO THE MERGER
Pinnacle Systems will complete the merger only if a number of conditions are
either satisfied or waived by Pinnacle Systems, some of which include:
- The representations and warranties made by Truevision in the Merger
Agreement (subject to certain materiality qualifications) are true and
correct
- Truevision performs certain covenants and obligations contained in the
Merger Agreement in all material respects
- The Truevision stockholders adopt and approve the Merger Agreement and
approve the merger
- There is no material adverse effect with respect to Truevision
- There are no restraining orders, injunctions or other orders preventing
the consummation of the merger
Truevision will complete the merger only if a number of conditions are
satisfied or waived by Truevision, some of which include:
- The representations and warranties made by Pinnacle Systems in the Merger
Agreement (subject to certain materiality qualifications) are true and
correct
- Pinnacle Systems performs certain covenants and obligations contained in
the Merger Agreement in all material respects
- The Truevision stockholders adopt and approve the Merger Agreement and
approve the merger
- There is no material adverse effect with respect to Pinnacle Systems
- There are no restraining orders, injunctions or other orders preventing
the consummation of the merger
For more information on the conditions to the merger, see "The Merger and
Related Transactions--Conditions to Consummation of the Merger" beginning on
page 55.
TERMINATION OF THE MERGER AGREEMENT
Either Pinnacle Systems or Truevision may terminate the Merger Agreement at
any time prior to the time of the merger, whether before or after Truevision
obtains the requisite stockholder approval, if:
- Pinnacle Systems and Truevision Boards mutually consent
- Pinnacle Systems and Truevision do not complete the merger by May 31, 1999
- A governmental entity issues an order, decree or ruling or takes any other
action which permanently prevents Pinnacle Systems or Truevision from
consummating the merger
- Truevision fails to obtain stockholder approval
9
<PAGE>
Pinnacle Systems may terminate the Merger Agreement at any time prior to the
time of the merger, whether before or after Truevision obtains the requisite
stockholder approval, if:
- Truevision has withdrawn, modified or refrained from recommending the
merger to its stockholders or if a third party has acquired beneficial
ownership, or the right to acquire beneficial ownership of, at least 15%
of Truevision's outstanding stock
- Truevision breaches any of its representations, warranties or covenants
contained in the Merger Agreement (subject to certain materiality
qualifications)
Truevision may terminate the Merger Agreement at any time prior to the time
of the merger, whether before or after Truevision obtains the requisite
stockholder approval, if:
- Pinnacle Systems breaches any of its representations, warranties or
covenants contained in the Merger Agreement (subject to certain
materiality qualifications)
EXPENSES AND TERMINATION FEES
Pinnacle Systems and Truevision have agreed that we will each pay our own
fees and expenses in connection with the merger, whether or not we consummate
the merger, except that we will share equally all fees and expenses (other than
attorneys' fees) in connection with the printing and filing of this Proxy
Statement/ Prospectus and the registration statement of which this Proxy
Statement/Prospectus is a part. In addition, Truevision has agreed to pay
Pinnacle Systems $500,000 in certain situations. For more information, see "The
Merger and Related Transactions--Termination; Breakup Fees" beginning on page
57.
AFFILIATE AGREEMENTS
Truevision has delivered to Pinnacle Systems executed affiliate agreements
with certain stockholders who might be considered affiliates of Truevision under
applicable securities laws. The purpose of these agreements is to comply with
the requirements of certain federal securities laws with respect to such
stockholders' ability to dispose of Pinnacle common stock received in the
merger. A form of these affiliate agreements is included as Appendix C to this
Proxy Statement/ Prospectus. For more information on these agreements, see "The
Merger and Related Transactions--Restrictions on Resale of Pinnacle Common
Stock" beginning on page 59.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase.
REGULATORY APPROVALS
The merger is subject to the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended (the "HSR Act"). Truevision and Pinnacle Systems have each made
the notifications required under the HSR Act and have received notice of early
termination on February 5, 1999. The merger must also comply with federal and
state securities laws. For more information, see "The Merger and Related
Transactions--Regulatory Approvals Required" beginning on page 55.
RIGHTS OF HOLDERS OF PINNACLE COMMON STOCK FOLLOWING THE MERGER
The rights of Truevision's stockholders are currently governed by Delaware
law and Truevision's certificate of incorporation and bylaws. The rights of
Pinnacle Systems' shareholders are governed by California law and Pinnacle's
articles of incorporation and bylaws. As of the time of the merger, Truevision
stockholders will become Pinnacle Systems shareholders. There are important
differences between the rights of stockholders of Truevision and shareholders of
Pinnacle Systems. In particular, Pinnacle Systems has adopted a shareholders
rights plan that, among other things, may discourage certain types of change of
control provisions. For a description of these differences, see "Comparison of
Rights of Shareholders" beginning on page 77.
RIGHTS OF DISSENTING SHAREHOLDERS
Neither Truevision nor Pinnacle Systems shareholders are entitled to
dissenter's rights in connection with the merger.
10
<PAGE>
MARKETS AND MARKET PRICES
Pinnacle common stock is quoted on the Nasdaq under the symbol "PCLE."
Truevision common stock is quoted on Nasdaq under the symbol "TRUV." Following
the consummation of the merger, Truevision common stock will cease to be quoted
on Nasdaq.
The following table sets forth the closing sale prices per share of Pinnacle
common stock and Truevision common stock on December 15, 1998, the last trading
day before Pinnacle Systems and Truevision announced that they signed the Merger
Agreement and on February 5, 1999, the latest practicable trading day before
printing of this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
PINNACLE TRUEVISION TRUEVISION
COMMON COMMON EQUIVALENT
STOCK PER STOCK PER PER SHARE
SHARE PRICE SHARE PRICE PRICE (1)
----------- ----------- -----------
<S> <C> <C> <C>
December 15, 1998....... $ 28.813 $ 0.719 $ 0.902
February 5, 1999........ $ 36.750 $ 0.969 $ 1.150
</TABLE>
- ------------------------
(1) Represents the equivalent of one share of Truevision common stock calculated
by multiplying the price per share of Pinnacle common stock by 0.0313, the
exchange ratio in the merger.
We cannot guarantee or predict the actual prices of Pinnacle Systems and
Truevision Common Stock prior to or at the time Pinnacle Systems and Truevision
consummate the merger. For more information on this risk, see "Risk
Factors--Risks Related to Merger" beginning on page 18.
11
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical financial information of Pinnacle Systems
and Truevision has been derived from their respective historical financial
statements and should be read in conjunction with such consolidated financial
statements and their notes, which are incorporated by reference into this
document or included elsewhere herein. The unaudited historical financial
statement data for Pinnacle Systems and Truevision as of and for the six months
ended December 31, 1998 and December 26, 1998, respectively have been prepared
on the same basis as the historical information in the audited financial
statements and, in the opinion of the respective management of each company,
contain all adjustments, consisting only of normal recurring accruals, necessary
for the fair presentation of the results of operations for such periods. For a
more complete discussion of Truevision's selected historical financial data, see
the footnotes beginning on page F-7 or the consolidated financial statements
filed with Truevision's Annual Report on Form 10-K for the fiscal year ended
June 27, 1998. The selected unaudited pro forma combined financial data is
derived from the unaudited pro forma combined financial statements, appearing
elsewhere herein, which give effect to the merger using the purchase method of
accounting and should be read in conjunction with such pro forma statements and
the notes thereto.
The unaudited pro forma financial data are based on the historical audited
and unaudited consolidated financial statements and notes thereto of Pinnacle
Systems and Truevision, which are incorporated by reference into this document
or included elsewhere herein. The pro forma adjustments are preliminary and
based on available information and certain assumptions made by management. In
the opinion of management, all adjustments have been made that are necessary to
present fairly the pro forma data.
The pro forma combined statements of income data assumes the merger took
place as of the beginning of the earliest period presented and combines:
- Pinnacle Systems' unaudited consolidated statement of income for the
six-month period ended December 31, 1998 with Truevision's unaudited
consolidated statement of income for the six-month period ended December
26, 1998, and
- Pinnacle Systems' consolidated statement of income for the twelve-month
period ended June 30, 1998 and Truevision's consolidated statement of
income for the year ended June 27, 1998.
The pro forma combined balance sheet data assumes the merger took place on
December 31, 1998 and combines:
- Pinnacle Systems' December 31, 1998 consolidated balance sheet and
Truevision's December 26, 1998 consolidated balance sheet.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred had the merger been consummated in an earlier period, nor is
it necessarily indicative of future operating results or financial position.
12
<PAGE>
PINNACLE SYSTEMS SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
-------------------------------------- -----------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------------------- ----------------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 71,445 $ 44,395 $ 105,296 $ 37,482 $ 46,151 $ 22,193 $ 10,230
Cost of sales.................. 33,210 20,853 48,715 23,997 23,854 11,291 5,057
------- -------- --------- --------- --------- --------- ---------
Gross profit............... 38,235 23,542 56,581 13,485 22,297 10,902 5,173
------- -------- --------- --------- --------- --------- ---------
Operating expenses:
Engineering and product
development................ 6,653 4,990 11,652 7,579 5,140 2,405 1,806
Sales and marketing.......... 19,149 13,385 29,301 12,667 8,907 5,340 3,274
General and administrative... 3,394 2,403 5,342 3,702 2,186 1,088 567
In process research and
development................ -- 16,960 16,960 4,894 3,991 -- --
------- -------- --------- --------- --------- --------- ---------
Total operating expenses... 29,196 37,738 63,255 28,842 20,224 8,833 5,647
------- -------- --------- --------- --------- --------- ---------
Operating income (loss).... 9,039 (14,196) (6,674) (15,357) 2,073 2,069 (474)
Interest income (expense),
net.......................... 2,275 1,068 3,139 2,867 3,345 738 (90)
------- -------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes.................... 11,314 (13,128) (3,535) (12,490) 5,418 2,807 (564)
Income tax expense............. (2,266) (766) (2,685) (2,445) (1,734) (567) (2)
------- -------- --------- --------- --------- --------- ---------
Net income (loss)............ $ 9,048 $ (13,894) $ (6,220) $ (14,935) $ 3,684 $ 2,240 $ (566)
------- -------- --------- --------- --------- --------- ---------
------- -------- --------- --------- --------- --------- ---------
Net income (loss) per share:
Basic........................ $ 0.87 $ (1.75) $ (0.70) $ (2.02) $ 0.51 $ 0.53 $ (0.21)
------- -------- --------- --------- --------- --------- ---------
------- -------- --------- --------- --------- --------- ---------
Diluted...................... $ 0.80 $ (1.75) $ (0.70) $ (2.02) $ 0.47 $ 0.43 $ (0.21)
------- -------- --------- --------- --------- --------- ---------
------- -------- --------- --------- --------- --------- ---------
Shares used to compute net
income (loss) per share:
Basic........................ 10,363 7,942 8,907 7,402 7,158 4,266 2,745
------- -------- --------- --------- --------- --------- ---------
------- -------- --------- --------- --------- --------- ---------
Diluted...................... 11,302 7,942 8,907 7,402 7,803 5,220 2,745
------- -------- --------- --------- --------- --------- ---------
------- -------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- -----------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------------- ------------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 109,064 $ 92,602 $ 100,496 $ 57,662 $ 72,337 $ 26,588 $ 2,647
Total assets......................... 159,487 118,193 132,937 70,007 84,561 32,724 5,904
Long-term debt....................... -- 325 163 475 -- -- --
Retained earnings (deficit).......... (9,777) (26,499) (18,825) (12,605) 2,330 (1,354) (3,594)
Shareholders' equity................. 134,530 101,817 114,392 62,711 80,198 27,743 3,125
</TABLE>
13
<PAGE>
TRUEVISION SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
---------------- -------------------------------------------------------------------
DECEMBER DECEMBER JUNE
26, 27, 27, JUNE 29, JUNE 30,
1998 1997 1998 JUNE 28, 1997 1996 JULY 1, 1995 1994
------- ------- ------- ------------- -------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $13,873 $20,131 $36,789 $ 43,620 $71,536 $ 66,318 $ 79,175
Cost of sales................................ 8,849 11,394 20,597 30,412 43,323 51,623 60,293
------- ------- ------- ------------- -------- ------------ ------------
Gross profit............................... 5,024 8,737 16,192 13,208 28,213 14,695 18,882
Operating expenses
Research and development................... 2,492 2,624 4,976 6,899 7,247 6,831 7,844
Selling, general and administrative........ 4,543 4,908 9,729 17,399 16,761 20,536 25,287
Restructuring and other
costs.................................... -- -- -- 1,680(A) -- 3,654(B) $ 6,694(C)
------- ------- ------- ------------- -------- ------------ ------------
Income (loss) from operations.............. (2,011 ) 1,205 1,487 (12,770) 4,205 (16,326) (20,943)
Interest and other expense, net.............. (28 ) (110 ) (101 ) (649) (469 ) (230) 78
Litigation settlement expense................ -- -- -- -- -- (3,675)(D) --
------- ------- ------- ------------- -------- ------------ ------------
Income (loss) before provision for income
taxes and cumulative effect of change in
accounting principle..................... (2,039 ) 1,095 1,386 (13,419) 3,736 (20,231) (20,865)
Provision for income taxes................... -- 33 42 1,510 110 -- --
------- ------- ------- ------------- -------- ------------ ------------
Income (loss) before cumulative effect..... (2,039 ) 1,062 1,344 (14,929) 3,626 (20,231) (20,865)
Cumulative effect of change in accounting
principle.................................. -- -- -- (4,858)(E) -- -- --
------- ------- ------- ------------- -------- ------------ ------------
Net income (loss).......................... $(2,039) $1,062 $1,344 $(19,787) $ 3,626 $ (20,231) $(20,865)
------- ------- ------- ------------- -------- ------------ ------------
------- ------- ------- ------------- -------- ------------ ------------
Net income (loss) per share:
Basic...................................... $(0.16 ) $0.08 $ 0.10 $ (1.56) $ 0.29 $ (2.12) $ (2.20)
------- ------- ------- ------------- -------- ------------ ------------
------- ------- ------- ------------- -------- ------------ ------------
Diluted.................................... $(0.16 ) $0.08 $ 0.10 $ (1.56) $ 0.27 $ (2.12) $ (2.20)
------- ------- ------- ------------- -------- ------------ ------------
------- ------- ------- ------------- -------- ------------ ------------
Shares used to compute net income (loss) per
share:
Basic...................................... 13,093 12,796 12,893 12,694 12,403 9,565 9,466
------- ------- ------- ------------- -------- ------------ ------------
------- ------- ------- ------------- -------- ------------ ------------
Diluted.................................... 13,093 13,367 13,246 12,694 13,535 9,565 9,466
------- ------- ------- ------------- -------- ------------ ------------
------- ------- ------- ------------- -------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
JUNE
DECEMBER 26, 27, JUNE 29,
1998 1998 JUNE 28, 1997 1996 JULY 1, 1995
------------- ------- ------------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 6,338 $8,100 $ 5,027 $22,419 $ 14,215
Total assets..................................... 13,878 18,054 20,488 39,928 40,726
Long-term obligations............................ 27 44 86 151 44
Accumulated deficit.............................. (45,834) (43,795) (45,139) (25,352 ) (28,978)
Stockholders' equity............................. 7,912 9,889 7,876 27,103 18,527
Current ratio.................................... 2.1 2.0 1.4 2.8 1.6
<CAPTION>
JUNE 30,
1994
------------
<S> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 23,671
Total assets..................................... 44,701
Long-term obligations............................ 247
Accumulated deficit.............................. (8,747)
Stockholders' equity............................. 30,231
Current ratio.................................... 2.7
</TABLE>
(A) During the quarter ended June 28, 1997, Truevision recorded a charge for
restructuring and other costs of $1,680,000.
(B) During the quarter ended September 30, 1994, Truevision recorded a charge
for restructuring and other costs of $3,654,000. This charge included
write-offs of a discontinued product line and the costs of downsizing
international operations.
(C) During the quarter ended September 30, 1993, Truevision recorded a charge
for restructuring and litigation of $6,694,000. This charge included costs
of downsizing and integrating operations, write-down of certain assets as a
result of the discontinuance of certain product lines and write-off of other
impaired assets.
(D) In fiscal 1995, Truevision accrued $3,675,000 for settlement of a
stockholder class action lawsuit. This amount, together with $3,000,000 of
insurance proceeds, were paid in fiscal 1996.
(E) During the quarter ended September 28, 1996, Truevision recorded a charge of
$4,858,000 for the cumulative effect of changing its method of accounting
for revenue recognition for shipments to distributors.
14
<PAGE>
PINNACLE SYSTEMS AND TRUEVISION
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR
SIX MONTHS ENDED ENDED
DECEMBER 31, 1998 JUNE 30, 1998
------------------ ----------------
(IN THOUSANDS, EXCEPT PER SHARE
AND RATIO DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales............................................... $ 85,245 $ 141,554
Income (loss) before income taxes....................... 8,805 (3,148)
-------- --------
Net income (loss)....................................... $ 7,041 $ (5,855)
-------- --------
-------- --------
Basic net income (loss) per share....................... $ 0.65 $ (0.63)
-------- --------
-------- --------
Diluted net income (loss) per share..................... $ 0.60 $ (0.63)
-------- --------
-------- --------
Basic average common shares and equivalents............. 10,773 9,317
Diluted average common shares and equivalents........... 11,712 9,317
BALANCE SHEET DATA:
Total assets............................................ $ 177,753
Long-term obligations................................... 27
Stockholders' equity.................................... 146,830
Working capital......................................... 116,359
Current ratio........................................... 4.77
</TABLE>
15
<PAGE>
COMPARATIVE (UNAUDITED) PER SHARE DATA
The following tables set forth certain historical per share data of Pinnacle
Systems and Truevision and combined per share data on an unaudited pro forma
basis after giving effect to the merger on a purchase accounting basis assuming
the issuance of 0.0313 shares of Pinnacle common stock in exchange for each
share of Truevision common stock. This data should be read in conjunction with
the Selected Historical Financial Data and the separate historical consolidated
financial statements of Pinnacle Systems and Truevision included elsewhere
herein or incorporated by reference in this Proxy Statement/Prospectus. The
unaudited pro forma combined financial data are not necessarily indicative of
the operating results that would have been achieved had the transaction been in
effect as of the beginning of the periods presented and should not be construed
as representative of future operations.
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
------------------------- -------------
<S> <C> <C>
Historical Pinnacle Systems:
Basic net income (loss) per share........................................ $ 0.87 $ (0.70)
Diluted net income (loss) per share...................................... $ 0.80 $ (0.70)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED YEAR ENDED
DECEMBER 26, 1998 JUNE 27, 1998
----------------------- ---------------
<S> <C> <C>
Historical Truevision:
Basic net income (loss) per share........................................ $ (0.16) $ 0.10
Diluted net income (loss) per share...................................... $ (0.16) $ 0.10
</TABLE>
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
------------------------- -------------
<S> <C> <C>
Pro Forma Combined basic net income (loss) (1)(2):
Per Pinnacle Systems share................................................. $ 0.65 $ (0.63)
Equivalent per Truevision share............................................ $ 0.02 $ (0.02)
Pro Forma Combined diluted net income (loss) (1)(2):
Per Pinnacle Systems share................................................. $ 0.60 $ (0.63)
Equivalent per Truevision share............................................ $ 0.02 $ (0.02)
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1998
-----------------
<S> <C>
Book value per share (3)
Historical Pinnacle Systems.................................................................. $ 12.73
Historical Truevision........................................................................ $ 0.60
Pro forma combined per Pinnacle Systems share (4)............................................ $ 13.43
Pro forma equivalent combined per Truevision share (4)....................................... $ 0.42
</TABLE>
- ------------------------
(1) The equivalent pro forma combined per Truevision share amount is calculated
by multiplying the pro forma combined share amounts by the exchange ratio of
0.0313 shares of Pinnacle common stock for each share of Truevision common
stock.
(2) Excludes an estimated in process research and development write-off of
approximately $3.0 million and estimated integration expenses of
approximately $1.0 to $3.0 million.
(3) The historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding at December 31,
1998. The pro forma combined book value per share is computed by dividing
pro forma shareholders' equity by the pro forma number of shares of Pinnacle
common stock outstanding as of December 31, 1998, assuming the merger had
occurred as of that date.
(4) Pinnacle Systems estimates it will incur direct transaction costs and
additional costs associated with the integration of the two companies of
approximately $2.0 to $3.0 million associated with the merger, which will be
included as part of the purchase price to be allocated to the Truevision
assets acquired. The pro forma combined book value per share data gives
effect to the estimated direct transaction costs as if such costs had been
incurred as of the respective balance sheet date. The direct transaction
costs are not included in the pro forma combined net income per share data.
See "Unaudited Pro Forma Financial Information and Notes Thereto."
16
<PAGE>
COMPARATIVE MARKET PRICE DATA
This table below sets forth, for the calendar quarters indicated, the
reported high and low sales prices of Pinnacle common stock and Truevision
common stock as reported on Nasdaq.
<TABLE>
<CAPTION>
PINNACLE TRUEVISION
COMMON STOCK COMMON STOCK
-------------------- --------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
--------- --------- --------- ---------
1997 FISCAL YEAR
First Quarter.............................................................. $ 21.25 $ 9.25 $ 8.00 $ 4.00
Second Quarter............................................................. 13.88 8.88 4.63 2.44
Third Quarter.............................................................. 15.25 9.25 4.13 2.25
Fourth Quarter............................................................. 19.00 12.50 2.88 1.50
1998 FISCAL YEAR
First Quarter.............................................................. 31.25 17.13 4.13 1.63
Second Quarter............................................................. 33.50 20.00 5.19 1.80
Third Quarter.............................................................. 37.88 20.00 3.06 2.00
Fourth Quarter............................................................. 43.50 26.00 2.88 0.75
1999 FISCAL YEAR
First Quarter.............................................................. 38.25 18.56 2.00 1.00
Second Quarter............................................................. 38.25 19.00 1.28 0.50
Third Quarter (through February 5, 1999)................................... 42.00 33.44 1.25 0.81
</TABLE>
On December 15, 1998, the last full trading day prior to the public
announcement of the execution and delivery of the Merger Agreement, the closing
prices on Nasdaq were $28.813 per share of Pinnacle common stock and $0.719 per
share of Truevision common stock. On February 5, 1999, the closing prices on
Nasdaq were $36.75 per share of Pinnacle common stock and $0.969 per share of
Truevision common stock.
Because the exchange ratio of 0.0313 is fixed, changes in the market price
of Pinnacle common stock will affect the dollar value of the Pinnacle common
stock to be received by stockholders of Truevision in the merger. Truevision
stockholders are urged to obtain current market quotations for Pinnacle common
stock and Truevision common stock prior to the Truevision meeting.
Neither Pinnacle Systems nor Truevision has paid cash dividends. After the
merger, Pinnacle Systems intends to retain earnings for development of its
business and not to distribute earnings to shareholders as dividends. The
declaration and payment by Pinnacle Systems of any future dividends and the
amount thereof will depend upon Pinnacle Systems' results of operations,
financial condition, cash requirements, future prospects, limitations imposed by
credit agreements or senior securities and other factors deemed relevant by the
Pinnacle Systems Board.
17
<PAGE>
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY HOLDERS OF
TRUEVISION COMMON STOCK IN EVALUATING WHETHER TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND APPROVE THE MERGER. THESE FACTORS SHOULD BE CONSIDERED IN
CONJUNCTION WITH THE OTHER INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT/PROSPECTUS.
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING
PINNACLE SYSTEMS AND TRUEVISION. ADDITIONAL RISKS AND UNCERTAINTIES NOT
PRESENTLY KNOWN TO US OR THAT WE DO NOT CURRENTLY BELIEVE ARE IMPORTANT MAY ALSO
HARM OUR BUSINESS OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR OUR RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED. IF THAT
HAPPENS, THE TRADING PRICE OF PINNACLE COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO THE MERGER
INTEGRATING PINNACLE SYSTEMS AND TRUEVISION INVOLVES RISKS THAT MAY
NEGATIVELY IMPACT THE COMBINED COMPANY.
The successful combination of companies in the high technology industry may
be more difficult to accomplish than in other industries. The anticipated
benefits of the merger will not be achieved unless the operations of Truevision
are successfully combined with those of Pinnacle Systems in a timely manner.
Prior to the merger, Pinnacle Systems and Truevision have operated
independently, each with its own business, business culture, clients, employees
and systems. Following the merger, the combined company must operate as a single
organization utilizing common (1) information communication systems; (2)
operating procedures; (3) financial controls; and (4) human resource practices,
including benefit, training and professional development programs. There may be
substantial difficulties, costs and delays involved in integrating Pinnacle
Systems and Truevision which could harm the combined company. These
difficulties, costs and delays may include:
- Diversion of the attention of management
- Potential incompatibility of business cultures
- Interruption of, or a loss of momentum in, the activities of either or
both of the companies' businesses
- Difficulties in assimilating Pinnacle Systems' and Truevision's product
offerings
- Difficulties in coordinating Pinnacle Systems' and Truevision's research
and development and sales and marketing efforts
- Costs and delays in implementing common systems and procedures, including
financial accounting systems
- Costs and inefficiencies in delivering services to the clients of the
combined company
- Inability to retain and integrate key management, technical sales and
customer support personnel
Also, the engineering teams of Pinnacle Systems and Truevision may not
successfully cooperate and realize any technological benefits. For these
reasons, Pinnacle Systems may not realize any of the anticipated benefits of the
merger. In addition, the announcement and consummation of the merger could cause
customers and potential customers of Pinnacle Systems or Truevision to delay or
cancel orders for products as a result of customer concerns and uncertainty over
product evolution, integration and support of the combined company's products. A
delay or cancellation of orders could harm the
18
<PAGE>
business, results of operations and financial condition of either or both of
Pinnacle Systems or Truevision.
THE NUMBER OF SHARES OF PINNACLE COMMON STOCK RECEIVED IN THE MERGER WILL
NOT INCREASE OR DECREASE DUE TO CHANGES IN THE PRICE OF EITHER COMPANY'S STOCK.
As a result of the merger, each Truevision stockholder will receive 0.0313
of a share of Pinnacle common stock for each share of Truevision common stock
held by such stockholder. The Merger Agreement does not provide for adjustment
of the exchange ratio based on fluctuations in the price of Pinnacle common
stock. As a result, Truevision stockholders will not be compensated for
decreases in the market price of Pinnacle common stock that could occur before
the merger. Similarly, Truevision stockholders will not be compensated for
positive developments, if any, in Truevision's business, unless and to the
extent such changes result in an increase in the market price of Pinnacle common
stock. If the market price of Pinnacle common stock decreases or increases prior
to the merger, the market value at the closing of the merger of Pinnacle common
stock to be received by Truevision stockholders in the merger would
correspondingly decrease or increase. The market prices of Pinnacle common stock
and Truevision common stock as of a recent date are set forth herein under
"Summary--Markets and Market Prices." Truevision stockholders are advised to
obtain recent market quotations for Pinnacle common stock and Truevision common
stock. The market prices of both Pinnacle Systems and Truevision common stock
have fluctuated historically and are likely to continue to fluctuate. See
"Summary--Markets and Market Prices" and "--Pinnacle Systems' stock price may be
volatile."
SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER MAY HAVE AN ADVERSE EFFECT ON
THE COMBINED COMPANY.
Pinnacle Systems and Truevision estimate that the negotiation and
implementation of the merger will result in aggregate pre-tax expenses to
Pinnacle Systems and Truevision of approximately $2 million to $3 million,
primarily relating to the fees of financial advisors, attorneys and accountants.
Pinnacle Systems expects to incur in-process research and development write-off
of approximately $3 million to $4 million in the quarter in which the merger
closes. The actual amount of such charges will depend upon facts and
circumstances at the date of acquisition and will be determined using an
independent valuation. Pinnacle Systems also expects to take additional charges
associated with combining the operations of the two companies of approximately
$1 million to $3 million. It is possible that Pinnacle Systems' and Truevision's
estimate is incorrect or that unanticipated contingencies will occur that will
substantially increase the costs of combining the companies' operations. In any
event, costs associated with the merger will negatively impact results of
operations in the quarter in which the merger occurs.
THE MERGER MAY NOT CLOSE BECAUSE PINNACLE SYSTEMS AND TRUEVISION MAY NOT
SATISFY CONDITIONS TO CLOSING.
Pinnacle Systems' and Truevision's obligations to complete the merger are
subject to the satisfaction of various conditions set forth in the Merger
Agreement. These conditions are set forth in "Merger and Related
Transactions--Conditions to Consummation of the Merger." Pinnacle Systems or
Truevision may not be able to satisfy in a timely manner one or more of the
other conditions required to be satisfied prior to the closing of the merger.
19
<PAGE>
RISKS RELATED TO THE BUSINESS AND OPERATIONS OF PINNACLE SYSTEMS
THERE ARE VARIOUS FACTORS WHICH MAY CAUSE PINNACLE SYSTEMS' NET REVENUES AND
OPERATING RESULTS TO FLUCTUATE.
Pinnacle Systems' quarterly and annual operating results have varied
significantly in the past and may continue to fluctuate because of a number of
factors, many of which are outside Pinnacle Systems' control. These factors
include:
- Timing of significant orders from and shipments to major OEM customers
- Timing and market acceptance of new products
- Success in developing, introducing and shipping new products
- Dependence on distribution channels through which Pinnacle Systems'
products are sold
- Increased competition and pricing pressure
- Accuracy of Pinnacle Systems' and resellers' forecasts of end user demand
- Accuracy of inventory forecasts
- Ability to obtain sufficient supplies from its subcontractors
- Timing and level of consumer product returns
- Foreign currency fluctuations
- Costs of integrating acquired operations
- General domestic and international economic conditions, such as the
current economic downturn in Asia
Pinnacle Systems 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. Also,
Pinnacle Systems 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.
Pinnacle Systems' 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. Due to these factors,
Pinnacle Systems 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.
PINNACLE SYSTEMS' STOCK PRICE MAY BE VOLATILE.
The trading price of Pinnacle Systems' common stock has in the past and
could in the future fluctuate significantly. The fluctuations have been or could
be in response to numerous factors including:
- Quarterly variations in results of operations
- Announcements of technological innovations or new products by Pinnacle
Systems, their customers or competitors
- Changes in securities analysts' recommendations
- Earnings estimates for Pinnacle Systems
- General fluctuations in the stock market
20
<PAGE>
Pinnacle Systems' revenues and results of operations may be below the
expectations of public market securities analysts or investors. This could
result in a sharp decline in the market price of Pinnacle Systems' common stock.
In addition, stock markets have from time to time experienced extreme price and
volume fluctuations. The market prices for high technology companies have been
particularly affected by these market fluctuations and such effects have often
been unrelated to the operating performance of such companies. These broad
market fluctuations may cause a decline in the market price of Pinnacle Systems'
common stock.
In the past, following periods of volatility in the market price of a
company's stock, securities class action litigation has been brought against the
issuing company. Although no such litigation has been brought against Pinnacle
Systems, it is possible that similar litigation could be brought against
Pinnacle Systems. Such litigation could result in substantial costs and would
likely divert management's attention and resources. Any adverse determination in
such litigation could also subject Pinnacle Systems to significant liabilities.
PINNACLE SYSTEMS' FAILURE TO ACQUIRE AND SUCCESSFULLY INTEGRATE THE
BUSINESSES IT ACQUIRES COULD NEGATIVELY IMPACT IT.
In August 1997, Pinnacle Systems completed the acquisition of certain assets
from miro Computer Products AG ("Miro Acquisition"). Pinnacle Systems may in the
near- or long-term pursue acquisitions of complementary businesses, products or
technologies. Integrating acquired operations is a complex, time-consuming and
expensive process. All acquisitions involve risks that could materially and
adversely affect Pinnacle Systems' business and operating results. These risks
include:
- Distracting management from the day-to-day operations of Pinnacle Systems'
business
- Costs, delays and inefficiencies associated with integrating acquired
operations, products and personnel
- The potential to result in dilutive issuance of Pinnacle Systems' equity
securities
- The incurrence of debt and amortization expenses related to goodwill and
other intangible assets
PINNACLE SYSTEMS MAY FAIL TO SELL PRODUCTS IN THE CONSUMER MARKET.
Pinnacle Systems entered the consumer market with the purchase of the
VideoDirector product line from Gold Disk in June 1996. Pinnacle Systems 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, with the Miro Acquisition in August 1997, Pinnacle
Systems acquired Miro's consumer products and European sales organization.
Pinnacle Systems aims to expend considerable resources to develop, market and
sell products into the consumer market. Pinnacle Systems expects to devote
significant effort and resources to developing its consumer market. However,
Pinnacle Systems could fail since it currently lacks:
- Significant experience marketing and selling products through the consumer
distribution channels.
- Established relationships with distributors and retailers
- A fully developed infrastructure to support electronic retail stores and
telephone and internet orders.
Additionally, several factors beyond Pinnacle Systems' control could hurt
consumer product sales and consequently Pinnacle Systems' financial condition.
These factors include:
- Pinnacle Systems' products may have compatibility problems with other
manufacturers' electronic components
21
<PAGE>
- Pinnacle Systems, and not the reseller, bears the risk of obsolete
inventory and inventory returns
- The growth of the consumer video market is difficult to predict
PINNACLE SYSTEMS' SALES ARE CONCENTRATED AMONGST OEM CUSTOMERS AND PINNACLE
SYSTEMS COULD BE NEGATIVELY AFFECTED IF SALES TO THESE CUSTOMERS WERE TO
DECLINE.
Pinnacle Systems has been highly dependent on sales of its Alladin and Genie
products to OEMs. Sales to Avid Technology, Inc. accounted for approximately
5.8% in the quarter ended December 31, 1998, 10.7% of net sales in fiscal 1998
and 26.4% of sales in fiscal 1997. Though this concentration has lessened during
the last fiscal years, it still subjects Pinnacle Systems to a number of risks.
In particular, its operating results will vary on a quarter-to-quarter basis as
a result of variations in the ordering patterns of OEM customers. Pinnacle
Systems' results of operations have in the past and could in the future be
materially harmed 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 Pinnacle Systems anticipates that such fluctuations may continue.
If sales to OEM customers were to decrease, Pinnacle Systems' business could be
materially harmed.
IF PINNACLE SYSTEMS' PRODUCTS DO NOT KEEP PACE WITH THE TECHNOLOGICAL
DEVELOPMENTS IN THE RAPIDLY CHANGING VIDEO POST-PRODUCTION EQUIPMENT INDUSTRY,
THEN IT MAY BE ADVERSELY AFFECTED.
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. Delays in the introduction or shipment of new or enhanced
products, the inability of Pinnacle Systems 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 materially harm
Pinnacle Systems' business, particularly on a quarterly basis.
Pinnacle Systems 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 AlladinPRO, Studio 400, miroVIDEO DC50, Studio DC10 plus and
Studio MP10, as well as products that began shipping in the first fiscal quarter
of 1998, such as FXDeko and ReelTime Nitro. Once a new product is developed,
Pinnacle Systems must rapidly commence volume production. This process requires
accurate forecasting of customer requirements and attainment of acceptable
manufacturing costs. The introduction of new or enhanced products also requires
Pinnacle Systems 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, Lightning and Studio 400 has resulted in a significant decline in
sales of Prizm, Flashfile and Studio 200 and a write down of inventory. In
addition, as is typical with any new product introduction, quality and
reliability problems may arise. 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.
IF PINNACLE SYSTEMS DOES NOT EFFECTIVELY COMPETE, ITS BUSINESS WILL BE
HARMED.
The market for Pinnacle's products is highly competitive. Pinnacle Systems
competes in the broadcast, desktop and consumer video production markets.
Pinnacle anticipates increased competition in each of the broadcast, desktop and
consumer video production markets, particularly since the industry is undergoing
a period of technological change and consolidation. Competition for Pinnacle
Systems' broadcast, consumer and video products is generally based on:
- Product performance
22
<PAGE>
- Breadth of product line
- Quality of service and support
- Market presence
- Price
- Ability of competitors to develop new, higher performance, lower cost
consumer video products
Pinnacle Systems' competitors in the broadcast, consumer and video market
include companies with substantially greater financial, technical, marketing,
sales and customer support resources, greater name recognition and larger
installed customer bases than Pinnacle Systems. In addition, these competitors
have established relationships with current and potential customers of Pinnacle
Systems and some offer a wide variety of video equipment that can be bundled in
certain large system sales.
Principal competitors in the broadcast market include:
Chyron Corporation
Matsushita Electric Industrial Co. Ltd.
Quantel Ltd. (a division of Carlton Communications Plc)
Accom, Inc.
Sony Corporation
Principal competitors in the desktop and consumer markets are:
Quantel Ltd. (a division of Carlton Communications Plc)
Accom, Inc.
Sony Corporation
Avid Technology, Inc.
Digitel Processing Systems, Inc.
Fast Multimedia
Iomega Corp.
Matrox Electronics Systems, Ltd.
Media 100, Inc.
Adobe Systems, Inc.
These lists are not all-inclusive.
The consumer market in which certain of Pinnacle Systems' 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 Pinnacle Systems'
consumer products by providing some or all of the same features and video
editing capabilities. In addition, Pinnacle Systems expects that existing
manufacturers and new market entrants will develop new, higher performance,
lower cost consumer video products that may compete directly with Pinnacle
Systems' consumer products. Pinnacle Systems 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
these effects could materially harm Pinnacle Systems' business.
PINNACLE SYSTEMS IS DEPENDENT ON CONTRACT MANUFACTURERS AND SINGLE OR
LIMITED SOURCE SUPPLIERS FOR ITS COMPONENTS. IF THESE MANUFACTURERS AND
SUPPLIERS DO NOT MEET PINNACLE SYSTEMS' DEMAND EITHER IN VOLUME OR QUALITY, THEN
PINNACLE SYSTEMS COULD BE MATERIALLY HARMED.
23
<PAGE>
Pinnacle Systems relies on subcontractors to manufacture its consumer
products and the major subassemblies of its broadcast and desktop products.
Pinnacle Systems and its manufacturing subcontractors are dependent upon single
or limited source suppliers for a number of components and parts used in
Pinnacle Systems' products, including certain key integrated circuits. Pinnacle
Systems' strategy to rely on subcontractors and single or limited source
suppliers involves a number of significant risks, including:
- Loss of control over the manufacturing process
- Potential absence of adequate capacity
- Potential delays in lead times
- Unavailability of certain process technologies
- Reduced control over delivery schedules, manufacturing yields, quality and
costs
- Unexpected increases in component costs
If any significant subcontractor or single or limited source supplier
becomes unable or unwilling to continue to manufacture these subassemblies or
provide critical components in required volumes, Pinnacle Systems will have to
identify and qualify acceptable replacements or redesign its products with
different components. Additional sources may not be available and product
redesign may not be feasible on a timely basis. This could materially harm
Pinnacle Systems' business. 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 harm Pinnacle
Systems' business.
WITHOUT A DIRECT SALES FORCE, PINNACLE SYSTEMS RELIES HEAVILY ON DEALERS AND
OEMS TO MARKET, SELL, AND DISTRIBUTE ITS PRODUCTS. IN TURN, PINNACLE SYSTEMS
DEPENDS HEAVILY ON THE SUCCESS OF THESE RESELLERS. IF THESE RESELLERS DO NOT
SUCCEED IN EFFECTIVELY DISTRIBUTING PINNACLE SYSTEMS' PRODUCTS, THEN PINNACLE
SYSTEMS' FINANCIAL PERFORMANCE WILL BE NEGATIVELY AFFECTED.
These resellers may:
- Not effectively promote or market Pinnacle Systems' products
- Experience financial difficulties and even close operations
Pinnacle Systems' dealers and retailers are not contractually obligated to
sell Pinnacle Systems' products. Therefore, they may, at any time:
- Refuse to promote or pay for Pinnacle Systems' products
- Discontinue Pinnacle Systems' products in favor of a competitor's product
Also, with these distribution channels standing between them and the actual
market, Pinnacle Systems may not be able to accurately gauge current demand for
products and anticipate demand for newly introduced products, such as
AlladinPro, DC50, Studio 400, FXDeko ReelTime Nitro, Studio DC10 plus and Studio
MP10. For example, dealers may place large initial orders for a new product just
to keep their stores stocked with the newest products and not because there is a
significant demand for them.
As to consumer products offerings, Pinnacle Systems 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. Pinnacle Systems also sells its consumer
24
<PAGE>
products directly to some retailers. Rapid change and financial difficulties of
distributors have characterized distribution channels for consumer retail
products. These arrangements have exposed Pinnacle Systems to the following
risks, some of which are out of Pinnacle Systems' control:
- Pinnacle Systems is obligated to provide price protection to such
retailers and distributors and, while the agreements limit the conditions
under which product can be returned to Pinnacle Systems, Pinnacle Systems
may be faced with significant product returns or price protection
obligations
- The distributors or retailers may not continue to stock and sell Pinnacle
Systems consumer products
- Retailers and retail distributors most likely will carry competing
products
Any of the foregoing events could materially harm Pinnacle Systems'
business.
IF CERTAIN KEY EMPLOYEES OF PINNACLE SYSTEMS LEAVE OR ARE NO LONGER ABLE TO
PERFORM SERVICES FOR PINNACLE SYSTEMS, IT COULD HAVE A MATERIAL ADVERSE EFFECT
ON PINNACLE SYSTEMS' BUSINESS.
Pinnacle Systems believes that the efforts and abilities of its senior
management and key technical personnel are very important to its continued
success. In particular, if Mark Sanders or Ajay Chopra left or were unable to
perform services for Pinnacle Systems, Pinnacle Systems' business could be
materially harmed. Only one of Pinnacle Systems senior management or key
technical personnel is bound by an employment agreement and none are the subject
of key man life insurance.
PINNACLE SYSTEMS MAY NOT BE ABLE TO ATTRACT AND RETAIN A SUFFICIENT NUMBER
OF MANAGERIAL PERSONNEL AND TECHNICAL EMPLOYEES TO COMPETE SUCCESSFULLY.
Pinnacle Systems' success is dependent upon its ability to attract and
retain qualified technical and managerial personnel. There are not enough
engineers, technical support, software services and managers available to meet
the current demands of the computer industry. Pinnacle Systems may not be able
to retain its key technical and managerial employees or attract, assimilate and
retain such other highly-qualified technical and managerial personnel as
required in the future. Also, employees may leave Pinnacle Systems and
subsequently compete against Pinnacle Systems, or contractors may perform
services for competitors of Pinnacle Systems. If Pinnacle Systems is unable to
retain key personnel, its business could be materially harmed.
PINNACLE SYSTEMS MAY BE UNABLE TO PROTECT ITS PROPRIETARY INFORMATION AND
PROCEDURES EFFECTIVELY.
Pinnacle Systems must protect its proprietary technology and operate without
infringing the intellectual property rights of others. Pinnacle Systems 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, Pinnacle Systems generally enters into confidentiality and
nondisclosure agreements with its employees and OEM customers and limits access
to and distribution of its proprietary technology. These steps may not protect
Pinnacle Systems proprietary information nor give it any competitive advantage.
Others may independently develop substantially equivalent intellectual property
or otherwise gain access to Pinnacle Systems' trade secrets or intellectual
property, or disclose such intellectual property or trade secrets. Pinnacle
Systems has an application pending with the United States Patent and Trademark
Office, which may not be granted, and any future patent applications may not be
allowed. If Pinnacle Systems is unable to protect its intellectual property,
Pinnacle Systems' business could be materially harmed.
PINNACLE SYSTEMS MAY BE ADVERSELY AFFECTED IF IT IS SUED BY A THIRD PARTY OR
IF PINNACLE SYSTEMS DECIDES TO SUE A THIRD PARTY FOR 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
25
<PAGE>
issued to Pinnacle Systems, to protect its trade secrets, trademarks and other
intellectual property rights owned by Pinnacle Systems, or to defend Pinnacle
Systems against claimed infringement. This litigation may
- Divert management's attention away from the operation of Pinnacle Systems'
business
- Result in the loss of Pinnacle Systems' proprietary rights
- Subject Pinnacle Systems to significant liabilities
- Force Pinnacle Systems to seek licenses from third parties
- Prevent Pinnacle Systems from manufacturing or selling its products.
Any of these results could materially harm Pinnacle Systems' business.
In the course of its business, Pinnacle Systems has in the past received
communications asserting that Pinnacle Systems products infringe patents or
other intellectual property rights of third parties. Pinnacle Systems
investigated the factual basis of such communications and negotiated licenses
where appropriate. It is likely that in the course of its business, Pinnacle
Systems will receive similar communications in the future. 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, Pinnacle Systems
may not be able to do so on commercially reasonable terms or at all. These
disputes may not be settled on commercially reasonable terms and may result in
long and costly litigation.
BECAUSE PINNACLE SYSTEMS SELLS PRODUCTS INTERNATIONALLY, IT IS SUBJECT TO
ADDITIONAL RISKS.
Sales of Pinnacle Systems' products outside of North America represented
approximately 64% of Pinnacle Systems' net sales in the six month period ended
December 31, 1998 and 57.6% of Pinnacle Systems' net sales in fiscal 1998
compared to 39.7% of Pinnacle Systems' net sales in fiscal 1997 and 38.7% of
Pinnacle Systems' net sales in fiscal 1996. Pinnacle Systems expects that
international sales will continue to represent a significant portion of its net
sales, particularly in light of its increased European sales as a result of the
Miro Acquisition and the addition of the Miro European sales channel. Pinnacle
Systems makes foreign currency denominated sales in many, primarily European,
countries. This exposes Pinnacle Systems 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 and beyond, Pinnacle Systems expects that a majority of
its European sales will be denominated in local foreign currency including the
euro. In addition to foreign currency risks, international sales and operations
may also be subject to the following risks:
- Unexpected changes in regulatory requirements
- Export license requirements
- Restrictions on the export of critical technology
- Generally longer receivable collection periods and difficulty in
collecting accounts receivable;
- Political instability
- Trade restrictions
- Changes in tariffs
- Difficulties in staffing and managing international operations
- Potential insolvency of international dealers
- Difficulty in collecting accounts receivable
26
<PAGE>
Pinnacle Systems is also subject to the risks of generally poor economic
conditions in certain areas of the world, most notably Asia. These risks may
harm Pinnacle Systems' future international sales and, consequently, Pinnacle
Systems' business.
PINNACLE SYSTEMS IS NOT SURE WHAT THE EFFECT THE RECENT ESTABLISHMENT OF THE
EURO WILL BE ON PINNACLE SYSTEMS' FINANCIAL OR RESULTS OF OPERATIONS.
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their sovereign currencies and
the euro. As of that date, the participating countries have agreed to adopt the
euro as their common legal currency. However, the legacy currencies will also
remain legal tender in the participating countries for a transition period
between January 1, 1999 and January 1, 2002. During this transition period,
public and private parties may elect to pay or charge for goods and services
using either the euro or the participating country's legacy currency. Pinnacle
Systems is not sure what the effect of the recent establishment of the euro will
be on Pinnacle Systems' financial condition or results of operations. Pinnacle
Systems' European operations have conformed to the requirements of this
transition and are currently invoicing customers in both legacy currencies and
the euro. Due to numerous uncertainties, Pinnacle Systems can not reasonably
estimate the effects one common currency will have on pricing and the resulting
impact, if any, on Pinnacle Systems' financial condition or results of
operations.
COMPUTER SOFTWARE, COMPONENTS AND SYSTEMS USED BY OR DESIGNED BY PINNACLE
SYSTEMS OR USED BY THIRD PARTIES WITH WHOM PINNACLE SYSTEMS REGULARLY DEALS MAY
NOT BE ABLE TO PROCESS DATE/TIME INFORMATION BETWEEN THE TWENTIETH AND
TWENTY-FIRST CENTURY. THIS INABILITY COULD CAUSE THE DISRUPTION OR FAILURE OF
SUCH COMPUTER SYSTEMS. PINNACLE SYSTEMS' BUSINESS COULD BE INTERRUPTED
MATERIALLY AS A RESULT OF SUCH DISRUPTION OR FAILURE.
Like many other companies, Pinnacle Systems is potentially susceptible to
the year 2000 problem, i.e., computer systems will not correctly recognize and
process date information beyond the year 1999. In addition, moving from 1999 to
2000 may cause problems since some systems' programming assigns special meaning
to certain dates, such as 9/9/99, and the year 2000 is a leap year.
Pinnacle Systems has initiated a special program to confront those potential
problems. This program will involve assessing all areas that may be affected by
or responsible for the year 2000 problem and initiating changes wherever
necessary. Some of the activities include:
- Assessing all major categories of systems used by Pinnacle Systems,
including manufacturing, sales and financial systems
- 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
- Internal discussions concerning contingency planning to address potential
problem areas with internal systems and with suppliers and other third
parties
- Implementing a program to assess the capability of its products to handle
the year 2000
It is expected that assessment, remediation and contingency planning
activities will be ongoing throughout 1999 with the goal of appropriately
resolving all material internal systems and third party issues. However, if
these activities fail and problems occur, Pinnacle Systems' business will likely
be materially harmed. Further, Pinnacle Systems does not have any contingency
plans if these planning activities fail. It is uncertain to what extent Pinnacle
Systems will be affected by the year 2000 problem, and if third parties or
suppliers have year 2000 problems, Pinnacle Systems' business may be materially
harmed.
To assist customers in evaluating their year 2000 issues, Pinnacle Systems
is currently assessing the capability of its current products and products no
longer being produced to handle the year 2000
27
<PAGE>
problem, 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." "Year 2000 Compliant" means that when used properly and in
conformity with the product information provided by Pinnacle Systems', 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. Testing has not yet been completed, but based on preliminary tests,
Pinnacle Systems believes that all current products shipping, which run under
Microsoft Windows NT or Windows 95, will be "Year 2000 compliant." Testing of
older products that are no longer shipping has only recently been initiated and
Pinnacle Systems considers it likely that some older products may not be year
2000 compliant.
The costs incurred to date related to year 2000 compliance have been
immaterial. The cost which will be incurred by Pinnacle Systems 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. Pinnacle Systems' estimate as to cost of year 2000
compliance may prove to be wrong. If actual cost of year 2000 compliance exceeds
Pinnacle Systems' current estimate, Pinnacle Systems' business could be harmed.
PINNACLE SYSTEMS HAS GROWN RAPIDLY AND CONTINUES TO GROW RAPIDLY. IF
PINNACLE SYSTEMS FAILS TO EFFECTIVELY MANAGE THIS GROWTH, ITS FINANCIAL RESULTS
COULD SUFFER.
Pinnacle Systems has in the past experienced rapid growth and anticipates
that it may grow at a rapid pace in the future. For example, net sales in fiscal
1998 were $105.3 million compared to $37.5 million in fiscal 1997 and net sales
in the six month period ended December 31, 1998 increased 60.9% over the same
period last year. As a result of recent acquisitions, Pinnacle Systems has
increased the number of its employees substantially, including the addition of
approximately 100 employees in connection with the Miro Acquisition, which
increases the difficulty in managing Pinnacle Systems, particularly as employees
are now geographically dispersed in North America and Europe. This growth has
placed increasing demands on Pinnacle Systems' management, financial and other
resources. Pinnacle Systems has built these resources and systems to account for
such growth, but continued growth may require Pinnacle Systems to increase its
investment in such systems, or to reorganize its management team. Such changes,
should they occur, could cause an interruption or diversion of focus from
Pinnacle Systems' core business activities and have an adverse effect on
financial results.
28
<PAGE>
THE COMPANIES
BUSINESS OF PINNACLE SYSTEMS
Pinnacle Systems designs, manufactures, markets and supports computer-based
video products to serve the broadcast, desktop and consumer markets. Pinnacle
Systems' products permit professionals and consumers to:
- Edit and manipulate video
- Add special effects to video
- Manage, capture and store video images
- Create titles and graphics
These functions may be performed on-air real-time or post-production.
Pinnacle Systems' products are used by broadcast video professionals, consumers
and desktop professionals. Pinnacle Systems' computer-based products replace the
traditional complex and expensive video editing suites.
Pinnacle Systems has sold over 10,000 post-production systems since the
company's inception in 1986 to customers in more than 60 countries. In 1994,
Pinnacle Systems 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. Pinnacle Systems has since
introduced additional video products that address needs in the broadcast,
desktop and consumer video post production markets.
Pinnacle Systems was incorporated in California in 1986. Pinnacle Systems'
principal offices are located at 280 North Bernardo Avenue, Mountain View, CA
94043 and its telephone number is (650) 237-1600. Pinnacle Systems' web site is
located at "http:\\www.pinnaclesys.com." Information contained in Pinnacle
Systems' website does not constitute, and shall not be deemed to constitute,
part of this Proxy Statement/Prospectus.
BUSINESS OF TRUEVISION
Truevision designs, develops, manufactures, and markets professional-quality
digital video products for Windows- and Macintosh-compatible computers and
operating systems. Truevision's products convert and compress analog or digital
video and permit users to:
- Edit and manipulate video
- Combine video with graphics
- Combine video with animation
- Display video creations
Truevision's products are used by video professionals, corporate
communicators, and amateur video enthusiasts, who use the equipment in a variety
of ways, including:
- Replacing or supplementing traditional stand-alone video editing systems
- Creating training or Web applications
- Creating personal videography
Truevision was incorporated in California in 1987 and reincorporated in Delaware
in 1995. Truevision's principal offices are located at 2500 Walsh Avenue Santa
Clara, CA 95051 and its telephone number is (408) 562-4200. Truevision's website
is located at "http:\\www.truevision.com." Information contained in
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<PAGE>
Truevision's website does not constitute, and shall not be deemed to constitute,
part of this Proxy Statement/Prospectus.
BERNARDO MERGER CORPORATION AND WALSH MERGER CORPORATION
Bernardo Merger Corporation and Walsh Merger Corporation, or the Merger Sub,
were both incorporated in Delaware in December 1998 for the purpose of effecting
the merger. Bernardo is a wholly owned subsidiary of Pinnacle Systems, and
Merger Sub is a wholly owned subsidiary of Bernardo. Both companies are located
at 280 North Bernardo Avenue, Mountain View, CA 94043 and their telephone number
is (650) 237-1600. Neither company has a web site.
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<PAGE>
THE TRUEVISION MEETING
PURPOSE OF THE TRUEVISION MEETING
The purpose of the Truevision meeting is to consider and vote upon the
approval and adoption of the Merger Agreement and approval of the merger. The
merger will occur only if the proposal is approved.
THE TRUEVISION BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER, AND RECOMMENDS A VOTE FOR ADOPTION AND APPROVAL
OF THE MERGER AGREEMENT AND FOR APPROVAL OF THE MERGER.
PROXIES
The Truevision proxy accompanying this Proxy Statement/Prospectus is being
solicited on behalf of the Truevision Board for use at the Truevision meeting.
DATE, TIME AND PLACE OF MEETING
The Truevision meeting will be held at Truevision's principal offices,
located at 2500 Walsh Avenue, Santa Clara, California 95051 on Thursday, March
11, 1999 at 10:00 a.m. local time.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Truevision common stock at the close of business
on the record date will be entitled to notice of and to vote at the Truevision
meeting. At the close of business on the record date there were 13,154,692
shares of Truevision common stock outstanding and entitled to vote. Except for
the stockholders identified herein under "Security Ownership of Certain
Beneficial Owners and Management of Truevision," as of the record date, to the
knowledge of Truevision, no other person beneficially owned more than 5% of the
outstanding Truevision common stock.
Each holder of record of Truevision common stock on the record date will be
entitled to one vote for each share held on all matters to be voted upon at the
Truevision meeting.
SOLICITATION
This Proxy Statement/Prospectus was mailed to all Truevision stockholders of
record as of the record date and constitutes notice of the Truevision special
meeting in conformity with the requirements of the Delaware General Corporation
Law.
Regardless of whether the merger is consummated, each of Pinnacle Systems
and Truevision will pay its own costs and expenses incurred in connection with
the Merger Agreement and the transactions contemplated by the Merger Agreement,
except that fees and expenses (other than attorneys' fees) incurred in
connection with the printing of this Proxy Statement/Prospectus will be shared
equally by Pinnacle Systems and Truevision. See "The Merger and Related
Transactions--Expenses."
Subject to the foregoing, the cost of the solicitation of proxies from
holders of Truevision common stock and all related costs will be borne by
Truevision. In addition, Truevision may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of
Truevision. No additional compensation will be paid to directors, officers or
other regular employees for such services, but Skinner & Co., Inc. will be paid
its customary fee, estimated to be approximately $3,000, if it renders
solicitation services.
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VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Truevision stock entitled to vote at the
Truevision meeting is necessary to constitute a quorum.
Approval of the proposal requires approval of a majority of the outstanding
shares of Truevision common stock as of the record date. All votes will be
tabulated by the inspector of election appointed for the meeting, who will
separately tabulate affirmative and negative votes, abstentions and broker
non-votes. Abstentions will be counted towards the tabulation of votes cast on
the proposal presented to the shareholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, and will have the
same effect as negative votes.
In connection with the Merger Agreement, certain of the executive officers
and directors of Truevision entered into voting agreements with Pinnacle
Systems, the form of which is attached as Appendix B. Based on the number of
shares of Truevision common stock outstanding on the record date, such
stockholders beneficially own (including certain options and warrants to
purchase Truevision Common Stock) 5.6% of the outstanding Truevision common
stock. These stockholders agreed to vote or cause to be voted all shares of
capital stock of Truevision owned of record, beneficially owned, held in any
capacity at every Truevision stockholders meeting and every written consent in
lieu of such meeting, in favor of approval of the merger and the Merger
Agreement and any matter that could reasonably be expected to facilitate the
merger. The voting agreements terminate upon the earlier to occur of the date
and time that merger shall becomes effective in accordance with the terms and
provisions of the Merger Agreement or the date the Merger Agreement is
terminated in accordance with its terms. In addition, the stockholders entering
into the voting agreements granted Pinnacle Systems an irrevocable proxy to vote
the stockholders shares of Truevision common stock in favor of the Merger
Agreement and the merger. See "The Merger and Related Transactions--Voting
Agreements."
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
corporation secretary of Truevision at Truevision's principal offices, a written
notice of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF TRUEVISION
The following table sets forth certain information regarding the beneficial
ownership of Truevision's common stock as of February 4, 1999 by (1) all those
known by Truevision to be the beneficial owner of more than 5% of the
Truevision's common stock, (2) each director, (3) each of the executive
officers, and (4) all directors and executive officers as a group.
<TABLE>
<CAPTION>
TRUEVISION
COMMON STOCK APPROXIMATE
BENEFICIALLY PERCENTAGE
BENEFICIAL OWNER OWNED(1) OWNED(2)
- ------------------------------------------------------------------------------------ -------------- ---------------
<S> <C> <C>
Scitex Corporation Ltd. ............................................................ 1,820,000 13.9
P.O. Box 330
46103 Herzlia B. Israel
Entities affiliated with 21st Century
Communications Partners, L.P.(3) ................................................. 1,062,000 8.1
767 Fifth Avenue
45th Floor
New York, New York 10153
Louis J. Doctor..................................................................... 513,734 3.8
Carl C. Calabria.................................................................... 278,948 2.1
R. John Curson...................................................................... 154,943 1.2
Harvey A. Chesler .................................................................. 1,000 *
Walter W. Bregman................................................................... 59,600 *
William H. McAleer.................................................................. 16,025 *
Kieth E. Sorenson................................................................... 16,075 *
Conrad J. Wredberg.................................................................. 20,625 *
All executive officers and directors as a group (8 persons)......................... 1,060,950 7.6
</TABLE>
- ------------------------
* Less than one percent (1%).
(1) Includes the following shares subject to options and warrants (where
specifically noted) to purchase shares of Truevision Common Stock that are
currently exercisable or will be exercisable within 60 days of December 31,
1998: Louis J. Doctor 360,000 (warrant) 65,683 (options); Carl C. Calabria
178,948; R. John Curson 154,943; Walter W. Bregman 43,625; William H.
McAleer 13,625; Kieth E. Sorenson 15,875; Conrad J. Wredberg 18,125. All
executive officers and directors as a group (8 persons) 850,824.
(2) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the SEC. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, Truevision believes that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Applicable
percentages are based on 13,154,692 shares of Truevision common stock
outstanding on February 4, 1999, adjusted as required by rules promulgated
by the SEC.
(3) According to the Schedule 13D/A, filed jointly by 21st Century
Communications Partners, L.P. ("21st Century"), 21st Century Communications
T-E Partners, L.P. ("21st Century T-E"), 21st Century Communications
Foreign Partners, L.P. ("21st Century Foreign"), Andrew Sandler, Barry
Fingerhut, Barry Lewis, Barry Rubenstein, Harvey Sandler, Irwin Lieber,
John Kornreich and Michael J. Marocco (collectively, the "21st Century
Group"), the 21st Century Group beneficially
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<PAGE>
owned 1,062,000 shares of Truevision common stock. This includes shares
held by 21st Century (504,940 shares), 21st Century T-E (171,800 shares),
21st Century Foreign (67,980 shares) and Applewood Associates, L.P.
("Applewood") (317,280 shares). Messrs. Fingerhut, Rubenstein and Lieber
are shareholders, officers and directors of the general partner of 21st
Century, 21st Century T-E and 21st Century Foreign and are also general
partners of Applewood. Messrs. Sandler, Lewis, Sandler, Kornreich and
Marocco are general partners of entities that are general partners of 21st
Century Truevision, 21st Century T-E and 21st Century Foreign. 21st Century
disclaims beneficial ownership of shares of Truevision common stock held by
21st Century T-E, 21st Century Foreign and Applewood. 21st Century T-E
disclaims beneficial ownership of shares of Truevision common stock held by
21st Century, 21st Century Foreign and Applewood. 21st Century Foreign
disclaims beneficial ownership of shares of Truevision common stock held by
21st Century, 21st Century T-E and Applewood. Messrs. Sandler, Fingerhut,
Lewis, Rubenstein, Sandler, Lieber, Kornreich and Marocco disclaim
beneficial ownership of shares of Truevision common stock held by 21st
Century Group, except as to the extent of their pecuniary interest therein
and Messrs. Fingerhut, Rubenstein and Lieber disclaim beneficial ownership
of shares of Truevision common stock held by Applewood, except as to the
extent of their pecuniary interest therein.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF PINNACLE SYSTEMS
The following table sets forth certain information regarding the beneficial
ownership of Pinnacle common stock of Pinnacle Systems as of February 4, 1999 as
to (1) each person who is known by Pinnacle Systems to own beneficially more
than 5% of the outstanding shares of Pinnacle common stock, (2) each director of
Pinnacle Systems, (3) the chief executive officer and the next four most highly
compensated officers below and (4) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
PINNACLE
COMMON STOCK APPROXIMATE
FIVE PERCENT SHAREHOLDERS, DIRECTORS BENEFICIALLY PERCENTAGE
AND CERTAIN EXECUTIVE OFFICERS OWNED(1) OWNED(2)
- ------------------------------------------------------------------------------------ -------------- -----------------
<S> <C> <C>
Morgan Stanley Dean Witter & Co.(3) ................................................ 736,000 6.9%
1585 Broadway
New York, New York 10036
Entities affiliated with Putnam Investments, Inc.(4) ............................... 594,842 5.6
One Post Office Square
Boston, Massachusetts 02109
Mark L. Sanders .................................................................... 162,187 1.5
Ajay Chopra ........................................................................ 118,894 1.1
Charles J. Vaughan ................................................................. 47,410 *
William Loesch ..................................................................... 43,103 *
Glenn E. Penisten .................................................................. 29,464 *
Nyal D. McMullin ................................................................... 15,475 *
Robert Wilson ...................................................................... 23,125 *
John Lewis ......................................................................... 6,875 *
Kevin Hunt ......................................................................... 1,645 *
L. Gregory Ballard ................................................................. 625 *
All directors and executive officers as a group (16 persons) ....................... 573,462 5.1
</TABLE>
- ------------------------
* Less than 1%
(1) Includes the following shares subject to options to purchase shares of
Pinnacle common stock that are currently exercisable or will be exercisable
within 60 days of February 4, 1999: Mark L. Sanders 122,772; Ajay Chopra
50,353; Charles Vaughan 6,875; William Loesch 42,353; Glenn E. Penisten
6,875; Nyal D. McMullin 6,875; Robert Wilson 23,125; John Lewis 6,875;
Kevin Hunt 1,645; and 386,197 for all directors and executive officers as a
group.
(2) Applicable percentage of ownership is based on 10,698,943 shares of Common
Stock outstanding as of February 4, 1999 together with applicable options
for such Pinnacle Systems shareholders. Beneficial ownership is determined
in accordance with the rules of the SEC, and includes voting and investment
power with respect to shares. Shares of Pinnacle common stock subject to
options currently exercisable or exercisable within 60 days after February
4, 1999 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.
(3) Reflects ownership as reported on Schedule 13G dated February 2, 1998 filed
with the SEC by Morgan Stanley Dean Witter & Co. relating to accounts
managed on a discretionary basis by Morgan Stanley Dean Witter & Co. which
are known to have the right to or the power to direct the receipt of
dividends from, or the proceeds from the sale of such securities.
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(4) Reflects ownership as reported on Schedule 13G dated January 21, 1998 filed
with the SEC by Putnam Investments, Inc. Putnam Investments, Inc. ("PI"),
which is a wholly-owned subsidiary of Marsh & McLennan Companies, Inc.
("MMC"), wholly owns two registered investment advisors, Putnam Investment
Management, Inc. ("PIM") and The Putnam Advisory Company, Inc. ("PAC"). PIM
has shared dispositive power over 500,942 shares of Pinnacle common stock
and PAC has shared dispositive power over 93,900 shares of Pinnacle common
stock (and shared voting power over 88,800 of such shares). Pursuant to
Rule 13(d)-4, MMC and PI declared that the filing of the 13G should not be
deemed an admission by either or both of them that they are, for the
purposes of Section 13(d) or 13(q) the beneficial owner of the shares
beneficially owned by PAC or PIM and that neither of them have any power to
vote or dispose of, or direct the voting or disposition of, any of the
shares beneficially owned by PAC or PIM. The address for Marsh & McLennan
Companies, Inc. is 1166 Avenue of the Americas, New York, New York 10036.
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THE MERGER AND RELATED TRANSACTIONS
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN ASPECTS OF
THE PROPOSED MERGER. THE FOLLOWING DESCRIPTION IS A SUMMARY AND THE DISCUSSION
IN THIS PROXY STATEMENT/PROSPECTUS OF THE MERGER AND THE DESCRIPTION OF THE
PRINCIPAL TERMS OF THE MERGER AGREEMENT ARE SUBJECT TO AND QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED TO
THIS PROXY STATEMENT/PROSPECTUS AS APPENDIX A, AND THE OTHER APPENDICES. ALL
HOLDERS OF PINNACLE COMMON STOCK AND TRUEVISION COMMON STOCK ARE URGED TO READ
THE MERGER AGREEMENT AND THE OTHER APPENDICES IN THEIR ENTIRETY.
GENERAL
The Merger Agreement provides for the merger of Merger Sub, a newly formed,
wholly owned subsidiary of Bernardo (a newly formed, wholly owned subsidiary of
Pinnacle Systems), with and into Truevision. Truevision will be the surviving
corporation of the merger and become an indirect, wholly owned subsidiary of
Pinnacle Systems. The certificate of incorporation of Merger Sub will be the
certificate of incorporation of the surviving corporation in the merger until
further amended as provided therein and in accordance with applicable law except
that the name of Merger Sub will be changed to "Truevision Systems, Inc." The
bylaws of Merger Sub as in effect immediately prior to the merger will be the
bylaws of the surviving corporation until further amended as provided therein
and in accordance with applicable law. The directors of Merger Sub immediately
prior to the merger will be the initial directors of the surviving corporation,
and the officers of Merger Sub immediately prior to the merger will be the
initial officers of the surviving corporation. If the merger is completed,
holders of Truevision common stock will no longer hold any interest in
Truevision other than through their interest in shares of Pinnacle common stock.
The stockholders of Truevision will become shareholders of Pinnacle Systems (as
described below), and their rights will be governed by the Pinnacle Systems
articles of incorporation and the Pinnacle Systems bylaws.
EFFECTIVE TIME OF THE MERGER. The merger will become effective upon the
filing of the executed Certificate of Merger with the Secretary of State of
Delaware. The Merger Agreement provides that the parties thereto will cause the
Certificate of Merger to be filed as soon as practicable after the Truevision
stockholders have approved and adopted the Merger Agreement and approved the
merger, all required regulatory approvals and actions have been obtained or
taken and all other conditions to the consummation of the merger have been
satisfied or waived. See "--Regulatory Approvals Required" and "--Conditions to
Consummation of the Merger." There can be no assurance that the conditions
precedent to the merger will be satisfied. In addition, the Merger Agreement may
be terminated by either Pinnacle Systems or Truevision under various conditions
as specified in the Merger Agreement. See "--Termination; Breakup Fees."
Therefore, there can be no assurance as to whether or when the merger will
become effective.
CONVERSION OF SHARES. Pursuant to the merger agreement, Pinnacle Systems
agreed to pay the equivalent of $1.00 per share for each share of Truevision
common stock. Upon completion of the merger, each outstanding share of
Truevision common stock will automatically be converted into 0.0313 of a share
of Pinnacle common stock. The exchange ratio of 0.0313 represents the equivalent
of $1.00, expressed in terms of Pinnacle Systems common stock, based on the
ten-day average closing price of Pinnacle Systems common stock as of the date
the merger agreement was executed. No fractional shares of Pinnacle common stock
will be issued in the merger. Instead of any fractional share, each Truevision
stockholder will receive from Pinnacle Systems an amount of cash equal to the
per share market value of Pinnacle common stock (based on the closing price of a
share of Pinnacle common stock as reported on Nasdaq on the last full trading
day prior to the completion of the merger) multiplied by the fraction of a share
of Pinnacle common stock to which the stockholder would otherwise be entitled.
Based upon the number of shares of Pinnacle common stock and Truevision common
stock outstanding at the record date, an aggregate of 411,742 shares of Pinnacle
common stock would
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be issued in connection with the merger, representing approximately 3.7% of the
total number of shares of Pinnacle common stock outstanding after giving effect
to such issuance.
Because the exchange ratio of 0.0313 is fixed and will not increase or
decrease due to fluctuations in the market price of either Pinnacle common stock
or Truevision common stock, Truevision stockholders will not be compensated for
decreases in the market price of Pinnacle common stock which could occur before
the merger. In the event that the market price of Pinnacle common stock
decreases or increases prior to the merger, the value at the time of the merger
of Pinnacle common stock to be received by Truevision stockholders in the merger
would correspondingly decrease or increase. Similarly, Truevision stockholders
will not be compensated for positive developments, if any, in Truevision's
business, unless and to the extent such changes result in an increase in the
market price of Pinnacle common stock. The market prices of Pinnacle common
stock and Truevision common stock as of a recent date are set forth herein under
"Summary--Markets and Market Prices," and Truevision stockholders are advised to
obtain recent market quotations for Pinnacle common stock and Truevision common
stock. No assurance can be given as to the market prices of Pinnacle common
stock or Truevision common stock at any time before the merger or as to the
market price of Pinnacle common stock at any time thereafter.
OPTIONS. Upon the merger, all options to purchase Truevision common stock
then outstanding under the Amended and Restated 1990 Director Option Plan, the
1997 Equity Incentive Plan, and the 1988 Incentive Stock Plan shall be assumed
by Pinnacle Systems. Upon consummation of the merger, each outstanding
Truevision option will be assumed by Pinnacle Systems and converted into an
option to acquire 3.13% as many shares of Pinnacle common stock, at an exercise
price per share equal to the exercise price per share of the Truevision common
stock under such Truevision option immediately prior to the merger divided by
the exchange ratio of 0.0313. To avoid fractional shares, the number of shares
of Pinnacle common stock subject to an assumed Truevision option will be rounded
down to the nearest whole share. The vesting, duration and other terms of the
new option will otherwise be the same as the Truevision option, except that all
Truevision options granted to Messrs. Doctor and Curson, and the directors under
the stock plans previously described will accelerate and become fully vested
immediately upon completion of the merger.
As soon as practicable after the merger, Pinnacle Systems will file a
registration statement on Form S-8 with the SEC with respect to the shares of
Pinnacle common stock subject to the assumed Truevision options. Based upon the
number of Truevision options outstanding at the record date 65,536 additional
shares of Pinnacle common stock would be reserved for issuance to holders of
Truevision options in connection with Pinnacle Systems' assumption of such
Truevision options.
EMPLOYEE STOCK PURCHASE PLAN. It is anticipated that the last "Purchase
Date" of the "Offering" (as such terms are used in Truevision's 1990 Employee
Stock Purchase Plan (the "1990 ESPP") and Truevision's 1998 Employee Stock
Purchase Plan (the "1998 ESPP" and, together with the 1990 ESPP shall be
referred to as the "Truevision ESPP")) currently taking place will be the last
day on which Truevision common stock is traded on Nasdaq immediately prior to
the merger (the "Final Company Purchase Date"). On the Final Company Purchase
Date, Truevision will apply the funds credited as of such date under the
Truevision ESPP within each participant's payroll withholdings account to the
purchase of whole shares of Truevision common stock in accordance with the
Truevision ESPP. Such shares will be converted automatically into shares of
Pinnacle common stock. Participants in the Truevision ESPP will not receive
stock certificates representing the Truevision common stock.
WARRANTS. Pinnacle Systems will assume warrants to purchase 500,000 shares
of Truevision common stock (the "Financing Warrants") and a warrant to purchase
360,000 shares of Truevision common stock (the "Doctor Warrant"), all of which
are currently fully exercisable. Upon consummation of the merger, each
outstanding Financing Warrant and the Doctor Warrant will be assumed by Pinnacle
Systems and converted into a warrant to acquire 3.13% of as many shares of
Pinnacle common stock,
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<PAGE>
at an exercise price per share equal to the exercise price per share of the
Truevision common stock under such warrant immediately prior to the merger
divided by the exchange ratio of 0.0313. An aggregate of 26,918 additional
shares of Pinnacle common stock will be reserved for issuance to holders of
Truevision warrants in connection with Pinnacle Systems' assumption of such
Truevision warrants. Pinnacle will assume each warrant in accordance with its
terms. Following Pinnacle's assumption of the warrants, each warrant will become
exercisable for shares of Pinnacle common stock on substantially the same terms
and conditions as are applicable to the existing warrant.
OPEN MARKET PURCHASES. As part of its overall plan to acquire Truevision,
Bernardo has agreed that prior to the closing of the merger it would purchase at
least $10,000 but not more than $25,000 worth of shares of Truevision common
stock in the open market.
REASONS FOR THE MERGER
JOINT REASONS FOR THE MERGER
The Pinnacle Systems and Truevision Boards have determined that the combined
company will be better able to realize improved long-term operating and
financial results and a stronger competitive position in the video
post-production tools market than the two companies individually. Pinnacle
Systems and Truevision believe that there is a strategic fit among their
respective video applications products. Pinnacle Systems and Truevision believe
that as a combined company it will be a stronger competitor, will be better able
to react to changes in technology and in the marketplace, will be able to
cross-sell each other's products, will be able to offer a broader array of
products to its customers and will have a critical mass of development resources
and sales force and professional services resources.
Both the Pinnacle Systems Board and the Truevision Board have identified
additional potential mutual benefits of the merger that they believe will
contribute to the success of the combined company. These potential benefits
include principally the following:
- The combined company will be positioned to have a leadership position in
providing products for the computer-based video post-production market;
- Combined technological resources should allow the combined company to
compete more effectively in the desktop video and video editing market and
against larger competitors by providing the combined company with enhanced
ability to develop new products and greater functionality for existing
products;
- The combined experience, financial resources, size and breadth of product
offerings and development resources of the combined company should allow
the combined company to be the leader in the next generation of
videoediting and to respond more quickly and effectively to technological
change and market demands in an industry experiencing rapid innovation and
change;
- The combined company will be able to achieve potential product and
operational synergies between Truevision and Pinnacle Systems;
- The addition of Truevision's partnerships complements Pinnacle Systems'
partnerships and will enhance Pinnacle Systems' ability to become a
leading company in the desktop video arena;
- Creation of a larger customer base, a higher market profile and greater
financial strength may present greater opportunities for marketing the
products and services of the combined company;
- Integration of the companies' product lines may enhance the combined
company's ability to increase market penetration, including by selling
Truevision's products through Pinnacle Systems' dealer channels;
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<PAGE>
- Creation of a combined customer service and technical support system may
permit the combined company to provide more efficient support coverage to
its customers; and
- Integration of the companies' professional services groups may provide
enhanced revenue, including from the cross-selling of Pinnacle Systems and
Truevision products.
Pinnacle Systems and Truevision have each identified additional reasons for
the merger. Each of their Boards has recognized that the potential benefits of
the merger may not be realized. See "Risk Factors."
PINNACLE SYSTEMS' REASONS FOR THE MERGER
In addition to the anticipated joint benefits described above, the Pinnacle
Systems Board believes that the following are additional reasons the merger will
be beneficial to Pinnacle Systems:
- Given the complementary nature of the product lines of Pinnacle Systems
and Truevision, the merger will enhance the opportunity for the potential
realization of Pinnacle Systems' strategic objective of achieving greater
scale and presence in the video capture and editing market;
- Combining with Truevision will provide an opportunity for expanded
distribution of Pinnacle Systems' products to current Truevision
customers;
- The addition of Truevision's partnerships complements Pinnacle Systems'
partnerships and will enhance Pinnacle Systems' ability to become a
leading company in the desktop video arena;
- Because Truevision's product line is complementary to Pinnacle Systems'
line of video editing solutions, the combined company can offer a broader
array of products and applications to its customers; and
- The Pinnacle Systems' shareholders will have the opportunity to
participate in the potential for growth of the combined company after the
merger.
In the course of its deliberations during a Pinnacle Systems Board meeting
held on December 15, 1998, the Pinnacle Systems Board reviewed with Pinnacle
Systems management a number of additional factors relevant to the Merger,
including:
- Historical information concerning Pinnacle Systems' and Truevision's
respective businesses, prospects, financial performance and condition,
operations, technology, management and competitive position, including
public reports filed with the SEC concerning results of operations during
the most recent fiscal year and fiscal quarter;
- Pinnacle Systems management's view as to the financial condition, results
of operations and businesses of Pinnacle Systems and Truevision before and
after giving effect to the merger based on management due diligence and
publicly available earnings estimates;
- Current financial market conditions and historical market prices,
volatility and trading information with respect to Pinnacle common stock
and Truevision common stock;
- The consideration to be received by Truevision stockholders in the merger
and the market value of the Pinnacle common stock to be issued in exchange
for each share of Truevision common stock and a comparison of comparable
merger transactions;
- The belief that the terms of the Merger Agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations, are reasonable;
- Pinnacle Systems management's view as to the potential for other third
parties to enter into strategic relationships with or to acquire
Truevision;
- Detailed financial analysis and pro forma and other information with
respect to the companies;
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- Impact of the merger on Pinnacle Systems' customers and employees; and
- Management's discussion with its legal advisors as to results of their
legal review of Truevision.
The Pinnacle Systems Board also considered the terms of the proposed merger
agreement regarding Truevision' rights to consider and negotiate other
acquisition proposals in certain circumstances, as well as the possible effects
of the provisions regarding termination fees. In addition, the Pinnacle Systems
Board considered the accounting treatment of the merger as either a purchase or
a pooling of interests, and the effects of goodwill on the books of the combined
company in the event the merger were accounted for as a purchase.
The Pinnacle Systems Board also identified and considered a variety of
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
- The risk that the potential benefits sought in the merger might not be
fully realized;
- The possibility that the merger might not be consummated and the effect of
public announcement of the merger on (a) Pinnacle Systems' sales and
operating results, (b) Pinnacle Systems' ability to attract and retain key
management, marketing and technical personnel and (c) the progress of
certain development projects;
- The potential dilutive effect of the issuance of Pinnacle common stock by
virtue of the merger;
- The substantial charges to be incurred, primarily in the quarter in which
the merger closes, in connection with the merger, including costs of
integrating the businesses and transaction expenses arising from the
merger;
- The risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed by the combined
company;
- The difficulty of managing separate operations at different geographic
locations; and
- The other risks described above under "Risk Factors."
The Pinnacle Systems Board believes that these risks were outweighed by the
potential benefits of the merger. The foregoing discussion is not exhaustive of
all factors considered by the Pinnacle Systems Board. Each member of the
Pinnacle Systems Board may have considered different factors, and the Pinnacle
Systems Board did not quantify or otherwise assign relative weights to factors
considered.
TRUEVISION'S REASONS FOR THE MERGER
The Truevision Board believed that growing competition and industry
consolidation was making it increasingly difficult for Truevision to grow its
business as a relatively small independent company competing with larger
companies that possessed substantially greater resources and broader, integrated
product offerings. During early 1998, Truevision's management, at the direction
of the Truevision Board, decided that Truevision would explore its strategic
alternatives. In addition to the anticipated joint benefits described above, the
Truevision Board identified several potential benefits for Truevision's
stockholders, employees and customers that it believes would result from the
merger with Pinnacle Systems. These potential benefits include:
- The financial strength of Pinnacle Systems to enable the combined company
to commit greater resources to both current and emerging product
development efforts and to fund the future growth of the combined
company's business;
- The ability to leverage Pinnacle Systems' customer base and sales force to
increase sales of Truevision's products and services;
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- The opportunity for Truevision, as part of the combined company, to
compete more effectively in an increasingly competitive and rapidly
changing industry; and
- The greater liquidity and diversification of risk offered to Truevision's
stockholders by an investment in Pinnacle Systems instead of Truevision,
and the opportunity to participate in the potential for growth of the
combined company.
In the course of its deliberations, the Truevision Board reviewed with
Truevision's management a number of additional factors relevant to the merger,
including, among others:
- Information concerning Pinnacle Systems' and Truevision's respective
businesses, prospects, financial performance and condition, operations,
technology, product lines, management and competitive position;
- Current market conditions and historical market prices, volatility and
trading information with respect to Pinnacle Systems common stock and
Truevision common stock;
- The consideration that Truevision's stockholders will receive in the
merger and the fact that, at the time the parties signed the merger
agreement, the market value of the Pinnacle common stock to be issued in
exchange for the Truevision common stock represented a significant premium
over the recent price range of the Truevision common stock;
- The significantly greater liquidity of Pinnacle common stock as compared
with Truevision common stock and the possibility of Nasdaq delisting of
Truevision;
- The implications for continued independent operation of Truevision in
light of market and competitive conditions, including the potential for
increased competition from Pinnacle Systems or another company having
significantly greater financial resources than Truevision that is seeking
to enter the computer-based digital video market;
- Truevision's long-term and short-term capital needs to develop and improve
the next generation TARGA HD architecture product, especially in light of
Truevision's competitive and market position as described above;
- Pinnacle Systems' leadership position in the computer-based digital video
industry and the increased potential for successful marketing of
Truevision's next generation TARGA HD architecture product as a part of
the product portfolio of a large, established computer-based digital video
manufacturer;
- The complementary products and services, channels, partners, technology
and critical skills of Pinnacle Systems and Truevision;
- The alternatives available to Truevision in light of the consideration
proposed to be paid to stockholders pursuant to the merger agreement,
including continuing to maintain Truevision as an independent company and
possible combinations with companies other than Pinnacle Systems;
- The belief that the terms of the merger agreement, including the parties'
mutual representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable;
- Provisions of the merger agreement that allow Truevision to respond to
certain unsolicited inquiries concerning an acquisition of Truevision, and
additional provisions that permit Truevision to terminate the merger
agreement upon payment to Pinnacle Systems of a break-up fee under certain
circumstances;
- A comparison of selected recent acquisition and merger transactions in the
industry;
- The likelihood of a superior offer arising;
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- The expected tax and accounting treatment of the merger;
- The opinion of BancBoston Robertson Stephens dated December 14, 1998 and
rendered at the December 15, 1998 meeting of the Truevision Board that,
based upon and subject to the various assumptions and conditions set forth
in the opinion, the aggregate merger consideration was fair to holders of
Truevision common stock from a financial point of view based on the
closing price of Pinnacle common stock on December 14, 1998;
- The closing price of Pinnacle common stock on December 15, 1998 and its
effect on the exchange ratio;
- The impact of the merger upon Truevision's customers and employees; and
- Reports from management, financial advisors and legal advisors as to the
results of their investigation of Pinnacle Systems.
The Truevision Board also considered a number of potentially negative
factors in its deliberations concerning the merger, including, but not limited
to:
- The risk that the benefits sought to be achieved in the merger will not be
achieved;
- The effect of public announcement of the merger on (a) Truevision's sales
and operating results, (b) Truevision's ability to attract and retain key
management, marketing and technical personnel and (c) the progress of
certain development projects;
- The fixed nature of the exchange ratio and the resulting risk that, should
there be a decrease in the market value of the Pinnacle common stock, the
value of the consideration to be received by Truevision's stockholders
would be reduced and that should there be a positive development, the
Truevision stockholders would not receive additional consideration;
- The loss of control over the future operations of Truevision following the
merger;
- The effect of the public announcement of the merger on Truevision's sales,
customer relations and operating results and Truevision's ability to
attract and retain key management, marketing and technical personnel;
- The risk of market confusion and potential delay or reduction in orders
for products and services;
- The risk that the merger would not be consummated; and
- The other risks described above under "Risk Factors."
The foregoing discussion of information and factors considered by the
Truevision Board is not intended to be exhaustive but is believed to include all
material factors considered by the Truevision Board. In view of the wide variety
of factors considered by the Truevision Board, the Truevision Board did not find
it practicable to quantify or otherwise assign relative weight to the specific
factors considered. However, after taking into account all of the factors set
forth above, the Truevision Board unanimously agreed that the merger agreement
and the consummation of the merger were fair to, and in the best interests of,
Truevision and its stockholders and that Truevision should proceed with the
merger.
TRUEVISION BOARD RECOMMENDATION
The Truevision Board has unanimously approved the merger agreement and the
merger and believes that the terms of the merger agreement is fair to, and that
the merger is in the best interests of, Truevision and its shareholders and
therefore recommends that the holders of Truevision common stock vote for
approval and adoption of the merger agreement.
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MATERIAL CONTACTS AND BOARD DELIBERATIONS
Pinnacle Systems has been committed to expanding its core software and
hardware technological base through both internal development and acquisitions.
Pinnacle Systems confirmed its strategic commitment to acquiring companies with
complementary products and services with a number of acquisitions, including the
Miro Acquisition in August 1997 and the acquisition of Digital Graphix, Inc. in
May 1997. The Pinnacle Systems Board is continuing to evaluate strategic
opportunities, including business combinations with other companies that could
complement and strengthen its core technologies.
On May 17, 1996, Mr. Louis Doctor, the President and Chief Executive Officer
of Truevision, and Mr. Mark Sanders, the President and Chief Executive Officer
of Pinnacle Systems, held informal discussions about the possibility of joint
opportunities between Pinnacle Systems and Truevision. Messrs. Doctor and
Sanders continued their discussions by telephone occasionally over the following
months.
On June 18, 1996, Mr. Sanders and Mr. Arthur D. Chadwick, the Chief
Financial Officer and Vice President, Finance and Administration of Pinnacle
Systems, met with Mr. Doctor to discuss a possible transaction between Pinnacle
Systems and Truevision. The parties discussed the possible product and
distribution synergies between the two companies.
On or about June 20, 1996, Messrs. Sanders and Chadwick told Mr. Doctor that
they were still interested in a possible combination of the two companies,
except that they preferred to postpone any discussions pending announcement of
Truevision's financial results. Based on Truevision's financial results for that
quarter, Pinnacle Systems discontinued discussions of a business combination at
that time.
For the remainder of 1996 and throughout 1997, Messrs. Doctor and Sanders,
at various times, discussed possible joint opportunities for the two companies
at various trade shows and informal meetings.
In February 1998, Messrs. Doctor and Curson met with representatives of
BancBoston Robertson Stephens, Truevision's financial advisor, to discuss
strategic alternatives for Truevision.
On April 30, 1998, Mr. Walter Bregman, Chairman of the Board of Truevision,
Messrs. Sanders and Chadwick and representatives of BancBoston Robertson
Stephens, Truevision's financial advisor, discussed possible strategic
combinations of the two companies.
On June 9, 1998, representatives from Pinnacle Systems and Truevision signed
a letter agreement, which provided for, among other things, the parties'
exchange of certain non-public information regarding their businesses on a
confidential basis. Shortly thereafter, Pinnacle Systems asked Hambrecht & Quist
LLP ("H & Q"), its financial advisor, to provide general assistance with the
transaction.
On June 18, 1998, Truevision and BancBoston Robertson Stephens entered into
an engagement letter pursuant to which Truevision engaged BancBoston Robertson
Stephens to act as Truevision's financial advisor in connection with a strategy
to maximize stockholder value.
On July 7, 1998 senior executives of Truevision and Pinnacle Systems, along
with representatives from BancBoston Robertson Stephens and H & Q, met at the
offices of Wilson Sonsini Goodrich & Rosati, Pinnacle Systems legal counsel to
explore the possibility of merging the two companies. Mr. Sanders, Mr. Ajay
Chopra, Chairman of the Pinnacle Systems Board and Vice President and General
Manager, Desktop Products, and Mr. Chadwick were present from Pinnacle Systems.
Mr. Carl Calabria, Truevision's Chief Technical Officer and Senior Vice
President of Engineering, Mr. R. John Curson, Truevision's Senior Vice
President, Chief Financial Officer and Secretary, and Mr. Laurin Herr,
Truevision's Vice President, Business Development, were present from Truevision.
At this meeting, the parties discussed Truevision's technology, products,
history, strategy and initiatives. The parties also
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discussed Truevision's recent financial results and the potential benefits and
risks of a strategic combination of Pinnacle Systems and Truevision, including
the strategic and product compatibility of the two companies. The parties
discussed the potential terms of the transaction and a tentative schedule under
which such a transaction might occur. Following the discussion, the parties
agreed to proceed with discussions and to investigate the possibility of a
transaction.
On July 28, 1998, H & Q presented to BancBoston Robertson Stephens proposed
terms of a potential cash transaction for all of the stock of Truevision.
At a July 28, 1998 Truevision Board meeting, the Truevision Board discussed
(1) the terms and proposed transaction structure, (2) the potential benefits and
risks of the proposed transaction and (3) the mechanics and timing of the
proposed transaction. The Truevision Board also discussed Pinnacle Systems'
products and markets. The Truevision Board discussed various strategic
alternatives, including remaining independent and pursuing transactions with
companies other than Pinnacle Systems. The Truevision Board decided that it was
still interested in pursuing a transaction with Pinnacle Systems and further
negotiating the proposed terms, but was interested primarily in being acquired
in a stock-for-stock transaction.
On July 29, 1998, representatives of Truevision contacted representatives
from Pinnacle Systems to inform them that the Truevision Board had rejected the
terms presented, but wished to pursue further negotiations. In early August
1998, Pinnacle Systems presented terms for a stock-for-stock transaction, which
the Truevision Board also rejected.
Thereafter during the month of August 1998, representatives of Truevision
and Pinnacle Systems held telephone conferences regarding other possible
acquisition structures. On August 25, 1998, Pinnacle Systems presented revised
terms to Truevision. These revised terms proposed, among other things, that
Pinnacle Systems acquire substantially all of the assets of Truevision.
Subsequently, Truevision considered the feasibility of and rationale for an
asset acquisition as opposed to a merger. Truevision decided to reject the offer
as set forth in the August 25, 1998 term sheet on the grounds that an asset
acquisition was not feasible at that time.
During the period from June 1998 to October 1998, BancBoston Robertson
Stephens also contacted a number of other potential acquirors of Truevision.
From this effort, one other company expressed interest in pursuing a transaction
and discussions followed. No formal offer resulted from these discussions.
On October 21, 1998, the Truevision Board considered a financial analysis of
a prospective merger with Pinnacle Systems, including valuations of Truevision
and of the combined company, as well as information about Truevision's strategic
alternatives. After that meeting, the Truevision Board decided to resume
discussions with Pinnacle Systems.
Also, on October 21, 1998, at a regularly scheduled Pinnacle Systems Board
meeting, Pinnacle Systems' management discussed a possible transaction with
Truevision and reviewed discussions that had occurred until then. The Pinnacle
Systems Board authorized Pinnacle Systems management to continue negotiations
and pursue a strategic relationship with Truevision provided that any future
proposals reflected changes in Truevision's financial results.
On October 28, 1998, Truevision informed Pinnacle Systems that Truevision
was interested in resuming negotiations with Pinnacle Systems on terms similar
to those proposed by Pinnacle Systems in late July 1998.
Subsequently, Mr. Sanders decided, in consultation with members of
Pinnacle's management and members of the Pinnacle Systems Board, that Pinnacle
Systems was not interested in a transaction based on the earlier terms in light
of Truevision's financial results for September 1998.
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In early November 1998, Truevision received a preliminary indication of
interest from another company to acquire shares of Truevision common stock in a
stock-for-stock transaction. During early November 1998, Truevision pursued
discussions with this other company and its legal advisors. In light of the
progress of those discussions, among other things, Mr. Bregman indicated to
Messrs. Sanders and Chadwick that Truevision might be willing to entertain a
revised offer for a stock-for-stock merger with Pinnacle at a valuation lower
than that earlier proposed. On November 12, 1998, Pinnacle Systems presented
revised terms to Truevision. At a Truevision Board meeting on November 16, 1998,
the Truevision Board reviewed Truevision's strategic alternatives. After
discussions at the meeting with its financial advisors and legal counsel and
based on the Pinnacle Systems proposed terms and for strategic and product
compatability reasons, the Truevision Board decided that it would be in the best
interest of Truevision and its stockholders to pursue a transaction with
Pinnacle Systems, rather than pursuing its other alternatives. Shortly
thereafter, the other company discontinued discussions with Truevision. On
November 20, 1998, Truevision agreed with Pinnacle Systems to pursue discussions
and not to negotiate with other parties regarding a merger or acquisition for
the period through December 18, 1998.
Commencing on November 16, 1998 and continuing through December 15, 1998,
representatives from Pinnacle Systems, Truevision, KPMG LLP, Wilson Sonsini
Goodrich & Rosati and Cooley Godward LLP, Truevision's legal counsel, conducted
an acquisition review with respect to financial, operational and legal matters
of Pinnacle Systems and Truevision. During this time, numerous interviews and
discussions took place among senior level management personnel of both
companies, and among their counsel and accounting advisors.
On December 2, 1998, a draft of the Merger Agreement and related agreements
were delivered by Wilson Sonsini Goodrich & Rosati to Cooley Godward and
Truevision. A series of telephonic conversations were held beginning on December
3, 1998 between representatives of Pinnacle Systems and Truevision to negotiate
a definitive merger agreement and related agreements.
On December 15, 1998, the Truevision Board held a board meeting at
Truevision's offices to discuss the draft Merger Agreement and the related
agreements. The Truevision Board reviewed the terms of nearly final drafts of
the Merger Agreement with its legal counsel. The Truevision management reported
to the Truevision Board the results of its acquisition review of Pinnacle
Systems and responded to questions from the Truevision Board regarding the
acquisition review and management's view on the business and operations of
Pinnacle Systems. At this meeting, BancBoston Robertson Stephens rendered its
opinion dated December 14, 1998 that the aggregate merger consideration was
fair, from a financial point of view, to the Truevision stockholders.
At the meeting of the Truevision Board, the Truevision Board voted
unanimously: (1) to approve the proposed merger with Pinnacle Systems, the
Merger Agreement and related exhibits as presented to them, and to authorize and
direct the officers of Truevision to finalize the terms of the Merger Agreement,
and (2) to recommend that the Truevision stockholders vote to approve the Merger
Agreement and the merger. The Truevision Board's approval was subject to the
resolution of any outstanding issues.
On December 16, 1998, at a special telephonic meeting of the Pinnacle
Systems Board, the Pinnacle Systems Board voted unanimously: to approve the
merger agreement and related exhibits as presented to them; to authorize and
direct the officers of Pinnacle Systems to finalize the terms of the Merger
Agreement; and to approve the proposed merger with Truevision. The Pinnacle
Systems Board's approval was subject to the resolution of any outstanding
issues.
Following the approval of the Pinnacle Systems Board and the Truevision
Board and the satisfaction of the condition to the approval of the Truevision
Board, the merger agreement in its definite form was executed and jointly
announced to the public in a press release on December 16, 1998.
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OPINION OF TRUEVISION'S FINANCIAL ADVISOR
On June 18, 1998, Truevision and BancBoston Robertson Stephens executed an
engagement letter pursuant to which BancBoston Stephens was engaged to act as
Truevision's financial advisor in connection with the merger. Pursuant to the
BancBoston Robertson Stephens engagement letter, Truevision retained BancBoston
Robertson Stephens to provide financial advisory and investment banking services
in connection with a possible sale of Truevision, and to render an opinion as to
the fairness of a transaction, from a financial point of view, to the
stockholders of Truevision. See "--Material Contacts and Board Deliberations."
On December 15, 1998, the Truevision Board met to evaluate the proposed
merger, at which time the Board received a written opinion dated December 14,
1998 from BancBoston Robertson Stephens that the aggregate merger consideration
was fair, from a financial point of view, to the Truevision stockholders. No
limitations were imposed by Truevision's Board on BancBoston Robertson Stephens
with respect to the investigations made or procedures followed by it in
furnishing its opinion. The aggregate merger consideration was determined
through negotiations between the management of Truevision and Pinnacle Systems.
Although BancBoston Robertson Stephens did assist the management of Truevision
in those negotiations, it was not asked by, and did not recommend to, Truevision
that any specific amount of consideration constituted the appropriate amount of
consideration for the merger. BancBoston Robertson Stephens expressed no opinion
as to tax consequences of the merger, and BancBoston Robertson Stephens' opinion
as to fairness of the aggregate merger consideration did not take into account
the particular tax status or position of any stockholder of Truevision. In
furnishing its opinion, BancBoston Robertson Stephens was not engaged as an
agent or fiduciary of Truevision's stockholders or any other third party.
THE FULL TEXT OF THE BANCBOSTON ROBERTSON STEPHENS OPINION, WHICH SETS
FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX E AND IS INCORPORATED
HEREIN BY REFERENCE. STOCKHOLDERS OF TRUEVISION ARE URGED TO READ THE BANCBOSTON
ROBERTSON STEPHENS OPINION IN ITS ENTIRETY. THE BANCBOSTON ROBERTSON STEPHENS
OPINION WAS PREPARED FOR THE BENEFIT AND USE OF THE TRUEVISION BOARD IN ITS
CONSIDERATION OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO
STOCKHOLDERS OF TRUEVISION AS TO HOW THEY SHOULD VOTE AT THE TRUEVISION MEETING
IN CONNECTION WITH THE MERGER. THE BANCBOSTON ROBERTSON STEPHENS OPINION DOES
NOT ADDRESS THE RELATIVE MERITS OF THE MERGER AND ANY OTHER TRANSACTIONS OR
BUSINESS STRATEGIES DISCUSSED BY THE TRUEVISION BOARD OF DIRECTORS AS
ALTERNATIVES TO THE MERGER AGREEMENT OR THE UNDERLYING BUSINESS DECISION OF THE
TRUEVISION BOARD TO PROCEED WITH OR AFFECT THE MERGER. THE SUMMARY OF THE
BANCBOSTON ROBERTSON STEPHENS OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE BANCBOSTON ROBERTSON STEPHENS OPINION.
In arriving at the BancBoston Robertson Stephens opinion, BancBoston
Robertson Stephens:
- Reviewed financial information relating to Truevision and Pinnacle Systems
furnished to it by each company, including certain financial analyses,
forecasts prepared by Truevision and other information and data prepared
by the respective managements of Truevision and Pinnacle Systems;
- Reviewed publicly available information;
- Held discussions with the managements of Truevision and Pinnacle Systems
concerning the business, past and current business operations, financial
condition and future prospects of both companies, independently and
combined;
- Reviewed the Merger Agreement;
- Reviewed the stock prices and trading histories of Truevision and Pinnacle
Systems;
- Reviewed the valuations of publicly traded companies which it deemed
comparable to Truevision;
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- Compared the financial terms of the merger with other transactions which
it deemed relevant;
- Analyzed the pro forma earnings per share of the combined company;
- Prepared a discounted cash flow analysis of Truevision; and
- Made such other studies and inquiries, and reviewed such other data, as it
deemed relevant.
In its review and analysis, and in arriving at its opinion, BancBoston
Robertson Stephens assumed and relied upon the accuracy and completeness of all
of the financial and other information provided to it or publicly available and
neither attempted independently to verify nor assumed responsibility for
verifying any of such information. BancBoston Robertson Stephens relied upon the
assurances of the managements of Truevision and Pinnacle Systems that they were
not aware of any facts that would make such information inaccurate or
misleading. Furthermore, BancBoston Robertson Stephens did not obtain or make,
or assume responsibility for obtaining or making, any independent evaluation or
appraisal of any of the properties or assets and liabilities (contingent or
otherwise) of Truevision or Pinnacle Systems, nor was BancBoston Robertson
Stephens furnished with any such evaluations or appraisals. BancBoston Robertson
Stephens did not conduct any evaluation or analyses of the technology underlying
the products of Truevision or Pinnacle Systems. With respect to the financial
and operating forecasts (and the assumptions and bases therefor) prepared by
Truevision and the publicly available information for Pinnacle Systems which
BancBoston Robertson Stephens reviewed, upon the advice of Truevision,
BancBoston Robertson Stephens assumed that such forecasts were reasonably
prepared in good faith on the basis of reasonable assumptions, reflected the
best currently available estimates and judgments of the managements of
Truevision and Pinnacle Systems and that such forecasts (and the technological
milestones necessary to achieve such results) would be realized in the amounts
and in the time periods estimated by the managements of Truevision and Pinnacle
Systems. In this regard, BancBoston Robertson Stephens noted that both
Truevision and Pinnacle Systems face exposure to the Year 2000 problem and are
currently undergoing Year 2000 projects. BancBoston Robertson Stephens did not
undertake any independent analysis to evaluate the reliability or accuracy of
the assumptions made by the managements of Truevision and Pinnacle Systems with
respect to the potential effect that the Year 2000 problem might have on their
respective forecasts. In reaching its opinion, BancBoston Robertson Stephens
assumed that Truevision would not be awarded within the next six months any
outstanding contract bids in the ordinary course of business in excess of
$10,000,000. BancBoston Robertson Stephens assumed that the merger would be
consummated upon the terms set forth in the Agreement without material
alteration thereof. BancBoston Robertson Stephens relied as to all legal matters
relevant to rendering its opinion on the advice of its counsel.
The following is a summary of the material financial analyses performed by
BancBoston Robertson Stephens in connection with rendering the BancBoston
Robertson Stephens opinion:
COMPARABLE COMPANY ANALYSIS FOR TRUEVISION. Using publicly available
information, BancBoston Robertson Stephens analyzed, among other things, the
market values and trading multiples of Truevision and the following selected
publicly traded companies in the video graphics editing industry: Visioneer
Inc., Data Translation Inc., Cerion Technologies, Microtest Inc., Opti Inc.,
Radius Inc., and Media 100. BancBoston Robertson Stephens compared total
capitalization values as multiples of, among other things, last twelve month,
estimated calendar year 1998 and 1999 revenues. All multiples were based on
closing stock prices as of December 9, 1998. Applying a range of stripped
multiples for the comparable companies of last twelve month and estimated
calendar year 1998 and 1999 revenues of (0.01)x to 0.28x, (0.01)x to 0.25x and
(0.01)x to 0.19x respectively, to corresponding financial data for Truevision
resulted in an equity reference range for Truevision of approximately $0.48 to
$0.54 per share, as compared to the equity value of approximately $0.69 per
share based on the closing price of Truevision common stock on December 9, 1998,
or the $1.00 per share price offered by Pinnacle Systems.
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PRECEDENT TRANSACTIONS ANALYSIS. Using publicly available information,
BancBoston Robertson Stephens analyzed the multiples paid in selected precedent
transactions, including: Visioneer Inc. (Hardware Division)/Primax Electronics
Ltd. (December 3, 1998), GTI Corp./Technitrol Inc. (May 19, 1998), Tseng
Labs/ATI Technologies (December 16, 1997), NetFrame Systems Inc./Micron
Electronics Inc. (June 10, 1997), Texas Instrument-Printers/Genicom Corp. (July
23, 1996), Rexon Inc./Legacy Storage Systems International Inc. (October 12,
1995) and SuperMac Technology Inc./Radius Inc. (May 23, 1994). BancBoston
Robertson Stephens compared, among other things, the premium paid in the
selected precedent transactions over the public equity closing sale price one
day and four weeks prior to the announcement of the transactions. Applying a
range of multiples for the last twelve months revenue and last twelve months
book value for the selected precedent transactions of 0.14x to 0.41x and 0.58x
to 1.53x, respectively to corresponding data for Truevision resulted in an
equity reference range for Truevision of approximately $0.64 to $0.85, as
compared to the equity value of approximately $0.69 per share based on the
closing price of Truevision common stock on December 9, 1998, or the $1.00 per
share price offered by Pinnacle Systems. All multiples for the selected
precedent transactions were based on public information available at the time of
announcement, or one day or four weeks prior to the announcement, as the case
may be, of such transactions, without taking into account differing market and
other conditions during the period in which the selected precedent transactions
occurred.
No company, transaction or business used in COMPARABLE COMPANY ANALYSIS or
SELECTED PRECEDENT TRANSACTIONS ANALYSIS as a comparison is identical to
Truevision, Pinnacle Systems or the merger. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition,
public trading and other values of the comparable companies or the business
segment, company or transactions to which they are compared.
HISTORICAL EXCHANGE RATIO ANALYSIS. BancBoston Robertson Stephens reviewed
and analyzed the historical ratio of the daily per share market closing prices
of Truevision common stock and Pinnacle Systems common stock since December
1997. BancBoston Robertson Stephens noted that an exchange ratio of 0.0299
calculated as of December 9, 1998, the date of the analysis, represented a
discount to the 0.057 average price ratio for the two companies for the previous
12 months, a discount to the 0.035 average price ratio for the two companies for
the previous 90 days, a discount to the 0.031 average price ratio for the two
companies for the previous 60 days, a premium to the 0.023 average price ratio
for the two companies for the previous 30 days, a premium to the 0.024 average
price ratio for the two companies for the last 10 days and a premium to the
0.021 price ratio for the two companies on December 9, 1998.
DISCOUNTED CASH FLOW ANALYSIS FOR TRUEVISION. BancBoston Robertson Stephens
performed a discounted cash flow analysis of the unlevered (before interest
expense) after-tax cash flows of Truevision using BancBoston Robertson Stephens
estimates based on discussions with Truevision for the fiscal years 1998 through
2005. BancBoston Robertson Stephens first discounted the projected, unlevered
after-tax cash flows through December 31, 2005 using a range of discount rates
from 16.0% to 22.0%. The range of discount rates was based on the cost of
capital of Truevision and the comparable companies, which was approximately
15.0% to 21.0%. Truevision unlevered after-tax cash flows were calculated as the
after-tax operating earnings of Truevision adjusted to add back non-cash
expenses and deduct uses of cash not reflected in the income statement.
BancBoston Robertson Stephens then added to the present value of the cash flows
the terminal value of Truevision in the fiscal year ending December 31, 2005,
discounted back at the same discount rate. The terminal value was computed by
multiplying Truevision's projected revenue in fiscal 2005 by terminal multiples
ranging from 0.1x to 0.5x. The range of terminal multiples selected reflect
BancBoston Robertson Stephens' judgment as to an appropriate range of multiples
at the end of the referenced period. The discounted cash flow valuation resulted
in an equity reference range of approximately $0.29 to $0.91 per share, as
compared to the
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equity value of approximately $0.69 per share based on the closing price of
Truevision common stock on December 9, 1998, or the $1.00 per share price
offered by Pinnacle Systems.
PRO FORMA EARNINGS ANALYSIS. BancBoston Robertson Stephens analyzed the
impact of the merger on the projected earnings per share (the "EPS") of the
combined company for fiscal year 1999 based on Truevision management estimates
for Truevision and publicly available research for Pinnacle Systems. Such
analysis indicated that the merger would be dilutive by approximately 3.5% to
3.8% to Pinnacle Systems shareholders in fiscal year 1999. The actual results
achieved by the combined company may vary from projected results and such
variations may be material.
While the foregoing summary describes certain analyses and factors that
BancBoston Robertson Stephens deemed material in its presentation to the
Truevision Board, it is not a comprehensive description of all analyses and
factors considered by BancBoston Robertson Stephens. The preparation of a
fairness opinion is a complex process that involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. BancBoston
Robertson Stephens believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, would create an incomplete view of
the evaluation process underlying the BancBoston Robertson Stephens opinion.
Several analytical methodologies were employed and no one method of analysis
should be regarded as critical to the overall conclusion reached by BancBoston
Robertson Stephens. Each analytical technique has inherent strengths and
weaknesses, and the nature of the available information may further affect the
value of particular techniques. The conclusion reached by BancBoston Robertson
Stephens is based on all analyses and factors taken as a whole and also on
application of BancBoston Robertson Stephens' own experience and judgment. Such
conclusion may involve significant elements of subjective judgment and
qualitative analysis. BancBoston Robertson Stephens therefore gives no opinion
as to the value or merit standing alone of any one or more parts of the analysis
it performed. In performing its analyses, BancBoston Robertson Stephens
considered general economic, market and financial conditions and other matters,
many of which are beyond the control of Truevision and Pinnacle Systems. The
analyses performed by BancBoston Robertson Stephens are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, analyses
relating to the value of a business do not purport to be appraisals or to
reflect the prices at which the business actually may be purchased. Furthermore,
no opinion is being expressed as to the prices at which shares of Truevision
Common Stock may trade at any future time.
Truevision engaged BancBoston Robertson Stephens pursuant to the BancBoston
Robertson Stephens engagement letter on June 18, 1998. The BancBoston Robertson
Stephens engagement letter, as subsequently amended, provides that, for its
services, BancBoston Robertson Stephens is entitled to receive, contingent upon
consummation of the merger, a fee equal to $850,000. Truevision has also agreed
to reimburse BancBoston Robertson Stephens for its out-of-pocket expenses and to
indemnify and hold harmless BancBoston Robertson Stephens and its affiliates and
any other person, director, employee or agent of BancBoston Robertson Stephens
or any of its affiliates, or any person controlling BancBoston Robertson
Stephens or its affiliates for certain losses, claims, damages, expenses and
liabilities relating to or arising out of services provided by BancBoston
Robertson Stephens as financial advisor to Truevision. The terms of the fee
arrangement with BancBoston Robertson Stephens were negotiated at arm's length
between Truevision and BancBoston Robertson Stephens, and the Truevision Board
of Directors was aware of such fee arrangements.
BancBoston Robertson Stephens was retained based on BancBoston Robertson
Stephens' experience as a financial advisor in connection with mergers and
acquisitions and in securities valuations generally, as well as BancBoston
Robertson Stephens' investment banking relationship and familiarity
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with Truevision. BancBoston Robertson Stephens has provided financial advisory
and investment banking services to Truevision from time to time, including
acting as co-manager for its initial public offering and a lead manager in a
round of private offering.
BANCBOSTON ROBERTSON STEPHENS IS A NATIONALLY RECOGNIZED INVESTMENT BANKING
FIRM. AS PART OF ITS INVESTMENT BANKING BUSINESS, BANCBOSTON ROBERTSON STEPHENS
IS FREQUENTLY ENGAGED IN THE VALUATION OF BUSINESSES AND THEIR SECURITIES IN
CONNECTION WITH MERGERS AND ACQUISITIONS, NEGOTIATED UNDERWRITINGS, SECONDARY
DISTRIBUTIONS OF SECURITIES, PRIVATE PLACEMENTS AND OTHER PURPOSES. BANCBOSTON
ROBERTSON STEPHENS MAY ACTIVELY TRADE THE EQUITY OF TRUEVISION AND PINNACLE
SYSTEMS FOR ITS OWN ACCOUNT AND FOR THE ACCOUNT OF ITS CUSTOMERS AND,
ACCORDINGLY, MAY AT ANY TIME HOLD A LONG OR SHORT POSITION IN SUCH SECURITIES.
BANCBOSTON ROBERTSON STEPHENS MAINTAINS A MARKET IN THE TRUEVISION COMMON STOCK
AND REGULARLY PUBLISHES RESEARCH REPORTS REGARDING THE VIDEO GRAPHICS EDITING
INDUSTRY AND THE BUSINESS AND SECURITIES OF TRUEVISION AND OTHER PUBLICLY TRADED
COMPANIES IN THE VIDEO GRAPHICS EDITING INDUSTRY.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
EMPLOYMENT AGREEMENTS. In July 1998, Truevision entered into an employment
agreement with Mr. Doctor, Truevision's President and Chief Executive Officer,
that became effective on August 4, 1998. The term of the employment agreement is
for a period of three years. Mr. Doctor's compensation pursuant to the
employment agreement consists of a base salary of $199,500, subject to annual
adjustment, along with such discretionary performance bonus amounts as the
Truevision Board authorizes. If Truevision terminates Mr. Doctor's employment
for any reason other than cause, he will be retained as a part-time employee or
consultant and will be entitled to receive salary continuation payments, at his
monthly base salary rate, for a period of twelve months after his date of
termination. Mr. Doctor has agreed not to (1) compete with Truevision during the
period in which he receives such salary continuation payments or (2) solicit or
encourage employees to terminate employment with Truevision for a period of one
year from his termination date. In connection with the merger, Truevision will
give notice to Mr. Doctor terminating his employment other than for cause. After
the merger, Mr. Doctor will be retained as a part-time employee or consultant of
the surviving entity in the merger. The change of control provisions in Mr.
Doctor's employment agreement provide that Mr. Doctor will receive a cash bonus
at the time of the merger as provided under the current Truevision executive
bonus plan, assuming targets had been met for the full 1999 fiscal year.
In August 1998, Truevision entered into an employment agreement with Mr.
Curson, Truevision's Senior Vice President and Chief Financial Officer. The term
of the employment agreement is for a period of three years. Mr. Curson's
compensation pursuant to the employment agreement consists of a base salary of
$170,000, subject to annual adjustment, along with such discretionary
performance bonus amounts as the Truevision Board shall authorize. In the event
that Truevision terminates Mr. Curson's employment for any reason other than
cause, he will be retained as a part-time employee or consultant and will be
entitled to receive salary continuation payments, at his monthly base salary
rate, for a period of six months after his date of termination. In the event
that Mr. Curson has not secured full-time employment by the end of such six
month period, such period will be extended until the earlier of (1) the end of
an additional six month period or (2) such time as Mr. Curson secures full-time
employment. In connection with the merger, Truevision will give notice to Mr.
Curson terminating his employment other than for cause. After the merger, Mr.
Curson will be retained as a part-time employee or consultant of the surviving
entity in the merger. The change of control provisions in Mr. Curson's
employment agreement provide that Mr. Curson will receive a cash bonus at the
time of the merger as provided under the current Truevision executive bonus
plan, assuming targets had been met for the full 1999 fiscal year.
In connection with Truevision's merger with RasterOps Corporation in 1992,
Truevision and Mr. Calabria, Truevision's Senior Vice President--Engineering,
entered into an agreement that will pay Mr. Calabria an amount equal to six
months' base compensation if Truevision terminates Mr. Calabria
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for any reason other than cause. If Mr. Calabria's employment with Truevision is
terminated because of a disability, he will be entitled to an amount equal to
one year's base compensation. In addition, upon termination for any reason other
than cause, Mr. Calabria's unvested and unexercised stock options will
immediately vest and become exercisable. The terms of the agreement continue
until six months after the date of termination of Mr. Calabria's employment.
In December 1998, Truevision amended all outstanding options granted to
Messrs. Doctor and Curson, and the members of Truevision's Board and an
outstanding warrant to Mr. Doctor to provide for, to the extent not already so
provided for, (1) acceleration of vesting immediately prior to a merger of
Truevision with or into another corporation (or the occurrence of certain other
events resulting in a change of control of Truevision) and (2) the extension of
the period in which such persons can exercise such options to the tenth
anniversary of the original date of grant of the affected option, following a
termination of service after a merger of Truevision with or into another
corporation (or the occurrence of certain other events resulting in a change of
control of Truevision) in which the affected option is assumed or substituted.
Immediately after the merger, Bernardo, as the sole stockholder of the surviving
entity, will approve the amendment of all of the option agreements granted to
members of the Truevision Board and the warrant held by Mr. Doctor to provide
that such options and warrants may be exercisable for 10 years from the original
date of grant. These options will immediately be assumed by Pinnacle Systems
following the execution of the written consent.
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that Pinnacle
Systems will assume all of the obligations of Truevision under Truevision's
existing indemnification agreements with each of the directors and officers of
Truevision, as such agreements relate to the indemnification of such persons for
expenses and liabilities arising from facts or events that occurred prior to the
merger or relating to the transactions contemplated by the Merger Agreement. In
addition, the Merger Agreement provides that the bylaws and certificate of
incorporation of the surviving corporation in the merger shall contain
provisions regarding indemnification that are at least as favorable to the
Indemnified parties as those in the Truevision articles of incorporation and the
Truevision bylaws and that such provisions shall not be amended, repealed or
otherwise modified for a period of six years from the completion of the merger
in any manner that would adversely affect the rights thereunder of the
directors, officers, employees or agents of Truevision.
The Merger Agreement also requires the surviving corporation in the merger,
or Pinnacle Systems, to maintain in effect for six years after the completion of
the merger, directors' and officers' liability insurance covering those persons
who are currently covered by Truevision's directors' and officers' liability
insurance policy on terms substantially similar to those applicable to the
current directors and officers of Truevision, provided that the surviving
corporation or Pinnacle Systems will not be required to expend in excess of
150%, subject to maximum annual premiums not in excess of the annual premium
currently paid by Truevision for such coverage (or such coverage as is available
for such 150% of such annual premium).
INTERESTS IN TRUEVISION COMMON STOCK AND OPTIONS AND WARRANTS. As of the
record date, the executive officers and directors of Truevision beneficially
owned an aggregate of 1,060,950 shares of Truevision common stock (including
850,824 shares of Truevision common stock subject to Truevision options and
warrants exercisable within 60 days of the record date). Based upon the closing
sale price of Pinnacle common stock on February 5, 1999 of $36.75, and assuming
the exercise of outstanding Truevision options and warrants exercisable within
60 days of the record date, the aggregate dollar value of Pinnacle common stock
to be received in the merger by the executive officers and directors of
Truevision is approximately $1,220,384. Pursuant to certain plans, options or
employment agreements of Truevision, all option awards held by members of the
Truevision Board, and Messrs. Doctor and Curson, will become immediately
exercisable immediately prior to the merger and will remain exercisable until
the tenth anniversary of the grant. "--General--Options" and "--Employment
Agreements."
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The foregoing interests of the directors and certain members of management
of Truevision in the Merger may mean that such persons have personal interests
in the merger which may not be identical to the interests of other stockholders.
VOTING AGREEMENTS
In connection with the Merger Agreement, certain of the executive officers
and directors of Truevision entered into voting agreements with Pinnacle
Systems, the form of which is attached as Appendix B. Based on the number of
shares of Truevision common stock outstanding on the record date, such
stockholders beneficially own (including shares subject to options and warrants
to purchase Truevision Common Stock) 5.6% of the outstanding Truevision common
stock. These stockholders agreed to vote or cause to be voted all shares of
capital stock of Truevision owned of record, beneficially owned, held in any
capacity at every Truevision stockholders meeting and every written consent in
lieu of such meeting, in favor of approval of the merger and the Merger
Agreement and any matter that could reasonably be expected to facilitate the
merger. The voting agreements terminate upon the earlier to occur of the date
and time that merger shall becomes effective in accordance with the terms and
provisions of the Merger Agreement or the date the Merger Agreement is
terminated in accordance with its terms. In addition, the stockholders entering
into the voting agreements granted Pinnacle Systems an irrevocable proxy to vote
the stockholders shares of Truevision common stock in favor of the Merger
Agreement and the merger.
REPRESENTATIONS AND COVENANTS
Under the Merger Agreement, Truevision made a number of representations
relating to, among other things:
- Its organization and similar corporate matters and the organization and
similar corporate matters regarding its subsidiaries;
- Its capital structure;
- Authorization, execution, delivery, performance and enforceability of the
Merger Agreement and related matters;
- The absence of conflicts under certificates of incorporation or bylaws,
required consents or approvals and violations of any instruments or law;
- Documents filed with the SEC and the accuracy of the information contained
therein;
- Absence of certain specified material adverse changes, material litigation
or material undisclosed liabilities;
- Certain tax, labor and employee benefit matters;
- Title to properties and certain intellectual property matters;
- Compliance with applicable laws including environmental law;
- The accuracy of information supplied by Truevision in connection with the
preparation of this Proxy Statement/Prospectus and the related
registration statement;
- The receipt of a fairness opinion from BancBoston Robertson Stephens;
- The approval of the Merger Agreement by the Truevision Board;
- The absence of any litigation; and
- Year 2000 compliance.
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<PAGE>
Under the Merger Agreement, Pinnacle Systems, Bernardo and Merger Sub made a
number of representations relating to, among other things:
- Their organization and similar corporate matters;
- Their capital structure;
- Authorization, execution, delivery, performance and enforceability of the
Merger Agreement and related matters;
- The absence of conflicts under the certificates and articles of
incorporation, required consents or approvals and violations of any
instruments of law,
- Documents filed with the SEC and the accuracy of the information contained
therein;
- The accuracy of information supplied by Pinnacle Systems in connection
with the preparation of this Proxy Statement/Prospectus and the related
registration statement;
- The approval of the Merger Agreement by the Pinnacle Systems Board; and
- Absence of litigation.
Each party has agreed promptly to notify the other of any event likely to
result in the failure of a representation or warranty to be true in any material
respect, or the material breach of a covenant under the Merger Agreement. Each
party covenanted as to itself and its subsidiaries that, until the consummation
of the merger or the termination of the Merger Agreement, it will, among other
things, maintain its business, conduct its operations in the ordinary course,
not take certain actions outside the ordinary course without the other's consent
(which consent will not be unreasonably withheld), provide the other with
reasonable access to its financial, operating and other information, and use all
reasonable efforts to consummate the merger.
Pinnacle Systems has agreed to honor in accordance with their terms all
employment agreements to which Truevision is a party, as amended. See
"--Interests of Certain Persons in the Merger-- Employment Agreements."
Truevision has agreed to amend the Truevision ESPP as necessary to provide that:
- The shares of Truevision common stock to be purchased thereunder shall be
purchased on the last trading day immediately prior to the merger, or such
earlier time as the Truevision Board shall specify
- Any shares so purchased shall be automatically converted on the same basis
as all other shares of Truevision common stock into shares of Pinnacle
common stock
- Immediately following such purchase of shares of Truevision common stock,
the Truevision ESPP shall terminate.
Pinnacle Systems' has agreed that from and after the closing of the merger,
employees of Truevision may participate in Pinnacle Systems' Employee Stock
Purchase Plan, subject to its terms and conditions.
Pinnacle Systems has also made certain covenants regarding Truevision's
existing indemnification agreements, maintenance of directors' and officers'
liability insurance and representation of officers and directors of Truevision
as defendants in certain litigation. See "--Interests of Certain Persons in the
Merger--Indemnification and Insurance."
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CONDITIONS TO CONSUMMATION OF THE MERGER
In addition to the approvals of the stockholders of Truevision, the
obligations of Pinnacle Systems and Truevision to consummate the merger are
subject to the satisfaction of a number of other conditions, including among
others:
- The effectiveness and the absence of any stop orders or proceedings
seeking a stop order with respect to the registration statement;
- The absence of any temporary restraining order, preliminary or permanent
injunction, or other legal restraint or prohibition issued or pending by
any court or governmental authority, or any action taken or any statute or
regulation that would prohibit or render illegal the consummation of the
merger; and
- The receipt of all material consents, orders and approvals and the
expiration of any waiting periods imposed by, any governmental entity
necessary for the consummation of the merger. See "--Regulatory Approvals
Required."
Each party's obligations under the Merger Agreement are also conditioned
upon the accuracy of the representations and warranties made by the other party
(without regard to materiality qualifiers) except such inaccuracies as would not
have a material adverse effect individually or in the aggregate; the performance
in all material respects by the other party of its covenants and the
authorization for listing on Nasdaq of the shares of Pinnacle common stock to be
issued in the merger.
REGULATORY APPROVALS REQUIRED
Under the Merger Agreement, the obligations of both Pinnacle Systems and
Truevision to consummate the merger are subject to, among others, the following
conditions:
- the expiration or termination of any waiting period (and any extension
thereof) applicable to the consummation of the merger under the HSR Act
and no action having been instituted by the Antitrust Division of the
Department of Justice, or the DOJ, or the Federal Trade Commission, or the
FTC, challenging or seeking to enjoin the consummation of the merger,
which action shall not have been withdrawn or terminated; and
- all material authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration of waiting periods imposed by,
any governmental entity, shall have been filed, expired or have been
obtained.
The applicable regulatory authority may not approve or take other required
action with respect to the merger. Neither Pinnacle Systems nor Truevision has
any control over the timing of such regulatory approval or other action.
Pinnacle Systems and Truevision are not aware of any governmental approvals or
actions that are required in order to consummate the merger except in connection
with the Securities Act of 1933, the filing of merger-related documents under
Delaware law or as described below. Should such other approval or action be
required, it is contemplated that Pinnacle Systems and Truevision would seek
such approval or action. Such approvals or actions, if required, may not be
obtained.
Transactions such as the merger are reviewed by the DOJ and the FTC to
determine whether they comply with applicable antitrust laws. Under the
provisions of the HSR Act, the merger may not be consummated until such time as
certain information has been furnished to the DOJ and the FTC and the specified
waiting period requirements of the HSR Act have been satisfied. Pursuant to the
HSR Act, on January 28, 1999, Pinnacle Systems and Truevision each furnished
notification of the merger and provided certain information to the DOJ and the
FTC. On February 5, 1999, the parties received notice of early termination of
the specified waiting period requirements of the HSR Act.
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At any time before or after the closing of the merger, the DOJ, the FTC,
state attorneys general, the antitrust regulatory agencies of various foreign
countries or a private person or entity could challenge the merger under
antitrust laws and seek, among other things, to enjoin the merger or to cause
Pinnacle Systems to divest itself, in whole or in part, of Truevision or of
other businesses conducted by Pinnacle Systems. Based on information available
to them, Pinnacle Systems and Truevision believe that the merger will not
violate federal, state or foreign antitrust laws. A challenge to the merger on
antitrust grounds may be made and, if such a challenge is made, Pinnacle Systems
and Truevision may not prevail or may be required to accept certain conditions,
possibly including certain divestitures or hold-separate agreements in order to
consummate the merger.
LIMITATION ON NEGOTIATIONS
The Merger Agreement provides that Truevision will not, directly or
indirectly, solicit or encourage (including by way of furnishing nonpublic
information) or take other action to facilitate, any inquiries or the making of
any proposal that constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined below). However, the Truevision Board, in the
exercise of and as required by its fiduciary duties as determined after
consultation with outside legal counsel, may engage in discussions or
negotiations with, and furnish information to, a third party who makes a
written, unsolicited Acquisition Proposal that constitutes a Superior Offer (as
defined below), provided that Pinnacle Systems has been notified in writing of
the principal financial terms and conditions of such Superior Offer. The Merger
Agreement also requires Truevision to immediately notify Pinnacle Systems of any
unsolicited offer or proposal to enter into negotiations relating to an
Acquisition Proposal and to provide Pinnacle Systems with information as to the
identity of the party making such offer or proposal and the principal financial
terms and conditions of such offer or proposal. See "--Termination; Breakup
Fees."
Under the Merger Agreement, an "Acquisition Proposal" is defined as any
inquiry, offer or proposal (other than that by Pinnacle Systems) relating to
- Any acquisition or purchase from Truevision by any party other than
Truevision or Pinnacle Systems of more than a 15% interest in the total
outstanding voting securities of Truevision or any of its subsidiaries or
any tender offer or exchange offer that if consummated would result in any
party other than Truevision or Pinnacle Systems beneficially owning 15% or
more of the total outstanding voting securities of Truevision or any
merger, consolidation, business combination or similar transaction
involving Truevision where the stockholders immediately preceding the
transaction will own less than 85% of the equity interests in the
surviving or resulting entity of such transaction;
- Any sale or disposition of more than 50% of the assets of Truevision; and
- Any liquidation or dissolution of Truevision.
A "Superior Offer" is defined as an unsolicited, bona fide written offer
made by a third party to consummate any of the following transactions:
- Merger, consolidation, dissolution or similar transaction pursuant to
which the stockholders of Truevision immediately preceding such
transaction will hold less than 50% of the equity interest in the
surviving or resulting entity of such transaction;
- A sale or other disposition by Truevision of assets representing in excess
of 50% of the fair market value of Truevision's business immediately prior
to such sale; or
- The acquisition by any person or group, including by way of a tender offer
or an exchange offer, directly or indirectly, of beneficial ownership in
excess of 50% of the voting power of the then outstanding shares, on terms
that the Truevision Board determines, in its reasonable judgment, after
consultation with its financial advisor, to be more favorable to
Truevision stockholders than
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<PAGE>
the terms of the merger. However, such offer shall not be deemed a
"Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed.
WAIVER AND AMENDMENT
At any time before the completion of the merger, Pinnacle Systems or
Truevision may extend the time for the performance of any of the obligations or
other acts of the parties under the Merger Agreement, waive any inaccuracies in
the representations and warranties of the other contained in the Merger
Agreement or waive compliance by the other with any of the agreements or
conditions contained in the Merger Agreement.
The Merger Agreement may be amended by Pinnacle Systems and Truevision at
any time before or after the approval by the stockholders of Truevision of the
Merger Agreement, but after any such stockholder approval, no amendment may be
made which by law requires the further approval of such stockholders without
obtaining such further approval.
TERMINATION; BREAKUP FEES
TERMINATION. The Merger Agreement may be terminated any time before the
completion of the merger, before or after approval and adoption of the Merger
Agreement and approval of the Merger Agreement by the stockholders of Truevision
- By mutual written consent of Pinnacle Systems and Truevision;
- By Pinnacle Systems or Truevision if the merger has not become effective
on or before May 31, 1999, unless caused by the action or failure to act
of the party seeking to terminate the Merger Agreement in breach of such
party's obligations thereunder;
- By Pinnacle Systems or Truevision if any court or governmental entity of
competent jurisdiction shall have taken any action having the effect of
permanently restraining, enjoining or otherwise prohibiting the merger,
which action is final and nonappealable;
- By Pinnacle Systems or Truevision if the required approval of the
stockholders of Truevision is not obtained at the Truevision meeting,
respectively, or any adjournment thereof, unless caused by the action or
failure to act of Truevision and such failure constitutes a breach of the
Merger Agreement;
- By Pinnacle Systems if Truevision has accepted or recommended to the
stockholders of Truevision an Acquisition Proposal and, in the case of the
termination of the Merger Agreement by Truevision, Truevision has paid to
Pinnacle Systems the breakup fee as described below;
- By Pinnacle Systems if the Truevision Board withdraws, modifies or
refrains from making its recommendation for approval in respect of the
merger; or
- By Pinnacle Systems or Truevision upon a breach of any representation,
warranty, covenant or agreement of the other party, or if any
representation or warranty of the other party has become untrue, in either
case such that the conditions to the consummation of the merger would not
be satisfied as of the time of such breach or as of the time such
representation or warranty has become untrue, provided that if such
inaccuracy in the representations and warranties or breach is curable by
the party through the exercise of its reasonable efforts for the other
party may not terminate the Merger Agreement for 30 days after notice of
breach provided the party continues to exercise commercially reasonable
efforts to cure such breach.
In the event the Merger Agreement is terminated pursuant to any of the
foregoing provisions, the merger will be deemed abandoned and such termination
will be without liability of any party thereto, except for liability for breach
of the Merger Agreement and except as set forth in the next paragraph.
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In the event of such termination, the provisions of the Merger Agreement
regarding fees and expenses and termination shall survive.
BREAKUP FEES. Upon the occurrence of any of the following events,
Truevision shall immediately make payment to Pinnacle Systems of a breakup fee
of $500,000:
- Truevision has accepted an Acquisition Proposal;
- the Truevision Board has withdrawn, modified or refrained from making its
unanimous recommendation or approval in respect of the merger, or has
disclosed its intention to change such recommendation;
- Truevision breaches the non-solicitation clauses of the Merger Agreement;
- Truevision has entered into any letter of intent or similar documents
accepting any Acquisition Proposal; or
- A tender or exchange offer has been commenced by a party unrelated with
Truevision or Pinnacle Systems, and Truevision has not sent a statement to
its stockholders that it recommends rejection of such tender or exchange
offer.
Payment of the fee described in this paragraph will not be in lieu of
damages incurred in the event of a breach of the Merger Agreement.
CERTAIN FEDERAL INCOME TAX MATTERS
The receipt of shares of Pinnacle common stock in exchange for shares of
Truevision common stock pursuant to the merger will be a taxable transaction for
federal income tax purposes and also may be a taxable transaction under state,
local or foreign tax laws. Additionally, the receipt of cash for fractional
shares of Pinnacle common stock will also be a taxable transaction for federal
income tax purposes. In general, a Truevision stockholder who receives shares of
Pinnacle common stock in exchange for shares of Truevision common stock in the
merger will recognize gain or loss for federal income tax purposes equal to the
difference between the value of the shares of Pinnacle common stock received and
the stockholder's tax basis in the shares of Truevision common stock exchanged.
Gain or loss will be determined separately for each block of shares (i.e.,
shares acquired at the same time and price) exchanged pursuant to the merger.
Such gain or loss generally will be capital gain or loss if the shares disposed
of were held as capital assets by the stockholder. Any net capital gain (i.e.,
generally, capital gain in excess of capital loss) recognized by a non-corporate
holder upon a disposition of the shares pursuant to the merger that have been
held for more than 12 months will generally be subject to tax at a rate not to
exceed 20%. Net capital gain recognized upon the sale of shares that have been
held for 12 months or less will be subject to tax at ordinary income tax rates.
In addition, any net capital gain recognized by a corporation upon a disposition
of shares pursuant to the merger will be subject to tax at ordinary income tax
rates.
The foregoing summary constitutes a general description of certain federal
income tax consequences of the merger without regard to the particular facts and
circumstances of each Truevision stockholder and is based on the provisions of
the Internal Revenue Code of 1986, as amended, Treasury Department Regulations
issued pursuant thereto and published rulings and court decisions in effect as
of the date hereof, all of which are subject to change, possibly with
retroactive effect. Special tax consequences not described herein may be
applicable to certain stockholders subject to special tax treatment (including,
but not limited to, insurance companies, tax-exempt organizations, financial
institutions or broker dealers, foreign stockholders and stockholders who have
acquired their shares of Truevision common stock pursuant to the exercise of
employee stock options or otherwise as compensation). ALL STOCKHOLDERS ARE URGED
TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO SPECIFIC TAX EFFECTS OF THE
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MERGER APPLICABLE TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
Pinnacle Systems will account for the merger as a purchase in accordance
with generally accepted accounting principles.
RESTRICTIONS ON RESALE OF PINNACLE COMMON STOCK
The shares of Pinnacle common stock issuable to stockholders of Truevision
upon consummation of the merger have been registered under the Securities Act of
1933. Such shares may be traded freely without restriction by those stockholders
who are not deemed to be "affiliates" of Truevision or Pinnacle Systems, as that
term is defined in the rules under the Securities Act. Shares of Pinnacle common
stock received by those stockholders of Truevision who are deemed to be
"affiliates" of Truevision may be resold without registration under the
Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Truevision has obtained agreements
by each stockholder of Truevision who is an "affiliate" of Truevision to the
effect that such persons will not offer to sell, transfer or otherwise dispose
of, or reduce such person's risk relative to, any of the shares of Pinnacle
common stock distributed to them pursuant to the merger except in compliance
with Rule 145 under the Securities Act, or in a transaction that is otherwise
exempt from the registration requirements of the Securities Act, or in an
offering which is registered under the Securities Act. A form of these affiliate
agreements is included as Appendix C to this Proxy Statement/Prospectus.
DISSENTERS' RIGHTS
Neither Pinnacle Systems or Truevision shareholders are entitled to
dissenter's rights in connection with the merger.
STOCK EXCHANGE LISTING OF PINNACLE COMMON STOCK
It is a condition to the obligations of Truevision and Pinnacle Systems to
consummate the merger that the shares of Pinnacle common stock to be issued in
the merger be approved for listing on Nasdaq. Pinnacle Systems will file an
additional listing application with Nasdaq covering such shares, and it is
anticipated that such application will be approved at or before the close of the
merger.
EXPENSES
The Merger Agreement provides that all costs and expenses incurred in
connection with such agreement and the transactions contemplated thereby will be
paid by the party incurring such costs and expenses, except for expenses (other
than attorney's fees) incurred in connection with printing the Registration
Statement and this Proxy Statement/Prospectus, and the filing fees with the SEC
with respect to the Registration Statement and this Proxy Statement/Prospectus,
which will be shared equally by Truevision and Pinnacle Systems. Truevision
shall also pay Pinnacle Systems a breakup fee in certain circumstances. See
"--Termination; Breakup Fees."
SURRENDER OF TRUEVISION COMMON STOCK CERTIFICATES
Promptly after the completion of the merger, Pinnacle Systems will cause its
exchange agent, ChaseMellon Shareholder Services LLC, to mail to each Truevision
stockholder of record a letter of transmittal with instructions to be used by
such stockholder in surrendering certificates which, prior to the merger,
represented shares of Truevision common stock in exchange for certificates
representing shares of Pinnacle common stock. SHARE CERTIFICATES SHOULD NOT BE
SURRENDERED FOR EXCHANGE PRIOR TO APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
BY THE TRUEVISION STOCKHOLDERS.
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Upon the surrender of a Truevision common stock certificate to Pinnacle
Systems' exchange agent together with a duly executed letter of transmittal and
such other documents as may be reasonably required by the exchange agent, the
holder of such certificate will be entitled to receive in exchange therefor a
certificate representing the number of shares of Pinnacle common stock to which
the holder of Truevision common stock is entitled pursuant to the provisions of
the Merger Agreement cash in lieu of fractional shares and any payable dividends
or distributions. In the event of a transfer of ownership of Truevision common
stock which is not registered in the transfer records of Truevision, a
certificate representing the appropriate number of shares of Pinnacle common
stock may be issued to a transferee if the certificate representing such
Truevision common stock is presented to the exchange agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid, along with a duly executed
letter of transmittal.
Until a certificate representing Truevision common stock has been
surrendered to the exchange agent, each such certificate will be deemed at any
time after the completion of the merger to represent only the right to receive
upon such surrender the certificate representing the number of shares of
Pinnacle common stock (and associated preferred stock purchase rights) to which
the Truevision stockholder is entitled under the Merger Agreement, cash in lieu
of fractional shares and any payable dividends or distributions. Upon
consummation of the merger, shares of Truevision common stock will cease to be
traded on Nasdaq, and there will be no further market for Truevision common
stock.
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TRUEVISION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section contains forward-looking statements which are subject to
certain risks and uncertainties. Future events and financial results may differ
materially from those described herein, depending on such factors as are
described herein and in Truevision's Annual Report on Form 10-K for the year
ended June 27, 1998. The following discussion should be read in conjunction with
the selected financial data and the Consolidated Financial Statements and notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 27, JUNE 28, JUNE 29,
PERCENTAGE OF NET SALES DECEMBER 26, 1998 DECEMBER 27, 1997 1998 1997 1996
- ---------------------------------------------- ------------------- ------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 63.8 56.6 56.0 69.7 60.6
----- ----- ----- ----- -----
Gross profit.................................. 36.2 43.4 44.0 30.3 39.4
Operating expenses:
Research and development.................... 18.0 13.0 13.5 15.8 10.1
Selling, general and administrative......... 32.7 24.4 26.4 39.9 23.4
Restructuring and other costs............... 0.0 0.0 -- 3.9 --
----- ----- ----- ----- -----
Income (loss) from operations................. (14.5) 6.0 4.1 (29.3) 5.9
Interest and other expense, net............... (0.2) (0.5) (0.3) (1.5) (0.7)
----- ----- ----- ----- -----
Income (loss) before provision for income
taxes and cumulative effect of change in
accounting principle........................ (14.7) 5.5 3.8 (30.8) 5.2
Provision for income taxes.................... 0.0 0.2 0.1 3.5 0.1
----- ----- ----- ----- -----
Income (loss) before cumulative effect of
change in accounting principle.............. (14.7) 5.3 3.7 (34.3) 5.1
Cumulative effect of change in accounting
principle................................... -- -- -- (11.1) --
----- ----- ----- ----- -----
Net income (loss)............................. (14.7)% 5.3% 3.7% (45.4)% 5.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
CURRENT QUARTER COMPARED TO PRIOR QUARTER AND PRIOR YEAR QUARTER RESULTS OF
OPERATIONS
NET SALES
Net sales were $6.4 million for the quarter ended December 26, 1998,
compared to $10.0 million for the quarter ended December 27, 1997, and $7.5
million for the quarter ended September 26, 1998. Truevision believes that
revenue will continue to be under pressure, however revenues are expected to
level off or increase slightly over the second half of the fiscal year based on
benefits from the introduction of new products and timing of revenue from OEM
engineering contracts. International net sales represented 23% of net sales for
the quarter ended December 26, 1998, compared to 33% for the quarter ended
December 27, 1997, and 22% for the quarter ended September 26, 1998.
Net sales to the retail/distribution channel during the quarter ended
December 26, 1998 were $4.6 million, compared to $6.7 million for the quarter
ended December 27, 1997, and $5.2 million for the quarter ended September 26,
1998. Sales to the retail/distribution channel decreased during the quarters
ended December 26, 1998 and September 26, 1998 primarily due to a decline in
international sales because of slower business in Asia and lower sales of low
end products.
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In January 1998, Truevision began selling completely configured video
production workstations directly to end-users, and in June 1998 through its
dealer network, based on Avid's popular MCXpress NT non-linear editing software,
its own award winning TARGA products and IBM's newest IntelliStation M Pro
computer system. Net sales of workstations for the quarters ended December 26,
1998 and September 26, 1998 were $0.6 million and $0.6 million respectively.
In April 1998, Truevision announced four new members of its award-winning
TARGA video card family: TARGA 2000 DDR, the first single-slot, uncompressed,
serial digital capture and output solution; TARGA 2000 RTX3D and SDX3D, the
first non-linear editing solution with a fully integrated broadcast 3D DVE; and
the TARGA DV2000 RTX, the first real-time, dual-stream DV card fully supporting
the consumer DV, DVCAM and DVCPRO formats. Net sales of TARGA 2000 RTX3D and
SDX3D were $0.4 million and $0.4 million for the quarters ended December 26,
1998 and September 26, 1998, respectively. TARGA 2000 DDR and TARGA DV2000 RTX
are expected to ship in future quarters of fiscal 1999.
In April 1998, Truevision began shipping its new BRAVADO 2000 for Windows.
BRAVADO 2000 is the next-generation video editing solution of the BRAVADO 1000
designed to help first time non-linear video users create professional quality
content quickly and easily. Net sales of BRAVADO 2000 for the quarters ended
December 26, 1998 and September 26, 1998 were $0.3 million and $0.2 million,
respectively.
In August 1998, Truevision began shipping its new BRAVADO DV2000, a complete
firewire (IEEE 1394) video editing solution for Windows. BRAVADO DV2000 includes
a full version of Adobe Premiere-Registered Trademark- 5.1. Net sales of BRAVADO
DV2000 were $0.5 million and $0.3 million for the quarters ended December 26,
1998 and September 26, 1998, respectively.
The volume and timing of recognition of revenue from distributors and orders
received from other direct customers during a quarter are difficult to forecast.
Truevision's non-OEM customers generally do not place scheduled orders in
advance and, as a result, backlog at the beginning of each quarter represents
only a portion of the product sales anticipated in that quarter. Quarterly net
sales and operating results therefore depend on the volume and timing of
bookings received during a quarter and sales made by distributors during a
quarter, which are difficult to forecast. The absence of backlog has limited
Truevision's ability to predict appropriate production and inventory levels,
which has had and could have in the future an adverse effect on operating
results. Truevision's results of operations may fluctuate from quarter to
quarter due to these and other factors, such as announcements by Truevision, its
competitors or the manufacturers of platforms with which Truevision's products
are used.
OEM net sales were $1.8 million for the quarter ended December 26, 1998,
compared to $3.2 million for the quarter ended December 27, 1997, and $2.3
million for the quarter ended September 26, 1998. The decrease in OEM net sales
was primarily attributable to the timing of revenue from OEM engineering
contracts.
GROSS PROFIT
Truevision had a gross profit of $2.2 million, or 34% of net sales, for the
quarter ended December 26, 1998, compared to $4.5 million, or 45% of net sales,
for the quarter ended December 27, 1997, and $2.9 million, or 38% of net sales,
for the quarter ended September 26, 1998. The decrease in the gross profit
percentage from 45% for the quarter ended December 27, 1997 and 38% for the
quarter ended September 26, 1998 to 34% for the quarter ended December 26, 1998
was due primarily to lower margins on OEM net sales and price decreases in the
TARGA 2000 RTX and SDX product lines.
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RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $1.4 million for the quarter ended
December 26, 1998, compared to $1.2 million for the quarter ended December 27,
1997, and $1.1 million for the quarter ended September 26, 1998.
Truevision believes that continued investment in research and development is
critical to its future growth and its competitive position in the video products
market and is directly related to timely development of new and enhanced
products. Truevision, therefore, may incur increased research and development
spending in future periods. Because of the inherent uncertainty of development
projects, there can be no assurance that increased research and development
efforts will result in successful product introductions or enable Truevision to
maintain or increase sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $2.3 million for the
quarter ended December 26, 1998, compared to $2.5 million for the quarter ended
December 27, 1997, and $2.3 million for the quarter ended September 26, 1998.
Although the Company has reduced its sales and marketing promotions and believes
that such promotions are sufficient for the current sales level, there can be no
assurance that the current or increased sales and marketing promotions will
enable the Company to maintain or increase its current level of sales.
CURRENT SIX MONTH PERIOD COMPARED TO PRIOR YEAR SIX MONTH PERIOD
NET SALES
Net sales were $13.9 million for the six months ended December 26, 1998,
compared to $20.1 million for the six months ended December 27, 1997.
International net sales represented 22% for the six months ended December 26,
1998, compared to 31% for the six months ended December 27, 1997.
Net sales to the retail/distribution channel for the six months ended
December 26, 1998 were $9.8 million, compared to $14.0 million for the six
months ended December 27, 1997. Sales to the retail/distribution channel
decreased primarily due to a decline in international sales because of slower
business in Asia and lower sales of low end products.
In January 1998, Truevision began selling completely configured video
production workstations directly to end-users, and in June 1998 through its
dealer network, based on Avid's popular MCXpress NT non-linear editing software,
its own award winning TARGA products and IBM's newest IntelliStation M Pro
computer system. Net sales of workstations were $1.2 million for the six months
ended December 26, 1998.
In April 1998, Truevision announced four new members of its award-winning
TARGA video card family: TARGA 2000 DDR, the first single-slot, uncompressed,
serial digital capture and output solution; TARGA 2000 RTX3D and SDX3D, the
first non-linear editing solution with a fully integrated broadcast 3D DVE; and
the TARGA DV2000 RTX, the first real-time, dual-stream DV card fully supporting
the consumer DV, DVCAM and DVCPRO formats. Net sales of TARGA 2000 RTX3D and
SDX3D were $0.8 million for the six months ended December 26, 1998. TARGA 2000
DDR and TARGA DV2000 RTX are expected to ship in future quarters of fiscal 1999.
In April 1998, Truevision began shipping its new BRAVADO 2000 for Windows.
BRAVADO 2000 is the next-generation video editing solution of the BRAVADO 1000
designed to help first time non-linear video users create professional quality
content quickly and easily. Net sales of BRAVADO 2000 were $0.5 million for the
six months ended December 26, 1998.
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In August 1998, Truevision began shipping its new BRAVADO DV2000, a complete
firewire (IEEE 1394) video editing solution for Windows. BRAVADO DV2000 includes
a full version of Adobe Premiere-Registered Trademark- 5.1. Net sales of BRAVADO
DV2000 were $0.8 million for the six months ended December 26, 1998.
OEM net sales were $4.1 million for the six months ended December 26, 1998,
compared to $6.1 million for the six months ended December 27, 1997. The
decrease in OEM net sales was primarily attributable to the timing of revenue
from OEM engineering contracts.
GROSS PROFIT
Truevision had a gross profit of $5.0 million, or 36% of net sales, for the
six months ended December 26, 1998, compared to $8.7 million, or 43% of net
sales, for the six months ended December 27, 1997. The decrease in the gross
profit percentage between the two periods was due primarily to lower margins on
OEM net sales and price decreases in the TARGA 2000 RTX and SDX product lines.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $2.3 million for the six months ended
December 26, 1998, compared to $2.6 million for the six months ended December
27, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $4.5 million for the six
months ended December 26, 1998, compared to $4.9 million for the six months
ended December 27, 1997. Although Truevision has reduced its sales and marketing
promotions and believes that such promotions are sufficient for the current
sales level, there can be no assurance that the current or increased sales and
marketing promotions will enable the Company to maintain or increase its current
level of sales.
FISCAL 1998 COMPARED TO FISCAL 1997
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
JUNE 27, 1998 JUNE 28, 1997
--------------- ---------------
<S> <C> <C>
Net Sales:
Retail/Distribution........................................... $ 26.2 $ 32.3
OEM........................................................... 10.6 11.3
----- -----
Total net sales............................................. $ 36.8 $ 43.6
Gross Profit.................................................... $ 16.2 $ 13.2
</TABLE>
NET SALES
Net sales were $36.8 million for fiscal 1998, a decrease of $6.8 million, or
15.7%, from fiscal 1997. International net sales represented 31.2% of net sales
for fiscal 1998, compared to 29.4% for fiscal 1997.
Net sales to the retail/distribution channel were $26.2 million during
fiscal 1998, a decrease of $6.1 million, or 18.9%, from fiscal 1997. The
decrease in net sales was due primarily to the discontinuance of the BRAVADO
1000 product, with net sales in fiscal 1997 of $5.9 million, as compared with
$0.3 million in fiscal 1998. Truevision anticipates that the introduction of new
products during fiscal 1998 will have a positive effect on net sales for fiscal
1999.
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In January 1998, Truevision began selling completely configured video
production workstations directly to end-users, and in June 1998 through its
dealer network, based on Avid's popular MCXpress NT non-linear editing software,
its own award winning TARGA products and IBM's newest IntelliStation M Pro
computer system. Net sales of workstations for fiscal 1998 were $0.7 million.
In late April 1998, Truevision began shipping its new BRAVADO 2000 for
Windows. BRAVADO 2000 is the next-generation video editing solution of the
BRAVADO 1000 designed to help first time non-linear video users create
professional quality content quickly and easily. Net sales of BRAVADO 2000 for
fiscal 1998 were $0.4 million.
OEM net sales were $10.6 million for fiscal 1998, a decrease of $0.7
million, or 6.2%, from fiscal 1997. OEM net sales for fiscal 1998 and 1997
included $1.5 million and $0.8 million, respectively, of engineering services
revenue from product design and development agreements. In January 1998,
Truevision signed a letter of agreement with the Video Systems Division of
Matsushita to design and develop enhancements to the DVCPRO-based TARGA 2000 RTX
product line, including incorporation of Matsushita's advanced DV technology.
OEM net sales for fiscal 1998 included revenue of $1.0 million pursuant to this
agreement.
GROSS PROFIT
Truevision had a gross profit of $16.2 million, or 44.0% of net sales, for
fiscal 1998 compared to gross profit of $13.2 million, or 30.3% of net sales,
during fiscal 1997. Truevision's gross margins increased in fiscal 1998 due to
Truevision's focus on higher margin products, results of restructured operations
and better inventory management. Additionally, Truevision recorded costs in
fiscal 1997 related to absorption of period expenses over a lower sales base and
inventory valuation adjustments. The gross profit for fiscal 1998 and 1997
included revenue from license fees and engineering services for the periods.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $5.0 million, or 13.5% of net sales,
for fiscal 1998, compared to $6.9 million, or 15.8% of net sales, for fiscal
1997. Research and development expenses for fiscal 1998 decreased $1.9 million,
or 27.9%, primarily due to reduced expense levels from the implementation of
Truevision's restructuring plan (see "Special Charges--Fiscal 1997" below).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $9.7 million, or 26.4% of
net sales, for fiscal 1998, compared to $17.4 million, or 39.9% of net sales,
for fiscal 1997. Selling, general and administrative expenses for fiscal 1998
decreased $7.7 million, or 44.1%, primarily due to reduced expense levels from
the implementation of Truevision's restructuring plan (see "Special
Charges--Fiscal 1997" below), which also included a reduction in Truevision's
sales and marketing promotions in fiscal 1998.
OTHER EXPENSE, NET
Other expense, net, for fiscal 1998 of $0.2 million is comprised primarily
of interest expense, net of interest income, and charges not related to
operations.
INCOME TAXES
In the fourth quarter of fiscal 1997, Truevision recorded a provision for
income taxes of $1.5 million to fully reserve for deferred tax assets because
management determined at that time that the future realization of these deferred
tax assets was uncertain. At June 27, 1998, Truevision had gross deferred tax
assets of $21.2 million relating primarily to net operating loss carryforwards.
These
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deferred tax assets have been fully reserved due to the uncertainty of future
realization of the net operating loss carryforwards. A provision for income
taxes of $42,000 was recorded for fiscal 1998, which represented federal and
state alternative minimum taxes.
FISCAL 1997 COMPARED TO FISCAL 1996
On September 27, 1996, Truevision announced a change in its method of
accounting for recognizing distributor revenue. As a result, the quarter ended
September 28, 1996 included a $4.9 million, or $0.38 per share, charge for the
cumulative effect of the change in accounting. For a more complete discussion,
see "Accounting Change" below. The following table sets forth net sales and
gross profit for fiscal 1997 and 1996. Note, the net sales and gross profit for
fiscal 1996 is on a pro forma basis assuming the new method had been applied
retroactively (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
<S> <C> <C>
JUNE 28, 1997 JUNE 29, 1996
--------------- ---------------
Net Sales
Retail/Distribution........................................... $ 32.3 $ 30.6*
OEM........................................................... 11.3 35.3
----- -----
Total Net Sales............................................. $ 43.6 $ 65.9
Gross Profit.................................................... $ 13.2 $ 25.6
</TABLE>
- ------------------------
* As compared to net sales of $36.2 for fiscal 1996 under the previous
accounting method.
NET SALES
Net sales were $43.6 million for fiscal 1997, a pro forma decrease of $22.3
million, or 33.8%, from fiscal 1996. International net sales represented 29.4%
of net sales for fiscal 1997, compared to a pro forma 23.1% for fiscal 1996. The
decrease in total net sales from fiscal 1996 was primarily due to a reduction in
sales to Avid as discussed below.
Net sales to the retail/distribution channel were $32.3 million during
fiscal 1997, a pro forma increase of $1.7 million, or 5.6%, from fiscal 1996.
Sales to the retail/distribution channel for fiscal 1997 increased primarily due
to the addition of the TARGA 2000 RTX and Bravado product lines but sales were
still adversely impacted during the first half of fiscal 1997 by delays in the
availability of third party software applications. During the second quarter of
fiscal 1997, Truevision's software development partners made progress toward the
completion of new applications for Truevision's high-end TARGA 2000 RTX. Two
such applications were released in January 1997.
OEM net sales were $11.3 million for fiscal 1997, a decrease of $24.0
million, or 68.0%, from fiscal 1996. The decrease in OEM business in fiscal 1997
was primarily due to a reduction in sales to Avid as discussed below.
During fiscal 1995, Truevision entered into a three-year OEM agreement with
Avid under which Avid had agreed to make minimum aggregate purchases of certain
products of $40 million during calendar years 1995 through 1997. In the fourth
quarter of fiscal 1996, Avid and Truevision negotiated a fully paid license fee
in the amount of $1.45 million allowing Avid to manufacture certain products
used by Avid, rather than purchase them from Truevision. Truevision did not in
fiscal 1997 and does not in the future expect to receive any revenues or
royalties resulting from Avid's manufacture and use of such products. Truevision
has no further obligations to Avid. For fiscal 1997 and 1996, Avid accounted for
1.2% and pro forma 39.0%, respectively, of Truevision's net sales.
OEM net sales for fiscal 1997 and 1996 included $0.8 million and $2.4
million, respectively, of revenues from license fees under product license
agreements (including the $1.45 million Avid product
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license buyout in fiscal 1996 discussed above) and engineering services revenue
from a product design and development agreement.
GROSS PROFIT
Truevision had a gross profit of $13.2 million, or 30.3% of net sales, for
fiscal 1997 compared to pro forma gross profit of $25.6 million, or 38.8% of net
sales, during fiscal 1996. Truevision's gross margins decreased in fiscal 1997
primarily due to absorption of period costs (i.e., other cost of sales) over a
lower sales base, inventory valuation adjustments, and lower revenue from
license fees and engineering services. The gross profit for fiscal 1997 and 1996
included revenue from license fees and engineering services for the periods. The
revenue from license fees and engineering services for fiscal 1997 approximated
the related costs.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $6.9 million for fiscal 1997,
compared to $7.2 million for fiscal 1996. As a percentage of net sales, research
and development expenses were 15.8% for fiscal 1997, compared to a pro forma
11.0% for fiscal 1996. The decrease of $0.3 million in fiscal 1997 was primarily
due to a shift in resources to support engineering revenue as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $17.4 million for fiscal
1997, compared to $16.8 million for fiscal 1996. As a percentage of net sales,
selling, general and administrative expenses were 39.9% for fiscal 1997,
compared to a pro forma 25.4% for fiscal 1996. The increase of $0.6 million in
fiscal 1997 was primarily due to start-up costs associated with launching the
new signature VAR sales channel, which is being used to market the TARGA 2000
product line.
OTHER EXPENSE, NET
Other expense, net, for fiscal 1997 was comprised primarily of charges
associated with the discontinuance of the initial development of a separate
computer system product line and residual expenses associated with the RasterOps
product line. Other expense, net, for fiscal 1996 was comprised primarily of
residual expenses associated with the RasterOps product line.
INCOME TAXES
In the fourth quarter of fiscal 1997, Truevision recorded a provision for
income taxes of $1.5 million to fully reserve for deferred tax assets because
management determined at that time that the future realization of these deferred
tax assets was uncertain. At June 28, 1997, Truevision had gross deferred tax
assets of $22.5 million relating primarily to net operating loss carryforwards.
These deferred tax assets have been fully reserved due to the uncertainty of
future realization of the net operating loss carryforwards. A provision for
income taxes of $110,000 was recorded for fiscal 1996, which represents federal
and state alternative minimum taxes.
SPECIAL CHARGES
SPECIAL CHARGES--FISCAL 1997
During the quarter ended June 28, 1997, Truevision recorded a charge for
restructuring and other costs of $1.7 million. This charge primarily consisted
of costs associated with downsizing facilities and reduction in headcount. Also,
as a result of Truevision's decision to close its European offices, the
restructuring charge included costs associated with lease terminations and
write-off of fixed assets for
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the sales offices located in France and the United Kingdom, and the write-off of
the cumulative translation adjustment.
ACCOUNTING CHANGE
In the quarter ended September 28, 1996, Truevision changed its accounting
method for recognizing distributor revenue, whereby Truevision defers
recognizing revenue, and does not relieve inventory on shipments to
distributors, until shipment by the distributor. Previously, Truevision
recognized revenue, after recording appropriate reserves for sales returns from
distributors and allowances granted to them, at the time of shipment to the
distributor. Distributor agreements allow certain rights of return and price
protection on products held by distributors. Cash received in advance of
recognizing distributor revenue is recorded as advances on inventory held by
distributors. Truevision believes that deferral of distributor sales and related
gross margins until the product is shipped by the distributors results in a more
meaningful measurement of operations and is a preferable method of accounting
for distributor revenue.
The cumulative effect on prior years of changing the accounting method was
$4.9 million, or $0.38 per share. This amount was reflected in the quarter ended
September 28, 1996. The estimated pro forma amounts for the year ended June 29,
1996 assuming the new method of accounting had been applied retroactively would
be net sales of $65.9 million and net income of $1.0 million, or $0.08 per
share.
LIQUIDITY AND CAPITAL RESOURCES
At December 26, 1998, Truevision had cash and cash equivalents of $1.9
million, a decrease of $3.1 million from the $5.0 million at June 27, 1998 and a
decrease of $1.7 million from the $3.6 million at September 26, 1998. Working
capital totaled $6.3 million at December 26, 1998, a decrease of $1.8 million
from the $8.1 million at June 27, 1998 and a decrease of $1.5 million from the
$7.8 million at September 26, 1998.
Net cash used in operating activities was $2.8 million during the six months
ended December 26, 1998, compared to net cash provided by operating activities
of $3.1 million during the six months ended December 27, 1997. During the six
months ended December 26, 1998, Truevision used cash flow from operations
primarily due to a net loss of $2.0 million, a decrease in accounts payable of
$1.5 million and an increase in inventory of $0.9 million. These factors were
partially offset by a decrease in accounts receivable of $1.1 million and the
non-cash effect from depreciation and amortization of $0.5 million.
In August 1997, Truevision entered into an agreement with a major supplier
to purchase $1.6 million of a certain component during fiscal 1998 and 1999.
During the quarter ended December 26, 1998, $0.5 million of the component was
purchased, completing Truevision's obligation under the agreement.
Net cash used in investing activities was $0.3 million during the six months
ended December 26, 1998, compared to $0.1 million during the six months ended
December 27, 1997. At December 26, 1998, Truevision had no material commitments
for the purchase of capital equipment.
Net cash provided by financing activities was $35,000 during the six months
ended December 26, 1998, compared to $3.5 million used in financing activities
during the six months ended December 27, 1997. During the six months ended
December 27, 1997, Truevision repaid $3.7 million in borrowings under the line
of credit.
Truevision has a one-year revolving line of credit agreement allowing
Truevision to borrow up to $4.25 million, as amended, based upon percentages of
eligible accounts receivable and inventory. The primary financial covenants of
the line of credit relate to quick ratio, tangible net worth, debt to tangible
net worth and profitability. As of December 26, 1998, Truevision was in
violation of the quick
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ratio and profitability covenants of the line of credit. The bank has provided a
waiver of these defaults. In the event Truevision continues to be in default,
Truevision may need to renegotiate terms with the bank or seek alternative
sources of funds. Truevision has received indication from the bank of its
willingness to enter into such negotiations. As of December 26, 1998, Truevision
had no borrowings and $2.3 million available under the line of credit. As of
January 15, 1999, Truevision had $1.0 million in borrowings and an additional
$1.3 million available under the line of credit.
On December 16, 1998, Truevision received a notice from the Nasdaq Stock
Market that Truevision's common stock, traded on the Nasdaq National Market
under the symbol "TRUV," had failed to maintain a minimum closing bid price of
greater than or equal to $1.00 for thirty consecutive trading days. In order to
maintain continued listing for trading on the Nasdaq National Market, Truevision
has 90 calendar days in which to regain compliance with the $1.00 minimum bid
price requirement. Although Truevision has met such requirement, its listing
remains subject to assessment by Nasdaq Stock Market of Truevision's ability to
meet the listing criteria on an ongoing basis. As of February 5, 1999, Nasdaq's
assessment is continuing. If Truevision's common stock has not complied with
this requirement on or before the end of the ninety day period ending March 18,
1999, Truevision's common stock will be delisted at the opening of trading on
March 22, 1999. In the event of such a delisting, Truevision's common stock
would likely be traded on the OTC-Bulletin Board, which could have a material
adverse effect on Truevision, the trading price and liquidity of its common
stock and Truevision's ability to raise capital. In addition, although there
would be no substantive change in Truevision's business, if Truevision effects a
reverse stock split in order to meet the $1 minimum bid price requirement, there
could be a material adverse effect on the trading price of Truevision's common
stock.
Truevision's year-to-date operating losses have resulted in the need to
address Truevision's liquidity position. Truevision's plans include this merger
and the introduction of new products and, if necessary, inventory and cost
reduction measures. Management believes that these plans, when coupled with
available credit facilities as discussed above, will enable Truevision to
continue as a going concern at least through June 26, 1999.
Truevision believes that success in its industry requires substantial
capital in order to maintain the flexibility to take advantage of opportunities
as they may arise. Truevision, from time to time, as market and business
conditions warrant, invest in or acquire complementary businesses, products or
technologies. Truevision may require additional equity or debt financing to fund
such activities. Truevision may not be able to obtain these funds on terms and
conditions acceptable to Truevision. In addition, the sale of additional equity
or convertible debt securities could result in additional dilution in the equity
ownership of Truevision's stockholders.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128 ("SFAS No. 128"), "Earnings per Share."
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997. SFAS No. 128 replaces the presentation of primary
earnings per share ("EPS") with a presentation of "basic" EPS. Basic EPS is
calculated by dividing the income or loss available to common stockholders by
the weighted average number of common shares outstanding for the period, without
consideration for common stock equivalents. "Fully diluted" EPS is replaced by
"diluted" EPS and is computed similarly to fully diluted EPS under the
provisions of Accounting Principles Board Opinion No. 15 "Earnings per Share".
Basic EPS and diluted EPS for the year ended June 27, 1998, calculated in
accordance with SFAS No. 128, are the same as net income per common share
computed using the prior rules.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." SFAS No. 130 requires that
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all items recognized under accounting standards as components of comprehensive
earnings be reported in an annual financial statement that is displayed with the
same prominence as other annual financial statements. SFAS No. 130 also requires
that an entity classify items other comprehensive earnings by their nature in an
annual financial statement. Effective June 28, 1998, Truevision adopted SFAS No.
130. As Truevision had no items of other comprehensive income during the period,
adoption of SFAS No. 130 did not have a material effect on the Company's
financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires public
companies to disclose certain operating and financial information by business
segment in their annual and interim financial statements. SFAS No. 131 is
effective for financial statements issued for periods beginning after December
15, 1997. The business segment disclosures of Truevision determined in
accordance with SFAS No. 131 are the same as those determined using the prior
rules and, therefore, adoption of SFAS No. 131 is not anticipated to have a
material impact on Truevision's financial statements.
In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 addresses the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under SFAS No. 133, entities are required to carry
all derivative instruments in the balance sheet at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, the reason for holding it. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. As
Truevision had no derivative instruments at December 26, 1998, adoption of SFAS
No. 133 is not expected to have a material effect on Truevision's financial
statements.
IMPACT OF CURRENCY AND INFLATION
Truevision purchases materials and services primarily in U.S. dollars and
sales are primarily in U.S. dollars. Accordingly, Truevision has not been
subject to significant currency fluctuations. There can be no assurance that
this trend will continue in the future. The impact of inflation has not been
material on Truevision's operations or liquidity to date.
IMPACT OF YEAR 2000
Like many other companies, year 2000 computer issues create certain risks
for Truevision. If Truevision's internal management information systems do not
correctly recognize and process date information beyond the year 1999, there
could be an adverse impact on Truevision's operations. To address these year
2000 issues with its internal systems, Truevision has initiated a program to
evaluate its internal systems. Assessment and remediation are proceeding in
parallel and Truevision currently plans to have changes to these information
systems completed and tested by June 1999. These activities are intended to
encompass all major categories of internal systems used by Truevision, including
manufacturing, sales and financial systems. An initial assessment indicates that
certain internal systems should be upgraded or replaced as part of a solution to
the year 2000 problem. Certain of the costs related to upgrades of such hardware
and software systems are covered by ongoing maintenance agreements. Additional
costs of purchasing, installing, modifying and testing the internal systems are
not expected to exceed $250,000.
To assist customers in evaluating their year 2000 issues, Truevision has
completed a program to assess the capability of its current products to handle
the year 2000. Truevision believes that all current products shipping, which run
under Microsoft Windows NT, Windows 95/98 or Apple Macintosh OS,
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are "year 2000 compliant." Testing of older products, which are no longer
shipping, will not be performed. Truevision is also working with key suppliers
of products and services to determine that their operations and products are
year 2000 compliant or to monitor their progress toward year 2000 compliance, as
appropriate. In addition, Truevision 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
calendar year 1999 with the goal of appropriately resolving all material
internal systems and third party issues.
Except as implied in any limited product warranty, Truevision does not
believe it is legally responsible for costs incurred by customers related to
ensuring year 2000 compliance. Nevertheless, Truevision is incurring various
costs to provide customer support and customer satisfaction services regarding
year 2000 issues. As used by Truevision, "year 2000 compliant" means that when
used properly and in conformity with the product information provided by
Truevision, 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 Truevision product properly exchanges date data with the Truevision product.
There can be no assurance that (i) third party technologies used in combination
with Truevision products will be year 2000 compliant and (ii) Truevision
products will not be adversely affected when used with such third party
technologies, nor can Truevision represent that any modifications to its
products made by a party other than Truevision will be year 2000 compliant. The
costs incurred to date related to these programs have not been material. The
cost which will be incurred by Truevision regarding the testing of current
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 $100,000. 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 compliance issues. The total cost estimate is
based on the current assessment of the projects and is subject to change as the
project progresses. Based on currently available information, Truevision does
not believe that the year 2000 matters discussed above related to products sold
to customers will have a material adverse impact on its financial condition or
overall trends in results of operations; however, it is still uncertain to what
extent Truevision may be affected by such matters. In addition, customers may
delay purchase decisions because of uncertainty about year 2000 issues. There
also can be no assurance that the failure to ensure year 2000 compliance by a
supplier or another third party would not have a material adverse effect on
Truevision.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION AND NOTES THERETO
The following unaudited pro forma combined financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position or results of operations of future periods or
the results or financial position that actually would have been realized had
Pinnacle Systems and Truevision been a combined company during the specified
periods. The pro forma combined financial statements, including the notes
thereto, are qualified in their entirety by reference to, and should be read in
conjunction with, the historical consolidated financial statements of Pinnacle
Systems and Truevision, including the notes thereto, incorporated herein by
reference or included elsewhere herein. See "Where You Can Find More
Information" on page 1.
The following unaudited pro forma combined financial statements give effect
to the proposed merger of Pinnacle Systems and Truevision using the purchase
method of accounting. The pro forma combined financial statements are based on
the respective historical audited and unaudited consolidated financial
statements and the notes thereto of Pinnacle Systems and Truevision, which are
incorporated herein by reference or included elsewhere herein. The pro forma
adjustments are preliminary and based on management's estimates of the value of
the tangible and intangible assets acquired. In addition, management is in the
process of assessing and formulating its integration plans, which may include
employee separations, employee relocations and other restructuring actions.
While the exact costs of such integration plans is not known, management
believes that the costs could range between $1 and $3 million.
Based on the timing of the closing of the transaction, the finalization of
the integration plans and other factors, the pro forma adjustments may differ
materially from those presented in these pro forma financial statements. A
change in the pro forma adjustments would result in a reallocation of the
purchase price affecting the value assigned to the long-term tangible and
intangible assets. The income statement effect of these changes will depend on
the nature and amount of the assets or liabilities adjusted (see note 2 to the
pro forma financial statements).
The unaudited pro forma condensed combined balance sheet assumes that the
merger took place December 31, 1998 and combines Pinnacle Systems' audited
December 31, 1998 consolidated balance sheet and Truevision's December 26, 1998
consolidated balance sheet. The pro forma condensed combined statements of
operations assume the merger took place as of the beginning of each period
presented and combines Pinnacle Systems' consolidated statement of income for
the unaudited six-month period ended December 31, 1998 and the audited fiscal
year ended June 30, 1998 and Truevision's consolidated statement of income for
the unaudited six-month period ended December 26, 1998 and the audited fiscal
year ended June 27, 1998, respectively.
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UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- --------------------------
PINNACLE TRUEVISION ADJUSTMENTS COMBINED
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 24,451 $ 1,938 $ 26,389
Marketable securities.................................................... 64,666 -- 64,666
Accounts receivable...................................................... 23,790 2,843 $ 987(a) 27,620
Inventories.............................................................. 18,260 5,433 (630)(a) 23,663
600(b)
Prepaid expenses and other current assets................................ 2,854 2,063 4,917
-------- ---------- ----------- --------
Total current assets................................................. 134,021 12,277 957 147,255
Marketable securities...................................................... 7,239 -- 7,239
Property and equipment, net................................................ 7,198 1,486 8,684
Intangibles................................................................ 10,391 -- 6,431(b) 13,822
(3,000)(c)
Other assets............................................................... 638 115 753
-------- ---------- ----------- --------
Total assets......................................................... $159,487 $ 13,878 $ 4,388 $177,753
-------- ---------- ----------- --------
-------- ---------- ----------- --------
LIABILITIES AND SHAREHOLDER' EQUITY
Current liabilities:
Accounts payable......................................................... $ 11,704 $ 2,825 $ 14,529
Accrued expenses and other............................................... 13,253 3,114 16,367
-------- ---------- ----------- --------
Total current liabilities............................................ 24,957 5,939 30,896
Long-term obligations...................................................... -- 27 27
-------- ---------- ----------- --------
Total liabilities.................................................... 24,957 5,966 30,923
-------- ---------- ----------- --------
Shareholders' equity:
Common stock............................................................. 143,631 53,746 $(38,446)(b) 158,931
Retained earnings (deficit).............................................. (9,777) (45,834) 357(a) (12,777)
45,477(b)
(3,000)(c)
Other cumulative comprehensive loss...................................... 676 -- 676
-------- ---------- ----------- --------
Total shareholders' equity........................................... 134,530 7,912 4,388 146,830
-------- ---------- ----------- --------
Total liabilities and shareholders equity............................ $159,487 $ 13,878 $ 4,388 $177,753
-------- ---------- ----------- --------
-------- ---------- ----------- --------
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Six months ended December 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- --------------------------
PINNACLE TRUEVISION ADJUSTMENTS COMBINED
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net sales.................................................................. $ 71,445 $13,873 $ (73)(e) $85,245
Cost of sales.............................................................. 33,210 8,849 47(e) 42,106
-------- ---------- ----- --------
Gross profit........................................................... 38,235 5,024 (120) 43,139
-------- ---------- ----- --------
Operating expenses:
Sales, marketing, and administration..................................... 22,543 4,543 350(d) 27,436
Engineering and product development...................................... 6,653 2,492 9,145
-------- ---------- ----- --------
Total operating loss................................................. 29,196 7,035 350 36,581
-------- ---------- ----- --------
Operating income (loss).............................................. 9,039 (2,011) (470) 6,558
Other income (loss)........................................................ 2,275 (28) 2,247
-------- ---------- ----- --------
Income before taxes.................................................. 11,314 (2,039) (470) 8,805
Income tax expense......................................................... 2,266 -- (502)(f) 1,764
-------- ---------- ----- --------
Net income (loss).................................................... $ 9,048 $(2,039) $ 32 $ 7,041
-------- ---------- ----- --------
-------- ---------- ----- --------
Net income (loss) per share:
Basic.................................................................... $ 0.87 $ (0.16) $ 0.65
-------- ---------- --------
-------- ---------- --------
Diluted.................................................................. $ 0.80 $ (0.16) $ 0.60
-------- ---------- --------
-------- ---------- --------
Shares used to compute net income (loss) per share:
Basic.................................................................... 10,363 13,093 10,773
-------- ---------- --------
-------- ---------- --------
Diluted.................................................................. 11,302 13,093 11,712
-------- ---------- --------
-------- ---------- --------
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year ended June 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- -----------------------------
PINNACLE TRUEVISION ADJUSTMENTS COMBINED
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................................................. $105,296 $36,789 $(531)(e) $ 141,554
Cost of sales.............................................................. 48,715 20,597 (232)(e) 69,080
-------- ---------- ----- -----------
Gross profit........................................................... 56,581 16,192 (299) 72,474
-------- ---------- ----- -----------
Operating expenses:
Sales, marketing, and administration..................................... 34,643 9,729 700(d) 45,072
Engineering and product development...................................... 11,652 4,976 16,628
In-process research and development...................................... 16,960 -- 16,960
-------- ---------- ----- -----------
Total operating expenses............................................. 63,255 14,705 700 78,660
-------- ---------- ----- -----------
Operating income (loss).............................................. (6,674) 1,487 (999) (6,186)
Other income (loss)........................................................ 3,139 (101) 3,038
-------- ---------- ----- -----------
Income before taxes.................................................. (3,535) 1,386 (999) (3,148)
Income tax expense......................................................... 2,685 42 (20)(f) 2,707
-------- ---------- ----- -----------
Net income (loss).................................................... $ (6,220) $ 1,344 $(979) $ (5,855)
-------- ---------- ----- -----------
-------- ---------- ----- -----------
Net income (loss) per share:
Basic.................................................................... $ (0.70) $ 0.10 $ (0.63)
-------- ---------- -----------
-------- ---------- -----------
Diluted.................................................................. $ (0.70) $ 0.10 $ (0.63)
-------- ---------- -----------
-------- ---------- -----------
Shares used to compute net income (loss) per share
Basic.................................................................... 8,907 12,893 $ 9,317
-------- ---------- -----------
-------- ---------- -----------
Diluted.................................................................. 8,907 13,246 $ 9,317
-------- ---------- -----------
-------- ---------- -----------
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF TRANSACTIONS
In December 1998, Pinnacle Systems entered into a merger agreement with
Truevision dated as of December 16, 1998 (the Agreement). Under the terms of the
Agreement, Pinnacle Systems will issue approximately 410,000 shares of common
stock valued at $11.5 million based on the closing price of Pinnacle common
stock on December 16, 1998. The Pinnacle Systems statement of operations for the
year ended June 30, 1998 and the six months ended December 31, 1998, has been
combined with the Truevision statement of operations for the year ended June 27,
1998 and the six months ended December 26, 1998, respectively, giving effect to
the business combination as if it had occurred at the beginning of their
respective periods. The pro forma combined condensed balance sheet as of
December 31, 1998, gives effect to the business combination as if it had
occurred on December 31, 1998.
Under purchase accounting, the total purchase price will be allocated to
Truevision's assets and liabilities based on their relative fair values.
Allocations are subject to valuations as of the date of the purchase
transaction. The amount and components of the estimated purchase price to assets
purchased are as follows (in millions):
<TABLE>
<S> <C>
Common stock issued for outstanding shares of Truevision............. $ 11.5
Fair value of Truevision stock options and warrants assumed.......... 1.8
Transaction costs.................................................... 2.0
---------
Total purchase price........................................... $ 15.3
---------
---------
Cash................................................................. $ 1.9
Receivables.......................................................... 3.8
Inventory............................................................ 5.4
Prepaid expenses and other current assets............................ 2.2
Property, plant, and equipment....................................... 1.5
Goodwill and other intangibles....................................... 3.5
In-process research and development.................................. 3.0
Assumed liabilities.................................................. (6.0)
---------
Net assets acquired............................................ $ 15.3
---------
---------
</TABLE>
Pinnacle Systems expects to record a charge of approximately $3.0 million in
the quarter in which the merger closes for the fair value of acquired in-process
research and development related to the acquisition of Truevision. Pinnacle
Systems also expects to take additional charges associated with combining the
operations of the two companies of approximately $1.0 million to $3.0 million.
Such charges have not been included in the unaudited pro forma combined
condensed statement of operations.
(2) PRO FORMA ADJUSTMENTS
(a) To adjust Truevision's accounts receivable and inventory to comply with
Pinnacle Systems' revenue recognition policy. Truevision recognizes revenue
upon shipment of products from its distributors whereas Pinnacle Systems
recognizes revenue upon shipment of products to its distributors with an
allowance for returns and price protection.
(b) To record the allocation of purchase price to the various assets and
liabilities of Truevision.
(c) To record the anticipated nonrecurring charge for in-process research and
development arising from the acquisition. This charge has not been included
in the pro forma statements of operations.
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(2) PRO FORMA ADJUSTMENTS (CONTINUED)
(d) This adjustment is to record the amortization of goodwill and intangible
assets resulting from the allocation of the Truevision purchase price. The
pro forma assumes intangible assets will be amortized on a straight-line
basis potentially ranging from three to nine years. For purposes of this
calculation a composite life of approximately five years was used. The
ultimate lives assigned will be determined at the date of the acquisition
based on facts and circumstances existing at that date.
(e) Truevision recognizes distributor revenue based upon shipment by the
distributor, whereas Pinnacle recognizes revenue based upon shipment to the
distributor. This adjustment is to revise revenue recorded by Truevision to
comply with Pinnacle Systems' revenue recognition policy.
(f) To record the tax effect of the various pro forma adjustments and to adjust
income taxes for Truevision based upon Pinnacle Systems' effective rate.
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<PAGE>
COMPARISON OF RIGHTS OF SHAREHOLDERS
After consummation of the merger, the holders of Truevision common stock who
receive Pinnacle common stock under the terms of the Merger Agreement will
become shareholders of Pinnacle Systems. As stockholders of Truevision, their
rights are presently governed by Delaware law and by the Truevision certificate
of incorporation and the Truevision bylaws. Pinnacle Systems is currently
incorporated in California. After consummation of the merger, the rights of the
former Truevision stockholders will be governed by California law and by
Pinnacle Systems' restated articles of incorporation and Pinnacle Systems'
bylaws. The following discussion summarizes the material differences between the
rights of holders of Truevision common stock and the rights of holders of
Pinnacle common stock and differences between the charters and bylaws of
Truevision and Pinnacle Systems. This summary does not purport to be complete
and is qualified in its entirety by reference to the Truevision certificate and
Truevision bylaws, the Pinnacle Systems articles and Pinnacle Systems bylaws,
and the relevant provisions of Delaware and California law.
SIZE OF THE BOARD OF DIRECTORS
In accordance with Delaware law, the Truevision bylaws authorize the
Truevision Board to change the number of directors by resolution without
stockholder approval. The number of directors of Truevision is currently fixed
at five. Under California law, although changes in the number of directors must
in general be approved by a majority of the outstanding shares, the board of
directors may fix the exact number of directors within a stated range set forth
in the articles of incorporation or bylaws, if that stated range has been
approved by the shareholders. The Pinnacle Systems bylaws provide the Pinnacle
Systems Board with the authority to set the exact number of directors within the
range of five to seven. The number of directors of Pinnacle Systems is currently
fixed at seven.
LOANS TO OFFICERS AND EMPLOYEES
Under Delaware law, a corporation may make loans to, guarantee the
obligations of or otherwise assist its officers or other employees and those of
its subsidiaries (including directors who are also officers or employees) when
such action, in the judgment of the directors, may reasonably be expected to
benefit the corporation. Under California law, any loan or guaranty to or for
the benefit of a director or officer of the corporation or its parent requires
approval of the shareholders unless such loan or guaranty is provided under a
plan approved by shareholders owning a majority of the outstanding shares of the
corporation. In addition, under California law, shareholders of any corporation
with 100 or more shareholders of record may approve a bylaw authorizing the
board of directors alone to approve loans or guaranties to or on behalf of
officers (whether or not such officers are directors) if the board of directors
determines that any such loan or guaranty may reasonably be expected to benefit
the corporation. Both the Pinnacle Systems and Truevision bylaws provide that
upon the approval of the board of directors, the Company may make loans to,
guarantee the obligations of or otherwise assist any officer of the Company or
its parent or subsidiary, whether or not a director.
VOTING BY BALLOT
Under Delaware law, the restriction on a corporation's stockholders to vote
for directors exclusively by written ballot may be lifted if so provided in the
corporation's certificate of incorporation. California law provides that
elections for directors need not be by written ballot unless a shareholder
demands election by ballot at the meeting and before voting begins or unless a
corporation's bylaws so require. The Truevision certificate provides that the
elections for directors need not be by written ballot unless a stockholder at a
meeting of stockholders demands before voting begins that the election of
directors be by written ballot. The Pinnacle Systems bylaws provide that, upon
the demand of any shareholder made at a meeting before the voting begins, the
election of directors shall be by written ballot.
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<PAGE>
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A shareholder may then cast all his or her votes for a
single candidate or may instead allocate his or her votes among as many
candidates as the shareholder chooses. Under Delaware law, cumulative voting in
the election of directors is not available unless specifically provided for in
the certificate of incorporation. By contrast, California law provides that any
shareholder is entitled to cumulate his or her votes in the election of
directors upon proper notice of his or her intention to do so. However, under
California law, a "listed" corporation (as defined below in the section entitled
"Classified Board of Directors") may eliminate shareholders' cumulative voting
rights. The Truevision certificate provides that, at the discretion of the
Truevision Board of Directors, Truevision stockholders are entitled to cumulate
their votes for the election of directors. Pinnacle Systems has not eliminated
the right of cumulative voting; therefore, cumulative voting is available to
Pinnacle Systems' shareholders.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one on which a certain number of the directors are
elected on a rotating basis each year. This method of electing directors makes
changes in the composition of the board of directors, and thus a potential
change in control of a corporation, a lengthier and more difficult process.
Delaware law permits, but does not require, a classified board of directors,
with staggered terms under which one-half or one-third of the directors are
elected for terms of two or three years, respectively. Under California law,
directors generally must be elected annually; however, a "listed" corporation is
permitted to adopt a classified board. A listed corporation is defined under
California law as a corporation with (1) outstanding shares listed on the New
York Stock Exchange or American Stock Exchange, or (2) outstanding securities
designated as qualified for trading as a national market system security on the
National Association Quotation System (or any successor national market system).
The Truevision certificate does not provide for a classified board of directors.
The Pinnacle Systems articles also do not provide for a classified board of
directors.
POWER TO CALL SPECIAL SHAREHOLDERS' MEETINGS; ADVANCE NOTICE OF SHAREHOLDER
BUSINESS AND NOMINEES
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the certificate
of incorporation or the bylaws. Under California law, a special meeting of
shareholders may be called by the board of directors, the chairman of the board,
the president, the holders of shares entitled to cast not less than 10% percent
of the votes at such meeting and such additional persons as are authorized by
the articles of incorporation or the bylaws. The Truevision bylaws authorize the
board of directors, the chairman of the board of directors, the president or one
or more stockholders holding shares in the aggregated entitled to cast not less
than 10% of the votes of all shares of stock owned by stockholders entitled to
vote at the meeting to call a special meeting of stockholders. If a special
meeting is called by any person or persons other than the board of directors,
the president or the chairman of the board, the Truevision bylaws require that
the request shall be in writing and shall specify the time of the meeting and
the general nature of the business proposed to be transacted. The Pinnacle
Systems bylaws allow the board of directors, the chairman of the board of
directors, the president, or one or more shareholders holding shares in the
aggregate entitled to cast not less than 10% of the votes at the meeting to call
a special meeting of shareholders. If a special meeting is called by any person
or persons other than the board of directors, the Pinnacle Systems bylaws
require that the request shall be in writing and shall specify the time of the
meeting and the general nature of the business proposed to be transacted.
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS
Under California and Delaware law, shareholders may take action by written
consent in lieu of voting at a shareholders meeting. Both California law and
Delaware law permit a corporation, pursuant
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<PAGE>
to a provision in such corporation's articles or certificate of incorporation,
as the case may be, to eliminate the ability of shareholders to act by written
consent. Elimination of the ability of shareholders to act by written consent
could lengthen the amount of time required to take shareholder actions because
certain actions by written consent are not subject to the minimum notice
requirements of a shareholders' meeting, and could deter hostile takeover
attempts. If the ability of shareholders to act by written consent is
eliminated, a holder or group of holders controlling a majority interest of a
corporation's capital stock, for example, would not be able to amend such
corporation's bylaws or remove its directors pursuant to a shareholders' written
consent. Both the Pinnacle Systems and Truevision bylaws provide for shareholder
action by written consent.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
In the last several years, a number of states (but not California) have
adopted special laws designed to make certain kinds of "unfriendly" corporate
takeovers, or other transactions involving a corporation and one or more of its
significant shareholders, more difficult. Under Section 203 of the Delaware
General Corporation Law, certain "business combinations" by Delaware
corporations with "interested stockholders" are subject to a three-year
moratorium unless specified conditions are met. Although under Section 1203 of
the California Corporations Code certain business combinations with interested
shareholders are subject to specified conditions, including a requirement that a
fairness opinion must be obtained and delivered to the corporation's
shareholders, there is no equivalent provision to Section 203.
However, under California law holders of nonredeemable common stock must
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or common stock
of an affiliate unless all of the holders of such common stock consent to the
transaction. This provision of California law may have the effect of making a
"cash-out" merger by a majority shareholder more difficult to accomplish.
REMOVAL OF DIRECTORS
Under Delaware law, except as otherwise provided in a corporation's
certificate of incorporation, a director of a corporation that has a classified
board may only be removed by the stockholders for cause. Under Delaware law, a
director of a corporation that has cumulative voting may not be removed without
cause if less than the entire board of directors is to be removed and the votes
cast against such director's removal would be sufficient to elect the director
if then cumulatively voted at an election of the entire board of directors. A
director of a corporation that does not have a classified board of directors or
cumulative voting may be removed with the approval of a majority of the
outstanding shares entitled to vote with or without cause. Under California law,
any director or the entire board of directors may be removed, with or without
cause, with the approval of a majority of the outstanding shares entitled to
vote; however, no individual director may be removed--unless the entire board is
removed--if the number of votes cast against such removal would be sufficient to
elect the director under cumulative voting. In addition, when, by the provisions
of the articles of incorporation, the holders of shares of a class or series,
voting as a class or series, are entitled to elect one or more directors, any
director so elected may be removed only by the applicable vote of holders of
shares of that class or series. The Truevision certificate provides for
cumulative voting but does not provide for a classified board of directors. As a
result, Truevision directors may not be removed without cause if less than the
entire board of directors is being removed and the votes cast against such
director's removal would be sufficient to elect the director under cumulative
voting. Similarly, Pinnacle Systems directors also may not be removed without
cause if less than the entire board of directors is being removed and the votes
cast against such director's removal would be sufficient to elect the director
under cumulative voting.
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<PAGE>
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, unless otherwise provided in the corporation's
certificate of incorporation or bylaws, vacancies and newly created
directorships may be filled by a majority of the directors then in office. Under
California law, any vacancy on the board of directors (other than one created by
removal of a director) may be filled by the board of directors. Unless otherwise
specified in a corporation's articles of incorporation or bylaws, if the number
of directors in office at the time a vacancy occurs is less than a quorum, a
vacancy may be filled by the unanimous written consent of the directors then in
office, by the affirmative vote of a majority of the directors at a meeting held
pursuant to notice or waivers of notice or by a sole remaining director. A
vacancy created by removal of a director may be filled by the board of directors
only if the board of directors is so authorized by the corporation's articles of
incorporation or bylaws. The Truevision bylaws allow any newly created
directorship on the Board or any vacancy in the board of directors to be filled
by a majority of the directors then in office, even though less than a quorum,
unless the vacancy was created by the removal of a director by the vote of the
stockholders or by court order. In this case, the vacancy must be filled by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present. The Pinnacle Systems bylaws provide
that vacancies on the board of directors shall be filled in the same manner
provided by the Truevision bylaws.
INDEMNIFICATION AND LIMITATION OF LIABILITY
California and Delaware have similar laws relating to indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit corporations to adopt a provision in their charters
eliminating the liability of a director to the corporation or its shareholders
for monetary damages for breach of the director's fiduciary duty of care. There
are nonetheless certain differences between the laws of the two states with
respect to indemnification and limitation of liability.
Under Delaware law, a corporation may not eliminate the liability of a
director to a corporation or its stockholders for monetary damages where such
liability is based on (1) breaches of the director's duty of loyalty to the
corporation or its stockholders; (2) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law; (3) the payment
of unlawful dividends or unlawful stock repurchases or redemptions; or (4)
transactions in which the director received an improper personal benefit. Such
limitation of liability provisions do not affect the availability of non-
monetary remedies such as injunctive relief or rescission. The Truevision
certificate contains a provision limiting the liability of directors to the
fullest extent permitted by Delaware law.
Under California law, a corporation may not eliminate the liability of a
director to a corporation or its shareholders for monetary damages where such
liability is based on (1) intentional misconduct or knowing and culpable
violation of law; (2) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders, or that involve
the absence of good faith on the part of the director; (3) receipt of an
improper personal benefit; (4) acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders, where the
director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders; (5)
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (6) interested transactions between the corporation and a director
in which a director has a material financial interest; and (7) liability for
improper distributions, loans or guarantees. The Pinnacle Systems articles
contain a provision limiting the liability of its directors for monetary damages
to the fullest extent of the California law.
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<PAGE>
Delaware law states that the indemnification provided by statute shall not
be deemed exclusive of any other rights under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. The Truevision certificate
includes a provision providing that Truevision shall indemnify its directors to
the maximum extent permissible under Delaware law and the Truevision bylaws
include provisions providing that Truevision shall indemnify its officers and
directors to the fullest extent permitted by Delaware law.
California corporations may include in their articles of incorporation a
provision that extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by statute. The
Pinnacle Systems articles include a provision providing that Pinnacle Systems is
authorized to indemnify its directors and officers to the maximum extent
permitted by California law. The Pinnacle Systems bylaws include a provision
providing that Pinnacle Systems shall indemnify its officers and directors to
the maximum extent permitted by California law.
INSPECTION OF SHAREHOLDERS LIST
Both California and Delaware law allow any shareholder to inspect and copy
the shareholder list for a purpose reasonably related to such person's interest
as a shareholder. California law provides, in addition, an absolute right to
inspect and copy the corporation's shareholders list by persons holding an
aggregate of 5% or more of a corporation's voting shares, or, under certain
other circumstances, shareholders holding an aggregate of 1% or more of such
shares. Delaware law does not provide for any such absolute right of inspection.
The Truevision bylaws provide that any stockholder has the right to inspect the
list of stockholders for a purpose reasonably related to the stockholder's
interests as a stockholder, and the Pinnacle Systems bylaws provide the same. In
addition, the Pinnacle Systems bylaws provide that any shareholder or
shareholders who hold at least 5% in the aggregate of the outstanding shares
entitled to vote or who holds at least 1% of such voting shares and has filed a
Schedule 14B with the SEC relating to the election of directors may inspect the
list of shareholders without giving a reason.
DIVIDENDS AND REPURCHASES OF SHARES
While the concepts of par value, capital and surplus are retained under
Delaware law, California law dispenses with the concepts of par value of shares
for most purposes as well as statutory definitions of capital, surplus and the
like.
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation. Notwithstanding the
foregoing, a Delaware corporation may redeem or repurchase shares having a
preference upon the distribution of any of its assets (or shares of common
stock, if there are no such shares of preferred stock) if such shares will be
retired upon acquisition (and provided that, after the reduction in capital made
in connection with such retirement of shares, the corporation's remaining assets
are sufficient to pay any debts for which no other provisions have been made).
Under California law, a corporation may not make any distribution (including
dividends, whether in cash or other property, or repurchases of its shares)
unless either the corporation's retained earnings immediately prior to the
proposed distribution equal or exceed the amount of the proposed distribution
or, immediately after giving effect to such distribution, the corporation's
assets (exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4
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<PAGE>
times its liabilities (not including deferred taxes, deferred income and other
deferred credits) and the corporation's current assets would be at least equal
to its current liabilities (or 1 1/4 times its current liabilities if the
average of the earnings of the corporation (before taxes on income and interest
expense) for the two preceding fiscal years was less than the average interest
expense of the corporation for those fiscal years). Such tests are applied to
California corporations on a consolidated basis.
SHAREHOLDER VOTING ON MERGERS AND SIMILAR TRANSACTIONS
Both California and Delaware law generally require that the holders of a
majority of the outstanding voting shares of the acquiring and target
corporations approve statutory mergers. Delaware law does not require a
stockholder vote of the surviving corporation in a merger (unless the
corporation provides otherwise in its certificate of incorporation) if (1) the
merger agreement does not amend the existing certificate of incorporation; (2)
each share of the surviving corporation outstanding before the merger is equal
to an identical outstanding or treasury share after the merger; and (3) the
number of shares to be issued by the surviving corporation in the merger does
not exceed 20% of the shares outstanding immediately prior to the merger.
California law contains a similar exception to its voting requirements for
reorganizations in which shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
Both Delaware and California law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. By contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares, increases or decreases the number of
authorized shares of a class of shares or increases or decreases the par value
of the shares of a class of shares.
INTERESTED DIRECTOR TRANSACTIONS
Under both California and Delaware law, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable because of such interest, provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met.
Under Delaware law, the conditions under which a contract or transaction
with an interested director would not be void or voidable are (1) the
stockholders or disinterested directors approve of the contract or transaction
after the material facts as to the director's relationship or interest and as to
the contract or transaction are disclosed or (2) the contract or transaction is
fair as to the corporation at the time it is approved. Under Delaware law, if
board approval is sought, the contract or transaction can be approved by a
majority of the disinterested directors even though they comprise less than a
quorum.
Under California law, the conditions under which a contract or transaction
with an interested director would not be void or voidable are (1) the
shareholders approved the contract or transaction after full disclosure of the
material facts as to the contract or transaction and as to the director's
interest or (2) the disinterested directors approved the contract or transaction
after full disclosure of material facts and the contract or transaction was also
"just and reasonable" as to the corporation at the time the contract or
transaction is approved. With respect to whether a contract or transaction was
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<PAGE>
just or reasonable as to the corporation at the time the contract or transaction
was approved, California law explicitly places the burden of proof on the
interested director. Under California law, if shareholder approval is sought,
the interested director is not entitled to vote his shares with respect to any
action regarding such contract or transaction. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum) and
the contract or transaction must be just or reasonable to the corporation.
DISSENTERS' RIGHTS
Under both California and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may be entitled, under
varying circumstances, to dissenters' or appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Under Delaware law, such rights are not available (1) with respect
to the sale, lease or exchange of all or substantially all of the assets of a
corporation (unless otherwise provided in the corporation's certificate of
incorporation); (2) with respect to a merger or consolidation by a corporation
if the shares of the corporation are either (a) listed on a national securities
exchange or designated as a national market security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or (b) are held
of record by more than 2,000 holders if such stockholders receive only shares of
the surviving corporation, shares of any other corporation which are either
listed on a national securities exchange or held of record by more than 2,000
holders, cash in lieu of fractional shares or a combination of the foregoing; or
(3) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to the
merger is an identical outstanding or treasury share after the merger, and the
number of shares to be issued in the merger does not exceed 20% of the shares of
the surviving corporation outstanding immediately prior to the merger and
certain other conditions are met.
Under California law, shareholders of a California corporation whose shares
are listed on a national securities exchange or on a list of over-the-counter
margin stocks issued by the Board of Governors of the Federal Reserve System
generally do not have dissenters' rights unless the holders of at least 5% of
the class of outstanding shares claims the right or unless the corporation or
any law restricts the transfer of such shares. In addition, dissenters' rights
are unavailable if the shareholders of a corporation or the corporation itself,
or both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
With respect to the proposed Merger, appraisal rights are not available to
stockholders of Truevision with respect to the merger, nor are appraisal rights
available to shareholders of Pinnacle Systems.
SHAREHOLDER DERIVATIVE SUITS
Under Delaware law, a stockholder may only bring a derivative action on
behalf of the corporation if the stockholder was a stockholder of the
corporation at the time of the transaction in question or his or her stock
thereafter devolved upon him or her by operation of law. California law provides
that a shareholder bringing a derivative action on behalf of a corporation need
not have been a shareholder at the time of the transaction in question, provided
that certain tests are met. California law also provides that the corporation or
the defendant in a derivative suit may make a motion to the court for an order
requiring the plaintiff shareholder to furnish a security bond. Delaware does
not have a similar bonding requirement.
84
<PAGE>
DISSOLUTION
Under Delaware law, unless the board of directors approves a proposal to
dissolve, a dissolution must be approved by stockholders holding 100% of the
total voting power of the corporation. Only if a dissolution is initially
approved by the board of directors may it be approved by a simple majority of
the corporation's outstanding shares of capital stock entitled to vote. Delaware
law allows a Delaware corporation to include in its certificate of incorporation
a supermajority voting requirement in connection with dissolutions initiated by
the board of directors. The Truevision Certificate contains no such
supermajority voting requirement. Under California law, shareholders holding 50%
or more of the total voting power may authorize a corporation's dissolution,
with or without the approval of the corporation's board of directors, and this
right may not be modified by the articles of incorporation. Thus, shareholders
holding 50% or more of the voting power may authorize Pinnacle Systems'
dissolution.
85
<PAGE>
DESCRIPTION OF PINNACLE SYSTEMS CAPITAL STOCK
GENERAL
Pinnacle Systems is authorized to issue 15,000,000 shares of common stock,
no par value, and 5,000,000 shares of preferred stock, no par value, of which
25,000 are designated Series A Participating Preferred Stock, none of which is
issued or outstanding.
COMMON STOCK
As of February 4, 1999, there were 10,698,943 shares of Pinnacle common
stock outstanding held of record by approximately 59 shareholders. As of
February 4, 1999, options to purchase an aggregate of 2,235,434 shares of
Pinnacle common stock were also outstanding and 354,098 shares of Pinnacle
common stock were reserved for issuance pursuant to Pinnacle Systems' Employee
Stock Purchase Plan.
The holders of Pinnacle common stock are entitled to one vote per share on
all matters to be voted on by shareholders and have cumulative voting rights
with respect to the election of directors. Subject to the prior rights of
holders of Pinnacle Systems preferred stock, if any, the holders of Pinnacle
common stock are entitled to receive such dividends, if any, as may be declared
from time to time by the Pinnacle Systems Board in its discretion from funds
legally available therefor. Upon liquidation or dissolution of Pinnacle Systems,
the remainder of the assets of Pinnacle Systems will be distributed ratably
among the holders of Pinnacle common stock after payment of liabilities and the
liquidation preferences of any outstanding shares of Pinnacle Systems preferred
stock. The Pinnacle common stock has no preemptive or other subscription rights
and there are no conversion rights or redemption or sinking fund provisions with
respect to such shares. All of the outstanding shares of Pinnacle common stock
are, and the shares to be sold in this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Pinnacle Systems
preferred stock in one or more series and to fix the price, rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting a series or the
designation of such series, without any further vote or action by Pinnacle
Systems' shareholders. The issuance of Pinnacle Systems preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of Pinnacle Systems without further action by the
shareholders and may adversely affect the market price of, and the voting and
other rights of, the holders of Pinnacle common stock. Pinnacle Systems has no
current plans to issue any shares of Pinnacle Systems preferred stock.
SHAREHOLDERS RIGHTS PLAN
The Pinnacle Systems Board has declared a dividend of one purchase right
(for purposes of this subsection, a "Right") under a Rights Agreement dated
December 12, 1996 (the "Pinnacle Rights Agreement") for each share of Pinnacle
common stock outstanding on December 27, 1996 or thereafter issued. Each Right
entitles the holder to purchase for $65.00 a fraction of a share of Pinnacle
Systems preferred stock with economic terms similar to one share of Pinnacle
Systems' common stock. The Rights become exercisable on the earlier of: (i) the
tenth day (or such later date as may be determined by a majority of Pinnacle
Systems' Directors not affiliated with the acquiring person or group (the
"Continuing Directors")) after a person or group has acquired, or obtained the
right to acquire, beneficial ownership of 15% of more of Pinnacle Systems'
outstanding common stock or (ii) the tenth business day (or such later date as
may be determined by a majority of the Continuing
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<PAGE>
Directors) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer the consummation of which would result in
beneficial ownership by a person or group of 15% or more of Pinnacle Systems'
outstanding common stock. If an acquiror obtains 15% or more of Pinnacle
Systems' outstanding common stock (other than in certain permitted transactions)
and unless the Rights are earlier redeemed, the holder of each unexercised Right
will have the right to receive shares of Pinnacle Systems' common stock having a
value equal to two times the purchase price. Similarly, unless the Rights are
earlier redeemed, after the tenth day following certain acquisition
transactions, proper provision must be made so that holders of Rights (other
than those beneficially owned by an acquiring person, which will thereafter be
void) will thereafter have the right to receive, upon exercise, shares of common
stock of the acquiring company having a value equal to two times the purchase
price. Prior to the time the Rights become exercisable, the Pinnacle Systems
Board may redeem the Rights for a nominal amount per share ($0.001). However, if
a majority of the Pinnacle Systems Board is elected by shareholder action by
written consent, then for a period of 180 days following such election the
Rights Agreement cannot be amended in any manner reasonable likely to have the
purpose or effect of facilitating an acquisition of Pinnacle Systems by a person
or entity who proposed, nominated or supported a director of Pinnacle Systems so
elected by written consent. The Rights expire on December 12, 2006 or on their
earlier exchange, redemption or expiration in connection with certain permitted
transactions.
87
<PAGE>
DESCRIPTION OF TRUEVISION CAPITAL STOCK
The authorized capital stock of Truevision consists of 25,000,000 shares of
common stock, $0.001 par value per share, and 2,000,000 shares of preferred
stock, no par value per share.
TRUEVISION COMMON STOCK
The holders of Truevision common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders. The
holders of Truevision common stock are entitled to receive ratably such
dividends as may be declared by the Truevision Board out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
Truevision, holders of Truevision common stock are entitled to share ratably in
all assets remaining after payment of liabilities. Holders of Truevision common
stock have no preemptive rights and no right to convert their Truevision stock
into any other securities. There are no redemption or sinking fund provisions
applicable to the Truevision common stock. All outstanding shares of Truevision
common stock are fully paid and nonassessable.
TRUEVISION PREFERRED STOCK
The Truevision Board has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of Truevision preferred stock, in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms, and
the number of shares constituting any series or the designation of such series,
without any further vote or action by stockholders. The issuance of Truevision
preferred stock could adversely affect the voting power of holders of Truevision
common stock and the likelihood that such holders will receive dividend payments
and payments upon liquidation, and it could also have the effect of delaying,
deferring or preventing a change in control of Truevision. Truevision has no
present plan to issue any shares of Truevision preferred stock.
WARRANTS
As of December 31, 1998, Truevision has outstanding warrants to purchase an
aggregate of 500,000 shares of Truevision common stock. The warrants are
exercisable at a price of $5.22 per share and are exercisable after May 19, 1999
and expire on June 19, 1999. In addition, as of December 31, 1998, Truevision
has outstanding to one officer of the company a warrant to purchase 360,000
shares of Truevision common stock at an exercise price of $0.75 per share
expiring November 9, 2004.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Truevision common stock is
ChaseMellon Shareholder Services, LLC. Its telephone number is (415) 743-1444.
EXPERTS
The consolidated financial statements and financial statement schedule of
Pinnacle Systems, as of June 30, 1998 and 1997, and for each of the years in the
three-year period ending June 30, 1998, have been incorporated by reference
herein and in the registration statement in reliance upon the reports of KPMG
LLP, independent auditors, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Truevision as of June 27, 1998 and
June 28, 1997 and for each of the three years in the period ended June 27, 1998
included in this Proxy Statement/Prospectus
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<PAGE>
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for Pinnacle Systems by Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
89
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TRUEVISION INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants........................................................................ F-2
Consolidated Financial Statements
Consolidated Balance Sheets--June 27, 1998 and June 28, 1997........................................... F-3
Consolidated Statements of Operations--Three years ended June 27, 1998................................. F-4
Consolidated Statements of Stockholders' Equity--Three years ended June 27, 1998....................... F-5
Consolidated Statements of Cash Flows--Three years ended June 27, 1998................................. F-6
Notes to Consolidated Financial Statements............................................................. F-7
Consolidated Interim Financial Statements
Consolidated Balance Sheets--December 26, 1998 (unaudited) and June 27, 1998........................... F-20
Consolidated Interim Statements of Operations--
Six months ended December 26, 1998 and December 27, 1997 (unaudited)................................... F-21
Consolidated Interim Statements of Cash Flows--
Six months ended December 26, 1998 and December 27, 1997 (unaudited)................................... F-22
Notes to Consolidated Interim Financial Statements (unaudited)......................................... F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Truevision, Inc.
In our opinion, the Consolidated Financial Statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Truevision, Inc. and its subsidiaries at June 27, 1998 and June 28,
1997, and the results of their operations and their cash flows for each of the
three years in the period ended June 27, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 4 to the Consolidated Financial Statements, during the
year ended June 28, 1997, the Company changed its method of recognizing revenue.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
August 13, 1998
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 4,973 $ 4,549
Accounts receivable, less allowance for doubtful accounts
of $141 and $338 (Note 4)............................................................. 3,911 4,630
Inventory (Note 2)...................................................................... 4,551 7,746
Prepaid expenses and other assets....................................................... 2,754 555
Income taxes receivable................................................................. 32 73
---------- ----------
Total current assets................................................................ 16,221 17,553
Property and equipment, net (Note 3)...................................................... 1,721 2,757
Other assets.............................................................................. 112 178
---------- ----------
Total assets........................................................................ $ 18,054 $ 20,488
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 6)................................................................. $ -- $ 3,738
Accounts payable........................................................................ 4,285 2,475
Accrued employee compensation........................................................... 1,334 1,492
Accrued restructuring and other costs (Note 5).......................................... 403 1,531
Advances on inventory held by distributors (Note 4)..................................... 49 644
Other accrued liabilities............................................................... 2,004 2,581
Current portion of long-term obligations (Note 10)...................................... 46 65
---------- ----------
Total current liabilities........................................................... 8,121 12,526
Long-term obligations (Note 10)........................................................... 44 86
---------- ----------
Total liabilities................................................................... 8,165 12,612
---------- ----------
Commitments and contingencies (Note 10)
Stockholders' equity (Note 8):
Preferred Stock, no par value: 2,000,000 shares authorized; none issued or
outstanding........................................................................... -- --
Common Stock, $0.001 par value: 25,000,000 shares authorized; 13,038,000 and 12,728,000
shares issued and outstanding......................................................... 53,684 53,015
Accumulated deficit..................................................................... (43,795) (45,139)
---------- ----------
Total stockholders' equity................................................................ 9,889 7,876
---------- ----------
Total liabilities and stockholders' equity.......................................... $ 18,054 $ 20,488
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Net sales (Note 4).............................................................. $ 36,789 $ 43,620 $ 71,536
Cost of sales................................................................... 20,597 30,412 43,323
--------- ---------- ---------
Gross profit.................................................................... 16,192 13,208 28,213
Operating expenses:
Research and development...................................................... 4,976 6,899 7,247
Selling, general and administrative........................................... 9,729 17,399 16,761
Restructuring and other costs (Note 5)........................................ -- 1,680 --
--------- ---------- ---------
Total operating expenses...................................................... 14,705 25,978 24,008
--------- ---------- ---------
Income (loss) from operations................................................... 1,487 (12,770) 4,205
Other expense, net.............................................................. (25) (471) (324)
Interest expense................................................................ (208) (297) (229)
Interest income................................................................. 132 119 84
--------- ---------- ---------
Income (loss) before provision for income taxes and cumulative effect of change
in accounting principle....................................................... 1,386 (13,419) 3,736
Provision for income taxes (Note 7)............................................. 42 1,510 110
--------- ---------- ---------
Income (loss) before cumulative effect of change in accounting
principle..................................................................... 1,344 (14,929) 3,626
Cumulative effect of change in accounting principle (Note 4).................... -- (4,858) --
--------- ---------- ---------
Net income (loss)............................................................... $ 1,344 $ (19,787) $ 3,626
--------- ---------- ---------
--------- ---------- ---------
Basic earnings per share:
Income (loss) before cumulative effect of change in accounting principle...... $ 0.10 $ (1.18) $ 0.29
Cumulative effect of change in accounting principle........................... $ -- $ (0.38) $ --
Net income (loss) per share................................................... $ 0.10 $ (1.56) $ 0.29
Diluted earnings per share:
Income (loss) before cumulative effect of change in accounting principle...... $ 0.10 $ (1.18) $ 0.27
Cumulative effect of change in accounting principle........................... $ -- $ (0.38) $ --
Net income (loss) per share................................................... $ 0.10 $ (1.56) $ 0.27
Weighted average common shares and equivalents:
Basic......................................................................... 12,893 12,694 12,403
Diluted....................................................................... 13,246 12,694 13,535
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED JUNE 27, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE TOTAL
-------------------- ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT DEFICIT ADJUSTMENT EQUITY
--------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JULY 1, 1995.......................... 11,587 $ 47,657 $ (28,978) $ (152) $ 18,527
Issuance of Common Stock to investors, net........ 650 3,504 -- -- 3,504
Exercise of Common Stock options.................. 329 1,283 -- -- 1,283
Issuance of Common Stock in connection with
Employee Stock Purchase Plan.................... 63 236 -- -- 236
Currency translation adjustment................... -- -- -- (73) (73)
Net income........................................ -- -- 3,626 -- 3,626
--------- --------- ------------ ----- ------------
BALANCES AT JUNE 29, 1996......................... 12,629 52,680 (25,352) (225) 27,103
Exercise of Common Stock options.................. 25 68 -- -- 68
Issuance of Common Stock in connection with
Employee Stock Purchase Plan.................... 74 267 -- -- 267
Currency translation adjustment................... -- -- -- 225 225
Net loss.......................................... -- -- (19,787) -- (19,787)
--------- --------- ------------ ----- ------------
BALANCES AT JUNE 28, 1997......................... 12,728 53,015 (45,139) -- 7,876
Exercise of Common Stock options.................. 211 493 -- -- 493
Issuance of Common Stock in connection with
Employee Stock Purchase Plan.................... 99 176 -- -- 176
Currency translation adjustment................... -- -- -- -- --
Net income........................................ -- -- 1,344 -- 1,344
--------- --------- ------------ ----- ------------
BALANCES AT JUNE 27, 1998......................... 13,038 $ 53,684 $ (43,795) $ -- $ 9,889
--------- --------- ------------ ----- ------------
--------- --------- ------------ ----- ------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
OPERATING CASH FLOWS:
Net income (loss)............................................................... $ 1,344 $ (19,787) $ 3,626
Adjustments to reconcile net income (loss) to net cash provided (used) in
operating activities:
Cumulative effect of change in accounting principle........................... -- 4,858 --
Provision for doubtful accounts............................................... 100 182 402
Depreciation and amortization................................................. 1,431 2,382 1,755
Loss on disposal of fixed assets.............................................. 39 92 108
Deferred income taxes......................................................... -- 1,513 --
Other......................................................................... -- 225 (73)
Changes in assets and liabilities:
Accounts receivable........................................................... 619 2,530 (7,089)
Inventory..................................................................... 3,166 6,724 555
Prepaid expenses and other assets............................................. (2,195) 707 2,633
Income taxes receivable....................................................... 41 157 69
Accounts payable.............................................................. 1,810 (3,813) (2,868)
Accrued employee compensation................................................. (158) 951 (137)
Accrued restructuring and other costs......................................... (1,128) 1,531 --
Advances on inventory held by distributors.................................... (595) 644 --
Other accrued liabilities..................................................... (577) 416 (1,671)
Accrued litigation settlement................................................. -- -- (6,600)
--------- ---------- ---------
Net cash provided (used) in operating activities................................ 3,897 (688) (9,290)
--------- ---------- ---------
INVESTING CASH FLOWS:
Acquisitions of property and equipment.......................................... (316) (1,007) (1,268)
Acquisitions of other assets.................................................... -- (250) (30)
--------- ---------- ---------
Net cash used in investing activities........................................... (316) (1,257) (1,298)
--------- ---------- ---------
FINANCING CASH FLOWS:
Borrowings (payments) on line of credit, net.................................... (3,738) 301 1,753
Payments on debt obligations.................................................... (88) (243) (464)
Issuance of common stock, net................................................... 669 335 5,023
--------- ---------- ---------
Net cash provided (used) by financing activities................................ (3,157) 393 6,312
--------- ---------- ---------
Net increase (decrease) in cash and cash equivalents............................ 424 (1,552) (4,276)
Cash and cash equivalents, beginning of year.................................... 4,549 6,101 10,377
--------- ---------- ---------
Cash and cash equivalents, end of year.......................................... $ 4,973 $ 4,549 $ 6,101
--------- ---------- ---------
--------- ---------- ---------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year:
Interest...................................................................... $ 223 $ 297 $ 229
Income taxes.................................................................. $ 3 $ 82 $ 17
Noncash investing and financing activities:
Property and equipment acquired under capital leases.......................... $ 27 $ -- $ 613
Property and equipment transferred from inventory............................. $ 29 $ 370 $ 431
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Truevision designs, develops, manufactures and markets professional quality
digital video products for Windows and Macintosh compatible computers and
operating systems. The Company's products are sold throughout the United States
as well as internationally, primarily in Europe and the Pacific Rim.
Truevision's principal facilities are located in Santa Clara, California and
Indianapolis, Indiana, and the Company maintains its headquarters in Santa
Clara, California.
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the financial
statements of Truevision and its wholly-owned subsidiaries, after elimination of
the intercompany accounts and transactions. The Company's fiscal calendar and
its operating year ends on the Saturday closest to June 30.
LIQUIDITY AND FUTURE CAPITAL NEEDS.
The Company's cumulative operating losses in prior years, combined with
declining revenues, result in uncertainty about the Company's future viability.
Truevision has implemented various actions and plans to improve liquidity
including cost reductions (during the quarter ended June 28, 1997, the Company
recorded a charge for restructuring of $1,680,000, see Note 5--Restructuring and
Other Costs). The implementation of these production, sales and financing plans,
and the introduction of new products resulted in profitability for fiscal 1998.
Management believes that these plans, when coupled with recently renewed credit
facilities (see Note 6--Line of Credit), will enable Truevision to continue as a
going concern at least through June 26, 1999.
MANAGEMENT'S USE OF ESTIMATES AND ASSUMPTIONS
The Company's preparation of these consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORY
Inventory is stated at the lower of cost or market; cost is determined on a
first-in, first-out basis, and includes materials, labor and overhead.
TRANSFER TO CONTRACT MANUFACTURER
In connection with outsourcing manufacturing activities, the company
transferred $1.5 million of component parts inventories to one of its contract
manufacturers. Revenue was not recognized upon the transfer of component parts
inventory to the contractor; the amount receivable for the transferred inventory
is included in prepaid and other assets in the balance sheet. The company
maintains a security interest in the inventory and has agreed to reimburse the
contractor for parts which become
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
obsolete. Based on the Company's projected usage of the inventory, the Company
expects to receive payment for substantially all of the inventory by June 30,
1999.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method based upon the shorter of the estimated
useful lives of the assets, generally three to five years, or the lease term of
the respective assets, if applicable.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method
in accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes."
REVENUE RECOGNITION
Revenue from product sales to dealers, OEMs, VARs and end users is
recognized upon shipment, provided no significant obligations remain and
collectibility is probable. The Company grants limited rights of return based on
negotiations with individual customers, and generally such rights are based on
volume purchases. Reserves for sales returns and warranty obligations are based
on historical information and other related factors, and are provided at the
time revenue is recognized. Revenue from shipments to distributors is not
recognized until the product is shipped by the distributors. Revenues from
license fees under product license agreements is recognized when earned. Revenue
from nonrecurring engineering services is recognized using the percentage of
completion method based on costs incurred to date as a percentage of total
estimated costs at completion.
RESEARCH AND DEVELOPMENT EXPENSES
The Company charges research and development expenditures to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires capitalization of certain software development costs after
technological feasibility has been established. Based upon the Company's product
development process, technological feasibility of software is established upon
the completion of beta testing. Development costs incurred by the Company
following completion of beta testing and prior to commercial release have been
insignificant, and to date all software development costs have been expensed as
incurred.
CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company places its cash and cash equivalents, primarily checking
and money market accounts, with high credit-quality financial institutions and
does not believe that any significant credit risk is associated with these
financial instruments at June 27, 1998. The Company has net accounts receivable
from customers located primarily in the United States, Europe, and Asia/Pacific
and other geographic areas of $2,762,000, $371,000 and $778,000, respectively.
The Company performs various evaluations of its customers' financial condition
and credit worthiness, and maintains an allowance for uncollectable accounts
receivable based upon expected collectibility of all accounts receivable. The
Company believes the recorded value of financial instruments approximate fair
value at each balance sheet date.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock options grants to employees using the
intrinsic value method described in accordance with Accounting Principles Board
Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense has been recognized in the Company's
consolidated statements of operations.
In October 1995, the Financial Accounting Standard Boards issued Statement
of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." SFAS No. 123 requires the measurement of the fair
value of stock-based compensation to be included in the statement of operations
or disclosed in the notes to financial statements. The Company has elected the
disclosure-only alternative under SFAS No. 123 and will continue to account for
stock-based compensation for employees under APB Opinion No. 25.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed on the basis of the weighted average
number of common shares outstanding plus common stock equivalents, when
dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share."
The Company has presented earnings per share for all periods in accordance with
the new standard. SFAS 128 requires the presentation of basic and diluted
earnings per share. Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted earnings
per share includes the effect of dilutive potential common shares (options)
issued during the period (using the treasury stock method). The following data
is presented in thousands, except per share data:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
JUNE 27 JUNE 28 JUNE 29,
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Net income (loss)........................................... $ 1,344 $ (19,787) $ 3,626
--------- ---------- ---------
--------- ---------- ---------
Weighted average shares outstanding--basic.................. 12,893 12,694 12,403
Dilutive options............................................ 353 -- 1,132
--------- ---------- ---------
Weighted average shares outstanding--diluted................ 13,246 12,694 13,535
--------- ---------- ---------
--------- ---------- ---------
Earnings per share
Basic..................................................... $ 0.10 $ (1.56) $ 0.29
Dilutive effect of outstanding options.................... 0.00 0.00 (0.02)
--------- ---------- ---------
Diluted................................................... $ 0.10 $ (1.56) $ 0.27
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
Options and warrants to purchase 277,550, 808,324 and 939,500 shares of
common stock were outstanding at the end of fiscal 1998, 1997 and 1996,
respectively, but were not included in the computations of Diluted earnings per
share because the options' exercise prices were greater than the average market
price of the common shares, or because the Company's net loss per share would
have decreased.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting Comprehensive
Income." SFAS No. 130 establishes standards of reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 is effective for financial statements issued
for periods beginning after December 15, 1997. Adoption of SFAS No. 130 is not
anticipated to have a material effect on the Company's financial statements.
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 requires public
companies to disclose certain operating and financial information by business
segment in their annual and interim financial statements. SFAS No. 131 is
effective for financial statements issued for periods beginning after December
15, 1997. The business segment disclosures of the Company determined in
accordance with SFAS No. 131 are the same as those determined using the prior
rules and, therefore, adoption of SFAS No. 131 is not anticipated to have a
material impact on the Company's financial statements.
NOTE 2. INVENTORY
A summary of inventory follows (in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
--------- ---------
<S> <C> <C>
Purchased parts and subassemblies........................................ $ 398 $ 2,675
Work-in-progress......................................................... 2,398 2,039
Finished goods........................................................... 1,125 2,031
Finished goods held by distributors...................................... 630 1,001
--------- ---------
Total.................................................................. $ 4,551 $ 7,746
--------- ---------
--------- ---------
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
--------- ---------
<S> <C> <C>
Computer equipment and machinery......................................... $ 8,298 $ 9,535
Furniture and fixtures................................................... 688 775
Leasehold improvements................................................... 111 111
--------- ---------
Subtotal................................................................. 9,097 10,421
Less: accumulated depreciation........................................... (7,376) (7,664)
--------- ---------
Total.................................................................. $ 1,721 $ 2,757
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. ACCOUNTING CHANGE--RECOGNITION OF DISTRIBUTOR REVENUE
In the quarter ended September 28, 1996, the Company changed its accounting
method for recognizing distributor revenue, whereby the Company defers
recognizing revenue, and does not relieve inventory on shipments to
distributors, until shipment by the distributor. Previously, the Company
recognized revenue, after recording appropriate reserves for sales returns from
distributors and allowances granted to them, at the time of shipment to the
distributor. Distributor agreements allow certain rights of return and price
protection on products held by distributors. The Company believes that deferral
of distributor sales and related gross margins until the product is shipped by
the distributors results in a more meaningful measurement of operations and is a
preferable method of accounting for distributor revenue. Cash received in
advance of recognizing distributor revenue is recorded as advances on inventory
held by distributors.
The cumulative effect on prior years of changing the accounting method was
$4.9 million, or $0.38 per share. This amount was reflected in the quarter ended
September 28, 1996. The estimated pro forma amounts for the year ended June 29,
1996 assuming the new method of accounting had been applied retroactively would
be net sales of $65.9 million and net income of $1.0 million, or $0.08 per
share.
NOTE 5. RESTRUCTURING AND OTHER COSTS
During the quarter ended June 28, 1997, the Company recorded a charge for
restructuring of $1.7 million. This charge primarily consisted of costs
associated with downsizing facilities and reduction in headcount. Also, as a
result of the Company's decision to close its European offices, the
restructuring charge included costs associated with lease terminations and
write-off of fixed assets for the sales offices located in France and the United
Kingdom, and the write-off of the cumulative translation adjustment.
At June 28, 1997, the accrued restructuring and other costs reserve balance
was $1.5 million. In fiscal 1998, these reserves were used to offset severance
payments of $0.4 million, non-utilized facilities costs of $0.6 million and
European office closure costs of $0.1 million. The remaining balance of $0.4
million at June 27, 1998 is expected to be utilized during fiscal 1999.
NOTE 6. LINE OF CREDIT
In September 1998, the Company received a commitment for a new one year bank
revolving line of credit ("the Credit Agreement") which consists of a $5,000,000
revolving line of credit facility ("Facility A") and a $2,000,000 EXIM backed
revolving line of credit facility ("Facility B"). This Credit Agreement replaced
the Company's previous $7,000,000 bank revolving line of credit agreement. Under
Facility A, borrowings are available up to $5,000,000 based on domestic eligible
invoiced receivables. Under Facility B, borrowings are available up to
$2,000,000 based on foreign eligible invoiced receivables and export finished
goods and channel inventory (borrowings on inventory are capped at a maximum of
$1,000,000). This Credit Agreement provides for interest based on the bank's
prime rate plus 0.50% and 0.25% for borrowings under Facility A and Facility B,
respectively. The Credit Agreement contains various financial covenants
including maintaining certain financial ratios and tests. The primary financial
ratios include quick ratio, debt to tangible net worth and profitability
covenants. Borrowings under the Credit Agreement are collateralized by the
Company's assets.
At June 27, 1998, the Company had no borrowings under the existing revolving
line of credit agreement, and was in compliance with the financial covenant
regarding tangible net worth. Interest on borrowings was based on the banks
prime rate plus 2.00% per annum.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current tax expense:
Federal....................................................... $ 37 $ -- $ 80
State......................................................... 5 -- 30
Foreign....................................................... -- (3) --
--- ----------- -----
Subtotal.................................................... 42 (3) 110
--- ----------- -----
Deferred tax expense:
Federal....................................................... -- 1,513 --
State......................................................... -- -- --
--- ----------- -----
Subtotal.................................................... -- 1,513 --
--- ----------- -----
Total..................................................... $ 42 $ 1,510 $ 110
--- ----------- -----
--- ----------- -----
</TABLE>
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Reserves and nondeductible expenses....................... $ 3,500 $ 4,658 $ 1,800
Credit carryovers......................................... 1,400 1,451 1,468
Net operating loss carryforwards.......................... 16,250 16,400 14,200
---------- ---------- ----------
Gross deferred tax assets............................... 21,150 22,509 17,468
Valuation allowance....................................... (21,150) (22,509) (15,955)
---------- ---------- ----------
Total net deferred tax assets......................... $ 0 $ 0 $ 1,513
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
At June 27, 1998, the Company had gross deferred tax assets of $21,150,000
relating primarily to net operating loss carryforwards. These deferred tax
assets have been fully reserved due to the uncertainty of future realization of
the net operating loss carryforwards. In the fourth quarter of fiscal 1997, the
Company recorded a provision for income taxes of $1,513,000 to fully reserve for
deferred tax assets.
The Company has approximately $44,000,000 of net operating loss and credit
carryforwards that expire beginning in 2009. Utilization of operating losses may
be limited due to changes in ownership under Section 382 of the Internal Revenue
Code of 1986, as amended.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES (CONTINUED)
The difference between the effective income tax rate and the applicable U.S.
statutory rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate................................................ 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit........................ 6.1 6.1 6.1
Decrease in valuation allowance....................................... (37.0) (40.1) (37.2)
--------- --------- ---------
Total............................................................. 3.1% 0% 2.9%
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 8. STOCKHOLDERS' EQUITY
COMMON STOCK
In June 1995 the Company issued 2,000,000 shares of Common Stock in a
private placement to investors in exchange for cash of $4.43 per share; the net
proceeds from the sale were approximately $8,428,000. As part of the sale of
shares to the investors, the Company issued warrants to the investors for the
purchase of 500,000 additional shares of Common Stock and also issued a warrant
to the placement agent of the private placement for the purchase of 135,824
shares of Common Stock. The purchase price of each share issuable upon exercise
of each warrant is $5.22. The expiration date of the warrants was June 19, 1998,
however, the Board of Directors has approved a one year extension, subject to
certain conditions. Additionally, on August 8, 1995 the Company issued an
additional 650,000 shares of its Common Stock in a private placement to
investors for $6.26 per share; the net proceeds from the sale were approximately
$3,500,000. The proceeds were used primarily to fund the settlement of the
Company's stockholder class action lawsuit.
In October 1994, the Company issued a warrant to the Company's president and
chief executive officer for the purchase of 400,000 shares of Common Stock. 25%
of the warrant vested in January, 1995, and 6,666.67 shares per month vests
thereafter. The purchase price of each share issuable upon exercise of the
warrant is $2.75 and, as of June 27, 1998, a total of 380,000 shares of the
Company's Common Stock may be purchased under the warrant.
In June 1993, the Company, as part of the sale of shares to an investor,
issued a warrant to the investor for the purchase of up to such number of
additional shares of Common Stock such that the aggregate investor holding of
Common Stock, acquired directly from the Company as of the date of any such
purchase, will not exceed 19.99% of the then issued and outstanding Common Stock
of the Company. The purchase price of each share issuable upon exercise of the
rights under the warrant was $9. The warrant expired on June 7, 1996.
AMENDED 1988 INCENTIVE STOCK PLAN
The Company's Amended 1988 Incentive Stock Plan (the "Old Option Plan") was
approved by the Board of Directors and ratified by the stockholders in 1988.
Under the Old Option Plan, shares of Common Stock have been reserved for
issuance to employees and consultants of the Company, as approved by the Board
of Directors. Amendments increasing the number of shares reserved for issuance
under the Old Option Plan were adopted by the Board of Directors and ratified by
the stockholders in each year thereafter for an aggregate of 4,241,300 shares
reserved for issuance under the Old Option Plan. The Old Option Plan, which
expired in February 1998, provided for incentive as well as non-statutory stock
options and stock purchase rights.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
Options and stock purchase rights under the Old Option Plan are granted at
prices determined by the Board, subject to certain conditions more fully
described in the Option Plan. Generally, these conditions specify floor prices
for the grants ranging from 85% to 110% of the fair market value of the stock at
the date of the grant, as determined by the Board, based upon the type of the
award and the number of shares of Common Stock held by the grantees at the date
of the award. No options have been granted at exercise prices less than 100% of
such fair market value at the date of grant. Options granted under the Old
Option Plan expire over ten years.
Options granted generally vest 25% one year after issuance and 1/48th each
month thereafter for 36 months. Options are adjusted pro rata for any changes in
the capitalization of the Company, such as stock splits and stock dividends. In
addition, the outstanding options issued under the Old Option Plan will
terminate within a period set by the Board after termination of employment.
In April 1997, the Company offered employees the opportunity to participate
in an option repricing program. Under the program, each employee could elect on
or before April 30 that 90% of his or her existing option issued under the Old
Option Plan be converted into a repriced option, subject to final approval by
the Compensation Committee of the Company's Board of Directors. The per share
exercise price of each repriced option would be equal to the fair market value
of the Company's Common Stock on the conversion date (on or about May 2, 1997).
All repriced options have a vesting start date identical to that of the
converted option, but the vesting schedule of the repriced option would be
forty-two months instead of the forty-eight months vesting schedule of the
converted option. On May 2, 1997, the option repricing program and the options
selected for conversion under the program were approved by the Compensation
Committee. On such date, the fair market value of the Company's Common Stock was
$2.16 and options to purchase 2,302,179 shares at a weighted average exercise
price of $4.99 per share were converted into repriced options to purchase
2,059,460 shares.
As of June 27, 1998, no new options can be issued and options to purchase
1,807,489 shares of Common Stock are outstanding under the Old Plan, 848,444 of
which are exercisable.
AMENDED AND RESTATED 1991 DIRECTOR OPTION PLAN
The Company's Amended and Restated 1991 Director Option Plan (the "Plan")
was adopted by the Board of Directors in July 1991 and was subsequently amended
by the Board in October 1991, July 1992 and September 1995. The Plan provides
for the granting of non-statutory stock options to non-employee directors of the
Company. A total of 150,000 shares of Common Stock were originally reserved for
issuance under the Plan. An amendment increased the number of shares to 250,000
shares. Under the terms of the Plan, (i) non-employee directors who were members
of the Board on July 25, 1991 received an option to purchase 10,000 shares of
Common Stock, which options became exercisable at the rate of 25% per year for
four years following July 1, 1991, (ii) each non-employee director who becomes a
member of the Board after July 25, 1991, will receive an option on the date that
such director first becomes a member of the Board to purchase 10,000 shares of
Common Stock, which option shall become exercisable at the rate of 25% per year
for four years following the date of grant and (iii) each non-employee director
who is a member of the Board immediately before the Company's Annual Meeting and
remains a member of the Board immediately after such Annual Meeting, shall
receive on the date of the Annual Meeting, for so long as such non-employee
director remains a member of the Board, an additional option to purchase 2,500
shares of Common Stock subject to four year vesting from the date of grant
similar to the vesting provisions set forth above. Options granted
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
under the Plan have a term of ten years. As of June 27, 1998, options to
purchase 110,000 shares of Common Stock are outstanding under the Plan, 74,375
of which are exercisable.
1997 EQUITY INCENTIVE PLAN
The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was approved
by the Board of Directors in December 1997 and ratified by the stockholders in
April 1998. Under the Incentive Plan, 600,000 shares of Common Stock have been
reserved for issuance to employees, directors, and consultants of the Company,
as approved by the Board of Directors. The Incentive Plan, which expires in
December 2007, provides for incentive as well as non-statutory stock options and
stock purchase rights.
Options and stock purchase rights under the Incentive Plan are granted at
prices determined by the Board, subject to certain conditions more fully
described in the Incentive Plan. Generally, these conditions specify floor
prices for the grants ranging from 85% to 110% of the fair market value of the
stock at the date of the grant, as determined by the Board, based upon the type
of the award and the number of shares of Common Stock held by the grantees at
the date of the award. No options have been granted at exercise prices less than
100% of such fair market value at the date of grant. Options granted under the
Incentive Plan expire over ten years.
Options granted generally vest 25% one year after issuance and 1/48th each
month thereafter for 36 months. Options are adjusted pro rata for any changes in
the capitalization of the Company, such as stock splits and stock dividends. In
addition, the outstanding options issued under the Incentive Plan will terminate
within a period set by the Board after termination of employment.
As of June 27, 1998, options to purchase 186,400 shares of Common Stock were
outstanding under the Incentive Plan, none of which were exercisable.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
The activity under the option plans, combined, was as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE STOCK OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE
----------- ------------- ----------------
<S> <C> <C> <C>
BALANCES AT JULY 1, 1995........................................... 474,518 1,749,471
Increase in number of shares authorized............................ 615,000 --
Options granted.................................................... (1,039,250) 1,039,250 $4.12 - $ 9.25
Options exercised.................................................. -- (329,706) $1.87 - $ 7.75
Options canceled................................................... 236,654 (236,654) $2.75 - $11.25
----------- -------------
BALANCES AT JUNE 29, 1996.......................................... 286,922 2,222,361
Increase in number of shares authorized............................ 600,000 --
Options granted.................................................... (2,880,706) 2,880,706 $1.94 - $ 6.75
Options exercised.................................................. -- (24,508) $0.22 - $ 4.89
Options canceled................................................... 2,615,341 (2,615,341) $2.16 - $10.00
----------- -------------
BALANCES AT JUNE 28, 1997.......................................... 621,557 2,463,218
Increase in number of shares authorized............................ 1,200,000 --
Shares unavailable due to cancellation of Old Option Plan.......... (1,383,960) --
Options granted.................................................... (880,275) 880,275 $1.75 - $ 4.00
Options exercised.................................................. -- (210,937) $0.22 - $ 2.75
Options canceled................................................... 996,278 (1,028,667) $1.75 - $ 7.88
----------- -------------
BALANCES AT JUNE 27, 1998.......................................... 553,600 2,103,889
----------- -------------
----------- -------------
SHARES EXERCISABLE AT JUNE 27, 1998................................ 922,819
-------------
-------------
</TABLE>
Information relating to stock options outstanding under the option plans,
combined, at June 27, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Range of exercise prices:
$1.75 - $ 2.56 1,952,875 8.9 years $ 2.07 836,852 $ 2.16
$2.75 - $ 4.00 113,514 7.6 years $ 3.39 53,467 $ 3.05
$6.00 - $ 7.75 27,500 5.6 years $ 6.91 22,500 $ 6.75
$11.25 - $11.25 10,000 4.1 years $ 11.25 10,000 $ 11.25
----------- -----------
2,103,889 922,819
----------- -----------
----------- -----------
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes model with the following assumptions used for grants during fiscal
years 1998, 1997 and 1996: annual dividend yield of 0.0% for all periods;
weighted average interest rates of 5.93%, 6.42% and 5.83% for options granted
during the fiscal years 1998, 1997 and 1996, respectively; weighted average
option terms of 4 years for all periods; and expected volatility factors of 90%,
65% and 65% for fiscal years 1998, 1997 and 1996, respectively. The weighted
average fair value of options granted during fiscal years 1998, 1997 and 1996
was $0.83, $1.10 and $4.17, respectively, per share.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
1990 EMPLOYEE STOCK PURCHASE PLAN
In August 1990, the Board of Directors adopted an Employee Stock Purchase
Plan which enables substantially all employees in the United States to subscribe
to shares of Common Stock on semi-annual offering dates at a purchase price of
85% of the fair market value of the stock on the offering date or, if lower, 85%
of the fair market value of the stock on the semi-annual exercise date. A
maximum of 500,000 shares are authorized for subscription over a 20 year period.
During fiscal years 1998, 1997 and 1996, there were 99,240, 74,119 and 63,023
shares, respectively, issued under the 1990 Employee Stock Purchase Plan.
The Company has reserved such number of shares of Common Stock as necessary
to cover shares issuable under options, warrants and the 1990 Employee Stock
Purchase Plan.
The fair value of each stock award is estimated on the date of grant using
the Black-Scholes model with the following assumptions used for grants during
fiscal years 1998, 1997 and 1996: annual dividend yield of 0.0% for all periods;
weighted average interest rates of 5.34%, 5.40 and 5.22% for stock awards
granted during fiscal year 1998, 1997 and 1996, respectively; weighted average
expected stock award terms of six months for all periods; and expected
volatility factors of 75%, 65% and 65% for fiscal 1998, 1997 and 1996,
respectively. The weighted average fair value of the stock awards granted during
fiscal years 1998, 1997 and 1996 was $0.66, $1.47 and $1.89, respectively, per
share.
FAIR VALUE DISCLOSURES
Had compensation cost for the Company's stock option and stock purchase
plans been determined based on the fair value of the options at the grant dates
using the Black-Scholes model as provided by SFAS No. 123, the Company's net
income (loss) and net income (loss) per share for the fiscal years 1998, 1997
and 1996 would have been as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported................................................. $ 1,344 $ (19,787) $ 3,626
Pro forma................................................... $ 387 $ (21,896) $ 3,221
Basic net income (loss) per share:
As reported................................................. $ 0.10 $ (1.56) $ 0.29
Pro forma................................................... $ 0.03 $ (1.72) $ 0.26
Diluted net income (loss) per share:
As reported................................................. $ 0.10 $ (1.56) $ 0.27
Pro forma................................................... $ 0.03 $ (1.72) $ 0.24
</TABLE>
The pro forma amounts reflect compensation expenses related to fiscal 1998,
1997 and 1996 employee and director option grants and employee stock purchase
plan awards only. In future years, the pro forma annual compensation expense may
increase due to the additional expense associated with future grants combined
with the expense associated with grants in prior years.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INDUSTRY, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in one industry segment, which is computer peripherals.
The Company has no significant foreign assets or liabilities. Export sales by
geographic area, as a percentage of net sales, for the years ended June 27,
1998, June 28, 1997 and June 29, 1996 consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Europe.......................................................... 17.7% 12.4% 15.5%
Asia/Pacific.................................................... 13.4 16.1 8.8
Other........................................................... 0.1 0.9 0.9
--- --- ---
Total......................................................... 31.2% 29.4% 25.2%
--- --- ---
--- --- ---
</TABLE>
During fiscal 1995, the Company entered into a three-year OEM agreement with
a major customer under which the customer had agreed to make minimum aggregate
purchases of certain products of $40,000,000 during calendar years 1995 through
1997. In the fourth quarter of fiscal 1996, the customer and the Company
negotiated a fully paid license fee in the amount of $1,450,000 for the customer
to manufacture certain products used by the customer, rather than purchase them
from the Company. The Company did not in fiscal 1998 and fiscal 1997 and does
not in the future expect to receive any further revenues or royalties resulting
from the customer's manufacture and use of such products. The Company has no
further obligations to the customer. This customer accounted for 2.6%, 1.2% and
35.9% of the Company's net sales during fiscal 1998, 1997 and 1996,
respectively. No customers accounted for more than 10% of the Company's net
sales in fiscal 1998. In fiscal 1997, the Company's largest domestic
distributor, Ingram Micro, accounted for 11.0% of the Company's net sales. No
customers accounted for more than 10% of the Company's net sales in fiscal 1996.
NOTE 10. COMMITMENTS AND CONTINGENCIES
In August 1997, the Company entered into an agreement with a major supplier
to purchase $1.6 million of a certain component during fiscal 1998 and 1999. The
component is used in the majority of the Company's products and is currently
available only from this supplier. The supplier is discontinuing the component
and the purchase commitment represents the Company's anticipated usage
requirements for the next three years. The inability to obtain sufficient
quantities of this key component as required, or to develop an alternative
component, could result in delays or reductions in product shipments to the
Company's customers. However, the Company's future generation products, which
are expected to be released within the next two years, will not require this
component. At June 27, 1998 the Company has purchased approximately $0.7 million
under this agreement.
The Company occupies its principal facilities under non-cancelable leases
expiring in March 2001 and August 2003. The Company is required to pay taxes,
insurance and maintenance expenses for these facilities. The Company also leases
other facilities and equipment under operating leases. Rent expense under non-
cancelable operating leases, principally for the rental of office space, for the
years ended June 27, 1998, June 28, 1997 and June 29, 1996 was $895,000,
$1,101,000 and $1,070,000, respectively.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments at June 27, 1998 under non-cancelable lease
obligations are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1999..................................................................... $ 46 $ 944
2000..................................................................... 31 946
2001..................................................................... 15 781
2002..................................................................... -- 286
2003..................................................................... -- 286
Years thereafter......................................................... -- 36
--- -----------
Total minimum lease payments............................................. 92 $ 3,279
-----------
-----------
Less: amount representing interest....................................... 2
---
Present value of net minimum lease payments.............................. 90
Less: current portion of capital lease obligations....................... 46
---
Capital lease obligations.............................................. $ 44
---
---
</TABLE>
Capital leases are for manufacturing and office equipment. Capital lease
property included in property, plant and equipment is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
----------- -----------
<S> <C> <C>
Computer equipment and machinery.......................................... $ 254 $ 338
Less: accumulated depreciation............................................ (116) (106)
----- -----
Total................................................................... $ 138 $ 232
----- -----
----- -----
</TABLE>
The Company, in the normal course of business, receives and makes inquiries
with respect to possible patent infringements and other litigation. The Company
believes that it is unlikely that the outcome of the patent infringement
inquiries or other litigation will have a material adverse effect on the
Company's financial position or results of operations.
NOTE 11. RELATED PARTY TRANSACTIONS
During the quarter ended June 29, 1996, the Company's net sales included
revenue of $957,000 from a 14.4% stockholder of the Company.
F-19
<PAGE>
TRUEVISION, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DEC. 26, 1998 JUNE 27, 1998
-------------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 1,938 $ 4,973
Accounts receivable, net...................................................... 2,843 3,911
Inventory (Note 2)............................................................ 5,433 4,551
Prepaid expenses and other assets............................................. 2,063 2,754
Income taxes receivable....................................................... -- 32
-------------- --------------
Total current assets........................................................ 12,277 16,221
Property and equipment, net (Note 3)............................................ 1,486 1,721
Other assets, net............................................................... 115 112
-------------- --------------
Total assets.................................................................. $ 13,878 $ 18,054
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 2,825 $ 4,285
Accrued employee compensation................................................. 831 1,334
Accrued restructuring and other costs (Note 4)................................ -- 403
Advances on inventory held by distributors.................................... 254 49
Other accrued liabilities..................................................... 1,993 2,004
Current portion of long-term obligations...................................... 36 46
-------------- --------------
Total current liabilities................................................... 5,939 8,121
Long-term obligations........................................................... 27 44
-------------- --------------
Total liabilities............................................................. 5,966 8,165
-------------- --------------
Stockholders' equity:
Preferred stock............................................................... -- --
Common stock.................................................................. 53,746 53,684
Accumulated deficit........................................................... (45,834) (43,795)
-------------- --------------
Total stockholders' equity...................................................... 7,912 9,889
-------------- --------------
Total liabilities and stockholders' equity.................................... $ 13,878 $ 18,054
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
F-20
<PAGE>
TRUEVISION, INC.
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
DEC. 26, DEC. 27,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net sales............................................................................ $ 13,873 $ 20,131
Cost of sales........................................................................ 8,849 11,394
------------ ------------
Gross profit......................................................................... 5,024 8,737
------------ ------------
Operating expenses:
Research and development........................................................... 2,492 2,624
Selling, general and administrative................................................ 4,543 4,908
------------ ------------
Total operating expenses......................................................... 7,035 7,532
------------ ------------
Income (loss) from operations........................................................ (2,011) 1,205
Interest income...................................................................... 26 38
Interest expense..................................................................... (51) (128)
Other income (expense), net.......................................................... (3) (20)
------------ ------------
Income (loss) before provision for income taxes...................................... (2,039) 1,095
------------ ------------
Provision for income taxes........................................................... -- 33
------------ ------------
Net income (loss).................................................................... $ (2,039) $ 1,062
------------ ------------
------------ ------------
Basic earnings per share:
Net income (loss) per share...................................................... $ (0.16) $ 0.08
Diluted earnings per share:
Net income (loss) per share...................................................... $ (0.16) $ 0.08
Weighted average common shares and equivalents:
Basic............................................................................ 13,093 12,796
Diluted.......................................................................... 13,093 13,367
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
F-21
<PAGE>
TRUEVISION, INC.
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
DEC. 26, DEC. 27,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING CASH FLOWS:
Net income (loss) $ (2,039) $ 1,062
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Provision for doubtful accounts.................................................... -- 100
Depreciation and other amortization................................................ 544 793
Loss on disposal of fixed assets................................................... 5 16
Changes in assets and liabilities:
Accounts receivable.............................................................. 1,068 374
Inventory........................................................................ (893) 3,730
Prepaid expenses and other assets................................................ 687 (1,377)
Income taxes receivable.......................................................... 32 40
Accounts payable................................................................. (1,460) (380)
Accrued employee compensation.................................................... (503) 31
Accrued restructuring and other costs............................................ (403) (788)
Advances on inventory held by distributors....................................... 205 (425)
Other accrued liabilities........................................................ (11) (68)
------------ ------------
Net cash provided by (used in) operating activities.................................. (2,768) 3,108
------------ ------------
INVESTING CASH FLOWS:
Acquisitions of property and equipment............................................... (299) (125)
Acquisitions of other assets......................................................... (3) --
------------ ------------
Net cash used in investing activities................................................ (302) (125)
------------ ------------
FINANCING CASH FLOWS:
Payments on line of credit, net...................................................... -- (3,738)
Payments on debt obligations, net.................................................... (27) (20)
Issuance of common stock, net........................................................ 62 258
------------ ------------
Net cash provided by (used in) financing activities.................................. 35 (3,500)
------------ ------------
Net decrease in cash and cash equivalents............................................ (3,035) (517)
Cash and cash equivalents, beginning of period....................................... 4,973 4,549
------------ ------------
Cash and cash equivalents, end of period............................................. $ 1,938 $ 4,032
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest........................................................................... $ 54 $ 143
Income taxes....................................................................... $ 5 $ 3
Noncash investing and financing activities:
Property and equipment transferred from inventory.................................. $ 11 $ 21
Property and equipment acquired under capital leases............................... $ -- $ 27
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
F-22
<PAGE>
TRUEVISION, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The consolidated interim financial statements presented herein are
unaudited. However, in the opinion of management, all adjustments have been made
for a fair presentation of the interim periods presented. The consolidated
interim financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended June 27, 1998.
The results of operations for the three month and six month periods ended
December 26, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending June 26, 1999.
The Company's fiscal calendar and its operating year ends on the Saturday
closest to June 30.
NOTE 2. INVENTORY
A summary of inventory follows (in thousands):
<TABLE>
<CAPTION>
DEC. 26, JUNE 27,
1998 1998
--------- ---------
<S> <C> <C>
Purchased parts and subassemblies........................................ $ 1,674 $ 398
Work-in-progress......................................................... 1,176 2,398
Finished goods........................................................... 1,906 1,125
Finished goods held by distributors...................................... 677 630
--------- ---------
Total.................................................................... $ 5,433 $ 4,551
--------- ---------
--------- ---------
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
DEC. 26, JUNE 27,
1998 1998
--------- ---------
<S> <C> <C>
Computer equipment and machinery......................................... $ 8,543 $ 8,298
Furniture and fixtures................................................... 684 688
Leasehold improvements................................................... 161 111
--------- ---------
Subtotal............................................................. 9,388 9,097
Less: Accumulated depreciation........................................... (7,902) (7,376)
--------- ---------
Total.................................................................... $ 1,486 $ 1,721
--------- ---------
--------- ---------
</TABLE>
NOTE 4. RESTRUCTURING AND OTHER COSTS
During the quarter ended June 28, 1997, the Company recorded a charge for
restructuring and other costs of $1,680,000. This charge primarily consisted of
costs associated with downsizing facilities and reduction in headcount. Also, as
a result of the Company's decision to close its European offices, the
restructuring charge included costs associated with lease terminations and
write-off of fixed assets for the sales offices located in France and the United
Kingdom, and the write-off of the cumulative translation adjustment.
F-23
<PAGE>
TRUEVISION, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4. RESTRUCTURING AND OTHER COSTS (CONTINUED)
During the six months ended December 26, 1998, the Company utilized the
final $403,000 of restructuring reserves remaining at June 27, 1998. A summary
of restructuring activities during the six months ended December 26, 1998
follows (in thousands):
<TABLE>
<CAPTION>
RESERVE
RESERVE BALANCE BALANCE DEC.
JUNE 27, 1998 PAYMENTS 26, 1998
--------------- ----------- -------------
<S> <C> <C> <C>
Downsizing facilities................................. $ 356 $ (356) $ --
Other................................................. 47 (47) --
----- ----------- ------
Total................................................. $ 403 $ (403) $ --
----- ----------- ------
----- ----------- ------
</TABLE>
NOTE 5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), EARNINGS PER SHARE. The
Company has presented earnings per share for all periods in accordance with the
new standard. SFAS 128 requires the presentation of basic and diluted earnings
per share. Basic earnings per share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings per
share includes the effect of dilutive potential common shares (options) issued
during the period (using the treasury stock method). The following data is
presented in thousands, except per share data:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
DEC. 26, DEC. 27,
1998 1997
------------ ------------
<S> <C> <C>
Net income (loss)................................................ $ (2,039) $ 1,062
------------ ------------
Weighted average shares outstanding--basic....................... 13,093 12,796
Dilutive options................................................. -- 571
------------ ------------
Weighted average shares outstanding--diluted..................... 13,093 13,367
------------ ------------
Earnings per share
Basic........................................................ $ (0.16) $ 0.08
Dilutive effect of outstanding options....................... -- --
------------ ------------
Diluted...................................................... $ (0.16) $ 0.08
------------ ------------
</TABLE>
Options and warrants to purchase 2,953,790 and 722,590 shares of common
stock were outstanding at December 26, 1998 and December 27, 1997, respectively,
but were not included in the computations of diluted earnings per share because
the options' exercise prices were greater than the average market price of the
common shares, or because inclusion would have been antidilutive to the
Company's net loss per share.
NOTE 6. STOCK OPTIONS AND WARRANTS
On December 7, 1998, the Company offered to all individuals holding
outstanding stock options and to one individual holding an outstanding warrant
(the "Outstanding Awards") the opportunity to amend such Outstanding Awards to
lower the exercise price to $0.75 per share, the fair market value
F-24
<PAGE>
TRUEVISION, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6. STOCK OPTIONS AND WARRANTS (CONTINUED)
on December 7, 1998. In consideration of the lower exercise price, holders
electing to reprice have agreed to cancellation of 10% of the total number of
shares originally granted. Of the 3,233,473 shares under Outstanding Awards at
December 7, 1998, options representing 2,253,023 shares and warrants
representing 400,000 shares were repriced. After the repricing options totaling
2,093,790 shares and warrants totaling 860,000 shares were outstanding.
NOTE 7. COMPREHENSIVE INCOME
Effective June 28, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), REPORTING COMPREHENSIVE INCOME. SFAS
130 requires that all items recognized under accounting standards as components
of comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. SFAS
130 also requires that an entity classify items of other comprehensive earnings
by their nature in an annual financial statement. As the Company had no elements
of other comprehensive income during the period, adoption of SFAS 130 did not
have a material effect on the Company's financial statements.
NOTE 8. MERGER AGREEMENT
On December 16, 1998, the Company entered into a definitive agreement to be
acquired by Pinnacle Systems, Inc. (Pinnacle), Mountain View, California.
Pinnacle is a leading supplier of digital video solutions to the broadcast,
professional and consumer markets.
The transaction is a stock-for-stock, taxable purchase transaction valued at
approximately $14.0 million as of the date of the agreement, and is expected to
close in March 1999 subject to various conditions including customary regulatory
approvals and the approval by the stockholders of the Company.
F-25
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PINNACLE SYSTEMS, INC.
BERNARDO MERGER CORPORATION
WALSH MERGER CORPORATION
AND
TRUEVISION, INC.
DATED AS OF DECEMBER 16, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
ARTICLE I THE MERGER............................................................................ A-1
1.1 The Merger............................................................................ A-1
1.2 Effective Time; Closing............................................................... A-1
1.3 Effect of the Merger.................................................................. A-2
1.4 Certificate of Incorporation; Bylaws.................................................. A-2
1.5 Directors and Officers................................................................ A-2
1.6 Effect on Capital Stock............................................................... A-2
1.7 Surrender of Certificates............................................................. A-3
1.8 No Further Ownership Rights in Company Common Stock................................... A-5
1.9 Lost, Stolen or Destroyed Certificates................................................ A-5
1.10 Tax and Accounting Consequences....................................................... A-5
1.11 Taking of Necessary Action; Further Action............................................ A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY............................................. A-5
2.1 Organization and Qualification; Subsidiaries.......................................... A-5
2.2 Certificate of Incorporation and Bylaws............................................... A-6
2.3 Capitalization........................................................................ A-6
2.4 Authority Relative to this Agreement.................................................. A-7
2.5 No Conflict; Required Filings and Consents............................................ A-7
2.6 Compliance; Permits; Restrictions..................................................... A-8
2.7 SEC Filings; Company Financial Statements............................................. A-9
2.8 No Undisclosed Liabilities............................................................ A-9
2.9 Absence of Certain Changes or Events.................................................. A-9
2.10 Absence of Litigation................................................................. A-10
2.11 Employee Benefit Plans................................................................ A-10
2.12 Labor Matters......................................................................... A-13
2.13 S-4; Proxy Statement.................................................................. A-13
2.14 Restrictions on Business Activities................................................... A-13
2.15 Title to Property..................................................................... A-14
2.16 Taxes................................................................................. A-14
2.17 Environmental Matters................................................................. A-15
2.18 Brokers............................................................................... A-16
2.19 Intellectual Property................................................................. A-16
2.20 Agreements, Contracts and Commitments................................................. A-17
2.21 Insurance............................................................................. A-18
2.22 Opinion of Financial Advisor.......................................................... A-18
2.23 Board Approval........................................................................ A-18
2.24 Vote Required......................................................................... A-18
2.25 State Takeover Statutes............................................................... A-18
2.26 Year 2000 Compliance.................................................................. A-19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBS.............................. A-19
3.1 Organization and Qualification; Subsidiaries.......................................... A-19
3.2 Articles and Certificates of Incorporation and Bylaws................................. A-20
3.3 Capitalization........................................................................ A-20
3.4 Authority Relative to this Agreement.................................................. A-20
3.5 No Conflict; Required Filings and Consents............................................ A-20
3.6 SEC Filings; Parent Financial Statements.............................................. A-21
3.7 S-4; Proxy Statement.................................................................. A-22
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
3.8 Board Approval........................................................................ A-22
3.9 Interim Operations of Merger Subs..................................................... A-22
3.10 No Ownership of Company Common Stock.................................................. A-22
3.11 No Undisclosed Liabilities............................................................ A-22
3.12 Absence of Certain Changes or Events.................................................. A-22
3.13 Absence of Litigation................................................................. A-22
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................................................... A-23
4.1 Conduct of Business by Company........................................................ A-23
4.2 Conduct of Business by Parent......................................................... A-25
ARTICLE V ADDITIONAL AGREEMENTS................................................................. A-25
5.1 Proxy Statement/Prospectus; S-4; Other Filings........................................ A-25
5.2 Meeting of Company Stockholders....................................................... A-26
5.3 Confidentiality; Access to Information................................................ A-27
5.4 No Solicitation....................................................................... A-27
5.5 Public Disclosure..................................................................... A-29
5.6 Reasonable Efforts; Notification...................................................... A-29
5.7 Third Party Consents.................................................................. A-30
5.8 Stock Options and ESPP................................................................ A-30
5.9 Form S-8.............................................................................. A-31
5.10 Indemnification....................................................................... A-31
5.11 Nasdaq Listing........................................................................ A-31
5.12 Company Affiliate Agreement........................................................... A-32
5.13 Regulatory Filings; Reasonable Efforts................................................ A-32
5.14 Noncompetition Agreements............................................................. A-32
5.15 Executive Employment Agreements....................................................... A-32
5.16 Open Market Purchases by Level One Merger Sub......................................... A-32
5.17 Company 401(k) Plan................................................................... A-33
5.18 Options and Doctor Warrant............................................................ A-33
5.19 Scitex Voting Agreement............................................................... A-33
ARTICLE VI CONDITIONS TO THE MERGER.............................................................. A-33
6.1 Conditions to Obligations of Each Party to Effect the Merger.......................... A-33
6.2 Additional Conditions to Obligations of Company....................................... A-34
6.3 Additional Conditions to the Obligations of Parent and Merger Subs.................... A-34
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER..................................................... A-35
7.1 Termination........................................................................... A-35
7.2 Notice of Termination; Effect of Termination.......................................... A-37
7.3 Fees and Expenses..................................................................... A-37
7.4 Amendment............................................................................. A-37
7.5 Extension; Waiver..................................................................... A-38
ARTICLE VIII GENERAL PROVISIONS.................................................................... A-38
8.1 Non-Survival of Representations and Warranties........................................ A-38
8.2 Notices............................................................................... A-38
8.3 Interpretation; Knowledge............................................................. A-39
8.4 Counterparts.......................................................................... A-39
8.5 Entire Agreement; Third Party Beneficiaries........................................... A-39
8.6 Severability.......................................................................... A-40
8.7 Other Remedies; Specific Performance.................................................. A-40
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
8.8 Governing Law......................................................................... A-40
8.9 Rules of Construction................................................................. A-40
8.10 Assignment............................................................................ A-40
8.11 Waiver of Jury Trial.................................................................. A-40
</TABLE>
A-iii
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Persons Entering Into Voting Agreements
Exhibit A-1 Form of Voting Agreement
Exhibit B Form of Affiliate Agreement
Exhibit C Form of Noncompetition Agreement
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of December 16, 1998, among Pinnacle Systems, Inc., a California
corporation ("PARENT"), Bernardo Merger Corporation, a Delaware corporation and
a wholly-owned subsidiary of Parent ("LEVEL ONE MERGER SUB"), Walsh Merger
Corporation, a Delaware corporation and a wholly-owned subsidiary of Level One
Merger Sub ("MERGER SUB" and together with Level One Merger Sub, "MERGER SUBS")
and Truevision, Inc., a Delaware corporation ("COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Delaware General
Corporation Law ("DELAWARE LAW"), Parent and Company intend to enter into a
business combination transaction.
B. The Board of Directors of Company (i) has determined that the Merger (as
defined in Section 1.1) is consistent with and in furtherance of the long-term
business strategy of Company and fair to, and in the best interests of, Company
and its stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Company adopt and approve this Agreement and
approve the Merger.
C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
affiliates of Company, who are identified on EXHIBIT A hereto, are entering into
Voting Agreements in substantially the form attached hereto as EXHIBIT A-1 (the
"COMPANY VOTING AGREEMENTS").
D. The parties intend that the Merger shall constitute a taxable transaction
and not a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
Company (the "MERGER"), the separate corporate existence of Merger Sub shall
cease and Company shall continue as the surviving corporation (the "SURVIVING
CORPORATION").
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "CERTIFICATE OF
MERGER") (the time of such filing (or such later time as may be agreed in
writing by Company and Parent and specified in the Certificate of Merger) being
the "EFFECTIVE TIME") as soon as practicable on or after the Closing Date (as
herein defined). Unless the context otherwise requires, the term "AGREEMENT" as
used herein refers collectively to this Agreement and Plan of Reorganization and
the Certificate of Merger. The closing of the Merger (the "CLOSING") shall take
place at the offices of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, at a time and date to be specified by the parties, which shall be
no later than the second business day after the satisfaction or waiver of the
conditions
A-1
<PAGE>
set forth in Article VI, or at such other time, date and location as the parties
hereto agree in writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation of the
Surviving Corporation; PROVIDED, HOWEVER, that at the Effective Time the
Certificate of Incorporation of the Surviving Corporation shall be amended
so that the name of the Surviving Corporation shall be "Truevision, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, Company or the holders
of any of the following securities:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Common Stock,
$0.001 par value per share, of Company (the "COMPANY COMMON STOCK") issued
and outstanding immediately prior to the Effective Time, other than any
shares of Company Common Stock to be canceled pursuant to Section 1.6(b),
will be canceled and extinguished and automatically converted (subject to
Sections 1.6(f) and (g)) into the right to receive the number of shares of
Common Stock of Parent, together with the associated rights issued pursuant
to a Preferred Shares Rights Agreement between Parent and ChaseMellon
Shareholder Services, L.L.C., dated December 12, 1996, as amended (the
"PARENT COMMON STOCK") equal to 0.0313 (the "EXCHANGE RATIO") upon surrender
of the certificate representing such share of Company Common Stock in the
manner provided in Section 1.7 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if required)
in the manner provided in Section 1.9).
(b) CANCELLATION OF PARENT-OWNED AND COMPANY-HELD STOCK. Each share of
Company Common Stock held by Company or owned by Merger Sub, Level One
Merger Sub, Parent or any direct or indirect wholly-owned subsidiary of
Company or of Parent immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) STOCK OPTIONS; EMPLOYEE STOCK PURCHASE PLANS. At the Effective
Time, all options to purchase Company Common Stock then outstanding under
Company's Amended and Restated 1991 Director Option Plan (the "DIRECTORS'
PLAN") and Company's 1997 Equity Incentive Plan (the "1997 OPTION PLAN"
shall be assumed by Parent in accordance with Section 5.8 hereof. At the
Effective Time, Parent, as sole stockholder of Company, shall execute a
stockholder's consent approving all amendments made by Company's Board of
Directors to the 1988 Incentive Stock Plan (the "1988 OPTION PLAN" and
together with the 1997 Option Plan and the Directors' Plan, the
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"COMPANY STOCK OPTION PLANS") and to the options granted thereunder to
Company's directors and to Mr. Louis J. Doctor and Mr. R. John Curson, if
any such stock options are outstanding at that time. Immediately after
Parent's execution of the stockholder's consent referenced in the preceding
sentence, Parent shall assume all options to purchase Company Common Stock
then outstanding under the 1988 Option Plan, including those granted to
Company's directors and to Mr. Louis J. Doctor and Mr. R. John Curson, if
any such options are outstanding at that time, in accordance with Section
5.8 hereof. Rights outstanding under Company's 1990 Employee Stock Purchase
Plan (the "1990 ESPP") and under the 1998 Employee Stock Purchase Plan (the
"1998 ESPP" and together with the 1990 ESPP, the "ESPP") shall be treated as
set forth in Section 5.8.
(d) WARRANTS. At the Effective Time, warrants to purchase 500,000
shares of Common Stock, (the "FINANCING WARRANTS") and a warrant to purchase
400,000 shares of Common Stock (the "DOCTOR WARRANT" and together with the
Financing Warrants, the "COMPANY WARRANTS"), all of which are fully
exercisable, shall be assumed by Parent in accordance with the terms
thereof. In this regard, Company agrees to provide the holders of Company
Warrants with any and all notices required as a result of the Merger and the
transactions contemplated thereby.
(e) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock, $0.001
par value per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued
and outstanding immediately prior to the Effective Time shall be converted
into one validly issued, fully paid and nonassessable share of Common Stock,
$0.001 par value per share, of the Surviving Corporation. Each certificate
evidencing ownership of shares of Merger Sub Common Stock shall evidence
ownership of such shares of capital stock of the Surviving Corporation.
(f) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock or Company Common Stock),
reorganization, recapitalization, reclassification or other like change with
respect to Parent Common Stock or Company Common Stock occurring on or after
the date hereof and prior to the Effective Time.
(g) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction
of a share of Parent Common Stock (after aggregating all fractional shares
of Parent Common Stock that otherwise would be received by such holder)
shall receive from Parent an amount of cash (rounded to the nearest whole
cent) equal to the product of (i) such fraction, multiplied by (ii) the
average closing price of one share of Parent Common Stock for the five (5)
most recent days that Parent Common Stock has traded ending on the trading
day immediately prior to the Effective Time, as reported on the Nasdaq
National Market ("NASDAQ") or, if Parent Common Stock is not authorized for
trading on Nasdaq at such time, then on the primary exchange or quotation
system on which Parent Common Stock is then quoted or traded.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Parent shall select a bank or trust company
reasonably acceptable to Company to act as the exchange agent (the "EXCHANGE
AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I, the shares of Parent Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of Company Common Stock, and
cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.6(g) and any dividends or distributions to which
holders of shares of Company Common Stock may be entitled pursuant to
Section 1.7(d).
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(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into shares of Parent
Common Stock pursuant to Section 1.6, cash in lieu of any fractional shares
pursuant to Section 1.6(g) and any dividends or other distributions pursuant
to Section 1.7(d), (i) a letter of transmittal in customary form (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall contain such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing shares of
Parent Common Stock, cash in lieu of any fractional shares pursuant to
Section 1.6(g) and any dividends or other distributions pursuant to Section
1.7(d). Upon surrender of Certificates for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders of such
Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which
their shares of Company Common Stock were converted at the Effective Time,
payment in lieu of fractional shares which such holders have the right to
receive pursuant to Section 1.6(g) and any dividends or distributions
payable pursuant to Section 1.7(d), and the Certificates so surrendered
shall forthwith be canceled. Until so surrendered, outstanding Certificates
will be deemed from and after the Effective Time, for all corporate
purposes, subject to Section 1.7(d) as to the payment of dividends, to
evidence only the ownership of the number of full shares of Parent Common
Stock into which such shares of Company Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance
of any fractional shares in accordance with Section 1.6(g) and any dividends
or distributions payable pursuant to Section 1.7(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificates with respect
to the shares of Parent Common Stock represented thereby until the holders
of record of such Certificates shall surrender such Certificates. Subject to
applicable law, following surrender of any such Certificates, the Exchange
Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Parent Common Stock issued in
exchange therefor along with payment in lieu of fractional shares pursuant
to Section 1.6(g) hereof and the amount of any such dividends or other
distributions with a record date after the Effective Time payable with
respect to such whole shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If certificates representing shares of
Parent Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates representing shares of Parent Common Stock in any
name other than that of the registered holder of the Certificates
surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Parent, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
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1.8 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Section 1.6(g) and 1.7(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If
after the Effective Time Certificates are presented to the Surviving Corporation
for any reason, they shall be canceled and exchanged as provided in this Article
I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to Section
1.6, cash for fractional shares, if any, as may be required pursuant to Section
1.6(g) and any dividends or distributions payable pursuant to Section 1.7(d);
PROVIDED, HOWEVER, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Parent
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 TAX AND ACCOUNTING CONSEQUENCES.
(a) It is intended by the parties hereto that the Merger shall
constitute a taxable transaction for federal income tax purposes and not a
reorganization within the meaning of Section 368 of the Code.
(b) It is intended by the parties hereto that the Merger shall be
treated as a purchase for accounting purposes.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub will take all such lawful and necessary action. Parent shall
cause Merger Sub to perform all of its obligations relating to this Agreement
and the transactions contemplated thereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Subs, subject to such
exceptions as are specifically disclosed in writing in the disclosure letter
(referencing the appropriate section and paragraph numbers) delivered by Company
to Parent on or prior to the date of this Agreement and certified by a duly
authorized officer of Company (the "COMPANY DISCLOSURE LETTER"), as follows:
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Company
has delivered to Parent a complete and correct list of all of Company's direct
and indirect subsidiaries as of the date of this Agreement, indicating the
jurisdiction of organization of each subsidiary and Company's equity
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interest therein. Each of Company and its subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("APPROVALS") necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to have such
Approvals would not, individually or in the aggregate, have a Material Adverse
Effect (as defined in Section 8.3(c)) on Company. Each of Company and its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not, either
individually or in the aggregate, have a Material Adverse Effect on Company.
Other than wholly-owned subsidiaries, Company does not directly or indirectly
own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business, association or
entity.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Company has previously
furnished to Parent a complete and correct copy of the Certificate of
Incorporation and Bylaws of Company and equivalent organizational documents of
each of its subsidiaries, as amended to date. Such Certificate of Incorporation,
Bylaws and equivalent organizational documents of each of its subsidiaries are
in full force and effect. Neither Company nor any of its subsidiaries is in
violation of any of the provisions of its Certificate of Incorporation or Bylaws
or equivalent organizational documents.
2.3 CAPITALIZATION. The authorized capital stock of Company consists of
25,000,000 shares of Company Common Stock, $0.001 par value per share, and
2,000,000 shares of Preferred Stock, no par value per share ("COMPANY PREFERRED
STOCK"). At the close of business on November 21, 1998, (i) 13,104,398 shares of
Company Common Stock were issued and outstanding, (ii) no shares of Company
Common Stock were held in treasury by Company or by subsidiaries of Company,
(iii) 215,908 shares of Company Common Stock were available for future issuance
pursuant to the ESPP, (iv) 1,688,203 shares of Company Common Stock were
reserved for issuance upon the exercise of outstanding options to purchase
Company Common Stock under the 1988 Option Plan, (v) no shares of Company Common
Stock were available for future grant under the 1988 Option Plan, (vi) 529,400
shares of Company Common Stock were reserved for issuance upon exercise of
outstanding options to purchase Company Common Stock under the 1997 Option Plan,
(vii) 520,600 shares of Company Common Stock were available for future grant
under the 1997 Option Plan; (viii) 120,000 shares of Company Common Stock were
reserved for issuance upon the exercise of outstanding options to purchase
Company Common Stock under the Directors' Plan, (ix) 130,000 shares of Company
Common Stock were available for future grant under the Directors' Plan and (x)
900,000 shares of Company Common Stock were reserved for issuance upon
conversion of Company Warrants (as described in Section 1.6(d)). As of the date
hereof, no shares of Company Preferred Stock were issued or outstanding. No
change in such capitalization has occurred between November 21, 1998 and the
date hereof except (x) the issuance of shares of Company Common Stock pursuant
to the exercise of outstanding options or warrants or (y) the cancellation of
unvested options for Common Stock held by, or the repurchase of unvested shares
of Common Stock from, directors, employees, consultants or other service
providers of Company pursuant to the terms of their stock option, stock purchase
or stock restriction agreements. All outstanding shares of Company Common Stock
are duly authorized, validly issued, fully paid and nonassessable and are not
subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of Company or any agreement or document to which Company
is a party or by which it is bound. Except as set forth in this Section 2.3, as
of the date of this Agreement, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of Company or any of its subsidiaries that obligate
Company or any of its subsidiaries to issue or sell any shares of capital stock
of, or other equity interests in, Company or any of its subsidiaries or
obligating Company or any of its subsidiaries
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to grant, extend, accelerate the vesting of or enter into any such option,
warrant or other right, agreement, arrangement or commitment. All shares of
Company Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of Company or
any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of
Company Common Stock or the capital stock of any subsidiary, except the
repurchase of unvested shares of Company Common Stock from directors, employees,
consultants or other service providers of Company pursuant to the terms of their
stock option, stock purchase or stock restriction agreements, or to provide
funds to or make any investment (in the form of a loan, capital contribution or
otherwise) in any such subsidiary or any other entity. All of the outstanding
shares of capital stock (other than directors' qualifying shares) of each of
Company's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and all such shares (other than directors' qualifying shares) are
owned by Company or another subsidiary free and clear of all security interests,
liens, claims, pledges, agreements, limitations in Company's voting rights,
charges or other encumbrances of any nature whatsoever. The Company Disclosure
Letter lists for each person who held options or warrants to acquire shares of
Company Common Stock as of November 21, 1998, the name of the holder of such
option or warrant, the exercise price of such option or warrant, the number of
shares as to which such option or warrant had vested as of November 21, 1998 for
such option or warrant and whether the exercisability of such option or warrant
will be accelerated in any way by the transactions contemplated by this
Agreement, and indicates the extent of acceleration, if any. Except as
contemplated by this Agreement, there are no registration rights and, to the
knowledge of Company, there are no voting trusts, proxies, rights plans,
antitakeover plans or other agreements or understandings to which Company is a
party or by which it is bound with respect to any equity security of any class
of Company or with respect to any equity security, partnership interest or
similar ownership interest of any class of any of its subsidiaries. Stockholders
of Company will not be entitled to dissenters' rights under applicable state law
in connection with the Merger. The Doctor Warrant is treated by the Company as a
nonstatutory stock option for tax and accounting purposes.
2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, subject to obtaining the approval of the
stockholders of Company of the Merger, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Company and
the consummation by Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Company and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement or to consummate the transactions so contemplated
(other than, with respect to the Merger, the approval and adoption of this
Agreement and the approval of the Merger by holders of a majority of the
outstanding shares of Company Common Stock in accordance with Delaware Law and
Company's Certificate of Incorporation and Bylaws). This Agreement has been duly
and validly executed and delivered by Company and, assuming the due
authorization, execution and delivery by Parent and Merger Subs, constitutes a
legal and binding obligation of Company, enforceable against Company in
accordance with its terms.
2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Company do not, and the
performance of this Agreement by Company will not, (i) conflict with or violate
the Certificate of Incorporation, Bylaws or equivalent organizational documents
of Company or any of its subsidiaries, (ii) subject to obtaining the approval
and adoption of Company's stockholders of this Agreement and the approval of
Company's stockholders of the Merger and compliance with the requirements set
forth in Section 2.5(b) below, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Company or any of its
subsidiaries or by which Company or any of its subsidiaries or any of their
respective properties are bound or affected, or (iii) result in any breach of or
constitute a default (or
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an event that with notice or lapse of time or both would become a default)
under, or impair Company's or any such subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Company
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Company or any of its subsidiaries is a party
or by which Company or any of its subsidiaries or its or any of their respective
properties are bound or affected, except in the case of clauses (ii) and (iii)
above as would not individually or in the aggregate reasonably be expected to
have a Material Adverse Effect on Company. The Company Disclosure Letter lists
all material consents, waivers and approvals under any of Company's or any of
its subsidiaries' material agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.
(b) The execution and delivery of this Agreement by Company do not, and the
performance of this Agreement by Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
court, administrative agency, commission, governmental or regulatory authority,
domestic or foreign (a "GOVERNMENTAL ENTITY"), except (A) for applicable
requirements, if any, of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
state securities laws ("BLUE SKY LAWS"), the pre-merger notification
requirements (the "HSR APPROVAL") of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT") and of foreign Governmental
Entities and the rules and regulations thereunder, the rules and regulations of
Nasdaq, and the filing and recordation of the Certificate of Merger as required
by Delaware Law and (B) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, (i) would
not prevent consummation of the Merger or otherwise prevent Company from
performing its obligations under this Agreement or (ii) would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Company.
2.6 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither Company nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Company or any of its subsidiaries or by which Company or
any of its subsidiaries or any of their respective properties is bound or
affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Company or any of its subsidiaries is a party or by which Company or any of its
subsidiaries or its or any of their respective properties is bound or affected,
except for any conflicts, defaults or violations which would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Company. To the knowledge of Company, no investigation or review by any
governmental or regulatory body or authority is pending or threatened against
Company or its subsidiaries, nor has any governmental or regulatory body or
authority indicated an intention to conduct the same.
(b) Company and its subsidiaries hold all permits, licenses, variances,
exemp-tions, orders and approvals from governmental authorities which are
necessary for the operation of the business of Company and its subsidiaries
taken as a whole (collectively, the "COMPANY PERMITS"), except for those Company
Permits, the absence of which would not, individually or in the aggregate, have
a Material Adverse Effect on Company. Company and its subsidiaries are in
compliance with the terms of the Company Permits, except where the failure to be
in compliance with the terms of the Company Permits would not, individually or
in the aggregate, have a Material Adverse Effect on Company.
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2.7 SEC FILINGS; COMPANY FINANCIAL STATEMENTS.
(a) Company has made available to Parent a correct and complete copy of each
material form, report, schedule, registration statement and definitive proxy
statement filed by Company with the Securities and Exchange Commission ("SEC")
since January 1, 1995 (the "COMPANY SEC REPORTS"), which are all the material
forms, reports and documents required to be filed by Company with the SEC since
January 1, 1995 and prior to the date of this Agreement. The Company SEC Reports
(A) were prepared in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Company SEC Reports, and (B) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of Company's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports, including each
Company SEC Report filed after the date hereof until the Closing, (i) complied
as to form in all material respects with the published rules and regulations of
the SEC with respect thereto, (ii) was prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes thereto
or, in the case of unaudited interim financial statements, as may be permitted
by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly presented the
consolidated financial position of Company and its subsidiaries as of the
respective dates thereof and the consolidated results of Company's operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements may not contain footnotes and were or are subject to normal
and recurring year-end adjustments. The balance sheet of Company contained in
Company SEC Reports as of September 26, 1998 is hereinafter referred to as the
"COMPANY BALANCE SHEET."
(c) Company has previously furnished to Parent a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Company with the SEC pursuant to
the Securities Act or the Exchange Act.
2.8 NO UNDISCLOSED LIABILITIES. Neither Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of
a nature required to be disclosed on a balance sheet or in the related notes to
the consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of Company and its subsidiaries taken as a
whole, except (i) liabilities provided for in Company Balance Sheet, (ii)
liabilities incurred since September 26, 1998 in the ordinary course of business
consistent with past practices or (iii) banking, accounting, legal and printing
fees and expenses associated with the Merger.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 26, 1998, there
has not been: (i) any Material Adverse Effect on Company, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of Company's or any of its
subsidiaries' capital stock, or any purchase, redemption or other acquisition by
Company of any of Company's capital stock or any other securities of Company or
its subsidiaries or issuances of any options, warrants, calls or rights to
acquire any such shares or other securities except for repurchases from
employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements, (iii) any split, combination
or reclassification of any of Company's or any of its subsidiaries' capital
stock, (iv) any granting by Company or any of its subsidiaries of any increase
in compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary
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course of business consistent with past practice, or any payment by Company or
any of its subsidiaries of any bonus, except for bonuses made in the ordinary
course of business consistent with past practice, or any granting by Company or
any of its subsidiaries of any increase in severance or termination pay or any
entry by Company or any of its subsidiaries into any currently effective
employment, severance, termination or indemnification agreement or any agreement
the benefits of which are contingent or the terms of which are materially
altered upon the occurrence of a transaction involving Company of the nature
contemplated hereby, (v) entry by Company or any of its subsidiaries into any
licensing or other agreement with regard to the acquisition or disposition of
any material Intellectual Property (as defined in Section 2.19) other than
licenses in the ordinary course of business consistent with past practice or any
amendment or consent with respect to any licensing agreement filed or required
to be filed by Company with the SEC, (vi) any material change by Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (vii) any revaluation by Company of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable other than in the ordinary course of
business.
2.10 ABSENCE OF LITIGATION. There are no claims, actions, suits or
proceedings pending or, to the knowledge of Company, threatened against Company
or any of its subsidiaries or any properties or rights of Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign. No Governmental Entity has at
any time since January 1, 1997 challenged or questioned in a writing delivered
to Company the legal right of Company to design, manufacture, offer or sell any
of its products in the present manner or style thereof.
2.11 EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "AFFILIATE" set
forth in Section 2.11(a)(i) below (which definition shall apply only to this
Section 2.11), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under common
control with Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations issued thereunder;
(ii) "COMPANY EMPLOYEE PLAN" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "EMPLOYEE BENEFIT
PLAN," within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by Company
or any Affiliate for the benefit of any Employee;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "EMPLOYEE" shall mean any current, former, or retired employee,
officer, or director of Company or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas,
work permit or similar written agreement or contract between Company or
any Affiliate and any Employee or consultant;
(vii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
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(ix) "INTERNATIONAL EMPLOYEE PLAN" shall mean each Company Employee
Plan that has been adopted or maintained by Company, whether informally
or formally, for the benefit of Employees outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xii) "PENSION PLAN" shall mean each Company Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) DISCLOSURE LETTER. The Company Disclosure Letter contains an accurate
and complete list of each Company Employee Plan and each Employee Agreement.
Company does not have any plan or commitment to establish any new Company
Employee Plan, to materially modify any Company Employee Plan or Employee
Agree-ment (except to the extent required by law or to conform any such Company
Employee Plan or Employee Agreement to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required by
this Agreement), or to enter into any Company Employee Plan or material Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing.
(c) DOCUMENTS. Company has provided or made reasonably available to
Parent: (i) correct and complete copies of all documents embodying or relating
to each Company Employee Plan and each written Employee Agreement including all
amendments thereto which are currently effective and written interpretations
thereof; (ii) the three (3) most recent annual reports (Form Series 5500 and all
schedules and financial statements attached thereto), if any, required under
ERISA or the Code in connection with each Company Employee Plan or related
trust; (iii) if the Company Employee Plan is funded, the most recent annual and
periodic accounting of Company Employee Plan assets; (iv) the most recent
summary plan description together with the summary of material modifications
thereto, if any, required under ERISA with respect to each Company Employee
Plan; (v) all IRS determination, opinion, notification and advisory letters, and
rulings relating to Company Employee Plans and copies of all applications and
correspondence to or from the IRS or the DOL with respect to any Company
Employee Plan; (vi) all material written agreements and contracts relating to
each currently effective Company Employee Plan, including, but not limited to,
administrative service agreements, group annuity contracts and group insurance
contracts; (vii) all communications material to any Employee or Employees
relating to any Company Employee Plan and any proposed Company Employee Plans,
in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any material liability to
Company; (viii) all standard COBRA forms and related notices; and (ix) all
registration statements prepared in connection with each Company Employee Plan
and all documents comprising a prospectus prepared since January 1, 1995 in
connection with each Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. (i) Company has performed in all material
respects all obligations required to be performed by it under, is not in
material default or material violation of, and has no knowledge of any material
default or material violation by any other party to each Company Employee Plan,
and each Company Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) each Company Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code has either received a favorable determination
letter, or comparable letter, from the IRS with respect to each such Company
Employee Plan as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for or receive such a
determination letter, or comparable letter, and make any
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amendments necessary to obtain a favorable determination; (iii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Company Employee Plan; (iv) there are no material actions,
suits or claims pending, or, to the knowledge of Company, threatened or
reasonably anticipated (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan; (v)
each Company Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without liability to
Parent, Company or any of its Affiliates (other than ordinary administration
expenses typically incurred in a termination event); (vi) there are no audits,
inquiries or proceedings pending or, to the knowledge of Company or any
Affiliates, threatened by the IRS or DOL with respect to any Company Employee
Plan; and (vii) neither Company nor any Affiliate is subject to any material
penalty or material tax with respect to any Company Employee Plan under Section
402(i) of ERISA or Sections 4975 through 4980 of the Code.
(e) PENSION PLANS. Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Title IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has Company contributed to or been
requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. No Company Employee Plan provides, or
has any liability to provide, retiree life insurance, retiree health or other
retiree employee welfare benefits to any person for any reason, except as may be
required by COBRA or other applicable statute, and Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) or any other person
that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(h) Neither Company nor any Affiliate has, prior to the Effective Time, and
in any material respect, violated any of the health care continuation
requirements of COBRA, the requirements of FMLA or any similar provisions of
state law applicable to its Employees.
(i) EFFECT OF TRANSACTION
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under
any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase
in benefits or obligation to fund benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by Company or its
Affiliates with respect to any Employee as a result of the transactions
contemplated by this Agreement will be characterized as an "excess parachute
payment," within the meaning of Section 280G(b)(1) of the Code.
(j) EMPLOYMENT MATTERS. Company: (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees, except for amounts that are not
material individually or in the aggregate; (iii) is not liable for any arrears
of wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any material payment to any trust or other
fund or to any governmental or administrative authority, with respect to
unemployment compensation
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benefits, social security or other benefits or obligations for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice). There are no pending, or to Company's knowledge threatened
or reasonably anticipated claims or actions against Company under any worker's
compensation policy or long-term disability policy. To Company's knowledge, no
employee of Company has violated any employment contract, nondisclosure
agreement or noncompetition agreement by which such employee is bound due to
such employee being employed by Company and disclosing to Company or using trade
secrets or proprietary information of any other person or entity.
(k) INTERNATIONAL EMPLOYEE PLAN. Each International Employee Plan has been
established, maintained and administered in material compliance with its terms
and conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities, that as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent Company or Parent from
terminating or amending any International Employee Plan at any time for any
reason.
2.12 LABOR MATTERS. (i) There is no litigation pending or, to the
knowledge of each of Company and its respective subsidiaries, threatened,
between Company or any of its subsidiaries and any of their respective
employees; (ii) as of the date of this Agreement, neither Company nor any of
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by Company or its subsidiaries nor
does Company or its subsidiaries know of any activities or proceedings of any
labor union to organize any such employees; and (iii) as of the date of this
Agreement, neither Company nor any of its subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages or lockouts, or threats thereof, by or with
respect to any employees of Company or any of its subsidiaries. Neither Company
nor any of its subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act.
2.13 S-4; PROXY STATEMENT. None of the information supplied or to be
supplied by Company for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of the Parent Common Stock in or as a result of the
Merger (the "S-4") will, at the time the S-4 is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the Proxy
Statement/Prospectus (the "PROXY STATEMENT/PROSPECTUS") to be filed with the SEC
by Company pursuant to Section 5.1 hereof will, at the dates mailed to the
stockholders of Company, at the times of the stockholder meeting of Company (the
"COMPANY STOCKHOLDERS' MEETING") in connection with the transactions
contemplated hereby and as of the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act, Exchange Act and the rules and regulations
promulgated by the SEC thereunder. If at any time prior to the Effective Time
any event relating to Company or any of its affiliates, officers or directors
should be discovered by Company which is required to be set forth in an
amendment to the S-4 or a supplement to the Proxy Statement/Prospectus, Company
shall promptly inform Parent. Notwithstanding the foregoing, Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Subs which is contained in any of the foregoing documents.
2.14 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material agreement,
judgment, injunction, order or decree binding upon Company or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of Company or any of
its subsidiaries, any acquisition of property by Company or any of its
subsidiaries or the conduct of business by Company or any of its subsidiaries as
currently conducted.
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2.15 TITLE TO PROPERTY. Company owns no material real property. Company
and each of its subsidiaries have good and defensible title to all of their
material properties and assets, free and clear of all liens, charges and
encumbrances except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby. The
Company Disclosure Letter lists all material real property leases to which
Company or any of its subsidiaries is a party as of the date of this Agreement
and each amendment thereto that is in effect as of the date of this Agreement.
All material real or personal property leases pursuant to which Company or any
of its subsidiaries lease from others are in good standing, valid and effective
in accordance with their respective terms, and there is not, under any of such
leases, any existing material default or event of default (or any event which
with notice or lapse of time, or both, would constitute a material default). All
the plants, structures and equipment of Company and its subsidiaries, except
such as may be under construction, are in good operating condition and repair,
in all material respects.
2.16 TAXES.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) Company and each of its subsidiaries have timely filed (taking into
account applicable extensions) all federal and state, local and foreign
returns, estimates, information statements and reports ("RETURNS") relating
to Taxes required to be filed by Company and each of its subsidiaries with
any Tax authority and are true and correct in all material respects on such
Returns.
(ii) Company and each of its subsidiaries as of the Effective Time will
have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act ("FICA"),
Taxes pursuant to the Federal Unemployment Tax Act ("FUTA") and other Taxes
required to be withheld.
(iii) There is no Tax deficiency outstanding which has been proposed or
assessed in writing against Company or any of its subsidiaries, nor has
Company or any of its subsidiaries executed any unexpired waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax other than the automatic extension arising from the
filing of a Return after its due date.
(iv) No audit or other examination of any Return of Company or any of
its subsidiaries by any Tax authority is presently in progress, nor has
Company or any of its subsidiaries been notified of any request for such an
audit or other examination.
(v) No adjustment relating to any Returns filed by Company or any of its
subsidiaries has been proposed in writing formally or informally by any Tax
authority to Company or any of its subsidiaries or any representative
thereof.
(vi) Neither Company nor any of its subsidiaries has any liability for
unpaid Taxes which has not been accrued for or reserved on the Company
Balance Sheet, whether asserted or unasserted, contingent or otherwise,
which is material to Company, other than any liability for unpaid Taxes
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that may have accrued since the date of the Company Balance Sheet in
connection with the operation of the business of Company and its
subsidiaries in the ordinary course of business.
(vii) There is no contract, agreement, plan or arrangement to which
Company is a party as of the date of this Agreement, including but not
limited to the provisions of this Agreement, covering any employee or former
employee of Company or any of its subsidiaries that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
(viii) Neither Company nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by Company.
(ix) Except for any such agreement or arrangement solely between Company
and its subsidiaries, neither Company nor any of its subsidiaries is party
to or has any obligation under any tax-sharing, tax indemnity or tax
allocation agreement or arrangement.
(x) Company and its subsidiaries have not been and will not be required
to include any material adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or Section 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Closing.
(xi) None of Company's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(xii) The Company Disclosure Letter lists (A) any foreign Tax holidays,
(B) any intercompany transfer pricing agreements, or other arrangements that
have been established by Company or any of its subsidiaries with any Tax
authority and (C) any expatriate programs or policies affecting Company or
any of its subsidiaries.
2.17 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as would not be reasonably expected to have
a Material Adverse Effect on Company (in any individual case or in the
aggregate), no underground storage tanks and no amount of any substance that has
been designated by any Governmental Entity or by applicable federal, state or
local law to be radioactive, toxic, hazardous or otherwise a danger to health or
the environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies,
(a "HAZARDOUS MATERIAL") are present, as a result of the actions of Company or
any of its subsidiaries or any affiliate of Company, or, to Company's knowledge,
as a result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that Company or any of its subsidiaries has at any time owned,
operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Except as would not be reasonably
expected to have a Material Adverse Effect on Company (in any individual case or
in the aggregate) (i) neither Company nor any of its subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed its
Employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, and (ii) neither Company nor any of its subsidiaries
has disposed of, transported, sold, used, released, exposed its employees or
others to or manufactured any product containing a Hazardous Material
(collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
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(c) PERMITS. Company and its subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents (the "COMPANY
ENVIRONMENTAL PERMITS") necessary for the conduct of Company's and its
subsidiaries' Hazardous Material Activities and other businesses of Company and
its subsidiaries as such activities and businesses are currently being
conducted, except for those Company Environmental Permits the absence of which
would not have, individually or in the aggregate, a Material Adverse Effect on
Company.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to Company's
knowledge, no action, proceeding, revocation proceeding, amendment procedure,
writ or injunction has been threatened by any Governmental Entity against
Company or any of its subsidiaries in a writing delivered to Company concerning
any Company Environmental Permit Hazardous Material or any Hazardous Materials
Activity of Company or any of its subsidiaries. Company is not aware of any fact
or circumstance which could involve Company or any of its subsidiaries in any
environmental litigation or impose upon Company any material environmental
liability.
2.18 BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Company.
2.19 INTELLECTUAL PROPERTY.
(a) Each of Company and its subsidiaries owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications for such patents,
trademarks, trade names, service marks and copyrights, and all patent rights,
trade secrets, schematics, technology, know-how, computer software and tangible
or intangible proprietary information or material or other intellectual property
or proprietary rights that are used to conduct its business as currently
conducted (collectively, "INTELLECTUAL PROPERTY") except where the failure to
own, license or possess legally enforceable rights to use such Intellectual
Property would not, individually or in the aggregate, be expected to result in a
material loss of benefits or material loss to Company's business. Each of
Company and its subsidiaries has taken reasonable measures to protect the
proprietary nature of each material item of Intellectual Property that it
considers confidential, and to maintain in confidence all material trade secrets
and confidential information that it presently owns or uses.
(b) With respect to each material item of Intellectual Property that Company
or any of its subsidiaries owns: (i) other than common law trademarks, and
subject to such rights as have been granted by Company or any of its
subsidiaries under non-exclusive license agreements and joint development
agreements entered into by Company or any of its subsidiaries (copies of which
have previously been made available or disclosed in writing to Parent), Company
or its subsidiaries possesses all right, title, interest in and to such item;
and (ii) such item is not subject to any outstanding judgment, order, decree,
stipulation or injunction that materially interferes with the conduct of
Company's or any of its subsidiaries' business as currently conducted. With
respect to each item of third party Intellectual Property used by Company or any
of its subsidiaries or incorporated in any existing product or service of
Company or any of its subsidiaries ("THIRD PARTY INTELLECTUAL PROPERTY RIGHTS")
that is material to the business of Company or any of its subsidiaries: (i) the
license, sublicense or other agreement covering such item is legal, valid,
binding, enforceable and in full force and effect with respect to Company or its
subsidiaries, and, to Company's knowledge, is legal, valid, binding, enforceable
and in full force and effect with respect to each other party thereto; (ii)
neither Company nor any of its subsidiaries is in material breach or default
thereunder, and to Company's knowledge no other party to such license,
sublicense or other agreement is in material breach or default thereunder, and
no event has occurred which with notice or lapse of time would constitute a
material breach or default by Company or any of its subsidiaries or permit
termination, modification or acceleration thereunder by
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the other party thereto; and (iii) the underlying item of Third Party
Intellectual Property is not subject to any outstanding judgment, order, decree,
stipulation or injunction to which Company or any of its subsidiaries is a party
or has been specifically named that materially interferes with the conduct of
Company's or any of its subsidiaries' business as currently conducted.
(c) Neither Company nor any of its subsidiaries (i) has received notice that
it has been named in any suit, action or proceeding which involves a claim of
infringement or misappropriation of any Intellectual Property right of any third
party or (ii) has received any written notice alleging any such claim of
infringement or misappropriation. To Company's knowledge, the manufacturing,
marketing, licensing or sale of the products or performance of the service
offerings of Company and its subsidiaries do not currently infringe, and have
not infringed, any Intellectual Property right of any third party or to
Company's knowledge any patent rights of third parties; and to the knowledge of
Company, the Intellectual Property rights of Company and its subsidiaries are
not being infringed by activities, products or services of any third party.
(d) The execution and delivery of this Agreement by Company, and the
consummation of the transactions contemplated hereby, will neither cause Company
nor any of its subsidiaries to be in violation or default under any material
license, sublicense or agreement, nor terminate nor modify nor entitle any other
party to any such license, sublicense or agreement to terminate or modify such
license, sublicense or agreement, nor limit in any way Company's or any of its
subsidiaries' ability to conduct its business or use or provide the use of the
Intellectual Property or Third Party Intellectual Property Rights.
(e) All officers, employees and consultants of Company or any of its
subsidiaries who have access to Intellectual Property have executed and
delivered to Company or any of its subsidiaries an agreement regarding the
protection of Intellectual Property and the assignment to Company or any of its
subsidiaries of all Intellectual Property arising from the services performed
for Company or any of its subsidiaries by such persons. To the knowledge of
Company, no current or prior officers, employees or consultants of Company or
any of its subsidiaries claim any ownership interest in any Intellectual
Property as a result of having been involved in the development of such property
while employed by or consulting to Company or any of its subsidiaries, or
otherwise. All of the Intellectual Property developed by Company employees has
been developed by such employees of Company or any of its subsidiaries within
the scope of their employment.
2.20 AGREEMENTS, CONTRACTS AND COMMITMENTS. Neither Company nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer, director or member of Company's Board of Directors, other than
those that are terminable by Company or any of its subsidiaries on no more
than thirty days notice and which do so with no express (whether by contract
or by policy) liability or financial obligation to Company;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or any guaranty currently in force
other than any agreement of indemnification entered into in connection with
the sale or license or distribution or marketing of products or services in
the ordinary course of business;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Company or any of its subsidiaries to
engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
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(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by Company or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Company's subsidiaries;
(f) any material joint marketing or development agreement currently in
force under which Company or any of its subsidiaries have continuing
material obligations to jointly market any product, technology or service
and which may not be canceled without penalty upon notice of 90 days or
less, or any material agreement pursuant to which Company or any of its
subsidiaries have continuing material obligations to jointly develop any
intellectual property that will not be owned, in whole or in part, by
Company or any of its subsidiaries and which may not be canceled without
penalty upon notice of 90 days or less;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology that is
material to Company and its subsidiaries taken as a whole; or
(h) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any Company product, service or
technology except as a distributor in the normal course of business.
Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to a Company Contract (as defined below), is in breach, violation or
default under, and neither Company nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
material terms or conditions of any of the agreements, contracts or commitments
to which Company or any of its subsidiaries is a party or by which it is bound
that are required to be disclosed in the Company Disclosure Letter pursuant to
this Section 2.20 (any such agreement, contract or commitment, a "COMPANY
CONTRACT") in such a manner as would permit any other party to cancel or
terminate any such Company Contract, or would permit any other party to seek
material damages or other remedies (for any or all of such breaches, violations
or defaults, in the aggregate).
2.21 INSURANCE. Company maintains insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Company and its subsidiaries (collectively, the
"INSURANCE POLICIES") which are of the type and in amounts customarily carried
by persons conducting businesses similar to those of Company and its
subsidiaries. There is no material claim by Company or any of its subsidiaries
pending under any of the Insurance Policies as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
2.22 OPINION OF FINANCIAL ADVISOR. Company has been advised in writing by
its financial advisor, BancBoston Robertson Stephens, that in its opinion, as of
the date of this Agreement, the aggregate merger consideration is fair to the
stockholders of Company from a financial point of view.
2.23 BOARD APPROVAL. The Board of Directors of Company has, as of the date
of this Agreement, (i) approved this Agreement and the transactions contemplated
hereby, (ii) determined that the Merger is in the best interests of the
stockholders of Company and is on terms that are fair to such stockholders and
(iii) recommended that the stockholders of Company approve this Agreement and
the Merger.
2.24 VOTE REQUIRED. The affirmative vote of a majority of the votes that
holders of the outstanding shares of Company Common Stock are entitled to vote
thereon is the only vote of the holders of any class or series of Company's
capital stock necessary to approve this Agreement and the transactions
contem-plated hereby.
2.25 STATE TAKEOVER STATUTES. The Board of Directors of Company has
approved the Merger, this Agreement, the Company Affiliate Agreements (as
defined in Section 5.12) and the Company Voting
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Agreements, and such approval is sufficient to render inapplicable to the
Merger, this Agreement, the Company Affiliate Agreements and the Company Voting
Agreements and the transactions contemplated hereby and thereby, the provisions
of Section 203 of Delaware Law to the extent, if any, such Section is applicable
to the Merger, this Agreement, the Company Affiliate Agreements and the Company
Voting Agreements and the transactions contemplated hereby and thereby. No other
state takeover statute or similar statute or regulation applies to or purports
to apply to the Merger, this Agreement, the Company Affiliate Agreements and the
Company Voting Agreements or the transactions contemplated hereby and thereby.
2.26 YEAR 2000 COMPLIANCE. All of Company's products (including products
currently under development) (i) will record, store, process, calculate and
present calendar dates falling on and after (and if applicable, spans of time
including) January 1, 2000, and will calculate any information dependent on or
relating to such dates in the same manner, and with the same functionality, data
integrity and performance, as the products record, store, process, calculate and
present calendar dates on or before December 31, 1999, or calculate any
information dependent on or relating to such dates (collectively, "YEAR 2000
COMPLIANT"), (ii) will lose no functionality with respect to the introduction of
records containing dates falling on or after January 1, 2000, and (iii) will be
interoperable with other products used and distributed by Parent (as long as
such products are Year 2000 Compliant) that may reasonably deliver records to
Company's products or receive records from Company's products, or interact with
Company's products, including but not limited to back-up and archived data.
Except as would not reasonably be expected to have a Material Adverse Effect on
Company, all of Company's Information Technology (as defined below) is Year 2000
Compliant, and will not cause an interruption in the ongoing operations of
Company's business on or after January 1, 2000. For purposes of the foregoing,
the term "INFORMATION TECHNOLOGY" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services that are owned or used by Company in
the conduct of its business, or purchased by Company from third party suppliers.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBS
Parent and Merger Subs jointly and severally represent and warrant to
Company, subject to such exceptions as are specifically disclosed in writing in
the disclosure letter (referencing the appropriate section and paragraph number)
delivered by Parent and Merger Subs to Company on or prior to the date of this
Agreement and certified by a duly authorized officer of Parent and Merger Subs
(the "PARENT DISCLOSURE LETTER"), as follows:
3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Each of
Parent and its subsidiaries is in possession of all Approvals necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure to
have such Approvals would not, individually or in the aggregate, have a Material
Adverse Effect on Parent. Each of Parent and its subsidiaries is duly qualified
or licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not, either individually or in the
aggregate, have a Material Adverse Effect on Parent.
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3.2 ARTICLES AND CERTIFICATES OF INCORPORATION AND BYLAWS. Parent has
previously furnished to Company a complete and correct copy of its Articles of
Incorporation and Bylaws as amended to date and each of Merger Subs has
previously furnished to Company a complete and correct copy of its Certificate
of Incorporation and Bylaws as amended to date. Such Articles of Incorporation
and Bylaws are in full force and effect. Neither Parent nor any of its
subsidiaries is in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent organizational documents.
3.3 CAPITALIZATION. The authorized capital stock of Parent consists of (i)
15,000,000 shares of Parent Common Stock , no par value, and of (ii) 5,000,000
shares of Preferred Stock, no par value per share ("PARENT PREFERRED STOCK"),
25,000 of which have been designated as Series A Participating Preferred Stock.
At the close of business on November 30, 1998, (i) 10,565,332 shares of Parent
Common Stock were issued and outstanding, (ii) no shares of Parent Common Stock
were held in treasury by Parent or by subsidiaries of Parent, (iii) 354,098
shares of Parent Common Stock were reserved for future issuance pursuant to
Parent's employee stock purchase plan, (iv) 2,251,929 shares of Parent Common
Stock were reserved for issuance upon the exercise of outstanding options
("PARENT OPTIONS") to purchase Parent Common Stock and (v) 576,553 shares of
Parent Common Stock were available for future grant under Parent's stock option
plans. As of the date hereof, no shares of Parent Preferred Stock were issued or
outstanding. The Parent Common Stock has certain associated rights issued
pursuant to a Preferred Shares Rights Agreement between Parent and ChaseMellon
Shareholder Services, L.L.C., dated December 12, 1996, as amended, which rights
will not become detached from the Parent Common Stock or exercisable or
otherwise be affected by the Merger, this Agreement or the other transactions
contemplated by this Agreement. The authorized capital stock of each Level One
Merger Sub and Merger Sub consists of 1,000 shares of common stock, par value
$0.001 per share, all of which, as of the date hereof, are issued and
outstanding. All of the outstanding shares of Parent's and Merger Subs'
respective capital stock have been duly authorized and validly issued and are
fully paid and nonassessable. All shares of Parent Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, shall, and the shares of
Parent Common Stock to be issued pursuant to the Merger will be, duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock (other than directors' qualifying shares) of each of
Parent's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares (other than directors' qualifying shares) are
owned by Parent or another of Parent's subsidiary free and clear of all security
interests, liens, claims, pledges, agreements, limitations in Parent's voting
rights, charges or other encumbrances of any nature whatsoever. Except as set
forth above, there are no other options, warrants or other rights to purchase
any of the Parent's authorized and unissued capital stock.
3.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Merger Subs
has all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Subs and the consummation by Parent and Merger Subs of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Subs and no other
corporate proceedings on the part of Parent or Merger Subs are necessary to
authorize this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Parent and Merger
Subs and, assuming the due authorization, execution and delivery by Company,
constitutes a legal and binding obligation of Parent and Merger Subs,
enforceable against Parent and Merger Subs in accordance with its terms.
3.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Parent and Merger Subs
do not, and the performance of this Agreement by Parent and Merger Subs will
not, (i) conflict with or violate the
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Articles of Incorporation, Bylaws or equivalent organizational documents of
Parent or any of its subsidiaries, (ii) subject to compliance with the
requirements set forth in Section 3.5(b) below, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Parent or any of
its subsidiaries or by which Parent or any of its subsidiaries or any of their
respective properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair Parent's or any such subsidiary's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Parent or any of its subsidiaries pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries or its or
any of their respective properties are bound or affected, except in the case of
clauses (ii) and (iii) above as would not individually or in the aggregate
reasonably be expected to have a Material Adverse Effect on Parent.
(b) The execution and delivery of this Agreement by Parent and Merger Subs
do not, and the performance of this Agreement by Parent and Merger Subs will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Entity except (A) for applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
the pre-merger notification requirements of the HSR Act and of foreign
Governmental Entities and the rules and regulations thereunder, the rules and
regulations of Nasdaq, and the filing and recordation of the Certificate or
Merger as required by Delaware Law and (B) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, (i) would not prevent consummation of the Merger or otherwise
prevent Parent or Merger Subs from performing their respective obligations under
this Agreement or (ii) could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on Parent.
3.6 SEC FILINGS; PARENT FINANCIAL STATEMENTS.
(a) Parent has made available to Company a correct and complete copy of each
material form, report, schedule, registration statement and definitive proxy
statement filed by Parent with the SEC on or after January 1, 1997 (the "PARENT
SEC REPORTS"), which are all the material forms, reports and documents required
to be filed by Parent with the SEC since January 1, 1997 and prior to the date
of this Agreement. The Parent SEC Reports (A) were prepared in accordance with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such Parent
SEC Reports, and (B) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of Parent's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports, including each
Parent SEC Report filed after the date hereof until the Closing, (i) complied as
to form in all material respects with the published rules and regulations of the
SEC with respect thereto, (ii) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii)
fairly presented the consolidated financial position of Parent and its
subsidiaries as of the respective dates thereof and the consolidated results of
Parent's operations and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were or are
subject to normal and recurring year-end adjustments. The balance
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sheet contained in the Parent SEC Reports as of September 30, 1998 is
hereinafter referred to as the "Parent Balance Sheet."
(c) Parent has previously furnished to Company a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
3.7 S-4; PROXY STATEMENT. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in (i) the S-4
will, at the time the S-4 is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
neces-sary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the Proxy
Statement/Prospectus will, at the dates mailed to the stockholders of Company,
at the time of the Company Stockholders' Meeting and as of the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The S-4 will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations promulgated by
the SEC thereunder. If at any time prior to the Effective Time any event
relating to Parent or any of its affiliates, officers or directors should be
discovered by Parent which is required to be set forth in an amendment to the
S-4 or a supplement to the Proxy Statement/Prospectus, Parent shall promptly
inform Company. Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any information supplied by Company which is contained
in any of the foregoing documents.
3.8 BOARD APPROVAL. The Board of Directors of Parent has, as of the date
hereof, (i) approved this Agreement and the transactions contemplated hereby and
(ii) determined that the Merger is in the best interests of the stockholders of
Parent and is on terms that are fair to such stockholders.
3.9 INTERIM OPERATIONS OF MERGER SUBS. Merger Subs were formed solely for
the purpose of engaging in the transactions contemplated hereby, have engaged in
no other business activities and have conducted their respective operations only
as contemplated hereby.
3.10 NO OWNERSHIP OF COMPANY COMMON STOCK. As of the date hereof, Parent
does not own, beneficially or of record, any shares of Company Common Stock.
3.11 NO UNDISCLOSED LIABILITIES. As of the date hereof, neither Parent nor
any of its subsidiaries has any liabilities (absolute, accrued, contingent or
otherwise) of a nature required to be disclosed on a balance sheet or in the
related notes to the consolidated financial statements prepared in accordance
with GAAP which are, individually or in the aggregate, material to the business,
results of operations or financial condition of Company and its subsidiaries
taken as a whole, except (i) liabilities provided for in Parent Balance Sheet,
(ii) liabilities incurred since September 30, 1998 in the ordinary course of
business consistent with past practices or (iii) banking, accounting, legal and
printing fees and expenses associated with the Merger.
3.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 1998, there
has not been any Material Adverse Effect on Parent.
3.13 ABSENCE OF LITIGATION. As of the date hereof, there are no material
claims, actions, suits or proceedings pending or, to the knowledge of Parent,
threatened against Parent or any of its subsidiaries or any properties or rights
of Parent or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign.
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ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in all material respects, in the usual, regular
and ordinary course, in substantially the same manner as heretofore conducted
and in compliance with all applicable laws and regulations, pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due, and use its commercially reasonable
efforts consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its present
officers and employees and (iii) preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others with which it has
business dealings. In addition, unless otherwise required by law or contract,
Company will promptly notify Parent of any material event involving its business
or operations.
In addition, except as permitted by the terms of this Agreement, and except
as provided in Section 4.1 of the Company Disclosure Letter, without the prior
written consent of Parent, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, Company shall not do any of the following and
shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans, except for completion of the option repricing program authorized
by the Board of Directors of Company prior to the date hereof;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date hereof and as previously disclosed in writing or made available to
Parent, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company
Intellectual Property, or enter into grants to transfer or license to any
person future patent rights, other than non-exclusive licenses in the
ordinary course of business and consistent with past practice;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the service
relationship with any employee or consultant pursuant to stock option or
purchase agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing of, any shares of capital stock or any
securities convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than (x) the issuance, delivery
and/or sale of (i) shares of Company Common Stock pursuant to the exercise
of stock options or warrants therefor outstanding as of the date of this
Agreement, and (ii) shares of
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Company Common Stock issuable to participants in the ESPP consistent with
the terms thereof and (y) the granting of stock options (and the issuance of
Common Stock upon exercise thereof), in the ordinary course and consistent
with past practices, in an amount not to exceed options to purchase (and the
issuance of Common Stock upon exercise thereof) 50,000 shares in the
aggregate;
(g) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to the business of Company or enter into any material joint
ventures, strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to the business of Company, except sales or licenses of product or inventory
in the ordinary course of business consistent with past practice;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than (i) in connection with
the financing of ordinary course trade payables consistent with past
practice or (ii) pursuant to existing credit facilities in the ordinary
course of business;
(k) Adopt or amend any employee benefit plan or employee stock purchase
or employee stock option plan, or enter into any employment contract or
collective bargaining agreement (other than offer letters and letter
agreements entered into in the ordinary course of business consistent with
past practice with employees who are terminable "at will,"), pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates or fringe benefits (including rights to severance or
indemnification) of its directors, officers, employees or consultants other
than in the ordinary course of business, consistent with past practice, or
change in any material respect any management policies or procedures;
(l) Make any individual or series of related payments outside of the
ordinary course of business in excess of $100,000;
(m) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which Company or any
subsidiary thereof is a party or waive, release or assign any material
rights or claims thereunder;
(n) enter into any contracts, agreements or obligations relating to the
distribution, sale, license or marketing by third parties of Company's
products or products licensed by Company other than non-exclusive contracts,
agreements or obligations entered into in the ordinary course of business
consistent with past practice;
(o) materially revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
(p) Subject to Section 5.2(c) and Section 5.4, engage in any action with
the intent to directly or indirectly adversely impact any of the
transactions contemplated by this Agreement; or
(q) Agree in writing or otherwise to take any of the actions described
in Section 4.1 (a) through (p) above.
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4.2 CONDUCT OF BUSINESS BY PARENT. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, except as permitted by the terms of
this Agreement and except as provided in Section 4.2 of the Parent Disclosure
Letter, without the prior written consent of Company, during the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Effective Time, Parent shall not do
any of the following:
(a) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(b) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement;
(c) Except as contemplated by this Agreement (including Section 5.16
hereof), make, effect, initiate, cause or participate in (i) any acquisition
of beneficial ownership of any securities of Company or any of its
subsidiaries, (ii) any acquisition of any assets of Company or any of its
subsidiaries, (iii) any tender offer, exchange offer, merger, business
combination, recapitalization, restructuring, liquidation, dissolution or
other extraordinary transaction involving Company or any of its securities,
assets or subsidiaries, or (iv) any "solicitation" of "proxies" (as those
terms are used in the proxy rules of the SEC) with respect to any securities
of Company; or
(d) Agree in writing or otherwise to take any of the actions described
in Section 4.2 (a) through 4.2 (c) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; S-4; OTHER FILINGS. As promptly as
practicable after the execution of this Agreement, Company and Parent will
prepare and file with the SEC the Proxy Statement/ Prospectus and Parent will
prepare and file with the SEC the S-4 in which the Proxy Statement/ Prospectus
will be included as a prospectus. Each of Company and Parent will respond to any
comments of the SEC, will use its respective commercially reasonable efforts to
have the S-4 declared effective under the Securities Act as promptly as
practicable after such filing and Company will cause the Proxy
Statement/Prospectus to be mailed to its stockholders at the earliest
practicable time after the S-4 is declared effective by the SEC. As promptly as
practicable after the date of this Agreement, each of Company and Parent will
prepare and file any other filings required to be filed by it under the Exchange
Act, the Securities Act or any other Federal, foreign or Blue Sky or related
laws relating to the Merger and the transactions contemplated by this Agreement
(the "OTHER FILINGS"). Each of Company and Parent will notify the other promptly
upon the receipt of any comments from the SEC or its staff or any other
government officials and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the S-4, the Proxy
Statement/Prospectus or any Other Filing or for additional information and will
supply the other with copies of all correspondence between such party or any of
its representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the S-4, the Proxy
Statement/Prospectus, the Merger or any Other Filing. Each of Company and Parent
will cause all documents that it is responsible for filing with the SEC or other
regulatory authorities under this Section 5.1 to comply in all material respects
with all applicable requirements of law and the rules and regulations
promulgated thereunder. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Proxy Statement/Prospectus, the S-4
or any Other Filing, Company or Parent, as the case may be, will promptly inform
the other of such occurrence and cooperate in filing with the SEC or its
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staff or any other government officials, and/or mailing to stockholders of
Company, such amendment or supplement.
5.2 MEETING OF COMPANY STOCKHOLDERS.
(a) Promptly after the date hereof, Company will take all action necessary
in accordance with Delaware Law and its Certificate of Incorporation and Bylaws
to convene the Company Stockholders' Meeting to be held as promptly as
practicable, and in any event (to the extent permissible under applicable law
and Company's Certificate of Incorporation and Bylaws) within 45 days after the
declaration of effectiveness of the S-4, for the purpose of voting upon this
Agreement and the Merger. Subject to Section 5.2(c), Company will use its
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption and approval of this Agreement and the approval of the
Merger and will take all other action necessary or advisable to secure the vote
or consent of its stockholders required by the rules of Nasdaq or Delaware Law
to obtain such approvals ("COMPANY STOCKHOLDER VOTE"). Notwithstanding the
anything to the contrary contained in this Agreement, Company may adjourn or
postpone the Company Stockholders' Meeting to the extent necessary to ensure
that any necessary supplement or amendment to the Prospectus/Proxy Statement is
provided to Company's stockholders in advance of a vote on the Merger and this
Agreement or, if as of the time for which Company Stockholders' Meeting is
originally scheduled (as set forth in the Prospectus/Proxy Statement) there are
insufficient shares of Company Common Stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct the business of the Company's
Stockholders' Meeting. Company shall ensure that the Company Stockholders'
Meeting is called, noticed, convened, held and conducted, and subject to Section
5.2(c) that all proxies solicited by Company in connection with the Company
Stockholders' Meeting are solicited, in compliance with Delaware Law, its
Certificate of Incorporation and Bylaws, the rules of Nasdaq and all other
applicable legal requirements. Company's obligation to call, give notice of,
convene and hold the Company Stockholders' Meeting in accordance with this
Section 5.2(a) shall not be limited to or otherwise affected by the
commencement, disclosure, announcement or submission to Company of any
Acquisition Proposal, or by any withdrawal, amendment or modification of the
recommendation of the Board of Directors of Company with respect to the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of Company shall
unanimously recommend that Company's stockholders vote in favor of and adopt and
approve this Agreement and the Merger at the Company Stockholders' Meeting; (ii)
the Prospectus/Proxy Statement shall include a statement to the effect that the
Board of Directors of Company has unanimously recommended that Company's
stockholders vote in favor of and adopt and approve this Agreement and the
Merger at the Company Stockholders' Meeting; and (iii) neither the Board of
Directors of Company nor any committee thereof shall withdraw, amend or modify,
or propose or resolve to withdraw, amend or modify in a manner adverse to
Parent, the unanimous recommendation of the Board of Directors of Company that
Company's stockholders vote in favor of and adopt and approve this Agreement and
the Merger. For purposes of this Agreement, said recommendation of the Board of
Directors shall be deemed to have been modified in a manner adverse to Parent if
said recommendation shall no longer be unanimous.
(c) Nothing in this Agreement shall prevent the Board of Directors of
Company from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger, ceasing to solicit from its stockholders
proxies in favor of the adoption and approval of this Agreement and the approval
of the Merger, or from endorsing or recommending to its stockholders a Superior
Offer (as defined below) if (i) a Superior Offer is made to Company and is not
withdrawn, (ii) neither Company nor any of its representatives shall have
violated any of the restrictions set forth in Section 5.4 with respect to such
Superior Offer or the party making such offer (or any affiliate or associate of
such party), and (iii) the Board of Directors of Company or any committee
thereof concludes in good faith, after consultation with its outside counsel,
that, in light of such Superior Offer, the withholding,
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withdrawal, amendment or modification of such recommendation, the ceasing to
solicit from its stockholders proxies in favor of the adoption and approval of
this Agreement and the approval of the Merger, and the endorsement or
recommendation of such Superior Offer, is required in order for the Board of
Directors of Company or any committee thereof to comply with its fiduciary
obligations to Company's stockholders under applicable law; PROVIDED, that the
Board of Directors of Company may withhold, withdraw, amend or modify its
recommendation in favor of the Merger or cease to solicit from its stockholders
proxies in favor of adoption and approval of this Agreement and the approval of
the Merger if failure to do so would violate applicable Delaware law. Subject to
applicable laws, nothing contained in this Section 5.2 shall limit Company's
obligation to hold and convene the Company Stockholders' Meeting (regardless of
whether the unanimous recommendation of the Board of Directors of Company shall
have been withdrawn, amended or modified). For purposes of this Agreement
"SUPERIOR OFFER" shall mean an unsolicited, bona fide written offer made by a
third party to consummate any of the following transactions: (i) a merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving Company pursuant to which the stockholders of
Company immediately preceding such transaction hold less than 50% of the equity
interest in the surviving or resulting entity of such transaction; (ii) a sale
or other disposition by Company of assets (excluding inventory and used
equipment sold in the ordinary course of business) representing in excess of 50%
of the fair market value of Company's business immediately prior to such sale,
or (iii) the acquisition by any person or group (including by way of a tender
offer or an exchange offer or issuance by Company), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing in excess of 50% of the voting power of the then outstanding shares
of capital stock of Company, on terms that the Board of Directors of Company
determines, in its reasonable judgment, after consultation with its financial
advisor, to be more favorable to Company stockholders than the terms of the
Merger; PROVIDED, HOWEVER, that any such offer shall not be deemed to be a
"Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed or is not likely in the judgment of
Company's Board of Directors to be obtained by such third party on a timely
basis.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that Company and Parent have previously executed
a Confidentiality Agreement, dated as of June 9, 1998 (the "Confidentiality
Agreement"), which Confidentiality Agreement will continue in full force and
effect in accordance with its terms.
(b) ACCESS TO INFORMATION. Company will afford Parent and its accountants,
counsel and other representatives reasonable access during normal business hours
to the properties, books, records and personnel of Company during the period
prior to the Effective Time to obtain all information concerning the business,
including the status of product development efforts, properties, results of
operations and personnel of Company, as Parent may reasonably request. No
information or knowledge obtained by Parent in any investigation pursuant to
this Section 5.3 will affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.4 NO SOLICITATION.
(a) From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article VII, Company and its
subsidiaries will not, nor will they authorize or permit any of their respective
officers, directors, affiliates or employees or any investment banker, attorney
or other advisor or representative retained by any of them to, directly or
indirectly, (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal (as hereinafter defined), (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to, any Acquisition
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Proposal, (iii) subject to Section 5.2(c), approve, endorse or recommend any
Acquisition Proposal or (iv) enter into any letter of intent or similar document
or any contract, agreement or commitment contemplating or otherwise relating to
any Acquisition Transaction; PROVIDED, HOWEVER, that prior to the approval of
this Agreement by the required Company Stockholder Vote, this Agreement shall
not prohibit Company from (A) furnishing nonpublic information regarding Company
and its subsidiaries to, entering into a confidentiality agreement with or
entering into discussions or negotiations with, any person or group in response
to a Superior Offer submitted by such person or group (and not withdrawn) if (1)
neither Company nor any representative of Company and its subsidiaries shall
have violated any of the restrictions set forth in this Section 5.4 with respect
to such person or group making such Superior Offer (or any affiliate or
associate of such person or group), (2) the Board of Directors of Company
concludes in good faith, after consultation with its outside legal counsel, that
such action is required in order for the Board of Directors of Company to comply
with its fiduciary obligations to Company's stockholders under applicable law,
(3) prior to furnishing any such nonpublic information to, or entering into
discussions or negotiations with, such person or group, Company gives Parent
written notice of the identity of such person or group and of Company's
intention to furnish nonpublic information to, or enter into discussions or
negotiations with, such person or group and Company receives from such person or
group an executed confidentiality agreement containing customary limitations on
the use and disclosure of all nonpublic written and oral information furnished
to such person or group by or on behalf of Company, and (4) contemporaneously
with furnishing any such nonpublic information to such person or group, Company
furnishes such nonpublic information to Parent (to the extent such nonpublic
information has not been previously furnished by Company to Parent) or (B)
complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act or other
applicable law with regard to an Acquisition Proposal. Company and its
subsidiaries will immediately cease any and all existing activities, discussions
or negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding two sentences by any
officer or director of Company or any of its subsidiaries or any investment
banker, attorney or other advisor or representative (excluding non-officer
employees) of Company or any of its subsidiaries shall be deemed to be a breach
of this Section 5.4 by Company. In addition to the foregoing, Company shall
provide Parent with at least 24 hours prior notice (or such lesser prior notice
as provided to the members of Company's Board of Directors but in no event less
than eight hours) of any meeting of Company's Board of Directors at which
Company's Board of Directors is reasonably expected to consider a Superior
Offer.
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any
inquiry, offer or proposal (other than an inquiry, offer or proposal by Parent)
relating to any Acquisition Transaction. For the purposes of this Agreement,
"ACQUISITION TRANSACTION" shall mean any transaction or series of related
transactions other than the transactions contemplated by this Agreement
involving: (A) any acquisition or purchase from Company by any person or "group"
(as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a 15% interest in the total outstanding
voting securities of Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 15% or more of the total outstanding voting
securities of Company or any of its subsidiaries or any merger, consolidation,
business combination or similar transaction involving Company pursuant to which
the stockholders of Company immediately preceding such transaction hold less
than 85% of the equity interests in the surviving or resulting entity of such
transaction; (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 50% of the assets of Company;
or (C) any liquidation or dissolution of Company.
(b) In addition to the obligations of Company set forth in paragraph (a) of
this Section 5.4, Company as promptly as practicable shall advise Parent orally
and in writing of any request for non-public information which Company
reasonably believes would lead to an Acquisition Proposal or of any
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Acquisition Proposal, or any inquiry with respect to or which Company reasonably
should believe would lead to any Acquisition Proposal, the material terms and
conditions of such request, Acquisition Proposal or inquiry, and the identity of
the person or group making any such request, Acquisition Proposal or inquiry.
Company will keep Parent informed in all material respects of the status and
details (including material amendments or proposed amendments) of any such
request, Acquisition Proposal or inquiry.
5.5 PUBLIC DISCLOSURE. Parent and Company will consult with each other,
and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or an Acquisition Proposal and will not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law or any listing agreement with a national securities exchange or Nasdaq. The
parties have agreed to the text of the joint press release announcing the
signing of this Agreement.
5.6 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and authorizations
from Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (iii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed and (v) the execution or
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, Company and its Board of
Directors shall, if any state takeover statute or similar statute or regulation
is or becomes applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger, this Agreement and the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
be deemed to require Parent or Company or any subsidiary or affiliate thereof to
agree to any divestiture by itself or any of its affiliates of shares of capital
stock or of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock.
(b) Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate in
any material respect, or any failure of Company to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions set
forth in Section 6.3(a) or 6.3(b) could not be satisfied, PROVIDED, HOWEVER,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
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(c) Parent shall give prompt notice to Company of any representation or
warranty made by it or Merger Subs contained in this Agreement becoming untrue
or inaccurate in any material respect, or any failure of Parent or Merger Subs
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Section 6.2(a) or 6.2(b) could not
be satisfied, PROVIDED, HOWEVER, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Parent and Company will each use all reasonable efforts to obtain any
consents, waivers and approvals under any of its or its subsidiaries' respective
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby or necessary to
enable the surviving corporation to conduct and operate the business of Company
and its subsidiaries substantially as presently conducted and as contemplated to
be conducted.
5.8 STOCK OPTIONS AND ESPP.
(a) At the Effective Time, Parent, as sole stockholder of Company, shall
execute a stockholder's consent approving all amendments made by Company's Board
of Directors to the 1988 Option Plan and options granted thereunder to Company's
directors and to Mr. Louis J. Doctor and Mr. R. John Curson, if any such stock
options are then outstanding. At the Effective Time, each outstanding option to
purchase shares of Company Common Stock under Company's Directors' Plan and 1997
Option Plan, whether or not exercisable and whether or not vested, shall by
virtue of the Merger and without any further action on the part of Company or
the holder thereof, be assumed by Parent, and immediately after Parent's
execution of the stockholder's consent, all options under the 1988 Option Plan
(together with the options under the Directors' Plan and 1997 Option Plan each,
a "Company Stock Option"), whether or not exercisable and whether or not vested,
shall by virtue of the execution of the stockholder's consent by Parent, and
without any further action on the part of the Company or the holder thereof, be
assumed by Parent, in such manner (with respect to all such option assumptions)
that Parent (i) is "assuming a stock option in a transaction to which Section
424(a) applied" within the meaning of Section 424 of the Code, or (ii) to the
extent that Section 424 of the Code does not apply to any such Company Stock
Options, would be a transaction within Section 424 of the Code. Each Company
Stock Option so assumed by Parent under this Agreement will continue to have,
and be subject to, the same terms and conditions set forth in the applicable
Company Stock Option Plan immediately prior to the Effective Time (including,
without limitation, any repurchase rights or vesting provisions), except that
(1) each Company Stock Option will be exercisable (or will become exercisable in
accordance with its terms) for the number of whole shares of Parent Common Stock
equal to the product of the number of shares of Company Common Stock that were
issuable upon exercise of such Company Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock, (2) the per share exercise price
for the shares of Parent Common Stock issuable upon exercise of such assumed
Company Stock Option will be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company Stock
Option was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded up to the nearest whole cent, and (3) except as necessary to give
effect to amendments made to the 1988 Option Plan prior to the Effective Time,
but approved by Company's stockholders at the Effective Time. In addition, each
Restricted Stock Purchase Agreement between Company or an Affiliate and an
employee of such entity shall be assumed by Parent, and the number of shares
subject to such Restricted Stock Purchase Agreement will be adjusted as
described above.
(b) It is intended that Company Stock Options assumed by Parent shall
qualify following the Effective Time as incentive stock options as defined in
Section 422 of the Code to the extent such
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Company Stock Options qualified as incentive stock options immediately prior to
the Effective Time and the provisions of this Section 5.8 shall be applied
consistent with such intent.
(c) Company shall take actions as are necessary to cause the "Purchase Date"
(as such term is used in the ESPP) applicable to the then current Offering (as
such term is used in the ESPP) to be the last trading day on which the Company
Common Stock is traded on Nasdaq immediately prior to the Effective Time (the
"FINAL COMPANY PURCHASE DATE"); provided, that such change in the Purchase Date
shall be conditioned upon the consummation of the Merger. On the Final Company
Purchase Date, Company shall apply the funds credited as of such date under the
ESPP within each participant's payroll withholdings account to the purchase of
whole shares of Company Common Stock in accordance with the terms of the ESPP.
Any such shares purchased under the ESPP shall be automatically converted on the
same basis as all other shares of Company Common Stock (other than shares
canceled pursuant to Section 1.6 (b), except that such shares shall be converted
automatically into shares of Parent Common Stock without the issuance of
certificates representing issued and outstanding shares of Company Common Stock
to ESPP participants.
(d) Notwithstanding anything to the contrary contained herein, Company shall
not incur any obligations under the 1990 ESPP after February 1, 1999.
5.9 FORM S-8. Parent agrees to file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed Company
Stock Options and Doctor Warrant within five (5) business days of the Effective
Time and to maintain the effectiveness of such registration statement thereafter
for so long as any of such options or other rights remain outstanding.
5.10 INDEMNIFICATION.
(a) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of Company
pursuant to any indemnification agreements between Company and its present and
former directors and officers in effect immediately prior to the Effective Time
(the "INDEMNIFIED PARTIES") and any indemnification provisions under Company's
Certificate of Incorporation or Bylaws as in effect on the date hereof. The
Certificate of Incorporation and Bylaws of the Surviving Corporation will
contain provisions with respect to exculpation and indemnification that are at
least as favorable to the Indemnified Parties as those contained in the
Certificate of Incorporation and Bylaws of Company as in effect on the date
hereof, which provisions will not be amended, repealed or otherwise modified for
a period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who, immediately prior to the
Effective Time, were directors, officers, employees or agents of Company, unless
such modification is required by law.
(b) For a period of six years after the Effective Time, Parent will cause
the Surviving Corporation to use all commercially reasonable efforts to maintain
in effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by Company's directors' and officers'
liability insurance policy on terms substantially similar to those applicable to
the current directors and officers of Company; PROVIDED, HOWEVER, that in no
event will Parent or the Surviving Corporation be required to expend in excess
of 150% of the annual premium currently paid by Company for such coverage (or
such coverage as is available for such 150% of such annual premium).
(c) The provisions of this Section 5.10 are intended to be in addition to
the rights otherwise available to the Indemnified Parties by law, charter,
statute, bylaw, resolution of the Board of Directors of Company or agreement,
and shall operate for the benefit of, and shall be enforceable by, each of the
Indemnified Parties, their heirs and their representatives.
5.11 NASDAQ LISTING. Parent agrees to authorize for listing on Nasdaq the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, upon official notice of issuance.
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5.12 COMPANY AFFILIATE AGREEMENT. Set forth in the Company Disclosure
Letter is a list of those persons who may be deemed to be, in Company's
reasonable judgment, affiliates of Company within the meaning of Rule 145
promulgated under the Securities Act (each a "COMPANY AFFILIATE"). Company will
provide Parent with such information and documents as Parent reasonably requests
for purposes of reviewing and validating such list. Company will use its
commercially reasonable efforts to deliver or cause to be delivered to Parent,
as promptly as practicable on or following the date hereof, from each Company
Affiliate an executed affiliate agreement in substantially the form attached
hereto as EXHIBIT B (the "Company Affiliate Agreement"), each of which will be
in full force and effect as of the Effective Time. Parent will be entitled to
place appropriate legends on the certificates evidencing any Parent Common Stock
to be received by a Company Affiliate pursuant to the terms of this Agreement,
and to issue appropriate stop transfer instructions to the transfer agent for
the Parent Common Stock, consistent with the terms of the Company Affiliate
Agreement.
5.13 REGULATORY FILINGS; REASONABLE EFFORTS. As soon as may be reasonably
practicable, Company and Parent each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
parties. Company and Parent each shall promptly (a) supply the other with any
information which may be required in order to effectuate such filings and (b)
supply any additional information which reasonably may be required by the FTC,
the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate.
5.14 NONCOMPETITION AGREEMENTS. Company will use all reasonable efforts to
ensure that Louis Doctor enters into a Noncompetition Agreement substantially in
the form attached hereto as EXHIBIT C.
5.15 EXECUTIVE EMPLOYMENT AGREEMENTS. Pursuant to those certain Employment
Agreements between Company and Mr. Louis J. Doctor and between Company and Mr.
R. John Curson, both dated July 28, 1998 and effective August 4, 1998 (the
"EXECUTIVE EMPLOYMENT AGREEMENTS") and on the Closing Date, Company shall
provide written notice of termination of employment to Mr. Louis J. Doctor and
Mr. R. John Curson, that is not for Cause or Disability (as those terms are
defined in the Executive Employment Agreements), and that is effective on the
Closing Date. Commencing on the day after the last day of full-time employment
with Company of Mr. Louis J. Doctor and Mr. R. John Curson, respectively,
Company shall retain each as a part-time employee of Company, and shall make the
required payments of Base Compensation (as defined in the Executive Employment
Agreements) for the required period, continue vesting of options for the
required period, continue in effect for the required period one hundred percent
Company-paid coverage under Company's health insurance and group term life
insurance policies (including coverage of dependents already covered), and cause
the last day of such Company-paid health insurance coverage to be a "qualifying
event" under Section 4980B of the Code for purposes of commencing the
continuation health insurance coverage election period, all as provided under
the terms of the respective Executive Employment Agreements of Mr. Louis J.
Doctor and Mr. R. John Curson. At the Closing, Company or Parent shall also pay,
in cash (including by check), to Mr. Louis J. Doctor and to Mr. R. John Curson,
the respective amounts of bonus provided for under the applicable provisions of
the Executive Employment Agreements. Parent and Company shall take such
additional steps (after giving effect to Section 1.3) as may be necessary to
bind themselves under the Executive Employment Agreements.
5.16 OPEN MARKET PURCHASES BY LEVEL ONE MERGER SUB. Between the date of
execution of this Agreement and the Effective Time, Level One Merger Sub will
purchase at least an aggregate of $10,000 but not more that $25,000 worth of
shares of Company Common Stock in the open market.
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5.17 COMPANY 401(K) PLAN. At the request of Parent, Company shall take all
necessary corporate action to terminate, or cause its subsidiaries to terminate,
as the case may be, all 401(k) plans maintained by Company and any of its
subsidiaries.
5.18 OPTIONS AND DOCTOR WARRANT. In the event that holders of options to
purchase Company Common Stock or the Doctor Warrant are required to pay federal
income taxes as a result of the consummation of the Merger being treated as a
taxable transaction for federal income tax purposes, Parent shall indemnify such
holders for the amount of such tax; PROVIDED, HOWEVER, that Parent shall only be
liable for the difference between the amount of the tax paid and the amount of
tax that would have been payable if the Merger had been a tax-free
reorganization within the meaning of Section 368 of the Code; and PROVIDED,
FURTHER, that the indemnity contained in this section shall only apply to the
extent that such options and Doctor Warrant are unexercised as of the Effective
Time and are assumed by Parent as a result of and in connection with the Merger
5.19 SCITEX VOTING AGREEMENT. Company shall use best efforts to have
Scitex Corporation Ltd. enter into a Company Voting Agreement prior to the
mailing of the Proxy Statement/Prospectus.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) COMPANY STOCKHOLDER APPROVAL. This Agreement shall have been
approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the stockholders of Company.
(b) S-4 EFFECTIVE; PROXY STATEMENT. The SEC shall have declared the
S-4 effective. No stop order suspending the effectiveness of the S-4 or any
part thereof shall have been issued and no proceeding for that purpose, and
no similar proceeding in respect of the Proxy Statement/Prospectus, shall
have been initiated or threatened in writing by the SEC.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods, if any, under the HSR Act relating to the
transactions contemplated hereby will have expired or terminated early and
all material foreign antitrust approvals required to be obtained prior to
the Merger in connection with the transactions contemplated hereby shall
have been obtained.
(d) NASDAQ LISTING. The shares of Parent Common Stock issuable to
stockholders of Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall
have been authorized for listing on Nasdaq upon official notice of issuance.
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6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of Parent and Merger Subs contained in this Agreement (i) shall have been
true and correct as of the date of this Agreement and (ii) shall be true and
correct on and as of the Closing Date with the same force and effect as if
made on the Closing Date except, (A) in each case, or in the aggregate, as
does not constitute a Material Adverse Effect on Parent and Merger Subs, (B)
for changes contemplated by this Agreement and (C) for those representations
and warranties which address matters only as of a particular date (which
representations shall have been true and correct except as does not
constitute a Material Adverse Effect on Parent and Merger Subs as of such
particular date) (it being understood that, for purposes of determining the
accuracy of such representations and warranties, (i) all "Material Adverse
Effect" qualifications and other qualifications based on the word "material"
or similar phrases contained in such representations and warranties shall be
disregarded and (ii) any update of or modification to the Parent Disclosure
Letter made or purported to have been made after the date of this Agreement
shall be disregarded). Company shall have received a certificate with
respect to the foregoing signed on behalf of Parent by an authorized officer
of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Subs shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and Company shall have received a
certificate to such effect signed on behalf of Parent by an authorized
officer of Parent.
(c) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with respect
to Parent shall have occurred since the date of this Agreement.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
SUBS. The obligations of Parent and Merger Subs to consummate and effect the
Merger shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of Company contained in this Agreement (i) shall have been true and correct
as of the date of this Agreement and (ii) shall be true and correct on and
as of the Closing Date with the same force and effect as if made on and as
of the Closing Date except (A) in each case, or in the aggregate, as does
not constitute a Material Adverse Effect on Company (B) for changes
contemplated by this Agreement and (C) for those representations and
warranties which address matters only as of a particular date (which
representations shall have been true and correct except as does not
constitute a Material Adverse Effect on Company as of such particular date)
(it being understood that, for purposes of determining the accuracy of such
representations and warranties, (i) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded and (ii) any update of or modification to the Company Disclosure
Letter made or purported to have been made after the date of this Agreement
shall be disregarded). Parent shall have received a certificate with respect
to the foregoing signed on behalf of Company by an authorized officer of
Company.
(b) AGREEMENTS AND COVENANTS. Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial
Officer of Company.
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(c) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with respect
to Company and its subsidiaries shall have occurred since the date of this
Agreement.
(d) AFFILIATE AGREEMENTS. Each of the Company Affiliates shall have
entered into the Company Affiliate Agreement and each of such agreements
will be in full force and effect as of the Effective Time.
(e) NONCOMPETITION AGREEMENTS. Louis Doctor shall have entered into a
Noncompetition Agreement substantially in the form attached hereto as
EXHIBIT C and such agreement shall be in full force and effect.
(f) CONSENTS. Company shall have obtained all consents, waivers and
approvals contemplated by this Agreement or the Company Disclosure Letter in
connection with the material agreements, contracts, licenses or leases of
Company or its subsidiaries.
(g) FEE LIMITATION. Company and its subsidiaries shall not have
incurred in connection with the Merger or this Agreement expenses of more
than $850,000 for fees and expenses of any investment banker, broker or
finder.
(h) TERMINATION OF AGREEMENT. Company and Scitex Corporation Ltd.
shall have amended or terminated that certain Private Placement Agreement
between RasterOps and Scitex Corporation Ltd. dated as of June 7, 1993;
provided, that any amendment shall be reasonably satisfactory to Parent.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the
stockholders of Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated by May 31, 1999 for any reason; PROVIDED, HOWEVER, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before such
date and such action or failure to act constitutes a breach of this
Agreement;
(c) by either Company or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is final
and nonappealable;
(d) by either Company or Parent if the required approval of the
stockholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting
of Company stockholders duly convened therefor or at any adjournment thereof
(PROVIDED that the right to terminate this Agreement under this Section
7.1(d) shall not be available to Company where the failure to obtain Company
stockholder approval shall have been caused by the action or failure to act
of Company and such action or failure to act constitutes a breach by Company
of this Agreement);
(e) by Parent if a Triggering Event (as defined below) shall have
occurred;
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(f) by Parent (at any time prior to the adoption and approval of this
Agreement and the Merger by the required vote of the stockholders of
Company) if a Termination Event (as defined below) shall have occurred;
(g) by Company, upon a breach of any representation, warranty, covenant
or agreement on the part of Parent set forth in this Agreement, or if any
representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED that if such
inaccuracy in Parent's representations and warranties or breach by Parent is
curable by Parent through the exercise of its commercially reasonable
efforts, then Company may not terminate this Agreement under this Section
7.1(g) for thirty days after delivery of written notice from Company to
Parent of such breach, provided Parent continues to exercise commercially
reasonable efforts to cure such breach (it being understood that Company may
not terminate this Agreement pursuant to this paragraph (g) if it shall have
materially breached this Agreement or if such breach by Parent is cured
during such thirty day period); or
(h) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED, that if such
inaccuracy in Company's representations and warranties or breach by Company
is curable by Company through the exercise of its commercially reasonable
efforts, then Parent may not terminate this Agreement under this Section
7.1(h) for thirty days after delivery of written notice from Parent to
Company of such breach, provided Company continues to exercise commercially
reasonable efforts to cure such breach (it being understood that Parent may
not terminate this Agreement pursuant to this paragraph (h) if it shall have
materially breached this Agreement or if such breach by Company is cured
during such thirty day period).
For the purposes of this Agreement, a "TERMINATION EVENT" shall be deemed to
occur if Company shall not have used commercially reasonable efforts to hold the
Company Stockholders' Meeting as promptly as practicable and in any event within
sixty (60) days after the S-4 is declared effective under the Securities Act.
For the purposes of this Agreement, a "TRIGGERING EVENT" shall be deemed to
have occurred if: (i) the Board of Directors of Company or any committee thereof
shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to Parent its unanimous recommendation in favor of, the adoption
and approval of the Agreement or the approval of the Merger; (ii) Company shall
have failed to include in the Proxy Statement/Prospectus the unanimous
recommendation of the Board of Directors of Company in favor of the adoption and
approval of the Agreement and the approval of the Merger; (iii) Board of
Directors of Company fails to reaffirm its unanimous recommendation in favor of
the adoption and approval of the Agreement and the approval of the Merger within
five (5) business days after Parent requests in writing that such recommendation
be reaffirmed; (iv) the Board of Directors of Company or any committee thereof
shall have approved or recommended any Acquisition Proposal; (v) Company or any
of its officers, directors, or employees or any investment banker, attorney or
other advisor or representative retained by any of them shall participate in any
discussions or negotiations in breach of Section 5.4; (vi) Company shall have
entered into any letter of intent or similar document or any agreement, contract
or commitment accepting any Acquisition Proposal; or (vii) a tender or exchange
offer relating to securities of Company shall have been commenced by a Person
unaffiliated with Parent and Company shall not have sent to its security holders
pursuant to Rule 14e-2 promulgated under the Securities Act, within ten (10)
business days after such tender or
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exchange offer is first published sent or given, a statement disclosing that
Company recommends rejection of such tender or exchange offer.
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for any willful breach of this Agreement. No termination of this
Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement in accordance with their terms.
7.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Merger is consummated; PROVIDED, HOWEVER, that Parent and Company
shall share equally all fees and expenses, other than attorneys' and accountants
fees and expenses, incurred in relation to the printing and filing (with the
SEC) of the Proxy Statement/Prospectus (including any preliminary materials
related thereto) and the S-4 (including financial statements and exhibits) and
any amendments or supplements thereto.
(b) COMPANY PAYMENTS. Company shall pay Parent a cash termination fee of
$500,000 (the "TERMINATION FEE") upon the earlier to occur of the following
events:
(i) the termination of this Agreement by Parent pursuant to Section
7.1(e);
(ii) the termination of this Agreement by Parent pursuant to Section
7.1(d) as a result of the failure to receive the requisite vote for the
approval of this Agreement and the Merger by the stockholders of Company at
the Company Stockholders Meeting if, at the time of such failure, there
shall have been announced or commenced an Acquisition Proposal or Company
shall have executed an agreement to engage in the same and the Company Board
of Directors shall not have affirmatively recommended against such
Acquisition Proposal or, if the Company Board of Directors has recommended
against such Acquisition Proposal, the Company Board of Directors shall have
withdrawn such recommendation against such Acquisition Proposal or modified
such recommendation in a manner adverse to Parent.
(c) The Termination Fee shall be paid no later than three business days
after the date of such termination. Company acknowledges that the agreements
contained in this Section 7.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent would
not enter into this Agreement; accordingly, if Company fails promptly to pay the
amounts due pursuant to this Section 7.3(b), and, in order to obtain such
payment, Parent commences a suit which results in a judgment against Company for
the amounts set forth in this Section 7.3(b), Company shall pay to Parent its
reasonable costs and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the amounts set forth in
this Section 7.3(b) at the prime rate of Wells Fargo Bank N.A. in effect on the
date such payment was required to be made.
(d) Payment of the fee described in Section 7.3(b) shall not be in lieu of
damages incurred in the event of breach of this Agreement.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and Company.
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7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Company, Parent and Merger Subs contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Subs, to:
Pinnacle Systems, Inc.
280 North Bernardo Avenue
Mountain View, CA 94043
Attention: Chief Financial Officer
Telephone No.: (650) 237-1600
Telecopy No.: (650) 237-1601
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Robert P. Latta, Esq./Chris F. Fennell, Esq.
Telephone No.: (650) 493-9300
Telecopy No.: (650) 845-5000
(b) if to Company, to:
Truevision, Inc.
2500 Walsh Avenue
Santa Clara, CA 95051
Attention: Chief Financial Officer
Telephone No.: (408) 562-4200
Telecopy No.: (408) 562-4066
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with a copy to:
Cooley Godward LLP
975 Page Mill Road
Palo Alto, CA 94306-2155
Attention: Lee F. Benton, Esq./Julia L. Davidson, Esq.
Telephone No.: (650) 843-5000
Telecopy No.: (650) 849-7400
8.3 INTERPRETATION; KNOWLEDGE.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement. Unless otherwise
indicated the words "INCLUDE," "INCLUDES" and " INCLUDING" when used herein
shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "THE
BUSINESS OF" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement the term "KNOWLEDGE" means with
respect to a party hereto, with respect to any matter in question, that any
of the Chief Executive Officer, Chief Financial Officer, General Counsel or
Controller of such party, has actual knowledge of such matter.
(c) For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT"
when used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect that is materially adverse to the
business, assets (including intangible assets), capitalization, financial
condition, results of operations or prospects of such entity and its parent
(if applicable) or subsidiaries taken as a whole (provided, however, that
none of the following shall be deemed, in and of itself, to be a Material
Adverse Effect: (A) a change that results from conditions affecting the U.S.
economy or the world economy; (B) a change that results from conditions
affecting the digital video editing industry; and (C) a delay in customer
orders directly related to the announcement of the transactions contemplated
by this Agreement).
(d) For purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization,
entity or Governmental Entity.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Letter
and the Parent Disclosure Letter (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to
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confer upon any other person any rights or remedies hereunder, except as
specifically provided in Section 5.10 and 5.15.
8.6 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof;
provided that issues involving the corporate governance of any of the parties
hereto shall be governed by their respective jurisdictions of incorporation.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any state or federal court within the Northern District of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, other than issues involving the corporate
governance of any of the parties hereto, agrees that process may be served upon
them in any manner authorized by the laws of the State of California for such
persons and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction and such process.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUBS HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUBS IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
<TABLE>
<S> <C>
PINNACLE SYSTEMS, INC.
By: /s/ MARK L. SANDERS
--------------------------------------------
Name: Mark L. Sanders
Title: President and Chief Executive Officer
BERNARDO MERGER CORPORATION
By: /s/ MARK L. SANDERS
--------------------------------------------
Name: Mark L. Sanders
Title: President and Chief Executive Officer
WALSH MERGER CORPORATION
By: /s/ MARK L. SANDERS
--------------------------------------------
Name: Mark L. Sanders
Title: President and Chief Executive Officer
TRUEVISION, INC.
By: /s/ LOUIS J. DOCTOR
--------------------------------------------
Name: Louis J. Doctor
Title: President and Chief Executive Officer
</TABLE>
**** MERGER AGREEMENT ****
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EXHIBIT A
Persons Entering Into Voting Agreements
DIRECTORS
Walter W. Bregman
Louis J. Doctor
William H. McAleer
Kieth E. Sorenson
Conrad J. Wredberg
EXECUTIVE OFFICERS
R. John Curson
OTHER AFFILIATES
Scitex Corporation Ltd. (subject to Section 5.19)
<PAGE>
APPENDIX B
FORM OF VOTING AGREEMENT
<PAGE>
VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of December
16, 1998 between Pinnacle Systems, Inc., a California corporation ("PARENT"),
and the undersigned stockholder ("STOCKHOLDER") of Truevision, Inc., a Delaware
corporation (the "COMPANY").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the Company,
Bernardo Merger Corporation, a Delaware corporation and a wholly owned
subsidiary of Parent ("LEVEL ONE MERGER SUB") and Walsh Merger Corporation, a
Delaware corporation and a wholly owned subsidiary of Level One Merger Sub
("MERGER SUB", and together with Level One Merger Sub, "MERGER SUBS") have
entered into an Agreement and Plan of Reorganization of even date herewith (the
"MERGER AGREEMENT") which provides for the merger (the "MERGER") of Merger Sub
with and into the Company. Pursuant to the Merger, shares of Common Stock of the
Company will be converted into Common Stock of Parent in the manner set forth in
the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")) of such number of shares of the outstanding Common Stock of the Company
as is indicated on the final page of this Agreement (the "SHARES").
C. Parent desires the Stockholder to agree, and the Stockholder is willing
to agree, not to transfer or otherwise dispose of any of the Shares, or any
other shares of capital stock of the Company acquired hereafter and prior to the
Expiration Date (as defined in Section 1.1 below, except as otherwise permitted
hereby), and to vote the Shares and any other such shares of capital stock of
the Company so as to facilitate consummation of the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, the parties agree as follows:
1. AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE. Stockholder agrees not to transfer
(except as may be specifically required by court order), sell, exchange,
pledge or otherwise dispose of or encumber any of the Shares or any New
Shares as defined in Section 1.2 below, or to make any offer or agreement
relating thereto, at any time prior to the Expiration Date. As used herein,
the term "EXPIRATION DATE"shall mean the earlier to occur of (i) such date
and time as the Merger shall become effective in accordance with the terms
and provisions of the Merger Agreement and (ii) such date as the Merger
Agreement shall be terminated pursuant to Article VII thereof.
1.2 ADDITIONAL PURCHASES. Stockholder agrees that any shares of
capital stock of the Company that Stockholder purchases or with respect to
which Stockholder otherwise acquires beneficial ownership (as such term is
defined in Rule 13d-3 under the Exchange Act) after the execution of this
Agreement and prior to the Expiration Date ("NEW SHARES") shall be subject
to the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of the
Company called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the Stockholders
of the Company with respect to any of the following, Stockholder shall vote the
Shares and any New Shares: (i) in favor of approval of the Merger Agreement and
the Merger and any matter that could reasonably be expected to facilitate the
Merger; and (ii) against approval of any proposal made in opposition to or
competition with consummation of the Merger and against any merger,
consolidation, sale of assets, reorganization or recapitalization, with any
party other than with Parent and its affiliates and against any liquidation or
winding up of the Company (each of
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the foregoing is hereinafter referred to as an "OPPOSING PROPOSAL"). Stockholder
agrees not to take any actions contrary to Stockholder's obligations under this
Agreement.
3. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Parent a proxy in the form attached hereto as
EXHIBIT A (the "PROXY"), which shall be irrevocable, with the total number of
shares of capital stock of the Company beneficially owned (as such term is
defined in Rule 13d-3 under the Exchange Act) by Stockholder set forth therein.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
STOCKHOLDER. Stockholder hereby represents, warrants and covenants to Parent as
follows:
4.1 OWNERSHIP OF SHARES. Stockholder (i) is the beneficial owner of
the Shares, which at the date hereof and at all times up until the
Expiration Date will be free and clear of any liens, claims, options,
charges or other encumbrances; (ii) does not beneficially own any shares of
capital stock of the Company other than the Shares (excluding shares as to
which Stockholder currently disclaims beneficial ownership in accordance
with applicable law); and (iii) has full power and authority to make, enter
into and carry out the terms of this Agreement and the Proxy.
4.2 NO PROXY SOLICITATIONS. Stockholder will not, and will not permit
any entity under Stockholder's control to: (i) solicit proxies or become a
"participant" in a "solicitation" (as such terms are defined in Regulation
14A under the Exchange Act) with respect to an Opposing Proposal or
otherwise encourage or assist any party in taking or planning any action
that would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the terms
of the Merger Agreement, except as permitted in accordance with Article V of
the Merger Agreement; (ii) initiate a Stockholders' vote or action by
written consent of the Company Stockholders with respect to an Opposing
Proposal; or (iii) become a member of a "group" (as such term is used in
Section 13(d) of the Exchange Act) with respect to any voting securities of
the Company with respect to an Opposing Proposal.
5. ADDITIONAL DOCUMENTS. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent and Stockholder, as the case may be, to carry out
the intent of this Agreement.
6. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
7. MISCELLANEOUS.
7.1 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
7.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, either this Agreement nor
any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without prior written consent of the
other.
7.3 AMENDMENTS AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
7.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements
of Stockholder set forth herein. Therefore, it is agreed that, in
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addition to any other remedies that may be available to Parent upon any such
violation, Parent shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Parent at law or in equity.
7.5 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, fascimile, or sent by mail (registered
or certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
<TABLE>
<S> <C>
If to Parent: Pinnacle Systems, Inc.
280 N. Bernardo Avenue
Mountain View, CA 94043
Attention: Chief Financial Officer
Facsimile Number: (650) 237-1601
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attn: Robert P. Latta, Esq./Chris F.
Fennell, Esq.
If to the Stockholder: At the address provided on Signature
Page
With a copy to: Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306
Attn: Lee F. Benton, Esq./Julia L.
Davidson, Esq.
</TABLE>
or to such other address or facsimile numbers as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address or facsimile number shall only be effective
upon receipt.
7.6 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of
California.
7.7 ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties in respect of the subject matter hereof, and supersedes all
prior negotiations and understandings between the parties with respect to
such subject matter.
7.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
7.9 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction of interpretation of
this Agreement.
[Balance of Page Left Intentionally Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed on the date and year first above written.
PINNACLE SYSTEMS, INC.
By:
--------------------------------------
Name: Mark L. Sanders
Title: President and Chief Executive
Officer
STOCKHOLDER
--------------------------------------
Name:
Stockholder's Address for Notice:
--------------------------------------
--------------------------------------
--------------------------------------
Facsimile Number:
Shares beneficially owned:
--------------------------------------------------------------- shares
of Common Stock
***SIGNATURE PAGE FOR VOTING AGREEMENT***
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<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned Stockholder of Truevision, Inc., a Delaware corporation
("COMPANY"), hereby irrevocably appoints the directors on the Board of Directors
of Pinnacle Systems, Inc., a California corporation ("PARENT"), and each of
them, as the sole and exclusive attorneys and proxies of the undersigned, with
full power of substitution and resubstitution, to the full extent of the
undersigned's rights with respect to (i) the shares of capital stock of Company
beneficially owned by the undersigned, which shares are listed on the final page
of this Proxy, and (ii) any and all other shares or securities issued or
issuable in respect thereof on or after the date hereof, until such time as that
certain Agreement and Plan of Reorganization dated as of December 16, 1998 (the
"MERGER AGREEMENT"), among Parent, Bernardo Merger Corporation, a Delaware
corporation and a wholly-owned subsidiary of Parent ("LEVEL ONE MERGER SUB"),
Walsh Merger Corporation, a Delaware corporation and a wholly-owned subisidary
of Level One Merger Sub ("MERGER SUB" and together with Level One Merger Sub,
"MERGER SUBS") and Company, shall be terminated in accordance with its terms or
the Merger (as defined in the Merger Agreement) is effective. (The shares of
capital stock of Company referred to in clauses (i) and (ii) above are
collectively referred to as the "Shares"). Upon the execution hereof, all prior
proxies given by the undersigned with respect to the Shares are hereby revoked
and no subsequent proxies will be given.
This Proxy is irrevocable, is granted pursuant to the Voting Agreement dated
as of December 16, 1998 between Parent and the undersigned Stockholder (the
"VOTING AGREEMENT"), and is granted in consideration of Parent entering into the
Merger Agreement. The attorneys and proxies named above will be empowered at any
time prior to termination of the Merger Agreement to exercise all voting and
other rights (including, without limitation, the power to execute and deliver
written consents with respect to the Shares) of the undersigned at every annual,
special or adjourned meeting of Company stockholders, and in every written
consent in lieu of such a meeting, or otherwise, in favor of approval of the
Merger and the Merger Agreement and any matter that could reasonably be expected
to facilitate the Merger, and against any proposal made in opposition to or
competition with the consummation of the Merger and against any merger,
consolidation, sale of assets, reorganization or recapitalization of Company
with any party other than Parent and its affiliates and against any liquidation
or winding up of Company.
The attorneys and proxies named above may only exercise this Proxy to vote
the Shares subject hereto at any time prior to termination of the Merger
Agreement at every annual, special or adjourned meeting of the Stockholders of
Company and in every written consent in lieu of such meeting, in favor of
approval of the Merger and the Merger Agreement and any matter that could
reasonably be expected to facilitate the Merger, and against any merger,
consolidation, sale of assets, reorganization or recapitalization of Company
with any party other than Parent and its affiliates, and against any liquidation
or winding up of Company, and may not exercise this Proxy on any other matter.
The undersigned Stockholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is irrevocable.
Dated: December , 1998
Signature of Stockholder:
- ----------------------------
Print Name of Stockholder:
- ----------------------------
Shares beneficially owned:
- ---------------------------- shares of Common Stock
***PROXY***
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<PAGE>
APPENDIX C
FORM OF AFFILIATE AGREEMENT
<PAGE>
TRUEVISION, INC.
AFFILIATE AGREEMENT
This AFFILIATE AGREEMENT (the "AGREEMENT") is made and entered into as of
December 16,1998, between Pinnacle Systems, Inc., a California corporation (the
"PARENT"), and the undersigned stockholder (the "AFFILIATE") of Truevision,
Inc., a Delaware corporation (the "COMPANY").
RECITALS
A. The Parent, the Company, Bernardo Merger Corporation, a Delaware
corporation ("LEVEL ONE SUB") and Walsh Merger Corporation, a Delaware
corporation and a wholly owned subsidiary of Level One Merger Sub ("MERGER SUB",
and together with Level One Merger Sub, "MERGER SUBS"), have entered into an
Agreement and Plan of Reorganization (the "MERGER AGREEMENT") dated as of
December 16, 1998 pursuant to which Merger Sub will merge with and into the
Company (the "MERGER"), and the Company will become a subsidiary of Parent
(capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Merger Agreement);
B. Pursuant to the Merger, at the Effective Time, outstanding shares of
Company Common Stock, including any shares owned by Affiliate, will be converted
into the right to receive shares of Parent Common Stock;
C. The execution and delivery of this Agreement by the Affiliate is a
material inducement to Parent to enter into the Merger Agreement;
D. The Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of the Company, as the term "affiliate" is used for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the "RULES AND
REGULATIONS") of the Securities and Exchange Commission (the "COMMISSION"), as
amended, although nothing contained herein shall be construed as an admission by
Affiliate that Affiliate is in fact an "affiliate" of the Company.
AGREEMENT
NOW, THEREFORE, intending to be legally bound, the parties hereby agree as
follows:
1. COMPLIANCE WITH RULE 145 AND THE SECURITIES ACT.
(a) The Affiliate has been advised that (i) the issuance of shares of Parent
Common Stock in connection with the Merger is expected to be effected pursuant
to a Registration Statement on Form S-4 to be filed with the Commission to
register the shares of Parent Common Stock under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), and as such will not be deemed "restricted
securities" within the meaning of Rule 144 promulgated under the Securities Act,
and resale of such shares will not be subject to any restrictions other than as
set forth in Rule 145 under the Securities Act (which will not apply if such
shares are otherwise transferred pursuant to an effective registration statement
under the Securities Act or an appropriate exemption from registration), and
(ii) the Affiliate may be deemed to be an "affiliate" of the Company within the
meaning of the Securities Act and, in particular, Rule 145 promulgated
thereunder. Affiliate accordingly agrees not to sell, transfer, or otherwise
dispose of any Parent Common Stock issued to the Affiliate in the Merger unless
(i) such sale, transfer or other disposition is made in conformity with the
requirements of Rule 145(d) promulgated under the Securities Act; (ii) such
sale, transfer or other disposition is made pursuant to an effective
registration statement under the Securities Act; or (iii) the Affiliate delivers
to Parent a written opinion of counsel, reasonably acceptable to Parent in form
and substance, that such sale, transfer, or other disposition is otherwise
exempt from registration under the Securities Act. In connection with the
obligations of the Affiliate hereunder, Parent agrees to file all reports
required
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<PAGE>
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") to
satisfy the requirements of Rule 144(c) as long as the Affiliate shall be
subject to the requirements of Rule 145.
(b) Parent will give stop transfer instructions to its transfer agent with
respect to any Parent Common Stock received by Affiliate pursuant to the Merger,
and there will be placed on the certificates representing such Common Stock, or
any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 applies and may only be transferred
in conformity with Rule 145(d), pursuant to an effective
registration statement under the Securities Act of 1933, as
amended, or in accordance with a written opinion of counsel,
reasonably acceptable to the issuer in form and substance, that
such transfer is exempt from registration under the Securities Act
of 1933, as amended."
The foregoing legend shall be removed (by delivery of a substitute
certificate without such legend) if the Affiliate delivers to Parent (i)
satisfactory written evidence that the shares have been sold in compliance with
Rule 145 (in which case, the substitute certificate will be issued in the name
of the transferee) or (ii) an opinion of counsel, in form and substance
reasonably satisfactory to Parent, to the effect that public sale of the shares
by the holder thereof is no longer subject to Rule 145.
2. SHARE OWNERSHIP. The Affiliate is the beneficial owner of that number
of shares of Company Common Stock (including shares issuable upon exercise of
stock options and warrants) as set forth on the signature page hereto (the
"COMPANY SECURITIES"). Except for the Company Securities, the Affiliate does not
beneficially own any shares of Company Common Stock or any other equity
securities of the Company or any options, warrants, or other rights to acquire
any equity securities of the Company.
3. MISCELLANEOUS.
(a) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
(b) This Agreement shall be enforceable by, and shall inure to the benefit
of and be binding upon, the parties hereto and their respective successors and
assigns. As used herein, the term "successors and assigns" shall mean, where the
context so permits, heirs, executors, administrators, trustees and successor
trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the internal laws of the State of California.
(d) If a court of competent jurisdiction determines that any provision of
this Agreement is not enforceable or enforceable only if limited in time or
scope, this Agreement shall continue in full force and effect with such
provision stricken or so limited.
(e) Counsel to the parties to the Merger Agreement shall be entitled to rely
upon this Agreement as appropriate.
(f) This Agreement shall not be modified or amended, or any right hereunder
waived or any obligation excused, except by a written agreement signed by both
parties.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Affiliate Agreement as of
the date set forth on the first page of this Affiliate Agreement.
PINNACLE SYSTEMS, INC.
By:
--------------------------------------
Name: Mark L. Sanders
Title: President and Chief Executive
Officer
AFFILIATE
--------------------------------------
Name:
Title:
Company shares beneficially owned:
--------------------------------------------------------------- shares
of Common Stock
Company shares subject to outstanding
options:
--------------------------------------------------------------- shares
of Common Stock
Company shares subject to outstanding
warrants:
--------------------------------------------------------------- shares
of Common Stock
***SIGNATURE PAGE TO AFFILIATE AGREEMENT***
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<PAGE>
APPENDIX D
NONCOMPETITION AGREEMENT
<PAGE>
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT is being executed and delivered as of December
16, 1998 by Louis J. Doctor ("STOCKHOLDER") in favor of and for the benefit of
Pinnacle Systems, Inc., a California corporation ("PARENT"), and Truevision,
Inc., a Delaware corporation (the "COMPANY").
RECITALS
A. As an employee and stockholder and/or optionholder of the Company,
Stockholder has obtained and will obtain extensive and valuable knowledge and
information concerning the business of the Company (including confidential
information relating to the Company and its operations, assets, contracts,
customers, personnel, plans and prospects).
B. Contemporaneously with the execution and delivery of this Noncompetition
Agreement, the Parent, the Company, Bernardo Merger Corporation, a Delaware
corporation ("LEVEL ONE SUB") and Walsh Merger Corporation, a Delaware
corporation and a wholly owned subsidiary of Level One Merger Sub ("MERGER SUB",
and together with Level One Merger Sub, "MERGER SUBS"), will enter into an
Agreement and Plan of Reorganization (the "MERGER AGREEMENT") dated as of
December 16, 1998 pursuant to which Merger Sub will merge with and into the
Company (the "MERGER"), and the Company will become a subsidiary of Parent
(capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Merger Agreement)
C. In connection with the Merger (and as a condition to entering into the
Reorganization Agreement and consummating the Merger), and to more fully secure
unto Parent the benefits of the Merger, Parent has requested that Stockholder
enter into this Noncompetition Agreement; and Stockholder is entering into this
Noncompetition Agreement in order to induce Parent to enter into the
Reorganization Agreement and consummate the Merger.
D. The Company has conducted, is conducting and will continue to conduct its
businesses on a worldwide basis.
AGREEMENT
In order to induce Parent to enter into the Reorganization Agreement and
consummate the Merger, and in consideration of the issuance and delivery to
Stockholder of shares of common stock of Parent pursuant to the Reorganization
Agreement, Stockholder agrees as follows:
1. ACKNOWLEDGMENTS BY STOCKHOLDER. Stockholder acknowledges that the
promises and restrictive covenants that Stockholder is providing in this
Noncompetition Agreement are reasonable and necessary to the protection of
Parent's legitimate interests in its acquisition of the Company (including the
Company's goodwill) pursuant to the Reorganization Agreement. Stockholder
acknowledges that, in connection with the consummation of the Merger, all of the
Stockholder's shares of stock of the Company will be exchanged for shares of
common stock of Parent.
2. NONCOMPETITION. During the Restriction Period (as defined below),
Stockholder shall not (other than in connection with employment with the
Company, Parent, their successors, or assigns):
(a) engage in the development, design, manufacture or marketing in the
market of computer-based digital video products for or on behalf of Avid
Technology, Inc., Digital Processing Systems, Inc., Fast Multimedia, Inc.,
Matrox, Inc., Media 100 Inc., Radius Inc., Chyron Corporation, Matsushita
Electric Industrial Co. Ltd., Quantel Ltd. (a division of Carlton Communications
Plc), Scitex Video (a division of Carlton Corporation Ltd.), Sony Corporation,
and any entity that engages in the market of computer-based digital video
products.
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<PAGE>
(b) be or become an officer, director, stockholder, owner, affiliate,
salesperson, co-owner, partner, trustee, promoter, technician, engineer,
analyst, employee, agent, representative, supplier, consultant, advisor or
manager of or to, or otherwise acquire or hold any interest in, any person or
entity that competes in the market for computer-based digital video products for
or on behalf of Avid Technology, Inc., Digital Processing Systems, Inc., Fast
Multimedia, Inc., Matrox, Inc., Media 100 Inc., Radius Inc., Chyron Corporation,
Matsushita Electric Industrial Co. Ltd., Quantel Ltd. (a division of Carlton
Communications Plc), Scitex Video (a division of Carlton Corporation Ltd.), Sony
Corporation, and any entity that engages in the market of computer-based digital
video products; or
(c) provide any service (as an employee, consultant or otherwise),
support, product or technology to any person or entity, if such service,
support, product or technology involves or relates to computer-based digital
video products for or on behalf of Avid Technology, Inc., Digital Processing
Systems, Inc., Fast Multimedia, Inc., Matrox, Inc., Media 100 Inc., Radius Inc.,
Chyron Corporation, Matsushita Electric Industrial Co. Ltd., Quantel Ltd. (a
division of Carlton Communications Plc), Scitex Video (a division of Carlton
Corporation Ltd.), Sony Corporation and any entity that engages in the market of
computer-based digital video products.
PROVIDED, HOWEVER, that nothing in this Section 2 shall prevent Stockholder from
owning as a passive investment less than 1% of the outstanding shares of the
capital stock of a publicly-held Company if (A) such shares are actively traded
on an established national securities market in the United States and (B)
Stockholder is not otherwise associated directly or indirectly with such
corporation or any affiliate of such corporation.
"RESTRICTION PERIOD" as used herein shall mean the period commencing on the
Effective Date (as defined in Section 16 below) and ending on the date that is
12 months from the Effective Date.
3. NONSOLICITATION. Stockholder further agrees that Stockholder will not:
(a) personally or through others, encourage, induce, attempt to induce,
solicit or attempt to solicit (on Stockholder's own behalf or on behalf of any
other person or entity) during the Restriction Period any employee of the
Company, Parent or any of Parent's subsidiaries to leave his or her employment
with the Company, Parent or any of Parent's subsidiaries;
(b) employ, or permit any entity over which Stockholder exercises voting
control to employ, during the Restriction Period any person who shall have
voluntarily terminated his or her employment with the Company, Parent or any of
Parent's subsidiaries; or
(c) personally or through others, interfere or attempt to interfere with
the relationship of the Company, Parent or any of Parent's subsidiaries with any
person or entity that is a customer or client of the Company, Parent or any of
Parent's subsidiaries.
4. SPECIFIC PERFORMANCE. Stockholder agrees that in the event of any breach
by Stockholder of any covenant, obligation or other provision contained in this
Noncompetition Agreement, Parent and the Company shall be entitled (in addition
to any other remedy that may be available to them including but not limited to a
claim for damages based on the stock and cash consideration paid to Stockholder
by Parent) to the extent permitted by applicable law (a) a decree or order of
specific performance to enforce the observance and performance of such covenant,
obligation or other provision, and (b) an injunction restraining such breach or
threatened breach.
5. NON-EXCLUSIVITY. The rights and remedies of Parent and the Company
hereunder are not exclusive of or limited by any other rights or remedies which
Parent or the Company may have, whether at law, in equity, by contract or
otherwise, all of which shall be cumulative (and not alternative). Without
limiting the generality of the foregoing, the rights and remedies of Parent and
the Company hereunder, and the obligations and liabilities of Stockholder
hereunder, are in addition to
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<PAGE>
their respective rights, remedies, obligations and liabilities under the law of
unfair competition, misappropriation of trade secrets and the like.
This Noncompetition Agreement does not limit Stockholder's obligations or
the rights of Parent or the Company (or any affiliate or Parent or the Company)
under the terms of any other agreement between Stockholder and Parent or the
Company or any affiliate of Parent or the Company.
6. NOTICES. Any notice or other communication required or permitted to be
delivered to Stockholder, the Company or Parent under this Noncompetition
Agreement shall be in writing and shall be deemed properly delivered, given and
received when delivered (by hand, by registered mail, by courier or express
delivery service or by facsimile) to the address or facsimile telephone number
set forth beneath the name of such party below (or to such other address or
facsimile telephone number as such party shall have specified in a written
notice delivered in accordance with this Section 6):
<TABLE>
<S> <C>
IF TO PARENT: Pinnacle Systems, Inc.
280 N. Bernardo Ave.
Mountain View, CA 94043
Attention: Chief Financial Officer
Facsimile No.: (650) 237-1601
WITH A COPY TO: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attn: Robert P. Latta, Esq./Chris F. Fennell, Esq.
IF TO STOCKHOLDER: At the address provided on Signature Page.
WITH A COPY TO: Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306
Attn: Lee F. Benton, Esq./Julia L. Davison, Esq.
</TABLE>
7. SEVERABILITY. If any provision of this Noncompetition Agreement or any
part of any such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (a) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (b) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (c) such
invalidity of enforceability of such provision or part thereof shall not affect
the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Noncompetition
Agreement. Each provision of this Noncompetition Agreement is separable from
every other provision of this Noncompetition Agreement, and each part of each
provision of this Noncompetition Agreement is separable from every other part of
such provision.
8. GOVERNING LAW. This Noncompetition Agreement shall be construed in
accordance with, and governed in all respects by, the laws of the State of
California (without giving effect to principles of conflicts of laws).
9. WAIVER. No failure on the part of Parent or the Company to exercise any
power, right, privilege or remedy under this Noncompetition Agreement, and no
delay on the part of Parent or the Company in exercising any power, right,
privilege or remedy under this Noncompetition Agreement, shall operate as a
waiver of such power, right, privilege or remedy; and no single or partial
exercise of
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<PAGE>
any such power, right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or remedy. Neither
Parent nor the Company shall be deemed to have waived any claim arising out of
this Noncompetition Agreement, or any power, right, privilege or remedy under
this Noncompetition Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written instrument duly executed
and delivered on behalf of such party; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is
given.
10. CAPTIONS. The captions contained in this Noncompetition Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Noncompetition Agreement and shall not be referred to in connection with the
construction or interpretation of this Noncompetition Agreement.
11. FURTHER ASSURANCES. Stockholder shall execute and/or cause to be
delivered to the Company and Parent such instruments and other documents and
shall take such other actions as Company and Parent may reasonably request to
effectuate the intent and purposes of this Noncompetition Agreement.
12. ENTIRE AGREEMENT. This Noncompetition Agreement, the Merger Agreement,
and the other agreements referred to herein and therein set forth the entire
understanding of Stockholder, the Company and Parent relating to the subject
matter hereof and thereof and supersede all prior agreements and understandings
between any of such parties relating to the subject matter hereof and thereof.
13. AMENDMENTS. This Noncompetition Agreement may not be amended, modified,
altered, or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Parent and Stockholder.
14. ASSIGNMENT. This Noncompetition Agreement and all obligations hereunder
are personal to Stockholder and may not be transferred or assigned by
Stockholder at any time. Parent may assign its rights under this Noncompetition
Agreement to any entity in connection with any sale or transfer of all or
substantially all of Parent's assets to such entity.
15. BINDING NATURE. This Noncompetition Agreement will be binding upon
Stockholder and Stockholder's representatives, executors, administrators,
estate, heirs, successors and assigns, and will inure to the benefit of Parent
and the Company and their respective successors and assigns.
16. EFFECTIVENESS. This Noncompetition Agreement shall become effective upon
the Closing, as defined in the Merger Agreement (the "Effective Date"), and, if
the Closing does not occur prior to May 31, 1999, this Agreement shall
immediately terminate and be of no further force or effect.
IN WITNESS WHEREOF, the undersigned has executed this Noncompetition
Agreement as of the date first above written.
<TABLE>
<S> <C> <C>
/s/ LOUIS J. DOCTOR
------------------------------------
Louis J. Doctor
Address:
Facsimile Number:
</TABLE>
SIGNATURE PAGE TO NONCOMPETITION AGREEMENT
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<PAGE>
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APPENDIX E
December 14, 1998
Board of Directors
Truevision, Inc.
2500 Walsh Avenue
Santa Clara, CA 95051
Members of the Board:
You have asked our opinion with respect to the fairness to the Truevision
Stockholders (as defined below), from a financial point of view as of the date
hereof, of the Aggregate Merger Consideration (as defined below) to be paid
pursuant to the draft dated December 4, 1998 of the Agreement and Plan of
Reorganization (the "Agreement"), by and among Pinnacle Systems, Inc.
("Pinnacle"), Bernardo Merger Corporation ("Level One Merger Sub"), Walsh Merger
Corporation ("Merger Sub" and together with Level One Merger Sub, "Merger Subs")
and Truevision, Inc. ("Truevision").
As more fully described in the Agreement, pursuant to the terms and subject
to the conditions set forth therein, (i) Merger Sub will be merged with and into
Truevision (the "Merger") and (ii) the outstanding shares of common stock, par
value $0.001 per share, of Truevision (the "Truevision Common Stock") will be
converted into the common stock, no par value per share, of Pinnacle (the
"Pinnacle Common Stock") pursuant to the exchange formula provided for in the
Agreement (the "Exchange Ratio"). Pursuant to the Exchange Ratio, the
outstanding Truevision Common Stock will be converted into 412,547 shares of
Pinnacle Common Stock (the "Aggregate Merger Consideration"). Outstanding
options and warrants to acquire Truevision Common Stock will be assumed and
converted into options and warrants to acquire Pinnacle Common Stock pursuant to
the terms of the Agreement. The "Truevision Stockholders" shall include all
holders of Truevision Common Stock except for Pinnacle, Merger Sub or any
affiliates of Pinnacle or Merger Sub. The terms and conditions of the Merger are
set out more fully in the Agreement.
For purposes of this opinion, we have: (i) reviewed financial information
relating to Truevision and Pinnacle furnished to us by each company, including
certain financial analyses and forecasts and other information and data prepared
by the respective managements of Truevision and Pinnacle; (ii) reviewed publicly
available information; (iii) held discussions with the managements of Truevision
and Pinnacle concerning the business, past and current business operations,
financial condition and future prospects of both companies, independently and
combined; (iv) reviewed the Agreement; (v) reviewed the stock prices and trading
histories of Truevision and Pinnacle; (vi) reviewed the valuations of publicly
traded
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companies which we deemed comparable to Truevision; (vii) compared the financial
terms of the Merger with other transactions which we have deemed relevant;
(viii) analyzed the pro forma earnings per share of the combined company; (ix)
prepared a discounted cash flow analysis of Truevision; and (x) made such other
studies and inquiries, and reviewed such other data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. We have relied upon the assurances of the managements of Truevision
and Pinnacle that they are not aware of any facts that would make such
information inaccurate or misleading. Furthermore, we did not obtain or make, or
assume responsibility for obtaining or making, any independent evaluation or
appraisal of any of the properties or assets and liabilities (contingent or
otherwise) of Truevision or Pinnacle, nor were we furnished with any such
evaluations or appraisals. We have not conducted any evaluation or analyses of
the technology underlying the products of Truevision or Pinnacle. With respect
to the financial and operating forecasts (and the assumptions and bases
therefor) of each of Truevision and Pinnacle which we have reviewed, upon the
advice of Truevision, we have assumed that such forecasts have been reasonably
prepared in good faith on the basis of reasonable assumptions, reflect the best
currently available estimates and judgments of the managements of Truevision and
Pinnacle and that such forecasts (and the technological milestones necessary to
achieve such results) will be realized in the amounts and in the time periods
currently estimated by the managements of Truevision and Pinnacle. In this
regard, we note that each of Truevision and Pinnacle face exposure to the Year
2000 problem and are currently undergoing Year 2000 projects. We have not
undertaken any independent analysis to evaluate the reliability or accuracy of
the assumptions made by the managements of Truevision and Pinnacle with respect
to the potential effect that the Year 2000 problem might have on their
respective forecasts. Based on the advice of the management of Truevision, we
have assumed that Truevision would not be awarded within the next six months any
outstanding contract bids in the ordinary course of business in excess of
$10,000,000. We have assumed that the Merger will be consummated upon the terms
set forth in the Agreement without material alteration thereof. We have relied
as to all legal matters relevant to rendering our opinion on the advice of
counsel.
This opinion is necessarily based upon market, economic, and other
conditions as in effect on, and the information available to us as of, the date
hereof. You should understand that subsequent developments may affect the
conclusion expressed in this opinion, and that we disclaim any undertaking or
obligation to advise you or any other person of any change in any fact or matter
affecting this opinion which may come or be brought to our attention after the
date of this opinion. Our opinion is limited to the fairness, from a financial
point of view, to the Truevision Stockholders of the Aggregate Merger
Consideration to be paid in the Merger. We do not express any opinion as to any
tax or other consequences that might result from the Merger, nor do we express
any opinion as to the price at which the shares of Pinnacle Common Stock that
are issued pursuant to the Merger will be traded in the future. Our opinion does
not address the relative merits of the Merger and the other business strategies
that the Board of Directors of Truevision has considered or may be considering,
nor does it address the Board of Directors' decision to proceed with the Merger.
E-2
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<PAGE>
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3 of 3
We are acting as financial advisor to Truevision in connection with the
Merger and will receive (i) a fee upon the delivery of this opinion and (ii) an
additional fee upon the consummation of the Merger. In addition, Truevision has
agreed to indemnify us for certain liabilities arising out of our engagement. In
the past, we have provided certain investment banking services to Truevision
from time to time for which we have been paid fees, including acting as
co-manager for its initial public offering, and we may provide additional
investment banking services to Truevision in the future for which we would also
be paid fees. We maintain a market in the shares of Truevision Common Stock. In
the ordinary course of business, we may trade Truevision or Pinnacle securities
for our own account and the account of our customers, and, accordingly, may at
any time hold a long or short position in Truevision or Pinnacle securities.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Truevision in its evaluation of the
Merger, and this opinion is not intended to be and does not constitute a
recommendation to any stockholder of Truevision as to how such stockholder
should vote on, or take any other action with respect to, the Merger. This
opinion may be included in the Joint Proxy Statement/Prospectus of Truevision
and Pinnacle distributed in connection with the Merger, provided that this
opinion is reproduced therein in full and any description of, or reference to,
us or any summary of this opinion included therein is in form and substance
acceptable to us and our legal counsel. Except as provided in the preceding
sentence, this opinion shall not be reproduced, summarized, described or
referred to, or furnished to any party, without our prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Aggregate Merger Consideration is fair to the
Truevision Stockholders from a financial point of view.
Very truly yours,
BANCBOSTON ROBERTSON STEPHENS INC.
/s/ BancBoston Robertson Stephens Inc.
--------------------------------------
Authorized Signatory
E-3
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Articles of Incorporation eliminate a director's personal
liability for monetary damages to the Registrant and its shareholders arising
from a breach or alleged breach of the director's fiduciary duty, except for
liability arising under Sections 310 and 316 of the California General
Corporation Law or liability for (i) acts or omissions that involve intentional
misconduct or knowing and culpable violation of law, (ii) acts or omissions that
a director believes to be contrary to the best interests of the Registrant or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) any transaction from which a director derived an improper
personal benefit, (iv) acts or omissions that show a reckless disregard for the
director's duty to the Registrant or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the Registrant or
its shareholders, (v) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
Registrant or its shareholders, (vi) interested transactions between the
corporation and a director in which a director has a material financial
interest, and (vii) liability for improper distributions to shareholders, loans
or guarantees. This provision does not eliminate the directors' duty of care,
and in appropriate circumstances equitable remedies such as an injunction or
other forms of non-monetary relief would remain available under California law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Articles of Incorporation and Bylaws contain provisions covering indemnification
to the maximum extent permitted by the California General Corporation Law of
corporate directors, officers and other agents against certain liabilities and
expenses incurred as a result of proceedings involving such persons in their
capacities as directors, officers employees or agents, including proceedings
under the Securities Act or the Securities Exchange Act of 1934, as amended. The
Registrant has entered into Indemnification Agreements with its directors and
executive officers.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers or persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ --------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization by and between the Registrant,
Truevision, Inc., Bernardo Merger Corporation and Walsh Merger
Corporation, dated as of December 16, 1998 (included as Appendix A to
the Prospectus/Proxy Statement included as part of this Registration
Statement; the Disclosure Schedules relating to the Merger Agreement
have been omitted but will be provided to the Commission upon its
request pursuant to Item 601(b)(2) of Regulation S-K).
3.1 The Registrant's Articles of Incorporation (incorporated by reference to
exhibits filed with the Registrant's Registration Statement on Form S-1,
File No. 33-83812).
3.2 The Registrant's Bylaws (incorporated by reference to exhibits filed with
the Registrant's Statement on Form S-1, File No. 33-83812).
4.1 Form of Specimen Certificate for the Registrant's Common Stock
(incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, File No. 33-83812).
4.2 Preferred Shares Rights Agreement, dated as of December 12, 1996 between
Pinnacle Systems, Inc. and Chase Mellon Shareholder Services, L.L.C.,
including the form of Certificate of Determination, the form of Rights
Certificate and the Summary of Rights (incorporated by reference to the
Registrant's Registration Statement on Form 8-A filed on December 19,
1996).
4.3 Amendment No. 1 to Preferred Shares Rights Agreement dated as of April 30,
1998 by and between Pinnacle Systems, Inc. and Chase Mellon Shareholder
Services, L.L.C. (incorporated by reference to the Registrant's
Registration Statement on Form 8A/A filed May 19, 1998).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of KPMG, LLP, Independent Auditors.
23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.4 Consent of BancBoston Robertson Stephens (included in the opinion of
BancBoston Robertson Stephens attached to Appendix E to the
Prospectus/Proxy Statement included as part of this Registration
Statement).
24.1 Power of Attorney (see page II-4).
99.1 Form of Truevision Proxy Card
</TABLE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) that, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934, as amended, that is
incorporated by reference in the Registration Statement shall be
II-2
<PAGE>
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(2) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of the Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
section 19(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of responding
to the request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration Statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mountain View, State of
California, on the 8th day of Feburary, 1999.
<TABLE>
<S> <C> <C>
PINNACLE SYSTEMS, INC.
By /s/ MARK L. SANDERS
-----------------------------------------
Mark L. Sanders
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark L. Sanders and Arthur D. Chadwick, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Registration
Statement on Form S-4 and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ MARK L. SANDERS Officer and Director
- ------------------------------ (Principal Executive February 8, 1999
Mark L. Sanders Officer)
Vice President, Financial
/s/ ARTHUR D. CHADWICK and Administration and
- ------------------------------ Chief Financial Officer February 8, 1999
Arthur D. Chadwick (Principal Financial and
Accounting Officer)
/s/ AJAY CHOPRA Chairman of the Board,
- ------------------------------ Vice President, Desktop February 8, 1999
Ajay Chopra Products
/s/ L. GREGORY BALLARD
- ------------------------------ Director February 8, 1999
L. Gregory Ballard
/s/ JOHN LEWIS
- ------------------------------ Director February 8, 1999
John Lewis
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ NYAL D. MCMULLIN
- ------------------------------ Director February 8, 1999
Nyal D. McMullin
/s/ GLENN E. PENISTEN
- ------------------------------ Director February 8, 1999
Glenn E. Penisten
/s/ CHARLES J. VAUGHAN
- ------------------------------ Director February 8, 1999
Charles J. Vaughan
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE PAGE
- ------------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization by and between the Registrant, Truevision, Inc., Bernardo
Merger Corporation and Walsh Merger Corporation, dated as of December 16, 1998 (included as
Appendix A to the Prospectus/Proxy Statement included as part of this Registration
Statement; the Disclosure Schedules relating to the Merger Agreement have been omitted but
will be provided to the Commission upon its request pursuant to Item 601(b)(2) of Regulation
S-K).
3.1 The Registrant's Articles of Incorporation (incorporated by reference to exhibits filed with
the Registrant's Registration Statement on Form S-1, File No. 33-83812).
3.2 The Registrant's Bylaws (incorporated by reference to exhibits filed with the Registrant's
Statement on Form S-1, File No. 33-83812).
4.1 Form of Specimen Certificate for the Registrant's Common Stock (incorporated by reference to
exhibits filed with the Registrant's Registration Statement on Form S-1, File No. 33-83812).
4.2 Preferred Shares Rights Agreement, dated as of December 12, 1996 between Pinnacle Systems,
Inc. and Chase Mellon Shareholder Services, L.L.C., including the form of Certificate of
Determination, the form of Rights Certificate and the Summary of Rights (incorporated by
reference to the Registrant's Registration Statement on Form 8-A filed December 19, 1996).
4.3 Amendment No. 1 to Preferred Shares Rights Agreement dated as of April 30, 1998 by and between
Pinnacle Systems, Inc. and Chase Mellon Shareholder Services, L.L.C. (incorporated by
reference to the Registrant's Registration Statement on Form 8-A/A filed on May 19, 1998).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, regarding the legality
of the securities being issued.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit
5.1).
23.2 Consent of KPMG, LLP, Independent Auditors.
23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.4 Consent of BancBoston Robertson Stephens (included in the opinion of BancBoston Robertson
Stephens attached to Appendix E to the Prospectus/Proxy Statement included as part of this
Registration Statement).
24.1 Power of Attorney (see page II-4).
99.1 Form of Truevision Proxy Card
</TABLE>
<PAGE>
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
TELEPHONE 650-493-9300; FACSIMILE 650-493-6811
February 8, 1999
EXHIBIT 5.1
Pinnacle Systems, Inc.
280 North Bernardo Avenue
Mountain View, CA 94043
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4, Commission File
Number 333- , filed by you with the Securities Exchange Commission (the
"Commission") on February 8, 1999 (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of 410,168
shares of your Common Stock (the "Shares"). As your counsel in connection with
this transaction, we have examined the proceedings taken and are familiar with
the proceedings proposed to be taken by you in connection with the sales and
issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the proxy statement/prospectus constitution a
part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Pinnacle Systems, Inc.:
We consent to incorporation by reference herein of our reports dated July
21, 1998, relating to the consolidated balance sheets of Pinnacle Systems, Inc.
and subsidiaries as of June 30, 1998 and 1997, and the related consolidated
statements of operations, comprehensive income, stockholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1998, and
the related financial statement schedule, which reports appear in the June 30,
1998, annual report on Form 10-K of Pinnacle Systems, Inc. We also consent to
the reference to our firm under the heading "Experts" in the registration
statement.
/s/ KPMG LLP
Mountain View, California
February 5, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement/Prospectus constituting
part of this Registration Statement on Form S-4 of Pinnacle Systems, Inc. of our
report dated August 13, 1998 relating to the financial statements of Truevision,
Inc., which appears in such Proxy Statement/Prospectus. We also consent to the
reference to us under the heading "Experts" in such Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
February 5, 1999
<PAGE>
TRUEVISION, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Louis J. Doctor and R. John Curson, or
either of them, as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse side, all of the shares of common stock of Truevision, Inc.
held of record by the undersigned on February 4, 1999 at the special
meeting of stockholders to be held on March 11, 1999, or any
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL
LISTED HEREON. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
(PLEASE SEE REVERSE SIDE)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
<PAGE>
Please mark your votes as indicated in this example /X/
1. To approve and adopt the merger agreement and approve and adopt the merger
and the transactions contemplated thereby.
FOR AGAINST ABSTAIN
/ / / / / /
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL TITLES. IF A CORPORATION, PLEASE SIGN
FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ---------------------------------------------------
(Signature of Stockholder)
- --------------------------------------------------- Dated ______________, 1999
(Signature If Held Jointly)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
