PINNACLE SYSTEMS INC
424B3, 1999-08-25
PHOTOGRAPHIC EQUIPMENT & SUPPLIES
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PROSPECTUS                                           Filed Pursuant to 424(b)(3)


                                 386,586 Shares

                             PINNACLE SYSTEMS, INC.

                                  COMMON STOCK

                                   ----------

         These   shares  may  be   offered   and  sold  from  time  to  time  by
Hewlett-Packard Company, the selling shareholder. See "Selling Shareholder." The
selling  shareholder  acquired the shares in connection  with the acquisition by
Pinnacle Systems, Inc. of certain assets from such selling shareholder.

         The selling  shareholder  will receive all of the net proceeds from the
sale  of the  shares  and  will  pay  all  underwriting  discounts  and  selling
commissions,  if any, applicable to the sale of the shares. The Company will not
receive any of the proceeds from the sale of the shares.

         YOU SHOULD CONSIDER  CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4  OF
THIS PROSPECTUS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED HEREBY.

         Pinnacle's  common stock is traded on the Nasdaq  National Market under
the symbol  "PCLE." On August 24,  1999,  the  closing  sale price of a share of
Pinnacle's Common Stock was $33.00.

                                   ----------

         Neither the Securities and Exchange Commission nor any state securities
commission  has approved or disapproved  these  securities or determined if this
prospectus  is truthful or  complete.  Any  representation  to the contrary is a
criminal offense.

                                   ----------



                                 August 25, 1999

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
Available Information........................................................  2
Information Incorporated by Reference........................................  2
Forward Looking Information..................................................  3
The Company..................................................................  4
Risk Factors.................................................................  4
Use of Proceeds.............................................................. 13
Selling Shareholder.......................................................... 13
Plan of Distribution......................................................... 13
Experts...................................................................... 14
Legal Matters................................................................ 14

         You should rely only on the information  contained in this  prospectus.
We have not  authorized  anyone to provide you with  information  different from
that contained in this prospectus.  The selling stockholder is offering to sell,
and seeking  offers to buy,  shares of PCLE common  stock only in  jurisdictions
where  offers  and  sales  are  permitted.  The  information  contained  in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of the shares.

         In this prospectus, "Pinnacle," "we," "us," and "our" refer to Pinnacle
Systems, Inc. and its subsidiaries.



                              AVAILABLE INFORMATION

         We file annual,  quarterly and special  reports,  proxy  statements and
other information with the Securities and Exchange Commission referred to as the
SEC. You may read and copy any  document we file at the SEC's  public  reference
facilities in Room 1034, 450 Fifth Street, N.W., Washington,  D.C. 20549, and at
the SEC's  regional  offices at  Northwestern  Atrium  Center,  500 West Madison
Street,  Suite 1400,  Chicago,  Illinois  60661 and 7 World Trade Center,  Suite
1300,  New York,  New York  10048.  Please  call the SEC at  1-800-SEC-0330  for
further  information  on the public  reference  rooms.  Our SEC filings are also
available to the public at the SEC's web site at http://www.sec.gov.



                      INFORMATION INCORPORATED BY REFERENCE

         The SEC allows us to "incorporate by reference" the information we file
with them,  which means that we can  disclose  important  information  to you by
referring you to those documents.  The information  incorporated by reference is
considered to be a part of this prospectus,  and later  information that we file
with the SEC will  automatically  update  and  supersede  this  information.  We
incorporate by reference the documents listed below, and any future filings made
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934,  as amended,  until the selling  stockholders  sell all the shares.
This  prospectus  is part of a  Registration  Statement  we  filed  with the SEC
(Registration No. 333-84739). The documents we incorporate by reference are:

                                      -2-
<PAGE>

         1.       our Annual  Report on Form 10-K for the fiscal year ended June
                  30, 1998;

         2.       our  Quarterly  Report  on Form  10-Q  for the  quarter  ended
                  September 30, 1998;

         3.       our  Quarterly  Report  on Form  10-Q  for the  quarter  ended
                  December 31, 1998;

         4.       our Quarterly  Report on Form 10-Q for the quarter ended March
                  31, 1999;

         5.       our Current  Report on Form 8-K as filed with the SEC on March
                  26, 1999;

         6.       Our Current Report on Form 8-K as filed with the SEC on August
                  13, 1999;

         7.       the description of the Company's Common Stock contained in its
                  Registration  Statement  on Form 8-A as filed  with the SEC on
                  September 9, 1994; and

         8.       the  description  of the Company's  Preferred  Share  Purchase
                  Rights contained in its Registration  Statement on Form 8-A as
                  filed with the SEC on December  19,  1996,  as amended May 19,
                  1998.

         You may request a copy of these filings, at no cost, by written or oral
request to the following  address:  Chief Financial  Officer,  Pinnacle Systems,
Inc., 280 North Bernardo  Avenue,  Mountain View,  California  94043;  telephone
number (650) 526-1600.

                           FORWARD LOOKING INFORMATION

         This  Prospectus,  including the information  incorporated by reference
herein, contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the  "Securities  Act"), and Section 21E
of the Securities  Exchange Act of 1934.  Actual results could differ materially
from those projected in the  forward-looking  statements as a result of the risk
factors set forth below.  Reference is made in particular to the  discussion set
forth under  "Management's  Discussion  and Analysis of Financial  Condition and
Results of  Operations"  in the Annual  Report on Form 10-K for the fiscal  year
ended June 30,  1998,  incorporated  herein by  reference.  In  connection  with
forward-looking  statements  which  appear  in  these  disclosures,  prospective
purchasers of the Common Stock  offered  hereby  should  carefully  consider the
factors set forth in this Prospectus under "Risk Factors."

                                      -3-
<PAGE>

                                   THE COMPANY

         We design, manufacture,  market and support video post-production tools
for high quality real time video  processing.  The  Company's  products  combine
computer based and specialized  video  processing  technologies  which perform a
variety  of video  post-production  functions  such as the  addition  of special
effects,  graphics and titles to multiple streams of live or previously recorded
video material.  The Company's products address needs in the broadcast,  desktop
or professional and consumer video post-production markets.

         The  Company  was  incorporated  in  California  in 1986.  The  Company
maintains its executive  offices at 280 North  Bernardo  Avenue,  Mountain View,
California 94043, and its telephone number is (650) 526-1600.

                                  RISK FACTORS

         We have grown  rapidly and expect to continue  to grow  rapidly.  If we
fail to effectively manage this growth, our financial results could suffer.

         We have in the past experienced rapid growth and anticipate that we 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
nine-month period ended March 31, 1999 increased 51.4% over the same period last
year.  As a result of  recent  acquisitions,  we have  increased  the  number of
employees,  including the addition of approximately  235 employees in connection
with the Hewlett-Packard, Inc.,  Truevision,  Inc. and miro Computer Products AG
acquisitions,  and many are now  geographically  dispersed.  This growth  places
increasing  demands on our management,  financial and other  resources.  We have
built these  resources  and systems to account for such  growth,  but  continued
and/or  accelerated  growth may require us to increase  our  investment  in such
systems, or to reorganize our management team. Such changes,  should they occur,
could  cause  an  interruption  or  diversion  of focus  from our core  business
activities and have an adverse effect on financial results.

         Any failure to  successfully  integrate the businesses we have acquired
could negatively impact us.

         In August 1999, we closed the transaction  with  Hewlett-Packard  Inc.,
and in  March  1999,  we  completed  the  acquisitions  of  Truevision,  Inc and
Shoreline Studios,  Inc. We 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 our  business  and
operating results. These risks include:

         -        Distracting  management from the day-to-day  operations of our
                  business

         -        Costs,  delays and inefficiencies  associated with integrating
                  acquired operations, products and personnel

         -        The  potential  to result in  dilutive  issuance of our equity
                  securities

         -        The incurrence of debt and  amortization  expenses  related to
                  goodwill and other intangible assets

         There  are  various  factors  which  may  cause  our net  revenues  and
operating results to fluctuate.

         Our 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 our control. These factors include:

         -        Timing of  significant  orders from and shipments to major OEM
                  customers

                                      -4-
<PAGE>

         -        Timing and market acceptance of new products

         -        Success in developing, introducing and shipping new products

         -        Dependence on distribution channels through which our products
                  are sold

         -        Increased competition and pricing pressure

         -        Accuracy  of our  and our  resellers'  forecasts  of end  user
                  demand

         -        Accuracy of inventory forecasts

         -        Ability to obtain sufficient supplies from our 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 recent economic downturn in Asia and Latin America.

         We also experience 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, we attend a
number of annual trade shows which can  influence the order pattern of products,
including CEBIT in March,  the NAB convention held in April,  the IBC convention
held in September  and the COMDEX  exhibition  held in November.  Our  operating
expense levels are based, in part, on our expectations of future revenue and, as
a result, net income would be disproportionately  affected by a shortfall in net
sales. Due to these factors, we believe that  quarter-to-quarter  comparisons of
our  results of  operations  are not  necessarily  meaningful  and should not be
relied upon as indicators of future performance.

         Our stock price may be volatile.

         The trading  price of our 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
                  us, our customers or competitors

         -        Changes in securities analysts' recommendations

         -        Announcements of acquisitions

         -        Earnings estimates for us

         -        General fluctuations in the stock market

                                      -5-
<PAGE>

         Our 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 our 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 our 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 us, it is
possible that similar  litigation  could be brought  against us. 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
us to significant liabilities.

         We may fail to sell products in the consumer market.

         We entered the consumer  market with the purchase of the  VideoDirector
product line from Gold Disk in June 1996. We began shipping our 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, we acquired Miro's consumer  products
and  European  sales  organization.  We aim to continue to expend  resources  to
develop, market and sell products into the consumer market. In this endeavor, we
need to continue to develop and maintain the following capabilities:

         -        Marketing   and  selling   products   through   the   consumer
                  distribution channels.

         -        Establish relationships with distributors and retailers

         -        A fully developed  infrastructure to support electronic retail
                  stores and telephone and Internet orders.

         Additionally,  factors  beyond our control could hurt consumer  product
sales and consequently our financial condition. These factors include:

         -        Potential  compatibility  problems  with other  manufacturers'
                  electronic components

         -        The risk of obsolete inventory and inventory returns

         -        The  growth  of the  consumer  video  market is  difficult  to
                  predict

                                      -6-
<PAGE>

         If our products do not keep pace with the technological developments in
the rapidly changing video  post-production  equipment industry,  then we 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,  our inability 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 our business,
particularly on a quarterly basis.

         We are  critically  dependent on the  successful  introduction,  market
acceptance,  manufacture  and sale of new  products  that  offer  our  customers
additional  features and enhanced  performance at competitive prices. Once a new
product is developed,  we 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 us 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 we do not effectively compete, our business will be harmed.

         The market for our  products is highly  competitive.  We compete in the
broadcast,   desktop  and  consumer  video  production  markets.  We  anticipate
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 our broadcast, consumer
and video products is generally based on:

         -        Product performance

         -        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

         Certain  competitors in the  broadcast,  consumer and video market have
larger financial,  technical,  marketing,  sales and customer support resources,
greater name  recognition  and larger  installed  customer  bases than we do. In
addition,  some  competitors  have  established  relationships  with current and
potential customers of ours and offer a wide variety of video equipment that can
be bundled in certain large system sales.

                                      -7-
<PAGE>

         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
                  Tektronix
                  SeaChange

         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.
                  Hauppauge
                  Media 100, Inc.
                  Adobe Systems, Inc.

         These lists are not all-inclusive.

         The  consumer  market in which  certain of our  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 our consumer  products by
providing  some or all of the same features and video editing  capabilities.  In
addition,  we expect that existing  manufacturers  and new market  entrants will
develop new,  higher  performance,  lower cost consumer  video products that may
compete  directly  with  our  consumer   products.   We  expect  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 our business.

         We are dependent on contract manufacturers and single or limited source
suppliers for our components.  If these  manufacturers and suppliers do not meet
our demand either in volume or quality, then we could be materially harmed.

         We rely on  subcontractors to manufacture our consumer products and the
major  subassemblies  of  our  broadcast  and  desktop  products.   We  and  our
manufacturing  subcontractors  are  dependent  upon  single  or  limited  source
suppliers for a number of components  and parts used in our products,  including
certain key  integrated  circuits.  Our 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

                                      -8-
<PAGE>

         -        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 suppliers
becomes unable or unwilling to continue to manufacture  these  subassemblies  or
provide critical  components in required  volumes,  we will have to identify and
qualify  acceptable   replacements  or  redesign  our  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 our  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 our business.

         We rely heavily on dealers and OEMs to market, sell, and distribute our
products. In turn, we depend heavily on the success of these resellers. If these
resellers do not succeed in  effectively  distributing  our  products,  then our
financial performance will be negatively affected.

         These resellers may:

         -        Not effectively promote or market our products

         -        Experience financial difficulties and even close operations

         Our dealers and retailers are not  contractually  obligated to sell our
products. Therefore, they may, at any time:

         -        Refuse to promote or pay for our products

         -        Discontinue our products in favor of a  competitor's product

         Also, with these  distribution  channels  standing between them and the
actual  market,  we may not be able  to  accurately  gauge  current  demand  for
products  and  anticipate  demand for newly  introduced  products.  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,  we have expanded our 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.  We also sell our consumer  products  directly to certain
retailers.   Rapid  change  and  financial  difficulties  of  distributors  have
characterized   distribution  channels  for  consumer  retail  products.   These
arrangements  have exposed us to the following  risks,  some of which are out of
our control:

         -        We are obligated to provide price protection to such retailers
                  and   distributors   and,  while  the  agreements   limit  the
                  conditions  under which  product can be returned to us, we may
                  be faced with product returns or price protection obligations.

         -        The  distributors  or retailers  may not continue to stock and
                  sell our consumer products.

         -        Retailers  and  retail   distributors  often  carry  competing
                  products.

         Any of the foregoing events could materially harm our business.

                                      -9-
<PAGE>

         If certain of our key employees  leave or are no longer able to perform
services for us, it could have a material adverse effect on our business.

         We believe that the efforts and abilities of our senior  management and
key technical personnel are very important to our continued success. Only one of
our senior  management  or key  technical  personnel  is bound by an  employment
agreement and none are the subject of key man life insurance.

         We may not be  able to  attract  and  retain  a  sufficient  number  of
managerial personnel and technical employees to compete successfully.

         Our  success  is  dependent  upon our  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. We may not be able to retain our 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  our  employ  and  subsequently  compete  against  us,  or
contractors  may perform  services for  competitors of ours. If we are unable to
retain key personnel, our business could be materially harmed.

         We may be unable to protect our proprietary  information and procedures
effectively.

         We  must  protect  our  proprietary   technology  and  operate  without
infringing the intellectual  property rights of others. We rely on a combination
of patent,  copyright,  trademark  and trade secret laws and other  intellectual
property protection methods to protect our proprietary technology.  In addition,
we generally enter into  confidentiality  and nondisclosure  agreements with our
employees  and  OEM  customers  and  limit  access  to and  distribution  of our
proprietary technology.  These steps may not protect our proprietary information
nor  give  us  any  competitive  advantage.  Others  may  independently  develop
substantially  equivalent  intellectual property or otherwise gain access to our
trade secrets or intellectual  property,  or disclose such intellectual property
or trade secrets.  If we are unable to protect our  intellectual  property,  our
business could be materially harmed.

         We may be  adversely  affected if we are sued by a third party or if we
decide 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  issued to us, to
protect our trade secrets,  trademarks and other  intellectual  property  rights
owned by us, or to defend us against claimed infringement. This litigation may

         -        Divert  management's  attention away from the operation of our
                  business

         -        Result in the loss of our proprietary rights

         -        Subject us to significant liabilities

         -        Force us to seek licenses from third parties

         -        Prevent us from manufacturing or selling products.

         Any of these results could materially harm our business.

                                      -10-
<PAGE>

         In the course of business, we have in the past received  communications
asserting  that our products  infringe  patents or other  intellectual  property
rights  of  third   parties.   We   investigated   the  factual  basis  of  such
communications and negotiated  licenses where appropriate.  It is likely that in
the  course of our  business,  we 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 our  products,  or  relating  to  current  or future
technologies, we 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 we sell products internationally,  we are subject to additional
risks.

         Sales  of  our   products   outside   of  North   America   represented
approximately  64% of net sales in the nine month  period  ended  March 31, 1999
compared to 57.6%,  39.7% and 38.7% of net sales in the fiscal  years that ended
June 30, 1998, 1997 and 1996 respectively.  We expect that  international  sales
will continue to represent a significant portion of our net sales,  particularly
in light of our increased European sales as a result of the Miro Acquisition and
the  addition of the Miro  European  sales  channel.  We make  foreign  currency
denominated sales in many,  primarily  European,  countries.  This exposes us 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 and 1999,  especially  for sales of
consumer and desktop products into Europe.  In fiscal 1999 and beyond, we expect
that a majority  of our  European  sales will be  denominated  in local  foreign
currency  including the Euro. The Company has developed  natural hedges for some
of this risk in that most of the European  selling expenses are also denominated
in local currency.  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

         We are also subject to the risks of generally poor economic  conditions
in certain  areas of the world,  most  notably  Asia.  These  risks may harm our
future international sales and, consequently, our business.

                                      -11-

<PAGE>

         Computer software,  components and systems used by or designed by us or
used by third  parties  with whom we  regularly  deal 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.  Our
business  could be  interrupted  materially  as a result of such  disruption  or
failure.

         Like many other companies,  we are 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.

         We are conducting a program to confront these potential problems.  This
program involves  assessing all areas that may be affected by or responsible for
a year 2000  problem and  initiating  changes  wherever  necessary.  Some of the
activities include:

         -        Assessing  all  major   categories  of  systems  used  by  us,
                  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

         -        Discussing  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  our
                  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. Further, we have
contingency plans, but if these planning  activities fail, our business could be
materially  harmed.  It is  uncertain  to what extent we will be affected by the
year 2000 problem,  and if third parties or suppliers  have year 2000  problems,
our business may be materially harmed.

         To assist  customers  in  evaluating  their year 2000  issues,  we have
assessed the capability of our current and discontinued products.  Products have
been 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 us, 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 our product properly
exchanges date data with our product. Based on our

                                      -12-
<PAGE>

tests, we believe that all current products shipping,  which run under Microsoft
Windows NT or Windows 95, will be "Year 2000  compliant."  Final  results of our
complete product testing will be published by fall 1999.

         The cost which will be incurred by us 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.  If
actual cost of year 2000 compliance materially exceeds our current estimate, our
business could be harmed.

                                 USE OF PROCEEDS

         The Company will not receive any  proceeds  from the sale of the shares
by the selling shareholder.

                               SELLING SHAREHOLDER

         Hewlett-Packard  Company, the selling shareholder,  acquired a total of
675,170  shares in connection  with our  acquisition of certain of the assets of
the selling  shareholder  pursuant to an Asset Purchase Agreement dated June 30,
1999. The 773,172 shares held by the selling shareholder represent approximately
3.3% of the  outstanding  common  stock of Pinnacle of the as of August 2, 1999.
All  386,586  of the  shares  offered  hereby  are  being  sold  by the  selling
shareholder.  Upon completion of this offering, the selling shareholder will own
approximately  386,586 of the  outstanding  shares of Common  Stock of Pinnacle,
representing  1.6% of the  outstanding  common stock of Pinnacle as of August 2,
1999.

         Pursuant to the terms of the Stock Restriction and Registration  Rights
Agreement  dated as of August 2, 1999  (the  "Registration  Rights  Agreement"),
between  Pinnacle  and  the  selling  shareholder,  Pinnacle  undertook  to  use
commercially  reasonable  efforts to register  certain of the shares held by the
selling  shareholder  within  five  days of the date of  issuance  of  shares in
connection  with  the  closing  of  the  acquisition.  The  Registration  Rights
Agreement also includes certain  indemnification  arrangements  with the selling
shareholder.

                              PLAN OF DISTRIBUTION

         The shares may be sold from time to time by the selling  shareholder or
by pledgees, donees, transferees or other successors in interest. Such sales may
be made in any one or more transactions  (which may involve block  transactions)
on the Nasdaq  National  Market,  or any  exchange on which the common  stock of
Pinnacle  may then be listed,  in the  over-the-counter  market or  otherwise in
negotiated  transactions  or a  combination  of such methods of sale,  at market
prices  prevailing  at the time of sale,  at prices  related to such  prevailing
market prices or at negotiated prices.  The selling  shareholder may effect such
transactions  by  selling  shares  to  or  through   broker-dealers,   and  such
broker-dealers  may sell the  shares  as agent or may  purchase  such  shares as
principal  and resell  them for their own account  pursuant to this  prospectus.
Such  broker-dealers  may  receive  compensation  in the  form  of  underwriting
discounts,  concessions  or  commissions  from the  selling  shareholder  and/or
purchasers the shares, for whom they may act as agent (which compensation may be
in excess of customary commissions).  In connection with such sales, the selling
shareholder  and any  participating  brokers  or  dealers  may be  deemed  to be
"underwriters" as defined in the Securities Act.

                                      -13-
<PAGE>

         The Registration  Rights Agreement  provides that we will indemnify the
selling shareholder against certain liabilities, including liabilities under the
Securities Act.

         We may  suspend  the use of this  prospectus  for a discrete  period of
time, not exceeding 30 days, if, in the good faith determination of our board of
directors,  a development has occurred or condition  exists as a result of which
the  Registration  Statement  or this  prospectus  contains or  incorporates  by
reference a material  misstatement  or omission,  the  correction of which would
require the premature disclosure of confidential  information that would, in the
good faith  determination  of the board of directors,  materially  and adversely
affect the Company.  We may not exercise  this delay right more than once in any
twelve-month period. We are obligated in the event of such suspension to use our
reasonable  efforts to ensure that the use of the  prospectus  may be resumed as
soon as  practicable.  This offering  will  terminate on the earliest of (a) two
years  from the date of  issuance  of the  shares  or (b) the date on which  all
shares offered hereby have been sold by the selling shareholder or (c) such time
as all of the shares can be sold by the selling shareholder within a three-month
period without  compliance with the registration  requirements of the Securities
Act pursuant to Rule 144 thereunder.

         Any  securities  covered  by this  prospectus  which  qualify  for sale
pursuant to Rule 144 under the Securities Act may be sold under that Rule rather
than pursuant to this Prospectus.

         There can be no assurance that the selling shareholder will sell any or
all of the shares of Pinnacle common stock offered by it hereunder.

                                     EXPERTS

         The consolidated financial statements and schedule of the Company as of
June 30, 1998 and 1997 and for each of the years in the three-year  period ended
June 30, 1998 have been  incorporated by reference  herein, in reliance upon the
reports of KPMG LLP,  independent  auditors,  incorporated by reference and upon
the authority of said firm as experts in accounting and auditing.

                                  LEGAL MATTERS

         The  validity  of the shares of Common  Stock  offered  hereby has been
passed  upon for  Pinnacle  by Wilson  Sonsini  Goodrich & Rosati,  Professional
Corporation, Palo Alto, California.

                                      -14-



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