8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of report (date of earliest event reported):

July 22, 2005

PINNACLE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

California	000-24784	94-3003809
(State or other jurisdiction of incorporation)	(Commission File No.)	(I.R.S. Employer Identification No.)

280 North Bernardo Avenue

Mountain View, California 94043

(Address of principal executive offices)

Registrant’s telephone number, including area code:

(650) 526-1600

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

x Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

x Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01 Other Events.

On July 22, 2005, Pinnacle Systems, Inc. (“Pinnacle”) received a letter from Vector Capital (“Vector” - previously referred to as “Company C” in the Joint Proxy Statement/Prospectus filed by Pinnacle and Avid Technology, Inc.) offering to acquire the assets of Pinnacle’s Business and Consumer division for $200 million in cash. A copy of the letter from Vector is attached hereto as Exhibit 99.1, and is incorporated herein by reference.

On July 25, 2005, Pinnacle issued a press release, attached hereto as Exhibit 99.2, which is incorporated herein by reference. The press release announces that Pinnacle’s board of directors has rejected the proposal received from Vector, and its continuing recommendation that Pinnacle shareholders vote in favor of the pending merger with Avid Technology, Inc. (“Avid”).

In connection with the pending acquisition of Pinnacle by Avid, Avid has filed with the Securities and Exchange Commission a Registration Statement on Form S-4 containing a Joint Proxy Statement/Prospectus, and Avid and Pinnacle have mailed to their respective stockholders the Joint Proxy Statement/Prospectus. The following information is set forth to supplement the “Background of the Merger” section in such Registration Statement on Form S-4 and Joint Proxy Statement/Prospectus.

Additional Background of the Merger

On July 13, 2005, Avid made a preliminary announcement of its results for its quarter ended June 30, 2005. The announced results indicated a shortfall in Avid’s revenue and earnings from previous expectations, and a reduction in the forecast by Avid’s management as to anticipated revenue and earnings in future periods.

On July 18, 2005, Pinnacle’s board of directors held a special telephonic meeting, with representatives from Lazard and DLA Piper in attendance, to review and discuss Avid’s preliminary announcement of its results. Pinnacle’s board of directors instructed management and Lazard to meet with representatives from Avid for the purpose of investigating and understanding the causes underlying the Avid revenue and earnings shortfall.

On July 21, 2005, Pinnacle made a public announcement regarding its net sales expectations for its quarter ended June 30, 2005. On July 21, 2005, Avid made a further announcement of its results for its quarter ended June 30, 2005, and held a webcast and conference call to explain the results and Avid management’s forecast in further detail.

On July 22, 2005, Pinnacle’s board of directors held a special telephonic meeting, with representatives from Lazard and DLA Piper in attendance, to receive a report of the results of the investigation of Avid by management, and to review the strategic and business considerations relating to the Avid transaction, the change in value to Pinnacle shareholders and other factors. Following those discussions, the Pinnacle board of directors unanimously concluded that the proposed merger transaction with Avid remained in the best interest of Pinnacle’s shareholders.

On the evening of July 22, 2005, Pinnacle received an unsolicited written proposal to acquire Pinnacle’s Business and Consumer division assets for $200 million in cash from a private equity firm, Vector Capital (previously referred to as “Company C”). As required by the merger agreement between Avid and Pinnacle, Pinnacle informed Avid of the proposal, and provided Avid with a copy of the July 22, 2005 letter from Vector.

From July 23, 2005 through July 24, 2004, Pinnacle’s management, with the assistance of Lazard and DLA Piper, analyzed the proposal from Vector.

On July 24, 2005, Pinnacle’s board of directors held a special telephonic meeting to consider the proposal from Vector, with representatives from Lazard and DLA Piper in attendance. DLA Piper advised Pinnacle’s board of directors regarding its fiduciary duties, and reviewed Pinnacle’s obligations under the Avid merger agreement. Pinnacle’s management reviewed Vector’s proposal, including:

• the structure, form and terms;

• the sources of financing and degree of commitment;

• the requirement for additional due diligence, proposed to be conducted in a 48-hour period; and

• the need to negotiate terms of a definitive agreement.

Pinnacle’s board of directors reviewed with its advisors a number of considerations relating to Vector’s proposal, including:

• costs that would be incurred by Pinnacle which were not addressed in Vector’s proposal, and which would lower Vector’s assumed value to the Pinnacle shareholders, including:

• the tax cost and inefficiencies for Pinnacle’s shareholders of a sale of assets by Pinnacle, rather than the entire company;

• the continuing operating expenses required to operate the remaining portion of the business not to be purchased by Vector, including overhead costs until restructuring or sale;

• employee retention costs relating to key employees to be retained for the Broadcast and Professional division;

• additional employee severance costs likely to be incurred;

• lease termination and other restructuring costs that would be associated with the proposed Vector transaction and the other steps needed to realize shareholder value; and

• further legal, accounting and financial advisor fees that would be required to be incurred.

• Vector’s presumed valuation of the Broadcast and Professional division at $100 million to $120 million, and the risks to realizing that valuation, including:

• previous efforts to sell the Broadcast and Professional division for a price in that range had included ownership of key intellectual property shared by the Business and Consumer division;

• the risk that a transaction could not be consummated with Company A, the party that had earlier proposed a potential purchase price range between $100 million to $120 million for the assets of the Broadcast and Professional division, or with any other party, including risk of objection by antitrust regulators, and difficulties created if key intellectual property would not be available after a sale of the Business and Consumer Division; and

• the unknown potential for value to other bidders.

• the risks, costs and challenges of the multiple transaction structure proposed by Vector;

• the risks and complexities of divisional asset purchase transactions;

• the experience in previous negotiations with Vector, which had included assurances of Vector’s ability to complete a purchase of Pinnacle without outside financing, and Vector’s subsequent withdrawal for reasons including the unavailability of financing on acceptable terms;

• the financing risk associated with Vector’s proposal, including the absence of firm commitment;

• the absence of proposed definitive terms for acquisition or licensing agreements;

• the uncertainty of terms and the possibility of conditions not yet introduced;

• the length of time and associated costs and risks to consummate the several new transactions that would result from the proposal;

• the risk of not being able to complete any transaction and having to continue as a stand-alone entity;

• the question of whether Vector’s proposal could qualify as a “Superior Proposal” under the terms of the merger agreement with Avid; and

• the risk of losing the Avid transaction.

Pinnacle’s board of directors noted the recent and historical trading prices of Avid common stock and the transaction value of the transaction with Avid. Pinnacle’s board of directors also considered the remaining risks and benefits of the business combination with Avid, including the strategic rationale and the possible appreciation in value of the combined company if the benefits of the combination were realized. Pinnacle’s board of directors also reviewed the remaining conditions to the Avid transaction, including the status of the number of respective stockholder and shareholder proxies submitted for the votes and the status of the review of the transaction by the European antitrust regulators.

After a review and discussion of the possible benefits and risks of Vector’s proposal compared to the Avid transaction, Pinnacle’s board of directors determined, after consultation with Lazard and DLA Piper, that Vector’s proposal was not reasonably likely to lead to a “superior proposal,” as defined in the Avid merger agreement. On July 25, 2005, Pinnacle informed Vector of this determination.

Additional Information

In connection with the pending acquisition of Pinnacle by Avid, Avid has filed with the Securities and Exchange Commission a Registration Statement on Form S-4 containing a Joint Proxy Statement/Prospectus, and Avid and Pinnacle have mailed to their respective stockholders the Joint Proxy Statement/Prospectus. The Registration Statement and the Joint Proxy Statement/Prospectus contain important information about Avid, Pinnacle, the transaction, and related matters. Investors and security holders are urged to read the Registration Statement and the Joint Proxy Statement/Prospectus carefully.

Investors and security holders may obtain free copies of the Registration Statement and the Joint Proxy Statement/Prospectus and other documents filed with the SEC by Avid and Pinnacle through the web site maintained by the SEC at www.sec.gov.

In addition, investors and security holders may obtain free copies of the Registration Statement and the Joint Proxy Statement/Prospectus and other documents filed with the SEC from Avid by contacting Dean Ridlon, Investor Relations director for Avid, at telephone number (978) 640-5309, or from Pinnacle by contacting Deborah B. Demer of Demer IR Counsel, Inc. at telephone number (925) 938-2678, extension 224.

Avid and Pinnacle, and their respective directors and executive officers, may be deemed to be participants in the solicitation of proxies in respect of the transactions contemplated by the merger agreement. Information regarding Avid’s directors and executive officers is contained in Avid’s Form 10-K for the year ended December 31, 2004 and in the Joint Proxy Statement/Prospectus, which are filed with the SEC and available free of charge as indicated above. Information regarding Pinnacle’s directors and executive officers is contained in Pinnacle’s Form 10-K for the year ended June 30, 2004 and its proxy statement dated September 30, 2004, which are filed with the SEC and available free of charge as indicated above. The interests of Avid’s and Pinnacle’s respective directors and executive officers in the solicitations with respect to the transactions in particular are more specifically set forth in the Registration Statement and the Joint Proxy Statement/Prospectus filed with the SEC, which is available free of charge as indicated above.

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits.

Exhibit No.	Description
99.1	Letter from Vector Capital, dated July 22, 2005
99.2	Press Release of Pinnacle Systems, Inc. issued on July 25, 2005

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

PINNACLE SYSTEMS, INC.
By:	/s/ Scott E. Martin
	Scott E. Martin Senior Vice President, Human Resources and Legal

Date: July 25, 2005

EX-99.1

Exhibit 99.1

July 22, 2005

Pinnacle Systems, Inc.

280 North Bernardo Avenue

Mountain View, CA 94043

Attn: Ms. Patti S. Hart, President,

Chief Executive Officer and Chairman

Facsimile: (650) 930-1622

Dear Members of the Board:

We are writing to reaffirm our interest in pursuing a transaction with Pinnacle. We have been monitoring developments at both Pinnacle and Avid, including Avid’s recent preannouncement and the subsequent decline in the implied value of the Avid offer. Given these circumstances, we believe that the value maximizing alternative for Pinnacle’s shareholders is to reject the Avid offer and pursue a transaction with Vector.

We are hereby offering to acquire the assets of the Business and Consumer division for a purchase price of $200 million in cash. We believe that this offer, together with the value of Pinnacle’s remaining assets, constitutes a “Superior Proposal” under Section 6.1(a) of the Pinnacle/Avid Merger Agreement and believe your financial advisors and shareholders would agree.

We are also pleased to disclose our partnership with Tennenbaum Capital, who is a co-signer to this letter, in pursuit of this transaction. As you and your advisors are likely aware, Tennenbaum Capital has over $3.5 Billion in assets under management. Tennenbaum is prepared to provide us with a commitment for $100 Million in debt financing, which coupled with $100 Million in equity from Vector, provides Pinnacle’s shareholders with a fully-financed, superior proposal to the Avid transaction.

Assuming a value of the Broadcast and Professional division of $100 million to $120 million, based on information from your proxy, a cash balance of $133 million from your most recent investor call, and subtracting the $15 million breakup fee, the $418 - $438 million total value of our proposal provides a 25 - 30% premium over the implied value of the Avid offer. Furthermore, given Avid’s recent performance, our cash proposal for the Business and Consumer division assets provides far greater certainty for your shareholders than the Avid transaction. Lastly, we would like to point out that, by rejecting Avid’s proposal in favor of Vector’s proposal, Pinnacle shareholders will receive $200 million in cash, retain $118 million in cash (net of the breakup fee) and retain tremendous upside in the remaining Broadcast and Professional assets.

We are aware that the Business and Consumer division and the Broadcast and Professional division share certain intellectual property. Based on our previous analysis of this issue and interaction with a previous potential acquirer of the Broadcast and Professional division assets, we believe these issues can be resolved and should not be an impediment to this transaction.

456 Montgomery Street     19th Floor     San Francisco, CA 94104     Phone (415) 293-5000     Fax (415) 293-5100      www.vectorcapital.com

We understand and appreciate that you are a party to an existing, announced merger agreement and that your shareholder meeting is scheduled for July 27^th. We believe that your shareholders deserve to be aware of this alternative proposal before they cast their votes.

Vector’s proposal would require only a 48 hour “bring down due diligence” period with management to discuss:

a) the financial results for the Business and Consumer division in FY Q4 2005, and

b) the expected release date of Studio 10.

We are prepared to immediately begin negotiating an asset purchase agreement and have a legal team on standby. We are committed to pursuing a transaction with you and feel confident that we can work together to provide the best outcome for your shareholders.

Please call me at (415) 293-5005, or Michael Kennedy of O’Melveny & Myers LLP at (415) 984-8756 if you have any questions.

Very truly yours,
Vector Capital Corporation		Tennenbaum Capital
By:	/s/ Alexander R. Slusky	By:	/s/ Steven Chang
	Alexander R. Slusky,		Steven Chang,
	President		Partner

EX-99.2

Exhibit 99.2

Contact:

Mary Dotz

Chief Financial Officer

Pinnacle Systems, Inc.

(650) 237-1952

ir@pinnaclesys.com

For Immediate Release

Pinnacle Systems Board Reaffirms Recommendation of Pending Merger with Avid Technology;

Rejects Unsolicited Vector Capital Proposal to Acquire One of Pinnacle’s Business Units

MOUNTAIN VIEW, Calif., July 25, 2005—Pinnacle Systems®, Inc. (Nasdaq: PCLE), a leader in digital video solutions, today announced the following additional information with respect to the pending merger transaction with Avid Technology, Inc. (Nasdaq: AVID).

Late on Friday, July 22, 2005, Pinnacle received a letter from Vector Capital (which has previously been referred to as “Company C” in the Joint Proxy Statement/Prospectus filed with the SEC by Avid and Pinnacle), co-signed by Tennenbaum Capital, offering to acquire the assets of the Business and Consumer division of Pinnacle for $200 million in cash, subject to updated due diligence and completion of contract negotiations.

Pinnacle’s board of directors met on July 24, 2005 and after a thorough discussion, determined to reject Vector’s proposal for reasons that include the following:

• First, the Vector proposal is not comparable to the pending Avid transaction. Vector offers only to buy the assets of one division – the division that generates most of Pinnacle’s net sales and gross profit – with the risks and costs of the balance of the business being left to Pinnacle and its shareholders.

• Second, based on assumptions regarding Pinnacle’s remaining cash and the potential value of its remaining Broadcast and Professional division, Vector suggests that the implied value of its proposal to Pinnacle shareholders was between $418 million and $438 million; however, when these costs and values are more realistically taken into consideration, the value of the Vector proposal is significantly reduced.

• The proposal overlooks significant costs – including the continuing operating expenses and corporate overhead, restructuring costs, professional fees and transaction costs that Pinnacle would bear – and that an asset sale by Pinnacle would not be a tax efficient structure for providing value to Pinnacle shareholders.

• Vector has assumed a value of $100 million to $120 million for the remaining Broadcast and Professional division of Pinnacle; however, all risks of realizing that value would be borne by Pinnacle shareholders.

• Third, the proposal entails a number of significant and unacceptable risks, including uncertainty relating to financing for the transaction, and the negotiating uncertainties and time necessary to pursue a succession of complex transactions and corporate restructuring, with no assurance of success or ultimate value to Pinnacle shareholders.

The Pinnacle board has also given further consideration to the pending transaction with Avid. On July 13, 2005 and July 21, 2005, Avid made public announcements concerning its results for the quarter ended June 30, 2005, and held a publicly-webcast teleconference to explain the results and provide further detail. The announcements indicated a shortfall in Avid’s revenue and net income for the latest quarter from previous expectations, and a reduction in the forecast by Avid’s management as to anticipated revenue and net income in upcoming periods.

In light of that situation, Pinnacle’s board of directors instructed management and the financial advisors to Pinnacle to meet with representatives from Avid for the purpose of investigating and understanding the causes underlying the revenue and net income shortfall. Pinnacle’s board of directors subsequently met with management and the financial advisors to Pinnacle to review and discuss the results of their investigation, and to review the strategic and business considerations relating to the Avid transaction, the change in value to Pinnacle shareholders, and other factors. Following that review and those discussions, the Pinnacle board of directors unanimously concluded that the proposed merger transaction with Avid remains in the best interest of Pinnacle’s shareholders.

For all of these reasons, the Pinnacle board of directors continues to recommend that Pinnacle shareholders vote to approve the terms of the proposed merger with Avid.

Patti Hart, Chairman of the Board of Pinnacle, said “The board concluded that the proposed offer from Vector Capital lacked comparability to the pending transaction. We found the proposal to be speculative and incomplete creating obvious risks to our shareholders. Based on these factors and our past experience with Vector relative to certainty of funding, we continue to strongly recommend that our shareholders vote in favor of the pending merger with Avid.”

The special meeting of Pinnacle shareholders for the purpose of voting to approve the terms of the proposed merger with Avid remains scheduled to take place on Wednesday, July 27, 2005, at the time and place set forth in the Joint Proxy Statement/Prospectus previously distributed to shareholders.

Pinnacle shareholders should take note that the proposed merger would not qualify as a reorganization for United States federal income tax purposes if the fair market value of Avid common stock were below approximately $47 per share at the effective time of the merger. A discussion of potential tax consequences of the merger can be found in the Joint Proxy Statement/Prospectus. Shareholders are urged to consult their own tax advisors as to the specific tax consequence to them of the merger.

Pinnacle shareholders with questions or needing assistance regarding the voting, or who wish to change their vote can call MacKenzie Partners, Inc. at (800) 322-2885.

About Pinnacle Systems

Pinnacle Systems provides broadcasters and consumers with cutting-edge digital media creation, storage, and play-back solutions for use at Home, in the Studio and on the Air. Pinnacle Systems’ award-winning digital media solutions are in use around the world for broadcast, video and audio editing, DVD and CDR authoring and on the Internet. A recognized industry leader, the company has received nine prestigious Emmy Awards for its technical innovations and carries this commitment throughout all of its product lines. Pinnacle Systems may be reached at (650) 526-1600 or at www.pinnaclesys.com.

Additional Information

In connection with the pending acquisition of Pinnacle by Avid, Avid has filed with the SEC a Registration Statement on Form S-4 containing a Joint Proxy Statement/Prospectus, and Avid and Pinnacle have mailed to their respective stockholders the Joint Proxy Statement/Prospectus. The Registration Statement and the Joint Proxy Statement/Prospectus contain important information about Avid, Pinnacle, the transaction, and related matters. Investors and security holders are urged to read the Registration Statement and the Joint Proxy Statement/Prospectus carefully.

Investors and security holders may obtain free copies of the Registration Statement and the Joint Proxy Statement/Prospectus and other documents filed with the SEC by Avid and Pinnacle through the web site maintained by the SEC at www.sec.gov.

In addition, investors and security holders may obtain free copies of the Registration Statement and the Joint Proxy Statement/Prospectus and other documents filed with the SEC from Avid by contacting Dean Ridlon, Investor Relations director for Avid, at telephone number (978) 640-5309, or from Pinnacle by contacting Deborah B. Demer of Demer IR Counsel, Inc. at telephone number (925) 938-2678, extension 224.

Avid and Pinnacle, and their respective directors and executive officers, may be deemed to be participants in the solicitation of proxies in respect of the transactions contemplated by the merger agreement. Information regarding Avid’s directors and executive officers is contained in Avid’s Form 10-K for the year ended December 31, 2004 and in the Joint Proxy Statement/Prospectus, which are filed with the SEC and available free of charge as indicated above. Information regarding Pinnacle’s directors and executive officers is contained in Pinnacle’s Form 10-K for the year ended June 30, 2004 and its proxy statement dated September 30, 2004, which are filed with the SEC and available free of charge as indicated above. The interests of Avid’s and Pinnacle’s respective directors and executive officers in the solicitations with respect to the transactions in particular are more specifically set forth in the Registration Statement and the Joint Proxy Statement/Prospectus filed with the SEC, which is available free of charge as indicated above.

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