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PINNACLE MICRO, INC.
19 TECHNOLOGY DRIVE
IRVINE, CA 92618
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AUGUST 29, 1996
The Annual Meeting of Stockholders of Pinnacle Micro, Inc. (the
"Company"), will be held at the Hyatt Regency Irvine, 17900 Jamboree Boulevard,
Irvine, California, 92614 on Thursday, August 29, 1996 at 10:00 a.m., Pacific
Daylight Time for the following purposes, as more fully described in the
accompanying Proxy Statement:
(1) To elect four directors;
(2) To approve the 1996 Long-Term Incentive Plan;
(3) To approve the 1996 Non-Employee Directors Stock
Option Plan;
(4) To ratify the appointment of BDO Seidman, LLP as
independent certified public accountants of the Company for the fiscal
year ending December 28, 1996; and
(5) To transact such other business as may properly come
before the meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on July 17, 1996,
will be entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof. A list of such stockholders is available for inspection
during normal business hours at the Company's offices, 19 Technology Drive,
Irvine, California and will also be available for examination at the Annual
Meeting until its adjournment. The meeting will be open to stockholders of
record, proxyholders, and others by invitation only. Beneficial owners of shares
held by a broker or nominee must present proof of such ownership to attend the
meeting, and must bring with them a proxy from such broker or nominee to vote
such shares.
By Order of the Board of Directors
/s/ LAWRENCE GOELMAN
-------------------------------------
Lawrence Goelman
President and Chief Executive Officer
August 15, 1996
Irvine, California
PLEASE USE THE ENCLOSED STAMPED ENVELOPE TO RETURN YOUR PROXY.
RETURNING YOUR PROXY WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE ANNUAL
MEETING.
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PINNACLE MICRO, INC.
19 TECHNOLOGY DRIVE
IRVINE, CA 92618
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Pinnacle Micro, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held at the Hyatt
Regency Irvine, 17900 Jamboree Boulevard, Irvine, California 92614, on August
29, 1996, at 10:00 a.m. Pacific Daylight Time and at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders.
These proxy solicitation materials, and the Annual Report to
Stockholders for the fiscal year ended December 30, 1995, including financial
statements, were first mailed on or about August 15, 1996, to all stockholders
of record entitled to vote at the Annual Meeting.
RECORD DATE AND SHARES OUTSTANDING
Stockholders of record at the close of business on July 17, 1996 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. The
Company has only one class of equity securities outstanding, designated Common
Stock, $0.001 par value ("Common Stock"). At the close of business on the Record
Date 7,924,850 shares of Common Stock were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given in the form accompanying this proxy statement may be
revoked or superseded by the person giving it prior to exercise. A proxy may be
revoked by delivering to the Secretary of the Company a later dated proxy or a
written notice of revocation, or by attending the Annual Meeting and voting in
person. Attendance at the Annual Meeting will not constitute a revocation unless
the attending stockholder affirmatively indicates an intention to vote in
person.
VOTING AND SOLICITATION
Each share of Common Stock outstanding at the Record Date will be
entitled to one vote with respect to each proposal herein and any other matter
that properly may come before the Annual Meeting. The Company will bear the
entire cost of solicitation of proxies, including costs incurred in connection
with the preparation, assembly, printing and mailing of this Proxy Statement,
the proxy and any additional information furnished to the Company's stockholders
in relation to the Annual Meeting. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners
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of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies also may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone, facsimile, telegram or any other means of
communication.
The presence in person or by proxy of a majority of the shares entitled
to vote is necessary to establish a quorum at the Annual Meeting. Abstentions
and broker non-votes are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. Abstentions are counted in
tabulating the votes cast on proposals presented to stockholders; therefore,
abstentions will have the same effect as votes against a proposal. Broker
non-votes will be treated as unvoted for purposes of determining approval of a
proposal and will not be counted as votes for or against such proposal.
A proxy, when executed and not revoked, will be voted in accordance
with the instructions given in the proxy. If a choice is not specified in the
proxy, the proxy will be voted "FOR" the nominees for election of directors
named in this Proxy Statement, "FOR" the approval of the 1996 Long-Term
Incentive Plan, "FOR" the approval of the 1996 Non-Employee Directors Stock
Option Plan, "FOR" the ratification of BDO Seidman, LLP as the Company's
independent certified public accountants, and, according to the discretion of
the proxyholders, on any other matter that properly comes before the meeting.
Any stockholder present at the meeting may withdraw his or her proxy
and vote in person on each matter brought before the meeting. Stockholders
attending the meeting whose shares are held in the name of a broker or other
nominee should bring with them proof of their ownership of shares and a proxy
from such broker or other nominee authorizing them to vote such shares.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT MEETING
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1997 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices no later than April
16, 1997, in order to be considered for inclusion in the Company's proxy
statement relating to that meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of four directors is to be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them FOR the nominees named below, three of whom are presently directors of the
Company. If any such nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who the
proxy holders in their discretion may designate to fill the vacancy. The Company
is not aware of any nominee who will be unable or will decline to serve as a
director. The term of office for each person elected as a director will continue
until the next annual meeting of stockholders or until his successor has been
elected and qualified.
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Directors are to be elected by a plurality of the votes cast at the
Annual Meeting in person or represented by proxy at the meeting. Stockholders do
not have cumulative voting rights in the election of directors. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES NAMED BELOW.
The names and certain information concerning the experience and
background of the nominees for election as directors are set forth below.
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Daryl J. White 48 Chairman of the Board
Lawrence Goelman 55 Chief Executive Officer, President and
Director
Scott A. Blum 32 Vice President and Director
Charles A. Laverty 51 None (Nominee)
Daryl J. White has served as the Company's Chairman of the Board since
May 1996. He joined the Board of Directors as an outside director in September
1995. He was Senior Vice President, Finance and Chief Financial Officer of
Compaq Computer Corporation, the world's largest supplier of personal computers,
until his retirement in May 1996. He is on the Board of Directors of Imation
Corporation, an NYSE listed leading developer, manufacturer and marketer of a
wide variety of products and services worldwide for data storage and imaging
applications within the information processing industry. It is anticipated that
Mr. White will be a member of the Board of Directors at Paracelsus Healthcare
Corporation, an NYSE listed hospital management corporation, after August 16,
1996.
Lawrence Goelman has served as the Company's President and Chief
Executive Officer since May 1996. He joined the Company's Board of Directors in
April 1996. Prior to joining the Company, Mr. Goelman founded and served as
Chairman and Chief Executive Officer of CostCare, Inc. from April 1981 to July
1995, a national healthcare cost management firm which he grew and then sold to
John Hancock Mutual Life Insurance Company. From July 1995 Mr. Goelman was, and
continues as a managing partner at Tremont Partners, Inc., a portfolio
management and consulting firm. Mr. Goelman also serves as a director of
Urohealth Systems, Inc.
Scott A. Blum served as the Company's Vice President, Sales and
Marketing from October 1987 to July 1992. From July 1992 through June 1996 Mr.
Blum served as the Company's Executive Vice President and since July 1996 as
Vice President, Marketing. Mr. Blum is no longer an executive officer of the
Company. Mr. Blum became a Director in June 1988. Mr. Blum is the son of William
F. Blum, a founder and principal stockholder of the Company, and its former
President, Chief Executive Officer and Chairman of the Board.
Charles A. Laverty, nominee for director, has served as Chief Executive
Officer of Urohealth Systems, Inc. ("Urohealth") since September 1994, and as
Chairman of the Board of Directors of Urohealth since December 1994. Prior to
joining Urohealth, Mr. Laverty was previously employed as Senior Executive Vice
President and was a director of Coram Healthcare Corporation, the second largest
home infusion therapy company in the U.S., which was formed in 1994 by the
merger of Curaflex Health Services, Inc., HealthInfusion, Inc., Medisys, Inc.,
and T(2) Medical, Inc. Mr. Laverty served as the Chairman of the Board,
President and Chief Executive Officer of Curaflex Health Services from February
1989 to July 1994. If elected, Mr. Laverty will replace Mr. John P. Haynie, a
director of the Company, who will not stand for re-election to the Board at the
Annual Meeting.
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OTHER EXECUTIVE OFFICERS
In addition to Mr. Goelman who is a director, the Company's current
other executive officers include:
Ken Campbell, age 54, joined the Company as Executive Vice President,
Technology and General Manager in April 1996. Prior to joining the Company, Mr.
Campbell served as Executive Vice President and General Manager of the tape
products group at Seagate Technology, a division of Seagate after it acquired
Conner Peripherals (which in turn acquired the business from Archive). Mr.
Campbell spent 11 years in the tape drive business, and has over 25 years of
experience in the high technology industry, including 15 years at Xerox
Corporation in senior technical and development positions.
Roger Hay, age 46, joined the Company in June 1996 as Executive Vice
President and Chief Financial Officer. From March 1994 to June 1996, Mr. Hay
served as Senior Vice President, Finance and Chief Financial Officer of Titan
Corporation, a designer, manufacturer and installer of high technology
information and electronic systems and products for government and commercial
business units. Prior to March 1994, Mr. Hay spent four years as Executive Vice
President, Finance and Chief Financial Officer at International Rectifier, a
worldwide manufacturer of power semiconductors. Mr. Hay has also held senior
finance positions at Memorex Telex NV, a computer and peripheral equipment
manufacturer, and Unisys Corporation, throughout his 20 years of experience in
the high technology manufacturing business.
Jonathan Eddison, age 43, joined the Company in March 1996 as Vice
President, General Counsel and Secretary. From 1989 to 1996, Mr. Eddison was
Senior Counsel at Epson America, Inc. From 1985 to 1989, Mr. Eddison was Senior
Counsel for Pacific Enterprises, a diversified utility company. Mr. Eddison has
over 17 years of corporate and securities experience in high technology and
multinational firms, including a year as a Staff Attorney in the Office of
General Counsel at the SEC.
LEGAL MATTERS
As disclosed in previous public reports, the Company and several of its
former executives (not including any current executive officers) have been the
subject of an investigation by the staff of the Enforcement Division of the
Securities and Exchange Commission (the "Staff") into matters relating to
post-period shipping and certain other accounting issues.
The Company cooperated fully in the investigations. The Company
reached agreement in principle with the Staff on settlement of its case. This
settlement is not yet final.
The Staff also investigated the 1996 resignation of Coopers & Lybrand
L.L.P. and the Company's accounting treatment of certain research and
development expenditures. The Company cooperated fully with this investigation,
which concluded with the addition of a Rule 12b-20 finding to the terms of the
proposed settlement.
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BOARD MEETINGS
The Board of Directors of the Company held eight meetings during the
fiscal year ended December 30, 1995. All current members of the Board attended
at least 75% of the meetings held by the Board and by all committees of the
Board on which they served (during their terms of membership on the Board and
such committees).
BOARD OF DIRECTORS AND BOARD COMMITTEES
During 1995, the Board of Directors had four standing committees: an
Audit Committee, a Compensation Committee, a Stock Option Committee and an
Employee Incentive Committee. The four committees were reorganized in April 1996
creating two committees: The Compensation Committee (including the former Stock
Option and Employee Incentive Committees) and the Audit Committee.
The Audit Committee reviews the results and scope of audit and other
services provided by the Company's independent auditors. The Audit Committee
presently consists of Messrs. Daryl J. White and John P. Haynie. Former
directors Patrick S. Jones and James T. Schraith comprised the Audit Committee
during most of 1995, until their terms as director ended on October 27, 1995,
the date of the 1995 annual meeting of stockholders (the "1995 Annual Meeting"),
at which time Messrs. Daryl J. White and John P. Haynie were appointed to serve
on this committee. During the fiscal year ended December 30, 1995, the Audit
Committee held three meetings.
The reorganized Compensation Committee makes recommendations concerning
salary and incentive compensation for the Chief Executive Officer and
President. The Compensation Committee reviews and approves compensation,
including stock options, for other executives, management, and key personnel as
recommended by the Chief Executive Officer. The Compensation Committee presently
consists of Messrs. Daryl J. White and John P. Haynie. Former directors Patrick
S. Jones and James T. Schraith comprised the Compensation Committee during most
of 1995, until their terms as directors ended on October 27, 1995, the date of
the 1995 Annual Meeting, at which time Messrs. Daryl J. White and John P. Haynie
were appointed to serve as the sole members of the Compensation Committee.
During the fiscal year ended December 30, 1995, the Compensation Committee held
no formal meetings.
During 1995, the Stock Option Committee was responsible for
administering the Company's stock incentive plans, determining the executives
and key management personnel to whom options would be granted and restricted
stock would be awarded, and approving the terms of the options and awards. Mr.
William F. Blum the former Chairman, President and Chief Executive Officer was a
member of the Stock Option Committee throughout 1995. Mr. Scott A. Blum was a
member of the Stock Option Committee until he was replaced by former director
Patrick S. Jones on January 3, 1995. Mr. Jones served as a member of the Stock
Option Committee until his term as director ended on October 27, 1995, the date
of the 1995 Annual Meeting. The Stock Option Committee held no formal meetings
during the fiscal year ended December 30, 1995 but acted through written
consent, and is now the Compensation Committee.
The Employee Incentive Committee, which consisted solely of Mr. William
F. Blum in 1995, had concurrent authority to administer the Company's equity
incentive plans and to grant options and award restricted stock with respect to
persons who are not executive officers or otherwise designated by the Board as
key management personnel. The Employee Incentive Committee was created in 1995.
This Committee no longer exists, its functions being taken over by the new
Compensation Committee.
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The Company does not have a nominating committee. Instead, the Board of
Directors, as a whole, identifies and screens candidates for membership on the
Company's Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE OFFICER COMPENSATION
The following table sets forth compensation received for the fiscal
years ended December 31, 1993, December 31, 1994 and December 30, 1995, by the
Company's Chief Executive Officer and the other executive officers whose salary
and bonus exceeded $100,000 for the fiscal year ended December 30, 1995
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
SECURITIES ALL OTHER
NAME AND ANNUAL COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) OPTIONS/SARS (#) ($)(4)
------------------ ---- --------- ---------------- ------
William F. Blum(1) 1995 125,000 -- --
former President and Chief 1994 124,792 -- --
Executive Officer 1993 119,100 -- --
Scott A. Blum(2) 1995 161,192 450,000 123
Vice President Marketing, 1994 114,808 -- 71
former Executive Vice President 1993 109,800 -- --
James G. Hanley(3) 1995 156,453 22,500 117
General Manager, Strategic 1994 109,367 -- 65
Products Group 1993 89,550 50,000 --
former Sr. Vice President,
Corporate Development
(1) Effective May 12, 1996, Mr. William F. Blum retired from his positions
as President and Chief Executive Officer of the Company.
(2) In June 1996, Scott A. Blum became Vice President, Marketing following
a management restructuring into strategic business units. Mr. Scott A.
Blum is no longer an executive officer of the Company, although he
remains a director.
(3) Following the end of the 1995 fiscal year, the Company engaged in a
management reorganization. As a result, Mr. James G. Hanley became
General Manager of the Strategic Products Business Unit and the
Company's OEM procurement and resale business. Mr. Hanley is no longer
an officer of the Company.
(4) Represents premiums paid on group term life insurance policies.
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EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Hanley during
December 1995 for a term of two years. Mr. Hanley will receive one month's base
salary and one month of continued benefits for each full year of service with
the Company if his employment is terminated by the Company for reasons other
than cause. Mr. Hanley or his estate will receive a cash payment equal to a base
salary of three months if his employment is terminated by death or disability.
This Agreement may be superseded and replaced in 1996.
SPLIT DOLLAR LIFE INSURANCE
In 1995 the Company authorized the purchase of "Split Dollar" life
insurance on the lives of William F. and Nellie R. Blum. No premiums were paid
in 1995. The purpose of the insurance was to provide funds to pay potential
estate tax liability in the event of the death of William or Nellie Blum (rather
than compel the sale of a large block of Company stock).
The policy is owned by Scott Blum as trustee for certain Blum trusts.
The Company has a security interest in the policy which enables the Company to
ultimately recover its premiums and the cash value of the policy. The Company is
reviewing whether there is a continuing need for this policy and may cancel the
policy, offer it to Mr. and Mrs. Blum or replace it with a lower cost
alternative later in 1996.
STOCK OPTIONS
The following table sets forth certain information regarding options
granted to the Named Executive Officers during the fiscal year ended December
30, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Annual Rates of Stock Price
Individual Grants Appreciation for Option Term(2)
------------------------------------------------ -------------------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted (#)(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ---- -------------- ------------ ---------- ---------- ---------- ----------
W. Blum -- -- -- -- -- --
S. Blum 450,000 62.9% $ 6.41 1/3/2005 $1,814,047 $4,597,150
J. Hanley 22,500 3.1% $ 7.83 7/7/2005 $ 110,796 $ 280,778
(1) These options were granted with an exercise price equal to the fair
market value of the Common Stock on the date of grant and first became
exercisable on the first anniversary of the grant date, with one-third
of the underlying shares becoming exercisable at that time, an
additional one-third of the option shares becoming exercisable on the
second anniversary date, and full vesting on the third anniversary
date. The options were granted for a term of 10 years, subject to
earlier termination for certain events related to termination of
employment.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock appreciation of 5% and 10%
compounded annually from the date the respective options were granted
to their expiration date. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock and
the date on which the options are exercised.
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None of the Named Executive Officers exercised stock options during the
fiscal year ended December 30, 1995. The following table sets forth the number
and value of unexercised options held by each of the Named Executive Officers on
December 30, 1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options at Fiscal Year End (#) Options at Fiscal Year End ($)(1)
-------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
W. Blum -- -- -- --
S. Blum -- 450,000 -- $3,640,500
J. Hanley 52,500 22,500 $ 174,825 $ 150,074
(1) Based on the fair market value of the Common Stock on December 29, 1995
($14.50), less the option exercise price of "in-the-money" options.
COMPENSATION OF DIRECTORS
Effective with the fourth quarter of 1995, each non-employee director
was paid an annual fee of $20,000 for serving on the Board and received an
automatic initial grant of options to purchase 7,500 shares of Common Stock.
Prior to this increase, the annual fee for directors was $10,000. Mr. White and
Mr. Haynie each received stock options to purchase 7,500 shares of Common Stock
on their election to the Board in 1995, and Mr. White received additional stock
options covering another 7,500 shares, also in 1995. The options were granted
at fair market value at the time of grant and vest over three years.
As of July 1, 1996, the Board of Directors approved an increase in
Board Compensation, effective prospectively, in order to retain and attract
highly qualified outside directors, which included an increase in the annual
directors fee to $40,000 (prorated if less than 75% of all Board and committee
meetings are attended), the addition of a $5,000 annual fee for all committee
chairs, and the approval of the 1996 Non-Employee Directors Stock Option Plan
which, subject to stockholder approval, will provide for an initial grant to
each new director of options to purchase 25,000 shares of Common Stock and the
annual grant of options to each non-employee director to purchase 10,000 shares
of Common Stock. Please see Proposal Three to approve the 1996 Non-Employee
Directors Stock Option Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1994, William F. Blum and Nellie R. Blum, collectively, Scott A.
Blum, individually, and James G. Hanley, individually, received previously
accrued dividends of undistributed S Corporation earnings, in the amounts of
$367,429, $180,429 and $18,279, respectively. As a result of the tax effect of
the restatement of the Company's fiscal year 1993 financial statements in 1995,
William F. Blum and Nellie R. Blum, collectively, Scott A. Blum, individually,
and James G. Hanley, individually, were overpaid in the amounts of $367,105,
$180,803 and $13,769, respectively, of which $231,580, $114,060 and $11,521
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respectively, was repaid during 1994, with interest at an annual rate of 7.25%,
with the remaining balances of $83,989, $41,368 and $4,179, respectively, being
completely repaid during 1995, with an annual interest at the rate of 5.48%.
There were no remaining unpaid balances at December 30, 1995.
During 1995, the Company purchased promotional software on CD-ROM from
Extreme Software, a multimedia software development company owned by Scott A.
Blum, for an aggregate price of approximately $100,000. During 1996, the Company
is expected to purchase additional software from this vendor for a projected
aggregate price of approximately $150,000. The pricing obtained by the Company
is less than ten percent (10%) of current retail pricing offered by Extreme
Software to other customers. Management intends to terminate this relationship
in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Throughout 1995, Mr. William F. Blum, the Company's President and Chief
Executive Officer in 1995, was a member of the Stock Option Committee of the
Board that performed certain functions of the Compensation Committee. Mr. Scott
A. Blum, then an executive officer and employee of the Company, was a member of
the Stock Option Committee during three days in January 1995. Throughout 1995,
the Compensation Committee of the Board was comprised of Messrs. Patrick S.
Jones and James T. Schraith, until they were replaced in October 1995 by Messrs.
Daryl J. White and John P. Haynie, none of whom have at any time been employees
of the Company. With respect to executive officers and other key personnel,
during 1995 the Stock Option Committee had sole and exclusive authority to
administer the Company's equity incentive plans and to grant stock options and
restricted stock. With respect to all other employees, the Employee Incentive
Committee, comprised solely of Mr. William F. Blum, had concurrent authority to
administer the Company's equity incentive plans and to grant stock options and
restricted stock. As described above, as of April 1996, the Compensation
Committee assumed the duties of the Stock Option and Employee Incentive
Committees.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The following report is submitted by the Compensation Committee of the
Board (the "Committee") with respect to the executive compensation policies
established by the Committee and compensation paid or awarded to executive
officers for the fiscal year ended December 30, 1995.
Salaries and Employee Benefit Programs. In order to retain executives
and other key employees, and to be able to attract additional well-qualified
executives when the need arises, the Company strives to offer to its executives
and other key employees compensation, health care and other employee benefit
programs that are appropriate when compared to those offered to persons with
similar skills and responsibilities in the local geographic area. In
establishing and reviewing salaries for executive officers, the Committee
reviews the individual performance of the executives, and considers the
executive's achievement of objective and subjective individual performance goals
and the executive's contribution to the Company's financial performance. In
addition, the Committee reviews available information regarding prevailing
salaries and compensation programs offered by businesses which are comparable to
the Company in terms of size, revenue, financial performance and industry group
and which may or may not be included in the CRSP NASDAQ Computer Manufacturers
Index (further described below). Another factor considered in establishing the
salaries of executive officers is the cost of living in Southern California
where the Company is headquartered, as such cost generally is higher than in
other parts of the country.
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Performance-Based Compensation. The Company provides merit bonuses in
cash and/or stock options to executives and key employees dependent on the
Company's achievements, with emphasis being placed on the Company's revenue
growth and profitability, the direct contributions made by the particular
employee, or both. In certain instances, bonuses may be awarded on the
achievement by an executive of specific objectives within his or her area of
responsibility. Bonuses for executives are reviewed by the Compensation
Committee in consultation with the Chief Executive Officer.
Stock Options and Equity-Based Programs. In order to align the
financial interests of executive officers and other key employees with those of
the stockholders, the Company grants stock options to its executive officers and
other key employees on a periodic basis, taking into account previous grants of
equity-based compensation and stock holdings in determining awards. During 1995,
the Company's Stock Option Committee (now the Compensation Committee)
independently administered the Company's equity-based incentive plans and
granted stock options, to executive officers and selected key personnel. With
respect to all other employees, the Employee Incentive Committee (now the
Compensation Committee) administered the Company's equity incentive plans and
granted stock options.
The Compensation Committee generally follows the practice of granting
options on terms that provide that the options become exercisable in cumulative
annual installments, generally over a three-year period. The Compensation
Committee believes that this feature of the option grants not only provides an
incentive for executive officers and other key employees to remain in the employ
of the Company, but also makes longer term growth in share prices important for
the executives and key employees who receive stock options.
FISCAL YEAR 1995 COMPENSATION
The principal components of compensation for the executive officers in
fiscal 1995 included base salary and stock option grants. No cash bonuses were
paid.
The base salary of Mr. William F. Blum, the Company's former Chief
Executive Officer in 1995, remained materially unchanged from his fiscal 1994
base salary based on the Company's pay-for-performance program. Because of his
large equity position in the Company and his participation on the Stock Option
Committee, Mr. Blum did not participate in any cash or stock bonus programs
offered by the Company.
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A salary increase of $63,808 or 39.5% for Scott A. Blum for the 1996
fiscal year was approved by William F. Blum in 1995 in his capacity as Chief
Executive Officer.
A salary increase of $18,547 or 11.9% for James C. Hanley for the 1996
fiscal year was approved by William F. Blum in 1995 in his capacity as Chief
Executive Officer.
Respectfully Submitted
Daryl J. White John P. Haynie
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STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for
the Company (ticker symbol PNCL), the Center for Research in Securities Prices
Index for the NASDAQ Stock Market (United States Companies) (the "CRSP NASDAQ
Index") and the Center for Research in Securities Prices Index for NASDAQ
Computer Manufacturers (the "CRSP NASDAQ Computer Manufacturers Index") for the
period that commenced on July 1, 1993 (the date on which the Company's Common
Stock first became registered under Section 12 of the Securities Exchange Act of
1934) and ended on December 30, 1995, with data points for July 1, 1993,
December 31, 1993, June 30, 1994, December 31, 1994, June 30, 1995 and December
30, 1995. The graph assumes that all dividends have been reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
(PINNACLE MICRO, INC., CRSP NASDAQ INDEX,
CRSP NASDAQ COMPUTER MANUFACTURERS INDEX)
[GRAPH]
JUL-93 DEC-93 JUN-94 DEC-94 JUN-95 DEC-95
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PINNACLE MICRO, INC. 100 161 120 83 107 189
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NASDAQ 100 111 101 108 135 153
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NASDAQ COMPUTER 100 104 82 115 147 180
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Notwithstanding anything to the contrary set forth in the Company's
previous filings under the Securities Act of 1993, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the Compensation Committee
Report herein and the stock price performance graph on this page shall not be
incorporated by reference into any of such filings.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Set forth below is certain information as of July 31, 1996, regarding
the beneficial ownership of the Company's Common Stock by (i) any person known
by the Company to beneficially own more than 5% of the Common Stock of the
Company; (ii) each director and nominee for director; (iii) each of the Named
Executive Officers identified in the Summary Compensation Table; and (iv) all
directors and executive officers as a group. Except as otherwise indicated, the
Company believes, based on information furnished by such owners, that the
beneficial owners of the Company's Common Stock listed below have sole
investment and voting power with respect to such shares, subject to applicable
community property laws. Ownership information is based on information furnished
by the respective individuals.
AMOUNT AND NATURE OF
BENEFICIAL PERCENT
NAME OWNERSHIP(1) OF CLASS
- ---- ------------ --------
William F. Blum and Nellie R. Blum ........................ 3,076,650 (2) 38.8%
28300 Alava
Mission Viejo, CA 92692
Scott A. Blum ............................................. 3,724,500 (3) 46.1
Pinnacle Micro, Inc. ...................................
19 Technology Drive
Irvine, CA 92618
Blum Trust No. 1, Scott A. Blum, Trustee .................. 1,150,575 14.5
Gibson, Dunn & Crutcher, LLP
Jamboree Center, 4 Park Plaza
Irvine, CA 92614-8557
Blum Trust No. 2, Scott A. Blum, Trustee .................. 1,150,575 14.5
Gibson, Dunn & Crutcher, LLP
Jamboree Center. 4 Park Plaza
Irvine, CA 92614-8557
John P. Haynie ............................................ 0 *
Daryl J. White ............................................ 2,500 (4) *
James G. Hanley ........................................... 136,500 (5) 1.7
Lawrence Goelman .......................................... 0 0
Charles A. Laverty (nominee) .............................. 0 0
All Directors and Executive Officers as a group (7 persons) 4,639,000 (6) 57.0
* Less than 1%.
(1) Information relating to beneficial ownership of shares of Common Stock
is based upon the rules set forth under the Securities Exchange Act of
1934 (the "Exchange Act"). Under such rules, more than one person may
be deemed to be a beneficial owner of the same securities.
(2) Includes 775,500 shares held by William F. Blum and Nellie R. Blum as
co-trustees of the William F. Blum and Nellie R. Blum Family Trust
dated August 2, 1990, 1,150,575 shares held by Blum Trust No. 1 and
1,150,575 shares held by Blum Trust No. 2. William F. Blum and Nellie
R. Blum have the joint power to remove the Trustee of Blum Trust No. 1
and Blum Trust No. 2 and appoint themselves as Trustee.
(3) Includes 1,150,575 shares held by Blum Trust No. 1 and 1,150,575 shares
held by Blum Trust No. 2, with respect to each of which Scott A. Blum
is Trustee with sole voting power and sole investment power. Also
includes 150,000 shares issuable pursuant to options exercisable within
sixty (60) days from July 31, 1996.
(4) Includes 2,500 shares issuable pursuant to options exercisable within
sixty 60 days from July 31, 1996.
(5) Includes 60,000 shares issuable pursuant to options exercisable within
sixty (60) days from July 31, 1996.
(6) Includes 212,500 shares issuable pursuant to options exercisable within
sixty (60) days from July 31, 1996. Shares held by Blum Trust No. 1 and
Blum Trust No. 2 are counted only once for purposes of this total.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than 10% stockholders are required by regulations promulgated by the
Securities and Exchange Commission to furnish the Company with copies of all
Section 16(a) reports they file. During 1995 Forms 3 for Messrs. Daryl J. White
and John P. Haynie were filed 53 and 144 days late, respectively, and a Form 4
for Mr. White was filed approximately 10 days late. Except as stated above,
based solely on its review of the copies of reporting forms furnished to the
Company or written representations that no annual Form 5 reports were required,
the Company believes that all filing requirements under Section 16(a) of the
Exchange Act applicable to its directors, officers and any persons holding 10%
or more of the Company's Common Stock with respect to the Company's fiscal year
ended December 30, 1995, were satisfied.
PROPOSAL TWO
TO APPROVE
1996 LONG-TERM INCENTIVE PLAN
At the Annual Meeting there will be presented to the stockholders a
proposal to adopt the 1996 Long-Term Incentive Plan (the "LTIP"). The Board of
Directors unanimously approved the LTIP and recommends that the stockholders
approve this proposal to adopt the LTIP.
PURPOSE
The LTIP is intended to encourage officers and key employees and
consultants of the Company and any subsidiaries of the Company to acquire or
increase their ownership of Common Stock, to compensate participants for
superior financial results and outstanding personal performance, to foster in
participants a strong incentive to put forth maximum effort for the continued
success and growth of the Company and to assist in attracting and retaining the
best available individuals to the Company. Stock options, stock appreciation
rights ("SARs"), restricted stock awards and performance awards may be granted
under the LTIP.
ADMINISTRATION
The LTIP is to be administered by the Compensation Committee (the
"Committee") appointed by the Company's Board of Directors, which Committee
shall consist of not less than two directors, each of whom is a "non-employee
director" as defined in Rule 16b-3 of the rules and regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Unless the
Board determines otherwise, the Committee shall be comprised solely of "outside"
directors within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). Subject to the provisions of the LTIP, the
Committee has full authority to construe and interpret the LTIP, to promulgate,
amend and rescind rules and regulations related to the implementation of the
LTIP, to determine the participants to whom awards under the LTIP will be
granted, to determine the nature and amount of the grants and the relevant
conditions thereof and to make all other determinations necessary or advisable
for the administration of the LTIP. Any good faith determination, decision or
action of the Committee in connection with the construction, interpretation,
administration or application of the LTIP will be final, conclusive and binding
upon all participants and any persons claiming under or through them.
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ELIGIBILITY
Awards under the LTIP may be granted to such officers (including
officers who are members of the Board) and other key employees and consultants
of the Company and its subsidiaries as the Committee determines. The Company
estimates that approximately 40 officers, employees and consultants are
currently eligible to receive grants under the LTIP.
STOCK OPTIONS
Stock options granted under the LTIP may be designed to qualify for
treatment as incentive stock options under Section 422 of the Code (so called
"incentive stock options"), or as options not intended to qualify for such
treatment (so called "non-qualified options"), or a combination of incentive and
non-qualified stock options. The option or exercise price per share of any
option will not be less than the "fair market value" (as defined in the LTIP) of
the shares of Common Stock covered by such option on the option grant date. In
the event an incentive stock option is granted to a participant who, at the time
such incentive stock option is granted, owns more than ten percent of the total
combined voting power of all classes of stock of the Company (a "Ten-Percent
Stockholder"), then the option price per share of such incentive stock option
will not be less than 110 percent of the fair market value of the shares covered
by the option on the grant date.
Options will be exercisable for a term of not more than 10 years from
the date of grant and will be subject to earlier termination as provided for by
the LTIP or the Committee. In the event an incentive stock option is granted to
a participant who, at the time of grant is a Ten-Percent Stockholder, then such
incentive stock option will not be exercisable more than five years from the
option grant date. To the extent that the aggregate fair market value of the
Common Stock (determined as of the date of the option grant) with respect to
which incentive stock options first become exercisable by a participant during
any calendar year (under all plans of the participant's employer corporation,
its parent, if any, and its subsidiaries, if any) exceeds $100,000, the options
will not be treated as incentive stock options. No grants of incentive stock
options will be made 10 years or more from date of the LTIP's adoption by the
Board.
STOCK APPRECIATION RIGHTS
A SAR is an award entitling the participant to receive an amount equal
to, or less than, the excess of the fair market value of a share of Common Stock
on the date of exercise over the fair market value of a share of Common Stock on
the date of grant of the SAR, multiplied by the number of shares of Common Stock
with respect of which the SAR was exercised. SARs may be granted in tandem with,
in addition to, or completely independent of a stock option or any other award
under the LTIP. SARs may be settled in cash, in shares of Common Stock or any
combination thereof; except that any SARs exercised on or after a "change in
control" of the Company (as defined in the LTIP) will be settled in cash. SARs
granted in tandem with incentive stock options are subject to additional
limitations under the LTIP.
RESTRICTED STOCK AWARDS
A restricted stock grant is an award of shares of Common Stock
transferred to an LTIP participant, subject to terms and conditions deemed by
the Committee as appropriate, including, without limitation, restrictions on the
sale, assignment, transfer or other disposition of the shares and the
requirement that the participant forfeit the shares back to the Company upon
termination of employment for specified reasons within a specified period of
time. Restricted stock awards may be subject to restrictions which lapse over
time with or without regard to performance objectives for a specific period.
Subject to the restrictions set forth in the LTIP and in the related award
agreement, shares granted under a restricted stock award that are subject to
forfeiture will be issued to the recipient and deposited into escrow. In
establishing performance
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objectives, the Committee will also establish a schedule or schedules setting
forth the portion of the award which will be earned or forfeited based on the
degree of achievement of the performance objectives actually achieved or
exceeded as determined by the Committee.
Subject to the restrictions set forth in the LTIP and as set forth in
the related award agreement, participants who receive restricted stock awards
will be stockholders with respect to all shares represented by such certificate
or certificates issued to them and will have all the rights of a stockholder
with respect to such shares, including the right to vote such shares and to
receive dividends and other distributions paid with respect to such shares.
Subject to the terms of the LTIP, the Committee shall determine the number of
restricted stock awards to be granted to any participant and the Committee may
impose different terms and conditions on any particular restricted stock award
made to any participant.
PERFORMANCE AWARDS
Performance awards granted under the LTIP may be in the form of either
performance equity grants or performance unit grants, or a combination of both.
A performance equity grant is an award of units with each unit equivalent in
value to one share of Common Stock, whereas a performance unit grant is an award
of units with each unit representing such monetary amount as designated by the
Committee, each granted to a participant subject to such terms and conditions as
the Committee deems appropriate, including, without limitation, the requirement
that the participant forfeit such units or a portion of such units in the event
certain performance objectives are not met within a designated performance
period.
Performance awards may be granted alone, in addition to or in tandem
with other awards under the LTIP. The Committee shall establish performance
periods and performance objectives applicable to performance awards. In
establishing the performance objective, the Committee shall also establish a
schedule or schedules setting forth the portion of the performance award that
will be earned or forfeited based on the degree of achievement of the
performance objectives actually achieved or exceeded as determined by the
Committee.
In the case of a performance equity grant, the participant will be
entitled to receive payment for each unit earned in an amount equal to the
aggregate fair market value of the shares of Common Stock covered by such award.
In the case of a performance unit grant, the participant will be entitled to
receive payment for each unit earned in an amount equal to the dollar value of
each unit times the number of units earned.
PERFORMANCE OBJECTIVES
Under the LTIP, performance objectives are the specific target
objectives established by the Committee under one or more of the following four
factors: earnings per share of the Company's Common Stock, return on average
stockholders' equity, return on capital, and total stockholder returns of the
Company operating cash flow, net income, sales growth, return on sales and
return on net assets. These objectives may be established by the Committee as
absolute targets or may be compared to a peer group of comparable companies
established by the Committee. To the extent awards are intended to qualify as
performance-based compensation under Code Section 162(m), then the specific
performance objectives will be established in writing no later than ninety (90)
days after the commencement of the performance period to which the performance
objectives relate, but in no event after 25% of the performance period has
elapsed. The performance periods established by the Committee for which
performance objectives are established are to be not less than one fiscal
quarter and no more than three consecutive fiscal years. The Committee may
adjust performance objectives, adjust the way performance objectives are
measured, or shorten any performance period if it determines that conditions or
the occurrence of events
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warrants such actions; provided, that the Committee's right to make such
adjustments will not apply to any performance award that is intended to qualify
as performance-based compensation under Code Section 162(m) if and to the extent
that it would prevent the award from so qualifying.
The awards for any participant determined on the basis of performance
objectives established under the LTIP may be reduced or eliminated upon the
attainment of the performance objective, but the Committee will not have the
discretion to increase a payment upon the attainment of a performance objective.
Under Code Section 162(m) the achievement of applicable performance goals and
the actual amounts payable to each participant under the LTIP must be certified
by the Committee.
AWARDS SUBJECT TO LTIP
The maximum number of shares of Common Stock with respect of which
awards may be granted under the LTIP is 1,500,000. If any awards under the LTIP
are forfeited, terminated or expire unexercised, the shares of Common Stock
which were theretofore subject to such awards will again be available for award
under the LTIP to the extent of such forfeiture or expiration of such awards.
Moreover, the maximum number of shares of Common Stock with respect to which
options and SARs payable in shares may be granted, or with respect to which
restricted stock awards may be granted, during any year to any participant will
not exceed 100,000. The maximum dollar value of awards (other than options and
SARs payable in shares) that are intended to qualify as performance-based
compensation under Code Section 162(m) which may be paid to any participant for
any applicable performance period will be $1,000,000.
In the event of changes in the Company's outstanding shares by reason
of stock dividends, stock splits, recapitalizations, mergers, consolidations,
combinations, or exchanges of shares, reorganizations or liquidations or similar
events or in the event of extraordinary cash or non-cash dividends being
declared with respect to outstanding shares or other similar transactions, the
number and class of shares available for awards under the LTIP in the aggregate,
the number and class of shares subject to awards theretofore granted, the number
of SARs granted, applicable purchase prices, applicable performance objectives
for the performance periods not yet completed and performance levels and any
portion of the payments related thereto, will be equitably adjusted by the
Committee.
The specific benefits to be granted or paid to participants under the
LTIP cannot be determined in advance of an award because the Committee has
discretion to determine the awards and the participants under the LTIP. No
awards have been granted to date under the LTIP nor are any specific awards
currently contemplated following approval of the LTIP by the stockholders.
AMENDMENT OF LTIP
The Board may amend or terminate the LTIP at any time, but no amendment
will be made without the approval of the stockholders of the Company if
stockholder approval under Section 422 of the Code or Rule 16b-3 will be
required or if it would change the material terms of performance goals that were
previously approved by the Company's stockholders (unless the Board determines
that approval is not necessary to avoid a deduction loss under section 162(m) of
the Code, approval will not avoid such a loss of deduction or approval is not
advisable).
CHANGE IN CONTROL
Upon a "change in control" (as defined in the LTIP) of the Company, (i)
all options and SARs then outstanding will become immediately exercisable as of
the date of the change in control, whether or not then exercisable, (ii) all
restrictions and conditions of all restricted stock awards then outstanding will
be
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deemed satisfied as of the date of the change in control, and (iii) all
performance awards will be deemed to have been fully earned as of the date of
the change in control. Moreover, the Committee may at any time, and subject to
such terms and conditions as it may impose, (a) grant awards that become
exercisable only in the event of a change in control, (b) provide for awards to
be exercised automatically and only for cash in the event of a change in
control, and (c) provide in advance or at the time of a change in control for
cash to be paid in settlement of any award in the event of a change in control.
A "change in control" is defined by the LTIP as the occurrence of any
of the following events: (i) the acquisition after the date of the LTIP by any
person of "beneficial ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act ) of 40% or more of the combined voting power of the
Company's then outstanding voting securities; provided that the acquisition of
voting securities directly from the Company will be excluded from the
determination of a person's beneficial ownership but will be included in the
calculation of the total number of voting securities then outstanding; (ii)
during any period of two consecutive years during the term of the LTIP, the
individuals who at the beginning of such period constitute the Board cease for
any reason to constitute at least the majority thereof, unless the election of
each director who is not a director at the beginning of such period is approved
in advance by directors representing at least two-thirds of the directors then
in office who are directors at the beginning of the period; or (iii) the
approval by the stockholders of the Company of (a) a merger or consolidation
involving the Company, if the stockholders of the Company immediately prior
thereto do not own following such merger or consolidation more than 50% of the
combined voting power of the outstanding voting securities of the corporation
resulting from such merger or consolidation in substantially the same proportion
as their ownership of voting securities of the Company immediately prior
thereto; or (b) a complete liquidation or dissolution of the Company or an
agreement for the sale or the disposition of all or substantial all the assets
of the Company. Notwithstanding the above definition, a change in control will
not occur under the LTIP solely because 40% or more of the Company's voting
securities are acquired by a trustee or other fiduciary holding securities under
one or more Company employee benefit plans. Further, a change in control will
not be deemed to occur simply as a result of a change in the outstanding capital
stock of the Company which results in a reduction in a number of voting
securities outstanding.
Unless provided otherwise in a participant's employment agreement with
the Company or its subsidiary, the aggregate present value of all parachute
payments payable to or for the benefit of a participant, whether payable
pursuant to the LTIP or otherwise (excluding those payments made pursuant to an
agreement with the Company that specifically provides otherwise), will be
limited to three times the participant's base amount less one dollar. For these
purposes, the terms "parachute payment," "base amount" and "present value" will
have the meanings assigned thereto under Code Section 280G. The intention of
this provision is to avoid excise taxes on the participant under the Code
Section 4999 and the disallowance of a deduction to the Company pursuant to Code
Section 280G.
FEDERAL INCOME TAX CONSEQUENCES
The tax consequences of awards granted under the LTIP are complex. The
following is a summary only of the general tax principles applicable to awards
under the LTIP under federal law as in effect on the date of this Proxy
Statement.
Options. There are no tax consequences to the optionee upon the grant
of an option pursuant to the LTIP. There are no tax consequences to the optionee
upon exercise of an incentive stock option, except that the amount by which the
fair market value of the shares at the time of exercise exceeds the option
exercise price is a tax preference item possibly giving rise to alternative
minimum tax. If the shares of Common Stock acquired are not disposed of within
two years from the date the incentive stock option was granted and within one
year after the shares are transferred to the optionee, any gain realized upon
the subsequent
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disposition of the shares will be characterized as long-term capital gain and
any loss will be characterized as long-term capital loss. If all requirements
other than the above described holding period requirements are met, a
"disqualifying disposition" occurs and gain in an amount equal to the lesser of
(i) the fair market value of the shares on the date of exercise minus the option
exercise price and; or (ii) the amount realized on disposition minus the option
exercise price (except for certain "wash" sales, gifts or sales to related
persons), is taxed as ordinary income and the Company will be entitled to a
corresponding deduction in an amount equal to the optionee's ordinary income at
that time. The gain in excess of this amount, if any, will be characterized as
long-term capital gain if the optionee held the shares for more than one year.
Other than incentive stock options, all options granted under the LTIP
will be taxed as non-qualified options. Upon the exercise of a non-qualified
option, the optionee will recognize taxable income in the amount by which the
then fair market value of the shares of Common Stock acquired exceeds the option
exercise price, with the Company being entitled to a deduction in an equal
amount. The amount of such taxable income will be characterized as compensation
income to the optionee. Upon the subsequent disposition of the Common Stock the
optionee will recognize gain or loss, which will be characterized as capital
gain or loss in an amount equal to the difference between the proceeds received
upon disposition and his or her basis for the shares (the basis being equal to
the sum of the price paid for the stock and the amount of income realized upon
exercise of the option) provided the shares are held as a capital asset. Any
capital gain or loss to the optionee will be characterized as long-term or
short-term, depending upon whether his or her holding period for tax purposes
exceeds one year.
The taxable income recognizable upon the exercise of a non-qualified
option is subject to withholding for federal income tax purposes. Accordingly,
the Company generally must, as a condition to the exercise of a non-qualified
option, deduct from payments or shares otherwise due to the optionee the amount
of taxes required to be withheld by virtue of such exercise or require that the
optionee pay such withholding to the Company or make other arrangements
satisfactory to the Company regarding the payment of such taxes.
Stock Appreciation Rights. The amount of any cash (or the fair market
value of any Common Stock) received by the holder of SARs upon the exercise of
SARs under the LTIP will be subject to ordinary income tax in the year of
receipt and the Company will be entitled to a deduction for such amount.
Restricted Stock Awards. An employee who has been awarded restricted
stock will not recognize taxable income at the time of the award unless he
elects otherwise. If the recipient elects to be taxed at the time of the award,
the Company will be entitled to a corresponding deduction. At the time
restrictions applicable to the restricted stock award lapse, the employee will
recognize ordinary income and the Company will be entitled to a corresponding
deduction. The recipient's income and the Company's deduction will be equal to
the excess of the fair market value of such stock at such time over the amount
paid therefor. Dividends paid on the restricted stock during the period the
shares are held in escrow will generally be ordinary compensation income to the
recipient of the restricted stock and deductible as such by the Company.
Performance Awards. An employee who has been awarded a performance
award will not recognize taxable income, and the Company will not be entitled to
a deduction at the time of the award. At the time the employee is entitled to
the performance award, the employee will recognize ordinary income equal to the
sum of the cash and fair market value of the shares of the Common Stock at such
time, and the Company will be entitled to a corresponding deduction. To the
extent performance awards are paid in shares of restricted Common Stock, the
federal income tax consequences described above applicable to restricted stock
awards will apply.
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General Tax Law Considerations. The preceding paragraphs are intended
to be merely a summary of the most important federal income tax consequences
concerning the grant of awards under the LTIP and the disposition of shares of
Common Stock issued thereunder in existence as of the date of this Proxy
Statement. Therefore, participants in the LTIP should review the current tax
treatment with their individual tax advisors at the time of the grant, exercise
or any other transaction relating to any award or underlying stock issued under
the LTIP.
AVAILABILITY OF LTIP
Copies of the LTIP are available upon request directed to Jonathan B.
Eddison, Secretary, Pinnacle Micro, Inc., 19 Technology Drive, Irvine,
California 92618.
VOTE REQUIRED
Approval of the LTIP requires the affirmative vote of a majority of the
shares of Common Stock present or represented and entitled to vote at the Annual
Meeting.
PROPOSAL THREE
TO APPROVE
THE 1996 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
At the Annual Meeting there will be presented to the stockholders a
proposal to adopt the 1996 Non-Employee Directors Option Plan (the "1996 Plan").
The Board of Directors unanimously approved the 1996 Plan and recommends that
the stockholders approve this proposal to adopt the 1996 Plan.
PURPOSE
The 1996 Plan is intended to encourage increased share ownership by the
Company's directors who are not employees of the Company, to enhance the
Company's ability to attract and retain the services of experienced, able and
knowledgeable directors, and to provide additional incentives for the directors
to contribute their best efforts to the Company's success.
ELIGIBILITY
Any of the Company's directors who are not officers or other employees
of the Company or any subsidiary of the Company ("Eligible Directors") are
eligible to receive options under the 1996 Plan.
ADMINISTRATION
The 1996 Plan is to be administered by the Company's Board of
Directors. The Board has the authority, consistent with the 1996 Plan, to
interpret the 1996 Plan and to make all determinations necessary or desirable
for the administration of the 1996 Plan.
The Board may terminate or amend the 1996 Plan at any time, or amend
any outstanding option granted pursuant to the 1996 Plan for the purpose of
satisfying the requirements of any changes in applicable laws or regulations or
for any other purpose which at any time may be permitted by law.
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STOCK OPTIONS
Stock options granted under the 1996 Plan are non-statutory options and
are not intended to qualify as incentive stock options under Section 422 of the
Code. The option or exercise price per share of any option shall be the "fair
market value" (as defined in the 1996 Plan) of the shares covered by such option
on the grant date. The exercise price payable at the time of the option exercise
may be paid (i) in cash, (ii) in shares of previously-held Common Stock, or
(iii) by any combination of cash or shares. The Board will establish a
cashless exercise program where by the option may be exercised without making
a direct payment of the exercise price to the Company.
Under the 1996 Plan, Eligible Directors will receive both initial and
automatic grants of options. Pursuant to the 1996 Plan, the Company will grant
an initial option to purchase 25,000 shares (as reduced to account for grants
of options received as a non-employee director outside of the 1996 Plan) to each
person who is an "Eligible Director" immediately following the Annual Meeting.
As a result, it is contemplated that Charles A. Laverty will receive options to
purchase 25,000 shares on the date of the Annual Meeting. Daryl J. White will
receive options to purchase 17,500 shares (25,000 less 7,500) on the date of the
Annual Meeting. Thereafter, the Company shall grant an initial option to
purchase 25,000 shares to each person who becomes an Eligible Director (but who
previously has not been an Eligible Director under the 1996 Plan as of the
Annual Meeting), which option shall be granted on the earlier of the day such
person is first elected or appointed as a director.
On the date of each annual meeting of the Company's stockholders,
beginning in 1997 the Company will grant an additional option to purchase 10,000
shares of Common Stock to each Eligible Director (other than to Eligible
Directors who received an initial grant during the calendar year in which the
annual meeting is held), provided that each Eligible Director continues in
office after such annual meeting.
Except as otherwise expressly permitted by the Board options are
non-assignable and non-transferable other than by will or the laws of descent
and distribution. Except in the event of a "change in control" of the Company
(as defined in the 1996 Plan), each option granted under the 1996 Plan will
become exercisable on the following schedule: (i) beginning on the first
anniversary of the grant date, as to 33% of the shares, (ii) beginning on the
second anniversary of the grant date, as to 66% of the shares, and (iii)
beginning on the third anniversary of the grant date, and thereafter until the
expiration of the option, as to 100% of the shares.
In the event of a change in control of the Company, all unexpired
options held by an Eligible Director on the date of the change in control will
immediately become exercisable in full. For purposes of the 1996 Plan, a "change
in control" of the Company means the occurrence of any of the following events:
(i) the acquisition after the date of the 1996 Plan by any person of "beneficial
ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 40% or more of the combined voting power of the Company's then
outstanding voting securities; provided that the acquisition of voting
securities directly from the Company will be excluded from the determination of
a person's beneficial ownership but will be included in the calculation of the
total number of voting securities then outstanding; (ii) during any period of
two consecutive years during the term of the 1996 Plan, the individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least the majority thereof, unless the election of each director
who is not a director at the beginning of such period is approved in advance by
directors representing at least two-thirds of the directors then in office who
are directors at the beginning of the period; or (iii) the approval by the
stockholders of the Company of (a) a merger or consolidation involving the
Company, if the stockholders of the Company immediately prior thereto do not own
following such merger or consolidation more than 50% of the combined voting
power of the outstanding voting securities of the corporation resulting from
such merger or consolidation in
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substantially the same proportion as their ownership of voting securities of the
Company immediately prior thereto or (b) a complete liquidation or dissolution
of the Company or an agreement for the sale or the disposition of all or
substantial all the assets of the Company. Notwithstanding the above definition,
a change in control will not occur under the 1996 Plan solely because 40% or
more of the Company's voting securities are acquired by a trustee or other
fiduciary holding securities under one or more Company employee benefit plans.
Further, a change in control will not be deemed to occur simply as a result of a
change in the outstanding capital stock of the Company that results in a
reduction in a number of voting securities outstanding.
SHARES SUBJECT TO 1996 PLAN
The aggregate number of shares to be issued upon the exercise of
options pursuant to the 1996 Plan shall be 350,000, subject to adjustment in the
event of changes in the outstanding shares of the Company's Common Stock by
reason of stock dividends, stock splits, recapitalizations, mergers,
consolidations, reorganizations, liquidations or other similar events. Any
shares subject to an option which is canceled or terminated or not having been
exercised shall again be available to be awarded under the 1996 Plan.
EXPIRATION OF OPTIONS
Options expire on the earlier of 10 years after the grant date or the
date that the Eligible Director ceases to be a member of the Board; provided,
however, that unexpired options otherwise exercisable will remain exercisable
for 12 months following the last date of an Eligible Director's Board membership
unless the Eligible Director ceases to be a member of the Board because of
death, retirement or "cause." If Board membership ceases on the account of death
or retirement under a Company retirement plan, all unexpired options, which are
then exercisable or would have become exercisable had the director continued as
a member of the Board for one additional year, will become immediately
exercisable and will remain exercisable for 365 days following the last day of
the Eligible Director's Board membership. If an Eligible Director's membership
on the Board ends for "cause" (as defined in the 1996 Plan), all options held by
such director expire on the last day of Board membership.
FEDERAL INCOME TAX CONSEQUENCES
There are no tax consequences to an Eligible Director upon the grant of
an option pursuant to the 1996 Plan. Upon the exercise of an option, the
optionee will recognize taxable income in the amount by which the then fair
market value of the shares of Common Stock acquired exceeds the option exercise
price, with the Company being entitled to a deduction in an equal amount. The
amount of such taxable income will be characterized as compensation income to
the optionee.
Upon the subsequent disposition of the Common Stock, the optionee will
recognize gain or loss, which will be characterized as capital gain or loss in
an amount equal to the difference between the proceeds received upon disposition
and his or her basis for the shares (the basis being equal to the sum of the
price paid for the stock and the amount of income realized upon the exercise of
the option) provided the shares are held as a capital asset. Any capital gain or
loss will be characterized as long-term or short-term, depending upon whether
the optionee's holding period for tax purposes exceeds one year.
The preceding paragraphs are intended to be merely a summary of the
most important federal income tax consequences concerning options awarded under
the 1996 Plan and the disposition of shares of Common Stock issued thereunder in
existence as of the date of this Proxy Statement. Participants in the 1996 Plan
should review the current tax treatment with their individual tax advisors at
the time of grant, exercise or other transaction relating to an option or
underlying stock issued under the 1996 Plan.
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AVAILABILITY OF PLAN
Copies of the 1996 Plan are available upon request directed to Jonathan
B. Eddison, Secretary, Pinnacle Micro, Inc., 19 Technology Drive, Irvine,
California 92618.
VOTE REQUIRED
Approval of the 1996 Plan requires the affirmative vote of a majority
of the shares of Common Stock present or represented and entitled to vote at the
Annual Meeting.
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
As described herein, the Company's prior public accounting firm,
Coopers & Lybrand L.L.P., resigned on February 20, 1996. The Board of Directors
selected BDO Seidman, LLP independent certified public accountants, to audit the
financial statements of the Company for the fiscal year ended December 30, 1995,
and for the fiscal year ending December 28, 1996 and recommends that
stockholders vote "FOR" ratification of such appointment. Ratification of the
appointment of BDO Seidman, LLP requires the affirmative vote of a majority of
the shares voting on such proposal. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Representatives of BDO Seidman, LLP are expected to be present at the
meeting with the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
On February 20, 1996, the engagement of Coopers & Lybrand L.L.P., the
former independent accountants of the Company, was terminated by the resignation
of Coopers & Lybrand L.L.P., which was accepted by the Company. Coopers &
Lybrand L.L.P. advised the Company of its belief that the Company's
capitalization of certain non-recurring engineering expenditures for the
quarterly periods ended April 1, July 1 and September 30, 1995, was in error and
that the quarters should be restated.
Due to the resignation of Coopers & Lybrand L.L.P., the Company and
Coopers & Lybrand L.L.P. did not come to a final resolution as to the amounts
capitalized in each quarter. Subsequent to the resignation of Coopers & Lybrand
L.L.P., the Company determined the capitalization of these amounts was not
appropriate. The amounts should have been accounted for as research and
development and expensed as incurred.
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The amounts capitalized in 1995 and the aggregate effect of such
amounts if they had been properly expensed are as follows:
Quarter Amount Aggregate Effect on
Ended Capitalized Net Income Net Income Per Share
----- ----------- ---------- --------------------
April 1 $ 38,000 $ (23,000) $ --
July 1 69,000 (42,000) --
September 30 322,000 (198,000) (.03)
---------
Total $ 429,000
--------- =========
The Company considered the $322,000 for the quarter ended September 30,
1995 to be material and has restated the financial statements in its Form 10-Q/A
for that period. The Company considered the $38,000 for the quarter ended April
1, 1995, the $69,000 for the quarter ended July 1, 1995 and the $138,000 for
fiscal year 1994 to be immaterial and therefore did not restate the financial
statements for those periods. For the aforementioned periods which were not
restated, the total amount of $245,000 was charged to research and development
expense for the quarter ended December 30, 1995. The aggregate effect of such
adjustments in the quarter ended December 30, 1995 increased the net loss by
$151,000 or $.02 per share.
Coopers & Lybrand L.L.P. did not identify any issues of disagreement
with the Company, other than the foregoing, and did not communicate to the
Company an inability to rely on management's representations. The report of
Coopers & Lybrand L.L.P., dated May 15, 1995, on the Company's financial
statements did not contain an adverse opinion or disclaimer of option and was
not qualified or modified as to uncertainty, audit scope or accounting
principles; except that Coopers & Lybrand L.L.P.'s opinion was modified to
reflect the uncertainty as to the ultimate outcome of an investigation of the
Company by the Securities and Exchange Commission and a class action lawsuit
alleging various violations of federal securities laws by the Company.
ERNST & YOUNG, LLP
On March 30, 1995, the engagement of Ernst & Young LLP, the former
independent accountants of the Company (who were succeeded by Coopers & Lybrand
L.L.P.), was terminated by the resignation of Ernst & Young LLP, which was
accepted by the Company. The Audit Committee of the Company's Board of Directors
approved such action.
In July 1994, the Audit Committee, in consultation with Ernst & Young
LLP and the Company's counsel, commenced an internal review in connection with
the closing of the Company's books for the second quarter of fiscal 1994. As a
result of potential errors and irregularities found during this review relating
to sales cut-off issues as of June 30, 1994, the Audit Committee extended its
inquiry to prior periods. In September 1994, counsel to the Audit Committee
engaged Deloitte & Touche to assist it in reviewing the financial results and
documentation for prior periods and in determining the necessity for and the
extent of any restatement of the Company's prior financial statements and to
review certain aspects of internal accounting controls of the Company.
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26
As a result of its inquiry, the Audit Committee determined that the
Company improperly recorded revenues based on shipments made shortly after the
end of certain financial periods. The Audit Committee review also identified
necessary changes in the Company's system of internal controls, and the Company
has implemented new policies and procedures to correct these weaknesses.
In the course of the Audit Committee's review, the Company found that
certain records maintained by outside freight companies were destroyed after
twelve months. Accordingly, it was impossible to obtain all of the required
documentary confirmations to precisely or fully determine the amount of sales
cut-off errors for periods prior to December 31, 1993. Ernst & Young LLP
withdrew its reports on financial statements that had been previously issued
with the exception of the restated balance sheet at December 31, 1993 due to the
lack of independent documentation and because it was unwilling to rely upon the
representations of the Company's senior management. On March 30, 1995 Ernst &
Young LLP reissued its audit report only with respect to the Company's balance
sheet at December 31, 1993. However, because the necessary documentation was not
available, the Company's financial statements prior to the audited balance sheet
at December 31, 1993 are unaudited.
The report of Ernst & Young LLP dated February 21, 1995, on the
Company's restated balance sheet as of December 31, 1993 did not contain an
adverse opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. Their report does contain a
disclaimer of opinion with regard to financial statements prior to December 31,
1993 because of the lack of records available to establish appropriate sales
cut-off for such periods.
OTHER MATTERS
The Company knows of no other matters to come before the Annual
Meeting. If any other matter not mentioned in this Proxy Statement properly
comes before the meeting, it is the intention of the proxy holders named in the
enclosed Proxy to vote the shares they represent as the Board of Directors may
recommend.
The Annual Report to Stockholders of the Company for the fiscal year
ended December 30, 1995, is being mailed concurrently with this Proxy Statement
to all stockholders of record. The Annual Report is not to be regarded as proxy
soliciting material or as a communication by means of which any solicitation is
to be made.
August 15, 1996 BY ORDER OF THE BOARD
OF DIRECTORS
Lawrence Goelman
President and Chief Executive Officer
COPIES OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995, WILL BE
PROVIDED TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO THE SECRETARY,
PINNACLE MICRO, INC.
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27
The following copies of the Company's 1996 Long-Term Incentive Plan and 1996
Non-Employee Directors Stock Plan are being submitted as required by Item 10 of
Schedule 14A.
28
PINNACLE MICRO, INC.
1996 LONG-TERM INCENTIVE PLAN
1. Purpose. The Pinnacle Micro, Inc. 1996 Long-Term Incentive
Plan seeks to promote the interest of the Company and its shareholders by
assisting the Company to attract, retain and reward executive, managerial and
other key employees and consultants and to promote a mutuality of interest
between such persons and the Company's shareholders. The Plan allows
performance-based stock and cash incentives and other equity-based incentive
awards, thereby giving Plan participants a proprietary interest in pursuing the
long-term growth, profitability and financial success of the Company.
2. Definitions. For purposes of the Plan, the following terms shall
have the meanings set forth below:
(a) "Award" or "Awards" means an award or grant made to a
Participant under Sections 6 through 9, inclusive, of the Plan.
(b) "Award Agreement" means a written agreement in such form as
may from time to time be approved by the Committee, setting
forth the terms and conditions of an Award and executed by the
Company and the Participant.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" for an Employee's termination shall be determined by
the Board of Directors of the Company; provided, however, that
any Employee's written employment agreement which includes a
different definition of cause or an analogous provision, shall
govern with respect to that Employee.
(e) "Change in Control" means the occurrence of any of the
following events:
1) The acquisition after the date hereof in one
or more transactions by any "Person" (as the term person is
used for purposes of Section 13(d) or 14(d) of the Exchange
Act) of "Beneficial Ownership" (within the meaning of Rule
13d-3
29
promulgated under the Exchange Act) of forty percent (40%) or
more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities"),
provided, however, that for purposes of this paragraph (a), the
Voting Securities acquired directly from the Company by any
Person shall be excluded from the determination of such
Person's Beneficial Ownership of Voting Securities (but such
Voting Securities shall be included in the calculation of the
total number of Voting Securities then outstanding); or
2) During any period of two consecutive years
during the term of this Plan, individuals who at the beginning
of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election of
each director who was not a director at the beginning of such
period has been approved in advance by directors representing
at least two-thirds of the directors then in office who were
directors at the beginning of the period; or
3) Approval by shareholders of the Company of
(i) a merger or consolidation involving the Company if the
stockholders of the Company immediately before such merger or
consolidation do not own, directly or indirectly, immediately
following such merger or consolidation, more than fifty
percent (50%) of the combined voting power of the outstanding
voting securities of the corporation resulting from such
merger or consolidation in substantially the same proportion
as their ownership of the Voting Securities immediately before
such merger or consolidation, or (ii) a complete liquidation
or dissolution of the Company or an agreement for the sale or
other disposition of all or substantially all of the assets of
the Company.
Notwithstanding anything in this paragraph to the contrary, a
Change in Control shall not be deemed to occur solely because
forty (40%) or more of the then outstanding Voting Securities
is acquired by (i) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained
by the Company or any of its
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subsidiaries, or (ii) any corporation which, immediately prior
to such acquisition, is owned directly or indirectly by the
stockholders of the Company in the same proportion as their
ownership of stock in the Company immediately prior to such
acquisition.
Moreover, notwithstanding anything in this paragraph to the
contrary, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquires
Beneficial Ownership of more than the permitted percentage of
the outstanding Voting Securities as a result of an
acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned
by the Subject Person, provided, that if, after such share
acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities, then a
Change in Control shall occur.
(f) "Code" means the Internal Revenue Code of 1986, as in effect
from time to time, or any successor thereto, together with
rules, regulations and interpretations promulgated thereunder.
(g) "Committee" means the Compensation Committee of the Board,
constituted as provided in Section 3 of the Plan, or any other
committee appointed by the Board with responsibility for the
administration of the Plan whose members meet the requirements
for eligibility to serve set forth in Section 3 of the Plan.
(h) "Common Stock" means the Common Stock par value $0.001 per
share of the Company or any security of the Company issued in
substitution, exchange or lieu thereof.
(i) "Company" means Pinnacle Micro, Inc., a Delaware corporation
or any successor corporation.
(j) "Consultant" means an individual that provides bona fide
services to the Company and who is not an employee of the
Company.
(k) "Director" means a member of the Board.
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(l) "Disability" means disability as determined by the Committee
in accordance with standards and procedures similar to those
under the Company's long-term disability plan.
(m) "Employee" means key employees (including officers who are
members of the Board) of the Company or any Subsidiary; as
identified by the Committee.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor
statute.
(o) "Fair Market Value" of Common Stock on any date means (i) if
the Common Stock is listed on an established stock exchange or
any automated quotation system that provides sale quotations,
the closing sale price for a share of the Common Stock on such
exchange or quotation system on the applicable date, or if no
sale of the Common Stock shall have been made on that day, on
the next preceding day on which there was a sale of the Common
Stock; (ii) if the Common Stock is not listed on any exchange
or quotation system, but bid and asked prices are quoted and
published, the mean between the quoted bid and asked prices on
the applicable date, and if such prices are not available on
such day, on the next preceding day on which such prices were
available; and (iii) if the Common Stock is not regularly
quoted, the fair market value of a share of Common Stock on
the applicable date established by the Committee in good faith
by any fair and reasonable means. Fair Market Value
determined by the Committee in good faith shall be final,
binding and conclusive on all parties.
(p) "Incentive Stock Option" means any Stock Option that is
specifically designated by the Committee as an "incentive
stock option" within the meaning of section 422 of the Code.
(q) "Non-Employee Director" except for purposes of Section 3(a),
means any Director who is not an Employee of the Company or
any Subsidiary.
(r) "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
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(s) "Participant" means an Employee or Non-Employee Director to
whom an Award has been made and is outstanding under the Plan.
(t) "Performance Award" means an Award granted pursuant to the
provisions of Section 9 of the Plan, the vesting of which is
contingent upon the attainment of specific Performance
Objectives during specific Performance Periods.
(u) "Performance Equity Grant" means an Award of units
representing shares of Common Stock granted pursuant to the
provisions of Section 9 of the Plan.
(v) "Performance Objectives" means specific targets and objectives
established by the Committee using one or more of the
following criteria: earnings per share of the Common Stock,
return on average stockholders' equity, return on capital,
total stockholder returns of the Company, operating cash flow,
net income, sales growth, return on sales and return on net
assets. Performance Objectives may be absolute or may be
based on the results of a peer group of comparable companies
established by the Committee. Satisfaction of Performance
Objectives shall be determined in accordance with generally
accepted accounting principles, as utilized by the Company in
its reports filed under the Exchange Act.
(w) "Performance Period" means a period of not less than one
fiscal quarter nor more than three consecutive Company fiscal
years for which Performance Objectives have been established.
(x) "Performance Unit Grant" means an Award of monetary units
granted pursuant to the provisions of Section 9 of the Plan.
(y) "Plan" means this Pinnacle Micro Inc. 1996 Long-Term Incentive
Plan, as set forth herein and as it may be amended from time
to time.
(z) "Restriction Period" means the period of time (i) a
non-Consultant Participant must remain employed by the Company
or any of its Subsidiaries or in such circumstances where an
Employee becomes a
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Non-Employee Director and (ii) a Consultant provides bona fide
services to the Company or a Subsidiary, in order for a
Restricted Stock Award to vest.
(aa) "Restricted Stock Award" means an Award of shares of Common
Stock granted pursuant to the provisions of Section 8 of the
Plan which may be subject to restrictions which lapse over
time with or without regard to Performance Objectives, as the
Committee in its sole discretion shall determine.
(ab) "Retirement" means retirement from active employment with the
Company and its Subsidiaries at any age at which the
Participant is entitled to an immediately commencing pension
under any retirement plan of the Company or as otherwise
determined by the Board of Directors.
(ac) "Rule 16b-3" means Rule 16b-3 of the General Rules and
Regulations under the Exchange Act (or any successor rule or
regulation).
(ad) "Spread" means the amount (not less than zero) by which the
Fair Market Value of a share of Common Stock subject to the
Stock Option exceeds the exercise price of a Stock Option.
(ae) "Stock Appreciation Right" means an Award granted pursuant to
the provisions of Section 7 of the Plan, entitling a
Participant to receive an amount equal to (or if the Committee
shall determine at the time of grant, less than) the excess of
the Fair Market Value of a share of Common Stock on the date
of exercise over the Fair Market Value of a share of Common
Stock on the date of grant of the Stock Appreciation Right,
multiplied by the number of shares of Common Stock with
respect to which the Stock Appreciation Right shall have been
exercised.
(af) "Stock Option" means an Award to purchase shares of Common
Stock granted pursuant to the provisions of Section 6 of the
Plan.
(ag) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
if each of the
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corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent or more of the total
combined voting power of all classes of stock in one of the
other corporations in such chain.
(ah) "Ten-Percent Stockholder" means an individual who "owns," as
defined in section 424 of the Code, stock possessing more than
ten percent of the total combined voting power of all classes
of stock of: (i) the Company, (ii) a Subsidiary, or (iii) a
parent corporation of the Company.
(ai) Window Period" means the period beginning on the third
business day following the date of release of the financial
data specified in paragraph (e)(l)(ii) of Rule 16b-3 and
ending on the twelfth business day following such date.
3. Administration.
(a) The Committee. The Plan shall be administered by a Committee
appointed from time to time by the Board and comprised of not
less than two of the then members of the Board. To the extent
required by Rule 16b-3, each Committee member must be a "non-
employee director" as defined, for purposes of this Section
3(a), in Rule 16b-3. Unless the Board determines otherwise,
the Committee shall be comprised solely of persons who qualify
as "outside" directors for purposes of section 162(m)(4)(C)(i)
of the Code. Members of the Committee shall serve at the
pleasure of the Board and the Board may from time to time
remove members from, or add members to, the Committee. A
majority of the members of the Committee shall have the power
to act for the Committee. Action approved in writing by a
majority of the members of the Committee then serving shall be
fully as effective as if the action had been taken by majority
vote at a duly called meeting of the Committee, but only if
each member of the Committee was given notice of such proposed
action one day prior to such written approval.
(b) Powers of the Committee. The Committee is authorized to
construe and interpret the Plan, to promulgate, amend and
rescind rules and
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35
regulations relating to the implementation of the Plan and to
make all other determinations necessary or advisable for the
administration of the Plan. Subject to the provisions of the
Plan, the Committee shall have full authority, in its
discretion, to determine the Employees and Non-Employee
Directors to whom Awards shall be granted, the number of
shares of Common Stock or units to be covered by each of the
Awards, and the terms of any such Award. Any good faith
determination, decision or action of the Committee in
connection with the construction, interpretation,
administration, or application of the Plan shall be final,
conclusive and binding upon all persons participating in the
Plan and any person claiming under or through them. The
Company shall effect the granting of Awards by execution of
appropriate Award Agreements. No member of the Committee
shall be liable for any good faith act or omission with
respect to his or her service on the Committee.
4. Shares of Common Stock Subject to the Plan.
(a) Maximum Number of Shares of Common Stock. The maximum number
of shares of Common Stock as to which Awards may be granted
under the Plan shall be one million five hundred thousand
(1,500,000), subject to adjustment, as provided in Section 14
of the Plan. For the purpose of computing the total number of
shares of Common Stock available for Awards under the Plan,
counted against this limit shall be the number of shares of
Common Stock subject to issuance upon exercise or settlement
of Awards, in each case determined as at the dates as of which
such Awards are granted. If any Awards are forfeited,
terminated or expire unexercised, the shares of Common Stock
which had been subject to such Awards shall again be available
for Awards under the Plan to the extent of such forfeiture or
expiration of such Awards. Common Stock which may be issued
under the Plan may be either authorized and unissued shares or
issued shares which have been reacquired by the Company.
Fractional shares of Common Stock shall not be issued under
the Plan.
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36
(b) Certain Limitations. The maximum number of shares of Common
Stock with respect to which Stock Options and Stock
Appreciation Rights may be granted during any fiscal year to
any Employee shall not exceed 100,000 and the maximum number
of shares of Common Stock with respect to which Restricted
Stock Awards may be granted during any fiscal year to any
Participant should not exceed 100,000; however, the maximum
number of shares of Common Stock with respect to which Awards
may be granted during any fiscal year to any Employee shall
not exceed 100,000. The maximum dollar value with respect to
Awards (other than Stock Options and Stock Appreciation Rights
payable in shares of Common Stock) that are intended to
qualify as performance-based compensation under section
162(m)(4)(C) of the Code which may be paid in any fiscal year
during any particular Performance Period to any Employee shall
be One Million dollars ($1,000,000).
5. Eligibility. Awards may be granted from time to time to Employees
and Consultants as the Committee, in its discretion, shall determine. In
making Awards, the Committee shall take into account the duties of prospective
Awardees, their present and potential contributions to the success of the
Company and any of its Subsidiaries, and such other factors as the Committee
shall deem relevant in connection with accomplishing the purposes of the Plan.
6. Stock Options. Stock Options granted under the Plan may be (i)
Incentive Stock Options, (ii) Non-Qualified Stock Options or (iii) a
combination of the foregoing. The Award Agreement shall designate the extent
to which a Stock Option is an Incentive Stock Option or a Non- Qualified Stock
Option. Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions,
not inconsistent with the express provisions of the Plan, as the Committee
shall deem desirable:
(a) Grant. Stock Options may be granted alone, in addition to or
in tandem with other Awards under the Plan.
(b) Stock Option Price. The exercise price per share of Common
Stock purchasable under a Stock Option shall be determined by
the Committee at the time
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37
of grant, but in no event shall the exercise price of a Stock
Option be less than One Hundred Percent of the Fair Market
Value of a share of the Common Stock on the date of the grant
of such Stock Option. In addition, in the case of an Employee
who is a Ten-Percent Shareholder at the time an Incentive
Stock Option is granted, the exercise price of an Incentive
Stock Option shall not be less than One Hundred Ten Percent of
the Fair Market Value of the Common Stock on the date of the
grant of such Incentive Stock Option.
(c) Option Term. The term of each Stock Option shall be fixed by
the Committee, except that such term shall not exceed ten
years. In the case of a grant of an Incentive Stock Option to
an Employee who is a Ten-Percent Shareholder at the time of
grant, the term of an Incentive Stock Option shall not exceed
five years.
(d) Exercisability. A Stock Option shall be exercisable at such
times and subject to such terms and conditions as shall be
determined by the Committee at the date of grant. Except as
provided in Section 12 of the Plan or in the relevant Award
Agreement, no Stock Option may be exercised unless the holder
thereof is at the time of such exercise in the employ or
service (including service as a director) of the Company or a
Subsidiary and has been continuously serving or so employed
since the date the Stock Option was granted.
(e) Method of Exercise. A Stock Option may be exercised, in whole
or in part, by giving written notice of exercise to the
Company specifying the number of shares of Common Stock to be
purchased. Such notice shall be accompanied by payment in
full of the purchase price in cash, in shares of Common Stock
already owned by the Participant (subject to the requirements
of Rule 16b-3) or any combination of cash and such shares. No
shares of Common Stock shall be issued until full payment has
been made therefor. The Committee will establish procedures
whereby a Participant (subject to requirements of Rule 16b-3,
Regulation T, federal income tax laws, and other federal,
state and local tax and securities laws) can
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exercise a Stock Option or a portion thereof without making a
direct payment of the option price to the Company. The
Committee shall establish the administrative procedures and
policies its deems appropriate and such procedures and
policies shall be binding on any Participant wishing to
utilize the cashless exercise program.
(f) Special Rules for Incentive Stock Options. To the extent that
the aggregate Fair Market Value (determined as of the options'
grant) of the Common Stock with respect to which Incentive
Stock Options first become exercisable by the Participant
during any calendar year (under all such plans of the
Participant's employer corporation and its parent, and
Subsidiaries, if any), exceeds $100,000, the options shall not
be an Incentive Stock Option. For purposes of the preceding
sentence, Stock Options shall be taken into account in the
order in which they were granted. Any Stock Option granted
under the Plan which is intended to be an Incentive Stock
Option, but which is in excess of the limitation set forth in
this Section shall to that extent be a Non-Qualified Stock
Option. Incentive Stock Options shall not be granted after
the 10th anniversary of the Plan's adoption by the Board.
7. Stock Appreciation Rights. The grant of Stock Appreciation Rights
under the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the express
terms of the Plan, as the Committee shall deem desirable:
(a) Grant. A Stock Appreciation Right may be granted in tandem
with, in addition to or independent of a Stock Option or any
other Award under the Plan.
(b) Exercise. A Stock Appreciation Right may be exercised by a
Participant in accordance with procedures established by the
Committee. The Committee may also provide that a Stock
Appreciation Right shall be automatically exercised on one or
more specified dates. A Stock Appreciation Right granted in
tandem with a Stock Option will entitle the Participant, upon
exercise of the Stock Appreciation Right to surrender all or
part
-11-
39
of the unexercised portion of that tandem Stock Option and to
receive the Spread for the number of shares of Common Stock
which could have been acquired under the surrendered Stock
Option. Each Stock Appreciation Right granted in tandem with
a Stock Option shall be exercisable to the extent, and only to
the extent, the related Stock Option is exercisable. Each
Stock Appreciation Right shall be for such term as the
Committee may determine, not to exceed 10 years and may expire
prior to the term of a tandem Stock Option. Each Stock
Appreciation Right granted on a stand alone basis shall be
exercisable to the extent, and for such term, as the Committee
may determine. Except as provided in Section 12 of the Plan
or in the relevant Award Agreement, no Stock Appreciation
Right may be exercised unless the holder thereof is at the
time of such exercise in the employ or service (including
service as a director) of the Company or a Subsidiary and has
been continuously so employed since the date the Stock
Appreciation Right was granted.
(c) Form of Payment. Payment upon exercise of a Stock
Appreciation Right may be made in cash, in shares of Common
Stock or any combination thereof, as the Committee shall
determine except that for any Stock Appreciation Right
exercised on or subsequent to a Change in Control payment
shall be in cash.
(d) Special Rules for Stock Appreciation Rights Granted in Tandem
with Incentive Stock Options. With respect to Stock
Appreciation Rights granted in tandem with Incentive Stock
Options, the following rules shall apply:
(i) The Stock Appreciation Right shall not be exercisable
unless the Spread on the related Incentive Stock Option is
positive.
(ii) In no event shall any amounts paid per share pursuant to
the Stock Appreciation Right exceed the Spread on the date of
exercise of the related Incentive Stock Option.
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40
(iii) The Stock Appreciation Right must expire no later than
the last date on which the related Incentive Stock Option can
be exercised.
8. Restricted Stock Awards. Restricted Stock Awards may be subject to
restrictions which lapse over time. They may be granted with or without regard
to Performance Objectives for a specific Performance Period. Restricted Stock
Awards shall be subject to the following terms and conditions and may contain
such additional terms and conditions, not inconsistent with the express
provisions of the Plan, as the Committee shall deem desirable:
(a) Restricted Stock Awards. A Restricted Stock Award is an Award
of shares of Common Stock transferred to a Participant subject
to such terms and conditions as the Committee deems
appropriate, including, without limitation, restrictions on
the sale, assignment, transfer or other disposition of such
shares and the requirement that the Participant forfeit such
shares on termination of employment for specified reasons
within a specified period of time.
(b) Grants of Awards. Restricted Stock Awards may be granted
under the Plan in such form and on such terms and conditions
as the Committee may from time to time approve. Restricted
Stock Awards may be granted alone, in addition to or in tandem
with other Awards under the Plan. Subject to the terms of the
Plan, the Committee shall determine the number of Restricted
Stock Awards to be granted to a Participant and the Committee
may impose different terms and conditions on any particular
Restricted Stock Award made to any Participant. Each
Participant receiving a Restricted Stock Award shall be issued
a stock certificate for those shares of Common Stock. This
certificate shall be registered in the name of such
Participant, shall be accompanied by a stock power duly
executed by such Participant, and shall bear an appropriate
legend referring to the terms, conditions and restrictions
applicable to the Award. This certificate shall be held in
custody by the Company until the restrictions on it have
lapsed or been removed.
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41
(c) Performance Objectives. If the Committee determines that a
Restricted Stock Award is intended to qualify as
performance-based compensation under section 162(m)(4)(C) of
the Code, the Restricted Stock Award shall be subject to the
attainment of Performance Objectives for a Performance Period.
Specific Performance Objectives shall be established in
writing no later than the number of days equal to 25% of the
applicable Performance Period after the commencement of the
Performance Period to which the Performance Objectives relate.
In establishing the Performance Objectives, the Committee
shall also establish a schedule setting forth the portion of
the Restricted Stock Award which will be earned based on the
degree of achievement of the Performance Objectives, as
determined by the Committee. Except to the extent it would
cause a Restricted Stock Award intended to qualify as
performance-based compensation to fail so to qualify, the
Committee may at any time adjust the Performance Objectives,
change any schedule of vesting, change the way Performance
Objectives are measured or shorten any Performance Period if
it determines that conditions or the occurrence of events
warrant such action. The Committee shall not have the
discretion to increase a Restricted Stock Award which is
intended to constitute performance-based compensation under
the Code.
(d) Restriction Period. In order for a Participant to vest in a
Restricted Stock Award, the Participant must remain in the
employment or service (including service as a director) of the
Company or its Subsidiaries, subject to relief for specified
reasons, for the Restriction Period set forth in the Award
Agreement. The Committee, in its sole discretion, may provide
for the lapse of restrictions in installments during the
Restriction Period. Unless otherwise restricted by the
provisions of Section 8(c), upon expiration of the applicable
Restriction Period (or lapse of restrictions during the
Restriction Period if the restrictions lapse in installments)
the Participant shall be entitled to receive his or her
Restricted Stock Award or portion thereof, as the case may be.
If the Restricted Stock Award
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42
is intended to constitute performance-based compensation under
the Code, as soon as practicable after the end of the
applicable measurement period as determined by the Committee,
the Committee shall determine the extent to which the
Performance Objectives, if any, have been met and the extent
to which Restricted Stock Awards are payable.
(e) Performance Periods. The Committee may establish Performance
Periods applicable to Restricted Stock Awards. There shall be
no limitation on the number of Performance Periods established
by the Committee and more than one Performance Period may
encompass the same fiscal year.
(f) Rights as a Shareholder. Subject to any restrictions set
forth in the applicable Award Agreement, with respect to the
shares of Common Stock received under a Restricted Stock
Award, a Participant shall have all of the rights of a
shareholder of the Company, including the right to vote the
shares and the right to receive any cash dividends. Subject
to any restrictions set forth in the applicable Award
Agreement, stock dividends issued with respect to the shares
covered by a Restricted Stock Award shall be treated as
additional shares under the Restricted Stock Award and shall
be subject to the same restrictions and other terms and
conditions that apply to shares under the Restricted Stock
Award with respect to which such dividends are issued.
9. Performance Awards. Performance Awards granted under the Plan may be
in the form of either Performance Equity Grants or Performance Unit Grants, or
a combination of both as determined by the Committee at the time of grant.
Performance Awards shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent with the
express provisions of the Plan, as the Committee shall deem desirable:
(a) Performance Equity Grants. A Performance Equity Grant is an
Award of units (with each unit equivalent in value to one
share of Common Stock) granted to a Participant subject to
such terms and conditions as the Committee deems appropriate,
including, without limitation, the requirement
-15-
43
that the Participant forfeit units in the event certain
Performance Objectives are not met within a designated
Performance Period.
(b) Performance Unit Grants. A Performance Unit Grant is an Award
of units (with each unit representing such monetary amount as
designated by the Committee) granted to a Participant subject
to such terms and conditions as the Committee deems
appropriate, including, without limitation, the requirement
that the Participant forfeit units in the event certain
Performance Objectives are not met within a designated
Performance Period.
(c) Grants of Awards. Performance Awards may be granted under the
Plan in such form and to such Participants as the Committee
may from time to time approve. Performance Awards may be
granted alone, in addition to or in tandem with other Awards
under the Plan. Subject to the terms of the Plan, the
Committee shall determine the number of Performance Awards to
be granted to a Participant. The Committee may impose
different terms and conditions on any particular Performance
Award made to any Participant. Each grant of a Performance
Award shall be evidenced by a written instrument granting a
specified number of Performance Equity Grants or Performance
Unit Grants and designating the Performance Period, the
Performance Objectives, the proportion of payments for
performance between the minimum and full performance levels,
if any, restrictions applicable to shares of Common Stock
receivable in settlement, if any, and any other terms,
conditions, restrictions and rights with respect to such grant
as determined by the Committee.
(d) Performance Periods. The Committee shall establish
Performance Periods applicable to Performance Awards. There
shall be no limitation on the number of Performance Periods
established by the Committee and more than one Performance
Period may encompass the same fiscal year.
(e) Performance Objectives. If the Committee determines that a
Performance Award is intended to qualify as performance-based
compensation under
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44
section 162(m)(4)(C) of the Code, the special provisions of
Section 8(c) shall apply.
(f) Payment of Awards. In the case of a Performance Equity Grant,
the Participant shall be entitled to receive payment for each
unit earned in an amount equal to the aggregate Fair Market
Value of the shares of Common Stock covered by such Award. In
the case of a Performance Unit Grant, the Participant shall be
entitled to receive payment for each unit earned in an amount
equal to the dollar value of each unit times the number of
units earned. Settlement of a Performance Award shall be made
as soon as practicable following the conclusion of the
respective Performance Period. Payment shall be made in cash,
in shares of Common Stock (the number to be determined based
on Fair Market Value at the conclusion of such Performance
Period) or in any combination thereof, as the Committee in its
sole discretion shall determine.
10. Deferral Elections. The Committee in its sole discretion may permit
a Participant to elect to defer his or her receipt of the payment of cash or
the delivery of shares of Common Stock that would otherwise be due to such
Participant by virtue of the earn out or exercise of an Award made under the
Plan. If any such election is permitted, the Committee shall establish rules
and procedures for such payment deferrals, including the possible (a) payment
or crediting of reasonable interest or earnings on the deferred amounts, (b)
the payment or crediting of dividend equivalents on deferrals of Common Stock
and (c) the election procedures a Participant must use.
11. Deferral Elections. The Committee may permit any Participant
receiving an Award to elect to defer his or her receipt of a payment of cash or
shares that would be otherwise due such individual by virtue of the exercise,
settlement, vesting or lapse of restrictions regarding any Award made under the
Plan. If any such election is permitted, the Committee shall establish rules
and procedures for such payment deferrals, including the possible payment or
crediting or reasonable interest on such deferred amounts credited in cash and
the payment or crediting of dividend equivalents in respect to deferrals
credited in shares of Common Stock.
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45
12. Termination of Employment or Service. Except as otherwise provided in
Section 15(a) or an Award Agreement, upon termination of a Participant's
employment with the Company or any of its Subsidiaries or a Non-Employee
Director's service with the Company or a Consultant's service to the Company,
as the case may be, the Participant (or in the case of death, the persons to
whom the Award is transferred by will or the laws of descent and distribution)
may exercise the Award during the following periods of time (but in no event
after the normal expiration date of such Award) to the extent the Participant
was entitled to exercise the Award at the date of termination:
(i) in the case of death, Disability or Retirement, the Award
shall remain exercisable for one year after the date of
termination;
(ii) in the case of termination for Cause, the Award shall
remain exercisable for 5 Company working days following
such termination and shall thereafter be no longer
exercisable; and
(iii) in the case of termination for any other reason, the Award
shall remain exercisable for 90 days after the date of
termination.
To the extent the Award is not exercised within the foregoing periods of time,
the Award shall automatically terminate at the end of the applicable period of
time.
13. Non-transferability of Awards. Except as permitted by the
Committee, no Award under the Plan, and no rights or interest therein, shall be
assignable or transferable by a Participant except by will, the laws of descent
and distribution or pursuant to a qualified domestic relations order, as
defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
14. Changes in Capitalization.
(a) No Effect on Power to Make Changes in Capitalization. The
existence of the Plan and the Awards granted hereunder
shall not affect or restrict the right of the Board or the
shareholders of the Company to make any adjustment,
recapitalization, reorganization or other change in the
Company's capital structure or its
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46
business, to merge or consolidate the Company with another
entity, issue bonds, debentures or preferred or prior
preference stocks ahead of or affecting the Company's
capital stock, to dissolve or liquidate the Company or to
sell or transfer any part of its assets or business, or to
engage in any other corporate act or proceeding.
(b) Adjustments. In the event of changes in all of the
outstanding shares of Common Stock by reason of stock
dividends, stock splits, recapitalization, mergers,
consolidations, combinations, or exchanges of shares,
separations, reorganizations, liquidations or similar
events, or in the event extraordinary cash or non-cash
dividends are declared with respect to outstanding shares
of Common Stock or other similar transactions, the number
and class of shares of Common Stock available under the
Plan in the aggregate, the number and class of shares of
Common Stock subject to Awards theretofore granted, the
number of Stock Appreciation Rights theretofore granted,
applicable purchase prices, applicable Performance
Objectives for the Performance Periods not yet completed
and performance levels related thereto, and all other
applicable provisions, shall be equitably adjusted by the
Committee, as determined by the Committee in its sole
discretion.
Any adjustments made pursuant to this Section may provide
for the elimination of any fractional share of Common
Stock which might otherwise become subject to an Award.
15. Change in Control.
(a) Special Treatment. In the event of a Change in Control
(i) all Stock Options or Stock Appreciation Rights then
outstanding shall become fully exercisable as of the date
of the Change in Control, whether or not then exercisable,
(ii) all restrictions and conditions of all Restricted
Stock Awards then outstanding shall be deemed satisfied as
of the date of the Change in Control and (iii) all
Performance Awards shall be deemed to have been fully
earned as of the date of the Change of Control. Moreover,
the Committee, in its sole discretion, may at any time,
and subject
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47
to the terms and conditions as it may impose: (a) grant
Awards that become exercisable only in the event of a
Change in Control, (b) provide for Awards to be exercised
automatically and only for cash in the event of a Change
in Control, and (c) provide in advance or at the time of a
Change in Control for cash to be paid in settlement of any
Award in the event of a Change in Control.
(b) Restrictions on Benefits. Notwithstanding the provisions
of Section 15(a), the aggregate present value of all
parachute payments payable to or for the benefit of a
Participant, whether payable pursuant to the Plan (or
otherwise) (excluding those payments made pursuant to an
agreement with the Company that specifically provides
otherwise), shall be limited to three times the
Participant's base amount less one dollar and, to the
extent necessary, the special treatment described in
clauses (i) and (ii) of Section 15(a) shall be reduced or
eliminated by the Committee in order that this limitation
not be exceeded; provided, however, that this provision
shall not apply if the Employee's written employment
agreement contains a comprehensive parachute provision
with conflicting terms. For purposes of this Section, the
terms "parachute payment," "base amount" and "present
value" shall have the meanings assigned thereto under Code
section 280G. It is the intention of this Section to
avoid excise taxes on the Participant under Code section
4999 or the disallowance of a deduction to the Company
pursuant to Code section 280G. Acceptance of an Award
constitutes the Participant's agreement to this Section of
the Plan.
16. Amendment and Termination. The Board may amend or terminate the
Plan at any time, but no amendment shall be made without the approval of the
stockholders of the Company if stockholder approval under section 422 of the
Code or Rule 16b-3 would be required or if it would change the material terms
of performance goals that were previously approved by the Company's
stockholders, within the meaning of Treasury Regulation Section
1.162-27(e)(4)(vi) or a successor provision (unless the Board determines that
such approval is not necessary to avoid loss of a deduction under section
162(m) of the Code, such approval will not avoid such a loss of deduction or
such approval is not advisable).
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48
No amendment of the Plan or any Award granted under the Plan shall impair any
Participant's rights, without his or her consent, under any Award theretofore
granted under the Plan.
17. Miscellaneous.
(a) Tax Withholding. The Company shall have the right to
deduct or withhold any taxes, including transfer taxes, of
any kind required by law to be withheld with respect to
such payments under the Plan or to take such other action
as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such taxes,
including requiring the Participant or his beneficiary or
estate to pay any amount required to be withheld. If
Common Stock is used to satisfy tax withholding, such
Stock shall be valued based on the Fair Market Value when
the tax withholding is required to be made. If the
Employee disposes of shares of Common Stock acquired
pursuant to an Incentive Stock Option in any transaction
considered to be a disqualifying transaction under
sections 421 and 422 of the Code, the Employee must give
the Company written notice of such transfer and the
Company shall have the right to deduct any taxes required
by law to be withheld from any amounts otherwise payable
to the Employee.
(b) No Right to Employment. Neither the adoption of the Plan
nor the granting of any Award shall confer upon any
employee of the Company or any Subsidiary any right to
continued employment with the Company or any Subsidiary
nor shall it interfere in any way with the right of the
Company or a Subsidiary to terminate the employment of any
of its employees at any time, with or without Cause even
if Awards will be forfeited as a result of employment
termination. The grant of an Award to a Consultant or to
a Non-Employment Director shall neither confer employment
status towards such individual nor prevent the Company
from terminating such individual's services.
(c) Unfunded Plan. Except as provided in Section 17(d), the
Plan shall be unfunded and the Company shall not be
required to segregate any assets that may at any time be
represented by Awards under the
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49
Plan. No obligation of the Company under the Plan or any
Award shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
(d) Payments to Trust. The Committee is authorized to cause
to be established a trust agreement or several trust
agreements or other funding vehicles whereunder the
Company may make payments of amounts due or to become due
to Participants in the Plan.
(e) Other Company Benefit and Compensation Programs. Payments
and other benefits received by a Participant under an
Award made pursuant to the Plan shall not be deemed a part
of a Participant's regular, recurring compensation for
purposes of the termination, indemnity or severance pay
law of any country and shall not be included in, nor have
any effect on, the determination of benefits under any
other employee benefit plan or similar arrangement
provided by the Company or a Subsidiary unless expressly
so provided by such other plan or arrangements, or except
where the Committee expressly determines that inclusion of
an Award or portion of an Award should be included to
accurately reflect competitive compensation practices or
to recognize that an award has been made in lieu of a
portion of competitive annual cash compensation. Awards
under the Plan may be made in combination with or in
tandem with, or as alternatives to, grants, awards or
payments under any other Company or Subsidiary plans. The
Company or any Subsidiary may adopt such other
compensation programs and additional compensation
arrangements as it deems necessary to attract, retain and
reward employees for their service.
(f) Securities Law Restrictions. No shares of Common Stock
shall be issued under the Plan unless counsel for the
Company shall be satisfied that such issuance will be in
compliance with applicable Federal and state securities
laws. Certificates for shares of Common Stock delivered
under the Plan may be subject to such stock-transfer
orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other
requirements of the
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50
Securities and Exchange Commission, any stock exchange
upon which the Common Stock is then listed, and any
applicable Federal or state securities law. The Committee
may cause a legend or legends to be put on any such
certificates to make appropriate reference to such
restrictions.
(g) Award Agreement. Each Participant receiving an Award
under the Plan shall enter into an Award Agreement with
the Company in a form specified by the Committee agreeing
to the terms and conditions of the Award and such related
matters as the Committee shall, in its sole discretion,
determine.
(h) Costs of Plan. The costs and expenses of administering
the Plan shall be borne by the Company.
(i) Section 16. With respect to persons subject to Section 16
of the Exchange Act, transactions under this Plan are
intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the
extent any provision under the Plan or action by the
Committee fails to so comply, it shall be deemed null and
void to the extent permitted by law and deemed advisable
by the Committee.
(j) Governing Law. The Plan and all actions taken thereunder
shall be governed by and construed in accordance with the
laws of the State of California without regard to the
principles of the conflict of laws thereof.
(k) Effective Date And Termination Date. The Plan shall be
effective upon Board approval and adoption, subject to
approval by the Company's shareholders at the 1996 annual
meeting of shareholders. The Plan shall terminate ten
years after the date of Board approval.
(l) Severability. In the event any provision or provisions of
the Plan are held to be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining
provisions shall not in any way be effected or impaired.
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51
PINNACLE MICRO, INC.
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. PURPOSE. This Plan seeks to advance the
interests of Pinnacle Micro, Inc., a California corporation (the "Company"),
and its stockholders ("Stockholders") by (a) encouraging increased share
ownership by the Company's directors who are not employees of the Company or
any of its subsidiaries, (b) enhancing the Company's ability to attract and
retain the services of experienced, able and knowledgeable persons to serve as
directors and (c) providing additional incentive for directors to contribute
their best efforts to the Company's success.
2. NON-QUALIFIED STOCK OPTIONS. The stock options to be
granted pursuant to this Plan ("Options" or, individually, an "Option") are
nonstatutory options and are not intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended.
3. ADMINISTRATION. This Plan shall be administered by
the Company's board of directors (the "Board"). The Board shall have full
authority, consistent with this Plan, to interpret this Plan, to promulgate
such rules and regulations with respect to this Plan as it deems desirable and
to make all other determinations necessary or desirable for the administration
of this Plan. All decisions, determinations and interpretations of the Board
shall be binding upon all Eligible Directors (as defined in Section 5(a)
hereof), the Company and all other interested persons.
4. SHARES SUBJECT TO THE PLAN. The shares of stock to
be issued upon the exercise of Options shall be authorized shares of the
Company's common stock ("Shares" or, individually, "Share"), either previously
unissued or previously issued but reacquired by the Company. The aggregate
number of Shares to be issued upon the exercise of Options shall be 350,000,
subject to adjustment as provided in Section 8 below. Any Share subject to an
Option which is cancelled or terminated without having been exercised shall
again be available to be awarded under this Plan.
5. GRANTING OF OPTIONS.
(a) Eligible Director. As used herein, "Eligible
Director" means any of the Company's directors who are not officers or other
employees of the Company or any subsidiary
52
of the Company (collectively, "Eligible Directors" and, individually, an
"Eligible Director").
(b) Initial Grants. The Company shall grant an initial
Option to purchase 25,000 Shares to each person who is an Eligible Director
immediately following the first annual meeting of Stockholders held on or after
the effective date of this Plan at which the Plan is approved by the
Stockholders; provided however, that if the Company has granted an Eligible
Director, in the person's role as a non-employee director, options to purchase
Shares prior to the effective date of and not pursuant to this Plan, then the
Company shall grant such Eligible Director an Option to purchase the number of
Shares by which 25,000 Shares exceeds the number of Shares represented by the
prior grant or grants.
Thereafter, the Company shall grant an initial Option to
purchase 25,000 Shares to each person who becomes an Eligible Director (but who
previously was not an Eligible Director as of the first annual meeting of
Stockholders following the effective date of this Plan), which Option shall be
granted on the earlier of the date such person is first elected and/or
appointed as a Company director
(c) Automatic Grants. On the date of each annual meeting
of Stockholders, beginning in 1997, the Company shall grant an Option to
purchase 10,000 Shares to each Eligible Director as of the date of such meeting
(other than to Eligible Directors who received an initial grant under Section
5(b) hereof during the calendar year in which such annual meeting is held),
provided that each such Eligible Director continues in office after such annual
meeting.
(d) No Option Grant Where Prohibited. No person shall be
granted an Option under this Plan if at the time of such grant, the grant is
prohibited by applicable law or by the policies of the employer of such person
or the policies of any other company of which such person is a member of the
board of directors or a general partner.
(e) Option Agreement. Each Option shall be evidenced by
an option agreement executed by the Company and the Eligible Director receiving
such Option. Each such agreement shall state the terms and conditions of the
grant, not inconsistent with this Plan, as the Board in its sole discretion
shall determine and approve.
(f) Option Price. The purchase price for each Share
subject to an Option shall be its Fair Market Value
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53
(as defined in paragraph 5(g) below) determined as of the date such Option is
granted (the "Grant Date").
(g) Definition of Fair Market Value. For the purposes of
this Plan, "Fair Market Value" of the Common Stock as of a certain date (the
"Determination Date") means: (i) if the Common Stock is listed on an
established stock exchange or any automated quotation system that provides sale
quotations, the closing sale price for a share of the Common Stock on such
exchange or quotation system on the applicable date, or if no sale of the
Common Stock shall have been made on that day, on the next preceding day on
which there was a sale of the Common Stock; (ii) if the Common Stock is not
listed on any exchange or quotation system, but bid and asked prices are quoted
and published, the mean between the quoted bid and asked prices on the
applicable date, and if such prices are not available on such day, on the next
preceding day on which such prices were available; and (iii) if the Common
Stock is not regularly quoted, the fair market value of a share of Common Stock
on the applicable date established by the Board in good faith by any fair and
reasonable means. Fair Market Value determined by the Board in good faith
shall be final, binding and conclusive on all parties.
(h) Nontransferability. Other than as permitted by the
Board, an Option shall be nonassignable and nontransferable other than by will
or the laws of descent and distribution.
6. EXERCISE OF OPTIONS.
(a) Vesting Schedule. Except as provided in Section 6(c)
hereof, each Option shall become exercisable on the following schedule: (i)
beginning on the first anniversary of the Grant Date, as to 33% of the Shares
covered by such Option (the "Covered Shares"), (ii) beginning on the second
anniversary of the Grant Date, as to 66% of the Covered Shares, and (iii)
beginning on the third anniversary of the Grant Date, and thereafter until the
expiration of such Option pursuant to Section 7 of this Plan, as to 100% of the
Covered Shares. Any other provision of this Plan notwithstanding, no Option
shall be exercisable as to any Shares with respect to which such Option
previously has been exercised.
(b) Method of Exercise. Prior to its expiration pursuant
to Section 7 hereof and in accordance with the vesting schedule outlined in
Section 6(a) hereof, each Option may be exercised, in whole or in part
(provided,
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54
however, that the Company shall not be required to issue fractional shares) by
delivery of written notice of exercise to the secretary of the Company
accompanied by the full purchase price of the Shares being purchased. The
purchase price shall be paid at the time of exercise (i) in cash, (ii) in
previously held shares of the Company's common stock (subject to the
requirements of Rule 16b-3), the Fair Market Value of which, as of the date of
exercise, is equal to the Purchase Price, or (iii) by any combination of cash
or Payment Shares. The Board of Directors will establish procedures whereby an
Eligible Director may (subject to the requirements of Rule 16b-3, Regulation T,
federal income tax laws, and other federal, state and local tax and securities
laws) exercise an Option or a portion thereof without making a direct payment
of the option price to the Company. The Board shall establish such
administrative procedures and policies as it deems appropriate and such
procedures and policies shall be binding on any Eligible Director wishing to
utilize the cashless exercise program.
(c) Effect of Change in Control. In the event of a
Change in Control of the Company, all unexpired Options held by each Eligible
Director on the date of such Change in Control shall be immediately exercisable
in full, notwithstanding the vesting schedule of Section 6(a) hereof.
For purposes of this Plan, a "Change in Control" of the
Company shall mean the occurrence of any of the following events:
(i) The acquisition after the date hereof in one or more
transactions by any "Person" (as the term person is used for purposes
of Section 13(d) or 14(d) of the Exchange Act) of "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of forty percent (40%) or more of the combined voting
power of the Company's then outstanding voting securities (the "Voting
Securities"), provided, however, that for purposes of this paragraph
(a), the Voting Securities acquired directly from the Company by any
Person shall be excluded from the determination of such Person's
Beneficial Ownership of Voting Securities (but such Voting Securities
shall be included in the calculation of the total number of Voting
Securities then outstanding); or
(ii) During any period of two consecutive years during the
term of this Plan, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a
majority thereof,
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55
unless the election of each director who was not a director at the
beginning of such period has been approved in advance by directors
representing at least two-thirds of the directors then in office who
were directors at the beginning of the period; or
(iii) Approval by shareholders of the Company of (i) a merger
or consolidation involving the Company if the stockholders of the
Company immediately before such merger or consolidation do not own,
directly or indirectly, immediately following such merger or
consolidation, more than fifty percent (50%) of the combined voting
power of the outstanding voting securities of the corporation
resulting from such merger or consolidation in substantially the same
proportion as their ownership of the Voting Securities immediately
before such merger or consolidation, or (ii) a complete liquidation or
dissolution of the Company or an agreement for the sale or other
disposition of all or substantially all of the assets of the Company.
Notwithstanding anything in this paragraph to the contrary, a
Change in Control shall not be deemed to occur solely because forty
percent (40%) or more of the then outstanding Voting Securities is
acquired by (i) a trustee or other fiduciary holding securities under
one or more employee benefit plans maintained by the Company or any of
its subsidiaries, or (ii) any corporation which, immediately prior to
such acquisition, is owned directly or indirectly by the stockholders
of the Company in the same proportion as their ownership of stock in
the Company immediately prior to such acquisition.
Moreover, notwithstanding anything in this paragraph to the
contrary, a Change in Control shall not be deemed to occur solely
because any Person (the "Subject Person") acquires Beneficial
Ownership of more than the permitted percentage of the outstanding
Voting Securities as a result of an acquisition of Voting Securities
by the Company which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially
Owned by the Subject Person, provided, that if after such share
acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities, then a Change in Control
shall occur.
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56
7. EXPIRATION OF OPTIONS. Except as hereinafter
provided, each Option shall expire on the earlier of (a) ten years after the
Grant Date of such Option or (b) the date that the Eligible Director holding
such Option ceases to be a member of the Board; provided, however, that to the
extent any unexpired Options are otherwise exercisable on the date that an
Eligible Director ceases to be a member of the Board for any reason other than
"cause", death or retirement under a retirement plan of the Company, such
Options shall remain exercisable for twelve months following the last day of
the Eligible Director's Board membership and shall expire if not exercised
within said twelve-month period. If Board membership ceases on account of
death or retirement under a retirement plan of the Company, all unexpired
Options held by the Eligible Director on the last day of Board membership,
which are then exercisable or would have become exercisable had the Director
continued as a member of the Board for one additional year, shall be
immediately exercisable and remain exercisable for 365 days following the last
day of the Eligible Director's Board membership and shall expire if not
exercised within said 365-day period. To the extent any otherwise unexpired
Options are not exercisable in accordance with the immediately preceding
sentence, they shall expire as of the date of death or the effective date of
retirement, as the case may be. All Options held by an Eligible Director whose
membership on the Board ends after the occurrence of "cause" shall expire
immediately on the last date of membership. "Cause", for the purposes of this
paragraph 7, means any (i) act or omission for which indemnification of the
Eligible Director is prohibited by the Delaware General Corporation Law, (ii)
conviction of a felony which adversely affects the Company, or (iii) misconduct
involving personal profit to the Eligible Director.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
In the event of changes in the outstanding shares of Common Stock by reason of
stock dividends, stock splits, recapitalization, merger, consolidation,
combination, or exchanges of shares, separations, reorganizations, liquidations
or similar events, the number and class of shares of Common Stock available
under the Plan in the aggregate, the number and class of shares of Common Stock
subject to Options theretofore granted and the Option price, shall be equitably
adjusted by the Board, as determined by the Board in its sole discretion.
Any adjustments made pursuant to this Section may provide for the
elimination of any fractional share of
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57
Common Stock which might otherwise become subject to an Option.
9. TAX WITHHOLDING. Any exercise of an Option pursuant
to this Plan shall be subject to withholding of state and federal income taxes,
FICA tax or other taxes to the extent required by applicable law.
10. LAWS AND REGULATIONS. This Plan, the grant and
exercise of Options under this Plan, and the obligation of the Company to sell
or deliver any of its securities (including, without limitation, Options and
Shares) under this Plan shall be subject to all applicable laws, regulations
and rules. In the event that the Shares are not registered under the
Securities Act of 1933 (the "Act") or any applicable state securities laws
prior to the delivery of such Shares, the Company may require, as a condition
to the issuance thereof, that the persons to whom Shares are to be issued
represent and warrant in writing to the Company that such Shares are being
acquired by him or her for investment for his or her own account and not with a
view to, for resale in connection with, or with an intent of participating
directly or indirectly in, any distribution of such Shares within the meaning
of the Act, and a legend to that effect may be placed on the certificates
representing the Shares.
11. TERMINATION AND AMENDMENT OF THIS PLAN. The Board
may at any time terminate this Plan or may at any time or times amend this Plan
or amend any outstanding Options for the purpose of satisfying the requirements
of any changes in applicable laws or regulations or for any other purpose which
at the time may be permitted by law.
12. EFFECTIVE DATE. This Plan shall become effective on
the date of approval by the Board; provided, however, that this Plan shall be
submitted to the Stockholders for approval, and if not approved by the
Stockholders within one year from the date of approval by the Board, this Plan
shall be of no force and effect. Options granted under this Plan before
approval of this Plan by the Stockholders shall be granted subject to such
approval and shall not be exercisable before such approval.
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58
PROXY CARD
PINNACLE MICRO, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
AUGUST 29, 1996
The undersigned hereby nominates, constitutes and appoints Lawrence Goelman and
Roger Hay and each of them individually, the attorney, agent and proxy of the
undersigned, with full power of substitution, to represent and to vote all stock
of PINNACLE MICRO, INC. which the undersigned is entitled to represent and vote
at the Annual Meeting of Stockholders of the Company to be held at the Hyatt
Regency Irvine, 17900 Jamboree Boulevard, Irvine, California, 92614 on August
29, 1996, at 10:00 a.m., Pacific Daylight Time and at any and all adjournments
or postponements thereof upon the following matters and in accordance with their
best judgment with respect to any other matters which may properly come before
the meeting, all as more fully described in the Proxy Statement for said Annual
Meeting (receipt of which is hereby acknowledged).
THE DIRECTORS RECOMMEND A VOTE "FOR" ALL THE NOMINEES LISTED IN PROPOSAL 1
AND "FOR" PROPOSALS 2, 3 AND 4
1. ELECTION OF DIRECTORS
Election of the following nominees as directors: Daryl J. White, Lawrence
Goelman, Scott A. Blum and Charles A. Laverty.
/ / FOR all nominees listed above (except as marked to the contrary
below)
/ / WITHHOLD AUTHORITY to vote for all nominees
(INSTRUCTIONS: To withhold authority to vote for any nominee, print that
nominee's name in the space provided below.)
2. APPROVAL OF THE 1996 LONG-TERM INCENTIVE PLAN.
/ / FOR / / AGAINST / / ABSTAIN
3. APPROVAL OF THE 1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
/ / FOR / / AGAINST / / ABSTAIN
4. RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE COMPANY'S INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS.
/ / FOR / / AGAINST / / ABSTAIN
59
Important -- Please Sign and Date
and Return Promptly
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED, IF NO DIRECTION
IS INDICATED, THIS PROXY WILL BE VOTED FOR THE NOMINEES FOR DIRECTORS LISTED IN
PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AND IN ACCORDANCE WITH THE BEST
JUDGMENT OF THE DESIGNATED INDIVIDUALS WITH RESPECT TO MATTERS INCIDENT TO THE
CONDUCT OF THE MEETING OR WHICH MAY OTHERWISE PROPERLY COME BEFORE THE MEETING.
IF ANY OF THE NOMINEES FOR DIRECTOR ARE UNABLE TO SERVE OR FOR GOOD CAUSE WILL
NOT SERVE, THE PROXYHOLDER WILL VOTE FOR SUCH OTHER PERSON OR PERSONS AS THE
BOARD OF DIRECTORS MAY RECOMMEND.
Date August , 1996
--------------------------
(Signature of shareholder)
--------------------------
(Signature if held jointly)
Please sign your name exactly as it
appears hereon. Executors,
administrators, guardians, officers of
corporations, and others signing in a
fiduciary capacity should state their
full titles as such. In the case of
joint tenants, each joint owner should
sign.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND RETURN
THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.