SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
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RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Pinnacle Data Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Pinnacle Data Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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[LOGO]
PDSi
PINNACLE DATA SYSTEMS, INC.
PINNACLE DATA SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 25, 2002
To the Shareholders of
PINNACLE DATA SYSTEMS, INC.:
The Annual Meeting of Shareholders of Pinnacle Data Systems, Inc., an Ohio
corporation (the "Company"), will be held at the Company's principal executive
offices located at 6600 Port Road, Groveport, Ohio 43125 on Thursday April 25,
2002, at 10:00 a.m., local time, for the following purposes:
1. To elect four Class II directors.
2. To consider and vote upon a proposal to ratify the selection of Deloitte
& Touche LLP as the Company's independent accountants for the year
ending December 31, 2002.
3. To transact such other business as may properly come before the meeting
or any adjournment of the meeting.
The close of business on March 1, 2002, has been established as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting and any adjournment thereof.
Please sign and return the enclosed proxy promptly so that your shares will
be represented at the meeting. A return addressed envelope, which requires no
postage, is enclosed. If you are able to attend the meeting, are the registered
owner, and wish to vote in person, at your request we will cancel your proxy.
By Order of the Board of Directors
Joy S. Bair,
Secretary
Dated: April 1, 2002
PINNACLE DATA SYSTEMS, INC.
PROXY STATEMENT
GENERAL
This Proxy Statement is being furnished to the holders of common shares,
without par value, of the Company in connection with the solicitation of
proxies by the Board of Directors of the Company to be used at the Company's
Annual Meeting of Shareholders. The Annual Meeting will be held at the
Company's principal executive offices located at 6600 Port Road, Groveport,
Ohio 43125 on Thursday April 25, 2002, at 10:00 a.m., local time, for the
purposes set forth on the accompanying Notice of Annual Meeting.
The approximate date on which this Proxy Statement and the form of proxy
will be first sent to shareholders is April 1, 2002.
PROXIES AND VOTING
The close of business on March 1, 2002, has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Annual Meeting and any adjournment of the Annual Meeting. On the record date,
5,493,504 common shares were outstanding and entitled to vote. Each share is
entitled to one vote.
Only shareholders of record are entitled to vote. If you are a beneficial
owner of the Company's common shares, you must provide instructions on voting
to your nominee holder. In most cases, this is your broker or its nominee.
All shares represented by properly executed proxies will be voted at the
Annual Meeting in accordance with the choices indicated on the proxy. If no
choices are indicated on a proxy, the shares represented by that proxy will be
voted in favor of the Company's nominees for directors and in favor of the
proposal set forth on the accompanying Notice of Annual Meeting. Any proxy may
be revoked by the record owner at any time prior to its exercise by delivering
to the Company a subsequently dated proxy or by giving notice of revocation to
the Company in writing or in open meeting. A shareholder's presence at the
Annual Meeting will not by itself revoke the proxy.
The shareholders of record that are present at the Annual Meeting, whether
in person or by proxy, will constitute a quorum. Consequently, the Company need
not count abstentions or broker non-votes to determine whether a quorum is
present. A "broker non-vote" is a term used to describe a vote that a broker or
other record owner that holds shares in street name is not authorized to cast
because the broker has not received voting instructions from its customer, the
beneficial owner, and does not have discretion to vote without such
instructions or, if the broker does have such discretion, does not cast.
Two different voting requirements apply to the proposals set forth in the
accompanying Notice of Annual Meeting. Directors are elected by a plurality of
votes, and thus the nominees who receive the highest number of votes will be
elected (shareholders do not have the right to cumulate their votes in electing
directors). As a result, assuming the nominees for director named in this proxy
statement receive at least one vote and there is no competing slate of
directors proposed for election, abstentions and broker non-votes will not have
any effect on the election of directors. All other proposals must be approved
by the affirmative vote of a majority of common shares present at the Annual
Meeting, whether by the presence of the record shareholders themselves or by
proxy. Abstentions and broker non-votes will be present at the Annual Meeting
and thus will have the same effect as votes cast against such proposals.
1
PROPOSAL ONE: ELECTION OF DIRECTORS
At the Annual Meeting, all shares represented by proxies, unless otherwise
specified, will be voted to elect the four Class II directors nominated below
to a two-year term expiring in 2004. Each of the nominees presently is a
director of the Company and each of the nominees has consented to be named in
the proxy statement and to serve if elected. On July 19, 2001, Mr. Sayre was
appointed by the Board of Directors to fill a vacancy in Class II and was
nominated for election as a Class II Director. If any nominee named below as a
director is unable to serve (which is not anticipated), the persons named in
the proxy may vote for another nominee of their choice.
The number of Class I and Class II directors has been fixed at four each.
There is one vacancy among the Class I directors because the Company believes
that it is desirable to have a vacancy available to be filled by the Board of
Directors, without the time and expense involved in holding a special meeting
of shareholders, in the event that an individual who is able to make a valuable
contribution as a director becomes available during the year. No decision has
been made to fill the vacancy, nor has any candidate been considered and
approved by the Board of Directors.
Proxies cannot be voted at the Annual Meeting for a greater number of
individuals than the four nominees named in this Proxy Statement. However,
additional nominations can be made by shareholders at the meeting. The
following is information about the four individuals nominated by the Board of
Directors for election as Class II Directors:
2
Class II Directors
(Nominees for Election)
Director
of the Shares
Name of Director and Principal Occupation(s) During the Company Beneficially Owned as of Percent
Position with the Company Age Past Five Years Since March 1, 2002/(1)/ of Class
------------------------- --- ---------------------------------- -------- ------------------------ --------
John D. Bair,.................. 36 Chairman and Chief Executive 1989 1,443,924/(2)(3)(4)(5)/ 25.7%
Chairman of the Board of Officer of the Company since May
Directors, President and 1996. President of the Company
Chief Executive Officer since 1998. Secretary of the
Company from 1989 to 1998.
C. Robert Hahn,................ 49 Vice President--Service Group of 1995 133,524/(2)(3)/ 2.4%
Vice President--Service the Company since March 2001.
Group and Director Chief Operating Officer and Vice
President of the Company from
June 1998 to March 2001.
President of the Company from
June 1996 to June 1998. Vice
President of Sales and Marketing
of the Company from October
1994 to June 1996.
Thomas M. O'Leary,............. 58 Retired from AT&T Corp./Lucent 1996 86,000/(3)/ 1.6%
Director Technologies, Inc. in 1996.
Business consultant since 1996
and presently member of
Worthington City School Board.
Prior to 1996, employed in a
managerial capacity at AT&T
Corp./Lucent Technologies Inc. in
the following areas:
manufacturing operations,
engineering, product development,
project management, product
repair, and support and sales.
Michael R. Sayre,.............. 45 Executive Vice President, 2001 16,324/(2)(3)/ 0.3%
Executive Vice President-- Corporate Strategy and Finance
Corporate Strategy and Finance, since July 2001, Chief Financial
CFO, Treasurer, Director Officer and Treasurer since
September 2001. Previously
served on the Board of Directors
and as Executive Vice President
and Chief Financial Officer of
LogiKeep Inc. From 1996 to 2000,
was the Corporate Controller for
Worthington Industries Inc.
3
The following is information about directors whose terms of office continue
after the Annual Meeting:
Class I Directors
(Terms Expiring in 2003)
Director
of the Shares
Name of Director and Principal Occupation(s) During the Company Beneficially Owned as of Percent
Position with the Company Age Past Five Years Since March 1, 2002/(1)/ of Class
- ------------------------- --- ---------------------------------- -------- ------------------------ --------
Hugh C. Cathey,.......... 51 President--Western Region for 2001 10,000/(3)/ 0.2%
Director Qwest Communications
International's local exchange
telecom business from January
2000--present. From August
1996--January 2000, President of
Nextlink Ohio, a publicly traded
competitive local exchange
company (CLEC) owned by
cellular phone pioneer Craig
McCaw. President and CEO
of Digital Network, Inc., a publicly
traded telecom company based in
Dallas, TX from 1993 until 1996.
Served 20 years in the
telecommunications industry.
Paul H. Lambert, Director 48 Chief Technology Officer of 2000 18,000/(3)/ 0.3%
Fusion Arts Partners since 2001.
Retired from UUNET, a division
of MCI Worldcom, in 2000 after
27 years of service to CompuServe
Incorporated, which was acquired
by MCI Worldcom in 1998. From
July 1999 until retirement, Vice
President and General Manager of
UUNET Hosting Services. Prior to
July 1999, held a variety of
technical and marketing
management positions while at
CompuServe Incorporated,
including Vice President, Network
Technology of CompuServe
Network Services (responsible for
development, engineering,
operations, and administration of
the worldwide CompuServe
network) and Chief Technology
Officer.
4
Director
of the Shares
Name of Director and Principal Occupation(s) During the Company Beneficially Owned as of Percent
Position with the Company Age Past Five Years Since March 1, 2002/(1)/ of Class
- ------------------------- --- ----------------------------------- -------- ------------------------ --------
Robert V.R. Ostrander,.. 56 Chairman of Manex Financial 1997 84,000/(3)/ 1.5%
Director Management, Inc.; President of
Manex Risk Management, Inc.,
Manex Management Services, Inc.,
Manex Advisors, Inc., and Omni
Financial Securities, Inc. for more
than five years.
- --------
(1) Unless otherwise indicated below, the persons listed in the foregoing two
tables have the sole right to vote and to dispose of the common shares of
the Company listed in that person's name.
(2) As trustees of the Pinnacle Data Systems, Inc. 401(k) Profit Sharing Plan,
Messrs. Bair, Hahn, and Sayre share the power to vote the Pinnacle shares
held in the plan. Each of these individuals is shown as beneficially owning
11,324 shares in the Plan due to the individual's voting power with respect
to all Plan shares (which voting power is shared among these individuals
and another plan trustee). However, these individuals have no investment
power with respect to such shares except for each individual's pecuniary
interest in the Plan shares held in his account as a Plan participant.
(3) The shares set forth in the foregoing two tables include the following
numbers of shares which may be acquired by the following persons upon the
exercise of stock options that are exercisable within the next 60 days:
John D. Bair......... 126,000/(5)/
C. Robert Hahn....... 122,000
Thomas M. O'Leary.... 50,000
Michael R. Sayre..... 0
Hugh C. Cathey....... 0
Paul H. Lambert...... 16,000
Robert V.R. Ostrander 84,000
(4) Includes 8,000 shares held by Joy S. Bair, the spouse of John D. Bair.
(5) Includes 6,000 shares, which may be acquired by Joy S. Bair, the spouse of
John D. Bair, upon the exercise of stock options that are exercisable
within the next 60 days.
During 2000 and 2001, Manex Risk Management, Inc., for which Mr. Ostrander,
a current Director of the Company, serves as President, was paid commissions of
$13,680.41 and $15,388.14, respectively, for acting as agent in connection with
the Company's purchase of health, disability and dental insurance for its
employees in the total amount of $264,581.02 in 2000 and $497,629.74 in 2001.
Of that total commission amount, Mr. Ostrander personally received $8,208.25
for 2000 and $9,232.38 for 2001.
The only executive officer of the Company not listed above is Christopher L.
Winslow, Vice President--Product Group of the Company. Mr. Winslow beneficially
owned 21,000 Company shares as of March 1, 2002, which constituted 0.4% of the
outstanding Company shares as of such date. Mr. Winslow has sole voting and
investment power with respect to the 21,000 Company shares owned by him. The
number of shares beneficially owned by Mr. Winslow includes 20,000 Company
shares, which may be acquired by Mr. Winslow upon the exercise of options,
which are currently exercisable or exercisable within 60 days of March 1, 2002.
5
As of March 1, 2002, the number of shares owned by all directors and
executive officers of the Company, as a group (8 persons), was 1,790,124
(30.3%). The foregoing amount includes 424,000 shares, which may be acquired
upon the exercise of options, which are currently exercisable or exercisable
within 60 days of March 1, 2002.
Board of Directors Committees and Meetings
The Board of Directors held ten meetings and took action by written consent
two times during 2001. No director attended less than 75% of the aggregate
meetings of the Board of Directors, during the time such individual was a
Director, and of the committees on which such director served, during the time
such Director was a member of such committee. The Board of Directors has a
Compensation Committee and an Audit Committee. The Board of Directors has no
standing nominating committee or committee performing similar functions and no
other standing committees.
The Board of Directors established the Compensation Committee in December
1999. The members of the Compensation Committee for the period during the
Company's 2001 fiscal year prior to February 22, 2001 were Messrs. O'Leary and
Ostrander. From February 22, 2001 until October 15, 2001, the members of the
Compensation Committee were Messrs. Lambert, O'Leary, and Ostrander. Since
October 15, 2001 the members of the Compensation Committee have been Messrs.
Cathey, Lambert, O'Leary and Ostrander. The Compensation Committee reviews
executive compensation policies and levels of compensation. The Compensation
Committee held one meeting during 2001.
The Board of Directors established an Audit Committee in June 2000, the
functions of which are described below in the Audit Committee Report. The
members of the Audit Committee for the period during the Company's 2001 fiscal
year prior to October 15, 2001 were Messrs. Lambert, O'Leary, and Ostrander.
Since October 15, 2001, the members of the Audit Committee have been Messrs.
Cathey, Lambert, O'Leary and Ostrander. The Audit Committee held two meetings
during 2001. All members of the Audit Committee are independent directors as
identified by the rules and regulations of the American Stock Exchange. In
March 2002, the Company's Board of Directors re-examined and again approved the
adequacy of its Charter, a copy of which was an attachment to last year's proxy
statement.
Audit Committee Report
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. All members of the Committee are
"independent," as required by applicable listing standards of the American
Stock Exchange. The Committee operates pursuant to a Charter that was last
amended and restated by the Board of Directors on March 23, 2001. As set forth
in the Charter, management has the primary responsibility for the financial
statements and the reporting process, including the systems of internal
controls. In fulfilling its oversight responsibilities, the Audit Committee
reviewed the audited financial statements contained in the Annual Report on
Form 10-KSB for the Company's 2001 fiscal year with management, including a
discussion of the accounting principles, the reasonableness of significant
judgments, and the clarity of disclosures in the financial statements.
The Audit Committee has discussed with the independent accountants the
matters required to be discussed by Statement on Auditing Standards No. 61
(Codification of Statements on Auditing Standard, AU 380), as amended. The
Audit Committee also reviewed with the independent auditors, who are
responsible for expressing
6
an opinion on the conformity of those audited financial statements with
generally accepted accounting principles, their judgments as to the quality and
acceptability of the Company's accounting principles and such other matters as
are required to be discussed with the Audit Committee under generally accepted
auditing standards. In addition, the Audit Committee discussed with the
independent auditors the auditors' independence from management and the
Company, including a written letter from the independent auditors regarding
their independence and the matters in the written disclosures required by the
Independence Standards Board, and considered the compatibility of non-audit
services with the auditors' independence.
The Audit Committee discussed with the Company's chief financial officer and
the independent auditors the overall scope and plans for the audit by the
independent auditors. The Audit Committee meets with the independent auditors,
with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members
of the Committee rely without independent verification on the information
provided to them on the representations made by management and the independent
accountants. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or appropriate internal control
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to above do not assure that the audit
of the Company's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
the Company's auditors are in fact, independent.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-KSB
for the 2001 fiscal year for filing with the Securities and Exchange
Commission. The Committee recommended to the Board of Directors the dismissal
of the Company's independent auditors that served during the 2001 fiscal year.
The Committee also recommended to the Board of Directors (and the Board has
approved) the selection of the Company's independent auditors for the 2002
fiscal year.
Submitted by the Audit Committee:
Hugh C. Cathey
Robert V.R. Ostrander
Thomas M. O'Leary
Paul H. Lambert
March 20, 2002
Compensation of Directors
Directors who are employees of the Company receive no separate compensation
for their services as directors. The whole Board of Directors determines
compensation of the non-employee directors after receiving the recommendations
of the President. Currently, non-employee directors receive a fee of $500 for
each Board Meeting attended and $250 for each committee meeting attended
limited to six meetings per committee, however, on October 15, 2001, the board
voted to suspend payments to non-employee directors, but continues to accrue
the usual fees, until such time as the Company regains profitability. In
addition, in May 2001, Messrs. Cathey, Lambert, O'Leary, and Ostrander each
received options for 20,000 shares that are exercisable at $2.35 from May 2002
until May 2011.
7
Executive Compensation
The following table sets forth for the fiscal years ended December 31, 2001,
2000 and 1999, the compensation of the Company's Chief Executive Officer and
the other executive officers whose compensation exceeded $100,000 during 2001.
No other executive officer of the Company received salary and bonus
compensation in excess of $100,000 in the most recent completed fiscal year.
Summary Compensation Table
Annual Long Term
Compensation Compensation
-------------- ------------------
Securities All
Under- Other
Lying Compen-
Fiscal Salary Bonus Options/ sation
Name and Positions Year ($) ($) SAR's (1) ($) (2)
- ------------------ ------ ------- ------ ---------- -------
John D. Bair............................................ 2001 175,008 0 60,000 18,572
Chairman of the Board of Directors, President, and Chief 2000 167,919 53,752 10,000 4,500
Executive Officer 1999 148,500 18,158 16,000 2,498
C. Robert Hahn.......................................... 2001 151,250 0 30,000 12,216
Vice President--Service Group 2000 156,010 53,352 10,000 4,500
1999 137,500 18,158 16,000 3,000
Christopher L. Winslow.................................. 2001 160,000 0 15,000 308
Vice President--Product Group 2000 43,127 11,109 60,000 0
- --------
(1) Amounts in this column have been adjusted to give effect to a 2-for-1 stock
split, which became effective March 31, 2000, and a 2-for-1 stock split
which became effective October 31, 2000, as if the stock splits were
effective prior to the issuance of the securities.
(2) Amounts in this column for 2001 reflect (a) payment of unused paid time off
at 12/31/00 for the benefit of Messrs. Bair ($14,450), Hahn ($12,216) and
Winslow ($308) and (b) reimbursement of $4,122 to Mr. Bair for premiums
made by Mr. Bair for a whole life insurance policy. Amounts in this column
for 1999 and 2000 reflect matching contributions made by the Company to its
401(k) Profit Sharing Plan for the benefit of Messrs. Bair and Hahn.
8
Option Grants in Last Fiscal Year
The following table indicates information about stock options granted to the
Company's Chief Executive Officer and the other executive officers named in the
summary compensation table during 2001.
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/sh) Date
---- ------------- ------------- ----------- ----------
John D. Bair.......... 60,000 shares 20.7% $2.585 5/23/2006
C. Robert Hahn........ 30,000 shares 10.3% $2.350 5/23/2011
Christopher L. Winslow 15,000 shares 5.2% $2.350 5/23/2011
Stock Option Exercises and Year End Option Values
The following table indicates stock option exercises during 2001 by the
Company's Chief Executive Officer and the other executive officers named in the
summary compensation table, and the value, as of December 31, 2001 of
unexercised options:
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options at Options at
Shares 12/31/01(#) 12/31/01(#)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized(1) Unexercisable Unexercisable(2)
- ---- ------------ ----------- -------------- ----------------
John D. Bair.......... $0 $0 126,000/60,000 $61,750/$0
C. Robert Hahn........ $0 $0 122,000/30,000 $68,300/$0
Christopher L. Winslow $0 $0 20,000/55,000 $0/$0
- --------
(1) Aggregate market value of the shares covered by the option less the
aggregate price paid by such person. The aggregate market value of shares
covered by the option was determined by the sale price of such shares, if
they were sold by the executive officer immediately upon their acquisition,
or, if not, by the last reported sale price of the Company shares on the
American Stock Exchange on the date prior to the exercise of the option.
(2) The value of in-the-money options was determined by subtracting the
exercise price from the last reported sale price of the Company shares on
the American Stock Exchange on December 31, 2001, the last trading day of
2001.
Employment Agreements
The Company has entered into an employment agreement with John D. Bair, its
Chairman of the Board, President and Chief Executive Officer. The agreement is
for a term ending on August 31, 2003, and provides for an annual salary of
$185,000 or such higher amount as shall be determined by the Board of Directors
or the Compensation Committee plus, as a bonus, a percentage of pre-tax net
income or other amount to be determined by the Board of Directors or
Compensation Committee annually. The agreement also provides for the
reimbursement of premiums on a $500,000 face amount whole life insurance policy
insuring the life of Mr. Bair (with beneficiaries designated by Mr. Bair), the
payment of technical and professional development benefits, and one-time
reimbursement of legal fees for Mr. Bair's personal estate planning, in
addition to those benefits generally available to other employees. If the
Company terminates Mr. Bair's employment without cause, he is entitled to a
severance payment equal to one year's base salary.
9
The Company has entered into an employment agreement with C. Robert Hahn,
its Vice President--Service Group. The agreement is for a term ending on
September 1, 2003, and provides for an annual salary of $151,250 plus, as a
bonus, a percentage of pre-tax net income or other amount to be determined by
the Board of Directors or Compensation Committee annually. The agreement also
provides for those benefits generally available to other employees. If the
Company terminates Mr. Hahn's employment without cause, he is entitled to a
severance payment equal to one year's base salary.
The Company has entered into an employment agreement with Christopher L.
Winslow, its Vice President--Product Group. The agreement is for a term ending
on August 31, 2002, and provides for an annual salary of $160,000 plus, as a
bonus, a percentage of pre-tax net income or other amount to be determined by
the Board of Directors or Compensation Committee annually. The agreement also
provides for those benefits generally available to other employees. If the
Company terminates Mr. Winslow's employment without cause, he is entitled to a
severance payment equal to one year's base salary.
The Company has entered into an employment agreement with Michael R. Sayre,
its Vice President--Corporate Strategy and Finance. The agreement is for a term
ending on September 31, 2003, and provides for an annual salary of $140,000
plus a bonus of $50,000 for 2002 based upon the achievement of goals
established by the Board of Directors. The agreement also provides for those
benefits generally available to other employees. If the Company terminates Mr.
Sayre's employment without cause after June 30, 2002, he is entitled to a
severance payment equal to six months base salary.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and persons who own more than 10% of a
registered class of the Company's equity securities to file statements of
beneficial ownership of the Company's shares of common stock. Based on a review
of the forms submitted to the Company during and with respect to its most
recent fiscal year, no person who, at any time during such fiscal year, was a
director, officer, or beneficial owner of more than 10% of any class of equity
securities of the Company registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), failed to file, on a
timely basis, reports required by section 16(a) of the Exchange Act during the
Company's most recent fiscal year or prior fiscal years.
Principal Holders of Voting Securities
The following table sets forth certain information with respect to the only
person known by the Company to own beneficially more than 5% of its common
shares:
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership /(1)/ Ownership
------------------------------------ ------------------------- ----------
John D. Bair.................... 1,443,924/(2)/ 25.7%
Pinnacle Data Systems, Inc.
6600 Port Road
Groveport, Ohio 43125
- --------
(1) Beneficial ownership as of March 1, 2002. Except as otherwise indicated
below, the person listed in the foregoing table has the sole right to vote
and to dispose of the common shares of the Company listed in his name.
(2) Includes 126,000 shares which may be acquired by Mr. Bair upon the exercise
of options which are currently exercisable or exercisable within 60 days of
March 1, 2002; 8,000 shares held by Joy S. Bair, the spouse of John D.
Bair; 6,000 shares which may be acquired by Joy S. Bair, the spouse of John
D. Bair, upon the exercise of options which are currently exercisable or
exercisable within 60 days of March 1, 2002; and 11,324 shares held in the
Pinnacle Data Systems, Inc. 401(k) Profit Sharing Plan over which Mr. Bair
shares voting power as a trustee.
10
PROPOSAL TWO: RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS
On March 20, 2002, Hausser + Taylor LLP was dismissed as the independent
accountant for the Company. The decision to dismiss Hausser + Taylor LLP was
recommended by the Company's Audit Committee and approved by its Board of
Directors. The reports of Hausser + Taylor LLP on the Company's financial
statements for 2000 and 2001 did not contain any adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. During the Company's 2000 and 2001 fiscal years and
during 2002 preceding the dismissal of Hausser + Taylor LLP, the Company had no
disagreements with Hausser + Taylor LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreement(s), if not resolved to the satisfaction of Hausser + Taylor
LLP, would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report. During the two most recently
completed fiscal years and during 2002, Hausser + Taylor LLP (i) did not advise
the Company that the internal controls necessary for the Company to develop
reliable financial statements did not exist; (ii) did not advise the Company
that information had come to its attention that made it unwilling to rely on
management's representations, or that had made it unwilling to be associated
with the financial statements prepared by management; (iii) did not advise the
Company of the need to expand significantly the scope of its audit, or that
information had come to its attention during the two most recently completed
fiscal years or during 2002, that would or if further investigated might
materially impact the fairness or reliability of either a previously issued
audit report or the underlying financial statements or the financial statements
issued or to be issued covering the fiscal period(s) subsequent to the date of
the most recent financial statements covered by an audit report (including
information that may prevent it from rendering an unqualified audit report on
those financial statements).
The Company provided Hausser + Taylor LLP with a copy of the disclosures it
made in response to Item 304(a) in advance of the day that such disclosures
were filed by the Company on Form 8-K on March 25, 2002. Hausser + Taylor LLP
furnished the Company with the letter addressed to the Securities and Exchange
Commission stating that it agrees with the statements made by the Company in
response to Item 304(a) attached hereto as Exhibit A.
Based upon the recommendation of the Company's Audit Committee, the Board of
Directors has selected Deloitte & Touche LLP as the Company's new independent
accountant as of March 20, 2002. Prior to such date, the Company did not
consult with Deloitte & Touche LLP regarding (i) the application of accounting
principles to a specified transaction, either completed or proposed, (ii) the
type of audit opinion that might be rendered by Deloitte & Touche LLP on the
Company's financial statements, or (iii) any other matter that was the subject
of a disagreement between the Company and Hausser + Taylor LLP or otherwise a
reportable event (both as described in Item 304(a)(1)(iv) of Regulation S-B and
its related instructions). The Company requested that Deloitte & Touche LLP
review the foregoing disclosure as contained in its Form 8-K filed March 25,
2002.
The Board of Directors has directed management to submit the board's
selection of Deloitte & Touche LLP as the Company's independent accountant to
the shareholders for ratification at the Annual Meeting. As discussed above,
Hausser + Taylor LLP was formerly the Company's independent accountants and
audited its financial statements since 1996, including the last fiscal year.
Representatives of both Hausser + Taylor LLP (the Company's principal
accountants for 2001) and Deloitte & Touche LLP (the Company's principal
accountants for the current year) are expected to be present at the Annual
Meeting. They will have an opportunity to make a statement if they so desire,
but the Company does not currently anticipate that they will do so. They are
expected to be available to respond to appropriate questions.
11
Hausser + Taylor LLP has a relationship with American Express Tax and
Business Services, Inc. ("TBS") from which it leases auditing staff who are
full time, permanent employees of TBS and through which Hausser + Taylor LLP's
partners provide non-audit services. As a result of this arrangement, Hausser +
Taylor LLP has no full time employees, and, therefore, 100% of the audit
services performed were provided by persons other than permanent full-time
employees of Hausser + Taylor LLP. Hausser + Taylor LLP manages and supervises
the audit and audit staff and is exclusively responsible for the opinion
rendered in connection with its examination.
Audit Fees
The aggregate fees billed by Hausser + Taylor LLP for professional services
for the audit and review of the Company's 2001 financial statements amounted to
$60,000. Deloitte & Touche LLP did not render any professional services
relating to the audit and review of the Company's 2001 financial statements.
Financial Information Systems Design and Implementation Fees
The aggregate fees billed by Hausser + Taylor LLP for professional services
for information and technology services relating to financial information
systems design and implementation for the fiscal year ended December 31, 2001,
were $0.00. Deloitte & Touche LLP rendered no such services for the Company in
the 2001 fiscal year.
All Other Fees
The aggregate fees billed by Hausser + Taylor LLP for services rendered to
the Company, other than the services described above under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees," for the fiscal
year ended December 31, 2001, were $0.00. Deloitte & Touche LLP rendered no
such services for the Company in the 2001 fiscal year.
Shareholders are not required by Ohio General Corporation Law to ratify the
selection of Deloitte & Touche LLP as the Company's independent accountants.
However, the Board of Directors is submitting the selection of Deloitte &
Touche LLP to shareholders for ratification as a matter of good corporate
practice. If shareholders do not ratify the selection of Deloitte & Touche LLP
as the Company's independent accountants, the Board of Directors will
reconsider its selection. Even if its selection is ratified, the Board of
Directors may in its discretion hire different independent accountants at any
time during the year if it determines that a change in independent accountants
would be in the best interest of the Company and its shareholders.
The Audit Committee has considered whether the provision of services
rendered for fees disclosed under the captions "Financial Information Systems
and Design and Implementation" and "All Other Fees" are compatible with the
principal accountant's independence, and has not found such services to be
incompatible with the independence of the accountants.
The Board of Directors unanimously recommends a vote "For" ratification of
its selection of Deloitte & Touche LLP as the Company's independent accountants.
12
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2003 Annual
Meeting of shareholders must be received by the Company for inclusion in the
proxy statement and form of proxy on or before 120 days in advance of the first
anniversary of the date of this proxy statement. Proposals may be no more than
500 words long, including any accompanying supporting statement.
For any proposal that is not submitted for inclusion in next year's proxy
statement, but instead is sought to be presented directly at next year's annual
meeting, Securities and Exchange Commission rules permit management to vote
proxies in its discretion if (a) the Company receives notice of the proposal
before the close of business on February 14, 2003 and advises stockholders in
next year's proxy statement about the nature of the matter and how management
intends to vote on such matter, or (b) the Company does not receive notice of
the proposal prior to the close of business on February 14, 2003.
OTHER MATTERS
Management does not know of any other matters that may come before the
Annual Meeting. However, if any other matters properly come before the Annual
Meeting, the persons named in the accompanying form of proxy intend to vote the
proxy in accordance with their judgment on such matters.
The Company will bear the cost of soliciting proxies. In addition to the use
of the mails, officers, directors, and regular employees may solicit proxies,
personally or by telephone or telegraph. The Company will reimburse banks,
brokers, and nominees for any out-of-pocket expenses incurred by them in
sending proxy materials to the beneficial owners of shares held by any banks,
brokers or nominees. If follow-up requests for proxies are necessary, the
Company may employ other persons to make these requests.
Joy S. Bair,
Secretary
13
EXHIBIT A
HAUSSER+TAYLOR LLP
Business advisors and certified public accountants
- --------------------------------------------------------------------------------
191 West Nationwide Blvd. Suite 400, Columbus, Ohio 43215-2591
614/358-0473 . FAX: 614/224-4197 . www.hausser.com
March 21, 2002
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
We were previously principal accountants for Pinnacle Data Systems, Inc.
("Pinnacle") and on February 5, 2002, we reported on the financial statements
of Pinnacle as of and for the two years ended December 31, 2001. On March 20,
2002, we were dismissed as principal accountants of Pinnacle. We have read
Pinnacle's statements under item 4 of its form 8-K for March 20, 2002, and we
agree with such statements.
Yours truly,
/s/ HAUSER+TAYLOR LLP
-----------------------------
HAUSSER+TAYLOR LLP
Columbus, Ohio
March 20, 2002
NEXIA
International
Logo Cleveland Beachwood Canton Columbus Elyria
Proxy
PINNACLE DATA SYSTEMS, INC.
This Proxy Is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints John D. Bair, C. Robert Hahn, and Michael
R. Sayre, and each of them, with full power of substitution, proxies to vote and
act with respect to all common shares, without par value (the "Shares"), of
Pinnacle Data Systems, Inc., an Ohio corporation (the "Company"), which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
at the Company's principal executive offices located at 6600 Port Road,
Groveport, Ohio 43125 on Thursday, April 25, 2002, at 10:00 a.m., local time,
and at any and all adjournments thereof, with all the powers the undersigned
would possess if present in person, on the following proposals and any other
matters that may properly come before the Annual Meeting.
The shares represented by this Proxy will be voted upon the proposals
listed below in accordance with the instructions given by the undersigned, but
if no instructions are given, this Proxy will be voted to elect all directors as
set forth in Item 1 below, FOR the proposal listed in Item 2 below and in the
discretion of the proxies, on any other matters which may properly come before
the Annual Meeting or any adjournments thereof.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
PINNACLE DATA SYSTEMS, INC. 2002 ANNUAL MEETING
1. ELECTION OF DIRECTORS:
(Class II Directors)
1 - John D. Bair 3 - Thomas M. O'Leary [ ] FOR all nominees listed
2 - C. Robert Hahn 4 - Michael R. Sayre to the left (except
as specified below).
[ ] WITHHOLD AUTHORITY
to vote for all nominees
listed to the left.
(Instructions: To withhold authority to vote for
any indicated nominee, write the number(s) of the
nominee(s) that you are not voting for in the box
provided to the right). [ ]
2. PROPOSAL TO RATIFY THE SELECTION OF
DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE YEAR
ENDING DECEMBER 31, 2002. [ ] FOR [ ]AGAINST [ ]ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
Check appropriate box
Indicate changes below:
Address Change? [ ] Name Change? [ ] Date
---------------------
NO. OF SHARES
[ ]
Shareholder/Co-holder Signature(s)
Please be sure to sign and date this Proxy in the box above.