<PAGE>
SCHEDULE 14A
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
[_] Confidential, for Use of the Commission Only (as permitted by 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):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF PINNACLE DATA SYSTEMS, INC.]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 14, 2000
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 Wednesday, June
14, 2000, at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to amend the Company's Amended
and Restated Code of Regulations to create two classes of directors,
with the terms of office of each class expiring every other year and
the number of directors in each class fixed at four.
2. To elect three Class I directors and three Class II directors.
3. To consider and vote upon a proposal to amend the Company's Amended
and Restated Articles of Incorporation to require the affirmative vote
of shares representing at least 75% of the voting power of the Company
to approve mergers, acquisitions or other matters for which Ohio law
specifies a required percentage vote of shareholders unless the
transaction has previously been approved by the vote of at least two-
thirds of the members of the Board of Directors.
4. To consider and vote upon a proposal to amend the Company's Amended
and Restated Code of Regulations to require the affirmative vote of
shares representing at least 75% of the voting power of the Company to
amend the provisions governing the two classes of directors and the
removal of directors unless the amendment has previously been approved
by the vote of at least two-thirds of the members of the Board of
Directors.
5. To consider and vote upon a proposal to amend the Company's Amended
and Restated Articles of Incorporation to increase the number of
authorized common shares from 5,000,000 to 10,000,000.
6. To consider and vote upon a proposal to amend the Company's Amended
and Restated Articles of Incorporation to authorize a class of
preferred shares consisting of 4,000,000 authorized shares.
7. To consider and vote upon amendments to the Pinnacle Data System, Inc.
1995 Stock Option Plan which increase the number of shares that may be
issued upon the exercise of stock options and which modify the terms
of the Plan to reflect certain changes in the administration and
operation of the Plan.
8. To consider and vote upon a proposal to approve the Pinnacle Data
Systems, Inc. 2000 Directors' Stock Option Plan.
<PAGE>
9. To consider and vote upon a proposal to ratify the selection of
Hausser + Taylor LLP as the Company's independent accountants for the
year ending December 31, 2000.
10. To transact such other business as may properly come before the
meeting or any adjournment of the meeting.
The close of business on April 21, 2000, 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 Bair
Secretary
Dated: May 18, 2000
<PAGE>
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 Wednesday, June 14, 2000, 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 May 18, 2000.
PROXIES AND VOTING
The close of business on April 21, 2000, 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,
2,461,602 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 proposals 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.
Three different voting requirements apply to the proposals set forth in the
accompanying Notice of Annual Meeting. The proposals that require the Company
to amend its Amended and Restated Articles of Incorporation and Amended and
Restated Code of Regulations must be approved by the affirmative vote of the
holders of a majority of the Company's outstanding common shares. As a result,
abstentions and broker non-votes will have the same effect as votes cast
against such proposals. 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
1
<PAGE>
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.
ANTI-TAKEOVER EFFECT OF SOME PROPOSALS
Shareholder approval of proposals one, three, four, five, and six may have
an anti-takeover effect. In other words, approval of these proposals may
discourage a third person from attempting to obtain control of the Company or
make it more difficult for such an attempt to succeed. Approval of these
proposals may also better enable incumbent directors and management to retain
their positions in the event of a takeover attempt. For these reasons, a
change in control of the Company may not occur or be attempted even if some
shareholders believe that a change in control would be beneficial to
shareholders generally. Consequently, shareholders could be deprived of the
benefits that could result from a change in control of the Company or an
attempt at a change in control, such as the realization of a premium over the
market price for their shares in a tender offer or the temporary increase in
market price that such an attempt could cause.
The Company is not aware of any attempt by any person to obtain control of
the Company, whether by means of a tender offer, proxy contest, merger or
otherwise, and proposals one, three, four, five, and six are therefore not a
response to any such attempt. Nevertheless, the Company believes that these
proposals are in the best interest of the Company and its shareholders.
Proposal one will increase the continuity and stability of the Company's Board
of Directors. Proposals three and four will provide the Board of Directors
with additional time to consider a takeover proposal and alternatives to the
proposal and may encourage any person seeking to obtain control of the Company
to negotiate with the Board of Directors. Proposals five and six will provide
the Company with additional financial flexibility. All of these proposals will
better enable the Board of Directors to protect the interests of the Company
and its shareholders. Additional information on these proposals, including
their anti-takeover effect, is set forth in the discussion of these proposals.
The Company's Amended and Restated Articles of Incorporation and Amended and
Restated Code of Regulations currently contain provisions that may have an
anti-takeover effect. Cumulative voting has been eliminated, which tends to
enable the shareholder or shareholders with the largest block of shares to
elect all directors. Super-majority voting requirements are also required
under two circumstances. First, the affirmative vote of shares representing at
least two-thirds of the voting power of the Company is required to eliminate
Ohio's control share acquisition statute ((S)1701.831 of the Ohio Revised
Code). Second, the affirmative vote of shares representing at least 75% of the
voting power of the Company is required to remove a director from office.
Proposals one, three, four, five, and six are intended to supplement these
provisions. The Company has no intention at this time to propose any
additional anti-takeover measures in future proxy solicitations.
PROPOSAL ONE: CLASSIFIED BOARD
The Board of Directors has unanimously adopted a resolution to amend the
Company's Amended and Restated Code of Regulations to create two classes of
directors, with the terms of office of each class expiring every other year
and the number of directors in each class fixed at four. This resolution also
increases the maximum number of directors from seven to nine. The text of the
proposed amendment is attached as Exhibit A to this Proxy Statement.
2
<PAGE>
If shareholders approve the proposed amendment to the Company's Amended and
Restated Code of Regulations, then, commencing with the election of directors
at the Annual Meeting, the Board of Directors will be divided into two classes
of directors with staggered terms of office (the term used to describe such a
Board of Directors is a "classified board"). If shareholders approve the
proposal, the initial terms of office of the directors in Class I and Class II
will expire at the 2001 and 2002 annual meetings of shareholders,
respectively. Upon the expiration of these initial terms, the successors to
the directors whose initial terms of office have expired will be elected to
serve for two-year terms and until their successors are elected and qualified.
This election procedure will apply to all future elections of directors. Any
vacancy may be filled by the Board of Directors for the full remaining term of
the director who created the vacancy. If shareholders do not approve the
proposed amendment to the Company's Amended and Restated Code of Regulations,
all of the nominees who are elected as directors will serve one-year terms and
until their successors are duly elected and qualified.
The purpose of the proposal to create a classified board of directors is to
provide for more continuity and stability on the Company's Board of Directors
(although no problems with continuity or stability have been encountered to
date) and to increase the likelihood that all shareholders will be treated
fairly in the event of a takeover of the Company. Although the proposal is not
intended to prevent a takeover, shareholder approval of the proposal may have
an anti-takeover effect because the creation of a classified board of
directors could extend the time necessary to change the composition of the
Board of Directors. Under the Company's current Amended and Restated Code of
Regulations, all of the directors are elected at each annual meeting of
shareholders. As a result, the holders of shares representing a majority of
the Company's voting power could replace a majority or all of the directors at
one annual meeting. In contrast, if a classified board of directors is
created, the holders of shares representing a majority of the Company's voting
power will not be able to replace all of the directors at one annual meeting.
Although this will enhance the stability and continuity of the Company's Board
of Directors and management, it may also discourage a third person from
initiating a proxy contest, making a tender offer, or otherwise attempting to
obtain control of the Company without first negotiating with the Board of
Directors and management.
Although the proposed amendment to the Company's Amended and Restated Code
of Regulations may have an anti-takeover effect, the Board of Directors
believes that the advantages of a classified board outweigh any disadvantages.
As a result, the Board of Directors unanimously recommends that shareholders
vote "For" approval of the proposal to amend the Amended and Restated Code of
Regulations to create a classified Board of Directors.
ELECTION OF DIRECTORS
If proposal one to create a classified Board of Directors is approved by
shareholders, then at the Annual Meeting all shares represented by proxies,
unless otherwise specified, will be voted to elect the three Class I directors
nominated below to a one-year term expiring in 2001 and the three Class II
directors nominated below to a two-year term expiring in 2002. If proposal one
to create a classified Board of Directors is not approved by shareholders,
then at the Annual Meeting all shares represented by proxies, unless otherwise
specified, will be voted to fix the number of directors at eight and to elect
the six nominees named below as directors for a one-year term expiring in
2001. Each of the nominees, except Mr. Lambert, 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. 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.
3
<PAGE>
The number of directors is being fixed at a number higher than the number to
be elected because the Company believes that it is desirable to have one or
two vacancies 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 vacancies, nor has any candidate been considered and approved by the Board
of Directors. If a classified Board of Directors is created, Class I and Class
II will each have a vacancy.
Proxies cannot be voted at the Annual Meeting for a greater number of
individuals than the six nominees named in this Proxy Statement. However,
additional nominations can be made by shareholders at the meeting.
Class I Directors
(Nominees for Election)
<TABLE>
<CAPTION>
Shares
Director Beneficially
Name of Director and of the Owned as of
Position with the Principal Occupation(s) Company April 21, Percent of
Company Age During the Past Five Years Since 2000(1) Class
--------------------- --- -------------------------- -------- ------------ ----------
<C> <C> <S> <C> <C> <C>
Thomas J. Carr,...... 46 Treasurer and Chief 1996 76,062(2)(3) 3.0%
Treasurer, Chief Financial Officer of the
Financial Officer, Company since May 1996.
and Director Controller of the
Company from September
1995 to May 1996. Prior
to September 1995,
President of Celtic
Resources, a business
consulting firm.
Robert V.R. 54 Chairman of Manex 1997 29,000(3) 1.2%
Ostrander,.......... Financial Management,
Director Inc.; President of Manex
Risk Management, Inc.,
Manex Management
Services, Inc., Manex
Advisors, Inc., and Omni
Financial Services, Inc.
for more than five
years.
Paul H. Lambert...... 46 Retired from UUNET, a Nominee -0- 0%
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.
</TABLE>
4
<PAGE>
Class II Directors
(Nominees for Election)
<TABLE>
<CAPTION>
Shares
Director Beneficially
Name of Director and of the Owned as of
Position with the Principal Occupation(s) Company April 21, Percent of
Company Age During the Past Five Years Since 2000(1) Class
--------------------- --- -------------------------- -------- ------------ ----------
<C> <C> <S> <C> <C> <C>
John D. Bair, ....... 34 Chairman and Chief 1989 724,462(2)(3) 28.6%
Chairman of the Executive Officer of the
Board of Directors, Company since May 1996;
President and Chief President of the Company
Executive Officer since 1998; Secretary of
the Company from 1989 to
1998.
C. Robert Hahn,...... 47 Chief Operating Officer 1995 63,662(2)(3) 2.5%
Chief Operating and Vice President of
Officer, Vice the Company since June
President, and 1998. President of the
Director 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,... 56 Retired from AT&T 1996 31,000(3) 1.2%
Director Corp./Lucent
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.
</TABLE>
- --------
(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 Carr have the power to vote the Pinnacle
shares held in the plan. Each of these individuals is shown as
beneficially owning the 5,662 shares in the Plan due to their shared
voting power. However, they have no investment power with respect to such
shares.
(3) The shares set forth in the foregoing two tables include the following
numbers of shares (adjusted to give effect to the 2-for-1 stock split
effective March 31, 2000) which may be acquired by the following persons
upon the exercise of stock options that are exercisable within the next
60 days:
<TABLE>
<S> <C>
John D. Bair....................................................... 70,000
C. Robert Hahn..................................................... 58,000
Thomas J. Carr..................................................... 68,000
Thomas M. O'Leary.................................................. 30,000
Robert V.R. Ostrander.............................................. 29,000
</TABLE>
5
<PAGE>
The foregoing tables do not reflect options for 4,000 shares held by Joy
Bair, the spouse of John D. Bair, over which John D. Bair disclaims beneficial
ownership.
As of April 21, 2000, the number of shares owned by all directors and
executive officers of the Company as a group (6 persons) was 912,862 (33.6%).
The foregoing amount includes 255,000 shares which may be acquired upon the
exercise of options which are currently exercisable or exercisable within 60
days of April 21, 2000.
Board of Directors Committees And Meetings
The Board of Directors held seven meetings and took action one time by
written consent during 1999. Each director attended at least 75% of the
meetings held by the Board of Directors except that Mr. O'Leary attended five
of the seven meetings.
The Board of Directors established a Compensation Committee in December
1999. The Compensation Committee, which is comprised of Messrs. Carr, O'Leary,
and Ostrander, reviews executive compensation policies and levels of
compensation. The Compensation Committee held no meetings during 1999.
The Board of Directors has no standing audit or nominating committee or
committee performing similar functions and no other standing committees.
Compensation of Directors
Directors who are officers of the Company receive no separate compensation
for their services as directors. Compensation of the outside directors is
determined by the whole Board of Directors after receiving the recommendations
of the President. Currently, outside directors receive a fee of $500 for each
Board Meeting attended. In 1996, upon his initial election to the Board of
Directors, Mr. O'Leary received options for 10,000 shares of the Company's
common stock at an exercise price of $3.50 per share. These options were
repriced in 1999 and are now exercisable at $2.0625 per share until October 1,
2006. Mr. O'Leary also received options for 20,000 shares in September 1997
that are exercisable at $1.50 per share until September 2007, and received
options for 8,000 shares in June 1999 that are exercisable at $2.0625 per
share until June 2009. Mr. Ostrander received options for 29,000 shares in
September 1997 that are exercisable at $1.50 per share until September 2007.
Mr. Ostrander also received options for 8,000 shares in June 1999 that are
exercisable at $2.0625 per share until June 2009. All share amounts set forth
in this paragraph have been adjusted to give effect to the 2-for-1 stock split
which became effective March 31, 2000.
Executive Compensation
The following table sets forth for the fiscal years ended December 31, 1999
and 1998, the compensation of the Company's Chief Executive Officer and the
only other executive officer whose compensation exceeded $100,000 during 1999.
No other executive officer of the Company received salary and bonus
compensation in excess of $100,000 in the most recent completed fiscal year.
6
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------- ---------------------------
(*) (***)
Securities All Other
Name and Fiscal Salary Bonus Underlying Compensation
Positions Year ($) ($) Options/SAR's ($)
--------- ------ ---------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
John D. Bair............ 1999 148,500 18,158 8,000 2,498
Chairman of the Board 1998 135,520 7,370 70,000(**) 3,000
of Directors,
President, and Chief
Executive Officer
C. Robert Hahn.......... 1999 137,500 18,158 8,000 3,000
Chief Operating
Officer, Vice President 1998 125,481 7,370 48,000(**) 3,000
</TABLE>
- --------
* Amounts in this column and in the related footnote have been adjusted to
give effect to a 2-for-1 stock split, which became effective March 31,
2000, as if the stock split was effective prior to the issuance of the
securities.
** In 1998, 60,000 of the options granted to Mr. Bair and 30,000 of the
options granted to Mr. Hahn were replacement grants for options granted to
them in 1997, which were re-priced to reflect then-current market values.
*** Amounts in this column reflect matching contributions made by the Company
to its 401(k) plan for the benefit of Messrs. Bair and Hahn.
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 officer named in the summary
compensation table during 1999, adjusted as if the 2-for-1 stock split, which
became effective March 31, 2000, was effective prior to 1999.
<TABLE>
<CAPTION>
Number Percent of
of Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/sh) Date
- ---- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
John D. Bair................. 8,000 shares 5.3% $ 2.27 2004
C. Robert Hahn............... 8,000 shares 5.3% $2.0625 2009
</TABLE>
7
<PAGE>
Stock Option Exercises and Year End Option Values
The following table indicates stock option exercises during 1999 by the
Company's chief executive officer and the other officer named in the summary
compensation table, and the value, as of December 31, 1999, of in-the-money
stock options held by them, adjusted as if the 2-for-1 stock split, which
became effective March 31, 2000, was effective prior to 1999:
<TABLE>
<CAPTION>
Value of
Unexercised
Number of in-the-Money
Unexercised Options Options at
Shares at 12/31/99(#) 12/31/99(#)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized(1) Unexercisable Unexercisable(2)
- ---- ------------ ----------- ------------------- ----------------
<S> <C> <C> <C> <C>
John D. Bair..... 0 0 70,000/8,000 $24,500/$0
C. Robert Hahn... 0 0 58,000/8,000 $31,500/$0
</TABLE>
- --------
(1) Aggregate market value of the shares covered by the option less the
aggregate price paid by such person.
(2) The value of in-the-money options was determined by subtracting the
exercise price from the average of the closing bid and asked prices of the
shares on December 31, 1999.
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 of three years ending on September 1, 2000, and provides for an
annual salary of $100,000 or such higher amount as shall be determined by the
Board of Directors plus a bonus of 3% of pre-tax net income. The agreement
also provides for 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.
The Company has entered into an employment agreement with C. Robert Hahn,
its Vice President and Chief Operating Officer. The agreement is for a term of
three years ending on September 1, 2000, and provides for an annual salary of
$120,000 or such higher amount as shall be determined by the Board of
Directors plus a bonus of 3% of pre-tax net income. 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.
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. Because the
Company was not subject to reporting under the Securities Exchange Act of 1934
during 1999, this requirement did not apply to its officers, directors and
shareholders during 1999 and there is nothing to report under this item with
respect to 1999.
8
<PAGE>
Principal Holders Of Voting Securities
The following table sets forth certain information with respect to the only
persons known by the Company to own beneficially more than 5% of its common
shares:
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent of
Name and Address of Beneficial Owner Ownership(1) Ownership
------------------------------------ ------------ ----------
<S> <C> <C>
John D. Bair........................................ 724,462(2) 28.6%
Pinnacle Data Systems, Inc.
6600 Port Road
Groveport, Ohio 43125
David J. Richards................................... 194,500(3) 7.3%
7964 Holyrood Ct.
Dublin, Ohio 43017
</TABLE>
- --------
(1) Beneficial ownership as of April 21, 2000. Except as otherwise indicated
below, the persons listed in the foregoing table have the sole right to
vote and to dispose of the common shares of the Company listed in that
person's name.
(2) Includes 70,000 shares which may be acquired by Mr. Bair upon the
exercise of options which are currently exercisable or exercisable within
60 days of April 21, 2000; and (ii) 5,662 shares held in the Pinnacle
Data Systems, Inc. 401(k) Profit Sharing Plan over which Mr. Bair shares
voting power as a trustee. Does not include options for 4,000 shares held
by Joy Bair, the spouse of John D. Bair, over which he disclaims
beneficial ownership.
(3) Includes 74,000 shares subject to outstanding options which are currently
exercisable.
Certain Relationships And Related Transactions
In 1998, the Company refinanced three loans aggregating $540,585 in
principal amount. In addition to being collateralized by the Company's land,
building, rents, leases, general business assets and profits thereof, these
loans were guaranteed by two shareholders of the Company, one of whom was John
Bair, the President and principal shareholder of the Company. These guarantees
were released at the time of the refinancing.
On July 22, 1998, the Company entered into an employment agreement with
David J. Richards, an advisor who is a shareholder, but otherwise unrelated to
a director or executive officer, to provide to the Company consulting and
advisory services with respect to the Company's communications with its
stockholders and with members of the financial community. The agreement
expired on July 22, 1999. In exchange for his services, the advisor was
granted options to purchase 74,000 (adjusted to give effect to the 2-for-1
stock split effective March 31, 2000) shares of common stock at the then
market price. On December 15, 1999, the Board of Directors extended the
agreement with Mr. Richards until July 22, 2001.
PROPOSAL TWO: SHAREHOLDER APPROVAL
OF MERGERS AND OTHER TRANSACTIONS
The Board of Directors has unanimously adopted a resolution to amend the
Company's Amended and Restated Articles of Incorporation to require the
affirmative vote of shares representing at least 75% of the Company's voting
power to approve mergers, acquisitions or other matters for which Ohio law
specifies a
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required percentage vote of shareholders unless the transaction has previously
been approved by the vote of at least two-thirds of the members of the Board
of Directors. The text of the proposed amendment is attached as Exhibit B to
this Proxy Statement.
Ohio law requires corporations to obtain shareholder approval (with some
exceptions) of mergers, combinations, majority share acquisitions, amendments
to a corporation's articles of incorporation, and certain other matters by the
affirmative vote of shares representing at least two-thirds of the
corporation's voting power. The Company has opted out of this two-thirds
voting requirement by including in its Amended and Restated Articles of
Incorporation a provision permitting shareholder approval of such matters by
the affirmative vote of shares representing a majority of the Company's voting
power. If approved by shareholders, the proposed amendment to the Amended and
Restated Articles of Incorporation will increase this majority voting
requirement to a 75% voting requirement if the matter being voted upon by
shareholders has not been approved in advance by at least two-thirds of the
members of the Board of Directors. If a merger, combination, majority share
acquisition, amendment to the Company's Amended and Restated Articles of
Incorporation, or other proposal requiring a particular shareholder vote under
Ohio law has been approved by at least two-thirds of the members of the Board
of Directors, then such matter may be approved by the affirmative vote of
shares representing a majority of the Company's voting power.
The purpose of the proposed amendment is to encourage a person who may be
seeking to obtain control of the Company to negotiate in advance with the
Board of Directors, since the 75% shareholder approval requirement will not
apply if at least two-thirds of the members of the Board of Directors has
approved the transaction in advance. The Board of Directors believes that the
interests of the Company and its shareholders are best served by a transaction
that occurs after careful negotiation of the terms of the transaction,
including the price to be paid for the Company's shares. Nevertheless,
although the proposed amendment is not intended to prevent a change in control
of the Company, the proposed amendment may have an anti-takeover effect
because of its increase in the shareholder approval requirement. This increase
may allow minority shareholders or management to veto a transaction that may
be viewed by other shareholders as desirable or beneficial. On balance,
however, the Board of Directors believes that the advantages offered by the
proposed amendment outweigh any disadvantages. As a result, the Board of
Directors unanimously recommends that shareholders vote "For" approval of the
proposal to amend the Company's Amended and Restated Articles of Incorporation
to provide for the affirmative vote of shares representing at least 75% of the
Company's voting power under the circumstances described above.
PROPOSAL THREE: AMENDMENT TO PROVISIONS
OF THE AMENDED AND RESTATED CODE OF REGULATIONS
The Board of Directors has unanimously adopted a resolution to amend the
Company's Amended and Restated Code of Regulations. As explained below, the
proposed amendments are necessary to ensure that the results intended by the
creation of a classified Board of Directors are not circumvented.
Additionally, an existing provision of the Amended and Restated Code of
Regulations requires the affirmative vote of the holders at least 75% of the
shares that are entitled to vote in the election of directors to remove a
director without assigning cause. The proposed amendments would also help
ensure that this provision is not circumvented. For these reasons, the
proposed amendments may have an anti-takeover effect. The text of the proposed
amendment is attached as Exhibit C to this Proxy Statement.
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If the amendments to the Company's Amended and Restated Code of Regulations
are approved by shareholders, any amendment to Section 2.2 (which will govern
the classification of the Board of Directors) or Section 2.7 (which governs
the removal of directors) will require the approval of shares representing at
least 75% of the Company's voting power, unless the amendment has previously
been approved by the vote of at least two-thirds of the members of the Board
of Directors. If the Board of Directors has given such approval, then Sections
2.2 and 2.7 may be amended by the affirmative vote of shares representing a
majority of the Company's voting power. The purpose of these amendments is to
ensure that the results intended by the creation of a classified Board of
Directors and by requiring a super-majority vote to remove a director without
cause are not circumvented by a person who is seeking to obtain control of the
Company. If the amendments are not approved by shareholders, a person who
obtains shares representing a majority of the Company's voting power will be
able to circumvent the provisions of the Amended and Restated Code of
Regulations governing the classification and removal of directors by simply
voting his or her shares in favor of an amendment that would eliminate these
provisions. That person could then remove all of the directors and elect his
or her own nominees to the Board of Directors. The proposed amendments are
designed to guard against this possibility and to encourage a person who is
seeking to obtain control of the Company to negotiate with the Board of
Directors.
The proposed amendment will also revise Article 10, which governs amendments
to the Amended and Restated Code of Regulations. Article 10 permits the
Amended and Restated Code of Regulations to be amended by the affirmative vote
of shares representing a majority of the Company's voting power. The proposed
amendment to Article 10 will not change this majority-vote requirement except
that it will eliminate its applicability to amendments to Sections 2.2 and 2.7
in light of the super-majority vote required to amend these sections.
The Board of Directors unanimously recommends that shareholders vote "For"
approval of the proposal to amend the Company's Amended and Restated Code of
Regulations to require the affirmative vote of shares representing at least
75% of the Company's voting power to amend the provisions governing the two
classes of directors and the removal of directors unless the amendment has
previously been approved by the vote of at least two-thirds of the members of
the Board of Directors.
PROPOSAL FOUR: INCREASE IN THE NUMBER
OF AUTHORIZED COMMON SHARES
The Board of Directors has unanimously adopted a resolution to amend the
Company's Amended and Restated Articles of Incorporation to increase the
number of authorized common shares from 5,000,000 to 10,000,000. The text of
the proposed amendment is attached as Exhibit D to this Proxy Statement.
Currently, the Amended and Restated Articles of Incorporation authorize the
Company to issue 5,000,000 common shares, of which 2,461,602 shares were
outstanding at the close of business on April 21, 2000. A total of 1,067,600
shares are reserved for issuance under the Company's 1995 Stock Option Plan;
250,000 shares are reserved for issuance under the 2000 Directors Stock Option
Plan; and 149,000 shares are reserved for issuance upon exercise of existing
but unexercised options granted to directors and to David J. Richards.
Additionally, 50,000 shares were reserved for issuance pursuant to warrants
granted to Corna Securities, the underwriter, in connection with the Company's
1995 public offering. As a result, only 1,021,798 common shares remain
available for future issuance.
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The purpose of the proposed amendment of the Amended and Restated Articles
of Incorporation is to make additional common shares available for the
Company's use from time to time for general corporate purposes. If the
proposed amendment is approved by shareholders, the Company will be able to
issue the newly authorized common shares for any corporate purpose, including
stock splits, stock dividends, employee benefit and compensation plans, public
or private sales for cash as a means of raising capital, or acquisitions. The
Company will be able to meet these and other potential future needs without
having to incur the delay and significant expense that would accompany a
future request for shareholder approval. In determining whether to issue
common shares the Board of Directors would be required to exercise its
judgment regarding the best interests of the Company and its shareholders.
The newly authorized common shares will have rights identical to the rights
of the common shares that are currently issued and outstanding. Moreover,
shareholder approval of the proposal to increase the number of authorized
common shares, and the issuance of such shares, will not alter the rights of
the common shares that are currently issued and outstanding. The effect of the
issuance of any newly authorized common shares will be the same as the effect
of issuing common shares that are currently authorized. For example, the
issuance of newly authorized common shares may dilute the Company's earnings
per share and book value per share. Shareholders have no preemptive rights. As
a result, shareholders will not have a preferential right to purchase any of
the additional common shares that will be authorized if the proposed amendment
is approved by shareholders.
Shareholder approval of the proposal to increase the number of authorized
common shares may have an anti-takeover effect because, if an attempt to
obtain control of the Company were made, the Company could issue a block of
common shares (or rights to purchase such shares) to persons who are loyal to
the Company's management. The issuance of such shares could preclude a merger
or takeover attempt--or make them more difficult--because it could dilute the
voting power of the person seeking to obtain control of the Company.
Although the proposed amendment to the Amended and Restated Articles of
Incorporation may have an anti-takeover effect, the Board of Directors
believes that the advantages offered by the amendment outweigh any
disadvantages. As a result, the Board of Directors unanimously recommends that
shareholders vote "For" approval of the proposal to amend the Amended and
Restated Articles of Incorporation to increase the number of authorized common
shares from 5,000,000 to 10,000,000.
PROPOSAL FIVE: AUTHORIZATION OF
CLASS OF PREFERRED STOCK
The Board of Directors has unanimously adopted a resolution to amend the
Company's Amended and Restated Articles of Incorporation to create 4,000,000
authorized shares of "blank check" preferred stock. The text of the proposed
amendment is attached as Exhibit D to this Proxy Statement. The term "blank
check" refers to preferred shares whose terms, rights and features are not
established when the preferred shares are authorized for issuance but rather
are established by the Board of Directors at the time of issuance. The Company
is not currently authorized to issue preferred shares and does not currently
have plans to issue any such shares.
The purpose of the proposed amendment of the Amended and Restated Articles
of Incorporation is to provide the Company with increased financial
flexibility by making another type of security (in addition to common shares)
available for issuance in public offerings or private placements. The Board of
Directors believes that having a class of blank check preferred stock provides
it with more flexibility in connection with potential acquisitions and
potential equity financings. It is not uncommon in these situations for the
persons selling the
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business or providing significant financing to request and negotiate for
preferred stock with special rights. Having a class of blank check preferred
stock gives the Company the ability to enter into these transactions without
the delay and expense that would be involved in calling a special shareholder
meeting.
Shareholder authorization of the proposal to authorize the issuance of blank
check preferred stock would permit the Company to issue preferred shares from
time to time in one or more series for any lawful corporate purpose. The Board
of Directors would be authorized to adopt resolutions to issue preferred
shares, to fix the number of such shares, to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other
special rights (including whether dividends are cumulative), dividend rates,
terms of redemption (including sinking fund provisions), redemption prices,
conversion rights and liquidation preferences of the shares constituting any
series of the preferred stock. The Board of Directors could do all of this
without any further action or vote by shareholders. In determining whether to
issue preferred shares and, if so, the terms of such shares, the Board of
Directors would be required to exercise its judgment regarding the best
interests of the Company and its shareholders.
The issuance of preferred shares may adversely affect the rights of the
common shareholders. Preferred shares will be senior in rank to the Company's
common shares. The issuance of preferred shares may reduce the amount of funds
available for the payment of dividends on common shares or otherwise restrict
the payment of dividends on common shares. The issuance of preferred shares
may dilute the voting power of common shares or adversely affect the right of
common shareholders to share in the Company's assets upon liquidation.
Preferred stock may have full or limited voting rights and may or may not be
convertible into common shares. Accordingly, the issuance of preferred shares
may decrease the amount of earnings and assets allocable to or available for
distribution to common shareholders, adversely affect the rights and powers
(including voting rights) of the common shareholders, discourage bids for
common shares, or otherwise adversely affect the market price of common
shares.
Shareholder approval of the proposal to create 4,000,000 authorized shares
of blank check preferred stock may have an anti-takeover effect because, if an
attempt to obtain control of the Company were made, the Company could issue a
block of preferred shares (or rights to purchase such shares) to persons who
are loyal to the Company's management. The issuance of such shares could
preclude a merger or takeover attempt--or make them more difficult--because it
could dilute the voting power of the person seeking to obtain control of the
Company.
Although the proposed amendment to the Amended and Restated Articles of
Incorporation may have an anti-takeover effect, the Board of Directors
believes that the advantages offered by the amendment outweigh any
disadvantages. As a result, the Board of Directors unanimously recommends that
shareholders vote "For" approval of the proposal to amend the Amended and
Restated Articles of Incorporation to create 4,000,000 authorized shares of
blank check preferred stock.
PROPOSAL SIX: AMENDMENT TO THE 1995 STOCK OPTION PLAN
The directors of the Company adopted the Company's 1995 Stock Option Plan
(the "Plan") in 1995, and it was approved by shareholders in December 1995.
The purpose of the Plan is to encourage employees of the Company and its
subsidiaries to acquire or increase a proprietary interest in the Company, to
assist the Company and its subsidiaries in attracting and retaining highly
qualified employees by providing them with options to purchase shares in the
Company, and to further promote and strengthen the interest of the Company's
employees in the development and financial success of the Company.
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At the Annual Meeting, shareholders will be asked to approve Amendment No. 1
to the Plan, which was adopted by the Company's Board of Directors on February
16, 2000, as well as an earlier amendment adopted August 12, 1999, which has
now been modified by Amendment No. 1. Pursuant to the requirements of the Plan
and in order to be effective under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), the proposed amendments must be approved by the
Company's shareholders within 12 months after adoption by the Board of
Directors. At the Annual Meeting, unless otherwise indicated, proxies will be
voted for the adoption of the proposed amendments. The following discussion of
the Plan and the proposed amendments to the Plan are qualified in their
entirety by reference to the full text of the Plan, including the proposed
amendments. The proposed amendments are attached to this Proxy Statement as
Exhibits E.
Amendment No. 1 does five things: (1) it increases the number of shares for
which options can be granted under the Plan, (2) it changes the administrative
provisions of the Plan to comport with changes in Rule 16b-3 since the time
the Plan was adopted, (3) it eliminates a restriction required by former Rule
16b-3 that prevented plan committee members from participating in the Plan for
a period of 12 months after they stopped serving on the committee, (4) it
gives the administrator of the Plan the ability to grant non-qualified options
which are transferable to a person's immediate family members or trusts or
partnerships set up for their benefit, and (5) it removes a six-month holding
period on options held by officers and directors, which was required by former
Rule 16b-3. Several of the changes resulted from changes in Rule 16b-3. If
complied with, Rule 16b-3 provides an exemption from the short swing profit
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), for option grants so that option grants to purchase common
shares of the Company do not need to be matched against sales of the Company's
common shares that occur within a less than six-month period. Some of the
restrictions in former Rule 16b-3 have been eliminated, and Amendment No. 1
would also eliminate these restrictions from the Plan.
A total of 600,000 common shares (after adjustment for a 2 for 1 stock split
which occurred on March 31, 2000) were originally reserved for issuance
(subject to anti-dilution adjustments) under the Plan. Options for all 600,000
of these common shares have been granted under the Plan. Additional common
shares need to be added to the Plan so that it may continue to function. The
Company's management would like the Plan to continue to function because the
grant of options under the Plan aligns an employee's interest in the Company
with that of a shareholder's, namely to see the value of his or her shares
appreciate. On August 12, 1999, the Board of Directors approved an amendment
to the Plan to increase the number of common shares reserved for issuance
under the Plan to 800,000 (post stock split). On February 16, 2000 the Board
of Directors reconsidered the number of common shares and adopted Amendment
No. 1 which, among other things, increases the number of common shares
reserved for issuance under the Plan to 1,200,000 (post stock split). Although
Amendment No. 1 now supercedes the August 12, 1999 amendment, the August 12,
1999, amendment still needs to be approved by shareholders so that options
granted under that amendment can qualify as incentive stock options under the
Code.
If approved by shareholders, Amendment No. 1 will increase the total number
of common shares reserved for issuance under the Plan by 600,000 to 1,200,000.
Options for 6,000 additional common shares authorized in the August 12, 1999,
amendment were granted to employees on August 12, 1999, and options for 2,000
of these additional common shares were granted to an employee on December 15,
1999. None of these options were granted to executive officers or directors of
the Company. No options have been granted from the additional shares
authorized in Amendment No. 1. All of these options have been granted subject
to shareholder approval of the August 12, 1999, amendment and Amendment No. 1,
which means that if the amendments are not approved by shareholders, these
options will terminate.
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The Plan provides that all employees of the Company and its subsidiaries are
eligible to receive options under the Plan and that directors who are not also
employees of the Company or one of its subsidiaries are not eligible to
receive options under the Plan. Amendment No. 1, if approved by shareholders,
would eliminate a restriction that prevented any member of a committee which
administers the Plan from participating in the Plan until 12 months after he
or she stops serving on the Committee. This provision was originally included
in the Plan to comply with Rule 16b-3 as it was in effect on the date the Plan
was adopted. Rule 16b-3 has been changed to eliminate this restriction and the
Board of Directors did not think such restriction was needed for any other
purpose. Accordingly, the Board of Directors believes this restriction should
be eliminated.
Amendment No. 1 also provides that the Plan is to be administered by the
Board of Directors of the Company, with authority given to the Board of
Directors to delegate administration to a committee of non-employee directors.
Historically, the Board of Directors has administered the Plan. However, the
Plan provides that at such time as the Company becomes a reporting company
under the 1934 Act that the Plan is to be administered by a committee of not
less than three directors. This is to comply with the provisions of (S).16b-3
of the 1934 Act at the time the Plan was adopted. Rule 16b-3 has been changed
since the time the Plan was adopted and the provision contained in Amendment
No. 1 follows the administration provisions of new Rule 16b-3. As a result of
Amendment No. 1, the Board of Directors will continue to administer the Plan.
The administrator of the Plan is authorized, among other things, to interpret
the provisions of the Plan, designate the employees who are to receive options
under the Plan, determine the number, type, frequency, and terms and
conditions of options to be granted under the Plan, specify the number of
shares subject to each option and the method of exercise, and determine the
vesting requirements, if any, for option exercises. The administrator is also
authorized under the Plan to grant options intended to qualify as incentive
stock options under Section 422 of the Code ("Incentive Options") and options
not intended to qualify as incentive stock options ("Nonqualified Options").
As originally adopted, Nonqualified Options granted under the Plan are not
transferable except by will or the laws of descent and distribution. Amendment
No. 1, if approved by shareholders, will give the administrator of the Plan
the sole discretion to permit a Nonqualified Option to be transferred to the
grantee's spouse, children, grandchildren, nieces, or nephews or to the
trustee of any trust established for the benefit of such persons or to a
partnership whose only partners are such persons. The reason for this change
is to enable the Company to assist employees of the Company in connection with
their estate plans in which they desire options and shares receivable upon
exercise of options to be outside of their estates. Additionally, this is a
common feature that has been added to option plans in recent years, and the
Company would like to include this provision so that its employees have
benefits similar to those provided by other companies.
Amendment No. 1, if approved by shareholders, will also eliminate a six-
month holding period in the Plan that prevents officers or directors from
selling shares purchased upon exercise for a period of six months from the
date the option was granted. This provision was originally included in the
Plan to comply with Rule 16b-3 as it was in effect on the date the Plan was
adopted. Rule 16b-3 was changed to eliminate this requirement, although it is
one of the permissible choices for granting options which meet the Rule 16b-3
exemption. Amendment No. 1 follows the provisions of Rule 16b-3 as currently
in effect and makes this an option available to the Administrator of the Plan,
but not a requirement.
No consideration is received by the Company or its subsidiaries for the
granting of options under the Plan. As of April 21, 2000, a total of 83
employees of the Company were eligible to receive options under the Plan. The
market value of shares subject to options outstanding under the Plan was
$2,244,850 as of April 20, 2000.
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Two different kinds of options can be granted under the Plan. Incentive
Options provide employees with special favorable tax treatment. Nonqualified
options do not provide the kind of favorable tax treatment provided by
Incentive Options.
Set forth below is a general discussion of how the Plan operates.
The purchase price for shares subject to an Incentive Option may not be less
than the fair market value of the shares at the time the Incentive Option is
granted. If an employee who is granted an option owns stock representing more
than 10% of the total combined voting power of all classes of stock of the
Company or its subsidiaries at the time the option is granted, then the
purchase price of the shares subject to the Incentive Option must be at least
110% of the fair market value of the shares at the time the Incentive Option
is granted. For purposes of the Plan, the fair market value of such shares
means, as of any given date: (a) the mean between the highest and lowest bid
and ask prices, as reported by the National Association of Securities Dealers,
Inc., on the day the Incentive Option is granted; (b) the last reported sale
price on the Nasdaq National Market system prior to the date the Incentive
Option is granted; (c) the last reported sale price on any stock exchange
prior to the date the Incentive Option is granted, or, if none of the
foregoing is applicable, (d) the value determined in good faith by the
administrator of the Plan. The aggregate fair market value (determined at the
time of the grant of the option) of shares with respect to which Incentive
Options are exercisable for the first time by any eligible person during any
calendar year may not exceed $100,000.
Each Incentive Option granted under the Plan must be evidenced by a written
incentive option agreement in a form approved by the administrator of the
Plan. This can include option certificates. All Incentive Options granted
under the Plan must be granted within 10 years from the date on which the
Company adopted the Plan (December 19, 1995). All Incentive Options must be
exercised within 10 years from the date on which the option was granted (5
years if the employee who was granted the option owns stock representing more
than 10% of the total combined voting power of all classes of stock of the
Company or its subsidiaries).
Incentive Options are not transferable other than by will or the laws of
descent and distribution. Incentive option agreements may contain provisions
restricting the transferability of shares subject to Incentive Options and
making such shares subject to repurchase by the Company upon the occurrence of
certain events. Except upon the discharge for cause of any grantee of an
Incentive Option (in which case all unexercised Incentive Options granted to
such grantee will lapse), if the grantee of an Incentive Option ceases to be
an employee of the Company or any of its subsidiaries for any reason, then the
Incentive Option or any unexercised portion of the Incentive Option which
otherwise is exercisable terminates unless it is exercised within three months
after the date such grantee ceases to be an employee. If the reason for
cessation of such employment is death or disability, the three-month period is
instead a one-year period.
The purchase price for shares subject to Nonqualified Options is determined
by the administrator of the Plan. Each Nonqualified Option granted under the
Plan must be evidenced by a written nonqualified option agreement in a form
approved by the administrator. This can include option certificates.
Nonqualified Options are not exercisable after the expiration of 10 years from
the date granted.
Each Nonqualified Option agreement may contain provisions restricting the
transferability of shares subject to a Nonqualified Option or making such
shares subject to repurchase by the Company upon the occurrence of certain
events. Except upon the discharge for cause of any grantee of a Nonqualified
Option (in which case all unexercised Nonqualified Options granted to such
grantee will lapse), if the grantee of a Nonqualified Option ceases to be an
employee of the Company or any of its subsidiaries for any reason, then the
Nonqualified Option
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or any unexercised portion of the Nonqualified Option which otherwise is
exercisable terminates unless it is exercised within three months after the
date such grantee ceases to be an employee. If the reason for cessation of
employment is death or disability, the three-month period is instead a one-
year period.
No option is exercisable and no shares are deliverable under the Plan except
in compliance with all applicable federal and state securities laws and
regulations.
If the Company's shares are not being regularly traded in open-market
brokerage transactions (either on a stock exchange, on Nasdaq, or over-the-
counter), the Company is authorized (but is not required) under the Plan to
repurchase any shares, in whole or in part, acquired through an option
exercise if the person who acquired the shares is no longer an employee of the
Company. The purchase price will be the fair market value of the shares as
determined in one of three ways: (i) by agreement of the Company and the
person whose shares are being purchased, (ii) by an appraiser agreed upon by
the Company and the person whose shares are being purchased, or (iii) by
majority vote of a three-member appraisal board.
If the grantee of an option is no longer employed by the Company and, within
six months of the date on which his or her employment was terminated, competes
directly or indirectly with the business carried on by the Company or solicits
any of the Company's customers or accounts or persons or businesses who were
customers or accounts at any time during the three-year period preceding the
date on which the grantee's employment was terminated, all unexercised options
held by the grantee will lapse. In addition, with respect to any shares
acquired through an option exercise by the grantee during the six-month period
preceding the date of his or her termination of employment or at any time
after such termination, the grantee will be obligated to pay to the Company an
amount equal to the difference between the price paid by the grantee for such
shares and the fair market value of such shares on the date the option was
exercised. The Company is permitted under the Plan to offset this amount
against amounts owed by it to the grantee.
The Board of Directors, without further action on the part of the
shareholders, may from time to time amend the Plan or may at any time
terminate the Plan except that no amendment or termination may affect the
rights of a grantee of a previously granted option without the grantee's
consent. In addition, no amendment can be made without the prior approval of
shareholders if such approval is required (with respect to Incentive Options)
to preserve the status of the Plan as an incentive stock option plan and the
qualification of options as incentive stock options under (S)422 of the Code.
Such amendments include those that would increase the maximum number of shares
that may be subject to Incentive Options, those that would increase the
benefits to a grantee, and those that would modify the eligibility
requirements under the Plan.
Federal income taxation of the various events related to the options (option
grant, option exercise, and sale of shares) under the Plan is different for
Nonqualified Options and Incentive Options.
Nonqualified Options. In general, for federal income tax purposes under
present law:
(a) The grant of a Nonqualified Option, by itself, will not result in
income to the optionee.
(b) Except as provided in (e) below, the exercise of a Nonqualified Option
(in whole or in part, according to its terms) will result in ordinary
income to the optionee at that time in an amount equal to the excess
(if any) of the fair market value of the Company's shares on the date
of exercise over the exercise price.
(c) Except as provided in (e) below, the optionee's tax basis of shares
acquired upon the exercise of a Nonqualified Option, which will be
used to determine the amount of any capital gain or loss on a future
taxable disposition of such shares, will be the fair market value of
the shares on the date of exercise.
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(d) No deduction will be allowable to the employer corporation upon the
grant of a Nonqualified Option, but upon the exercise of a
Nonqualified Option, a deduction will be allowable to the employer
corporation at that time in an amount equal to the amount of ordinary
income realized by the optionee exercising such Nonqualified Option if
the employer corporation deducts and withholds appropriate federal
withholding tax.
(e) With respect to the exercise of a Nonqualified Option and the payment
of the exercise price by the delivery of shares, to the extent that
the number of shares received does not exceed the number of shares
surrendered, no taxable income will be realized by the optionee at
that time, the tax basis of shares received will be the same as the
tax basis of shares surrendered, and the holding period of the
optionee in shares received will include his or her holding period in
shares surrendered. To the extent that the number of shares received
exceeds the number of shares surrendered, ordinary income will be
realized by the optionee at that time in the amount of the fair market
value of such excess shares, the tax basis of such shares will be
equal to the fair market value of such shares at the time of exercise,
and the holding period of the optionee in such shares will begin on
the date such shares are transferred to the optionee.
Incentive Options. In general, for federal income tax purposes under present
law:
(a) Neither the grant nor the exercise of an Incentive Option, by itself,
will result in income to the optionee; however, the excess of the fair
market value of the Company's shares at the time of exercise over the
exercise price is (unless there is a disposition of shares acquired
upon exercise of an Incentive Option in the taxable year of exercise)
includable in alternative minimum taxable income which may, under
certain circumstances, result in an alternative minimum tax liability
to the optionee.
(b) If shares acquired upon exercise of an Incentive Option are disposed
of in a taxable transaction after the later of two years from the date
on which the Incentive Option is granted or one year from the date on
which such shares are transferred to the optionee, long-term capital
gain or loss will be realized by the optionee in an amount equal to
the difference between the amount realized by the optionee and the
optionee's basis which, except as provided in (e) below, is the
exercise price.
(c) Except as provided in (e) below, if the shares acquired upon the
exercise of an Incentive Option are disposed of within the two-year
period from the date of grant or the one-year period after the
transfer of the shares to the optionee upon exercise of the Incentive
Option (a "disqualifying disposition"):
(i) Ordinary income will be realized by the optionee at the time of
the disqualifying disposition in the amount of the excess, if any,
of the fair market value of the shares at the time of such
exercise over the exercise price, but not in an amount exceeding
the excess, if any, of the amount realized by the optionee over
the exercise price.
(ii) Short-term or long-term capital gain will be realized by the
optionee at the time of the disqualifying disposition in an
amount equal to the excess, if any, of the amount realized over
the fair market value of the shares at the time of such exercise.
(iii) Short-term or long-term capital loss will be realized by the
optionee at the time of the disqualifying disposition in an
amount equal to the excess, if any, of the exercise price over
the amount realized.
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(d) No deduction will be allowed to the employer corporation with respect
to Incentive Options granted or shares transferred upon exercise
thereof, except that if a disposition is made by the optionee within
the two-year period referred to above, the employer corporation will
be entitled to a deduction in the taxable year in which the
disposition occurred in an amount equal to the amount of ordinary
income realized by the optionee making the disposition.
(e) With respect to the exercise of an Incentive Option and the payment of
the option price by the delivery of shares to the extent that the
number of shares received does not exceed the number of shares
surrendered, no taxable income will be realized by the optionee at
that time, the tax basis of the shares received will be the same as
the tax basis of the shares surrendered, and the holding period
(except for purposes of the one-year period referred to in (c) above)
of the optionee in the shares received will include his or her holding
period in the shares surrendered. To the extent that the number of
shares received exceeds the number of shares surrendered, no taxable
income will be realized by the optionee at that time, such excess
shares will be considered Incentive Option stock with a zero basis,
and the holding period of the optionee in such shares will begin on
the date such shares are transferred to the optionee. If the shares
surrendered were acquired as the result of the exercise of an
Incentive Option and the surrender takes place within two years from
the date the option relating to the surrendered shares was granted or
within one year from the date of such exercise, the surrender will
result in a disqualifying disposition and the optionee will realize
ordinary income at the time of exercise of the shares surrendered over
the basis of such shares. If any of the shares received are disposed
of within one year after the shares are transferred to the optionee,
the optionee will be treated as first disposing of the shares with a
zero basis.
The Board of Directors unanimously recommends a vote "For" the amendments to
the 1995 Stock Option Plan.
PROPOSAL SEVEN: APPROVAL OF THE
2000 DIRECTORS STOCK OPTION PLAN
On March 22, 2000, the Company adopted the Pinnacle Data Systems, Inc. 2000
Directors Stock Option Plan (the "Directors Plan"). The purpose of the
Directors Plan is to provide eligible directors with an opportunity to
participate in the Company's future prosperity and growth and an incentive to
increase the value of the Company based on the Company's performance,
development, and financial success. The Company has reserved 250,000 common
shares (post March 31, 2000 stock split) for issuance under the Directors
Plan. The number of shares reserved for issuance is subject to anti-dilution
adjustments. The Directors Plan is subject to shareholder approval within 12
months of the date of its adoption. The Directors Plan is attached to this
proxy statement as Exhibit F.
Only directors of the Company who are not employees of the Company or its
subsidiaries are eligible to participate in the Directors Plan. Currently, two
directors are eligible to receive options under the Directors Plan. If elected
as a director, Mr. Lambert will also be eligible to receive options under the
Directors Plan. As of the date of this Proxy Statement, no options have been
granted under the Directors Plan.
The Directors Plan is administered by a committee of the Board of Directors
consisting of directors who are not eligible to receive options under the
Directors Plan. Subject to the requirement that the price per share of any
common shares to be received upon the exercise of an option will not be less
than the fair market value of
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the common shares at the time the option is granted, the committee
administering the Directors Plan has the authority to designate recipients of
options to be granted under the Directors Plan, to determine the number of
options granted and the number of common shares subject to such options, and
to establish the terms and conditions of options. Each option must be
evidenced by a written agreement in a form approved by the committee
administering the Directors Plan. No option is exercisable after ten years
from the date on which the option was granted.
Options granted under the Directors Plan are not transferable except that
options may be transferred by will or the laws of descent and distribution or
(if approved by the committee administering the Directors Plan) by gift to the
grantee's spouse, children, grandchildren, nieces, or nephews or to the
trustee of any trust established for the benefit of such persons or to a
partnership whose only partners are such persons.
If a director can no longer participate in the Directors Plan because of
death or disability, then all unvested options will automatically terminate
(unless the committee administering the Directors Plan approves of the
immediate vesting of such options) and all vested options will remain
exercisable for one year or the remaining term of the option, whichever is
shorter, or for any other period specified by the committee. If a director can
no longer participate in the Directors Plan for a reason other than death or
disability (except a termination for cause), then all unvested options will
automatically terminate and all vested options will remain exercisable for
ninety days or the remaining term of the option, whichever is shorter, or for
any other period specified by the committee. If a director is terminated for
cause, all unexercised options will terminate.
If a change in control of the Company occurs (as defined in the Directors
Plan), then all outstanding options will become fully vested and exercisable.
Upon a change in control, the Company may also terminate any or all
unexercised options within 30 days of the change in control, provided that the
Company pays the option holder the difference between the exercise price of
the option and the fair market value of the shares underlying the option. No
payment need be made if the fair market value is less than the exercise price.
Options granted under the plan will be Nonqualified Options for tax
purposes. In general, for federal income tax purposes under present law:
(a) The grant of a Nonqualified Option, by itself, will not result in
income to the optionee.
(b) Except as provided in (e) below, the exercise of a Nonqualified Option
(in whole or in part, according to its terms) will result in ordinary
income to the optionee at that time in an amount equal to the excess
(if any) of the fair market value of the Company's shares on the date
of exercise over the exercise price.
(c) Except as provided in (e) below, the optionee's tax basis of shares
acquired upon the exercise of a Nonqualified Option, which will be
used to determine the amount of any capital gain or loss on a future
taxable disposition of such shares, will be the fair market value of
the shares on the date of exercise.
(d) No deduction will be allowable to the employer corporation upon the
grant of a Nonqualified Option, but upon the exercise of a
Nonqualified Option, a deduction will be allowable to the employer
corporation at that time in an amount equal to the amount of ordinary
income realized by the optionee exercising such Nonqualified Option if
the employer corporation deducts and withholds appropriate federal
withholding tax.
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(e) With respect to the exercise of a Nonqualified Option and the payment
of the exercise price by the delivery of shares, to the extent that
the number of shares received does not exceed the number of shares
surrendered, no taxable income will be realized by the optionee at
that time, the tax basis of shares received will be the same as the
tax basis of shares surrendered, and the holding period of the
optionee in shares received will include his or her holding period in
shares surrendered. To the extent that the number of shares received
exceeds the number of shares surrendered, ordinary income will be
realized by the optionee at that time in the amount of the fair market
value of such excess shares, the tax basis of such shares will be
equal to the fair market value of such shares at the time of exercise,
and the holding period of the optionee in such shares will begin on
the date such shares are transferred to the optionee.
The Board of Directors unanimously recommends a vote "For" approval of the
2000 Directors Stock Option Plan.
PROPOSAL EIGHT: RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Hausser + Taylor LLP as the Company's
independent accountants for the year ending December 31, 2000, and has
directed management to submit the board's selection to shareholders for
ratification at the Annual Meeting. Hausser + Taylor LLP has audited the
Company's financial statements since 1996. A representative of Hausser +
Taylor LLP is expected to be present at the Annual Meeting and to have an
opportunity to make a statement if the representative desires and to respond
to appropriate questions.
Shareholders are not required by Ohio General Corporation Law to ratify the
selection of Hausser + Taylor LLP as the Company's independent accountants.
However, the Board of Directors is submitting the selection of Hausser +
Taylor LLP to shareholders for ratification as a matter of good corporate
practice. If shareholders do not ratify the selection of Hausser + Taylor 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 Board of Directors unanimously recommends a vote "For" ratification of
its selection of Hausser + Taylor LLP as the Company's independent
accountants.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2001 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.
OTHER MATTERS
Management does not know of any other matters which 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.
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The Company will bear the cost of soliciting proxies. In addition to the use
of the mails, proxies may be solicited by officers, directors, and regular
employees, 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.
The Company will furnish without charge a copy of its most recent annual
report on Form 10-KSB to any shareholder who requests a copy in writing. The
annual report on Form 10-KSB includes a list of exhibits to the annual report.
The Company will furnish copies of these exhibits upon written request and
payment of the Company's reasonable expenses in furnishing the exhibits. All
requests should be sent to Thomas J. Carr at the Company's principal executive
offices located at 6600 Port Road, Groveport, Ohio 43125.
Joy Bair, Secretary
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EXHIBIT A
AMENDED AND RESTATED CODE OF REGULATIONS OF
PINNACLE DATA SYSTEMS, INC.
Section 2.2 of the Company's Amended and Restated Code of Regulations is
proposed to be amended as follows:
Section 2.2 Number of Directors. Until changed in accordance with this
section, the number of directors of the Company, none of whom need be
shareholders, shall be not less than three nor more than nine, provided
that when all shares of the Company are owned of record by one or two
shareholders, the number of directors may be less than three but not less
than the number of shareholders. The number of directors may be fixed or
changed at any annual meeting of the shareholders, or at any special
meeting of the shareholders called for that purpose, only by the
affirmative vote or consent of the holders of shares entitling them to
exercise at least 75% of the voting power of the Company; provided,
however, that such 75% voting requirement shall not be applicable if the
Company's Board of Directors shall have approved such action by a
resolution adopted by at least two-thirds of the members of the Board of
Directors, in which case the number of directors may be fixed or changed by
the affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the Company.
The Board of Directors shall be divided into two classes, designated Class
I and Class II, with the number of directors in each class fixed at four.
The term of office of directors in one class shall expire at each annual
meeting of shareholders, and in all cases as to each director until a
successor shall be elected and qualified, or until his earlier resignation,
removal from office, death or incapacity. If the number of directors is
hereafter changed, an increase or decrease in directorships shall be
apportioned among the classes as to make all classes as nearly equal in
number as possible. The initial term of office of directors in Class I
shall expire at the annual meeting of shareholders in 2001 and that of
Class II shall expire at the annual meeting of shareholders in 2002, and in
all cases as to each director until a successor shall be elected and
qualified, or until his earlier resignation, removal from office, death or
incapacity. At each annual meeting of shareholders, the number of directors
equal to the number of directors in the class whose term expires at the
time of such meeting (or, if less, the number of directors properly
nominated and qualified for election) shall be elected to hold office until
the second succeeding annual meeting of shareholders after their election.
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EXHIBIT B
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
PINNACLE DATA SYSTEMS, INC.
Article Tenth of the Company's Amended and Restated Articles of
Incorporation is proposed to be amended as follows:
TENTH: Notwithstanding any provision of the Ohio Revised Code, (S)(S)
1701.01 to 1701.98, inclusive, now or hereafter in force, requiring for the
authorization or taking of any action the vote or consent of the holders of
shares entitling them to exercise two-thirds or any other proportion of the
voting power of the Corporation or of any class or classes of shares
thereof, such action, unless otherwise expressly required by law or these
Articles of Incorporation, shall be authorized or taken by the vote or
consent of the holders of shares entitling them to exercise at least 75% of
the voting power of the Corporation or of such class or classes of shares
thereof; provided, however, that such 75% voting requirement shall not be
applicable if the Corporation's Board of Directors shall have approved such
action by a resolution adopted by at least two-thirds of the members of the
Board of Directors, in which case such action may be approved by the
affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the Corporation or of such class or classes
thereof.
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EXHIBIT C
AMENDED AND RESTATED CODE OF REGULATIONS OF
PINNACLE DATA SYSTEMS, INC.
Sections 2.2 and 2.7 and Article 10 of the Company's Amended and Restated
Code of Regulations are proposed to be amended as follows:
Section 2.2: Number of Directors
This Section 2.2 may be amended only by the vote or consent of the holders
of shares entitling them to exercise at least 75% of the voting power of
the Company; provided, however, that such 75% voting requirement shall not
be applicable if the Company's Board of Directors shall have approved such
amendment by a resolution adopted by at least two-thirds of the members of
the Board of Directors, in which case this Section 2.2 may be amended by
the affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the Company.
Section 2.7: Removal of Directors
This Section 2.7 may be amended only by the vote or consent of the holders
of shares entitling them to exercise at least 75% of the voting power of
the Company; provided, however, that such 75% voting requirement shall not
be applicable if the Company's Board of Directors shall have approved such
amendment by a resolution adopted by at least two-thirds of the members of
the Board of Directors, in which case this Section 2.7 may be amended by
the affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the Company.
Article 10: Amendment of Regulations
Except as otherwise expressly provided in Sections 2.2 and 2.7 of these
regulations, these regulations may be amended or new regulations may be
adopted: (a) at any meeting of the shareholders held for such purpose, by
the affirmative vote of the holders of record of shares entitling them to
exercise a majority of the voting power on such proposal; or (b) without a
meeting of the shareholders, by the written consent of the holders of
record of shares entitling them to exercise a majority of the voting power
on such proposal. If any amendment or new regulations are adopted without a
meeting of the shareholders, the secretary shall mail a copy of the
amendment or new regulations to each shareholder who would have been
entitled to vote on the proposal but who did not participate in the
adoption of the amendment or new regulations.
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EXHIBIT D
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
PINNACLE DATA SYSTEMS, INC.
If both proposal five and proposal six are approved by shareholders, Article
Fourth of the Company's Amended and Restated Articles of Incorporation will be
amended as follows to increase the number of authorized common shares from
5,000,000 to 10,000,000 and to authorize a class of preferred shares
consisting of 4,000,000 authorized shares:
FOURTH: The maximum number of shares which the Corporation is authorized to
have outstanding is fourteen million (14,000,000), which shall be divided
into two classes consisting of ten million (10,000,000) common shares,
without par value ("Common Shares"), and four million (4,000,000) preferred
shares, without par value ("Preferred Shares"). The express terms of the
shares of each class are as follows:
(a) Common Shares. The Common Shares shall be subject to the terms of the
Preferred Shares and the express terms of any series thereof. Each of the
Common Shares shall be equal to each of the other Common Shares, and the
holders thereof shall be entitled to one vote for each of the Common Shares
on all questions presented to the holders of the Common Shares. Subject to
any rights to receive dividends to which the holders of the Preferred
Shares outstanding may be entitled, if any, the holders of the Common
Shares shall be entitled to receive dividends only when and as declared
from time to time by the board of directors in amounts not exceeding those
permitted by the laws of the State of Ohio.
(b) Preferred Shares. Preferred Shares may be issued from time to time in
one or more series. Preferred Shares shall be of equal rank and shall be
identical, except in respect of the matters that may be fixed by the board
of directors as hereinafter provided, and each of the shares of each of the
series shall be identical with all other shares of such series. Subject to
the provisions of this paragraph (b), which provisions shall apply to all
of the Preferred Shares, the board of directors hereby is authorized to
cause such shares to be issued in one or more series and with respect to
each such series prior to the issuance thereof to fix:
(1) the designation of the series, which series may be designated by
number, letter, or title;
(2) the number of shares of the series, which number the board of
directors may from time to time (except where otherwise provided in the
creation of the series) increase or decrease (but not below the number of
shares thereof then outstanding);
(3) dividend or distribution rights, which may be cumulative or
noncumulative; at a specified rate, amount, or proportion; with or without
further participation rights; and in preference to, junior to, or on a
parity in whole or in part with dividend or distribution rights of shares
of any other class;
(4) liquidation rights, preferences and prices;
(5) redemption rights and price;
(6) sinking fund requirements, which may require the Corporation to
provide a sinking fund out of earnings or otherwise for the purchase or
redemption of the shares or for dividends or distributions on them;
(7) voting rights, which may be full, limited or denied, except as
otherwise required by law;
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(8) preemptive rights, or the denial or limitation of them;
(9) conversion rights;
(10) restrictions on the issuance of shares;
(11) rights of alteration of express terms; and
(12) such other terms as the board of directors may by law from time to
time be permitted to fix or change.
The board of directors is authorized to adopt from time to time amendments
to the Amended and Restated Articles of Incorporation fixing or changing,
with respect to each such series, the matters described in the preceding
clauses (1) to (12) of this paragraph (b).
If proposal five but not proposal six is approved by shareholders, Article
Fourth of the Company's Amended and Restated Articles of Incorporation will be
amended as follows to increase the number of authorized common shares from
5,000,000 to 10,000,000:
FOURTH: The maximum number of shares which the Corporation is authorized to
have outstanding is ten million (10,000,000), all of which shall be common
shares without par value.
If proposal six but not proposal five is approved by shareholders, Article
Fourth of the Company's Amended and Restated Articles of Incorporation will be
amended as follows to authorize a class of preferred shares consisting of
4,000,000 authorized shares:
FOURTH: The maximum number of shares which the Corporation is authorized to
have outstanding is nine million (9,000,000), which shall be divided into
two classes consisting of five million (5,000,000) common shares, without
par value ("Common Shares"), and four million (4,000,000) preferred shares,
without par value ("Preferred Shares"). The express terms of the shares of
each class are as follows:
(a) Common Shares. The Common Shares shall be subject to the terms of the
Preferred Shares and the express terms of any series thereof. Each of the
Common Shares shall be equal to each of the other Common Shares, and the
holders thereof shall be entitled to one vote for each of the Common Shares
on all questions presented to the holders of the Common Shares. Subject to
any rights to receive dividends to which the holders of the Preferred
Shares outstanding may be entitled, if any, the holders of the Common
Shares shall be entitled to receive dividends only when and as declared
from time to time by the board of directors in amounts not exceeding those
permitted by the laws of the State of Ohio.
(b) Preferred Shares. Preferred Shares may be issued from time to time in
one or more series. Preferred Shares shall be of equal rank and shall be
identical, except in respect of the matters that may be fixed by the board
of directors as hereinafter provided, and each of the shares of each of the
series shall be identical with all other shares of such series. Subject to
the provisions of this paragraph (b), which provisions shall apply to all
of the Preferred Shares, the board of directors hereby is authorized to
cause such shares to be issued in one or more series and with respect to
each such series prior to the issuance thereof to fix:
(1) the designation of the series, which series may be designated by
number, letter, or title;
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(2) the number of shares of the series, which number the board of
directors may from time to time (except where otherwise provided in the
creation of the series) increase or decrease (but not below the number of
shares thereof then outstanding);
(3) dividend or distribution rights, which may be cumulative or
noncumulative; at a specified rate, amount, or proportion; with or without
further participation rights; and in preference to, junior to, or on a
parity in whole or in part with dividend or distribution rights of shares
of any other class;
(4) liquidation rights, preferences and prices;
(5) redemption rights and price;
(6) sinking fund requirements, which may require the Corporation to
provide a sinking fund out of earnings or otherwise for the purchase or
redemption of the shares or for dividends or distributions on them;
(7) voting rights, which may be full, limited or denied, except as
otherwise required by law;
(8) preemptive rights, or the denial or limitation of them;
(9) conversion rights;
(10) restrictions on the issuance of shares;
(11) rights of alteration of express terms; and
(12) such other terms as the board of directors may by law from time to
time be permitted to fix or change.
The board of directors is authorized to adopt from time to time amendments
to the Amended and Restated Articles of Incorporation fixing or changing,
with respect to each such series, the matters described in the preceding
clauses (1) to (12) of this paragraph (b).
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EXHIBIT E
AMENDMENT NO. 1
TO PINNACLE DATA SYSTEMS, INC.
1995 STOCK OPTION PLAN
The Pinnacle Data Systems, Inc. 1995 Stock Option Plan (the "Plan") is
hereby amended pursuant to the following provisions:
1. Definitions
All capitalized terms used in this amendment which are not otherwise defined
herein shall have the respective meanings given such terms in the Plan.
2. Shares Subject To Plan
The total number of Shares for which options may be granted under the Plan,
as provided under Section 3 of the Plan, is hereby increased by 300,000 Shares
to a total of 600,000 Shares.
3. Administration of Plan
The first paragraph of Section 2 of the Plan is hereby deleted in its
entirety from the Plan and replaced with the following two paragraphs:
The Plan shall be administered by the Company's Board of Directors (the
"Board") or, if the Board so elects, a committee (the "Committee") which
shall consist of not less than three directors of the Company appointed by
the Board. The members of the Committee shall serve at the pleasure of the
Board, which may remove members from the Committee or appoint new members
to the Committee from time to time, and members of the Committee may resign
by written notice to the President or Secretary of the Company. For
purposes of this Plan, the Board, if it is administering the Plan, or the
Committee, if it is administering the Plan, shall hereinafter be referred
to as the "Administrator."
Notwithstanding the foregoing to the contrary, if the common shares of
the Company are registered under Section 12 of the Securities Exchange Act
of 1934, as amended (the "Act"), or are required to be so registered or the
Company is subject to the reporting requirements of Section 13 of the Act
(hereinafter referred to as a "Reporting Company"), any option granted to a
person who, because of his relationship with the Company, is subject to the
reporting requirements of Section 16(a) of the Act, shall not be effective
unless (i) the grant of such option is approved by either the Board or a
committee consisting solely of two or more "Non-Employee Directors" (as
defined in Rule 16b-3(b)(3) promulgated under the Act), (ii) the grant of
such option is approved or ratified by the shareholders of the Company, in
compliance with Section 14 of the Act, not later than the date of the
annual meeting of the Company's shareholders next following the date of
such grant, or (iii) such option, by its terms, provides that common shares
received upon exercise of the option may not be disposed of before at least
six months have elapsed from the date the option was granted.
4. Eligibility
Section 4 of the Plan is hereby deleted in its entirety from the Plan and
replaced with the following:
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All employees of the Company and its subsidiaries are eligible to receive
options under the Plan ("Eligible Persons"). No director of the Company who
is not also an employee of the Company or any of its subsidiaries shall be
eligible to participate in the Plan.
5. Transferability
The following two sentences are hereby added to the end of Section 5(c)(iii)
of the Plan:
Notwithstanding the foregoing to the contrary, the Administrator may, in
its sole discretion and in the manner established by the Administrator,
provide for the irrevocable transfer, without payment of consideration, of
any Nonqualified Option by a Grantee to such Grantee's spouse, children,
grandchildren, nieces, or nephews, or to the trustee of any trust for the
principal benefit of one or more such persons, or to a partnership whose
only partners are one or more such persons. In the case of such a permitted
transfer, the Nonqualified Option shall be exercisable only by the
transferee or such transferee's legal representative.
6. Six Month Holding Period
Section 6 of the Plan is hereby deleted in its entirety from the Plan.
7. Effective Date; Construction
The effective date of this amendment is February 16, 2000, and this
amendment shall be deemed to be a part of the Plan as of such date. In the
event of any inconsistencies between the provisions of the Plan and this
amendment, the provisions of this amendment shall control. Except as modified
by this amendment, the Plan shall continue in full force and effect without
change.
This amendment shall be submitted to the stockholders of the Company for
approval as soon as reasonably practicable, but in any event not later than 12
months after the date of this amendment. Notwithstanding the preceding
paragraph or any other provisions of this amendment to the contrary, if this
amendment is not approved by the stockholders of the Company within such 12-
month period, this amendment and all options granted with respect to the
additional common shares subject to the Plan as a result of this amendment
shall automatically become null and void and have no further force or effect.
E-2
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AUGUST 12, 1999 AMENDMENT TO THE
PINNACLE DATA SYSTEMS, INC.
1995 STOCK OPTION PLAN
RESOLVED: That Section 3 of the Pinnacle Data Systems, Inc. 1995 Stock
Option Plan of 1995 is hereby amended to increase the maximum aggregate number
of common shares, without par value, of the Company with respect to which
options may be granted under the Plan from the existing maximum number of
"300,000 shares" to "400,000 shares." No other provision of Section 3 is
hereby changed. Shareholder ratification of this change must be obtained
within one year, and all option certificates issued under the Plan before the
next annual shareholder meeting shall contain a provision reflecting that such
options are conditional, subject to shareholder approval, if such options are
granted against the increased authorized number of shares made possible by
this resolution.
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EXHIBIT F
PINNACLE DATA SYSTEMS, INC.
2000 DIRECTORS STOCK OPTION PLAN
(S)1. Purposes of Plan.
The purpose of this 2000 Directors Stock Option Plan (the "Plan") of
Pinnacle Data Systems, Inc., an Ohio corporation (the "Company"), is to
advance the interests of the Company and its stockholders by providing
Eligible Directors (as defined in (S)3, below) with an opportunity to
participate in the Company's future prosperity and growth and an incentive to
increase the value of the Company based on the Company's performance,
development, and financial success. These objectives will be promoted by
granting to Eligible Directors options (the "Options"), which are not intended
to qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), to purchase the Company's
common shares, without par value (the "Shares").
(S)2. Administration of Plan.
The Plan shall be administered by a committee (the "Committee") of not less
than three directors, none of whom shall be an Eligible Director. The member
or members of the Committee shall serve at the pleasure of the Company's board
of directors (the "Board"), which may remove members from the Committee or
appoint new members to the Committee from time to time, and members of the
Committee may resign by written notice to the Chairman of the Board or the
Secretary of the Company. The Committee shall have the power and authority to:
(a) approve the grant of Options to Eligible Directors (such Eligible
Directors, "Participants"); (b) approve the terms and conditions, not
inconsistent with the terms hereof, of any Option, including without
limitation time and performance restrictions, and approve the form of Stock
Option Agreement (as defined in (S)5, below); (c) adopt, alter, and repeal
such administrative rules, guidelines, and practices governing the Plan as it
shall, from time to time, deem advisable; (d) interpret the terms and
provisions of the Plan and any Option granted and any agreements relating
thereto; and (e) take any other actions the Committee considers appropriate in
connection with, and otherwise supervise the administration of, the Plan, all
in a manner consistent with the other provisions of the Plan. All decisions
made by the Committee pursuant to the provisions hereof shall be made in the
Committee's sole discretion and shall be final and binding on all persons.
(S)3. Participants in Plan.
The persons eligible to receive Options under the Plan shall be those
directors of the Company who are not employees of the Company or any
subsidiary of the Company (any such person, an "Eligible Director").
(S)4. Shares Subject to Plan.
The maximum aggregate number of Shares which may be issued under the Plan
shall be 125,000 Shares. The Shares which may be issued under the Plan may be
authorized but unissued Shares or issued Shares reacquired by the Company and
held as treasury Shares.
If any Shares that have previously been the subject of an Option cease to be
the subject of an Option (other than by reason of exercise), or if any Shares
previously distributed under the Plan are returned to the Company
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in connection with the exercise of an Option (including without limitation in
payment of the exercise price or tax withholding), such Shares shall again be
available for distribution in connection with future grants under the Plan.
(S)5. Grant of Options.
Each Option granted under the Plan shall be authorized by the Committee and
shall be evidenced by a written agreement (the "Stock Option Agreement") in
the form approved by the Committee from time to time, which shall be dated as
of the date on which the Option is granted, signed by an officer of the
Company authorized by the Committee, and signed by the Participant, and which
shall describe the Option and state that the Option is subject to all the
terms and conditions of the Plan and such other terms and conditions, not
inconsistent with the Plan, as the Committee may approve. The date on which
the Committee approves the granting of an Option shall be deemed to be the
date on which the Option is granted for all purposes, unless the Committee
otherwise specifies in its approval. However, the granting of an Option under
the Plan shall be effective only if a written Stock Option Agreement is duly
executed and delivered by or on behalf of the Company and the Participant.
In addition to the foregoing, all Stock Option Agreements shall include
without limitation the following provisions:
(a) Vesting.
Each Option shall be exercisable only with respect to the Shares which
have become vested pursuant to the terms of that Option. Each Option shall
become vested with respect to Shares subject to that Option on such date or
dates and on the basis of such other criteria, including without limitation
the performance of the Company, as the Committee may determine, in its
discretion, and as shall be specified in the applicable Stock Option
Agreement. The Committee shall have the authority, in its discretion, to
accelerate the time at which an Option shall be exercisable whenever it may
determine that such action is appropriate by reason of changes in
applicable tax or other laws or other changes in circumstances occurring
after the grant of such Option.
(b) Exercise Price.
The exercise price per Share issuable upon exercise of an Option shall be
determined by the Committee at the time of grant and set forth in the
applicable Stock Option Agreement; provided that such exercise price shall
not be less than the fair market value per Share on the date the Option is
granted. For purposes of the Plan, the fair market value of the Shares
shall mean, as of any given date, the (i) last reported sale price on the
New York Stock Exchange or the American Stock Exchange on the most recent
previous trading day, (ii) last reported sale price on the NASDAQ National
Market System on the most recent previous trading day, (iii) mean between
the high and low bid and ask prices, as reported by the National
Association of Securities Dealers, Inc. on the most recent previous trading
day, or (iv) last reported sale price on any other stock exchange on which
the Shares are listed on the most recent previous trading day, whichever is
applicable; provided that if none of the foregoing is applicable, then the
fair market value of the Shares shall be the value determined by the
Committee, in its sole discretion.
(c) Term.
No Option shall be exercisable after the expiration of 10 years from the
date on which that Option is granted.
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(d) Method of Exercise.
An Option may be exercised, in whole or in part, by giving written notice
to the Company stating the number of Shares (which must be a whole number)
to be purchased. Upon receipt of payment of the full purchase price for
such Shares, plus applicable withholding taxes, by certified or bank
cashier's check or other form of payment acceptable to the Company, or, if
approved by the Committee, by (i) delivery of unrestricted Shares having a
fair market value on the date of such delivery equal to the total exercise
price, (ii) surrender of Shares subject to the Option which have a fair
market value equal to the total exercise price at the time of exercise, or
(iii) a combination of the preceding methods, and subject to compliance
with all other terms and conditions of the Plan and the Stock Option
Agreement relating to such Option, the Company shall issue, as soon as
reasonably practicable after receipt of such payment, such Shares to the
person entitled to receive such Shares, or such person's designated
representative. Such Shares may be issued in the form of a certificate, by
book entry, or otherwise, in the Company's sole discretion.
(e) Restrictions on Shares Subject to Options.
Shares issued upon the exercise of any Option may be made subject to such
transferability or other restrictions or conditions as the Committee may
determine, in its discretion, and as shall be set forth in the applicable
Stock Option Agreement.
(f) Transferability.
Except as provided in this paragraph, Options shall not be transferable,
and any attempted transfer (other than as provided in this paragraph) shall
be null and void. Except for Options transferred as provided in this
paragraph, all Options shall be exercisable during a Participant's lifetime
only by the Participant or the Participant's legal representative. Without
limiting the generality of the foregoing, (i) Options may be transferred by
will or the laws of descent and distribution and, in the case of such a
transfer, shall be exercisable only by the transferee or such transferee's
legal representative, and (ii) the Committee may, in its sole discretion
and in the manner established by the Committee, provide for the irrevocable
transfer, without payment of consideration, of any Option by a Participant
to such Participant's spouse, children, grandchildren, nieces, or nephews
or to the trustee of a trust for the principal benefit of one or more such
persons or to a partnership whose only partners are one or more such
persons, and, in the case of such transfer, such Option shall be
exercisable only by the transferee or such transferee's legal
representative.
(g) Termination of Status as an Eligible Director by Reason of Death or
Disability.
If a Participant's status as an Eligible Director terminates by reason of
the Participant's death or disability (as defined by the Committee from
time to time, in its sole discretion), then (i) unless otherwise determined
by the Committee within 90 days of such termination, to the extent an
Option held by such Participant is not vested as of the date of such
termination, such Option shall automatically terminate on such date; and
(ii) to the extent an Option held by such Participant is vested (whether
pursuant to its terms, a determination of the Committee under the preceding
clause (i), or otherwise) as of the date of such termination, such Option
may thereafter be exercised by the Participant, the legal representative of
the Participant's estate, the legatee of the Participant under the will of
the Participant, the distributee of the Participant's estate, or the
Participant's other successor in interest, whichever is applicable (A) if
such termination results from the Participant's death, for a period of one
year from the date of death or, if sooner, until the expiration of the
stated term of the Option, (B) if such termination results from the
Participant's
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disability, for one year from the date of termination of the Participant's
status as an Eligible Director or, if sooner, until the expiration of the
stated term of the Option, or (C) for such other period as the Committee
may specify at or after grant or the Participant's death or disability.
(h) Other Termination of Status as an Eligible Director.
If a Participant's status as an Eligible Director terminates for any
reason other than death or disability, then (i) to the extent any Option
held by such Participant is not vested as of the date of termination, such
Option shall automatically terminate on such date; and (ii) unless
otherwise determined by the Committee at or after grant or termination, to
the extent any Option held by such Participant is vested as of the date of
such termination, such Option may thereafter be exercised for a period of
90 days from the date of termination or, if sooner, until the expiration of
the stated term of the Option; provided that, if the Participant's status
as an Eligible Director is terminated for Cause, any and all unexercised
Options held by such Participant shall immediately lapse and be of no
further force or effect. For purposes of the Plan, whether termination of a
Participant's status as an Eligible Director is for "Cause" shall be
determined by the Committee, in its sole discretion.
(i) Effect of Termination of Participant's Status as an Eligible Director
on Transferee.
Except as otherwise permitted by the Committee, in its sole discretion,
no Option held by a transferee of a Participant pursuant to (S)5(f), above,
shall remain exercisable for any period of time longer than would otherwise
be permitted under (S)(S)5(g) and 5(h) without specification of other
periods by the Committee as provided therein.
(S)6. Restriction on Exercise After Termination.
Notwithstanding any provision of this Plan to the contrary, no unexercised
right created under this Plan (an "Unexercised Right") shall be exercisable
if, prior to such exercise, the Participant violates any non-competition,
confidentiality, conflict of interest, or similar provision set forth in the
Stock Option Agreement pursuant to which such Unexercised Right was awarded or
otherwise conducts himself in a manner adversely affecting the Company or any
subsidiary of the Company, as determined by the Committee, in its sole
discretion.
(S)7. Withholding Tax.
The Company, at its option, shall have the right to require the Participant
or any other person receiving Shares under the Plan to pay the Company the
amount of any taxes which the Company is required to withhold with respect to
such Shares or, in lieu of such payment, to retain or sell without notice a
number of such Shares sufficient to cover the amount required to be so
withheld. The Company, at its option, shall have the right to deduct from all
dividends paid with respect to Shares the amount of any taxes which the
Company is required to withhold with respect to such dividend payments. The
obligations of the Company under the Plan shall be conditional on such payment
or other arrangements acceptable to the Company.
(S)8. Securities Law Restrictions.
No right under the Plan shall be exercisable and no Share shall be delivered
under the Plan except in compliance with all applicable federal and state
securities laws and regulations. The Company shall not be required to deliver
any Shares or other securities under the Plan prior to such registration or
other qualification
F-4
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of such Shares or other securities under any state or federal law, rule, or
regulation as the Committee shall determine to be necessary or advisable, in
its sole discretion.
The Committee may require each person acquiring Shares under the Plan (a) to
represent and warrant to and agree with the Company in writing that such
person is acquiring the Shares without a view to the distribution thereof, and
(b) to make such additional representations, warranties, and agreements with
respect to the investment intent of such person or persons as the Committee
may reasonably request. Any certificates for such Shares may include any
legend which the Committee deems appropriate to reflect any restrictions on
transfer.
All Shares or other securities delivered under the Plan shall be subject to
such stop-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Shares
are then listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any certificates
evidencing such Shares to make appropriate reference to such restrictions.
(S)9. Change in Capital Structure.
In the event the Company changes its outstanding Shares by reason of stock
splits, stock dividends, or any other increase or reduction of the number of
outstanding Shares without receiving consideration in the form of money,
services, or property deemed appropriate by the Board, in its sole discretion,
the aggregate number of Shares subject to the Plan shall be proportionately
adjusted and the number of Shares and the exercise price for each Share
subject to the unexercised portion of any then-outstanding Option shall be
proportionately adjusted with the objective that the Participant's
proportionate interest in the Company shall remain the same as before the
change without any change in the total exercise price applicable to the
unexercised portion of any then-outstanding Options, all as determined by the
Committee in its sole discretion.
In the event of any other recapitalization or any merger, consolidation, or
other reorganization of the Company, the Committee shall make such adjustment,
if any, as it may deem appropriate to accurately reflect the number and kind
of shares deliverable, and the exercise prices payable, upon subsequent
exercise of any then-outstanding Options, as determined by the Committee in
its sole discretion.
The Committee's determination of the adjustments appropriate to be made
under this (S)9 shall be conclusive upon all Participants under the Plan.
(S)10. Change in Control.
(a) Accelerated Vesting and Company Purchase Option.
Notwithstanding any provision of this Plan or any Stock Option Agreement
to the contrary (unless such Stock Option Agreement contains a provision
referring specifically to this (S)10 and stating that this (S)10 shall not
be applicable to the Option evidenced by such Stock Option Agreement), if a
Change in Control (as defined below) occurs, then:
(i) Any and all Options theretofore granted and not fully vested
shall thereupon become vested and exercisable in full and shall remain
so exercisable in accordance with their terms; provided that no Option
which has previously been exercised or otherwise terminated shall
become exercisable; and
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(ii) The Company may, at its option, terminate any or all unexercised
Options and portions thereof not more than 30 days after such Change in
Control; provided that the Company shall, upon such termination and
with respect to each Option so terminated, pay to the Participant (or
such Participant's transferee, if applicable) theretofore holding such
Option cash in an amount equal to the difference between the fair
market value (as defined in (S)5(a), above) of the Shares subject to
the Option at the time the Company exercises its option under this
(S)10(a)(ii) and the exercise price of the Option, less applicable
withholding taxes; and provided further that if such fair market value
is less than such exercise price, then the Committee may, in its
discretion, terminate such Option without any payment.
(b) Definition of Change in Control.
For purposes of the Plan, a "Change in Control" means the happening of
any of the following:
(i) The direct or indirect acquisition by any "person" as defined in
(S)3(a)(9) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and as used in (S)(S)13(d) and 14(d) thereof, including a
"group" within the meaning of (S)13(d) of the 1934 Act (hereinafter,
simply a "Person"), of "beneficial ownership" (within the meaning of
Rule 13d-3 under the 1934 Act) of securities of the Company
representing more than 50% of the combined voting power of the
Company's then outstanding voting securities entitled to vote generally
in the election of directors of the Company (the "Company Voting
Securities"); provided that: (A) for purposes of this subsection (i),
the term "Person" shall not include the Company, any subsidiary of the
Company, any employee benefit plan sponsored or maintained by the
Company or any subsidiary of the Company (including any trustee of such
plan acting as trustee), any person who was a shareholder of the
Company on the effective date of the Plan (an "Existing Shareholder"),
and any affiliate of an Existing Shareholder; and (B) the provisions of
this subsection (i) shall not apply to (1) any acquisition of
securities from the Company or any of its subsidiaries, or (2) any
acquisition of securities pursuant to a Business Combination (as
defined below) which satisfies clauses (A), (B), and (C) of subsection
(iii) of this Section 10(b);
(ii) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any
reason other than death to constitute at least a majority of the Board;
provided, however, that a director who was not a director at the
beginning of such 24-month period shall be deemed to have satisfied
such 24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this
(S)10(b)(ii);
(iii) Approval by the shareholders of the Company of a
reorganization, merger, consolidation, or recapitalization of the
Company, or a sale or other disposition of all or substantially all of
the assets of the Company, or the acquisition of the assets of another
corporation (any such transaction, a "Business Combination"), or the
consummation of a Business Combination for which shareholder approval
is not obtained, unless, in any such case, following such Business
Combination: (A) all or substantially all of the individuals and
entities who were the beneficial owners of the Company Voting
Securities outstanding immediately prior to such Business Combination
beneficially own, directly or indirectly, immediately following such
Business Combination, more than 50% of the combined voting
F-6
<PAGE>
power of the then outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting
from such Business Combination in substantially the same proportions as
their ownership of the Company Voting Securities immediately prior to
such Business Combination, and (B) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were Incumbent Directors at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(S)11. Six-Month Holding Period.
Shares purchased upon exercise of an Option may not be sold before at least
six months have elapsed from the date the Option was granted.
(S)12. No Enlargement of Rights.
The adoption of this Plan and the grant of one or more Options to an
Eligible Director shall not confer any right to the Eligible Director to
continue in the status of Eligible Director and shall not restrict or
interfere in any way with the right of the Company to terminate such Eligible
Director's status as such at any time, with or without cause.
(S)13. Rights as Stockholder.
No Participant or his executor or administrator or other transferee shall
have any rights of a stockholder in the Company with respect to the Shares
covered by an Option unless and until such Shares has been duly issued and
delivered to him under the Plan.
(S)14. Acceleration of Rights.
The Committee shall have the authority, in its discretion, to accelerate the
time at which an Option shall be exercisable whenever it may determine that
such action is appropriate by reason of changes in applicable tax or other
laws or other changes in circumstances occurring after the award of such
Option.
(S)15. Definition of Subsidiary.
The terms "subsidiary" and "subsidiary corporation" when used in the Plan or
any Stock Option Agreement made pursuant to the Plan mean a subsidiary
corporation as defined in (S)424(f) of the Code.
(S)16. Interpretation, Amendment or Termination of Plan.
The interpretation by the Committee of any provision of the Plan or of any
Stock Option Agreement executed pursuant to the grant of an Option under the
Plan shall be final and conclusive upon all Participants or transferees under
the Plan. The Board, without further action on the part of the stockholders of
the Company, may from time to time alter, amend, or suspend the Plan or may at
any time terminate the Plan; provided that no such action shall adversely
affect any Participant's rights with respect to outstanding Options then held
by such Participant without such Participant's consent.
F-7
<PAGE>
(S)17. Protection of Board and Committee.
No member of the Board or the Committee shall have any liability for any
determination or other action made or taken in good faith with respect to the
Plan or any Option granted under the Plan.
(S)18. Government Regulations.
Notwithstanding any provision of the Plan or any Stock Option Agreement
executed pursuant to the Plan, the Company's obligations under the Plan and
such Agreement shall be subject to all applicable laws, rules, and regulations
and to such approvals as may be required by any governmental or regulatory
agencies, including without limitation any stock exchange on which the Shares
may then be listed.
(S)19. Governing Law.
The Plan shall be construed and governed by the laws of the State of Ohio.
(S)20. Genders and Numbers.
When permitted by the context, each pronoun used in the Plan shall include
the same pronoun in other genders and numbers.
(S)21. Captions.
The captions of the various sections of the Plan are not part of the context
of the Plan, but are only labels to assist in locating those sections, and
shall be ignored in construing the Plan.
(S)22. Effective Date.
The Plan is effective March 22, 2000 (the "Effective Date"). The Plan shall
be submitted to the shareholders of the Company for approval and ratification
as soon as practicable but in any event not later than 12 months after the
adoption of the Plan by the Board. If the Plan is not approved and ratified by
the shareholders of the Company within 12 months after the adoption of the
Plan by the Board, the Plan and all Options granted under the Plan shall
became null and void and have no further force or effect.
(S)23. Term of Plan.
No Option shall be granted pursuant to the Plan on or after the tenth
anniversary of the Effective Date, but Options granted prior to such tenth
anniversary may extend beyond that date.
(S)25. Savings Clause.
In case any one or more of the provisions of this Plan shall be held
invalid, illegal, or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and the invalid, illegal, or unenforceable provision shall
be deemed null and void; however, to the extent permissible by law, any
provision which could be deemed null and void shall first be construed,
interpreted, or revised retroactively to permit this Plan to be construed so
as to foster the intent of this Plan. This Plan and all transactions pursuant
to this Plan are intended to comply in all respects with applicable law and
regulation, including, with respect to persons subject to Section 16 of the
1934 Act ("Reporting Persons"), Rule
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<PAGE>
16b-3 under the 1934 Act. In case any one or more of the provisions of this
Plan or any transaction pursuant to this Plan shall be held to violate or be
unenforceable in any respect under Rule 16b-3, then, to the extent permissible
by law, any provision which could be deemed to violate or be unenforceable
under Rule 16b-3 shall first be construed, interpreted, or revised
retroactively to permit the Plan or transaction to be in compliance with Rule
16b-3.
F-9
<PAGE>
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 Thomas
J. Carr, 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 Wednesday, June 14, 2000, 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 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 and Item 2, below, and FOR the proposals listed in Item 3,
Item 4, Item 5, Item 6, Item 7, Item 8, Item 9, and Item 10, below and on the
reverse side, and, and in the discretion of the proxies, on any other matter
which properly comes before the Annual Meeting.
PINNACLE DATA SYSTEMS, INC. 2000 ANNUAL MEETING
Election of Directors:
1. (Class I Directors)
1. Thomas J. Carr 2. Robert V.R. Ostrander [ ] FOR all nominees listed
3. Paul H. Lambert to the left (except as
specified below).
2. (Class II Directors)
4. John D. Bair 5. C. Robert Hahn [ ] WITHHOLD AUTHORITY to
6. Thomas M. O'Leary vote for all nominees
listed to the left.
(Instruction: 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.) [ ]
3. PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED CODE OF
REGULATIONS TO CREATE TWO CLASSES OF DIRECTORS, WITH THE TERMS OF
OFFICE OF EACH CLASS EXPIRING EVERY OTHER YEAR AND THE NUMBER OF
DIRECTORS IN EACH CLASS FIXED AT FOUR.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO REQUIRE THE AFFIRMATIVE VOTE OF SHARES REPRESENTING AT
LEAST 75% OF THE VOTING POWER OF THE COMPANY TO APPROVE MERGERS,
ACQUISITIONS OR OTHER MATTERS FOR WHICH OHIO LAW SPECIFIES A REQUIRED
PERCENTAGE VOTE OF SHAREHOLDERS UNLESS THE TRANSACTION HAS PREVIOUSLY
BEEN APPROVED BY THE VOTE OF AT LEAST TWO-THIRDS OF THE MEMBERS OF THE
BOARD OF DIRECTORS.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED CODE OF
REGULATIONS TO REQUIRE THE AFFIRMATIVE VOTE OF SHARES REPRESENTING AT
LEAST 75% OF THE VOTING POWER OF THE COMPANY TO AMEND THE PROVISIONS
GOVERNING THE TWO CLASSES OF DIRECTORS, THE REMOVAL OF DIRECTORS,
AND THE AMENDMENT THEREOF UNLESS THE AMENDMENT HAS PREVIOUSLY BEEN
APPROVED BY THE VOTE OF AT LEAST TWO-THIRDS OF THE MEMBERS OF THE BOARD
OF DIRECTORS.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<PAGE>
6. PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES FROM
5,000,000 TO 10,000,000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO AUTHORIZE A CLASS OF PREFERRED SHARES CONSISTING OF
4,000,000 AUTHORIZED SHARES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. PROPOSAL TO APPROVE AMENDMENTS TO THE PINNACLE DATA SYSTEMS, INC. 1995
STOCK OPTION PLAN WHICH INCREASE THE NUMBER OF SHARES THAT MAY BE
ISSUED UPON THE EXERCISE OF STOCK OPTIONS AND WHICH MODIFY THE TERMS OF
THE PLAN TO REFLECT CERTAIN CHANGES IN THE ADMINISTRATION AND OPERATION
OF THE PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. PROPOSAL TO APPROVE THE PINNACLE DATA SYSTEMS, INC. 2000 DIRECTORS
STOCK OPTION PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. PROPOSAL TO RATIFY THE SELECTION OF HAUSSER + TAYLOR LLP AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31,
2000.
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 ADJOURNMENT
THEREOF.
Check appropriate box. No. of shares
Indicate changes below:
Address Change? [_] Name Change? [_]
- -------------------------------------------------------------------------------
Date:
---------------------------- ----------------------------------------
Signature(s) in Box.
Date:
---------------------------- ----------------------------------------
Signature(s) in Box.
Please be sure to sign and date this Proxy in the box above.
- -------------------------------------------------------------------------------
