SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / 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 Sec. 240.14a-11(c) or Sec. 240.14a-12
PINNACLE SYSTEMS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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 transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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PINNACLE SYSTEMS, INC.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 24, 1996
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of PINNACLE
SYSTEMS, INC., a California corporation (the "Company"), will be held on
Tuesday, October 24, 1996 at 1:00 p.m. local time, at the Garden Court Hotel,
520 Cowper Street, Palo Alto, California 94301 for the following purposes:
1. To elect six directors to serve until the next Annual Meeting of
Shareholders and until their successors are elected.
2. To approve the adoption of the 1996 Stock Option Plan and to reserve
370,000 shares of Common Stock for issuance thereunder.
3. To ratify the appointment of KPMG Peat Marwick LLP as independent auditors
of the Company for the fiscal year ending June 30, 1997.
4. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only shareholders of record at the close of
business on August 30, 1996 are entitled to notice of and to vote at the
meeting.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he or she has returned a Proxy.
Sincerely,
Arthur D. Chadwick
Secretary
Sunnyvale, California
September 20, 1996
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YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
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PINNACLE SYSTEMS, INC.
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PROXY STATEMENT FOR 1996
ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
PINNACLE SYSTEMS, INC., a California corporation (the "Company"), for use at the
Annual Meeting of Shareholders to be held Tuesday, October 24, 1996 at 1:00 p.m.
local time, or at any adjournment thereof, for the purposes set forth herein and
in the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting
will be held at the Garden Court Hotel, 520 Cowper Street, Palo Alto, California
94301. The Company's principal executive offices are located at 870 West Maude
Avenue, Sunnyvale, California 94086, and its telephone number at that location
is (408) 720-9669.
These proxy solicitation materials and the Annual Report to Shareholders for
the year ended June 30, 1996, including financial statements, were first mailed
on or about September 20, 1996 to all shareholders entitled to vote at the
meeting.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Shareholders of record at the close of business on August 30, 1996 are
entitled to notice of and to vote at the meeting. The Company has one series of
Common Shares outstanding, designated Common Stock, no par value. At the record
date, 7,478,191 shares of the Company's Common Stock were issued and outstanding
and held of record by 95 shareholders. No shares of the Company's Preferred
Stock were outstanding.
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of August 30, 1996 as to (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the executive officers named in the Summary Compensation Table below and
(iv) all directors and executive officers as a group.
COMMON
STOCK APPROXIMATE
FIVE PERCENT SHAREHOLDERS, DIRECTORS BENEFICIALLY PERCENTAGE
AND CERTAIN EXECUTIVE OFFICERS OWNED OWNED(1)
------------------------------ ----- --------
The Capital Group Companies, Inc. (2) ................. 742,000 9.9
Capital Guardian Trust Company (2)
333 South Hope Street
Los Angeles, CA 90071
T. Rowe Price Associates, Inc. (3) .................... 724,378 9.7
T. Rowe Price Science and Technology Fund, Inc. (3)
100 E. Pratt Street
Baltimore, MD 21202
Geo Capital Corporation (4) ........................... 557,500 7.5
767 Fifth Avenue
New York, NY 10153
Twentieth Century Companies, Inc. (5) ................. 490,000 6.6
Investors Research Corporation (5)
Twentieth Century Investors, Inc. (5)
James E. Stowers (5).
4500 Main Street
P.O. Box 418210
Kansas City, MO 694141-9210
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COMMON
STOCK APPROXIMATE
FIVE PERCENT SHAREHOLDERS, DIRECTORS BENEFICIALLY PERCENTAGE
AND CERTAIN EXECUTIVE OFFICERS OWNED OWNED(1)
------------------------------ ----- --------
J.P. Morgan & Co. Incorporated (6) .................. 468,810 6.3
60 Wall Street
New York, NY 10260
Mark L. Sanders (7) ................................. 234,959 3.1
Ajay Chopra (8) ..................................... 205,586 2.7
Charles J. Vaughn ................................... 45,535 *
Glenn E. Penisten ................................... 42,589 *
Nyal D. McMullin (9) ................................ 29,766 *
Kevin McDonald (10) ................................. 19,124 *
Walter E. Werdmuller (11) ........................... 9,924 *
Brian Conner (12) ................................... 8,333 *
John Lewis .......................................... 0 *
All directors and executive officers as a group
(13 persons) (13)................................. 658,051 8.8
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* Less than 1%
(1) Applicable percentage of ownership is based on 7,478,191 shares of Common
Stock outstanding as of August 30, 1996 together with applicable options
for such shareholder. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission, and includes voting
and investment power with respect to shares. Shares of Common Stock subject
to options currently exercisable or exercisable within 60 days after August
30, 1996 are deemed outstanding for computing the percentage ownership of
the person holding such options, but are not deemed outstanding for
computing the percentage of any other person.
(2) Reflects ownership as reported on Schedule 13G dated April 9, 1996 filed
with the Securities and Exchange Commission by The Capital Group Companies,
Inc. and Capital Guardian Trust Company (collectively, "Capital Guardian").
Capital Guardian has sole dispositive power as to all of these shares and
has sole voting power as to 522,000 of such shares. The Company does not
have knowledge as to where voting power with respect to the remaining
shares resides.
(3) Reflects ownership as reported on Schedule 13G dated April 10, 1996 filed
with the Securities and Exchange Commission by T. Rowe Price Associates,
Inc. and T. Rowe Price Science and Technology Fund, Inc. (collectively,
"Price Associates"). Price Associates has sole dispositive power as to all
of these shares and has sole voting power as to 604,378 of such shares. The
Company does not have knowledge as to where voting power with respect to
the remaining shares resides.
(4) Reflects ownership as reported on Schedule 13G dated February 15, 1996
filed with the Securities and Exchange Commission by GeoCapital Corporation
("GeoCapital"). Geocapital has sole dispositive power as to all of these
shares and sole voting power as to none of such shares. The Company does
not have knowledge as to where voting power with respect to these shares .
(5) Reflects ownership as reported on Schedule 13G dated February 9, 1996 filed
with the Securities and Exchange Commission by Twentieth Century Companies,
Inc., Investors Research Corporation, Twentieth Century Investors, Inc. and
James E. Stowers ("Twentieth Century"). Twentieth Century has sole
dispositive power and voting power as to all of these shares.
(6) Reflects ownership as reported on Schedule 13G dated December 29, 1996
filed with the Securities and Exchange Commission by J.P. Morgan & Co.
Incorporated ("J.P. Morgan"). J.P. Morgan has sole dispositive power as to
all of these shares and sole voting power as to 286,200 of such shares. The
Company does not have knowledge as to where voting power with respect to
the remaining shares resides. (7) Includes 219,561 shares of Common stock
that may be acquired upon exercise of stock options which are presently
exercisable or will become exercisable with 60 days of August 30, 1996. (8)
Includes 31,166 shares of Common stock that may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of August 30, 1996.
(7) Includes 219,561 shares of Common stock that may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
with 60 days of August 30, 1996.
(8) Includes 31,166 shares of Common stock that may be acquired upon exercise
stock options which are presently exercisable or will become exercisable
within 60 days of August 30, 1996.
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(9) Includes 14,500 shares of Common Stock that may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of August 30, 1996.
(10) Includes 19,124 shares of Common stock that may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of August 30, 1996.
(11) Includes 4,924 shares of Common Stock that may be acquired upon exercise of
stock options which are presently exercisable or will become exercisable
within 60 days of August 30, 1996.
(12) Includes 8,333 shares of Common Stock that may be acquired upon exercise of
stock options which are presently exercisable or will become exercisable
within 60 days of August 30, 1996.
(13) Includes 349,134 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of August 30, 1996.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each shareholder is entitled to one vote for each share held. Every
shareholder voting for the election of directors (Proposal One) may cumulate
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares that such
shareholder is entitled to vote, or distribute such shareholder's votes on the
same principle among as many candidates as the shareholder may select, provided
that votes cannot be cast for more than five candidates. However, no shareholder
shall be entitled to cumulate votes unless the candidate's name has been placed
in nomination prior to the voting and the shareholder, or any other shareholder,
has given notice at the meeting, prior to the voting, of the intention to
cumulate the shareholder's votes. On all other matters, each share of Common
Stock has one vote. A quorum comprising the holders of the majority of the
outstanding shares of Common Stock on the record date must be present or
represented for the transaction of business at the Annual Meeting. Abstentions
and broker non-votes will be counted in establishing the quorum.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners. Proxies
may also be solicited by certain of the Company's directors, officers and
regular employees, without additional compensation, personally or by telephone
or telegram.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be presented by
such shareholders at the Company's 1997 Annual Meeting of Shareholders must be
received by the Company no later than May 23, 1997 in order that they may be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the Annual Meeting of
Shareholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's six nominees named below, all of whom
are presently directors of the Company. In the event that any nominee of the
Company is unable or declines to serve as a director at the time of the Annual
Meeting of Shareholders, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. The Company is
not aware of any nominee who will be unable or will decline to serve as a
director. In the event that additional persons are nominated for election as
directors, the proxy holders
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intend to vote all proxies received by them in such a manner (in accordance with
cumulative voting) as will assure the election of as many of the nominees listed
below as possible, and, in such event, the specific nominees to be voted for
will be determined by the proxy holders. The term of office for each person
elected as a director will continue until the next Annual Meeting of
Shareholders or until a successor has been elected and qualified.
VOTE REQUIRED
If a quorum is present and voting, the five nominees receiving the highest
number of votes will be elected to the Board of Directors. Abstentions and
"broker non-votes" are not counted in the election of directors.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
DIRECTOR
NAME OF NOMINEE AGE POSITION WITH THE COMPANY SINCE
--------------- --- ------------------------- -----
Mark L. Sanders .... 53 President, Chief Executive Officer and 1990
Director
Ajay Chopra ......... 39 Chairman of the Board of Directors and Chief 1986
Technology Officer
John Lewis .......... 60 Director 1995
Nyal D. McMullin ... 70 Director 1989
Glenn E. Penisten .. 64 Director 1986
Charles J. Vaughan .. 58 Director 1986
There is no family relationship between any director or executive officer of
the Company.
Mr. Sanders has served as President, Chief Executive Officer and a director
of the Company since January 1990. From 1988 to January 1990, Mr. Sanders was an
independent business consultant. Prior to that time, Mr. Sanders served in a
variety of management positions, most recently as Vice President and General
Manager of the Recording Systems Division, of Ampex, a manufacturer of video
broadcast equipment.
Mr. Chopra, a founder of the Company, has served as Chairman of the Board of
Directors since January 1990, and Chief Technology Officer since June 1996. Mr.
Chopra has served as Vice President, Engineering from January 1990 to June 1996,
and has served as a director of the Company since its inception in May 1986. Mr.
Chopra also served as President and Chief Executive Officer of the Company from
its inception to January 1990. From 1983 to 1986, Mr. Chopra served as
Engineering Supervisor for Mindset Corporation, a computer graphics
manufacturer.
Mr. Lewis has served as a director of the Company since December 1995. Mr.
Lewis has been Chairman of the Board of Amdahl Corporation, a developer of high
performance computer systems, since 1987 and was reelected President and Chief
Executive Officer of Amdahl in March 1996. He previously served as President of
Amdahl from 1977 until 1987, and was Amdahl's Chief Executive Officer from 1983
until 1992. He is a director of Cypress Semiconductor Corporation, Vitesse
Semiconductor Corporation and Infinity Financial Technology, Inc.
Mr. McMullin has served as a director of the Company since May 1989. Mr.
McMullin has been a special limited partner of El Dorado Ventures, a venture
capital investment firm, since 1987.
Mr. Penisten has served as a director of the Company since October 1986. Mr.
Penisten has been General Partner of Alpha Venture Partners, a venture capital
investment firm, since 1985, and serves on the Board of Directors of IKOS, a
software and hardware developer to support integrated circuits and ASIC-based
electronic systems, Bell Microproducts, Inc., a distributor of semiconductor
products and a contract manufacturer, and Superconductor Technologies, Inc., a
developer of products utilizing superconductivity materials, and serves as
Chairman of the Board of Network Peripherals, a developer of integrated high
performance network solutions. Mr. Penisten was Chairman of the American
Electronics Association in 1982.
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Mr. Vaughan has served as a director of the Company since June 1986. Mr.
Vaughan has been a partner of VLCO Investments, a private investment firm which
he founded, since 1985. From September 1991 to January 1992, Mr. Vaughan served
as President and Chief Executive Officer of Homestead Savings, a federal savings
and loan association. From 1989 to September 1991, Mr. Vaughan also served as
Executive Vice President, Chief Operating Officer and a director of Homestead
Savings, and served as Executive Vice President and Chief Operating Officer of
Homestead Financial Corporation, a diversified financial services company and
the parent company of Homestead Savings.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five (5) meetings
during fiscal 1996. No director attended fewer than 75% of the meetings of the
Board of Directors and committees thereof, if any, upon which such director
served. The Board of Directors has an Audit Committee and a Compensation
Committee. The Board of Directors has no nominating committee or any committee
performing such functions.
The Audit Committee, which consisted of Messrs. Penisten and Vaughan during
fiscal 1996, is responsible for overseeing actions taken by the Company's
independent auditors and reviews the Company's internal financial controls. The
Audit Committee met two (2) times during fiscal 1996.
The Compensation Committee, which consisted of Messrs. McMullin and Penisten
during fiscal 1996, met one (1) time during fiscal 1996. The Compensation
Committee is responsible for determining salaries, incentives and other forms of
compensation for executive officers and other employees of the Company and
administers various incentive compensation and benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. McMullin and Penisten. See
"Certain Transactions with Management" for a discussion of reportable
transactions with a member of the Compensation Committee.
CERTAIN TRANSACTIONS WITH MANAGEMENT
In March 1994, the Company and Bell Microproducts Inc. ("Bell") entered into
a Master Agreement (the "Agreement") under which value-added turnkey services
are to be performed by Bell on behalf of the Company. Glenn Penisten, a director
of the Company, is also a director of Bell. Pursuant to the Agreement, Bell
builds certain products in accordance with the Company's specifications. In
particular, Bell is performing certain services for the Company with respect to
the Alladin product. During the fiscal year ended June 30, 1996 the Company
purchased materials totaling $16,466,000 from Bell pursuant to the Agreement.
The Company believes that the transactions set forth above were made on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties. All future transactions, including loans, between the Company and its
officers, directors, principal shareholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors and will continue to be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.
PROPOSAL TWO
ADOPTION OF 1996 STOCK OPTION PLAN
At the Annual Meeting, the shareholders are being asked to approve the
adoption of the Company's 1996 Stock Option Plan (the "Plan") and the
reservation of 370,000 shares of Common Stock for issuance thereunder. The
adoption of the Plan was approved by the Board of Directors in August 1996. The
Plan authorizes the Board of Directors to grant incentive and nonstatutory stock
options to eligible employees, directors and consultants of the Company. The
Company's existing 1987 Stock Option Plan expires in April 1997, prior to the
Company's next Annual Meeting of Shareholders and proxy solicitation. The
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effective date of the Plan has been determined by the Board to be the earlier of
the termination date of the 1987 Stock Option Plan, April 1997, or when all
options available for grant under the 1987 Stock Option Plan have been granted.
The Plan is structured to allow the Board of Directors broad discretion in
creating equity incentives in order to assist the Company in attracting,
retaining and motivating the best available personnel for the successful conduct
of the Company's business. Since inception, the Company has provided stock
options as an incentive to its key employees and executives as a means to
promote increased shareholder value. Management believes stock options are one
of the prime methods of attracting and retaining key personnel responsible for
the continued development and growth of the Company's business. In addition,
stock options are considered a competitive necessity in the high technology
industry. In order to continue to accomplish these purposes the Company must
establish a new plan to replace the terminating 1987 Stock Option Plan.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to the Plan. For this purpose, the "Votes Cast" are
defined to be the shares of the Company's Common Stock represented and "voting"
at the Annual Meeting. In addition, the affirmative votes must constitute at
least a majority of the required quorum, which quorum is a majority of the
shares outstanding at the Record Date. Votes that are cast against the proposal
will be counted for purposes of determining both (i) the presence or absence of
a quorum and (ii) the total number of Votes Cast with respect to the proposal.
Abstentions will be counted for purposes of determining both (i) the presence or
absence of a quorum and (ii) the total number of Votes Cast with respect to the
proposal. Accordingly, abstentions will have the same effect as a vote against
the proposal. Broker non-votes, if applicable, will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE AMENDMENT
TO THE PLAN.
The essential terms of the Plan are summarized as follows:
PURPOSE
The purposes of the Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees, directors and consultants of the Company and to promote
the success of the Company's business.
ADMINISTRATION
The Plan provides for administration by the Board of Directors of the Company
or by a Committee of the Board. The Board or the committee appointed to
administer the Plan are referred to in this description as the "Administrator."
The Administrator determines the terms of options granted, including the
exercise price, number of shares subject to the option and the exercisability
thereof. All questions of interpretation are determined by the Administrator and
its decisions are final and binding upon all participants. Members of the Board
receive no additional compensation for their services in connection with the
administration of the Plan.
ELIGIBILITY
The Plan provides that either incentive or nonstatutory stock options may be
granted to employees (including officers and employee directors) of the Company
or any of its designated subsidiaries. In addition, the Plan provides that
nonstatutory stock options may be granted to directors and consultants of the
Company or any of its designated subsidiaries. The Administrator selects the
optionees and determines the number of shares to be subject to each option. In
making such determination, there are taken into account the duties and
responsibilities of the optionee, the value of the optionee's services, the
optionee's present and potential contribution to the success of the Company and
other relevant factors. The Plan provides a limit of $100,000 on the aggregate
fair market value of shares subject to all incentive
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options which are exercisable for the first time in any one calendar year. The
Plan provides that a maximum of 200,000 shares may be granted to any one
individual during any fiscal year of the Company. The Plan does not provide for
a minimum number of option shares which may be granted to any one employee.
There is a limit on the aggregate fair market value of shares subject to all
incentive options which are exercisable for the first time in any one calendar
year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company and
the optionee to whom such option is granted and is subject to the following
additional terms and conditions:
(1) EXERCISE OF THE OPTION: The Administrator determines when options granted
under the Plan may be exercised. An option is exercised by giving written notice
of exercise to the Company, specifying the number of shares of Common Stock to
be purchased and tendering payment to the Company of the purchase price. Payment
for shares issued upon exercise of an option may consist of cash, check,
promissory note, delivery of already-owned shares of the Company's Common Stock
subject to certain conditions, pursuant to a cashless exercise procedure under
which the optionee provides irrevocable instructions to a brokerage firm to sell
the purchased shares and to remit to the Company, out of the sale proceeds, an
amount equal to the exercise price plus all applicable withholding taxes, a
reduction in the amount of any Company liability to the individual, or such
other consideration as determined by the Administrator and as permitted by the
California Corporations Code.
Options may be exercised at any time on or following the date the options are
first exercisable. An Option may not be exercised for a fraction of a share.
(2) OPTION PRICE: The option price of all incentive stock options and
nonstatutory stock options under the Plan may not be less than the fair market
value of the Common Stock on the date the option is granted. For purposes of the
Plan, fair market value is defined as the closing sale price per share of the
Common Stock on the date of grant as reported on the Nasdaq National Market. In
the case of an option granted to an optionee who at the time of grant owns stock
representing more than 10% of the voting power of all classes of stock of the
Company, the option price must be not less than 110% of the fair market value on
the date of grant. The closing sale price of the Company's Common Stock on
August 30, 1996 was $15.
(3) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP: The Plan provides
that if the optionee's employment or consulting relationship with the Company is
terminated for any reason, other than death, or disability, the period of time
during which an option may be exercised following such termination is such
period as is determined by the Administrator may be exercised only to the extent
the options were exercisable on the date of termination and in no event later
than the expiration of the term of the option.
(4) DEATH: If an optionee should die while an employee or a consultant of the
Company (or during such period of time not exceeding three months, as determined
by the Administrator) following termination of the optionee's employment or
consultancy, options may be exercised at any time prior to the expiration of the
term of such option as set forth in the Notice of Grant but only to the extent
that the options were exercisable on the date of death or termination of
employment.
(5) DISABILITY: If an optionee's employment is terminated due to a
disability, options may be exercised at any time within twelve months from the
date of such termination, but only to the extent that the options were
exercisable on the date of termination of employment and in no event later than
the expiration of the term of such option as set forth in the Notice of Grant.
(6) TERMINATION OF OPTIONS: The term of each option is fixed by the
Administrator and may not exceed ten years from the date of grant in the case of
incentive stock options. However, incentive stock options granted to an optionee
who, immediately before the grant of such option, owned more than 10% of the
total combined voting power of all classes of stock of the Company or a parent
or subsidiary corporation, may not have a term of more than five years. No
option may be exercised by any person after such expiration.
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(7) NONTRANSFERABILITY OF OPTIONS: Unless determined otherwise by the
Administrator, an option is nontransferable by the optionee, other than by will
or the laws of descent and distribution, and is exercisable only by the optionee
during his or her lifetime or, in the event of death, by a person who acquires
the right to exercise the option by bequest or inheritance or by reason of the
death of the optionee.
(8) BUYOUT PROVISION: The Administrator may at any time offer to buy out, for
a payment in cash or shares of Common Stock of the Company, any option
previously granted, based on such terms and conditions as the Administrator
shall establish and communicate to the optionee at the time that such offer is
made.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization which results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, an appropriate adjustment shall be made in the option price and in the
number of shares subject to each option. In the event of a merger of the Company
with or into another corporation, all outstanding options may either be assumed
or an equivalent option may be substituted by the surviving entity or, if such
options are not assumed or substituted, such options shall become exercisable as
to all of the shares subject to the options, including shares as to which would
not otherwise be exercisable. In the event that options become exercisable in
lieu of assumption or substitution, the Administrator shall notify optionees
that all options shall be fully exercisable for a period of 15 days, after which
such options shall terminate.
AMENDMENT AND TERMINATION
The Board of Directors may amend the Plan at any time or from time to time or
may terminate it without approval of the shareholders. However, no action by the
Board of Directors or shareholders may alter or impair any option previously
granted under the Plan without the consent of the optionee. In any event, the
Plan will terminate in October 2006.
TAX INFORMATION
Options granted under the Plan may be either "incentive stock options," as
defined in Section 422 of the Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% shareholder of the Company. Generally, the Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain or loss recognized on such a premature disposition of the
shares in excess of the amount treated as ordinary income will be characterized
as long-term or short-term capital gain or loss, depending on the holding
period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize ordinary income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sales price and the optionee's purchase price, to the
extent not recognized as
8
<PAGE>
taxable income as described above, will be treated as long-term or short-term
capital gain or loss, depending on the holding period. Generally, the Company
will be entitled to a tax deduction in the same amount as the ordinary income
recognized by the optionee with respect to shares acquired upon exercise of a
nonstatutory option.
The foregoing is only a summary of the effect of federal income taxation upon
the optionee and the Company with respect to the grant and exercise of options
under the Plan, does not purport to be complete, and does not discuss the tax
consequences of the optionee's death or the income tax laws of any municipality,
state or foreign country in which an optionee may reside.
PARTICIPATION IN THE PLAN
The grant of options under the Plan to executive officers, including the
officers named in the Summary Compensation Table below, is subject to the
discretion of the Administrator. As of the date of this proxy statement, there
has been no determination by the Administrator with respect to future awards
under the Plan. Accordingly, future awards are not determinable. The table of
option grants under "Executive Compensation and Other Matters--Option Grants in
Last Fiscal Year" provides information with respect to the grant of options to
the named executive officers during fiscal 1996. Information regarding options
granted to non-employee Directors during fiscal 1996 is set forth under the
heading "Executive Compensation and Other Matters--Compensation of Directors."
During fiscal 1996, all current executive officers as a group and all other
employees as a group were granted options to purchase 128,000 shares and 289,500
shares, respectively, pursuant to all stock option plans.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal period ending June 30, 1997, and recommends that shareholders vote for
ratification of such appointment. In the event of a negative vote on
ratification, the Board of Directors will reconsider its selection.
KPMG Peat Marwick LLP has audited the Company's financial statements annually
since 1987. Representatives of KPMG Peat Marwick LLP are expected to be present
at the meeting with the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS.
9
<PAGE>
<TABLE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table sets forth total compensation for the fiscal years ended
June 30, 1996, 1995 and 1994 for the Chief Executive Officer and each of the
next four most highly compensated executive officers during the fiscal year
ended June 30, 1996 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION NUMBER OF
--------------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Sanders .......................... 1996 $176,500 $ 6,000 $-- 9,000 $--
President, Chief Executive 1995 150,604 7,672 -- 40,000 --
Officer and Director 1994 133,250 -- -- -- --
Brian Conner ............................. 1996 146,553 6,000 -- 9,000 --
Vice President, Europe, 1995(1) 58,815 2,940 -- 20,000 --
African and Middle East 1994 -- -- -- -- --
Kevin McDonald(3) ........................ 1996 138,500 5,000 -- 9,000 --
Vice President, Marketing 1995(2) 45,000 3,544 -- 54,000 --
and Domestic Sales 1994 -- -- -- -- --
Ajay Chopra .............................. 1996 133,500 6,000 -- 9,000 --
Chief Technical Officer 1995 122,365 5,460 -- 47,000 --
and Chairman of the 1994 108,000 -- -- -- --
Board of Directors
Walter E. Werdmuller(3) ................. 1996 132,106 4,000 -- 9,000 --
Vice President, Sales-- 1995 133,885 4,275 -- 25,000 --
Americas and Far East 1994 108,956 -- -- -- --
<FN>
- - ----------
(1) Mr. Conner joined the Company in February 1995.
(2) Mr. McDonald joined the Company in March 1995.
(3) Mr. Werdmuller and Mr. McDonald resigned all positions with the Company
effective in September 1996.
</FN>
</TABLE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning each grant of options to
purchase the Company's Common Stock made during the fiscal year ended June 30,
1996 to the Named Executive Officers:
<CAPTION>
POTENTIAL REALIZABLE
VALUE MINUS
INDIVIDUAL GRANTS EXERCISE PRICE AT
---------------------------------------------------- ASSUMED ANNUAL
NUMBER OF % OF TOTAL EXERCISE RATES OF STOCK PRICE
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO PER SHARE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN ($/SH) EXPIRATION --------------------------
NAME GRANTED(#) FISCAL YEAR (2)(3)(4) DATE 5% 10%
---------- ----------- --------- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Mark L. Sanders ......................... 9,000 1.85% $16.00 01/17/06 $ 90,561 $229,499
Brian Conner ............................ 9,000 1.85% 16.00 01/17/06 90,561 229,499
Kevin McDonald(5) ....................... 9,000 1.85% 16.00 01/17/06 90,561 229,499
Ajay Chopra ............................. 9,000 1.85% 16.00 01/17/06 90,561 229,499
Walter E. Werdmuller(5) ................ 9,000 1.85% 16.00 01/17/06 90,561 229,499
10
<PAGE>
<FN>
- - ----------
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the 10 year option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.
(2) All options shown granted in fiscal 1996 become exercisable as to 25% of the
option shares on the first anniversary of the date of grant and as to 1/48th
of the option shares each month thereafter, with full vesting occurring on
the fourth anniversary of the date of grant. Under the 1987 Stock Option
Plan, the Board of Directors retains the discretion to modify the terms,
including the price, of outstanding options.
(3) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by reference to the closing sale
price of the Common Stock on the Nasdaq National Market on the date of
grant.
(4) Exercise price may be paid in cash, promissory note, by delivery of
already-owned shares subject to certain conditions, or pursuant to a
cashless exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the Company, out of the sale proceeds, an amount equal to the exercise
price plus all applicable withholding taxes.
(5) Mr. Werdmuller and Mr. McDonald resigned all positions with the Company
effective in September 1996.
</FN>
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the exercise of
stock options by the Named Executive Officers in the fiscal year ended June 30,
1996 and the value of stock options held as of June 30, 1996 by such
individuals.
<CAPTION>
SHARED NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
ACQUIRED UNDERLYING UNEXERCISED MONEY OPTIONS AT JUNE 30,
ON VALUE OPTIONS AT JUNE 30, 1966(#) 1996($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----- ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Sanders ........... 148,308 $3,389,872 216,228 31,500 $4,082,378 $369,000
Brian Conner .............. -- -- 6,666 22,334 68,327 179,424
Kevin McDonald(2) ......... 3,000 42,000 14,375 48,625 100,241 316,349
Ajay Chopra ............... -- -- 27,250 36,750 415,348 376,193
Walter E. Werdmuller(2).... 14,483 323,766 2,842 24,000 31,603 211,013
<FN>
- - ----------
(1) Fair market value of the Common Stock as of the date of exercise or June 30,
1996, as the case may be, determined by reference to the closing sale price
of the Common Stock on the Nasdaq National Market minus the exercise price.
(2) Mr. Werdmuller and Mr. McDonald resigned all positions with the Company
effective in September 1996.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
In September 1994, the Company and Mark L. Sanders, President, Chief
Executive Officer and a Director, entered into an agreement (the "Agreement")
providing that in the event of Mr. Sanders' resignation or termination of
employment, the Company will retain him as a part-time employee to render
services to the Company on an as-needed basis for up to one full day per month.
As compensation for his services, the Company will pay Mr. Sanders a fee of
$1,000 per month. The Agreement becomes effective upon Mr. Sanders' resignation
or termination of employment with the Company and terminates in September 1999.
The Agreement may not be terminated by the Company.
11
<PAGE>
The Company currently has no other employment contracts with any of the Named
Executive Officers, and the Company has no other compensatory plan or
arrangement with such Named Executive Officers where the amounts to be paid
exceed $100,000 and which are activated upon resignation, termination or
retirement of any such executive officer upon a change in control of the
Company.
COMPENSATION OF DIRECTORS
Non-employee members of the Company's Board of Directors receive an annual
retainer of $8,000 and an additional $500 for each committee meeting attended.
The Company's 1994 Director Option Plan provides that options may be granted to
non-employee directors of the Company who do not represent shareholders holding
more than 1% of the Company's outstanding Common Stock pursuant to an automatic
nondiscretionary grant mechanism. Pursuant to the 1994 Director Option Plan, in
November 1995, an option to purchase 5,000 shares of the Company's Common Stock
at an exercise price of $31.75 per share was granted to each of Nyal D.
McMullin, Glenn E. Penisten, and Charles J. Vaughan. Pursuant to the 1994
Director Option Plan, in December 1995, an option to purchase 5,000 shares of
the Company's Common Stock at an exercise price of $30.25 per share was granted
to John Lewis.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") of the Board of Directors
reviews and approves the Company's executive compensation policies. The
following is the report of the Committee describing the compensation policies
and rationales applicable to the Company's executive officers with respect to
the compensation paid to such executive officers for the fiscal year ended June
30, 1996.
Compensation Philosophy
The Company's philosophy in setting its compensation policies for executive
officers is to maximize shareholder value over time. The primary goal of the
Company's executive compensation program is therefore to closely align the
interests of the executive officers with those of the Company's shareholders. To
achieve this goal, the Company attempts to (i) offer compensation opportunities
that attract and retain executives whose abilities are critical to the long-term
success of the Company, motivate individuals to perform at their highest level
and reward outstanding achievement, (ii) maintain a portion of the executive's
total compensation at risk, tied to achievement of financial, organizational and
management performance goals, and (iii) encourage executives to manage from the
perspective of owners with an equity stake in the Company. The Company currently
uses three integrated components--Base Salary, Quarterly and Annual Incentives
and Long-Term Incentives--to meet these goals.
Base Salary
The base salary component of the total compensation is designed to compensate
executives competitively within the industry and the marketplace. The Committee
reviewed and approved fiscal 1996 base salaries for the Chief Executive Officer
and other executive officers at the beginning of the fiscal year. Base salaries
were established by the Committee based upon competitive compensation data, an
executive's job responsibilities, level of experience, individual performance
and contribution to the business. Executive officer salaries have been targeted
at or above the average rates paid by competitors to enable the Company to
attract, motivate, reward and retain highly skilled executives. In order to
evaluate the Company's competitive posture in the industry, the Committee
reviewed and analyzed the compensation packages, including base salary levels,
offered by other high technology companies. The competitive information was
obtained from surveys prepared by national consulting companies or industry
associations (e.g., Radford Associates, Coopers & Lybrand and the American
Electronics Association). The surveys include, but are not limited to, data from
all industries represented in the Hambrecht & Quist's Technology Index, the
"line of business index" used in the stock performance graph set forth below.
See "Performance Graph." In making base salary decisions, the Committee
exercised its discretion and judgment based upon these factors. No specific
formula was applied to determine the weight of each factor.
During fiscal 1996, the compensation of Mark L. Sanders, the Company's
President and Chief Executive Officer, consisted of base salary, bonuses and
stock options. Mr. Sanders base salary for fiscal
12
<PAGE>
1996 was approximately $176,500, and Mr. Sanders received a bonus of
approximately $6,000 at the end of the fiscal year. The payment of Mr. Sanders
bonus was contingent upon the Company attaining certain milestones relating to
the achievement of certain performance targets. In addition, Mr. Sanders was
granted an option to purchase 9,000 shares of Common Stock at an exercise price
of $16.00, which was the fair market value of the Company's Common Stock at the
date of grant. The Committee reviews the Chief Executive Officer's salary at the
beginning of the calendar year using the same criteria and policies as are
employed for the other executive officers.
Quarterly and Annual Incentives
Quarterly and annual incentive bonuses for executive officers are intended to
reflect the Committee's belief that a portion of the compensation of each
executive officer should be contingent upon the performance of the Company, as
well as the individual contribution of each executive officer. To carry out this
philosophy, the Company has implemented a Management Bonus Plan (the "Bonus
Plan"), which compensates officers in the form of quarterly and annual cash
bonuses. At the beginning of fiscal 1996, the Committee established target
bonuses for each executive officer relative to the officer's base salary. The
Bonus Plan is intended to motivate and reward executive officers by directly
linking the amount of any cash bonus to specific Company-based performance
targets and specific individual-based performance targets. The executive
officers, including Mr. Sanders, must successfully achieve these performance
targets which are submitted by management to the Committee for its evaluation
and approval at the beginning of each fiscal quarter. The Company-based
performance goals are tied to different indicators of Company performance, such
as achievement of specific levels of orders, sales and pre-tax profits. These
Company- based performance goals vary from quarter to quarter, are somewhat
subjective in nature and are competitively sensitive to the Company's business
and operations. The individual's performance goals are tied to different
indicators of the individual executive officer's performance, such as having
received an order from a specific customer, achieved a research and development
project milestone, or achieved a desired on-time customer delivery. The
Committee evaluates the completion of the Company and individual goals and
approves a performance rating relative to the goals so completed. This scoring
is subjective and is influenced by the Committee's perception of the importance
of the various corporate and individuals goals. At the end of the fiscal year,
when determining the bonus payment for the fourth fiscal quarter, the Committee
considers the overall performance of the Company and each individual during the
entire fiscal year, including the fourth quarter. The Committee believes that
the Bonus Plan provides an excellent link between the Company's earnings
performance and the incentives paid to executives.
Long-Term Incentives
The Committee provides the Company's executive officers with long-term
incentive compensation through grants of stock options under the Company's 1987
Stock Option Plan. The Board believes that stock options provide the Company's
executive officers with the opportunity to purchase and maintain an equity
interest in the Company and to share in the appreciation of the value of the
Company's Common Stock. The Board believes that stock options directly motivate
an executive to maximize long-term shareholder value. The options also utilize
vesting periods that encourage key executives to continue in the employ of the
Company. All options granted to executive officers to date have been granted at
the fair market value of the Company's Common Stock on the date of grant. The
Board considers the grant of each option subjectively, considering factors such
as the individual performance of the executive officer and the anticipated
contribution of the executive officer to the attainment of the Company's
long-term strategic performance goals. Long-term incentives granted in prior
years are also taken into consideration. During fiscal 1996, Mr. Sanders
received an option to purchase 9,000 shares of Common Stock and the executive
officers as a group received options to purchase 99,000 shares of Common Stock.
SECTION 162(M)
The Board has considered the potential future effects of Section 162(m) of
the Internal Revenue Code on the compensation paid to the Company's executive
officers. Section 162(m) disallows a tax deduction for any publicly-held
corporation for individual compensation exceeding $1.0 million in any taxable
year for any of the executive officers named in the proxy statement, unless
compensation is
13
<PAGE>
performance-based. The Company has adopted a policy that, where reasonably
practicable, the Company will seek to qualify the variable compensation paid to
its executive officers for an exemption from the deductibility limitations of
Section 162(m). As a result, at the [1994] Annual Meeting of Shareholders, the
shareholders approved certain amendments to the 1987 Stock Option Plan intended
to preserve the Company's ability to deduct the compensation expense relating to
stock options granted under such plan. In addition, the 1996 Stock Option Plan,
which is subject to shareholder approval at this 1996 Annual Meeting of
Shareholders, includes a limit on the number of shares which may be granted to
any one employer during the fiscal year. Such limit is intended to preserve the
company's ability to deduct the compensation expense relating to stock options
granted under such plan.
In approving the amount and form of compensation for the Company's executive
officers, the Committee will continue to consider all elements of the cost to
the Company of providing such compensation, including the potential impact of
Section 162(m).
Respectfully submitted by:
COMPENSATION COMMITTEE
Nyal D. McMullin
Glenn E. Penisten
14
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in the
cumulative return to the shareholders of the Company's Common Stock with the
cumulative return of the Nasdaq Stock Market-US Index and of the Hambrecht &
Quist Technology Index for the period commencing November 8, 1994 (the date the
Company became subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended) and ending on June 30, 1996. Returns for the indices
are weighted based on market capitalization at the beginning of each fiscal
year.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T.]
COMPARISON OF 20 MONTH CUMULATIVE TOTAL RETURN*
AMONG PINNACLE SYSTEMS, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
11/8/94 6/95 6/96
------- ---- ----
PINNACLE SYSTEMS, INC. 100 225 208
NASDAQ STOCK MARKET-US 100 121 155
HAMBRECHT & QUIST TECHNOLOGY 100 137 163
* $100 INVESTED ON 11/08/94 IN STOCK OR
ON 10/31/94 IN INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
- - ----------
(1) The graph assumes that $100 was invested on November 8, 1994 in the
Company's Common Stock and in the Nasdaq Stock Market-US Index and in the
Hambrecht & Quist Technology Index and that all dividends were reinvested.
No dividends have been declared or paid on the Company's Common Stock.
Shareholder returns over the indicated period should not be considered
indicative of future shareholder returns.
15
<PAGE>
The information contained above under the captions "Report of the
Compensation Committee of the Board of Directors" and "Performance Graph" shall
not be deemed to be "soliciting material" or to be "filed" with the Securities
and Exchange Commission, nor shall such information be incorporated by reference
into any future filing under the Securities Act or Exchange Act, except to the
extent that the Company specifically incorporates it by reference into such
filing.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC") and the National Association of Securities Dealers,
Inc. Executive officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely in its review of the copies of such forms
received by it, or written representations from certain reporting persons, the
Company believes that, during the fiscal year ended June 30, 1996 all executive
officers and directors of the Company complied with all applicable filing
requirements.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: September 20, 1996
16
<PAGE>
APPENDIX A
PROXY PINNACLE SYSTEMS, INC. PROXY
1996 ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 24, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of PINNACLE SYSTEMS, INC., a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated September 20, 1996, and hereby
appoints Mark L. Sanders and Arthur D. Chadwick, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1996 Annual Meeting
of Shareholders of PINNACLE SYSTEMS, INC. to be held on October 24, 1996 at 1:00
p.m. local time, at the Garden Court Hotel, 520 Cowper Street, Palo Alto,
California 94301 and at any adjournment or adjournments thereof, and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth on other side:
(Continued, and to be signed on the other side)
<PAGE>
1. ELECTION OF DIRECTORS: WITHHOLD
(except as indicated) FOR* FOR ALL
IF YOU WISH TO WITHHOLD AUTHORITY [ ] [ ]
TO VOTE FOR ANY INDIVIDUAL NOMI-
NEE, STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Mark L. Sanders, Ajay Chopra, John Lewis, Nyal D. McMullin, Glenn E.
Penisten, Charles J. Vaughan.
2. PROPOSAL TO APPROVE THE ADOPTION OF FOR AGAINST ABSTAIN
1996 STOCK OPTION PLAN TO RESERVE [ ] [ ] [ ]
370,000 SHARES FOR GRANT THEREUNDER:
3. PROPOSAL TO RATIFY THE APPOINTMENT OF
KPMG PEAT MARWICK LLP AS THE [ ] [ ] [ ]
INDEPENDENT AUDITORS OF THE COMPANY
FOR THE FISCAL PERIOD ENDING JUNE 30,
1997:
and, in their discretion, upon such
other matter or matters which may
properly come before the meeting or any
adjournment or adjournments thereof
I PLAN TO ATTEND THE MEETING [ ]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE
APPROVAL OF THE 1996 STOCK OPTION PLAN, FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS AND AS
SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING.
SIGNATURE(S)________________________________________ DATE________________
PLEASE VOTE, DATE AND PROMPLTY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
(THIS PROXY SHOULD BE MARKED, DATED AND SIGNED BY THE SHAREHOLDER(S) EXACTLY AS
HIS OR HER NAME APPEARS HEREON, AND RETURNED PROMPTLY IN THE ENCLOSED ENVELOPE.
PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO INDICATE. IF SHARES ARE HELD
BY JOINT TENANTS OR AS COMMUNITY PROPERTY, BOTH SHOULD SIGN.)
<PAGE>
PINNACLE SYSTEMS, INC.
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Plan are:
o to attract and retain the best available personnel for positions
of substantial responsibility,
o to provide additional incentive to Employees, Directors and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
as shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors appointed by
the Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means PINNACLE SYSTEMS, INC.
(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
(i) "Director" means a member of the Board.
<PAGE>
(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
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(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the
Plan.
(s) "Option Agreement" means an Agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby
outstanding options are surrendered in exchange for options with a lower
exercise price.
(u) "Optioned Stock" means the Common Stock subject to an
Option.
(v) "Optionee" means the holder of an outstanding Option
granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1996 Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "Service Provider" means an Employee, Director or
Consultant.
(aa) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(bb) "Subsidiary" means a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 370,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan shall not be returned to the Plan and shall not become available for
future distribution under the Plan.
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4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options
may be granted hereunder;
(iii) to determine the number of shares of Common
Stock to be covered by each Option granted hereunder;
(iv) to approve forms of Agreement for use under the
Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
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(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option (subject to
Section 14(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
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(b) Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of
Options:
(i) No Service Provider shall be granted, in any
fiscal year of the Company, Options to purchase more than 200,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 100,000
Shares which shall not be counted against the limits set forth in subsection
6(c)(i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
(iv) If an Option is canceled in the same fiscal year
of the Company in which it was granted (other than in connection with a
transaction described in Section 12), the canceled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all
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classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.
(B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the
per Share exercise price shall be determined by the Administrator, but shall be
no less than 100% of the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option
is granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied before
the Option may be exercised.
(c) Form of Consideration. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of
payment; or
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(viii) such other consideration and method of payment
for the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for ninety (90) days following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability or the Optionee
suffers a Disability within ninety (90) days of ceasing to be a Service
Provider, the Optionee may exercise his or her Option within such period of
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time as is specified in the Option Agreement to the extent the Option is vested
on the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable for
one (1) year following Optionee's termination. If, on the date of termination,
the Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider or within ninety (90) days of ceasing to be a Service Provider, the
Option may be exercised until the expiration of the term of such Option as set
forth in the Notice of Grant, by the Optionee's estate or by a person who
acquires the right to exercise the Option by bequest or inheritance, but only to
the extent that the Option is vested on the date Optionee ceased to be a Service
Provider. If, at the time Optionee ceased to be a Service Provider, the Optionee
is not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall immediately revert to the Plan. The Option may be
exercised by the executor or administrator of the Optionee's estate or, if none,
by the person(s) entitled to exercise the Option under the Optionee's will or
the laws of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. Non-Transferability of Options. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made
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by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. To the extent it has not
been previously exercised, an Option will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, the Optionee shall
fully vest in and have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the Option shall terminate upon the expiration
of such period. For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the Option,
to be solely common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
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14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which Agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to options
granted under the Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise
of an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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PINNACLE SYSTEMS, INC.
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the 1996 Stock
Option Plan (the "Plan") shall have the same defined meanings in this Option
Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number _______________________
Date of Grant _______________________
Vesting Commencement Date _______________________
Exercise Price per Share $ _______________________
Total Number of Shares Granted _______________________
Total Exercise Price $ _______________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _______________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
[25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates].
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Termination Period:
This Option may be exercised for _____ [days/months] after Optionee
ceases to be a Service Provider. Upon the death or Disability of the Optionee,
this Option may be exercised for such longer period as provided in the Plan. In
no event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 14(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery
of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
completed by the Optionee and delivered to the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.
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3. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax liability upon exercise of a NSO. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price. If
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies
as an ISO, the Optionee will have no regular federal income tax liability upon
its exercise, although the excess, if
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any, of the Fair Market Value of the Exercised Shares on the date of exercise
over their aggregate Exercise Price will be treated as an adjustment to
alternative minimum taxable income for federal tax purposes and may subject the
Optionee to alternative minimum tax in the year of exercise. In the event that
the Optionee ceases to be an Employee but remains a Service Provider, any
Incentive Stock Option of the Optionee that remains unexercised shall cease to
qualify as an Incentive Stock Option and will be treated for tax purposes as a
Nonstatutory Stock Option on the date three (3) months and one (1) day following
such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at
least one year after exercise and two years after the grant date, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the lesser of (A) the
difference between the Fair Market Value of the Shares acquired on the date of
exercise and the aggregate Exercise Price, or (B) the difference between the
sale price of such Shares and the aggregate Exercise Price. Any additional gain
will be taxed as capital gain, short-term or long-term depending on the period
that the ISO Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire Agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This Agreement is governed by the internal substantive laws, but not
the choice of law rules, of [state].
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS
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<PAGE>
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: PINNACLE SYSTEMS, INC.
- - ---------------------------------- ----------------------------------
Signature By
- - ---------------------------------- ----------------------------------
Print Name Title
- - ----------------------------------
Residence Address
- - ----------------------------------
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<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
---------------------------------------
Spouse of Optionee
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<PAGE>
EXHIBIT A
PINNACLE SYSTEMS, INC.
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Pinnacle Systems, Inc.
870 W. Maude Avenue
Sunnyvale, CA 94086
Attention Secretary:
1. Exercise of Option. Effective as of today, ________________, _____,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Pinnacle Systems, Inc. (the "Company")
under and pursuant to the 1996 Stock Option Plan (the "Plan") and the Stock
Option Agreement dated ________________, _____ (the "Option Agreement"). The
purchase price for the Shares shall be $ ______________, as required by the
Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 12 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
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<PAGE>
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire Agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This Agreement is
governed by the internal substantive laws, but not the choice of law rules, of
[state].
Submitted by: Accepted by:
PURCHASER: PINNACLE SYSTEMS, INC.
- - ----------------------------------- ---------------------------------
Signature By
- - ----------------------------------- ---------------------------------
Print Name Title
---------------------------------
Date Received
Address: Address:
- - ----------------------------------- 870 W. Maude Avenue
Sunnyvale, CA 94086
- - -----------------------------------
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