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:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
[ ] Definitive Proxy Statement Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PINNACLE SYSTEMS, INC.
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(Name of Registrant as Specified in its Charter)
PINNACLE SYSTEMS, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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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.
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[ ] 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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<PAGE>
PRELIMINARY COPIES
FILED AUGUST 31, 1998
PINNACLE SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held October 21, 1998
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 Wednesday, October 21, 1998, at 9:00 a.m., local time, at 280 North Bernardo
Avenue, Mountain View, California, for the following purposes:
1. To elect seven directors to serve until the next Annual
Meeting of Shareholders and until their successors are duly
elected and qualified.
2. To approve the reincorporation of the Company as a Delaware
corporation by means of a merger of the Company with and into
a wholly owned Delaware subsidiary of the Company.
3. To approve an amendment to the 1994 Employee Stock Purchase
Plan to (i) increase the number of shares of Common Stock
reserved for issuance thereunder by 300,000 shares and (ii)
provide for an annual increase in the number of shares of
Common Stock reserved thereunder by the lesser of 300,000
shares or 2% of outstanding shares of Common Stock.
4. To approve an amendment to the 1996 Stock Option Plan to
increase the number of shares of Common Stock reserved for
issuance thereunder by 500,000 shares.
5. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors of the Company for the fiscal year ending
June 30, 1999.
6. To transact such other business as may properly come before
the Annual Meeting, including any motion to adjourn to a later
date to permit further solicitation of proxies if necessary,
or before any adjournments 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 27, 1998 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
Mountain View, California
September 16, 1998
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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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<PAGE>
PRELIMINARY COPIES
FILED AUGUST 31, 1998
PINNACLE SYSTEMS, INC.
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PROXY STATEMENT FOR 1998
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" or "Pinnacle"),
for use at the Annual Meeting of Shareholders (the "Annual Meeting") to be held
Wednesday, October 21, 1998, at 9:00 a.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 Company's
principal executive offices located at 280 North Bernardo Avenue, Mountain View,
California 94043, and its telephone number at that location is (650) 526-1600.
These proxy solicitation materials and the Annual Report to
Shareholders for the fiscal year ended June 30, 1998, including all financial
statements, were first mailed on or about September 16, 1998 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 27, 1998 (the
"Record Date") 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, 10,098,527 shares of the Company's Common Stock were
issued and outstanding and held of record by 60 shareholders. No shares of the
Company's Preferred Stock were outstanding.
<TABLE>
The following table sets forth certain information regarding the
beneficial ownership of Common Stock of the Company as of August 27, 1998 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.
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<CAPTION>
Common Stock Approximate
Five Percent Shareholders, Directors Beneficially Percentage
and Certain Executive Officers Owned Owned (1)
- ------------------------------------------------------------------- ------------------------- ----------------------
<S> <C> <C>
Pilgrim Baxter & Associates, Ltd. (2).............................. 1,037,200 10.3
825 Duportail Road
Wayne, Pennsylvania 19087
Entities affiliated with Putnam Investments, Inc. (3).............. 594,842 5.9
One Post Office Square
Boston, Massachusetts 02109
Capital Guardian Trust Company (4)................................. 515,000 5.1
333 South Hope Street
Los Angeles, California 90071
Mark L. Sanders (5)................................................ 160,288 1.6
Ajay Chopra (6).................................................... 127,955 1.3
Charles J. Vaughan (7)............................................. 49,285 *
William Loesch (8)................................................. 47,501 *
Glenn E. Penisten (9).............................................. 27,484 *
Nyal D. McMullin (10).............................................. 16,161 *
Robert Wilson (11)................................................. 10,668 *
John Lewis (12).................................................... 4,895 *
Kevin Hunt (13).................................................... 2,083 *
L. Gregory Ballard................................................. -- *
All directors and executive officers as a group (16 persons) (14).. 552,569 5.3
<FN>
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* Less than 1%
(1) Applicable percentage of ownership is based on 10,098,527 shares of Common
Stock outstanding as of August 27, 1998 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
27, 1998 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 August 7, 1998 filed
with the Securities and Exchange Commission by Pilgrim Baxter & Associates,
Ltd., which has sole dispositive power as to 1,037,200 shares and sole
voting power as to 814,000 of such shares.
(3) Reflects ownership as reported on Schedule 13G dated January 21, 1998 filed
with the Securities and Exchange Commission by Putnam Investments, Inc.
Putnam Investments, Inc. ("PI"), which is a wholly-owned subsidiary of
Marsh & McLennan Companies, Inc. ("MMC"), wholly owns two registered
investment advisors, Putnam Investment Management, Inc. ("PIM") and The
Putnam Advisory Company, Inc. ("PAC"). PIM has shared dispositive power
over 500,942 shares of the Company's Common Stock and PAC has shared
dispositive power over 93,900 shares of the Company's Common Stock (and
shared voting power over 88,800 of such shares). Pursuant to Rule 13(d)-4,
MMC and PI declared that the filing of the 13G should not be deemed an
admission by either or both of them that they are, for the purposes of
Section 13(d) or 13(q) the beneficial owner of the shares beneficially
owned by PAC or PIM and that neither of them have any power to vote or
dispose of, or direct the voting or disposition of, any of the shares
beneficially owned by PAC or PIM. The address for Marsh & McLennan
Companies, Inc. is 1166 Avenue of the Americas, New York, New York 10036.
(4) Reflects ownership as reported on Schedule 13G dated July 9, 1998 filed
with the Securities and Exchange Commission by Capital Guardian Trust
Company. Of the shares reported, Capital Guardian Trust has sole
dispositive power as to 515,000 of the shares and sole voting power as to
315,000 of such shares.
(5) Includes 121,126 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 27, 1998.
(6) Includes 59,603 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 27, 1998.
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(7) Includes 3,750 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 27, 1998.
(8) Includes 45,603 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 27, 1998.
(9) Includes 4,875 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 27, 1998.
(10) Includes 2,895 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 27, 1998.
(11) Includes 10,000 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 27, 1998.
(12) Includes 4,895 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 27, 1998.
(13) Includes 2,083 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 27, 1998.
(14) Includes 343,203 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 27, 1998.
</FN>
</TABLE>
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 attending the meeting and voting in person.
Voting and Solicitation
Each shareholder is entitled to one vote for each share of Common Stock
held by the shareholder on the Record Date. A quorum comprising the holders of a
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 nonvotes will be counted in establishing the quorum.
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 seven
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.
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 for 1999 Annual Meeting
Shareholders are entitled to present proposals for action at a
forthcoming meeting if they comply with the requirements of the proxy rules
promulgated by the Securities and Exchange Commission. Proposals of shareholders
of the Company that are intended to be presented by such shareholders at the
Company's 1999 Annual Meeting of Shareholders must be received by the Company no
later than May 19, 1999 in order that they may be considered for inclusion in
the proxy statement and form of proxy relating to that meeting. The attached
proxy card grants the proxy holders discretionary authority to vote on any
matter properly raised at the Annual Meeting. If a shareholder intends to submit
a proposal at the 1999 Annual Meeting, which is not
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eligible for inclusion in the proxy statement and form of proxy relating to that
meeting, the shareholder must do so no later than August 2, 1999. If such
shareholder fails to comply with the foregoing notice provision, the proxy
holders will be allowed to use their discretionary voting authority when the
proposal is raised at the 1999 Annual Meeting.
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<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
A board of seven 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 seven 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 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 seven nominees receiving the
highest number of votes will be elected to the Board of Directors. Abstentions
and broker nonvotes are not counted in the election of directors.
Nominees
<TABLE>
The names of the nominees and certain information about them are set
forth below:
<CAPTION>
Director
Name of Nominee Age Position with Company Since
- --------------- --- --------------------- -----
<S> <C> <C>
Mark L. Sanders............................... 55 President, Chief Executive Officer and 1990
Director
Ajay Chopra................................... 41 Chairman of the Board and Vice President, 1986
Desktop
L. Gregory Ballard............................ 44 Director 1998
John Lewis (2) ............................... 62 Director 1995
Nyal McMullin (1) ............................ 72 Director 1989
Glenn E. Penisten (1) ........................ 66 Director 1986
Charles J. Vaughan (2) ....................... 60 Director 1986
- ----------------------------
<FN>
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
</FN>
</TABLE>
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
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<PAGE>
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 has served as Vice President, General
Manager, Desktop since April 1997. He previously served as Chief Technology
Officer from June 1996 to April 1997, Vice President of Engineering from January
1990 to June 1996, and President and Chief Executive Officer of the Company from
its inception to January 1990.
Mr. Ballard has served as a director of the Company since July 1998.
Mr. Ballard has been the President, Chief Executive Officer and a director of
3Dfx Interactive Inc.("3Dfx"), a developer of 3D mediaprocessors, since December
1996. Prior to joining 3Dfx, Mr. Ballard was President at Capcom Entertainment,
Inc., a video game and multimedia entertainment company, from June 1995 through
November 1996. Prior to that, Mr. Ballard served as Chief Operating Officer and
Chief Financial Officer of Digital Pictures, Inc., a video game company, from
May 1994 to June 1995. Mr. Ballard was President and Chief Executive Officer of
Warner Custom Music Corporation, a multimedia marketing division of Time Warner,
Inc., from October 1992 to May 1994, and he was President and Chief Operating
Officer of Personics Corporation, a predecessor to Warner Music, from January
1991 to October 1992.
Mr. Lewis has served as a director of the Company since December 1995.
Mr. Lewis had 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, where he served until April
1998. 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, Inc., a
developer of integrated high performance network solutions. Mr. Penisten was
Chairman of the American Electronics Association in 1982.
Mr. Vaughan has served as a director since June 1986. Mr. Vaughan has
been a partner of VLCO Investments, a private investment firm that he founded,
since 1985. During the period of May 1989 to January 1992 he served in various
positions at Homestead Financial Corporation and its subsidiaries, including
Executive Vice President and Chief Operating Officer of this diversified
financial services company.
Board Meetings and Committees
The Board of Directors of the Company held a total of 4 meetings during
fiscal 1998. No director attended fewer than 75% of the meetings of the Board of
Directors and committees thereof, if any, upon which such director served held
subsequent to his becoming a director. The Board of Directors has an Audit
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<PAGE>
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. Lewis and Vaughan
during fiscal 1998, is responsible for overseeing actions taken by the Company's
independent auditors and reviewing the Company's internal financial controls.
The Audit Committee met once during fiscal 1998.
The Compensation Committee, which consisted of Messrs. McMullin and
Penisten during fiscal 1998, met once during fiscal 1998. The duties of the
Compensation Committee include determining salaries, incentives and other forms
of compensation for directors, officers and other employees of the Company and
administering various incentive compensation and benefit plans.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. McMullin and Penisten.
Mr. Sanders, who is President and Chief Executive Officer of the Company, has
participated in all discussions and decisions regarding salaries and incentive
compensation for all employees and consultants to the Company, except that Mr.
Sanders was excluded from discussions regarding his own salary and incentive
compensation. 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, 1998, the Company
purchased materials totaling $4,047,000 from Bell pursuant to the Agreement.
In August 1997, the Company acquired the digital video group of miro AG
(the "miro Acquisition"). In connection with the miro Acquisition, the Company
hired Georg Blinn, who had been with miro AG, as General Manager, Pinnacle
Systems GmbH, the Company's German subsidiary. Following the miro Acquisition,
Mr. Blinn retained certain responsibilities at miro AG and remains an officer of
miro AG. The Company and Pinnacle Systems GmbH have entered into several
transactions with miro AG and affiliated companies, including a lease agreement
for the facilities in Germany currently occupied by Pinnacle Systems GmbH,
services contracts relating to such property, including telephone, cafeteria and
janitorial services, and professional services relating to the accounting system
acquired in the miro Acquisition. During the fiscal year ended June 30, 1998,
the Company paid a total of $533,000 to miro AG or affiliated companies in
connection with such transactions.
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.
7
<PAGE>
PROPOSAL TWO
REINCORPORATION IN DELAWARE
Introduction
The Board of Directors believes that the best interests of the Company
and its shareholders will be served by changing the state of incorporation of
the Company from California to Delaware (the "Reincorporation Proposal" or the
"Proposed Reincorporation"). As discussed below, the principal reasons for
reincorporation are the greater flexibility of Delaware corporate law, the
substantial body of case law interpreting Delaware corporate law and the
increased ability of the Company to attract and retain qualified directors. The
Company believes that its shareholders will benefit from the well established
principles of corporate governance that Delaware law affords. Although Delaware
law provides the opportunity for the Board of Directors to adopt various
mechanisms which may enhance the Board's ability to negotiate favorable terms
for the shareholders in the event of an unsolicited takeover attempt, the
proposed Delaware certificate of incorporation and bylaws are substantially
similar to those currently in effect in California.
The Reincorporation Proposal is not being proposed in order to prevent
an unsolicited takeover attempt, nor is it in response to any present attempt
known to the Board of Directors to acquire control of the Company, obtain
representation on the Board of Directors or take significant action that affects
the Company. Shareholders are urged to read carefully the following sections of
this Proxy Statement, including the related exhibits, before voting on the
Reincorporation Proposal. Throughout the Proxy Statement, the term "Pinnacle
California" refers to the existing California corporation and the term "Pinnacle
Delaware" refers to the new proposed Delaware corporation, a wholly-owned
subsidiary of Pinnacle California, which is the proposed successor to Pinnacle
California.
The Reincorporation Proposal will be effected by merging Pinnacle
California into Pinnacle Delaware (the "Merger"). Upon completion of the Merger,
Pinnacle California will cease to exist and Pinnacle Delaware will continue to
operate the business of the Company under the name Pinnacle Systems, Inc.
Pursuant to the Agreement and Plan of Merger between Pinnacle California and
Pinnacle Delaware, a copy of which is attached hereto as Appendix A (the "Merger
Agreement"), each outstanding share of Pinnacle California Common Stock, no par
value, will automatically be converted into one share of Pinnacle Delaware
Common Stock, $.001 par value. IT IS NOT NECESSARY FOR SHAREHOLDERS TO EXCHANGE
THEIR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF PINNACLE DELAWARE.
Upon the date on which the Merger is effective (the "Effective Date"),
Pinnacle Delaware will also assume and continue the outstanding stock options
and all other employee benefit plans of Pinnacle California. Each outstanding
and unexercised option, warrant or other right to purchase shares of Pinnacle
California Common Stock will become an option, warrant or right to purchase the
same number of shares of Pinnacle Delaware Common Stock on the same terms and
conditions and at the same exercise price applicable to any such Pinnacle
California option, warrant or right at the Effective Date.
The Proposed Reincorporation has been unanimously approved by Pinnacle
California's Board of Directors. If approved by the shareholders, it is
anticipated that the Effective Date of the Merger will be as soon as practicable
following the Annual Meeting of Shareholders. However, pursuant to the Merger
Agreement, the Merger may be abandoned or the Merger Agreement may be amended by
the Board of Directors (except that certain principal terms may not be amended
without further shareholder approval) either before or after shareholder
approval has been obtained and prior to the Effective Date of the Proposed
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Reincorporation if, in the opinion of the Board of Directors of either company,
circumstances arise that make it inadvisable to proceed.
As stated above, the proposed Pinnacle Delaware Certificate of
Incorporation and Bylaws are substantially similar to those currently in effect
in California. However, changes proposed in connection with the Reincorporation
Proposal include the following: shareholder action by written consent will be
eliminated, special meetings of the shareholders may only be called by the Board
of Directors, shareholders intending to nominate candidates for election as
directors or to propose items of business for consideration at shareholder
meetings must meet certain advance notice requirements, and the remaining
directors or the shareholders may fill a vacancy on the Board of Directors
resulting from the removal of a director by the shareholders. See "The Charters
and Bylaws of Pinnacle California and Pinnacle Delaware."
Shareholders of Pinnacle California will have no dissenters' rights of
appraisal with respect to the Reincorporation Proposal. See "Significant
Differences Between the Corporation Laws of California and Delaware--Dissenters'
Rights." The discussion set forth below is qualified in its entirety by
reference to the Merger Agreement, the Certificate of Incorporation and the
Bylaws of Pinnacle Delaware, copies of which are attached hereto as Appendix A,
Appendix B and Appendix C, respectively.
Vote Required for the Reincorporation Proposal
Approval of the Reincorporation Proposal which will also constitute
approval of the (i) Merger Agreement, the Certificate of Incorporation and the
Bylaws of Pinnacle Delaware, (ii) the assumption of Pinnacle California's
employee benefit plans and outstanding stock options by Pinnacle Delaware and
(iii) adoption of the Company's new indemnification agreements with its officers
and directors to conform those agreements to Delaware law, will require the
affirmative vote of the holders of a majority of the outstanding shares of
Pinnacle California Common Stock. The effect of an abstention or a broker
non-vote is the same as that of a vote against the Reincorporation Proposal.
The Board recommends a vote "FOR" the Proposed Reincorporation in
Delaware.
Principal Reasons for the Proposed Reincorporation
As the Company plans for the future, the Board of Directors and
management believe that it is essential to be able to draw upon well established
principles of corporate governance in making legal and business decisions. The
prominence and predictability of Delaware corporate law provide a reliable
foundation on which the Company's governance decisions can be based and the
Company believes that shareholders will benefit from the responsiveness of
Delaware corporate law to their needs and to those of the corporation they own.
Prominence, Predictability and Flexibility of Delaware Law. For many
years Delaware has followed a policy of encouraging incorporation in that state
and, in furtherance of that policy, has been a leader in adopting, construing
and implementing comprehensive, flexible corporate laws responsive to the legal
and business needs of corporations organized under its laws. Many corporations
have chosen Delaware initially as a state of incorporation or have subsequently
hanged corporate domicile to Delaware in a manner similar to that proposed by
the Company. Because of Delaware's prominence as the state of incorporation for
many major corporations, both the legislature and courts in Delaware have
demonstrated an ability and a willingness to act quickly and effectively to meet
changing business needs. The Delaware courts have developed considerable
expertise in dealing with corporate issues and a substantial body of case law
has developed construing Delaware law and establishing public policies with
respect to corporate legal affairs.
9
<PAGE>
Increased Ability to Attract and Retain Qualified Directors. Both
California and Delaware law permit a corporation to include a provision in its
charter documents which reduces or limits the monetary liability of directors
for breaches of fiduciary duty in certain circumstances. The increasing
frequency of claims and litigation directed against directors and officers has
greatly expanded the risks facing directors and officers of corporations in
exercising their respective duties. The amount of time and money required to
respond to such claims and to defend such litigation can be substantial. The
Company anticipates that it may seek to expand the number of outside directors
on its Board of Directors in the future. Although the Company has not
experienced difficulty in attracting and retaining qualified directors to date,
it is the Company's desire to reduce these risks to its directors and officers
and to limit situations in which monetary damages can be recovered against
directors so that the Company may continue to attract and retain qualified
directors who otherwise might be unwilling to serve because of the risks
involved. The Company believes that, in general, Delaware law provides greater
protection to directors than California law and that Delaware case law regarding
a corporation's ability to limit director liability is more developed and
provides more guidance than California law. See "The Charters and Bylaws of
Pinnacle California and Pinnacle Delaware--Monetary Liability of Directors."
Well Established Principles of Corporate Governance. There is
substantial judicial precedent in the Delaware courts as to the legal principles
applicable to measures that may be taken by a corporation and as to the conduct
of the Board of Directors under the business judgment rule. The Company believes
that its shareholders will benefit from the well established principles of
corporate governance that Delaware law affords.
No Change in the Name, Board Members, Business, Management, Employee Plans or
Location of Principal Facilities of the Company
The Reincorporation Proposal will effect a change in the legal domicile
of the Company, but not its physical location. The Proposed Reincorporation will
not result in any change in the name, business, management, fiscal year, assets
or liabilities (except to the extent of legal and other costs of effecting the
reincorporation) or location of the principal facilities of the Company. The
seven directors who are elected at the 1998 Annual Meeting of Shareholders will
become the directors of Pinnacle Delaware. All employee benefit plans of
Pinnacle California will be assumed and continued by Pinnacle Delaware. All
stock options, warrants or other rights to acquire Common Stock of Pinnacle
California will automatically be converted into an option, warrant or right to
purchase the same number of shares of Pinnacle Delaware Common Stock at the same
price per share, upon the same terms, and subject to the same conditions.
Pinnacle California's other employee benefit arrangements will also be continued
by Pinnacle Delaware upon the terms and subject to the conditions currently in
effect.
Anti-Takeover Implications
Delaware, like many other states, permits a corporation to adopt a
number of measures through amendment of the certificate of incorporation or
bylaws or otherwise, which measures are designed to reduce a corporation's
vulnerability to unsolicited takeover attempts. The Reincorporation Proposal is
not being proposed in order to prevent an unsolicited takeover attempt, nor is
it in response to any present attempt known to the Board of Directors to acquire
control of the Company, obtain representation on the Board of Directors or take
significant action that affects the Company.
Nevertheless, certain effects of the Reincorporation Proposal may be
considered to have anti-takeover implications. Section 203 of the Delaware
General Corporation Law ("Section 203"), from which Pinnacle Delaware does not
intend to opt out, restricts certain "business combinations" with "interested
shareholders" for three years following the date that a person or entity becomes
an interested shareholder, unless the Board of Directors approves the business
combination and/or other requirements are met. The Company believes
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that the interests of its shareholders are better served by Pinnacle Delaware
electing not to opt out of the Section 203 for the following reasons: (i)
Section 203 does not affect Pinnacle Delaware's shareholders' voting rights,
(ii) Section 203 does not interfere with the ability of an existing shareholder
or third party to make a tender offer directly to Pinnacle Delaware's
shareholders, (iii) Section 203 does not interfere with market purchases of
additional shares of Pinnacle Delaware's Common Stock by an existing shareholder
or a third party, (iv) Section 203 does not prevent Pinnacle Delaware
shareholders from electing a new board of directors, (v) Section 203 does not
interfere or prohibit with a proxy contest by interested shareholders to elect a
board of directors, (vi) Section 203 does not prevent an interested shareholder
who has obtained control of Pinnacle Delaware from carrying on Pinnacle
Delaware's business in an ordinary manner of entering into a merger or other
business combination as long as it is with an unrelated party and (vii) even if
the Board of Directors of Pinnacle Delaware does not vote in favor of a proposed
transaction with an unrelated party and (vii) even if the Board of Directors of
Pinnacle Delaware does not vote in favor of a proposed transaction with an
interested shareholder, the shareholders of the Company retain the ultimate
ability to allow the transaction to proceed if at least 66% vote in favor of the
transaction. As the provisions of Section 203 provide a framework within which
potential acquirors are required to treat shareholders equally and limits
opportunities for coercive tactics without impairing the ability of the
shareholders to accept a tender offer or to replace the management and directors
of Pinnacle Delaware, the Board of Directors believes that it is not appropriate
to opt out of Section 203. See "Significant Differences Between the Corporation
Laws of California and Delaware--Shareholder Approval of Certain Business
Combinations."
Consistent with the Articles of Incorporation of Pinnacle California,
the Certificate of Incorporation of Pinnacle Delaware permits cumulative voting,
and such method of voting may make it more difficult to remove any given Board
member. Removing the right of 10% shareholders to call a special meeting has an
anti-takeover impact because a hostile acquiror could not act prior to the
Annual Meeting to establish a majority on the Board without making a tender
offer. Other measures permitted under Delaware law, which the Company DOES NOT
intend to implement include the establishment of a staggered board of directors.
The elimination of cumulative voting and the establishment of a classified board
of directors can also be undertaken under California law in certain
circumstances. For a detailed discussion of all of the changes that will be
implemented as part of the Proposed Reincorporation, see "The Charters and
Bylaws of Pinnacle California and Pinnacle Delaware." For a discussion of
differences between the laws of California and Delaware, see "Significant
Differences Between the Corporation Laws of California and Delaware."
In addition, Delaware law permits a corporation to adopt such measures
as shareholder rights plans designed to reduce a corporation's vulnerability to
unsolicited takeover attempts. The Company adopted such a plan in December 1996
(the "Rights Plan"), and the Reincorporation will not constitute a triggering
event pursuant to such plan or affect the Rights Plan in any material respect.
There is substantial judicial precedent in the Delaware courts as to the legal
Principles applicable to such defensive measures and as to the conduct of a
board of directors under the business judgment rule with respect to unsolicited
takeover attempts. The Board of Directors has no present intention following the
Proposed Reincorporation to amend the Certificate of Incorporation or Bylaws to
include additional provisions other than those now present in its California
Articles of Incorporation and Bylaws which might deter an unsolicited takeover
attempt. However, in the discharge of its fiduciary obligations to its
shareholders, the Board of Directors of the Company will continue to evaluate
the Company's vulnerability to potential unsolicited bids to acquire the Company
on unfavorable terms and to consider strategies to enhance the Board's ability
to negotiate with an unsolicited bidder.
The Charters and Bylaws of Pinnacle California and Pinnacle Delaware
The provisions of the Pinnacle Delaware Certificate of Incorporation
and Bylaws are similar to those of the Pinnacle California Articles of
Incorporation and Bylaws in many respects. However, the Reincorporation Proposal
includes the implementation of certain provisions in the Pinnacle Delaware
Certificate of Incorporation and Bylaws that alter the rights of shareholders
and the powers of management.
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In addition, Pinnacle Delaware could implement certain other changes by amending
its Certificate of Incorporation and Bylaws in the future. For a discussion of
such changes, see "Significant Differences Between the Corporation Laws of
California and Delaware."
Authorized Shares. The Articles of Incorporation of Pinnacle California
currently authorize the Company to issue up to 15,000,000 shares of Common
Stock, no par value, and 5,000,000 shares of Preferred Stock, no par value of
which 25,000 shares are designated Series A Participating Preferred Stock in
connection with the Company's Rights Plan. None of Pinnacle California's Series
A Participating Preferred Shares have been issued. The Certificate of
Incorporation of Pinnacle Delaware provides that Pinnacle Delaware will have
30,000,000 authorized shares of Common Stock, $.001 par value, and 5,000,000
shares of Preferred Stock, $.001 par value, of which 25,000 shares would be
designated as Series A Participating Preferred Stock in connection with the
Rights Plan. Like Pinnacle California's Articles of Incorporation, Pinnacle
Delaware's Certificate of Incorporation provides that the Board of Directors is
entitled to determine the powers, preferences and rights, and the
qualifications, limitations or restrictions, of the authorized and unissued
Preferred Stock. Thus, although it has no present intention of doing so, the
Board of Directors, without shareholder approval, could authorize the issuance
of Preferred Stock upon terms which could have the effect of delaying or
preventing a change in control of the Company or modifying the rights of holders
of the Company's Common Stock under either California or Delaware law. The Board
of Directors could also utilize such shares for future financings, possible
acquisitions and other uses.
Monetary Liability of Directors. The Articles of Incorporation of
Pinnacle California and the Certificate of Incorporation of Pinnacle Delaware
both provide for the elimination of personal monetary liability of directors to
the fullest extent permissible under law. The provision eliminating monetary
liability of directors set forth in the Pinnacle Delaware Certificate of
Incorporation is potentially more expansive than the corresponding provision in
the Pinnacle California Articles of Incorporation in that Delaware permits
indemnification to occur with respect to certain actions that California does
not and under certain circumstances Delaware does not require the director or
office to prevail in an action in order for indemnification to be available. In
connection with the Proposed Reincorporation, the Company will enter into new
indemnification agreements with officers and directors to conform the agreements
to Delaware law. For a more detailed explanation of the foregoing, see
"Significant Differences Between the Corporation Laws of California and
Delaware--Indemnification and Limitation of Liability." A copy of the form of
Pinnacle Delaware Indemnification Agreement is attached hereto as Appendix D.
Size of the Board of Directors. The Bylaws of Pinnacle Delaware provide
for a Board of Directors consisting of seven directors. The Bylaws of Pinnacle
California provide for a Board of Directors of from five to seven members, with
the exact number currently set at seven directors. Under California law,
although changes in the number of directors, in general, must be approved by a
majority of the outstanding shares, the Board of Directors may fix the exact
number of directors within a stated range set forth in the articles of
incorporation or bylaws, if the stated range has been approved by the
shareholders. Delaware law permits the board of directors acting alone, to
change the authorized number of directors by amendment to the bylaws, unless the
directors are not authorized to amend the bylaws or the number of directors is
fixed in the certificate of incorporation (in which case a change in the number
of directors may be made only by amendment to the certificate of incorporation
following approval of such change by the shareholders). The Pinnacle Delaware
Certificate of Incorporation provides that the number of directors will be as
specified in the Bylaws and authorizes the Board of Directors to adopt, alter,
amend or repeal the Bylaws.
Following the Proposed Reincorporation, the Board of Directors of
Pinnacle Delaware could amend the Bylaws to change the size of the Board of
Directors from seven directors without further shareholder approval. If the
Reincorporation Proposal is approved, the seven directors of Pinnacle California
who are elected at the 1998 Annual Meeting of Shareholders will continue as the
seven directors of Pinnacle Delaware after the Proposed Reincorporation is
consummated.
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Cumulative Voting for Directors. Under California law, if any
shareholder has given notice of an intention to cumulate votes for the election
of directors, any other shareholder of the corporation is also entitled to
cumulate his or her votes at such election. Under Delaware law, cumulative
voting in the election of directors is not mandatory, but is a permitted option.
The Pinnacle Delaware Certificate of Incorporation provides for cumulative
voting rights and thus the voting rights are unchanged from those of the
Pinnacle California Articles of Incorporation.
Power To Call Special Shareholders' Meetings. Under California law, a
special meeting of shareholders may be called by the Board of Directors, the
Chairman of the Board, the President, the holders of shares entitled to cast not
less than ten percent (10%) of the votes at such meeting and such additional
persons as are authorized by the Articles of Incorporation or the Bylaws. Under
Delaware law, a special meeting of stockholders may be called by the Board of
Directors or by any other person authorized to do so in the Certificate of
Incorporation or the Bylaws. The Bylaws of Pinnacle Delaware authorize only the
Board of Directors to call a special meeting of stockholders. The elimination of
the right of shareholders to call a special meeting would mean that a
shareholder could not force shareholder consideration of a proposal over the
opposition of the Board of Directors by calling a special meeting of
shareholders prior to such time as the Board believed such consideration to be
appropriate or until the next annual meeting provided that the requestor meets
the notice requirements. The restriction on the ability of shareholders to call
a special meeting means that a proposal to replace the Board could be delayed
until the next annual meeting. Thus it will be more difficult for shareholders
to remove directors.
Removal of Directors. Pursuant to Section 141 of the Delaware General
Corporation Law, if a corporation's shareholders may cumulate their votes for
directors, a director may not be removed without cause if the number of votes
cast against such director's removal would be sufficient to elect such director
under cumulative voting. As the shareholders of Pinnacle Delaware will be
entitled to cumulate their votes for the election of directors, like the
shareholders of Pinnacle California, the limitations on removal of directors
shall apply to Pinnacle Delaware. The limitations imposed by Section 303 of the
California Corporations Code are substantially similar to those set forth under
Delaware General Corporation Law Section 141 for a corporation with cumulative
voting. Pursuant to Section 303 of the California Corporations Code, no director
may be removed without cause (unless the entire board is removed) when the votes
cast against his or her removal would be sufficient to elect the director if
voted cumulatively at an election at which the same total number of votes were
cast and the entire number of directors authorized at the time of the director's
most recent election were then being elected. Pinnacle Delaware intends to
retain cumulative voting for directors in order to parallel the current
provisions under the existing charter documents of Pinnacle California.
Although Section 141 of the Delaware General Corporation Law limits
removal of directors without cause, the section does not define the actions
constituting cause. Therefore, the Bylaws of Pinnacle Delaware set forth a
definition of "cause" to be applied to the removal of directors by Pinnacle
Delaware's shareholders. For purposes of these provisions, "cause" means (i)
continued willful failure to perform the obligations of a director, (ii) gross
negligence by the director, (iii) engaging in transactions that defraud the
Company, (iv) fraud or intentional misrepresentation including falsifying use of
funds and intentional misstatements made in financial statements, books, records
or reports to shareholders or governmental agencies, (v) material violation of
any agreement between the director and the Company, (vi) knowingly causing the
Company to commit violations of applicable law (including by failure to act),
(vii) acts of moral turpitude or (viii) conviction of a felony.
The provisions relating to removal of directors preclude the removal of
any particular director or group of directors unless removal is warranted and
for cause. One method employed by takeover bidders to obtain control of a
company is to acquire a significant percentage of the outstanding shares through
a tender offer or open market purchases and to use that voting power to remove
the existing directors and replace them
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with persons chosen by the takeover bidder. Requiring cause in order to remove a
director defeats this strategy, thereby encouraging potential takeover bidders
to obtain the cooperation of the existing Board before attempting a takeover.
However, as the same limitations on removal currently apply to Pinnacle
California, the Proposed Reincorporation would not make it more difficult to
remove existing directors.
Filling Vacancies on the Board of Directors. Under California law, any
vacancy on the Board of Directors other than one created by removal of a
director may be filled by the Board. If the number of directors is less than a
quorum, a vacancy may be filled by the unanimous written consent of the
directors then in office, by the affirmative vote of a majority of the directors
at a meeting held pursuant to notice or waivers of notice or by a sole remaining
director. A vacancy created by removal of a director may be filled by the Board
only if so authorized by a corporation's articles of incorporation or by a bylaw
approved by the corporation's shareholders. Pinnacle California's Articles of
Incorporation and Bylaws do not permit directors to fill vacancies created by
removal of a director unless such director has been convicted of a felony or
found to be of unsound mind. Under Delaware law, vacancies and newly created
directorships may be filled by a majority of the directors then in office (even
though less than a quorum) or by a sole remaining director, unless otherwise
provided in the certificate of incorporation or bylaws (or unless the
certificate of incorporation directs that a particular class of stock is to
elect such director(s), in which case a majority of the directors elected by
such class, or a sole remaining director so elected, shall fill such vacancy or
newly created directorship). In connection with the Proposed Reincorporation,
the Board of Directors of Pinnacle Delaware will adopt a provision in Pinnacle
Delaware's Bylaws that permits the remaining directors to fill any vacancy
created by removal of directors by the stockholders.
Authorization of a Requirement of Advance Notice. Effective upon the
Proposed Reincorporation, the Company proposes to establish an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board of Directors, of candidates for election as directors (the "Nomination
Procedure") and with regard to certain matters to be brought before an annual
meeting of shareholders (the "Business Procedure"). The Nomination Procedure and
Business Procedure have been implemented by the Board of Directors of Pinnacle
Delaware adopting such provisions as part of the Bylaws of Pinnacle Delaware.
The complete Nomination Procedure and Business Procedure are set forth in
Section 2.2 of Pinnacle Delaware's Bylaws attached hereto as Exhibit C. The
following four paragraphs summarize how the Nomination Procedure and Business
Procedure are implemented.
The Nomination Procedure provides that only persons nominated by or at
the direction of the Board of Directors or by a shareholder who has given timely
written notice to the Secretary of the Company prior to the meeting, will be
eligible for election as directors. The Business Procedure provides that at an
annual meeting of shareholders, and subject to any other applicable
requirements, only such business may be conducted as has been brought before the
meeting by or at the direction of the Board of Directors or by a shareholder who
has given timely written notice to the Secretary of the Company of such
shareholder's intention to bring such business before the meeting. In all cases,
to be timely, notice must be received by the Company prior to the date specified
in the Corporation's proxy statement released to the shareholders in connection
with the previous year's annual meeting (approximately 60 days prior to the
meeting). In the event that no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than 30 days from the
date contemplated at the time of the previous year's proxy statement, notice by
the shareholder to be timely must be received by the Company a reasonable time
before the solicitation is made. The Delaware General Corporation Law only
requires that shareholders receive notice of an annual meeting that states the
date, time and location of such meeting. The Board of Directors believes that
the information obtained in connection with the Nomination Procedure and the
Business Procedure will assist the Company in providing meaningful information
to its shareholders regarding the candidates for director and the business items
on the agenda.
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Under the Nomination Procedure, a shareholder's notice to the Company
must contain certain information about the nominee, including name, address, the
consent to be nominated and such other information as would be required to be
included in a proxy statement soliciting proxies for the election of the
proposed nominee, and certain information about the shareholder proposing to
nominate that person, including name, address, a representation that the
shareholder is a holder of record of stock entitled to vote at the meeting and a
description of all arrangements or understandings between the shareholder and
each nominee.
Under the Business Procedure, notice relating to the conduct of
business at an annual meeting of shareholders other than the nomination of
directors must contain a brief description of the business to be brought before
the meeting, the reason for conducting such business at the annual meeting, and
certain Information about the shareholder proposing such business, including
name, address and a representation that the shareholder is a holder of record of
stock entitled to vote at the meeting. If the Chairman or other officer
presiding at the meeting Determines that a person was not nominated in
accordance with the Nomination Procedure, such person will not be eligible for
election as a director, or if he or she determines that other business was not
properly brought before such meeting in accordance with the Business Procedure,
such business will not be conducted at such meeting. Nothing in the Nomination
Procedure or the Business Procedure will preclude discussion by any shareholder
of any nomination or business properly made or brought before the annual meeting
of shareholders in accordance with the above-described procedures.
By requiring advance notice of nominations by shareholders, the
Nomination Procedure affords the Board of Directors an opportunity to consider
the qualification of the proposed nominees and, to the extent deemed necessary
or desirable by the Board, to inform the shareholders about such qualifications.
By requiring advance notice of proposed business, the Business Procedure
provides the Board with an opportunity to inform shareholders of any business
proposed to be conducted at a meeting and the Board's position on any such
proposal, enabling shareholders to better determine whether they desire to
attend the meeting or grant a proxy to the Board of Directors as to the
disposition of such business. In addition, the Business Procedure provides for a
more orderly procedure for conducting the annual meeting of shareholders.
Although the Pinnacle Delaware Bylaws do not give the Board any power
to approve or disapprove shareholder nominations for the election of directors
or any other business desired by shareholders to be conducted at an annual
meeting, the Pinnacle Delaware Bylaws may have the effect of precluding a
nomination for the election of directors or of precluding any other business at
a particular annual meeting if the proper procedures are not followed. In
addition, the procedures may discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company, even if the conduct of such
business or such attempt might be beneficial to the Company and its
shareholders. The Board of Directors has considered the possible deterrent
effect of such provision and has limited to the extent possible the time between
the submission deadline and the relevant annual meeting.
Loans to Officers and Employees. Under California law, any loan or
guaranty to or for the benefit of a director or officer of the corporation or
its parent requires approval of the shareholders unless such loan or guaranty is
provided under a plan approved by shareholders owning a majority of the
outstanding shares of the corporation. However, under California law,
shareholders of any corporation with 100 or more shareholders of record, such as
the Company, may approve a bylaw authorizing the board of directors alone to
approve loans or guaranties to or on behalf of officers (whether or not such
officers are directors) if the Board determines that any such loan or guaranty
may reasonably be expected to benefit the corporation. The Bylaws of Pinnacle
California contain such a provision that was previously approved by the
shareholders. Pursuant to the Pinnacle Delaware Bylaws and in accordance with
Delaware law, Pinnacle Delaware may make loans to, guarantee the obligations of
or otherwise assist its officers or other employees and those of its
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subsidiaries (including directors who are also officers or employees) when such
action, in the judgment of the Board of Directors, may reasonably be expected to
benefit the corporation.
Elimination of Actions by Written Consent of Shareholders. Under
California and Delaware law, shareholders may execute an action by written
consent in lieu of a shareholder meeting. However, Delaware law permits a
corporation to eliminate such actions by written consent in its charter or
bylaws. Elimination of written consents of shareholders could lengthen the
amount of time required to take shareholder actions since certain actions by
written consent are not subject to the minimum notice requirement of a
shareholders' meeting. The elimination of shareholders' written consents,
however, would deter hostile takeover attempts. Without the shareholder's
written consent, a holder or group of holders controlling a majority in interest
of Pinnacle Delaware's capital stock would not be able to amend Pinnacle
Delaware's Bylaws or remove directors pursuant to a stockholder's written
consent. Any such holder or group of holders would have a stockholder's written
consent. Any older or group of holders would have to call a stockholders'
meeting and wait the notice periods determined by the Board of Directors
pursuant to Pinnacle Delaware's Bylaws prior to taking any such action. The
Bylaws of Pinnacle Delaware will provide for the elimination of actions by
written consent of stockholders following the Reincorporation.
Compliance with Delaware and California Law
Following the Annual Meeting of Shareholders, if the Reincorporation
Proposal is approved, the Company will submit the Merger Agreement to the office
of the California Secretary of State and to the office of the Delaware Secretary
of State for filing.
Significant Differences Between the Corporation Laws of California and Delaware
The corporation laws of California and Delaware differ in many
respects. Although all the differences are not set forth in this Proxy
Statement, certain provisions, which could materially affect the rights of
shareholders, are discussed below.
Shareholder Approval of Certain Business Combinations. In recent years,
a number of states have adopted special laws designed to make certain kinds of
"unfriendly" corporate takeovers, or other transactions involving a corporation
and one or more of its significant shareholders, more difficult. Under Section
203, certain "business combinations" with "interested shareholders" of Delaware
corporations are subject to a three-year moratorium unless specified conditions
are met.
Section 203 prohibits a Delaware corporation from engaging in a
"business combination" with an "interested shareholder" for three years
following the date that such person or entity becomes an interested shareholder.
With certain exceptions, an interested shareholder is a person or entity who or
which owns, individually or with or through certain other persons or entities,
fifteen percent (15%) or more of the corporation's outstanding voting stock
(including any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the person has voting rights
only), or is an affiliate or associate of the corporation and was the owner,
individually or with or through certain other persons or entities of fifteen
percent (15%) or more of such voting stock at any time within the previous three
years, or is an affiliate or associate of any of the foregoing.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested shareholder, sales
or other dispositions to the interested shareholder (except proportionately with
the corporation's other shareholders) of assets of the corporation or a direct
or indirect majority-owned subsidiary equal in aggregate market value to ten
percent (10%) or more of the aggregate market value of either the corporation's
consolidated assets or all of its outstanding stock, the issuance or
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transfer by the corporation or a direct or indirect majority-owned subsidiary of
stock of the corporation or such subsidiary to the interested shareholder
(except for certain transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested shareholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock or of the corporation's voting stock);
or receipt by the interested shareholder (except proportionately as a
shareholder), directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation or a
subsidiary.
The three-year moratorium imposed on business combinations by Section
203 does not apply if: (i) prior to the date on which such shareholder becomes
an interested shareholder the board of directors approves either the business
combination or the transaction that resulted in the person or entity becoming an
interested shareholder; (ii) upon consummation of the transaction that made him
or her an interested shareholder, the interested shareholder owns at least
eighty-five percent (85%) of the corporation's voting stock outstanding at the
time the transaction commenced (excluding from the eighty-five percent (85%)
calculation shares owned by directors who are also officers of the target
corporation and shares held by employee stock plans that do not give employee
participants the right to decide confidentially whether to accept a tender or
exchange offer); or (iii) on or after the date such person or entity becomes an
interested shareholder, the board approves the business combination and it is
also approved at a shareholder meeting by sixty-six and two-thirds percent (66
2/3 %) of the outstanding voting stock not owned by the interested shareholder.
Section 203 only applies to certain publicly held corporations that
have a class of voting stock that is (i) listed on a national securities
exchange, (ii) quoted on an interdealer quotation system of a registered
national securities association or (iii) held of record by more than 2,000
shareholders. Although a Delaware corporation to which Section 203 applies may
elect not to be governed by Section 203, Pinnacle Delaware does not intend to so
elect to be excluded from the statutory provisions of Section 203. Should a
majority of the outstanding shares of Pinnacle Delaware vote at a later date to
opt out of Section 203, such action by the shareholders would not take effect
until one year after the vote occurred.
Section 203 will encourage any potential acquiror to negotiate with the
Company's Board of Directors. Section 203 also might have the effect of limiting
the ability of a potential acquiror to make a two-tiered bid for Pinnacle
Delaware in which all shareholders would not be treated equally. Shareholders
should note, however, that the application of Section 203 to Pinnacle Delaware
will confer upon the Board the power to reject a proposed business combination
in certain circumstances, even though a potential acquiror may be offering a
substantial premium for Pinnacle Delaware's shares over the then-current market
price. Section 203 would also discourage certain potential acquirors unwilling
to comply with its provisions. See "Shareholder Voting" herein.
Shareholder Rights Plan. In December 1996, the Board of Directors of
Pinnacle California adopted the Rights Plan. Pursuant to the Rights Plan,
Pinnacle California declared a dividend of one Preferred Share Purchase Right (a
"Right") for each outstanding share of Common Stock and each share of Common
Stock issued thereafter. Initially, each Right entitles holders of Common Stock
to purchase from Pinnacle California one-thousandth of a share of Series A
Preferred at an exercise price of $65.00, subject to adjustment. The Rights are
not exercisable until the occurrence of specified events.
The Rights will become exercisable only if a person or group acquires
15% or more of the Company's Common Stock (subject to certain limitations) or
announces a tender offer or exchange offer which would result in its ownership
of 15% or more of the Common Stock. Ten days after such acquisition or offer,
each Right becomes exercisable at the Right's then current exercise price, for
shares of Common Stock of the Company (or, in certain circumstances as
determined by the Board of Directors, a combination of cash, property, Common
Stock or other securities) having a value of twice the Right's exercise price.
Alternatively,
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if the Company is involved in a merger or other business combination transaction
with another person ten or more days after such acquisition or offer, each Right
becomes exercisable, at the Right's then current exercise price, for shares of
common stock of such other person having a value of twice the Right's exercise
price. The Rights are redeemable up to ten days following the announcement of
such acquisition or offer, subject to extension by the Board of Directors, at a
price of $0.01 per Right. The Rights Plan expires in December 2006 unless the
Rights are earlier redeemed by the Company.
The Rights Plan is intended to protect the shareholders in the event of
an unsolicited offer to acquire, or the acquisition of, 15% or more of the
Common Stock of Pinnacle California. The Rights are not intended to prevent a
takeover of the Company and will not interfere with any tender offer or business
combination approved by the Board of Directors. The Rights encourage persons
seeking control of the Company to initiate such an acquisition or offer to
acquire through arm's-length negotiations with the Board of Directors.
The Rights Plan will be assumed by Pinnacle Delaware pursuant to the
terms of the Merger Agreement. In the past, Delaware courts have upheld the
validity of plans such as the Rights Plan. To date, the California courts have
not considered the validity of such a plan. In any event, the Company believes
that the Rights Plan is more likely to be upheld in the event of a challenge if
the Reincorporation Proposal is effected and Pinnacle California is merged into
Pinnacle Delaware.
Cumulative Voting for Directors. Under California law, if any
shareholder has given notice of an intention to cumulate votes for the election
of directors, any other shareholder of the corporation is also entitled to
cumulate his or her votes at such election. Cumulative voting provides that each
share of stock normally having one vote is entitled to a number of votes equal
to the number of directors to be elected. A shareholder may then cast all such
votes for a single candidate or may allocate them among as many candidates as
the shareholder may choose. In the absence of cumulative voting, the holders of
a majority of the shares present or represented at a meeting in which directors
are to be elected would have the power to elect all the directors to be elected
at such meeting, and no person could be elected without the support of holders
of a majority of the shares present or represented at such meeting. Elimination
of cumulative voting could make it more difficult for a minority shareholder
adverse to a majority of the shareholders to obtain representation on the
Company's Board of Directors. California corporations whose stock is listed on a
national stock exchange or whose stock is held by 800 shareholders of record and
included in the Nasdaq National Market System (a "Listed Company") can also
eliminate cumulative voting with shareholder approval. Although the Company may
qualify as a Listed Company, it has not sought shareholder approval to eliminate
cumulative voting. Under Delaware law, cumulative voting in the election of
directors is not mandatory, but is a permitted option. The Pinnacle Delaware
Certificate of Incorporation provides for cumulative voting rights and thus the
voting rights are unchanged from those of the Pinnacle California Articles of
Incorporation.
Removal of Directors. Under California law, any director or the entire
board of directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote; however, no individual
director may be removed (unless the entire board is removed) if the number of
votes cast against such removal would be sufficient to elect the director under
cumulative voting. Under Delaware law, a director of a corporation that does not
have a classified board of directors or cumulative voting may be removed with or
without cause with the approval of a majority of the outstanding shares entitled
to vote. In the case of a Delaware corporation having cumulative voting, if less
than the entire board is to be removed, a director may not be removed without
cause unless the number of shares voted against such removal would not be
sufficient to elect the director under cumulative voting. A director of a
corporation with a classified board of directors may be removed only for cause,
unless the certificate of incorporation otherwise provides.
Classified Board of Directors. A classified board is one on which a
certain number, but not all, of the directors are elected on a rotating basis
each year. This method of electing directors makes changes in the
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composition of the board of directors more difficult, and thus a potential
change in control of a corporation a lengthier and more difficult process.
California law permits certain qualifying corporations to provide for a
classified board of directors by adopting amendments to their articles of
incorporation or bylaws, which amendments must be approved by the shareholders.
Although Pinnacle California qualifies to adopt a classified board of directors,
its Board of Directors has no present intention of doing so. Delaware law
permits, but does not require, a classified board of directors, pursuant to
which the directors can be divided into as many as three classes with staggered
terms of office, with only one class of directors standing for election each
year. The Pinnacle Delaware Certificate of Incorporation and Bylaws do not
provide for a classified board and Pinnacle Delaware presently does not intend
to propose establishment of a classified board. The establishment of a
classified board following the Proposed Reincorporation would require the
approval of the shareholders of Pinnacle Delaware.
Indemnification and Limitation of Liability. California and Delaware
have similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit, with
certain exceptions, a corporation to adopt a provision in its articles of
incorporation or certificate of incorporation, as the case may be, eliminating
the liability of a director to the corporation or its shareholders for monetary
damages for breach of the director's fiduciary duty. There are nonetheless
certain differences between the laws of the two states respecting
indemnification and limitation of liability.
California law does not permit the elimination of monetary liability
where such liability is based on: (a) intentional misconduct or knowing and
culpable violation of law; (b) acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders, or that
involve the absence of good faith on the part of the director; (c) receipt of an
improper personal benefit; (d) acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders, where the
director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders; (e)
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (f) interested transactions between the corporation and a director
in which a director has a material financial interest; and (g) liability for
improper distributions, loans or guarantees.
Delaware law permits a corporation to eliminate the liability of
directors to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director to the fullest extent permissible under Delaware
law, as such law exists currently or as it may be amended in the future.
However, such provision may not eliminate or limit director monetary liability
for: (a) breaches of the director's duty of loyalty to the corporation or its
shareholders; (b) acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law; (c) the payment of unlawful dividends
or unlawful stock repurchases or redemptions; or (d) transactions in which the
director received an improper personal benefit. Such limitation of liability
provisions also may not limit a director's liability for violation of, or
otherwise relieve a corporation or its directors from the necessity of
complying, with federal or state securities laws, or affect the availability of
non-monetary remedies such as injunctive relief or rescission.
California law permits indemnification of expenses incurred in
derivative or third-party actions, except that with respect to derivative
actions (a) no indemnification may be made when a person is adjudged liable to
the corporation in the performance of that person's duty to the corporation and
its shareholders unless a court determines such person is entitled to indemnity
for expenses, and then such indemnification may be made only to the extent that
such court shall determine, and (b) no indemnification may be made without court
approval in respect of amounts paid or expenses incurred in settling or
otherwise disposing of a threatened or pending action or amounts incurred in
defending a pending action that is settled or otherwise disposed of without
court approval.
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California law requires indemnification when the individual has
defended successfully the action on the merits (as opposed to Delaware law,
which requires indemnification relating to a successful defense on the merits or
otherwise).
Delaware law generally permits indemnification of expenses, including
attorney's fees, actually and reasonably incurred in the defense or settlement
of a derivative or third-party action, provided there is a determination by a
majority vote of a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the shareholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law) not opposed to the best interests of
the corporation. Without court approval, however, no indemnification may be made
in respect of any derivative action in which such person is adjudged liable for
negligence or misconduct in the performance of his or her duty to the
corporation. Delaware law requires indemnification of expenses when the
individual being indemnified has successfully defended any action, claim, issue,
or matter therein, on the merits or otherwise.
Expenses incurred by an officer or director in defending an action may
be paid in advance, under Delaware law and California law, if such director or
officer undertakes to repay such amounts if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
California law permits a California corporation to provide rights to
indemnification beyond those provided therein to the extent such additional
indemnification is authorized in the corporation's articles of incorporation.
Thus, if so authorized, rights to indemnification may be provided pursuant to
agreements or bylaw provisions which make mandatory the permissive
indemnification provided by California law. Under California law, there are two
limitations on such additional rights to indemnification: (i) such
indemnification is not permitted for acts, omissions or transactions from which
a director of a California corporation may not be relieved of personal
liability, as described above; and (ii) such indemnification is not permitted in
circumstances where California law expressly prohibits indemnification, as
described above.
Delaware law also permits a Delaware corporation to provide
indemnification in excess of that provided by statute. By contrast to California
law, Delaware law does not require authorizing provisions in the certificate of
incorporation and does not contain express prohibitions on indemnification in
certain circumstances; limitations on indemnification may be imposed by a court,
however, based on principles of public policy. A provision of Delaware law
states that the indemnification provided by statute shall not be deemed
exclusive of any other rights under any bylaw, agreement, vote of shareholders
or disinterested directors or otherwise.
Inspection of Shareholder List. Both California and Delaware law allow
any shareholder to inspect the shareholder list for a purpose reasonably related
to such person's interest as a shareholder. California law provides, in
addition, for an absolute right to inspect and copy the corporation's
shareholder list by persons holding an aggregate of five percent (5%) or more of
a corporation's voting shares, or shareholders holding an aggregate of one
percent (1%) or more of such shares who have filed a Schedule 14B with the
Securities and Exchange Commission in connection with a contested election of
directors. The latter provision has not been amended in response to the
elimination of Schedule 14B under the revised proxy rules. Under California law,
such absolute inspection rights also apply to a corporation formed under the
laws of any other state if its principal executive offices are in California or
if it customarily holds meetings of its board in California. Delaware law also
provides for inspection rights as to a list of shareholders entitled to vote at
a meeting within a ten day period preceding a shareholders' meeting for any
purpose germane to the meeting. However,
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Delaware law contains no provisions comparable to the absolute right of
inspection provided by California law to certain shareholders.
Dividends and Repurchases of Shares. California law dispenses with the
concepts of par value of shares as well as statutory definitions of capital,
surplus and the like. The concepts of par value, capital and surplus are
retained under Delaware law.
Under California law, a corporation may not make any distribution
(including dividends, whether in cash or other property, and repurchases of its
shares, other than repurchases of its shares issued under employee stock plans
contemplated by Section 408 of the California Corporations Code) unless either
(i) the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution or (ii)
immediately after giving effect to such distribution, the corporation's assets
(exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1.25 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 1.25 times its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests are applied to California
corporations on a consolidated basis.
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.
To date, the Company has not declared or paid cash dividends on its
capital stock. The Company currently expects it will retain its future earnings
for use in the operation and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future.
Shareholder Voting. Both California and Delaware law generally require
that a majority of the shareholders of both acquiring and target corporations
approve statutory mergers. Delaware law does not require a shareholder vote of
the surviving corporation in a merger (unless the corporation provides otherwise
in its certificate of incorporation) if (a) the merger agreement does not amend
the existing certificate of incorporation, (b) each share of the stock of the
surviving corporation outstanding immediately before the effective date of the
merger is an identical outstanding or treasury share after the merger, and (c)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon conversion
of any other shares, securities or obligations to be issued or delivered under
such plan do not exceed twenty percent (20%) of the shares of common stock of
such constituent corporation outstanding immediately prior to the effective date
of the merger. California law contains a similar exception to its voting
requirements for reorganizations where shareholders or the corporation itself,
or both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
Both California law and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
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With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. In contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation that adversely
affects a specific class of shares. As a result, shareholder approval of such
transactions may be easier to obtain under Delaware law for companies which have
more than one class of shares outstanding.
California law also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than fifty percent (50%) but less than ninety percent (90%) of
such common stock or its affiliate unless all of the holders of such common
stock consent to the transaction. This provision of California law may have the
effect of making a "cash-out" merger by a majority shareholder more difficult to
accomplish. Although Delaware law does not parallel California law in this
respect, under some circumstances Section 203 does provide similar protection
against coercive two-tiered bids for a corporation in which the shareholders are
not treated equally. See "Significant Differences Between the Corporation Laws
of California and Delaware Shareholder Approval of Certain Business
Combinations."
California law provides that, except in certain circumstances, when a
tender offer or a proposal for a reorganization or for a sale of assets is made
by an interested party (generally a controlling or managing person of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation that
does not have shares held of record by at least 100 persons, or to a transaction
that has been qualified under California state securities laws. Furthermore, if
a tender of shares or vote is sought pursuant to an interested party's proposal
and a later proposal is made by another party at least ten days prior to the
date of acceptance of the interested party proposal, the shareholders must be
informed of the later offer and be afforded a reasonable opportunity to withdraw
any vote, consent or proxy, or to withdraw any tendered shares. Delaware law has
no comparable provision.
Voting by Ballot. California law provides that the election of
directors may proceed in the manner described in a corporation's bylaws.
Pinnacle California's Bylaws provide that the election of directors at a
shareholders' meeting may be by voice vote or ballot, unless prior to such vote
a shareholder demands a vote by ballot, in which case such vote must be by
ballot. Under Delaware law, the right to vote by written ballot may be
restricted if so provided in the Certificate of Incorporation. The Bylaws of
Pinnacle Delaware do not address election by ballot, but the Certificate of
Incorporation of Pinnacle Delaware, consistent with Pinnacle California's
Bylaws, provides that if a shareholder specifically demands election of
directors by ballot (or if the Bylaws provide that elections shall be by ballot)
then elections shall be held by ballot. Shareholders of Pinnacle Delaware may
therefore continue to demand election by ballot, unless and until the
Certificate of Incorporation is amended, which amendment would require a
majority shareholder vote. It may be more difficult for a shareholder to contest
the outcome of a vote that has not been conducted by written ballot.
Interested Director Transactions. Under both California and Delaware
law, certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under California and Delaware
law. Under California and Delaware law (a) either the shareholders or the board
of directors must approve any such contract or transaction after full disclosure
of the material facts, and, in the case of board approval, the contract or
transaction must also be "just and reasonable" (in California) or "fair" (in
Delaware) to the corporation or (b) the contract or transaction must have been
just and reasonable or fair as to the corporation at the time it was approved.
In the latter case, California law explicitly places the
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burden of proof on the at interested director. Under California law, if
shareholder approval is sought, the interested director is not entitled to vote
his shares at a shareholder meeting with respect to any action regarding such
contract or transaction. If board approval is sought, the contract or
transaction must be approved by a majority vote of a quorum of the directors,
without counting the vote of any interested directors (except that interested
directors may be counted for purposes of establishing a quorum). Under Delaware
law, if board approval is sought, the contract or transaction must be approved
by a majority of the disinterested directors (even if the disinterested
directors are less than a quorum). Therefore, certain transactions that the
Board of Directors of Pinnacle California might not be able to approve because
of the number of interested directors, could be approved by a majority of the
disinterested directors of Pinnacle Delaware, although less than a majority of a
quorum. The Company is not aware of any plans to propose any transaction
involving directors of the Company that could not be so approved under
California law but could be so approved under Delaware law.
Shareholder Derivative Suits. California law provides that a
shareholder bringing a derivative action on behalf of a corporation need not
have been a shareholder at the time of the transaction in question, provided
that certain tests are met. Under Delaware law, a shareholder may bring a
derivative action on behalf of the corporation only if the shareholder was a
shareholder of the corporation at the time of the transaction in question or if
his or her stock thereafter devolved upon him or her by operation of law.
California law also provides that the corporation or the defendant in a
derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond. Delaware does not have a
similar bonding requirement.
Dissenters' Rights. Under both California and Delaware law, a
shareholder of a corporation participating in certain major corporate
transactions may, under varying circumstances, be entitled to dissenters' rights
of appraisal pursuant to which such shareholder may receive cash in the amount
of the fair market value of his or her shares in lieu of the consideration he or
she would otherwise receive in the transaction. Under Delaware law, such fair
market value is determined exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation, and such appraisal
rights are not available (a) with respect to the sale, lease or exchange of all
or substantially all of the assets of a corporation, (b) with respect to a
merger or consolidation by a corporation the shares of which are either listed
on a national securities exchange or are held of record by more than 2,000
holders if such shareholders receive only shares of the surviving corporation or
shares of any other corporation that are either listed on a national securities
exchange or held of record by more than 2,000 holders, plus cash in lieu of
fractional shares of such corporations. or (c) to shareholders of a corporation
surviving a merger if no vote of the shareholders of the surviving corporation
is required to approve the merger under certain provisions of Delaware law.
The limitations on the availability of appraisal rights under
California law are different from those under Delaware law. Shareholders of a
California corporation whose shares are listed on a national securities exchange
or on a list of over-the-counter margin stocks issued by the Board of Governors
of the Federal Reserve System generally do not have such appraisal rights unless
the holders of at least five percent (5%) of the class of outstanding shares
claim the right or the corporation or any law restricts the transfer of such
shares. Appraisal rights are also unavailable if the shareholders of a
corporation or the corporation itself, or both, immediately prior to the
reorganization will own immediately after the reorganization equity securities
constituting more than five-sixths of the voting power of the surviving or
acquiring corporation or its parent entity (as will be the case in the
Reincorporation Proposal). Appraisal or dissenters' rights are, therefore, not
available to shareholders of Pinnacle California with respect to the
Reincorporation Proposal. California law generally affords appraisal rights in
sale of asset reorganizations.
Dissolution. Under California law, shareholders holding fifty percent
(50%) or more of the total voting power may authorize a corporation's
dissolution, with or without the approval of the corporation's
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board of directors, and this right may not be modified by the articles of
incorporation. Under Delaware law, unless the board of directors approves the
proposal to dissolve, the dissolution must be approved by all the shareholders
entitled to vote thereon. Only if the dissolution is initially approved by the
board of directors may it be approved by a simple majority of the outstanding
shares of the corporation's stock entitled to vote. In the event of such a
board-initiated dissolution, Delaware law allows a Delaware corporation to
include in its certificate of incorporation a super majority (greater than a
simple majority) voting requirement in connection with dissolutions. Pinnacle
Delaware's Certificate of Incorporation contains no such super majority voting
requirement, however, and a majority of the outstanding shares entitled to vote,
voting at a meeting at which a quorum is present, would be sufficient to approve
a dissolution of Pinnacle Delaware that had previously been approved by its
Board of Directors.
Certain Federal Income Tax Considerations
The following is a discussion of certain federal income tax
considerations that may be relevant to holders of Pinnacle California Common
Stock who receive Pinnacle Delaware Common Stock in exchange for their Pinnacle
California Common Stock as a result of the Proposed Reincorporation. The
discussion does not address all of the tax consequences of the Proposed
Reincorporation that may be relevant to particular Pinnacle California
shareholders, such as dealers in securities, or those Pinnacle California
shareholders who acquired their shares upon the exercise of stock options, nor
does it address the tax consequences to holders of options or warrants to
acquire Pinnacle California Common Stock. Furthermore, no foreign, state, or
local tax considerations are addressed herein. IN VIEW OF THE VARYING NATURE OF
SUCH TAX CONSEQUENCES, EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION,
INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS. This
discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the applicable Treasury Regulations promulgated thereunder, judicial
authority and current administrative rulings and practices in effect on the date
of this Proxy Statement.
The Proposed Reincorporation is expected to qualify as a reorganization
within the meaning of Section 368(a) of the Code, with the following tax
consequences:
(a) No gain or loss should be recognized by holders of Pinnacle
California Common Stock upon receipt of Pinnacle Delaware Common Stock pursuant
to the Proposed Reincorporation;
(b) The aggregate tax basis of the Pinnacle Delaware Common Stock
received by each shareholder in the Proposed Reincorporation should be equal to
the aggregate tax basis of the Pinnacle California Common Stock surrendered in
exchange therefor; and
(c) The holding period of the Pinnacle Delaware Common Stock
received by each shareholder of Pinnacle California should include the period
for which such shareholder held the Pinnacle California Common Stock surrendered
in exchange therefor, provided that such Pinnacle California Common Stock was
held by the shareholder as a capital asset at the time of Proposed
Reincorporation.
The Company has not requested a ruling from the Internal Revenue
Service (the "IRS") or an opinion of counsel with respect to the federal income
tax consequences of the Proposed Reincorporation under the Code. A successful
IRS challenge to the reorganization status of the Proposed Reincorporation (in
consequence of a failure to satisfy the "continuity of interest" requirement or
otherwise) would result in a shareholder recognizing gain or loss with respect
to each share of Pinnacle California Common Stock exchanged in the Proposed
Reincorporation equal to the difference between the shareholder's basis in such
share and the fair market value, as of the time of the Proposed Reincorporation,
of the Pinnacle Delaware, Common Stock received in exchange therefor. In such
event, a shareholder's aggregate basis in the shares of
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Pinnacle Delaware Common Stock received in the exchange would equal their fair
market value on such date, and the shareholder's holding period for such shares
would not include the period during which the shareholder held Pinnacle
California Common Stock.
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PROPOSAL THREE
AMENDMENT OF 1994 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the shareholders are being asked to approve an
amendment of the Company's 1994 Employee Stock Purchase Plan (the "Purchase
Plan") to increase the number of shares reserved for issuance thereunder by
300,000 shares and to provide for an annual increase in the number of shares of
Common Stock reserved thereunder by the lesser of 300,000 shares or 2% of the
outstanding shares of Common Stock. The adoption of the Purchase Plan was
approved by the Board of Directors in August 1994 and by the shareholders in
September 1994. In April 1997 the shareholders approved an amendment to the
Purchase Plan to increase the number of shares reserved for issuance under the
Purchase Plan to 350,000. As of June 30, 1998, a total of 223,373 shares had
been issued to employees at an average purchase price of $11.05 per share
pursuant to seven offerings under the Purchase Plan and 126,627 shares remain
available for future issuance.
Recent accounting pronouncements have altered the accounting treatment
in the case of a shortfall of shares reserved for issuance under an employee
stock purchase plan. As a result, if a shortfall occurs during a purchase
period, the Company is unable to seek shareholder approval for an increase
without incurring significant compensation charges. Therefore, the Board of
Directors has approved the amendment to the Purchase Plan which would
automatically increase the shares reserved for issuance under the Purchase Plan
according to a formula and proposed that it be approved by the shareholders at
this Annual Meeting. While such an amendment minimizes the likelihood of a
shortfall and resulting compensation charge, the Purchase Plan will require
periodic monitoring to ensure that no shortfall occurs. As amended, the number
of shares reserved for issuance under the Purchase Plan would be increased
automatically each year on the date of the Annual Meeting of Shareholders
commencing in 1999 by an amount equal to the lesser of (i) 300,000 shares or
(ii) 2% of the outstanding shares of the Company on such date. If a shortfall
occurs, the Company shall make a pro rata allocation of the shares remaining
available for purchase in as uniform a manner as shall be practicable and as it
shall determine to be equitable. If the amendment to the Purchase Plan is
approved, a maximum additional 1,800,000 shares would be reserved for issuance
under the Purchase Plan and therefor the maximum number of shares which could be
issued under the Purchase Plan over its term would be 2,150,000 shares.
The purpose of the Purchase Plan is to provide employees of the Company
with an opportunity to purchase Common Stock of the Company through accumulated
payroll deductions. In connection with its initial public offering in 1994, the
Company implemented the Purchase Plan as an incentive to its employees and
executives as a means to promote increased shareholder value. Management
believes that stock ownership is 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, an employee stock purchase plan is
considered a competitive necessity in the high technology industry.
The fair market value of the Common Stock of the Company on the first
day of the most recent offering period was $40.25 per share. See "Purchase
Price."
Vote Required
The affirmative vote of a majority of the Votes Cast will be required
by law to approve the amendment to the Purchase 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
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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 for the
transaction of business 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 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 Purchase Plan.
The essential terms of the Purchase Plan, as amended, are summarized as
follows:
Purpose
The purpose of the Purchase Plan is to provide employees of the Company
and of any subsidiary which is designated by the Board of Directors to
participate in the Purchase Plan with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. The Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code").
Administration
The Purchase Plan provides for administration by the Board of Directors
of the Company or a committee appointed by the Board. The Purchase Plan is
currently administered by the Board. All questions of interpretation or
application of the Purchase Plan are determined by the Board of Directors or its
appointed committee, and its decisions are final and binding upon all
participants. No charge for administrative or other costs may be made against
the payroll deductions of a participant in the Purchase Plan. Members of the
Board receive no additional compensation for their services in connection with
the administration of the Purchase Plan.
Offering Periods
The Purchase Plan has offering periods of approximately twenty-four
months, each divided into four six-month purchase periods. The offering periods
commence on or after May 1 and November 1 of each year. The Board of Directors
has the power to alter the duration of the offering periods without shareholder
approval.
Eligibility
Any person who (i) is a regular employee scheduled to work at least
twenty hours per week and at least five months per year and (ii) was employed by
the Company preceding a given enrollment date immediately preceding the
enrollment date (or by any subsidiary designated from time to time by the Board
of Directors) is eligible to participate in the Purchase Plan. Eligible
employees become participants in the Purchase Plan by delivering to the
Company's payroll office a subscription agreement authorizing payroll
deductions. An employee who becomes eligible to participate in the Purchase Plan
after the commencement of an offering may not participate in the Purchase Plan
until the commencement of the next offering period.
Purchase Price
The price at which shares are sold to participating employees is
eighty-five percent (85%) of the lower of the fair market value per share of the
Common Stock on (i) the first day of the offering period or (ii) the last day of
the purchase period. The fair market value of the Common Stock on a given date
is
27
<PAGE>
determined by reference to the closing sales price of the Nasdaq National
Market. The closing sale price per share of the Company's Common Stock on the
Nasdaq National Market on August 27, 1998 was $31.25.
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares is accumulated by payroll deductions
over the offering period. The deductions may not exceed 15% of a participant's
compensation. A participant may discontinue his or her participation in the
Purchase Plan and may decrease the rate of payroll deductions at any time during
the offering period. A participant may increase the rate of payroll deductions
at the beginning of each purchase period. Payroll deductions shall commence on
the first payday following the offering date and shall continue at the same rate
until the end of the offering period unless sooner terminated as provided in the
Purchase Plan.
Purchase of Stock; Exercise of Option
By executing a subscription agreement to participate in the Purchase
Plan, the employee is entitled to have shares placed under option to him or her.
The maximum number of shares placed under option to a participant in an offering
is that number arrived at by dividing the amount of his or her compensation
which he or she has elected to have withheld for the purchase period by the
lower of (i) 85% of the fair market value of a share of Common Stock at the
beginning of the offering period, or (ii) 85% of the fair market value of a
share of Common Stock on the last day of the purchase period as long as the
total number of shares issued to a participant for any purchase period does not
exceed a number determined by dividing $12,500 by the market value of a share of
Common Stock at the beginning of the offering period. Unless the employee's
participation is discontinued, the option for the purchase of shares will be
exercised automatically at the end of the purchase period at the applicable
price.
Notwithstanding the forgoing, no employee shall be permitted to
subscribe for shares under the Purchase Plan (a) if, immediately after the grant
of the option, the employee would own, and/or hold outstanding options to
purchase, 5% or more of the voting stock or value of all classes of stock of the
Company or (b) which permits his or her rights to purchase stock under all
employees stock purchase plans of the Company and its subsidiaries to accrue at
a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
Furthermore, if the number of shares which would otherwise be placed under
option at the beginning of an offering period exceeds the number of shares then
available under the Purchase Plan, a pro rata allocation of the shares remaining
shall be made in as equitable a manner as is practicable.
Withdrawal
While each participant in the Purchase Plan is required to sign a
subscription agreement authorizing payroll deductions, the participant's
interest in a given offering may be terminated in whole, but not in part, by
signing and delivering to the Company a notice of withdrawal from the Purchase
Plan. Such withdrawal may be elected at any time prior to the end of the
applicable offering period. Any withdrawal by the employee during a given
offering automatically terminates the employee's interest in that offering.
Termination of Employment
Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the Purchase Plan
immediately. In such event, the payroll deductions credited to the participant's
account will be returned without interest to such participant, or, in the case
of death, to the person or persons entitled thereto as specified by the employee
in the subscription agreement.
28
<PAGE>
Capital Changes
In the event of any changes in the capitalization of the Company, such
as stock splits or stock dividends, resulting in an increase or decrease in the
number of shares of Common Stock, effected without receipt of consideration by
the Company, appropriate adjustments will be made by the Company in the shares
subject to purchase and in the purchase price per share. No change in the
Purchase Plan would result from the reincorporation of the Company as a Delaware
corporation as set forth in Proposal Two.
Nonassignability
No rights or accumulated payroll deductions of an employee under the
Purchase Plan may be pledged, assigned, or transferred for any reason and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
Shares Reserved for Issuance under the Purchase Plan
A total of 350,000 shares of Common Stock has been reserved for
issuance under the Purchase Plan, not including the 300,000 subject to
shareholder approval at this Annual Meeting. On the date of each Annual Meeting
of Shareholders (commencing in 1999), the number of shares reserved thereunder
shall be increased automatically by the lesser of (i) 300,000 shares, or (ii) 2%
of the outstanding shares of the Company on such date.
Amendment and Termination of the Purchase Plan
The Board of Directors may at any time amend or terminate the Purchase
Plan, except that such termination shall not affect options previously granted
nor may any amendment make any changes in an option granted prior thereto which
adversely affects the rights of any participant. No amendment may be made to the
Purchase Plan without prior approval of the shareholders of the Company if such
amendment would increase the number of shares reserved under the Purchase Plan,
materially modify the eligibility requirements, or materially increase the
benefits which may accrue to participants under the Purchase Plan.
Certain United States Federal Income Tax Information
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 423 of the
Code. Under these provisions, no income will be taxable to a participant until
the shares purchased under the Purchase Plan are sold or otherwise disposed of.
Upon sale or other disposition of the shares, the participant will generally be
subject to tax and the amount of the tax will depend upon the holding period. If
the shares are sold or otherwise disposed of more than two years from the first
day of the offering period and more than one year from the date of the shares
are purchased, the participant will recognize ordinary income measured as the
lesser of (a) the excess of the fair market value of the shares at the time of
such sale or disposition over the purchase price, or (b) an amount equal to 15%
of the fair market value of the shares as of the first day of the offering
period. Any additional gain will be treated as long-term capital gain. If the
shares are sold or otherwise disposed of before the expiration of these holding
periods, the participant will recognize ordinary income generally measured as
the excess of the fair market value of the shares on the date the shares are
purchased over the purchase price. Any additional gain or loss of such sale or
disposition will be long-term or short-term capital gain or loss, depending on
the holding period. Generally, the Company is entitled to a deduction for
ordinary income recognized by participants upon a sale or disposition of shares
prior to the expiration of the holding period(s) described above.
The foregoing is only a summary of the effect of federal income
taxation upon the participant and the Company with respect to the shares
purchased under the Purchase Plan. Reference should be made to the
29
<PAGE>
applicable provisions of the Code. In additional, the summary does not discuss
the tax consequences of a participant's death or the income tax laws of any
state or foreign country in which the participant may reside.
Participation in the Purchase Plan
Participation in the Purchase Plan is voluntary and is dependent on
each eligible employee's election to participate and his or her determination as
to the level of payroll deductions. Accordingly, future purchases under the
Purchase Plan are not determinable. Non-employee directors are not eligible to
participate in the Purchase Plan.
<TABLE>
The following table sets forth certain information regarding shares
purchased during the fiscal year ended June 30, 1998 by each of the executive
officers named in the Summary Compensation Table below who participated in the
Purchase Plan, all current executive officers as a group, and all other
employees who participated in the Purchase Plan as a group:
<CAPTION>
NUMBER OF
NAME OF INDIVIDUAL OR IDENTITY OF GROUP SHARES DOLLAR
AND POSITION PURCHASED VALUE (1)
- ----------------------------------------------- ------------------- ----------------
<S> <C> <C>
Mark L. Sanders 2,298 $ 56,028
Ajay Chopra 2,014 50,985
William Loesch 2,297 55,997
Robert Wilson 1,285 26,889
Kevin Hunt 140 2,422
All Current Executive Officers as a group (11 Persons) 17,087 412,110
Non Executive Officer Directors as a group * --
All Other Employees as a group 93,868 2,650,431
<FN>
*Not eligible to participate in the Purchase Plan.
(1) Market value of shares on date of purchase minus the purchase price under the Purchase Plan.
</FN>
</TABLE>
30
<PAGE>
PROPOSAL FOUR
AMENDMENT TO 1996 STOCK OPTION PLAN
At the Annual Meeting, the shareholders are being asked to approve the
amendment of the Company's 1996 Stock Option Plan (the "Plan") to increase the
number of shares of Common Stock reserved for issuance thereunder by 500,000
shares. The amendment to the Plan was approved by the Board of Directors in July
1998. As of August 27, 1998, options to purchase an aggregate of 511,950 shares
of the Company's Common Stock were outstanding under the Plan with a weighted
average exercise price of $22.50 per share, and 97,700 shares (excluding the
500,000 shares subject to shareholder approval at this Annual Meeting) were
available for future grant. No shares have been purchased pursuant to exercise
of stock options granted under the plan. The Plan authorizes the Board of
Directors to grant incentive and nonstatutory stock options to eligible
employees, directors and consultants of the Company.
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.
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 any, 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.
31
<PAGE>
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, the Administrator takes 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 options which are
exercisable for the first time in any one calendar year. The Plan provides that
a maximum of 200,000 shares (300,000 shares if in connection with initial
employment) 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 applicable laws.
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 27, 1998 was $31.25.
32
<PAGE>
(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.
In the absence of a specified time in the option agreement, the option shall
remain exercisable for 90 days after the optionee's termination.
(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.
In the absence of a specified time in the option agreement, the option shall
remain exercisable for one year following the optionee's termination.
(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.
(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.
33
<PAGE>
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 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 1998. Information regarding options
granted to non-employee Directors during fiscal 1998 is set forth under the
heading "Executive Compensation and Other Matters--Compensation of Directors."
During fiscal 1998, all current executive officers as a group
34
<PAGE>
and all other employees as a group were granted options to purchase 255,000
shares and 813,800 shares, respectively, pursuant to all stock option plans.
35
<PAGE>
PROPOSAL FIVE
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 year ending June 30, 1999, and recommends that shareholders vote for
ratification of such appointment. Although action by shareholders is not
required by law, the Board of Directors has determined that it is desirable to
request approval of this selection by the shareholders. Notwithstanding the
selection, the Board of Directors, in its discretion, may direct the appointment
of new independent auditors at any time during the year, if the Board of
Directors feels that such a change would be in the best interest of the Company
and its shareholders. 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 Recommends a Vote "For" the Ratification of the Appointment
of KPMG Peat Marwick LLP as Independent Auditors of the Company for the Fiscal
Year Ending June 30, 1999.
36
<PAGE>
<TABLE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth certain information
regarding the compensation of the Chief Executive Officer of the Company and the
next four most highly compensated executive officers of the Company (the "Named
Executive Officers") for services rendered in all capacities to the Company for
the fiscal year ended June 30, 1998.
<CAPTION>
Long-term
Compensation
Awards
------------------
Annual Compensation Number of
-------------------------------------- Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary ($) Bonus Options Compensation
- ------------------------------ --------- ---------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Mark L. Sanders.............. 1998 $ 244,000 $ 41,250 40,000 $ --
President, Chief Executive 1997 188,000 -- 45,000 --
Officer and Director 1996 176,500 6,000 9,000 --
Ajay Chopra (1).............. 1998 170,004 $ 24,750 20,000 --
Chairman of the Board of 1997 152,504 -- 20,000 --
Directors and Vice 1996 133,500 6,000 9,000 --
President, Desktop Products
William Loesch ..............
Vice President, Consumer 1998 170,000 $ 24,750 20,000 --
Products Group 1997 132,507 -- 40,000 --
1996 121,500 7,905 9,000 --
Robert Wilson (2)............ 1998 170,000 $ 24,750 15,000 --
Vice President, General 1997 32,206 -- 45,000 --
Manager, Broadcast 1996 -- -- -- --
Products
Kevin Hunt (3) .............. 1998 189,227 -- 25,000 --
Vice President, North 1997 15,224 5,000 -- --
American Sales 1996 -- -- -- --
<FN>
(1) Mr. Chopra became Vice President, General Manager, Desktop Products in April
1997. Prior to then, in 1996, he was Chief Technical Officer.
(2) Mr. Wilson joined the Company in April 1997.
(3) Mr. Hunt joined the Company in May 1997, and served as Director, Consumer
Sales until February 1998, when he was appointed Vice President, North
American Sales.
</FN>
</TABLE>
37
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
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, 1998 to the Named Executive Officers.
<CAPTION>
Potential Realizable
Value Minus Exercise
Number of % of Total Price at Stock Price
Securities Options Appreciation
Underlying Granted to For Option Term (1)
Options Employees in Exercise Price Expiration ------------------------
Name Granted (2) Fiscal Year Per Share (3)(4) Date 5% 10%
- ---------------------------------- ------------- --------------- ------------------ -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Sanders.................. 40,000 3.39% 20.25 1/12/08 $ 509,405 $1,290,931
Ajay Chopra...................... 20,000 1.70% 20.25 1/12/08 254,702 645,466
William Loesch................... 20,000 1.70% 20.25 1/12/08 254,702 645,466
Robert Wilson.................... 15,000 1.30% 20.25 1/12/08 191,027 484,099
Kevin Hunt....................... 20,000 1.70% 17.38 7/08/07 218,604 553,985
5,000 0.42% 20.25 1/12/08 63,676 161,366
<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
Commission and do not reflect the Company's estimate of future stock price
growth.
(2) The options shown granted in fiscal 1998 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.
(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 price
reported on the Nasdaq National Market on the date of grant.
(4) Exercise price and tax withholding obligations 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.
</FN>
</TABLE>
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-End Option Values
<TABLE>
The following table sets forth certain information regarding the
exercise of stock options during fiscal 1998 and the value of options held as of
June 30, 1998 by the Named Executive Officers.
<CAPTION>
Number of Securities Potential Realizable Value
Underlying Unexercised Minus Exercise Price at
Shares Options at June 30, 1998 # Stock Price Appreciation (2)
Acquired on Value ------------------------------ -------------------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------- ------------- --------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Sanders................ 114,935 $3,404,941 115,792 81,168 $3,330,121 $1,394,131
Ajay Chopra.................... 10,000 360,000 54,103 39,897 1,305,013 659,277
William Loesch................. 14,000 383,700 41,353 58,647 944,719 1,074,121
Robert Wilson.................. 12,500 211,888 16,562 30,938 318,819 488,682
Kevin Hunt..................... 5,000 98,625 416 19,584 6,240 279,385
- -------------------------------
<FN>
(1) Market value of the Company's Common Stock at the exercise date minus the
exercise price.
(2) Market value of the Company's Common Stock at fiscal year end minus the
exercise price.
</FN>
</TABLE>
38
<PAGE>
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.
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 Named 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, during fiscal 1998, an option to purchase 1,250 shares of
the Company's Common Stock at an exercise price of $28.25 per share was granted
to each of John Lewis, Nyal D. McMullin, Glenn E. Penisten and Charles J.
Vaughan. In addition, upon joining the Board in July 1998, Mr. Ballard was
granted an option to purchase 5,000 shares of Common Stock at an exercise price
of $31.75.
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, 1998.
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 such 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 two integrated
components--Cash Compensation, Bonuses and Stock Options Incentives--to meet
these goals.
Cash Compensation
The cash compensation component of the total compensation is designed
to compensate executives competitively within the industry and the marketplace
and comprises two segments, base salary and bonuses.
39
<PAGE>
The Committee reviewed and approved calendar 1998 base salaries for the Chief
Executive Officer and other executive officers at the beginning of the calendar
year.
Bonuses
In February 1998, the Board of Directors established an incentive
compensation plan for executive officers of the Company based upon the Company's
achievement of revenue and net income targets for the third and fourth quarters
of fiscal 1998. Base salaries and the bonus levels 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. No specific formula was applied to determine the weight of
each factor.
During fiscal 1998, the compensation of Mark L. Sanders, the Company's
President and Chief Executive Officer, consisted of base salary, and stock
options. Mr. Sanders base salary for fiscal 1998 was approximately $244,000. In
addition, Mr. Sanders was granted an option to purchase 40,000 shares of Common
Stock at an exercise price of $20.25, which was the fair market value of the
Company's Common Stock at the date of grant. Mr. Sanders also received a cash
bonus of $41,250. 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.
Stock Options
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 until April 1997, and since then, the Company's 1996 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 1998, Mr. Sanders
received an option to purchase 40,000 shares of Common Stock and the executive
officers as a group received options to purchase 255,000 shares of Common Stock.
Incentives for executive officers 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, stock options have been granted
to certain officers which have accelerated vesting provisions if certain
quarterly and annual sales and profitability objectives are met. The executive
officers, including Mr. Sanders, must successfully achieve these performance
targets which were submitted by management to the Committee for its evaluation
and approval at in conjunction with the stock option grant. The Committee
evaluates the completion of the goals and acceleration of the stock option
vesting if the goals have been met. The Committee believes that the stock option
acceleration provision provides an excellent link between the Company's earnings
performance and the incentives paid to executives.
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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 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). The 1996 Stock Option Plan,
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
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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 Hambrecht & Quist Technology Index, The Nasdaq
Stock Market (U.S.) Index for the period commencing November 11, 1994 (the date
of the Company's initial public offering) and ending on June 30, 1998. Returns
for the indices are weighted based on market capitalization at the beginning of
each fiscal year.
Comparison of 44 Month Cumulative Total Return(1) Among Pinnacle Systems, Inc.,
The Hambrecht & Quist Technology Index, The Nasdaq Stock Market (U.S.) Index
[The following descriptive is supplied in accordance with Rule 304(d)
of Regulation S-T: graphic depicting data set forth below as three lines with
dollars on the vertical axis and dates from 11/08/94 to 6/98 on the horizontal
axis.]
Cumulative Total Return
-----------------------
11/08/94 6/95 6/96 6/97 6/98
------------ -------- -------- ------- ------
Pinnacle Systems, Inc. 100.00 225.00 207.50 170.63 323.75
Hambrecht & Quist Technology 100.00 122.39 157.13 191.06 252.19
NASDAQ Stock Market (U.S.) 100.00 143.13 167.28 218.46 276.73
- --------------------------------
(1) The graph assumes that $100 was invested on November 11, 1994 in the
Company's Common Stock and in the Hambrecht & Quist Technology and the
NASDAQ Stock Market (U.S.) 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.
The information contained in the preceding pages under the captions
"Report of the Board of Directors on Executive Compensation" 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 of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, 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 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 Commission and the National Association of
Securities Dealers, Inc. Executive officers, directors and greater than ten
percent shareholders are required by Commission 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 fiscal 1998
all executive officers and directors of the Company complied with all applicable
filing requirements.
42
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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 16, 1998
43
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PRELIMINARY COPIES
FILED AUGUST 31, 1998
PROXY
PINNACLE SYSTEMS, INC.
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
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 16, 1998, 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 1998 Annual Meeting
of Shareholders of PINNACLE SYSTEMS, INC. to be held on October 21, 1998 at 9:00
a.m., local time, at 280 North Bernardo Avenue, Mountain View, California 94043
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 the reverse side.
1. Election of directors:
Nominees: Mark L. Sanders, L. Gregory Ballard, Ajay Chopra, John Lewis,
Nyal D. McMullin, Glenn E. Penisten, Charles J. Vaughan
[_] FOR all nominees listed above (except as marked to the contrary below)
[_] WITHHOLD AUTHORITY to vote for all nominees listed above
--------------------------------------------------------------------------
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee(s) name(s) on the line above.
2. Proposal to approve the reincorporation of the Company as a Delaware
corporation by means of a merger of the Company with and into a wholly
owned Delaware subsidiary of the Company:
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to approve an amendment to the 1994 Employee Stock Purchase Plan
to (i) increase the number of shares of Common Stock reserved for issuance
thereunder by 300,000 shares and (ii) provide for an annual increase in
the number of shares of Common Stock reserved thereunder by the lesser of
300,000 shares or 2% of outstanding shares of Common Stock:
[_] FOR [_] AGAINST [_] ABSTAIN
4. Proposal to approve an amendment to the 1996 Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance thereunder by
500,000 shares:
[_] FOR [_] AGAINST [_] ABSTAIN
5. Proposal to ratify appointment of KPMG Peat Marwick as independent
auditors of Pinnacle Systems, Inc. for the fiscal year ending June 30,
1998:
[_] FOR [_] AGAINST [_] ABSTAIN
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment or adjournments thereof.
44
<PAGE>
Both of such attorneys or substitutes (if both are present and acting at said
meeting or any adjournment(s) thereof, or, if only one shall be present and
acting, then that one) shall have and may exercise all of the powers of said
attorneys-in-fact hereunder.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [_]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE REINCORPORATION INTO
DELAWARE, FOR THE AMENDMENT OF THE 1994 EMPLOYEE STOCK PURCHASE PLAN, FOR THE
AMENDMENT OF THE 1996 STOCK OPTION PLAN AND FOR THE APPOINTMENT OF KPMG PEAT
MARWICK, OR AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING, INCLUDING, AMONG OTHER THINGS, CONSIDERATION OF ANY
MOTION MADE FOR ADJOURNMENT OF THE MEETING.
Dated:
------------------------------------------
- ------------------------------------------------
Signature
------------------------------------------------
Signature
(This Proxy should be marked, dated and signed by the shareholders(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.)
45
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
OF PINNACLE SYSTEMS, INC.
A DELAWARE CORPORATION,
AND
PINNACLE SYSTEMS, INC.
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of ___________, 1998 (the
"Agreement") is between Pinnacle Systems, Inc., a Delaware corporation
("Pinnacle Delaware"), and Pinnacle Systems, Inc., a California corporation
("Pinnacle California"). Pinnacle Delaware and Pinnacle California are sometimes
referred to herein as the "Constituent Corporations."
RECITALS
A. Pinnacle Delaware is a corporation duly organized and existing under
the laws of the State of Delaware and has an authorized capital of 35,000,000
shares, $.001 par value, of which 30,000,000 shares are designated "Common
Stock," and 5,000,000 shares are designated "Preferred Stock." Of the Preferred
Stock, 25,000 shares are designated Series A Participating Preferred in
connection with Pinnacle California's Shareholders' Rights Plan. The remaining
shares of Preferred Stock of Pinnacle Delaware is undesignated as to series,
rights, preferences, privileges or restrictions. As of _________, 1998, 100
shares of Common Stock were issued and outstanding, all of which are held by
Pinnacle California, and no shares of Preferred Stock were issued and
outstanding.
B. Pinnacle California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital of
20,000,000 shares, no par value, of which 15,000,000 are designated "Common
Stock," and 5,000,000 shares are designated "Preferred Stock." Of the Preferred
Stock, 25,000 shares of Preferred Stock are designated Series A Participating
Preferred and the remaining shares of Preferred Stock of Pinnacle California is
undesignated as to series, rights, preferences, privileges or restrictions. As
of August 27, 10,089,527 shares of Common Stock were issued and outstanding, and
no shares of Preferred Stock were issued and outstanding.
C. The Board of Directors of Pinnacle California has determined that,
for the purpose of effecting the reincorporation of Pinnacle California in the
State of Delaware, it is advisable and in the best interests of Pinnacle
California and its shareholders that Pinnacle California merge with and into
Pinnacle Delaware upon the terms and conditions herein provided.
D. The respective Boards of Directors of Pinnacle Delaware and Pinnacle
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective shareholders and executed by the
undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Pinnacle Delaware and Pinnacle California hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
<PAGE>
I
MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California General Corporation Law,
Pinnacle California shall be merged with and into Pinnacle Delaware (the
"Merger"), the separate existence of Pinnacle California shall cease and
Pinnacle Delaware shall survive the Merger and shall continue to be governed by
the laws of the State of Delaware, and Pinnacle Delaware shall be, and is herein
sometimes referred to as, the "Surviving Corporation," and the name of the
Surviving Corporation shall be Pinnacle Systems, Inc.
1.2 Filing and Effectiveness. The Merger shall become effective when
the following actions shall have been completed:
(a) This Agreement and the Merger was adopted and approved by
the shareholders of each Constituent Corporation in accordance with the
requirements of the Delaware General Corporation Law and the California
General Corporation Law on _________, 1998 and __________, 1998,
respectively;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly
waived by the party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed,
acknowledged and certified counterpart of this Agreement meeting the
requirements of the Delaware General Corporation Law shall have been
filed with the Secretary of State of the State of Delaware; and
(d) An executed Certificate of Merger or an executed
counterpart of this Agreement meeting the requirements of the
California General Corporation Law shall have been filed with the
Secretary of State of the State of California.
The date and time when the Merger shall become effective, as aforesaid,
is herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of Pinnacle California shall cease and Pinnacle Delaware, as
the Surviving Corporation, (i) shall continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the Effective
Date of the Merger, (ii) shall be subject to all actions previously taken by its
and Pinnacle California's Boards of Directors, (iii) shall succeed, without
other transfer, to all of the assets, rights, powers and property of Pinnacle
California in the manner as more fully set forth in Section 259 of the Delaware
General Corporation Law, (iv) shall continue to be subject to all of its debts,
liabilities and obligations as constituted immediately prior to the Effective
Date of the Merger, and (v) shall succeed, without other transfer, to all of the
debts, liabilities and obligations of Pinnacle California in the same manner as
if
2
<PAGE>
Pinnacle Delaware had itself incurred them, all as more fully provided under the
applicable provisions of the Delaware General Corporation Law and the California
General Corporation Law.
II
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Pinnacle Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Pinnacle Delaware as in effect immediately
prior to the Effective Date of the Merger shall continue in full force and
effect as the Bylaws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Pinnacle
California immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their respective
successors shall have been duly elected and qualified or until as otherwise
provided by law, or the Certificate of Incorporation of the Surviving
Corporation or the Bylaws of the Surviving Corporation.
III
MANNER OF CONVERSION OF STOCK
3.1 Pinnacle California Common Stock. Upon the Effective Date of the
Merger, each share of Pinnacle California Common Stock, no par value, issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by the Constituent Corporations, the holder of such shares or any
other person, be changed and converted into and exchanged for one fully paid and
nonassessable share of Common Stock, $.001 par value, of the Surviving
Corporation.
3.2 Pinnacle California Options and Stock Purchase Rights. Upon the
Effective Date of the Merger, the Surviving Corporation shall assume and
continue the stock option plans (including without limitation the 1996 Stock
Option Plan, the 1996 Supplemental Stock Option Plan and the 1994 Director
Option Plan) and all other employee benefit plans (including without limitation
the 1994 Employee Stock Purchase Plan) of Pinnacle California. Each outstanding
and unexercised option or other right to purchase or security convertible into
Pinnacle California Common Stock shall become an option or right to purchase or
a security convertible into the Surviving Corporation's Common Stock on the
basis of one share of the Surviving Corporation's Common Stock for each share of
Pinnacle California Common Stock issuable pursuant to any such option, stock
purchase right or convertible security, on the same terms and conditions and at
an exercise price per share equal to the exercise price applicable to any such
3
<PAGE>
Pinnacle California option, stock purchase right or convertible security at the
Effective Date of the Merger. Except as set forth in Section 3.3, there are no
options, purchase rights for or securities convertible into Preferred Stock of
Pinnacle California.
A number of shares of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of options, stock purchase rights or
convertible securities equal to the number of shares of Pinnacle California
Common Stock so reserved immediately prior to the Effective Date of the Merger.
3.3 Pinnacle California Preferred Share Purchase Rights. Upon the
Effective Date of the Merger, the Surviving corporation shall assume and convert
the Series A Preferred Stock Purchase Rights declared and issued by Pinnacle
California on February 17, 1997 and the rights and obligations of Pinnacle
California pursuant to the Amended and Restated Preferred Share Rights Agreement
dated as of December 12, 1996, as amended, by and among Pinnacle California and
ChaseMellon Shareholder Services LLC (the "Rights Agreement"). The Merger shall
not be deemed a "Triggering Event" as such term is defined in the Rights
Agreement.
A number of shares of the Surviving Corporation's Common Stock
shall be reserved for issuance upon the exercise of stock purchase rights and
convertible securities equal to the number of shares of Pinnacle California
Common Stock so reserved immediately prior to the Effective Date of the Merger.
3.4 Pinnacle Delaware Common Stock. Upon the Effective Date of the
Merger, each share of Common Stock, $.001 par value, of Pinnacle Delaware issued
and outstanding immediately prior thereto shall, by virtue of the Merger and
without any action by Pinnacle Delaware, the holder of such shares or any other
person, be canceled and returned to the status of authorized but unissued
shares.
3.5 Exchange of Certificates. After the Effective Date of the Merger,
each holder of an outstanding certificate representing shares of Pinnacle
California Common Stock may, at such stockholder's option, surrender the same
for cancellation to ChaseMellon Shareholder Services, L.L.C. as exchange agent
(the "Exchange Agent"), and each such holder shall be entitled to receive in
exchange therefor a certificate or certificates representing the number of
shares of the Surviving Corporation's Common Stock into which such holders'
shares of Pinnacle California Common Stock were converted as herein provided.
Unless and until so surrendered, each outstanding certificate theretofore
representing shares of Pinnacle California Common Stock shall be deemed for all
purposes to represent the number of whole shares of the Surviving Corporation's
Common Stock into which such shares of Pinnacle California Common Stock were
converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any shares of stock represented by such
outstanding certificate shall, until such certificate shall have been
surrendered for transfer or conversion or otherwise accounted for to the
Surviving Corporation or the Exchange Agent, have and be entitled to exercise
any voting and other rights with respect to and to receive dividends and other
distributions upon the shares of Common Stock of the Surviving Corporation
represented by such outstanding certificate as provided above.
4
<PAGE>
Each certificate representing Common Stock of the Surviving Corporation
so issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Pinnacle California so
converted and given in exchange therefor, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws.
If any certificate for shares of Pinnacle Delaware stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and that the
person requesting such transfer pay to Pinnacle Delaware or the Exchange Agent
any transfer or other taxes payable by reason of the issuance of such new
certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of Pinnacle Delaware
that such tax has been paid or is not payable.
IV
GENERAL
4.1 Covenants of Pinnacle Delaware. Pinnacle Delaware covenants and
agrees that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the
State of California and in connection therewith irrevocably appoint an
agent for service of process as required under the provisions of
Section 2105 of the California General Corporation Law;
(b) File any and all documents with the California Franchise
Tax Board necessary for the assumption by Pinnacle Delaware of all of
the franchise tax liabilities of Pinnacle California; and
(c) Take such other actions as may be required by the
California General Corporation Law.
4.2 Further Assurances. From time to time, as and when required by
Pinnacle Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Pinnacle California such deeds and other instruments, and
there shall be taken or caused to be taken by Pinnacle Delaware and Pinnacle
California such further and other actions, as shall be appropriate or necessary
in order to vest or perfect in or conform of record or otherwise by Pinnacle
Delaware the title to and possession of all the property, interests, assets,
rights, privileges, immunities, powers, franchises and authority of Pinnacle
California and otherwise to carry out the purposes of this Agreement, and the
officers and directors of Pinnacle Delaware are fully authorized in the name and
on behalf of Pinnacle California or otherwise to take any and all such action
and to execute and deliver any and all such deeds and other instruments.
4.3 Abandonment. At any time before the filing of this Agreement with
the Secretary of State of the State of Delaware, this Agreement may be
terminated and the Merger may be abandoned for any
5
<PAGE>
reason whatsoever by the Board of Directors of either Pinnacle California or
Pinnacle Delaware, or both, notwithstanding the approval of this Agreement by
the shareholders of Pinnacle California or by the sole stockholder of Pinnacle
Delaware, or by both.
4.4 Amendment. The Boards of Directors of the Constituent Corporations
may amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretaries of State of the States of
California and Delaware, provided that an amendment made subsequent to the
adoption of this Agreement by the shareholders of either Constituent Corporation
shall not: (1) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of all or
any of the shares of any class or series thereof of such Constituent
Corporation, (2) alter or change any term of the Certificate of Incorporation of
the Surviving Corporation to be effected by the Merger, or (3) alter or change
any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of any class of shares or series thereof of
such Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is located at Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, Delaware 19801, County of New
Castle, and The Corporation Trust Company is the registered agent of the
Surviving Corporation at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 280 North Bernardo
Ave., Mountain View, California 94043 and copies thereof will be furnished to
any shareholder of either Constituent Corporation, upon request and without
cost.
4.7 Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
California General Corporation Law.
4.8 Counterparts. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, this Agreement, having first been approved by
resolutions of the Boards of Directors of Pinnacle Delaware and Pinnacle
California, is hereby executed on behalf of each of such two corporations and
attested by their respective officers thereunto duly authorized.
PINNACLE SYSTEMS, INC.
a Delaware corporation
By: _________________________
Mark L. Sanders,
President and Chief
Executive Officer
ATTEST:
___________________________________________
Arthur D. Chadwick, Vice President,
Finance & Administration, Chief Financial Officer
and Secretary
PINNACLE SYSTEMS, INC.
a California corporation
By: _________________________
Mark L. Sanders,
President and Chief
Executive Officer
ATTEST:
___________________________________________
Arthur D. Chadwick, Vice President,
Finance & Administration, Chief Financial Officer
and Secretary
7
<PAGE>
PINNACLE SYSTEMS, INC.
(California Corporation)
OFFICERS' CERTIFICATE
Mark L. Sanders and Arthur D. Chadwick certify that:
1. They are the President and the Secretary, respectively, of Pinnacle
Systems, Inc., a corporation organized under the laws of the State of
California.
2. The corporation has authorized two classes of stock, designated
"Common Stock" and "Preferred Stock". There are authorized 15,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. Of the Preferred Stock,
25,000 shares of Preferred Stock is designated Series A Participating Preferred
and the remaining shares of Preferred Stock are undesignated as to series,
rights, preferences or restrictions.
3. There were 10,089,527 shares of Common Stock, and no shares of
Preferred Stock, outstanding as of the record date (the "Record Date") of the
shareholders' meeting at which the Agreement and Plan of Merger attached hereto
(the "Merger Agreement") was approved. All shares of Common stock outstanding
were entitled to vote on the merger.
4. The principal terms of the Merger Agreement were approved by the
Board of Directors and by the vote of a number of shares of each class of stock
which equaled or exceeded the vote required.
5. The percentage vote required was more than 50% of the votes entitled
to be cast by holders of Common Stock outstanding as of the Record Date, voting
as a single class.
6. Mark L. Sanders and Arthur D. Chadwick further declare under penalty
of perjury under the laws of the State of California that each has read the
foregoing certificate and knows the contents thereof and that the same is true
of their own knowledge.
Executed in Mountain View, California on ___________, 1998.
___________________________________
Mark L. Sanders, Chief Executive
Officer and President
___________________________________
Arthur D. Chadwick, Vice President,
Finance & Administration, Chief
Financial Officer and Secretary
<PAGE>
PINNACLE SYSTEMS, INC.
(Surviving Corporation)
OFFICERS' CERTIFICATE
_____________________ and _______________ certify that:
1. They are the President and the Secretary, respectively, of Pinnacle
Systems, Inc., a corporation organized under the laws of the State of Delaware.
2. The corporation has authorized two classes of stock, designated
"Common Stock" and "Preferred Stock". There are authorized 30,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. Of the Preferred Stock,
25,000 shares of Preferred Stock is designated Series A Participating Preferred
and the remaining shares of Preferred Stock are undesignated as to series,
rights, preferences or restrictions.
3. There were 100 shares of Common Stock outstanding and entitled to
vote on the Agreement and Plan of Merger attached hereto (the "Merger
Agreement"). There were no shares of Preferred Stock outstanding.
4. The principal terms of the Merger Agreement were approved by the
Board of Directors and by the vote of a number of shares of each class of stock
which equaled or exceeded the vote required.
5. The percentage vote required was more than 50% of the votes entitled
to be cast by holders of outstanding shares of Common Stock.
6. _____________________ and _________________ further declare under
penalty of perjury under the laws of the State of Delaware that each has read
the foregoing certificate and knows the contents thereof and that the same is
true of their own knowledge.
Executed in Mountain View, California on _____________, 1998.
___________________________________
Mark L. Sanders, Chief Executive
Officer and President
___________________________________
Arthur D. Chadwick, Vice President,
Finance & Administration, Chief
Financial Officer and Secretary
<PAGE>
APPENDIX B
CERTIFICATE OF INCORPORATION
OF
PINNACLE SYSTEMS, INC.
FIRST: The name of the Corporation is Pinnacle Systems, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, zip code 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of stock to
be designated respectively Common Stock and Preferred Stock. The total number of
shares of all classes of stock which the Corporation has authority to issue is
Thirty-five Million (35,000,000), consisting of Thirty Million (30,000,000)
shares of Common Stock, $0.001 par value (the "Common Stock"), and Five Million
(5,000,000) shares of Preferred Stock, $0.001 par value (the "Preferred Stock").
Of the authorized shares of Preferred Stock, Twenty Thousand (25,000) shares
shall be designated "Series A Participating Preferred Stock" (sometimes referred
to herein as "Series A Preferred").
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized subject to limitations
prescribed by law, to fix by resolution or resolutions the designations, powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, of each such series of Preferred Stock, including without limitation
authority to fix by resolution or resolutions, the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, and liquidation
preferences of any wholly unissued series of Preferred Stock, and the number of
shares constituting any such series and the designation thereof, or any of the
foregoing.
The Board of Directors is further authorized to increase (but not above
the total number of authorized shares of the class) or decrease (but not below
the number of shares of any such series then outstanding) the number of shares
of any series, the number of which was fixed by it, subsequent to the issue of
shares of such series then outstanding, subject to the powers, preferences and
rights, and the qualifications, limitations and restrictions thereof stated in
the resolution of the Board of Directors originally fixing the number of shares
of such series. If the number of shares of any series is so decreased, then the
shares constituting such decrease shall resume the status which they had prior
to the adoption of the resolution originally fixing the number of shares of such
series.
The relative rights, preferences, privileges, and restrictions granted
to or imposed upon the Common Stock, the Series A Preferred and the holders
thereof (collectively, the "Stockholders") are as follows:
<PAGE>
1. Dividends and Distributions.
a. Subject to the prior and superior right of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Participating Preferred Stock with respect to dividends, the holders of
shares of Series A Participating Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of January, April, July and October in each year (each such date being referred
to herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to, subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Participating Preferred Stock. In the event the Corporation shall at any time
after the issuance of any share or shares of Series A Participating Preferred
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount to
which holders of shares of Series A Participating Preferred Stock were entitled
immediately prior to such event under the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
b. The Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
c. Dividends shall begin to accrue on outstanding shares of Series A
Participating Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Participating Preferred
Stock, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Participating Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
shares of Series A Participating Preferred
-2-
<PAGE>
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 30 days prior to the date fixed
for the payment thereof.
2. Voting Rights. The holders of shares of Series A Participating Preferred
Stock shall have the following voting rights:
a. Subject to the provision for adjustment hereinafter set forth, each
share of Series A Participating Preferred Stock shall entitle the holder thereof
to 1,000 votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time after the issuance
of any share or shares of Series A Participating Preferred (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the number of votes per share
to which holders of shares of Series A Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
b. Except as otherwise provided herein or by law, the holders of shares
of Series A Participating Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
c. Except as required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
3. Certain Restrictions.
a. The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock unless concurrently therewith it
shall declare a dividend on the Series A Participating Preferred Stock as
required by Section 1 hereof.
b. Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock as provided in Section 1
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Participating
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not
(1) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Participating Preferred Stock;
-3-
<PAGE>
(2) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with Series A
Participating Preferred Stock, except dividends paid ratably on the Series A
Participating Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled;
(3) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(4) purchase or otherwise acquire for consideration any shares
of Series A Participating Preferred Stock, or any shares of stock ranking on a
parity with the Series A Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment among
the respective series or classes.
c. The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section 3,
purchase or otherwise acquire such shares at such time and in such manner.
4. Reacquired Shares. Any shares of Series A Participating Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
5. Liquidation, Dissolution or Winding Up.
a. Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock unless,
prior thereto, the holders of shares of Series A Participating Preferred Stock
shall have received sixty-five thousand dollars ($65,000) per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of the Series A
Liquidation Preference, no additional distributions shall be made to the holders
of shares of Series A Participating Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have
-4-
<PAGE>
received an amount per share (the "Common Adjustment") equal to the quotient
obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as
appropriately adjusted as set forth in subparagraph (c) below to reflect such
events as stock splits, stock dividends and recapitalization with respect to the
Common Stock) (such number in clause (ii), the "Adjustment Number"). Following
the payment of the full amount of the Series A Liquidation Preference and the
Common Adjustment in respect of all outstanding shares of Series A Participating
Preferred Stock and Common Stock, respectively, holders of Series A
Participating Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
b. In the event, however, that there are not sufficient assets
available to permit payment in full to the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
c. In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
d. Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series A
Participating Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights Dividend
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
-5-
<PAGE>
6. No Redemption. The shares of Series A Participating Preferred Stock shall not
be redeemable.
7. Ranking. The Series A Participating Preferred Stock shall rank junior to all
other series of the Corporation's Preferred Stock as to the payment of dividends
and the distribution of assets, unless the terms of any such series shall
provide otherwise.
8. Amendment. This Certificate of Incorporation of the Corporation shall not be
further amended in any manner which would materially alter or change the powers,
preference or special rights of the Series A Participating Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series A Participating Preferred
Stock, voting separately as a class.
9. Fractional Shares. Series A Participating Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Participating Preferred Stock.
FIFTH: The name and mailing address of the incorporator are as
follows:
Mark L. Sanders
Pinnacle Systems, Inc.
280 N. Bernardo Avenue
Mountain View, CA 94043
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The election of directors need not be by written ballot
unless a stockholder demands election by written ballot at a meeting of
stockholders and before voting begins or unless the Bylaws of the Corporation
shall so provide.
EIGHTH: The number of directors which constitute the whole Board
of Directors of the Corporation shall be designated in the Bylaws of the
Corporation.
NINTH: In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to adopt, alter, amend or repeal the Bylaws of the
Corporation.
TENTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director of
the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
-6-
<PAGE>
Neither any amendment nor repeal of this Article, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
ELEVENTH: At the election of directors of the Corporation, each
holder of stock or of any class or series of stock shall be entitled to as many
votes as shall equal the number of votes which such stockholder would be
entitled to cast for the election of directors with respect to his or her shares
of stock multiplied by the number of directors to be elected and may cast all
such votes for any director or for any two or more of them as such stockholder
may see fit.
TWELFTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the laws of the State of
Delaware) outside of the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
Corporation.
THIRTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by the laws of the State of Delaware, and all
rights conferred herein are granted subject to this reservation.
The undersigned incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is his act and deed and that the facts stated
herein are true.
Dated: ____________, 1998 _____________________________
Mark L. Sanders
Incorporator
-7-
<PAGE>
APPENDIX C
BYLAWS
OF
PINNACLE SYSTEMS, INC.
(a Delaware corporation)
(Adopted as of ________, 1998)
<PAGE>
BYLAWS OF
PINNACLE SYSTEMS, INC.
(a Delaware corporation)
TABLE OF CONTENTS
Page
----
ARTICLE I
CORPORATE OFFICES....................................................1
1.1 REGISTERED OFFICE...........................................1
1.2 OTHER OFFICES...............................................1
ARTICLE II
MEETINGS OF STOCKHOLDERS.............................................1
2.1 PLACE OF MEETINGS...........................................1
2.2 ANNUAL MEETING..............................................1
2.3 SPECIAL MEETING.............................................3
2.4 NOTICE OF STOCKHOLDERS' MEETINGS............................3
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS....................................................3
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................4
2.7 QUORUM......................................................4
2.8 ADJOURNED MEETING; NOTICE...................................4
2.9 VOTING......................................................5
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT.......................5
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING..................5
2.12 PROXIES.....................................................5
2.13 ORGANIZATION................................................6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE.......................6
ARTICLE III
DIRECTORS............................................................6
3.1 POWERS......................................................6
3.2 NUMBER OF DIRECTORS.........................................7
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS....................7
3.4 RESIGNATION AND VACANCIES...................................7
3.5 REMOVAL OF DIRECTORS........................................8
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.....................8
3.7 FIRST MEETINGS...............................................9
3.8 REGULAR MEETINGS.............................................9
3.9 SPECIAL MEETINGS; NOTICE.....................................9
3.10 QUORUM......................................................10
3.11 WAIVER OF NOTICE............................................10
3.12 ADJOURNMENT.................................................10
3.13 NOTICE OF ADJOURNMENT.......................................10
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING...........10
3.15 FEES AND COMPENSATION OF DIRECTORS..........................11
3.16 APPROVAL OF LOANS TO OFFICERS...............................11
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION......11
ARTICLE IV
COMMITTEES...........................................................11
4.1 COMMITTEES OF DIRECTORS.....................................11
4.2 MEETINGS AND ACTION OF COMMITTEES...........................12
4.3 COMMITTEE MINUTES...........................................12
ARTICLE V
OFFICERS.............................................................13
5.1 OFFICERS....................................................13
5.2 ELECTION OF OFFICERS........................................13
5.3 SUBORDINATE OFFICERS........................................13
5.4 REMOVAL AND RESIGNATION OF OFFICERS.........................13
5.5 VACANCIES IN OFFICES........................................14
5.6 CHAIRMAN OF THE BOARD.......................................14
5.7 CHIEF EXECUTIVE OFFICER AND PRESIDENT.......................14
5.8 VICE PRESIDENTS.............................................14
5.9 SECRETARY...................................................15
5.10 CHIEF FINANCIAL OFFICER.....................................15
5.11 ASSISTANT SECRETARY.........................................16
5.12 ADMINISTRATIVE OFFICERS.....................................16
5.13 AUTHORITY AND DUTIES OF OFFICERS............................16
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS.....................................................16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS...................16
6.2 INDEMNIFICATION OF OTHERS...................................17
6.3 INSURANCE...................................................18
ARTICLE VII
RECORDS AND REPORTS..................................................18
7.1 MAINTENANCE AND INSPECTION OF RECORDS.......................18
7.2 INSPECTION BY DIRECTORS.....................................18
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS..............19
7.5 CERTIFICATION AND INSPECTION OF BYLAWS......................19
ARTICLE VIII
GENERAL MATTERS......................................................19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.......19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS...................20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED..........20
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES............20
8.5 SPECIAL DESIGNATION ON CERTIFICATES.........................21
8.6 LOST CERTIFICATES...........................................21
8.7 TRANSFER AGENTS AND REGISTRARS..............................21
8.8 CONSTRUCTION; DEFINITIONS...................................22
ARTICLE IX
AMENDMENTS...........................................................22
-iii-
<PAGE>
BYLAWS
OF
PINNACLE SYSTEMS, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
certificate of incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting, directors
shall be elected, and any other proper business may be transacted.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting,
<PAGE>
business must be: (A) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (B) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (C) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than one hundred twenty (120) calendar days in advance of
the estimated mailing date for the proxy statement relating to the corporation's
next annual meeting as specified in the corporation's proxy statement released
to stockholders in connection with the previous year's annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy state ment, notice by the stockholder to be timely must be
so received a reasonable time before the solicitation is made. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a stockholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph. The chairman of the annual meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
paragraph, and, if he should so determine, he shall so declare at the meeting
that any such business not properly brought before the meeting shall not be
transacted.
Only persons who are nominated in accordance with the procedures set
forth in this paragraph shall be eligible for election as Directors. Nominations
of persons for election to the Board of Directors of the corporation may be made
at a meeting of stockholders by or at the direction of the Board of Directors or
by any stockholder of the corporation entitled to vote in the election of
Directors at the meeting who complies with the notice procedures set forth in
this paragraph. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation in accordance with the provisions of the prior
paragraph of this Section 2.2. Such stockholder's notice shall set forth (i) as
to each person, if any, whom the stockholder proposes to nominate for election
or re-election as a Director: (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
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understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation such person's
written consent to being named in the proxy statement, if any, as a nominee and
to serving as a Director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to the preceding
paragraph of this Section 2.2. At the request of the Board of Directors, any
person nominated by a stockholder for election as a Director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrants, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
at the meeting, and the defective nomination shall be disregarded.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS
To be properly brought before an annual meeting or special meeting,
nominations for the election of directors or other business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, (b) otherwise properly brought before
the meeting by or at the direction of the board of directors or (c) otherwise
properly brought before the meeting by a stockholder.
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2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation
or these bylaws, each stockholder shall be entitled to as many votes as shall
equal the number of votes which such stockholder would be entitled to cast for
the election of directors with respect to his or her shares of stock multiplied
by the number of directors to be elected and may cast all such votes for any
director or for any two or more of them as such stockholder may see fit.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT
The stockholders of the corporation may not take any action by written
consent without a meeting. Any such actions must be taken at a duly called
annual or special meeting.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and
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filed with the secretary of the corporation, but no such proxy shall be voted or
acted upon after 11 months from its date, unless the proxy provides for a longer
period. A proxy shall be deemed signed if the stockholder's name is placed on
the proxy (whether by manual signature, typewriting, telegraphic transmission,
facsimile or otherwise) by the stockholder or the stockholder's
attorney-in-fact. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Section 212(e) of the General
Corporation Law of Delaware.
2.13 ORGANIZATION
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a chairman
for such meeting. The chairman of any meeting of stockholders shall determine
the order of business and the procedures at the meeting, including such matters
as the regulation of the manner of voting and the conduct of business. The
secretary of the corporation shall act as secretary of all meetings of the
stockholders, but in the absence of the secretary at any meeting of the
stockholders, the chairman of the meeting may appoint any person to act as
secretary of the meeting.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and to any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be
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managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of seven (7) members. The number
of directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to fill
a vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director. Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
(iii) A vacancy created by the removal of a director may be
filled by a majority of directors then in office or the stockholders.
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If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, if and so long as stockholders of the corporation are entitled to
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors, pursuant to Delaware General Corporation Law Section
141(k)(2).
For purposes of the foregoing paragraph, "cause" shall mean (i)
continued willful failure to perform obligations of a director, (ii) gross
negligence by a director, (iii) engaging in transactions that defraud the
corporation, (iv) fraud or intentional misrepresentation, including falsifying
use of funds and intentional misstatements made in financial statements, books,
records or reports to stockholders or governmental agencies, (v) material
violation of any agreement between the director and the corporation, (vi)
knowingly causing the corporation to commit violations of applicable law
(including by failure to act), (vii) acts of moral turpitude or (viii)
conviction of a felony.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the
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absence of such a designation, regular meetings shall be held at the principal
executive office of the corporation. Special meetings of the board may be held
at any place within or outside the State of Delaware that has been designated in
the notice of the meeting or, if not stated in the notice or if there is no
notice, at the principal executive office of the corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding full business day.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
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3.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.12 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the board to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the
board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than twenty-four
(24) hours, then notice of the time and place of the adjourned meeting shall be
given before the adjourned meeting takes place, in the manner specified in
Section 3.9 of these bylaws, to the directors who were not present at the time
of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board of directors.
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3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no
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such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corpo ration or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation),
(ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the following provisions of Article III of these
bylaws: Section 3.6 (place of meetings; meetings by telephone), Section 3.8
(regular meetings), Section 3.9 (special meetings; notice), Section 3.10
(quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section
3.13 (notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The Corporate Officers of the corporation shall be a chief executive
officer and president, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, a
chairman of the board, one or more vice presidents (however denominated), one or
more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.3 of
these bylaws. Any number of offices may be held by the same person.
In addition to the Corporate Officers of the Company described above,
there may also be such Administrative Officers of the corporation as may be
designated and appointed from time to time by the president of the corporation
in accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint
Administrative Officers of the corporation in accordance with the provisions of
Section 5.12 of these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any
contract of employment, any Corporate Officer may be removed, either with or
without cause, by the board of directors at any regular or special meeting of
the board or, except in case of a Corporate Officer chosen by the board
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of directors, by any Corporate Officer upon whom such power of removal may be
conferred by the board of directors.
Any Corporate Officer may resign at any time by giving written notice
to the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president
may be removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If there is
no president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 CHIEF EXECUTIVE OFFICER AND PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He or
she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, and if there is no
chairman of the board, the vice presidents, if any, in order of their rank as
fixed by the board of directors or, if not ranked, a vice president designated
by the board of directors, shall perform all the duties of the president and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the president. The
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vice presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them respectively by the board of
directors, these bylaws, the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of the board
of directors, committees of directors and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if special,
how authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolu tion of the board of
directors, a share register or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director for a purpose reasonably related to his
position as a director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He or she shall disburse the funds of
the corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
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5.11 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all officers
of the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists or
may hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding in which such person was or is a party or is
threatened to be made a party by
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reason of the fact that such person is or was a director or officer of the
corporation. For purposes of this Section 6.1, a "director" or "officer" of the
corporation shall mean any person (i) who is or was a director or officer of the
corporation, (ii) who is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was a director or officer of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's Certificate of Incorporation,
these bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) shall mean any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
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6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
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7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president,
the chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered
to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the stockholders
of the corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corpo ration after the record date so fixed, except
as otherwise provided by law.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
applicable resolution.
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8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize and empower any officer or officers, or agent or agents, to enter
into any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board
of directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
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Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company -- either domestic or
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foreign, who shall be appointed at such times and places as the requirements of
the corporation may necessitate and the board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, as used in these bylaws, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both an
entity and a natural person.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in
the book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or the filing of the operative written consent(s) shall be
stated in said book.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
PINNACLE SYSTEMS, INC.
a Delaware corporation
Certificate by Secretary of Adoption by Board of Directors
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of Pinnacle Systems, Inc., a Delaware
corporation, and that the foregoing Bylaws, comprising twenty-seven (27) pages,
were adopted as the Bylaws of the corporation on ______________, 1998, by the
members of the corporation's Board of Directors.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this ___ day of _____________, 1998.
_____________________________________________
Arthur D. Chadwick, Vice President,
Chief Financial Officer and Secretary
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APPENDIX D
PINNACLE SYSTEMS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
__________ by and between Pinnacle Systems, Inc., a Delaware corporation (the
"Company"), and 1, ("Indemnitee").
WHEREAS, effective as of the date hereof, Pinnacle Systems, Inc., a
California corporation, is reincorporating into Delaware;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and its
related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services
to the Company, the Company wishes to provide for the indemnification of, and
the advancement of expenses to, Indemnitee to the maximum extent permitted by
law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the sig nificant increases in the cost of
such insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in connection with the Company's reincorporation, the Company
and Indemnitee desire to continue to have in place the additional protection
provided by an indemnification agreement to provide indemnification and
advancement of expenses to the Indemnitee to the maximum extent permitted by
Delaware law;
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified and advanced expenses by the
Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. Certain Definitions.
(a) "Change in Control" shall mean, and shall be deemed to
have occurred if, on or after the date of this Agreement, (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) or group acting in concert, other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company
acting in such capacity or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the
<PAGE>
same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting Securities,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
(iii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation other than a merger or consolidation which
would result in the Voting Securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving entity) at least 80% of
the total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of related transactions) all
or substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
Pinnacle Systems, Inc., any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger to which Pinnacle
Systems, Inc. (or any of its wholly owned subsidiaries) is a party which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, agents or fiduciaries, so that if
Indemnitee is or was a director, officer, employee, agent or fiduciary of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as Indem
nitee would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Covered Event" shall mean any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
(e) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, to be a witness in or to
participate
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in, any action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation), judgments, fines, penalties and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of any Claim and any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee
pursuant to Section 3 of Expenses in advance of the settlement of or final
judgement in any action, suit, proceeding or alternative dispute resolution
mechanism, hearing, inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm
of attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed ser vices for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other Indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless
otherwise indicated.
(k) "Voting Securities" shall mean any securities of the
Company that vote generally in the election of directors.
2. Indemnification.
(a) Indemnification of Expenses. Subject to the provisions of
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any Claim (whether by reason of or arising in
part out of a
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Covered Event), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder
under applicable law; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expenses shall be unsecured and no
interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding
Effect. If any Reviewing Party determines that Indemnitee substantively is not
entitled to be indemnified hereunder in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation seeking an initial
determination by the court or challenging any such determination by such
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and, subject to the provisions of Section 15, the Company hereby
consents to service of process and to appear in any such proceeding. Absent such
litigation, any determination by any Reviewing Party shall be conclusive and
binding on the Company and Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there
has not been a Change in Control, any Reviewing Party shall be selected by the
Board of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
any Reviewing Party with respect to all matters thereafter arising concerning
the rights of Indemnitee to indemnification of Expenses under this Agreement or
any other agreement or under the Company's Certificate of Incorporation or
Bylaws as now or hereafter in effect, or under any other applicable law, if
desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee
and approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company agrees
to abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall
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not be required to pay Expenses of more than one Independent Legal Counsel in
connection with all matters concerning a single Indemnitee, and such Independent
Legal Counsel shall be the Independent Legal Counsel for any or all other
Indemnitees unless (i) the employment of separate counsel by one or more
Indemnitees has been previously authorized by the Company in writing, or (ii) an
Indemnitee shall have provided to the Company a written statement that such
Indemnitee has reasonably concluded that there may be a conflict of interest
between such Indemnitee and the other Indemnitees with respect to the matters
arising under this Agreement.
(e) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
(a) Obligation to Make Expense Advances. Upon receipt of a
written undertaking by or on behalf of the Indemnitee to repay such amounts if
it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified therefore by the Company hereunder under applicable law, the Company
shall make Expense Advances to Indemnitee.
(b) Form of Undertaking. Any obligation to repay any Expense
Advances hereunder pursuant to a written undertaking by the Indemnitee shall be
unsecured and no interest shall be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties
agree that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
(a) Timing of Payments. All payments of Expenses (including
without limitation Expense Advances) by the Company to the Indemnitee pursuant
to this Agreement shall be made to the fullest extent permitted by law as soon
as practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such
written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
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Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement under applicable law, shall be a
defense to Indemnitee's claim or create a presumption that Indemnitee has not
met any particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder under applicable
law, the burden of proof shall be on the Company to establish that Indemnitee is
not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently retained by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.
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5. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of direc tors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of
Expense Advances provided by this Agreement shall be in addition to any rights
to which Indemnitee may be entitled under the Company's Certificate of
Incorporation, its Bylaws, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Delaware,
or otherwise. The indemnification and the payment of Expense Advances provided
under this Agreement shall continue as to Indemnitee for any action taken or not
taken while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers,
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if Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify or make Expense
Advances to Indemnitee with respect to Claims arising out of acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or make
Expense Advances to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, counterclaim or crossclaim,
except (i) with respect to actions or proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other agreement
or insurance policy or under the Company's Certificate of Incorporation or
Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in
specific cases if the Board of Directors has approved the initiation or bringing
of such Claim, or (iii) as otherwise required under Section 145 of the Delaware
General Corporation Law, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, Expense Advances, or
insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any
Expenses incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This
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Agreement shall continue in effect regardless of whether Indemnitee continues to
serve as a director, officer, employee, agent or fiduciary (as applicable) of
the Company or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
Interpretation. In the event that any action is instituted by Indemnitee under
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee with
respect to such action (including without limitation attorneys' fees),
regardless of whether Indemnitee is ultimately successful in such action, unless
as a part of such action a court having jurisdiction over such action makes a
final judicial determination (as to which all rights of appeal therefrom have
been exhausted or lapsed) that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous; provided, however, that until such final judicial determination is
made, Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee in defense of such action
(including without limitation costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action a court having jurisdiction over such action makes a final
judicial determination (as to which all rights of appeal therefrom have been
exhausted or lapsed) that each of the material defenses asserted by Indemnitee
in such action was made in bad faith or was frivolous; provided, however, that
until such final judicial determination is made, Indemnitee shall be entitled
under Section 3 to receive payment of Expense Advances hereunder with respect to
such action.
14. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
15. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
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17. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
18. Choice of Law. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Delaware
as applied to contracts between Delaware residents entered into and to be
performed entirely in the State of Delaware without regard to principles of
conflicts of laws.
19. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
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IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
PINNACLE SYSTEMS, INC.
By: __________________________
Print Name: __________________________
Title: __________________________
Address: 280 N. Bernardo Avenue
Mountain View, CA 94043
AGREED TO AND ACCEPTED
INDEMNITEE:
____________________________
1
Address: ___________________
____________________________
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PINNACLE SYSTEMS, INC.
1996 STOCK OPTION PLAN
(As amended July 1998)
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 1,235,000 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
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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.
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;
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<PAGE>
(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;
(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
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(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.
(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:
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(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 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;
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(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
(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
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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 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
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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 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.
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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
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ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS 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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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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EXHIBIT A
PINNACLE SYSTEMS, INC.
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Pinnacle Systems, Inc.
280 N. Bernardo Avenue
Mountain View, CA 94043
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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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:
_________________________________ 280 N. Bernardo Avenue
_________________________________ Mountain View, CA 94043
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PINNACLE SYSTEMS, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
(as amended July 1998)
The following constitute the provisions of the 1994 Employee Stock
Purchase Plan of Pinnacle Systems, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Pinnacle Systems, Inc. and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings, excluding commissions, payments for overtime, shift premium, variable
compensation, incentive payments, bonuses, and other cash compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds ninety (90)
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last day of each Purchase
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sale price for the Common Stock (or the mean of the closing bid and
asked prices, if no sales were reported), as quoted on such exchange (or the
exchange with the greatest volume of trading in Common Stock) or system on the
date of such determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;
(2) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
For purposes of the Enrollment Date under the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final Prospectus included within the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock.
(k) "Offering Period" shall mean the period of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the period ending
twenty-four (24) months later. The first Offering Period shall begin on the
effective date of the Company's initial public offering of its Common Stock that
is registered with the Securities and Exchange Commission and shall end on the
last Trading Day on or before October 31, 1996. The duration and timing of
Offering Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six (6)
month period commencing after one Exercise Date and ending with the next
Exercise Date, except that the first Purchase Period of any Offering Period
shall commence on the Enrollment Date and end with the next Exercise Date. The
first Purchase Period of the first Offering Period shall begin on the effective
date
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<PAGE>
of the Company's initial public offering of its Common Stock that is registered
with the Securities and Exchange Commission and shall end on the last Trading
Day on or before April 30, 1995.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the National Association of Securities Dealers Automated Quotation
(Nasdaq) System are open for trading.
3. Eligibility.
(a) Any Employee (as defined in Section 2(g)) who shall be
employed by the Company immediately preceding a given Enrollment Date shall be
eligible to participate in the Plan; provided, however, that with respect to the
first Offering Period, any Employee who shall be employed by the Company five
(5) business days prior to the first Enrollment Date shall be eligible to
participate in the Plan. Notwithstanding the foregoing, however, any Employee
shall be eligible to participate in the Plan who was employed by the Company as
of the effective date of registration statement filed with the Securities and
Exchange Commission for the initial offering of shares of Common Stock of the
Company to the public.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) which permits his or her rights to purchase stock under
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods. Except for the first Offering Period, a new
Offering Period shall commence on the first Trading Day on or after May 1 and
November 1 each year, or on such other date as the Board shall determine, and
continue thereafter until terminated in accordance with Section 19 hereof. The
first Offering Period shall begin on the effective date of the Company's initial
public offering of its Common Stock that is registered with the Securities and
Exchange Commission. The Board shall have the power to change
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<PAGE>
the duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
five (5) business days prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period, and the aggregate of such payroll deductions during the Offering Period
shall not exceed fifteen percent (15%) of the participant's Compensation during
said Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof. A participant may decrease the rate
of his or her payroll deductions to 0% during the Offering Period by completing
and filing with the Company a new subscription agreement authorizing the
reduction in payroll deduction rate. A participant may resume participation by
completing and filing with the Company a new subscription agreement at least
five (5) days prior to the commencement of the next Offering Period or Purchase
Period, as applicable. A participant's subscription agreement shall remain in
effect for successive Offering Periods unless terminated as provided in Section
10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to 0% at such time during any
Purchase Period which is scheduled to end during the current calendar year (the
"Current Purchase Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's subscription
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<PAGE>
agreement at the beginning of the first Purchase Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than a
number of Shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Sec tion 10 hereof, and
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, a certificate representing the shares
purchased upon exercise of his or her option.
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<PAGE>
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account will be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period will be automatically terminated, and no further payroll
deductions for the purchase of shares will be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions will not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined
in Section 2(g) hereof), for any reason, he or she will be deemed to have
elected to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option will be automatically terminated.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) Subject to adjustment upon changes in capitalization of
the Company as provided in Section 18 hereof, the maximum number of shares of
the Company's Common Stock which shall be made available for sale under the Plan
shall be six hundred fifty thousand (650,000) shares, together with an annual
increase to the number of shares reserved thereunder to take effect each year on
the date of the Annual Meeting of Shareholders (commencing with the 1999 Annual
Meeting of Shareholders) equal to the lesser of (i) 300,000 shares or (ii) 2% of
the outstanding shares of the Company on such date. If, on a given Exercise
Date, the number of shares with respect to which options are to be exercised
exceeds the number of shares then available under the Plan, the Company shall
make a pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable.
(b) The participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.
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<PAGE>
13. Administration.
(a) Administrative Body. The Plan shall be administered by the
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclu sive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, trans ferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
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<PAGE>
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the Reserves as well as the price per share
of Common Stock covered by each option under the Plan which has not yet been
exercised 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 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 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 Offering Periods will end
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board, and all options granted thereunder will be exercised at
such time. Such exercise shall take place according to the provisions of Section
8 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Periods then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the Board shortens the
Offering Periods then in progress in lieu of assumption or substitution in the
event of a merger or sale of assets, the Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for his option has been changed to the New Exercise Date and
that his option will be exercised automatically on the New Exercise Date, unless
prior to such date he has withdrawn from the Offering Period as provided in
Section 10 hereof. For purposes of this paragraph, an option granted under the
Plan shall be deemed to be assumed if, following the sale
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<PAGE>
of assets or merger, the option confers the right to purchase, for each share of
option stock subject to the option immediately prior to the sale of assets or
merger, the consideration (whether stock, cash or other securities or property)
received in the sale of assets or merger by holders of Common Stock for each
share of Common Stock held on the effective date of the transaction (and if such
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if such consideration received in the sale of assets or
merger was not solely common stock of the successor corporation or its parent
(as defined in Section 424(e) of the Code), the Board may, with the consent of
the successor corporation, provide for the consideration to be received upon
exercise of 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 and the sale of assets or merger.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 18
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
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<PAGE>
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended (the "1933 Act"), the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
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 by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the Fair
Market Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically withdrawn
from such Offering Period immediately after the exercise of their option on such
Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.
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<PAGE>
EXHIBIT A
PINNACLE SYSTEMS, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
Enrollment Date: ________________________
_____ Original Application
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _________________________ hereby elects to participate in the Pinnacle
Systems, Inc. 1994 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to pur chase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (1-15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete "Pinnacle Systems, Inc. 1994
Employee Stock Purchase Plan." I understand that my participation in
the Employee Stock Purchase Plan is in all respects subject to the
terms of the Plan. I understand that my ability to exercise the option
under this Subscription Agreement is subject to obtaining shareholder
approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and spouse only): ___
_________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within two (2) years after the Enrollment Date (the first day
of the Offering Period during which I purchased such shares) or one (1)
year after the Exercise Date, I will be treated for federal income tax
purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value
of the shares at the time such shares were purchased over the price
which I paid for the shares. I hereby agree to notify the Company in
writing within
<PAGE>
thirty (30) days after the date of any disposition of my shares and I
will make adequate provision for Federal, state or other tax
withholding obligations, if any, which arise upon the disposition of
the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the two (2)
year and one (1) year holding periods, I understand that I will be
treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares,
or (2) 15% of the fair market value of the shares on the first day of
the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.
7. I hereby agree not to sell or otherwise transfer any shares or other
securities of the Company during the one hundred eighty (180) day
period following the effective date of a registration statement of the
Company filed under the Securities Act of 1933, as amended (the "1933
Act"); provided, however, that such restriction shall only apply to the
first two registration statements of the Company to become effective
under the 1933 Act which include securities to be sold on behalf of the
Company to the public in an underwritten public offering under the 1933
Act. I hereby acknowledge that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing
restrictions until the end of such one hundred eighty (180) day period.
8. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
9. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) ___________________________________________________________
(First) (Middle) (Last)
______________________________ ___________________________________
Relationship
___________________________________
(Address)
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<PAGE>
Employee's Social ___________________________________
Security Number:
Employee's Address: ___________________________________
___________________________________
___________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ __________________________________
Signature of Employee
__________________________________
Spouse's Signature (If beneficiary
other than spouse)
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<PAGE>
EXHIBIT B
PINNACLE SYSTEMS, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Pinnacle
Systems, Inc. 1994 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
___________________________________
___________________________________
___________________________________
Signature:
___________________________________
Date: _____________________________
