SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
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
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
BELL MICROPRODUCTS INC.
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(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
BELL MICROPRODUCTS INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 22, 2000
TO THE SHAREHOLDERS OF BELL MICROPRODUCTS INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Bell
Microproducts Inc., a California corporation (the "Company"), will be held on
Monday, May 22, 2000, at 1:00 p.m., local time, at the offices of the Company,
1941 Ringwood Avenue, San Jose, California 95131 for the following purposes:
1. To elect six (6) directors to serve for the ensuing year and
until their successors are duly elected and qualified.
2. To approve an increase in the number of shares in the Company's
1998 Stock Option Plan by 800,000 shares.
3. To approve an amendment to the Amended and Restated Articles of
Incorporation of the Company to increase the number of authorized shares
of Common Stock.
4. To ratify the appointment of PricewaterhouseCoopers LLP as
independent auditors for the Company for the fiscal year ending December
31, 2000.
5. To transact such other business as may properly come before the
meeting or any adjournment or 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 March 23, 2000
are entitled to notice of and to vote at the meeting and any continuation or
adjournment thereof.
By Order of the Board of Directors
/s/ Remo E. Canessa
Remo E. Canessa
Chief Financial Officer
San Jose, California
April , 2000
YOUR VOTE IS IMPORTANT
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed Proxy as promptly as possible in the
postage-paid envelope enclosed for that purpose. Returning your proxy will help
the Company ensure a quorum and avoid the additional expense of duplicate proxy
solicitations. Any shareholder attending the meeting may vote in person even if
he or she has returned the proxy.
<PAGE>
BELL MICROPRODUCTS INC.
1941 Ringwood Avenue
San Jose, California 95131
-------------------
PROXY STATEMENT FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
-------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of Bell
Microproducts Inc. (the "Company"), a California corporation, for use at the
Annual Meeting of Shareholders to be held on Monday, May 22, 2000 1:00 p.m.,
local time (the "Annual Meeting"), and at any and all continuations or
adjournments 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
principal executive offices of the Company, 1941 Ringwood Avenue, San Jose,
California 95131. The telephone number at this address is (408) 451-9400.
These proxy solicitation materials were first mailed on or about April 24,
2000 to all shareholders entitled to vote at the Annual Meeting.
Deadline for Receipt of Shareholder Proposals
Proposals of shareholders of the Company intended to be presented by such
shareholders at the Company's 2001 Annual Meeting of Shareholders must be
received by the Company no later than December 14, 2000, in order that they may
be considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
Record Date and Share Ownership
Only shareholders of record at the close of business on March 23, 2000 (the
"Record Date") are entitled to receive notice of and to vote at the Annual
Meeting. The Company has one class of Common Stock outstanding, $0.01 par value.
As of the Record Date, the Company had outstanding 9,383,597 shares of Common
Stock. For information regarding share ownership of officers, directors and
holders of more than 5% of the outstanding Common Stock, see "Security Ownership
of Certain Beneficial Owners and Management."
Revocability of Proxies
Any person giving a proxy in the form accompanying this statement has the
power to revoke it at any time before it is voted by delivering to the Secretary
of the Company at the Company's principal executive office, 1941 Ringwood
Avenue, San Jose, California 95131, a written notice of revocation or a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person.
Voting and Solicitation
Each shareholder voting for the election of directors may cumulate his or
her votes and give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares which the shareholder
is entitled to vote, or distribute the shareholder's votes under the same
principle among as many candidates as the shareholder chooses, provided that
votes may not be cast for more than six (6) candidates. However, no shareholder
shall be entitled to cumulate votes for any candidate 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
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<PAGE>
shareholder's votes. On all other matters, each share has one vote. The cost of
soliciting proxies will be borne by the Company. The Company may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation materials to such beneficial owners.
The Company's directors, officers and employees, without receiving any
additional compensation, may solicit proxies personally or by telephone,
telegraph or facsimile copy.
Quorum; Votes Cast; Abstentions; Broker Non-Votes
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of Common Stock issued and outstanding on the Record
Date (the "Quorum"). Shares that are voted "For" or "Against" a matter are
treated as being present at the meeting for purposes of establishing a Quorum
and are also treated as shares "represented and voting" at the Annual Meeting
(the "Votes Cast") with respect to such matter.
While there is no definitive statutory or case law authority in California
as to the proper treatment of abstentions in the counting of votes with respect
to a proposal such as the amendment of a stock option plan, the Company believes
that abstentions should 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. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions in this manner. 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, but will not be counted for purposes of determining the number of
Votes Cast with respect to a particular proposal.
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<PAGE>
Security Ownership of Certain Beneficial Owners and Management
<TABLE>
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date by (i) each
shareholder known by the Company to be a beneficial owner of more than 5% of the
Company's Common Stock; (ii) each director; (iii) each of the Named Executive
Officers; and (iv) all current executive officers and directors of the Company
as a group. Unless otherwise indicated, officers and directors can be reached at
the Company's principal executive offices.
<CAPTION>
Beneficial Ownership
Beneficial Ownership Shares(#) Percent(1)
- -------------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Bowman Capital Management, L.L.C.(2)...................................... 1,346,000 14.3%
1875 Grant St., Suite 600
San Mateo, CA 94402
W. Donald Bell(3)......................................................... 789,348 8.4%
Advisory Research, Inc.(4)................................................ 570,725 6.1%
180 N. Stetson Street, Ste. 5870
Two Prudential Plaza
Chicago, IL 60601
Dimensional Fund Advisors(5).............................................. 625,400 6.7%
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401
Eugene B. Chaiken(6)...................................................... 376,000 4.0%
Philip M. Roussey(7)...................................................... 203,597 2.2%
Edward L. Gelbach(8)...................................................... 103,439 1.1%
Gordon A. Campbell(9)..................................................... 94,963 *
Glenn E. Penisten(10)..................................................... 93,097 *
Ronald H. Mabry(11)....................................................... 0 *
Gary Gammon(12)........................................................... 15,500 *
Brian J. Clark(13)........................................................ 35,884 *
James E. Ousley(14)....................................................... 25,000 *
All directors and executive officers as a group (10 persons)(15).......... 1,736,828 18.5%
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<PAGE>
<FN>
*Represents less than 1% of the outstanding shares of Common Stock. (1) Based
on 9,383,597 shares of Common Stock outstanding on the Record Date.
(2) Represents shares held as disclosed on Schedule 13G/A filed on January 27,
2000. Bowman Capital Management, L.L.C. shares voting and dispositive
power with respect to 1,346,000 shares with Lawrence A. Bowman, the
manager and principal member of Bowman Capital Management L.L.C. and
shares voting and dispositive power with respect to 795,000 shares with
Spinnaker Technology Fund, L.P. and shares voting and dispositive power
with respect to 451,000 shares with Spinnaker Offshore Founders Fund,
Limited.
(3) Represents 789,348 shares held by W. Donald Bell and Lynne F. Bell,
Trustees of the Bell Family Trust U/D/T dated April 26, 1991, and excludes
40,000 shares held by Mr. Bell's children. Also includes 50,000 shares
subject to stock options exercisable within 60 days after the Record Date.
(4) Represents shares held as disclosed on Schedule 13G filed on February 11,
2000. Advisory Research, Inc. holds shared voting and dispositive power
with respect to 570,725 shares with David B. Heller, President and
controlling shareholder of Advisory Research, Inc.
(5) Represents shares held as disclosed on Schedule 13G filed on February 3,
2000. Dimensional Fund Advisors reported sole voting and dispositive power
over 625,400 shares.
(6) Includes 350,000 shares subject to warrants exercisable within 60 days
after the Record Date held by Almo Corporation. Includes 20,000 shares
subject to stock options exercisable within 60 days after the Record Date.
Mr. Chaiken is President, Chief Executive Officer, Chairman of the Board
and majority shareholder of Almo Corporation. Mr. Chaiken disclaims
beneficial ownership of such shares except to the extent of any individual
interest in Almo Corporation.
(7) Includes 203,597 shares held by Philip M. Roussey and Mounawar Roussey,
Trustees of the Roussey Family Trust U/D/T dated November 8, 1991. Also
includes 44,000 shares subject to stock options exercisable within 60 days
after the Record Date.
(8) Includes 40,000 shares subject to stock options exercisable within 60 days
after the Record Date.
(9) Includes 40,000 shares subject to stock options exercisable within 60 days
after the Record Date.
(10) Includes 40,000 shares subject to stock options exercisable within 60 days
after the Record Date.
(11) Mr. Mabry resigned from the Company on February 25, 2000.
(12) Includes 15,500 shares subject to stock options exercisable within 60 days
after the Record Date.
(13) Includes 32,500 shares subject to stock options exercisable within 60 days
after the Record Date.
(14) Includes 25,000 shares subject to stock options exercisable within 60 days
after the Record Date.
(15) Includes footnotes 3 and 6-14.
</FN>
</TABLE>
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<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
A board of six (6) directors is to be elected at the Annual Meeting. Unless
otherwise instructed by the shareholder, the proxy holders will vote the proxies
received by them for the Company's nominees named below. All nominees are
currently 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,
the proxies will be voted for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. It is not expected that any nominee 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 and 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 of each person elected as
a director will continue until the next Annual Meeting of Shareholders or until
a successor has been duly elected and qualified.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE NOMINEES
LISTED BELOW.
Nominees for Director
<TABLE>
The names of the nominees, each of whom is currently a director of the
Company, and certain information about them is set forth below, including
information furnished by them as to their principal occupation for the last five
years, certain other directorships held by them and their ages as of the Record
Date:
<CAPTION>
Name Age Position(s) with the Company Director Since
- ---------------------------------------- --- ---------------------------------- --------------
<S> <C> <C> <C>
W. Donald Bell.......................... 62 President, Chief Executive Officer 1987
and Chairman of the Board
Gordon A. Campbell(1)................... 55 Director 1988
Glenn E. Penisten(2).................... 68 Director 1988
Edward L. Gelbach(1).................... 68 Director 1993
James E. Ousley(2)...................... 54 Director 1998
Eugene B. Chaiken(2).................... 59 Director 1998
<FN>
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</FN>
</TABLE>
W. Donald Bell has been President, Chief Executive Officer and Chairman of
the Board of the Company since its inception in 1987. Mr. Bell has over 30 years
of experience in the electronics industry. Mr. Bell was formerly the President
of Ducommun, Inc. and its subsidiary, Kierulff Electronics, Inc. as well as
Electronic Arrays, Inc. He has also held senior management positions at Texas
Instruments Incorporated, American Microsystems, Inc. and other electronics
companies.
Gordon A. Campbell has served on the Company's Board of Directors since May
1988. Mr. Campbell has served as the Chairman of the Board of Directors of 3Dfx
Interactive, Inc. ("3Dfx") since August 1994 when he co-founded 3Dfx. Mr.
Campbell also served as President and Chief Executive Officer of 3Dfx from
January 1995 to December 1996. In September 1993, Mr. Campbell founded Techfarm,
Inc., a venture capital investment firm, and currently serves as President. In
1985, Mr. Campbell founded Chips and Technologies, Inc. ("CHIPS"), a
semiconductor and related device company, and served as Chairman, Chief
Executive Officer and President of CHIPS until September 1993. Mr. Campbell
currently serves as a director of 3Com Corporation. He is also a director of
several private companies.
Glenn E. Penisten has served on the Company's Board of Directors since May
1988. Mr. Penisten is a General Partner of Alpha Venture Partners III, a venture
capital fund. Mr. Penisten is a director of IKOS
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<PAGE>
Systems, Inc., a manufacturer of ASIC simulation equipment, Superconductor
Technologies, Inc., a developer of products utilizing superconductivity
materials, Pinnacle Systems, Inc., a designer and manufacturer of special
effects video equipment, and Network Peripherals, Inc., a networking products
manufacturing company.
Edward L. Gelbach has served on the Company's Board of Directors since
March 1993. From 1971 to 1988, Mr. Gelbach was Senior Vice President and a
director of Intel, and since 1989 has been a self-employed investor. Mr. Gelbach
is also a director of Etec Systems, Inc., a manufacturer of pattern generation
equipment.
James E. Ousley has served on the Company's Board of Directors since
February 1998. Mr. Ousley has been President and Chief Executive Officer of
Syntegra (USA) Inc. & Asia since August 31, 1999. Mr. Ousley was President and
Chief Executive Officer of Control Data Corporation ("CDC") (since the spin-off
of CDC from Ceridian Corporation ("Ceridian")) from July 31, 1992 to August 31,
1999. Mr. Ousley was President of Ceridian's Computer Products business since
1989 and was Executive Vice President of Ceridian from February 1990 until the
spin-off of the Company. From January 1989 to April 1989, Mr. Ousley was Vice
President, Marketing and Sales for Ceridian's Computer Products business and
prior thereto he held various positions with Ceridian. Mr. Ousley is also a
director Activcard S.A., (EASDAQ as ACTV), an internet security software
company, and Datalink Systems Corporation, a data storage integration company.
Eugene B. Chaiken has served on the Company's Board of Directors since
November 1998. Since 1973, Mr. Chaiken has served as the Chairman, President and
Chief Executive Officer of Almo Corporation, a major appliance, consumer
electronics and wire and cable distribution company.
Vote Required
The six (6) nominees receiving the highest number of affirmative votes of
the shares entitled to be voted for them shall be elected as directors. Votes
withheld from any director are counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but have no other legal
effect in the election of directors under California law. No shareholder may
vote for more than six (6) persons for director.
Board Meetings and Committees
During the fiscal year ended December 31, 1999, the Board of Directors held
a total of five (5) meetings.
The Audit Committee, which consisted of Glenn E. Penisten, Eugene B.
Chaiken and James E. Ousley in fiscal 1999, was established to review, in
consultation with the independent accountants, the Company's financial
statements, accounting and other policies, accounting systems and system of
internal controls. The Audit Committee also recommends the engagement of the
Company's independent accountants and reviews other matters relating to the
relationship of the Company with its accountants. The Audit Committee met six
(6) times during fiscal year 1999. Mr. Ousley left the Audit Committee in
November 1999.
The Compensation Committee, which consisted of Gordon A. Campbell, Edward
L. Gelbach and James E. Ousley in fiscal 1999, was established to review and act
on matters relating to compensation levels and benefit plans for key executives
of the Company, among other things. The Compensation Committee met three (3)
times during fiscal year 1999. Mr. Ousley joined the Compensation Committee in
November 1999.
The Board of Directors currently has no nominating committee or a committee
performing a similar function.
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<PAGE>
Each of the incumbent directors attended at least 89.7% of the aggregate of
all meetings of the Board of Directors and of the committees, if any, upon which
such director served, during the period for which such person has been a
director or committee member.
Compensation of Directors
During fiscal 1999, each of the directors was paid an annual fee of $8,000,
payable quarterly, a fee of $4,000 per board meeting attended in person, $2,000
per committee meeting attended in person, and $1,000 per board or committee
meeting attended by telephone, and was reimbursed for expenses incurred in
attending Board meetings and committee meetings. In fiscal year 2000, each
director will be paid an annual fee of $8,000, payable quarterly. In fiscal
2000, each director will be paid $4,000 for each regular Board meeting attended
in person, each committee member in attendance at a regular committee meeting
will be paid $2,000 for participation in person and each director or committee
member in attendance at a board or committee meeting held by telephone will be
paid $1,000.
1993 Director Option Plan
The 1993 Director Option Plan ("1993 Plan") was terminated in February
1998. Outstanding options under the 1993 Plan will continue to be governed
pursuant to the 1993 Plan. Pursuant to the 1993 Plan, non-employee directors
received an automatic and non-discretionary options grant.
Under the 1993 Plan, options to purchase 5,000 shares were automatically
granted to Directors Glenn E. Penisten, Gordon A. Campbell, Edward L. Gelbach
and former director Jon H. Beedle in March 1996, which options have a per share
exercise price of $7.00 and became fully vested and exercisable on March 15,
1997. In March 1997 options to purchase 5,000 shares were automatically granted
to Directors Glenn E. Penisten, Gordon A. Campbell, Edward L. Gelbach and former
director Jon H. Beedle, which options have a per share exercise price of $12.625
and became fully vested and exercisable on March 15, 1998, except that Mr.
Beedle's options terminated upon his resignation. Under the 1993 Plan, on
February 12, 1998, director James E. Ousley was granted an option to purchase
15,000 shares of the Company's Common Stock which option has a per share
exercise price of $7.50 and vested as to 33% or 5,000 shares on February 12,
1999 and the remaining 10,000 shares became fully vested and exercisable on
August 5, 1999.
1998 Stock Plan
During fiscal 1999, all outside directors received an automatic and
non-discretionary stock options grant pursuant to the 1998 Stock Plan (the
"Stock Plan). Each non-employee director who previously received options
pursuant to the 1993 Plan (the "Returning Directors") received an automatic and
non-discretionary option to purchase 5,000 shares of the Company's Common Stock,
which option became fully vested and exercisable on August 5, 1999. Each
non-employee director who was first elected to the Board of Directors following
the adoption of the Stock Plan (the "New Directors") was automatically granted
an option to purchase 15,000 shares of Common Stock, which option becomes fully
vested and exercisable upon the date of grant. Provided that shares are then
available under the Stock Plan, each non-employee director will, on an annual
basis, automatically receive a nonstatutory option to purchase an additional
5,000 shares of the Company's Common Stock, which option will vest 100% on the
date of grant. The exercise price of each option granted under the Stock Plan
must be equal to 100% of the fair market value of the Common Stock on the date
of grant unless such director is a 10% shareholder in which case each option
granted must be equal to 110% of the fair market value of the Common Stock on
the date of grant.
Under the terms of the Stock Plan, on May 21, 1998, Returning Directors
Penisten, Campbell and Gelbach each automatically received options to purchase
5,000 shares of the Company's Common Stock which options have a per share
exercise price of $7.875, the fair market value on the date of grant, and became
fully vested and exercisable on May 21, 1999. Pursuant to the terms of the Stock
Plan, on November 27, 1998, New Director Eugene B. Chaiken automatically
received options to purchase 15,000 shares of the Company's Common Stock which
options have a per share exercise price of $8.813, and became fully vested and
exercisable on August 5, 1999.
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<PAGE>
If a non-employee director ceases to be a director, other than upon the
non-employee director's death or disability, the non-employee director may
exercise his or her option within such period of time as is specified in the
option agreement, which generally allows exercise of the option within thirty
(30) days 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 three (3) months following
the non-employee director's termination. If, on the date of termination, the
non-employee director is not vested as to his or her entire option, the shares
covered by the unvested portion of the option shall revert to the Stock Plan.
If, after termination, the non-employee director does not exercise his or her
option within the time specified by the Administrator, the option shall
terminate, and the shares covered by such option shall revert to the Stock Plan.
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<PAGE>
PROPOSAL 2
AMENDMENT TO THE
1998 STOCK PLAN
Proposed Amendment
The Board of Directors in February 2000 approved an amendment to the
Company's 1998 Stock Plan (the "Stock Plan") to increase the number of shares
reserved for issuance thereunder by 800,000 shares from 1,442,890 shares to
2,242,890 shares.
Vote Required
At the Annual Meeting, the shareholders are being asked to approve the
amendment to the Stock Plan to increase the number of shares reserved for
issuance thereunder by 800,000 shares from 1,442,890 shares to 2,242,890 shares.
The affirmative vote of the holders of a majority of the shares entitled to vote
at the Annual Meeting will be required to approve the amendment to the Stock
Plan.
Reasons for the Amendment
The Company believes that its Stock Plan is an important factor in
attracting and retaining skilled personnel. Each year the Company reviews the
number of shares available for issuance under the Stock Plan and, based on the
Company's estimates of the number of shares expected to be purchased under the
Stock Plan during the coming year, management presents to the Board of Directors
a recommendation for the addition of shares to the pool reserved for issuance
under the Stock Plan. As of the Record Date, options to purchase 1,283,450
shares of Common Stock were outstanding under the Stock Plan and 159,440 were
available for issuance under the Stock Plan. In February 2000, management
recommended and the Board approved the amendment to the Stock Plan described
above. The Board believes that the amendment to the Stock Plan ensures that a
sufficient number of shares will be available for employee purchases under the
Stock Plan in each offering period. The Board believes that ensuring the
availability of shares for a growing employee base enhances the Company's
ability to attract and retain high quality personnel, but also effectively
eliminates the risk of the Company's having to record a compensation change
under recent accounting pronouncements in the event of a share shortfall under
the Stock Plan during an offering period, which would likely have a material
adverse effect on the Company's operating results for a period and the price of
the Company's Common Stock in the public market. The Board also considered the
dilutive effect of the additional shares under the Stock Plan on the Company's
existing shareholders as well as other negative factors; however, the Board
believes that the benefits of the amendments outweigh the potential negative
factors.
The Board of Directors recommends that shareholders vote "FOR" the
approval of the amendment to the Company's Stock Plan.
The essential features of the Stock Plan are outlined below.
Summary of the Stock Plan
General. The purpose of the Stock Plan is to attract and retain the best
available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the employees, directors and
consultants of the Company and to promote the success of the Company's business.
Options and stock purchase rights may be granted under the Stock Plan. Options
granted under the Stock Plan may be either "incentive stock options," as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonstatutory stock options.
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<PAGE>
Administration. The Stock Plan may generally be administered by the Board
or the Committee appointed by the Board (as applicable, the "Administrator").
Option grants to non-employee directors ("Outside Directors") will be automatic
and nondiscretionary.
Eligibility; Limitations. Nonstatutory stock options and stock purchase
rights may be granted under the Stock Plan to employees, directors and
consultants of the Company and any parent or subsidiary of the Company.
Incentive stock options may be granted only to employees. The Administrator, in
its discretion, selects the employees, directors and consultants to whom
discretionary options and stock purchase rights may be granted, the time or
times at which such options and stock purchase rights shall be granted, and the
number of shares subject to each such grant.
Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options and stock purchase rights granted to such
persons, the Stock Plan provides that no employee, director or consultant may be
granted, in any fiscal year of the Company, options and stock purchase rights to
purchase more than 200,000 shares of Common Stock. Notwithstanding this limit,
however, in connection with such individual's initial employment with the
Company, he or she may be granted options or stock purchase rights to purchase
up to an additional 200,000 shares of Common Stock.
Terms and Conditions of Options. Each option is evidenced by a stock option
agreement between the Company and the optionee, and is subject to the following
additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options at the time the options are granted; provided that the exercise price of
options may not be less than 100% of the fair market value of the Common Stock
on the date such option is granted; and provided further, that the exercise
price of an incentive stock option granted to a 10% shareholder may not be less
than 110% of the fair market value of the Common Stock on the date such option
is granted. The fair market value of the Common Stock is generally determined
with reference to the closing sale price for the Common Stock (or the closing
bid if no sales were reported) on the last market trading day prior to the date
the option is granted.
(b) Exercise of Option; Form of Consideration. The Administrator determines
when options become exercisable, and may in its discretion, accelerate the
vesting of any outstanding option. Stock options granted under the Stock Plan
generally vest and become exercisable over four years. The means of payment for
shares issued upon exercise of an option is specified in each option agreement.
The Stock Plan permits payment to be made by cash, check, promissory note, other
shares of Common Stock of the Company (with some restrictions), cashless
exercises, a reduction in the amount of any Company liability to the optionee,
any other form of consideration permitted by applicable law, or any combination
thereof.
(c Term of Option. The term of an incentive stock option may be no more
than ten (10) years from the date of grant; provided that in the case of an
incentive stock option granted to a 10% shareholder, the term of the option may
be no more than five (5) years from the date of grant. No option may be
exercised after the expiration of its term.
(d) Termination of Employment. If an optionee's employment or consulting
relationship terminates for any reason (other than death or disability), then
all options held by the optionee under the Stock Plan expire on the earlier of
(i) the date set forth in his or her notice of grant or, if no date is specified
in the notice of grant, three months following the termination or (ii) the
expiration date of such option. To the extent the option is exercisable at the
time of such termination, the optionee may exercise all or part of his or her
option at any time before termination.
(e) Death or Disability. If an optionee's employment or consulting
relationship terminates as a result of death or disability, then all options
held by such optionee under the Stock Plan expire on the earlier of (i) 12
months from the date of such termination or (ii) the expiration date of such
option. The optionee (or the optionee's estate or the person who acquires the
right to exercise the option by bequest or inheritance),
-11-
<PAGE>
may exercise all or part of the option at any time before such expiration to the
extent that the option was exercisable at the time of such termination.
(g) Nontransferability of Options: Options granted under the Stock Plan are
generally not transferable other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by the
optionee.
(h) Other Provisions: The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the Stock Plan as may be
determined by the Administrator.
Stock Purchase Rights. In the case of SPRs, unless the Administrator
determines otherwise, the Restricted Stock Purchase Agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any reason
(including death or disability). The repurchase option shall lapse at a rate
determined by the Administrator.
Automatic Option Grants to Outside Directors. Generally, each Outside
Director who becomes an Outside Director after the effective date of this Plan
will be automatically granted a nonstatutory stock option to purchase 15,000
shares of Common Stock (the "First Option"). Each Outside Director who has
served on the Board for at least six months will be automatically granted a
nonstatutory stock option to purchase 5,000 shares of Common Stock each year
(the "Annual Option"). The exercise price for options granted to Outside
Directors may not be less than 100% of fair market value on the date of grant.
The First Option will vest as to one-third of the shares subject to option on
each anniversary of its date of grant. The Annual Option will vest as the entire
option on the anniversary of its date of grant.
Adjustments Upon Changes in Capitalization. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of stock
subject to the Stock Plan, the number and class of shares of stock subject to
any option or stock purchase right outstanding under the Stock Plan, and the
exercise price of any such outstanding option or stock purchase right.
In the event of a liquidation or dissolution, any unexercised options or
stock purchase rights will terminate. The Administrator may, in its discretion
provide that each optionee shall have the right to exercise all of the
optionee's options and stock purchase rights, including those not otherwise
exercisable.
In connection with any merger, consolidation, acquisition of assets or like
occurrence involving the Company, each outstanding option or stock purchase
right shall be assumed or an equivalent option or right substituted by the
successor corporation. If the successor corporation refuses to assume the
options and stock purchase rights or to substitute substantially equivalent
options and stock purchase rights, the optionee shall have the right to exercise
the option or stock purchase right as to all the optioned stock, including
shares not otherwise exercisable.
Amendment and Termination of the Plan. The Board may amend, alter, suspend
or terminate the Stock Plan, or any part thereof, at any time and for any
reason. However, the Company shall obtain shareholder approval for any amendment
to the Stock Plan to the extent necessary to comply with Section 162(m) and
Section 422 of the Code, or any similar rule or statute. No such action by the
Board or shareholders may alter or impair any option or stock purchase right
previously granted under the Stock Plan without the written consent of the
optionee. Unless terminated earlier, the Stock Plan shall terminate ten years
from the date of its approval by the shareholders or the Board of the Company,
whichever is earlier.
Federal Income Tax Consequences
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant
-12-
<PAGE>
of the option and one year after exercise of the option, any gain or loss is
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee recognizes ordinary income at the time of disposition
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. Any gain or loss recognized on such a premature disposition
of the shares in excess of the amount treated as ordinary income is treated as
long-term or short-term capital gain or loss, depending on the holding period. 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. The Company is entitled to a deduction in the same amount as the
ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period.
Stock Purchase Rights. Stock purchase rights will generally be taxed in the
same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when a stock ceases to be subject to
a substantial risk of forfeiture. The stock will generally cease to be subject
to a substantial risk of forfeiture when it is no longer subject to the
Company's right to repurchase the stock upon the purchaser's termination of
employment with the Company. At such times, the purchaser will recognize
ordinary income measured as the difference between the purchase price and the
fair market value of the stock on the date the stock is no longer subject to a
substantial risk of forfeiture.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding period
by timely filing an election pursuant to Section 83(b) of the Code. In such
event, the ordinary income recognized, if any, is measured as the difference
between the purchase price and the fair market value of the stock on the date of
purchase, and the capital gain holding period commences on such date. The
ordinary income recognized by a purchaser who is an employee will be subject to
tax withholding by the Company. Different rules may apply if the purchaser is
also an officer, director, or 10% shareholder of the Company.
The foregoing is only a summary of the effect of federal income taxation
upon optionees, holders of stock purchase rights, and the Company with respect
to the grant and exercise of options and stock purchase rights under the Stock
Plan. It does not purport to be complete, and does not discuss the tax
consequences of the employee's or consultant's death or the provisions of the
income tax laws of any municipality, state or foreign country in which the
employee or consultant may reside.
-13-
<PAGE>
Proposal 3
Increase in number of authorized shares of common stock
The Board of Directors proposes that the Company amend its Amended and
Restated Articles of Incorporation to increase the total number of authorized
shares of Common Stock from 20,000,000 to 40,000,000.
As of the Record Date, the total number of outstanding shares of Common
Stock was 9,383,597. The total number of authorized shares of Common Stock
reserved and available for issuance pursuant to options, warrants and other
contractual commitments is 2,084,398 (the "Common Stock Reserve"). The Common
Stock Reserve is composed of 1,370,015 shares of Common Stock pursuant to the
1998 Stock Plan; 364,383 shares of Common Stock pursuant to the 1993 Stock
Purchase Plan; and 350,000 warrants to purchase Common Stock.
Before the proposed increase in the authorized number of shares of Common
Stock, 8,532,005 shares of authorized and unissued Common Stock will not be
reserved for any specific use and will be available for future issuances. After
the proposed increase in the authorized number of shares of Common Stock,
28,532,005 shares of authorized and unissued Common Stock will not be reserved
for any specific use and will be available for future issuances.
Vote Required
The affirmative vote of the holders of a majority of the shares entitled to
vote at the Annual Meeting will be required to approve the amendment to the
Amended and Restated Articles of Incorporation.
Reasons for the Amendement
An increase in the total number of authorized shares of Common Stock will
provide additional shares of Common Stock for any potential growth in the
Company.
The Company may use additional shares of Common Stock to partially finance
potential acquisitions. In addition, the Company is considering executing a
3-for-2 stock split of all outstanding shares of Common Stock. Finally, the
Company may consider conducting an equity offering to reduce existing debt.
Approval of an increase in the authorized number of shares of Common Stock
generally empowers the directors of the Company to issue additional shares of
Common Stock prior to giving notice to the shareholders or obtaining their
approval. However, there are limited circumstances where shareholder approval is
required for such issuances. These circumstances include issuances in
conjunction with an acquisition that results in substantial dilution of the
equity interest of current shareholders. Another circumstance requiring
shareholder approval is the issuance of Common Stock equivalent to a significant
percentage of the Company's total outstanding shares at below market value.
This proposal to increase the authorized number of shares of Common Stock
is not submitted in response to any accumulation of stock or threatened
takeover. Moreover, the Company does not have any plans to subsequently
implement additional measures having anti-takeover effects.
-14-
<PAGE>
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
accountants, to audit the financial statements of the Company for the current
fiscal year ending December 31, 2000. PricewaterhouseCoopers LLP has audited the
Company's financial statements annually since 1988. In the event that a majority
of the Votes Cast are against the ratification, the Board of Directors will
reconsider its selection.
A representative of PricewaterhouseCoopers LLP will be present at the
meeting to make a statement if such representative desires to do so and to
respond to appropriate questions.
The Board of Directors recommends that shareholders vote "FOR" the
ratification of appointment of independent accountants.
-15-
<PAGE>
ADDITIONAL INFORMATION RELATING TO
DIRECTORS & OFFICERS OF THE COMPANY
Certain Transactions
The Company had entered into a manufacturing agreement with Pinnacle
Systems, Inc. ("Pinnacle") providing value-added turnkey services for Pinnacle
by the Company's manufacturing division which was disposed of in June 1999. The
agreement term is automatically renewed for successive one-year periods unless
terminated by either party on 90 days' written notice. Company sales to Pinnacle
totaled $3,645,000, $9,590,000 and $2,840,000 for the years ended December 31,
1999, 1998, and 1997, respectively. The accounts receivable balance from
Pinnacle was $0 at December 31, 1999 and $1,828,000 at December 31, 1998. The
Company has purchased approximately $1,150,000, $2,169,000, and $1,532,000, of
inventory from Pinnacle in 1999, 1998 and 1997, respectively. Inventory on hand,
purchased under contract with Pinnacle, totaled $0 and $1,564,000 at December
31, 1999 and December 31, 1998, respectively. Glenn E. Penisten, a director of
the Company, is a director of Pinnacle. The agreement was entered into in the
ordinary course of business and the Company believes that it has terms no less
favorable than reasonably could be expected to be obtained from unaffiliated
parties.
In May 1994, the Company entered into a manufacturing agreement with Reply
Corporation ("Reply") providing value-added turnkey services for Reply by the
Company's manufacturing division which was disposed of in June 1999. The Company
terminated the agreement in 1997. Sales to Reply totaled approximately $0, $0,
and $262,000 during 1999, 1998, and 1997, respectively. The accounts receivable
balance from Reply was $0 at December 31, 1999 and $0 at December 31, 1998. The
Company has purchased approximately $0, $0, and $123,000 of inventory from Reply
in 1999, 1998, and 1997, respectively. Glenn E. Penisten and Gordon A. Campbell,
directors of the Company, are directors of Reply. The agreement was entered into
in the ordinary course of business and the Company believes that it has terms no
less favorable than reasonably could be expected to be obtained from
unaffiliated parties.
In May 1998, the Company entered into a manufacturing agreement with
Network Peripherals Inc. ("NPI") providing value-added turnkey services for NPI
by the Company's manufacturing division which was disposed of in June 1999.
Sales to NPI totaled approximately $1,446,000 and $8,241,000 during 1999 and
1998, respectively and the accounts receivable balance from NPI was $0 at
December 31, 1999 and $984,000 at December 31, 1998. The Company has purchased
inventory totaling approximately $98,146 and $546,000 during 1999 and 1998
respectively. Inventory on hand, purchased under contract with NPI, totaled $0
at December 31, 1999 and $737,000 at December 31, 1998. Glen E. Penisten, a
director of the Company, is a director of NPI. The agreement was entered into in
the ordinary course of business and the Company believes that it has terms no
less favorable than reasonably could be expected to be obtained from
unaffiliated parties.
The Company's distribution division has purchased approximately $0 and
$858,000 of inventory from 3DFX Interactive, Inc. ("3DFX") in 1999 and 1998
respectively. The inventory on hand, purchased from 3DFX, totaled $0 at December
31, 1999 and $139,000 at December 31, 1998, respectively. Gordon A. Campbell, a
director of the Company, is a director of 3DFX. The Company believes that terms
of these transactions were no less favorable than reasonably could be expected
to be obtained from unaffiliated parties.
The Company sold $0 and $1,528,000 to 3Com Corporation ("3Com") in 1999 and
1998, respectively. The accounts receivable balance from 3Com was $0 and
$469,000 at December 31, 1999 and 1998, respectively. Gordon A. Campbell, a
director of the Company, is a director of 3Com. The Company believes that terms
of these transactions were no less favorable than reasonably could be expected
to be obtained from unaffiliated parties.
In November 1998, the Company acquired the assets of the Computer Products
Division of Almo Corporation for approximately $20.6 million and five-year
warrants to purchase 350,000 shares of Common Stock of the Company at an
exercise price of $12 per share. Eugene B. Chaiken, a director of the
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<PAGE>
Company, is President, Chief Executive Officer, Chairman of the Board and
majority shareholder of Almo Corporation. The purchase price of the assets of
the Computer Products Division of Almo Corporation was negotiated on an
arms-length basis and the Board of Directors of the Company (of which Mr.
Chaiken was not a member at the time) approved the purchase price. Upon
consummation of the transaction, Mr. Chaiken became a member of the Board of
Directors of the Company.
The Company has entered into a three-year Employment Agreement with W.
Donald Bell, its Chairman, President and Chief Executive Officer effective July
1, 1999. The Employment Agreement provides for a minimum base salary of $375,000
per year, participation in all Company annual incentive compensation plans,
including the Management Incentive Program, a lump-sum cash incentive payment
(the "EPS Enhancement Incentive") based on the Company's annual net earnings per
share, payment of premiums for long-term disability insurance, reimbursement for
ordinary and necessary travel and other out-of-pocket expenses, and
participation in other employee benefit plans and programs. In the event that
Mr. Bell's employment is terminated by the Company without cause or in the event
of Mr. Bell's involuntary termination, Mr. Bell shall be entitled to receive his
salary and benefits through at least the expiration of the initial term of
employment, cash payments based on the EPS Enhancement Incentive that Mr. Bell
may have earned during the initial term of employment, and full acceleration of
unvested stock options and restricted stock awards, subject to certain
restrictions. In addition, the Employment Agreement provides for a two-year
covenant not to compete with the Company.
The Company has entered into Management Retention Agreements with W. Donald
Bell, Philip M. Roussey, Robert J. Sturgeon, Remo E. Canessa, Brian J. Clark and
Gary Gammon. The Management Retention Agreements have three-year terms, subject
to extension in the event there has been a change of control. The Management
Retention Agreements provide that in the event the employee's employment
terminates within 12 months following a change of control, then the employee is
entitled to receive the following severance benefits. If the employee is
involuntarily terminated other than for cause, then the employee will receive a
cash payment equal to the employee's base annual salary, continued Company-paid
employee benefits for one year from the date of the change of control or until
the date that the employee becomes covered under another employer's benefit
plans, and full vesting of unvested stock options. In the event that the
employee's employment is terminated for any reason either prior to the
occurrence of a change of control or after the 12-month period following a
change of control, then the employee is entitled only to receive severance and
other benefits under established Company severance and benefits plans and
practices or pursuant to other agreements with the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that directors, certain officers
of the Company and ten percent shareholders file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC") as
to the Company's securities beneficially owned by them. Such persons are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on its review of copies of Forms 3 and 4 and amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and any written representations referred to in Item 405(b)(2)(i) of
Regulation S-K stating that no Forms 5 were required, the Company believes that,
during fiscal year 1999, all Section 16(a) filing requirements applicable to the
Company's officers, directors and ten percent shareholders were complied with,
except that Brian J. Clark filed two late reports.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between the Company's Board of
Directors or Compensation Committee and the Board of Directors or Compensation
Committee of any other company.
Compensation Committee Report
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<PAGE>
Decisions on compensation of the Company's executive officers are made by
the Compensation Committee of the Board of Directors. The members of the
Compensation Committee, Messrs. Edward Gelbach and Gordon Campbell, are
non-employee directors. Decisions by the Compensation Committee relating to the
compensation of the Company's executive officers are reviewed by the full Board
(which did not modify or reject any Compensation Committee decisions during
1999).
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<PAGE>
COMPENSATION COMMITTEE REPORT
Compensation Philosophy and Relationship of Performance. This report
reflects the Compensation Committee's executive officer compensation philosophy
for the year ended December 31, 1999 as endorsed by the Board of Directors. The
resulting actions taken by the Company are shown in the compensation tables
supporting this report. The Compensation Committee either approves or recommends
to the Board of Directors compensation levels and compensation components for
the executive officers. With regard to compensation actions affecting the Chief
Executive Officer, all of the non-employee members of the Board of Directors
acted as the approving body.
The Compensation Committee's executive compensation policies are designed
to enhance the financial performance of the Company, and thus shareholder value,
by aligning the financial interests of the key executives with those of
shareholders.
The executive compensation program is viewed in total considering all of
the component parts: base salary, annual performance incentives, benefits
(including a car allowance for certain of the Named Executive Officers), and
long-term incentive opportunity in the form of stock options and stock
owner-ship. The annual compensation components consist generally of equal or
lower base salaries than those of companies within the industry combined with
incentive plans based on the Company's financial performance that can result in
total compensation generally in line with those at comparable companies.
Long-term incentives are tied to stock performance through the use of stock
options. The Compensation Committee's position is that stock ownership by
management is beneficial in aligning management's and shareholders' interests in
the enhancement of shareholder value. Overall, the intent is to have more
significant emphasis on variable compensation components and less on fixed cost
components. The Committee believes this philosophy and structure are in the best
interests of the shareholders.
Executive compensation for fiscal 1999 primarily consisted of base salary
and performance incentives paid in the form of cash for such period.
Annual Incentive Arrangements. The Company has adopted a Management
Incentive Program (the "Program") under the Stock Plan which provides annual
incentive compensation in the form of stock options to key employees, including
the Named Executive Officers, who by the nature of their positions are deemed
sufficiently accountable to impact directly the financial results of the
Company. The Program is approved by the Compensation Committee, whose members
are not eligible to participate in the Program.
Options granted under the Program typically have a term of ten (10) years
and vest as to 10% of the shares each year from the date of grant. If, however,
the optionee's division meets annual plan goals established by the Board of
Directors for such year, which goals are similar to the performance goals
established for annual cash incentive compensation discussed below, then 25% of
the shares subject to the option shall vest in each such year.
In addition to stock options granted under the Program, the Committee
believes that key executives should have a significant proportion of total cash
compensation subject to specific strategic and financial measurements. At the
beginning of each fiscal year, or upon an individual being appointed an
executive officer, the Committee sets a target bonus amount for each executive
officer expressed as a percentage of the executive's base salary. Performance
goals for purposes of determining annual incentive compensation are established,
which include net earnings and other strategic and financial measurements.
Generally, the target level of net earnings and return on sales percentages is
assigned a significantly greater weight than the aggregate weight assigned to
all remaining factors. Senior management, including the Named Executive
Officers, have the potential to earn significantly higher levels of incentive
compensation if the Company exceeds its targets. The target incentive
compensation levels established by the Compensation Committee for 1999 expressed
as a percentage of base salary for Messrs. Roussey, Mabry, Gammon and Clark were
approximately 50%.
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<PAGE>
The performance goals established at the beginning of 1999 were based on
several strategic and financial measurements including a target level of net
earnings and a return on sales percentages goal and attainment of certain other
objectives. The earnings goals were assigned a significantly greater weight than
the aggregate weight assigned to the remaining factors. Based on the evaluation
of the above criteria, the Compensation Committee awarded incentive payments for
1999 at approximately 45.7% of base salary for each Named Executive Officer.
Stock Options. The Compensation Committee of the Board of Directors
generally determines stock option grants to eligible employees including the
Named Executive Officers. The Committee believes that options granted to
management reinforce the Committee's philosophy that management compensation
should be closely linked with shareholder value. The Stock Plan is more fully
described in "1993 Director Option Plan" and "1998 Stock Plan". Stock options
have been granted to 100% of the Company's management and key employees.
Other Compensation Plans. The Company has adopted certain broad-based
employee benefit plans in which all employees, including the Named Executive
Officers, are permitted to participate on the same terms and conditions relating
to eligibility and generally subject to the same limitations on the amounts that
may be contributed or the benefits payable under those plans. Under the
Company's Personal Investment Plan (the "401(k) Plan"), which is a defined
contribution plan qualified under Sections 401(a) and 401(k) of the Code,
participants, including the Named Executive Officers, can contribute a
percentage of their annual compensation. Although the 401(k) Plan allows for the
Company to make matching contributions, the Company did not make a matching
contribution for participants in 1999. The Company also has adopted the Stock
Purchase Plan under Section 423 of the Code, pursuant to which participating
employees can purchase the Company's stock at a discount through payroll
deductions.
Mr. Bell's 1999 Compensation. Compensation for the Chief Executive Officer
aligns with the philosophies and practices discussed above for executive
officers in general. All compensation determinations and stock option grants to
the Chief Executive Officer are reviewed by the Compensation Committee with the
Board of Directors. Mr. Bell is not eligible to participate in the Employee
Stock Purchase Plan. At the beginning of each fiscal year, the Compensation
Committee sets a target bonus amount for the Chief Executive Officer. The target
incentive compensation level established for Mr. Bell for 1999, expressed as a
percentage of his base salary, was 75%. For 1999, the Chief Executive Officer's
performance goals were established based on strategic and financial
measurements, including a target level of net earnings. The target level of net
earnings was assigned a significantly greater weight than the aggregate weight
assigned to the remaining factors. In evaluating Mr. Bell's performance for the
purpose of determining his incentive compensation for such period, the
Compensation Committee considered his leadership and the Company's performance
against its financial and strategic objectives. Based on the evaluation, the
Compensation Committee decided that Mr. Bell's performance partially met the
goals established for him for the fiscal year, and awarded Mr. Bell an incentive
payment of 55.5% of his salary. In December 1996, the Company entered into an
Employment Agreement with Mr. Bell, which reflects the Company's desire to
retain and motivate him with performance-based and long-term incentives. For
specific data regarding Mr. Bell's 1999 compensation, see "Executive
Compensation-Summary Compensation Table."
COMPENSATION COMMITTEE
Gordon A. Campbell
Edward L. Gelbach
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
The following table sets forth the compensation paid during the three
fiscal years ended December 31, 1999, 1998 and 1997 to the Company's Chief
Executive Officer and the four other most highly compensated executive officers
for the fiscal year 1999.
<CAPTION>
Long-Term
Compensation
------------
Awards
------
Other Underlying Securities
Fiscal Annual Compensation All Other Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($) Options (#) ($)
- -------------------------------------- -------- ------------- ----------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
W. Donald Bell 1999 $439,383 $249,814 $3,600(1) $ 73,600(2)
President, Chief Executive 1998 389,423 226,259 3,600(1) - 48,600(2)
Officer and Chairman of the Board 1997 375,000 59,333 3,600(1) 40,000 51,069(2)
Philip M. Roussey 1999 $216,754 $ 75,431 $3,600(1) - $ 20,000(7)
Senior Vice President of 1998 207,693 110,294 3,600(1) - 10,388
Computer Products Marketing 1997 200,000 52,179 3,600(1) 20,000 -
Ronald H. Mabry(3) 1999 $189,574 $ 78,708 $3,600(1) - $ -
Senior Vice President of 1998 197,308 56,806 3,600(1) - -
Component Marketing 1997 187,880 49,569 3,600(1) 10,000 -
Gary Gammon (4) 1999 $157,534 $ 73,483 $2,400(1) $180,827(6)
Senior Vice President of
Commercial Sales
Brian J. Clark(5) 1999 $208,467 $142,734 $3,600(1) - $ 10,000(7)
Senior Vice President of 1998 205,311 72,931 3,600(1) 10,000 -
Industrial Sales 1997 50,538 6,818 1,200(1) 70,000 -
<FN>
- ---------------
(1) Represents a car allowance paid by the Company.
(2) Consists of premiums paid by the Company on a term life insurance policy
(face amount of $1.0 million in 1999), the proceeds of which are payable to
the Company and to designated beneficiaries of Mr. Bell and a one-time
$25,000 bonus in 1999.
(3) Mr. Mabry joined the Company in October 1996.
(4) Mr. Gammon joined the Company in April 1999.
(5) Mr. Clark joined the Company in September 1997.
(6) Represents relocation expenses paid by the Company and one-time bonus.
(7) Represents one-time bonus.
</FN>
</TABLE>
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<PAGE>
Option Grants In Last Fiscal Year
<TABLE>
The following table provides information with respect to option grants in
fiscal year 1999 to the Named Executive Officers.
<CAPTION>
Percent of
Total Potential Realizable Value at
Number of Options Assumed Annual Rates of Stock
Securities Granted to Exercise Price Appreciation for Option
Underlying Employees or Base Term(1)
Options in Fiscal Price Expiration -----------------------------
Name Granted (#) Year (%) ($/Share) Date 5% 10%
- ---------------------- ------------- ------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
W. Donald Bell........ - - - - - -
Philip M. Roussey..... 30,000 4.3% 7.25 8/5/04 60,091 132,786
Ronald H. Mabry....... 15,000 2.1% 7.25 8/5/04 30,046 66,393
Brian J. Clark........ 20,000 2.8% 7.25 8/5/04 40,061 88,524
Gary Gammon........... 50,000 7.2% 6.44 4/23/03 69,366 149,382
30,000 4.3% 6.44 4/23/09 121,455 307,792
10,000 1.4% 7.25 8/5/04 20,030 44,262
- -----------------------------------------------------------------------------------------------------------
<FN>
(1) The "potential realizable value" shown represents the potential gains based
on annual compound stock price appreciation of 5 percent and 10 percent
from the date of grant through the full option terms, net of exercise
price, but before taxes associated with exercise. The amounts represent
certain assumed rates of appreciation only, based on the Securities and
Exchange Commission rules. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock, overall market
conditions and the option holders' continued employment through the vesting
period. The amounts reflected in this table may not necessarily be achieved
and do not reflect the Company's estimate of future stock price growth.
</FN>
</TABLE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
The following table provides information with respect to option exercises
in fiscal year 1999 by the Named Executive Officers. The value of unexercised
in-the-money options have been based on the market value of the Company's stock
of $11.00 on December 31, 1999.
<CAPTION>
Shares Value of Unexercised
Acquired Total Number of Unexercised In-the-Money Option at
on Options at Fiscal Year End Fiscal Year End (1)
Exercise Value --------------------------- ------------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ------------ -------------- ------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
W. Donald Bell........ - - 35,000 55,000 70,000 160,000
Philip M. Roussey..... - - 35,000 65,000 97,750 222,250
Ronald H. Mabry....... - - 38,000 47,000 112,750 132,250
Gary Gammon........... - - - 90,000 - 402,500
Brian J. Clark........ - - 30,750 69,250 56,875 175,625
<FN>
- ---------------
(1) Based on a market value of the underlying securities of $11.00 at December 31, 1999.
</FN>
</TABLE>
-22-
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder
return, calculated on a dividend reinvested basis, of the Company's Common Stock
from December 31, 1994 through December 31, 1999 for Bell Microproducts Inc.,
the S&P 500 Composite Index (the "S&P 500") and the Pacific Stock Exchange
Technology Index (the "PSE High Tech Index"). The graph assumes that $100 was
invested in the Company's Common Stock on December 31, 1994 and in the S&P 500
and the PSE High Tech Index at the closing price on such date. Note that
historic stock price performance is not necessarily indicative of future stock
price performance. The Company's stock price on December 31, 1999 was $11.00.
<TABLE>
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
<CAPTION>
Total Return Analysis 12/31/94 12/30/95 12/29/96 12/31/97 12/31/98 12/31/99
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bell Microproducts. Inc. $141 $95 $116 $103 $121 $102
- -------------------------------------------------------------------------------------------------------------
PSE Hi-Tech Index $121 $178 $214 $256 $396 $430
- -------------------------------------------------------------------------------------------------------------
S&P 500 $ 98 $132 $159 $208 $264 $315
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE>
OTHER MATTERS
The Company's Annual Report to shareholders for fiscal year 1999 is being
mailed with this proxy statement to shareholders entitled to notice of the
meeting. The Annual Report includes the consolidated financial statements,
unaudited selected financial data and management's discussion and analysis of
financial condition, results of operations and certain information about the
Company's executive officers.
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the accompanying proxy to vote the shares represented thereby
on such matters in accordance with their best judgment.
BY ORDER OF
THE BOARD OF DIRECTORS
/s/ Remo E. Canessa
Remo E. Canessa
Chief Financial Officer
San Jose, California
April 24, 2000
<PAGE>
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
--------------------------------------
PROXY BELL MICROPRODUCTS INC. PROXY
PROXY FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
May 22, 2000
The undersigned shareholder of Bell Microproducts Inc. (the "Company")
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement for the 2000 Annual Meeting of Shareholders of the Company to be
held on Monday, May 22, 2000 at 1:00 p.m., local time, at the offices of the
Company, 1941 Ringwood Avenue, San Jose, California, and hereby revokes all
previous proxies and appoints W. Donald Bell and Remo E. Canessa, or either of
them, will full power of substitution, Proxies and Attorneys-in-Fact, on behalf
and in the name of the undersigned, to vote and otherwise represent all of the
shares registered in the name of the undersigned at said Annual Meeting, or any
adjournment thereof, with the same effect as if the undersigned were present and
voting such shares, on the following matters and in the following manner:
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND
DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
(Continued, and to be signed on the other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Please mark
[ ] your votes
WITHHOLD as this
FOR FOR ALL
1. ELECTION OF DIRECTORS: Nominees W. [ ] [ ] 3. Proposal to approve amendment to FOR AGAINST ABSTAIN
Donald Bell, Gordon A. Campbell, the Amended and Restated Articles [ ] [ ] [ ]
Glenn E. Penisten, Edward L. Gelbach, of Incorporation to increase the
James E. Ousley and Eugene B. Chaiken number of authorized Common Stock.
INSTRUCTION: If you wish to withhold authority to vote
for any individual nominee, write that nominee's name
in the space provided below. 4. Proposal to ratify the appointment FOR AGAINST ABSTAIN
of PricewaterhouseCoopers LLP as [ ] [ ] [ ]
independent auditors for the
Company for the fiscal year ending
December 31, 2000.
In their discretion, the Proxies
are entitled to vote upon such
other matters as may properly come
before the Annual Meeting or any
adjournment thereof
I PLAN TO ATTEND THE MEETING [ ]
FOR AGAINST
2. Proposal to approve the amendment to [ ] [ ]
the 1998 Stock Plan.
ABSTAIN
[ ]
THESE SHARES REPRESENTED BY THIS PROXY WILL
BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS
MADE, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED FOR EACH OF THE ABOVE PERSONS
AND PROPOSALS, AND FOR SUCH OTHER MATTERS AS
MAY PROPERLY COM BEFORE THE MEETING AS THE
PROXYHOLDERS DEEM ADVISABLE.
Signature(s)_______________________________________________________________________________ Dated__________________________ , 2000
(This proxy statement should be marked, dated and signed by each shareholder exactly as such shareholder's name appears hereon, and
returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. A corporation is requested
to sing its name by its President or other authorized office, with the offices held designated. If shares are held by joint tenants
or as community property, both holders should sign.)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
