<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
PINNACLE MICRO, INC.
- --------------------------------------------------------------------------------
(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] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
PINNACLE MICRO, INC.
19 TECHNOLOGY DRIVE
IRVINE, CA 92618
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1997
The Annual Meeting of Stockholders of Pinnacle Micro, Inc. (the
"Company") will be held at the Sheraton Colorado Springs Hotel, 2886 South
Circle Drive, Colorado Springs, Colorado 80906 on Tuesday, May 20, 1997 at
10:00 a.m., Mountain Daylight Time for the following purposes, as more fully
described in the accompanying Proxy Statement:
(1) To elect six directors;
(2) To ratify the appointment of BDO Seidman, LLP as
independent certified public accountants of the Company for the fiscal
year ending December 27, 1997; and
(3) To transact such other business as may properly come
before the meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on April 18,
1997, will be entitled to notice of and to vote at the meeting or any
adjournment or postponement thereof. A list of such stockholders is available
for inspection during normal business hours at the Company's offices, 19
Technology Drive, Irvine, California and will also be available for examination
at the Annual Meeting until its adjournment. The meeting will be open to
stockholders of record, proxyholders, and others by invitation only.
Beneficial owners of shares held by a broker or nominee must present proof of
such ownership to attend the meeting, and must bring with them a proxy from
such broker or nominee to vote such shares.
By Order of the Board of Directors
Jonathan B. Eddison
Secretary
April 24, 1997
Irvine, California
PLEASE USE THE ENCLOSED STAMPED ENVELOPE TO RETURN YOUR PROXY.
RETURNING YOUR PROXY WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE ANNUAL
MEETING.
<PAGE> 3
PINNACLE MICRO, INC.
19 TECHNOLOGY DRIVE
IRVINE, CA 92618
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Pinnacle Micro, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
Sheraton Colorado Springs Hotel, 2886 South Circle Drive, Colorado Springs,
Colorado 80906, on May 20, 1997, at 10:00 a.m. Mountain Daylight Time and at
any adjournment or postponement thereof, for the purposes set forth herein and
in the accompanying Notice of Annual Meeting of Stockholders.
These proxy solicitation materials, and the Annual Report to
Stockholders for the fiscal year ended December 28, 1996, including the
Company's 1996 Report on Form 10-K, were first mailed on or about April 24,
1997, to all stockholders of record entitled to vote at the Annual Meeting.
RECORD DATE AND SHARES OUTSTANDING
Stockholders of record at the close of business on April 18, 1997 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting.
The Company has only one class of equity securities outstanding, designated
Common Stock, $0.001 par value ("Common Stock"). At the close of business on
the Record Date, 11,711,362 shares of Common Stock were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given in the form accompanying this proxy statement may be
revoked or superseded by the person giving it prior to exercise. A proxy may
be revoked by delivering to the Secretary of the Company a later dated proxy or
a written notice of revocation, or by attending the Annual Meeting and voting
in person. Attendance at the Annual Meeting will not constitute a revocation
unless the attending stockholder affirmatively indicates an intention to vote
in person.
VOTING AND SOLICITATION
Each share of Common Stock outstanding at the Record Date will be
entitled to one vote with respect to each proposal herein and any other matter
that properly may come before the Annual Meeting. The Company will bear the
entire cost of solicitation of proxies, including costs incurred in connection
with the preparation, assembly, printing and mailing of this Proxy Statement,
the proxy and any additional information furnished to the Company's
stockholders in relation to the Annual Meeting. In addition, the Company may
reimburse brokerage firms and other persons representing beneficial owners
<PAGE> 4
of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies also may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone, facsimile, telegram or any other means of
communication.
The presence in person or by proxy of a majority of the shares
entitled to vote is necessary to establish a quorum at the Annual Meeting.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
are counted in tabulating the votes cast on proposals presented to
stockholders; therefore, abstentions will have the same effect as votes against
a proposal. Broker non-votes will be treated as unvoted for purposes of
determining approval of a proposal and will not be counted as votes for or
against such proposal.
A proxy, when executed and not revoked, will be voted in accordance
with the instructions given in the proxy. If a choice is not specified in the
proxy, the proxy will be voted "FOR" the nominees for election of directors
named in this Proxy Statement, "FOR" the ratification of BDO Seidman, LLP as
the Company's independent certified public accountants and according to the
discretion of the proxyholders, on any other matter that properly comes before
the meeting.
Any stockholder present at the meeting may withdraw his or her proxy
and vote in person on each matter brought before the meeting. Stockholders
attending the meeting whose shares are held in the name of a broker or other
nominee should bring with them proof of their ownership of shares and a proxy
from such broker or other nominee authorizing them to vote such shares.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT MEETING
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1998 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices no later than April
15, 1998, in order to be considered for inclusion in the Company's proxy
statement relating to that meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received
by them "FOR" the nominees named below, all of whom are presently directors of
the Company. If any such nominee 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 the proxy holders in their discretion may designate to fill the vacancy.
The Company is not aware of any nominee who will be unable or will decline to
serve as a director. The term of office for each person elected as a director
will continue until the next annual meeting of stockholders or until his
successor has been elected and qualified.
2
<PAGE> 5
Directors are to be elected by a plurality of the votes cast at the
Annual Meeting in person or represented by proxy at the meeting. Stockholders
do not have cumulative voting rights in the election of directors. THE BOARD
OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES NAMED BELOW.
The names and certain information concerning the experience and
background of the nominees for election as directors are set forth below.
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Daryl J. White 49 Chairman of the Board
Kenneth C. Campbell 55 President
Roger Hay 47 Executive Vice President,
Chief Financial Officer
John E. Koehler 55 Director
Hans Imhof 57 Director
William F. Blum 63 Director
Daryl J. White has served as the Company's Chairman of the Board since
May 1996. He joined the Board of Directors as an outside director in September
1995. He was Senior Vice President, Finance and Chief Financial Officer of
Compaq Computer Corporation until his retirement in May 1996. He is on the
Board of Directors of Imation Corporation, an NYSE listed manufacturer of
products and services for data storage and imaging applications. Mr. White is
also a member of the Board of Directors at Paracelsus Healthcare Corporation,
an NYSE listed hospital management corporation.
Kenneth C. Campbell joined the Company as Executive Vice President,
Technology and General Manager in April 1996. He was appointed President and
joined the Board on December 8, 1996. Prior to joining the Company, Mr.
Campbell served as Executive Vice President and General Manager of the tape
products group at Seagate Technology, a division of Seagate after it acquired
Conner Peripherals (which in turn acquired that business from Archive).
Roger Hay joined the Company in June 1996 as Executive Vice President
and Chief Financial Officer. He was appointed a director on December 8, 1996.
From March 1994 to June 1996, Mr. Hay served as Senior Vice President, Finance
and Chief Financial Officer of Titan Corporation, a designer, manufacturer and
installer of high technology information and electronic systems and products
for government and commercial business units. Prior to March 1994, Mr. Hay was
Executive Vice President, Finance and Chief Financial Officer at International
Rectifier, a worldwide manufacturer of power semiconductors.
Dr. John E. Koehler joined the Board as of October 1, 1996. Dr.
Koehler is President of J. Koehler & Co., Inc., an independent consultant
currently working on assignments for the Rand organization. Prior to that, he
was Executive Vice President and Chief Operating Officer at Titan Corporation.
Previously, Dr. Koehler held a number of senior positions at the Hughes
Corporation; most recently President of Hughes Asia Pacific, where he was
responsible for the activities of GM Hughes Electronics throughout the region
stretching from New Zealand to India. Prior to assuming this position he was
Vice President of Hughes Telecommunications and Space Sector. Dr. Koehler was
also Vice President of Hughes Aircraft Company, Space and Communications Group
and President and Chief Executive Officer of Hughes Communications.
3
<PAGE> 6
Hans Imhof joined the Board as of November 13, 1996. Mr. Imhof is and
has been co-owner of Datasphere, a company specializing in engineering, design
and construction of large data centers since 1990. Mr. Imhof also serves as
president of Warner Management Company, a commercial real estate management
company. He is also president of Diversified Protection Systems, Inc., a
company specializing in installation and services of fire protection systems
for high tech facilities; co-founder of Computer Site Technologies, a start-up
software company; and co-founder of IBS, a company producing computer
controlled lighting controls.
William F. Blum, a founder of the Company, served as the Company's
President, Chief Executive Officer and Chairman of the Board since its
inception in May 1987 until May 1996, when he retired. Mr. Blum rejoined the
Board on December 8, 1996. Mr. Blum is the father of Scott Blum who resigned
as Vice President, Marketing, October 1, 1996 and from the Board of Directors
on December 8, 1996.
Scott Blum and William Blum entered into a standstill and voting
agreement dated December 8, 1996 pursuant to which they agreed (1) to vote for
the Company's board as constituted on December 8 or its nominees, provided
William Blum or his nominee was on the slate recommended by the board; (2) to
preserve Company confidential information and avoid interference with
management; and (3) to refrain from seeking to form or joining a group for the
purpose of acquiring or selling a controlling interest in the Company. In
return the Company agreed to register certain shares held by the Blums for
resale if requested to do so.
OTHER EXECUTIVE OFFICERS
In addition to Mr. Campbell and Mr. Hay who are directors, the
Company's current other executive officers include:
Bernard Wu, age 38, Vice President, Marketing was a Vice President at
Conner/Seagate Technologies' Storage System Division from 1993 until he joined
Pinnacle. His areas of responsibility included Marketing, Engineering, and
Sales for disk, tape and RAID subsystems. From 1986 through 1992, Mr. Wu
served in several executive positions in marketing and business unit management
at Maynard Electronics and Archive Corporation which merged in 1989.
David Ooley, age 33, Acting Vice President Worldwide Sales, joined
Pinnacle Micro in 1993 rising from the position of Regional Sales Manager,
Southeast Region to Director, Eastern Region Sales in 1995 and was named as
Vice President, US Sales in 1996. Previous to joining Pinnacle, Mr. Ooley was
a Major Account Manager in the Southeast for Global Computer Supplies.
David E. Nesbit, age 48, Vice President, Operations, joined the
Company on March 10, 1997. Prior to that appointment, Mr. Nesbit held various
executive management positions at Comptronix Corporation starting in 1992. Mr.
Nesbit's previous career experience includes positions with Ampex, Rolm
Corporation and Ford Aerospace and Communications Corporation.
4
<PAGE> 7
Jonathan Eddison, age 44, joined the Company in March 1996 as Vice
President, General Counsel and Secretary. From 1989 to February 1996, Mr.
Eddison was Senior Counsel at Epson America, Inc.
LEGAL MATTERS
As disclosed in previous public reports, the Company and several of
its former executives have been the subject of an investigation by the staff of
the Enforcement Division of the Securities and Exchange Commission (the
"Staff") into matters relating to certain accounting issues. The Company
cooperated fully in the investigations. The Company reached agreement in
principle with the Staff on settlement of its case. This settlement is not yet
final.
On March 15, 1996, a complaint was filed against the Company and
certain of its officers and directors in a securities class action lawsuit
which alleges that Company management engaged in improper accounting practices
and made certain false and misleading statements. The complaint claims
unspecified compensatory damages and related fees and costs. The complaint was
filed in the United States District Court for the Central District of
California under the case name Wills, Cohen, et al. v. William Blum et al.,
Case No. SACV96-261GLT. The Company denies all allegations and intends to
vigorously contest the suit. The ultimate outcome of this matter cannot
presently be determined.
BOARD MEETINGS
The Board of Directors of the Company held 16 meetings during the
fiscal year ended December 28, 1996. All serving members of the Board attended
at least 75% of the meetings held by the Board and by all committees of the
Board on which they served (during their terms of membership on the Board and
such committees).
BOARD OF DIRECTORS AND BOARD COMMITTEES
In 1995, the Board of Directors had four standing committees: an Audit
Committee, a Compensation Committee, a Stock Option Committee and an Employee
Incentive Committee. The four committees were reorganized in April 1996
creating two committees: The Compensation Committee (including the former
Stock Option and Employee Incentive Committees) and the Audit Committee.
The Audit Committee reviews the results and scope of audit and other
services provided by the Company's independent auditors. The Audit Committee
presently consists of Messrs. Daryl J. White, John E. Koehler and Hans Imhof.
During the fiscal year ended December 28, 1996, the Audit Committee held three
meetings.
The Compensation Committee makes recommendations concerning salary and
incentive compensation for the President. The Compensation Committee reviews
and approves compensation, including stock options, for other executives, and
in some instances, stock options for management and key personnel as
recommended by the President. The Compensation Committee presently consists of
Messrs. John E. Koehler, Daryl J. White and Hans Imhof. During the fiscal year
ended December 28, 1996, the Compensation Committee held three meetings.
The Company does not have a nominating committee. Instead, the Board
of Directors as a whole identifies and screens candidates for membership on
the Company's Board of Directors.
5
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE OFFICER COMPENSATION
The following table sets forth compensation received for the fiscal
years ended December 28, 1996, December 30, 1995 and December 31, 1994, by the
Company's Chief Executive Officers and the other executive officers whose
salary and bonus exceeded $100,000 for the fiscal year ended December 28, 1996
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
------------------------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND ------------------- UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS OPTIONS/SARS(#) ($)(5)
------------------ ---- --------- ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Kenneth C. Campbell 1996 157,740 - 400,000 343
President 1995 - - -
1994 - - -
Lawrence Goelman 1996 185,674 20,000 710,000 716
President and Chief 1995 - - -
Executive Officer(1) 1994 - - -
William F. Blum 1996 153,615 - - -
President and Chief 1995 125,000 - -
Executive Officer(2) 1994 124,792 - -
Roger Hay 1996 94,062 20,000 300,000 86
Executive Vice President and 1995 - - -
Chief Financial Officer 1994 - - -
Jonathan B. Eddison 1996 105,060 12,500 100,000 91
Vice President and 1995 - - -
General Counsel 1994 - - -
David Ooley 1996 123,204 7,500 25,000 87
Acting Vice President 1995 114,069 6,000 40
World Wide Sales 1994 72,760 - -
Scott A. Blum 1996 218,025 10,000 - 153
Executive Vice President 1995 161,192 450,000 123
Sales and Marketing(3) 1994 114,808 - 71
James G. Hanley 1996 183,971 - - 177
General Manager, 1995 156,453 22,500 117
Strategic Products Group 1994 109,367 - 65
former Sr. Vice President,
Corporate Development(4)
</TABLE>
_________________
(1) Effective December 6, 1996, Mr. Lawrence Goelman resigned from his
positions as President and Chief Executive Officer of the Company.
(2) Effective May 12, 1996, Mr. William F. Blum retired from his positions as
President and Chief Executive Officer of the Company.
(3) Effective October 1, 1996, Mr. Scott A. Blum resigned from his position
as Vice President Marketing of the Company.
(4) Following a management reorganization, Mr. James G. Hanley is no longer
an officer of the Company.
(5) Represents premiums paid on term life insurance policies.
6
<PAGE> 9
EMPLOYMENT AGREEMENTS AND SEVERANCE PAYMENTS
In February 1997, the Company entered into a severance agreement and
release with Scott A. Blum, under which Mr. Blum will receive 36 months of base
salary and 450,000 nonstatutory vested options at an exercise price of $6.41
replacing options Mr. Blum held which expired by virtue of his resignation in
October 1996.
In February 1997, the Company agreed to pay Mr. Lawrence Goelman five
months of base salary (two months as severance) following Mr. Goelman's
December 6, 1996 resignation.
In December 1996, the Company entered into employment agreements with
Kenneth C. Campbell and Roger Hay for terms of two years and with Jonathan B.
Eddison and David Ooley for terms of one year. Messrs. Campbell and Hay will
receive 24 months of base salary and Messrs. Eddison and Ooley will receive 12
months of base salary if their employment is terminated by the Company for
reasons other than cause or if there is a change in control of the Company.
On May 13, 1996, the Company entered into a Executive Consulting
Agreement with William F. Blum, pursuant to which Mr. Blum will receive 36
months of base salary.
The Company entered into an employment agreement with Mr. Hanley
during December 1995 for a term of two years. Mr. Hanley will receive one
month's base salary and one month of continued benefits for every year of
employment by the Company if terminated for reasons other than cause. Mr.
Hanley or his estate will receive a cash payment equal to a base salary of
three months if his employment is terminated by death or disability.
7
<PAGE> 10
STOCK OPTIONS
The following table sets forth certain information regarding options
granted to the Named Executive Officers during the fiscal year ended December
28, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------- Potential Realizable
Number of % of Total Annual Rates of Stock
Securities Options Exercise Price Appreciation for
Underlying Granted to or Base Option Term(2)
Options Employees in Price Expiration -----------------------
Name Granted (#)(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ---- -------------- ----------- ------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
K. Campbell 400,000 21.7% $6.00 9/16/2006 $1,509,347 $3,824,981
L. Goelman 710,000 38.6% $6.00 9/16/2006 $2,452,004 $6,186,041
W. Blum - - - - - -
R. Hay 300,000 16.3% $6.00 9/16/2006 $1,132,010 $2,868,736
J. Eddison 100,000 5.4% $6.00 9/16/2006 $ 377,337 $ 956,245
D. Ooley 25,000 1.4% $6.00 9/16/2006 $ 94,334 $ 239,061
S. Blum - - - - - -
J. Hanley - - - - - -
</TABLE>
- ------------------
(1) These options were granted "at market" on the date of grant and first
become exercisable on the first anniversary of the grant date, with
one-third of the underlying shares becoming exercisable at that time, an
additional one-third of the option shares becoming exercisable on the
second anniversary date, and full vesting on the third anniversary date.
The options were granted for a term of 10 years, subject to earlier
termination for certain events related to termination of employment.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock and the date on which
the options are exercised.
None of the Named Executive Officers exercised stock options during
the fiscal year ended December 28, 1996. The following table sets forth the
number and value of unexercised vested options held by each of the Named
Executive Officers on December 28, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options at Fiscal Year End (#) Options at Fiscal Year End ($)(1)
------------------------------ ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
K. Campbell - 400,000 - -
L. Goelman(2) 80,000 - - -
W. Blum - - - -
R. Hay - 300,000 - -
J. Eddison - 100,000 - -
D. Ooley 2,000 29,000 - -
S. Blum 150,000 300,000 - -
J. Hanley 60,000 15,000 - -
</TABLE>
- ------------------------
(1) Based on the fair market value of the Common Stock on December 28, 1996
($3.3125), less the option exercise price of "in-the-money" options.
(2) 630,000 options expired prior to any vesting when Mr. Goelman resigned.
8
<PAGE> 11
COMPENSATION OF DIRECTORS
Prior to July 1, 1996, each non-employee director was paid an annual
fee of $20,000 for serving on the Board and received an automatic initial grant
of options to purchase 7,500 shares (taking into effect the 1995 3 for 2 stock
split) of Common Stock. The options were granted at fair market value at the
time of grant and vest over three years. As of July 1, 1996, the Board of
Directors approved an increase in Board Compensation, effective prospectively,
in order to retain and attract highly qualified outside directors, which
included an increase in the annual directors fee to $40,000 (prorated if less
than 75% of all Board and committee meetings are attended), the addition of a
$5,000 annual fee for all committee chairs, and pursuant to the 1996
Non-Employee Directors Stock Option Plan, an initial grant to each new director
of options to purchase 25,000 shares of Common Stock and the annual grant of
options to each non-employee director to purchase 10,000 shares of Common
Stock. Said options vest over three years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, the Company purchased promotional software from Extreme
Software, a multimedia software development company fully owned by Scott A.
Blum, son of William Blum, for an aggregate price of approximately $96,000.
This relationship was terminated in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Daryl White and John Haynie served as members of the Compensation
Committee through the 1996 Annual meeting of Shareholders on August 29, 1996.
Thereafter the Compensation Committee was comprised of Daryl White and Charles
Laverty until November 18, 1996, at which time Messrs. Koehler, White and Imhof
were appointed to the Committee. The Compensation Committee is presently
comprised of Messrs. Koehler, White and Imhof with Mr. Koehler serving as
Chairman. No member of the Compensation Committee in 1996 was an officer or
employee of the Company.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The following report is submitted by the Compensation Committee of the
Board (the "Committee") with respect to the executive compensation policies
established by the Committee and compensation paid or awarded to executive
officers for the fiscal year ended December 28, 1996.
Salaries and Employee Benefit Programs. In 1996 the Compensation
Committee, in conjunction with the recommendations of management and with the
benefit of survey data and the advice of consultants, restructured executive
and management compensation to support the business plan of enhancing
shareholder value by linking individual compensation to Company performance.
Salaries are targeted competitively with the identified comparable market with
bonus potentials increased, if the Company meets or exceeds its performance
objectives. Bonus payments are variable or pay at risk for most management
positions. No bonuses were paid under this new plan in 1996.
Executive base compensation for the new senior management team is set
at the 75th percentile of the high technology industry as determined from
survey data, with bonus potential dependent upon Company performance. Stock
options were granted to management to further incent executives to remain with
the Company through its turnaround and reward executives for enhancing
shareholder value.
9
<PAGE> 12
The Compensation Committee believes that the new compensation
structure and plan has helped attract and retain the executives that the
Company needs.
Stock Options and Equity-Based Programs. In order to align the
financial interests of executive officers and other key employees with those of
the stockholders, the Company grants stock options to its executive officers
and other key employees on a periodic basis, taking into account individual
performance, overall employee value and previous grants of equity-based
compensation and stock holdings in determining awards.
The Compensation Committee generally follows the practice of granting
options on terms that provide that the options become exercisable in cumulative
annual installments, generally over a three-year period. The Compensation
Committee believes that this feature of the option grants not only provides an
incentive for executive officers and other key employees to remain in the
employ of the Company, but also makes longer term growth in share prices more
important for the executives and key employees who receive stock options.
Respectfully Submitted
John E. Koehler Daryl J. White Hans Imhof
10
<PAGE> 13
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for
the Company (ticker symbol PNCL), the Center for Research in Securities Prices
Index for the NASDAQ Stock Market (United States Companies) (the "CRSP NASDAQ
Index") and the Center for Research in Securities Prices Index for NASDAQ
Computer Manufacturers (the "CRSP NASDAQ Computer Manufacturers Index") for the
period that commenced on July 1, 1993 (the date on which the Company's Common
Stock first became registered under Section 12 of the Securities Exchange Act
of 1934) and ended on December 28, 1996, with data points for July 1, 1993,
December 31, 1993, June 30, 1994, December 31, 1994, June 30, 1995, December
30, 1995, June 30, 1996 and December 28, 1996. The graph assumes that all
dividends have been reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
(PINNACLE MICRO, INC., CRSP NASDAQ INDEX,
CRSP NASDAQ COMPUTER MANUFACTURERS INDEX)
<TABLE>
<CAPTION>
JUL-93 DEC-93 JUN-94 DEC-94 JUN-95 DEC-95 JUN-96 DEC-96
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PINNACLE MICRO, INC. 100 161 120 83 107 189 113 43
NASDAQ 100 111 101 108 135 153 173 188
NASDAQ COMPUTER 100 104 82 115 147 180 209 242
</TABLE>
Notwithstanding anything to the contrary set forth in the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the Compensation
Committee Report herein and the stock price performance graph on this page
shall not be incorporated by reference into any of such filings.
11
<PAGE> 14
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Set forth below is certain information as of March 17, 1997, regarding
the beneficial ownership of the Company's Common Stock by (i) any person known
by the Company to beneficially own more than 5% of the Common Stock of the
Company; (ii) each director and nominee for director supported by the Board of
Directors; (iii) each of the Named Executive Officers identified in the Summary
Compensation Table; and (iv) all directors and executive officers as a group.
Except as otherwise indicated, the Company believes, based on information
furnished by such owners, that the beneficial owners of the Company's Common
Stock listed below have sole investment and voting power with respect to such
shares, subject to applicable community property laws. Ownership information
is based on information furnished by the respective individuals.
<TABLE>
<CAPTION>
FIVE PERCENT STOCKHOLDERS, NOMINEES FOR DIRECTOR,
EXECUTIVE OFFICERS NAMED IN SUMMARY AMOUNT AND NATURE
COMPENSATION TABLE, AND DIRECTORS OF BENEFICIAL PERCENT
AND EXECUTIVE OFFICERS AS A GROUP OWNERSHIP(1) OF CLASS
--------------------------------- ----------------- --------
<S> <C> <C>
William F. Blum and Nellie R. Blum . . . . . . . . . . . . . . . . . . . . 3,076,650 (2) 28.6%
28300 Alava
Mission Viejo, CA 92692
Scott A. Blum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,874,500 (3) 35.1
30282 Anamonte
Laguna Niguel, CA 92677
Blum Trust No. 1, Scott A. Blum, Trustee . . . . . . . . . . . . . . . . . 1,150,575 10.7
Blum Trust No. 2, Scott A. Blum, Trustee . . . . . . . . . . . . . . . . . 1,150,575 10.7
Daryl J. White . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 (4) *
John E. Koehler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 *
Hans Imhof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 *
Kenneth C. Campbell . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 *
Lawrence Goelman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 (5) *
Roger Hay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 *
Jonathan B. Eddison . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 *
David Ooley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 (6) *
James G. Hanley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,500 (7) 1.3
All Directors and Executive Officers as a group (12 persons) . . . . . . . 4,874,000 (8) 43.7
</TABLE>
- ---------------
* Less than 1%.
(1) Information relating to beneficial ownership of shares of Common Stock
is based upon the rules set forth under the Securities Exchange Act of
1934 (the "Exchange Act"). Under such rules, more than one person may
be deemed to be a beneficial owner of the same securities.
(2) Includes 775,500 shares held by William F. Blum and Nellie R. Blum as
co-trustees of the William F. Blum and Nellie R. Blum Family Trust dated
August 2, 1990, 1,150,575 shares held by Blum Trust No. 1 and 1,150,575
shares held by Blum Trust No. 2. William F. Blum and Nellie R. Blum
have the joint power to remove the Trustee of Blum Trust No. 1 and
Blum Trust No. 2 and appoint themselves as Trustee.
(3) Includes 1,150,575 shares held by Blum Trust No. 1 and 1,150,575
shares held by Blum Trust No. 2, with respect to each of which Scott A.
Blum is Trustee with sole voting power and sole investment power. Also
includes 300,000 shares issuable pursuant to options exercisable within
sixty (60) days from March 17, 1997.
(4) Includes 5,000 shares issuable pursuant to options exercisable within
sixty (60) days from March 17, 1997.
(5) Includes 80,000 shares issuable pursuant to options exercisable within
sixty (60) days from March 17, 1997.
(6) Includes 2,500 shares issuable pursuant to options exercisable within
sixty (60) days from March 17, 1997.
(7) Includes 60,000 shares issuable pursuant to options exercisable within
sixty (60) days from March 17, 1997.
(8) Includes 467,500 shares issuable pursuant to options exercisable
within sixty (60) days from March 17, 1997. Shares held by Blum Trust
No. 1 and Blum Trust No. 2 are counted only once for purposes of this
total.
12
<PAGE> 15
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors
and greater than 10% stockholders are required by regulations promulgated by
the Securities and Exchange Commission to furnish the Company with copies of
all Section 16(a) reports they file. During 1996, Forms 3 for Messrs. Eddison
and Campbell were filed 145 and 176 days late respectively. Forms 3 for
William Blum, John Koehler and Hans Imhof were filed 19, 81 and 51 days late
respectively. Subsequent filings on Form 3 for Messrs. Campbell and Hay were
6 days late. Form 4 for Mr. Eddison was filed 9 days late. There were no
transactions in Company stock disclosed in these reports. Except as stated
above, based solely on its review of the copies of reporting forms furnished to
the Company or written representations that no annual Form 5 reports were
required, the Company believes that all filing requirements under Section 16(a)
of the Exchange Act applicable to its directors, officers and any persons
holding 10% or more of the Company's Common Stock with respect to the Company's
fiscal year ended December 28, 1996, were satisfied.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors selected BDO Seidman, LLP independent certified
public accountants, to audit the financial statements of the Company for the
fiscal year ending December 27, 1997, and recommends that stockholders vote
"FOR" ratification of such appointment. Ratification of the appointment of BDO
Seidman, LLP requires the affirmative vote of a majority of the shares voting
on such proposal. In the event of a negative vote on such ratification, the
Board of Directors will reconsider its selection.
Representatives of BDO Seidman, 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.
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
On February 20, 1996, the engagement of Coopers & Lybrand L.L.P., the
former independent accountants of the Company, was terminated by the
resignation of Coopers & Lybrand L.L.P., which was accepted by the Company.
Coopers & Lybrand L.L.P. advised the Company of its belief that the Company's
capitalization of certain non-recurring engineering expenditures for the
quarterly periods ended April 1, July 1 and September 30, 1995, was in error
and that the quarters should be restated.
Due to the resignation of Coopers & Lybrand L.L.P., the Company and
Coopers & Lybrand L.L.P. did not come to a final resolution as to the amounts
capitalized in each quarter. Subsequent to the resignation of Coopers &
Lybrand L.L.P., the Company determined the capitalization of these amounts was
not appropriate. The amounts should have been accounted for as research and
development and expensed as incurred.
13
<PAGE> 16
The amounts capitalized in 1995 and the aggregate effect of such
amounts if they had been properly expensed are as follows:
Aggregate Effect on
Quarter Amount ------------------------------------
Ended Capitalized Net Income Net Income Per Share
- ------- ----------- ---------- --------------------
April 1 $ 38,000 $(23,000) $ -
July 1 69,000 (42,000) -
September 30 322,000 (198,000) (.03)
--------
Total $429,000
========
The Company considered the $322,000 for the quarter ended September
30, 1995 to be material and has restated the financial statements in its Form
10-Q/A for that period. The Company considered the $38,000 for the quarter
ended April 1, 1995, the $69,000 for the quarter ended July 1, 1995 and the
$138,000 for fiscal year 1994 to be immaterial and therefore did not restate
the financial statements for those periods. For the aforementioned periods
which were not restated, the total amount of $245,000 was charged to research
and development expense for the quarter ended December 30, 1995. The aggregate
effect of such adjustments in the quarter ended December 30, 1995 increased the
net loss by $151,000 or $.02 per share.
Coopers & Lybrand L.L.P. did not identify any issues of disagreement
with the Company, other than the foregoing, and did not communicate to the
Company an inability to rely on management's representations. The report of
Coopers & Lybrand L.L.P., dated May 15, 1995, on the Company's financial
statements did not contain an adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principles; except that Coopers & Lybrand L.L.P.'s opinion was modified to
reflect the uncertainty as to the ultimate outcome of an investigation of the
Company by the Securities and Exchange Commission and a class action lawsuit
alleging various violations of federal securities laws by the Company.
ERNST & YOUNG LLP
On March 30, 1995, the engagement of Ernst & Young LLP, the former
independent accountants of the Company (who were succeeded by Coopers & Lybrand
L.L.P.), was terminated by the resignation of Ernst & Young LLP, which was
accepted by the Audit Committee of the Board of Directors.
In July 1994, the Audit Committee, in consultation with Ernst & Young
LLP and the Company's counsel, commenced an internal review in connection with
the closing of the Company's books for the second quarter of fiscal 1994. As a
result of its inquiry, the Audit Committee determined that the Company
improperly recorded revenues based on shipments made shortly after the end of
certain financial periods. The Audit Committee review also identified
necessary changes in the Company's system of internal controls, and the Company
implemented new policies and procedures to correct these weaknesses.
The report of Ernst & Young LLP dated February 21, 1995, on the
Company's restated balance sheet as of December 31, 1993 did not contain an
adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. Their report does
contain a disclaimer of opinion with regard to financial statements prior to
December 31, 1993 because of the lack of records available to establish
appropriate sales cut-off for such periods.
14
<PAGE> 17
OTHER MATTERS
The Company knows of no other matters to come before the Annual
Meeting. If any other matter not mentioned in this Proxy Statement properly
comes before the meeting, it is the intention of the proxy holders named in the
enclosed Proxy to vote the shares they represent as the Board of Directors may
recommend.
The Annual Report to Stockholders of the Company for the fiscal year
ended December 28, 1996, is being mailed concurrently with this Proxy Statement
to all stockholders of record. The Annual Report is not to be regarded as
proxy soliciting material or as a communication by means of which any
solicitation is to be made.
April 24, 1997 BY ORDER OF THE BOARD
OF DIRECTORS
Kenneth C. Campbell
President
15
<PAGE> 18
PROXY CARD PINNACLE MICRO, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1997
The undersigned hereby nominates, constitutes and appoints Kenneth C. Campbell
and Roger Hay and each of them individually, the attorney, agent and proxy of
the undersigned, with full power of substitution, to represent and to vote all
stock of PINNACLE MICRO, INC. which the undersigned is entitled to represent and
vote at the Annual Meeting of Stockholders of the Company to be held at the
Sheraton Colorado Springs Hotel, 2886 South Circle Drive, Colorado Springs,
Colorado 80906 on Tuesday, May 20, 1997, at 10:00 a.m., Mountain Daylight Time
and at any and all adjournments or postponements thereof upon the following
matters and in accordance with their best judgment with respect to any other
matters which may properly come before the meeting, all as more fully described
in the Proxy Statement for said Annual Meeting (receipt of which is hereby
acknowledged).
THE DIRECTORS RECOMMEND A VOTE "FOR" ALL THE NOMINEES LISTED IN
PROPOSAL 1 AND "FOR" PROPOSAL 2
1. ELECTION OF DIRECTORS
Election of the following nominees as directors: Daryl J. White, Kenneth C.
Campbell, Roger Hay, John E. Koehler, Hans Imhof and William F. Blum.
[ ] FOR all nominees listed above (except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees
(INSTRUCTIONS: To withhold authority to vote for any nominee, print that
nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE COMPANY'S INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 19
Important -- Please Sign and Date and Return Promptly
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED, IF NO DIRECTION
IS INDICATED, THIS PROXY WILL BE VOTED FOR THE NOMINEES FOR DIRECTORS LISTED IN
PROPOSAL 1 AND FOR PROPOSAL 2 AND IN ACCORDANCE WITH THE BEST JUDGMENT OF THE
DESIGNATED INDIVIDUALS WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF THE
MEETING OR WHICH MAY OTHERWISE PROPERLY COME BEFORE THE MEETING. IF ANY OF THE
NOMINEES FOR DIRECTOR ARE UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE
PROXYHOLDER WILL VOTE FOR SUCH OTHER PERSON OR PERSONS AS THE BOARD OF DIRECTORS
MAY RECOMMEND.
Date: May , 1997
---------
------------------------
(Signature of
shareholder)
------------------------
(Signature if held
jointly)
Please sign your name
exactly as it appears
hereon. Executors,
administrators,
guardians, officers of
corporations, and others
signing in a fiduciary
capacity should state
their full titles as
such. In the case of
joint tenants, each
joint owner should sign.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND RETURN
THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
