<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-21892
PINNACLE MICRO, INC.
Delaware 33-0238563
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
PINNACLE MICRO, INC.
19 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
(714) 789-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes / X / No / /.
----- -----
As of May 2, 1997, there were outstanding 11,931,458 shares of Registrant's
Common Stock.
Page 1 of pages
----
Exhibit Index appears on Page 12
<PAGE>
PINNACLE MICRO, INC.
INDEX
PAGE
----
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets at March 29, 1997
and December 28, 1996 3
Condensed Statements of Operations for the thirteen
weeks ended March 29, 1997 and March 30, 1996 4
Condensed Statements of Cash Flows for the thirteen
weeks ended March 29, 1997 and March 30, 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Item 6. Exhibits 12
Signatures 13
2
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PINNACLE MICRO, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 28,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 910,000 $ 5,455,000
Accounts receivable, net 11,984,000 11,726,000
Income taxes receivable 1,988,000 1,984,000
Inventories 20,148,000 17,714,000
Prepaid expenses and other current assets 142,000 215,000
------------ ------------
Total current assets 35,172,000 37,094,000
Furniture and equipment, net 2,602,000 1,739,000
Deferred interest related to convertible debentures 42,000 786,000
Other assets 394,000 619,000
------------ ------------
Total assets $ 38,210,000 $ 40,238,000
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ 7,602,000 $ 3,276,000
Accounts payable 15,272,000 15,540,000
Accrued expenses 1,216,000 2,922,000
Accrued restructuring 1,245,000 1,421,000
Payroll related liabilities 1,172,000 1,225,000
------------ ------------
Total current liabilities 26,507,000 24,384,000
Convertible debentures 3,788,000 6,422,000
Other liabilities 791,000 929,000
Commitments and contingencies
Stockholders' equity:
Common stock 11,000 10,000
Additional paid-in capital 31,234,000 28,551,000
Accumulated deficit (24,121,000) (20,058,000)
------------ ------------
Total stockholders' equity 7,124,000 8,503,000
------------ ------------
Total liabilities and stockholders' equity $ 38,210,000 $ 40,238,000
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS.
3
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PINNACLE MICRO, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
MARCH 29, 1997 MARCH 30, 1996
--------------------- --------------------
<S> <C> <C>
Net sales $14,106,000 $17,434,000
Cost of sales 11,278,000 14,306,000
----------- -----------
Gross profit 2,828,000 3,128,000
----------- -----------
Operating expenses:
Selling, general and administrative 4,741,000 5,252,000
Research and development 1,165,000 1,592,000
Nonrecurring charges - 164,000
----------- -----------
Total operating expenses 5,906,000 7,008,000
----------- -----------
Operating loss (3,078,000) (3,880,000)
Interest expense (219,000) (32,000)
Non-cash interest expense related
to convertible debentures (744,000) -
----------- -----------
Loss before income taxes (4,041,000) (3,912,000)
Income tax expense 22,000 3,000
----------- -----------
Net loss $(4,063,000) $(3,915,000)
----------- -----------
----------- -----------
Net loss per share $ (0.39) $(0.50)
----------- -----------
----------- -----------
Weighted average common shares outstanding 10,537,000 7,868,000
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS.
4
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PINNACLE MICRO, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
MARCH 29, 1997 MARCH 30, 1996
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,063,000) $(3,915,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 300,000 328,000
Provision for doubtful accounts - 220,000
Interest on debentures paid in common stock 67,000 -
Provision for product returns and price protection - 406,000
Provision for inventory obsolescence 300,000 338,000
Non cash interest expense 744,000 -
Compensation related to stock options and warrants 64,000 -
Changes in operating assets and liabilities:
Accounts receivable (258,000) (1,361,000)
Income taxes receivable (4,000) -
Inventories (2,734,000) (2,658,000)
Prepaid expenses and other current assets 73,000 (153,000)
Other assets 82,000 (167,000)
Accounts payable and accrued expenses (2,129,000) 3,833,000
Payroll related liabilities (53,000) 164,000
Other liabilities (138,000) -
------------ -----------
Net cash used in operating activities (7,749,000) (2,965,000)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of furniture and equipment 1,000 -
Purchase of furniture and equipment (1,185,000) (568,000)
------------ -----------
Net cash used in investing activities (1,184,000) (568,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable, net 4,326,000 3,775,000
Principal payments on long-term debt - (8,000)
Proceeds from exercise of stock options 16,000 -
Tax benefit from exercise of stock options 3,000 -
Proceeds from issuance of stock through
the employee stock purchase plan 43,000 -
------------ -----------
Net cash provided by financing activities 4,388,000 3,767,000
------------ -----------
Effect of exchange rate changes on cash - (28,000)
------------ -----------
Increase in cash and cash equivalents (4,545,000) 206,000
Cash and cash equivalents at beginning of period 5,455,000 3,606,000
------------ -----------
Cash and cash equivalents at end of period $ 910,000 $ 3,812,000
------------ -----------
------------ -----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 198,000 $ 36,000
------------ -----------
------------ -----------
Income Taxes $ - $ -
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS.
5
<PAGE>
PINNACLE MICRO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 29, 1997
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM PERIOD ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles.
Certain information normally included in annual financial statements
prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission, and these financial statements
should be read in conjunction with the Company's Form 10-K for the
year ended December 28, 1996. In the opinion of management, the
accompanying condensed financial statements reflect all material
adjustments which are necessary for a fair presentation of the
financial position and results of operations and cash flows as of and
for the thirteen weeks ended March 29, 1997 and March 30, 1996.
NEW ACCOUNTING STANDARD
In March 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE (SFAS 128). This
pronouncement provides a different method of calculating earnings
per share than is currently used in accordance with APB 15,
EARNINGS PER SHARE. SFAS 128 provides for the calculation of Basic
and Diluted earnings per share. Basic earnings per share includes
no dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share.
This pronouncement is effective for fiscal years and interim
periods ending after December 15, 1997; early adoption is not
permitted. The Company does not believe that the adoption of this
pronouncement will have a material impact on the net loss per share
presented in the accompanying condensed statements of operations.
2. INVENTORIES
Inventories consist of the following:
MARCH 29, DECEMBER 28,
1997 1996
----------- ------------
Components and
Work-in-process $18,853,000 $13,991,000
Finished goods 1,295,000 3,723,000
----------- -----------
$20,148,000 $17,714,000
----------- -----------
----------- -----------
3. CONTINGENCIES
On March 15, 1996, a complaint was filed against the Company and
certain of its directors and then executive officers 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 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. Accordingly, no provision for any liability that may
result has been made in the accompanying financial statements.
However, any adverse determination with respect to the pending lawsuit
could have a material adverse effect on the Company's financial
statements. The Company may incur significant legal costs relating
to this suit in 1997.
4. CONVERTIBLE DEBENTURES
In December 1996, the Company completed a second offshore placement of
$5,000,000 principal amount of convertible subordinated 6% debentures
due December 2001. The debenture holders could convert the principal
of the 6% debentures as follows: 30%, 40% and 30%, at discounts
6
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from the then market price of 15%, 17.5% and 20%, in intervals
commencing 50, 80 and 110 days after closing, respectively.
As of March 29, 1997, debentures aggregating $2,634,000 were converted
into 1,004,412 shares of common stock at conversion prices ranging
from $4.16 to $2.10 per share.
5. RESTRUCTURING
During 1996, the Company recorded restructuring charges of
$3,028,000 for costs associated with the Company's planned
consolidation and transfer of manufacturing operations to Colorado
Springs, Colorado and the closing of its branch office in Japan.
These restructuring charges principally reflect the cost associated
with early termination of existing leases, losses from the disposal
of assets and severance costs resulting from work force reductions.
During the first quarter of 1997, charges totaling $314,000 were
incurred in connection with this restructuring, including: $102,000
for severance related to the termination of 17 employees who worked
in the Irvine sales function; $191,000 for facility and
lease terminations; and $21,000 for the writeoff of leasehold
improvements. Based upon certain other actions that are being
pursued, the Company believes it can reduce the original exposure
of lease termination costs by approximately $250,000. These
savings, however, will be offset as a result of the severance of an
additional 28 employees, primarily in Irvine administration and the
European Sales Office. The remaining balance of the restructuring
liability as of March 29, 1997 was $2,036,000, of which $791,000
relates to longer term lease and severance agreements which should
be paid or settled in 1998.
7
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THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGS OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS AND EVENTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED AS A RESULT OF THE RISK FACTORS SET FORTH
IN THIS REPORT AS WELL AS IN THE COMPANY'S ANNUAL REPORT ON FORM 10 - K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NET SALES
Net sales were $17,434,000 and $14,106,000 for the thirteen weeks ended March
30, 1996 and March 29, 1997, respectively, representing a decrease of 19%.
This decrease reflects a change in product mix as a result of products such as
Sierra and Tahoe, reaching the end of their product lives and reduced unit
sales of older generation RCD products.
After completing shipment of the backlog of orders for Apex drives, new
orders for Apex declined in the second and third months of the quarter.
Management believes that a contributing factor to the decline in single -
unit APEX sales is the overall decline in the Apple Macintosh market, where
magneto-optical technology was historically most popular. In addition, the
Company accepted higher than normal product returns to bring distributor
inventories into line with demand at that time. In the first quarter of 1997,
sales of Apex-based optical library systems (jukeboxes) and new generation
RCD products, however, exceeded expectations.
GROSS PROFIT
Gross profit decreased from $3,128,000 for the thirteen weeks ended March 30,
1996, to $2,828,000 for the thirteen weeks ended March 29, 1997 primarily due
to lower sales volumes. The gross profit as a percentage of net sales
increased from 17.9% for the thirteen weeks ended March 30, 1996 to 20.0% for
the thirteen weeks ended March 29, 1997, as a result of an improved margin mix
derived from the sale of the Apex drives and Apex-based optical library systems.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $5,252,000, and $4,741,000
for the thirteen weeks ended March 30, 1996 and March 29, 1997 respectively,
and represented 30.1% and 33.6% of net sales. This decrease is due to reduced
advertising and promotional expenditures and certain other expenses, with
partial offsets from consulting fees related to the relocation of operations
to Colorado Springs.
RESEARCH AND DEVELOPMENT
Research and development expenses were $1,592,000, and $1,165,000 for the
thirteen weeks ended March 30, 1996 and March 29, 1997 respectively, and
represented 9.1% and 8.3% of net sales. For the thirteen weeks ended March
30, 1996, the Company incurred expenses for Vertex and Apex prototypes and
for ASIC development fees paid to third parties. The Company expects to
sustain the current spending levels to fund new product development projects
in the second quarter of 1997.
8
<PAGE>
NON-CASH INTEREST EXPENSE RELATED TO CONVERTIBLE DEBENTURES
A non-cash interest charge relating to certain convertible debentures issued
with discount features (see Note 4 to Notes to Financial Statements) had no
effect upon the operating loss but added $744,000 to the net loss.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of $910,000 at March 29, 1997 were $4,545,000 lower
than the balance at December 28, 1996. This was due mainly to the increase
in inventory, payment of certain expenses and other costs related to the
restructuring which the Company recorded in the third quarter of 1996 and the
loss incurred in the first quarter of 1997. Inventory balances were higher
at March 29, 1997, than at year-end 1996 by $2,434,000. The higher inventory
results from declining APEX bookings and the long-lead nature of many APEX
components. The Company has taken a number of actions in the second quarter
which it believes will reduce inventory, particularly of APEX components and
subassemblies. Cash flow of approximately $1,000,000 related to certain
leasehold improvements in the first quarter for the new facility in Colorado
Springs, as well as to lease terminations at former premises and severance
costs.
The Company currently has a revolving line of credit agreement with a lender
collateralized by substantially all assets of the Company which expires on
September 30, 1998. The Company has a maximum availability of $10,000,000
under the line of credit based on a percentage of eligible accounts
receivables and inventories. Borrowings under the line of credit totaled
$3,276,000 at December 28, 1996 and $7,602,000 at March 29, 1997.
The Company's liquidity position continues to be constrained. Its ability to
borrow against the revolving line of credit is largely dependent upon its
level of accounts receivable. From time to time the Company utilizes the
maximum available under the facility. Because of its lower than expected
level of shipments, the Company is currently unable to fully utilize its line
of credit. If shipments improve during the remainder of the second quarter
of 1997, the Company will be able to more effectively utilize its line of
credit. The Company is focusing on increasing sales, especially optical
library sales, in the second quarter.
The Company is presently pursuing a number of options related to raising
additional working capital and relieving its cash constraints. These
activities include private placements of debt and equity and working with its
key suppliers on payment terms. As long as the Company's convertible
debentures are outstanding, they are likely to adversely impact the terms on
which the Company can obtain additional financing.
In an effort to address its working capital needs, the Company has also taken
or intends to take a number of actions to further reduce operating expenses
to align costs with revenue. In the first quarter of 1997 the Company
continued to reduce its fixed costs and operating expenses. The European
Sales office will be substantially reduced in size, as well as reorganized,
in the second quarter of 1997. Spending controls and cash management programs
were implemented.
As of March 29, 1997, the Company had an income tax receivable of $1,988,000.
This amount relates to tax losses for 1996 and 1995 carried back to prior
years. All or a significant portion of the refund is expected to be paid
before the end of the second quarter 1997.
Assuming that certain of the aforementioned events occur, the Company believes
that the current sources of financing available to the Company will be
sufficient to fund the Company's operations through at least the second quarter
of its fiscal 1997. If the Company is unsuccessful in increasing its sales in
the second quarter of 1997 and in reaching agreements with its key vendors
concerning payment terms, this would have a material adverse effect upon the
Company.
The Company will also need additional funds in the third quarter 1997 for
working capital and to pay its suppliers. The Company is negotiating
possible investments into the Company, but there can be no assurance that any
of such negotiations will be successful. The inability to obtain needed
funding on satisfactory terms would have a material adverse effect on the
Company's business and financial results.
9
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Because of the Company's present financial condition, normal sources of
external financing may not be available to the Company in the future,
including a replacement line of credit. The Company has not identified as of
this filing any additional financing and is unable to indicate at this time
whether any additional financing will be available to the Company in the
future.
GENERAL AND RISK FACTORS
SALES AND MARKETING
- -------------------
The long-standing order backlog for APEX was substantially shipped as of
March 29, 1997. The post-backlog shipment and order rate in the first
quarter for single-unit APEX drives is below the level necessary to support
the Company's strategy as a drive business. In the second quarter, the
Company is moving agressively to focus on the optical library market. The
critical tasks facing the Company in the second quarter are managing cash and
building demand for APEX technology (and applications of that technology such
as optical libraries). Sales of optical libraries and CD Recorders exceeded
expectations for the first quarter and partially offset the lower than
expected APEX sales. Although management believes that the demand for
optical libraries indicates market acceptance of the APEX 4.6 GB capacity
point, if demand for APEX-based optical library solutions cannot be developed
to satisfactory levels and sustained the Company will have further
significant liquidity constraints.
Marketing efforts are being directed at optical libraries and midrange
($10,000-$100,000 systems) computer systems, medical imaging, near on-line
storage, video on demand and document imaging markets. Distribution
agreements were entered into in the first quarter with value - added
resellers ("VARs") that specialize in optical technology markets. It is
premature to predict what effect, if any, these agreements may have on
single-unit APEX sales. The Company is seeking to have its products
certified as compatible by additional leading software vendors in the belief
that such certification may generate additional sales of APEX.
CONVERSION OF CONVERTIBLE DEBENTURES
- ------------------------------------
In December 1996, the Company sold an additional $5,000,000 principal amount
of 6% convertible debentures pursuant to an offshore private placement. The
proceeds from this offering were used entirely for the Company's liquidity
needs at the end of the fourth quarter of 1996 and during the first quarter
of 1997.
As of May 2, 1997, debentures aggregating $3,126,000 have been converted into
1,531,404 shares of common stock at conversion prices ranging from $0.855 to
$4.16 per share. Stockholders' equity was increased by the full amount of the
debentures converted less the unamortized debt issuance costs. In addition,
26,292 shares of common stock were issued for $49,296 of interest payable on
the converted debentures.
The exact number of shares to be issued upon conversion of the remaining
convertible debentures cannot be predicted closely because the number of
shares issued vary inversely with the market price of the Company's Common
Stock at the time of conversion and there is no contractual limit on the
number of shares that may be issued. Such conversions will dilute the
existing holders of the Common Stock of the Company. For so long as the
convertible debentures are outstanding they are likely to adversely affect
the terms on which the Company can obtain additional financing.
10
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BACKGROUND RISKS
- ----------------
The Company's quarterly operating results fluctuate significantly depending
on factors such as timing of product introductions by the Company and its
competitors, market acceptance of new products and enhanced versions of the
Company's existing products, changes in pricing policies by the Company and
its competitors, and the timing of expenditures on advertising, promotion and
research and development.
In addition, the Company's component purchases, production and spending
levels are made based upon forecasted demand for the Company's products.
Accordingly, any inaccuracy in forecasting could adversely affect the
Company's results of operations. As is common in many high technology
companies, the Company's shipments tend to be disproportionately higher in
the latter part of each quarter. Past results are not necessarily indicative
of future performance for any particular period.
The computer industry in general, and the market for the Company's products
in particular, is characterized by rapidly changing technology, evolving
industry standards, frequent new product introductions and significant price
competition, resulting in short product life cycles and reductions in unit
selling prices over the life of a specific product. The Company faces
competition from much larger magnetic and optical storage device developers,
including Fujitsu, Sony and Philips. These competitors have larger R&D
budgets and staffs, greater engineering and manufacturing experience, and may
be able to bring comparable or superior products to market which could
negatively impact the results of the Company. The Company faces increasing
competition in the "3R" or removable, rewritable and random access storage
market from companies such as Syquest and Iomega.
There can be no assurance that there will be continued acceptance of the
Company's existing products or that the Company's future products will
achieve market acceptance at acceptable margins.
The market prices for shares of high technology companies, including the
securities of the Company, have been volatile. The Company's Common Stock
experienced substantial levels of short selling in the last 12 - 18 months
which has depressed the market price, and increased the volatility of the
market price, of the Company's Common Stock. Factors such as announcements
of technological innovations or new products by the Company or its
competitors, variations in the Company's quarterly operating results,
continued high levels of short selling of the Company's common Stock, or
general economic or stock market conditions unrelated to the Company's
operating performance may have material adverse effects on the market price
of the Company's Common Stock.
11
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permitted. The Company does not believe that the adoption of this
pronouncement will have a material impact on the net loss per share presented
in the accompanying condensed statements of operations.
ITEM 6. EXHIBITS
(a) Exhibits:
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
- -------------- ----------- -----------
10.45 Employment Agreement for Bernard Wu
dated as of March 26, 1997
10.46 Employment Agreement for David Nesbit
dated as of March 26, 1997
27.1 Financial Data Schedule
12
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SIGNATURES
PINNACLE MICRO, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 13, 1997 By: /s/ KENNETH C. CAMPBELL
-------------------------------
Kenneth C. Campbell
President
(Duly Authorized Officer)
Date: May 13, 1997 By: /s/ ROGER HAY
-------------------------------
Roger Hay
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
13
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PINNACLE MICRO, INC.
EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is made and entered into by
and between BERNARD J. WU ("Executive") and Pinnacle Micro, Inc. (the
"Company"), effective as of MARCH 26, 1997 (the "Effective Date") with
reference to the following facts:
Executive has been recruited by Company to fill a critical executive
position. Company and Executive desire to agree upon the services to be
rendered for such period of time upon the terms and conditions set forth
herein. The Company's Board further believes that it must provide the
Executive with certain benefits upon Executive's termination of employment.
NOW, THEREFORE, in consideration of the premises and of the mutual
convenants and conditions set forth herein, the parties hereto agree as
follows:
1. EMPLOYMENT; DUTIES: (a) Employment Period: During the period
commencing with the Effective Date and terminating IN 1 YEAR (the "Contract
Employment Period") or on the date (the "Termination Date") that Executive is
terminated in accordance with Sections 5, 6 or 7 of this Agreement or resigns
for whatever reason, (the "Employment Period"), Executive shall serve as VICE
PRESIDENT OF MARKETING of the Company or in such other position as he
accepts. During such employment period, Executive shall discharge the duties
of his office as shall reasonably be assigned to him by the President and
Chief Executive Officer. The Contract Employment period shall be
automatically annually extended for 12 month periods after the expiration of
the initial term unless otherwise terminated in accordance with this
Agreement.
(b) NO CONFLICT OF INTEREST: During the Employment Period,
Executive shall not serve as a director, employee, consultant or advisor to
any other corporation or other business enterprise without the prior written
consent of the Board; which consent shall not be unreasonably withheld.
Executive may, however, serve in any capacity with any civic, educational or
charitable organization or any trade association without the approval of the
Board, so long as such activities do not interfere with his duties and
obligations under this Agreement. If the Board views any such activities as
interfering it shall notify Executive and provide a reasonable opportunity to
cure the interference.
2. COMPENSATION:
(a) BASE SALARY: During the Employment Period, the Company shall
pay Executive a base salary (the "Employment Base Salary") at a rate of not
less than $150,000 per year, payable in equal installments no less frequently
than twice monthly.
<PAGE>
(b) BONUSES: During the Employment Period, Executive shall receive
bonuses (i) as determined by the Compensation Committee of the Board of
Directors in consultation with the President and Chief Executive Officer; and
(ii) according to the terms of any Company executive bonus plans.
(c) STOCK OPTIONS: During the Employment Period Executive will
receive such stock options or similar performance incentives as determined
separately in writing by the Compensation Committee of the Board of Directors
in its sole discretion after consultation with the President and Chief
Executive Officer. A summary of Executive's initial grant is attached hereto
as Exhibit A.
3. EMPLOYEE BENEFITS: During the Employment Period, Executive shall be
included in all employee benefit plans, programs or arrangements, including,
without limitation, any plans, programs or arrangements providing for
retirement benefits, incentive compensation, profit bonuses, disability
benefits, health and life insurance, vacation and paid holidays, which shall
be established by the Company for, or made available to, its senior
executives and to such other benefits and perquisites as are specifically set
forth herein. The Company will obtain at Company expense, life insurance and
reasonable disability policies for Executives and Key Employees and Executive
shall participate therein on a basis comparable to other executives.
(a) REIMBURSEMENT OF EXPENSES: The Company shall reimburse
Executive for all out-of-pocket expenses reasonably incurred and paid by him
in the performance of his duties pursuant to this Agreement, in accordance
with written Company policies.
4. DEFINITION OF TERMS: The following terms referred to in this
Agreement shall have the following meanings:
(a) CAUSE: "Cause" shall mean (i) any act of personal dishonesty
committed by the Executive in connection with his responsibilities as an
employee; (ii) any act which violates state or federal law, concerning or
involving dishonesty or moral tempted any settlement, order or judgment
against Executive under the federal or state securities laws and regulations;
(iii) a willful act by the Executive which is materially injurious to the
Company; and (iv) continued nonperformance (two weeks or more) by the
Executive following delivery to the Executive of a written demand for
performance from the Company which describes the basis for the Company's
belief that the Executive has not substantially performed his duties.
(b) CHANGE OF CONTROL: "Change of Control" means the occurrence of
any of the following events:
(i) Any "person" or group (as such terms and used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 40% or more
of the total voting power represented by the Company's then outstanding
voting securities; or
<PAGE>
(ii) A change in the composition of the Board occurring within
a one-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof;
or (B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors for the Company); or
(iii) The stockholders of the Company approve any transaction
which would be a reorganization under Delaware or California law and result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) less than fifty
percent (50%) of the total voting power represented by the voting securities
of the surviving entity outstanding immediately after such merger or
consolidation; or
(iv) The stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.
(c) DISABILITY: "Disability" shall mean that the Executive has
been unable to perform his Company duties as the result of his incapacity due
to physical or mental illness, and such inability, at least 26 weeks after
its commencement, a determined by the Company (or by a physician agreed upon
by the parties or selected by the Arbitrator if the parties cannot agree) to
be total and permanent. If a court shall determine Executive is not
competent to select an Arbitration an Disability shall be deemed to exist.
Termination resulting from Disability may only be effected after at least 30
days' written notice by the Company of its intention to terminate the
Executive's employment. In the event that the Executive resumes the
performance of substantially all of his duties hereunder before the
termination of his employment becomes effective, the notice of intent to
terminate shall automatically be deemed to have been revoked.
(d) GOOD REASON: "Good Reason" shall mean, following a change of
control (i) without the Executive's express written consent, the significant
reduction of the Executive's duties, authority or responsibilities, relative
to the Executive's duties, authority or responsibilities as in effect
immediately prior to such reduction, or the assignment to Executive of such
reduced duties, authority or responsibilities; (ii) without the Executive's
express written consent, a substantial reduction, without good business
reasons, of the facilities and perquisites (including office space and
location) available to the Executive immediately prior to the Change of
Control; (iii) a reduction by the Company in the Employment Base Salary of
the Executive; (iv) a material reduction by the Company in the kind or level
of employee benefits to which the Executive was entitled immediately prior to
the Change of Control with the result that the Executive's overall benefits
package under Section 3 hereof is significantly reduced (other than as
contemplated by this Agreement); (v) any purported termination of the
Executive by the Company which is not effected for Disability or for Cause;
or (vi) the failure of the Company to obtain the assumption of this agreement
by any successors.
<PAGE>
5. TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE OF CONTROL: The
following provisions shall apply with respect to termination of Executive's
employment prior to a Change of Control:
(a) TERMINATION WITHOUT CAUSE:
(i) GENERAL: If, prior to the end of the Employment Period
and prior to a Change of Control (A) Executive's employment is terminated by
the Company without Cause, then the Company shall:
(A) CASH SEVERANCE PAYMENTS: Pay to Executive severance
payments of one month's Employment Base Salary for a period equal to 12
MONTHS following the date of termination; (the "Severance Period"). Such
severance payments shall be paid at regular payroll intervals or in one lump
sum within thirty (30) days of the Termination Date as determined by Company.
(B) CONTINUED GROUP HEALTH AND INSURANCE BENEFITS:
Continue to make available to the Executive and the covered dependents, and
to pay directly or indirectly for, to the same extent as paid prior to the
Termination Date, all group health plan, life and other similar insurance
plans or Company-sponsored arrangements providing comparable benefits in
which Executive or such covered dependents participate on the Termination
Date, through the Severance Period.
(ii) DEATH: In the event of Executive's death while he is
receiving benefits pursuant to Section 6(a)(i)(C) hereof, the Company shall
continue providing and paying severance and for group health plan, life and
similar insurance coverage or Company-sponsored arrangements providing
comparable benefits for the covered dependents through the Severance Period.
(iii) All vested options or other equity compensation must be
exercised within 12 months of the Termination Date.
(b) TERMINATION FOR CAUSE; RESIGNATION: If, during the Employment
Period and prior to a Change of Control, Executive's employment is terminated
by the Company for Cause, or if Executive resigns from his employment, then
Executive shall be entitled only to payment of all amounts including benefits
earned or owed to Executive and only to such equity compensation as is fully
vested as of the Termination Date.
6. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE OF CONTROL: The
following provisions shall apply to termination of Executive's employment on
or following a Change of Control:
(a) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON:
<PAGE>
(i) GENERAL: If, following a Change of Control (A)
Executive's employment is terminated by the Company without Cause; or (B)
Executive resigns from his employment hereunder for Good Reason, then the
Company shall:
(A) CASH SEVERANCE PAYMENTS: Pay to Executive
severance payments of one month's Employment Base Salary for a period equal
to 12 MONTHS following the date of termination; (the "Severance Period").
Such severance payments shall be paid at regular payroll intervals or in a
lump sum within thirty (30) days of the Termination Date as determined by the
Company.
(B) ACCELERATED VESTING: Cause the vesting of all
restricted stock, stock options and other equity-based compensation held on
the date of termination by Executive, to fully accelerate, as of the date of
termination, so that they become 100% vested in the stock of the Controlling
entity.
(C) CONTINUED GROUP HEALTH AND INSURANCE BENEFITS:
Continue to make available to the Executive and the Covered Dependents, and
pay for, to the same extent as paid prior to the Change of Control and
termination of the employment or consulting relationship, all group health
plan, life and other similar insurance plans or Company-sponsored
arrangements providing comparable benefits in which Executive or such Covered
Dependents participate on the date of the Executive's termination, through
the Change of Control Severance Period.
(ii) DEATH DURING SEVERANCE PERIOD: In the event of
Executive's death while he is receiving benefits pursuant to Section
6(a)(i)(C) hereof, the Company shall continue providing and paying for group
health plan, life and similar insurance plan coverage or Company-sponsored
arrangements providing comparable benefits to the covered dependents through
the Change of Control Severance Period.
(b) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON: If,
following a Change of Control, Executive's employment is terminated by the
Company for Cause, or if Executive resigns from his employment hereunder
other than for Good Reason, then Executive shall be entitled only to payment
of all amounts (including benefits) earned or owed to Executive, and only to
such equity compensation as is fully vested as of the Termination Date.
(iii) All stock options or warrants so vested must be
exercised within 12 months of the Termination Date.
7. DEATH OR PERMANENT DISABILITY: In the event Executive's employment
terminates due to Executive's death or Disability, whether or not there has
been a Change of Control, the Company shall:
(a) EQUITY COMPENSATION: Allow the estate or representative of the
Executive 12 months from the Termination Date to exercise equity compensation
vested as of the Termination Date.
<PAGE>
(b) CONTINUED GROUP HEALTH AND INSURANCE BENEFITS: Continued to
make available to the Executive (if alive) and the Covered Dependents
(whether or not Executive is alive) and pay for, to the same extent as paid
prior to termination of employment, all group health plan, life and other
similar insurance plans or Company-sponsored arrangements providing
comparable benefits in which Executive or such Covered Dependents participate
on the date of the Executive's termination, for a period of 12 months
following the Termination Date.
(c) OTHER BENEFITS: Pay to Executive, his estate, or his personal
representative (as appropriate) all other benefits normally paid to employees
who have died or incurred a disability.
8. GOLDEN PARACHUTE LIMITATION: The payments and benefits payable to
Executive under this Agreement and all other contracts, arrangements, or
programs with the Company shall not, in the aggregate exceed the maximum
amount that may be paid to Executive without triggering golden parachute
penalties under Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), as determined in good faith by the Company's independent
auditors. Executive agrees that, to the extent payments or benefits under
this Agreement would not be deductible under Code Section 162(m) if made or
provided when otherwise due under this Agreement, such payments and benefits
shall be made or provided later, immediately after Section 162(m) ceases to
preclude their deduction, with interest thereon at the rate provided in Code
Section 1274(b)(2)(B). If even after such deferral the payments and benefits
otherwise payable to Executive must be reduced to avoid triggering such
penalties, the payments and benefits will be reduced in the priority order
designated by the Executive, or, if the Executive fails promptly to designate
an order, in the priority order designated by the Company. If an amount in
excess of the limit set forth in this Section 8 is paid to Executive,
Executive shall repay the excess amount to the Company upon demand.
Executive and the Company agree to cooperate with each other in connection
with any administrative or judicial proceedings concerning the existence or
amount of golden parachute penalties on payments or benefits received by
Executive.
9. TERMINATION DATE: The date of termination of employment by the
Company shall be the date specified in a written notice of termination to
Executive. The date of resignation shall be the date specified in the
written notice of resignation from Executive to the Company. For purposes of
this Agreement, no purported termination of Executive's employment for Cause
shall be effective without delivery of such Notice of Termination.
10. ASSIGNMENT: Executive's rights and obligations under this Agreement
are not assignable by Executive, but shall pass to his estate or personal
representative upon death or disability (as determined pursuant to this
Agreement).
11. NOTICES: Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed to have been effectively made
or given if personally delivered, or if sent by facsimile, or mailed to the
other party at its address set forth below in this Section 10, or at such
other address as such party may designate by written notice to the other
party hereto.
<PAGE>
Any effective notice hereunder shall be deemed given on the date personally
delivered or on the date sent by facsimile or deposited in the United States
mail (sent by certified mail, return receipt requested), as the case may be,
at the following address:
(i) If to the Company: (ii) If to Executive:
Pinnacle Micro, Inc. c/o Pinnacle Micro, Inc.
19 Technology Drive 19 Technology Drive
Irvine, California 92618 Irvine, California 92618
Attn: General Counsel
Fax: 714/789-3045
12. DISPUTES: Any disputes between the parties hereto shall be settled
by arbitration in Irvine, California under the auspices of, and in accordance
with the rules of, the Judicial Arbitration and Mediation Service/Endispute,
by an arbitrator who is mutually agreeable to the parties hereto, (such
arbitrator or hereinafter referred to as the "Arbitrator"). The decision in
such arbitration shall be final and conclusive on the parties, in lieu of any
court action, which is expressly waived, with the sole exception of a Company
initiated injunctive proceeding to protect its confidential information or
trade secrets, judgment upon such decision may be entered in any court having
jurisdiction thereof. The parties hereby agree that the Arbitrator shall be
empowered to enter an equitable decree mandating specific enforcement of the
terms of this Agreement. The Company and Executive shall share equally all
expenses of the Arbitrator incurred in any arbitration hereunder; PROVIDED,
HOWEVER, that the Company or Executive, as the case may be, shall bear all
expenses of the Arbitrator and all of the legal fees and out-of-pocket
expenses of the other party to the extent if the Arbitrator determines that
the claim or position of such party was without reasonable foundation.
13. SEVERABILITY: If an arbitrator determines that any term or
provision hereof is invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired; and (b) such arbitrator shall have the
authority to replace such invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
14. ENTIRE AGREEMENT: This Agreement by and between the Company and
Executive represents the entire agreement of the parities with respect to the
matters set forth herein, and to the extent inconsistent with other prior
contracts, arrangements or understandings between the parties, supersedes all
such previous contracts, arrangements or understandings between the Company
and Executive. The Agreement may be amended only by mutual written agreement
of the parties hereto.
15. WITHHOLDING: Company shall be entitled to withhold, or cause to be
withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.
<PAGE>
16. GOVERNING LAW: This Agreement shall be construed, interpreted, and
governed in accordance with the laws of California without reference to rules
relating to conflict of law.
17. SUCCESSORS: This Agreement shall be binding upon and inure to the
benefit of, and shall be enforceable by Executive and the Company, their
respective heirs, executors, administrators and assigns. In the event the
Company is merged, consolidated, liquidated by a parent corporation, or
otherwise combined into one or more corporations, the provisions of this
Agreement shall be binding upon and inure to the benefit of the parent
corporation or the corporation resulting from such merger or to which the
asset shall be sold or transferred, which corporation from and after the date
of such merger, consolidation, sale or transfer shall be deemed to be the
Company for purposes of this Agreement. In the event of any other assignment
of this Agreement by the Company, by operation of law or otherwise, the
Company shall remain primarily liable for its obligations hereunder. This
Agreement shall not be assignable by Executive.
18. HEADINGS: The headings of sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. COUNTERPARTS: This Agreement may be executed by either of the
parties hereto in counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this in counterparts
Agreement as of the Effective Date.
COMPANY: EXECUTIVE:
PINNACLE MICRO, INC.
- ------------------------------------ --------------------------------
Charles R. McGee Bernard J. Wu
Vice President Human Resources & Adm. Vice President of Marketing
<PAGE>
EXHIBIT 10.46
PINNACLE MICRO, INC.
EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is made and entered into by
and between DAVID E. NESBIT ("Executive") and Pinnacle Micro, Inc. (the
"Company"), effective as of MARCH 26, 1997 (the "Effective Date") with
reference to the following facts:
Executive has been recruited by Company to fill a critical executive
position. Company and Executive desire to agree upon the services to be
rendered for such period of time upon the terms and conditions set forth
herein. The Company's Board further believes that it must provide the
Executive with certain benefits upon Executive's termination of employment.
NOW, THEREFORE, in consideration of the premises and of the mutual
convenants and conditions set forth herein, the parties hereto agree as
follows:
1. EMPLOYMENT; DUTIES: (a) Employment Period: During the period
commencing with the Effective Date and terminating IN 1 YEAR (the "Contract
Employment Period") or on the date (the "Termination Date") that Executive is
terminated in accordance with Sections 5, 6 or 7 of this Agreement or resigns
for whatever reason, (the "Employment Period"), Executive shall serve as VICE
PRESIDENT OF OPERATIONS of the Company or in such other position as he
accepts. During such employment period, Executive shall discharge the duties
of his office as shall reasonably be assigned to him by the President and
Chief Executive Officer. The Contract Employment period shall be
automatically annually extended for 12 month periods after the expiration of
the initial term unless otherwise terminated in accordance with this
Agreement.
(b) NO CONFLICT OF INTEREST: During the Employment Period,
Executive shall not serve as a director, employee, consultant or advisor to
any other corporation or other business enterprise without the prior written
consent of the Board; which consent shall not be unreasonably withheld.
Executive may, however, serve in any capacity with any civic, educational or
charitable organization or any trade association without the approval of the
Board, so long as such activities do not interfere with his duties and
obligations under this Agreement. If the Board views any such activities as
interfering it shall notify Executive and provide a reasonable opportunity to
cure the interference.
2. COMPENSATION:
(a) BASE SALARY: During the Employment Period, the Company shall
pay Executive a base salary (the "Employment Base Salary") at a rate of not
less than $135,000 per year, payable in equal installments no less frequently
than twice monthly.
<PAGE>
(b) BONUSES: During the Employment Period, Executive shall receive
bonuses (i) as determined by the Compensation Committee of the Board of
Directors in consultation with the President and Chief Executive Officer; and
(ii) according to the terms of any Company executive bonus plans.
(c) STOCK OPTIONS: During the Employment Period Executive will
receive such stock options or similar performance incentives as determined
separately in writing by the Compensation Committee of the Board of Directors
in its sole discretion after consultation with the President and Chief
Executive Officer. A summary of Executive's initial grant is attached hereto
as Exhibit A.
3. EMPLOYEE BENEFITS: During the Employment Period, Executive shall be
included in all employee benefit plans, programs or arrangements, including,
without limitation, any plans, programs or arrangements providing for
retirement benefits, incentive compensation, profit bonuses, disability
benefits, health and life insurance, vacation and paid holidays, which shall
be established by the Company for, or made available to, its senior
executives and to such other benefits and perquisites as are specifically set
forth herein. The Company will obtain at Company expense, life insurance and
reasonable disability policies for Executives and Key Employees and Executive
shall participate therein on a basis comparable to other executives.
(a) REIMBURSEMENT OF EXPENSES: The Company shall reimburse
Executive for all out-of-pocket expenses reasonably incurred and paid by him
in the performance of his duties pursuant to this Agreement, in accordance
with written Company policies.
4. DEFINITION OF TERMS: The following terms referred to in this
Agreement shall have the following meanings:
(a) CAUSE: "Cause" shall mean (i) any act of personal dishonesty
committed by the Executive in connection with his responsibilities as an
employee; (ii) any act which violates state or federal law, concerning or
involving dishonesty or moral tempted any settlement, order or judgment
against Executive under the federal or state securities laws and regulations;
(iii) a willful act by the Executive which is materially injurious to the
Company; and (iv) continued nonperformance (two weeks or more) by the
Executive following delivery to the Executive of a written demand for
performance from the Company which describes the basis for the Company's
belief that the Executive has not substantially performed his duties.
(b) CHANGE OF CONTROL: "Change of Control" means the occurrence of
any of the following events:
(i) Any "person" or group (as such terms and used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 40% or more
of the total voting power represented by the Company's then outstanding
voting securities; or
<PAGE>
(ii) A change in the composition of the Board occurring within
a one-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof;
or (B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors for the Company); or
(iii) The stockholders of the Company approve any transaction
which would be a reorganization under Delaware or California law and result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) less than fifty percent (50%)
of the total voting power represented by the voting securities of the surviving
entity outstanding immediately after such merger or consolidation; or
(iv) The stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
(c) DISABILITY: "Disability" shall mean that the Executive has
been unable to perform his Company duties as the result of his incapacity due
to physical or mental illness, and such inability, at least 26 weeks after
its commencement, a determined by the Company (or by a physician agreed upon
by the parties or selected by the Arbitrator if the parties cannot agree) to
be total and permanent. If a court shall determine Executive is not
competent to select an Arbitration an Disability shall be deemed to exist.
Termination resulting from Disability may only be effected after at least 30
days' written notice by the Company of its intention to terminate the
Executive's employment. In the event that the Executive resumes the
performance of substantially all of his duties hereunder before the
termination of his employment becomes effective, the notice of intent to
terminate shall automatically be deemed to have been revoked.
(d) GOOD REASON: "Good Reason" shall mean, following a change of
control (i) without the Executive's express written consent, the significant
reduction of the Executive's duties, authority or responsibilities, relative
to the Executive's duties, authority or responsibilities as in effect
immediately prior to such reduction, or the assignment to Executive of such
reduced duties, authority or responsibilities; (ii) without the Executive's
express written consent, a substantial reduction, without good business
reasons, of the facilities and perquisites (including office space and
location) available to the Executive immediately prior to the Change of
Control; (iii) a reduction by the Company in the Employment Base Salary of
the Executive; (iv) a material reduction by the Company in the kind or level
of employee benefits to which the Executive was entitled immediately prior to
the Change of Control with the result that the Executive's overall benefits
package under Section 3 hereof is significantly reduced (other than as
contemplated by this Agreement); (v) any purported termination of the
Executive by the Company which is not effected for Disability or for Cause;
or (vi) the failure of the Company to obtain the assumption of this agreement
by any successors.
<PAGE>
5. TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE OF CONTROL: The
following provisions shall apply with respect to termination of Executive's
employment prior to a Change of Control:
(a) TERMINATION WITHOUT CAUSE:
(i) GENERAL: If, prior to the end of the Employment Period
and prior to a Change of Control (A) Executive's employment is terminated by
the Company without Cause, then the Company shall:
(A) CASH SEVERANCE PAYMENTS: Pay to Executive severance
payments of one month's Employment Base Salary for a period equal to 12
MONTHS following the date of termination; (the "Severance Period"). Such
severance payments shall be paid at regular payroll intervals or in one lump
sum within thirty (30) days of the Termination Date as determined by Company.
(B) CONTINUED GROUP HEALTH AND INSURANCE BENEFITS:
Continue to make available to the Executive and the covered dependents, and
to pay directly or indirectly for, to the same extent as paid prior to the
Termination Date, all group health plan, life and other similar insurance
plans or Company-sponsored arrangements providing comparable benefits in
which Executive or such covered dependents participate on the Termination
Date, through the Severance Period.
(ii) DEATH: In the event of Executive's death while he is
receiving benefits pursuant to Section 6(a)(i)(C) hereof, the Company shall
continue providing and paying severance and for group health plan, life and
similar insurance coverage or Company-sponsored arrangements providing
comparable benefits for the covered dependents through the Severance Period.
(iii) All vested options or other equity compensation must be
exercised within 12 months of the Termination Date.
(b) TERMINATION FOR CAUSE; RESIGNATION: If, during the Employment
Period and prior to a Change of Control, Executive's employment is terminated
by the Company for Cause, or if Executive resigns from his employment, then
Executive shall be entitled only to payment of all amounts including benefits
earned or owed to Executive and only to such equity compensation as is fully
vested as of the Termination Date.
6. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE OF CONTROL: The
following provisions shall apply to termination of Executive's employment on
or following a Change of Control:
(a) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON:
<PAGE>
(i) GENERAL: If, following a Change of Control (A) Executive's
employment is terminated by the Company without Cause; or (B) Executive
resigns from his employment hereunder for Good Reason, then the Company shall:
(A) CASH SEVERANCE PAYMENTS: Pay to Executive severance
payments of one month's Employment Base Salary for a period equal to 12
MONTHS following the date of termination; (the "Severance Period"). Such
severance payments shall be paid at regular payroll intervals or in a lump
sum within thirty (30) days of the Termination Date as determined by the
Company.
(B) ACCELERATED VESTING: Cause the vesting of all
restricted stock, stock options and other equity-based compensation held on
the date of termination by Executive, to fully accelerate, as of the date of
termination, so that they become 100% vested in the stock of the Controlling
entity.
(C) CONTINUED GROUP HEALTH AND INSURANCE BENEFITS:
Continue to make available to the Executive and the Covered Dependents, and
pay for, to the same extent as paid prior to the Change of Control and
termination of the employment or consulting relationship, all group health
plan, life and other similar insurance plans or Company-sponsored
arrangements providing comparable benefits in which Executive or such Covered
Dependents participate on the date of the Executive's termination, through
the Change of Control Severance Period.
(ii) DEATH DURING SEVERANCE PERIOD: In the event of
Executive's death while he is receiving benefits pursuant to Section
6(a)(i)(C) hereof, the Company shall continue providing and paying for group
health plan, life and similar insurance plan coverage or Company-sponsored
arrangements providing comparable benefits to the covered dependents through
the Change of Control Severance Period.
(b) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON: If,
following a Change of Control, Executive's employment is terminated by the
Company for Cause, or if Executive resigns from his employment hereunder
other than for Good Reason, then Executive shall be entitled only to payment
of all amounts (including benefits) earned or owed to Executive, and only to
such equity compensation as is fully vested as of the Termination Date.
(iii) All stock options or warrants so vested must be exercised
within 12 months of the Termination Date.
7. DEATH OR PERMANENT DISABILITY: In the event Executive's employment
terminates due to Executive's death or Disability, whether or not there has
been a Change of Control, the Company shall:
(a) EQUITY COMPENSATION: Allow the estate or representative of the
Executive 12 months from the Termination Date to exercise equity compensation
vested as of the Termination Date.
<PAGE>
(b) CONTINUED GROUP HEALTH AND INSURANCE BENEFITS: Continued to
make available to the Executive (if alive) and the Covered Dependents
(whether or not Executive is alive) and pay for, to the same extent as paid
prior to termination of employment, all group health plan, life and other
similar insurance plans or Company-sponsored arrangements providing
comparable benefits in which Executive or such Covered Dependents participate
on the date of the Executive's termination, for a period of 12 months
following the Termination Date.
(c) OTHER BENEFITS: Pay to Executive, his estate, or his personal
representative (as appropriate) all other benefits normally paid to employees
who have died or incurred a disability.
8. GOLDEN PARACHUTE LIMITATION: The payments and benefits payable to
Executive under this Agreement and all other contracts, arrangements, or
programs with the Company shall not, in the aggregate exceed the maximum
amount that may be paid to Executive without triggering golden parachute
penalties under Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), as determined in good faith by the Company's independent
auditors. Executive agrees that, to the extent payments or benefits under
this Agreement would not be deductible under Code Section 162(m) if made or
provided when otherwise due under this Agreement, such payments and benefits
shall be made or provided later, immediately after Section 162(m) ceases to
preclude their deduction, with interest thereon at the rate provided in Code
Section 1274(b)(2)(B). If even after such deferral the payments and benefits
otherwise payable to Executive must be reduced to avoid triggering such
penalties, the payments and benefits will be reduced in the priority order
designated by the Executive, or, if the Executive fails promptly to designate
an order, in the priority order designated by the Company. If an amount in
excess of the limit set forth in this Section 8 is paid to Executive,
Executive shall repay the excess amount to the Company upon demand.
Executive and the Company agree to cooperate with each other in connection
with any administrative or judicial proceedings concerning the existence or
amount of golden parachute penalties on payments or benefits received by
Executive.
9. TERMINATION DATE: The date of termination of employment by the
Company shall be the date specified in a written notice of termination to
Executive. The date of resignation shall be the date specified in the
written notice of resignation from Executive to the Company. For purposes of
this Agreement, no purported termination of Executive's employment for Cause
shall be effective without delivery of such Notice of Termination.
10. ASSIGNMENT: Executive's rights and obligations under this Agreement
are not assignable by Executive, but shall pass to his estate or personal
representative upon death or disability (as determined pursuant to this
Agreement).
11. NOTICES: Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed to have been effectively made
or given if personally delivered, or if sent by facsimile, or mailed to the
other party at its address set forth below in this Section 10, or at such
other address as such party may designate by written notice to the other
party hereto. Any effective notice hereunder shall be deemed given on the
date personally delivered or on the date
<PAGE>
sent by facsimile or deposited in the United States mail (sent by certified
mail, return receipt requested), as the case may be, at the following address:
(i) If to the Company: (ii) If to Executive:
Pinnacle Micro, Inc. 5674 Wells Fargo
19 Technology Drive Colorado Springs, CO 81918
Irvine, California 92618
Attn: General Counsel
Fax: 714/789-3045
12. DISPUTES: Any disputes between the parties hereto shall be settled
by arbitration in Irvine, California under the auspices of, and in accordance
with the rules of, the Judicial Arbitration and Mediation Service/Endispute,
by an arbitrator who is mutually agreeable to the parties hereto, (such
arbitrator or hereinafter referred to as the "Arbitrator"). The decision in
such arbitration shall be final and conclusive on the parties, in lieu of any
court action, which is expressly waived, with the sole exception of a Company
initiated injunctive proceeding to protect its confidential information or
trade secrets, judgment upon such decision may be entered in any court having
jurisdiction thereof. The parties hereby agree that the Arbitrator shall be
empowered to enter an equitable decree mandating specific enforcement of the
terms of this Agreement. The Company and Executive shall share equally all
expenses of the Arbitrator incurred in any arbitration hereunder; PROVIDED,
HOWEVER, that the Company or Executive, as the case may be, shall bear all
expenses of the Arbitrator and all of the legal fees and out-of-pocket
expenses of the other party to the extent if the Arbitrator determines that
the claim or position of such party was without reasonable foundation.
13. SEVERABILITY: If an arbitrator determines that any term or
provision hereof is invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired; and (b) such arbitrator shall have the
authority to replace such invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
14. ENTIRE AGREEMENT: This Agreement by and between the Company and
Executive represents the entire agreement of the parities with respect to the
matters set forth herein, and to the extent inconsistent with other prior
contracts, arrangements or understandings between the parties, supersedes all
such previous contracts, arrangements or understandings between the Company
and Executive. The Agreement may be amended only by mutual written agreement
of the parties hereto.
15. WITHHOLDING: Company shall be entitled to withhold, or cause to be
withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.
16. GOVERNING LAW: This Agreement shall be construed, interpreted, and
governed in accordance with the laws of California without reference to rules
relating to conflict of law.
<PAGE>
17. SUCCESSORS: This Agreement shall be binding upon and inure to the
benefit of, and shall be enforceable by Executive and the Company, their
respective heirs, executors, administrators and assigns. In the event the
Company is merged, consolidated, liquidated by a parent corporation, or
otherwise combined into one or more corporations, the provisions of this
Agreement shall be binding upon and inure to the benefit of the parent
corporation or the corporation resulting from such merger or to which the
asset shall be sold or transferred, which corporation from and after the date
of such merger, consolidation, sale or transfer shall be deemed to be the
Company for purposes of this Agreement. In the event of any other assignment
of this Agreement by the Company, by operation of law or otherwise, the
Company shall remain primarily liable for its obligations hereunder. This
Agreement shall not be assignable by Executive.
18. HEADINGS: The headings of sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
19. COUNTERPARTS: This Agreement may be executed by either of the
parties hereto in counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this in counterparts
Agreement as of the Effective Date.
COMPANY: EXECUTIVE:
PINNACLE MICRO, INC.
- ------------------------------------ ---------------------------------
Chuck R. McGee David E. Nesbit
Vice President Human Resources & Adm. Vice President of Operations
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE UNAUDITED CONDENSED BALANCE SHEET AS OF MARCH 29, 1997 AND THE
UNAUDITED CONDENSED STATEMENT OF OPERATIONS FOR THE THIRTEEN WEEKS
ENDED MARCH 29, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 910
<SECURITIES> 0
<RECEIVABLES> 12,432
<ALLOWANCES> 693
<INVENTORY> 20,148
<CURRENT-ASSETS> 35,172
<PP&E> 5,610
<DEPRECIATION> 3,008
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<CURRENT-LIABILITIES> 26,507
<BONDS> 3,788
0
0
<COMMON> 11
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<TOTAL-LIABILITY-AND-EQUITY> 38,210
<SALES> 14,106
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<CGS> 11,278
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<INCOME-PRETAX> (4,041)
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