SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
INTERLINK ELECTRONICS, INC.
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(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required
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pursuant to Exchange Act Rule 0-11: Set forth the amount on which
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[Logo]
April 12, 1999
Dear Shareholder:
You are cordially invited to the Annual Meeting of Interlink Electronics,
Inc. to be held at the Courtyard by Marriott Hotel, located at 4994 Verdugo Way,
Camarillo, California, 93012 on May 25, 1999, at 10:00 a.m., Pacific Daylight
Time. Your attendance will provide you with an opportunity to hear management's
report on the operations and meet with directors and representatives of the
Company.
The Secretary's notice of the meeting and Proxy Statement accompany this
letter and describe the matters on which action will be taken.
It is important that your views be represented at the meeting whether or
not you are able to attend. Accordingly, we respectfully request that you sign,
date and promptly return your proxy in the enclosed postage-paid envelope.
On behalf of the directors and employees of the Company, we value and
appreciate your continued interest in and support of Interlink Electronics, Inc.
Sincerely,
E. Michael Thoben
Chairman, CEO & President
INTERLINK ELECTRONICS, INC.
546 Flynn Road
Camarillo, California 93012
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 25, 1999
To the Stockholders of Interlink Electronics, Inc.:
The annual meeting of the stockholders of Interlink Electronics, Inc., a
Delaware corporation, will be held at the Courtyard by Marriott Hotel, located
at 4994 Verdugo Way, Camarillo, California on May 25, 1999, at 10:00 a.m.,
Pacific Daylight Time, for the following purposes:
1. to elect two directors to serve terms of three years;
2. to amend the 1996 Stock Option Plan;
3. to ratify canceled and reissued non-employee director options;
4. to ratify the appointment of Arthur Andersen LLP as auditors of the
Company for the fiscal year ending December 31, 1999; and
5. to transact any other business that properly comes before the meeting
or any adjournment of the meeting.
Only stockholders of record at the close of business on April 5, 1999 will
be entitled to vote at the annual meeting. The meeting is subject to adjournment
from time to time as the shareholders present in person or by proxy may
determine. You are requested to date and sign the enclosed proxy and return it
in the postage-prepaid envelope enclosed for that purpose. You may attend the
meeting in person even though you have sent in your proxy, since retention of
the proxy is not necessary for admission to or identification at the meeting.
By Order of the Board of Directors
Paul D. Meyer
Secretary
Camarillo, California
April 12, 1999
INTERLINK ELECTRONICS, INC.
546 Flynn Road
Camarillo, California 93012
April 12, 1999
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PROXY STATEMENT
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SOLICITATION AND REVOCABILITY OF PROXY
A proxy in the form accompanying this proxy statement is solicited on
behalf of the Board of Directors of Interlink Electronics, Inc., a Delaware
corporation (the "Company"), for use at the annual meeting of stockholders to be
held on May 25, 1999. The Company will bear the cost of preparing and mailing
the proxy, the proxy statement, and any other material furnished to the
shareholders by the Company in connection with the annual meeting. Proxies will
be solicited by use of the mails, and officers and employees of the Company may,
without additional compensation, also solicit proxies by telephone or personal
contact. Copies of solicitation materials will be furnished to fiduciaries,
custodians, and brokerage houses for forwarding to beneficial owners of the
stock held in their names.
Any shares of stock of the Company held in the name of fiduciaries,
custodians, or brokerage houses for the benefit of their clients may only be
voted by the fiduciary, custodian, or brokerage house itself -- the beneficial
owner may not vote the shares directly and must instruct the person or entity in
whose name the shares are held how to vote the shares held for the beneficial
owner. Therefore, if any shares of stock of the Company are held in "street
name" by a brokerage house, only the brokerage house, at the instructions of its
client, may vote the shares.
Any person giving a proxy in the form accompanying this proxy statement has
the power to revoke it at any time before its exercise. The proxy may be revoked
by filing with the Secretary of the Company an instrument of revocation or a
duly executed proxy bearing a later date. The proxy may also be revoked by
affirmatively electing to vote in person while attending the meeting. However, a
shareholder who attends the meeting need not revoke the proxy and vote in person
unless the shareholder wishes to do so. All valid, unrevoked proxies will be
voted at the annual meeting in accordance with the instructions given. If a
signed proxy is returned without instructions, it will be voted for the nominees
for director, for the approval of the proposals presented, and in accordance
with the recommendations of management on any other business that may properly
come before the meeting or matters incident to the conduct of the meeting.
PROPOSAL 1: ELECTION OF DIRECTORS
Nominees
The Board of Directors of the Company, pursuant to the Company's Bylaws, is
divided into three classes, and the term of office of one class expires each
year. Mr. E. Michael Thoben and Mr. George Gu are the nominees for election at
this meeting for three-year terms expiring in 2002.
The following table briefly describes the Company's nominee for director
and the directors whose terms will continue. Except as otherwise noted, each has
held his principal occupation for at least five years.
Name, Principal Occupation and Director Term
Other Directorships Age Since Expires
------------------------------------- --- -------- -------
E. Michael Thoben 45 1990 2002
Chairman of the Company since September, 1994,
President of the Company since June, 1990, and
Chief Executive Officer since February 1994; from
1979 to 1990 employed by Polaroid Corporation,
most recently as director of a worldwide business
unit
George Gu 52 1991 2002
President of GTM Corporation, Chairman, GTM (Asia)
Investment Holding Limited
Continuing Directors
--------------------
Eugene F. Hovanec 47 1994 2001
Vice President and Chief Financial Officer Of
Vitesse Semiconductor Corporation; from 1989 to
1994, Vice President and Chief Financial Officer
of Digital Sound Corporation
Carolyn MacDougall 47 1985 2001
President, Teeccino Caffe, Inc. and a co-founder
of the Company
Merritt M. Lutz 55 1994 2000
Managing Director, Morgan Stanley & Company, Inc.;
from 1989 to 1994, President and Chief Operating
Officer of Candle Corporation
2
Directors are elected by a plurality of the votes cast by the shares
entitled to vote if a quorum is present at the meeting. Abstentions and broker
non-votes will be treated as shares present and not voting. The proxies will be
voted with respect to the election of the nominees in accordance with the
instructions specified in the proxy form. If no instructions are given, proxies
will be voted for the election of all the nominees. If any nominee is not
available as a candidate for director, the number of directors constituting the
Board of Directors may be reduced prior to the annual meeting or the proxies may
be voted for such other candidate or candidates nominated by the Board of
Directors in accordance with the authority conferred in the proxy.
Board Committees and Meetings
The Board of Directors met 8 times during the last fiscal year. Each
director attended at least 75% of the aggregate of the meetings of the Board of
Directors and the committee of which he or she was a member.
The Board of Directors maintains an Audit Committee, a Compensation
Committee, and a Nominating Committee. The Audit Committee, comprised of Messrs.
Hovanec and Gu and Ms. MacDougall, oversees actions taken by the Company's
independent auditors. The Audit Committee held one meeting during the last
fiscal year. The Compensation Committee, comprised of Messrs. Hovanec, Lutz and
Ms. MacDougall, reviews the compensation levels of the Company's executive
officers and makes recommendations to the Board of Directors regarding changes
in compensation. The Compensation Committee also administers the Company's 1988,
1993 and 1996 Stock Option Plans and recommends grants under the plans to the
Board of Directors. See "Executive Compensation Plan -- Stock Options, and
"--Report of the Compensation Committee on Executive Compensation." The
Compensation Committee held 2 meetings during the last fiscal year. The
Nominating Committee, comprised of Messrs. Thoben , Lutz, and Carolyn
MacDougall, makes recommendations to the Board of Directors concerning nominees
to the Board of Directors. The Nominating Committee had one meeting in fiscal
1998.
Director Compensation
Directors are paid a director's fee of $500 for each board meeting attended
in person and $100 per hour (up to a maximum of $500) for each Board meeting
attended telephonically. They are also reimbursed for the cost of attendance at
Board meetings. Any director who is not an employee of the Company and has not,
within one year, been an employee of the Company ("Non-Employee Director") is
eligible to receive options under the 1996 Stock Incentive Plan (the "Plan").
The option price for all options granted under the Plan is not less than the
fair market value of the Common Stock on the date the option is granted. Each
person who becomes a Non-Employee Director is automatically granted an option to
purchase 20,000 shares of Common Stock at the time he or she becomes a
Non-Employee Director. All options have a 10-year term from the date of grant.
Each option becomes exercisable for 33 1/3% of the number of shares covered by
the option at the end of each of the first three years of the option term.
Options may be exercised only while the optionee is a director of the Company,
within 30 days after the date the optionee terminates as a director, or
3
within one year after the death of the optionee. Options are subject to
adjustment in the event of certain changes in capital structure of the Company.
The Plan also provides for the automatic, non-discretionary annual grant to all
continuing Non-Employee Directors of options to purchase up to 5,000 shares of
the Company's Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 1
PROPOSAL 2: AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN
The Company maintains the 1996 Stock Incentive Plan (the "Plan") for the
benefit of its employees and others who provide services to the Company. The
Board of Directors believes the availability of stock incentives is an important
factor in the Company's ability to attract and retain experienced and competent
employees and to provide an incentive for them to exert their best efforts on
behalf of the Company. As of March 22, 1999, out of a total of 1,500,000 shares
reserved for issuance under the Plan, only 96,000 shares remained available for
grant. The Board of Directors believes additional shares will be needed under
the Plan to provide appropriate incentives to key employees and others. Further,
in 1996, 1997 and 1998, the Board of Directors granted to certain executive
officers of the Company options in amounts exceeding the Plan limits, thereby
effectively amending such limits to the Plan. Accordingly, on March 22, 1999 the
Board of Directors approved amendments to the Plan, subject to shareholder
approval, to reserve an additional 500,000 shares for the Plan, thereby
increasing the total number of shares reserved for issuance under the Plan from
1,500,000 to 2,000,000 shares. Further, the Board of Directors proposed that the
Shareholders formally approve the increase in the total number of options, which
may be granted to an employee in any calendar year from 50,000 to 100,000.
Failure by the shareholders to formally approve such increase will result in the
annual employee limit reverting to 50,000, but would not affect options already
granted.
The adoption of the proposed amendments will increase the board's ability
to issue incentive stock options under the Plan to qualified individuals in the
amounts and at the times that it may, in its reasonable judgment, consider most
advantageous to the Company.
Certain provisions of the Plan are described below. The complete text of
the Plan, marked to show the proposed amendments, is attached to this proxy
statement as Appendix A.
Description of the Plan
Eligibility. All employees, officers and directors of the Company and its
subsidiaries are eligible to participate in the Plan. Also eligible are
non-employee agents, consultants, advisors, persons involved in the sale or
distribution of the Company's products and independent contractors of the
Company or any subsidiary.
4
Administration. Authority to administer the Plan is placed in the Board of
Directors, which may promulgate rules and regulations for the operation of the
Plan and generally supervise the administration of the Plan. The Board of
Directors has delegated authority to administer the Plan to the Compensation
Committee. Only the Board of Directors, however, may amend, modify or terminate
the Plan.
Term of Plan. The Plan will continue until all shares available for
issuance under the Plan have been issued and all restrictions on such shares
have lapsed. The Board of Directors may suspend or terminate the Plan at any
time.
Stock Options. The Board of Directors or an appropriate committee
determines the persons to whom options are granted, the option price, the number
of shares to be covered by each option, the period of each option, the times at
which options may be exercised and whether the option is an incentive stock
option ("ISO") or a nonqualified stock option ("NSO"). If the option is an ISO,
the option price cannot be less than the fair market value of the Common Stock
on the date of grant. If an optionee with respect to an ISO at the time of grant
owns stock possessing more than ten percent of the combined voting power of the
Company, the option price may not be less than 110 percent of the fair market
value of the Common Stock on the date of grant, and the option may not be
exercisable after the expiration of five years from the date of grant. No
employee may be granted options or stock appreciation rights under the Plan, as
amended, for more than an aggregate of 200,000 shares in connection with the
hiring of the employee or 100,000 shares in any calendar year otherwise. In
addition, the Plan limits the amount of ISOs that may become exercisable under
the Plan in any year to $100,000 per optionee (based on the fair market value of
the stock on the date of grant). No monetary consideration is paid to the
Company upon the granting of options.
Options granted under the Plan generally continue in effect for the period
fixed by the Board of Directors or appropriate committee or officer, except that
ISOs are not exercisable after the expiration of 10 years from the date of
grant. Options are exercisable in accordance with the terms of an option
agreement entered into at the time of grant and are nontransferable except on
death of a holder. Options may be exercised only while an optionee is employed
by the Company or a subsidiary or within 12 months following termination of
employment by reason of death or disability or 30 days following termination for
any other reason. The Plan provides that the Board of Directors or appropriate
committee or officer may extend the exercise period for any period up to the
expiration date of the option and may increase the number of shares for which
the option may be exercised up to the total number underlying the option. The
purchase price for each share purchased pursuant to exercise of options must be
paid in cash, including cash that may be the proceeds of a loan from the
Company, in shares of Common Stock valued at fair market value, in restricted
stock, in performance units or other contingent awards denominated in either
stock or cash, in deferred compensation credits or in other forms of
consideration, as determined by the Board of Directors or appropriate committee
or officer. Upon the exercise of an option, the number of shares subject to the
option and the number of shares available under the Plan for future option
grants are reduced by the number of shares with respect to which the option is
exercised.
5
Stock Option Grants to Independent Directors. Pursuant to the terms of the
Plan, each individual who becomes an independent director receives a
non-statutory option to purchase 20,000 shares of Common Stock when the
individual becomes a director. In addition, pursuant to the terms of the Plan,
each independent director of the Company will be automatically granted an annual
non-discretionary, non-statutory option to purchase 5,000 shares of Common
Stock.
Stock Appreciation Rights. Stock appreciation rights ("SARs") may be
granted under the Plan. SARs may, but need not, be granted in connection with an
option grant or an outstanding option previously granted under the Plan. A SAR
gives the holder the right to payment from the Company of an amount equal in
value to the excess of the fair market value on the date of exercise of a share
of Common Stock over its fair market value on the date of grant, or if granted
in connection with an option, the option price per share under the option to
which the SAR relates.
A SAR is exercisable only at the time or times established by the Board of
Directors. If a SAR is granted in connection with an option, it is exercisable
only to the extent and on the same conditions that the related option is
exercisable. Payment by the Company upon exercise of a SAR may be made in Common
Stock valued at its fair market value, in cash, or partly in stock and partly in
cash, as determined by the Board of Directors. The Board of Directors may
withdraw any SAR granted under the Plan at any time and may impose any condition
upon the exercise of a SAR or adopt rules and regulations from time to time
affecting the rights of holders of SARs. No SARs have been granted under the
Plan.
The existence of SARs, as well as certain bonus rights described below,
would require charges to income over the life of the right based upon the amount
of appreciation, if any, in the market value of the common stock of the Company
over the exercise price of shares subject to exercisable SARs or bonus rights.
Stock Bonus Awards. The Board of Directors may award Common Stock as a
stock bonus under the Plan. The Board of Directors may determine the persons to
receive awards, the number of shares to be awarded and the time of the award.
Stock received as a stock bonus is subject to the terms, conditions and
restrictions determined by the Board of Directors at the time the stock is
awarded.
Restricted Stock. The Plan provides that the Company may issue restricted
stock in such amounts, for such consideration, subject to such restrictions and
on such terms as the Board of Directors may determine.
Cash Bonus Rights. The Board of Directors may grant cash bonus rights under
the Plan in connection with (i) options granted or previously granted, (ii) SARs
granted or previously granted, (iii) stock bonuses awarded or previously awarded
and (iv) shares sold or previously sold under the Plan. Bonus rights may be used
to provide cash to employees for the payment of taxes in connection with awards
under the Plan. No bonus rights have been granted under the Plan.
6
Performance Units. The Board of Directors may grant performance units
consisting of monetary units that may be earned in whole or in part if the
Company achieves goals established by the Board of Directors over a designated
period of time, but in any event not more than 10 years. Payment of an award
earned may be in cash or stock or both and may be made when earned, or vested
and deferred, as the Board of Directors determines. No performance units have
been granted under the Plan.
Foreign Qualified Grants. Awards under the Plan may be granted to eligible
persons residing in foreign jurisdictions. The Board of Directors may adopt
supplements to the Plan necessary to comply with the applicable laws of foreign
jurisdictions and to afford participants favorable treatment under those laws,
but no award may be granted under any supplement with terms that are more
beneficial to the participants than the terms permitted by the Plan.
Changes in Capital Structure. The Plan provides that if the outstanding
Common Stock is increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation by reason of any recapitalization, stock split or certain
other transactions, appropriate adjustment will be made by the Board of
Directors in the number and kind of shares available for awards under the Plan.
In the event of a merger, consolidation or plan of exchange to which the Company
is a party or a sale of all or substantially all of the Company's assets (each a
"Transaction"), the Board of Directors will, in its sole discretion and to the
extent possible under the structure of the Transaction, select one of the
following alternatives for treating outstanding options under the Plan: (i)
outstanding options will remain in effect in accordance with their terms; (ii)
outstanding options shall be converted into options to purchase stock in the
corporation that is the surviving or acquiring corporation in the Transaction;
or (iii) the Board of Directors will provide a 30-day period prior to the
consummation of the Transaction during which outstanding options shall be
exercisable to the extent exercisable and upon the expiration of such 30-day
period, all unexercised options shall immediately terminate. The Board of
Directors may, in its sole discretion, accelerate the exercisability of options
so that they are exercisable in full during such 30-day period. In the event of
the dissolution of the Company, options shall be treated in accordance with
clause (iii) above.
Tax Consequences. Certain options authorized to be granted under the Plan
are intended to qualify as ISOs for federal income tax purposes. Under federal
income tax law currently in effect, the optionee will recognize no income upon
grant or upon a proper exercise of the ISO. If an employee exercises an ISO and
does not dispose of any of the option shares within two years following the date
of grant and within one year following the date of exercise, any gain realized
on subsequent disposition of the shares will be treated as income from the sale
or exchange of a capital asset. If an employee disposes of shares acquired upon
exercise of an ISO before the expiration of either the one-year holding period
or the two-year waiting period, any amount realized will be taxable as ordinary
compensation income in the year of such disqualifying disposition to the extent
that the lesser of the fair market value of the shares on the exercise date or
the fair market value of the shares on the date of disposition exceeds the
exercise price. The
7
Company will not be allowed any deduction for federal income tax purposes at
either the time of the grant or exercise of an ISO. Upon any disqualifying
disposition by an employee, the Company will generally be entitled to a
deduction to the extent the employee realized ordinary income.
Certain options authorized to be granted under the Plan will be treated as
NSOs for federal income tax purposes. Under federal income tax law currently in
effect, no income is realized by the grantee of an NSO until the option is
exercised. At the time of exercise of an NSO, the optionee will realize ordinary
compensation income, and the Company will generally be entitled to a deduction,
in the amount by which the market value of the shares subject to the option at
the time of exercise exceeds the exercise price. The Company is required to
withhold on the income amount. Upon the sale of shares acquired upon exercise of
an NSO, any difference between the amount realized from the sale and the market
value of the shares on the date of exercise will generally be a taxable gain or
loss. Such gain or loss will be long term if the stock is held for more than one
year.
An employee who receives stock in connection with the performance of
services will generally realize taxable income at the time of receipt unless the
shares are substantially nonvested for purposes of section 83 of the Internal
Revenue Code of 1986, as amended, and no section 83(b) election is made. If the
shares are not vested at the time of receipt, the employee will realize taxable
income in each year in which a portion of the shares substantially vest, unless
the employee elects within 30 days after the original transfer to recognize
income in connection with the original transfer under Section 83(b). The Company
will generally be entitled to a tax deduction in the amount includable as income
by the employee at the same time or times as the employee recognizes income with
respect to the shares. The Company is required to withhold on the income amount.
A participant who receives a cash bonus right under the Plan will generally
recognize income equal to the amount of the cash bonus paid at the time of
receipt, and the Company will generally be entitled to a deduction equal to the
income recognized by the participant.
Section 162(m) of the Internal Revenue Code of 1986, as adopted in 1993,
limits to $1,000,000 per person the amount that the Company may deduct for
compensation paid to any of its most highly compensated officers in any year.
Under IRS regulations, compensation received through the exercise of an option
or a SAR is not subject to the $1,000,000 limit if the option or SAR and the
Plan meet certain requirements. One requirement is shareholder approval at least
once every five years of per-employee limits on the number of shares as to which
options and SARs may be granted. Other requirements are that the option or SAR
be granted by a committee of at least two outside directors and that the
exercise price of the option or SAR be not less than fair market value of the
Common Stock on the date of grant.
Required Vote
The affirmative vote of the holders of a majority of the shares of Common
Stock present and entitled to vote on the matter is required to approve this
Proposal. Abstentions and broker non-votes have the same effect as "no" votes in
determining whether the Proposal is approved. The proxies will be voted for or
against the Proposal or as an abstention, in accordance with the
8
instructions specified on the proxy form. If no instructions are given, proxies
will be voted for approval of the Proposal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
PROPOSAL 3: RATIFICATION OF CANCELED AND REISSUED
NON-EMPLOYEE DIRECTOR OPTIONS
The Board of Directors believes that it is necessary to maintain stock
options as a viable performance incentive. Accordingly, in September 1998 the
Board of Directors offered all option holders (including all nonemployee
directors, subject to ratification by the stockholders) the opportunity to
surrender their options in exchange for new options for an equal number of
shares. The new options have a grant date of September 24, 1998 and an exercise
price of $2.75 per share. The new options have a vesting schedule of 33% vested
as of the grant date, with the balance to vest ratably over the following 24
months (2.79% per month).
The Board of Directors has proposed that the Stockholders ratify the
cancellation and reissue of options held by nonemployee members of the Board of
Directors as set forth below.
OPTIONS PROPOSED TO BE CANCELED AND REISSUED
Number of
Securities Exercise
Underlying Price at New
Options Time of Exercise
Name of Director Reissued Reissue Price
---------------- ---------- -------- --------
George Gu 2,000 $9.000 $2.75
5,000 $9.125 $2.75
5,000 $8.000 $2.75
5,000 $6.500 $2.75
5,000 $4.625 $2.75
------
22,000
======
Eugene F. Hovanec 20,000 $6.810 $2.75
5,000 $9.125 $2.75
5,000 $8.000 $2.75
5,000 $6.500 $2.75
5,000 $4.625 $2.75
------
40,000
======
Merritt M. Lutz 20,000 $9.000 $2.75
5,000 $9.125 $2.75
5,000 $8.000 $2.75
5,000 $6.500 $2.75
5,000 $4.625 $2.75
------
40,000
======
9
Carolyn MacDougall 2,000 $9.000 $2.75
5,000 $9.125 $2.75
5,000 $8.000 $2.75
5,000 $6.500 $2.75
5,000 $4.625 $2.75
------
22,000
======
Required Vote
The affirmative vote of the holders of a majority of the shares of Common
Stock present and entitled to vote on the matter is required to approve this
Proposal. Abstentions and broker non-votes have the same effect as "no" votes in
determining whether the Proposal is approved. The proxies will be voted for or
against the Proposal or as an abstention, in accordance with the instructions
specified on the proxy form. If no instructions are given, proxies will be voted
for approval of the Proposal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3
PROPOSAL 4: APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
On February 11, 1999, the Board of Directors appointed Arthur Andersen LLP
to act as auditors of the Company for the fiscal year ending December 31, 1999,
subject to ratification of the appointment by the shareholders. Representatives
of Arthur Andersen LLP have been invited to attend the annual meeting, will be
given the opportunity to make a statement if they wish and will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Company's Common Stock is the only outstanding voting security of the
Company. The record date for determining holders of Common Stock entitled to
vote at the annual meeting is April 5, 1999. On that date there were 5,226,813
shares of Common Stock outstanding, entitled to one vote per share.
The following table sets forth certain information regarding ownership of
the Company's Common Stock as of April 5, 1999 by (i) each person known by the
Company to own beneficially
10
more than 5% of the Common Stock, (ii) each director and director nominee of the
Company, (iii) the Chief Executive Officer and each of the other officers named
in the Summary Compensation Table, and (iv) all directors and officers as a
group:
Shares Percentage
Beneficially of Common
Name Owned (1) Stock (1)
- ---- ------------ ----------
Geneplex Limited 288,310 5.5%
c/o Stoel Rives LLP
900 SW Fifth Avenue
Portland, Oregon 97204
E. Michael Thoben (2) 278,763 5.1%
c/o Interlink Electronics
546 Flynn Road
Camarillo, CA 93012
George Gu (3) 208,952 4.0%
c/o GTM Corporation
300 Change Hsaio E. Rd.
Taipei, Taiwan R.O.C. 10514
David J. Arthur (4) 150,329 2.8%
William A. Yates (5) 150,283 2.8%
Paul D. Meyer (6) 82,304 1.6%
Carolyn MacDougall (7) 46,748 *
Roger Moore (8) 46,664 *
Eugene F. Hovanec (9) 39,332 *
Merritt Lutz (10) 23,332 *
All directors and officers 1,026,707 16.4%
(including those listed above)
as a group (9 persons) (11)
- --------------
* Less than 1%
(1) All shares are held directly with sole voting and investment power unless
otherwise indicted. Shares that the person or group has the right to
acquire within 60 days after April 5, 1999 are
11
deemed to be outstanding in calculating the percentage ownership of the
person or group, but are not deemed to be outstanding as to any other
person or group.
(2) Includes 5,000 shares of Common Stock and options to purchase 273,763
shares of Common Stock.
(3) Includes 196,119 shares of Common Stock held by Force Sensor Investment
Corporation, which is owned by Mr. Gu's family, and options granted to Mr.
Gu to purchase 12,833 shares of Common Stock.
(4) Consists of 3,046 shares of Common Stock and options to purchase 147,283
shares of Common Stock.
(5) Consists of 3,000 shares of Common Stock and options to purchase 147,283
shares of Common Stock.
(6) Consists of options to purchase 82,304 shares of Common Stock.
(7) Consists of 33,915 shares of Common Stock and options to purchase 12,833
shares of Common Stock.
(8) Consists of options to purchase 46,664 shares of Common Stock.
(9) Consists of 16,000 shares of Common Stock and options to purchase 23,332
shares of Common Stock.
(10) Consists of options to purchase 23,332 shares of Common Stock.
(11) Consists of 257,080 shares of Common Stock and options to purchase 769,627
shares of Common Stock.
12
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the Chief Executive Officer of the
Company and each of the four other most highly compensated executive officers
whose individual salary and bonus exceeded $100,000 during the last fiscal year,
a summary of all compensation paid for services rendered in all capacities to
the Company in each of the last three fiscal years.
Summary Compensation Table (1)
Long-Term All Other
Annual Compensation Compensation Compensation
------------------------- -------------- ------------
Year Salary ($) Bonus($)(2) Options (#)(3) ($)
---- ---------- ----------- -------------- ---------
E. Michael Thoben, III 1998 $180,180 ---- 92,000 ----
Chairman of the Board 1997 180,180 $27,000 55,000 $28,000 (4)
and CEO 1996 178,448 17,000 55,000 28,000 (4)
David A. Arthur 1998 130,000 ---- 55,000 ----
Senior Vice President, 1997 128,250 19,000 37,500 27,055 (4)
Operations 1996 122,179 12,000 35,000 ----
William A. Yates 1998 129,000 ---- 55,000 ----
Senior Vice President 1997 127,250 19,000 37,500 ----
Sales 1996 121,140 12,000 35,000 ----
Paul D. Meyer 1998 100,000 ---- 45,000 ----
Chief Financial Officer 1997 96,718 13,000 30,000 ----
1996 86,801 8,000 25,000 ----
Roger Moore 1998 100,000 ---- 45,000 ----
Vice President, 1997 (5) 47,268 ---- 35,000 ----
Engineering and Marketing 1996 (5) ---- ---- ---- ----
- --------------
(1) With respect to each of the officers named above, the aggregate amount of
perquisites and other personal benefits received during 1998, 1997 and 1996
each were less than either $50,000 or 10% of the total of annual salary and
bonus reported for each officer.
(2) Bonuses listed are paid with respect to performance during the prior fiscal
year. See "Report of Compensation Committee On Executive Compensation
--Executive Officer Compensation Plan--Cash Bonus Plan."
13
(3) On September 24, 1998, upon the recommendation of the Compensation
Committee, the Board of Directors approved the cancel and reissue of all
unexercised options granted under the 1993 and 1996 Stock Option Plans to
employees of the Company as of that date, at a new exercise price of $2.75
and a new vesting schedule (1/3 immediately and the remainder ratably over
the next two years). The shares in the Summary Compensation Table and the
Option Grants in Fiscal Year 1998 tables are shown net of the canceled and
reissued shares.
(4) Consists of cash received in exchange for the elimination of excess accrued
vacation leave, which was used to exercise expiring stock options.
(5) Mr. Moore was hired in July 1997.
Stock Option Grants in Last Fiscal Year
The following table sets forth information concerning individual grants of
stock options made by the Company during fiscal 1998 to each of the executive
officers of the Company named in the Summary Compensation Table.
Option Grants in Fiscal Year 1998
Percent of Potential Realizable Value
Total at Assumed Annual
Number of Options Rates of Stock Price
Securities Granted to Appreciation
Underlying Employees Exercise Expira- for Option Term(4)
Options in Fiscal Price tion --------------------------
Granted(1) Year(2) per Share Date(3) 5% 10%
---------- --------- --------- ------- ----------- -----------
E. Michael Thoben 92,000 13.2% $4.68 1/2/03 $118,956 $262,861
William Yates 55,000 7.9% 4.68 1/2/03 71,115 157,145
David Arthur 55,000 7.9% 4.68 1/2/03 71,115 157,145
Paul Meyer 45,000 6.4% 4.68 1/2/03 58,185 128,573
Roger Moore 45,000 6.4% 4.68 1/2/03 58,185 128,573
- --------------
(1) These options were granted pursuant to the Company's 1996 Stock Incentive
Plan (the "Plan").
(2) In fiscal 1998, the Company granted a total of 699,500 options under the
Plan, and this number is used in calculating the percentages set forth in
this column. On September 24, 1998, upon the recommendation of the
Compensation Committee, the Board of Directors approved the cancel and
reissue of all unexercised options granted under the 1993 and 1996 Stock
Option Plans to employees of the Company as of that date, at a new exercise
price of $2.75 and a new vesting schedule (1/3 immediately and the
remainder ratably over the next two years). The shares in the Summary
Compensation Table and the Option Grants in Fiscal Year 1998 tables are
shown net of the canceled and reissued shares.
(3) Options granted under the Plan generally expire on the fifth anniversary of
the date of grant. Options granted under the Plan expire prior to the fifth
anniversary of grant (i) if the optionee's employment (or service as a
director, as applicable) is terminated for any reason (other than death or
disability), in which case options vested but unexercised at the date of
termination may be exercised within 90 days after the date of termination,
or (ii) if employment (or service as a director, as applicable) terminates
because of death or disability, in which case options vested but
unexercised at
14
the date of termination may be exercised within 12 months after the date of
termination. If employment (or service as director, as applicable) is
terminated by death of the optionee, the option generally may be exercised
by persons to whom the optionee's rights pass by will or the laws of
descent or distribution. Remaining vested but unexercised options terminate
at the end of the earliest of the above described periods, as applicable.
(4) The assumed 5% and 10% annual rates of appreciation over the term of the
options are set forth in accordance with rules and regulations adopted by
the Securities and Exchange Commission and do not represent the Company's
estimate of stock price appreciation. Value shown is net of exercise costs.
In September 1998 the Board of Directors offered all option holders
(including all nonemployee directors, subject to ratification by the
stockholders) the opportunity to surrender their options in exchange for new
options for an equal number of shares. The new options have a grant date of
September 24, 1998 and an exercise price of $2.75 per share. The new options
have a vesting schedule of 33% vested as of the grant date, with the balance to
vest ratably over the following 24 months (2.79% per month). Information
regarding the cancel and reissue of officer options is set forth in the
following table.
Five Year Option Cancel and Reissue
Length of
Original
Number of Market Option Term
Securities Exercise Price of Remaining at
Underlying Price at Stock at New Date of
Options Time of Time of Exercise Reissue
Name Reissued Reissue Reissue Price (years)
- ---- ---------- -------- -------- -------- ------------
E. Michael Thoben 50,000 $4.625 $2.563 $2.75 4
Chairman of the Board, President and 42,000 4.750 2.563 2.75 4
Chief Executive Officer 55,000 4.625 2.563 2.75 3
55,000 5.750 2.563 2.75 2
280,000 4.375 2.563 2.75 1
-------
469,334
=======
David A. Arthur 25,000 $4.625 $2.563 $2.75 4
Senior Vice President 30,000 4.750 2.563 2.75 4
Operations 37,500 4.625 2.563 2.75 3
35,000 5.750 2.563 2.75 2
45,000 5.625 2.563 2.75 1
80,000 4.375 2.563 2.75 1
-------
252,500
=======
William A. Yates 25,000 $4.625 $2.563 $2.75 4
Senior Vice President, 30,000 4.750 2.563 2.75 4
Sales 37,500 4.625 2.563 2.75 3
35,000 5.750 2.563 2.75 2
45,000 5.625 2.563 2.75 1
80,000 4.375 1
-------
252,500
=======
15
Paul D. Meyer 20,000 $4.625 $2.563 $2.75 4
Chief Financial Officer 25,000 4.750 2.563 2.75 4
30,000 4.625 2.563 2.75 3
25,000 5.750 2.563 2.75 2
30,000 5.625 2.563 2.75 1
11,100 4.375 2.563 2.75 1
-------
141,100
=======
Roger Moore 20,000 $4.625 $2.563 $2.75 4
Vice President 25,000 4.750 2.563 2.75 4
Engineering and Marketing 35,000 4.625 2.563 2.75 3
-------
80,000
=======
Stock Option Exercises in Last Fiscal Year and Fiscal Year-End Values
The following table sets forth information (on an aggregated basis)
concerning each exercise of stock options during fiscal 1998 by each of the
executive officers of the Company named in the Summary Compensation Table and
the fiscal year-end value of unexercised options.
Aggregated Option Exercises in Fiscal Year 1998
and Fiscal Year-End Option Values
Value of Unexercised
Number of Unexercised In-the-Money Options
Shares Options at Year-End at Year-End(1)
Acquired on Value ----------------------------- ----------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
E. Michael Thoben, III ---- ---- 195,431 273,903 $342,004 $479,330
David Arthur ---- ---- 105,141 147,359 183,997 257,878
William Yates ---- ---- 105,141 147,359 183,997 257,878
Paul D. Meyer ---- ---- 58,754 82,346 102,820 144,106
Roger Moore ---- ---- 33,312 46,688 58,296 81,704
- --------------
(1) Options are "in-the-money" at the fiscal year-end if the fair market value
of the underlying securities on such date exceeds the exercise price of the
option. The amounts set forth represent the difference between the fair
market value of the securities underlying the options on December 31, 1998,
based on the last sale price of $4.50 per share of Common Stock on that
date (as reported by the Nasdaq National Market) and the exercise price of
the options, multiplied by the applicable number of options.
Other Compensation
The Company provides certain officers with automobile allowances. These
benefits, valued at their incremental cost to the Company, did not exceed
$50,000 or 10% of the compensation reported for any individual officer, and with
respect to the executive officers as a group (five persons), such compensation
did not exceed $50,000 multiplied by the number of persons in the group or 10%
of the cash compensation reported in the Cash Compensation Table for the group.
16
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
There are none.
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION<F1>
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three non-employee directors. Pursuant to authority delegated by the
Board, the Committee initially determines the compensation to be paid to the
Chief Executive Officer and to each of the other executive officers of the
Company. Following such determination by the Committee, issues concerning
officer compensation are submitted to the Board of Directors for approval.
Directors who are also officers of the Company do not participate in this
approval process. The Committee also is responsible for developing and making
recommendations to the Board with respect to the Company's executive
compensation policies.
The Company's compensation policies for officers (including the named
executive officers) are designed to compensate the Company's executives fairly
and to provide incentive for the executives to manage the Company's business
effectively for the benefit of its shareholders.
The key objectives of the Company's executive compensation policies are to
attract and retain key executives who are important to the long-term success of
the Company, and to provide incentive for these executives to achieve high
levels of job performance and enhancement of shareholder value. The Company
seeks to achieve these objectives by paying its executives a competitive level
of base compensation for companies of similar size and industry and by providing
its executives an opportunity for further reward for outstanding performance in
both the short term and the long term. It is the current policy of the Committee
to set base salaries conservatively and to emphasize opportunities for
performance-based rewards through annual cash bonuses and stock option grants.
Options granted under the Company's 1993 and 1996 stock option plans
generally are intended to qualify as incentive stock options. To the extent,
however, that the aggregate fair market value of the stock with respect to which
options are exercisable for the first time during any calendar year exceeds
$100,000, the options will be treated as nonqualified stock options. For this
purpose, a repricing of an option is treated as a new grant. The Company
receives no tax deduction from the
- --------------
<F1> This section is not "soliciting material," is not deemed "filed" with
the Securities and Exchange Commission and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933 or
the Securities Exchange Act of 1934, regardless of date or any general
incorporation language in such a filing.
17
exercise of an incentive stock option unless the optionee disposes of the
acquired shares before satisfying certain holding periods. The committee
believes that the grant of incentive stock options, despite the general
nondeductibility, benefits the Company by encouraging the long-term ownership of
the Company stock by officers and other employees.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits to
$1,000,000 per person the amount that the Company may deduct for compensation
paid to any of its five most highly compensated officers in any year. The levels
of salary and bonus paid by the Company generally do not exceed this limit.
However, upon exercise of nonqualified stock options, the excess of current
market price over the option price (option spread) is treated as compensation.
In addition, if the holder of an incentive stock options disposes of stock
received upon exercise of the option before satisfying certain holding periods,
the optionee will recognize ordinary compensation income for the year of
disposition equal to the lesser of the option spread and the amount of gain
realized by the optionee upon disposition. Under Internal Revenue Service
regulations, the $1,000,000 cap on deductibility will not apply to option spread
compensation from exercise of either a nonqualified stock option or a
disqualifying disposition of an incentive stock option, if such exercise meets
certain performance-based requirements. One of the performance-based
requirements is that an option grant (including a cancellation and reissuance or
repricing) to any individual may not exceed a shareholder-approved maximum
number of shares. The Company exceeded the previously approved 50,000 share
annual maximum with respect to certain employees in 1996, 1997 and 1998.
Accordingly, the option spread compensation from an exercise (in the case of
nonqualified stock options) or those options generally would be treated as
compensation, for tax purposes, and taken into account in determining the
$1,000,000 cap on deductibility.
Executive Officer Compensation Program. The Company's executive officer
compensation program is comprised of three elements: base salary, annual cash
bonus and long-term incentive compensation in the form of stock option grants.
Salary. The Company attempts to establish base salary levels for the
Company's executive officers that are competitive with those established by
companies of similar size in the computer electronics and technology industry.
In determining individual salaries within the established ranges, the Committee
takes into account individual experience, job responsibility and individual
performance during the prior year. The Committee does not assign a specific
weight to each of these factors in establishing individual base salaries. Each
executive officer's salary is reviewed annually, and increases to base salary
are made to reflect competitive market increases and the factors described
above.
In determining 1998 salaries, the Compensation Committee compared the 1998
salaries to the ranges established in fiscal 1998, reviewed salaries of
executives of similar companies and made specific adjustments to the 1997
compensation levels as determined by the Committee to be appropriate in the
circumstances.
Cash Bonuses. The purpose of the cash bonus component of the compensation
program is to provide a direct financial incentive in the form of cash bonuses
to executives and other employees to
18
achieve predetermined Company performance objectives. Performance objectives for
the Company as a whole are determined at the beginning of each fiscal year
during the annual budgeting process and are approved by the Board of Directors.
These performance objectives are established based upon competitive conditions
and general economic circumstances then prevailing in the industries in which
the Company does business. The Company currently has one cash bonus plan
covering the executive officers of the Company.
Eligibility of an executive officer for a bonus is generally dependent upon
the achievement of the predetermined performance objectives of the bonus plan.
Target bonus amounts are established by the Committee for each executive officer
at the beginning of each fiscal year, at a percentage of the executive officer's
base salary. The bonus target for executive officers in fiscal 1998 was 40% of
base salary. If the predetermined performance goals are met, a preliminary bonus
amount is calculated under the bonus formula up to a maximum of the target bonus
amount. The final bonus amount paid to an eligible executive officer is
determined by the Committee, which has discretion to increase or decrease the
formula-derived figure within certain limits based upon the Committee's
assessment of the individual's performance and to pay special bonuses in
extraordinary circumstances as judged by the Compensation Committee.
Bonus awards for fiscal 1998 were formula-derived for participants in the
bonus program. The formula employed contains an objective component, linked to
the Company's revenue growth and profitability , as well as a subjective
component, based upon the Committee's assessment of the individual officers'
relative contribution to the Company as a whole. Awarded bonuses, if any, are
typically paid in the first quarter of the following fiscal year.
Stock Options. Under the Company's compensation policy, stock options are
the primary vehicle for rewarding long-term achievement of Company goals. The
objectives of the program are to align employee and shareholder long-term
interests by creating a strong and direct link between compensation and
increases in share value. Under the Company's 1993 and 1996 Stock Incentive
Plans (the "Plans"), the Board of Directors or the Compensation Committee may
grant options to purchase Common Stock of the Company to key employees of the
Company and its subsidiaries. The Board of Directors makes annual grants of
options to acquire the Company's Common Stock at an exercise price equal to the
fair market value of the shares on the date of grant (the last sale price as
reported on the Nasdaq National Market on the date of grant). Options generally
vest at 25% of the grant on the grant date and on the anniversary date of the
grant for the three succeeding years. Stock options generally have a five-year
term but terminate earlier if employment is terminated. Option grants to
executive officers depend upon the level of responsibility and position, and the
Committee's subjective assessment of performance, the number of options granted
in the past and the exercise price of such grants, among other factors. In
fiscal 1998, the Board of Directors, upon recommendation of the Committee, made
the following grants of options to purchase Company Common Stock to executive
officers of the Company: E. Michael Thoben, III, 92,000 shares; William A.
Yates, 55,000 shares; David J. Arthur, 55,000 shares; Paul D. Meyer, 45,000
shares; and Roger Moore, 45,000 shares. The Committee expects that in the
future, if additional grants are made, consideration will be given to the number
of options granted in the past and the exercise price of such grants.
19
Chief Executive Officer Compensation. The Committee determined the Chief
Executive Officer's compensation for fiscal 1998, with the final approval of the
Board of Directors, employing the same criteria that it used to set compensation
for other executive officers. The Chief Executive Officer's base salary was
determined based upon a review of the salaries of chief executive officers for
companies of comparable size and industry identified and upon a review of the
Chief Executive Officer's performance. The Chief Executive Officer's bonus for
fiscal 1998 was determined under the Executive Bonus Program, and was awarded
under the Committee's discretionary powers. Option grants in fiscal 1998 were
determined under the criteria described under Stock Options, above.
Carolyn MacDougall, Chair
Eugene Hovanec
Merritt Lutz
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following line graph provides a comparison of the annual percentage
change in the Company's cumulative total shareholder return on its Common Stock,
with the cumulative total return of the Nasdaq Composite Index and a peer group
consisting of companies included in the Nasdaq Computer Manufacturers Index. The
comparison is for the period commencing on January 1, 1994, through December 31,
1998. The comparison assumes $100 was invested on June 7, 1993 in the Company's
Common Stock and assumes the reinvestment of the full amount of any dividends.
Interlink Electronics
Cumulative Total Return To Stockholders
1/1/94 - 12/31/98
[graphic line chart omitted.]
Nasdaq Nasdaq Computer
Link Stock Market Mfg Stks
---- ------------ --------
1/1/94 100 100 100
6/30/94 65 91 79
12/31/94 47 98 110
6/30/95 109 122 141
12/31/95 51 138 173
6/30/96 52 157 200
12/31/96 48 170 232
6/30/97 55 190 252
12/31/97 35 209 281
6/30/98 37 251 409
12/31/98 36 293 610
* On $100 invested on June 7, 1993, including reinvestment of dividends.
20
CERTAIN TRANSACTIONS
There are none.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("Section 16(a)")
requires the Company's executive officers and directors and persons who own more
than 10% of Company Common Stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). SEC regulations
require that persons filing these reports furnish copies to the Company.
Based solely on a review of the copies of the reports received by the
Company and on written representations of certain reporting persons, the Company
believes that no executive officer or director failed to file any report
required by Section 16(a) or failed to report any other transaction required by
Section 16(a) on a timely basis.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended December 31, 1998 is
transmitted herewith.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Stockholders provides for transaction
of any business that properly comes before the meeting, the Board of Directors
has no knowledge of any matters to be presented at the meeting other than those
referred to herein. The enclosed proxy, however, gives discretionary authority
if any other matters are presented.
For this year's annual meeting of shareholders, if notice of a shareholder
proposal to be raised at the annual meeting of shareholders was received at the
principal executive officers of the Company after March 6, 1999, proxy voting on
that proposal when and if raised at the annual meting will be subject to the
discretionary voting authority of the designated proxy holders.
OTHER BUSINESS
The Board of Directors does not intend to present any business for action
at the meeting other than the election of directors and the proposals set forth
herein, nor does it have knowledge of any matters that may be presented by
others. If any other matter properly comes before the meeting, the persons named
in the accompanying form of proxy intend to vote in accordance with the
recommendations of the Board of Directors.
21
STOCKHOLDER PROPOSALS
Any stockholder proposals to be considered for inclusion in the proxy
material for the Company's 1999 Annual Meeting must be received at the principal
executive offices of the Company not later than December 20, 1999.
By Order of the Board of Directors
Paul D. Meyer
Secretary
22
APPENDIX A
INTERLINK ELECTRONICS, INC.
1996 STOCK INCENTIVE PLAN, AS AMENDED
============
1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to
enable Interlink Electronics, Inc. (the "Company") to attract and retain the
services of (1) selected employees, officers and directors of the Company or of
any subsidiary of the Company and (2) selected nonemployee agents, consultants,
advisors, persons involved in the sale or distribution of the Company's products
and independent contractors of the Company or any subsidiary.
2. Shares Subject to the Plan. Subject to adjustment as provided below and
in paragraph 13, the shares to be offered under the Plan shall consist of Common
Stock of the Company, and the total number of shares of Common Stock that may be
issued under the Plan shall not exceed [1,500,000] 2,000,000 shares. The shares
=========
issued under the Plan may be authorized and unissued shares or reacquired
shares. If an option, stock appreciation right or performance unit granted under
the Plan expires, terminates or is canceled, the unissued shares subject to such
option, stock appreciation right or performance unit shall again be available
under the Plan. If shares sold or awarded as a bonus under the Plan are
forfeited to the Company or repurchased by the Company, the number of shares
forfeited or repurchased shall again be available under the Plan.
3. Effective Date and Duration of Plan.
(a) Effective Date. The Plan shall become effective as of April 30,
1996. No option, stock appreciation right or performance unit granted under the
Plan to an officer who is subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended (an "Officer") or a director, and no incentive stock
option, shall become exercisable, however, until the Plan is approved by the
affirmative vote of the holders of a majority of the shares of Common Stock
represented at a shareholders meeting at which a quorum is present and any such
awards under the Plan prior to such approval shall be conditioned on and subject
to such approval. Subject to this limitation, options, stock appreciation rights
and performance units may be granted and shares may be awarded as bonuses or
sold under the Plan at any time after the effective date and before termination
of the Plan.
(b) Duration. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued and all restrictions on
such shares have lapsed. The Board of Directors may suspend or terminate the
Plan at any time except with respect to options, performance units and shares
subject to restrictions then outstanding under the Plan. Termination shall not
affect any outstanding options, any right of the Company to repurchase shares or
the forfeitability of shares issued under the Plan.
4. Administration.
(a) Board of Directors. The Plan shall be administered by the Board of
Directors of the Company, which shall determine and designate from time to time
the individuals to whom awards shall be made, the amount of the awards and the
other terms and conditions of the awards. Subject to the provisions of the Plan,
the Board of Directors may from time to time adopt and amend rules and
regulations relating to administration of the Plan, advance the lapse of any
waiting period, accelerate any exercise date, waive or modify any restriction
applicable to shares (except those restrictions imposed by law) and make all
other determinations in the judgment of the Board of Directors necessary or
desirable for the administration of the Plan. The interpretation and
construction of the provisions of the Plan and related agreements by the Board
of Directors shall be final and conclusive. The Board of Directors may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any related agreement in the manner and to the extent it shall deem expedient
to carry the Plan into effect, and it shall be the sole and final judge of such
expediency.
(b) Committee. The Board of Directors may delegate to a committee of
the Board of Directors or specified officers of the Company, or both (the
"Committee") any or all authority for administration of the Plan. If authority
is delegated to a Committee, all references to the Board of Directors in the
Plan shall mean and relate to the Committee except (i) as otherwise provided by
the Board of Directors and (ii) that only the Board of Directors may amend or
terminate the Plan as provided in paragraphs 3 and 15. If awards are to be made
under the Plan to Officers or directors, authority for selection of Officers and
directors for participation and decisions concerning the timing, pricing and
amount of a grant or award, if not determined under a formula meeting the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, shall be delegated to a committee consisting of two or more
disinterested directors.
5. Types of Awards; Eligibility. The Board of Directors may, from time to
time, take the following actions, separately or in combination, under the Plan:
(i) grant Incentive Stock Options, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), as provided in paragraphs 6(a)
and 6(b); (ii) grant options other than Incentive Stock Options ("Non-Statutory
Stock Options") as provided in paragraphs 6(a) and 6(c); (iii) award stock
bonuses as provided in paragraph 7; (iv) sell shares subject to restrictions as
provided in paragraph 8; (v) grant stock appreciation rights as provided in
paragraph 9; (vi) grant cash bonus rights as provided in paragraph 10; (vii)
grant performance units as provided in paragraph 11 and (viii) grant foreign
qualified awards as provided in paragraph 12. Any such awards may be made to
employees, including employees who are officers or directors, and to other
individuals described in paragraph 1 who the Board of Directors believes have
made or will make an important contribution to the Company or any subsidiary of
the Company; provided, however, that only employees of
2
the Company shall be eligible to receive Incentive Stock Options under the Plan.
The Board of Directors shall select the individuals to whom awards shall be made
and shall specify the action taken with respect to each individual to whom an
award is made. At the discretion of the Board of Directors, an individual may be
given an election to surrender an award in exchange for the grant of a new
award. No employee may be granted options or stock appreciation rights under the
Plan for more than an aggregate of 200,000 shares of Common Stock in connection
with the hiring of the employee or [50,000] 100,000 shares of Common Stock in
=======
any calendar year otherwise.
6. Option Grants.
(a) General Rules Relating to Options.
(i) Terms of Grant. The Board of Directors may grant options
under the Plan. With respect to each option grant, the Board of Directors
shall determine the number of shares subject to the option, the option
price, the period of the option, the time or times at which the option may
be exercised and whether the option is an Incentive Stock Option or a
Non-Statutory Stock Option. At the time of the grant of an option or at any
time thereafter, the Board of Directors may provide that an optionee who
exercised an option with Common Stock of the Company shall automatically
receive a new option to purchase additional shares equal to the number of
shares surrendered and may specify the terms and conditions of such new
options.
(ii) Exercise of Options. Except as provided in paragraph
6(a)(iv) or as determined by the Board of Directors, no option granted
under the Plan may be exercised unless at the time of such exercise the
optionee is employed by or in the service of the Company or any subsidiary
of the Company and shall have been so employed or provided such service
continuously since the date such option was granted. Absence on leave or on
account of illness or disability under rules established by the Board of
Directors shall not, however, be deemed an interruption of employment or
service for this purpose. Unless otherwise determined by the Board of
Directors, vesting of options shall not continue during an absence on leave
(including an extended illness) or on account of disability. Except as
provided in paragraphs 6(a)(iv) and 13, options granted under the Plan may
be exercised from time to time over the period stated in each option in
such amounts and at such times as shall be prescribed by the Board of
Directors, provided that options shall not be exercised for fractional
shares. Unless otherwise determined by the Board of Directors, if the
optionee does not exercise an option in any one year with respect to the
full number of shares to which the optionee is entitled in that year, the
optionee's rights shall be cumulative and the optionee may purchase those
shares in any subsequent year during the term of the option. Unless
otherwise determined by the Board of Directors, if an Officer or a director
exercises an option within six months
3
of the grant of the option, the shares acquired upon exercise of the option
may not be sold until six months after the date of grant of the option.
(iii) Nontransferability. Each Incentive Stock Option and, unless
otherwise determined by the Board of Directors with respect to an option
granted to a person who is neither an Officer nor a director of the
Company, each other option granted under the Plan by its terms shall be
nonassignable and nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution
of the state or country of the optionee's domicile at the time of death.
(iv) Termination of Employment or Service.
(A) General Rule. Unless otherwise determined by the Board
of Directors, in the event the employment or service of the optionee
with the Company or a subsidiary terminates for any reason other than
because of physical disability or death as provided in subparagraphs
6(a)(iv)(B) and (C), the option may be exercised at any time prior to
the expiration date of the option or the expiration of 30 days after
the date of such termination, whichever is the shorter period, but
only if and to the extent the optionee was entitled to exercise the
option at the date of such termination.
(B) Termination Because of Total Disability. Unless
otherwise determined by the Board of Directors, in the event of the
termination of employment or service because of total disability, the
option may be exercised at any time prior to the expiration date of
the option or the expiration of 12 months after the date of such
termination, whichever is the shorter period, but only if and to the
extent the optionee was entitled to exercise the option at the date of
such termination. The term "total disability" means a medically
determinable mental or physical impairment which is expected to result
in death or which has lasted or is expected to last for a continuous
period of 12 months or more and which causes the optionee to be
unable, in the opinion of the Company and two independent physicians,
to perform his or her duties as an employee, director, officer or
consultant of the Company and to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the
first day after the Company and the two independent physicians have
furnished their opinion of total disability to the Company.
(C) Termination Because of Death. Unless otherwise
determined by the Board of Directors, in the event of the death of an
optionee while employed by or providing service to the Company or a
subsidiary, the
4
option may be exercised at any time prior to the expiration date of
the option or the expiration of 12 months after the date of death,
whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option at the date of death and
only by the person or persons to whom such optionee's rights under the
option shall pass by the optionee's will or by the laws of descent and
distribution of the state or country of domicile at the time of death.
(D) Amendment of Exercise Period Applicable to Termination.
The Board of Directors, at the time of grant or, with respect to an
option that is not an Incentive Stock Option, at any time thereafter,
may extend the 30-day and 12-month exercise periods any length of time
not longer than the original expiration date of the option, and may
increase the portion of an option that is exercisable, subject to such
terms and conditions as the Board of Directors may determine.
(E) Failure to Exercise Option. To the extent that the
option of any deceased optionee or of any optionee whose employment or
service terminates is not exercised within the applicable period, all
further rights to purchase shares pursuant to such option shall cease
and terminate.
5
(v) Purchase of Shares. Unless the Board of Directors determines
otherwise, shares may be acquired pursuant to an option granted under the
Plan only upon receipt by the Company of notice in writing from the
optionee of the optionee's intention to exercise, specifying the number of
shares as to which the optionee desires to exercise the option and the date
on which the optionee desires to complete the transaction, and if required
in order to comply with the Securities Act of 1933, as amended, containing
a representation that it is the optionee's present intention to acquire the
shares for investment and not with a view to distribution. Unless the Board
of Directors determines otherwise, on or before the date specified for
completion of the purchase of shares pursuant to an option, the optionee
must have paid the Company the full purchase price of such shares in cash
(including, with the consent of the Board of Directors, cash that may be
the proceeds of a loan from the Company (provided that, with respect to an
Incentive Stock Option, such loan is approved at the time of option grant))
or, with the consent of the Board of Directors, in whole or in part, in
Common Stock of the Company valued at fair market value, restricted stock,
performance units or other contingent awards denominated in either stock or
cash, promissory notes and other forms of consideration. The fair market
value of Common Stock provided in payment of the purchase price shall be
determined by the Board of Directors. If the Common Stock of the Company is
not publicly traded on the date the option is exercised, the Board of
Directors may consider any valuation methods it deems appropriate and may,
but is not required to, obtain one or more independent appraisals of the
Company. If the Common Stock of the Company is publicly traded on the date
the option is exercised, the fair market value of Common Stock provided in
payment of the purchase price shall be the closing price of the Common
Stock as reported in The Wall Street Journal on the last trading day
preceding the date the option is exercised, or such other reported value of
the Common Stock as shall be specified by the Board of Directors. No shares
shall be issued until full payment for the shares has been made. With the
consent of the Board of Directors (which, in the case of an Incentive Stock
Option, shall be given only at the time of option grant), an optionee may
request the Company to apply automatically the shares to be received upon
the exercise of a portion of a stock option (even though stock certificates
have not yet been issued) to satisfy the purchase price for additional
portions of the option. Each optionee who has exercised an option shall
immediately upon notification of the amount due, if any, pay to the Company
in cash amounts necessary to satisfy any applicable federal, state and
local tax withholding requirements. If additional withholding is or becomes
required beyond any amount deposited before delivery of the certificates,
the optionee shall pay such amount to the Company on demand. If the
optionee fails to pay the amount demanded, the Company may withhold that
amount from other amounts payable by the Company to the optionee, including
salary, subject to applicable law. With the consent of the Board of
Directors an optionee may satisfy this obligation, in whole or in part, by
having the Company withhold from the shares
6
to be issued upon the exercise that number of shares that would satisfy the
withholding amount due or by delivering to the Company Common Stock to
satisfy the withholding amount. Upon the exercise of an option, the number
of shares reserved for issuance under the Plan shall be reduced by the
number of shares issued upon exercise of the option.
(b) Incentive Stock Options. Incentive Stock Options shall be subject
to the following additional terms and conditions:
(i) Limitation on Amount of Grants. No employee may be granted
Incentive Stock Options under the Plan if the aggregate fair market value,
on the date of grant, of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by that employee during
any calendar year under the Plan and under all incentive stock option plans
(within the meaning of Section 422 of the Code) of the Company or any
parent or subsidiary of the Company exceeds $100,000.
(ii) Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any parent or subsidiary of the
Company only if the option price is at least 110 percent of the fair market
value, as described in paragraph 6(b)(iv), of the Common Stock subject to
the option on the date it is granted and the option by its terms is not
exercisable after the expiration of five years from the date it is granted.
(iii) Duration of Options. Subject to paragraphs 6(a)(ii) and
6(b)(ii), Incentive Stock Options granted under the Plan shall continue in
effect for the period fixed by the Board of Directors, except that no
Incentive Stock Option shall be exercisable after the expiration of 10
years from the date it is granted.
(iv) Option Price. The option price per share shall be determined
by the Board of Directors at the time of grant. Except as provided in
paragraph 6(b)(ii), the option price shall not be less than 100 percent of
the fair market value of the Common Stock covered by the Incentive Stock
Option at the date the option is granted. The fair market value shall be
determined by the Board of Directors. If the Common Stock of the Company is
not publicly traded on the date the option is granted, the Board of
Directors may consider any valuation methods it deems appropriate and may,
but is not required to, obtain one or more independent appraisals of the
Company. If the Common Stock of the Company is publicly traded on the date
the option is exercised, the fair market value shall be deemed to be the
closing price of the Common Stock as reported in The Wall Street Journal on
the day preceding the date the option is granted, or, if there has been no
sale on that date, on
7
the last preceding date on which a sale occurred or such other value of the
Common Stock as shall be specified by the Board of Directors.
(v) Limitation on Time of Grant. No Incentive Stock Option shall
be granted on or after the tenth anniversary of the effective date of the
Plan.
(vi) Conversion of Incentive Stock Options. The Board of
Directors may at any time without the consent of the optionee convert an
Incentive Stock Option to a Non-Statutory Stock Option.
(c) Non-Statutory Stock Options. Non-Statutory Stock Options shall be
subject to the following terms and conditions in addition to those set forth in
Section 6(a) above:
(i) Option Price. The option price for Non-Statutory Stock
Options shall be determined by the Board of Directors at the time of grant
and may be any amount determined by the Board of Directors.
(ii) Duration of Options. Non-Statutory Stock Options granted
under the Plan shall continue in effect for the period fixed by the Board
of Directors.
7. Stock Bonuses. The Board of Directors may award shares under the Plan as
stock bonuses. Shares awarded as a bonus shall be subject to the terms,
conditions, and restrictions determined by the Board of Directors. The
restrictions may include restrictions concerning transferability and forfeiture
of the shares awarded, together with such other restrictions as may be
determined by the Board of Directors. If shares are subject to forfeiture, all
dividends or other distributions paid by the Company with respect to the shares
shall be retained by the Company until the shares are no longer subject to
forfeiture, at which time all accumulated amounts shall be paid to the
recipient. The Board of Directors may require the recipient to sign an agreement
as a condition of the award, but may not require the recipient to pay any
monetary consideration other than amounts necessary to satisfy tax withholding
requirements. The agreement may contain any terms, conditions, restrictions,
representations and warranties required by the Board of Directors. The
certificates representing the shares awarded shall bear any legends required by
the Board of Directors. Unless otherwise determined by the Board of Directors,
shares awarded as a stock bonus to an Officer or a director may not be sold
until six months after the date of the award. The Company may require any
recipient of a stock bonus to pay to the Company in cash upon demand amounts
necessary to satisfy any applicable federal, state or local tax withholding
requirements. If the recipient fails to pay the amount demanded, the Company may
withhold that amount from other amounts payable by the Company to the recipient,
including salary or fees for services, subject to applicable law. With the
consent of the Board of Directors, a recipient may deliver Common Stock to the
Company to satisfy
8
this withholding obligation. Upon the issuance of a stock bonus, the number of
shares reserved for issuance under the Plan shall be reduced by the number of
shares issued.
8. Restricted Stock. The Board of Directors may issue shares under the Plan
for such consideration (including promissory notes and services) as determined
by the Board of Directors. Shares issued under the Plan shall be subject to the
terms, conditions and restrictions determined by the Board of Directors. The
restrictions may include restrictions concerning transferability, repurchase by
the Company and forfeiture of the shares issued, together with such other
restrictions as may be determined by the Board of Directors. If shares are
subject to forfeiture or repurchase by the Company, all dividends or other
distributions paid by the Company with respect to the shares shall be retained
by the Company until the shares are no longer subject to forfeiture or
repurchase, at which time all accumulated amounts shall be paid to the
recipient. All Common Stock issued pursuant to this paragraph 8 shall be subject
to a purchase agreement, which shall be executed by the Company and the
prospective recipient of the shares prior to the delivery of certificates
representing such shares to the recipient. The purchase agreement may contain
any terms, conditions, restrictions, representations and warranties required by
the Board of Directors. The certificates representing the shares shall bear any
legends required by the Board of Directors. Unless otherwise determined by the
Board of Directors, shares issued under this paragraph 8 to an Officer or a
director may not be sold until six months after the shares are issued. The
Company may require any purchaser of restricted stock to pay to the Company in
cash upon demand amounts necessary to satisfy any applicable federal, state or
local tax withholding requirements. If the purchaser fails to pay the amount
demanded, the Company may withhold that amount from other amounts payable by the
Company to the purchaser, including salary, subject to applicable law. With the
consent of the Board of Directors, a purchaser may deliver Common Stock to the
Company to satisfy this withholding obligation. Upon the issuance of restricted
stock, the number of shares reserved for issuance under the Plan shall be
reduced by the number of shares issued.
9. Stock Appreciation Rights.
(a) Grant. Stock appreciation rights may be granted under the Plan by
the Board of Directors, subject to such rules, terms, and conditions as the
Board of Directors prescribes.
9
(b) Exercise.
(i) Each stock appreciation right shall entitle the holder, upon
exercise, to receive from the Company in exchange therefor an amount equal
in value to the excess of the fair market value on the date of exercise of
one share of Common Stock of the Company over its fair market value on the
date of grant (or, in the case of a stock appreciation right granted in
connection with an option, the excess of the fair market value of one share
of Common Stock of the Company over the option price per share under the
option to which the stock appreciation right relates), multiplied by the
number of shares covered by the stock appreciation right or the option, or
portion thereof, that is surrendered. No stock appreciation right shall be
exercisable at a time that the amount determined under this subparagraph is
negative. Payment by the Company upon exercise of a stock appreciation
right may be made in Common Stock valued at fair market value, in cash, or
partly in Common Stock and partly in cash, all as determined by the Board
of Directors.
(ii) A stock appreciation right shall be exercisable only at the
time or times established by the Board of Directors. If a stock
appreciation right is granted in connection with an option, the following
rules shall apply: (1) the stock appreciation right shall be exercisable
only to the extent and on the same conditions that the related option could
be exercised; (2) the stock appreciation rights shall be exercisable only
when the fair market value of the stock exceeds the option price of the
related option; (3) the stock appreciation right shall be for no more than
100 percent of the excess of the fair market value of the stock at the time
of exercise over the option price; (4) upon exercise of the stock
appreciation right, the option or portion thereof to which the stock
appreciation right relates terminates; and (5) upon exercise of the option,
the related stock appreciation right or portion thereof terminates. Unless
otherwise determined by the Board of Directors, no stock appreciation right
granted to an Officer or director may be exercised during the first six
months following the date it is granted.
(iii) The Board of Directors may withdraw any stock appreciation
right granted under the Plan at any time and may impose any conditions upon
the exercise of a stock appreciation right or adopt rules and regulations
from time to time affecting the rights of holders of stock appreciation
rights. Such rules and regulations may govern the right to exercise stock
appreciation rights granted prior to adoption or amendment of such rules
and regulations as well as stock appreciation rights granted thereafter.
(iv) For purposes of this paragraph 9, the fair market value of
the Common Stock shall be determined as of the date the stock appreciation
right is exercised, under the methods set forth in paragraph 6(b)(iv).
10
(v) No fractional shares shall be issued upon exercise of a stock
appreciation right. In lieu thereof, cash may be paid in an amount equal to
the value of the fraction or, if the Board of Directors shall determine,
the number of shares may be rounded downward to the next whole share.
(vi) Each stock appreciation right granted in connection with an
Incentive Stock Option, and unless otherwise determined by the Board of
Directors with respect to a stock appreciation right granted to a person
who is neither an Officer nor a director of the Company, each other stock
appreciation right granted under the Plan by its terms shall be
nonassignable and nontransferable by the holder, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution
of the state or country of the holder's domicile at the time of death, and
each stock appreciation right by its terms shall be exercisable during the
holder's lifetime only by the holder.
(vii) Each participant who has exercised a stock appreciation
right shall, upon notification of the amount due, pay to the Company in
cash amounts necessary to satisfy any applicable federal, state and local
tax withholding requirements. If the participant fails to pay the amount
demanded, the Company may withhold that amount from other amounts payable
by the Company to the participant including salary, subject to applicable
law. With the consent of the Board of Directors a participant may satisfy
this obligation, in whole or in part, by having the Company withhold from
any shares to be issued upon the exercise that number of shares that would
satisfy the withholding amount due or by delivering Common Stock to the
Company to satisfy the withholding amount.
(viii) Upon the exercise of a stock appreciation right for
shares, the number of shares reserved for issuance under the Plan shall be
reduced by the number of shares issued. Cash payments of stock appreciation
rights shall not reduce the number of shares of Common Stock reserved for
issuance under the Plan.
11
10. Cash Bonus Rights.
(a) Grant. The Board of Directors may grant cash bonus rights under
the Plan in connection with (i) options granted or previously granted, (ii)
stock appreciation rights granted or previously granted, (iii) stock bonuses
awarded or previously awarded and (iv) shares sold or previously sold under the
Plan. Cash bonus rights will be subject to rules, terms and conditions as the
Board of Directors may prescribe. Unless otherwise determined by the Board of
Directors with respect to a cash bonus right granted to a person who is neither
an Officer nor a director of the Company, each cash bonus right granted under
the Plan by its terms shall be nonassignable and nontransferable by the holder,
either voluntarily or by operation of law, except by will or by the laws of
descent and distribution of the state or country of the holder's domicile at the
time of death. The payment of a cash bonus shall not reduce the number of shares
of Common Stock reserved for issuance under the Plan.
(b) Cash Bonus Rights in Connection With Options. A cash bonus right
granted in connection with an option will entitle an optionee to a cash bonus
when the related option is exercised (or terminates in connection with the
exercise of a stock appreciation right related to the option) in whole or in
part if, in the sole discretion of the Board of Directors, the bonus right will
result in a tax deduction that the Company has sufficient taxable income to use.
If an optionee purchases shares upon exercise of an option and does not exercise
a related stock appreciation right, the amount of the bonus, if any, shall be
determined by multiplying the excess of the total fair market value of the
shares to be acquired upon the exercise over the total option price for the
shares by the applicable bonus percentage. If the optionee exercises a related
stock appreciation right in connection with the termination of an option, the
amount of the bonus, if any, shall be determined by multiplying the total fair
market value of the shares and cash received pursuant to the exercise of the
stock appreciation right by the applicable bonus percentage. The bonus
percentage applicable to a bonus right, including a previously granted bonus
right, may be changed from time to time at the sole discretion of the Board of
Directors but shall in no event exceed 75 percent.
(c) Cash Bonus Rights in Connection With Stock Bonus. A cash bonus
right granted in connection with a stock bonus will entitle the recipient to a
cash bonus payable when the stock bonus is awarded or restrictions, if any, to
which the stock is subject lapse. If bonus stock awarded is subject to
restrictions and is repurchased by the Company or forfeited by the holder, the
cash bonus right granted in connection with the stock bonus shall terminate and
may not be exercised. The amount and timing of payment of a cash bonus shall be
determined by the Board of Directors.
12
(d) Cash Bonus Rights in Connection With Stock Purchases. A cash bonus
right granted in connection with the purchase of stock pursuant to paragraph 8
will entitle the recipient to a cash bonus when the shares are purchased or
restrictions, if any, to which the stock is subject lapse. Any cash bonus right
granted in connection with shares purchased pursuant to paragraph 8 shall
terminate and may not be exercised in the event the shares are repurchased by
the Company or forfeited by the holder pursuant to applicable restrictions. The
amount of any cash bonus to be awarded and timing of payment of a cash bonus
shall be determined by the Board of Directors.
(e) Taxes. The Company shall withhold from any cash bonus paid
pursuant to paragraph 10 the amount necessary to satisfy any applicable federal,
state and local withholding requirements.
11. Performance Units. The Board of Directors may grant performance units
consisting of monetary units which may be earned in whole or in part if the
Company achieves certain goals established by the Board of Directors over a
designated period of time, but not in any event more than 10 years. The goals
established by the Board of Directors may include earnings per share, return on
shareholders' equity, return on invested capital, and such other goals as may be
established by the Board of Directors. In the event that the minimum performance
goal established by the Board of Directors is not achieved at the conclusion of
a period, no payment shall be made to the participants. In the event the maximum
corporate goal is achieved, 100 percent of the monetary value of the performance
units shall be paid to or vested in the participants. Partial achievement of the
maximum goal may result in a payment or vesting corresponding to the degree of
achievement as determined by the Board of Directors. Payment of an award earned
may be in cash or in Common Stock or in a combination of both, and may be made
when earned, or vested and deferred, as the Board of Directors determines.
Deferred awards shall earn interest on the terms and at a rate determined by the
Board of Directors. Unless otherwise determined by the Board of Directors with
respect to a performance unit granted to a person who is neither an Officer nor
a director of the Company, each performance unit granted under the Plan by its
terms shall be nonassignable and nontransferable by the holder, either
voluntarily or by operation of law, except by will or by the laws of descent and
distribution of the state or country of the holder's domicile at the time of
death. Each participant who has been awarded a performance unit shall, upon
notification of the amount due, pay to the Company in cash amounts necessary to
satisfy any applicable federal, state and local tax withholding requirements. If
the participant fails to pay the amount demanded, the Company may withhold that
amount from other amounts payable by the Company to the participant, including
salary or fees for services, subject to applicable law. With the consent of the
Board of Directors a participant may satisfy this obligation, in whole or in
part, by having the Company withhold from any shares to be issued that number of
shares that would satisfy the withholding amount due or by delivering Common
Stock to the Company to satisfy the withholding amount. The payment of a
performance unit in cash shall not reduce the
13
number of shares of Common Stock reserved for issuance under the Plan. The
number of shares reserved for issuance under the Plan shall be reduced by the
number of shares issued upon payment of an award.
12. Foreign Qualified Grants. Awards under the Plan may be granted to such
officers and employees of the Company and its subsidiaries and such other
persons described in paragraph 1 residing in foreign jurisdictions as the Board
of Directors may determine from time to time. The Board of Directors may adopt
such supplements to the Plan as may be necessary to comply with the applicable
laws of such foreign jurisdictions and to afford participants favorable
treatment under such laws; provided, however, that no award shall be granted
under any such supplement with terms which are more beneficial to the
participants than the terms permitted by the Plan.
13. Changes in Capital Structure.
(a) Stock Splits; Stock Dividends. If the outstanding Common Stock of
the Company is hereafter increased or decreased or changed into or exchanged for
a different number or kind of shares or other securities of the Company by
reason of any stock split, combination of shares or dividend payable in shares,
recapitalization or reclassification appropriate adjustment shall be made by the
Board of Directors in the number and kind of shares available for grants under
the Plan. In addition, the Board of Directors shall make appropriate adjustment
in the number and kind of shares as to which outstanding options, or portions
thereof then unexercised, shall be exercisable, so that the optionee's
proportionate interest before and after the occurrence of the event is
maintained. Notwithstanding the foregoing, the Board of Directors shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Board of
Directors. Any such adjustments made by the Board of Directors shall be
conclusive.
(b) Mergers, Reorganizations, Etc. In the event of a merger,
consolidation, plan of exchange, acquisition of property or stock, separation,
reorganization or liquidation to which the Company or a subsidiary is a party or
a sale of all or substantially all of the Company's assets (each, a
"Transaction"), the Board of Directors shall, in its sole discretion and to the
extent possible under the structure of the Transaction, select one of the
following alternatives for treating outstanding options under the Plan:
(i) Outstanding options shall remain in effect in accordance with
their terms.
(ii) Outstanding options shall be converted into options to
purchase stock in the corporation that is the surviving or acquiring
corporation in the
14
Transaction. The amount, type of securities subject thereto and exercise
price of the converted options shall be determined by the Board of
Directors of the Company, taking into account the relative values of the
companies involved in the Transaction and the exchange rate, if any, used
in determining shares of the surviving corporation to be issued to holders
of shares of the Company. Unless otherwise determined by the Board of
Directors, the converted options shall be vested only to the extent that
the vesting requirements relating to options granted hereunder have been
satisfied.
(iii) The Board of Directors shall provide a 30-day period prior
to the consummation of the Transaction during which outstanding options may
be exercised to the extent then exercisable, and upon the expiration of
such 30-day period, all unexercised options shall immediately terminate.
The Board of Directors may, in its sole discretion, accelerate the
exercisability of options so that they are exercisable in full during such
30-day period.
(c) Dissolution of the Company. In the event of the dissolution of the
Company, options shall be treated in accordance with paragraph 13(b)(iii).
(d) Rights Issued by Another Corporation. The Board of Directors may
also grant options, stock appreciation rights, performance units, stock bonuses
and cash bonuses and issue restricted stock under the Plan having terms,
conditions and provisions that vary from those specified in this Plan provided
that any such awards are granted in substitution for, or in connection with the
assumption of, existing options, stock appreciation rights, stock bonuses, cash
bonuses, restricted stock and performance units granted, awarded or issued by
another corporation and assumed or otherwise agreed to be provided for by the
Company pursuant to or by reason of a Transaction.
14. Amendment of Plan. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in paragraphs 6(a)(iv), 9, 10 and 13, however,
no change in an award already granted shall be made without the written consent
of the holder of such award.
15. Approvals. The obligations of the Company under the Plan are subject to
the approval of state and federal authorities or agencies with jurisdiction in
the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange on which the
Company's shares may then be listed, in connection with the grants under the
Plan. The foregoing notwithstanding, the Company shall not be obligated to issue
or deliver Common Stock under the Plan if such issuance or delivery would
violate applicable state or federal securities laws.
15
16. Employment and Service Rights. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to decrease such employee's compensation or benefits,
or (ii) confer upon any person engaged by the Company any right to be retained
or employed by the Company or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company.
17. Rights as a Shareholder. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until the
date of issue to the recipient of a stock certificate for such shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.
18. Option Grants to Non-Employee Directors.
(a) Initial Board Grants. Each person who becomes a Non-Employee
Director after the Plan is adopted shall be automatically granted an option to
purchase 20,000 shares of Common Stock on the he or she becomes a Non-Employee
Director. A "Non-Employee Director" is a director who is not an employee of the
Company or any of its subsidiaries.
(b) Additional Grants. Each Non-Employee Director shall be
automatically granted an option to purchase additional shares of Common Stock in
each calendar year subsequent to the year in which such Non-Employee Director
was granted an option pursuant to paragraph 18(a), such option to be granted as
of the date of the Company's annual meeting of shareholders held in such
calendar year, provided that the Non-Employee Director continues to serve in
such capacity as of such date. The number of shares subject to each additional
grant shall be 5,000 shares for each Non-Employee Director.
(c) Exercise Price. The exercise price of all options granted pursuant
to this paragraph 18 shall be equal to 100 percent of the fair market value of
the Common Stock determined pursuant to paragraph 6(b)(iv).
(d) Term of Option. The term of each option granted pursuant to this
paragraph 18 shall be 10 years from the date of grant.
16
(e) Exercisability. Until an option expires or is terminated and
except as provided in paragraphs 18(f) and 13, an option granted under this
paragraph 18 shall be exercisable according to the following schedule: 33 1/3%
for each complete year of continuous service after the date of grant, rounded up
to the next full share, until fully vested.
For purposes of this paragraph 18(e), a complete year shall be deemed
to be the period which starts on the day of grant and ends on the same day of
the following calendar year, so that each successive "complete year" ends on the
same day of each successive calendar year.
(f) Termination As a Director. If an optionee ceases to be a director
of the Company for any reason, including death, the option may be exercised at
any time prior to the expiration date of the option or the expiration of 30 days
(or 12 months in the event of death) after the last day the optionee served as a
director, whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option as of the last day the optionee
served as a director.
(g) Nontransferability. Each option by its terms shall be
nonassignable and nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution of
the state or country of the optionee's domicile at the time of death, and each
option by its terms shall be exercisable during the optionee's lifetime only by
the optionee.
(h) Exercise of Options. Options may be exercised upon payment of cash
or shares of Common Stock of the Company in accordance with paragraph 6(a)(v).
Adopted: April 30, 1996
Amended: May 25, 1999
=======================
17
PROXY
INTERLINK ELECTRONICS, INC.
Annual Meeting, May 25, 1999
PROXY SOLICITED BY BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints E. Michael Thoben, III, and Paul D. Meyer, and
each of them, proxies with power of substitution to vote on behalf of the
undersigned all shares that the undersigned may be entitled to vote at the
annual meeting of shareholders of Interlink Electronics, Inc. (the "Company") on
May 25, 1999 and any adjournments thereof, with all powers that the undersigned
would possess if personally present, with respect to the following:
1. Election of Director: E. Michael Thoben
FOR the nominee AGAINST the nominee WITHHOLD AUTHORITY
[ ] [ ] [ ] to vote for
the nominee
Election of Director: George Gu
FOR the nominee AGAINST the nominee WITHHOLD AUTHORITY
[ ] [ ] [ ] to vote for
the nominee
2. Proposal to amend the 1996 Stock Option Plan:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to ratify the cancellation and reissue of non-employee director
options:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Proposal to ratify the appointment of Arthur Andersen LLP as auditors of
the Company for the fiscal year ending December 31, 1999:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(Continued and to be signed on the other side.)
The shares represented by this proxy will be voted as specified on the
reverse hereof, but if no specification is made, this proxy will be voted
for the election of the director. The proxies may vote in their discretion
as to other matters that may come before this meeting.
Shares:
Date: _____________________________, 1999
P Name: ___________________________________
R
0 Signature(s): ___________________________
X Signature or Signatures
Y
Please date and sign as name is imprinted
hereon, including designation as
executor, trustee, etc., if applicable. A
corporation must sign its name by the
president or other authorized officer.
The Annual Meeting of Stockholders of
Interlink Electronics, Inc. will be held
on May 25, 1999 at 10:00 a.m., Pacific
Daylight Time, at The Courtyard by
Marriott, located at 4994 Verdugo Way,
Camarillo, California, 93012.
Please Note: Any shares of stock of the Company held in the name of fiduciaries,
custodians or brokerage houses for the benefit of their clients may only be
voted by the fiduciary, custodian or brokerage house itself--the beneficial
owner may not directly vote or appoint a proxy to vote the shares and must
instruct the person or entity in whose name the shares are held how to vote the
shares held for the beneficial owner. Therefore, if any shares of stock of the
Company are held in "street name" by a brokerage house, only the brokerage
house, at the instructions of its client, may vote or appoint a proxy to vote
the shares.