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Interlink Electronics, Inc.
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INTERLINK ELECTRONICS, INC.
546 FLYNN ROAD
CAMARILLO, CALIFORNIA 93012
-------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 19, 2001
-------------------------
To the Stockholders of Interlink Electronics, Inc.:
You are invited to attend the Annual Meeting of Stockholders of
Interlink Electronics, Inc., a Delaware corporation. The meeting will be held at
the Camarillo Courtyard by Marriott Hotel, located at 4994 Verdugo Way,
Camarillo, California on June 19, 2001, at 10:00 a.m., Pacific Daylight Time,
for the following purposes:
1. To elect one director to serve a term of three years;
2. To ratify the appointment of Arthur Andersen LLP as the
Company's auditors; and
3. 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 16, 2001
are entitled to notice of and to vote at the Annual Meeting.
Your vote is important. Please date and sign the enclosed proxy card
and return it in the enclosed postage-paid envelope as soon as possible. If you
attend the meeting, you may, if you wish, revoke the proxy and vote personally
on all matters brought before the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Paul D. Meyer
SECRETARY
Camarillo, California
May 11, 2001
INTERLINK ELECTRONICS, INC.
546 FLYNN ROAD
CAMARILLO, CALIFORNIA 93012
-------------------------
PROXY STATEMENT
-------------------------
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 at the Camarillo Courtyard by Marriott Hotel, located at 4994 Verdugo Way,
Camarillo, California 93012 on June 19, 2001, at 10:00 a.m., Pacific Daylight
Time. This proxy may also be used at any adjournment of the meeting. We are
sending this statement and the enclosed proxy form to you on or about May 11,
2001.
RECORD DATE
Only stockholders of record at the close of business on April 16, 2001
(the "Record Date") are entitled to notice of, and to vote at, the meeting.
SHARES OUTSTANDING AND VOTING RIGHTS
At the close of business on the Record Date, the Company had 9,556,651
shares of its Common Stock outstanding. Each share of Common Stock issued and
outstanding is entitled to one vote in each matter properly presented at the
Annual Meeting. There are no cumulative voting rights.
PROXY PROCEDURE
Any person giving a proxy in the form accompanying this proxy statement
has the power to revoke it at any time before its exercise. You may revoke the
proxy by notifying Paul Meyer, the Secretary of the Company, in writing at the
Company's address listed above prior to our exercise of the proxy at the Annual
Meeting or any adjournment of the meeting. The proxy may also be revoked by
affirmatively electing to vote in person while attending the meeting. A
stockholder who attends the meeting need not revoke the proxy and vote in person
unless the stockholder wishes to do so, however. 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
nominee for director, to ratify the appointment of Arthur Andersen LLP as the
Company's auditors, 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.
1
PROPOSAL 1: ELECTION OF DIRECTOR
The Board of Directors currently consists of five directors. Pursuant
to the Company's Bylaws, the Board of Directors is divided into three classes,
each class serving a three-year term with the term of office of one class
expiring each year. Mr. Eugene Hovanec is the only nominee for re-election at
this meeting for a three-year term expiring in 2004. If Mr. Hovanec becomes
unavailable for election for any reason, we will name a suitable substitute as
authorized by your proxy.
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, AGE AND OTHER DIRECTORSHIPS DIRECTOR SINCE TERM EXPIRES
- ------------------------------------------------------- -------------- ------------
NOMINEE
Eugene F. Hovanec--49..................................................... 1994 2001
Vice President and Chief Financial Officer of Vitesse Semiconductor
Corporation, a manufacturer of digital gallium arsenide integrated
circuits. Mr. Hovanec is a member of AICPA in New York and holds a B.D.A.
degree from Pace University.
CONTINUING DIRECTORS
John Buckett II-- 53...................................................... 2000 2003
Vice President, Corporate Development at Scientific-Atlanta, Inc., a leading
supplier of broadband communications systems, satellite-based video, voice
and data communications networks and worldwide customer service and support,
since 1998. He is also a member of the Corporate Management Committee of
Scientific-Atlanta, Inc. From 1995 to 1998, Mr. Buckett served as president
of the International Division and, before that, as vice president, marketing
strategies, for all operating units of Scientific-Atlanta, Inc. He is a
member of the Society of Cable Television Engineers and the Cable Television
Administration and Marketing Society. Mr. Buckett holds a B.S. degree in
electrical engineering from the Georgia Institute of Technology.
2
NAME, PRINCIPAL OCCUPATION, AGE AND OTHER DIRECTORSHIPS DIRECTOR SINCE TERM EXPIRES
- ------------------------------------------------------- -------------- ------------
Merritt M. Lutz--58........................................................ 1994 2003
Senior Advisor of Morgan Stanley (the "Firm"). He is the Chairman of Morgan
Stanley Information Technology Holdings, Inc. Mr. Lutz is responsible for
the oversight of Morgan Stanley Information Technology's strategic
technology investments and joint ventures. He joined Morgan Stanley in
1994 as a Managing Director in charge of the Application Products Group
with responsibility for the development and maintenance of all the Firm's
strategic worldwide software-based technology initiatives. Also, while at
the Firm, he has been in charge of developing and launching its Information
Technology internet strategy, its offsite software development joint
ventures, and its Client Technology initiatives. Prior to joining the
Firm, Mr. Lutz was President of Candle Corporation, one of the world's
largest privately held software companies. Previously, he was Managing
Partner of PDi, a software industry partnering and consulting company.
Before that, Mr. Lutz was Group Vice President running the software
products business for Informatics General Corporation (NYSE).
Mr. Lutz is a director of one other publicly traded company, SPSS Inc. He
is also a director of four private companies - Algorithmics, Inc., Business
Engine Software Corporation, ThruPoint, Inc., and Beacon International,
which is a Japanese independent enterprise software company. He is a member
of the Chairman's Committee of the Computerworld Smithsonian Awards. He is
a former Director of the Information Technology Association of America,
member of the NASD Industry Advisory Committee, Director on the Board of
Managers of the University of Rochester Eastman School of Music, and member
of the Michigan State University College of Arts and Letters National
Advisory Council . Mr. Lutz attended Michigan State University where he
earned both a B.A. and an M.A. degree.
George Gu--53.............................................................. 1991 2002
Chairman of GTM (Asia) Investment Holding Limited, a privately owned
investment company. Mr. Gu holds a B.S. degree from North Carolina State
University and an M.B.A. degree from Columbia University.
3
NAME, PRINCIPAL OCCUPATION, AGE AND OTHER DIRECTORSHIPS DIRECTOR SINCE TERM EXPIRES
- ------------------------------------------------------- -------------- ------------
E. Michael Thoben, III--47................................................. 1990 2002
President, Chief Executive Officer and Chairman of the Board of Directors of
the Company. Mr. Thoben holds a B.S. degree from St. Xavier University and
has taken graduate management courses at the Harvard Business School and The
Wharton School of Business. Mr. Thoben is a director of the American
Electronics Association.
BOARD COMMITTEES AND MEETINGS
The Board of Directors acted by meeting and by unanimous written
consent in lieu of meetings six times during the last fiscal year. Each director
participated in at least 75% of the aggregate number of meetings and actions by
unanimous written consent of the Board of Directors and the committee or
committees of which he or she was a member. Mr. Buckett participated in all of
the meetings and actions by unanimous written consent of the Board after his
election at the Annual Stockholders Meeting on June 27, 2000.
The Board of Directors has three standing committees. The Company
maintains a standing Audit Committee, which, in 2000, consisted of Messrs.
Hovanec and Gu and, until her resignation in October 2000, Ms. Caroline
MacDougall. In 2000, the committee held two meetings in person and three
telephonic meetings. All of the members, including Ms. MacDougall, attended each
of the five meetings. The National Association of Securities Dealers (the
"NASD") amended its independent director and audit committee listing standards
to redefine the meaning of "independent director" for purposes of membership on
an audit committee and to require, with few exceptions, that the Committee
consist of at least three members, all of whom meet the "independent director"
standards, by June 14, 2001. The Board elected Mr. Buckett to the Committee in
April 2001. As a result, the Company believes that all three members of the
Audit Committee are "independent directors" within the meaning of Rule
4200(a)(14) of the listing standards of the NASD. The Audit Committee assists
the Board of Directors in fulfilling its oversight responsibilities relating
to corporate accounting, the Company's reporting practices and the quality and
integrity of the Company's financial statements; compliance with law and the
maintenance of ethical standards by the Company; and the Company's maintenance
of effective internal controls. For additional information about the Audit
Committee, see "Audit Committee Matters."
The Board of Directors' Compensation Committee, which is currently
comprised of Messrs. Hovanec and Lutz, reviews the compensation levels of the
Company's executive officers and makes recommendations to the Board regarding
changes in compensation. The Compensation Committee also administers the
Company's stock option plans and recommends grants under the plans to the Board
of Directors. See "Compensation of Executive Officers--Report of the
Compensation Committee on Executive Compensation" and "--Option Grants in Last
Fiscal Year." Ms. MacDougall was a member of the committee until her resignation
from
4
the Board in October 2000. The Compensation Committee held three meetings
during the last fiscal year.
The Company also maintains a Nominating Committee which is comprised of
Messrs. Thoben, Buckett and Lutz. The Nominating Committee makes recommendations
to the Board of Directors concerning nominees to the Board of Directors. The
Nominating Committee had one meeting in 2000.
DIRECTOR COMPENSATION
Directors are paid a fee of $500 for each Board meeting attended in
person and $100 per hour (up to a maximum of $500 per meeting) for each Board
meeting attended telephonically. They are also reimbursed for costs incurred
attending Board meetings. Any director who is not an employee of the Company and
has not, within one year, been an employee of the Company (a "Non-Employee
Director") is eligible to receive options under the 1996 Stock Incentive Plan,
as amended (the "1996 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 30,000 shares of Common Stock at the
time he or she becomes a Non-Employee Director. All options have a five-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 while the optionee is a
director of the Company, within 30 days after the date the optionee terminates
as a director or prior to the expiration of the options, whichever comes first,
or, if the optionee is still a Non-Employee Director upon his or her death,
within one year after the death of the optionee or prior to the expiration of
the options, whichever comes first. 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 7,500 shares of the
Company's Common Stock.
RECOMMENDATION BY THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEE NAMED IN THIS PROXY STATEMENT. If a quorum of
stockholders is present at the meeting, the nominee for director who receives
the greatest number of votes cast at the meeting will be elected director. We
will treat abstentions and broker non-votes as present but not voting.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP audited the Company's financial statements for the
fiscal year ended December 31, 2000 and has been appointed to act as auditors of
the Company's financial statements for the fiscal year ending December 31, 2001.
The Board of Directors is submitting this selection for ratification by the
stockholders. Representatives of Arthur Andersen LLP have
5
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.
RECOMMENDATIONS BY THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL 2001.
6
COMPENSATION OF EXECUTIVE OFFICERS
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is composed of two 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 incentives for the executives to manage the Company's business
effectively for the benefit of its stockholders.
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 incentives for these executives to achieve high
levels of job performance and enhancement of stockholder value. The Company
seeks to achieve these objectives by paying its executives a competitive level
of base compensation for companies of similar size and in similar industries 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 1996 Stock Option Plan 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. The Company receives no
tax deduction from the 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 (the "option spread") is treated as
compensation. In addition, if the holder of an incentive stock option disposes
of stock received upon exercise of the option before satisfying certain holding
period requirements, the
7
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 the 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 to any individual may not exceed a stockholder-approved
maximum number of shares. The Company exceeded the previously approved 75,000
share annual maximum with respect to certain employees in 1998. Accordingly, the
option spread compensation from an exercise (in the case of nonqualified stock
options) of those options generally would be treated as compensation for tax
purposes and taken into account in determining the $1,000,000 cap on
deductibility. In 1999, the stockholders increased the maximum number of shares
to 100,000.
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 2000 salaries, the Committee compared the 2000 salaries
to the ranges established in fiscal 1999, reviewed salaries of executives of
similar companies and made specific adjustments to the 1999 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 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 2000
was 20% 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
8
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 Committee.
Bonus awards for fiscal 2000 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 officer's
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 stockholder long-term
interests by creating a strong and direct link between compensation and
increases in share value. Under the Company's 1996 Stock Incentive Plan, the
Board of Directors or the 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). Starting in 2000, the Company's options generally vest
ratably on a monthly basis for three succeeding years. Prior to 2000, the
Company's options generally vested 25% on the grant date and the remainder
vested ratably on a monthly basis thereafter 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, 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 2000, 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, 90,000 shares; William A. Yates, 37,500 shares; David J. Arthur,
37,500 shares; and Paul D. Meyer, 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.
CHIEF EXECUTIVE OFFICER COMPENSATION. The Committee determined the
Chief Executive Officer's compensation for fiscal 2000, 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 in comparable industries
identified and upon a review of the Chief Executive Officer's performance. The
Chief Executive Officer's bonus for fiscal 2000 was determined under the
Executive Bonus Program, and was awarded under the Committee's discretionary
powers. Option grants in fiscal 2000 were determined under the criteria
described under "Stock Options," above.
COMPENSATION COMMITTEE FOR 2000
Merritt Lutz, Chair
Eugene Hovanec
9
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Hovanec and Lutz. Ms.
MacDougall was a member until her resignation from the Board in October 2000.
There are no interlocking relationships, as described by the Securities and
Exchange Commission, between the Compensation Committee members.
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of all compensation paid to
the Chief Executive Officer of the Company, each of the four other most highly
compensated executive officers whose individual salary and bonus exceeded
$100,000 during the last fiscal year (including two who ceased to be officers in
2000) for services in all capacities to the Company and its subsidiary during
each of the last three fiscal years. The option numbers have been adjusted
retroactively to reflect the three-for-two stock dividend to all stockholders of
record on March 20, 2000.
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(2) OPTIONS (#)(3)
--------------------------- ---- ----------- ------------- --------------
E. Michael Thoben, III.............. 2000 $240,000 $50,400 90,000
Chairman of the Board and 1999 205,273 25,000 75,000
Chief Executive Officer 1998 180,180 0 138,000
David J. Arthur (4)................. 2000 $141,600 $27,300 37,500
Senior Vice President, 1999 135,688 15,000 30,000
Operations 1998 130,000 0 82,500
William A. Yates (5)................ 2000 $139,025 $21,500 37,500
Senior Vice President, Sales 1999 133,375 10,000 30,000
1998 129,000 0 82,500
Paul D. Meyer....................... 2000 $135,000 $28,800 45,000
Chief Financial Officer 1999 117,500 10,000 37,500
1998 100,000 0 67,500
Mike Ambrose........................ 2000 $115,000 $10,000 37,500
Vice President, Engineering 1999 97,917 5,000 37,500
1998 71,250 0 18,000
- ------------------
(1) With respect to each of the named officers, the aggregate amount of
perquisites and other personal benefits received during 2000 and 1999
each were less than either $50,000 or 10% of the total of annual salary
and bonus reported for each officer.
10
(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 Program-Cash Bonuses."
(3) On September 24, 1998, upon the recommendation of the Compensation
Committee, the Board of Directors approved the cancellation of all
options granted under the 1993 Stock Incentive Plan and the 1996 Plan
to employees of the Company as of that date and their reissuance at a
new exercise price of $1.84 and with a new vesting schedule in which
one third of the shares become exercisable immediately and each
employee's right to exercise the remainder of the option vested,
ratably, over the next two years.) The shares for 1998 in the "Summary
Compensation Table" and the "Option Grants in Fiscal Year" table are
shown net of the canceled and reissued shares.
(4) Mr. Arthur ceased being an executive officer in October 2000.
(5) Mr. Yates resigned in October 2000.
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, 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 Summary Compensation Table for the group.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding grants of stock
options to the named executive officers in 2000. The option grant numbers in the
following table have been adjusted to reflect the three-for-two stock dividend
to all stockholders of record on March 20, 2000.
INDIVIDUAL GRANTS
---------------------------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
NUMBER OF GRANTED EXERCISE OPTION TERM(4)
SECURITIES UNDERLYING TO EMPLOYEES PRICE PER EXPIRATION ----------------------
NAME OPTIONS GRANTED(1) IN FISCAL YEAR(2) SHARE DATE(3) 5% 10%
- ---- --------------------- ----------------- --------- ---------- -------- ----------
E. Michael Thoben, III............90,000 9.4% $29.01 1/12/05 $720,900 $1,593,900
David J. Arthur...................37,500 3.9% 29.01 1/12/05 300,375 664,125
William A. Yates..................37,500 3.9% 29.01 1/12/05 300,375 664,125
Paul D. Meyer.....................45,000 4.7% 29.01 1/12/05 360,450 796,950
Mike W. Ambrose...................37,500 3.9% 29.01 1/12/05 300,375 664,125
- -------------------
(1) These options were granted pursuant to the 1996 Plan.
11
(2) In fiscal 2000, the Company granted options to purchase a total of
960,000 shares of its Common Stock under the 1996 Plan, and this number
is used in calculating the percentages set forth in this column.
(3) Options granted under the 1996 Plan generally expire on the fifth
anniversary of the date of grant. Unless otherwise determined by the
Board of Directors, options granted under the 1996 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 prior to the
expiration date of the option or within 30 clays after the date of
termination, whichever comes first, or (ii) if the optionee's
employment (or service as a director, as applicable) terminates because
of death or disability, options vested but unexercised at 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.
(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.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table indicates (on an aggregated basis) (i) stock
options exercised by named executive officers during fiscal 2000, including the
value realized on the date of exercise, (ii) the number of shares subject to
exercisable and unexercisable stock options as of the Company's fiscal year-end,
December 31, 2000, and (iii) the value of "in-the-money" options at December 31,
2000.
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END AT YEAR-END(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
E. Michael Thoben, III........163,530 $3,704,028 543,191 84,380 $5,532,457 $210,201
David J. Arthur................76,623 1,821,988 293,958 34,794 3,040,542 84,081
William A. Yates...............86,021 1,824,561 286,227 33,127 2,942,514 78,076
Paul D. Meyer..................48,528 1,274,346 178,517 42,190 1,755,676 105,100
Mike W. Ambrose.................5,000 401,159 31,829 42,671 183,201 153,292
(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 29, 2000, based on the last sale price of $12.69 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.
12
PERFORMANCE GRAPH
The following line graph provides a comparison of the annual percentage
change in the Company's cumulative total stockholder return on its Common Stock
to 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 assumes $100 was invested on January 1, 1996 in the Company's Common
Stock and in each of the foregoing indices and, in each case, assumes the
reinvestment of dividends.
INTERLINK ELECTRONICS
CUMULATIVE TOTAL RETURN TO STOCKHOLDERS
12/31/95 - 12/31/00
Nasdaq Nasdaq
Computer Electronic
Manufacturer Components Interlink
Date S&P 500 Nasdaq US Stocks Stocks Electronics
- ---- ------- --------- ------------ ---------- -----------
12/29/00 2.34 2.38 4.20 4.26 2.93
09/29/00 2.54 3.55 8.28 6.85 4.47
06/30/00 2.56 3.85 8.11 8.15 9.66
03/31/00 2.63 4.43 9.35 8.34 14.67
12/31/99 2.57 3.95 7.46 5.22 9.04
09/30/99 2.23 2.67 5.01 3.92 1.24
06/30/99 2.38 2.61 4.41 3.28 1.53
03/31/99 2.23 2.38 3.96 2.88 0.78
12/31/98 2.12 2.13 3.52 2.80 0.69
09/30/98 1.75 1.64 2.59 1.93 0.39
06/30/98 1.94 1.81 2.36 1.85 0.71
03/31/98 1.87 1.76 1.99 2.00 0.84
12/31/97 1.64 1.51 1.62 1.82 0.68
09/30/97 1.60 1.61 1.82 2.42 1.40
06/30/97 1.49 1.38 1.45 1.87 1.08
03/31/97 1.26 1.16 1.13 1.75 0.88
12/31/96 1.23 1.23 1.34 1.73 0.92
09/30/96 1.14 1.17 1.28 1.38 1.00
06/28/96 1.10 1.13 1.16 1.14 1.02
03/29/96 1.05 1.05 1.03 0.99 0.92
12/29/95 1.00 1.00 1.00 1.00 1.00
13
AUDIT COMMITTEE MATTERS
The Board of Directors has approved and adopted an Audit Committee
Charter, a copy of which is attached to this Proxy Statement as APPENDIX A.
REPORT OF THE AUDIT COMMITTEE
In connection with the Company's audited financial statements for the
year ended December 31, 2000, the Audit Committee (1) reviewed and discussed the
audited financial statements with management; (2) discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61; and (3) received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1 and
discussed with the independent auditors their independence. Based upon these
reviews and discussions, the Audit Committee has recommended to the Board of
Directors, and the Board of Directors has approved, that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000 for filing with the Securities and
Exchange Commission.
AUDIT COMMITTEE FOR 2000
Eugene F. Hovanec
George Gu
PRINCIPAL ACCOUNTING FIRM FEES
The Company incurred the following fees for services performed by the
Company's principal accounting firm, Arthur Andersen LLP, in fiscal 2000:
Audit fees $ 56,000(1)
Financial information
systems design and
implementation fees $ --
All other fees $ 79,000(2)
--------
Total $135,000
========
(1) Fees for the audit of the Company's annual financial statements for
2000 and the reviews of the financial statements included in the Company's
Quarterly Reports on Forms 10-Q in 2000 are $56,000.
(2) All other fees of the Company's independent public accountants
amounted to approximately $79,000, which primarily related to a public offering
of our stock, which was cancelled in June 2000. The audit committee of the Board
of Directors considered whether the provision of non-audit services is
consistent with maintaining the auditor's independence.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 15, 2001 with
respect to the beneficial ownership of the Common Stock by each person, or group
of affiliated persons, who is known by us to be the beneficial owner of more
than five percent of the Common Stock; each of the directors and the nominee for
director; each of the named executive officers; and all of the Company's named
executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock issuable on exercise of
currently exercisable or convertible securities or securities exercisable or
convertible within 60 days of March 15, 2001 are deemed beneficially owned and
outstanding for computing the percentage owned by the person holding such
securities, but are not considered outstanding for purposes of computing the
percentage of any other person. The address for each stockholder named below
is: c/o Interlink Electronics, 546 Flynn Rd., Camarillo, CA 93012.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ------------------------ ------------ --------
E. Michael Thoben, III.......................................................... 599,502(2) 5.9%
David J. Arthur................................................................. 315,961(3) 3.2%
William A. Yates................................................................ 309,227(4) 3.1%
George Gu....................................................................... 306,148(5) 3.1%
Paul D. Meyer................................................................... 193,672(6) 2.0%
Eugene F. Hovanec............................................................... 84,133(7) *
Merritt M. Lutz................................................................. 57,999(8) *
Michael W. Ambrose ............................................................. 42,975(8) *
John Buckett II................................................................. 10,000(8) *
All executive officers and directors as a group (9 people)...................... 1,919,617(9) 17.2%
*Less than 1%
- --------------------
(1) Except as modified by applicable community property laws, each
stockholder named in the table has sole voting and investment power
with respect to the shares set forth opposite that stockholder's name.
(2) Consists of 36,000 shares of Common Stock and options to purchase
563,502 shares of Common Stock.
(3) Consists of 13,670 shares of Common Stock and options to purchase
302,291 shares of Common Stock.
(4) Consists of 309,227 shares of Common Stock.
(5) Includes 265,648 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 40,500 shares of Common Stock.
(6) Consists of 5,000 shares of common stock and options to purchase
188,672 shares of Common Stock.
(7) Consists of 24,000 shares of Common Stock and options to purchase
60,133 shares of Common Stock. All shares of Common Stock are jointly
held with his wife, Victoria Hovanec.
(8) Consists solely of options to purchase shares of Common Stock.
15
(9) Consists of 367,318 shares of Common Stock and options to purchase
1,552,299 shares of Common Stock.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more than 10% of the
Common Stock to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Executive officers, directors and beneficial
owners of more than 10% of the Common Stock are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on a review of the copies of such
forms received by the Company and on written representations from certain
reporting persons that they have complied with the relevant filing requirements,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors have been complied with, except that Paul
D. Meyer filed a Form 4, Statement of Changes in Beneficial Ownership, one day
late.
ANNUAL REPORT
We have included a copy of the Company's Annual Report on Form 10-K.
METHOD AND COST OF SOLICITATION
The Company will pay the cost of preparing and mailing the proxies, the
proxy statements and any other materials furnished to the stockholders. In
addition to soliciting by mail, the Company's directors, officers and employees,
without additional compensation, may request the return of proxies in person or
by telephone. Brokers and persons holding shares for the benefit of others may
incur expenses in forwarding proxies and accompanying materials and in obtaining
permission from beneficial owners of stock to execute proxies. On request, we
will reimburse those expenses.
OTHER BUSINESS/DISCRETIONARY AUTHORITY
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.
For this year's Annual Meeting of Stockholders, if notice of a
stockholder proposal to be raised at the Annual Meeting was received at the
principal executive offices of the Company after March 25, 2001, proxy voting on
that proposal when and if raised at the Annual Meeting will be subject to the
discretionary voting authority of the designated proxy holders. Stockholders
wishing to present proposals for action at the Company's 2002 Annual Meeting,
such notice, to be timely, must be received by the Company by January 11, 2002.
If notice of any stockholder proposal to be raised at next year's Annual Meeting
of Stockholders is received by the Company at its principal executive offices
after March 27, 2002, then proxy voting on that
16
proposal when and if raised at the 2002 Annual Meeting, will be subject to the
discretionary voting authority of the designated proxy holders.
STOCKHOLDER PROPOSALS
Any stockholder proposals to be considered for inclusion in next year's
proxy materials must be received by February 19, 2002 at the Company's principal
executive offices. Stockholders' proposals, should be sent to the Secretary,
Interlink Electronics, Inc., 546 Flynn Rd., Camarillo, California 93012.
Whether you plan to attend the meeting or not, please sign the enclosed
proxy form and return it to us in the enclosed stamped, return envelope.
BY ORDER OF THE BOARD OF DIRECTORS
Paul D. Meyer
SECRETARY
17
APPENDIX A
INTERLINK ELECTRONICS, INC
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
PURPOSE
The primary function of the Audit Committee (the "Committee") is to
assist the Board of Directors in fulfilling its oversight responsibilities with
respect to the financial reports and other financial information provided by the
Corporation to the shareholders and others, the Corporation's system of internal
control, and the Corporation's audit, accounting, and financial reporting
processes generally.
In particular, and without limiting the generality of the foregoing, a
purpose of the Committee is to undertake the duties of an audit committee
described in, and otherwise to assist the Corporation in complying with the
requirements of, Rule 4460(d) of the Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), applicable rules of the Securities and
Exchange Commission (the "Commission") and any other similar rules of the
Commission or of any securities exchange or trading facility to which the
Corporation may become subject.
In carrying out its purpose, the Committee shall serve as an
independent and objective monitor of the performance of the Corporation's
financial reporting process and system of internal control; review and appraise
the audit efforts of the Corporation's independent accountants and internal
accounting and finance department; and provide for open, ongoing communication
among the independent accountants, financial and senior management and the Board
of Directors concerning the Corporation's financial condition and results of
operations.
COMPOSITION
The Committee shall be comprised of three or more directors, as
determined by the Board of Directors. The members of the Committee shall be
appointed annually by the Board of Directors. Each member shall meet the
applicable independence and experience requirements of the NASD, and at least
one member of the Committee shall have accounting or related financial
management expertise. Except as otherwise expressly provided herein, a majority
of the Committee shall constitute a quorum and shall be empowered to conduct any
business that the Committee is empowered to conduct. One member of the Committee
shall be designated the Chair, provided, however, that, in the absence of the
designated Chair, another member of the Committee shall be designated by the
members present, in person or by conference telephone call, and shall serve as
Chair.
MEETINGS
The Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Committee shall meet at least annually,
and more often as warranted, with the internal auditors and the independent
accountants in separate executive sessions to discuss any matters that the
Committee or each of these groups believes should be discussed privately. The
Committee shall maintain a high degree of independence both in establishing its
agenda and directly accessing various members of management. The Committee shall
meet
A-1
annually with management, the internal auditors and/or the audit committee of
major subsidiary companies (as designated by the Committee) regarding their
systems of internal control, results of audits, and accuracy of financial
reporting. All such meetings may be held in person or, at the option of the
Chair, by conference telephone call or any combination of the above. If any
participant in any such meeting will participate by conference telephone call,
such participant shall, whenever reasonably possible, be furnished with copies
of financial statements, reports or other significant documents to be discussed
at the meeting so as to permit such participant to engage in discussions of the
subject matter of the meetings in all material respects as if such participant
had attended in person, provided, however, that written or other materials
generated at the meeting may, at the option of the Chair, be described to a
participant by conference telephone call if, as a practical matter, such
materials cannot be concurrently electronically transmitted to such participant.
RESPONSIBILITIES AND DUTIES
The Committee's responsibility is oversight, and it recognizes that the
Corporation's management is responsible for preparing the Corporation's
financial statements. Additionally, the Committee recognizes that financial
management (including the internal accounting and financial staff), as well as
the independent accountants, have more knowledge and more detailed information
about the Corporation than do the members of the Committee; consequently, in
carrying out its oversight responsibilities the Committee is not providing any
expert or special assurance as to the Corporation's financial statements or any
professional certification as to the independent accountants' work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight responsibility. In particular, and
without limiting the generality of the foregoing, the Committee shall, to the
extent it may reasonably do so, undertake the responsibilities and duties
prescribed by the NASD, the Commission or other similar regulatory bodies having
jurisdiction over the financial affairs of the Corporation and the following
list of functions shall be deemed to include such responsibilities and duties,
as they may be promulgated from time to time, as if they were specifically
listed below. The functions listed below are set forth as a guide with the
understanding that the Committee may diverge from this guide as appropriate in
the circumstances.
* Review with a representative of financial management and the
independent accountants the financial information contained in the
Corporation's Quarterly Report on Form 10-Q prior to its filing, the
Corporation's earnings announcements prior to release, and the results
of the independent accountants' review of Interim Financial Information
pursuant to Statement of Accounting Standards (SAS) 71. The Chair may
represent the entire Committee, either in person or by telephone
conference call, for purposes of this review.
* Review with management and the independent accountants following
the completion of the annual audit of the Corporation's consolidated
financial statements included in the Annual Report on Form 10-K for
the last fiscal year, and prior to its filing:
(1) the Corporation's annual consolidated financial statements
and related footnotes;
A-2
(2) the independent accountants' audit of the consolidated
financial statements and their report;
(3) any significant changes required in the independent
accountants examination plan;
(4) any serious difficulties or disputes with management
encountered during the course of the audit; and
(5) other matters related to the conduct of the audit which
are to be communicated to the Committee under generally
accepted auditing standards including discussions relating to
the independent accountants' judgments about such matters as
the quality, not just the acceptability, of the Corporation's
accounting practices and other items set forth in SAS 61
(Communication with Audit Committees) or other such auditing
standards that may in time modify, supplement or replace SAS
61.
* On an annual basis, the Committee should ensure receipt of, and
review with the independent accountants, a written statement required
by Independence Standards Board (ISB) Standard No. 1, as may be
modified or supplemented. The Committee will actively engage the
independent accountants in a dialogue regarding any disclosed
relationships or services that may impact their objectivity and
independence. The Committee will recommend that the Board of Directors
take appropriate action on any disclosed relationships that may
reasonably be thought to bear on the independence of the accountants
and satisfy itself that the Corporation has engaged independent
accountants as required by the Securities Acts administered by the
Commission.
* The Committee will have prepared and review the Audit Committee
Report for inclusion in the proxy statement for the annual
shareholders' meeting. The Audit Committee Report must state whether
the Committee:
(1) has reviewed and discussed the audited consolidated
financial statements with management;
(2) has discussed with the independent accountants the matters
required to be discussed by SAS 61, as may be modified,
supplemented or replaced; and
(3) has received the written disclosures from the independent
accountants regarding the independent accountants'
independence required by ISB Standard No. 1, as may be
modified or supplemented, and has discussed with the
accountants their independence; and
(4) has recommended to the Board of Directors, based on the
review and discussions referred to in above items (1) through
(3), that the Corporation's audited consolidated financial
statements be included in the Annual Report on Form 10-K for
the last fiscal year for filing with the Commission.
A-3
* The Committee and Board of Directors are responsible for the
selection, evaluation and, where appropriate, replacement of the independent
accountants. Selection for the ensuing calendar year will be submitted to the
shareholders for ratification or rejection at the annual meeting of
shareholders. Consistent with these responsibilities, it is recognized that the
independent accountants are ultimately accountable to the Board of Directors and
Committee.
* Review and reassess the adequacy of the Audit Committee Charter on an
annual basis. The charter will be included as an appendix to the annual
shareholders' meeting proxy statement triennially or in the next annual
shareholders' meeting proxy statement following any significant amendment to the
charter.
* In consultation with the independent accountants and the internal
auditors, regularly review the integrity of the Corporation's financial
reporting processes and system of internal control.
* Review and concur in the appointment, replacement, reassignment or
dismissal of the internal auditors. Confirm and assure the objectivity of the
internal auditors.
* Review the performance of the internal accounting and finance
department, including the objectivity and authority of its reporting
obligations, the proposed audit plans for the coming year, and the coordination
of such plans with the independent accountants.
* Review from time to time as reasonably necessary the Corporation's
policies and procedures with respect to officers' expense accounts and
perquisites, including their use of corporate assets, and consider the results
of any review of these areas by the internal accounting and finance department
or the independent accountants.
* Review legal and regulatory matters that may have a material impact
on the Corporation's consolidated financial statements, related compliance
policies and programs, and reports received from regulators.
In addition to the activities described above, the Committee will
perform such other functions as necessary or appropriate under law, the
Corporation's Certificate of Incorporation or Bylaws, and the resolutions and
other directives of the Board of Directors.
The Committee shall have the power to conduct or authorize
investigations into any matters within its scope of responsibilities and shall
be empowered to retain independent counsel, accountants, or others to assist it
in the conduct of any investigation.
The duties and responsibilities of a member of the Committee are in
addition to those duties generally pertaining to a member of the Board of
Directors.
The Committee will report its actions to the Board of Directors with
such recommendations as the Committee may deem appropriate.
A-4
PROXY
INTERLINK ELECTRONICS, INC.
Annual Meeting, June 19, 2001
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 stockholders of Interlink Electronics, Inc. (the "Company") on
June 19, 2001 and any adjournments thereof, with all powers that the undersigned
would possess if personally present, with respect to the following:
1. Re-election of Director: Eugene F. Hovanec
FOR the nominee AGAINST the nominee WITHHOLD AUTHORITY
/ / / / / /
2. Proposal to ratify the appointment of Arthur Andersen LLP as auditors of the
Company for the fiscal year ending December 31, 2001:
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 and to ratify the appointment
of Arthur Andersen LLP as auditor. THE PROXIES MAY VOTE IN THEIR
DISCRETION AS TO OTHER MATTERS THAT MAY COME BEFORE THIS MEETING.
Shares:
Date:___________________________, 2001
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 June 19, 2001 at 10:00 a.m., Pacific
Daylight Time, at The Camarillo Courtyard
by Marriott Hotel, 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.