<PAGE> 1
SCHEDULE 14A INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
INTERFACE SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing fee for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
(Amended by Sec Act Rel No. 7331; Exch Act Rel No. 37692, eff. 10/7/96.)
<PAGE> 2
INTERFACE SYSTEMS, INC.
5855 Interface Drive
Ann Arbor, Michigan 48103
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 19, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Interface
Systems, Inc., a Michigan corporation, will be held at Crowne Plaza Hotel, 610
Hilton Boulevard, Ann Arbor, Michigan on Friday, February 19, 1999 at 10:00 a.m.
local time, for the following purposes:
1. To elect seven directors who will serve until the Annual Meeting of
Shareholders in 2000.
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Shareholders of record at the close of business on December 31, 1998 are
entitled to notice of, and to vote at, the Annual Meeting. You are cordially
invited to attend. However, whether you expect to be present at the meeting or
not, please execute and return the enclosed proxy which is solicited by the
Board of Directors. The proxy is revocable and will not affect your right to
vote in person if you attend.
By Order of the Board of Directors,
ROBERT A. NERO
ROBERT A. NERO, President
Ann Arbor, Michigan
January 19, 1999
<PAGE> 3
INTERFACE SYSTEMS, INC.
PROXY STATEMENT
1999 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Interface Systems, Inc. (the "Company"), to
be used at the Annual Meeting of Shareholders of the Company to be held on
Friday, February 19, 1999, or at any adjournment thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting of Shareholders and in this
Proxy Statement. Any shareholder giving a proxy in the accompanying form may
revoke it at any time prior to its exercise. The expense of solicitation of
proxies will be borne by the Company. This Proxy Statement and form of proxy are
being first sent to or given to shareholders of the Company on or about January
19, 1999. The mailing address of the Company's principal executive offices is
5855 Interface Drive, Ann Arbor, Michigan 48103.
The Company's Annual Report to Shareholders for the year ended September
30, 1998 is enclosed herewith.
Only shareholders of record at the close of business on December 31, 1998
will be entitled to vote at the meeting or any adjournment thereof. On that
date, 4,469,626 shares of Common Stock of the Company (the "Common Stock") were
issued and outstanding. Each stockholder is entitled to one vote for each share
held of record on the record date. Shares cannot be voted at the Annual Meeting
unless the holder is present in person or represented by proxy. Ten days before
the Annual Meeting a complete list of shareholders entitled to vote at the
meeting will be open to examination by any stockholder for any purpose germane
to the meeting during ordinary business hours at the Company's principal
offices.
Shares represented by a proxy in the accompanying form, unless previously
revoked, will be voted at the meeting if the proxy, properly executed, is
received by the Company before the close of business on February 18, 1999.
Shares represented by a proxy received after that time will be voted if the
proxy is received by the Company in sufficient time to permit the necessary
examination and tabulation of the proxy before a vote is taken. Shareholders who
execute a proxy in the accompanying form may nevertheless revoke the proxy at
any time before it is exercised by giving written notice to the Secretary of the
Company bearing a later date than the proxy, by submitting a later-dated proxy,
or by voting the shares represented by such proxy in person at the Annual
Meeting.
The election of directors will require the affirmative vote of a plurality
of the shares of Common Stock represented and voting in person or by proxy and
entitled to vote at the Annual Meeting. Abstentions and broker non-votes will
not be counted as votes cast in connection with determining the plurality
required to elect a director and will have no effect on the outcome of that
vote.
<PAGE> 4
MATTERS TO COME BEFORE THE MEETING
I. ELECTION OF DIRECTORS
Seven directors will be elected, each to hold office until the Company's
2000 Annual Meeting and until his successor is elected and qualified, or until
the director's resignation or removal. All of the nominees are currently
directors of the Company. The individuals who will be nominated by the Board of
Directors for election at the Annual Meeting are listed below. If, as a result
of circumstances not now known or foreseen, any of such nominees shall be
unavailable to serve as a director, proxies will be voted for the election of
such other person or persons as management may select.
Directors will be elected by a plurality of the votes of the shares present
in person or represented by proxy entitled to vote at the meeting. PROXIES WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED BELOW UNLESS THE SPECIFICATION
IS MARKED ON THE PROXY INDICATING THAT AUTHORITY TO DO SO IS WITHHELD.
<TABLE>
<CAPTION>
FIRST ELECTED
OR
NAME AND AGE PRINCIPAL OCCUPATION APPOINTED DIRECTOR
------------ -------------------- ------------------
<S> <C> <C>
Garnel F. Graber, 67........... Retired 1974
Robert A. Nero, 52............. President and Chief Executive Officer of the 1997
Company
Bruce E. Rhoades, 50........... President, Bruce E. Rhoades Consulting, Inc., a 1997
business consulting firm
David C. Seigle, 59............ Affiliated Executive, Black Diamond Capital, LLC 1969
Robert A. Seigle, 71........... President of Concord Personnel, Inc., a personnel 1969
recruiting company
Lloyd A. Semple, 59............ Attorney and Chairman, Dykema Gossett PLLC, a 1996
Detroit, Michigan law firm
Thomas L. Thomas, 55........... Chairman, President and Chief Executive Officer, 1998
Creative Solutions, Inc.
</TABLE>
Each of the foregoing persons has been engaged or employed in the principal
occupation reflected in the table above, or in a similar one with the same
employer, for more than five years, except Messrs. Graber, Nero, Rhoades,
Semple, Thomas and David C. Seigle.
Mr. Graber retired in 1994, prior to which time he was Chairman and Chief
Executive Officer of Applied Dynamics International for at least the five years
preceding the date of his retirement. Mr. Graber also serves on the Board of
Directors of Nematron Corporation.
Mr. Nero was appointed President and Chief Executive Officer of the Company
in January 1997. Prior to that time, he was from 1994 to 1996, President of Bell
& Howell PSC and, from 1989 to 1994, Vice President of Legent Corp.
Mr. Rhoades has been President of Bruce E. Rhoades Consulting, Inc. since
April 1995. Prior to that time, Mr. Rhoades was, from 1992-1995, Vice President
of Strategy and Business Development of Lexis -- Nexis, Inc., an electronic
information retrieval company and a division of Mead Corp.
Mr. David C. Seigle has been an Affiliated Executive of Black Diamond
Capital, LLC since November, 1998. From 1996 until 1998 he was the President of
Technology Edge, Inc. Prior to his retirement in 1991, Mr. Seigle was Vice
President of File Net Corporation, a manufacturer of document image processors.
Mr. Semple has been an attorney with Dykema Gossett PLLC for 33 years and
Chairman of such law firm since January 1, 1996. Dykema Gossett provides legal
services to the Company.
2
<PAGE> 5
Mr. Thomas has been Chairman of Creative Solutions, Inc. since July 1998
and President and Chief Executive Officer since 1990. Creative Solutions, Inc.
is a leading supplier of a full line of integrated tax, accounting and office
management software products for small and medium-sized accounting firms.
David C. Seigle and Robert A. Seigle are first cousins.
MEETINGS AND COMMITTEES OF THE BOARD
During the Company's fiscal year ended September 30, 1998, the Board of
Directors held eight meetings and the Compensation Committee and Audit Committee
met two times and one time, respectively. The Compensation Committee is
responsible for recommending salaries and other compensation arrangements for
officers of the Company and performing such functions as may be delegated to it
under the provisions of any bonus, stock option or other compensation plan
adopted by the Company. The Compensation Committee currently consists of five
directors who are not employees of the Company (i.e., Messrs. Graber, Rhoades,
Semple, and Robert A. Seigle and David C. Seigle).
The Audit Committee also consists of the five directors listed above who
are not employees of the Company. The Audit Committee has authority to recommend
to the Board the independent public accountants to serve as auditors, review
with the independent auditors the annual audit plan, the financial statements,
the auditors' report and their evaluation and recommendations concerning the
Company's internal controls.
During the fiscal year ended September 30, 1998, each director attended 75%
or more of all Board meetings and 75% or more of the meetings held by all
committees of the Board on which such director served.
FURTHER INFORMATION
PRINCIPAL SHAREHOLDERS
The Common Stock is the only voting security of the Company. The Company is
not aware of any person who beneficially owned five percent or more of such
stock as of December 1, 1998.
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of shares of the
Company's Common Stock by each of the Company's directors, Named Executive
Officers (as hereinafter defined) and by all executive officers and directors as
a group as of December 1, 1998.
<TABLE>
<CAPTION>
COMMON STOCK OF THE
COMPANY PERCENT OF
NAME OWNED BENEFICIALLY(1) CLASS
---- --------------------- ----------
<S> <C> <C>
Garnel F. Graber............................................ 73,054(2) 1.57%
Robert A. Nero.............................................. 80,000(3) 1.72%
Bruce E. Rhoades............................................ 13,700 *
Robert A. Seigle............................................ 116,910(5) 2.51%
David C. Seigle............................................. 25,100(6) *
Lloyd A. Semple............................................. 27,400(7) *
Thomas L. Thomas............................................ 12,000(8) *
John R. Ternes.............................................. 15,333(9) *
Keith N. Bauserman.......................................... 16,555(10) *
Robert F. Granger........................................... 0 *
Richard B. Sheridan......................................... 11,912(11) *
All executive officers and directors as a group (11
persons).................................................. 391,964(12) 8.41%
</TABLE>
- ------------------
* Less than one percent.
(1) To the best of the Company's knowledge, based on information reported by
such directors and officers or contained in the Company's stockholder
records, unless otherwise indicated by any additional
3
<PAGE> 6
information included in the footnote to the table, each of the named
persons is presumed to have sole voting and investment power with respect
to all shares shown.
(2) Includes 23,100 shares which Mr. Graber has, or within 60 days of December
1, 1998 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(3) Includes 55,000 shares which Mr. Nero has, or within 60 days of December 1,
1998 will have, the right to acquire pursuant to the presently exercisable
portion of options granted under the 1992 Stock Option Plan.
(4) Represents 13,700 shares which Mr. Rhoades has, or within 60 days of
December 1, 1998 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(5) Includes 23,100 shares which Mr. Seigle has, or within 60 days of December
1, 1998 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(6) Includes 23,100 shares which Mr. Seigle has, or within 60 days of December
1, 1998 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(7) Includes 15,400 shares which Mr. Semple has, or within 60 days of December
1, 1998 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(8) Represents 12,000 shares which Mr. Thomas has, or within 60 days of
December 1, 1998 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(9) Includes 13,333 shares which Mr. Ternes has, or within 60 days of December
1, 1998 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the 1992 Stock Option Plan.
(10) Includes 5,667 shares which Mr. Bauserman has, or within 60 days of
December 1, 1998 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the 1992 Stock Option Plan.
(11) Includes 9,167 shares which Mr. Sheridan has, or within 60 days of December
1, 1998 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the 1992 Stock Option Plan.
(12) Includes 248,567 shares which certain directors and executive officers
have, or within 60 days of December 1, 1998 will have, the right to acquire
pursuant to the presently exercisable portion of options granted under the
Directors Plan and the 1992 Stock Option Plan.
EXECUTIVE OFFICERS
The persons listed below currently are the executive officers of the
Company.
<TABLE>
<CAPTION>
NAME OFFICE(S) AGE
---- --------- ---
<S> <C> <C>
Robert A. Nero................... President and Chief Executive Officer 52
John R. Ternes................... Vice President of Finance/Administration, Chief Financial Officer 43
and Secretary
Keith N. Bauserman............... Vice President of Sales 54
Robert F. Granger................ Vice President of Marketing 47
Richard B. Sheridan.............. Vice President of Engineering 42
</TABLE>
Mr. Nero was appointed President and Chief Executive Officer of the Company
in January 1997. See "Election of Directors" for further information concerning
Mr. Nero.
Mr. Ternes was appointed Vice President of Finance and Chief Financial
Officer of the Company in April 1997. Prior to assuming this position Mr. Ternes
was Vice President and Chief Financial Officer of Network
4
<PAGE> 7
Express from 1994 to 1997, and served as manager of corporate audits for United
Technologies from 1992 to 1994.
Mr. Bauserman was appointed Vice President of Sales of the Company in 1994
after having served as the Company's National Sales Manager from 1992 to 1994.
Mr. Granger was appointed Vice President of Marketing of the Company in
July 1998 after having served as a sales account executive since October 1997.
Prior to joining the Company, Mr. Granger was Vice President of Sales of
HUBLink, Inc. from 1995 to 1997, and served as Senior Account Manager at Legent
Corporation from 1992 to 1995.
Mr. Sheridan was appointed Vice President of Engineering of the Company in
July 1998 after having served as Director of OASIS/Printer development
(effective October 1997) and Manager of Cleo EN product development since
September 1990.
The executive officers serve at the pleasure of the Board of Directors.
DIRECTOR COMPENSATION
The Chairman of the Board is paid a quarterly retainer of $3,000, and the
Company's other non-employee directors are paid a quarterly retainer of $1,000.
In addition, each non-employee director is paid a fee of $1,000 per meeting for
attendance at regular Board meetings and $500 per meeting for attendance at
committee meetings not held in conjunction with a regular Board meeting. Travel
and lodging expenses incurred by directors residing outside of the metropolitan
Detroit area in order to attend meetings of the Board are paid by the Company.
In addition, the Company has a 1993 Stock Plan for Non-Employee Directors
(the "Directors Plan"). On November 10, 1998, Mr. Thomas was granted an initial
option under the Directors Plan to purchase 12,000 shares of the Company's
Common Stock at an exercise price of $3.25 per share, fully vested at grant.
Mr. Rhoades received $6,498 from the Company for his services as a
consultant in fiscal 1998.
5
<PAGE> 8
EXECUTIVE COMPENSATION
The following table provides summary information concerning compensation
paid by the Company to (or accrued on behalf of) the Company's Chief Executive
Officer and the four other most highly compensated executive officers who were
serving as executive officers at the end of fiscal year 1998 (the "Named
Executive Officers"). The salary and bonus paid to each of the Company's other
executive officers, who served as executive officers during the fiscal year, did
not exceed $100,000 and therefore is not disclosed in the table below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION OTHER SECURITIES
FISCAL ------------------ ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL OCCUPATION YEAR SALARY BONUS COMPENSATION STOCK OPTIONS COMPENSATION
- ----------------------------- ------ ------ ----- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Nero................ 1998 $208,000 $90,000 $4,672(1) $16,916(2)
Chief Executive Officer, 1997 138,474 50,000 3,432(1) 165,000 15,610(3)
President and a Director
John R. Ternes................ 1998 111,650 24,003 15,000
Chief Financial Officer, Vice
President of Finance/Adminis-
tration and Secretary
Keith N. Bauserman............ 1998 132,371 24,453 24,000
Vice President of Sales
Robert F. Granger............. 1998 105,037 22,083 53,000 1,328(4)
Vice President of Marketing
Richard B. Sheridan........... 1998 98,882 13,072 37,000
Vice President of Engineering
</TABLE>
- -------------------------
(1) "Other Annual Compensation" for Mr. Nero for fiscal 1998 and 1997 is
comprised of a tax gross up for the apartment rental payment referred to in
footnotes 2 and 3 below.
(2) "All Other Compensation" for Mr. Nero for fiscal 1998 is comprised of (i)
$11,527 for rental payments on an apartment in Ann Arbor, Michigan and (ii)
$5,389 for a car allowance.
(3) "All Other Compensation" for Mr. Nero for fiscal 1997 is comprised of (i)
$12,017 for rental payments on an apartment in Ann Arbor, Michigan and (ii)
$3,593 for a car allowance.
(4) "All Other Compensation" for Mr. Granger for fiscal 1998 is comprised of a
car allowance.
6
<PAGE> 9
OPTION GRANTS AND RELATED INFORMATION
The following table provides information with respect to options granted to
the Named Executive Officers during fiscal year 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(1) FISCAL YEAR ($/SH.) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
John R. Ternes................. 15,000 5.1% $2.25 8/14/08 21,225 53,789
Keith N. Bauserman............. 24,000 8.1% $2.25 8/14/08 33,960 86,062
Robert F. Granger.............. 17,000 5.7% $3.25 2/20/08 34,746 88,054
36,000 12.2% $2.25 8/14/08 50,940 129,093
Richard B. Sheridan............ 27,000 9.1% $2.25 8/14/08 38,205 96,830
10,000 3.4% $3.00 10/31/07 18,867 47,812
</TABLE>
- ------------------
(1) These options, which were granted pursuant to the Company's 1992 Stock
Option Plan, were granted at market value on the date of grant, become
exercisable annually in 33 1/3% increments beginning one year after the
grant date and have a term of ten years.
(2) Represents value of option at end of ten year term, assuming the market
price of the Company's Common Stock appreciates at annually compounded rates
of 5% and 10%. These amounts represent assumed rates of appreciation only.
Actual gains, if any, will be dependent on overall market conditions and on
future performance of the Company's Common Stock. There can be no assurance
that the amounts reflected in the table will be achieved.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Executive Officers concerning the exercise of options during fiscal year 1998
and unexercised options held as of the end of the Company's last fiscal year,
September 30, 1998. All options were granted under the Company's 1992 Stock
Option Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR ("FY")-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON REALIZED OPTIONS AT FY-END(#) IN-THE-MONEY OPTIONS
NAME EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert A. Nero..................... -- -- 55,000/110,000 (1)
John R. Ternes..................... -- -- 13,333/41,667 (1)
Keith N. Bauserman................. -- -- 5,667/35,333 (1)
Robert F. Granger.................. -- -- 0/53,000 (1)
Richard B. Sheridan................ -- -- 9,167/36,333 (1)
</TABLE>
- ------------------
(1) None of the options held by Messrs. Nero, Ternes, Bauserman, Granger and
Sheridan at September 30, 1998 were in-the-money.
7
<PAGE> 10
EMPLOYMENT AND TERMINATION/CHANGE IN CONTROL ARRANGEMENTS
Mr. Nero is paid an annual salary of $208,000, which is subject to annual
review by the Board of Directors. In the event of (a) a "change in control" of
the Company followed by Mr. Nero's resignation 3 months thereafter, (b) a
material diminution in his position, salary or other compensation, or
responsibilities, and within 3 months thereafter he resigns or (c) termination
of his employment by the Company for any reason other than "termination for
cause," the Company has agreed to continue payment of Mr. Nero's salary and
fringe benefits for a period of 18 months following his termination or
resignation. For purposes of this severance arrangement, "change in control" has
the same definition as it does in the Company's 1992 Stock Option Plan.
"Termination for cause" means termination by the Board of Directors upon its
reasonable determination that he has committed an act of dishonesty or willful
misconduct or has failed to materially perform his duties and responsibilities.
Messrs. Ternes, Bauserman, Granger and Sheridan were granted stock options
to purchase 15,000, 24,000, 53,000 and 37,000 shares, respectively, of the
Company's Common Stock under the 1992 Stock Option Plan.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Company's compensation policy is designed to provide competitive
compensation which rewards individual achievement and performance while
encouraging above average corporate performance. The Company's executive
compensation program consists of three principal components: base salary, bonus
and stock option awards.
BASE SALARY
The Committee recognizes the importance of a competitive compensation
structure in retaining and attracting valuable senior executives. The Committee
reviews the base salary of each executive officer annually. The base salary for
each executive officer is determined after the Committee reviews competitive
executive compensation data and evaluations of each executive officer's duties
and performance, submitted by the chief executive officer.
BONUS
The Company's bonus policy is designed to reward individual performance on
specific goals and objectives. These goals and objectives are revised annually
for each participant and performance is evaluated at the end of each year.
Messrs. Nero, Ternes, Bauserman, Granger and Sheridan were paid bonuses of
$90,000, $24,003, $24,453, $22,083 and $13,072, respectively.
STOCK OPTIONS
For many years, the Company has had in place stock option programs. Stock
options are typically granted at exercise prices not less than the market value
of the Company's Common Stock on the date of grant and therefore have no value
unless the Common Stock appreciates in value. As a result, through the use of
stock options, the Committee relates the benefits received by the executive
officers to the amount of appreciation realized by shareholders over comparable
periods. Stock options have the added benefit of providing incentive-based
compensation without the expenditure of the Company's cash resources.
The Committee granted Messrs. Ternes, Bauserman, Granger and Sheridan stock
options to purchase 15,000, 24,000, 53,000 and 37,000 shares, respectively, of
the Company's Common Stock under the 1992 Stock Option Plan. See "Executive
Compensation -- Employment and Termination/Change in Control Arrangements."
8
<PAGE> 11
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Committee has reviewed the Internal Revenue Code and related
regulations of the Internal Revenue Service which restrict deductibility of
executive compensation paid to any of its most highly compensated executive
officers at the end of any fiscal year to the extent such compensation exceeds
$1,000,000 in any year. The Committee does not believe that the Company's
current compensation program for executive officers is likely to result in
payments to any executive officer which would be subject to the restriction on
deductibility, and therefore concluded that no further action with respect to
qualifying such compensation for deductibility was necessary at this time. The
Committee will continue to evaluate the advisability of qualifying future
executive compensation programs for deductibility under the Internal Revenue
Code.
The Committee continually reviews the compensation policies established for
the Company's executive officers but is not obligated to modify such policies
from year to year.
Compensation Committee, as of
September 30, 1998
Garnel F. Graber
Bruce E. Rhoades
David C. Seigle
Robert A. Seigle
Lloyd A. Semple
Dated: January 14, 1999
9
<PAGE> 12
STOCK PRICE PERFORMANCE GRAPH
The following graph provides a comparison with the stated indices of the
cumulative five-year total stockholder return on the Company's Common Stock. All
dividends are assumed to have been reinvested over the five year period. The
indices used are the Center for Research in Securities Prices Total Return Index
for the NASDAQ Stock Market (U.S. Companies) and the published index relating to
the NASDAQ Computer Manufacturer Stocks.
[LINE GRAPH]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Interface Systems, Inc. $100.00 $103.39 $133.06 $172.88 $112.72 $ 43.02
NASDAQ (U.S. Companies) $100.00 $100.83 $139.28 $165.24 $226.81 $231.79
NASDAQ (Computer Mfg.) $100.00 $111.36 $197.26 $257.37 $368.36 $523.30
</TABLE>
10
<PAGE> 13
CERTAIN TRANSACTIONS AND RELATED TRANSACTIONS
There were no transactions required to be reported.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen, LLP to audit the
financial statements of the Company for the fiscal year ending September 30,
1999. Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting to be available to respond to questions from the shareholders
and, if they desire, will have an opportunity to make any statement they
consider appropriate.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their ownership of the Company's
Common Stock and any changes in that ownership to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. Specific due
dates for these reports have been established and the Company is required to
report in this proxy statement any failure to file by these dates. During the
period from October 1, 1997 to September 30, 1998, all of these applicable
requirements were complied with by each of the Company's directors, executive
officers and greater than ten percent shareholders, except that the Form 3
reports for Mr. Granger and Mr. Sheridan was not timely filed. In making this
statement, the Company has relied on the written representations of its
incumbent directors and executive officers and copies of the reports received by
it.
OTHER MATTERS AND STOCKHOLDER PROPOSALS
At the date of this Proxy Statement, management is not aware of any matters
to be presented for action at the meeting other than those described above.
However, if any other matters should come before the meeting, it is the
intention of the persons named in the accompanying Proxy to vote in accordance
with their judgment on such matters.
Shareholder proposals intended to be presented at the 2000 Annual Meeting
which are eligible for inclusion in the Company's Proxy Statement for that
meeting under Rule 14a-8 promulgated under the Securities Exchange Act of 1934,
as amended, must be received by the Company not later than September 22, 1999 if
they are to be included in the Company's Proxy Statement relating to that
meeting. Such proposals should be addressed to the Secretary at the Company's
principal executive offices and should satisfy the requirements applicable to
shareholder proposals contained in the Company's bylaws.
Shareholder proposals intended to be presented at the 2000 Annual Meeting
which are not eligible for inclusion in the Company's Proxy Statement for that
meeting under Rule 14a-8 promulgated under the Securities Exchange Act of 1934,
as amended, must satisfy the requirements applicable to shareholder proposals
contained in the Company's bylaws. Such proposals must be addressed to the
Secretary at the Company's principal executive offices and must be received at
the Company's principal executive offices not less than ninety days nor more
than the close of business on the later of the sixtieth day prior to the date of
the 2000 Annual Meeting or the tenth day following the day on which public
announcement of the date of the 2000 Annual Meeting is first made.
By Order of the Board of Directors,
ROBERT A. NERO
ROBERT A. NERO, President
Ann Arbor, Michigan
January 19, 1999
11
<PAGE> 14
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<S><C>
/x/ PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE INTERFACE SYSTEMS, INC.
For With- For All
hold Except
ANNUAL MEETING OF STOCKHOLDERS 1. Election of Directors: / / / / / /
FEBRUARY 19, 1999
GARNEL F. GRABER ROBERT A. NERO BRUCE E. RHOADES
The undersigned hereby constitutes and DAVID C. SELGLE ROBERT A. SEIGLE LLOYD A. SEMPLE
appoints Robert A. Nero and John R. Ternes, or THOMAS L. THOMAS
either of them, attorneys, agents and proxies with
power of substitution to vote all of the shares of
Common Stock of Interface Systems, Inc. (the "Company") INSTRUCTION: To withhold authority to vote for any individual
that the undersigned is entitled to vote at the Annual nominee, mark "For All Except" and write that nominee's name
Meeting. in the space provided below.
-------------------------------------------------------------
2. In their discretion upon the transaction of such other
business as may properly come before the meeting.
Shares represented by a duly executed proxy which does not
indicate how it will be voted, will be voted FOR the election
of the Board's nominees. Discretionary authority is hereby
conferred as to any other matters as may properly come before
the meeting.
Please be sure to sign and date ----------------------
this Proxy in the box below. Date
- ---------------------------------------------------------------------
- ----Stockholder sign above--------Co-holder (if any) sign above------
+ +
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*DETACH ABOVE CARD, MARK, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED*
INTERFACE SYSTEMS, INC.
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF INTERFACE SYSTEMS, INC.
The above signed acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the Proxy Statement dated January 19, 1999, and ratifies all
that the proxy holders or either of them or their substitutes may lawfully do or
cause to be done by virtue hereof and revokes all former proxies.
Please sign exactly as your name(s) appear(s) on stock records. When signing
as attorney, administrator, trustee, guardian or corporate officer, please so
indicate.
PLEASE ACT PROMPTLY MARK, SIGN, DATE & MAIL
YOUR PROXY CARD TODAY USING THE ENCLOSED ENVELOPE
- --------------------------------------------------------------------------------
