<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:
[X] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission (only as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] 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:
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<PAGE> 2
INTERFACE SYSTEMS, INC.
5855 Interface Drive
Ann Arbor, Michigan 48103
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 18, 2000
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 18, 2000 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 2001.
2. To consider and approve a proposal to amend the Company's Articles of
Incorporation to increase the number of authorized shares of Common
Stock from 12,500,000 shares to 25,000,000 shares.
3. To consider and approve a proposal to amend the Company's 1992 Stock
Option Plan to make available for issuance an additional 700,000 shares
of Common Stock.
4. 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, 1999 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,
/s/ ROBERT A. NERO
ROBERT A. NERO, President
Ann Arbor, Michigan
January 18, 2000
<PAGE> 3
INTERFACE SYSTEMS, INC.
PROXY STATEMENT
2000 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 18, 2000, 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
18, 2000. 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, 1999 is enclosed herewith.
Only shareholders of record at the close of business on December 31, 1999
will be entitled to vote at the meeting or any adjournment thereof. On that
date, 4,609,483 shares of Common Stock of the Company (the "Common Stock") were
issued and outstanding. Each shareholder 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 shareholder 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 17, 2000.
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. Instead of
returning signed proxy cards, shareholders of record can vote their shares over
the Internet, or by calling a specially designated telephone number. These new
Internet and telephone voting procedures are designed to authenticate
shareholders' identities, allow shareholders to give their voting instructions
and confirm that shareholders' instructions have been recorded properly.
Specific instructions for shareholders of record that wish to use the Internet
or telephone voting procedures are included on the enclosed proxy card.
Shareholders who vote via the Internet or by telephone do not need to mail their
proxy cards. A proxy may be revoked at any time prior to the voting at the
Annual Meeting by giving written notice to the Secretary of the Company bearing
a later date than the proxy, by submitting a later-dated proxy (including a
proxy voted via the Internet or by telephone), 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.
The affirmative vote of a majority of the shares of Common Stock entitled
to vote at the Annual Meeting is required to approve the amendment to the
Articles of Incorporation. Consequently, abstentions and broker non-votes will
have the same effect as a vote against the proposal to amend the Articles of
Incorporation. The affirmative vote of a majority of the shares of Common Stock
voted in person or by proxy at the Annual Meeting is required to approve the
amendment to the Company's 1992 Stock Option Plan. Consequently, abstentions and
broker non-votes will have no effect on the proposal to amend the Company's 1992
Stock Option Plan.
<PAGE> 4
MATTERS TO COME BEFORE THE MEETING
ELECTION OF DIRECTORS
Seven directors will be elected, each to hold office until the Company's
2001 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. 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. 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, 68................. Retired 1974
Robert A. Nero, 53................... President and Chief Executive Officer of the 1997
Company
Bruce E. Rhoades, 51................. Corporate Vice President, Bell & Howell 1997
Company
David C. Seigle, 60.................. Affiliated Executive, Black Diamond Capital, 1969
LLC
Robert A. Seigle, 72................. President of Concord Personnel, Inc., a 1969
personnel recruiting company
Lloyd A. Semple, 60.................. Attorney and Chairman, Dykema Gossett PLLC, a 1996
Detroit, Michigan law firm
Thomas L. Thomas, 56................. Chairman, Creative Solutions, Inc. 1998
</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 is a Corporate Vice President for Bell & Howell Company.
Previously, from 1995 to 1999, he was President of Bruce E. Rhoades Consulting,
Inc. 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 34 years and
Chairman of such law firm since January 1, 1996. Dykema Gossett provides legal
services to the Company.
Mr. Thomas has been Chairman of Creative Solutions, Inc. since July 1998
and was its President and Chief Executive Officer from 1990-1998. 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.
2
<PAGE> 5
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, 1999, the Board of
Directors held five 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, 1999, 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL PERSONS
NOMINATED BY THE BOARD.
APPROVAL OF AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES
The Board of Directors of the Company has unanimously approved an amendment
to the Company's Articles of Incorporation to increase the number of shares of
Common Stock authorized for issuance from 12,500,000 shares to 25,000,000 shares
and unanimously recommends to the shareholders that they approve the proposed
amendment.
The proposed amendment would amend and restate the first sentence of
Article III of the Company's Articles of Incorporation to read as follows:
The total number of shares of the capital stock which the Company has
authority to issue is twenty-five million (25,000,000) shares of common stock
("Common Stock").
The remainder of Article III would remain unchanged.
This amendment will increase the Company's authorized Common Stock from
12,500,000 shares to 25,000,000 shares. The purpose of the amendment is to
provide additional shares of authorized Common Stock. As of December 31, 1999,
there were 4,609,483 shares issued and outstanding and a total of 1,200,000
shares reserved for issuance pursuant to the Company's current stock option
plans and Employee Stock Purchase Plan. As a result, as of December 31, 1999,
only 6,690,517 shares of Common Stock remain available for future issuance.
The Board of Directors believes it desirable to increase the authorized
number of shares of Common Stock in order to provide the Company with adequate
flexibility in corporate planning and strategies. The availability of additional
Common Stock for issuance could be used for a number of purposes, including
corporate financing, future acquisitions, stock splits, stock options and other
stock-based compensation. There are currently no plans, agreements or
understandings regarding the issuance of any of the additional shares of Common
Stock that would be available if this proposal is approved. Such additional
authorized shares may be issued for such purposes and for such consideration as
the Board of Directors may determine without further shareholder approval,
unless such action is required by applicable law or the rules of the Nasdaq
stock market or any stock exchange on which the Company's securities may be
listed.
3
<PAGE> 6
The additional shares of Common Stock for which authorization is sought
would be part of the existing class of Common Stock, and, to the extent issued,
would have the same rights and privileges as the shares of Common Stock
presently outstanding. Ownership of shares of the Company's Common Stock confers
no preemptive rights.
The increase in the authorized but unissued shares of Common Stock which
would result from adoption of the proposed amendment could have a potential
anti-takeover effect with respect to the Company, although management is not
presenting the proposal for that reason and does not presently anticipate using
the increased authorized shares for such a purpose. The potential anti-takeover
effect of the proposed amendment arises because it would enable the Company to
issue additional shares of Common Stock up to the total authorized number with
the effect that the shareholdings and related voting rights of then existing
shareholders would be diluted to an extent proportionate to the number of
additional shares issued.
If this proposal is approved, the Company intends to file an amendment to
its Articles of Incorporation with the Michigan Department of Consumer and
Industry Services, upon which filing the proposed amendment will become
effective.
The affirmative vote of a majority of the shares of Common Stock entitled
to vote at the Annual Meeting is required to approve the proposed amendment.
Consequently, abstentions and broker non-votes will have the same effect as a
vote against the proposed amendment. PROXIES WILL BE VOTED FOR THE PROPOSED
AMENDMENT UNLESS THE SPECIFICATION IS MARKED ON THE PROXY INDICATING THAT
AUTHORITY TO DO SO IS WITHHELD.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSED
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK.
APPROVAL OF AMENDMENTS TO THE COMPANY'S 1992 STOCK
OPTION PLAN TO MAKE ADDITIONAL SHARES AVAILABLE FOR ISSUANCE
The Interface Systems, Inc. 1992 Stock Option Plan (the "1992 Plan") was
adopted by the Board of Directors on March 27, 1992 and approved by the
shareholders of the Company on May 6, 1992. The 1992 Plan was subsequently
amended by the Board of Directors on February 21, 1996 and further amended on
August 8, 1997. The 1992 Plan has 800,000 shares of common stock authorized for
grant. At September 30, 1999, 105,567 shares were available for grant, 644,102
were outstanding and 261,969 were exercisable under the 1992 Plan.
The Board of Directors has approved an amendment to the 1992 Plan, subject
to shareholder approval, to make an additional 700,000 shares available for
issuance under the 1992 Plan. At the Annual Meeting, the Company's shareholders
are being requested to consider and approve this amendment. The following
paragraphs summarize the material features of the 1992 Plan, as amended.
The 1992 Plan is intended to promote the long-term success of the Company
for the benefit of its shareholders by aligning the personal interests of the
Company's key employees with those of its shareholders. The Plan is designed to
allow selected key employees of the Company to participate financially in the
Company's future, as well as to enable the Company to attract, retain and award
such employees.
The 1992 Plan is administered by a committee of the Board of Directors (the
"Committee"), which is required to consist of not less than two non-employee
directors, as defined in Rule 16b-3 of the Securities and Exchange Act of 1934.
The Committee determines the employees of the Company who are to be granted
options, the number of shares of Common Stock underlying each option and the
terms and conditions of any option. The Committee also interprets the 1992 Plan
and makes all determinations necessary or advisable for its administration.
The 1992 Plan, as amended, provides for the issuance of up to 1,500,000
shares of the Company's Common Stock. Persons eligible for awards under the 1992
Plan are officers and key employees. The 1992 Plan provides for the grant of
both incentive stock options and non-qualified options. Options under the
4
<PAGE> 7
1992 Plan are granted at not less than market price on the date of grant, are
exercisable at the rate of 33% per year after one year from the date of grant
and have a term of ten years.
In the event that any dividend or other distribution (whether in the form
of cash, Common Stock, other securities, or other property), recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase, or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event affects the Common Stock, the Committee may make
such adjustments, including in the number or type of shares authorized by the
1992 Plan, as it deems appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
1992 Plan.
The Board may amend or terminate the 1992 Plan from time to time without
shareholder approval. No amendment, modification, or termination of the 1992
Plan shall in any manner affect any option granted under the 1992 Plan without
the consent of the participant holding the option.
1992 Plan participants will not recognize taxable income at the time an
option is granted under the Plan unless the option has a readily ascertainable
market value at the time of the grant. Management understands that options to be
granted under the 1992 Plan will not have a readily ascertainable market value;
therefore, income will not be recognized by participants before the time of
exercise of an option. For nonqualified stock options, the difference between
the fair market value of the shares at the time an option is exercised and the
option price generally will be treated as ordinary income to the optionee, in
which case the Company will be entitled to a deduction equal to the amount of
the optionee's ordinary income. With respect to incentive stock options,
participants will not realize income for federal income tax purposes as a result
of the exercise of such options. In addition, if common stock acquired as a
result of the exercise of an incentive stock option is disposed of more than two
years after the date the option is granted and more than one year after the date
the option was exercised, the entire gain, if any, realized upon disposition of
such common stock will be treated as capital gain for federal income tax
purposes. Under these circumstances, no deduction will be allowable to the
Company in connection with either the grant or exercise of an incentive stock
option. Exceptions to the general rules apply in the case of a "disqualifying
disposition."
If a participant disposes of shares of common stock acquired pursuant to
the exercise of an incentive stock option before the expiration of one year
after the date of exercise or two years after the date of grant, the sale of
such stock will be treated as a "disqualifying disposition." As a result, such a
participant would recognize ordinary income and the Company would be entitled to
a deduction in the year in which such disposition occurred. The amount of the
deduction and the ordinary income recognized upon a disqualifying disposition
would generally be equal to the lesser of: (a) the sale price of the shares sold
minus the option price, or (b) the fair market value of the shares at the time
of exercise minus the option price. If the disposition is to a related party
(such as a spouse, brother, sister, lineal descendant, or certain trusts or
business entities in which the seller holds a direct or indirect interest), the
ordinary income recognized generally is equal to the excess of the fair market
value of the shares at the time of exercise over the exercise price. Any
additional gain recognized upon disposition, in excess of the ordinary income,
will be taxable as capital gain. In addition, the exercise of incentive stock
options may result in an alternative minimum tax liability.
The affirmative vote of a majority of the shares of Common Stock voted in
person or by proxy at the Annual Meeting is required to approve the proposal to
amend the 1992 Plan. Consequently, abstentions and broker non-votes will have no
effect on such proposal to amend the 1992 Plan. PROXIES WILL BE VOTED FOR THE
PROPOSED AMENDMENT UNLESS THE SPECIFICATION IS MARKED ON THE PROXY INDICATING
THAT AUTHORITY TO DO SO IS WITHHELD.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE COMPANY'S 1992 STOCK OPTION PLAN TO INCREASE THE NUMBER OF
SHARES AVAILABLE FOR ISSUANCE BY 700,000 SHARES.
5
<PAGE> 8
FURTHER INFORMATION
PRINCIPAL SHAREHOLDERS
The Common Stock is the only voting security of the Company. See "Stock
Ownership of Certain Beneficial Owners" for information regarding persons who,
to the knowledge of the Company, beneficially own five percent or more of such
stock as of December 31, 1999.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of shares of the
Company's Common Stock with respect to persons who are known to the Company to
be the beneficial owner of more than five percent of such stock as of December
31, 1999.
<TABLE>
<CAPTION>
COMMON STOCK
OF THE COMPANY PERCENT OF
NAME AND ADDRESS OWNED BENEFICIALLY CLASS
---------------- ------------------ ----------
<S> <C> <C>
Congressional Securities, Inc .............................. 450,000(1) 9.97%
2 Martin Dale Road
Greenwich, CT 0683
David H. Zimmer............................................. 450,000(2) 9.97%
2 Martin Dale Road
Greenwich, CT 06830
</TABLE>
- ------------------
(1) To the best of the Company's knowledge, based on information reported by
Congressional Securities, Inc. ("CSI"), the beneficial ownership of CSI is
by virtue of its investment discretion and voting power over accounts of its
customers, including David H. Zimmer, Chief Executive Officer of CSI, who
owns 175,000 of the 450,000 shares. CSI and Mr. Zimmer share voting and
dispositive power with respect to the 450,000 shares.
(2) To the best of the Company's knowledge, based on information reported by Mr.
Zimmer, Mr. Zimmer is the beneficial owner of 450,000 shares by virtue of
his status as Chief Executive Officer of CSI which has investment discretion
and voting power over accounts of its customers, including the customer
account of Mr. Zimmer which holds 175,000 shares.
6
<PAGE> 9
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 defined below) and by all executive officers and directors as a
group as of December 1, 1999.
<TABLE>
<CAPTION>
COMMON STOCK
OF THE COMPANY PERCENT OF
NAME OWNED BENEFICIALLY(1) CLASS
---- --------------------- ----------
<S> <C> <C>
Garnel F. Graber............................................ 67,002(2) 1.47%
Robert A. Nero.............................................. 125,000(3) 2.74%
Bruce E. Rhoades............................................ 19,100(4) *
Robert A. Seigle............................................ 81,310(5) 1.79%
David C. Seigle............................................. 25,100(6) *
Lloyd A. Semple............................................. 19,100(7) *
Thomas L. Thomas............................................ 14,000(8) *
Keith N. Bauserman.......................................... 20,222(9) *
Robert F. Granger........................................... 22,077(10) *
Richard B. Sheridan......................................... 27,393(11) *
John Ternes................................................. 0 *
All executive officers and directors as a group (13
persons).................................................. 420,304(12) 9.23%
</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 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 25,100 shares which Mr. Graber has, or within 60 days of December
1, 1999 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(3) Includes 110,000 shares which Mr. Nero has, or within 60 days of December
1, 1999 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the 1992 Stock Option Plan and
15,000 shares held by Mr. Nero's wife. Mr. Nero shares voting and
dispositive power with respect to the 15,000 shares.
(4) Represents 19,100 shares which Mr. Rhoades has, or within 60 days of
December 1, 1999 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(5) Includes 25,100 shares which Mr. Seigle has, or within 60 days of December
1, 1999 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(6) Includes 25,100 shares which Mr. Seigle has, or within 60 days of December
1, 1999 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(7) Includes 19,100 shares which Mr. Semple has, or within 60 days of December
1, 1999 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(8) Includes 14,000 shares which Mr. Thomas has, or within 60 days of December
1, 1999 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the Directors Plan.
(9) Includes 19,334 shares which Mr. Bauserman has, or within 60 days of
December 1, 1999 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the 1992 Stock Option Plan.
7
<PAGE> 10
(10) Includes 17,667 shares which Mr. Granger has, or within 60 days of December
1, 1999 will have, the right to acquire pursuant to the presently
exercisable portion of option granted under the 1992 Stock Option Plan.
(11) Includes 22,832 shares which Mr. Sheridan has, or within 60 days of
December 1, 1999 will have, the right to acquire pursuant to the presently
exercisable portion of options granted under the 1992 Stock Option Plan.
(12) Includes 297,333 shares which certain directors and executive officers
have, or within 60 days of December 1, 1999 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 53
Keith N. Bauserman.......................... Vice President of Sales 55
Brian D. Brooks............................. Chief Financial Officer 37
Robert F. Granger........................... Vice President of Marketing 48
Brian G. Niemiec............................ Vice President of Product & Service Delivery 38
Richard B. Sheridan......................... Vice President of Product Development 43
</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. 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. Brooks was appointed Chief Financial Officer of the Company in November
1999. Prior to joining the Company, Mr. Brooks was a Vice President of Finance
of Interim Services, a human resources consulting firm, from 1997 to 1999, and
Vice President of Finance (1996-1997) and Controller (1992-1996) of Aim
Executive Holdings, also a human resources consulting firm.
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. Niemiec was appointed Vice President of Product & Service Delivery of
the Company in 1999 after having served as a Company Vice President since 1998.
Prior to joining the Company, Mr. Niemiec was President of Bright Ideas Group, a
consulting firm, from 1996 to 1998, and Senior Vice President of Operations of
National Tech Team, a computer services firm, from 1990 to 1996.
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.
8
<PAGE> 11
In addition, the Company has a 1993 Stock Plan for Non-Employee Directors
(the "Directors Plan"). On February 19, 1999, each member of the Board of
Directors was granted an option to purchase 2,000 shares of the Company's Common
Stock at an exercise price of $2.81 per share, fully vested at grant.
Mr. David C. Seigle received $3,746 from the Company for his services as a
consultant in fiscal 1999.
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 1999 (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 SECURITIES
COMPENSATION OTHER UNDERLYING
FISCAL ------------------- ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL OCCUPATION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
----------------------------- ------ ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Nero....................... 1999 $208,000 $72,800 [$ ](1) 35,000 $21,080(2)
Chief Executive Officer, 1998 208,000 90,000 4,672(1) 16,916(3)
President and a Director 1997 138,474 50,000 3,432(1) 165,000 15,610(4)
John R. Ternes....................... 1999 110,936 0
Chief Financial Officer, Vice 1998 111,650 24,003 15,000
President, Finance/Administration 1997 44,025 13,000
and Secretary
Keith N. Bauserman................... 1999 135,850 20,400
Vice President of Sales 1998 132,371 24,453 24,000
Robert F. Granger.................... 1999 126,928 18,000 2,496(5)
Vice President of Marketing 1998 105,037 22,083 53,000 1,328(6)
Richard B. Sheridan.................. 1999 103,860 22,300
Vice President of Product 1998 98,882 13,072 37,000
Development
</TABLE>
- ------------------
(1) "Other Annual Compensation" for Mr. Nero for fiscal 1999, 1998 and 1997 is
comprised of a tax gross up for the apartment rental payment referred to in
footnotes 2, 3 and 4 below.
(2) "All Other Compensation" for Mr. Nero for fiscal 1999 is comprised of (i)
$15,691 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 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.
(4) "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)
$3,593 for a car allowance.
(5) "All Other Compensation" for Mr. Granger for fiscal 1999 is comprised of a
car allowance.
(6) "All Other Compensation" for Mr. Granger for fiscal 1998 is comprised of a
car allowance.
9
<PAGE> 12
OPTION GRANTS AND RELATED INFORMATION
The following table provides information with respect to options granted to
the Named Executive Officers during fiscal year 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR ($/SH.) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Nero.................. 35,000 16.5% $2.81 02/19/09 61,852 156,745
</TABLE>
- ------------------
(1) These options, which were granted pursuant to the Company's 1992 Stock
Option Plan, were granted at market value on the date of grant, become
exercisable annually in 33 1/3% increments beginning one year after the
grant date and have a term of ten years. The exercisability of these options
may be accelerated in the event of a change in control of the Company. See
"Employment Agreements and Termination/ Change in Control Agreements."
(2) Represents value of option at end of ten year term, assuming the market
price of the Company's Common Stock appreciates at annually compounded rates
of 5% and 10%. These amounts represent assumed rates of appreciation only.
Actual gains, if any, will be dependent on overall market conditions and on
future performance of the Company's Common Stock. There can be no assurance
that the amounts reflected in the table will be achieved.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Executive Officers concerning the exercise of options during fiscal year 1999
and unexercised options held as of the end of the Company's last fiscal year,
September 30, 1999. All options were granted under the Company's 1992 Stock
Option Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR ("FY")-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON REALIZED OPTIONS AT FY-END(#) IN-THE-MONEY OPTIONS
NAME EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE($)
---- ----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Robert A. Nero.................. -- -- 110,000/90,000 660,000/540,000
John R. Ternes.................. 31,666 63,270 -- --
Keith N. Bauserman.............. -- -- 19,334/21,666 130,004/157,996
Robert F. Granger............... -- -- 17,667/35,333 131,252/262,498
Richard B. Sheridan............. -- -- 22,832/22,668 153,406/170,844
</TABLE>
- -------------------------
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
10
<PAGE> 13
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.
Mr. Nero was granted a stock option to purchase 35,000 shares of the
Company's Common Stock under the 1992 Stock Option Plan. Under the 1992 Stock
Option Plan, as amended, a "change in control" shall be deemed to have occurred
if (i) any person is or becomes the beneficial owner of securities of the
Company representing 20% or more of the combined voting power of the Company's
then outstanding securities entitled to vote in the election of directors of the
Company; (ii) consummation of certain mergers, consolidations or similar
transactions with respect to which the Company is a constituent corporation
(other than a transaction for the purpose of changing the Company's corporate
domicile); (iii) any liquidation or dissolution of the Company, or any sale of
all or substantially all of the Company's assets to an entity not controlled by
persons who were members of the Board of Directors or officers of the Company as
of the 2000 Annual Meeting of Shareholders or by any employee benefit plan or
employee benefit plan trust maintained by the Company; and (iv) a change in the
identity of a majority of the members of the Company's Board of Directors within
any twelve-month period, which change or changes are not recommended by the
incumbent directors immediately prior to any such change or changes.
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, Bauserman, Granger and Sheridan were paid bonuses of $72,800,
$20,400, $18,000 and $22,300, 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.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1999, Mr. Nero, the Company's Chief Executive Officer, earned
a base salary and cash bonus of $208,000 and $72,800, respectively, representing
total cash compensation of $280,800. In February
11
<PAGE> 14
1999, Mr. Nero was also awarded a stock option grant of 35,000 shares. The
Committee believes that the significant ownership position created by this
action will more closely align Mr. Nero's interests with those of the
shareholders. The size of the equity based compensation awards and the cash
compensation reflect the Committee's evaluation and recognition of Mr. Nero's
contribution to the significant accomplishments and success achieved by the
Company in fiscal 1999.
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, 1999
Garnel F. Graber
Bruce E. Rhoades
David C. Seigle
Robert A. Seigle
Lloyd A. Semple
Dated: January 18, 2000
12
<PAGE> 15
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 indices relating
to the NASDAQ Computer Manufacturer Stocks, the S&P Computer Software & Services
Stocks and the Russell 2000 Stocks.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Interface Systems, Inc. $100.00 $128.39 $123.84 $ 68.80 $ 38.53 $220.15
NASDAQ (U.S. Companies) $100.00 $138.07 $163.85 $224.97 $228.78 $371.62
NASDAQ (Computer Mfg.) $100.00 $177.14 $231.11 $330.76 $468.06 $891.48
S&P Computers (Software &
Servs.) $100.00 $145.79 $211.35 $348.00 $479.25 $777.36
Russell 2000 $100.00 $123.50 $139.62 $186.08 $153.60 $177.27
</TABLE>
13
<PAGE> 16
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,
2000. 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, 1998 to September 30, 1999, all of these applicable
requirements were complied with by each of the Company's directors, executive
officers and greater than ten percent shareholders. 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 SHAREHOLDER 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 2001 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 20, 2000 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 2001 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 sixty days nor more than
ninety days prior to the date of the first anniversary of the 2000 Annual
Meeting.
By Order of the Board of Directors,
ROBERT A. NERO
ROBERT A. NERO, President
Ann Arbor, Michigan
January 18, 2000
14
<PAGE> 17
APPENDIX A
INTERFACE SYSTEMS, INC.
1992 STOCK OPTION PLAN
(AS AMENDED AND RESTATED ON FEBRUARY 18, 1999)
1. CERTAIN DEFINITIONS.
A "Change in Control" shall mean a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or
not the Company is then subject to such reporting requirement; provided that,
without limitation, a Change in Control shall be deemed to have occurred if (i)
any individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity (other than a Subsidiary or an
employee benefit plan or employee benefit plan trust maintained by the Company
or a Subsidiary), or any syndicate or group deemed to be a person under Section
14(d)(2) of the Exchange Act, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities entitled to vote in the election of
directors of the Company, provided that a person shall not be deemed to
beneficially own shares solely because such person has the right to vote such
shares pursuant to a revocable proxy or proxies given in response to a public
solicitation made in accordance with the applicable rules promulgated under the
Exchange Act; (ii) consummation of any merger, consolidation or similar
transaction with respect to which the Company or any Parent is a constituent
corporation (other than a transaction for the purpose of changing the Company's
corporate domicile), if a majority of the members of the Board of Directors of
the surviving company are not Continuing Directors; (iii) any liquidation or
dissolution of the Company, or any sale of all or substantially all of the
Company's assets to an entity not controlled by persons who were members of the
Board of Directors or officers of the Company as of the 2000 Annual Meeting of
Stockholders or by any employee benefit plan or employee benefit plan trust
maintained by the Company or a Subsidiary; and (iv) a change in the identity of
a majority of the members of the Company's Board of Directors within any
twelve-month period, which change or changes are not recommended by the
incumbent directors immediately prior to any such change or changes.
The "Code" is the Internal Revenue Code of 1986, as amended.
The "Committee" is a committee of two or more directors of the Company,
each of whom is a "non-employee director" as defined in Rule 16b-3 under the
Exchange Act.
The "Common Stock" is the common stock, $.10 par value per share, of the
Company.
The "Company" is Interface Systems, Inc., a Michigan corporation.
"Continuing Directors" means persons (A) who are members of the Board of
Directors immediately prior to the merger, consolidation or similar transaction
and (B) who also were members of the Board of Directors of the Company
immediately following the 2000 Annual Meeting of Stockholders or are new
directors whose election by the Board of Directors, or nomination for election
by the Company's stockholders, was approved by a vote of at least a majority of
the directors in office at the time of such election or nomination who either
were directors immediately following the 1997 Annual Meeting of Stockholders or
whose election or nomination for election was previously approved as provided
above.
"Disabled" or "Disability" means Permanently disabled as defined in Section
22(e)(3) of the Code.
"Employee" means an individual with an "employment relationship" with the
Company, or any Parent or Subsidiary, as defined in Regulation 1.421-7(h)
promulgated under the Code, and shall include, without limitation, employees who
are directors of the Company, or any Parent or Subsidiary.
"Employment" means the state of being an Employee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
A-1
<PAGE> 18
"Fair Market Value" shall mean the last sale price on the Nasdaq Stock
Market National Market, as reported in the Wall Street Journal, for the last
preceding day on which the Common Stock was traded prior to the date with
respect to which the fair market value is to be determined, as determined by the
Committee in its sole discretion.
An "Incentive Stock Option" is an option intended to meet the requirements
of Section 422 of the Code.
A "Nonqualified Stock Option" is an option granted under the Plan other
than an Incentive Stock Option.
"Parent" means any "parent corporation" of the Company as defined in
Section 424(e) of the Code.
The "Plan" is the 1992 Stock Option Plan.
"Subsidiary" means any "subsidiary corporation" of the Company as defined
in Section 424(f) of the Code.
2. PURPOSE.
The purpose of the Plan is to promote the best interests of the Company and
its shareholders by encouraging participants to acquire a proprietary interest
in the Company, thus identifying their interests with those of its shareholders
and encouraging the participants to make greater efforts on behalf of the
Company.
3. ADMINISTRATION.
The selection of participants in the Plan and decisions concerning the
timing, pricing and amount of any grant of options under the Plan shall be made
by the Committee. Except as provided in Section 13 of the Plan, the Committee
shall interpret the Plan, prescribe, amend, and rescind rules and regulations
relating to the Plan, and make all other determinations necessary or advisable
for its administration. The decision of the Committee on any question concerning
the interpretation of the Plan or any option granted under the Plan shall be
final and binding upon all participants.
4. PARTICIPANTS.
Participants in the Plan shall be such key Employees as the Committee may
select from time to time. The Committee may grant options to an individual upon
the condition that the individual become an Employee, provided that the option
shall be deemed to be granted only on the date the individual becomes an
Employee.
5. STOCK.
The stock subject to options under the Plan shall be the Common Stock, and
may be either authorized and unissued shares or treasury shares held by the
Company. The total amount of Common Stock on which options may be granted under
the Plan shall not exceed 1,500,000 shares, subject to adjustment in accordance
with Section 11. Shares subject to any unexercised portion of a terminated,
canceled or expired option granted under the Plan may again be subjected to
options under the Plan.
6. AWARD OF OPTIONS.
Subject to the limitations set forth in the Plan, the Committee from time
to time may grant options to such participants and for such number of shares of
Common Stock and upon such other terms as it shall designate. Each option shall
be evidenced by a stock option agreement in such form and containing such
provisions as the Committee shall deem appropriate, provided that such terms
shall not be inconsistent with the Plan. The Committee may designate any option
granted as either an Incentive Stock Option or a Nonqualified Stock Option, or
the Committee may designate a portion of an option as an Incentive Stock Option
or a Nonqualified Stock Option. Any participant may hold more than one option
under the Plan and any other stock option plan of the Company. The date on which
an option is granted shall be the date of the
A-2
<PAGE> 19
Committee's authorization of the option or such later date as shall be
determined by the Committee at the time the option is authorized.
Incentive Stock Options. Any option intended to constitute an Incentive
Stock Option shall comply with the following requirements in addition to the
other requirements of the Plan: (a) the exercise price per share for each
Incentive Stock Option granted under the Plan shall not be less than the Fair
Market Value per share of Common Stock on the date the option is granted;
provided that no Incentive Stock Option shall be granted to any participant who
owns (within the meaning of Section 424(d) of the Code) stock of the Company or
any Parent or Subsidiary possessing more than 10% of the total combined voting
power of all classes of stock of such Company, Parent or Subsidiary unless, at
the date of grant of an option to such participant, the exercise price for the
option is at least 110% of the Fair Market Value of the shares subject to option
and the option, by its terms, is not exercisable more than five years after the
date of grant; (b) the aggregate Fair Market Value of the underlying Common
Stock at the time of grant as to which Incentive Stock Options under the Plan
(or a plan of a Parent or Subsidiary) may first be exercised by a participant in
any calendar year shall not exceed $100,000 (to the extent that an option
intended to constitute an Incentive Stock Option shall exceed the $100,000
limitation, the portion of the option that exceeds such limitation shall be
deemed to constitute a Nonqualified Stock Option); (c) an Incentive Stock Option
shall not be exercisable after the tenth anniversary of the date of grant or
such lesser period as the Committee may specify from time to time.
Nonqualified Stock Options. A Nonqualified Stock Option shall not be
exercisable after the tenth anniversary of the date of grant. The exercise price
per share of a Nonqualified Stock Option shall not be less than the Fair Market
Value per share of the Common Stock on the date of grant.
7. EXERCISE OF OPTIONS.
Subject to any limitations on exercise contained in the stock option
agreement relating to a particular option which is not inconsistent with this
Section, options may be exercised in installments as follows:
(a) Beginning on the date after the first anniversary of the date of
grant, an option may be exercised up to 1/3 of the shares subject to the
option;
(b) After the expiration of each succeeding anniversary date of the
date of grant, the option may be exercised up to an additional 1/3 of the
shares subject to option, so that after the expiration of the third
anniversary of the date of grant the option shall be exercisable in full;
and
(c) To the extent not exercised, installments shall be cumulative and
may be exercised in whole or in part.
8. PAYMENT FOR SHARES.
The purchase price for shares of Common Stock to be acquired upon exercise
of an option granted hereunder shall be paid in full, at the time of exercise,
in cash, by certified check, bank draft or money order or by tendering to the
Company shares of Common Stock then owned by the participant, duly endorsed for
transfer or with duly executed stock power attached, which shares shall be
valued at their Fair Market Value as of the date of such exercise and payment.
Notwithstanding the foregoing, the option exercise price may be paid by delivery
to the Company of a properly executed exercise notice, acceptable to the
Company, together with irrevocable instructions to the participant's broker to
deliver to the Company a sufficient amount of cash to pay the exercise price and
any applicable income and employment withholding taxes, in accordance with a
written agreement between the Company and the brokerage firm ("Cashless
Exercise").
9. WITHHOLDING TAXES.
The Company shall have the right to withhold from a participant's
compensation or require a participant to remit sufficient funds to satisfy
applicable withholding for income and employment taxes upon the exercise of an
option.
A-3
<PAGE> 20
10. NON-ASSIGNABILITY.
No option shall be transferable by a participant except by will or the laws
of descent and distribution or, in the case of a Nonqualified Stock Option,
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act, or the rules thereunder.
During the lifetime of a participant, an option shall be exercised only by the
optionee. No transfer of an option shall be effective to bind the Company unless
the Company shall have been furnished with written notice thereof and such
evidence as the Company may deem necessary to establish the validity of the
transfer and the acceptance by the transferee of the terms and conditions of the
option.
11. TERMINATION OF EMPLOYMENT.
Unless otherwise provided in the stock option agreement relating to a
particular option: (a) if, prior to the date that such option shall first become
exercisable, the participant's Employment shall be terminated, with or without
cause, or by the act, death, Disability, or retirement of the participant, the
participant's right to exercise the option shall terminate and all rights
thereunder shall cease; and (b) if, on or after the date that such option shall
first become exercisable, a participant's Employment shall be terminated for any
reason other than death or Disability, the participant shall have the right,
prior to the earlier of (i) the expiration of the option or (ii) three months
after such termination of Employment, to exercise the option to the extent that
it was exercisable and is unexercised on the date of such termination of
Employment, subject to any other limitation on the exercise of the option in
effect at the date of exercise; and (c) if, on or after the date that such
option shall have become exercisable, the participant shall die or become
Disabled while an Employee or while such option remains exercisable, the
participant or the executor or administrator of the estate of the participant
(as the case may be), or the person or persons to whom the option shall have
been transferred by will or by the laws of descent and distribution, shall have
the right, prior to the earlier of (i) the expiration of the option or (ii) one
year from the date of the participant's death or termination due to such
Disability to exercise the option to the extent that it was exercisable and
unexercised on the date of death, subject to any other limitation on exercise in
effect at the date of exercise.
The transfer of an Employee from one corporation to another among the
Company, any Parent and any Subsidiary, or a leave of absence with the written
consent of the Company, shall not constitute a termination of Employment for
purposes of the Plan.
12. ADJUSTMENTS.
In the event that the Committee shall determine that any dividend or other
distribution (whether in the form of cash, Common Stock, other securities, or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of the Company,
issuance of warrants or other rights to purchase Common Stock, or other
securities of the Company, or other similar corporate transaction or event
affects the Common Stock such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(a) the number and type of shares of Common Stock which thereafter may be made
the subject of options, (b) the number and type of shares of Common Stock
subject to outstanding options, and (c) the exercise price with respect to any
option, or, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding option; provided, however, in each case, that with
respect to the Incentive Stock Options no such adjustment shall be authorized to
the extent that such authority would case the Plan to violate Section 422 of the
Code or any successor provision thereto; and provided further, however, that the
number of shares of Common Stock subject to any option shall always be a whole
number. In the event of a Change of Control and under such other circumstances
as the Committee may designate, options under the Plan shall be treated as the
Committee may determine (including acceleration of vesting and settlements of
options) at the time of grant or at a subsequent date as provided in the stock
option agreement reflecting the grant of such options.
A-4
<PAGE> 21
13. RIGHTS PRIOR TO ISSUANCE OF SHARES.
No participant shall have any rights as a shareholder with respect to any
shares covered by an option until the issuance of a stock certificate to the
participant for such shares. No adjustment shall be made for dividends or other
rights with respect to such shares for which the record date is prior to the
date such certificate is issued.
14. TERMINATION AND AMENDMENT.
The Board of Directors (the "Board") may terminate the Plan, or the
granting of options under the Plan, at any time. No Incentive Stock Option shall
be granted under the Plan ten years after adoption of the Plan by the Board or
approval of the Plan by the Company's shareholders, whichever is earlier.
Termination of the Plan shall not affect the rights of the holders of any
options previously granted.
The Board may amend or modify the Plan at any time and from time to time.
No amendment, modification, or termination of the Plan shall in any manner
affect any option granted under the Plan without the consent of the participant
holding the option.
15. APPROVAL OF PLAN.
The Plan shall be subject to the approval of the holders of at least a
majority of the shares of Common Stock of the Company present and entitled to
vote at a meeting of shareholders of the Company held within 12 months after
adoption of the Plan by the Board. No option granted under the Plan may be
exercised in whole or in part until the Plan has been approved by the
shareholders as provided herein. If not approved by shareholders within such
12-month period, the Plan and any options granted hereunder shall become void
and of no effect.
16. EFFECT ON EMPLOYMENT.
Neither the adoption of the Plan nor the granting of any option pursuant to
it shall be deemed to create any right in any individual to be retained as an
Employee.
17. USE OF PROCEEDS.
The proceeds received from the sale of Common Stock pursuant to exercises
of options granted under the Plan will be used for general corporate purposes of
the Company.
<TABLE>
<S> <C>
BOARD OF DIRECTOR APPROVAL: March 27, 1992
SHAREHOLDER APPROVAL: May 6, 1992
AMENDED: February 21, 1996
AMENDED AND RESTATED: August 8, 1997
AMENDED AND RESTATED: February 18, 2000
</TABLE>
A-5
<PAGE> 22
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF INTERFACE SYSTEMS, INC.
INTERFACE SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 18, 2000
10:00 A.M. LOCAL TIME
The undersigned hereby appoints the Board of Directors of Interface Systems,
Inc. (the "Company") to act as proxy for the undersigned and to vote all shares
of Common Stock of the Company that the undersigned is entitled to vote only at
the Annual Meeting of Shareholders, to be held on February 18, 2000, at 10:00
a.m., local time at Crowne Plaza Hotel, 610 Hilton Boulevard, Ann Arbor,
Michigan, and any and all adjournments thereof, as indicated on the reverse
side of this proxy.
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS
LISTED. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, INCLUDING
WHETHER OR NOT TO ADJOURN THE MEETING, THIS PROXY WILL BE VOTED BY THE BOARD OF
DIRECTORS IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING.
PLEASE COMPLETE, DATE, AND SIGN AND MAIL THIS PROXY PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR
VOTE VIA THE INTERNET OR BY TELEPHONE.
(Continued, and to be marked, dated and signed, on the other side)
\/ FOLD AND DETACH HERE \/
- --------------------------------------------------------------------------------
INTERFACE SYSTEMS, INC. -- ANNUAL MEETING, FEBRUARY 18, 2000
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. Call TOLL FREE 1-888-000-0000 on a Touch Tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this
call.
2. Via the Internet at WWW.PROXYVOTING.COM/INTFACE and follow the
instructions.
OR
3. Mark, sign and date your proxy card and return it promptly in the
enclosed envelope.
PLEASE VOTE
<PAGE> 23
<TABLE>
<CAPTION>
<S><C>
- ------------------------------------------------------------------------------- Please mark your
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS votes as indicated [X]
PRESENTED. in this example
- -------------------------------------------------------------------------------
1. The election as directors of all nomi- With- For All For Against Abstain
nees listed below, except as marked For hold Except 2. The approval to amend the [ ] [ ] [ ]
to the contrary. [ ] [ ] [ ] Company's Articles of Incorporation
to increase the number of authorized
(01) Garnel F. Graber (05) Robert A. Seigle shares of Common Stock from
(02) Robert A. Nero (06) Lloyd A. Semple 12,500,000 shares to 25,000,000.
(03) Bruce E. Rhoades (07) Thomas L. Thomas
(04) David C. Seigle
INSTRUCTION: To withhold authority to vote for any nominee(s),
mark "For All Except" and write that nominee(s') name(s) in 3. The approval to amend the Company's For Against Abstain
the space provided below. 1992 Stock Option Plan to make [ ] [ ] [ ]
available for issuance an additional
- ------------------------------------------------------------- 700,000 shares of Common Stock.
To transact such other business as may properly come before
the meeting or any adjournment thereof.
The undersigned acknowledges receipt from the Company prior
to the execution of this proxy of a Notice of Annual Meeting
Please be sure to sign and date Date of Shareholders and of a Proxy Statement dated January 18,
this Proxy in the box below. 2000 and of the Annual Report to Shareholders.
- ------------------------------------------------------------
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS CARD.
When signing as an attorney, executor, administrator, trustee
or guardian, please give full title. If shares are held
jointly, each holder may sign, but only one signature is
- ---Shareholder sign above---Co-holder (if any) sign above--- required.
</TABLE>
------------------------------------------------------------------------------
+ ---IF YOU WISH TO VOTE BY TELEPHONE OR INTERNET, PLEASE READ THE INSTRUCTIONS
BELOW---+
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL /\
VOTE BY TELEPHONE/INTERNET
QUICK --- EASY --- IMMEDIATE
Your telephone/internet vote authorizes the named proxies to vote your shares in
the same manner as if you marked, signed and returned your proxy card.
PLEASE HAVE THIS CARD HANDY WHEN YOU CALL. YOU'LL NEED IT IN FRONT OF YOU
IN ORDER TO COMPLETE THE VOTING PROCESS.
VOTE BY PHONE: You will be asked to enter the CONTROL NUMBER(look below
at right).
[OPTION A:] To vote as the Board of Directors recommends on ALL proposals,
press 1. Your vote will be confirmed.
[OPTION B:] If you choose to vote on each proposal separately, press 0. You
will hear these instructions:
ITEM 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL
nominees, press 9.
To vote FOR ALL NOMINEES EXCEPT for certain of the
nominees, press 0 and listen to the instructions.
ITEM 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN,
press 0.
The instructions are the same to vote for Item 3.
When asked, you must confirm your vote by pressing 1.
VOTE BY INTERNET: The web address is WWW.PROXYVOTING.COM/
INTFACE
You will be asked to enter the CONTROL NUMBER (look below at
right).
If you vote by telephone or internet, DO NOT mail back your proxy.
THANK YOU FOR VOTING
FOR TELEPHONE/
INTERNET VOTING:
Call --- Toll Free --- On a Touch Tone Telephone CONTROL NUMBER
1-888-000-000 - ANYTIME
There is NO CHARGE to you for this call
