<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant / /
Filed by a Party other than the Registrant /x/
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
- --------------------------------------------------------------------------------
(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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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 price 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 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:
------------------------------------------------------------------------
<PAGE> 2
LOGO
INTERLINQ SOFTWARE CORPORATION
11255 KIRKLAND WAY
KIRKLAND, WASHINGTON 98033
- --------------------------------------------------------------------------------
October 4, 1996
DEAR FELLOW SHAREHOLDER:
It is our pleasure to invite you to attend the 1996 Annual Meeting of
Shareholders. This year's Annual Meeting will be held on November 6, 1996, at
3:00 p.m., Pacific Standard Time, in the Conference Room at the INTERLINQ
corporate headquarters, 11255 Kirkland Way, Kirkland, Washington 98033.
Details of the business to be conducted at the Annual Meeting are set forth in
the enclosed Notice of Annual Meeting of Shareholders and the Proxy Statement.
It is important that your shares be represented at the Annual Meeting.
Accordingly, whether or not you plan to attend the Annual Meeting, we urge you
to complete, date and sign the enclosed proxy card, and return it in the
envelope provided.
We look forward to greeting personally those shareholders who are able to
attend.
Very truly yours,
INTERLINQ Software Corporation
LOGO
Jiri M. Nechleba
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 6, 1996, AT KIRKLAND, WASHINGTON
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF INTERLINQ SOFTWARE CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders of INTERLINQ
Software Corporation, a Washington corporation (the "Company"), will be held in
the Conference Room at the Company's headquarters, 11255 Kirkland Way, Kirkland,
Washington, on November 6, 1996, at 3:00 p.m. Pacific Standard Time (the "Annual
Meeting"), for the following purposes:
(1) To elect two directors to hold office for two years or until their
respective successors are elected and qualify.
(2) To approve amendments to the Company's Stock Option Plan for Non-Employee
Directors to increase the number of shares available for issuance thereunder
by 140,000 common shares and to effect certain other amendments.
(3) To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
All of the above matters are more fully described in the accompanying Proxy
Statement.
Shareholders of record at the close of business on September 30, 1996, will be
entitled to notice of, and to vote at, the Annual Meeting.
The Company cordially invites all shareholders to attend the Annual Meeting in
person. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE RETURN YOUR PROXY PROMPTLY. It
is important that you mark, sign, date and return the accompanying Proxy,
regardless of the size of your holdings, as promptly as possible. A postage
prepaid envelope (if mailed in the United States) is enclosed for your
convenience. Your Proxy is revocable at your request at any time before it is
voted. Any shareholder may attend the Annual Meeting and vote in person even if
that shareholder has returned a proxy card.
By Order of the Board of Directors
LOGO
Stephen A. Yount
Corporate Secretary
Kirkland, Washington
October 4, 1996
YOUR COPY OF THE COMPANY'S ANNUAL REPORT FOR THE
FISCAL YEAR ENDED JUNE 30, 1996, IS ENCLOSED.
<PAGE> 4
PROXY STATEMENT
- --------------------------------------------------------------------------------
GENERAL
The Company is furnishing this Proxy Statement and the enclosed Proxy (which are
being mailed to shareholders on or about October 4, 1996) in connection with the
solicitation of Proxies by the Board of Directors of INTERLINQ Software
Corporation, a Washington corporation (the "Company"), for use at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held on November 6, 1996,
at 3:00 p.m., including any adjournment thereof, at the Company's headquarters,
11255 Kirkland Way, Kirkland, Washington 98033.
RECORD DATE AND OUTSTANDING SHARES
The Company has called the Annual Meeting for the purposes stated in the
accompanying Notice of Annual Meeting of Shareholders. All shareholders of the
Common Stock of the Company ("Common Stock") as of the close of business on
September 30, 1996, are entitled to vote at the meeting. As of that date, there
were 6,142,550 shares of Common Stock outstanding.
QUORUM
A quorum for the Annual Meeting will consist of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting,
present in person or by proxy.
VOTING
Each share of Common Stock outstanding on the record date is entitled to one
vote per share at the Annual Meeting. All shares represented by Proxies will be
voted in accordance with shareholder directions. If the accompanying Proxy is
properly signed and is not revoked by the shareholder, the shares it represents
will be voted at the Annual Meeting by the proxy holder in accordance with the
instructions of the shareholder. If no specific instructions are designated, the
shares will be voted as recommended by the Board of Directors.
The Company is not aware, as of the date hereof, of any matters to be voted upon
at the Annual Meeting other than as stated in the Proxy Statement and the
accompanying Notice of Annual Meeting of Shareholders. If any other matters are
properly brought before the Annual Meeting, the enclosed Proxy gives
discretionary authority to the persons named therein to vote the shares in their
best judgment.
Under Washington law and the Company's Restated Articles of Incorporation and
Restated Bylaws, if a quorum exists at the meeting, the two nominees for
election as directors who receive the greatest number of votes cast for the
election of directors by the shares present in person or represented by proxy
and entitled to vote shall be elected directors. Abstentions and broker
non-votes will have no impact on the outcome of this proposal since they have
not been cast in favor of any nominee.
The affirmative vote of a majority of the votes cast on this matter in person or
by proxy is required to approve the amendment of the Company's Stock Option Plan
for Non-Employee Directors. Abstentions and broker non-votes will have no impact
on the outcome of this proposal since they do not represent votes cast.
2
<PAGE> 5
- --------------------------------------------------------------------------------
REVOCABILITY OF PROXIES
A Proxy may be revoked at any time before it is voted at the meeting. Any
shareholder who attends the meeting and wishes to vote in person may revoke his
or her Proxy at that time. Otherwise, to revoke a Proxy a shareholder must
deliver a Proxy revocation or another duly executed Proxy bearing a later date
to the Corporate Secretary of the Company at 11255 Kirkland Way, Kirkland,
Washington 98033 before the Annual Meeting. Attendance at the Annual Meeting
will not revoke a shareholder's Proxy unless the shareholder votes in person.
SOLICITATION OF PROXIES
The proxy accompanying this proxy statement is solicited by the Board of
Directors of the Company. Proxies may be solicited by officers, directors and
regular supervisory and executive employees of the Company, none of whom will
receive any additional compensation for their services, and, in addition, the
Company has retained the services of Allen Nelson & Co. to assist in the
solicitation of proxies. Proxies may be solicited personally or by mail,
telephone, telex, telegraph or messenger. The Company will pay Allen Nelson &
Co. its reasonable and customary fees not expected to exceed $4,000, plus
reimbursement of certain out-of-pocket expenses, for its services in soliciting
proxies. The Company will also pay persons holding shares of the Common Stock in
their names or in the names of the nominees, but not owning such shares
beneficially, such as brokerage houses, banks and other fiduciaries, for the
expense of forwarding soliciting materials to their principals. All of the costs
of the solicitation of proxies will be paid by the Company.
3
<PAGE> 6
- --------------------------------------------------------------------------------
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- --------------------------------------------------------------------------------
The following tables show the persons (including any group deemed a "person"
under Section 13(d)(3) of the Securities Exchange Act of 1934) known to the
Company who beneficially own more than 5% of the Company's Common Stock as of
August 31, 1996. They also show beneficial ownership as of August 31, 1996 for
each director, for each executive officer named in the Summary Compensation
Table (the "Named Executive Officers") and for all executive officers and
directors as a group.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table shows the beneficial owners known to the Company who own
more than 5% of the Company's Common Stock. To the Company's knowledge, each of
the named persons has sole voting and investment power with respect to the
shares shown.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS OWNED
- -------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
Pioneering Management Corporation
60 State Street............................................. 574,500 9.4%
Boston, MA 02109
Boettcher Venture Capital Partners, L.P.
828 17th Street, Suite 414.................................. 417,012 6.8%
Denver, CO 80201
Cumberland Associates
1114 Avenue of the Americas................................. 370,000 6.0%
New York, NY 10036
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the SEC,
and includes voting and/or investment power with respect to the shares.
4
<PAGE> 7
- --------------------------------------------------------------------------------
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of August 31, 1996 the number of shares of
Common Stock owned by each director, each Named Executive Officer, and all
directors and executive officers as a group. Each of the named persons and
members of the group has sole voting and investment power with respect to the
shares shown, except as stated below.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
- ------------------------------------------------------------- --------------------- ----------
<S> <C> <C>
Theodore M. Wight 40,000(2) *
Robert W. O'Rear 16,000(2) *
Robert J. Gallagher 9,000(2) *
Jiri M. Nechleba 50,000 *
Stephen A. Yount 61,716(3) 1%
David A. Sperline 48,500 *
All directors and executive officers as a group (8 persons) 225,216 4%
</TABLE>
* Less than 1% of the outstanding shares of Common Stock.
(1) Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of August 31, 1996 are deemed outstanding for
computing the percentage ownership of the person holding such options, but
are not deemed outstanding for computing the percentage ownership of any
other person.
(2) Includes options to purchase 9,000 shares of Common Stock currently
exercisable or exercisable within 60 days of August 31, 1996.
(3) Includes options to purchase 45,500 shares of Common Stock currently
exercisable or exercisable within 60 days of August 31, 1996 and 16,216
shares held by the INTERLINQ 401(k) Plan. Mr. Yount shares voting power with
respect to these shares with the Plan Trustees. Mr. Yount disclaims
beneficial ownership with respect to the shares held by the INTERLINQ 401(k)
Plan.
5
<PAGE> 8
- --------------------------------------------------------------------------------
ELECTION OF DIRECTORS
(PROPOSAL 1)
- --------------------------------------------------------------------------------
The Company's Board of Directors (the "Board") consists of five directors and is
divided into two classes, with each director serving for a two-year term, with
approximately one-half of the directors, and all the directors in one class,
standing for election each year. Two directors presently serve in Class I and
two directors presently serve in Class II, with one vacancy in Class II. This
year, two Class I directors are to be elected.
Although the Board is informed that each of the two nominees is willing to serve
as a director and it is not anticipated that any nominee will be unavailable for
election, if for any reason either of the nominees shall become unavailable for
election, the Proxy will be voted as directed by the Board.
The Board has nominated the following candidates to stand for election as Class
I directors, both of whom are nominated for terms of two years, until the
Company's Annual Meeting of Shareholders in 1998, and in each case until his
respective successor shall be elected and qualify: Robert W. O'Rear and Robert
J. Gallagher. Unless otherwise instructed, the persons named in the accompanying
Proxy intend to vote shares represented by such Proxies for Mr. O'Rear and Mr.
Gallagher.
Information as to the nominees and as to each other director whose term will
continue after the Annual Meeting is given in the following section. Unless
otherwise indicated, the nominees have been engaged in the same principal
occupation for the past five years. Directors' ages are as of June 30, 1996.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES.
- --------------------------------------------------------------------------------
NOMINEES FOR ELECTION AS CLASS I DIRECTORS
TERMS EXPIRING IN 1998
- --------------------------------------------------------------------------------
ROBERT W. O'REAR
Director
since 1994
Age 53
Since 1991, he has been President of O'Rear Cattle, Inc., a beef cattle company.
From 1978 through 1993, Mr. O'Rear served as the manager of subsidiary
development for Microsoft Corporation.
- --------------------------------------------------------------------------------
ROBERT J. GALLAGHER
Director
since 1994
Age 40
Since 1987, Mr. Gallagher has been an executive officer with North American
Mortgage Company, a California mortgage banking company; from 1987 until 1992,
he served as Senior Vice President and Chief Financial Officer, and thereafter
has served as Executive Vice President and Chief Administrative Officer.
6
<PAGE> 9
- --------------------------------------------------------------------------------
CONTINUING CLASS II DIRECTORS
TERMS EXPIRING IN 1997
- --------------------------------------------------------------------------------
JIRI M. NECHLEBA
Director, Chairman of the Board
since 1995
Age 38
Mr. Nechleba has been President and Chief Executive Officer since September 11,
1995, and Chairman of the Board since November 6, 1995. From 1993 to 1995, he
served as Senior Vice President and General Manager of SolutionWare, a division
of A.C. Nielsen, a Dun & Bradstreet subsidiary, and a provider of information
solutions to the consumer packaged goods industry. From 1983 to 1993, Mr.
Nechleba was an independent management consultant to a variety of industries.
- --------------------------------------------------------------------------------
THEODORE M. WIGHT
Director
since 1985
Age 53
Mr. Wight was elected to the Board of Directors on August 19, 1985. Since 1994,
Mr. Wight has been general partner of the general partner of Pacific Northwest
Partners SBIC, L.P., a venture capital firm. Mr. Wight has also served as a
general partner of the general partner of Walden Investors since 1983. Mr. Wight
is a member of the board of directors of RehabCare Corp. and Eagle Hardware &
Garden, Inc.
7
<PAGE> 10
- --------------------------------------------------------------------------------
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
During fiscal year 1996, there were nine meetings of the Company's Board of
Directors. All of the incumbent Directors attended at least 75% of the meetings
of the Board of Directors and its committees held during the fiscal year. The
standing committees of the Board of Directors include an Audit Committee and a
Compensation Committee, but do not include a Nominating Committee. The full
Board of Directors selects nominees for election as directors.
The Audit Committee consists of Theodore M. Wight and Robert J. Gallagher. Four
meetings of the Audit Committee were held during the last fiscal year. The Audit
Committee's responsibilities include: (i) reviewing the plan, scope and results
of the independent audit and reporting to the full Board whether financial
information is fairly presented and whether generally accepted accounting
principles are followed; (ii) monitoring the internal accounting and financial
functions of the Company to assure quality of staff and proper internal
controls; and (iii) investigating conflicts of interest, ethics and compliance
with laws and regulations.
The Compensation Committee consists of Theodore M. Wight, Robert J. Gallagher
and Robert W. O'Rear. Five meetings of the Compensation Committee were held
during the last fiscal year. The Compensation Committee establishes base
salaries and incentive compensation for all executive officers of the Company.
The Committee also administers the INTERLINQ Software Corporation 1985 Restated
Stock Option Plan (the "1985 Option Plan") and the INTERLINQ Software
Corporation 1993 Stock Option Plan (the "1993 Option Plan").
- --------------------------------------------------------------------------------
DIRECTORS' FEES
- --------------------------------------------------------------------------------
The Company pays each Director $1,000 in cash compensation for attendance at
Board of Director meetings, and reimburses Directors for their out-of-pocket
expenses incurred for personal attendance at Board meetings. In addition,
subsequent to the resignation of Robert M. Delf as President and Chief Executive
Officer in January 1995, Mr. Wight began receiving $2,500 per month in retainer
and the other Directors began receiving $1,000 per month in retainer. These
retainers were paid until the Company hired Mr. Nechleba as its new President
and Chief Executive Officer in September 1995.
Non-employee Directors also receive stock option grants to purchase shares of
Common Stock under the Company's Stock Option Plan for Non-Employee Directors
upon their initial appointment or election as a director and annually
thereafter. See "Approval of Amendment to the Stock Option Plan for Non-Employee
Directors."
8
<PAGE> 11
- --------------------------------------------------------------------------------
COMPENSATION OF EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
Compensation Summary
The following table shows, for the Chief Executive Officer and other executive
officers during the fiscal year ended June 30, 1996, information concerning
compensation paid or accrued for services to the Company in all capacities for
that fiscal year. No other officers of the Company received salary plus bonus
which exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
--------------------- OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) (#) ($)
- --------------------------------------- ----- --------- ------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Jiri M. Nechleba (1) 1996 141,908 -- 250,000 11,610(3)
Chairman of the Board, President and 1995 -- -- -- --
Executive Officer 1994 -- -- -- --
Stephen A. Yount (2) 1996 108,900 12,600 12,000 --
Interim President, Vice President -- 1995 81,775 -- 26,000 --
Finance, Chief Financial Officer and 1994 75,000 16,380 1,000 --
Secretary
David A. Sperline 1996 97,101 12,600 12,000 --
Vice President -- Customer Service 1995 79,809 -- 26,000 --
1994 75,000 16,380 1,000 --
</TABLE>
(1) Mr. Nechleba joined the Company as President and Chief Executive Officer on
September 11, 1995. He was elected as Chairman of the Board on November 6,
1995.
(2) Mr. Yount served as Interim President due to the resignation of Mr. Delf on
January 31, 1995, until the Company hired Mr. Nechleba as its new President
and Chief Executive Officer on September 11, 1995. See "Compensation
Committee Report on Executive Compensation -- Chief Executive Officer
Compensation."
(3) Represents reimbursement to Mr. Nechleba for his moving expenses associated
with his relocation upon joining the company as President and Chief
Executive Officer.
9
<PAGE> 12
- --------------------------------------------------------------------------------
Option Grants
Shown below is certain information concerning options granted to the Named
Executive Officers during the fiscal year ended June 30, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (#) FISCAL YEAR ($/SHARE)(1) DATE 5% 10%
- ------------------ ----------- ------------ ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jiri M. Nechleba 142,855(2) 34.2% 3.50 9/11/05 $814,435 $1,296,852
107,145(3) 25.7% 3.50 9/11/05 610,848 972,673
Stephen A. Yount 12,000(4) 2.9% 3.4375 1/19/06 67,192 106,992
David A. Sperline 12,000(4) 2.9% 3.4375 1/19/06 67,192 106,992
</TABLE>
- ---------------
(1) The option exercise price as determined by the Board, is equal to the fair
market value of the underlying Common Stock on the date of grant.
(2) The options granted are incentive stock options that vest in yearly
increments over a five-year period, becoming fully vested on September 11,
2000. Options not already exercisable generally become fully vested and
exercisable upon mergers or reorganizations pursuant to the Company's 1993
Option Plan. Each option has a term of ten years.
(3) The options granted are non-qualified stock options that vest in yearly
increments over a five-year period, becoming fully vested on September 11,
2000. Options not already exercisable generally become fully vested and
exercisable upon mergers or reorganizations pursuant to the Company's 1993
Option Plan. Each option has a term of ten years.
(4) The options granted are incentive stock options that vest in yearly
increments over a four-year period, becoming fully vested on January 19,
2000. Options not already exercisable generally become fully vested and
exercisable upon mergers or reorganizations pursuant to the Company's 1993
Option Plan. Each option has a term of ten years.
10
<PAGE> 13
- --------------------------------------------------------------------------------
Option Exercises and Fiscal Year-End Values
Shown below is information with respect to the exercise of options to purchase
the Company's Common Stock granted in fiscal 1996 and prior years under the 1993
Stock Option Plan and the 1985 Restated Stock Option Plan to the Named Executive
Officers and stock options held by them as of June 30, 1996.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END
OPTION VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
ACQUIRED JUNE 30, 1996(#) JUNE 30, 1996($)
ON VALUE --------------------------- -----------------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE(2)
- ----------------- ---------- --------------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Jiri M. Nechleba -- -- -- 250,000 -- $ 250,000
Stephen A. Yount 8,000 $20,000 45,000 32,000 $ 147,453 35,110
David A. Sperline 5,000 12,500 48,000 32,000 159,453 35,110
</TABLE>
(1) This amount represents the aggregate of the number of shares acquired on
exercise multiplied by the difference between the closing price of the
Common Stock on the Nasdaq National Market on the respective option exercise
date minus the exercise price for the relevant option.
(2) This amount represents the aggregate of the number of in-the-money options
multiplied by the difference between the closing price of the Common Stock
on the Nasdaq National Market on June 30, 1996 ($4.50) and the exercise
prices for the relevant options.
11
<PAGE> 14
- --------------------------------------------------------------------------------
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS
- --------------------------------------------------------------------------------
Termination of Employment
If Mr. Nechleba is terminated within his first three years of employment for any
reason other than cause, he will receive severance payments equal to one year of
his base salary.
1993 Stock Option Plan and 1985 Restated Stock Option Plan
The 1993 Stock Option Plan provides that, upon the occurrence of certain
transactions, including certain mergers and business combinations involving the
Company, outstanding options will become fully vested and exercisable. Such
options, if not exercised, will then terminate upon consummation of such
transaction. In the alternative, at the discretion of the Company and the other
participants in any such transaction, such options may be assumed by the
acquiring or surviving entity.
Stock Option Plan for Non-Employee Directors
The Stock Option Plan for Non-Employee Directors provides that upon the
occurrence of certain events, including certain mergers and business
combinations involving the Company, outstanding options will become fully vested
and exercisable for a period of twenty days prior to the consummation of such
transaction whereupon such options, if not exercised, will terminate unless
converted in a stock-for-stock exchange.
12
<PAGE> 15
- --------------------------------------------------------------------------------
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The Compensation Committee of the Board of Directors (the "Committee") for
fiscal year 1996 consisted of three members of the Board, who are all
non-employee directors of the Company. The Committee is responsible for
reviewing and approving base salaries for all executive officers, the level of
participation in the executive bonus program, the company-wide profit sharing
plan and any changes to the design of these plans. The Committee also
administers the 1993 Option Plan and 1985 Option Plan. Decisions made by the
Committee relating to compensation of executive officers are reviewed by the
full Board of Directors.
Executive Compensation Policies and Performance Measures
The Company's executive compensation policies have been developed to meet the
following objectives:
- - Attract and retain key executives critical to the Company's long-term success;
- - Reward key executives for their contributions to the executive team in the
development and successful execution of product, marketing, sales and business
strategies; and
- - Motivate key executives to make decisions and take actions which increase the
value of the Common Stock over the long term.
The Committee uses a combination of cash- and equity-based programs to
compensate key executives.
Cash-Based Compensation
Base salaries for all executive officers are reviewed annually. In evaluating
executive salaries, the Committee used various salary surveys of compensation
paid at companies of similar size in the software industry and also continued to
reference the executive compensation review performed for the Committee by an
independent compensation consultant during fiscal year 1995. Additionally,
salaries are based upon a review of the officer's contribution to the team in
accomplishing Company short- and long-term objectives. Short-term objectives
include sales growth from new and existing products and financial performance
measures which include gross margin, operating margin, net income and earnings
per share. Long-term objectives include the timely development of new products,
enhancements to existing products, identification of new markets, development
and execution of plans to address identified market opportunities, and share
price appreciation. The Committee does not place any specific weighting on these
individual factors in determining executive officer salary levels, but instead
evaluates the overall impact of achieving these short- and long-term objectives
on the return on shareholders' equity. Because the Committee adjusted the
executive officers' base salaries late in the fiscal year ended June 30, 1995,
based upon the compensation review performed by an independent compensation
consultant discussed above, there were no adjustments to executive base salaries
during the fiscal year ended June 30, 1996. In general, based upon the above
ongoing review for each executive officer, the Committee targets its base
salaries for all of its executive officers from the 70th percentile to the 85th
percentile of the salary grade determined from referencing the various salary
surveys for comparable positions. Because the salary surveys used are published
confidentially, without listing the participants, the Company is not aware if
any of the companies in the S&P Computer Software and Services Index presented
in the Performance Graph with this Proxy Statement, were also in the these
salary surveys.
The Company provides executive officers with incentive compensation in the form
of its Executive Bonus Plan. This plan was designed to ensure that a high
percentage of each executive officer's total potential cash compensation is
based on a quantitative evaluation of the Company's financial performance. The
plan's payout formula provides for payouts on a sliding scale based upon
achieving a target level of profitability before payment of executive bonuses,
employee profit sharing and income taxes. No payout
13
<PAGE> 16
- --------------------------------------------------------------------------------
will be made, however, if the Company fails to achieve a minimum pre-determined
level of profitability. Because profit targets were met for the fiscal year
ended June 30, 1996, executive bonuses were paid.
Equity-Based Compensation
The Company provides its executive officers with long-term incentives through
its 1993 Stock Option Plan. The primary objective of this plan is to provide an
incentive for the executives to make decisions and take actions which maximize
long-term shareholder value. The plan design promotes this long-term focus using
vesting periods. Options currently vest in either four or five equal annual
installments beginning one year from date of grant. The Compensation Committee
reviews and approves all grants made under the plan. The Committee generally
grants executive officers options upon hire, and additional grants are reviewed
annually. The number of new grants each year for both the executive officers and
the rest of the Company's employees is based primarily on relative salary
levels. The Committee reviews the number of grants already awarded each
executive officer before approval of additional grants.
CHIEF EXECUTIVE OFFICER COMPENSATION
Cash-Based Compensation
Mr. Nechleba joined the Company as President and Chief Executive Officer on
September 11, 1995. In assembling the initial compensation package for Mr.
Nechleba, the Committee relied on a combination of the executive compensation
report to the Committee from an independent compensation consultant during
fiscal year 1995, and the compensation package recommended by the executive
recruiter retained by the Committee to search for a new President and Chief
Executive Officer. Based on these factors, Mr. Nechleba's base salary was
established at $175,000 per year.
In subsequent reviews of the chief executive officer's (the "CEO") compensation
package, the Committee will pursue the same objectives which apply for the
Company's other executive officers. The committee applies a combination of
qualitative and quantitative performance measures in developing the CEO's base
salary. As mentioned previously in this report, these include short-term
objectives of sales growth from new and existing products and financial
performance measures which include gross margin, operating margin, net income
and earnings per share. Long-term objectives include the timely development of
new products, enhancements to existing products, identification of new markets,
development and execution of plans to address identified market opportunities,
and share price appreciation. The Committee does not place any specific
weighting on these individual factors in determining the CEO's salary level, but
instead evaluates the overall impact of achieving these short- and long-term
objectives on the return on shareholders' equity.
In order to promote long-term shareholder value, the CEO's total potential
compensation generally includes a relatively high proportion in the form of its
Executive Bonus Plan. This plan is based on a quantitative evaluation of the
Company's financial performance. The plan's payout formula provides for payouts
on a sliding scale based upon achieving a target level of profitability before
payment of executive bonuses, employee profit sharing and income taxes. No
payout will be made, however, if the Company fails to achieve a minimum
pre-determined level of profitability. Although profit targets were met for the
fiscal year ended June 30, 1996, Mr. Nechleba, who was only employed for a
portion of the fiscal year, declined to receive a bonus.
14
<PAGE> 17
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Equity-Based Compensation
The Company provides its CEO with long-term incentives through its 1993 Stock
Option Plan. The primary objective of this plan is to provide an incentive for
the CEO to make decisions and take actions which maximize long-term shareholder
value. The plan design promotes this long-term focus using vesting periods. When
Mr. Nechleba joined the Company as President and Chief Executive Officer on
September 11, 1995, he was granted an option to purchase 250,000 shares of the
Company's Common Stock, vesting in five equal annual installments beginning on
September 11, 1996.
COMPENSATION COMMITTEE
Robert W. O'Rear
Theodore M. Wight
Robert J. Gallagher
15
<PAGE> 18
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PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The following graph compares the cumulative total return to shareholders on the
Common Stock with the cumulative total return of the Standard and Poor's 500
Stock Index ("S & P 500 Index") and the Standard and Poor's Computer Software &
Services Index ("S & P Computer Software & Services Index") for the period
beginning on April 27, 1993, the date of the Company's initial public offering,
and ending on June 30, 1996, the end of the Company's last fiscal year.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
INTERLINQ SOFTWARE CORPORATION,
S & P 500 INDEX AND
S & P COMPUTER SOFTWARE & SERVICES INDEX
(FISCAL YEAR ENDED JUNE 30)
<TABLE>
<CAPTION>
COMPUTER
MEASUREMENT PERIOD INTERLINQ S&P 500 IN- (SOFTWARE &
(FISCAL YEAR COVERED) SOFTWARE CORP DEX SVC)-500
<S> <C> <C> <C>
27 APR 93 100 100 100
JUN 93 87.50 103.49 111.33
JUN 94 68.75 104.95 126.12
JUN 95 43.75 132.31 196.33
JUN 96 56.25 166.71 261.52
</TABLE>
Assumes $100 invested on April 27, 1993, in the Common Stock, S & P 500 Index
and the S & P Computer Software & Services Index, with all dividends reinvested.
Stock price performance shown above for the Common Stock is historical and not
necessarily indicative of future price performance.
16
<PAGE> 19
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APPROVAL OF AMENDMENTS TO THE STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS
(PROPOSAL 2)
- --------------------------------------------------------------------------------
Shareholders are asked to approve amendments to the Company's Stock Option Plan
for Non-Employee Directors (the "Directors' Plan") to increase the number of
shares of Common Stock to be granted under the Plan by 140,000 from 75,000 to
215,000 shares, to increase the number of shares of Common Stock subject to
options granted automatically each year immediately following the Annual Meeting
to each eligible director from 3,000 shares to 7,500 shares, to increase the
number of shares of Common Stock subject to options granted automatically to
eligible Directors upon their initial election to the Board of Directors from
3,000 shares to 10,000 shares, and to provide for the grant on January 19, 1996
to each eligible director as of that date an option to purchase 10,000 shares of
Common Stock at an exercise price of $3.4375 per share. Options to purchase a
total of 40,000 shares of Common Stock were granted on that date to four
eligible Directors subject to shareholder approval of the proposed amendments at
the Annual Meeting. Unless instructed otherwise, it is the intention of the
persons named in the accompanying Proxy to vote shares represented by properly
executed Proxies for the amendment of the Company's Directors' Plan. A copy of
the Directors' Plan, as amended, is attached to this Proxy Statement as Exhibit
A. The following description of the Directors' Plan is a summary and does not
purport to be fully descriptive. Reference is made to Exhibit A for more
detailed information.
The Board of Directors believes that the additional options and the increased
grants to eligible Directors would, among other things, promote the interests of
the Company and its shareholders by assisting the Company in attracting and
retaining experienced and knowledgeable non-employee Directors and to provide an
incentive to the Directors by creating and increasing a proprietary interest in
the Company's long-term success and progress. The Board believes that the
existing grant structure does not adequately achieve these objectives and
therefore proposes the above increases in the number of shares in the automatic
grants and the increase in the number of shares reserved for issuance pursuant
to the Directors' Plan. The Board of Directors believes that the 140,000
additional shares of Common Stock available for issuance as a result of the
amendment should be sufficient to meet the Company's requirements for
approximately three years.
The Directors' Plan, which permits options to purchase an aggregate of 75,000
shares of Common Stock to be granted to directors who are not employees of the
Company, was originally adopted by the Board of Directors on February 17, 1993
and approved by the shareholders on March 12, 1993. The Directors' Plan provides
for automatic grants of nonqualified stock options at an exercise price that is
equal to the fair market value per share at the date of grant. Under the
Directors' Plan as proposed to be amended, each non-employee Director elected or
appointed other than at the Annual Meeting of Shareholders will receive an
initial grant of 10,000 shares upon becoming a Director. Each continuing
Director will receive an annual grant of 7,500 shares effective as of the date
of the Company's Annual Meeting of Shareholders, commencing with the 1997 Annual
Meeting. Options granted under the Directors' Plan vest six months from the date
of grant. Options granted under the Directors' Plan expire five years from the
date of grant or, if earlier, three months after the optionee's termination of
service with the Company or one year after the optionee's death or disability.
The federal income tax consequences to the Company and to any person granted an
option under the Director's Plan under the existing applicable provisions of the
Code and the regulations thereunder are substantially as follows. Under present
law and regulations, no income will be recognized by a participant upon the
grant of stock options.
On the exercise of an option, the optionee will recognize taxable ordinary
income in an amount equal to the excess of the fair market value of the shares
acquired over the option price. Upon a later sale of those shares, the optionee
will have short-term or long-term capital gain or loss, as the case may be, in
an amount equal to the difference between the amount realized on such sale and
the tax basis of the
17
<PAGE> 20
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- --------------------------------------------------------------------------------
shares sold. If payment of the option price is made entirely in cash, the tax
basis of the shares will be equal to their fair market value on the exercise
date (but not less than the option price), and the shares' holding period will
begin on the day after the exercise date.
If the optionee uses already-owned shares to exercise an option in whole or in
part, the transaction will not be considered a taxable disposition of the
already-owned shares. The optionee's tax basis and holding period of the
already-owned shares will be carried over to the equivalent number of shares
received upon exercise. The tax basis of the additional shares received upon
exercise will be the fair market value of the shares on the exercise date (but
not less than the amount of cash, if any, used in payment), and the holding
period for such additional shares will begin on the day after the exercise date.
In all the foregoing cases the Company will be entitled to a deduction at the
same time and in the same amount as the optionee recognizes ordinary income.
As of June 30, 1996, no options to purchase shares of Common Stock granted
pursuant to the Directors' Plan had been exercised, options to purchase 79,000
shares of Common Stock were outstanding and options to purchase 136,000 shares
of Common Stock remained available for grant, subject to shareholder approval of
the proposed amendment to increase the number of shares authorized for issuance
under the Directors' Plan. The outstanding options were held by five individuals
and were exercisable at an average exercise price of $5.1346 per share. The
Directors' Plan continues in effect unless terminated by the Board of Directors
or the Company's shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT OF
THE DIRECTORS' PLAN.
18
<PAGE> 21
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
The Board of Directors has selected KPMG Peat Marwick LLP, certified public
accountants, to act as independent auditor of the Company for the fiscal year
ending June 30, 1997. KPMG Peat Marwick LLP has been auditor of the Company
since 1985.
A representative of KPMG Peat Marwick LLP is expected to be present at the
Annual Meeting, with the opportunity to make a statement, if the representative
so desires, and is expected to be available to respond to appropriate questions
from shareholders.
- --------------------------------------------------------------------------------
DEADLINE FOR RECEIPT OF SHAREHOLDERS' PROPOSALS
- --------------------------------------------------------------------------------
Proposals by eligible shareholders of the Company that are intended to be
presented to the shareholders at the Company's 1997 Annual Meeting of
Shareholders must be in writing and received by the Company no later than June
6, 1997, in order that they may be included in the Proxy Statement and proxy
card for that meeting.
- --------------------------------------------------------------------------------
FILING OF FORMS PURSUANT TO SECTION 16
OF THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
Based upon a review of Company records, one officer, Patricia R. Graham, filed a
late Form 3 with respect to her appointment as Vice President of Sales and
Marketing. A Form 3 was filed with respect to that transaction on June 3, 1996.
Director, Theodore M. Wight, filed a late Form 4 with respect to the purchase of
5,000 shares of common stock occurring on May 30, 1996. A Form 4 was filed with
respect to that transaction on September 25, 1996.
19
<PAGE> 22
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OTHER MATTERS
- --------------------------------------------------------------------------------
The Company is not aware of any other matters to be submitted at the Annual
Meeting. If any other matters properly come before the Annual Meeting, however,
it is the intention of the persons named in the enclosed Proxy to vote the
shares they represent as the Board of Directors may recommend. Copies of the
Company's Annual Report to Shareholders for the fiscal year ended June 30, 1996,
are being mailed to shareholders, together with this Proxy Statement, the Proxy
and the Notice of Annual Meeting of Shareholders. Additional copies may be
obtained from the Corporate Secretary of the Company, 11255 Kirkland Way,
Kirkland, Washington 98033.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
Stephen A. Yount
Corporate Secretary
Dated: October 4, 1996
Kirkland, Washington
20
<PAGE> 23
EXHIBIT A
INTERLINQ SOFTWARE CORPORATION
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
AS AMENDED AND RESTATED ON JANUARY 19, 1996
- --------------------------------------------------------------------------------
SECTION 1. PURPOSES
The purposes of the Amended and Restated INTERLINQ Software Corporation Stock
Option Plan for Non-Employee Directors (the "Plan") are to attract and retain
the services of experienced and knowledgeable non-employee directors of
INTERLINQ Software Corporation (the "Corporation") and to provide an incentive
for such directors to increase their proprietary interests in the Corporation's
long-term success and progress.
SECTION 2. SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with Section 6 hereof, the total number of
shares of the Corporation's common stock (the "Common Stock") for which options
may be granted under the Plan is 215,000 (the "Shares"). The Shares shall be
shares presently authorized but unissued or subsequently acquired by the
Corporation and shall include shares representing the unexercised portion of any
option granted under the Plan which expires or terminates without being
exercised in full.
SECTION 3. ADMINISTRATION OF THE PLAN
The administrator of the Plan (the "Plan Administrator") shall be the Board of
Directors of the Corporation (the "Board"). Subject to the terms of the Plan,
the Plan Administrator shall have the power to construe the provisions of the
Plan, to determine all questions arising thereunder and to adopt and amend such
rules and regulations for the administration of the Plan as it may deem
desirable. No member of the Plan Administrator shall participate in any vote by
the Plan Administrator on any matter materially affecting the rights of any such
member under the Plan.
SECTION 4. PARTICIPATION IN THE PLAN
Each member of the Board elected or appointed who is not otherwise an employee
of the Corporation or any parent or subsidiary corporation (an "Eligible
Director") shall be eligible to participate in the Plan.
4.1 INITIAL GRANTS
Commencing on February 17, 1993, and ending on January 19, 1996, each Eligible
Director who is initially appointed or elected (other than at an Annual Meeting
of Shareholders as described in the Corporation's Restated Bylaws (an "Annual
Meeting")) to fill a vacancy on the Board shall automatically receive the grant
of an option (an "Initial Grant") to purchase 3,000 Shares upon such election.
On January 19, 1996, each Eligible Director shall automatically receive an
Initial Grant to purchase 10,000 Shares, and each Eligible Director who is
initially appointed or elected to fill a vacancy on the Board after that date
shall automatically receive an Initial Grant to purchase 10,000 Shares on the
date of such appointment or election, subject in both cases to shareholder
approval at the 1996 Annual Meeting of the amendments to the Plan adopted by the
Board on January 19, 1996.
4.2 ANNUAL GRANTS
Commencing with the 1993 Annual Meeting and ending with the 1996 Annual Meeting,
each Eligible Director shall automatically receive the grant of an option (an
"Annual Grant") to purchase 3,000 Shares immediately following each Annual
Meeting, except that the Annual Grants for 1993 shall be granted on the first
day on which the Corporation's Common Stock is publicly traded. Commencing with
the 1997 Annual Meeting, each Eligible Director shall automatically receive an
Annual Grant to purchase 7,500 Shares immediately following each Annual Meeting,
subject to shareholder approval at the 1996 Annual
<PAGE> 24
- --------------------------------------------------------------------------------
Meeting of the amendments to the Plan adopted by the Board on January 19, 1996.
Each Eligible Director shall be entitled to receive an Annual Grant
notwithstanding the receipt of an Initial Grant in the same calendar year.
SECTION 5. OPTION TERMS
Each option granted to an Eligible Director under the Plan and the issuance of
Shares thereunder shall be subject to the following terms:
5.1 OPTION AGREEMENT
Each option granted under the Plan shall be evidenced by an option agreement (an
"Agreement") duly executed on behalf of the Corporation. Each Agreement shall
comply with and be subject to the terms and conditions of the Plan. Any
Agreement may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Plan Administrator.
5.2 OPTION EXERCISE PRICE
The option exercise price for each option granted under the Plan shall be the
fair market value of the Shares covered by the option at the time the option is
granted. For purposes of the Plan, "fair market value" shall be the average of
the high and low sales prices at which the Common Stock was sold on such date as
reported by the Nasdaq National Market on such date; provided, however, that (i)
if no Common Stock was traded on such date, fair market value shall be based on
the high and low sales prices on the next preceding date on which Common Stock
was so traded and (ii) with respect to the initial grants hereunder, on the
effective date of the Corporation's initial public offering of Common Stock,
fair market value shall be the price at which Common Stock was sold to the
public in such initial public offering.
5.3 VESTING AND EXERCISABILITY
Annual Grants and Initial Grants to an Eligible Director shall vest and be fully
exercisable six months after the date of grant.
5.4 TIME AND MANNER OF EXERCISE OF OPTION
Each option may be exercised in whole or in part at any time and from time to
time; provided, however, that no fewer than 100 Shares (or the remaining Shares
then purchasable under the option, if less than 100 Shares) may be purchased
upon any exercise of option rights hereunder and that only whole Shares will be
issued pursuant to the exercise of any option. Any option may be exercised by
giving written notice, signed by the person exercising the option, to the
Corporation stating the number of Shares with respect to which the option is
being exercised, accompanied by payment in full for such Shares, which payment
may be in whole or in part (i) in cash or by check, (ii) in shares of Common
Stock already owned for at least six months by the person exercising the option,
valued at fair market value at the time of such exercise, or (iii) by delivery
of a properly executed exercise notice, together with irrevocable instructions
to a broker, to properly deliver to the Corporation the amount of sale or loan
proceeds to pay the exercise price, all in accordance with the regulations of
the Federal Reserve Board.
A-2
<PAGE> 25
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5.5 TERM OF OPTIONS
Each option shall expire five years from the date of the granting thereof, but
shall be subject to earlier termination as follows:
(a) In the event that an optionee ceases to be a director of the
Corporation for any reason other than the death or total disability of the
optionee, the unvested portion of the options granted to such optionee
shall terminate immediately and the vested portion of the options granted
to such optionee may be exercised by him or her only within three months
after the date such optionee ceases to be a director of the Corporation.
(b) In the event of the death of an optionee, whether during the optionee's
service as a director or during the three-month period referred to in
Section 5.5(a), the unvested portion of the options granted to such
optionee shall terminate immediately and the vested portion of the options
granted to such optionee shall be exercisable, and such options shall
expire (unless by their terms they sooner terminate and expire) unless
exercised within one year after the date of the optionee's death, by the
legal representatives or the estate of such optionee, by any person or
persons whom the optionee shall have designated in writing on forms
prescribed by and filed with the Corporation or, if no such designation has
been made, by the person or persons to whom the optionee's rights have
passed by will or the laws of descent and distribution.
(c) In the event that an optionee suffers a total disability during the
optionee's service as a director, the unvested portion of the options
granted to such optionee shall terminate immediately and the vested portion
of the options granted to such optionee shall be exercisable, and such
options shall expire unless exercised within one year of the optionee's
cessation of service as a director (unless by its terms it sooner
terminates and expires). As used in the Plan, the term "total disability"
refers to a mental or physical impairment of the optionee which is expected
to result in death or which has lasted or is expected to last for a
continuous period of 12 months or more and which causes the optionee to be
unable, in the opinion of the Corporation and two independent physicians,
to perform his or her duties for the Corporation. Total disability shall be
deemed to have occurred on the first day after the Corporation and the
independent physicians have furnished their opinion of total disability to
the Plan Administrator.
5.6 TRANSFERABILITY
During an optionee's lifetime, an option may be exercised only by the optionee
or a permitted assignee or transferee (as provided below). Options granted under
the Plan and the rights and privileges conferred thereby shall not be subject to
execution, attachment or similar process and may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than (a) by will or by the applicable laws of descent and distribution or
(b) by gift or other transfer to either (i) a spouse or other immediate family
member or (ii) any trust or estate in which the original optionee or such
person's spouse or other immediate family member has a substantial beneficial
interest; provided, however, that any option so assigned or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the award. An optionee may also designate in writing during the
optionee's lifetime a beneficiary to receive and exercise options in the event
of the optionee's death (as provided in Section 5.5(b)). Any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of any option under
the Plan or of any right or privilege conferred thereby, contrary
A-3
<PAGE> 26
- --------------------------------------------------------------------------------
to the provisions of the Plan, or the sale or levy or any attachment or similar
process upon the rights and privileges conferred hereby, shall be null and void.
5.7 HOLDING PERIOD
If a person subject to Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), sells Shares obtained upon the exercise of any
option granted under the Plan within six months after the date the option was
granted, such sale may result in short-swing profit liability under Section 16
of the Exchange Act, as amended.
5.8 PARTICIPANT'S OR SUCCESSOR'S RIGHTS AS SHAREHOLDER
Neither the recipient of an option under the Plan nor the optionee's
successor(s) in interest shall have any rights as a shareholder of the
Corporation with respect to any Shares subject to an option granted to such
person until such person becomes a holder of record of such Shares.
5.9 LIMITATION AS TO DIRECTORSHIP
Neither the Plan, nor the granting of an option, nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that an optionee has a right to continue as a
director for any period of time or at any particular rate of compensation.
5.10 REGULATORY APPROVAL AND COMPLIANCE
The Corporation shall not be required to issue any certificate or certificates
for Shares upon the exercise of an option granted under the Plan, or record as a
holder of record of Shares the name of the individual exercising an option under
the Plan, without obtaining to the complete satisfaction of the Plan
Administrator the approval of all regulatory bodies deemed necessary by the Plan
Administrator, and without complying, to the Plan Administrator's complete
satisfaction, with all rules and regulations under federal, state or local law
deemed applicable by the Plan Administrator.
SECTION 6. CAPITAL ADJUSTMENTS
The aggregate number of Shares with respect to which options may be granted
under the Plan, as provided in Section 2 hereof, the number and class of Shares
to be granted pursuant to each Initial Grant and each Annual Grant, the number
of Shares subject to each outstanding option and the price per share specified
in such options, shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
subdivision or consolidation of shares or any other similar capital adjustment,
the payment of a stock dividend or a merger or consolidation of the Corporation,
or the sale of all or substantially all of the assets of, or the liquidation of,
the Corporation.
Upon the effective date of a dissolution or liquidation of the Company, or of a
reorganization, merger or consolidation of the Company with one or more
corporations which results in more than eighty percent of the outstanding voting
shares of the Company being owned by one or more affiliated corporations or
other affiliated entities, or of a transfer of all or substantially all the
assets or more than eighty percent of the then outstanding shares of the Company
to another corporation or other entity (each, a "corporate transaction"), other
than a merger of the Company in which the holders of Common Stock immediately
prior to the merger have the same proportionate ownership of common stock in the
surviving corporation immediately after the merger, a mere reincorporation or
the creation of a holding company, then the exercisability of each option
outstanding under the Plan shall be automatically accelerated so that each
A-4
<PAGE> 27
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such option shall, immediately prior to the specified effective date for any
such corporate transaction, become fully exercisable with respect to the total
number of Shares purchasable under such option and may be exercised for all or
any portion of such Shares. To the extent such option is not exercised, it shall
terminate, except that, in the event of such a corporate transaction in which
shareholders of the Company receive capital stock of another corporation in
exchange for their shares of Common Stock, such unexercised option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. Any such
assumed or equivalent option shall be fully exercisable with respect to the
total number of Shares purchasable under such option. Upon a merger of the
Company in which the holders of Common Stock immediately prior to the merger
have the same proportionate ownership of common stock in the surviving
corporation immediately after the merger or the creation of a holding company,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or subsidiary of
such corporation and the vesting schedule set forth in the instrument evidencing
the option shall continue to apply to such assumed or equivalent option.
Adjustments under this Section 6 shall be made by the Plan Administrator, whose
determination shall be final. No fractional Shares shall be issued under the
Plan or pursuant to any adjustment hereunder.
SECTION 7. EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan shall be
borne by the Corporation; none of such expenses shall be charged to any
optionee.
SECTION 8. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon adoption by the Corporation's shareholders. The
Plan shall continue in effect until it is terminated by action of the Board or
the Corporation's shareholders, but such termination shall not affect the then
outstanding terms of any options.
SECTION 9. COMPLIANCE WITH RULE 16B-3
It is the intention of the Corporation that the Plan comply in all respects with
the requirements for a formula plan within the meaning attributed to that term
for purposes of Rule 16b-3 promulgated under Section 16(b) of the Exchange Act.
Therefore, if any Plan provision is later found not to be in compliance with
such requirements, that provision shall be deemed null and void, and in all
events the Plan shall be construed in favor of its meeting such requirements.
SECTION 10. TERMINATION AND AMENDMENT OF THE PLAN
The Board may amend, terminate or suspend the Plan at any time, in its sole and
absolute discretion; provided, however, that if required to qualify the Plan as
a formula plan for purposes of Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act, no amendment may be made more than once every six months that
would change the amount, price, timing or vesting of the options, other than to
comport with changes in the Internal Revenue Code of 1986, as amended, or the
rules and regulations promulgated thereunder; and provided further that, no
amendment that would
(a) materially increase the number of Shares that may be issued under the
Plan, or
(b) otherwise require shareholder approval under any applicable law or
regulation
shall be made without the approval of the Corporation's shareholders.
A-5
<PAGE> 28
PROXY
INTERLINQ Software Corporation
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD NOVEMBER 6, 1996
The undersigned hereby appoints Jiri M. Nechleba and Stephen A. Yount, and each
of them, as Proxies, with full power of substitution, and hereby authorizes them
to represent and to vote, as directed below, all the shares of Common Stock of
INTERLINQ Software Corporation held of record by the undersigned on September
30, 1996, at the Annual Meeting of Shareholders to be held November 6, 1996, or
any adjournment thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
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FOLD AND DETACH HERE
<PAGE> 29
Please mark
your votes as /X/
indicated in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES"
IN ITEM 1 AND "FOR" ITEM 2
FOR WITHHOLD AUTHORITY
ALL NOMINEES TO VOTE FOR ALL NOMINEES
1. ELECTION OF DIRECTORS. / / / /
Election of the following nominees to serve as
directors for two-year terms or until their
respective successors are elected and qualified:
Robert W. O'Rear and Robert J. Gallagher.
WITHHOLD AUTHORITY for the following
Nominees only: (write the name of the Nominee(s)
in this space)
- ------------------------------------------------
FOR AGAINST ABSTAIN
2. APPROVAL OF AMENDMENTS TO THE STOCK
OPTION PLAN FOR NON-EMPLOYEE DIRECTORS. / / / / / /
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournment thereof. This Proxy,
when properly executed, will be voted in the manner directed herein by the
undersigned. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR ALL
NOMINEES" IN ITEM 1, "FOR" ITEM 2.
YOUR VOTE IS IMPORTANT. PROMPT RETURN OF THIS PROXY CARD WILL HELP SAVE THE
EXPENSE OF ADDITIONAL SOLICITATION EFFORTS.
I plan to attend the meeting / /
Signature
-----------------------------------------------------------------------
Signature if held jointly Dated: , 1996
------------------------------- -----------
Please sign exactly as your name appears on your stock certificate. When shares
are held jointly, each person should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. An
authorized person should sign on behalf of corporations, partnerships, and
associations and give his or her title.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
