<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
INTERLINQ SOFTWARE CORPORATION
- --------------------------------------------------------------------------------
(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 computed 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 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
INTERLINQ SOFTWARE CORPORATION
11255 KIRKLAND WAY
KIRKLAND, WASHINGTON 98033
- --------------------------------------------------------------------------------
October 9, 1998
DEAR FELLOW SHAREHOLDER:
It is our pleasure to invite you to attend the 1998 Annual Meeting of
Shareholders. This year's Annual Meeting will be held on November 10,
1998, 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
/S/Jiri M. Nechleba
Jiri M. Nechleba
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 10, 1998, 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, 98033, on November 10, 1998, 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 an amendment to the Company's 1993 Stock Option Plan
increasing the number of shares available for issuance thereunder by
250,000 common shares.
(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, 1998 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
/S/Stephen A. Yount
Stephen A. Yount
Corporate Secretary
Kirkland, Washington
October 9, 1998
- --------------------------------------------------------------------------------
YOUR COPY OF THE COMPANY'S ANNUAL REPORT FOR THE
FISCAL YEAR ENDED JUNE 30, 1998 IS ENCLOSED.
- --------------------------------------------------------------------------------
2
<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 9, 1998) in connection with
the solicitation of Proxies by the Board of Directors of INTERLINQ Software
Corporation, a Washington corporation (the "Company"), for use at its Annual
Meeting of Shareholders (the "Annual Meeting") to be held on November 10, 1998,
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, 1998, are entitled to vote at the meeting. As of that date, there
were 5,121,777 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. Shareholders of record who are present at the
meeting in person or by proxy and who abstain, including brokers holding
customers shares of record who cause abstentions to be recorded at the meeting,
are considered shareholders who are present and entitled to vote and they count
toward the quorum.
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 will have no impact
on the outcome of this proposal since they have not been cast in favor of any
nominee. There can be no broker non-votes on this
3
<PAGE> 5
matter since brokers who hold shares for the accounts of their clients have
discretionary authority to vote such shares with respect to the election of
directors.
To be adopted, the amendment to the Company's 1993 Stock Option Plan must
receive the affirmative vote of the majority of the shares present in person or
by proxy at the meeting and entitled to vote. Abstentions have the effect of a
negative vote. Brokers non-votes do not effect the outcome.
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 also will 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.
4
<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
September 22, 1998. They also show beneficial ownership as of September 22, 1998
for each director, for each executive officer named in the Summary Compensation
Table 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 CLASS
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OWNED
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Persons Associated with Hambrecht & Quist Group 529,392 (2) 10.3%
One Bush Street
San Francisco, CA 94104
ROI Capital Management, Inc. 306,000 6.0%
17 E. Sir Francis Drake Blvd., Suite 225
Larkspur, CA 94939
Dimensional Fund Advisors Inc. 261,100 5.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401-1038
</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.
(2) Based on publicly available information as of September 22, 1998. Consists
of 94,242 shares held by William R. Hambrecht, 171,950 shares held by
Hambrecht & Quist LLC ("H&Q LLC"), and 263,200 shares beneficially owned by
Hambrecht & Quist Group ("H&Q Group") as a result of its indirect ownership
of Ironstone Group, Inc. ("Ironstone"). H&Q Group is the sole parent of
Hambrecht & Quist California ("H&Q California"), which in turn is a member
of H&Q LLC. H&Q Group and certain of its affiliates collectively own 54% of
the common stock of Ironstone, which holds 263,200 shares of the Company's
Common Stock. William R. Hambrecht is the Chairman of H&Q Group, H&Q
California and H&Q LLC.
5
<PAGE> 7
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of September 22, 1998 the number of shares of
Common Stock owned by each director, each of the Company's executive officers,
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
NAME OF BENEFICIAL OWNER OF BENEFICIAL PERCENT OF
OWNERSHIP CLASS (1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Theodore M. Wight 62,500 (2) 1.2%
Robert W. O'Rear 36,500 (3) *
Robert J. Gallagher 42,395 (3) *
Jiri M. Nechleba 156,250 (4) 3.0%
Stephen A. Yount 79,221 (5) 1.5%
David A. Sperline 71,500 (4) 1.4%
Patricia R. Graham 33,750 (4) *
All directors and executive officers as a group
(7 persons) 482,116 8.6%
</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 September 22, 1998 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 26,500 shares of Common Stock currently
exercisable or exercisable within 60 days of September 22, 1998.
(3) Includes options to purchase 29,500 shares of Common Stock currently
exercisable or exercisable within 60 days of September 22, 1998.
(4) Represents options to purchase shares of Common Stock currently exercisable
or exercisable within 60 days of September 22, 1998.
(5) Includes options to purchase 65,000 shares of Common Stock currently
exercisable or exercisable within 60 days of September 22, 1998, and 14,221
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.
6
<PAGE> 8
- --------------------------------------------------------------------------------
ELECTION OF DIRECTORS
(PROPOSAL 1)
- --------------------------------------------------------------------------------
The Company's Board of Directors (the "Board") currently consists of four
directors and one vacancy 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 2000, 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, 1998.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF BOTH NOMINEES.
- --------------------------------------------------------------------------------
NOMINEES FOR ELECTION AS CLASS I DIRECTORS
TERMS EXPIRING IN 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ROBERT W. O'REAR Mr. O'Rear has served as a director of
the Company since 1994. Since 1991, he
has been President of O'Rear Cattle,
Director Inc., a beef cattle company. From 1978
through 1993, Mr. O'Rear served as the
manager of subsidiary development for
Age 55 Microsoft Corporation.
- --------------------------------------------------------------------------------
ROBERT J. GALLAGHER Mr. Gallagher has served as a director
of the Company since 1994. Since 1997,
Mr. Gallagher has been an independent
Director consultant. From 1987 through 1997, Mr.
Gallagher served as an executive officer
with North American Mortgage Company, a
Age 42 California mortgage banking company, in
various roles, including Senior Vice
President and Chief Financial Officer
and Executive Vice President and Chief
Administrative Officer.
7
<PAGE> 9
- --------------------------------------------------------------------------------
CONTINUING CLASS II DIRECTORS
TERMS EXPIRING IN 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JIRI M. NECHLEBA Mr. Nechleba has served as President and
Chief Executive Officer of the Company
since September 11, 1995 and as Chairman
Director, Chairman of the Board of the Board since November 6, 1995.
From 1993 to 1995, he served as Senior
Vice President and General Manager of
Age 40 SolutionWare, a division of A.C.
Nielsen, a Dun & Bradstreet subsidiary,
and a provider of information solutions
to the consumer packaged goods industry.
From 1985 to 1993, Mr. Nechleba was an
independent management consultant to a
variety of industries.
- --------------------------------------------------------------------------------
THEODORE M. WIGHT Mr. Wight has served as a director of
the Company since 1985. Since 1994, Mr.
Wight has been general partner of the
Director general partner of Pacific Northwest
Partners SBIC, L.P., a venture capital
firm. Mr. Wight has also served as a
Age 55 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.
8
<PAGE> 10
- --------------------------------------------------------------------------------
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
During fiscal year 1998, there were nine meetings of the Company's Board of
Directors. 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. All of the incumbent Directors attended at least 85% of the meetings
of the Board of Directors and its committees held during the fiscal year.
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. Six 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.
The Company's Stock Option Plan for Non-Employee Directors (the "Directors
Plan") provides for the automatic grant of options to non-employee directors up
to an aggregate of 215,000 shares of Common Stock. As of June 30, 1998, 85,500
shares of Common Stock were subject to options outstanding under the Directors
Plan. The Directors Plan provides for automatic grants of nonqualified stock
options at an exercise price that is not less than fair market value per share
on the date of grant. Each non-employee director elected or appointed other than
at the Annual Meeting of Shareholders receives an initial grant of 10,000 shares
upon becoming a director. Each continuing director receives an annual grant of
7,500 shares effective as of the date of the Company's Annual Meeting of
Shareholders. Options granted under the Director's 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.
9
<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, 1998, information concerning
compensation paid or accrued for services to the Company in all capacities for
that fiscal year.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-----------------------------------------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jiri M. Nechleba (1) 1998 175,112 94,951 25,000 --
Chairman of the Board, President and Chief 1997 175,000 17,500 25,000 --
Executive Officer 1996 141,908 -- 250,000 11,610 (2)
- ----------------------------------------------------------------------------------------------------------------------
Stephen A. Yount (3) 1998 120,077 64,900 17,500 --
Executive Vice President - Enterprise, 1997 119,039 12,100 15,000 --
Technology Division, CFO & Secretary 1996 108,900 12,600 12,000 --
- ----------------------------------------------------------------------------------------------------------------------
David A. Sperline 1998 120,077 64,900 10,000 --
Vice President - Customer Service 1997 117,138 12,100 15,000 --
1996 97,101 12,600 12,000 --
- ----------------------------------------------------------------------------------------------------------------------
Patricia R. Graham (4) 1998 120,077 139,042 (5) 17,500 --
Executive Vice President - Mortgage 1997 120,000 49,154 (6) 15,000 --
Technology Division 1996 32,769 -- 60,000 7,000 (7)
</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) Represents reimbursement to Mr. Nechleba for his moving expenses associated
with his relocation upon joining the company as President and Chief
Executive Officer.
(3) Mr. Yount was promoted to the position of Executive Vice President -
Enterprise Technology Division on June 30, 1998.
(4) Ms. Graham joined the Company as Vice President - Sales and Marketing on
March 22, 1996, and was promoted to Executive Vice President - Mortgage
Technology Division on June 30, 1998.
(5) Includes commission income of $74,055 for fiscal 1998 based upon a
percentage of net software license fees and other revenues.
(6) Includes commission income of $37,054 for fiscal 1997 based upon a
percentage of net software license fees and other revenues.
(7) From February 26, 1996 to March 22, 1996, Ms. Graham served as a consultant
to the Company. Amount represents consulting fees received during this
period.
10
<PAGE> 12
Option Grants
Shown below is certain information concerning options granted to the Company's
executive officers during the fiscal year ended June 30, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
POTENTIAL
REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME (#) FISCAL YEAR ($/SHARE) (1) DATE 5% 10%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jiri M. Nechleba 25,000 (3) 14.1% 4.53125 1/20/08 $71,242 $180,541
Stephen A. Yount 17,500 (3) 9.8% 4.53125 1/20/08 49,869 126,379
David A. Sperline 10,000 (3) 5.6% 4.53125 1/20/08 28,497 72,216
Patricia R. Graham 17,500 (3) 9.8% 4.53125 1/20/08 49,869 126,379
</TABLE>
(1) The option exercise price as determined by the Board, is equal to the fair
market value of the underlying Common Stock on the date of grant.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates required by applicable regulations of the Securities
and Exchange Commission and therefore, are not intended to forecast
possible future appreciation, if any, of the Common Stock price. The
calculations assume that all of the options are exercised at the end of
their respective ten-year terms. Actual gains, if any, on the stock option
exercises depend on the future performance of Common Stock and overall
market conditions, as well as the holder's continued employment through the
vesting period. The amounts reflected in this table may not be achieved.
(3) The options granted are incentive stock options that vest in yearly
increments over a four-year period, becoming fully vested on January 22,
2002. Options not already exercisable generally become fully vested and
exercisable upon mergers or reorganizations pursuant to the Company's 1993
Option Plan. Each option has a term of ten years.
11
<PAGE> 13
Option Exercises and Fiscal Year-End Values.
Shown below is information with respect to the exercise of options to purchase
the Company's Common Stock granted in fiscal 1998 and prior years under the 1993
Option Plan and the 1985 Option Plan to the Company's executive officers and
stock options held by them as of June 30, 1998.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END
OPTION VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1998 (#) JUNE 30,1998 ($)
------------------------------ --------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE (1) UNEXERCISABLE (1)
- ------------------------- --------------- -------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Jiri M. Nechleba 106,250 193,750 $370,508 $632,617
Stephen A. Yount 64,750 41,250 317,164 106,445
David A. Sperline 71,250 33,750 360,227 86,992
Patricia R. Graham 33,750 58,750 119,180 174,180
</TABLE>
(1) 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, 1998 ($7.125) and the exercise
prices for the relevant options.
12
<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. On August 11, 1998, the Board of Directors extended this
agreement for an additional year.
1993 Option Plan and 1985 Option Plan
The 1993 Option Plan and the 1985 Option Plan both provide 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.
13
<PAGE> 15
- --------------------------------------------------------------------------------
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The Compensation Committee of the Board of Directors (the "Committee") for
fiscal year 1998 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. 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. In general, based upon the above ongoing
review for each executive officer, the Committee targets its base salaries for
all of its executive officers by 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
14
<PAGE> 16
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 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, 1998, executive bonuses were paid.
Equity-Based Compensation
The Company provides its executive officers with long-term incentives through
its 1993 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
In assembling the compensation package of the chief executive officer (the
"CEO"), the Committee pursues 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. Because profit targets were met for the
fiscal year ended June 30, 1998, the CEO was paid a bonus.
15
<PAGE> 17
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. For
the fiscal year 1998, the Committee granted its CEO 25,000 incentive stock
option grants. The number of new grants each year for the CEO, the other
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 to its CEO before approval of additional grants.
COMPENSATION COMMITTEE
Robert W. O'Rear
Robert J. Gallagher
Theodore M. Wight
16
<PAGE> 18
- --------------------------------------------------------------------------------
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 June 30, 1993, and ending on June 30, 1998, 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>
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
6/30/93 6/30/94 6/30/95 6/28/96 6/30/97 6/30/98
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTERLINQ SOFTWARE CORPORATION $ 100.00 $ 78.57 $ 50.00 $ 64.29 $ 55.36 $ 101.79
- ------------------------------------------------------------------------------------------------------------------------------
S&P 500 $ 100.00 $ 101.38 $ 127.77 $ 160.97 $ 216.80 $ 282.16
- ------------------------------------------------------------------------------------------------------------------------------
S&P COMPUTERS (SOFTWARE & SERVICES) $ 100.00 $ 112.92 $ 175.46 $ 233.37 $ 387.71 $ 601.11
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Assumes $100 invested on June 30, 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.
17
<PAGE> 19
- --------------------------------------------------------------------------------
APPROVAL OF AMENDMENT TO THE 1993 STOCK OPTION PLAN
(PROPOSAL 2)
- --------------------------------------------------------------------------------
Shareholders are asked to approve an amendment to the Company's 1993 Stock
Option Plan (the "1993 Option Plan") to increase the number of shares of
Common Stock available under the Plan by 250,000 from 900,000 to 1,150,000.
Unless instructed otherwise, it is the intention of the persons named in the
accompanying Proxy to vote shares represented by properly executed Proxies for
amendment of the Company's 1993 Option Plan. A copy of the 1993 Option Plan,
as amended, is attached to this Proxy Statement as Exhibit A. The following
description of the 1993 Option 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 would, among other
things, promote the interests of the Company and its shareholders by assisting
the Company in attracting, retaining and stimulating the performance of officers
and key employees. The Board believes that the existing options have contributed
substantially to the successful achievement of these objectives. The Board of
Directors believes that the 250,000 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 one year.
The 1993 Option Plan was originally adopted by the Board of Directors on
February 17, 1993 and approved by the shareholders on March 12, 1993 (as amended
on November 6, 1995). The 1993 Option Plan is administered by the Compensation
Committee (the "Committee"), which generally has the authority to select
individuals who are to receive options and to specify the terms and conditions
of each option so granted, including the number of shares covered by the option,
the type of option (incentive or nonqualified), the exercise price (which in no
event may be less than the fair market value per share at the day of grant), the
vesting provisions, and the term of the option. Unless otherwise provided by the
Committee, the options granted under the 1993 Option Plan vest in annual
installments over four years, beginning on the date of grant. Unless otherwise
provided by the Committee, any option granted under the 1993 Option Plan expires
10 years from the date of grant or, if earlier, three months after the
optionee's termination of service with the Company (other than for cause) or 12
months after the optionee's death or disability.
As of June 30, 1998, 11,625 options to purchase shares of Common Stock had been
exercised, options to purchase 836,023 shares of Common Stock were outstanding
and options to purchase 52,352 shares of Common Stock remained available for
grant. The outstanding options were held by 138 individuals and were exercisable
at an average exercise price of $4.26 per share. As of June 30, 1998,
outstanding options to purchase an aggregate of 232,523 shares were held by
employees who are not officers or directors of the Company. Unless sooner
terminated by the Board of Directors, the 1993 Option Plan terminates on
February 17, 2003.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences to the Company and to any person granted an
option under the 1993 Option 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.
18
<PAGE> 20
On the exercise of a nonqualified stock 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 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 to be 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.
The same rules apply to an incentive stock option that is exercised more than
three months after the optionee's termination of employment (or more than 12
months thereafter in the case of permanent and total disability, as defined in
the Code).
Upon the exercise of an incentive stock option during employment or within three
months after the optionee's termination of employment (12 months in the case of
permanent and total disability, as defined in the Code), for regular tax
purposes the optionee will recognize no income at the time of exercise (although
the optionee will have income for alternative minimum income tax purposes at
that time as if the option were a nonqualified stock option) and no deduction
will be allowed to the Company for federal income tax purposes in connection
with the grant or exercise of the option. If the acquired shares are sold or
exchanged after the later of (a) one year from the date of exercise of the
option and (b) two years from the date of grant of the option, the difference
between the amount realized by the optionee on that sale or exchange and the
option price will be taxed to the optionee as a long-term capital gain or loss.
If the shares are disposed of before such holding period requirements are
satisfied, then the optionee will recognize taxable ordinary income in the year
of disposition in an amount equal to the excess, on the date of exercise of the
option, of the fair market value of the shares received over the option price
paid (or generally, if less, the excess of the amount realized on the sale of
shares over the option price), and the optionee will have capital gain or loss,
long-term or short-term, as the case may be, in an amount equal to the
difference between (i) the amount realized by the optionee upon that disposition
of the shares and (ii) the option price paid by the optionee increased by the
amount of ordinary income, if any, so recognized by the optionee.
Upon payment to an optionee in settlement of a stock option, the optionee will
recognize taxable ordinary income in an amount equal to the cash and the fair
market value of the Common Stock received.
Special rules apply to a director or officer subject to liability under Section
16(b) of the Exchange Act.
In all the foregoing cases the Company will be entitled to a deduction at the
same time and in the same amount as the participant recognizes ordinary income,
subject to the following limitations. Under Section 162(m) of the Code, certain
compensation payments in excess of $1 million are subject to a limitation on
deductibility for the Company. The limitation on deductibility applies with
respect to that portion of a compensation payment for a taxable year in excess
of $1 million to either the Company's Chief Executive Officer or any one of the
other four most highly compensated executive officers. Certain performance-based
compensation is not subject to the limitation on deductibility. Options can
qualify for this performance-based exception, but only if they are granted at
fair market value, the total
19
<PAGE> 21
number of shares that can be granted to an executive for any period is stated,
and shareholder and Board approval is obtained. The 1993 Option Plan has been
drafted to allow compliance with those performance-based criteria.
NEW PLAN BENEFITS
Since awards under the 1993 Option Plan are discretionary, awards thereunder for
the current fiscal year are not presently determinable. During fiscal 1998,
options to purchase an aggregate of 70,000 shares at an exercise price of
$4.53125 per share were granted under the 1993 Option Plan to all executive
officers of the Company as a group. Options granted during fiscal 1998 to all
other employees of the Company as a group (excluding those granted to executive
officers) were: 107,850 shares at an exercise price of $4.53125 per share,
6,000 shares at an exercise price of $3.96875, 3,000 shares at an exercise
price of $5.0625, 1,500 shares at an exercise price of $4.96875, and 9,250
shares at an exercise price of $6.9375. Options granted during fiscal 1998 to
the Company's executive officers for whom compensation is reported in this Proxy
Statement are set forth under "Compensation of Executive Officers Option Grants
in Last Fiscal Year."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT OF
THE 1993 STOCK OPTION PLAN.
20
<PAGE> 22
- --------------------------------------------------------------------------------
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, 1999. 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 1999 Annual Meeting of
Shareholders must be in writing and received by the Company no later than June
14, 1999 in order that they may be included in the Proxy Statement and proxy
card for that meeting. In accordance with the Company's Bylaws, a shareholder
proposing to transact business at the Company's annual meeting must provide
written notice of such proposal, in the manner provided by the Company's Bylaws,
not fewer than 60 days nor more than 90 days prior to the date of such annual
meeting (or, if the Company provides less than 60 days notice of such meeting,
no later than the 10th day after the date of the Company's notice). In addition,
if the Company receives notice of a shareholder proposal after August 22, 1999,
the persons named as proxies in such proxy statement and proxy will have
discretionary authority to vote on such shareholder proposal.
- --------------------------------------------------------------------------------
FILING OF FORMS PURSUANT TO SECTION 16
OF THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
As required by Securities and Exchange Commission rules under Section 16 of the
Securities Exchange Act of 1934, the Company notes that none of its officers,
directors, or beneficial owners of more than 10% of the outstanding shares of
Common Stock filed any late reports.
21
<PAGE> 23
- --------------------------------------------------------------------------------
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, 1998
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
/S/Stephen A. Yount
Stephen A. Yount
Corporate Secretary
Dated: October 9, 1998
Kirkland, Washington
22
<PAGE> 24
EXHIBIT A
INTERLINQ SOFTWARE CORPORATION
1993 STOCK OPTION PLAN
(AS AMENDED THROUGH AUGUST 14, 1995)
- --------------------------------------------------------------------------------
SECTION 1. PURPOSE
The purpose of the 1993 Stock Option Plan (this "Plan") is to provide a means
whereby selected employees, directors, officers, agents, consultants, advisors
and independent contractors of INTERLINQ Software Corporation (the "Company"),
or of any parent or subsidiary (as defined in subsection 5.8 and referred to
hereinafter as "related corporations") thereof, may be granted incentive stock
options and/or nonqualified stock options to purchase the Common Stock (as
defined in Section 3) of the Company, in order to attract and retain the
services or advice of such employees, directors, officers, agents, consultants,
advisors and independent contractors and to provide added incentive to such
persons by encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the Company (the
"Board") or, in the event the Board shall appoint and/or authorize a committee
to administer this Plan, by such committee. The administrator of this Plan shall
hereinafter be referred to as the "Plan Administrator."
In the event a member of the Board (or the committee) may be eligible, subject
to the restrictions set forth in Section 4, to participate in or receive or hold
options under this Plan, no member of the Board or the committee shall vote with
respect to the granting of an option hereunder to himself or herself, as the
case may be, and, if state corporate law does not permit a committee to grant
options to directors, then any option granted under this Plan to a director for
his or her services as such shall be approved by the full Board.
The members of any committee serving as Plan Administrator shall be appointed by
the Board for such term as the Board may determine. The Board may from time to
time remove members from, or add members to, the committee.
Vacancies on the committee, however caused, may be filled by the Board.
With respect to grants made under this Plan to officers and directors of the
Company who are subject to Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Plan Administrator shall be constituted at all
times so as to meet the requirements of Rule 16b-3 promulgated under Section
16(b) of the Exchange Act if any of the Company's equity securities are
registered pursuant to Section 12(b) or 12(g) of the Exchange Act.
Currently, selection of officers and directors who are subject to Section 16 of
the Exchange Act for participation and decisions concerning the timing, pricing
and amount of grant or award, shall be made by (i) the Board, if each member of
the Board is a disinterested person, or (ii) by a committee which consists
solely of not less than three disinterested directors of the Company. For
purposes of this Section 2, a disinterested director is a member of the Board
who meets the definition of "disinterested person" as set forth in the rules and
regulations promulgated under Section 16(b) of the Exchange Act. Currently, a
disinterested director, for purposes of this Section 2, is a member of the Board
who has not during the one year prior to service as an administrator of the
Plan, or during such service, been eligible to be granted or awarded equity
securities pursuant to the Plan or any other plan of the Company or any of its
affiliates, unless such plan meets the requirements of paragraphs (A), (B), (C)
or (D) of Rule 16b-3(c)(2)(i) promulgated under Section 16(b) of the Exchange
Act.
23
<PAGE> 25
2.1 PROCEDURES
The Board shall designate one of the members of the Plan Administrator as
chairman. The Plan Administrator may hold meetings at such times and places as
it shall determine. The acts of a majority of the members of the Plan
Administrator present at meetings at which a quorum exists, or acts reduced to
or approved in writing by all Plan Administrator members, shall be valid acts of
the Plan Administrator.
2.2 RESPONSIBILITIES
Except for the terms and conditions explicitly set forth in this Plan, the Plan
Administrator shall have the authority, in its discretion, to determine all
matters relating to the options to be granted under this Plan, including
selection of the individuals to be granted options, the number of shares to be
subject to each option, the exercise price, and all other terms and conditions
of the options. Grants under this Plan need not be identical in any respect,
even when made simultaneously. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
correspond to the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), the regulations thereunder and any amendments
thereto.
2.3 SECTION 16(b) COMPLIANCE AND BIFURCATION OF PLAN
It is the intention of the Company that, if any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, this Plan shall comply in all respects with Rule 16b-3 under the Exchange
Act and, if any Plan provision is later found not to be in compliance with such
Section, the provision shall be deemed null and void, and in all events this
Plan shall be construed in favor of its meeting the requirements of Rule 16b-3.
Notwithstanding anything in this Plan to the contrary, the Board, in its
absolute discretion, may bifurcate this Plan so as to restrict, limit or
condition the use of any provision of this Plan to participants who are officers
and directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning this Plan with respect to other participants.
SECTION 3. STOCK SUBJECT TO THIS PLAN
The stock subject to this Plan shall be the Company's Common Stock (the "Common
Stock"), presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7, the aggregate amount of
Common Stock to be delivered upon the exercise of all options granted under this
Plan shall not exceed 900,000 shares. If any option granted under this Plan
shall expire or be surrendered, exchanged for another option, cancelled or
terminated for any reason without having been exercised in full, the unpurchased
shares subject thereto shall thereupon again be available for purposes of this
Plan, including for replacement options which may be granted in exchange for
such expired, surrendered, exchanged, cancelled or terminated options.
SECTION 4. ELIGIBILITY
An incentive stock option may be granted only to any individual who, at the time
the option is granted, is an employee of the Company or any related corporation.
A nonqualified stock option may be granted to any employee, director, officer,
agent, consultant, advisor or independent contractor of the Company or any
related corporation, whether an individual or an entity. To the extent required
by Rule 16b-3 under Section 16(b) of the Exchange Act, a member of the Board may
not during the one year prior to service as an administrator of the Plan, or
during such service, be eligible to be granted or awarded equity securities
pursuant to the Plan or any other plan of the Company or any of its affiliates,
unless such plan meets the requirements of paragraphs (A), (B), (C) or (D) of
Rule 16b-3(c)(2)(i) promulgated under Section 16(b) of the Exchange Act. Any
party to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee."
24
<PAGE> 26
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written agreements which
shall contain such terms, conditions, limitations and restrictions as the Plan
Administrator shall deem advisable and which are not inconsistent with this
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE
The maximum number of shares that may be purchased pursuant to the exercise of
each option shall be as established by the Plan Administrator, provided that,
subject to adjustment from time to time as provided in Section 7, not more than
300,000 shares of Common Stock may be made subject to options awarded to any
individual in any one fiscal year of the Company, such limitation to be applied
in a manner consistent with the requirements of, and only to the extent required
for compliance with, the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code. The price per share at which each
option is exercisable (the "exercise price") shall be as established by the Plan
Administrator, provided that the Plan Administrator shall act in good faith to
establish the exercise price which shall be not less than 100% of the fair
market value per share of the Common Stock at the time the option is granted
with respect to incentive stock options and not less than 85% of the fair market
value per share of the Common Stock at the time the option is granted with
respect to nonqualified stock options, and also provided that, with respect to
incentive stock options granted to greater than 10% shareholders, the exercise
price shall be as required by subsection 6.1.
5.2 TERM AND MATURITY
Subject to the restrictions contained in Section 6 with respect to granting
incentive stock options to greater than 10% shareholders, the term of each
incentive stock option shall be as established by the Plan Administrator and, if
not so established, shall be 10 years from the date it is granted but in no
event shall it exceed 10 years. The term of each nonqualified stock option shall
be as established by the Plan Administrator and, if not so established, shall be
10 years. To ensure that the Company or related corporation will achieve the
purpose and receive the benefits contemplated in this Plan, any option granted
to any Optionee hereunder shall, unless the condition of this sentence is waived
or modified in the agreement evidencing the option or by resolution adopted at
any time by the Plan Administrator, be exercisable according to the following
schedule:
<TABLE>
<CAPTION>
Period of Optionee's Continuous Relationship With
the Company or Related Corporation From the Date
the Option Is Granted Portion of Total Option Which Is Exercisable
- --------------------------------------------------- --------------------------------------------
<S> <C>
after one year 25%
after two years 50%
after three years 75%
after four years 100%
</TABLE>
5.3 EXERCISE
Subject to the vesting schedule described in subsection 5.2, 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. During an Optionee's lifetime, any options granted
under this Plan are personal to him or her and are exercisable solely by such
Optionee. Options shall be exercised by delivery to the Company of notice of the
number of shares with respect to which the option is exercised, together with
payment of the exercise price.
25
<PAGE> 27
5.4 PAYMENT OF EXERCISE PRICE
Payment of the option exercise price shall be made in full at the time the
notice of exercise of the option is delivered to the Company and shall be in
cash, bank certified or cashier's check or personal check (unless at the time of
exercise the Plan Administrator in a particular case determines not to accept a
personal check) for the Common Stock being purchased.
The Plan Administrator can determine at any time before exercise that additional
forms of payment will be permitted. To the extent permitted by the Plan
Administrator and applicable laws and regulations (including, but not limited
to, federal tax and securities laws and regulations and state corporate law), an
option may be exercised by:
(a) delivery of shares of stock of the Company held by an Optionee
having a fair market value equal to the exercise price, such fair market value
to be determined in good faith by the Plan Administrator; provided, however,
that payment in stock held by an Optionee shall not be made unless the stock
shall have been owned by the Optionee for a period of at least six months;
(b) delivery of a full-recourse promissory note executed by the
Optionee; provided that (i) such note delivered in connection with an incentive
stock option shall, and such note delivered in connection with a nonqualified
stock option may, in the sole discretion of the Plan Administrator, bear
interest at a rate specified by the Plan Administrator but in no case less than
the rate required to avoid imputation of interest (taking into account any
exceptions to the imputed interest rules) for federal income tax purposes, and
(ii) the Plan Administrator in its sole discretion shall specify the term and
other provisions of such note at the time an incentive stock option is granted
or at any time prior to exercise of a nonqualified stock option, and (iii) the
Plan Administrator may require that the Optionee pledge the Optionee's shares to
the Company for the purpose of securing the payment of such note and may require
that the certificate representing such shares be held in escrow in order to
perfect the Company's security interest, and (iv) the Plan Administrator in its
sole discretion may at any time restrict or rescind this right upon notification
to the Optionee; or
(c) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal, state or local
withholding tax obligations that may arise in connection with the exercise.
5.5 WITHHOLDING TAX REQUIREMENT
The Company or any related corporation shall have the right to retain and
withhold from any payment of cash or Common Stock under this Plan the amount of
taxes required by any government to be withheld or otherwise deducted and paid
with respect to such payment. At its discretion, the Company may require an
Optionee receiving shares of Common Stock to reimburse the Company for any such
taxes required to be withheld by the Company and withhold any distribution in
whole or in part until the Company is so reimbursed. In lieu thereof, the
Company shall have the right to withhold from any other cash amounts due or to
become due from the Company to the Optionee an amount equal to such taxes. The
Company may also retain and withhold or the Optionee may elect, subject to
approval by the Company at its sole discretion, to have the Company retain and
withhold a number of shares having a market value not less than the amount of
such taxes required to be withheld by the Company to reimburse the Company for
any such taxes and cancel (in whole or in part) any such shares so withheld. In
order to qualify such election for exemption under Rule 16b-3 promulgated under
Section 16(b) of the Exchange Act, any election made by an officer or director
who is subject to Section 16 of the Exchange Act must be an irrevocable election
made six months prior to the date the option exercise becomes taxable or such
irrevocable election must become effective during the quarterly 10-day window
period required under Section 16(b) of the Exchange Act for exercises of stock
appreciation rights.
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5.6 HOLDING PERIODS
5.6.1 SECURITIES AND EXCHANGE ACT SECTION 16
Shares of Common Stock obtained upon the exercise of a stock option may not be
sold by a person subject to Section 16 of the Exchange Act until six months
after the date the option was granted.
5.6.2 TAXATION OF STOCK OPTIONS
In order to obtain certain tax benefits afforded to incentive stock options
under Section 422 of the Code, an optionee must hold the shares issued upon the
exercise of an incentive stock option for two years after the date of grant of
the option and one year from the date of exercise. An optionee may be subject to
the alternative minimum tax at the time of exercise of an incentive stock
option.
The Plan Administrator may require an Optionee to give the Company prompt notice
of any disposition of shares of Common Stock acquired by the exercise of an
incentive stock option prior to the expiration of such holding periods. Tax
advice should be obtained when exercising any option and prior to the
disposition of the shares issued upon the exercise of any option.
5.7 NONTRANSFERABILITY OF OPTIONS
Except to the extent permitted by the Plan Administrator, Section 422 of the
Code and Rule 16b-3 under Section 16(b) of the Exchange Act, options granted
under this Plan and the rights and privileges conferred hereby may not be
transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by will or by the applicable laws of
descent and distribution and shall not be subject to execution, attachment or
similar process. Any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under this Plan or of any right or privilege
conferred hereby, contrary to the Code or to the provisions of this Plan, or the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void. Notwithstanding the foregoing, if the
Plan Administrator permits, an Optionee may, during the Optionee's lifetime,
designate a person who may exercise a nonqualified stock option after the
Optionee's death by giving written notice of such designation to the Plan
Administrator. Such designation may be changed from time to time by the Optionee
by giving written notice to the Plan Administrator revoking any earlier
designation and making a new designation.
5.8 TERMINATION OF RELATIONSHIP
If the Optionee's relationship with the Company or any related corporation
ceases for any reason other than termination for cause, death or total
disability, and unless by its terms the option sooner terminates or expires,
then the Optionee may exercise, for a three-month period, that portion of the
Optionee's option which is exercisable at the time of such cessation, but the
Optionee's option shall terminate at the end of such period following such
cessation as to all shares for which it has not theretofore been exercised,
unless such provision is waived in the agreement evidencing the option. If, in
the case of an incentive stock option, an Optionee's relationship with the
Company or any related corporation changes (i.e., from employee to nonemployee,
such as a consultant), such change shall constitute a termination of an
Optionee's employment with the Company or any related corporation and the
Optionee's incentive stock option shall terminate in accordance with this
subsection 5.8. Upon the expiration of the three-month period following
cessation of employment in the case of an incentive stock option, or at any time
prior to the expiration of the option in the case of a nonqualified stock
option, the Plan Administrator shall have sole discretion in a particular
circumstance to extend the exercise period following such cessation to any date
up to the termination or expiration of the option. If, however, in the case of
an incentive stock option, the Optionee does not exercise the Optionee's option
within three months after cessation of employment, the option will no longer
qualify as an incentive stock option under the Code.
If an Optionee is terminated for cause, any option granted hereunder shall
automatically terminate as of the first discovery by the Company of any reason
for termination for cause, and such Optionee shall thereupon have no right
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to purchase any shares pursuant to such option. "Termination for cause" shall
mean dismissal for dishonesty, conviction or confession of a crime punishable by
law (except minor violations), fraud, misconduct or disclosure of confidential
information. If an Optionee's relationship with the Company or any related
corporation is suspended pending an investigation of whether or not the Optionee
shall be terminated for cause, all the Optionee's rights under any option
granted hereunder likewise shall be suspended during the period of
investigation.
If an Optionee's relationship with the Company or any related corporation ceases
because of a total disability, the Optionee's option shall not terminate or, in
the case of an incentive stock option, cease to be treated as an incentive stock
option until the end of the 12-month period following such cessation (unless by
its terms it sooner terminates and expires). As used in this 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 Company and two independent physicians, to perform
his or her duties for the Company and to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the first day
after the Company and the two independent physicians have furnished their
opinion of total disability to the Plan Administrator.
Options granted under the Plan shall not be affected by any change of
relationship with the Company so long as the Optionee continues to be an
employee, director, officer, agent, consultant, advisor or independent
contractor of the Company or of a related corporation; however, a change in an
Optionee's status from an employee to a nonemployee (e.g., consultant or
independent contractor) shall result in the termination of an outstanding
incentive stock option held by such Optionee. The Plan Administrator, in its
absolute discretion, may determine all questions of whether particular leaves of
absence constitute a termination of services; provided, however, that with
respect to incentive stock options, such determination shall be subject to any
requirements contained in the Code. The foregoing notwithstanding, with respect
to incentive stock options, employment shall not be deemed to continue beyond
the first 90 days of such leave, unless the Optionee's reemployment rights are
guaranteed by statute or by contract.
As used herein, the term "related corporation," when referring to a subsidiary
corporation, shall mean any corporation (other than the Company) in, at the time
of the granting of the option, an unbroken chain of corporations ending with the
Company, if stock possessing 50% or more of the total combined voting power of
all classes of stock of each of the corporations other than the Company is owned
by one of the other corporations in such chain. When referring to a parent
corporation, the term "related corporation" shall mean any corporation in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the option, each of the corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
5.9 DEATH OF OPTIONEE
If an Optionee dies while he or she has a relationship with the Company or any
related corporation or within the three-month period (or 12-month period in the
case of totally disabled Optionees) following cessation of such relationship,
any option held by such Optionee to the extent that the Optionee would have been
entitled to exercise such option, may be exercised within one year after his or
her death by the personal representative of his or her estate or by the person
or persons to whom the Optionee's rights under the option shall pass by will or
by the applicable laws of descent and distribution.
5.10 NO STATUS AS SHAREHOLDER
Neither the Optionee nor any party to which the Optionee's rights and privileges
under the option may pass shall be, or have any of the rights or privileges of,
a shareholder of the Company with respect to any of the shares issuable upon the
exercise of any option granted under this Plan unless and until such option has
been exercised.
5.11 CONTINUATION OF RELATIONSHIP
Nothing in this Plan or in any option granted pursuant to this Plan shall confer
upon any Optionee any right to continue in the employ or other relationship of
the Company or of a related corporation, or to interfere in any way
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with the right of the Company or of any such related corporation to terminate
his or her employment or other relationship with the Company at any time.
5.12 MODIFICATION AND AMENDMENT OF OPTION
Subject to the requirements of Code Section 422 with respect to incentive stock
options and to the terms and conditions and within the limitations of this Plan,
the Plan Administrator may modify or amend outstanding options granted under
this Plan. The modification or amendment of an outstanding option shall not,
without the consent of the Optionee, impair or diminish any of his or her rights
or any of the obligations of the Company under such option. Except as otherwise
provided in this Plan, no outstanding option shall be terminated without the
consent of the Optionee. Unless the Optionee agrees otherwise, any changes or
adjustments made to outstanding incentive stock options granted under this Plan
shall be made in such a manner so as not to constitute a "modification" as
defined in Code Section 425(h) and so as not to cause any incentive stock option
issued hereunder to fail to continue to qualify as an incentive stock option as
defined in Code Section 422(b).
5.13 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS
As to all incentive stock options granted under the terms of this Plan, to the
extent that the aggregate fair market value of the stock (determined at the time
the incentive stock option is granted) with respect to which incentive stock
options are exercisable for the first time by the Optionee during any calendar
year (under this Plan and all other incentive stock option plans of the Company,
a related corporation or a predecessor corporation) exceeds $100,000, such
options shall be treated as nonqualified stock options. The previous sentence
shall not apply if the Internal Revenue Service issues a public rule, issues a
private ruling to the Company, any Optionee or any legatee, personal
representative or distributee of an Optionee or issues regulations changing or
eliminating such annual limit.
SECTION 6. GREATER THAN 10% SHAREHOLDERS
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS
If incentive stock options are granted under this Plan to employees who own more
than 10% of the total combined voting power of all classes of stock of the
Company or any related corporation, the term of such incentive stock options
shall not exceed five years and the exercise price shall be not less than 110%
of the fair market value of the Common Stock at the time the incentive stock
option is granted. This provision shall control notwithstanding any contrary
terms contained in an option agreement or any other document.
6.2 ATTRIBUTION RULE
For purposes of subsection 6.1, in determining stock ownership, an employee
shall be deemed to own the stock owned, directly or indirectly, by or for his or
her brothers, sisters, spouse, ancestors and lineal descendants. Stock owned,
directly or indirectly, by or for a corporation, partnership, estate or trust
shall be deemed to be owned proportionately by or for its shareholders, partners
or beneficiaries. If an employee or a person related to the employee owns an
unexercised option or warrant to purchase stock of the Company, the stock
subject to that portion of the option or warrant which is unexercised shall not
be counted in determining stock ownership. For purposes of this Section 6, stock
owned by an employee shall include all stock actually issued and outstanding
immediately before the grant of the incentive stock option to the employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares for which options may be granted under
this Plan, the maximum number and class of shares that may be made subject to
options granted to any individual as specified in Section 5.1, and the number
and class of shares covered by each outstanding option and the exercise price
per share thereof (but not the total price), shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock of the Company resulting from a split-up or consolidation of shares or any
like capital adjustment, or the payment of any stock dividend.
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7.1 EFFECT OF LIQUIDATION OR REORGANIZATION
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK
Except as provided in subsection 7.1.2, upon a merger (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), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere reincorporation
or the creation of a holding company) or liquidation of the Company, as a result
of which the shareholders of the Company receive cash, stock or other property
in exchange for or in connection with their shares of Common Stock, any option
granted hereunder shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise such Optionee's
option in whole or in part whether or not the vesting requirements set forth in
the option agreement have been satisfied.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE
If the shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (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), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock, in their sole discretion, determine that any or all
such options granted hereunder shall not be converted into options to purchase
shares of Exchange Stock but instead shall terminate in accordance with the
provisions of subsection 7.1.1. The amount and price of converted options shall
be determined by adjusting the amount and price of the options granted hereunder
in the same proportion as used for determining the number of shares of Exchange
Stock the holders of the Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or reorganization. The converted
options shall be fully vested whether or not the vesting requirements set forth
in the option agreement have been satisfied.
7.2 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any option,
any fractional shares resulting from such adjustment shall be disregarded and
each such option shall cover only the number of full shares resulting from such
adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL
All Section 7 adjustments shall be made by the Board, and its determination as
to what adjustments shall be made, and the extent thereof, shall be final,
binding and conclusive. Unless an Optionee agrees otherwise, any change or
adjustment to an incentive stock option shall be made in such a manner so as not
to constitute a "modification" as defined in Code Section 425(h) and so as not
to cause his or her incentive stock option issued hereunder to fail to continue
to qualify as an incentive stock option as defined in Code Section 422(b).
SECTION 8. SECURITIES REGULATION
Shares shall not be issued with respect to an option granted under this Plan
unless the exercise of such option and the issuance and delivery of such shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance, including the availability of an
exemption from registration for the issuance and sale of any shares hereunder.
Inability of the Company to obtain from any regulatory body having jurisdiction,
the authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares hereunder or the unavailability
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of an exemption from registration for the issuance and sale of any shares
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such shares as to which such requisite authority shall
not have been obtained.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order against
any shares of stock may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Plan Administrator may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.
Should any of the Company's capital stock of the same class as the stock subject
to options granted hereunder be listed on a national securities exchange, all
stock issued hereunder if not previously listed on such exchange shall be
authorized by that exchange for listing thereon prior to the issuance thereof.
SECTION 9. AMENDMENT AND TERMINATION
9.1 BOARD ACTION
The Board may at any time suspend, amend or terminate this Plan, provided that
except as set forth in Section 7, and to the extent required by any applicable
law or requirement, the approval of a majority of stock represented by
shareholders present either in person or by proxy and entitled to vote at a duly
held shareholders' meeting is necessary within 12 months before or after the
adoption by the Board of any amendment which will:
(a) increase the number of shares that may be issued under this Plan;
(b) with respect to nonqualified stock options, materially modify the
requirements as to eligibility for participation in this Plan or, with respect
to incentive stock options, change the designation of the participants or class
of participants eligible for participation in this Plan;
(c) materially increase the benefits accruing to the participants under
this Plan; or
(d) otherwise require shareholder approval under any applicable law or
regulation including but not limited to Section 16(b) of the Exchange Act.
Any amendment made to this Plan which would constitute a "modification" to
incentive stock options outstanding on the date of such amendment, shall not be
applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.
9.2 AUTOMATIC TERMINATION
Unless sooner terminated by the Board, this Plan shall terminate ten years from
the earlier of (a) the date on which this Plan is adopted by the Board or (b)
the date on which this Plan is approved by the shareholders of the Company. No
option may be granted after such termination or during any suspension of this
Plan. The amendment or termination of this Plan shall not, without the consent
of the option holder, alter or impair any rights or obligations under any option
theretofore granted under this Plan.
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SECTION 10. EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board so long as it is
approved by a majority of stock represented by shareholders voting either in
person or by proxy at a duly held shareholders' meeting any time within 12
months before or after the adoption of this Plan.
Plan adopted by the Board of Directors on February 17, 1993 and approved by the
shareholders on March 12, 1993; Amended by the Board of Directors on August 14,
1995 and approved by the shareholders on November 6, 1995.
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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 10, 1998
The undersigned hereby appoints Patricia R. Graham 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, 1998, at the Annual Meeting of Shareholders to be
held November 10, 1998, or any adjournment thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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<PAGE> 35
<TABLE>
<S><C>
Please mark
your vote as [X]
indicated in
this sample.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL WITHHOLD
NOMINEES" IN PROPOSAL 1 AND "FOR" PROPOSAL 2. FOR AUTHORITY
all Nominees to vote for all nominees
Proposal 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 qualify: 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
Proposal 2. APPROVAL OF AMENDMENT TO [ ] [ ] [ ]
THE 1993 STOCK OPTION PLAN.
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 exe-
cuted, 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 PROPOSAL 1 AND "FOR"
PROPOSAL 2.
YOUR VOTE IS IMPORTANT. PROMPT RETURN OF THIS
PROXY CARD WILL HELP SAVE THE EXPENSE OF
ADDITIONAL SOLICITATION EFFORTS.
Signature(s)_____________________________________________________________ Dated:___________, 1998
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.
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FOLD AND DETACH HERE
</TABLE>
