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:
[ ] 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 Section 240.14a-11(c) or
Section 240.14a-12
INTERLINK ELECTRONICS
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
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pursuant to Exchange Act Rule 0-11: Set forth the amount on which
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[ ] Fee paid previously with preliminary materials
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<PAGE>
INTERLINK
ELECTRONICS
April 28, 1997
Dear Shareholder:
You are cordially invited to the Annual Meeting of Interlink Electronics,
Inc. to be held at the Courtyard by Marriott Hotel, located at 4994 Verdugo Way,
Camarillo, California, 93012 on June 27, 1997, at 10:00 a.m., Pacific Daylight
Time. Your attendance will provide you with an opportunity to hear management's
report on the operations and meet with directors and representatives of the
Company.
The Secretary's notice of the meeting and Proxy Statement accompany this
letter and describe the matters on which action will be taken.
This year, you are being asked to vote on two proposals: to elect one
director to serve a term of three years; and to ratify the appointment of Arthur
Andersen LLP as auditors of the Company for the fiscal year ending December 31,
1997. Our Board of Directors unanimously recommends that you vote FOR both of
these proposals as presented.
It is important that your views be represented at the meeting whether or
not you are able to attend. Accordingly, we respectfully request that you sign,
date and promptly return your proxy in the enclosed postage-paid envelope.
On behalf of the directors and employees of the Company, we value and
appreciate your continued interest in and support of Interlink Electronics, Inc.
Sincerely,
E. MICHAEL THOBEN
E. Michael Thoben
Chairman, CEO & President
Interlink Electronics, Inc.
546 Flynn Road . Camarillo, CA 93012 . Phone: 805-484-8855 . Fax: 805-484-8989
Interlink Electronics KK
1-11-1 Higashi-Kanda . Chiyoda-ku Tokyo, Japan . Phone: 81-3-3863-6493 .
Fax: 81-3-3863-6442
<PAGE>
INTERLINK ELECTRONICS, INC.
546 Flynn Road
Camarillo, California 93012
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 27, 1997
To the Shareholders of Interlink Electronics, Inc.:
The annual meeting of the shareholders of Interlink Electronics, Inc. a
Delaware corporation, will be held at the Courtyard by Marriott Hotel, located
at 4994 Verdugo Way, Camarillo, California, 93012 on June 27, 1997, at 10:00
a.m., Pacific Daylight Time, for the following purposes:
1. to elect one director to serve a term of three years;
2. to ratify the appointment of Arthur Andersen LLP as auditors of the
Company for the fiscal year ending December 31, 1997; and
3. to transact any other business that properly comes before the meeting
or any adjournment of the meeting.
Only shareholders of record at the close of business on April 15, 1997 will
be entitled to vote at the annual meeting. The meeting is subject to adjournment
from time to time as the shareholders present in person or by proxy may
determine. You are requested to date and sign the enclosed proxy and return it
in the postage-prepaid envelope enclosed for that purpose. You may attend the
meeting in person even though you have sent in your proxy, since retention of
the proxy is not necessary for admission to or identification at the meeting.
By Order of the Board of Directors
PAUL D. MEYER
Paul D. Meyer
Secretary
Camarillo, California
April 25, 1997
<PAGE>
INTERLINK ELECTRONICS, INC.
546 Flynn Road
Camarillo, California 93012
April 25, 1997
---------------
PROXY STATEMENT
---------------
SOLICITATION AND REVOCABILITY OF PROXY
A proxy in the form accompanying this proxy statement is solicited on
behalf of the Board of Directors of Interlink Electronics, Inc., a Delaware
corporation (the "Company"), for use at the annual meeting of shareholders to be
held on June 27, 1997. The Company will bear the cost of preparing and mailing
the proxy, the proxy statement, and any other material furnished to the
shareholders by the Company in connection with the annual meeting. Proxies will
be solicited by use of the mails, and officers and employees of the Company may,
without additional compensation, also solicit proxies by telephone or personal
contact. Copies of solicitation materials will be furnished to fiduciaries,
custodians, and brokerage houses for forwarding to beneficial owners of the
stock held in their names.
Any shares of stock of the Company held in the name of fiduciaries,
custodians, or brokerage houses for the benefit of their clients may only be
voted by the fiduciary, custodian, or brokerage house itself -- the beneficial
owner may not vote the shares directly and must instruct the person or entity in
whose name the shares are held how to vote the shares held for the beneficial
owner. Therefore, if any shares of stock of the Company are held in "street
name" by a brokerage house, only the brokerage house, at the instructions of its
client, may vote the shares.
Any person giving a proxy in the form accompanying this proxy statement has
the power to revoke it at any time before its exercise. The proxy may be revoked
by filing with the Secretary of the Company an instrument of revocation or a
duly executed proxy bearing a later date. The proxy may also be revoked by
affirmatively electing to vote in person while attending the meeting. However, a
shareholder who attends the meeting need not revoke the proxy and vote in person
unless the shareholder wishes to do so. All valid, unrevoked proxies will be
voted at the annual meeting in accordance with the instructions given. If a
signed proxy is returned without instructions, it will be voted for the nominees
for director, for the approval of the proposals presented, and in accordance
with the recommendations of management on any other business that may properly
come before the meeting or matters incident to the conduct of the meeting.
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTOR
Nominee
The Board of Directors of the Company, pursuant to the Company's Bylaws, is
divided into three classes, and the term of office of one class expires each
year. Merritt M. Lutz is the nominee for election at this meeting for a
three-year term expiring in 2000.
The following table briefly describes the Company's nominee for director
and the directors whose terms will continue. Except as otherwise noted, each has
held his principal occupation for at least five years.
<TABLE>
<CAPTION>
Director Term
Name, Principal Occupation and Other Directorships Age Since Expires
- -------------------------------------------------- --- -------- -------
<S> <C> <C> <C>
Nominee
-------
Merritt M. Lutz 54 1994 1997
Managing Director, Morgan Stanley & Company,
Inc.; from 1989 to 1994, President and Chief
Operating Officer of Candle Corporation
Continuing Directors
--------------------
E. Michael Thoben III 43 1990 1999
Chairman of the Company since September, 1994,
President of the Company since June, 1990, and
Chief Executive Officer since February 1994; from
1979 to 1990 employed by Polaroid Corporation, most
recently as director of a worldwide business unit
George Gu 50 1991 1999
President of GTM Corporation; Chairman,
GTM (Asia) Investment Holding Limited
Eugene F. Hovanec 45 1994 1998
Vice President and Chief Financial Officer
of Vitesse Semiconductor Corporation; from
1989 to 1994, Vice President and Chief Financial
Officer of Digital Sound Corporation
Carolyn MacDougall 45 1985 1998
President, Teeccino Caffe Inc., and
a co-founder of the Company
</TABLE>
2
<PAGE>
Directors are elected by a plurality of the votes cast by the shares
entitled to vote if a quorum is present at the meeting. Abstentions and broker
non-votes will be treated as shares present and not voting. The proxies will be
voted with respect to the election of the nominees in accordance with the
instructions specified in the proxy form. If no instructions are given, proxies
will be voted for the election of all the nominees. If any nominee is not
available as a candidate for director, the number of directors constituting the
Board of Directors may be reduced prior to the annual meeting or the proxies may
be voted for such other candidate or candidates nominated by the Board of
Directors in accordance with the authority conferred in the proxy.
Board Committees and Meetings
The Board of Directors met 9 times during the last fiscal year. Each
director attended at least 75% of the aggregate of the meetings of the Board of
Directors and the committee of which he or she was a member.
The Board of Directors maintains an Audit Committee, a Compensation
Committee, and a Nominating Committee. The Audit Committee, comprised of Messrs.
Hovanec and Gu and Ms. MacDougall, oversees actions taken by the Company's
independent auditors. The Audit Committee held one meeting during the last
fiscal year. The Compensation Committee, comprised of Messrs. Hovanec, Lutz and
Ms. MacDougall, reviews the compensation levels of the Company's executive
officers and makes recommendations to the Board of Directors regarding changes
in compensation. The Compensation Committee also administers the Company's 1988
Stock Option Plan and the Company's 1993 Stock Incentive Plan and 1996 Stock
Option Plan, recommends grants under the plans to the Board of Directors. See
"Executive Compensation Plan --Stock Options, and "--Report of the Compensation
Committee on Executive Compensation." The Compensation Committee held 2 meetings
during the last fiscal year. The Nominating Committee, comprised of Messrs.
Thoben , Lutz, and Carolyn MacDougall, makes recommendations to the Board of
Directors concerning nominees to the Board of Directors. The Nominating
Committee had one meeting in fiscal 1996.
Director Compensation
Directors are paid a director's fee of $500 for each board meeting attended
in person and $100 per hour (up to a maximum of $500) for each Board meeting
attended telephonically. They are also reimbursed for the cost of attendance at
Board meetings. Any director who is not an employee of the Company and has not,
within one year, been an employee of the Company ("Non-Employee Director") is
eligible to receive options under the 1996 Stock Incentive Plan (the "Plan").
The option price for all options granted under the Plan is not less than the
fair market value of the Common Stock on the date the option is granted. Each
person who becomes a Non-Employee Director is automatically granted an option to
purchase 20,000 shares of Common Stock at the time he or she becomes a
Non-Employee Director. All options have a 10-year term from the date of grant.
Each option becomes exercisable for 33 1/3% of the number of shares covered by
the option at the end of each of the first three years of the option term.
Options may be exercised only while
3
<PAGE>
the optionee is a director of the Company, within 30 days after the date the
optionee terminates as a director, or within one year after the death of the
optionee. Options are subject to adjustment in the event of certain changes in
capital structure of the Company. The Plan also provides for the automatic,
non-discretionary annual grant to all continuing Non-Employee Directors of
options to purchase up to 5,000 shares of the Company's Common Stock.
PROPOSAL 2: APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
On March 18, 1997, the Board of Directors appointed Arthur Andersen LLP to
act as auditors of the Company for the fiscal year ending December 31, 1997,
subject to ratification of the appointment by the shareholders. Representatives
of Arthur Andersen LLP have been invited to attend the annual meeting, will be
given the opportunity to make a statement if they wish, and will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF RATIFICATION OF THE ACCOUNTANTS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Company's Common Stock is the only outstanding voting security of the
Company. The record date for determining holders of Common Stock entitled to
vote at the annual meeting is April 15, 1997. On that date there were 4,564,122
shares of Common Stock outstanding, entitled to one vote per share.
The following table sets forth certain information regarding ownership of
the Company's Common Stock as of April 15, 1997 by (i) each person known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each director
and director nominee of the Company, (iii) the Chief Executive Officer and each
of the other officers named in the Summary Compensation Table, and (iv) all
directors and officers as a group:
<TABLE>
<CAPTION>
Shares Beneficially Percentage of
Name Owned (1) Common Stock (1)
- ---- ------------------- ----------------
<S> <C> <C>
E. Michael Thoben, III(2) 321,604 6.6%
c/o Interlink Electronics
546 Flynn Road
Camarillo, CA 91361
Calmont & Co. 276,000 6.0%
201 3rd St. (11th Flr.)
San Francisco, CA 94103
4
<PAGE>
Shares Beneficially Percentage of
Name Owned (1) Common Stock (1)
- ---- ------------------- ----------------
George Gu(3) 164,327 3.6%
c/o GTM Corporation
300 Change Hsaio E. Rd.
Taipei, Taiwan R.O.C. 10514
David J. Arthur(4) 151,847 3.2%
William A. Yates(5) 151,801 3.2%
Wendell W. Ritchey(6) 84,062 1.8%
Carolyn MacDougall(7) 46,246 1.0%
Merritt M. Lutz(8) 30,243 *
Eugene F. Hovanec(9) 29,478 *
All directors and officers (including 1,028,021 19.0%
those listed above) as a group (11
persons)(10)
- -----------------------------
* Less than 1%
(1) All shares are held directly with sole voting and investment power unless
otherwise indicted. Shares that the person or group has the right to
acquire within 60 days after April 15, 1997 are deemed to be outstanding in
calculating the percentage ownership of the person or group, but are not
deemed to be outstanding as to any other person or group.
(2) Includes options to purchase 316,604 shares of Common Stock and 5,000
shares of Common Stock.
(3) Includes options granted to Mr. Gu to purchase 14,604 shares of Common
Stock, and 150,119 shares of Common Stock held by Force Sensor Investment
Corporation, which is owned by Mr. Gu's family.
(4) Consists of options to purchase 151,847 shares of Common Stock.
(5) Consists of options to purchase 151,801 shares of Common Stock.
(6) Consists of options to purchase 84,062 shares of Common Stock.
(7) Consists of options to purchase 12,331 shares of Common Stock, and 33,915
shares of Common Stock.
5
<PAGE>
(8) Consists of options to purchase 30,243 shares of Common Stock.
(9) Comprises options to purchase 28,478 shares of Common Stock and 1,000
shares of Common Stock.
(10) Consists of 189,034 shares of Common Stock and options to purchase 838,897
shares of Common Stock.
</TABLE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the Chief Executive Officer of the
Company and each of the four other most highly compensated executive officers
whose individual salary and bonus exceeded $100,000 during the last fiscal year,
a summary of all compensation paid for services rendered in all capacities to
the Company in each of the last three fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table(1)
Long-Term All Other
Annual Compensation Compensation Compensation
--------------------------- -------------- ------------
Year Salary ($) Bonus ($)(2) Options (#)(3) ($)
---- ---------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
E. Michael Thoben, III 1994 165,000 33,000 220,000 ----
Chairman of the Board 1995 175,312 20,000 ---- ----
and CEO 1996 178,448 17,000 55,000 28,000(4)
William A. Yates 1994 101,617 20,000 45,000 ----
Senior Vice President, 1995 110,566 15,000 45,000 ----
Marketing and Sales 1996 121,140 12,000 35,000 ----
David A. Arthur 1994 102,589 20,200 45,000 ----
Senior Vice President 1995 111,671 15,000 45,000 ----
Operations 1996 122,179 12,000 35,000 ----
Wendell Ritchey 1994 70,833 ------(5) 40,000 ----
Vice President, Product 1995 90,100 10,000 30,000 ----
Development and 1996 95,250 9,000 25,000 ----
Engineering
- --------------------
(1) Interlink Electronics, Inc. became a reporting company under the Securities
Exchange Act of 1934 during the fiscal year ended December 31, 1993. With
respect to each of the officers named above, the aggregate amount of
perquisites and other personal benefits received during 1994, 1995 and 1996
each were less than either $50,000 or 10% of the total of annual salary and
bonus reported for each officer.
6
<PAGE>
(2) Bonuses listed are paid with respect to performance during the prior fiscal
year. See "Report of Compensation Committee On Executive Compensation
--Executive Officer Compensation Plan--Cash Bonus Plan."
(3) All unexercised options previously granted in 1994 under the 1993 Stock
Incentive to employees of the Company as of January 24, 1995 were reissued
(the "Reissued Options") by the Board of Directors to all optionees who
were employees of the Company as of that date, upon the recommendation of
the Compensation Committee of the Board, at a new exercise price of $4.375
per share of Common Stock.
(4) Consists of cash received in exchange for the elimination of excess accrued
vacation leave.
(5) Mr. Ritchey joined the Company in March 1994, and did not receive a bonus
in 1994.
</TABLE>
Stock Option Grants in Last Fiscal Year
The following table sets forth information concerning individual grants of
stock options made by the Company during fiscal 1996 to each of the executive
officers of the Company named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Option Grants in Fiscal Year 1996
Percent of
Total
Number of Options Potential Realizable Value
Securities Granted to at assumed Annual
Underlying Employees Exercise Expira- Rates of Stock Price
Options in Fiscal Price tion Appreciation
Granted(1) Year(2) per Share Date(3) for Option Term(4)
---------- ---------- --------- ------ --------------------------
5% 10%
------- --------
<S> <C> <C> <C> <C> <C> <C>
E. Michael Thoben 55,000 14.0% $5.75 2001 $87,450 $193,600
William Yates 35,000 8.9% $5.75 2001 $55,650 $123,200
David Arthur 35,000 8.9% $5.75 2001 $55,650 $123,200
Wendell Ritchey 20,000 5.1% $5.75 2001 $31,800 $70,400
(1) These options were granted pursuant to the Company's 1996 Stock Incentive
Plan (the "Plan").
(2) In fiscal 1996, the Company granted a total of 393,000 options under the
Plan, and this number is used in calculating the percentages set forth in
this column.
(3) Options granted under the Plan generally expire on the fifth anniversary of
the date of grant. Options granted under the Plan expire prior to the fifth
anniversary of grant (i) if the optionee's employment (or service as a
director, as applicable) is terminated for any reason (other than death or
disability), in which case options vested
7
<PAGE>
but unexercised at the date of termination may be exercised within 90 days
after the date of termination, or (ii) if employment (or service as a
director, as applicable) terminates because of death or disability, in
which case options vested but unexercised at the date of termination may be
exercised within 12 months after the date of termination. If employment (or
service as director, as applicable) is terminated by death of the optionee,
the option generally may be exercised by persons to whom the optionee's
rights pass by will or the laws of descent or distribution. Remaining
vested but unexercised options terminate at the end of the earliest of the
above described periods, as applicable.
(4) The assumed 5% and 10% annual rates of appreciation over the term of the
options are set forth in accordance with rules and regulations adopted by
the Securities and Exchange Commission and do not represent the Company's
estimate of stock price appreciation. Value shown is net of exercise costs.
</TABLE>
Stock Option Exercises in Last Fiscal Year and Fiscal Year-End Values
The following table sets forth information (on an aggregated basis)
concerning each exercise of stock options during fiscal 1996 by each of the
executive officers of the Company named in the Summary Compensation Table and
the fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Fiscal Year 1996
and Fiscal Year-End Option Values
Value of Unexercised
Shares Number of Unexercised In-the-Money Options
Shares Options at Year-End at Year-End(1)
Acquired on Value ----------------------------- ----------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Michael Thoben, III ----- ----- 282,459 39,875 $427,521 $20,643
William Yates ----- ----- 126,294 36,706 $154,962 $13,913
David Arthur ----- ----- 126,340 36,706 $155,175 $13,913
Wendell Ritchey ----- ----- 67,845 22,155 $72,711 $8,189
(1) Options are "in-the-money" at the fiscal year-end if the fair market value
of the underlying securities on such date exceeds the exercise price of the
option. The amounts set forth represent the difference between the fair
market value of the securities underlying the options on December 31, 1996,
based on the last sale price of $6.00 per share of Common Stock on that
date (as reported by the Nasdaq National Market) and the exercise price of
the options, multiplied by the applicable number of options.
</TABLE>
Other Compensation
The Company provides certain officers with automobile allowances. These
benefits, valued at their incremental cost to the Company, did not exceed
$50,000 or 10% of the compensation reported for any individual officer, and with
respect to the executive officers as a group (five persons), such compensation
did not exceed $50,000 multiplied by the number of persons in the group or 10%
of the cash compensation reported in the Cash Compensation Table for the group.
8
<PAGE>
Employment Agreements
Effective April 1, 1996, the Company entered into two-year employment
agreement with E. Michael Thoben, III, pursuant to which Mr. Thoben is employed
as President and Chief Executive Officer. This employment agreement provides for
payment of a specified salary and certain incentive compensation and prohibits
Mr. Thoben from engaging in any business competitive with the Company's business
for the term of the agreement or, upon termination of the agreement, soliciting
customers of the Company by disclosing any of the Company's trade secrets or
other confidential information. The employment agreement was entered into after
Mr. Thoben was already serving as an officer of the Company. Under California
law, the post-employment non-competition provisions of the Company's employment
agreement with Mr. Thoben may be unenforceable, in whole or in part.
Effective April 1, 1996, the Company entered into two-year employment
agreement with William Yates, pursuant to which Mr. Yates is employed as Senior
Vice President, Marketing and Sales. This employment agreement provides for
payment of a specified salary and certain incentive compensation and prohibits
Mr. Yates from engaging in any business competitive with the Company's business
for the term of the agreement or, upon termination of the agreement, soliciting
customers of the Company by disclosing any of the Company's trade secrets or
other confidential information. The employment agreement was entered into after
Mr. Yates was already serving as an officer of the Company. Under California
law, the post-employment non-competition provisions of the Company's employment
agreement with Mr. Yates may be unenforceable, in whole or in part.
Effective April 1, 1996, the Company entered into two-year employment
agreement with David Arthur, pursuant to which Mr. Arthur is employed as Senior
Vice President, Operations. This employment agreement provides for payment of a
specified salary and certain incentive compensation and prohibits Mr. Arthur
from engaging in any business competitive with the Company's business for the
term of the agreement or, upon termination of the agreement, soliciting
customers of the Company by disclosing any of the Company's trade secrets or
other confidential information. The employment agreement was entered into after
Mr. Arthur was already serving as an officer of the Company. Under California
law, the post-employment non-competition provisions of the Company's employment
agreement with Mr. Arthur may be unenforceable, in whole or in part.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
There are none.
9
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION<F1>
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three non-employee directors. Pursuant to authority delegated by the
Board, the Committee initially determines the compensation to be paid to the
Chief Executive Officer and to each of the other executive officers of the
Company. Following such determination by the Committee, issues concerning
officer compensation are submitted to the Board of Directors for approval.
Directors who are also officers of the Company do not participate in this
approval process. The Committee also is responsible for developing and making
recommendations to the Board with respect to the Company's executive
compensation policies.
The Company's compensation policies for officers (including the named
executive officers) are designed to compensate the Company's executives fairly
and to provide incentive for the executives to manage the Company's business
effectively for the benefit of its shareholders.
The key objectives of the Company's executive compensation policies are to
attract and retain key executives who are important to the long-term success of
the Company, and to provide incentive for these executives to achieve high
levels of job performance and enhancement of shareholder value. The Company
seeks to achieve these objectives by paying its executives a competitive level
of base compensation for companies of similar size and industry and by providing
its executives an opportunity for further reward for outstanding performance in
both the short term and the long term. It is the current policy of the Committee
to set base salaries conservatively and to emphasize opportunities for
performance-based rewards through annual cash bonuses and stock option grants.
Section 162(m) of the Internal Revenue Code of 1986 limits to $1,000,000
per person the amount that the Company may deduct for compensation paid to any
of its most highly compensated officers in any year. The levels of salary and
bonus paid by the Company generally do not exceed this limit. However, upon
exercise of nonqualified stock options, the excess of current market price over
the option price (option spread) is treated as compensation. Therefore, it may
be possible for option exercises by an officer in any year to cause the
officer's total compensation to exceed $1,000,000. Under Internal Revenue
Service regulations, the $1,000,000 cap on deductibility will not apply to
option spread compensation from exercise of a nonqualified stock option that
meets certain requirements. The Company's current policy results in options that
generally meet those requirements.
Executive Officer Compensation Program. The Company's executive officer
compensation program is comprised of three elements: base salary, annual cash
bonus and long-term incentive compensation in the form of stock option grants.
- --------------
<F1> This section is not "soliciting material," is not deemed "filed" with the
Securities and Exchange Commission and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933 or
the Securities Exchange Act of 1934, regardless of date or any general
incorporation language in such a filing.
10
<PAGE>
Salary. The Company attempts to establish base salary levels for the
Company's executive officers that are competitive with those established by
companies of similar size in the computer electronics and technology industry.
In determining individual salaries within the established ranges, the Committee
takes into account individual experience, job responsibility and individual
performance during the prior year. The Committee does not assign a specific
weight to each of these factors in establishing individual base salaries. Each
executive officer's salary is reviewed annually, and increases to base salary
are made to reflect competitive market increases and the factors described
above.
In determining 1996 salaries, the Compensation Committee compared the 1996
salaries to the ranges established in fiscal 1996, reviewed salaries of
executives of similar companies, and made specific adjustments to the 1995
compensation levels as determined by the Committee to be appropriate in the
circumstances.
Cash Bonuses. The purpose of the cash bonus component of the compensation
program is to provide a direct financial incentive in the form of cash bonuses
to executives and other employees to achieve predetermined Company performance
objectives. Performance objectives for the Company as a whole are determined at
the beginning of each fiscal year during the annual budgeting process and are
approved by the Board of Directors. These performance objectives are established
based upon competitive conditions and general economic circumstances then
prevailing in the industries in which the Company does business. The Company
currently has one cash bonus plan covering the executive officers of the
Company.
Eligibility of an executive officer for a bonus is generally dependent upon
the achievement of the predetermined performance objectives of the bonus plan.
Target bonus amounts are established by the Committee for each executive officer
at the beginning of each fiscal year, at a percentage of the executive officer's
base salary. The bonus target for executive officers in fiscal 1996 was 20% of
base salary. If the predetermined performance goals are met, a preliminary bonus
amount is calculated under the bonus formula up to a maximum of the target bonus
amount. The final bonus amount paid to an eligible executive officer is
determined by the Committee, which has discretion to increase or decrease the
formula-derived figure within certain limits based upon the Committee's
assessment of the individual's performance, and to pay special bonuses in
extraordinary circumstances as judged by the Compensation Committee.
Bonus awards for fiscal 1996 were formula-derived for participants in the
bonus program. The formula employed contains an objective component, linked to
the Company's revenue growth and profitability , as well as a subjective
component, based upon the Committee's assessment of the individual officers'
relative contribution to the Company as a whole. Based on the attainment of
performance objectives of the 1996 Plan and the subjective component as
recommended by the Compensation Committee, executive officers received fiscal
1996 bonuses averaging 15% of base of salary. 1996 bonuses were paid to officers
in the first quarter of 1997.
11
<PAGE>
Stock Options. Under the Company's compensation policy, stock options are
the primary vehicle for rewarding long-term achievement of Company goals. The
objectives of the program are to align employee and shareholder long-term
interests by creating a strong and direct link between compensation and
increases in share value. Under the Company's 1993 and 1996 Stock Incentive
Plans (the "Plans"), the Board of Directors or the Compensation Committee may
grant options to purchase Common Stock of the Company to key employees of the
Company and its subsidiaries. The Board of Directors makes annual grants of
nonstatutory options to acquire the Company's Common Stock at an exercise price
equal to the fair market value of the shares on the date of grant (the last sale
price as reported on the Nasdaq National Market on the date of grant). Options
generally vest at 25% of the grant on the grant date and on the anniversary date
of the grant for the three succeeding years. Stock options generally have a
five-year term but terminate earlier if employment is terminated. Option grants
to executive officers depend upon the level of responsibility and position, and
the Committee's subjective assessment of performance, the number of options
granted in the past and the exercise price of such grants, among other factors.
In fiscal 1996, the Board of Directors, upon recommendation of the Committee,
made the following grants of options to purchase Company Common Stock to
executive officers of the Company: E. Michael Thoben, III, 55,000 shares;
William A. Yates, 35,000 shares; David J. Arthur, 35,000 shares; Paul D. Meyer,
30,000 shares; and Wendell Ritchey, 25,000 shares. The Committee expects that in
the future, if additional grants are made, consideration will be given to the
number of options granted in the past and the exercise price of such grants.
Chief Executive Officer Compensation. The Committee determined the Chief
Executive Officer's compensation for fiscal 1996, with the final approval of the
Board of Directors, employing the same criteria that it used to set compensation
for other executive officers. The Chief Executive Officer's base salary was
determined based upon a review of the salaries of chief executive officers for
companies of comparable size and industry identified and upon a review of the
Chief Executive Officer's performance. The Chief Executive Officer's bonus for
fiscal 1996 was determined under the Executive Bonus Program, and was awarded
under the Committee's discretionary powers. Option grants in fiscal 1996 were
determined under the criteria described under Stock Options, above.
Carolyn MacDougall, Chair
Eugene Hovanec
Merritt Lutz
12
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following line graph provides a comparison of the annual percentage
change in the Company's cumulative total shareholder return on its Common Stock,
with the cumulative total return of the Nasdaq Composite Index and a peer group
consisting of companies included in the Nasdaq Computer Manufacturers Index. The
comparison is for the period commencing on May 31, 1993, the end of the month
immediately preceding June 7, 1993, the date on which the Company's Common Stock
was first traded as a stock registered under Section 12 of the Securities
Exchange Act of 1934, through December 31, 1996. The comparison assumes $100 was
invested on June 7, 1993 in the Company's Common Stock and assumes the
reinvestment of the full amount of any dividends.
[Graphic line chart depicting the following:
<TABLE>
<CAPTION>
Interlink Electronics
Cumulative Total Return To Shareholders
6/7/93 - 12/31/96
6/7/93 12/31/93 6/30/94 12/31/94 6/30/95 12/31/95 12/31/96
------ -------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Nasdaq Stock Market 100 111.1 101.4 108.6 135.3 153.4 188.86
Nasdaq Computer Mfg Stocks 100 96.8 76.1 106.3 136.3 167.4 122.1
Interlink Electronics 100 248 168 119 275 130 120
* On $100 invested on June 7, 1993, including reinvestment of dividends.]
</TABLE>
CERTAIN TRANSACTIONS
There are none.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("Section 16(a)")
requires the Company's executive officers and directors and persons who own more
than 10% of Company Common Stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). SEC regulations
require that persons filing these reports furnish copies to the Company.
Based solely on a review of the copies of the reports received by the
Company and on written representations of certain reporting persons, the Company
believes that no executive officer or director failed to file any report
required by Section 16(a) or failed to report any other transaction required by
Section 16(a) on a timely basis.
13
<PAGE>
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended December 31, 1996 is
transmitted herewith.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Shareholders provides for transaction
of any business that properly comes before the meeting, the Board of Directors
has no knowledge of any matters to be presented at the meeting other than those
referred to herein. The enclosed proxy, however, gives discretionary authority
if any other matters are presented.
OTHER BUSINESS
The Board of Directors does not intend to present any business for action
at the meeting other than the election of directors and the proposals set forth
herein, nor does it have knowledge of any matters that may be presented by
others. If any other matter properly comes before the meeting, the persons named
in the accompanying form of proxy intend to vote in accordance with the
recommendations of the Board of Directors.
14
<PAGE>
SHAREHOLDER PROPOSALS
Any shareholder proposals to be considered for inclusion in the proxy
material for the Company's 1998 Annual Meeting must be received at the principal
executive offices of the Company not later than January 4, 1998.
By Order of the Board of Directors
PAUL D. MEYER
Paul D. Meyer
Secretary
April 25, 1997
<PAGE>
PROXY
INTERLINK ELECTRONICS, INC.
Annual Meeting, June 27, 1997
PROXY SOLICITED BY BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints E. Michael Thoben, III, and Paul D. Meyer, and
each of them, proxies with power of substitution to vote on behalf of the
undersigned all shares that the undersigned may be entitled to vote at the
annual meeting of shareholders of Interlink Electronics, Inc. (the "Company") on
June 27, 1997 and any adjournments thereof, with all powers that the undersigned
would possess if personally present, with respect to the following:
1. Election of Director: Merritt M. Lutz
FOR the nominee AGAINST the nominee WITHHOLD AUTHORITY
[ ] [ ] [ ]
2. Proposal to ratify the appointment of Arthur Andersen LLP Touche as auditors
of the Company for the fiscal year ending December 31, 1997:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Transaction of any business that properly comes before the meeting or any
adjournments thereof. A majority of the proxies or substitutes at the
meeting may exercise all the powers granted hereby.
(Continued and to be signed on the other side.)
<PAGE>
The shares represented by this proxy will be voted as
specified on the reverse hereof, but if no specification is
made, this proxy will be voted for the election of the
director. The proxies may vote in their discretion as to
other matters that may come before this meeting.
Date:___________________________, 1997
P Name: ________________________________
R
0 Signature(s): ________________________
X Signature or Signatures
Y
Please date and sign as name is
imprinted hereon, including
designation as executor, trustee,
etc., if applicable. A corporation
must sign its name by the president or
other authorized officer.
The Annual Meeting of Shareholders of
Interlink Electronics will be held on
June 27, 1997 at 10:00 a.m., Pacific
Daylight Time, at The Courtyard by
Marriott, located at 4994 Verdugo Way,
Camarillo, California, 93012.
Please Note: Any shares of stock of the Company held in the name of fiduciaries,
custodians or brokerage houses for the benefit of their clients may only be
voted by the fiduciary, custodian or brokerage house itself--the beneficial
owner may not directly vote or appoint a proxy to vote the shares and must
instruct the person or entity in whose name the shares are held how to vote the
shares held for the beneficial owner. Therefore, if any shares of stock of the
Company are held in "street name" by a brokerage house, only the brokerage
house, at the instructions of its client, may vote or appoint a proxy to vote
the shares.
