<PAGE>
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
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Thrustmaster, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee 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>
- -------------------------------------------------------------[LOGO]
To the Shareholders of ThrustMaster, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
ThrustMaster, Inc., an Oregon Corporation (the "Company"), will be held at
the RiverPlace Hotel, located at 1510 Southwest Harbor Way, Portland,
Oregon, on May 21, 1998, at 2:00 p.m. local time, for the following
purposes:
1. To elect directors of the Company;
2. To approve the adoption of the Company's 1998 Stock Option Plan;
3. To approve the amendment of the Company's 1994 Stock Option Plan to
comply with the requirements of Section 16 of the Securities Exchange
Act of 1934, as amended, and Section 162(m) of the Internal Revenue
Code of 1986, as amended;
4. To ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants of the Company for the year ending December 31, 1998; and
5. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on March 31, 1998 will
be entitled to notice of and to vote at the meeting, and any adjournments
thereof.
Information concerning the Company's activities and operating
performance during the year ended December 31, 1997 is contained in the
Company's Annual Report to Shareholders which is enclosed.
YOUR VOTE IS VERY IMPORTANT. All shareholders are invited to attend
the meeting. Whether or not you plan to attend the meeting, please
complete the accompanying proxy and return it promptly in the enclosed
return envelope. If you attend the meeting, you may vote in person if you
wish even if you have returned your proxy.
By order of the Board of Directors,
/s/ Kent E. Koski
----------------------------
Kent E. Koski,
Secretary
Hillsboro, Oregon
April 15, 1998
<PAGE>
- -------------------------------------------------------------[LOGO]
PROXY STATEMENT FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
GENERAL
This proxy statement and the enclosed form of proxy are being mailed on
or about April 15, 1998, to shareholders of ThrustMaster, Inc., an Oregon
corporation (the "Company"), in connection with the solicitation of proxies
by the Board of Directors of the Company for use at the annual meeting of
shareholders to be held on May 21, 1998, at 2:00 p.m. local time, at the
RiverPlace Hotel, located at 1510 Southwest Harbor Way, Portland, Oregon, and
any adjournment thereof (the "Annual Meeting").
REVOCABILITY OF PROXIES
A shareholder giving a proxy has the power to revoke that proxy at any
time before it is exercised by filing with the Secretary of the Company an
instrument of revocation, or a duly exercised proxy bearing a later date, or
by personally attending and voting at the Annual Meeting.
RECORD DATE AND OUTSTANDING SHARES
Only shareholders of record at the close of business on March 31, 1998
(the "Record Date") will be entitled to vote at the meeting. At the close of
business on the Record Date, there were 4,371,449 shares of the Company's
common stock ("Common Stock") outstanding.
QUORUM AND VOTING
Each share of Common Stock entitles the holder thereof to one vote.
Under Oregon law, action may be taken on a matter submitted to shareholders
only if a quorum exists with respect to such matter. A majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting,
present in person or represented by proxy, will constitute a quorum.
If a quorum is present, a nominee for election to the Board of Directors
will be elected by a plurality of the votes cast by shares entitled to vote
at the Annual Meeting. For all other matters, action will be approved if the
votes cast in favor of the action exceed the votes cast opposing the action.
Shares represented by a properly executed proxy will be voted in
accordance with the shareholder's instructions if given. If no instructions
are given, shares will be voted "FOR" (i) the election of the nominees for
directors named herein, (ii) the approval of the adoption of the Company's
1998 Stock Option Plan, (iii) the approval of the amendment of the Company's
1994 Stock Option Plan to comply with the requirements of Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section
162(m) of the Internal Revenue Code of
<PAGE>
1986, as amended (the "Code"), (iv) the ratification of the selection of
Coopers & Lybrand L.L.P. as independent accountants and (v) in accordance
with the recommendations of management on any other matters properly brought
before the Annual Meeting. The Board of Directors knows of no other matters
to be presented for action at the meeting.
Proxies that expressly indicate an abstention as to a particular
proposal and broker non-votes will be counted for purposes of determining
whether a quorum exists at the Annual Meeting, but will not be counted for
any purposes in determining whether a proposal is approved and have no effect
on the determination of whether a plurality exists with respect to a given
nominee. Proxies and ballots will be received and tabulated by ChaseMellon
Shareholder Services, the Company's transfer agent.
SOLICITATION OF PROXIES
This solicitation is being made on behalf of and the cost of soliciting
proxies will be borne by the Company. In addition to solicitation by mail,
certain of the Company's directors, officers, and regular employees may
solicit proxies personally or by telephone or other means without additional
compensation. Brokers, nominees and fiduciaries will be reimbursed in
accordance with customary practice for expenses incurred in obtaining proxies
or authorizations from the beneficial shareholders. Your cooperation in
promptly completing, signing, dating and returning the enclosed proxy card
will help avoid additional expense.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. The terms of the
directors in each class expire at the annual meeting of shareholders in the
years listed on the chart below. Each director was elected to the Board of
Directors at the 1997 annual meeting of shareholders.
<TABLE>
<CAPTION>
Class A Directors Class B Directors Class C Directors
--------------------------------------------------------------------
1998 1999 2000
<S> <C> <C>
Robert L. Carter Stephen A. Aanderud Graham E. Dorland
G. Gerald Pratt Gen. Merrill A. McPeak Frederick M. Stevens
Milton R. Smith C. Norman Winningstad
</TABLE>
The Board of Directors has nominated Messrs. Carter, Pratt and Smith for
re-election as directors in Class A, to serve for three-year terms and until
their successors are elected and qualified, unless they shall earlier resign,
become disqualified or disabled or shall otherwise be removed.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF ALL NOMINEES.
Although the Board of Directors anticipates that all nominees will be
available to serve as directors of the Company, if any of them do not accept
the nomination, or otherwise are unwilling or unable to serve, the proxies
will be voted for the election of a substitute nominee or nominees designated
by the Board of Directors.
2
<PAGE>
BOARD AND NOMINEE BIOGRAPHICAL INFORMATION
Set forth below are the ages, as of the Record Date, and certain
biographical information for each director and nominee.
C. NORMAN WINNINGSTAD, 72, has served as Chairman of the Board since
February 1994. He has served as a director of the Company since its
inception. From 1970 to October 1991, Mr. Winningstad held at various times
the positions of Chairman of the Board, Vice-Chairman, President and Chief
Executive Officer of Floating Point Systems, Inc., a manufacturer of
scientific computers. Mr. Winningstad has a B.S. degree in Electrical
Engineering from the University of California at Berkeley, an M.B.A. degree
from Portland State University, and an Honorary Doctorate of Law degree from
Pacific University.
STEPHEN A. AANDERUD, 48, became a member of the Board of Directors in
August 1994. He has been employed by the Company since January 1993, serving
as President and Chief Executive Officer since May 1994 and as Vice President
of Finance and Administration prior to that time. From October 1991 to
December 1992, he was the Director of Finance of Cray Research Superservers,
Inc., a wholly-owned subsidiary of Cray Research. He is a Certified Public
Accountant and received a B.S. degree in business from Portland State
University.
ROBERT L. CARTER, 55, has been a director of the Company since 1990, and
is a former Chairman, President and Chief Executive Officer of the Company.
Mr. Carter was the Company's first full-time employee and played a key role
in the early design and development of certain ThrustMaster products. He has
been the Chairman of the Board and Chief Executive Officer of Military
Simulations, Inc., a publisher of entertainment software, since December
1993. He received a B.S.M.E. degree from the University of Missouri.
GRAHAM E. DORLAND, 56, became a member of the Board of Directors in
November 1993. Mr. Dorland is President of Dorland and Associates, a
consulting group, and President and Chief Executive Officer of Nautamatic
Marine Systems, Inc., a manufacturer of marine autopilots located in Newport,
Oregon. From June 1993 to January 1995, he was Managing Partner of Snobird
Aircraft Partners, a developer of experimental aircraft. From May 1982 to
December 1992, Mr. Dorland was Chairman and President of ABX Air Inc., the
wholly-owned airline subsidiary of Airborne Freight Corporation, doing
business as Airborne Express.
GENERAL MERRILL A. MCPEAK, 62, became a member of the Board of Directors
in March 1996. He has been the President of McPeak and Associates, an
international aerospace consulting firm, since January 1995. General McPeak
spent 37 years in the United States Air Force, and was Chief of Staff from
October 1990 to October 1994, when he retired. He also is a member of the
Boards of Directors of Tektronix, Inc., Praegitzer Industries, Inc., TWA,
Inc. and ECC International Corp., where he serves as Chairman of the Board.
He holds a B.A. degree in economics from San Diego State University and an
M.S. degree in international relations from George Washington University.
G. GERALD PRATT, 70, has been a director of the Company since its
inception. Since 1980, Mr. Pratt has been a private venture capitalist. Mr.
Pratt has been a trustee of the Meyer Memorial Trust, a charitable trust,
since 1978.
3
<PAGE>
MILTON R. SMITH, 62, has been a director of the Company since its
inception. Mr. Smith served as the Company's President from October 1992
until May 1994 and as the Company's Secretary from July 1990 until April 1993
and again from December 1994 until May 1995. Since April 1997, Mr. Smith has
been a member of the Board of Directors of Integrated Measurement Systems,
Inc., a manufacturer of high performance engineering test stations. Mr.
Smith was the President and Chief Executive Officer of Zeelan Technology,
Inc., a software engineering company, from October 1994 until April 1995.
Since May 1995, Mr. Smith has been a private venture capitalist. He recently
completed terms as a member of the national Board of Directors and as
Chairman of the Oregon Council of the American Electronics Association. He
received a B.S. degree in physics from Portland State University, an M.S.E.E.
degree from Oregon State University, and a J.D. degree from Lewis and Clark
College.
FREDERICK M. STEVENS, 61, became a member of the Board of Directors in
December 1993. From April 1988 until his retirement in January 1991, Mr.
Stevens was the Chairman of the Board and Chief Executive Officer of Fred
Meyer, Inc.
BOARD MEETINGS AND COMMITTEES
During 1997, there were eight meetings of the Board of Directors. Each
director during 1997 attended more than 75% of the aggregate number of Board
of Directors' meetings and meetings of Board committees of which he was a
member.
The Board of Directors has a standing Audit Committee, consisting of
Messrs. Dorland, Pratt, and Smith, that meets with the Company's Chief
Executive Officer, Chief Financial Officer and the Company's independent
public accountants to review the scope and findings of the annual audit. The
Audit Committee held two meetings during 1997.
The Board of Directors has a standing Compensation Committee currently
consisting of Messrs. Carter, Stevens, Winningstad and General McPeak. The
Committee considers and acts upon management's recommendations to the Board
of Directors regarding salaries, bonuses, stock options, and other forms of
compensation for the Company's executive officers. The Compensation
Committee makes recommendations to the Board of Directors. Executive officers
who are also directors of the Company do not participate in decisions
affecting their own compensation. The Compensation Committee held two
meetings during 1997.
The Board of Directors does not have a Nominating Committee or any other
committee that performs a similar function.
4
<PAGE>
COMPENSATION OF DIRECTORS
During 1997, each nonemployee director received an annual fee of $3,000
and $250 for Board meetings and committee meetings attended, unless the
committee meeting was held on the same day as a Board meeting. Upon becoming
a director, each nonemployee director received options to purchase 16,480
shares of Common Stock under the Directors' Nonqualified Stock Option Plan of
the Company. In 1997, each nonemployee director who had been a director for
more than one year received options to purchase 4,120 shares of Common Stock
at a price equal to the fair market value on the date of grant. No employee
director receives additional compensation for his service as a director.
Effective May 1998, nonemployee directors will receive an annual fee of
$5,000. Effective February 1998, nonemployee directors receive $1,000 for
Board meetings and committee meetings attended unless the committee meeting
is held on the same day as a Board meeting, and $500 for attendance via
telephone.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1997 were Messrs.
Carter, Stevens, Winningstad and General McPeak. Mr. Carter is a former
Chairman, President and Chief Executive Officer of the Company.
FAMILY RELATIONSHIPS
There are no family relationships between any director, executive
officer or person nominated or chosen to be a director or executive officer,
and any other director, executive officer or person nominated or chosen to
become a director or executive officer of the Company.
5
<PAGE>
EXECUTIVE OFFICERS
Set forth below are the ages, as of the Record Date, and certain
biographical information for the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Stephen A. Aanderud (1) 48 President, Chief Executive Officer
David K. Bergeson 38 Vice President, Sales
Frank M. Bouton 53 Vice President, New Technologies
G. Edward Brightman 40 Vice President, Operations
Kent E. Koski 54 Vice President, Finance and
Administration, Chief Financial
Officer and Secretary
Robert D. Martin 59 Vice President, Development
Ronald J. Resnick 49 Vice President, Marketing
</TABLE>
- ----------
(1) For information regarding Mr. Aanderud, see "Board and Nominee Biographical
Information."
DAVID K. BERGESON has been employed by the Company since May 1997 as
Vice President, Sales. Prior to joining the Company he was Director of Sales
at Creative Labs from April 1995 to April 1997. Mr. Bergeson has held senior
sales positions in the retail computer industry over the past 12 years. Mr.
Bergeson started in the computer industry with Epson America. He later
joined NEC Technologies as a Regional Director from October 1989 through
October 1991. Mr. Bergeson co-founded Personal Computer Solutions in 1991,
where he served as Vice President of Sales and Marketing until June 1994.
From March 1994 to April 1995, he served as the Western Regional Manager for
Sharp Electronics.
FRANK M. BOUTON joined the Company in June 1992, having previously
consulted with Robert L. Carter on the development of the Company's original
products. He has been Vice President, New Technologies, since January 1996.
From October 1992 to January 1996, he was Vice President, Engineering. From
January 1987 to June 1992, Mr. Bouton was the President and owner of THECO
Logic, Inc., a designer and manufacturer of hardware and software products
for the medical field.
G. EDWARD BRIGHTMAN has been employed by the Company since August 1992
and became Vice President, Operations, in October 1992. He has 18 years of
experience in manufacturing and operation management. From October 1983 to
August 1992, Mr. Brightman worked for Toyota Motor Sales, Toyota Motor
Manufacturing and Vehicle Processors Inc. in management positions at several
assembly plants and import facilities.
KENT E. KOSKI has been employed by the Company since May 1995 as Vice
President, Finance and Administration, Chief Financial Officer, and Secretary.
For the five years prior to joining the Company, he was the Vice President of
Finance for Avia Group International, Inc., an
6
<PAGE>
athletic footwear and apparel design and distribution company. Mr. Koski is
a Certified Public Accountant and received B.S. and M.B.A. degrees from the
University of Utah.
ROBERT D. MARTIN has been employed by the Company since November 1994
and became Vice President, Strategic Planning, in January 1996, and Vice
President, Development, in May 1997. Immediately prior to joining the
Company he was a private consultant and in that capacity assisted the Company
with the procurement of government contracts. Mr. Martin was a regional and
line of business manager for National System & Research Company from May 1990
until December 1992. He has over 20 years of experience in senior management
with medical electronics, systems integration and software development
companies.
RONALD J. RESNICK has been employed by the Company since May 1996 as
Vice President, Marketing. Prior to joining the Company he was a marketing
consultant from August 1995 until April 1996. From April 1994 through July
1995, Mr. Resnick was the Vice President and Publisher at Infotainment World,
Inc., a book and magazine publishing company. He was Vice President,
Business Development, at Prima Publishing, a book publishing company, from
March 1992 until March 1994, and Product Marketing Manager at Software
Toolworks, Inc., an entertainment software publishing company, from July 1990
to December 1991. Mr. Resnick has a B.S. degree in electrical engineering
from Rutgers University.
There are no arrangements or understandings pursuant to which any person
has been appointed as an executive officer of the Company. The Company has
no employment contracts with any of its executive officers.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
1997 to the Company's Chief Executive Officer and the other four most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------ UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2) (3)
- ---------------------------- ---- ------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Stephen A. Aanderud
PRESIDENT AND CEO 1997 $155,000 $69,168 45,450 $3,304
1996 135,000 65,299 25,750 2,250
1995 120,000 20,160 10,300 1,650
Ronald J. Resnick (4)
VICE PRESIDENT, 1997 130,000 42,088 9,270 1,073
MARKETING 1996 78,692 28,172 41,020 --
Robert D. Martin
VICE PRESIDENT, 1997 110,000 43,506 9,270 1,198
DEVELOPMENT 1996 90,000 38,591 48,925 1,209
1995 55,208 2,650 3,605 448
G. Edward Brightman
VICE PRESIDENT, 1997 110,000 35,228 9,270 968
OPERATIONS 1996 90,000 32,445 18,540 988
1995 80,000 9,600 10,300 1,100
Frank Bouton
VICE PRESIDENT, 1997 100,000 38,460 9,270 989
NEW TECHNOLOGIES 1996 85,000 36,770 16,480 970
1995 80,000 11,520 6,180 1,100
</TABLE>
- ----------
(1) Cash bonuses are paid to executive officers of the Company based upon their
individual contributions to the Company and the Company's overall
performance. Bonuses for a given year are paid in the first quarter of the
following year.
(2) The number of shares reflects a 3% stock dividend declared by the Board of
Directors on January 21, 1997.
(3) Consists of the Company's matching contributions under its 401(k) plan.
(4) Mr. Resnick joined the Company in May 1996.
8
<PAGE>
OPTION GRANTS
The following table sets forth information with respect to grants of stock
options to the Named Executive Officers during 1997.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SHARES TOTAL EXERCISE ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE PRICE APPRECIATION FOR
OPTIONS GRANTED TO PER OPTION TERM (4)
GRANTED EMPLOYEES SHARE EXPIRATION ------------------------
NAME (1) (2) IN YEAR (1) (3) DATE 5% 10%
- ------------------ ----------- ----------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Aanderud 15,450 7.2% $ 8.616 2/21/07 $ 83,793 $212,183
30,000 14.0 15.750 10/22/07 297,000 753,000
Ronald J. Resnick 9,270 4.3 8.616 2/21/07 50,276 127,310
Robert D. Martin 9,270 4.3 8.616 2/21/07 50,276 127,310
G. Edward Brightman 9,270 4.3 8.616 2/21/07 50,276 127,310
Frank M. Bouton 9,270 4.3 8.616 2/21/07 50,276 127,310
</TABLE>
- ----------
(1) The number of shares and the exercise price reflect adjustments due to a 3%
stock dividend declared by the Board of Directors on January 21, 1997.
(2) Options may terminate before their expiration dates if the optionee's
status as an employee or director is terminated. One-fourth of the shares
of Common Stock covered by each such option vests and becomes exercisable
on each of the first four anniversaries of the grant date.
(3) Based on the closing prices of the Common Stock as reported on The Nasdaq
National Market on the respective grant dates.
(4) This column shows the hypothetical gains or option spreads of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full 10-year term of the options. The assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.
9
<PAGE>
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information regarding exercises of
stock options during 1997 by the Named Executive Officers and the year-end value
of options held by such individuals.
AGGREGATE OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 (1) DECEMBER 31, 1997 (2)
ACQUIRED ---------------------- ------------------------
ON VALUE UNEXER- UNEXER-
NAME EXERCISE REALIZED EXERCISABLE CISABLE EXERCISABLE CISABLE
- ---------------------- --------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Aanderud 15,000 $122,467 90,317 64,763 $1,046,732 $209,504
Ronald J. Resnick -- -- 10,300 40,170 78,186 272,302
Robert D. Martin 1,900 8,450 10,330 45,965 78,407 316,526
G. Edward Brightman 5,000 40,510 57,315 23,175 682,641 144,607
Frank M. Bouton -- -- 4,120 21,630 31,212 131,379
</TABLE>
- ----------
(1) Gives effect to the 3% stock dividend declared by the Board of Directors on
January 21, 1997.
(2) Calculated based on the difference between the option exercise price and
the closing price of the Common Stock on December 31, 1997 ($12.688 per
share). The potential values have not been, and may never be, realized.
The underlying options have not been, and may never be, exercised. Actual
gains, if any, on exercise will depend on the value of the Common Stock on
the date of exercise.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION*
It is the duty of the Compensation Committee to evaluate the performance
of management, review levels of compensation, and consider related matters.
The compensation policy of the Company, which is endorsed by the
Compensation Committee, is that a substantial portion of the annual
compensation of executive officers should be contingent upon the performance
of the Company and the individual executive officer as well. As a result, a
substantial portion of an executive officer's compensation is "at risk," with
annual bonus compensation constituting a significant portion of total
compensation.
The compensation programs of the Company are designed to align the
executive officers' compensation with the strategic goals and performance of the
Company and underlying interests of the Company's shareholders. Accordingly,
executive officers are generally granted options to
- ----------
* Neither this Report nor the graph set forth below shall be deemed
to be incorporated by reference into any filing by the Company under either
the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, except to the extent that the Company specifically
incorporates the same by reference.
10
<PAGE>
purchase shares of the Company's stock under the Company's stock option plans
tied to their level of compensation and contribution.
In order to assure that executive officers' compensation is competitive
and provides the incentives necessary to attract and maintain quality
leadership, the Compensation Committee reviews compensation surveys prepared
by third parties to assist in the performance of its duties. Factors
considered by the Committee, among others, are how the Company's compensation
compares to compensation paid by similar companies as well as the Company's
current performance.
The 1997 base compensation for Stephen A Aanderud, the Company's
President and Chief Executive Officer, was established in January 1997 by the
Board of Directors upon recommendation of the Compensation Committee based on
the performance of the Company and Mr. Aanderud's contribution thereto during
1996. For purposes of determining Mr. Aanderud's annual bonus for 1997 and
base compensation for 1998, the Compensation Committee reviewed in January
1998 the Company's 1997 operating performance. The Compensation Committee
noted that under Mr. Aanderud's leadership, the following was achieved by the
Company during 1997: (i) revenues increased to $45.5 million, a 47.6%
increase over 1996; (ii) net income increased to $3.2 million, a 41.5%
increase over 1996; and (iii) diluted earnings per share increased to $0.69,
a 35.3% increase over 1996. Nearly all of the performance factors achieved by
the Company during 1997 exceeded the initial 1997 targets established by the
Company.
C. Norman Winningstad, Chairman
Robert L. Carter
Merrill A. McPeak
Frederick M. Stevens
11
<PAGE>
COMPARISON OF TOTAL CUMULATIVE SHAREHOLDER RETURN
The following graph sets forth the Company's total cumulative
shareholder return as compared to that of The Nasdaq Stock Market and of the
Nasdaq Electronic Components Stocks for the period from February 24, 1995
(the first trading day of the Common Stock) through December 31, 1997. The
total shareholder return assumes that $100 was invested at the beginning of
the period in Common Stock of the Company, The Nasdaq Stock Market Index, and
the Nasdaq Electronic Components Stocks Index, with all cash dividends
reinvested on the date paid. Historical stock price performance is not
necessarily indicative of future stock price performance.
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
<TABLE>
<CAPTION>
NASDAQ ELECTRONIC
NASDAQ STOCK MARKET COMPONENTS STOCKS THRUSTMASTER, INC.
------------------- ------------------ ------------------
<S> <C> <C> <C>
2/95 100.00 100.00 100.00
12/95 133.95 144.08 101.92
12/96 164.75 249.08 117.31
12/97 202.17 261.13 201.06
</TABLE>
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership as of March 31, 1998 of the Company's Common Stock by (i) each
shareholder known by the Company to be the beneficial owner of more than 5%
of the outstanding Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers as a group. Except as otherwise indicated, the Company believes
that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power
with respect to such shares.
<TABLE>
<CAPTION>
SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY BENEFICIALLY
OF BENEFICIAL OWNER (1) OWNED (2) OWNED (2)
- ---------------------------------- ------------ -------------
<S> <C> <C>
C. Norman Winningstad (3) 483,220 11.0
G. Gerald Pratt (4) 444,198 10.1
Milton R. Smith (5) 364,292 8.2
Robert L. Carter (6) 344,090 7.9
Simms Capital Management, Inc.
55 RAILROAD AVENUE,
GREENWICH, CONNECTICUT 06830 282,100 6.5
Stephen A. Aanderud (7) 100,618 2.2
G. Edward Brightman (8) 68,052 1.5
Frank Bouton (9) 51,012 1.2
Graham E. Dorland (10) 36,050 *
Robert D. Martin (11) 24,895 *
Frederick M. Stevens (12) 24,308 *
Ronald J. Resnick (13) 22,918 *
General Merrill A. McPeak (14) 9,270 *
All Executive Officers and
Directors as a group (14
persons) (15) 2,009,961 42.0
</TABLE>
- ----------
* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner identified
is ThrustMaster, Inc., 7175 NW Evergreen Parkway #400, Hillsboro, Oregon
97124.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. For purposes of this table, a person
is deemed to be the beneficial owner of securities that (i) can be acquired
by such person within 60 days upon the exercise of options or warrants and
(ii) are held by such person's spouse or other immediate family member
sharing such person's household. Each beneficial owner's percentage
ownership set forth below is determined by assuming that options and
warrants that are held by such person (but not those held by any other
person) and that are exercisable or convertible within 60 days after
March 31, 1998 have been exercised or converted.
(3) Includes 64,010 shares beneficially owned with spouse and 19,570 shares
subject to options exercisable within 60 days after March 31, 1998.
Excludes 10,150 shares subject to options exercisable more than 60 days
after March 31, 1998.
(4) Includes 19,570 shares subject to options exercisable within 60 days after
March 31, 1998. Excludes 10,150 shares subject to options exercisable more
than 60 days after March 31, 1998.
(5) Includes 69,010 shares subject to options exercisable within 60 days after
March 31, 1998. Excludes 10,150 shares subject to options exercisable more
than 60 days after March 31, 1998.
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<PAGE>
(6) Includes 2,090 shares subject to options exercisable within 60 days after
March 31, 1998. Excludes 10,150 shares subject to options exercisable more
than 60 days after March 31, 1998.
(7) Includes 100,618 shares subject to options exercisable within 60 days after
March 31, 1998. Excludes 66,712 shares subject to options exercisable more
than 60 days after March 31, 1998.
(8) Includes 64,268 shares subject to options exercisable within 60 days after
March 31, 1998. Excludes 25,672 shares subject to options exercisable more
than 60 days after March 31, 1998.
(9) Includes 40,454 shares beneficially owned with spouse and 10,558 shares
subject to options exercisable within 60 days after March 31, 1998.
Excludes 24,642 shares subject to options exercisable more than 60 days
after March 31, 1998.
(10) Includes 16,480 shares beneficially owned with spouse and 19,570 shares
subject to options exercisable within 60 days after March 31, 1998.
Excludes 10,150 shares subject to options exercisable more than 60 days
after March 31, 1998.
(11) Includes 24,880 shares subject to options exercisable within 60 days after
March 31, 1998. Excludes 40,865 shares subject to options exercisable more
than 60 days after March 31, 1998.
(12) Includes 4,738 shares beneficially owned with spouse and 19,570 shares
subject to options exercisable within 60 days after March 31, 1998.
Excludes 10,150 shares subject to options exercisable more than 60 days
after March 31, 1998.
(13) Includes 22,918 shares subject to options exercisable within 60 days after
March 31, 1998. Excludes 37,002 shares subject to options exercisable more
than 60 days after March 31, 1998.
(14) Includes 9,270 shares subject to options exercisable within 60 days after
March 31, 1998. Excludes 16,630 shares subject to options exercisable more
than 60 days after March 31, 1998.
(15) Includes 418,930 shares subject to options exercisable within 60 days after
March 31, 1998. Excludes 352,695 shares subject to options exercisable
more than 60 days after March 31, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and any
persons who beneficially own more than 10 percent of the Company's Common Stock
to report their initial ownership of Common Stock and any subsequent changes in
that ownership to the Securities and Exchange Commission (the "SEC"). Specific
due dates for such reports have been established. Persons subject to the
Section 16(a) reporting requirements are required to furnish the Company copies
of all Section 16(a) reports they file with the SEC. To the Company's
knowledge, based solely on a review of copies of such reports furnished to the
Company and representations that no other reports are required, all Section
16(a) filing requirements applicable to such reporting persons have been
complied with since the Company became subject to the Exchange Act provisions in
March 1995.
STOCK OPTION PLANS
Providing incentives for officers and key employees through the grant of
stock options is an integral part of the Company's strategy. In 1994, the
shareholders approved the 1994 Stock Option Plan ("1994 Plan") and the
Directors' Nonqualified Stock Option Plan (the "Directors' Plan"). The purposes
of the 1994 Plan were to retain the services of valued key employees of the
Company, to encourage employees to acquire greater proprietary interest in the
Company thereby strengthening their incentive to achieve the objectives of the
shareholders of the Company, and to serve as an aid and inducement to the hiring
of new employees.
14
<PAGE>
The 1994 Plan is administered by the Plan Administrator, which may be
either the Company's Board of Directors or a committee designated by the
Board of Directors. Currently, the Board of Directors is acting as Plan
Administrator. In accordance with the 1994 Plan, the Plan Administrator
determines the employees to whom options are granted, the number of shares
subject to each option, the exercise price and the vesting schedule of each
option. Options generally vest over a four-year period, but may vest over a
different period at the discretion of the Plan Administrator. Under the 1994
Plan, outstanding options vest, unless they are assumed by an acquiring
entity, upon the occurrence of certain transactions, including certain
mergers and other business combinations involving the Company. Options
granted under the 1994 Plan are exercisable for a period of 10 years from the
date of grant, except that incentive stock options granted to persons who own
more than 10% of the Common Stock terminate after five years. Vested options
terminate 90 days after the optionee's termination of employment with the
Company for any reason other than death or disability, and one year after
termination upon death or disability. Unless otherwise determined by the
Plan Administrator, the exercise price of options granted under the 1994 Plan
must be equal to or greater than the fair market value of the Common Stock on
the date of grant. Under exercise, the aggregate exercise price may be paid
to the Company (i) in cash, or (ii) by complying with any other payment
mechanism approved by the Plan Administrator from time to time.
The Directors' Plan provides that current non-employee directors of the
Company and persons who become non-employee directors of the Company shall be
granted options to purchase 16,480 shares of Common Stock upon becoming
directors. The exercise price for the grant of options to a director is the
fair market value on the date of grant. Options granted under the Director's
Plan are exercisable for a period of 10 years from the date of grant.
Options terminate 90 days after a director's termination as a director of the
Company for any reason other than death or disability, and one year after
termination by death or disability.
A total of 1,600,000 shares were made available for grant under the
1994 Plan and all prior Company stock option plans (excluding the Directors'
Plan). As of March 31, 1998, 348 shares were currently available for grant
under the 1994 Plan. At its meeting on January 23, 1998, the Board of
Directors adopted the 1998 Stock Option Plan ("1998 Plan") and reserved
1,000,000 shares of Common Stock for issuance under the 1998 Plan. The 1998
Plan, a copy of which is attached hereto as EXHIBIT A, is more fully
described below under Proposal 2.
At the same time, the Board determined it was in the best interests of
the Company to amend the 1994 Plan to add certain provisions required by
changes in the tax and securities laws to provide certain protections to
employees of the Company with respect to grants previously made. Those
amendments are attached as EXHIBIT B and are summarized below under Proposal
3.
PROPOSAL 2: APPROVAL OF THE ADOPTION OF THE 1998 STOCK
OPTION PLAN
1998 STOCK OPTION PLAN
GENERAL. On January 23, 1998, the Board of Directors adopted the 1998
Stock Option Plan (the "1998 Plan"). The purpose of the 1998 Plan is to enhance
the long-term shareholder
15
<PAGE>
value of the Company by offering opportunities to employees (and persons
offered employment), directors, officers, consultants, agents, advisors and
independent contractors of the Company to participate in the Company's growth
and success, and to encourage them to remain in the service of the Company
and its subsidiaries and to acquire and maintain stock ownership in the
Company.
The total number of shares subject to outstanding options under all the
Company's stock option plans, plus the number of shares available for new
grants under the 1998 Plan as proposed to be adopted, is approximately 45.4%
of the Company's total outstanding Common Shares. The proposed 1998 Plan is
attached hereto as Exhibit A and is incorporated herein by this reference.
Set forth below is a summary of certain important features of the 1998 Plan,
which summary is qualified in its entirety by reference to the full text of
the 1998 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE ADOPTION OF THE 1998 PLAN.
DESCRIPTION OF THE 1998 PLAN
STOCK SUBJECT TO THE 1998 PLAN. Subject to adjustment from time to time
as provided in the 1998 Plan, the maximum number of shares of Common Stock
available for issuance under the 1998 Plan will be equal to the sum of: (a)
1,000,000 shares of Common Stock; (b) any shares of Common Stock available
for future awards under (i) the 1994 Plan or (ii) the Directors' Plan, in
each case as of the effective date of the 1998 Plan; and (c) any shares of
Common Stock that are represented by awards granted under the 1994 Plan or
the Directors' Plan, which are forfeited, expire or are canceled without
delivery of shares of Common Stock or which result in the forfeiture of
shares of Common Stock back to the Company. As of March 31, 1998, 348 shares
were available for future awards under the Company's 1994 Stock Option Plan
and 57,000 shares were available for future awards under the Directors' Plan.
Subject to adjustment from time to time as provided in the 1998 Plan, no
more than 50,000 shares of Common Stock may be subject to aggregate awards
under the 1998 Plan to any participant in any one year, except that the
Company may make additional one-time grants of up to 100,000 shares to newly
hired individuals, such limitation to be applied consistently with the
requirements of, and only to the extent required for compliance with, certain
provisions of Section 162(m) of the Code, which precludes the Company from
taking a tax deduction for compensation payments to executives in excess of
$1 million, unless such payments qualify for the "performance-based"
exemption from the $1 million limitation.
Any shares of Common Stock that cease to be subject to an option will be
available for issuance in connection with future grants under the 1998 Plan.
Options also may be granted in replacement of, or as alternatives to, grants
or rights under any other employee or compensation plan or in substitution
for, or by the assumption of, awards issued under plans of an acquired entity.
ELIGIBILITY TO RECEIVE OPTIONS. Options may be granted under the 1998 Plan
to those officers, directors and employees of the Company and its subsidiaries
as the plan administrator from time to time selects. As of March 31, 1998,
approximately 134 officers, directors and employees would have been eligible to
receive awards under the 1998 Plan. Options may also be
16
<PAGE>
granted to consultants, agents, advisors and independent contractors who
provide services to the Company and its subsidiaries.
TERMS AND CONDITIONS OF STOCK OPTION GRANTS. Options granted under the
1998 Plan may be ISOs or NSOs. The per share exercise price for each option
granted under the 1998 Plan will be determined by the plan administrator, but
will be not less than 100% of the fair market value of a share of Common
Stock on the date of grant with respect to ISOs. For purposes of the 1998
Plan, "fair market value" means the closing price for a share of Common Stock
as reported by the Nasdaq National Market for a single trading day. The
closing sale price of the Common Stock on March 31, 1998, as reported on the
Nasdaq National Market, was $12.75.
The exercise price for shares purchased under options may be paid in
cash or by check or, unless the plan administrator at any time determines
otherwise, a combination of cash, check, shares of Common Stock which have
been held for at least six months, delivery of a properly executed exercise
notice together with certain irrevocable instructions to a broker, or such
other consideration as the plan administrator may permit. The Company may
require the optionee to pay to the Company any applicable withholding taxes
that the Company is required to withhold with respect to the grant or
exercise of any award. The withholding tax may be paid in cash or, subject
to applicable law, the plan administrator may permit the optionee to satisfy
such obligations by the withholding or delivery of shares of Common Stock.
The Company may withhold from any shares of Common Stock issuable pursuant to
an option or from any cash amounts otherwise due from the Company to the
recipient of the award an amount equal to such taxes. The Company may also
deduct from any option any other amounts due from the recipient to the
Company or any of its subsidiaries.
The option term will be fixed by the plan administrator, and each option
will be exercisable pursuant to a vesting schedule determined by the plan
administrator. If the vesting schedule is not set forth in the instrument
evidencing the option, the option will become exercisable in four equal
annual installments beginning one year after the date of grant. The plan
administrator will also determine the circumstances under which an option
will be exercisable in the event the optionee ceases to be employed by, or to
provide services to, the Company or one of its subsidiaries. If not so
established, options generally will be exercisable for one year after
termination of services as a result of retirement, early retirement at the
Company's request, disability or death and for three months after all other
terminations. An option will automatically terminate if the optionee's
services are terminated for cause, as defined in the 1998 Plan.
TRANSFERABILITY. No option will be assignable or otherwise transferable
by the holder other than by will or the laws of descent and distribution and,
during the holder's lifetime, may be exercised only by the holder, unless the
plan administrator determines otherwise in its sole discretion, and except to
the extent permitted by Section 422 of the Code.
CORPORATE TRANSACTION. In the event of certain mergers, consolidations,
sales or transfers of substantially all the assets of the Company or a
liquidation of the Company, each option that is at the time outstanding will
automatically accelerate so that each such option becomes, immediately prior
to such corporate transaction, 100% vested, unless, in the opinion of the
Company's accountants, such acceleration would render unavailable
pooling-of-interests accounting for the corporate transaction, and except
that such option will not so accelerate if and
17
<PAGE>
to the extent such option is, in connection with the corporate transaction,
either to be assumed by the successor corporation or parent thereof or to be
replaced with a comparable award for the purchase of shares of the capital
stock of the successor corporation. Any such options granted to an
"executive officer" (as defined for purposes of Section 16 of the Exchange
Act) of the Company that are assumed or replaced in the corporate transaction
and do not otherwise accelerate at that time shall be accelerated in the
event such holder's employment or services shall subsequently terminate
within two years following such corporate transaction, unless such employment
or services are terminated by the successor corporation or parent thereof for
cause or by the holder voluntarily without good reason.
FURTHER ADJUSTMENT OF OPTIONS. The plan administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined
by the plan administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to holders, with respect to
options. Such authorized action may include (but is not limited to)
establishing, amending or waiving the type, terms, conditions or duration of,
or restrictions on, options so as to provide for earlier, later, extended or
additional time for exercise or settlement and other modifications, and the
plan administrator may take such actions with respect to all holders, to
certain categories of holders or only to individual holders. The plan
administrator may take such actions before or after granting options to which
the action relates and before or after any public announcement with respect
to such sale, merger, consolidation, reorganization, liquidation or change in
control that is the reason for such action.
ADMINISTRATION. The 1998 Plan will be administered by the Board of
Directors or by a committee or committees appointed by, and consisting of two
or more members of, the Board of Directors. The Board may delegate the
responsibility for administering the 1998 Plan with respect to designated
classes of eligible participants to different committees, subject to such
limitations as the Board of Directors deems appropriate. Committee members
will serve for such terms as the Board of Directors may determine, subject to
removal by the Board at any time. The Board of Directors will consider in
selecting the plan administrator and the membership of any committee
responsible for administering the 1998 Plan with respect to officers and
directors of the Company who are subject to Section 16 of the Exchange Act,
the requirements of Section 162(m) of the Code and Rule 16b-3 promulgated
under Section 16 of the Exchange Act, or any successor provisions.
AMENDMENT AND TERMINATION. The 1998 Plan may be suspended or terminated
by the Board of Directors at any time. The Board may amend the 1998 Plan, as
it deems advisable, subject to shareholder approval in certain instances, as
set forth in the 1998 Plan. No ISOs may be granted under the 1998 Plan more
than ten years after the date the 1998 Plan is adopted by the Board of
Directors.
FEDERAL INCOME TAX CONSEQUENCES. The following discussion summarizes
the material federal income tax consequences to the Company and the
participants in connection with the 1998 Plan under existing applicable
provisions of the Code and the regulations thereunder. The discussion is
general in nature and does not address issues relating to the income tax
circumstances of any individual employee or holder. The discussion is based
on federal income
18
<PAGE>
tax laws in effect on the date hereof and is, therefore, subject to possible
future changes in the law. The discussion does not address the consequences
of state, local or foreign tax laws.
A recipient will not have any income at the time an NSO is granted nor
will the Company be entitled to a deduction at that time. When an NSO is
exercised, the optionee will have ordinary income (whether the option price
is paid in cash or by surrender of already owned shares of Common Stock), in
an amount equal to the excess of the fair market value of the shares to which
the option exercise pertains over the option price. The Company will be
entitled to a tax deduction with respect to an NSO at the same time and in
the same amount as the recipient recognizes ordinary income, assuming that
the deduction is not disallowed by Section 162(m) of the Code (which limits
the Company's deduction in any one year for certain remuneration paid to
certain executives in excess of $1 million) or otherwise limited under the
Code.
An optionee will not have any income at the time an ISO is granted.
Furthermore, an optionee will not have regular taxable income at the time the
ISO is exercised. However, the excess of the fair market value of the shares
at the time of exercise over the exercise price will be a preference item
that could create an alternative minimum tax liability. If an optionee
disposes of the shares acquired on exercise of an ISO after the later of two
years after the grant of the ISO and one year after exercise of the ISO, the
gain (i.e., the excess of the proceeds received over the option price), if
any, will be long-term capital gain eligible for favorable tax rates under
the Code. If the optionee disposes of the shares within two years of the
grant of the ISO or within one year of exercise of the ISO, the disposition
is normally a "disqualifying disposition,'' and the optionee will recognize
ordinary income in the year of the disqualifying disposition equal to the
excess of the amount received for the shares (or, in the case of a gift, the
fair market value of the shares at the time the ISO is exercised) over the
option price. The balance of the gain or loss, if any, will be long-term or
short-term capital gain depending on whether the shares were sold more than
one year after the ISO was exercised.
The Company is not entitled to a deduction as the result of the grant or
exercise of an ISO. If the optionee has ordinary income taxable as
compensation as a result of a disqualifying disposition, the Company will be
entitled to a deduction at the same time and in the same amount as the
optionee recognizes ordinary income, assuming that the deduction is not
disallowed by Section 162(m) of the Code.
NEW PLAN BENEFITS. Since awards under the 1998 Plan will be
discretionary, total awards that may be granted for the current fiscal year
are not determinable until completion of the fiscal year.
PROPOSAL 3: APPROVAL OF THE AMENDMENT OF THE 1994
STOCK OPTION PLAN
1994 STOCK OPTION PLAN
PROPOSED AMENDMENTS. On January 23, 1998, the Board of Directors
adopted, subject to shareholder approval, certain amendments to the 1994 Plan
primarily to (i) conform the 1994 Plan to requirements under the Code, to
allow the Company to deduct compensation paid to certain executive officers
to the extent such compensation would exceed $1 million individually
19
<PAGE>
in any one year as the result of gain on exercise of options granted under
the 1994 Plan and (ii) reflect changes to Rule 16b-3 under the Exchange Act.
The amendments are attached hereto as Exhibit B.
The amendments generally would modify the 1994 Plan as follows:
- By requiring that in selecting any committee of the Board of
Directors to administer the 1994 Plan, the Board of Directors will consider
the provisions regarding "nonemployee directors", as contemplated by Rule
16b-3 under the Exchange Act, and "outside directors", as contemplated by
Section 162(m) under the Code.
- By providing that options for no more than an aggregate of 50,000
shares of Common Stock may be granted to any participant under the 1994 Plan
in any one year, except that the Company may make additional one-time grants
of up to 100,000 shares to newly-hired participants in the 1994 Plan.
- By limiting the applicability of certain restrictions on transfers
of option shares by officers, directors and significant shareholders of the
Company to shares issued upon exercise of options granted prior to January
23, 1998.
- By authorizing the plan administrator to permit certain assignments
and transfers of options by participants in the 1994 Plan to the extent
permitted by Section 422 of the Code.
- By deleting from the amendment provisions of the 1994 Plan certain
requirements for shareholder approval no longer required by Section 16b-3 of
the Exchange Act.
As of March 31, 1998, 880,809 shares of Common Stock were subject to
outstanding options under the 1994 Plan, 348 shares were available for the
grant of new awards under the 1994 Plan, and the remaining shares authorized
for issuance had been issued upon exercise of options. The exercise prices
for outstanding options under the 1994 Plan range from $0.24 to $15.75 per
share.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENTS TO THE 1994 PLAN.
PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT
ACCOUNTANTS
On January 23, 1998, the Board of Directors appointed Coopers & Lybrand
L.L.P. to act as the independent accountants of the Company for the period
ending December 31, 1998, subject to ratification of the appointment by the
shareholders. Coopers & Lybrand L.L.P. has served as the Company's
independent accounts since the Company's inception. Representatives of
Coopers & Lybrand L.L.P. will be in attendance at the Annual Meeting and will
be given the opportunity to make a statement if they wish to do so and will
be available to respond to appropriate questions.
20
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF COOPERS & LYBRAND L.L.P. AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1998.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals to be presented at the 1999 Annual Meeting of
Shareholders must be received at the Company's principal executive offices no
later than December 16, 1998 in order to be included in the Company's proxy
statement and form of proxy relating to that meeting.
THE COMPANY'S 1997 ANNUAL REPORT TO SHAREHOLDERS ACCOMPANIES THESE
MATERIALS. COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997 MAY BE OBTAINED FROM THE COMPANY WITHOUT CHARGE
UPON WRITTEN REQUEST TO THE COMPANY. REQUESTS SHOULD BE DIRECTED TO THE
SECRETARY, THRUSTMASTER, INC., 7175 N.W. EVERGREEN PARKWAY #400, HILLSBORO,
OREGON 97124.
/s/ Kent E. Koski
----------------------
Kent E. Koski, Secretary
Portland, Oregon
April 15, 1998
21
<PAGE>
EXHIBIT A
THRUSTMASTER, INC.
1998 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the ThrustMaster, Inc. 1998 Stock Option Plan (the
"Plan") is to enhance the long-term shareholder value of ThrustMaster, Inc.,
an Oregon corporation (the "Company"), by offering opportunities to employees
(and persons offered employment), directors, officers, consultants, agents,
advisors and independent contractors of the Company and its Subsidiaries (as
defined in Section 2) to participate in the Company's growth and success, and
to encourage them to remain in the service of the Company and its Subsidiaries
and to acquire and maintain stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 BOARD
"Board" means the Board of Directors of the Company.
2.2 CAUSE
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
2.3 CODE
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.4 COMMON STOCK
"Common Stock" means the common stock of the Company.
2.5 CORPORATE TRANSACTION
"Corporate Transaction" means any of the following events:
(a) Consummation of any merger or consolidation of the Company in
which the Company is not the continuing or surviving corporation,
or pursuant to which shares of the Common Stock are converted into cash,
securities or other property, if following such merger or consolidation the
holders of the Company's outstanding voting securities
22
<PAGE>
immediately prior to such merger or consolidation own less than 66-2/3% of
the outstanding voting securities of the surviving corporation;
(b) Consummation of any sale, lease, exchange or other transfer in
one transaction or a series of related transactions of all or substantially
all of the Company's assets other than a transfer of the Company's assets
to a majority-owned subsidiary corporation (as the term "subsidiary
corporation" is defined in Section 8.3) of the Company; or
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
Ownership of voting securities shall take into account and shall include
ownership as determined by applying Rule 13d-3(d)(1)(i) (as in effect on the
date of adoption of the Plan) under the Exchange Act.
2.6 DISABILITY
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.7 EARLY RETIREMENT
"Early Retirement" means early retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
2.8 EXCHANGE ACT
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.9 FAIR MARKET VALUE
The "Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing per share sales price for the Common Stock as reported by
the Nasdaq National Market for a single trading day or (b) if the Common Stock
is listed on the New York Stock Exchange or the American Stock Exchange, the
closing per share sales price for the Common Stock as such price is officially
quoted in the composite tape of transactions on such exchange for a single
trading day. If there is no such reported price for the Common Stock for the
date in question, then such price on the last preceding date for which such
price exists shall be determinative of the Fair Market Value.
2.10 GOOD REASON
"Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice by the Optionee:
(a) a change in the Optionee's status, title, position or
responsibilities (including reporting responsibilities) that, in the Optionee's
reasonable judgment, represents a
23
<PAGE>
substantial reduction in the status, title, position or responsibilities as
in effect immediately prior thereto; the assignment to the Optionee of any
duties or responsibilities that, in the Optionee's reasonable judgment, are
materially inconsistent with such status, title, position or responsibilities;
or any removal of the Optionee from or failure to reappoint or reelect the
Optionee to any of such positions, except in connection with the termination of
the Optionee's employment for Cause, for Disability or as a result of his or
her death, or by the Optionee other than for Good Reason;
(b) a reduction in the Optionee's annual base salary;
(c) the Successor Corporation's requiring the Optionee (without
the Optionee's consent) to be based at any place outside a 35-mile radius of
his or her place of employment prior to a Corporate Transaction, except for
reasonably required travel on the Successor Corporation's business that is
not materially greater than such travel requirements prior to the Corporate
Transaction;
(d) the Successor Corporation's failure to (i) continue in effect
any material compensation or benefit plan (or the substantial equivalent
thereof) in which the Optionee was participating at the time of a Corporate
Transaction, including, but not limited to, the Plan, or (ii) provide the
Optionee with compensation and benefits substantially equivalent (in terms of
benefit levels and/or reward opportunities) to those provided for under each
material employee benefit plan, program and practice as in effect immediately
prior to the Corporate Transaction;
(e) any material breach by the Successor Corporation of its
obligations to the Optionee under the Plan or any substantially equivalent
plan of the Successor Corporation; or
(f) any purported termination of the Optionee's employment or
services for Cause by the Successor Corporation that does not comply with the
terms of the Plan or any substantially equivalent plan of the Successor
Corporation.
2.11 GRANT DATE
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Option is to be granted.
2.12 INCENTIVE STOCK OPTION
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.13 NONQUALIFIED STOCK OPTION
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
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<PAGE>
2.14 OPTION
"Option" means the right to purchase Common Stock granted under Section 7.
2.15 OPTIONEE
"Optionee" means (i) the person to whom an Option is granted; (ii) for an
Optionee who has died, the personal representative of the Optionee's estate, the
person(s) to whom the Optionee's rights under the Option have passed by will or
by the applicable laws of descent and distribution, or the beneficiary
designated in accordance with Section 9; or (iii) person(s) to whom an Option
has been transferred in accordance with Section 9.
2.16 PLAN ADMINISTRATOR
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.17 RETIREMENT
"Retirement" means retirement as of the individual's normal retirement date
as that term is defined by the Plan Administrator from time to time for purposes
of the Plan.
2.18 SECURITIES ACT
"Securities Act" means the Securities Act of 1933, as amended.
2.19 SUBSIDIARY
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.
2.20 SUCCESSOR CORPORATION
"Successor Corporation" has the meaning set forth under Section 10.2.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may
delegate the responsibility for
25
<PAGE>
administering the Plan with respect to designated classes of eligible persons
to different committees consisting of two or more members of the Board,
subject to such limitations as the Board deems appropriate. Committee
members shall serve for such term as the Board may determine, subject to
removal by the Board at any time.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Except for the terms and conditions explicitly set forth in the Plan,
the Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Options under the Plan, including the
selection of individuals to be granted Options, the type of Options, the
number of shares of Common Stock subject to an Option, all terms, conditions,
restrictions and limitations, if any, of an Option and the terms of any
instrument that evidences the Option. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt,
and change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the
Plan Administrator pursuant to the Plan, shall be conclusive and binding on
all parties involved or affected. The Plan Administrator may delegate
administrative duties to such of the Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
(a) Subject to the following provisions of this subsection 4.1, the
maximum number of shares of Stock that may be delivered to Participants and
their beneficiaries under the Plan shall be equal to the sum of: (i)
1,000,000 shares of Common Stock; (ii) any shares of Common Stock available
for future awards under the 1994 Stock Option Plan (the "1994 Plan") or the
Directors' Non-Qualified Stock Option Plan (the "Directors' Plan") as of the
Effective Date (as defined in Section 14); and (iii) any shares of Common
Stock that are represented by awards granted under the 1994 Plan or the
Directors' Plan, which are forfeited, expire or are canceled without delivery
of shares of Common Stock or which result in the forfeiture of shares of
Common Stock back to the Company.
(b) If the Exercise Price of any stock option granted under the Plan or
the 1994 Plan is satisfied by tendering shares of Common Stock to the Company
(by either actual delivery or by attestation), only the number of shares of
Common Stock issued net of the shares of Common Stock tendered shall be
deemed delivered for purposes of determining the maximum number of shares of
Common Stock available for delivery under the Plan.
(c) Shares of Common Stock delivered under the Plan in settlement,
assumption or substitution of outstanding awards (or obligations to grant future
awards) under the plans or arrangements of another entity shall not reduce the
maximum number of shares of Common Stock available for delivery under the Plan,
to the extent that such settlement, assumption or substitution is a result of
the Company or a Subsidiary acquiring another entity (or an interest in another
entity).
(d) Shares issued under the Plan shall be drawn from authorized and
unissued shares or shares.
26
<PAGE>
4.2 LIMITATIONS
Subject to adjustment from time to time as provided in Section 10.1, not
more than 50,000 shares of Common Stock may be made subject to Options under
the Plan to any individual in the aggregate in any one fiscal year of the
Company, except that the Company may make additional one-time grants of up to
100,000 shares to newly hired individuals, 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.
4.3 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Option that
cease to be subject to the Option (other than by reason of exercise of the
Option to the extent it is exercised for shares) shall again be available for
issuance in connection with future grants of Options under the Plan;
provided, however, that for purposes of Section 4.2, any such shares shall be
counted in accordance with the requirements of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY
Options may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Options may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
SECTION 6. AWARDS
6.1 FORM AND GRANT OF OPTIONS
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of awards to be made under the Plan. Such awards
may consist of Incentive Stock Options and/or Nonqualified Stock Options.
Options may be granted singly or in combination.
6.2 ACQUIRED COMPANY OPTION AWARDS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Options under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Option is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
awards shall be deemed to be Optionees.
27
<PAGE>
SECTION 7. TERMS AND CONDITIONS OF OPTIONS
7.1 GRANT OF OPTIONS
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified
Stock Options, which shall be appropriately designated.
7.2 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options.
7.3 TERM OF OPTIONS
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date.
7.4 EXERCISE OF OPTIONS
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option will vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:
28
<PAGE>
<TABLE>
<CAPTION>
Period of Optionee's
Continuous Employment or Service
With the Company or Its Subsidiaries Percent of Total Option
From the Grant Date That Is Vested and Exercisable
------------------- ------------------------------
<S> <C>
After 1 year 25%
After 2 years 50%
After 3 years 75%
After 4 years 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder,
an Option may be exercised from time to time by written notice to the
Company, in accordance with procedures established by the Plan Administrator,
setting forth the number of shares with respect to which the Option is being
exercised and accompanied by payment in full as described in Section 7.5.
The Plan Administrator may determine at any time that an Option may not be
exercised as to less than 100 shares at any one time (or the lesser number of
remaining shares covered by the Option).
7.5 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either actually
or, if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned by the
Optionee for at least six months (or any shorter period necessary to avoid a
charge to the Company's earnings for financial reporting purposes) having a Fair
Market Value on the day prior to the exercise date equal to the aggregate Option
exercise price or (b) if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board. In addition, the exercise price for shares purchased under an
Option may be paid, either singly or in combination with one or more of the
alternative forms of payment authorized by this Section 7.5, by such other
consideration as the Plan Administrator may permit.
7.6 POST-TERMINATION EXERCISES
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such
29
<PAGE>
exercise, if a Optionee ceases to be employed by, or to provide services to,
the Company or its Subsidiaries, which provisions may be waived or modified
by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option will be exercisable according to
the following terms and conditions, which may be waived or modified by the
Plan Administrator at any time.
In case of termination of the Optionee's employment or services other
than by reason of death or Cause, the Option shall be exercisable, to the
extent of the number of shares purchasable by the Optionee at the date of
such termination, only (a) within one year if the termination of the
Optionee's employment or services is coincident with Retirement, Early
Retirement at the Company's request or Disability or (b) within three months
after the date the Optionee ceases to be an employee, director, officer,
consultant, agent, advisor or independent contractor of the Company or a
Subsidiary if termination of the Optionee's employment or services is for any
reason other than Retirement, Early Retirement at the Company's request or
Disability, but in no event later than the remaining term of the Option. Any
Option exercisable at the time of the Optionee's death may be exercised, to
the extent of the number of shares purchasable by the Optionee at the date of
the Optionee's death, by the personal representative of the Optionee's
estate, the person(s) to whom the Optionee's rights under the Option have
passed by will or the applicable laws of descent and distribution or the
beneficiary designated pursuant to Section 9 at any time or from time to time
within one year after the date of death, but in no event later than the
remaining term of the Option. Any portion of an Option that is not
exercisable on the date of termination of the Optionee's employment or
services shall terminate on such date, unless the Plan Administrator
determines otherwise. In case of termination of the Optionee's employment or
services for Cause, the Option shall automatically terminate upon first
notification to the Optionee of such termination, unless the Plan
Administrator determines otherwise. If a Optionee's employment or services
with the Company are suspended pending an investigation of whether the
Optionee shall be terminated for Cause, all the Optionee's rights under any
Option likewise shall be suspended during the period of investigation.
A transfer of employment or services between or among the Company and
its Subsidiaries shall not be considered a termination of employment or
services. The effect of a Company-approved leave of absence on the terms and
conditions of an Option shall be determined by the Plan Administrator, in its
sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 DOLLAR LIMITATION
To the extent the aggregate Fair Market Value (determined as of the
Grant Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and
all other stock option plans of the Company) exceeds $100,000, such portion
in excess of $100,000 shall be treated as a Nonqualified Stock Option. In
the event the Optionee holds two or more such Options that become exercisable
for the first time in the same calendar year, such limitation shall be
applied on the basis of the order in which such Options are granted.
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<PAGE>
8.2 10% SHAREHOLDERS
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value
of the Common Stock on the Grant Date and the Option term shall not exceed
five years. The determination of 10% ownership shall be made in accordance
with Section 422 of the Code.
8.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and
"subsidiary corporation" shall have the meanings attributed to those terms
for purposes of Section 422 of the Code.
8.4 TERM
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 EXERCISABILITY
To qualify for Incentive Stock Option tax treatment, an Option
designated as an Incentive Stock Option must be exercised within three months
after termination of employment for reasons other than death, except that, in
the case of termination of employment due to total disability, such Option
must be exercised within one year after such termination. Employment shall
not be deemed to continue beyond the first 90 days of a leave of absence
unless the Optionee's reemployment rights are guaranteed by statute or
contract. For purposes of this Section 8.5, "total disability" shall mean a
mental or physical impairment of the Optionee that is expected to result in
death or that has lasted or is expected to last for a continuous period of 12
months or more and that 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.
SECTION 9. ASSIGNABILITY
No Option granted under the Plan may be assigned, pledged or transferred
by the Optionee other than by will or by the applicable laws of descent and
distribution, and, during the Optionee's lifetime, such Option may be
exercised only by the Optionee or a permitted assignee or transferee of the
Optionee (as provided below). Notwithstanding the foregoing, and to the
extent permitted by Section 422 of the Code, the Plan Administrator, in its
sole discretion, may permit such assignment, transfer and exercisability and
may permit an Optionee to designate a beneficiary who may exercise the Option
after the Optionee's death; provided, however, that any Option so assigned or
transferred shall be subject to all the same terms and conditions contained
in the instrument evidencing the Option.
31
<PAGE>
SECTION 10. ADJUSTMENTS
10.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1, (ii) the
maximum number and kind of securities that may be made subject to Options to any
individual as set forth in Section 4.2, and (iii) the number and kind of
securities that are subject to any outstanding Option and the per share price of
such securities, without any change in the aggregate price to be paid therefor.
The determination by the Plan Administrator as to the terms of any of the
foregoing adjustments shall be conclusive and binding. Notwithstanding the
foregoing, a Corporate Transaction shall not be governed by this Section 10.1
but shall be governed by Section 10.2.
10.2 CORPORATE TRANSACTION
(a) Except as otherwise provided in the instrument that evidences the
Option, in the event of any Corporate Transaction, each Option that is at the
time outstanding shall automatically accelerate so that each such Option
shall, immediately prior to the specified effective date for the Corporate
Transaction, become 100% vested and exercisable.
(b) Such Option shall not so accelerate, however, if and to the extent
that such Option is, in connection with the Corporate Transaction, either to
be assumed by the successor corporation or parent thereof (the "Successor
Corporation") or to be replaced with a comparable award for the purchase of
shares of the capital stock of the Successor Corporation. The determination
of Option comparability shall be made by the Plan Administrator, and its
determination shall be conclusive and binding. Any such Options granted to
an "executive officer" (as that term is defined for purposes of Section 16 of
the Exchange Act) of the Company that are assumed or replaced in the
Corporate Transaction and do not otherwise accelerate at that time shall be
accelerated in the event that the Optionee's employment or services should
subsequently terminate within two years following such Corporate Transaction,
unless such employment or services are terminated by the Successor
Corporation for Cause or by the Optionee voluntarily without Good Reason.
(c) All such Options shall terminate and cease to remain outstanding
immediately following the consummation of the Corporate Transaction, except
to the extent assumed by the Successor Corporation.
(d) The acceleration will not occur if, in the opinion of the Company's
outside accountants, it would render unavailable "pooling of interest"
accounting for a Corporate Transaction that would otherwise qualify for such
accounting treatment.
32
<PAGE>
10.3 FURTHER ADJUSTMENT OF OPTIONS
Subject to Section 10.2, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined
by the Plan Administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to Optionees, with respect to
Options. Such authorized action may include (but shall not be limited to)
establishing, amending or waiving the type, terms, conditions or duration of,
or restrictions on, Options so as to provide for earlier, later, extended or
additional time for exercise and other modifications, and the Plan
Administrator may take such actions with respect to all Optionees, to certain
categories of Optionees or only to individual Optionees. The Plan
Administrator may take such action before or after granting Options to which
the action relates and before or after any public announcement with respect
to such sale, merger, consolidation, reorganization, liquidation or change in
control that is the reason for such action.
10.4 LIMITATIONS
The grant of Options will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 11. WITHHOLDING
The Company may require the Optionee to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant or exercise of any Option. Subject to the Plan and applicable law,
the Plan Administrator may, in its sole discretion, permit the Optionee to
satisfy withholding obligations, in whole or in part, by paying cash, by
electing to have the Company withhold shares of Common Stock or by transferring
shares of Common Stock to the Company, in such amounts as are equivalent to the
Fair Market Value of the withholding obligation. The Company shall have the
right to withhold from any shares of Common Stock issuable pursuant to an Option
or from any cash amounts otherwise due or to become due from the Company to the
Optionee an amount equal to such taxes. The Company may also deduct from any
Option any other amounts due from the Optionee to the Company or a Subsidiary.
SECTION 12. AMENDMENT AND TERMINATION OF PLAN
12.1 AMENDMENT OF PLAN
The Plan may be amended only by the Board in such respects as it shall deem
advisable; however, to the extent required for compliance with Section 422 of
the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Options may be granted under the Plan, (b) modify the class of persons
eligible to receive Options, or (c) otherwise require shareholder approval under
any applicable law or regulation.
33
<PAGE>
12.2 TERMINATION OF PLAN
The Board may suspend or terminate the Plan at any time. The Plan will
have no fixed expiration date; provided, however, that no Incentive Stock
Options may be granted more than 10 years after the earlier of the Plan's
adoption by the Board and approval by the shareholders.
12.3 CONSENT OF OPTIONEE
The amendment or termination of the Plan shall not, without the consent
of the Optionee, impair or diminish any rights or obligations under any
Option theretofore granted under the Plan.
Any change or adjustment to an outstanding Incentive Stock Option shall
not, without the consent of the Optionee, be made in a manner so as to
constitute a "modification" that would cause such Incentive Stock Option to fail
to continue to qualify as an Incentive Stock Option.
SECTION 13. GENERAL
13.1 OPTION AGREEMENTS
Options granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
13.2 CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN OPTIONS
None of the Plan, participation in the Plan or any action of the Plan
Administrator taken under the Plan shall be construed as giving any person any
right to be retained in the employ of the Company or limit the Company's right
to terminate the employment or services of any person.
13.3 REGISTRATION
The Company shall be under no obligation to any Optionee to register for
offering or resale or to qualify for exemption under the Securities Act, or
to register or qualify under state securities laws, any shares of Common
Stock, security or interest in a security paid or issued under, or created
by, the Plan, or to continue in effect any such registrations or
qualifications if made. The Company may issue certificates for shares with
such legends and subject to such restrictions on transfer and stop-transfer
instructions as counsel for the Company deems necessary or desirable for
compliance by the Company with federal and state securities laws.
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 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.
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<PAGE>
13.4 NO RIGHTS AS A SHAREHOLDER
No Option shall entitle the Optionee to any dividend, voting or other right
of a shareholder unless and until the date of issuance under the Plan of the
shares that are the subject of such Option, free of all applicable restrictions.
13.5 COMPLIANCE WITH LAWS AND REGULATIONS
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Optionees who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Optionees. Additionally, in
interpreting and applying the provisions of the Plan, any Option granted as an
Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of
Section 422 of the Code.
13.6 NO TRUST OR FUND
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Optionee, and no Optionee
shall have any rights that are greater than those of a general unsecured
creditor of the Company.
13.7 SEVERABILITY
If any provision of the Plan or any Option is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Option under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Option, such provision shall be stricken as to such jurisdiction,
person or Option, and the remainder of the Plan and any such Option shall remain
in full force and effect.
SECTION 14. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
ADOPTED BY THE BOARD ON JANUARY 23, 1998, AND APPROVED BY THE COMPANY'S
SHAREHOLDERS ON __________, 1998.
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<PAGE>
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
<TABLE>
<CAPTION>
Date of
Adoption/
Amendment/ Date of Shareholder
Adjustment Section Effect of Amendment Approval
---------- ------- ------------------- --------
<S> <C> <C> <C>
</TABLE>
36
<PAGE>
- -------------------------------------------------------------------------------
For EDGAR filing, language that will be added is preceded by a "<*>" and
followed by a "</*>". Language that will be eliminated is preceded by a "<#>"
and followed by a "</#>".
- -------------------------------------------------------------------------------
EXHIBIT B
1994 STOCK OPTION PLAN
AMENDMENTS
Set forth below are the provisions of the ThrustMaster, Inc. 1994 Stock
Option Plan which are proposed to be amended. These provisions are marked to
indicate the proposed amendments.
2. ADMINISTRATION.
<#>This Plan shall be administered by the Board of Directors of the
Company (the "Board"), if each director is a "disinterested person" (as
defined below). If all directors are not "disinterested persons," or if the
Board so desires, the Plan shall be administered by a committee designated by
the Board and composed of two (2) or more members of the Board, each of whom
is a "disinterested person," which committee (the "Committee") may be an
executive, compensation or other committee, including a separate committee
especially created for this purpose.</#> <*>This Plan shall be administered
by the Board of Directors of the Company (the "Board") or a committee (the
"Committee") appointed by and consisting of two or more members of the Board.
So long as the Common Stock is registered under Section 12(b) or 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Board shall consider in selecting the Committee the provisions regarding (a)
"nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act
and (b) "outside directors" as contemplated by Section 162(m) under the
Internal Revenue Code of 1986, as amended (the "Code").</*> The Committee
shall have the powers and authority vested in the Board hereunder (including
the power and authority to interpret any provision of this Plan or of any
Option). The members of any such Committee shall serve at the pleasure of
the Board. A majority of the members of the Committee shall constitute a
quorum, and all actions of the Committee shall be taken by a majority of the
members present. Any action may be taken by a written instrument signed by
all of the members of the Committee and any action so taken shall be fully
effective as if it had been taken at a meeting. The Board, or any committee
thereof appointed to administer the Plan, is referred to herein as the "Plan
Administrator." <#>"Disinterested Person" shall be defined by reference to
the rules and regulations promulgated under Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").</#>
Subject to the provisions of this Plan, and with a view to effecting its
purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, to (a) construe and interpret this Plan; (b) define the terms used
in this Plan; (c) prescribe, amend and rescind rules and regulations relating to
this Plan; (d) correct any defect, supply any omission or
37
<PAGE>
reconcile any inconsistency in this Plan; (e) determine the individuals to
whom Options shall be granted under this Plan and whether the Option is an
Incentive Stock Option or a Non-Qualified Stock Option; (f) determine the
time or times at which Options shall be granted under this Plan; (g)
determine the number of shares of Common Stock subject to each Option, the
exercise price of each Option, the duration of each Option and the times at
which each Option shall become exercisable; (h) determine all other terms and
conditions of Options; and (i) make all other determinations necessary or
advisable for the administration of this Plan. All decisions, determinations
and interpretations made by the Plan Administrator shall be binding and
conclusive on all participants in this Plan and on their legal
representatives, heirs and beneficiaries.
4. STOCK.
The Plan Administrator is authorized to grant Options to acquire up to a
total of 50,000 shares plus the number of remaining, ungranted shares
provided for by the Company's 1990 stock option plan, plus the number of
currently granted shares which are subsequently forfeited pursuant to the
terms of that plan. <*>Options for no more than 50,000 shares may be granted
to any individual participant in the Plan in the aggregate in any one fiscal
year of the Company, except that the Company may make additional one-time
grants of up to 100,000 shares to newly hired participants in the Plan, 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 162(m) of the Code.</*>
The number of shares with respect to which Options may be granted hereunder
is subject to adjustment as set forth in Section 5(m) hereof. In the event
that any outstanding Option expires or is terminated for any reason, the
shares of Common Stock allocable to the unexercised portion of such Option
may again be subject to an Option to the same Optionee or to a different
person eligible under Section 3 of this Plan.
5(h). EXERCISE OF OPTIONS.
Options shall be exercisable, either all or in part, at any time after
vesting, until termination; PROVIDED, HOWEVER, that after registration of any
of the Company's securities under Section 12 of the Exchange Act and
regardless of when the Option is exercised, any Optionee who is an officer,
director or ten percent (10%) shareholder of the Company shall be precluded
from selling or transferring any Common Stock or other security underlying an
Option during the six (6) months immediately following the grant of that
Option <*>with respect to grants of options occurring prior to January 23,
1998.</*> If less than all of the shares included in the vested portion of
any Option are purchased, the remainder may be purchased at any subsequent
time prior to the expiration of the Option term. No portion of any Option
for less than fifty (50) shares (as adjusted pursuant to Section 5(m) below)
may be exercised; PROVIDED, that if the vested portion of any Option is less
than fifty (50) shares, it may be exercised with respect to all shares for
which it is vested. Only whole shares may be issued pursuant to an Option,
and to the extent that an Option covers less than one (1) share, it is
unexercisable. Options or portions thereof may be exercised by giving
written notice to the
38
<PAGE>
Company, which notice shall specify the number of shares to be purchased, and
be accompanied by payment in the amount of the aggregate exercise price for
the Common Stock so purchased, which payment shall be in the form specified
in Section 5(i) below. The Company shall not be obligated to issue, transfer
or deliver a certificate of Common Stock to any Optionee, or to his personal
representative, until the aggregate exercise price has been paid for all
shares for which the Option shall have been exercised and adequate provision
has been made by the Optionee for satisfaction of any tax withholding
obligations associated with such exercise. During the lifetime of an
Optionee, Options are exercisable only by the Optionee.
5(k). TRANSFER OF OPTION.
Options granted under this Plan and the rights and privileges conferred
by this Plan may not be transferred, assigned, pledged or hypothecated in any
manner (whether by operation of law or otherwise) other than by will or by
applicable laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of any Option or of any
right or privilege conferred by this Plan contrary to the provisions hereof,
or upon the sale, levy or any attachment or similar process upon the rights
and privileges conferred by this Plan, such Option shall thereupon terminate
and become null and void. <*>Notwithstanding the foregoing, and to the extent
permitted by Section 422 of the Code, the Committee, in its sole discretion,
may permit such assignment or transfer and may permit a holder of Options to
designate a beneficiary who may exercise the Options; provided, however, that
the Options so assigned or transferred shall be subject to all the same terms
and conditions contained in the instrument evidencing the Option.</*>
11. AMENDMENT OF PLAN.
The Plan Administrator may, at any time, modify, amend or terminate this
Plan and Options granted under this Plan, including, without limitation, such
modifications or amendments as are necessary to maintain compliance with
applicable statutes, rules or regulations; PROVIDED, HOWEVER, that no
amendment with respect to an outstanding Option shall be made over the
objection of the Optionee thereof; <#>and PROVIDED FURTHER, that any
amendment for which shareholder approval is required by Securities and
Exchange Commission Rule 16b-3, as amended from time to time, or any
successor rule or regulatory requirements (the "Rule"), in order for the Plan
to be eligible or continue to qualify for the benefits of the Rule shall be
subject to approval of the requisite percentage of the shareholders of the
Corporation in accordance with the Rule.</#> Without limiting the generality
of the foregoing, the Plan Administrator may modify grants to persons who are
eligible to receive Options under this Plan who are foreign nationals or
employed outside the United States to recognize differences in local law, tax
policy or custom.
39
<PAGE>
THRUSTMASTER, INC.
7175 N.W. EVERGREEN PARKWAY #400
HILLSBORO, OR 97124-5839
PROXY FOR THE MAY 21, 1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THRUSTMASTER, INC.
The undersigned shareholder(s) of ThrustMaster, Inc. (the "Company")
hereby appoint Stephen A. Aanderud and Kent E. Koski and each of them, as
proxies, each with the power of substitution to represent and to vote, as
designated in this proxy, all the shares of Common Stock of the Company held
of record by the undersigned as of March 31, 1998, at the Annual Meeting of
Shareholders to be held at 2:00 p.m., Thursday, May 21, 1998, and at any and
all adjournments thereof.
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
This proxy represents your shares of ThrustMaster, Inc. Common Stock.
You must execute and return this proxy if you wish to vote
these shares by proxy as set forth herein.
PLEASE RETURN ONLY THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
<PAGE>
Please mark your votes as indicated in this example /X/
1. ELECTION OF DIRECTORS
FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to to vote for all nominees
the contrary below) listed below
/ / / /
INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME
IN THE LIST BELOW
Class A Nominees (term will expire in 2001):
Robert L. Carter G. Gerald Pratt Milton R. Smith
FOR AGAINST ABSTAIN
2. APPROVAL OF 1998 STOCK OPTION PLAN / / / / / /
3. APPROVAL OF AMENDMENT OF 1994 STOCK / / / / / /
OPTION PLAN to comply with Section 16 of
the Securities Exchange Act of 1934,
as amended, and Section 162(m) of the
Internal Revenue Code of 1986, as amended
4. RATIFICATION OF APPOINTMENT OF COOPERS & / / / / / /
LYBRAND LLP as the Company's independent
accountants
5. ANNUAL MEETING R.S.V.P.: I/WE WILL be WILL NOT be
(Enter number of people attending / / attending / /
attending) the Annual the Annual
Meeting Meeting
Shares represented by properly executed proxies will be voted in
accordance with instructions appearing on the proxy and in the discretion of
the proxy holders, based on the recommendations of management, as to any
other matters that may properly come before the Annual Meeting of
Shareholders. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2, 3
AND 4. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED "FOR"
ITEMS 1, 2, 3 AND 4 AND IN THE DISCRETION OF THE PROXY HOLDERS, BASED ON THE
RECOMMENDATIONS OF MANAGEMENT, AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE ANNUAL MEETING OF SHAREHOLDERS. Although the Board of Directors
anticipates that all nominees will be available to serve as directors of the
Company, if any of them do not accept the nomination, or otherwise are
unwilling or unable to serve, the proxies will be voted for the election of a
substitute nominee or nominees designated by the Board of Directors.
SIGNATURE(S) DATED: , 1998
------------------------------------------------- ------
Please sign exactly as name(s) appear on your stock certificate and date this
proxy. If a joint account, each joint owner must sign. If signing for a
corporation or partnership or as agent, attorney or fiduciary, indicate the
capacity in which you are signing.
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
THRUSTMASTER, INC.
ANNUAL MEETING OF SHAREHOLDERS
Thursday, May 21, 1998
2:00 p.m.
RiverPlace Hotel
1510 Southwest Harbor Way
Portland, Oregon
