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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
SRS Labs, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(5) Total fee paid:
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[ ] 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:
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(4) Date Filed:
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SRS LABS, INC.
2909 DAIMLER STREET
SANTA ANA, CALIFORNIA 92705
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
You are invited to attend the Annual Meeting of Stockholders of SRS Labs,
Inc. the ("Company") to be held at 10:00 A.M., California time, on Thursday,
June 11, 1998, at the Irvine Marriott Hotel, located at 18000 Von Karman Avenue,
Irvine, California 92612 for the following purposes:
1. To elect two Class II directors to the Board of Directors to hold
office for a term of three years and until their respective successors are
elected and qualified.
2. To consider and act upon a proposal to approve an amendment to the
SRS Labs, Inc. Amended and Restated 1996 Long-Term Incentive Plan (the
"Incentive Plan") to increase the number of shares of common stock
available for issuance thereunder by 2,500,000.
3. To consider and act upon a proposal to approve an amendment to the
Incentive Plan to allow all directors of the Company and any Subsidiary (as
defined in the Incentive Plan) of the Company to participate in the
Incentive Plan.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors nominates John AuYeung and John Tu as the nominees
for election to the Board of Directors as Class II directors.
The Board of Directors has fixed the close of business on April 17, 1998,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting.
EACH STOCKHOLDER IS CORDIALLY INVITED TO BE PRESENT AND TO VOTE AT THIS
ANNUAL MEETING IN PERSON. STOCKHOLDERS ARE REQUESTED TO SIGN, DATE AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID AND ADDRESSED ENVELOPE, WHETHER
OR NOT THEY EXPECT TO ATTEND. IN THE EVENT A STOCKHOLDER WHO HAS RETURNED A
SIGNED PROXY ELECTS TO ATTEND THE ANNUAL MEETING AND VOTE IN PERSON, THE
STOCKHOLDER WILL BE ENTITLED TO VOTE.
By Order of the Board of Directors,
/s/ Janet M. Biski
Janet M. Biski
Secretary
Santa Ana, California
April 30, 1998
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SRS LABS, INC.
2909 DAIMLER STREET
SANTA ANA, CALIFORNIA 92705
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PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of SRS Labs, Inc. (the "Company") to be voted
at the Annual Meeting of Stockholders of the Company to be held on Thursday,
June 11, 1998, at the Irvine Marriott Hotel located at 18000 Von Karman Avenue,
Irvine, California 92612 at 10:00 A.M., California time, and at any adjournments
thereof (the "Annual Meeting"), for the purposes set forth in the accompanying
Notice of Annual Meeting of Stockholders and described herein. The approximate
date on which this Proxy Statement and the enclosed form of proxy are first
being sent or given to stockholders is May 8, 1998.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Board of Directors of the Company (the "Board of Directors" or the
"Board") has fixed the close of business on April 17, 1998, as the record date
for the determination of stockholders entitled to receive notice of, and to vote
at, the Annual Meeting (the "Record Date"). The only outstanding class of stock
of the Company is its common stock, par value $.001 per share ("Common Stock"),
and, at the Record Date, 11,505,754 shares were issued and outstanding. Each
share of Common Stock entitles the record holder on the Record Date to one vote
on all matters. With respect to the election of directors only (Proposal 1),
stockholders may vote in favor of all nominees or withhold their votes as to all
nominees or withhold their votes as to specific nominees.
The Bylaws of the Company set forth certain procedures relating to the
nomination of directors (the "Nomination Bylaw") and no person shall be eligible
for election as a director unless nominated in accordance with the provisions of
the Nomination Bylaw.
Nominations of persons for election to the Board of Directors may be made
by (i) the Board of Directors or a committee appointed by the Board of Directors
or (ii) any stockholder who is a stockholder of record at the time of giving the
notice provided for in the Nomination Bylaw, who shall be entitled to vote for
the election of directors at the meeting and who complies with the notice
procedures set forth in the Nomination Bylaw.
Nominations by stockholders shall be made pursuant to timely notice in
proper written form to the Secretary of the Company. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Company (i) in the case of an annual meeting,
not less than 60 days nor more than 90 days prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
public announcement is first made of the date of the meeting, and (ii) in the
case of a special meeting at which directors are to be elected, not later than
the close of business on the 10th day following the day on which public
announcement is first made of the date of the meeting. To be in proper written
form, such stockholder's notice shall set forth or include (i) the name and
address, as they appear on the Company's books, of the stockholder giving the
notice and of the beneficial owner, if any, on whose behalf the nomination is
made; (ii) a representation that the stockholder giving the notice is a holder
of record of stock of the Company entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (iii) the class and number of shares of stock of the
Company owned beneficially and of record by the stockholder giving the notice
and by the beneficial owner, if any, on whose behalf the nomination is made;
(iv) a description of all arrangements or understandings between or among any of
(A) the stockholder giving the notice, (B) the beneficial owner on
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whose behalf the notice is given, (C) each nominee, and (D) any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder giving the notice; (v) such other
information regarding each nominee proposed by the stockholder giving the notice
as would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had the nominee been
nominated, or intended to be nominated, by the Board of Directors; and (vi) the
signed consent of each nominee to serve as a director of the Company if so
elected. At the request of the Board of Directors, any person nominated by the
Board of Directors for election as a Director shall furnish to the Secretary of
the Company that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. The presiding officer of the
meeting for election of directors shall, if the facts warrant, determine that a
nomination was not made in accordance with the procedures prescribed by the
Nomination Bylaw, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded. Notwithstanding the
foregoing provisions of the Nomination Bylaw, a stockholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder with respect to the matters
set forth in the Nomination Bylaw.
Any stockholder giving a proxy has the power to revoke the proxy prior to
its exercise. A proxy may be revoked (i) by delivering to the Secretary of the
Company, Janet M. Biski, at or prior to the Annual Meeting, an instrument of
revocation or a duly executed proxy bearing a date or time later than the date
or time of the proxy being revoked or (ii) at the Annual Meeting if the
stockholder is present and elects to vote in person. Mere attendance at the
Annual Meeting will not serve to revoke a proxy.
All proxies received and not revoked will be voted as directed. If no
directions are specified, such proxies will be voted "FOR" (i) election of the
Board's nominees for Class II directors, (ii) approval of the amendment to the
SRS Labs, Inc. Amended and Restated 1996 Long-Term Incentive Plan (the
"Incentive Plan") increasing the number of shares of Common Stock available for
issuance thereunder by 2,500,000 and (iii) approval of the amendment to the
Incentive Plan allowing all directors of the Company and any Subsidiary (as
defined in the Incentive Plan) of the Company to participate in the Incentive
Plan. As to any other business which may properly come before the Annual
Meeting, the persons named in such proxies will vote in accordance with their
best judgment, although the Company does not presently know of any other such
business.
A majority of the outstanding shares of Common Stock entitled to vote must
be represented in person or by proxy at the Annual Meeting in order to
constitute a quorum for the transaction of business. Abstentions and non-votes
will be counted for purposes of determining the existence of a quorum at the
Annual Meeting. Each candidate for election as a Class II director will be
elected by a plurality of the votes of shares of Common Stock present in person
or by proxy at the Annual Meeting and entitled to vote on such election. The
affirmative vote of a majority of the shares of Common Stock present in person
or by proxy at the Annual Meeting and entitled to vote on each of the proposals
(other than the election of directors) is required for the adoption of each such
proposal. Abstentions will be counted as votes against any of the proposals as
to which a stockholder abstains, but non-votes will have no effect on the voting
with respect to any proposal as to which there is a non-vote. A non-vote may
occur when a nominee holding shares of Common Stock for a beneficial owner does
not vote on a proposal because such nominee does not have discretionary voting
power and has not received instructions from the beneficial owner.
The expenses of soliciting proxies for the Annual Meeting are to be paid by
the Company. Solicitation of proxies may be made by means of personal calls
upon, or telephonic or telegraphic communications with, stockholders or their
personal representatives by directors, officers and employees of the Company who
will not be specially compensated for such services. Although there is no formal
agreement to do so, the Company may reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expenses in forwarding
this Proxy Statement to stockholders whose Common Stock is held of record by
such entities. The Company's Board of Directors has authorized the Executive
Committee of the Board to retain the services of a proxy solicitation firm if,
in such Committee's view, it is deemed necessary. The Executive Committee has
not engaged such a firm at this time; however, to the extent it decides to do
so, the Committee will utilize the services of Corporate Investor
Communications, Inc. to assist in the solicitation of proxies in
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connection with this Proxy Statement, and such firm will receive a fee estimated
to be $4,000 and will be reimbursed for out-of-pocket expenses.
The Company was incorporated in the State of California in June 1993 and
reincorporated in the State of Delaware in June 1996. All references to the
Company reflect this continuation. The Company first became a reporting company
pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, in
August 1996.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table contains certain information as of the Record Date
regarding all persons who, to the knowledge of the Company, were the beneficial
owners of more than 5% of the outstanding shares of Common Stock, each of the
directors of the Company, each nominee for director, each of the executive
officers named in the Summary Compensation Table set forth herein under the
caption "Compensation of Executive Officers" (such officers are collectively
referred to herein as the "Named Executive Officers") and all directors and
executive officers as a group. The persons named hold sole voting and investment
power with respect to the shares shown opposite their respective names, unless
otherwise indicated. The information with respect to each person specified is as
supplied or confirmed by such person or based upon statements filed with the
Securities and Exchange Commission (the "SEC").
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OWNERSHIP(1)(2) CLASS(1)(2)
---- --------------- -----------
Thomas C.K. Yuen and Misako Yuen(3)(4)................... 3,053,106 26.13%
Mutual Management Corp.(5)............................... 1,100,630 9.57%
Packard Bell Electronics(6).............................. 954,165 8.03%
Thomrose Holdings (BVI) Limited(7)(8).................... 778,179 6.76%
Rayfa (BVI) Limited(8)(9)................................ 709,760 6.17%
The Capital Group Companies, Inc.(10).................... 709,000 6.16%
Putnam Investments, Inc.(11)............................. 598,000 5.20%
Class I Directors:
Jeffrey I. Scheinrock(4)(12)........................... 13,621 *
Thomas W.T. Wan(7)(8).................................. 778,179 6.76%
Class II Directors/Nominees:
John AuYeung(4)(12).................................... 10,000 *
John Tu(4)(13)......................................... 221,152 1.92%
Class III Directors:
Stephen V. Sedmak(4)(14)............................... 877,049 7.43%
Thomas C.K. Yuen(3)(4)................................. 3,053,106 26.13%
Named Executive Officers Who are Not Directors:
Janet M. Biski(4)(12).................................. 54,742 *
Robert A. Veri(15)..................................... -- --
James S. Lucas(16)..................................... 225,526 1.93%
All directors and executive officers as a group (7
persons)(17)........................................... 5,007,849 41.48%
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* Less than one percent.
(1) Subject to applicable community property and similar statutes.
(2) Includes (a) shares beneficially owned, whether directly or indirectly,
individually or together with associates, and (b) shares of which
beneficial ownership may be acquired within 60 days of the Record Date by
exercise of stock options ("Stock Option Shares").
(3) Includes 2,668,582 shares of Common Stock held by Mr. and Mrs. Yuen as
co-trustees of the Thomas Yuen Family Trust, and 176,769 Stock Option
Shares granted to Mr. Yuen. Also includes 207,755 shares of Common Stock
held by Atsuko Hamasaki as trustee of the Yuen 1993 Irrevocable Trust
(144,825 shares) and as custodian for Mr. and Mrs. Yuen's children,
Jennifer Wen Lee Yuen (31,465 shares) and Constance Kahlee Yuen (31,465
shares). Mr. and Mrs. Yuen disclaim beneficial ownership of the 207,755
shares held by Atsuko Hamasaki.
(4) The mailing address of such stockholder is c/o SRS Labs, Inc., 2909 Daimler
Street, Santa Ana, California 92705.
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(5) Mutual Management Corp. ("MMC"), Salomon Smith Barney Holdings Inc. ("SSB
Holdings") and Travelers Group Inc. ("TRV"), 388 Greenwich Street, New
York, New York 10013, filed a joint Schedule 13G on or about March 10,
1998. SSB Holdings is the sole shareholder of MMC, and TRV is the sole
shareholder of SSB Holdings. MMC has shared voting and dispositive power
over 1,000,000 shares, and SSB Holdings and TRV each have shared voting and
dispositive power over 1,100,630 shares. SSB Holdings and TRV disclaim
beneficial ownership of the shares referred to in the Schedule 13G.
(6) Includes 382,104 Stock Option Shares. The mailing address for Packard Bell
Electronics, Inc. is 31717 La Tinda Drive, Westlake Village, California
91362.
(7) All of the 778,179 shares are held by Thomrose Holdings (BVI) Limited
("Thomrose"). Thomas W.T. Wan is the sole shareholder of Thomrose.
(8) The mailing address of such stockholder is c/o Valence Technology Inc.,
Unit 413, 4th Floor, Hong Kong Industrial Technology Centre, 72 Tat Chee
Avenue, Kowloon Tong, Hong Kong.
(9) The sole shareholder of Rayfa (BVI) Limited is Raymond Choi. Mr. Choi also
is the President of Valence Semiconductor Design Limited, a subsidiary of
Valence.
(10) The Capital Group Companies, Inc. ("CGCI") and Capital Guardian Trust
Company ("CGTC"), 333 South Hope Street, Los Angeles, California 90071,
filed a joint Schedule 13G on or about February 11, 1998. CGCI is the
parent holding Company of a group of investment management companies that
hold investment power and, in some cases, voting power over the shares
reported in the Schedule 13G. CGTC, a wholly-owned subsidiary of CGCI,
serves as the investment manager of various institutional accounts. CGCI
and CGTC each have sole voting and dispositive power over 709,000 shares.
(11) Putnam Investments, Inc. ("PI"), Putnam Investment Management, Inc. ("PIM")
and The Putnam Advisory Company, Inc. ("PAC"), One Post Office Square,
Boston, Massachusetts 02109, and Marsh & McLennan Companies, Inc. ("MMCI"),
1166 Avenue of the Americas, New York, New York 10036, filed a joint
Schedule 13G on or about January 21, 1998. PI, which is a wholly-owned
subsidiary of MMCI, wholly owns PIM, which is the investment advisor to the
Putnam family of mutual funds, and PAC, which is the investment advisor to
Putnam's institutional clients. PI and PAC each have shared voting power
over 338,300 shares and shared dispositive power over 598,000 shares. MMCI
and PIM do not have voting or dispositive power over any shares. MMCI and
PI disclaim beneficial ownership of the shares covered by the Schedule 13G.
(12) All Stock Option Shares.
(13) Includes 10,000 Stock Option Shares.
(14) Includes 301,301 Stock Option Shares and 5,800 shares held by his wife,
Mary Sedmak, as custodian for their children, Jeffrey Sedmak (2,900 shares)
and Sarah Sedmak (2,900 shares).
(15) Mr. Veri ceased to be an executive officer and employee of the Company on
September 26, 1997. The mailing address for Mr. Veri is 37 Toulon, Laguna
Niguel, California 92677.
(16) Includes 178,669 Stock Option Shares. Mr. Lucas ceased to be an executive
officer and employee of the Company on October 23, 1997. The mailing
address for Mr. Lucas is 12532 Singingwood, Santa Ana, California 92705.
(17) Includes 566,433 Stock Option Shares.
ELECTION OF DIRECTORS
(PROPOSAL 1)
Under the Company's Certificate of Incorporation (the "Certificate") and
Bylaws (the "Bylaws"), which provide for a "classified" Board, two persons, John
AuYeung and John Tu, have been nominated by the Board of Directors for election
at the Annual Meeting to serve a three year term expiring at the annual meeting
in 2001 and until their respective successors are elected and qualified. A
plurality of the votes of shares of Common Stock present in person or by proxy
at the Annual Meeting and entitled to vote on such election is required for
election of each nominee.
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The Bylaws provide for six directors. Currently, there are two Class I
directors (Messrs. Scheinrock and Wan), whose term expires at the 2000 annual
meeting of stockholders; two Class II directors (Messrs. AuYeung and Tu), whose
term expires at the Annual Meeting; and two Class III directors (Messrs. Sedmak
and Yuen), whose term expires at the 1999 annual meeting of stockholders.
Each of the nominees presently serve as a Class II director and has served
continuously as a director of the Company since the date indicated in his
biography below. In the event either nominee is unable to or declines to serve
as a director at the time of the Annual Meeting (which is not anticipated), the
persons named in the proxy will vote for the election of such person or persons
as may be designated by the present Board of Directors. UNLESS OTHERWISE
DIRECTED IN THE ACCOMPANYING PROXY, THE PERSONS NAMED THEREIN WILL VOTE FOR THE
ELECTION OF THE TWO DIRECTOR NOMINEES LISTED BELOW.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
JOHN AUYEUNG AND JOHN TU AS CLASS II DIRECTORS.
INFORMATION WITH RESPECT TO THE CLASS II DIRECTOR NOMINEES
The following table sets forth information regarding the nominees,
including age on the date of the Annual Meeting, present position with the
Company, period served as a director and other business experience during the
past five years.
DIRECTOR PRINCIPAL OCCUPATION AND OTHER
NAME AGE SINCE INFORMATION CONCERNING NOMINEE
---- --- -------- ------------------------------
John AuYeung............... 46 1996 Dr. AuYeung has served as a director of the Company since
May 1996 and has served as a member of the Audit and
Compensation Committees of the Board of Directors since
June 1996. In addition, Dr. AuYeung has served as a
director of Valence Technology, Inc. ("Valence") and all
but one of Valence's subsidiaries since the closing of the
acquisition of Valence by the Company in March 1998. Since
November 1, 1996, Dr. AuYeung has served as President,
Secretary and Treasurer of ACG (U.S.), Inc., the U.S.
subsidiary of a foreign-based internet company, and has
served as President of Communications Management, Inc., a
management consulting firm. Since October 1996, Dr. AuYeung
also has served as Assistant Secretary of Asia
Communications Global Limited, an internet technology
company focusing on the dissemination of financial,
homeshopping and other information to substantially all of
the Asian market. Prior thereto, Dr. AuYeung served as Vice
President, Technology and Business Development of Atlantis
Computers, Inc. d/b/a NuReality, a manufacturer of computer
multimedia and consumer audio/video products and a licensee
of the Company, from May 1995 to October 1996. In addition,
Dr. AuYeung served in a variety of management positions
with Newport Corporation, a scientific research instrument
manufacturer, from March 1982 to April 1996. Prior to
joining Newport Corporation, Dr. AuYeung was a research
scientist at the Jet Propulsion Laboratory. Dr. AuYeung
holds a B.S. from the Massachusetts Institute of Technology
and an M.S. and a Ph.D. in electrical engineering from the
California Institute of Technology.
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DIRECTOR PRINCIPAL OCCUPATION AND OTHER
NAME AGE SINCE INFORMATION CONCERNING NOMINEE
---- --- -------- ------------------------------
John Tu.................... 56 1994 Mr. Tu has served as a director of the Company since May
1994. In addition, since June 1996, Mr. Tu has served as a
member of the Audit and Compensation Committees of the
Board. Mr. Tu has served as a director and President of
Kingston Technology Company (and its predecessor, Kingston
Technology Corporation), a manufacturer of computer
enhancements, since October 1987. Mr. Tu also was a
co-founder of Kingston Technology Corporation. Prior
thereto, from 1982 to 1986, Mr. Tu served as President of
Camintonn Corporation, a manufacturer of board level
products for the DEC marketplace, and from 1986 to 1987 he
served as Vice President and General Manager of the Digital
Division after the company's sale to AST Research. Mr. Tu
was also a co-founder of Camintonn Corporation. Mr. Tu
earned a degree in electrical engineering from the
Technische Hochschule Darmstadt in Germany.
INFORMATION WITH RESPECT TO DIRECTORS WHOSE TERMS CONTINUE
The following table sets forth similar information regarding the members of
the Board of Directors who are designated either Class I or Class III Directors
and are continuing in office as Directors of the Company.
DIRECTOR PRINCIPAL OCCUPATION AND OTHER
NAME AGE SINCE INFORMATION CONCERNING INCUMBENT
---- --- -------- --------------------------------
Class I Directors -- Term Expiring at the 2000 Annual Meeting
Jeffrey I. Scheinrock...... 47 1996 Mr. Scheinrock has served as a director of the Company and
a member of the Board's Audit Committee since June 1996.
Since June 1997, Mr. Scheinrock has served as Chief
Executive Officer of Scheinrock Advisory Group, an
investment consulting firm. Prior thereto, he served as
Vice Chairman and Chief Financial Officer of Kistler
Aerospace Corporation, a manufacturer of reusable launch
vehicles, from July 1996 to May 1997. Prior thereto, he
served as Vice Chairman -- Finance and Strategic Planning
and Chief Financial Officer of Packard Bell Electronics,
Inc., a manufacturer of personal computers, from March 1989
to June 1996. Mr. Scheinrock also has served as a director
of Brilliant Digital Entertainment, a developer and
distributor of digital equipment, since October 1996.
Thomas W.T. Wan............ 37 1998 Mr. Wan has served as a Vice President and a director of
the Company since the closing of the acquisition of Valence
by the Company in March 1998. Mr. Wan was appointed as a
director pursuant to the terms of the Stock Purchase
Agreement dated February 24, 1998, among the Company, Mr.
Wan and three other management shareholders of Valence,
relating to the acquisition of Valence by the Company. Mr.
Wan also serves as President and Chief Executive Officer of
Valence, a position he has held since May 1995. In
addition, Mr. Wan has served as a director of Valence and
each of Valence's subsidiaries since May 1995. Mr. Wan also
served as President, Chief Executive Officer and Sales and
Marketing Manager of Valence Semiconductor (HK) Limited
from April 1990 to May 1995. Prior thereto, Mr. Wan served
as Assistant Executive Engineer and Executive Engineer in
the Full-Custom Chip Design Division of British Telecom
Research Laboratories from 1985 to 1990.
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DIRECTOR PRINCIPAL OCCUPATION AND OTHER
NAME AGE SINCE INFORMATION CONCERNING INCUMBENT
---- --- -------- --------------------------------
Class III Directors -- Term Expiring at the 1999 Annual Meeting
Stephen V. Sedmak.......... 49 1993 Mr. Sedmak, one of the founders of the Company, has served
as President of the Company since its inception in June
1993. In addition, Mr. Sedmak has served as a director of
the Company since June 1993 and as Chief Operating Officer
since June 1996. Prior to joining the Company, Mr. Sedmak
served as Vice President of Sales for PTC Corporation, a
provider of telecommunications systems, from January 1973
to March 1982, as Vice President of Sales for The ICT
Group, a provider of database marketing and telemarketing
services, from March 1985 to September 1987, and as Vice
President of Sales for TeleRelation Systems Inc., a
software development company, from January 1991 to June
1992. Mr. Sedmak was involved as a founder of each of these
companies. In addition, Mr. Sedmak held a variety of
executive sales and marketing positions with IBM/ ROLM
Corporation, a leading telecommunications manufacturer,
from March 1982 to March 1985.
Thomas C.K. Yuen........... 46 1994 Mr. Yuen has served as Chairman, Chief Executive Officer
and a director of the Company since January 1994. Mr. Yuen
also has served as a director of Valence and all but one of
Valence's subsidiaries since March 1998. In addition, Mr.
Yuen served as Chief Financial Officer of the Company from
January 1994 to July 1994. Since May 1995, Mr. Yuen has
also served as Chairman and a director for Asia
Communications Global Limited, a privately held internet
technology company focusing on the dissemination of
financial, home shopping and other information to
substantially all of the Asian market. Since June 1993, Mr.
Yuen has served as Chairman, Chief Executive Officer,
President and a director for Atlantis Computers, Inc. d/b/a
NuReality, a privately held company that manufactures
computer multimedia and consumer audio/video products and a
licensee of the Company. Mr. Yuen is one of the founders of
AST Research, Inc., where he served as a director from such
company's inception in 1981 until June 1992 and the
Company's Co-Chairman and Chief Operating Officer from
August 1987 to June 1992.
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INFORMATION WITH RESPECT TO EXECUTIVE OFFICER WHO IS NOT A DIRECTOR
The following table sets forth similar information as that provided for the
director nominees and the directors whose terms continue with respect to the
executive officer of the Company who is not a director.
PRINCIPAL OCCUPATION AND OTHER
NAME AGE INFORMATION CONCERNING EXECUTIVE OFFICER
---- --- ----------------------------------------
Janet M. Biski...................... 42 Ms. Biski, a certified public accountant, has served as
Chief Financial Officer of the Company since July 1994,
Secretary of the Company since May 1995, and Vice President
and Treasurer of the Company since June 1996. Prior to
joining the Company, Ms. Biski served as Chief Financial
Officer of Remedial Management, Inc., an environmental
consulting firm, from April 1992 to February 1994. Prior
thereto, Ms. Biski served as Regional Controller of Fujitsu
Business Communications, an international manufacturer and
supplier of telecommunications systems, from April 1991 to
April 1992. From April 1984 to April 1991, Ms. Biski held
various financial positions with IBM/ROLM Corporation.
INFORMATION WITH RESPECT TO SIGNIFICANT EMPLOYEES
The following table sets forth similar information as that provided for
directors and executive officers with respect to significant employees of the
Company.
PRINCIPAL OCCUPATION AND OTHER
NAME AGE INFORMATION CONCERNING SIGNIFICANT EMPLOYEES
---- --- --------------------------------------------
Arnold I. Klayman................... 72 Mr. Klayman has served as Director of Advanced Development
of the Company since January 1994. Prior to joining the
Company, he served as Senior Scientist for the Audio
Products Division of Hughes Aircraft Company from 1986
until January 1994, where he directed research and
development of electronic technologies including the SRS
technology before it was sold by Hughes Aircraft Company to
the Company. Prior thereto, Mr. Klayman owned and operated
Klayman Industries, an electronic consulting company and
developer of electronic components, from August 1978 to
August 1986.
Alan D. Kraemer..................... 47 Mr. Kraemer has served as Director of Engineering of the
Company since February 1994. In addition, Mr. Kraemer has
served as President of Sierra Digital Productions, Inc., a
compact disc production and recording company, since August
1989. Prior to joining the Company, Mr. Kraemer also served
as Vice President of Engineering of De LaRue Printrak, a
manufacturer of automatic fingerprint identification
systems, from January 1989 to December 1989. Prior thereto,
Mr. Kraemer served as Vice President of Engineering for AST
Research, a personal computer manufacturer. Mr. Kraemer
also served as Vice President of Engineering with Point4
Data Corporation from May 1986 to December 1986, and as
Director of Software Engineering of Northrop Electronics
from May 1984 to May 1986.
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PRINCIPAL OCCUPATION AND OTHER
NAME AGE INFORMATION CONCERNING SIGNIFICANT EMPLOYEES
---- --- --------------------------------------------
Edward J. Treska.................... 33 Mr. Treska has served as General Counsel and Director of
Patents and Licensing of the Company since May 1996. Prior
to joining the Company, Mr. Treska served as an associate
attorney for the intellectual property law firm of Knobbe,
Martens, Olson & Bear from September 1992 to April 1996.
Prior thereto, Mr. Treska served as an electronics design
engineer for TRW Inc.'s Space and Technology Sector from
June 1987 to June 1989. Mr. Treska holds a B.S. degree
(Electrical Engineering) from Colorado State University and
a J.D. degree from the University of San Diego School of
Law.
Jennifer A. Drescher................ 34 Ms. Drescher has served as Director of Marketing Services
of the Company since April 1994. In addition, Ms. Drescher
served as Marketing and Communications Manager of the
Company from August 1993 to April 1994. Prior to joining
the Company, Ms. Drescher served as Advertising and Public
Relations Manager for Barcu-Berry, Inc., a manufacturer of
musical equipment, from September 1990 to August 1993.
Prior thereto, Ms. Drescher served as Operations Manager of
BBE, Inc., an audio licensing company, from April 1984 to
June 1990.
Michael Schleider................... 50 Mr. Schleider was appointed as Vice President of Sales and
Marketing in April 1998. Prior to joining the Company, Mr.
Schleider served as Vice President of Sales and Marketing
of IMC Networks, a local area networking company, from
April 1994 to April 1998. Prior thereto, Mr. Schleider was
the General Manager of the Audio Intelligibility Department
of Hughes Aircraft Company from August 1986 to January
1994.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
MEETINGS OF THE BOARD AND ITS COMMITTEES
The Board of Directors manages the business of the Company. It establishes
overall policies and standards for the Company and reviews the performance of
management. In addition, the Board has established an Executive Committee, an
Audit Committee and a Compensation Committee whose functions are briefly
described below. The Board has not established a Nominating Committee. The
directors are kept informed of the Company's operations at meetings of the Board
and its committees through reports and analyses from, and discussions with,
management.
During the fiscal year ended December 31, 1997 (the "Fiscal Year" or
"Fiscal 1997"), the Board of Directors met on three occasions and took action by
Unanimous Written Consent on two occasions.
Executive Committee. At times when the Board of Directors is not in
session, the Executive Committee is empowered to exercise the authority of the
Board of Directors in the management of the business and affairs of the Company,
except as provided by the Bylaws or limited by the provisions of the Delaware
General Corporation Law. The members of the Executive Committee are Thomas C.K.
Yuen (Chairman) and Stephen V. Sedmak. During the Fiscal Year, the Executive
Committee met informally on a regular basis.
Audit Committee. The Audit Committee recommends to the Board of Directors
the appointment of the independent certified public accountants for the
following year and reviews the scope of the audit, the independent certified
public accountants' report and the auditors' comments relative to the adequacy
of the Company's system of internal controls and accounting policies. The
members of the Audit Committee are
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John AuYeung (Chairman), John Tu and Jeffrey I. Scheinrock. During the Fiscal
Year, the Audit Committee met on one occasion.
Compensation Committee. The Compensation Committee is comprised of all
non-employee directors, each of whom has never been an officer or employee of
the Company. The members of the Compensation Committee are John AuYeung
(Chairman) and John Tu. The Compensation Committee is responsible for making
determinations regarding salaries, bonuses and other compensation for the
Company's officers and making decisions with respect to awards, including but
not limited to stock option grants, to the Company's directors, officers, key
employees, consultants and important business associates pursuant to the 1993
Plan (hereinafter defined) and the Incentive Plan (hereinafter defined). The
Compensation Committee did not meet during the Fiscal Year; however, it acted by
Unanimous Written Consent on three occasions.
Each incumbent director, except for John Tu, attended at least 75% of the
aggregate of (i) the total number of meetings of the Board of Directors held
during the Fiscal Year (held during the period for which he has been a director)
and (ii) the total number of meetings held by all committees of the Board on
which he served during the Fiscal Year (held during the period that he served).
COMPENSATION OF DIRECTORS
Directors who also are employees of the Company are not paid any fees or
remuneration, as such, for their service on the Board or on any Board Committee.
Cash Compensation. In Fiscal 1997, each non-employee director was entitled
to receive $500 for each Board meeting that he attended and $250 for each
telephonic Board meeting in which he participated. Each non-employee director
also was entitled to receive $250 for each committee meeting that he attended in
person or telephonically. In addition, each non-employee director was entitled
to be reimbursed for reasonable travel and other expenses incurred in connection
with attending Board and committee meetings. Jeffrey I. Scheinrock, a
non-employee director, was paid consulting fees of $15,000 and was reimbursed
for approximately $3,000 of travel and other out-of-pocket expenses incurred in
connection with the exploration of potential relationships with new and existing
licensees during Fiscal 1997.
Non-Employee Directors Stock Option Plan. Each non-employee director is
eligible to receive stock options under the SRS Labs, Inc. 1996 Non-Employee
Directors Stock Option Plan (the "Non-Employee Directors Plan"), a
non-discretionary, formula stock option plan pursuant to which 120,000 shares of
Common Stock have been authorized for issuance. Each non-employee director of
the Company who was in office prior to the date of the closing of the Company's
Initial Public Offering (the "IPO") and remained in office as of such date
(namely, Messrs. AuYeung, Scheinrock and Tu) was granted an option to purchase
10,000 shares of Common Stock pursuant to the Non-Employee Directors Plan which
vested upon the date of grant. Each non-employee director who first becomes a
member of the Board after the date of closing of the IPO will be granted an
option to purchase 10,000 shares of Common Stock, subject to adjustment,
automatically upon election to the Board of Directors which will vest upon the
date of grant. On an ongoing basis, each non-employee director will be granted
an option to purchase 15,000 additional shares of Common Stock, subject to
adjustment, automatically effective at the close of business on the date of each
of the Company's annual meeting of stockholders at which such non-employee
director is elected. The exercise price for all options granted under the
Non-Employee Directors Plan have been and will be based upon the fair market
value of the Common Stock on the date of grant. These options (other than the
initial options) will become exercisable in three equal annual installments
beginning on the date of grant. Upon the occurrence of certain events or series
of events which will or is likely to, if carried out, result in a change of
control of the Company, as defined in the stock option agreements entered into
pursuant to the Non-Employee Directors Plan, the options shall, notwithstanding
the three-year vesting period, become immediately exercisable in full.
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COMPENSATION OF EXECUTIVE OFFICERS
The following table discloses compensation paid by the Company during
Fiscal 1997 and the fiscal year ended December 31, 1996 ("Fiscal 1996") to (i)
the Company's Chief Executive Officer, (ii) two individuals who were the only
executive officers, other than the Chief Executive Officer, who were serving as
executive officers at the end of Fiscal 1997 and (iii) two additional
individuals who would have been among the four most highly-compensated executive
officers, other than the Chief Executive Officer, but for the fact that they
were not serving as executive officers at the end of Fiscal 1997. The Company
first became a reporting Company pursuant to Section 13(a) of the Securities
Exchange Act of 1934, as amended, during Fiscal 1996.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
-------------------------- OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) (#)(3) ($)
--------------------------- ---- ------------ ----------- ------------ ------------
Thomas C.K. Yuen....................... 1997 $225,000 $ 1,147 167,762 $ --
Chairman of the Board and Chief 1996 87,504 -- 112,762 --
Executive Officer
Stephen V. Sedmak...................... 1997 180,000 40,476 192,315 1,919(4)
President and Chief Operating Officer 1996 135,581 32,115 137,315 1,919
Robert A. Veri(5)...................... 1997 131,602 5,093 65,000 156,000(6)
General Manager 1996 49,805 -- -- --
Janet M. Biski......................... 1997 100,833 18,621 92,588 --
Vice President, Chief Financial 1996 77,084 28,215 37,588 --
Officer, Treasurer and Secretary
James S. Lucas(7)...................... 1997 94,535 21,124 120,996 82,688(8)
Vice President, Sales 1996 105,000 23,590 105,996 --
- ---------------
(1) A portion of the salary for Ms. Biski was deferred under the Company's
401(k) Plan.
(2) Portions of the bonuses for Messrs. Sedmak and Lucas and Ms. Biski were
deferred under the Company's Bonus Plan.
(3) During Fiscal 1997, options to purchase 127,762, 152,315, 52,588 and 113,496
shares of Common Stock granted to Mr. Yuen, Mr. Sedmak, Ms. Biski and Mr.
Lucas, respectively, were cancelled and replaced with options to purchase
the same number of shares of Common Stock at a lower exercise price. See
"Report on Repricing of Options" herein.
(4) Premiums for term life insurance paid by the Company on behalf of Mr.
Sedmak.
(5) Mr. Veri was hired by the Company in September 1996. Mr. Veri ceased to be
an executive officer and employee of the Company in September 1997.
(6) Severance payments by the Company to Mr. Veri consisting of $39,000 paid in
Fiscal 1997 and $117,000 paid in the fiscal year ending December 31, 1998.
(7) Mr. Lucas ceased to be an executive officer and employee of the Company in
October 1997.
(8) Severance payments by the Company to Mr. Lucas consisting of $18,375 paid in
Fiscal 1997 and $64,313 paid in the fiscal year ending December 31, 1998.
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STOCK OPTIONS
Stock Option Grants. During Fiscal 1997, stock options were awarded to the
Company's Chief Executive Officer and the other Named Executive Officers in the
amounts and with the terms indicated in the following table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE
--------------- ------------ ----------- ----------
Thomas C. K. Yuen......................... 15,000 (3)(4) 1.16% $7.625 01/28/07
25,000 (3) 1.93% 5.00 10/01/07
15,000 (5)(6) 1.16% 5.00 01/28/07
112,762 (7)(8) 8.68% 5.00 08/15/06
Stephen V. Sedmak......................... 15,000 (4)(9) 1.16% 7.625 01/28/07
25,000 (3) 1.93% 5.00 10/01/07
15,000 (5)(10) 1.16% 5.00 01/28/07
137,315 (7)(8) 10.57% 5.00 08/15/06
Robert A. Veri............................ 65,000 (9) 5.01% 7.625 01/28/07
Janet M. Biski............................ 15,000 (3)(4) 1.16% 7.625 01/28/07
25,000 (3) 1.93% 5.00 10/01/07
15,000 (5)(6) 1.16% 5.00 01/28/07
37,588 (7)(11) 2.89% 5.00 08/15/06
James S. Lucas............................ 7,500 (3)(4) 0.58% 7.625 01/28/07
7,500 (5)(6) 0.58% 5.00 01/28/07
105,996 (7)(11) 8.16% 5.00 08/15/06
- ---------------
(1) Upon a change in control of the Company (as defined in the stock option
agreements relating to the respective plans), the options shall,
notwithstanding the installment vesting provisions, become immediately
exercisable in full.
(2) All options were granted at the fair market value on the date of grant.
(3) Nonqualified stock options which vest pro rata over a four-year period from
the date of grant.
(4) Options cancelled on October 1, 1997, in connection with grant of
replacement options on such date.
(5) Options granted on October 1, 1997, replacing options granted on January
28, 1997, with an exercise price of $7.625 per share.
(6) Nonqualified stock options which vest in four equal annual installments
commencing January 28, 1998.
(7) Options granted on October 1, 1997, replacing options granted on August 15,
1996, with an exercise price of $8.00 per share.
(8) Nonqualified stock options, 25% of which vest on the date of grant and the
remainder of which vest in three equal annual installments commencing
August 15, 1998.
(9) Combination of nonqualified stock options and incentive stock options which
vest pro rata over a four-year period from the date of grant.
(10) Combination of nonqualified stock options and incentive stock option which
vest in four equal annual installments commencing January 28, 1998.
(11) Combination of nonqualified stock options and incentive stock options, 25%
of which vest on the date of grant and the remainder of which vest in three
equal annual installments commencing August 15, 1998.
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16
Option Exercises/Fiscal Year End Value. The following table includes the
number of shares acquired by the Named Executive Officers upon the exercise of
stock options and the aggregate dollar value realized upon such exercise during
Fiscal 1997. Also reported are the number of shares of Common Stock covered by
both exercisable and unexercisable stock options as of December 31, 1997 for the
Named Executive Officers who hold options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES VALUE FY-END(#) FY-END($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
Thomas C.K. Yuen........... -- $ -- 136,813 283,188 $ 516,469 $751,425
Stephen V. Sedmak.......... -- -- 279,448 250,552 686,925 565,367
Janet M. Biski............. 10,000 103,100 40,130 99,870 164,126 301,636
James S. Lucas............. 39,000 331,073 178,669 -- 1,157,070 --
- ---------------
(1) Represents the positive difference between the closing price of the Common
Stock on Wednesday, December 31, 1997 (the last stock trading day of the
Fiscal Year) and the exercise price of the options.
REPORT ON REPRICING OF OPTIONS
On October 1, 1997, the Compensation Committee of the Board of Directors of
the Company canceled (with the optionees' consent) (i) options to purchase
625,801 shares of Common Stock at an exercise price of $8.00 per share, the fair
market value of a share of Common Stock on August 15, 1996, the date of grant,
held by 17 key employees and consultants, (ii) options to purchase 98,000 shares
of Common Stock at an exercise price of $7.625 per share, the fair market value
of a share of Common Stock on January 28, 1997, the date of grant, held by 14
key employees, and (iii) options to purchase 122,500 shares of Common Stock at
an exercise price of $8.625 per share, the fair market value of a share of
Common Stock on March 14, 1997, the date of grant, held by three key employees,
and granted replacement options to the same optionees with an exercise price of
$5.00 per share, the fair market value of a share of Common Stock on the date of
grant of such replacement options. The following table discloses certain
information concerning the cancellation of options and the grant of replacement
options in the manner described above with respect to the Named Executive
Officers who held options that were repriced.
LENGTH OF
NUMBER OF MARKET PRICE EXERCISE ORIGINAL
SECURITIES OF STOCK AT PRICE AT OPTION TERM
UNDERLYING TIME OF TIME OF REMAINING AT
OPTIONS/SARS REPRICING OR REPRICING OR NEW DATE OF
REPRICED OR AMENDMENT AMENDMENT EXERCISE REPRICING OR
NAME DATE AMENDED (#) ($) ($) PRICE ($) AMENDMENT
---- --------------- ------------ ------------ ------------ --------- -----------------
Thomas C.K. Yuen............. October 1, 1997 112,762 $5.00 $8.00 $5.00 8 yrs., 10.5 mos.
October 1, 1997 15,000 5.00 7.625 5.00 9 yrs., 4 mos.
Stephen V. Sedmak............ October 1, 1997 137,315 5.00 8.00 5.00 8 yrs., 10.5 mos.
October 1, 1997 15,000 5.00 7.625 5.00 9 yrs., 4 mos.
Janet M. Biski............... October 1, 1997 37,588 5.00 8.00 5.00 8 yrs., 10.5 mos.
October 1, 1997 15,000 5.00 7.625 5.00 9 yrs., 4 mos.
James S. Lucas............... October 1, 1997 105,996 5.00 8.00 5.00 8 yrs., 10.5 mos.
October 1, 1997 7,500 5.00 7.625 5.00 9 yrs., 4 mos.
14
17
In taking the actions described above, the Compensation Committee focused
primarily on the fact that the options granted on August 15, 1996, January 28,
1997, and March 14, 1997, were intended to serve as a significant component of
overall compensation paid to such key employees and consultants; however, due to
a decrease in the market value of the Common Stock after the date of grant, the
amount of compensation benefit was considerably less than intended. Accordingly,
the Compensation Committee took such action to provide such optionees with
compensation benefits closer to that which was originally intended. The new
option grants were granted as the same types of options (i.e., incentive stock
options or nonstatutory stock options) as the options being replaced, and the
new option grants were granted with the same vesting schedules and termination
dates as the options being replaced.
THE SRS LABS, INC.
COMPENSATION COMMITTEE
John AuYeung (Chairman)
John Tu
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Each of Messrs. Yuen and Sedmak have entered into employment agreements
with the Company effective as of July 1, 1996. Such agreements provide for a
fixed base salary, with annual increases and performance bonuses at the
discretion of the Board of Directors. The respective agreements provide for base
salaries for (i) Mr. Yuen of $175,000 per year commencing July 1, 1996 and
$225,000 per year for the 12 month period commencing January 1, 1997; and (ii)
Mr. Sedmak of $145,000 per year commencing July 1, 1996 and $180,000 per year
for the 12 month period commencing January 1, 1997. Thereafter, such base
salaries may be adjusted by the Board of Directors, but they may not be reduced
below the initial base salaries provided in the agreements. Mr. Yuen's
employment agreement provides that he shall devote at least 40% of his time
(based on an average eight hour work day) to the business of the Company. Mr.
Yuen is permitted to directly engage in other business activities provided such
activities are not competitive with the Company. The employment agreements with
both Mr. Yuen and Mr. Sedmak may be terminated by the Company for cause which is
defined as (i) the failure to follow the reasonable instructions of the Board of
Directors, (ii) the material breach of any term of the employment agreement and
failure to cure such breach within ten (10) days after written notice thereof
from the Company, or (iii) the misappropriation of assets of the Company or any
subsidiary by the employee resulting in a material loss to such entity. The
employment agreements may be terminated by the employee upon sixty (60) days
prior written notice. The initial term of the employment agreements are two (2)
years for each of Messrs. Yuen and Sedmak. The employment agreements
automatically renew for additional one (1) year periods unless prior notice of
termination is given by either the Company or the employee. Since no such notice
was given before April 1, 1998, both employment agreements have been
automatically renewed for an additional one (1) year period. In addition, the
Compensation Committee of the Board of Directors has increased Mr. Yuen's base
salary to $300,000 per year commencing April 1, 1998, in light of Mr. Yuen's
commitment to devote a significantly greater amount of time to the business of
the Company during such year than required under his above-referenced employment
agreement. In the event that the Company either terminates the employment
agreement at the end of the current term, or terminates the employment agreement
during the current term without cause, the employee is entitled to receive his
salary and benefits for the remainder of the current term of the employment
agreement plus an additional period of twelve months. During such period, the
employee is obligated to provide advisory services and may not compete with the
Company. The employment agreements also generally provide the employee with
compensation for the remainder of the current term plus an additional 12 months
and certain other benefits and for the acceleration of the date of vesting for
outstanding stock options if the employee is terminated or terminates his
employment for certain enumerated reasons within 90 days before or one year
after a change in control in the Company, as defined in the employment
agreements.
15
18
The Company entered into a settlement and release agreement with Mr. Veri
on September 26, 1997, in connection with Mr. Veri's departure as an employee
and executive officer of the Company. Pursuant to such agreement, the Company
agreed to pay Mr. Veri $13,000 per month for a period of twelve months from the
date of the agreement in consideration for certain agreements by Mr. Veri
concerning confidential information of the Company and a general release by Mr.
Veri of any claims that may have arisen during the course of his employment with
the Company.
In addition to the agreements with Messrs. Yuen and Sedmak, certain of the
Company's plans contain termination or change of control provisions.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company was incorporated on June 23, 1993 and, in connection with its
initial capitalization, issued an aggregate of 2,389,617 shares of Common Stock
to its founders, Stephen V. Sedmak, Walter W. Cruttenden III and James S. Lucas
for the following consideration: (i) 724,128 shares were issued to each of
Messrs. Sedmak and Cruttenden for $10,000 each, (ii) 72,412 shares were issued
to each of Messrs. Sedmak, Cruttenden and Lucas in exchange for services
previously rendered to the Company in connection with the acquisition of certain
assets from Hughes Aircraft Company ("Hughes Aircraft") , and (iii) 724,126
shares were issued to Mr. Cruttenden in exchange for the pledge of certain
securities to Hughes Aircraft to secure the Company's obligations under the
asset purchase agreement with Hughes Aircraft.
On June 30, 1993, Messrs. Sedmak and Cruttenden each loaned the Company
$90,000 for working capital and other general corporate purposes. Both of the
loans were unsecured and accrued interest at the rate of 10% per annum. Both
loans were repaid in full by the Company on January 27, 1994.
On August 31, 1993, the Company (i) issued 362,064 shares of Common Stock
to Frank W. Cutler for $100,000, and (ii) granted an option to purchase an
additional 362,064 shares of Common Stock to Mr. Cutler at an exercise price of
$0.28 per share. In connection with this transaction, Mr. Cutler was elected to
the Board of Directors. On January 17, 1996, such option was exercised in full.
On January 27, 1994, the Company issued 2,389,621 shares of Common Stock
and certain stockholders, including Messrs. Cruttenden, Lucas and Sedmak, sold
an aggregate of 724,128 shares of Common Stock to the Thomas Yuen Family Trust,
the beneficiaries of which are Thomas C.K. Yuen and Misako Yuen, for $1,710,000
and $1,000,000, respectively. In connection with this transaction, Mr. and Mrs.
Yuen became directors and principal stockholders of the Company, and Mr. Yuen
also became an executive officer of the Company.
On June 1, 1994, the Company entered into a lease (the "Lease") with
Daimler Commerce Partners, L.P. (the "Partnership") with respect to the
Company's headquarters facility which consisted of 11,700 square feet of office
and warehouse space. The general partner of the Partnership is Conifer
Investments, Inc. ("Conifer"), the sole shareholder of Conifer is the Thomas
Yuen Family Trust and the executive officers of Conifer include Mr. and Mrs.
Yuen. The Lease term commenced on June 1, 1994, and expired on May 31, 1997.
Prior to the expiration of the Lease, the Company entered into a new lease (the
"New Lease") with the Partnership to lease 23,400 square feet of space at the
same facility. The New Lease term commenced on June 1, 1997 and will expire on
May 31, 2000. At the time of expiration, the Company will have an option to
renew the New Lease for two additional years commencing on June 1, 2000 and
terminating on May 31, 2002. Rent for the year beginning June 1, 1997 was 59
cents per square foot per month plus common area expenses, real property taxes,
utilities, insurance premiums, and maintenance. Pursuant to the Lease and the
New Lease, the Company paid the Partnership rent of $63,430 during Fiscal 1996
and $129,369 during Fiscal 1997.
On September 14, 1994, the Thomas Yuen Family Trust entered into a First
Amendment to Security Agreement with Hughes Aircraft and certain other parties
whereby the Thomas Yuen Family Trust guaranteed certain deferred payments,
certain guaranteed chip sales gross profits and royalties on certain product
sales owed by the Company to Hughes Aircraft in connection with the purchase of
the SRS technology and other technologies. The guarantee by the Thomas Yuen
Family Trust, in the form of a pledge
16
19
of stock (other than Common Stock), replaced a similar guarantee by Cruttenden &
Company and Walter W. Cruttenden III.
On January 9, 1995, the Company entered into a stock purchase agreement
whereby Packard Bell Electronics, Inc. ("Packard Bell") purchased 572,061 shares
of Common Stock of the Company and was granted an option to purchase 382,104
shares of Common Stock of the Company. Packard Bell currently is a principal
stockholder of the Company. In connection with the stock purchase by Packard
Bell, the Company entered into a license agreement (the "Packard Bell License")
with Packard Bell, whereby the Company licensed the SRS technology to Packard
Bell for use in its multimedia computers. No royalties were payable under the
Packard Bell License in 1995, and a fixed quarterly royalty payment of $375,000
was due in advance under the Packard Bell License for each quarter beginning
January 1, 1996 that Packard Bell desired to use the licensed rights. In the
fourth quarter of Fiscal 1997, Packard Bell merged with NEC, another significant
licensee of the Company, and Packard Bell/NEC paid the Company an additional
$1,000,000 in royalties in consideration for the Company's agreement that
Packard Bell/NEC would not be obligated to make further quarterly royalty
payments under the Packard Bell License. During Fiscal 1996 and Fiscal 1997,
Packard Bell paid the Company royalties of $1,500,000 and $2,500,000,
respectively. Mr. Scheinrock, an incumbent director, served as an executive
officer of Packard Bell from 1989 to June 1996.
Thomas C.K. Yuen and Misako Yuen, as co-trustees of the Thomas Yuen Family
Trust, Stephen V. Sedmak and Walter W. Cruttenden III have entered into an
agreement with the Company which grants the Company the right to require such
persons to divest stock on a pro rata basis to an aggregate level to ensure that
more than 50% in value of Common Stock is owned by more than five individuals at
any time the Board of Directors deems such action to be in the best interests of
the Company to avoid personal holding company status. Failure to divest such
shares within 15 days of being notified to do so by the Company will give the
Company an assignable option to purchase such shares at the then prevailing
market prices.
On February 24, 1998, the Company entered into two separate, but related,
stock purchase agreements pursuant to which the Company acquired all of the
outstanding capital stock of Valence Technology Inc. ("Valence"). The aggregate
purchase price paid by the Company for the Valence stock was $19,500,00, payable
$7,394,222 in cash and the remainder in 1,680,611 shares of Common Stock.
Pursuant to such transaction, two of Valence's stockholders, Thomrose Holdings
(BVI) Limited ("Thomrose") and Rayfa (BVI) Limited ("Rayfa"), received $567,795
and $538,047, respectively, and 709,429 and 672,260 shares of Common Stock,
respectively. Accordingly, Thomrose and Rayfa became principal stockholders of
the Company. In addition, the sole shareholder of Thomrose, Thomas W.T. Wan,
retained his position as an executive officer of Valence and became an executive
officer and a director of the Company, and the sole shareholder of Rayfa,
Raymond Choi, retained his position as an executive officer of one of Valence's
operating subsidiaries.
In connection with the acquisition of Valence, the Company issued to
Thomrose and Rayfa an additional 68,750 and 37,500 shares of Common Stock,
respectively, in consideration for such companies and their sole shareholders
(Messrs. Wan and Choi) entering into non-competition agreements with the Company
and Valence. In addition, Mr. Wan entered into an employment agreement with the
Company and Valence and Mr. Choi entered into an employment agreement with the
Company and Valence Semiconductor Design Limited ("VSD"), a subsidiary of
Valence, each effective March 3, 1998. Such employment agreements provide for
initial base salaries of H.K. $1,859,000 per year for Mr. Wan and H.K.
$1,430,000 per year for Mr. Choi. Such base salaries may be adjusted by the
Board of Directors, but may not be reduced below the initial base salaries
provided therein. The employment agreements may be terminated by the Company for
cause, which is defined as (i) the failure to follow the reasonable instructions
of the Board of Directors of Valence or VSD, as applicable, or the Company; (ii)
the material breach of any term of the employment agreement and failure to cure
such breach within ten (10) days after written notice thereof to Valence or VSD,
as applicable, or the Company; or (iii) the misappropriation of assets of the
Company or any subsidiary by the employee resulting in a material loss to such
entity. The employment agreements may be terminated by the employee upon sixty
(60) days prior written notice. The initial term of each employment agreement is
through December 31, 2000. Each employment agreement automatically renews for
additional one (1) year periods unless prior notice of termination is given by
either the Company or the employee. In the event that
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the Company either terminates the employment agreement at the end of the current
term, or terminates the employment agreement during the current term without
cause, the employee is entitled to receive his salary and benefits for the
remainder of the current term of the employment agreement plus an additional
period of twelve months. During such period, the employee is obligated to
provide advisory services to the Company. Each employment agreement also
generally provides the employee with compensation for the remainder of the
current term plus an additional 12 months and certain other benefits and for the
acceleration of the date of vesting for outstanding stock options if the
employee is terminated or terminates his employment for certain enumerated
reasons within 90 days before or one year after a change in control in the
Company, as defined in each employment agreement.
In the opinion of management, the terms of the above-described agreements
are fair and reasonable and as favorable to the Company as those which could
have been obtained from unrelated third parties at the time of their execution.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten-percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during Fiscal 1997, and except as disclosed in the
following paragraph, the Company's officers, directors and greater than ten
percent beneficial owners complied with all Section 16(a) filing requirements.
The following persons made late filings of reports that were required to be
filed during Fiscal 1997 under Section 16(a) of the Exchange Act: (i) Janet M.
Biski, an executive officer of the Company, filed one late Form 4 in connection
with her gift of Common Stock to her parents in September 1997; (ii) Stephen V.
Sedmak, an executive officer and director of the Company, filed one late Form 4
in connection with his gift of Common Stock to his wife, as custodian for his
two children, in December 1997; and (iii) Thomas C.K. Yuen, an executive
officer, director and principal stockholder of the Company, and Misako Yuen and
the Thomas Yuen Family Trust, both principal stockholders of the Company, each
filed one late Form 4 in connection with the Trust's gift of Common Stock to
Atsuko Hamasaki, as custodian for Mr. and Mrs. Yuen's two daughters, in December
1997.
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APPROVAL OF THE AMENDMENTS TO
THE AMENDED AND RESTATED 1996 LONG-TERM INCENTIVE PLAN
(PROPOSALS 2 AND 3)
BACKGROUND
The Board of Directors has adopted, and the stockholders have approved, the
SRS Labs, Inc. Amended and Restated 1996 Long-Term Incentive Plan (the
"Incentive Plan"), a discretionary incentive plan which affords the Compensation
Committee of the Company's Board of Directors the ability to design compensatory
awards to attract and retain officers (including directors who also are officers
of the Company), other key employees and consultants of the Company and its
subsidiaries. The Compensation Committee and the Board of Directors have
adopted, subject to stockholder approval, (i) an amendment to the Incentive Plan
to increase the number of shares of Common Stock that may be issued or
transferred pursuant to awards granted thereunder by 2,500,000 (the "Share
Amendment"), and (ii) an amendment to the Incentive Plan to allow all directors
of the Company and any Subsidiary (as defined in the Incentive Plan) of the
Company to participate in the Incentive Plan (the "Non-Employee Director
Amendment"). The Share Amendment (Proposal 2) and the Non-Employee Director
Amendment (Proposal 3) are presented as separate proposals (i.e., the approval
of one proposal is not dependent upon the approval of the other proposal). The
Incentive Plan, as amended by the Share Amendment and the Non-Employee Director
Amendment (the "Amended Incentive Plan"), is set forth in full as Appendix "A"
to this Proxy Statement and is summarized under the caption "Summary of the
Amended Incentive Plan," below.
The Company has registered with the U.S. Securities and Exchange Commission
(the "Commission") on Form S-8 Registration Statements the 2,000,000 shares of
Common Stock currently issuable under the Incentive Plan. If the Share Amendment
is approved by the stockholders, the Board intends to cause the additional
shares of Common Stock that will become available for issuance under the Amended
Incentive Plan to be registered on a Form S-8 Registration Statement to be filed
with the Commission at the Company's expense.
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1968, as amended. Subject to certain exceptions,
Section 162(m) generally limits the corporate income tax deductions to
$1,000,000 annually for compensation paid to each of the Chief Executive Officer
and the other four highest paid executive officers of the Company. Currently,
the performance-based compensation paid by the Company pursuant to the Incentive
Plan is excluded from this $1,000,000 limitation. If the Share Amendment and/or
the Non-Employee Director Amendment is approved by the stockholders, such
approval will constitute approval of the Share Amendment and/or the Non-Employee
Director Amendment, respectively, to the Incentive Plan under Section 162(m) and
allow the Company to rely upon the exception under Section 162(m) for
performance-based compensation awarded under the Amended Incentive Plan.
PROPOSAL 2 -- THE SHARE AMENDMENT
Currently, the number of shares of Common Stock which may be issued or
transferred (i) upon the exercise of Option Rights or Appreciation Rights, (ii)
as Restricted Shares and released from all substantial risks of forfeiture,
(iii) as Deferred Shares, (iv) in payment of Performance Shares or Performance
Units that have been earned, or (v) in payment of dividend equivalents paid with
respect to awards made under the Incentive Plan, shall not exceed 2,000,000
(subject to adjustment as provided in the Incentive Plan). As of the Record
Date, Option Rights to purchase 1,193,054 shares of Common Stock have been
awarded (of which Option Rights to purchase 5,949 shares have been exercised and
Option Rights to purchase 1,187,105 shares remain outstanding), leaving only
806,946 shares of Common Stock remaining to be issued or transferred pursuant to
awards made under the Incentive Plan.
In addition to the Incentive Plan, the Company maintains the SRS Labs, Inc.
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase
Plan -- 1993, a discretionary plan authorizing the grant of awards to officers,
directors, key employees and consultants (the "1993 Plan"), Stock Option
Agreements dated January 19, 1994 between the Company and Stephen V. Sedmak and
James S. Lucas
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(collectively, the "Individual Plans") and the SRS Labs, Inc. 1996 Nonemployee
Directors Stock Option Plan, a non-discretionary, formula stock option plan in
which only non-employee directors are eligible to participate (the "Non-Employee
Directors Plan"). Under the 1993 Plan, 1,448,256 shares of common stock have
been authorized for issuance and options to purchase 801,971 shares of Common
Stock have been granted (of which options to purchase 131,646 shares of Common
Stock have been exercised and options to purchase 499,043 shares of Common Stock
remain outstanding and reserved for issuance). At this time, the Board has
determined not to grant further awards under the 1993 Plan which exceed the
499,043 shares of Common Stock currently outstanding. Under the Individual
Plans, options to purchase 362,064 shares of Common Stock have been granted (of
which 69,000 shares of Common Stock have been exercised and 293,064 shares of
Common Stock remain outstanding). No other shares are authorized for issuance
under the Individual Plans. The Incentive Plan, the 1993 Plan and the Individual
Plans are collectively referred to as the "Discretionary Plans". Accordingly, as
of the Record Date, approximately 806,946 shares of Common Stock remained
available for grant under the Discretionary Plans.
The Board of Directors continues to believe that such a compensatory award
program is an important factor in attracting, retaining and motivating officers,
other key employees, directors and consultants of the Company and its
subsidiaries. In light of the Company's acquisition of Valence, which has
approximately 130 employees (including employees of its subsidiaries), the
Compensation Committee and the Board of Directors have recognized the need for
an additional number of shares of Common Stock which may be issued or
transferred in connection with awards made under the Incentive Plan, the only
current Discretionary Plan under which new awards are being made.
In view of the foregoing, the Compensation Committee and the Board of
Directors believe that it is appropriate to increase the number of shares of
Common Stock which may be issued or transferred pursuant to the Incentive Plan
in the form of an amendment to the Incentive Plan to be presented to the
stockholders. Accordingly, the Compensation Committee and the Board of Directors
have adopted, subject to stockholder approval, the Share Amendment to the
Incentive Plan, which amends Section 3(a) of the Incentive Plan to increase the
number of shares of Common Stock that may be issued or transferred pursuant to
awards granted under the Incentive Plan by 2,500,000 shares from 2,000,000 to
4,500,000 shares of Common Stock. If the Share Amendment is not approved by the
stockholders at the Annual Meeting, the Incentive Plan will remain in effect;
however, as stated above, only 806,946 shares of Common Stock remain available
for grant as of the Record Date. If the Share Amendment is approved by the
stockholders at the Annual Meeting, the stockholders may be significantly
diluted upon the exercise of outstanding awards and future awards granted under
the Incentive Plan. If approved, up to 4,494,051 shares of Common Stock will be
available for issuance or transfer pursuant to outstanding awards and future
awards under the Incentive Plan. In addition, up to 792,107 shares of Common
Stock will be available for issuance or transfer pursuant to outstanding awards
under the 1993 Plan and the Individual Plans and up to 120,000 shares of Common
Stock will be available for issuance or transfer pursuant to outstanding awards
and future awards under the Non-Employee Directors Plan. As of the Record Date,
11,505,754 shares of Common Stock were issued and outstanding.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE SHARE AMENDMENT TO THE INCENTIVE PLAN. THE AFFIRMATIVE VOTE
OF THE HOLDERS OF A MAJORITY OF THE SHARES OF COMMON STOCK PRESENT IN PERSON OR
BY PROXY AT THE ANNUAL MEETING AND ENTITLED TO VOTE ON THE PROPOSAL IS REQUIRED
FOR APPROVAL OF THIS PROPOSAL.
PROPOSAL 3 -- THE NON-EMPLOYEE DIRECTOR AMENDMENT
Currently, the Incentive Plan allows grants of awards only to officers
(including directors who also are officers of the Company), other key employees
and consultants of the Company and its Subsidiaries. Accordingly, non-employee
directors of the Company and its Subsidiaries are not entitled to receive awards
under the Incentive Plan. The only compensatory award program that allows
participation by non-employee directors is the Non-Employee Directors Plan, a
non-discretionary, formula stock option plan pursuant to which 120,000 shares of
Common Stock have been authorized for issuance. The Non-Employee Directors Plan
provides for automatic grants to each non-employee director of options to
purchase 10,000 shares of Common Stock on the date such non-employee director
first becomes a member of the Board and options to
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purchase 15,000 shares of Common Stock on the date of each annual meeting of
stockholders at which such non-employee director is re-elected to the Board. As
of the Record Date, options to purchase 45,000 shares of Common Stock had been
granted, are outstanding and reserved for issuance under the Non-Employee
Directors Plan. See "Information About the Board of Directors and Committees of
the Board -- Compensation of Directors," herein for a more detailed description
of the Non-Employee Directors Plan.
The Board of Directors continues to believe that a non-discretionary
compensatory award program, such as the Non-Employee Directors Plan, is an
important factor in attracting, retaining and motivating non-employee directors.
However, the Compensation Committee and the Board of Directors have recognized a
need for non-employee directors to be eligible to receive discretionary
compensatory awards to motivate and compensate non-employee directors who
provide additional or extraordinary services to the Company. In light of the
foregoing, the Compensation Committee and the Board of Directors believe that it
is appropriate to allow non-employee directors to participate in the Incentive
Plan through an amendment to the Incentive Plan to be presented to the
stockholders. Accordingly, the Compensation Committee and the Board of Directors
have adopted, subject to stockholder approval, the Non-Employee Director
Amendment to the Incentive Plan, which amends the definition of "Participant" in
Section 2 of the Incentive Plan to allow all directors of the Company and its
Subsidiaries to participate in the Incentive Plan and also amends Section 16(a)
of the Incentive Plan to provide that in the case of a grant of options to a
non-employee director, the Board of Directors, as opposed to the Committee,
shall administer the Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE NON-EMPLOYEE DIRECTOR AMENDMENT TO THE INCENTIVE PLAN. THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF COMMON STOCK
PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE ANNUAL MEETING AND ENTITLED TO
VOTE ON THE PROPOSAL IS REQUIRED FOR APPROVAL OF THIS PROPOSAL.
SUMMARY OF THE AMENDED INCENTIVE PLAN
The Amended Incentive Plan is set forth in full as Appendix "A" to this
Proxy Statement and is summarized below. The following summary is not intended
to be complete and reference should be made to Appendix "A" for a complete
statement of the terms and provisions of the Amended Incentive Plan. Capitalized
terms used in this Summary and not otherwise defined shall have the meanings
ascribed to such terms in the Amended Incentive Plan.
Plan Limits
The maximum number of shares of Common Stock that may be issued or
transferred (i) upon the exercise of Option Rights or Appreciation Rights, (ii)
as Restricted Shares and released from substantial risk of forfeiture, (iii) as
Deferred Shares, (iv) in payment of Performance Shares or Performance Units that
have been earned, or (vi) in payment of dividend equivalents paid with respect
to awards made under the Amended Incentive Plan, may not in the aggregate exceed
4,500,000 shares of Common Stock, which may be shares of original issuance or
treasury shares or a combination thereof. These limits are subject to
adjustments as provided in the Amended Incentive Plan for stock splits, stock
dividends, recapitalizations and other similar events.
Upon the payment of any option price by the transfer to the Company of
Common Stock or upon related satisfaction of tax withholding obligations or any
other payment made or benefit realized under the Amended Incentive Plan by the
transfer or relinquishment of Common Stock, there shall be deemed to have been
issued or transferred only the net number of shares actually issued or
transferred by the Company. Upon the payment in cash of a benefit provided by
any award under the Amended Incentive Plan, any shares of Common Stock that were
covered by such award shall again be available for issuance or transfer under
the Amended Incentive Plan. If any award terminates, expires or is cancelled
with respect to any shares of Common Stock, new awards may thereafter be granted
covering such Common Stock.
No participant may be granted Option Rights for more than 750,000 shares of
Common Stock during any three consecutive calendar years, subject to adjustment
pursuant to the Amended Incentive Plan. No
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participant may receive in any one calendar year awards of Performance Shares
and Performance Units having an aggregate value as of their respective dates of
grant in excess of $750,000.
As of the Record Date, the fair market value of a share of Common Stock was
$8.25 per share.
Option Rights
Option Rights provide the right to purchase shares of Common Stock at a
price not less than its fair market value on the date of the grant with respect
to Incentive Options and not less than eighty-five percent (85%) of its fair
market value with respect to other options. The option price is payable in cash,
nonforfeitable, unrestricted shares of Common Stock already owned by the
optionee, any other legal consideration that the Committee deems appropriate,
including, without limitation, promissory notes, or any combination of these
methods. Any grant of Option Rights may provide for the deferred payment of the
option price on the sale of some or all of the shares obtained from the
exercise. Any grant may provide for the automatic grant of additional Option
Rights to an optionee upon the exercise of Option Rights using Common Stock as
payment.
Option Rights granted under the Amended Incentive Plan may be Option Rights
that are intended to qualify as incentive stock options ("ISO's") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") or Option Rights that are not intended to so qualify or combinations
thereof. Except in the case of grants of ISO's, the Committee may provide for
the payment to the optionee of dividend equivalents in the form of cash or
Common Stock paid on a current, deferred or contingent basis or may provide that
the equivalents be credited against the option price.
No Option Rights may be exercised more than ten years from the date of
grant. Each grant must specify the period of continuous employment that is
necessary before the Option Rights become exercisable and may provide for the
earlier exercisability of the Option Rights in the event of retirement, death or
disability of the participant or a change in control of the Company. Any grant
of Option Rights may specify Management Objectives (as described below) that
must be achieved as a condition to exercise such rights.
Appreciation Rights
Appreciation Rights represent the right to receive from the Company an
amount, determined by the Committee and expressed as a percentage not exceeding
100 percent, of the difference between the base price established for such
Rights and the market value of the Common Stock on the date the rights are
exercised. Appreciation Rights can be tandem (granted with Option Rights to
provide an alternative to exercise of the Option Rights) or free-standing.
Tandem Appreciation Rights may only be exercised at a time when the related
Option Right is exercisable and the spread is positive, and requires that the
related Option Right be surrendered for cancellation. Free-standing Appreciation
Rights must have a base price per Right that is not less than the fair market
value of the Common Stock on the date of grant, must specify the period of
continuous employment that is necessary before such Appreciation Rights become
exercisable (except that they may provide for the earlier exercise of the
Appreciation Rights in the event of retirement, death or disability of the
participant or a change in control of the Company) and may not be exercisable
more than ten years from the date of grant. Any grant of Appreciation Rights may
specify that the amount payable by the Company on exercise of an Appreciation
Right may be paid in cash, in Common Stock or in any combination thereof, and
may either grant to the recipient or retain in the Committee the right to elect
among those alternatives. Any grant of Appreciation Rights may provide with
respect to any grant of Appreciation Rights for the payment of dividend
equivalents in the form of cash or Common Stock paid on a current, deferred or
contingent basis. Any grant of Appreciation Rights may specify Management
Objectives that must be achieved as a condition to exercise such rights.
Restricted Shares
Restricted Shares constitute an immediate transfer of ownership to the
recipient in consideration of the performance of services. The participant has
dividend and voting rights on such shares. Restricted Shares must be subject to
a "substantial risk of forfeiture" of the shares, within the meaning of Section
83 of the Code for a period to be determined by the Committee on the date of the
grant. In order to enforce these forfeiture
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provisions, the transferability of Restricted Shares will be prohibited or
restricted in the manner prescribed by the Committee on the date of grant for
the period during which such forfeiture provisions are to continue. The
Committee may provide for the earlier termination of the forfeiture provisions
in the event of retirement, death or disability of the participant or a change
in control of the Company.
Any grant of Restricted Shares may specify Management Objectives which, if
achieved, will result in termination or early termination of the restrictions
applicable to such shares. Any such grant must also specify in respect of such
specified Management Objectives, a minimum acceptable level of achievement and
must set forth a formula for determining the number of Restricted Shares on
which restrictions will terminate if performance is at or above the minimum
level, but below full achievement of the specified Management Objectives.
Deferred Shares
Deferred Shares constitute an agreement to issue shares to the recipient in
the future in consideration of the performance of services, but subject to the
fulfillment of such conditions as the Committee may specify. The participant has
no right to transfer any rights under his or her award and no right to vote the
Deferred Shares. The Committee may authorize the payment of dividend equivalents
on the Deferred Shares, in cash or Common Stock, on a current, deferred or
contingent basis. The Committee must fix a deferral period at the time of grant,
and may provide for the earlier termination of the deferral period in the event
of retirement, death or disability of the participant or a change in control of
the Company.
Performance Shares and Performance Units
A Performance Share is the equivalent of one share of Common Stock and a
Performance Unit is the equivalent of $100.00. The participant will be given one
or more Management Objectives to meet within a specified period (the
"Performance Period"). The specified Performance Period may be subject to
earlier termination in the event of retirement, death or disability of the
participant or a change in control of the Company. A minimum level of acceptable
achievement will also be established by the Committee. If by the end of the
Performance Period, the participant has achieved the specified Management
Objectives, the participant will be deemed to have fully earned the Performance
Shares or Performance Units. If the participant has not achieved the Management
Objectives, but has attained or exceeded the predetermined minimum level of
acceptable achievement, the participant will be deemed to have partly earned the
Performance Shares or Performance Units in accordance with a predetermined
formula. To the extent earned, the Performance Shares or Performance Units will
be paid to the participant at the time and in the manner determined by the
Committee in cash, Common Stock or any combination thereof. The grant may
provide for the payment of dividend equivalents thereon in cash or in Common
Stock on a current, deferred or contingent basis.
Management Objectives
The Amended Incentive Plan requires that the Committee establish
"Management Objectives" for purposes of Performance Shares and Performance
Units. When so determined by the Committee, Option Rights, Appreciation Rights,
Restricted Shares and dividend equivalents may also specify Management
Objectives. Management Objectives may be described in terms of either
Company-wide objectives or objectives that are related to the performance of the
individual participant or subsidiary, division, department or function within
the Company or a subsidiary in which the participant is employed. Management
Objectives applicable to any award to a participant who is, or is determined by
the Committee likely to become, a "covered employee" within the meaning of
Section 162(m)(3) of the Code shall be limited to specified levels of or growth
in (i) return on invested capital, (ii) earnings per share, (iii) return on
assets, (iv) return on equity, (v) stockholder return, (vi) sales growth, (vii)
productivity improvement, and/or (viii) net income. Except in the case of such a
covered employee, if the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Company, or the
manner in which it conducts its business, or other events or circumstances
render the Management Objectives unsuitable, the Committee may modify such
Management Objectives, in whole or in part, as the Committee deems appropriate
and equitable.
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Administration
The Compensation Committee of the Board of Directors will administer and
interpret the Amended Incentive Plan. The Committee is composed of not less than
two directors, each of whom must be a "non-employee director" within the meaning
of Rule 16b-3 and an "outside director" within the meaning of Section 162(m) of
the Code. In the absence of a Committee or in the event of grants to
non-employee directors, the Board of Directors will administer and interpret the
Amended Incentive Plan.
Eligibility
Officers, key employees, directors and consultants of the Company and its
Subsidiaries, as determined by the Committee, may be selected to receive
benefits under the Amended Incentive Plan. As of the Record Date, approximately
4 officers, 17 key employees, 3 non-employee directors and 3 consultants of the
Company were eligible to participate in the Amended Incentive Plan. In light of
the recent acquisition of Valence, with the exception of 3 officers of Valence,
the Committee has not yet determined the number of officers and key employees of
Valence who are eligible to participate in the Incentive Plan.
Transferability
Option Rights and other derivative securities awarded under the Amended
Incentive Plan will not be transferable by a participant other than by will or
the laws of descent and distribution or, other than an ISO, a qualified domestic
relations order. Any award made under the Amended Incentive Plan may provide
that any Common Stock issued or transferred as a result of the award will be
subject to further restrictions upon transfer.
Adjustments
The Committee may make or provide for adjustment in the number of shares
covered by outstanding Option Rights, Appreciation Rights, Deferred Shares and
Performance Shares, the prices per share applicable thereto and the kind of
shares (including shares of another issuer), as the Committee in its sole
discretion may in good faith determine to be equitably required in order to
prevent dilution or enlargement of the rights of participants that would
otherwise result from (i) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, (ii) any merger, consolidation, spin-off, spin-out, split-off,
split-up, reorganization, partial or complete liquidation or other distribution
of assets, issuance of rights or warrants to purchase securities, or (iii) any
other corporate transaction or event having an effect similar to any of the
foregoing. In the event of any such transaction or event, the Committee may
provide in substitution for any or all of the outstanding awards under the
Amended Incentive Plan such alternative consideration as it may in good faith
determine to be equitable in the circumstances and may require in connection
therewith the surrender of all awards so replaced. Moreover, the Committee may
on or after the Date of Grant provide in the agreement evidencing any award
under the Amended Incentive Plan that the holder of the award may elect to
receive an equivalent award in respect of securities of the surviving entity of
any merger, consolidation or other transaction or event having a similar effect,
or the Committee may provide that the holder will automatically be entitled to
receive such an equivalent award. In any case, such substitution of securities
shall not require the consent of any person who is granted awards pursuant to
the Amended Incentive Plan.
Amendments and Miscellaneous
The Amended Incentive Plan may be amended by the Committee or the Company's
Board of Directors, but except as expressly authorized by the Amended Incentive
Plan, no such amendment shall increase the maximum number of shares specified in
Section 3(a) of the Amended Incentive Plan (except as expressly authorized by
the Amended Incentive Plan), increase the number of Performance Units specified
in Section 3(e) of the Amended Incentive Plan or cause Rule 16b-3 to become
inapplicable to the Amended Incentive Plan without the further approval of the
stockholders of the Company, unless permitted by
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Rule 16b-3. However, the Committee or the Board may amend the Amended Incentive
Plan to eliminate provisions which are no longer necessary as a result of
changes in tax or securities laws and regulations, or in the interpretation of
such laws and regulations.
Where the Committee has established conditions to the exercisability or
retention of certain awards, the Amended Incentive Plan allows the Committee to
take action in its sole discretion subsequently to equitably adjust such
conditions in certain circumstances, including in the case of death, disability
or retirement.
With the concurrence of the affected Optionee, the Committee may cancel any
agreement evidencing Option Rights or any other award granted under the Amended
Incentive Plan. In the event of such cancellation, the Committee may authorize
the granting of new Option Rights or other awards, which may or may not cover
the same number of shares of Common Stock that had been the subject of the prior
award, at such Option Price and subject to such other terms, conditions and
discretions as would have been applicable under the Amended Incentive Plan had
the cancelled Option Rights or other awards not been granted.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the Federal income tax
consequences of certain transactions under the Amended Incentive Plan. This
summary is not intended to be complete and does not describe state or local tax
consequences.
Tax Consequences to Participants
Nonqualified Stock Options. In general, (i) no income will be recognized by
an optionee at the time a nonqualified Option Right is granted; (ii) at the time
of exercise of a nonqualified Option Right ordinary income will be recognized by
the optionee in an amount equal to the difference between the option price paid
for the shares and the fair market value of the shares, if unrestricted, on the
date of exercise; and (iii) at the time of sale of shares acquired pursuant to
the exercise of a nonqualified Option Right appreciation (or depreciation) in
value of the shares after the date of exercise will be treated as either
short-term or long-term capital gain (or loss) depending on how long the shares
have been held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an ISO. If shares of Common Stock are
issued to the optionee pursuant to the exercise of an ISO, and if the optionee
satisfies certain employment and holding period requirements, then upon sale of
such shares, any amount realized in excess of the option price will be taxed to
the optionee as a long-term capital gain and any loss sustained will be a
long-term capital loss. To satisfy the employment requirement, the optionee must
exercise the ISO not later than three months after he or she ceases to be an
employee of the Company (or one year if he or she is disabled). To satisfy the
holding period requirement, the optionee must not dispose of the shares issued
pursuant to the exercise of the ISO within two years after the date of grant of
the ISO and within one year after the transfer of such shares to the optionee.
If shares of Common Stock acquired upon the timely exercise of an ISO are
disposed of prior to the expiration of either holding period described above,
the optionee generally will recognize ordinary income in the year of disposition
in an amount equal to the excess (if any) of the fair market value of such
shares at the time of exercise (or, if less, the amount realized on the
disposition of such shares if a sale or exchange) over the option price paid for
such shares. Any further gain (or loss) realized by the participant generally
will be taxed as short-term or long-term capital gain (or loss) depending on the
holding period.
Appreciation Rights. No income will be recognized by a participant in
connection with the grant of a Tandem Appreciation Right or a Free-standing
Appreciation Right. When the Appreciation Right is exercised, the participant
normally will be required to include as taxable ordinary income in the year of
exercise an amount equal to the amount of cash received and the fair market
value of any unrestricted shares of Common Stock received on the exercise.
Restricted Shares. The recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares (reduced by any amount paid by the participant for such
Restricted Shares) at such time as the shares are no longer subject to
forfeiture or restrictions on transfer
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for purposes of Section 83 of the Code ("Restrictions"). However, a recipient
who so elects under Section 83(b) of the Code within 30 days of the date of
transfer of the shares will have taxable ordinary income on the date of transfer
of the shares equal to the excess of the fair market value of such shares
(determined without regard to the Restrictions) over the purchase price, if any,
of such Restricted Shares. If a Section 83(b) election has not been made, any
dividends received with respect to Restricted Shares that are subject to the
Restrictions generally will be treated as compensation that is taxable as
ordinary income to the participant.
Deferred Shares. No income generally will be recognized upon the award of
Deferred Shares. The recipient of a Deferred Share award generally will be
subject to tax at ordinary income rates on the fair market value of unrestricted
shares of Common Stock on the date that such shares are transferred to the
participant under the award (reduced by any amount paid by the participant for
such Deferred Shares), and the capital gains/loss holding period for such shares
also will commence on such date.
Performance Shares and Performance Units. No income generally will be
recognized upon the grant of Performance Shares or Performance Units. Upon
payment in respect of the earn-out of Performance Shares or Performance Units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any nonrestricted shares of Common Stock received.
Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock received as a result of a grant or award
could subject an officer or Director to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the tax
consequences to the officer or Director may differ from the tax consequences
described above. In these circumstances, unless a special election under Section
83(b) of the Code has been made, the principal difference (in cases where the
officer or Director would otherwise be currently taxed upon his receipt of the
stock) usually will be to postpone valuation and taxation of the stock received
so long as the sale of the stock received could subject the officer or Director
to suit under Section 16(b) of the Exchange Act, but no longer than six months.
Tax Consequences to the Company or Subsidiary
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or Subsidiary for which the
participant performs services will be entitled to a corresponding deduction
provided that, among other things, the income meets the test of reasonableness,
is an ordinary and necessary business expense, is not an "excess parachute
payment" within the meaning of Section 280G of the Code and is not disallowed by
the $1 million limitation on certain executive compensation.
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NEW PLAN BENEFITS
The benefits or amounts to be awarded in the future under the Amended
Incentive Plan are not determinable at this time and it is not possible to
determine the benefits or amounts which would have been received or allocated to
eligible participants under the Amended Incentive Plan, other than those
actually received under the Incentive Plan during Fiscal 1997 and during the
current fiscal year ending December 31, 1998. The table below indicates the
Option Rights granted under the Incentive Plan in Fiscal 1997 and in Fiscal 1998
through the Record Date utilizing shares of Common Stock already reserved for
issuance or transfer under the Incentive Plan.
POTENTIAL REALIZABLE POTENTIAL
VALUE AT ASSUMED REALIZABLE VALUE AT
ANNUAL RATES OF OPTION ASSUMED ANNUAL
OPTION STOCK PRICE RIGHTS RATES OF STOCK
RIGHTS APPRECIATION FOR GRANTED PRICE APPRECIATION
GRANTED OPTION TERM(2) IN FOR OPTION TERM(2)
IN FISCAL EXERCISE ------------------------ FISCAL EXERCISE ----------------------
NAME AND POSITION 1997 PRICE(1) 5% 10% 1998 PRICE(1) 5% 10%
----------------- ---------- --------- ---------- ---------- ------- --------- -------- ----------
Thomas C.K. Yuen............... 167,762 $5.23 $ 551,937 $1,399,135 50,000 $6.625 $208,500 $ 528,500
Chairman of the Board and
Chief Executive Officer
Stephen V. Sedmark............. 192,315 5.20 628,870 1,594,291 50,000 6.625 208,500 528,500
President and Chief Operating
Officer
Robert A. Veri................. 65,000 7.625 312,000 790,400 -- -- -- --
General manager
Janet M. Biski................. 92,588 5.43 315,725 800,886 50,000 6.625 208,500 528,500
Vice President, Chief
Financial Officer,
Treasurer and Secretary
James S. Lucas................. 102,996 5.16 334,737 846,627 -- -- -- --
Vice President, Sales
All current Executive Officers
as a Group (4 persons)....... 452,665 5.26 1,489,321 3,793,333 150,000 6.625 625,500 1,585,500
All current Directors who are
not Executive Officers as a
Group (3 persons)............ -- -- -- -- -- -- -- --
All Employees, including all
current Officers who are not
Executive Officers, as a
Group (13 persons)........... 845,910 5.89 3,129,867 7,943,095 70,000 6.696 294,700 747,600
- ---------------
(1) The price shown is the weighted average exercise price for all grants during
such period.
(2) In accordance with the rules of the U.S. Securities and Exchange Commission,
shown are the hypothetical gains or "option spreads" that would exist for
the respective options. These gains are based on assumed rates of annual
compounded stock price appreciation of 5% and 10% from the date the option
was granted over the full term. The full term for each of the respective
options is ten years from the date of grant. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the Commission and do not
represent the Company's estimate or projection of future increases in the
price of its Common Stock.
RELATIONSHIP OF THE COMPANY WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors selected the firm of Deloitte & Touche LLP
("Deloitte & Touche"), independent certified public accountants, as auditors for
Fiscal 1997 and have selected such firm to act as auditors for the fiscal year
ending December 31, 1998. During Fiscal 1997, Deloitte & Touche also was engaged
by the Company to provide certain consulting services. Representatives of the
firm are expected to be present at the Annual Meeting and will have the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
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STOCKHOLDER PROPOSALS
Stockholders of the Company who intend to submit proposals to the Company's
stockholders at the annual meeting of stockholders to be held in 1999 must
submit such proposals to the Company no later than December 31, 1998, in order
for them to be included in the Company's proxy materials for such meeting.
Stockholder proposals should be directed to the attention of the Secretary of
the Company at the address of the Company set forth on the first page of this
Proxy Statement.
ANNUAL REPORT
A COPY OF THE ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR (THE "FORM
10-KSB"), INCLUDING THE FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT
SCHEDULES REQUIRED TO BE FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 13A-1 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, MAY
BE OBTAINED BY EACH STOCKHOLDER OF RECORD (AND EACH BENEFICIAL HOLDER) ON THE
RECORD DATE, WITHOUT CHARGE. COPIES OF EXHIBITS TO THE FORM 10-KSB ARE
AVAILABLE, BUT A REASONABLE FEE WILL BE CHARGED TO A STOCKHOLDER REQUESTING
EXHIBITS. ALL SUCH REQUESTS SHOULD BE MADE IN WRITING TO THE COMPANY AT THE
ADDRESS OF THE COMPANY SET FORTH ON THE FIRST PAGE OF THIS PROXY STATEMENT,
ATTENTION: MS. JANET M. BISKI, VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
TREASURER AND SECRETARY.
By Order of the Board of Directors,
/s/ Janet M. Biski
Janet M. Biski
Secretary
Santa Ana, California
April 30, 1998
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APPENDIX A
SRS LABS, INC.
AMENDED AND RESTATED
1996 LONG-TERM INCENTIVE PLAN,
AS AMENDED
1. PURPOSE. The purpose of this Plan is to attract and retain directors,
officers, key employees and consultants for SRS Labs, Inc., a Delaware
corporation (the "Corporation"), and its Subsidiaries and to provide such
persons with incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
"APPRECIATION RIGHT" means a right granted pursuant to Section 5 of this
Plan, including a Free-standing Appreciation Right and a Tandem Appreciation
Right.
"BASE PRICE" means the price to be used as the basis for determining the
Spread upon the exercise of a Free-standing Appreciation Right.
"BOARD" means the Board of Directors of the Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means the committee described in Section 16(a) of this Plan.
"COMMON SHARES" means (i) shares of the common stock of the Corporation,
par value $.001 per share, and (ii) any security into which Common Shares may be
converted by reason of any transaction or event of the type referred to in
Section 10 of this Plan.
"DATE OF GRANT" means the date specified by the Committee on which a grant
of Option Rights or Appreciation Rights or Performance Shares or Performance
Units or a grant or sale of Restricted Shares or Deferred Shares shall become
effective, which shall not be earlier than the date on which the Committee takes
action with respect thereto.
"DEFERRAL PERIOD" means the period of time during which Deferred Shares are
subject to deferral limitations under Section 7 of this Plan.
"DEFERRED SHARES" means an award pursuant to Section 7 of this Plan of the
right to receive Common Shares at the end of a specified Deferral Period.
"FREE-STANDING APPRECIATION RIGHT" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an Option
Right or similar right.
"INCENTIVE STOCK OPTIONS" means Option Rights that are intended to qualify
as "incentive stock options" under Section 422 of the Code or any successor
provision.
"LESS-THAN-80-PERCENT SUBSIDIARY" means a Subsidiary with respect to which
the Corporation directly or indirectly owns or controls less than 80 percent of
the total combined voting or other decision-making power.
"MANAGEMENT OBJECTIVES" means the achievement of a performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Shares or Performance Units or, when so determined by the
Committee, Option Rights, Appreciation Rights, Restricted Shares and dividend
credits. Management Objectives may be described in terms of Corporation-wide
objectives or objectives that are related to the performance of the individual
Participant or of the Subsidiary, division, department or function within the
Corporation or Subsidiary in which the Participant is employed. The Management
Objectives applicable to any award to a Participant who is, or is determined by
the Committee to
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be likely to become, a "covered employee" within the meaning of Section 162(m)
of the Code (or any successor provision) shall be limited to specified levels of
or growth in:
(i) return on invested capital;
(ii) earnings per share;
(iii) return on assets;
(iv) return on equity;
(v) shareholder return;
(vi) sales growth;
(vii) productivity improvement; and/or
(viii) net income.
Except in the case of such a covered employee, if the Committee determines that
a change in the business, operations, corporate structure or capital structure
of the Corporation, or the manner in which it conducts its business, or other
events or circumstances render the Management Objectives unsuitable, the
Committee may modify such Management Objectives or the related minimum
acceptable level of achievement, in whole or in part, as the Committee deems
appropriate and equitable.
"MARKET VALUE PER SHARE" means, at any date, (i) the closing sales price
for the Common Shares on that date, if available, or, if there are no sales on
that date or if a closing sales price is not available, (ii) the average of the
"bid" and "asked" prices of the Common Shares on that date, in each case as
reported by the National Association of Securities Dealers Automated Quotation
System or any national securities exchange on which the Common Shares are then
traded, or, if (i) or (ii) are not available, the fair market value of the
Common Shares as determined by the Committee from time to time.
"OPTIONEE" means the person so designated in an agreement evidencing an
outstanding Option Right.
"OPTION PRICE" means the purchase price payable upon the exercise of an
Option Right.
"OPTION RIGHT" means the right to purchase Common Shares upon exercise of
an option granted pursuant to Section 4 of this Plan.
"PARTICIPANT" means a person who is selected by the Committee to receive
benefits under this Plan and who is at that time an officer, any other key
employee, a director or a consultant of the Corporation or any Subsidiary, or
who has agreed to commence serving in any such capacity.
"PERFORMANCE PERIOD" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating thereto are to be achieved.
"PERFORMANCE SHARE" means a bookkeeping entry that records the equivalent
of one Common Share awarded pursuant to Section 8 of this Plan.
"PERFORMANCE UNIT" means a bookkeeping entry that records a unit equivalent
to $100.00 awarded pursuant to Section 8 of this Plan.
"RELOAD OPTION RIGHTS" means additional Option Rights granted automatically
to an Optionee upon the exercise of Option Rights pursuant to Section 4(f) of
this Plan.
"RESTRICTED SHARES" mean Common Shares granted or sold pursuant to Section
6 of this Plan as to which neither the substantial risk of forfeiture nor the
restrictions on transfer referred to in Section 6 hereof has expired.
"RULE 16B-3" means Rule 16b-3 of the Securities and Exchange Commission (or
any successor rule to the same effect), as in effect from time to time.
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"SPREAD" means, in the case of a Free-standing Appreciation Right, the
amount by which the Market Value per Share on the date when any such right is
exercised exceeds the Base Price specified in such right or, in the case of a
Tandem Appreciation Right, the amount by which the Market Value per Share on the
date when any such right is exercised exceeds the Option Price specified in the
related Option Right.
"SUBSIDIARY" means a corporation, partnership, joint venture,
unincorporated association or other entity in which the Corporation has a direct
or indirect ownership or other equity interest; provided, however, for purposes
of determining whether any person may be a Participant for purposes of any grant
of Incentive Stock Options, "Subsidiary" means any corporation in which the
Corporation owns or controls directly or indirectly more than 50 percent of the
total combined voting power represented by all classes of stock issued by such
corporation at the time of such grant.
"TANDEM APPRECIATION RIGHT" means an Appreciation Right granted pursuant to
Section 5 of this Plan that is granted in tandem with an Option Right or any
similar right granted under any other plan of the Corporation.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as provided
in Section 10 of this Plan, the number of Common Shares issued or transferred
(i) upon the exercise of Option Rights or Appreciation Rights, (ii) as
Restricted Shares and released from all substantial risks of forfeiture, (iii)
as Deferred Shares, (iv) in payment of Performance Shares or Performance Units
that have been earned, or (v) in payment of dividend equivalents paid with
respect to awards made under this Plan, shall not in the aggregate exceed
4,500,000 Common Shares, which may be Common Shares of original issuance or
Common Shares held in treasury or a combination thereof. If any award
terminates, expires or is cancelled with respect to any Common Shares, new
awards may thereafter be granted covering such Common Shares.
(b) Upon the full or partial payment of any Option Price by the transfer to
the Corporation of Common Shares or upon satisfaction of tax withholding
provisions in connection with any such exercise or any other payment made or
benefit realized under this Plan by the transfer or relinquishment of Common
Shares, there shall be deemed to have been issued or transferred under this Plan
only the net number of Common Shares actually issued or transferred by the
Corporation.
(c) Upon payment in cash of the benefit provided by any award granted under
this Plan, any Common Shares that were covered by that award shall again be
available for issuance or transfer hereunder.
(d) Notwithstanding any other provision of this Plan to the contrary, no
Participant shall be granted Option Rights for more than 750,000 Common Shares
during any period of three consecutive calendar years subject to adjustment as
provided in Section 10 of this Plan.
(e) Notwithstanding any other provision of this Plan to the contrary, in no
event shall any Participant in any period of one calendar year receive awards of
Performance Shares and Performance Units having an aggregate value as of their
respective Dates of Grant in excess of $750,000.
4. OPTION RIGHTS. The Committee may from time to time authorize grants to
Participants of options to purchase Common Shares upon such terms and conditions
as the Committee may determine in accordance with the following provisions:
(a) Each grant shall specify the number of Common Shares to which it
pertains, subject to the limitations set forth in Section 3 of this Plan.
(b) Each grant shall specify an Option Price per Common Share, which
in the case of Incentive Options, shall be equal to or greater than the
Market Value per Share on the Date of Grant and, in the case of other
options, shall not be less than eighty-five percent (85%) of the Market
Value per Share on the Date of Grant.
(c) Each grant shall specify the form of consideration to be paid in
satisfaction of the Option Price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check
or other cash equivalent acceptable to the Corporation, (ii)
nonforfeitable, unrestricted Common Shares, which are already owned by the
Optionee and have a value at the time of exercise that is equal to
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the Option Price, (iii) any other legal consideration, including, without
limitation, promissory notes, that the Committee may deem appropriate,
including without limitation any form of consideration authorized under
Section 4(d) below, on such basis as the Committee may determine in
accordance with this Plan and (iv) any combination of the foregoing.
(d) Any grant may provide that payment of the Option Price may also be
made in whole or in part in the form of Restricted Shares or other Common
Shares that are subject to risk of forfeiture or restrictions on transfer.
Unless otherwise determined by the Committee, whenever any Option Price is
paid in whole or in part by means of any of the forms of consideration
specified in this Section 4(d), the Common Shares received by the Optionee
upon the exercise of the Option Rights shall be subject to the same risks
of forfeiture or restrictions on transfer as those that applied to the
consideration surrendered by the Optionee; provided, however, that such
risks of forfeiture and restrictions on transfer shall apply only to the
same number of Common Shares received by the Optionee as applied to the
forfeitable or restricted Common Shares surrendered by the Optionee.
(e) Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a bank or broker on the date of exercise
of some or all of the Common Shares to which the exercise relates.
(f) Any grant may provide for the automatic grant to the Optionee of
Reload Option Rights upon the exercise of Option Rights, including Reload
Option Rights, for Common Shares or any other non-cash consideration
authorized under Sections 4(d) and (e) above.
(g) Successive grants may be made to the same Participant regardless
of whether any Option Rights previously granted to such Participant remain
unexercised.
(h) Each grant shall specify the period or periods of continuous
employment of the Optionee by the Corporation or any Subsidiary that are
necessary before the Option Rights or installments thereof shall become
exercisable, and any grant may provide for the earlier exercisability of
such rights in the event of retirement, death or disability of the
Participant or a change in control of the Corporation or other similar
transaction or event.
(i) Any grant of Option Rights may specify Management Objectives that
must be achieved as a condition to the exercise of such rights.
(j) Option Rights granted under this Plan may be (i) options that are
intended to qualify under particular provisions of the Code, including
without limitation Incentive Stock Options, (ii) options that are not
intended to so qualify or (iii) combinations of the foregoing.
(k) On or after the Date of Grant of any Option Rights other than
Incentive Stock Options, the Committee may provide for the payment to the
Optionee of dividend equivalents thereon in cash or Common Shares on a
current, deferred or contingent basis.
(l) No Option Right granted under this Plan may be exercised more than
10 years from the Date of Grant.
(m) Each grant shall be evidenced by an agreement, which shall be
executed on behalf of the Corporation by any officer thereof and delivered
to and accepted by the Optionee and shall contain such terms and provisions
as the Committee may determine consistent with this Plan.
5. APPRECIATION RIGHTS. The Committee may also authorize grants to
Participants of Appreciation Rights. An Appreciation Right shall be a right of
the Participant to receive from the Corporation an amount, which shall be
determined by the Committee and shall be expressed as a percentage (not
exceeding 100 percent) of the Spread at the time of the exercise of such right.
Any grant of Appreciation rights under this Plan shall be upon such terms and
conditions as the Committee may determine in accordance with the following
provisions:
(a) Any grant may specify that the amount payable upon the exercise of
an Appreciation Right may be paid by the Corporation in cash, Common Shares
or any combination thereof and may (i) either grant
A-4
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to the Participant or reserve to the Committee the right to elect among
those alternatives or (ii) preclude the right of the Participant to receive
and the Corporation to issue Common Shares or other equity securities in
lieu of cash; provided, however, that no form of consideration or manner of
payment that would cause Rule 16b-3 to cease to apply to this Plan shall be
permitted.
(b) Any grant may specify that the amount payable upon the exercise of
an Appreciation Right shall not exceed a maximum specified by the Committee
on the Date of Grant.
(c) Any grant may specify (i) a waiting period or periods before
Appreciation Rights shall become exercisable and (ii) permissible dates or
periods on or during which Appreciation Rights shall be exercisable.
(d) Any grant may specify that an Appreciation Right may be exercised
only in the event of retirement, death or disability of the Participant or
a change in control of the Corporation or other similar transaction or
event.
(e) Any grant may provide for the payment to the Participant of
dividend equivalents thereon in cash or Common Shares on a current,
deferred or contingent basis.
(f) Each grant shall be evidenced by an agreement, which shall be
executed on behalf of the Corporation by any officer thereof and delivered
to and accepted by the Optionee and shall describe the subject Appreciation
Rights, identify any related Option Rights, state that the Appreciation
Rights are subject to all of the terms and conditions of this Plan and
contain such other terms and provisions as the Committee may determine
consistent with this Plan.
(g) Any grant of Appreciation Rights may specify Management Objectives
that must be achieved as a condition of the exercise of such rights.
(h) Regarding Tandem Appreciation Rights only: Each grant shall
provide that a Tandem Appreciation Right may be exercised only (i) at a
time when the related Option Right (or any similar right granted under any
other plan of the Corporation) is also exercisable and the Spread is
positive and (ii) by surrender of the related Option Right (or such other
right) for cancellation.
(i) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each Free-standing
Appreciation Right a Base Price per Common Share, which shall be equal
to or greater than the Market Value per Share on the Date of Grant;
(ii) Successive grants may be made to the same Participant
regardless of whether any Free-standing Appreciation Rights previously
granted to such Participant remain unexercised;
(iii) Each grant shall specify the period or periods of continuous
employment of the Participant by the Corporation or any Subsidiary that
are necessary before the Free-standing Appreciation Rights or
installments thereof shall become exercisable, and any grant may provide
for the earlier exercise of such rights in the event of retirement,
death or disability of the Participant or a change in control of the
Corporation or other similar transaction or event; and
(iv) No Free-standing Appreciation Right granted under this Plan
may be exercised more than 10 years from the Date of Grant.
6. RESTRICTED SHARES. The Committee may also authorize grants or sales to
Participants of Restricted Shares upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute an immediate transfer of the
ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to dividend, voting and
other ownership rights, subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
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(b) Each grant or sale may be made without additional consideration
from the Participant or in consideration of a payment by the Participant
that is less than the Market Value per Share on the Date of Grant.
(c) Each grant or sale shall provide that the Restricted Shares
covered thereby shall be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined
by the Committee on the Date of Grant, and any grant or sale may provide
for the earlier termination of such period in the event of retirement,
death or disability of the Participant or a change in control of the
Corporation or other similar transaction or event.
(d) Each grant or sale shall provide that, during the period for which
such substantial risk of forfeiture is to continue, the transferability of
the Restricted Shares shall be prohibited or restricted in the manner and
to the extent prescribed by the Committee on the Date of Grant. Such
restrictions may include without limitation rights of repurchase or first
refusal in the Corporation or provisions subjecting the Restricted Shares
to a continuing substantial risk of forfeiture in the hands of any
transferee.
(e) Any grant of Restricted Shares may specify Management Objectives
which, if achieved, will result in termination or early termination of the
restrictions applicable to such shares and each such grant shall specify in
respect of such specified Management Objectives, a minimum acceptable level
of achievement and shall set forth a formula for determining the number of
Restricted Shares on which restrictions will terminate if performance is at
or above the minimum level, but falls short of full achievement of the
specified Management Objectives.
(f) Any grant or sale may require that any or all dividends or other
distributions paid on the Restricted Shares during the period of such
restrictions be automatically sequestered. Such distribution may be
reinvested on an immediate or deferred basis in additional Common Shares,
which may be subject to the same restrictions as the underlying award or
such other restrictions as the Committee may determine.
(g) Each grant or sale shall be evidenced by an agreement, which shall
be executed on behalf of the Corporation by any officer thereof and
delivered to and accepted by the Participant and shall contain such terms
and provisions as the Committee may determine consistent with this Plan.
Unless otherwise directed by the Committee, all certificates representing
Restricted Shares, together with a stock power that shall be endorsed in
blank by the Participant with respect to such shares, shall be held in
custody by the Corporation until all restrictions thereon lapse.
7. DEFERRED SHARES. The Committee may also authorize grants or sales of
Deferred Shares to Participants upon such terms and conditions as the Committee
may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute the agreement by the
Corporation to issue or transfer Common Shares to the Participant in the
future in consideration of the performance of services, subject to the
fulfillment during the Deferral Period of such conditions as the Committee
may specify.
(b) Each grant or sale may be made without additional consideration
from the Participant or in consideration of a payment by the Participant
that is less than the Market Value per Share on the Date of Grant.
(c) Each grant or sale shall provide that the Deferred Shares covered
thereby shall be subject to a Deferral Period, which shall be fixed by the
Committee on the Date of Grant, and any grant or sale may provide for the
earlier termination of such period in the event of retirement, death or
disability of the Participant or a change in control of the Corporation or
other similar transaction or event.
(d) During the Deferral Period, the Participant shall not have any
right to transfer any rights under the subject award, shall not have any
rights of ownership in the Deferred Shares and shall not have any right to
vote such shares, but the Committee may on or after the Date of Grant
authorize the payment of dividend equivalents on such shares in cash or
additional Common Shares on a current, deferred or contingent basis.
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(e) Each grant or sale shall be evidenced by an agreement, which shall
be executed on behalf of the Corporation by any officer thereof and
delivered to and accepted by the Participant and shall contain such terms
and provisions as the Committee may determine consistent with this Plan.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee may also
authorize grants to Participants of Performance Shares and Performance Units,
which shall become payable to the Participant upon the achievement of specified
Management Objectives, upon such terms and conditions as the Committee may
determine in accordance with the following provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, subject to the limitations in
Section 3, which may be subject to adjustment to reflect changes in
compensation or other factors.
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall be determined by the Committee on the Date of Grant
and may be subject to earlier termination in the event of retirement, death
or disability of the Participant or a change in control of the Corporation
or other similar transaction or event.
(c) Each grant shall specify the Management Objectives that are to be
achieved by the Participant and each grant shall specify in respect of the
specified Management Objectives a minimum acceptable level of achievement
below which no payment will be made and shall set forth a formula for
determining the amount of any payment to be made if performance is at or
above the minimum acceptable level but falls short of full achievement of
the specified Management Objectives.
(d) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that shall have been earned, and
any grant may specify that any such amount may be paid by the Corporation
in cash, Common Shares or any combination thereof and may either grant to
the Participant or reserve to the Committee the right to elect among those
alternatives.
(e) Any grant of Performance Shares may specify that the amount
payable with respect thereto may not exceed a maximum specified by the
Committee on the Date of Grant. Any grant of Performance Units may specify
that the amount payable, or the number of Common Shares issued, with
respect thereto may not exceed maximums specified by the Committee on the
Date of Grant.
(f) Any grant may provide for the payment to the Participant of
dividend equivalents thereon in cash or in additional Common Shares on a
current, deferred or contingent basis.
(g) Each grant of Performance Shares or Performance Units shall be
evidenced by an agreement, which shall be executed on behalf of the
Corporation by any officer thereof and delivered to and accepted by the
Participant and shall contain such terms and provisions as the Committee
may determine consistent with this Plan.
9. TRANSFERABILITY. (a) No Option Right or other derivative security (as
that term is used in Rule 16b-3) awarded under this Plan shall be transferable
by a Participant other than by will or the laws of descent and distribution or,
other than with respect to an Incentive Stock Option, a qualified domestic
relations order, as defined in the Code. Option Rights and Appreciation Rights
shall be exercisable during a Participant's lifetime only by the Participant or,
in the event of the Participant's legal incapacity, by his guardian or legal
representative acting in a fiduciary capacity on behalf of the Participant under
state law and court supervision. Notwithstanding the foregoing, the Committee,
in its sole discretion, may provide for transferability of particular awards
under this Plan so long as such provisions will not disqualify the exemption for
other awards under Rule 16b-3.
(b) Any award made under this Plan may provide that all or any part of the
Common Shares that are (i) to be issued or transferred by the Corporation upon
the exercise of Option Rights or Appreciation Rights or upon the termination of
the Deferral Period applicable to Deferred Shares, or in payment of Performance
Shares or Performance Units or (ii) no longer subject to the substantial risk of
forfeiture and restrictions on transfer referred to in Section 6 of this Plan,
shall be subject to further restrictions upon transfer.
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10. ADJUSTMENTS. The Committee may make or provide for such adjustments in
the (a) number of Common Shares covered by outstanding Option Rights,
Appreciation Rights, Deferred Shares and Performance Shares granted hereunder,
(b) prices per share applicable to such Option Rights and Appreciation Rights,
and (c) kind of shares (including shares of another issuer) covered thereby, as
the Committee in its sole discretion may in good faith determine to be equitably
required in order to prevent dilution or enlargement of the rights of
Participants that otherwise would result from (x) any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Corporation, (y) any merger, consolidation, spin-off, spin-out,
split-off, split-up, reorganization, partial or complete liquidation or other
distribution of assets, issuance of rights or warrants to purchase securities or
(z) any other corporate transaction or event having an effect similar to any of
the foregoing. In the event of any such transaction or event, the Committee may
provide in substitution for any or all outstanding awards under this Plan such
alternative consideration as it may in good faith determine to be equitable
under the circumstances and may require in connection therewith the surrender of
all awards so replaced. Moreover, the Committee may on or after the Date of
Grant provide in the agreement evidencing any award under this Plan that the
holder of the award may elect to receive an equivalent award in respect of
securities of the surviving entity of any merger, consolidation or other
transaction or event having a similar effect, or the Committee may provide that
the holder will automatically be entitled to receive such an equivalent award.
In any case, such substitution of securities shall not require the consent of
any person who is granted awards pursuant to this Plan.
11. FRACTIONAL SHARES. The Corporation shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Committee may provide for
the elimination of fractions or for the settlement thereof in cash.
12. WITHHOLDING TAXES. To the extent that the Corporation is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Corporation for such withholding are insufficient,
it shall be a condition to the receipt of such payment or the realization of
such benefit that the Participant or such other person make arrangements
satisfactory to the Corporation for payment of the balance of such taxes
required to be withheld. At the discretion of the Committee, such arrangements
may include relinquishment of a portion of such benefit. The Corporation and any
Participant or such other person may also make similar arrangements with respect
to the payment of any taxes with respect to which withholding is not required.
13. PARTICIPATION BY EMPLOYEES OF A LESS-THAN-80-PERCENT SUBSIDIARY. As a
condition to the effectiveness of any grant or award to be made hereunder to a
Participant who is an employee of a Less-Than-80-Percent Subsidiary, regardless
whether such Participant is also employed by the Corporation or another
Subsidiary, the Committee may require the Less-Than-80-Percent Subsidiary to
agree to transfer to the Participant (as, if and when provided for under this
Plan and any applicable agreement entered into between the Participant and the
Less-Than-80-Percent Subsidiary pursuant to this Plan) the Common Shares that
would otherwise be delivered by the Corporation upon receipt by the
Less-Than-80-Percent Subsidiary of any consideration then otherwise payable by
the Participant to the Corporation. Any such award may be evidenced by an
agreement between the Participant and the Less-Than-80-Percent Subsidiary, in
lieu of the Corporation, on terms consistent with this Plan and approved by the
Committee and the Less-Than-80-Percent Subsidiary. All Common Shares so
delivered by or to a Less-Than-80-Percent Subsidiary will be treated as if they
had been delivered by or to the Corporation for purposes of Section 3 of this
Plan, and all references to the Corporation in this Plan shall be deemed to
refer to the Less-Than-80-Percent Subsidiary except with respect to the
definitions of the Board and the Committee and in other cases where the context
otherwise requires.
14. CERTAIN TERMINATIONS OF EMPLOYMENT, HARDSHIP AND APPROVED LEAVES OF
ABSENCE. Notwithstanding any other provision of this Plan to the contrary, in
the event of termination of employment by reason of death, disability, normal
retirement, early retirement with the consent of the Corporation, termination of
employment to enter public service with the consent of the Corporation or leave
of absence approved by the Corporation, or in the event of hardship or other
special circumstances, of a Participant who holds an Option Right or
Appreciation Right that is not immediately and fully exercisable, any Restricted
Shares as to which the substantial risk of forfeiture or the prohibition or
restriction on transfer has not lapsed, any Deferred
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Shares as to which the Deferral Period is not complete, any Performance Shares
or Performance Units that have not been fully earned, or any Common Shares that
are subject to any transfer restriction pursuant to Section 6(d) of this Plan,
the Committee may in its sole discretion take any action that it deems to be
equitable under the circumstances or in the best interests of the Corporation,
including without limitation waiving or modifying any limitation or requirement
with respect to any award under this Plan.
15. FOREIGN EMPLOYEES. In order to facilitate the making of any grant or
combination of grants under this Plan, the Committee may provide for such
special terms for awards to Participants who are foreign nationals, or who are
employed by the Corporation or any Subsidiary outside of the United States of
America, as the Committee may consider necessary or appropriate to accommodate
differences in local law, tax policy or custom. Moreover, the Committee may
approve such supplements to, or amendments, restatements or alternative versions
of, this Plan as it may consider necessary or appropriate for such purposes
without thereby affecting the terms of this Plan as in effect for any other
purpose, and the Secretary or other appropriate officer of the Corporation may
certify any such document as having been approved and adopted in the same manner
as this Plan. No such special terms, supplements, amendments, or restatements
shall include any provisions that are inconsistent with the terms of this Plan,
as then in effect, unless this Plan could have been amended to eliminate such
inconsistency without further approval by the shareholders of the Corporation.
16. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by the
Compensation Committee of the Board appointed from time to time by the Board of
Directors of the Corporation. The Committee shall be composed of not less than
two members of the Board, each of whom shall be a "non-employee director" within
the meaning of Rule 16b-3 and an "outside director" within the meaning of
Section 162(m) of the Code. A majority of the Committee shall constitute a
quorum, and the acts of the members of the Committee who are present at any
meeting thereof at which a quorum is present, or acts unanimously approved by
the members of the Committee in writing, shall be the acts of the Committee. In
the absence of a Committee or in the event of grants to non-employee directors,
this Plan shall be administered by the Board, and, in such case, all references
to the "Committee" herein shall be deemed to be references to the Board.
(b) The interpretation and construction by the Committee of any provision
of this Plan or of any agreement, notification or document evidencing the grant
of Option Rights, Appreciation Rights, Restricted Shares or Deferred Shares,
Performance Shares and Performance Units and any determination by the Committee
pursuant to any provision of this Plan or any such agreement, notification or
document, shall be final and conclusive. No member of the Committee shall be
liable for any such action taken or determination made in good faith.
17. AMENDMENTS AND OTHER MATTERS. (a) This Plan may be amended from time to
time by the Committee or the Board, but except as expressly authorized by this
Plan no such amendment shall increase the maximum number of shares specified in
Section 3(a) of this Plan, increase the number of Performance Units specified in
Section 3(e) of this Plan, or cause Rule 16b-3 to become inapplicable to this
Plan, without the further approval of the shareholders of the Corporation,
unless permitted by Rule 16b-3. Without limiting the generality of the
foregoing, the Committee or the Board may amend this Plan to eliminate
provisions which are no longer necessary as a result of changes in tax or
securities laws or regulations, or in the interpretation thereof.
(b) With the concurrence of the affected Optionee, the Committee may cancel
any agreement evidencing Option Rights or any other award granted under this
Plan. In the event of such cancellation, the Committee may authorize the
granting of new Option Rights or other awards hereunder, which may or may not
cover the same number of Common Shares that had been the subject of the prior
award, at such Option Price and subject to such other terms, conditions and
discretions as would have been applicable under this Plan had the cancelled
Option Rights or other awards not been granted.
(c) The Committee also may permit Participants to elect to defer the
issuance of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for purposes
of this Plan. The Committee also may provide that deferred settlements include
the payment or crediting of interest on the deferral amounts, or the payment or
crediting of dividend equivalents where the deferral amounts are denominated in
Common Shares.
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40
(d) This Plan shall not confer upon any Participant any right with respect
to continuance of employment or other service with the Corporation or any
Subsidiary and shall not interfere in any way with any right that the
Corporation or any Subsidiary would otherwise have to terminate any
Participant's employment or other service at any time.
(e) (i) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify under particular provisions of the
Code from so qualifying, such provision of this Plan shall be null and void with
respect to such Option Right; provided, however, that such provision shall
remain in effect with respect to other Option Rights, and there shall be no
further effect on any provision of this Plan.
(ii) Any award that may be made pursuant to an amendment to this Plan that
shall have been adopted without the approval of the shareholders of the
Corporation shall be null and void if it is subsequently determined that such
approval was required in order for Rule 16b-3 to remain applicable to this Plan.
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PROXY PROXY
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
SRS LABS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE
The undersigned shareholder(s) of SRS Labs, Inc., a Delaware corporation (the
"Company") hereby appoints Thomas C.K. Yuen, Janet M. Biski, or either of them,
proxies, each with full power of substitution, for and in the name of the
undersigned at the Annual Meeting of Stockholders of the Company to be held on
June 11, 1998, and at any and all adjournments, to vote all shares of the
capital stock of said Company held of record by the undersigned on April 17,
1998, as if the undersigned were present and voting the shares.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN
THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED FOR PROPOSALS 2 AND 3,
FOR THE NOMINEES NAMED IN PROPOSAL 1 ON THE REVERSE SIDE AND IN ACCORDANCE WITH
THEIR DISCRETION ON SUCH OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
(CONTINUED AND TO BE VOTED, SIGNED AND DATED ON THE REVERSE SIDE)
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42
SRS LABS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
THE LISTED NOMINEES AND THE PROPOSALS HAVE BEEN PROPOSED BY THE COMPANY.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED
AND "FOR" THE LISTED PROPOSALS.
For All
Except as
1. ELECTION OF DIRECTORS: Withhold Indicated to
Nominees for election to the Board For All All the Contrary
of Directors as Class II Directors: [ ] [ ] [ ]
John AuYeung John Tu
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO
VOTE FOR ANY NOMINEE, WRITE THE NOMINEE'S
NAME ON THE SPACE PROVIDED BELOW.)
-----------------------------------------
2. Proposal to approve the amendment to the For Against Abstain
SRS Labs, Inc. Amended and Restated 1996 [ ] [ ] [ ]
Long-Term Incentive Plan (the "Incentive
Plan") to increase the number of shares
of common stock available for issuance
thereunder by 2,500,000.
3. Proposal to approve the amendment to the For Against Abstain
Incentive Plan to allow all directors of [ ] [ ] [ ]
the Company and any Subsidiary (as
defined in the Incentive Plan) of the
Company to participate in the Incentive
Plan.
4. The proxies are authorized to vote in their
discretion upon such other business as may
properly come before the meeting.
[ ] I PLAN TO ATTEND THE MEETING
Please date this Proxy and sign exactly
as your name appears hereon. When signing
as attorney, executor, administrator,
trustee or guardian, please give your
full title. If there is more than one
trustee, all should sign. All joint
owners should sign.
-----------------------------------------
Signature
-----------------------------------------
Signature
Dated: , 1998
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