SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
/ / Preliminary Proxy Statement
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14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Boston Acoustics, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
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July 8, 1996
BOSTON ACOUSTICS, INC.
300 JUBILEE DRIVE
PEABODY, MA 01960
Dear Stockholder:
It is my pleasure to invite you to attend the Annual Meeting of Stockholders
of Boston Acoustics, Inc. (the "Company"). The Meeting will be held at the
Company on Tuesday, August 13, 1996, at 2:00 p.m.
The notice of meeting and Compensation Committee which follow describe the
business to be transacted at the Meeting. In addition, we plan to give you a
report on the status of the Company's business. Stockholders will have an
opportunity to comment and ask questions during the Meeting.
It is important that your shares be represented at the Meeting, regardless
of the number you may hold. Therefore, whether or not you plan to attend, please
sign, date and return the proxy card as soon as possible. This will not prevent
you from voting your shares in person if you do come to the Meeting.
I look forward to seeing you on August 13th.
Sincerely yours,
FRANCIS L. REED
CHIEF EXECUTIVE OFFICER
BOSTON ACOUSTICS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AUGUST 13, 1996, 2:00 P.M.
You are hereby notified that the Annual Meeting of Stockholders of Boston
Acoustics, Inc. (the "Company") will be held on August 13, 1996 at 2:00 p.m. at
the offices of the Company, 300 Jubilee Drive, Peabody, Massachusetts, to
consider and act upon the following matters:
1. To fix the number of directors of the Company at five (5) and to elect
five (5) directors for the ensuing year.
2. To approve the 1996 Stock Plan.
3. To ratify the action of the Directors in appointing Arthur Andersen LLP
as auditors for the Company.
4. To act upon such other business as may properly come before the meeting
or any adjournment thereof.
Even if you plan to attend the Meeting personally, please be sure to sign,
date and return the enclosed proxy in the enclosed envelope to:
The First National Bank of Boston
c/o Boston EquiServe
P. O. Box 1628
Boston, MA 02105
Only stockholders of record on the books of the Company at the close of
business on July 3, 1996 are entitled to receive notice of, and to vote at, the
Annual Meeting and at any adjournment thereof.
By order of the Board of Directors,
JOSEPH D.S. HINKLEY
CLERK
July 8, 1996
IMPORTANT: IN ORDER TO SECURE A QUORUM AND TO AVOID THE EXPENSE OF ADDITIONAL
PROXY SOLICITATION, PLEASE VOTE, DATE AND SIGN YOUR PROXY AND RETURN IT PROMPTLY
IN THE ENVELOPE PROVIDED EVEN IF YOU PLAN TO ATTEND THE MEETING PERSONALLY. IF
YOU DO ATTEND THE MEETING AND DESIRE TO WITHDRAW YOUR PROXY AND VOTE IN PERSON,
YOU MAY DO SO. YOUR COOPERATION IS GREATLY APPRECIATED.
BOSTON ACOUSTICS, INC.
EXECUTIVE OFFICES
300 JUBILEE DRIVE
PEABODY, MA 01960
PROXY STATEMENT
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement and the accompanying proxy form are being mailed by
Boston Acoustics, Inc. (the "Company") to the holders of record of the Company's
outstanding shares of Common Stock, $.01 par value ("Common Stock"), commencing
on or about July 8, 1996. The accompanying proxy is solicited by the Board of
Directors of the Company for use at the Annual Meeting of Stockholders to be
held on August 13, 1996 (the "Meeting") and any adjournments thereof. The cost
of solicitation of proxies will be borne by the Company. Directors, officers and
employees may assist in the solicitation of proxies by mail, telephone,
telegraph, and personal interview without additional compensation.
When a proxy is returned, prior to or at the Meeting, properly signed, the
shares represented thereby will be voted by the proxies named in accordance with
the stockholder's instructions indicated on the proxy card. You are urged to
specify your choices on the enclosed proxy card. If the proxy is signed and
returned without specifying choices, the shares will be voted FOR the election
of Directors as set forth in this Proxy Statement, FOR proposal 2, FOR proposal
3 and in the discretion of the proxies as to other matters that may properly
come before the Meeting. SENDING IN A PROXY WILL NOT AFFECT A STOCKHOLDER'S
RIGHT TO ATTEND THE MEETING AND VOTE IN PERSON.A proxy may be revoked by notice
in writing delivered to the Clerk of the Company at any time prior to its use,
by a duly-executed proxy bearing a later date, or by voting in person by ballot
at the Meeting. A stockholder's attendance at the Meeting will not by itself
revoke a proxy.
VOTING SECURITIES AND RECORD DATE
The Company has one class of Common Stock outstanding. Each share of Common
Stock is entitled to one vote. The Board of Directors has fixed July 3, 1996 as
the record date for the Meeting. Only holders of record of the Company's Common
Stock on the record date are entitled to notice of and to vote at the Meeting.
On the record date, there were 4,364,301 shares of Common Stock issued and
outstanding.
Under Massachusetts law and the Company's By-laws, the presence of holders
of a majority in interest of the issued and outstanding Common Stock entitled to
vote at the Meeting, represented in person or by proxy, shall constitute a
quorum.
Election of directors is by plurality of the votes cast at the Meeting.
Approval of the 1996 Stock Plan and ratification of the appointment of Arthur
Andersen LLP as the Company's auditors requires a vote of the majority of the
Common Stock represented in person or by proxy at the Meeting and voting
thereon. With regard to the election of directors, votes may be left blank, cast
in favor or withheld; votes that are left blank will be excluded entirely from
the vote and will have no effect. Votes that are withheld will have the effect
of a negative vote. Abstentions may be specified on all proposals (other than
the election of directors) and will be counted as present for purposes of the
proposal on which the abstention is noted. Because the proposals to approve the
1996 Stock Plan and to ratify the appointment of Arthur Andersen LLP as the
Company's auditors requires the approval of a majority of the votes properly
cast at the Meeting, either in person or by proxy, abstentions will have the
effect of a negative vote. Broker non-votes (i.e., shares held by a broker or
nominee which are represented at the Meeting, but with respect to which the
broker or nominee is not
empowered to vote on a particular proposal) will be counted in determining a
quorum for each proposal. However, broker non-votes will be treated as unvoted
shares and, accordingly, will not be counted in determining the outcome of any
proposal which requires the affirmative vote of a majority of the votes cast.
The Company's Annual Report to Stockholders, including financial statements
for the fiscal year ended March 30, 1996, is being mailed to stockholders of
record of the Company concurrently with this Proxy Statement. The Annual Report
to Stockholders is not, however, a part of the proxy soliciting materials.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
One of the purposes of the Meeting is to fix the number of directors of the
Company at five (5) and to elect five (5) directors to serve until the next
annual meeting of stockholders and until their successors shall have been duly
elected and qualified. It is intended that the proxies solicited by the Board of
Directors will be voted in favor of the five (5) nominees named below, unless
otherwise specified on the proxy card. All of the nominees have consented to be
named and to serve if elected. Frank L. Reed, Andrew G. Kotsatos and Fred E.
Faulkner, Jr. were previously elected by the stockholders. Lisa M. Reed was
elected to the Board by a vote of the Board on May 14, 1996 to fill the vacancy
created by the resignation of Dorothea T. Reed. George J. Markos is not
currently a member of the Board.
The Board knows of no reason why any of the nominees will be unavailable or
unable to serve as a Director, but in such event, proxies solicited hereby will
be voted for the election of another person or persons to be designated by the
Board of Directors.
Frank L. Reed, Chief Executive Officer, Treasurer and a Director, is the
father of Lisa M. Reed, a Director, and Paul F. Reed, an executive officer.
George J. Markos, a nominee to become a Director, is the son of John G. Markos,
a director who is not standing for re-election.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINEES LISTED
BELOW.
The following are summaries of the background and business experience and
descriptions of the principal occupations of the nominees:
Francis L. Reed (age 63) has been a Director and Treasurer since co-founding
the Company in February 1979. He served as President of the Company from its
inception until April 1986, when he became Chief Executive Officer. Mr. Reed was
formerly a Vice President of Advent Corporation, a manufacturer of loudspeakers
and other audio equipment.
Andrew G. Kotsatos (age 56) has been a Director and Assistant Clerk since
co-founding the Company in February 1979. He also served as Executive Vice
President of the Company until April 1986, when he became President. Mr.
Kotsatos previously held positions with two other audio manufacturers, KLH
Research and Development Corporation and Advent Corporation. His last position
at Advent was Audio Products Manager and Chief Speaker Designer.
Fred E. Faulkner, Jr. (age 49) has been a Director of the Company since
December 1986. Mr. Faulkner has been employed by the Millipore Corporation, a
leader in separation technology, for more than the past nine years. Between 1985
and 1994 he served Millipore as Vice President of Engineering of its Products
Division. Since 1994 he has been Vice President of Technical Operations of
Millipore's Microelectronics Division.
2
George J. Markos (age 47) has been nominated for election as a Director to
the Company for the first time. Mr. Markos has been Senior Vice President and
General Counsel of Yell-O-Glow corporation, a produce distributor, since 1991.
Between 1988 and 1991, Mr. Markos was Senior Counsel and Assistant Secretary of
Norton Company, Inc., a manufacturer of abrasive products and industrial
ceramics.
Lisa M. Reed (age 30) was elected Director of the Company by the Board of
Directors in May 1996. She was Director of Corporate Planning of the Company
from January 1994 to June 1996. Previously, Ms. Reed was a lending officer in
the Global Banking unit of the Bank of Boston. Ms. Reed holds an undergraduate
degree from the University of Pennsylvania and a MBA from Boston University.
BOARD OF DIRECTORS
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors met four times during the fiscal year ended March 30,
1996. The Board of Directors has standing Audit and Compensation Committees. The
Board has no nominating committee. All of the directors attended 75% or more of
the meetings of the Board and of the Board committees on which they served
during the fiscal year ended March 30, 1996.
The Compensation Committee is responsible for evaluating compensation plans
for employees, management and directors, and making recommendations on
compensation to the Board. It currently consists of Fred E. Faulkner, Jr. and
John G. Markos. During the fiscal year ended March 30, 1996, the Compensation
Committee also included Dorothea T. Reed. The Compensation Committee met once
during the fiscal year ended March 30, 1996. The Audit Committee, which consists
of Fred E. Faulkner, Jr. and John G. Markos, oversees the accounting and audit
functions of the Company, including matters relating to the appointment and
activities of the Company's auditors. During the fiscal year ended March 30,
1996, the Audit Committee also included Dorothea T. Reed. The Audit Committee
met once during the fiscal year ended March 30, 1996. It is proposed that if
elected George J. Markos will become a member of the Compensation Committee and
the Audit Committee.
COMPENSATION OF DIRECTORS
Each Director who is not an officer of the Company is entitled to an annual
fee of $6,000, and an additional annual fee of $1,500 for service on the Audit
Committee and an additional annual fee of $1,000 for service on the Compensation
Committee on which he or she serves. In fiscal 1996, Dorothea T. Reed, who
resigned from the Board of Directors on May 14, 1996, also received the benefit
of $5,288 in split dollar insurance premiums paid by the Company with respect to
insurance on her life.
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table reflects the number of shares of the Company's Common
Stock beneficially owned as of July 3, 1996 (i) by each person who is known by
the Company to own beneficially more then 5% of the Company's Common Stock, (ii)
by each of the Directors and nominees for Director, (iii) by each of the
executive officers named in the Summary Compensation Table in this Proxy
Statement and (iv) by all Directors and executive officers as a group. In
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, a person is deemed to be the beneficial owner, for purposes of this
table, of any shares of Common Stock if he or she has or shares voting power or
investment power with respect to such security or has the right to acquire
beneficial ownership at any time within sixty days of July 3, 1996. As used
herein "voting power" is the power to vote or direct the voting of shares, and
"investment power" is the
3
power to dispose of or direct the disposition of shares. Except as indicated in
the notes following the table below, each individual named has sole voting and
investment power with respect to the shares listed as being beneficially owned
by such individual.
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
----------------------------------------------- ------------------ ------------
Andrew G. Kotsatos............................. 954,275(1) 21.9
300 Jubilee Drive
Peabody, MA 01960
Francis L. Reed................................ 941,201(2) 21.6
300 Jubilee Drive
Peabody, MA 01960
T. Rowe Price Associates, Inc.................. 417,000(3) 9.6
100 East Pratt Street
Baltimore, MD 21202
Moses A. Gabbay................................ 35,787(4) **
Ira S. Friedman................................ 8,591 **
Robert L. Spaner............................... 4,273 **
Lisa M. Reed................................... 159,174 3.6
George J. Markos*.............................. 0 **
John G. Markos................................. 23,000(5) **
Fred E. Faulkner, Jr........................... 600(6) **
All Directors and Executive Officers as a group
(11 persons)................................... 2,146,911(7) 49.2
* Nominee for Director.
** Indicates less than 1% ownership.
(1) Includes 242,836 shares owned by Mr. Kotsatos' wife, individually and as
trustee for the benefit of their children, as to which beneficial ownership
is disclaimed.
(2) Includes 245,410 shares owned by Mr. Reed's wife, as to which beneficial
ownership is disclaimed. Includes 7,166 shares held jointly with Mr. Reed's
wife.
(3) According to a letter dated June 26, 1996 from Dorothy B. Jones, Assistant
Vice President of T. Rowe Price Associates, Inc. (Price Associates), Price
Associates has sole voting power for 22,000 shares and sole dispositive
power for 417,000 shares. These securities are owned by various individual
and institutional investors which Price Associates serves as investment
adviser with power to direct investments and/or sole power to vote the
securities. For purposes of the reporting requirements of the Securities
Exchange Act of 1934, as amended, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
(4) Includes 7,545 shares jointly owned by Mr. Gabbay and his son and 7,546
shares jointly owned by Mr. Gabbay and his daughter.
(5) Includes 5,000 shares owned by a corporation of which Mr. Markos is a
principal stockholder, officer and director and as to which beneficial
ownership is disclaimed. Also includes 18,000 shares owned by Mr. Markos'
wife as to which beneficial ownership is disclaimed.
4
(6) Includes 400 shares held by Mr. Faulkner's wife as custodian for their
children as to which beneficial ownership is disclaimed.
(7) Includes 511,646 shares as to which the Directors and named executive
officers disclaimed beneficial ownership as described above. See footnotes
1, 2, 4, 5 and 6.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following tables and notes present the compensation received by the
Company's Chief Executive Officer and the four most highly paid executive
officers for the three fiscal years ended March 30, 1996.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ ------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR(1) ($) ($) ($)(2) OPTIONS (#) ($)
- ------------------------------------- ------- ------- ------- ------------ ------------ ------------
Francis L. Reed...................... 1996 225,150 169,890 17,540 -- 69,763(3)
(Chief Executive Officer &
Treasurer)........................... 1995 200,200 122,139 8,676 -- 69,018
1994 200,200 58,075 -- -- 9,606
Andrew G. Kotsatos................... 1996 190,375 66,164 18,352 -- 35,439(4)
(President and Assistant Clerk) 1995 170,500 61,394 23,393 -- 33,980
1994 170,500 49,459 -- -- 33,887
Moses A. Gabbay...................... 1996 148,750 31,680 -- -- 2,240(5)
(Vice President-Engineering) 1995 138,750 29,480 -- -- 146
1994 128,333 22,727 -- -- --
Ira S. Friedman...................... 1996 140,981 29,479 -- 10,000 2,009(6)
(Vice President-Marketing) 1995 124,154 25,817 -- -- 118
1994 105,289 128,568 -- -- --
Robert L. Spaner..................... 1996 101,538 20,836 -- 10,000 1,429(7)
(Vice President-Sales) 1995 80,000 16,873 -- -- 77
1994 71,704 12,626 -- -- --
(1) The Company's fiscal year ends on the last Saturday of March.
(2) Reflects car allowances provided by the Company.
(3) Includes $69,763 paid in premiums for two life insurance policies, each with
split dollar arrangements,
one covering the life of Mr. Reed and the other covering the survivor of Mr.
Reed and his spouse. The Company, Mr. Reed and Mr. Reed's spouse entered
into agreements concerning the respective life insurance policies pursuant
to which the Company will receive, in the event of the insureds' deaths, an
amount equal to the aggregate amount of its premium payments under the
respective policies and the beneficiary of the policies will receive the
excess.
(4) Includes $34,483 paid in premiums for two life insurance policies, each with
split dollar arrangements, one covering the life of Mr. Kotsatos and the
other covering the survivor of Mr. Kotsatos and his spouse. The Company, Mr.
Kotsatos and Mr. Kotsatos' spouse entered into agreements concerning the
life insurance policies pursuant to which the Company will receive, in the
event of the insureds' deaths, an amount equal to the aggregate amount of
its premium payments under the respective policies and the
5
beneficiary of the policies will receive the excess. Also includes $956
contributed by the Company under a defined contribution plan established
under Section 401(k) of the Internal Revenue Code, as amended (the Code).
(5) Reflects Company contributions under a defined contribution plan established
under Section 401(k) of the Code.
(6) Reflects Company contributions under a defined contribution plan established
under Section 401(k) of the Code.
(7) Reflects Company contributions under a defined contribution plan established
under Section 401(k) of the Code.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended March 30, 1996 to the named
executive officers:
INDIVIDUAL GRANTS (1)
------------------------------------------------ POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE STOCK PRICE
UNDERLYING GRANTED TO OR BASE APPRECIATION FOR
OPTIONS EMPLOYEES PRICE PER OPTION TERM (2)
GRANTED IN FISCAL SHARE EXPIRATION ---------------------
NAME (#) 1996 ($/SH) DATE 5% ($) 10% ($)
- ------------------------------------- ---------- ---------- --------- ---------- --------- ----------
Ira S. Friedman...................... 10,000 13.9 18.50 02/20/2001 51,112.09 112,944.35
Robert L. Spaner..................... 10,000 13.9 19.50 11/20/2000 53,874.90 119,049.45
(1) All options were granted at an exercise price equal to market value of the
Company's Common Stock on the date of grant as determined by the closing
price of the Common Stock on the Nasdaq National Market.
(2) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
(3) So long as Mr. Friedman remains an employee of the Company, options for the
purchase of shares of Common Stock became exercisable in annual installments
equal to one third of the total number of shares underlying such options on
each of February 20, 1997, 1998 and 1999.
(4) So long as Mr. Spaner remains as employee of the Company, options for the
purchase of shares of Common Stock are exercisable in annual installments
equal to one third of the total number of shares underlying such options on
each of November 20, 1996, 1997 and 1998.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table sets forth information with respect to the named
executive officers concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year.
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END AT FY-END ($)(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- --------------- --------------- ----------- ------------- ----------- -------------
Francis L. Reed.............. 45,600 543,560 -- -- -- --
Andrew G. Kotsatos........... 34,400 393,910 -- -- -- --
Moses A. Gabbay.............. 8,000 126,000 -- -- -- --
Ira S. Friedman.............. 8,000 126,000 -- 10,000(3) -- --
Robert L. Spaner............. 5,000 64,875 -- 10,000(4) -- --
(1) Value realized equals fair market value on the date of exercise, less the
exercise price, times the number of shares acquired without deducting taxes
or commissions paid by employee.
(2) Value of unexercised options equals fair market value of the shares
underlying in-the-money options on March 29, 1996 ($18.50 per share), which
was the last trading day of the Company's fiscal year, less exercise price,
times the number of options outstanding.
(3) The exercise price of this option is $18.50 per share.
(4) The exercise price of this option is $19.50 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dorothea T. Reed, a member of the Compensation Committee of the Board of
Directors during the fiscal year ended March 30, 1996, is the wife of Francis L.
Reed, a Director and executive officer, and is the mother of Paul F. Reed, an
executive officer, and Lisa M. Reed, an employee during the fiscal year ended
March 30, 1996 who became a director on May 14, 1996, filling the vacancy
created by her mother's resignation on that date.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND
THE STOCK PERFORMANCE GRAPH CONTAINED ELSEWHERE HEREIN SHALL NOT BE INCORPORATED
BY REFERENCE INTO ANY SUCH FILINGS NOR SHALL THEY BE DEEMED TO BE SOLICITING
MATERIAL OR DEEMED FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.
REPORT OF THE COMPENSATION COMMITTEE
During the fiscal year ended March 30, 1996, the Compensation Committee of
the Board of Directors was responsible for establishing and administering the
compensation policies which govern annual salary, bonuses, and stock-based
incentives (currently stock options) for directors and officers.
OVERVIEW
The Company has historically established levels of executive compensation
that provide for a base salary intended to allow the Company to hire and retain
qualified management. The Company has also
7
provided annual cash incentive bonuses based on the Company's performance during
the fiscal year to reward executives for their contributions to the Company's
achievements. From time to time the Company has also granted stock options to
executives and key employees to keep the management focused on the stockholders'
interests. The Compensation Committee believes that the Company's past and
present executive compensation practices provide an overall level of
compensation that is competitive with companies of similar size, complexity and
financial performance and that its executive compensation practices have allowed
it to retain key personnel whose contribution has maintained and increased the
Company's profitability.
The Compensation Committee determines the compensation of the executive
officers of the Company and sets policies for and reviews the compensation
awarded to the other officers of the Company. This is designed to ensure
consistency throughout the officer compensation programs. In reviewing the
individual performances of the executive officers (other than the Chief
Executive Officer and President) the Compensation Committee takes into account
the views of the Chief Executive Officer and the President. In fiscal 1996, the
Compensation Committee determined the base salary and bonus for executive
officers, other than for the Chief Executive Officer and the President, based
largely on recommendations by the Company's Chief Executive Officer and
President.
The Compensation Committee expects to review annually the annual and
long-term compensation of all the Company's executives and employees to assure
that all of the Company's executives and employees continue to be properly
motivated to serve the interests of the Company's stockholders.
EXECUTIVE OFFICER COMPENSATION
BASE SALARY. Base salary is generally set within the ranges of salaries of
executive officers with comparable qualifications, experience and
responsibilities at other companies of similar size, complexity and
profitability taking into account the position involved and the level of the
executive's experience. In addition, consideration is given to other factors,
including an officer's contribution to the Company as a whole. Since fiscal year
1995, the base salary for the named executive officers, other than the Chief
Executive Officer and the President, increased on average approximately $16,122.
The Compensation Committee awarded such increases to keep the Company a
competitive employer and to allow for increases in the cost of living.
The annual base salary of the Chief Executive Officer and the President
increased as of January 1, 1996 to $300,000 and $250,000, respectively. With
respect to these increases, the Compensation Committee took into account the
base salary of chief executive officers and presidents of comparable companies,
the performance of the Company and the longevity of the service of Francis L.
Reed and Andrew G. Kotsatos to the Company. In addition, the Compensation
Committee recognized that the annual base salary of the Chief Executive Officer
and President had not increased since fiscal 1990.
ANNUAL BONUS COMPENSATION. Over the past five fiscal years, the Company has
awarded cash bonuses to its executive officers on a discretionary basis. In
determining bonus awards, the Compensation Committee considers the financial and
nonfinancial achievements of the Company, including revenue growth,
profitability, expansion of the Company's markets and new product introductions.
Prior to fiscal 1995, the Company maintained relatively even bonus levels
for the executive officers named in the Summary Compensation Table, including
the Chief Executive Officer and the President. In fiscal 1995 and 1996, the
Compensation Committee declared an additional bonus to the Chief Executive
Officer on the basis of the continued excellent performance of the Company and
to permit the Chief Executive Officer and his wife to purchase an additional
insurance policy on the life of his wife so that in the
8
event of her death, her estate will have increased liquidity to meet its tax
obligations so as to reduce or eliminate the need to resort to a forced sale of
the Company's Common Stock. The Compensation Committee also increased the cash
bonuses of the other executive officers. The Compensation Committee believes
that the Company's performance, in particular its revenue growth and
profitability, and the individual performances of the executive officers, merit
such increases. The Compensation Committee also believes that bonuses are
necessary to keep total compensation of the Company's executives competitive
with executive compensation at similarly situated companies. It is expected that
bonus compensation will continue to move in parallel with increases in base
salary until such time as the Company's financial results, the individual
performance of the executive or the job market for key executives, warrants a
change in the percentage of total compensation which is comprised of bonuses.
LONG TERM INCENTIVES. The Compensation Committee believes that the
long-term incentives awarded by the Company in the last three fiscal years were
generally below the levels found at the comparable companies. Currently, stock
options are the Company's primary long-term incentive vehicle. Stock option
awards have been made from time to time to persons who currently serve as middle
and upper level managers, including the Chief Executive Officer and other
executive officers named in the Summary Compensation Table. The size of awards
has historically been based on position, responsibilities, and individual
performance.
The Compensation Committee is aware that the Company's grants of stock
options are less frequent and smaller in size than the grants of many comparable
companies, although the Board believes that the overall mix of compensation
components has been adequate. The Compensation Committee believes that this
aspect of compensation must receive more emphasis in the future to assure that
all of the Company's key employees continue to focus on the profitability of the
Company and, thus, the interests of the Company's stockholders. Accordingly, the
Compensation Committee has recommended to the Board of Directors the
authorization of additional stock options for employees. As a result of this
recommendation and other factors, the Board of Directors has submitted Proposal
No. 2 of this Proxy Statement to a vote of the stockholders of the Company.
Although Dorothea T. Reed participated in the deliberations and decisions of
the Compensation Committee during fiscal 1996, she has since resigned from the
Board of Directors and the Compensation Committee.
The Compensation Committee
Fred E. Faulkner, Jr.
John G. Markos
9
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return of the
Company's Common Stock against the cumulative total return on the CRSP Total
Return Index for the NASDAQ Stock Market (U.S. Companies) and a Company-selected
peer group index that includes: Harmon Industries, Inc., Polk Audio, Inc., and
International Jensen, Inc. The peer group index was formed on a weighted average
basis based on market capitalizations, adjusted at the end of each year.
International Jensen, Inc. became a public company on February 12, 1992, and was
accorded no weight in the index for fiscal year 1991. Cumulative total return is
measured assuming an initial investment of $100 on March 31, 1991 and
reinvestment of dividends.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL
RETURN AMONG BOSTON ACOUSTICS, INC.,
THE NASDAQ MARKET-US INDEX AND A PEER GROUP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
3/91 3/92 3/93 3/94 3/95 3/96
Boston Acoustics, Inc. 100 154 148 154 156 160
Peer Group 100 174 170 248 329 345
NASDAQ Stock Market-US 100 127 147 158 176 239
10
PROPOSAL NO. 2 -- APPROVAL OF THE 1996 STOCK PLAN
DESCRIPTION OF 1996 STOCK PLAN
GENERAL. On February 20, 1996, the Board of Directors adopted the Company's
1996 Stock Plan and 200,000 shares of Common Stock were reserved for issuance
thereunder as options to employees, officers, directors and consultants of the
Company. On July 1, 1996, the Board of Directors, acting by unanimous written
consent, amended the Plan to permit a director who is not also an officer or
employee of the Company to purchase shares of Common Stock with his or her cash
fee for service as a director (the 1996 Stock Plan, as amended, the "Plan"). The
Board of Directors has reserved 20,000 shares of Common Stock for issuance
pursuant to the purchase feature of the Plan. The Plan is intended to encourage
ownership of the Company's Common Stock by employees, officers, directors and
consultants of the Company. The Plan provides for the granting of incentive
stock options ("ISOs") which are intended to meet the requirements of Section
422 of the Internal Revenue Code of 1986 (the "Code") as well as non-qualified
stock options ("Non-Qualified Options") which do not meet the requirements of
Section 422 of the Code. If any unexercised option granted pursuant to the Plan
lapses or terminates for any reason, the shares of Common Stock covered thereby
are again available for subsequent option grants under the Plan.
As of July 3, 1996, no options issued under the Plan have been received or
allocated and no director has had an opportunity to make a direct purchase
Common Stock under the Plan.
ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Compensation Committee of the Board of Directors, which must consist of at least
two directors, neither of whom is an employee of the Company, and who qualify as
"disinterested persons" within the meaning of Rule 16b-3 ("Rule 16b-3)
promulgated under the Securities Exchange Act of 1934, as amended. Subject to
the terms of the Plan, the Compensation Committee determines the employees to
whom options will be granted, the number of shares to be covered by such options
and the terms of such options.
STOCK OPTION FEATURES. The Compensation Committee may, at its discretion,
select any eligible person to participate in the Plan. Non-Qualified Options may
be granted to any director, officer, employee or consultant of the Company. Only
employees of the Company are eligible to receive ISOs. As of June 14, 1996,
there were approximately 212 persons eligible to receive options issued pursuant
to the Plan. The number of options granted to any eligible person is within the
discretion of the Compensation Committee, subject to certain conditions
concerning ISOs.
The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to ISOs which first become exercisable in any calendar year by
an employee may not exceed $100,000. ISOs may not be granted at less than the
fair market value of the Common Stock on the date of grant or 110% of fair
market value in the case of incentive stock options granted to any optionee
holding 10% or more of the total combined voting power of all classes of stock
of the Company. In addition, no ISO is exercisable after 10 years from the date
on which it is granted, and in the case of ISOs granted to an employee holding
10% or more of the total combined voting power of all classes of stock of the
Company, the term shall not exceed 5 years from the date of grant.
Options issued under the Plan are exercisable only by the optionee during
the life of the Optionee and, generally, are not transferable, except by will or
the laws of descent and distribution. The Compensation Committee shall determine
the period of time during which an optionee may exercise an option following the
termination of employment or service to the Company subject to certain
restrictions set forth below with respect to ISOs. ISOs are generally only
exercisable while an optionee is employed by the Company, except that the
Compensation Committee may determine to permit exercise within up to three
months after termination of employment to the extent such option has vested at
the time of such termination. If an
11
optionee dies while employed by the Company or within three months of the
termination of his or her employment by the Company, such optionee's ISOs may be
exercised up to 12 months after his or her death. If an optionee is permanently
disabled during his or her employment by the Company, such optionee's options
may be exercised up to one year following termination of his or her employment
due to such disability.
The exercise price of options granted under the Plan is determined by the
Compensation Committee on the date of grant, subject to the limitation that the
exercise price may not be less than par value. However, there are certain
pricing restrictions for ISO's as set forth above. The exercise price of options
granted under the Plan must be paid in full upon exercise in cash, by delivery
of shares of Common Stock already owned by the optionee, by any other means the
Compensation Committee deems acceptable, or a combination thereof.
In the event of a consolidation or merger or sale of all or substantially
all of the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of the Company, the Board of
Directors of the Company, or the board of directors of any corporation assuming
the obligations of the Company may, in its discretion, take any one or more of
the following actions as to outstanding options: (i) provide that such options
shall be assumed, or equivalent options shall be substituted, by the acquiring
or succeeding corporation (or an affiliate thereof); (ii) upon written notice to
the optionees, provide that all unexercised options will terminate immediately
prior to the consummation of such transaction unless exercised by the optionee
within a specified period following the date of such notice; (iii) in the event
of a merger under the terms of which holders of the Common Stock of the Company
will receive upon consummation thereof a cash payment for each share surrendered
in the merger (the "Merger Price"), make or provide for a cash payment to the
optionees equal to the difference between (A) the Merger Price times the number
of shares of Common Stock subject to such outstanding options (to the extent
then exercisable at prices not in excess of the Merger Price) and (B) the
aggregate exercise price of all such outstanding options in exchange for the
termination of such options; and (iv) provide that all or any outstanding
options shall become exercisable in full immediately prior to such event;
provided that any action taken by the Board of Directors in connection with
above described events shall be in compliance with the applicable rules
promulgated by the SEC applicable to stock option plans intended to be qualified
for exemption from liability under Section 16(b) of the Securities Exchange Act
of 1934, as amended.
In the event of a stock dividend, stock split or other change in corporate
structure or capitalization affecting the Common Stock, the number and kind of
shares of stock or securities of the Company to be subject to the Plan and the
options then outstanding or to be granted thereunder, and the option price, will
be appropriately and proportionately adjusted by the Compensation Committee,
whose determination will be binding on all persons.
TERMINATION AND AMENDMENT OF THE PLAN. The Board of Directors may
terminate, modify or amend the Plan except that no amendment or modification for
which stockholder approval is required under Section 422 of the Code or under
Rule 16b-3 is permissible without the approval of the stockholders of the
Company. With respect to ISOs, the Plan shall terminate on the earlier of (i)
February 19, 2006 or (ii) the date on which all shares available for issuance
under the Plan have been issued pursuant to the exercise or cancellation of
options granted under the Plan.
ACCOUNTING EFFECTS. Under current accounting rules, neither the grant nor
exercise of options under the Plan is expected to result in any charge to the
earnings of the Company. Options with variable exercise prices or at an exercise
price less the fair market value on the date of grant may result in charges to
earnings under certain circumstances.
12
DIRECT PURCHASES OF STOCK BY DIRECTORS WHO ARE NOT OFFICERS. The Plan
authorizes the purchase of up to 20,000 shares of Common Stock by a Director who
is not an officer or employee of the Company ("Eligible Director") using all or
a portion of the cash fee earned by such Eligible Director for service as a
director. Eligible Directors must make an irrevocable election to purchase
shares under the Plan at least six months prior to such purchase. The Company
shall issue shares to electing Eligible Directors in lieu of cash fees at the
closing price reported by NASDAQ for trading on the last day of the Company's
fiscal year for which trading is reported. Shares purchased shall be issued
effective as of the last day of the Company's fiscal year. Each electing
Eligible Director shall also receive an interest payment on the amount of fees
so paid in Common Stock equal to the prime rate (as reported in THE WALL STREET
JOURNAL) accruing on the amount of such fees which are deferred from the date
such fees would otherwise have been paid in cash (currently, on a quarterly
basis) through the last day of the Company's fiscal year. Shares of Common Stock
purchased by Eligible Directors under the direct purchase provisions of the Plan
must be held for at least six months from the date of purchase. As of the June
14, 1996, there are two Eligible Directors.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following is a brief summary
of certain Federal income tax aspects of options granted or which may be under
the Plan based upon the Federal income tax laws in effect on the date hereof.
1. INCENTIVE STOCK OPTIONS. An employee receiving an ISO will not realize
taxable income upon the grant of the ISO or upon its timely exercise. Exercise
of an ISO will be timely if made during its terms and if the employee remains an
employee of the Company or a subsidiary corporation at all times during the
period beginning on the date of grant of the ISO and ending on the date three
months before the date of exercise (or one year before the date of exercise in
the case of a disabled employee). Exercise of an ISO will also be timely if made
within twelve months of the date of death (provided it is exercisable by its
terms) by the legal representative of an employee who dies while in the employ
of the Company or a subsidiary corporation. However, the Plan limits the right
of the legal representative of any participant to exercise an option to one year
following death. Upon a sale of the stock received upon exercise, except as
noted below, the employee will generally recognize long-term capital gain or
loss equal to the difference between the amount realized upon such sale and the
exercise price. The Company, under these circumstances, will not be entitled to
any Federal income tax deduction in connection with the exercise of the ISO or
the sale of such stock.
If the stock acquired pursuant to an exercise of an ISO is disposed of by
the employee prior to the expiration of two years from the date of grant or
within one year from the date such stock is issued to him or her upon exercise
(a "disqualifying disposition"), any gain realized by the employee generally
will be taxable at the time of such disqualifying disposition, as follows: (i)
at ordinary income rates to the extent of the difference between the exercise
price and the lesser of the fair market value of the stock on the date the ISO
is exercised (the value on a later date is likely to govern in the case of an
employee whose sale of the stock at a profit could subject him or her to suit
under Section 16(b) of the Securities Exchange Act of 1934) or the amount
realized on such disqualifying disposition, and (ii) if the stock is a capital
asset of the employee, as short-term or long-term capital gain to the extent of
any excess of the amount realized on such disqualifying disposition over the
fair market value of the stock on the date which governs the determination of
the employee's ordinary income. In such case, the Company may claim a Federal
income tax deduction at the time of such disqualifying disposition for the
amount taxable to the employee as ordinary income. Any capital gain realized by
the employee will be long-term capital gain if the employee's holding period for
the stock at the time of disposition is more than one year; otherwise it will be
short-term. The amount by which the fair market value of the stock on the
exercise date of an ISO exceeds the exercise price will be an item of tax
preference for purposes of the alternative minimum tax imposed by the Code.
2. NON-QUALIFIED OPTIONS. In the case of Non-Qualified Options (and in the
case of an untimely exercise of an ISO), the employee will not be taxed upon
grant of any such option, but rather, at the time of
13
exercise of such Non-Qualified Options, the employee, except as noted below,
will realize ordinary income for Federal income tax purposes in an amount equal
to the excess of the fair market value of the shares purchased over the exercise
price. The Company will generally be entitled to a tax deduction at such time
and in the same amount that the employee realizes ordinary income. If stock so
acquired is later sold or exchanged, then the difference between the sales price
and the fair market value of such stock on the date of exercise of the option is
generally taxable as long-term or short-term capital gain or loss depending upon
whether the stock has been held for more than one year after such date.
As stated above, generally income is realized by an employee upon exercise
of an Non-Qualified Option (or untimely exercise of an ISO). However, in the
case of such exercise of an option by an employee whose sale of shares at a
profit could subject the employee to suit under Section 16(b) of the Securities
Exchange Act of 1934, realization of income is postponed so long as a sale of
the shares would expose the employee to such suit, unless the employee elects
within 30 days after the exercise to be taxed as of the exercise date in the
manner described above. Absent such election, such an employee will realize
ordinary income at the time a sale would no longer expose him or her to such
suit in an amount equal to the excess of the fair market value of the shares at
that time over the exercise price. That fair market value will also govern for
purposes of the Company's deduction and for determining the employee's gain or
loss upon subsequent disposition of the shares.
3. EXERCISE WITH SHARES. An employee who pays the exercise price of a
Non-Qualified Option, in whole or in part, by delivering shares of the Company's
stock already owned by him or her will realize no gain or loss for Federal
income tax purposes on the shares surrendered, but otherwise will be taxed
according to the rules described above for Non-Qualified Options. (See "Certain
Federal Income Tax Consequences -- 2. Non-Qualified Options.") With respect to
shares acquired upon exercise which are equal in number to the shares
surrendered, the basis of such shares will be equal to the fair market value of
such shares on the date of exercise, and the holding period for such additional
shares will commence on the date the option is exercised.
When shares of the Company's stock are surrendered upon exercise of an ISO,
(i) no gain or loss will be recognized as a result of the exchange, (ii) a
number of shares received which is equal to the number of shares surrendered
will have a basis equal to that of the shares surrendered, and (except for
purposes of determining whether a disposition will be a disqualifying
disposition) will have a holding period which includes the holding period of the
shares exchanged and (iii) the remaining shares received will have a zero basis
and will have a holding period which begins on the date of the exchange. If any
of the shares received are disposed of within two years of the date of grant of
the ISO or within one year after exercise, the shares with the lowest basis
(i.e., a zero basis) will be deemed to be disposed of first, and such
disposition will be a disqualifying disposition giving rise to ordinary income
as discussed above.
The foregoing summary is not a complete description of the Federal income
tax aspects of the Plan. Moreover, the foregoing summary relates only to Federal
income tax; there may also be Federal estate and gift tax consequences
associated with the Plan, as well as foreign, state and local tax consequences.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE
1996 STOCK PLAN.
PROPOSAL NO. 3 -- RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed Arthur Andersen LLP as
auditors of the Company for the fiscal year ending March 29, 1997 and further
directed that management submit the selection of auditors for ratification by
the stockholders. Arthur Andersen LLP were the Company's auditors for the fiscal
year ended March 30, 1996.
14
Representatives of Arthur Andersen LLP are expected to be present at the
Meeting, with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO RATIFY
THE CHOICE OF ARTHUR ANDERSEN LLP AS THE COMPANY'S AUDITORS.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
On April 14, 1995, the Company made a loan to Mr. Kotsatos, a director and
executive officer of the Company, to assist him in meeting certain tax
obligations. The loan bore an interest rate of 9% per annum. On April 25, 1995,
Mr. Kotsatos made a payment of $100,275 to the Company, representing the full
amount due in connection with the loan and the largest amount ever outstanding
on the loan.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Directors, executive officers and persons who own more than 10% of the
outstanding shares of Common Stock of the Company to file with the Securities
and Exchange Commission and The Nasdaq Stock Market reports of ownership and
changes in ownership of voting securities of the Company and to furnish copies
of such reports to the Company. Based solely on a review of copies of such
reports furnished to the Company or written representations from certain persons
that no reports were required for those persons, the Company believes that all
Section 16(a) filing requirements were complied with during the fiscal year
ended March 30, 1996, except that, through inadvertence: Ira S. Friedman, an
executive officer, made one late filing, reporting one transaction; Debra A.
Ricker-Rosato, an executive officer, made one late filing, reporting one
transaction; Andrew G. Kotsatos, an executive officer and a Director, made one
late filing, reporting two late transactions; Lisa M. Reed, a Director, made one
late filing, reporting her holdings; and Robert L. Spaner, an executive officer,
made one late filing, reporting one transaction.
STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
Any stockholder proposal intended to be presented for consideration at the
Company's 1997 annual meeting of stockholders, and included in the Company's
proxy statement must be received by the Company not later than March 10, 1997.
Any stockholder desiring to submit a proposal should consult applicable
regulations of the Securities and Exchange Commission.
OTHER MATTERS
As of the date of this Proxy Statement, management of the Company knows of
no matter not specifically referred to above as to which any action is expected
to be taken at the Meeting of stockholders. It is intended, however, that the
persons named as proxies will vote the proxies, insofar as the same are not
limited to the contrary, in regard to such other matters and the transaction of
such other business as may properly be brought before the Meeting, as seems to
them to be in the best interests of the Company and its stockholders.
15
APPENDIX A
PROXY
BOSTON ACOUSTICS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR
ANNUAL MEETING OF STOCKHOLDERS - AUGUST 13, 1996
The undersigned hereby appoints Francis L. Reed and Andrew G. Kotsatos, and
each of them, with full power of substitution, proxies of the undersigned to
represent and vote all shares of stock of BOSTON ACOUSTICS, INC. which the
undersigned would be entitled to vote, if personally present, at the Annual
Meeting of Stockholders of said Corporation, to be held at the Company's
offices at 300 Jubilee Drive, Peabody, Massachusetts on August 13, 1996 at 2:00
P.M., and at any adjournments thereof, as directed below, on all matters coming
before said meeting.
This proxy when properly executed will be voted as directed on the reverse
side. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION AS
DIRECTORS OF THE NOMINEES LISTED ON THE REVERSE SIDE, FOR PROPOSAL 2, FOR
PROPOSAL 3 AND IN THE DISCRETION OF THE PROXIES ON ITEM 4.
The undersigned hereby revokes all proxies heretofore given by the
undersigned to vote at said meeting or any adjournments thereof.
PLEASE MAKE, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
-------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-------------
DETACH HERE
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE.
1. To fix the number of directors of the Company at five and to elect five
directors for the ensuing year.
NOMINEES: Francis L. Reed, Andrew G. Kotsatos, Fred E. Faulkner, Jr., George J.
Markos, Lisa M. Reed.
FOR WITHHELD
/ / / /
/ / _________________________________.
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. To approve the 1996 Stock Plan. / / / / / /
3. To ratify the action of the Directors
in selecting Arthur Andersen LLP as
auditors for the Company. / / / / / /
4. To transact such other business as may properly come before the meeting.
MARK HERE
FOR ADDRESS / / COMMENTS / /
CHANGE AND
NOTE AT LEFT
NOTE: If shares are registered in more than one name, signatures of all such
persons are required. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
Signature:________________ Date:_______ Signature:________________ Date:_______
APPENDIX B
APPENDIX B TO THE COMPANY'S 1996 PROXY STATEMENT IS
---------------------------------------------------
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
-------------------------------------------------
PURSUANT TO INSTRUCTION 1.3 OF ITEM 10
--------------------------------------
OF SCHEDULE 14A, BUT IS NOT BEING DELIVERED TO
----------------------------------------------
STOCKHOLDERS WITH THE COMPANY'S
-------------------------------
1996 PROXY STATEMENT
--------------------
BOSTON ACOUSTICS, INC.
(MASSACHUSETTS CORPORATION)
1996 STOCK PLAN
1. PURPOSE. The purpose of this plan (the "Plan") is to secure for Boston
Acoustics, Inc. (the "Company") and its shareholders the benefits arising
from capital stock ownership by employees, officers and directors and
consultants of the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success. This Plan
is intended to provide incentives: (i) to employees, officers, directors and
consultants of the Company by providing them with opportunities to purchase
shares of the Company's Common Stock, $0.01 par value ("Common Stock"),
pursuant to options granted hereunder ("Options") and (ii) to directors of
the Company by providing them with the opportunity to purchase shares of
Common Stock directly from the Company ("Purchases"). Except where the
context otherwise requires, the term "Company" shall include the parent and
all present and future subsidiaries of the Company as defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code"). Those provisions of the Plan which
make express reference to Section 422 shall apply only to ISOs (as that term
is defined in the Plan).
2. ADMINISTRATION AND TYPES OF OPTIONS.
(a) ADMINISTRATION. Except as otherwise provided in Section 24, the
Plan shall be administered by a compensation committee (the "Committee") of
not less than two directors of the Company appointed by the Board of
Directors of the Company (the "Board") each of whom is not an employee of the
Company and who qualifies as a "disinterested person" within the meaning of
Rule 16b-3(c)(2)(i) promulgated under the Securities Exchange Act of 1934, as
amended (the "Act"). Subject to ratification of the grant or authorization
of each Option by the Board (if so required by applicable state law), and
subject to the terms of the Plan, the Committee, shall have the authority to
(i) determine the employees of the Company (from among the class of employees
eligible under Section 3 to receive ISOs (as such term is defined below)) to
whom ISOs may be granted, and to determine (from among the class of
individuals and entities eligible under Section 3 to receive Non-Qualified
Options(as such term is defined below)) to whom Non-Qualified Options may be
granted; (ii) determine the time or times at which Options may be granted;
(iii) determine the option price of shares subject to each Option, which
price shall not be less than the minimum price specified in
1
Section 6(a); (iv) determine whether each Option granted shall be an ISO or a
Non-Qualified Option; (v) determine (subject to Section 8) the time or times
when each Option shall become exercisable and the duration of the exercise
period; (vi) determine whether restrictions such as repurchase options are to
be imposed on shares subject to Options and the nature of such restrictions,
if any, and (vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue a
Non-Qualified Option, it shall take whatever actions it deems necessary,
under Section 422 of the Code and the regulations promulgated thereunder, to
ensure that such Option is not treated as an ISO. The interpretation and
construction by the Committee of any provisions of the Plan or of any Option
granted under it shall be final unless otherwise determined by the Board.
The Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem best. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option or any Purchase granted under it.
(b) COMPENSATION COMMITTEE. The Committee may select one of its
members as its chairman, and shall hold meetings at such times and places as
it may determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be
valid acts of the Committee.
(c) APPLICABILITY OF RULE 16b-3. Those provisions of the Plan which
make express reference to Rule 16b-3 shall apply only to such persons as are
required to file reports under Section 16(a) of the Exchange Act (a
"Reporting Person").
(d) TYPES OF OPTIONS. Options granted pursuant to the Plan may be
either incentive stock options ("ISOs") meeting the requirements of Section
422 of the Code or non-qualified stock options ("Non-Qualified Options")
which are not intended to meet the requirements of Section 422 of the Code.
3. ELIGIBILITY
(a) OPTIONS. ISOs may be granted to any employee of the Company.
Those officers and directors of the Company who are not employees of the
Company may not be granted ISOs under the Plan. Non-Qualified Options may be
granted to any director, officer, employee or consultant of the Company. The
Committee may take into consideration a recipient's individual circumstances
in determining whether to grant an ISO or a Non-Qualified Option. Granting
an Option to any individual or entity shall neither entitle that individual
or entity to, nor disqualify him, her or it from, participation in any other
grant of an Option.
(b) PURCHASES. Eligibility for Purchases under the Plan shall be
determined in accordance with Section 24 of the Plan.
2
4. STOCK SUBJECT TO PLAN
(a) OPTIONS. Subject to adjustment as provided in Section 15 below,
the maximum number of shares of Common Stock of the Company which may be
issued and sold pursuant to Options issued under the Plan is 200,000 shares.
The shares may be authorized, but unissued, or reacquired Common Stock. If
an Option granted under the Plan shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject to such
Option shall again be available for subsequent Option grants under the Plan.
No shares issued upon exercise of any Option shall be returned to the Plan
nor become available under the Plan for future distribution.
(b) PURCHASES. Subject to adjustment as provided in Section 15 below,
the maximum number of shares of Common Stock of the Company which may be
issued and sold under Section 24 of the Plan is 20,000 shares. The shares
may be authorized, but unissued, or reacquired Common Stock. No shares issued
and sold under Section 24 of the Plan shall be returned to the Plan nor
become available under the Plan for future distribution.
5. FORMS OF OPTION AGREEMENTS
As a condition to the grant of an Option under the Plan, each recipient of
an Option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Committee. Such option agreements may
differ among recipients.
6. EXERCISE PRICE
(a) GENERAL. The price per share of stock deliverable upon the
exercise of an Option shall be determined by the Committee, but it shall not
be less than the par value per share of the stock; provided, that in the case
of an ISO, the exercise price shall not be less than 100% of the fair market
value of such stock, as determined by the Committee, at the time of grant of
such Option, or less than 110% of such fair market value in the case of
Options described in Section 11(b).
(b) FAIR MARKET VALUE. If, at the time an Option is granted under the
Plan or Common Stock is delivered to the Company, the Company's Common Stock
is publicly traded, the "fair market value" shall be determined as of the
last business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted or Common Stock is
delivered to the Company and shall mean (i) the last reported sale price (on
that date) of the Common Stock on the principal national securities exchange
on which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market System, if the Common
Stock is not then traded on a national securities exchange; or (iii) the
closing bid price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the Common
Stock is not reported on the NASDAQ National Market System. However, if the
Common Stock is not publicly traded at the time an Option is granted or the
Common Stock is delivered, the "fair market value" shall be deemed to be the
fair market value of the Common Stock as determined by the Committee after it
takes into consideration all factors which it deems appropriate.
3
(c) PAYMENT OF EXERCISE PRICE. Payment of the exercise price of
Options granted under the Plan may be made (i) by delivery of cash or a
check to the order of the Company in an amount equal to the exercise price of
such Options, (ii) if authorized by the applicable option agreement or at the
discretion of the Committee, by delivery to the Company of shares of Common
Stock of the Company beneficially owned by the optionee for more than six
months and which the optionee may freely transfer having a fair market value
equal in amount to the exercise price of the options being exercised, (ii) by
any other means (including, without limitation, by delivery of a promissory
note of the optionee payable on such terms as are specified by the Committee)
which the Committee determines are consistent with the purpose of the Plan
and with then applicable laws and regulations (including, without limitation,
the provisions of Rule 16b-3, to the extent that the Common Stock is
registered under the Exchange Act, and Regulation T promulgated by the
Federal Reserve Board) or (iii) by any combination of such methods of
payment. The fair market value of any shares of the Company's Common Stock
or other non-cash consideration which may be delivered upon exercise of an
Option shall be determined by the Committee.
7. OPTION PERIOD
Each Option and all rights thereunder shall expire on such date as shall
be set forth in the applicable option agreement, except that, in the case of
an ISO, such date shall not be later than ten years after the date on which
the Option is granted and, in all cases, Options shall be subject to earlier
termination as provided in the Plan.
8. EXERCISE OF OPTIONS
Each Option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be
set forth in the agreement evidencing such option, subject to the provisions
of the Plan. Notwithstanding the foregoing, Options granted under the Plan
to the Reporting Persons shall not be exercisable in any part until at least
six months after the date of grant.
9. NONTRANSFERABILITY
(a) NONTRANSFERABILITY OF OPTIONS. ISOs and Non-Qualified Options
granted to Reporting Persons shall not be assignable or transferable by the
person to whom they are granted, either voluntarily or by operation of law,
except by will or the laws of descent and distribution, and, during the life
of the optionee, shall be exercisable only by the optionee; provided, that
Non-Qualified Options held by Reporting Persons may be transferred pursuant
to a qualified domestic relations order (as defined in Rule 16b-3).
Non-Qualified Options held by persons other than Reporting Persons shall be
subject to restrictions on transferability in the Plan or provided in the
applicable option agreement.
(b) NONTRANSFERABILITY OF RIGHTS UNDER PURCHASE ELECTIONS. Any right
under a Purchase Election shall not be assignable or transferable by the
director who made such Purchase Election, either voluntarily or by operation
of law, except by will or the laws of descent and distribution or pursuant to
a qualified domestic relations order (as defined in Rule 16b-3).
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10. EFFECT ON OPTION OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP
Except as provided in Section 11(d) with respect to ISOs, and subject to
the provisions of the Plan, the Committee shall determine the period of time
during which an optionee may exercise an Option following (i) the termination
of the optionee's employment or other relationship with the Company or (ii)
the death or disability of the optionee. Such periods shall be set forth in
the agreement evidencing such Option.
11. ISOs
Options granted under the Plan which are intended to be ISOs shall be
subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All ISOs granted under the Plan shall, at the
time of grant, be specifically designated as such in the option agreement
covering such ISOs.
(b) 10% SHAREHOLDER. If any employee to whom an ISO is to be granted
under the Plan is, at the time of the grant of such Option, the owner of
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company (after taking into account the attribution of
stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the ISO granted to such individual:
(i) the purchase price per share of the Common Stock subject to
such ISO shall not be less than 110% of the fair market value of one
share of Common Stock at the time of grant; and
(ii) the exercise period of such ISO shall not exceed five years
from the date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide,
Options granted to any employee under the Plan (and any other stock option
plans of the Company) which are intended to constitute ISOs shall not
constitute ISOs to the extent that such options, in the aggregate, become
exercisable for the first time in any one calendar year for shares of Common
Stock with an aggregate fair market value (determined as of the respective
date or dates of grant) of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No ISO may be
exercised unless, at the time of such exercise, the optionee is, and has been
continuously since the date of grant of his or her Option, employed by the
Company, except that:
(i) an ISO may be exercised within the period of three months
after the date the optionee ceases to be an employee of the Company (or
within such lesser period as may be specified in the applicable option
agreement); provided that the agreement with respect to such Option may
designate a longer exercise period and that the exercise after such
three-month period shall be treated as the exercise of a Non-Qualified
Option under the Plan;
5
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee,
the ISO may be exercised by the person to whom it is transferred by
will or the laws of descent and distribution within the period of one
year after the date of death (or within such lesser period as may be
specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while
in the employ of the Company, the ISO may be exercised within the period
of one year after the date the optionee ceases to be such an employee
because of such disability (or within such lesser period as may be
specified in the applicable option agreement).
For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of
the Income Tax Regulations (or any successor regulations). Notwithstanding
the foregoing provisions, no ISO may be exercised after its expiration date.
12. ADDITIONAL OPTION PROVISIONS
(a) ADDITIONAL OPTION PROVISIONS. The Committee may, in its sole
discretion, include additional provisions in Option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make,
arrange for or guaranty loans or to transfer other property to optionees upon
exercise of Options, or such other provisions as shall be determined by the
Committee; provided that such additional provisions shall not be inconsistent
with any other term or condition of the Plan and such additional provisions
shall not cause any ISO granted under the Plan to fail to qualify as an ISO
within the meaning of Section 422 of the Code.
(b) OPTION ACCELERATION, EXTENSION, ETC. The Committee may, in its
sole discretion, (i) accelerate the date or dates on which all or any
particular Option or Options granted under the Plan may be exercised or (ii)
extend the dates during which all, or any particular, Option or Options
granted under the Plan may be exercised; provided that no such extension
shall be permitted if it would cause the Plan to fail, to comply with Section
422 of the Code or with Rule 16b-3 as then in effect, to the extent that the
Common Stock is registered under the Exchange Act.
13. GENERAL RESTRICTIONS
(a) INVESTMENT REPRESENTATIONS. The Company may require any person to
whom an Option is granted or shares are to be sold hereunder, as a condition
of exercising such Option or purchasing shares pursuant to Section
24, to give written assurances in substance and form satisfactory to the
Company to the effect that such person is acquiring the Common Stock for his
or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effect as the
Company deems necessary or appropriate in order
6
to comply with federal and applicable state securities laws, or with
covenants or representations made by the Company in connection with any
public offering of its Common Stock.
(b) COMPLIANCE WITH SECURITIES LAWS. Each Option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
Option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other
condition is necessary as a condition of, or in connection with, the issuance
or purchase of shares thereunder, such Option may not be exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval, or satisfaction of such condition shall have been effected or
obtained on conditions acceptable to the Committee. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification, or to satisfy such condition.
14. RIGHTS AS A SHAREHOLDER
Neither a holder of an Option nor a director having made a Purchase
Election shall have any rights as a shareholder with respect to any shares
covered by the Option or Purchase Election (including, without limitation,
any rights to receive dividends or non-cash distributions with respect to
shares subject thereto) until the date of issue of a stock certificate to him
or her for such shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date such stock certificate
is issued.
15. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS AND RELATED TRANSACTIONS
(a) ADJUSTMENTS RELATING TO OPTIONS. If, through or as a result of any
merger, consolidation, sale of all or substantially all of the assets of the
Company, reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split or other similar transaction, (i) the
outstanding shares of Common Stock are increased, decreased or exchanged for
a different number or kind of shares or other securities of the Company, or
(ii) additional shares or new or different shares or other securities of the
Company or other non-cash assets are distributed with respect to such shares
of Common Stock or other securities, an appropriate and proportionate
adjustment may be made in (x) the maximum number and kind of shares reserved
for issuance pursuant to Options issued under the Plan, (y) the number and
kind of shares or other securities subject to any then outstanding Options
under the Plan, and (z) the price for each share subject to any then
outstanding Options, without changing the aggregate purchase price as to
which such Options remain exercisable. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Section 15 to the extent such
adjustment would cause any ISO issued under the Plan to fail to comply with
Section 422 of the Code or the Plan to fail to comply with Rule 16b-3 as then
in effect, to the extent that the Common Stock is registered under the
Exchange Act.
7
(b) COMMITTEE AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under
Section 15(a) will be made by the Committee, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan
on account of any such adjustments.
(c) ADJUSTMENTS RELATING TO PURCHASES. If, through or as a result of
any merger, consolidation, sale of all or substantially all of the assets of
the Company, reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, (i)
the outstanding shares of Common Stock are increased, decreased or exchanged
for a different number or kind of shares or other securities of the Company,
or (ii) additional shares or new or different shares or other securities of
the Company or other non-cash assets are distributed with respect to such
shares of Common Stock or other securities, an appropriate and proportionate
adjustment may be made in (x) the maximum number and kind of shares reserved
for issuance pursuant to Section 24 of the Plan, (y) the number and kind
of shares or other securities subject to any then outstanding Purchase
Elections, and (z) the price for each share subject to any then outstanding
Purchase Election, without changing the aggregate purchase price as to such
Purchases which have not yet occurred. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Section 15(c) to the extent such
adjustment would cause any ISO issued under the Plan to fail to comply with
Section 422 of the Code or the Plan to fail to comply with Rule 16b-3 as then
in effect, to the extent that the Common Stock is registered under the
Exchange Act.
(d) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustment under Section
15(c) will be made by the Board, whose determination as to what adjustments,
if any, will be made and the extent thereof will be final, binding and
conclusive. No fractional shares will be issued under the Plan on account of
any such adjustments.
16. MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
(a) OPTIONS. In the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares
of Common Stock are exchanged for securities, cash or other property of any
other corporation or business entity or in the event of a liquidation of the
Company, the Committee, or the board of directors of any corporation assuming
the obligations of the Company may in its discretion, take any one or more of
the following actions, as to outstanding Options: (i) provide that such
Options shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof), provided that
any such options substituted for ISOs shall meet the requirements of Section
424(a) of the Code, (ii) upon written notice to the optionees, provide that
all unexercised Options will terminate immediately prior to the consummation
of such transaction unless exercised by the optionee within a specified
period following the date of such notice, (iii) in the event of a merger
under the terms of which holders of the Common Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered
in the merger (the "Merger Price"), make or provide for a cash payment to the
optionees equal to the difference between (A) the Merger Price times the
number of shares of Common Stock subject to such outstanding Options (to the
extent then exercisable at prices not in excess of the Merger Price) and (B)
the aggregate exercise price of all such outstanding Options in exchange for
the termination of such options, and (iv) provide that all or any outstanding
Options shall become exercisable in full immediately prior to such event;
provided that notwithstanding anything to the contrary in this Section 16(a),
any action taken by the Committee hereunder shall be in compliance with Rule
16b-3 as in effect at the time of such action and the conditions thereof
necessary to maintain qualification of the Plan under Rule 16b-3, to the
extent that the Common Stock is registered under the Exchange Act. In the
case of any Option which by the terms of the grant thereof (or the agreement
or instrument governing such grant) or pursuant to a decision by the
Committee under this Section 16(a) provides for such option becoming
exercisable in full upon a Change in Control or otherwise under this Section
16, such option shall be deemed vested on the day immediately prior to the
day on which such Change in Control occurs and such optionee shall be given
prior written notice of such Change in Control sufficient to permit such
optionee to exercise such Options. For purposes of this Plan, a "Change in
Control" occurs if the Company (i) ceases operations; (ii) merges or
consolidates with another entity and is not the surviving entity; (iii) sells
or otherwise transfers all or substantially all of its operating assets; or
(iv) if more than 50% of the capital stock of the Company is transferred in a
single transaction or in a series of related transactions other than a public
offering of stock of the Company to a single person, entity or group of
persons acting in concert.
8
(b) SUBSTITUTE OPTIONS. The Company may grant Options under the Plan
in substitution for options held by employees of another corporation who
become employees of the Company, or of a subsidiary of the Company, as the
result of a merger or consolidation of the employing corporation with the
Company or a subsidiary of the Company, or as a result of the acquisition by
the Company, or one of its subsidiaries, of property or stock of the
employing corporation. The Company may direct that substitute Options be
granted on such terms and conditions as the Committee considers appropriate
in the circumstances.
(c) PURCHASES. In the event of a consolidation or merger or sale of
all or substantially all of the assets of the Company in which outstanding
shares of Common Stock are exchanged for securities, cash or other property
of any other corporation or business entity or in the event of a liquidation
of the Company, any election to Purchase shares of Common Stock pursuant to
Section 24 of the Plan shall automatically be cancelled and any Fee
Deductions shall be paid to the appropriate directors promptly, together with
interest on such Fee Deductions, calculated in accordance with Section 24(e)
of the Plan.
17. NO SPECIAL EMPLOYMENT RIGHTS
Nothing contained in the Plan or in any Option shall confer upon any
optionee any right with respect to the continuation of his or her employment
by the Company or interfere in any way with the right of the Company at any
time to terminate such employment or to increase or decrease the compensation
of the optionee.
18. OTHER EMPLOYEE BENEFITS
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an Option or the sale of shares
received upon such exercise will not constitute compensation with respect to
which any other employee benefits of such employee are determined, including,
without limitation, benefits under any bonus, pension, profit-sharing, life
insurance or salary continuation plan, except as otherwise specifically
determined by the Committee or required by law.
19. AMENDMENT OF THE PLAN
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the
approval of the shareholders of the Company is required under Section 422 of
the Code or any successor provision with respect to ISOs, or under Rule 16b-3
as then in effect, to the extent that the Common Stock is registered under
the Exchange Act, the Board of Directors may not effect such modification or
amendment without such approval.
(b) The termination or any modification or amendment of the Plan shall
not,
9
without the consent of an optionee, affect his or her rights under an Option
previously granted to him or her. With the consent of the optionee affected,
the Board of Directors may amend outstanding option agreements in a manner
not inconsistent with the Plan. The Board of Directors shall have the right
to amend or modify (i) the terms and provisions of the Plan and of any
outstanding ISOs granted under the Plan to the extent necessary to qualify
any or all such Options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions
of the Plan and of any outstanding option to the extent necessary to ensure
the qualification of the Plan under Rule 16b-3 as then in effect, to the
extent that the Common Stock is registered under the Exchange Act.
20. WITHHOLDING
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of Options under the Plan. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the optionee. The shares so
delivered or withheld shall have a fair market value equal to such
withholding obligation. The fair market value of the shares used to satisfy
such withholding obligation shall be determined by the Company as of the date
that the amount of tax to be withheld is to be determined. Such determination
of the fair market value shall be made in accordance with Section 6(b). An
optionee who has made an election pursuant to this Section 20(a) may only
satisfy his or her withholding obligation with shares of Common Stock which
are not subject to any repurchase, forfeiture, unfulfilled vesting or other
similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3 as then in effect.
21. CANCELLATION AND NEW GRANT OF OPTIONS, ETC.
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding Options under the Plan or the
Company's 1986 Incentive Stock Option Plan and the grant in substitution
therefor of new Options under the Plan covering the same or different numbers
of shares of Common Stock and having an exercise price per share which may be
lower or higher than the exercise price per share of the cancelled Options or
(ii) the amendment of the terms of any and all outstanding Options under the
Plan to provide an exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Options.
10
22. EFFECTIVE DATE AND DURATION OF THE PLAN
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by
the Board of Directors, but no ISO granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no Options
previously granted under the Plan shall be deemed to be ISOs and no ISOs
shall be granted thereafter. Amendments to the Plan not requiring shareholder
approval shall become effective when adopted by the Board of Directors;
amendments requiring shareholder approval (as provided in Section 19) shall
become effective when adopted by the Board of Directors, but no ISO granted
after the date of such amendment shall become exercisable (to the extent that
such amendment to the Plan was required to enable the Company to grant such
ISO to a particular optionee) unless and until such amendment shall have been
approved by the Company's shareholders. If such shareholder approval is not
obtained within twelve months of the Board's adoption of such amendment, any
ISOs granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such Option to a particular optionee. Subject to this limitation,
Options may be granted under the Plan at any time after the effective date
and before the date fixed for termination of the Plan.
(b) TERMINATION. Unless sooner terminated in accordance with Section
16, the Plan shall terminate, with respect to ISOs, upon the earlier of (i)
the close of business on the day next preceding the tenth anniversary of the
date of its adoption by the Board of Directors, or (ii) the date on which all
shares available for issuance pursuant to Options issued under the Plan shall
have been issued pursuant to the exercise or cancellation of Options granted
under the Plan. Unless sooner terminated in accordance with Section 16, the
Plan shall terminate with respect to Non-Qualified Options on the date
specified in (ii) above and with respect to Purchases on the date on which
all shares available for issuance pursuant to Section 24 of the Plan shall
have been issued. If the date of termination is determined under (i) above,
then Options outstanding on such date shall continue to have force and effect
in accordance with the provisions of the instruments evidencing such Options.
23. PROVISION FOR FOREIGN PARTICIPANTS
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities,
currency, employee benefit or other matters.
11
24. PURCHASES OF STOCK BY DIRECTORS WHO ARE NOT OFFICERS OR EMPLOYEES
(a) The Company will issue shares of Common Stock on the last day of
the fiscal year (the "Purchase Date") to any director of the Company who is
not an officer or an employee of the Company (an "Eligible Director") and has
made a then effective Purchase Election pursuant Section 24(b).
(b) An Eligible Director may elect to purchase shares (a "Purchase
Election") by submitting an election form to the Vice President-Finance on or
before the 20th of August in the fiscal year in which he or she intends to
participate. On such election form, a director shall (i) state the
percentage to be deducted from the fee earned by such Eligible Director for
service as a director of the Company (a "Fee"), (ii) authorize the purchase
of Common Stock for him or her in accordance with the terms of the Plan,
(iii) agree to hold any shares of Common Stock purchased pursuant to this
Section 24 for at least six months from the date of acquisition and (iv)
consent to the placement of a stop order on the books of the Company with
regard to such shares for a period of at least six months from the date of
acquisition.
(c) Unless an Eligible Director files a new election form which either
changes the rate of deduction from his or her Fee or indicates his or her
withdrawal from the Plan, his or her deductions and purchases will continue
at the same rate, provided he or she remains an Eligible Director. During a
fiscal year, an Eligible Director may change the rate of deduction from his
or her Fee or withdraw from the Plan at any time prior to the last Saturday
in September. Any change or withdrawal indicated on a new election form
received by the Vice President-Finance on or after the last Saturday in
September will be effective as of the first day of the following fiscal year.
(d) On the date on which cash payments of Fees are made, or would have
been made (the "Deduction Date"), the Company will deduct from cash payments
of Fees to each Eligible Director such amount indicated on his or her then
effective Purchase Election, if any (a "Fee Deduction"). Any Fee Deduction
made pursuant to this Section 24 will be held in the general funds of the
Company. The maximum amount an Eligible Director may have deducted in a
fiscal year is $8,500.
(e) All Fee Deductions shall accrue interest at the prime rate reported
in the Wall Street Journal at the Deduction Date from the Deduction Date
through the last day of the Company's fiscal year.
(f) Each Eligible Director who has elected to participate pursuant to a
then effective Purchase Election and is a director of the Company as of the
last day of the fiscal year shall acquire from the Company such whole number
of shares of Common Stock which his or her Fee Deductions during the fiscal
year and interest accrued thereon will purchase at the Purchase Price (as
such term is defined below). Any balance of the Fee Deductions and interest
accrued thereon will be refunded to the Eligible Director promptly.
(g) The purchase price (the "Purchase Price") of Common Stock to be
issued to
12
any Eligible Director pursuant to this Section 24 shall be the fair
market value of the Common Stock on the Purchase Date. "Fair market value"
shall mean (i) the last reported sale price of the Common Stock on the
Purchase Date on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price on the Purchase
Date of the Common Stock on the NASDAQ National Market System, if the Common
Stock is not then traded on a national securities exchange; or (iii) the
closing bid price (or average of bid prices) last quoted on the Purchase Date
by an established quotation service for over-the-counter securities, if the
Common Stock is not reported on the NASDAQ National Market System. If no
prices or quotes discussed in the preceding sentence are available on the
Purchase Date, such quotes or prices shall be determined as of the last
business day for which such prices or quotes are available prior to the
Purchase Date. However, if the Common Stock is not publicly traded at the
Purchase Date, the "fair market value" shall be deemed to be the fair market
value of the Common Stock as determined by the Board of Directors after it
takes into consideration all factors which it deems appropriate.
(h) Purchases pursuant to this Section 24 shall be generally
administered by the Board of Directors. The provisions of this Section 24
are to be construed as a "formula plan" as defined by Rule 16b-3. As such,
the provision of Section 24 shall not be amended more than once every six (6)
months, other than to comply with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder.
Adopted by the Board of Directors on
February 20, 1996 and Amended by the
Board of Directors on July 1, 1996
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