SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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Boston Acoustics, Inc.
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July 16, 2001
BOSTON ACOUSTICS, INC.
300 JUBILEE DRIVE
PEABODY, MA 01960
Dear Stockholders:
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 14, 2001, at 9:00 a.m.
The notice of meeting and proxy statement 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 at the Meeting.
It is important that your shares be represented at the Meeting, regardless
of the number you may hold. Therefore, regardless of whether 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 14th.
Sincerely yours,
ANDREW G. KOTSATOS
Chief Executive Officer
BOSTON ACOUSTICS, INC.
300 Jubilee Drive
Peabody, MA. 01960
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AUGUST 14, 2001, 9:00 A.M.
To The Stockholders:
You are hereby notified that the Annual Meeting of Stockholders of Boston
Acoustics, Inc. (the "Company") will be held on August 14, 2001 at 9:00 a.m.
at the offices of the Company, 300 Jubilee Drive, Peabody, Massachusetts, to
consider and act upon the following matters:
1. To elect six (6) Directors for the ensuing year.
2. To ratify the action of the Board of Directors in appointing Arthur
Andersen LLP as auditors for the Company's current fiscal year.
3. To approve an increase by 500,000 in the number of shares covered by
the 1997 Stock Plan.
4. To act upon such other business as may properly come before the
meeting or any adjournments 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:
EquiServe Trust Co., NA
Proxy Department
P. O. Box 43010
Providence, RI 02940
Only stockholders of record on the books of the Company at the close of
business on June 29, 2001 are entitled to receive notice of, and to vote at,
the Annual Meeting and at any adjournments thereof.
By order of the Board of Directors,
WILLIAM E. KELLY
Clerk
Peabody, Massachusetts
July 16, 2001
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
July 16, 2001
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement and the accompanying proxy form are being mailed by
Boston Acoustics, Inc., a Massachusetts corporation, (the "Company") to the
holders of record on June 29, 2001 of the Company's outstanding shares of
Common Stock, $.01 par value ("Common Stock"), commencing on or about July 16,
2001. 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 14,
2001 (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 or any adjournments thereof. 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 June 29, 2001
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 4,927,795 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.
The election of Directors is by plurality of the votes cast at the Meeting
either in person or by proxy. The approval of a majority of the votes properly
cast at the Meeting, either in person or by proxy, is required for adoption of
the proposal to ratify the appointment of Arthur Andersen LLP as the Company's
auditors, approval of the increase in the number of shares covered by the 1997
Stock Plan and the approval of any other matter which may properly be brought
before the Meeting or any adjournment thereof.
With regard to the election of directors, votes may be left blank, cast in
favor or withheld; votes that are left blank will be counted in favor of the
election of the directors named on the proxy and 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 determining the presence or absence of a quorum for the
proposal on which the abstention is noted, but abstentions will not be counted
for or against the proposal. Broker non-votes, if any, will not be counted in
determining a quorum for, or the outcome of, any proposal. A "non vote" occurs
when a broker holding shares for a beneficial owner does not vote on a
proposal because the broker does not have discretionary voting power and has
not received instructions from the beneficial owner.
1
The Board of Directors knows of no other matters to be presented at the
Meeting. If any other matter should be presented at the Meeting upon which a
vote may be taken, shares represented by all proxies received by the Company
will be voted in accordance with the judgement of the persons named as
proxies.
The Company's Annual Report to Stockholders, including financial statements
for the fiscal year ended March 31, 2001, is being mailed to stockholders of
record of the Company as of June 29, 2001 concurrently with this Proxy
Statement.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
One of the purposes of the Meeting is to elect six (6) 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 six (6)
nominees named below, unless otherwise specified on the proxy card. All the
nominees are current Directors of the Company and all of the nominees have
consented to be named and to serve if reelected. Andrew G. Kotsatos, Moses A.
Gabbay, George J. Markos, and Lisa M. Mooney were previously elected by the
stockholders. Alexander E. Aikens, III and Fletcher H. Wiley were elected as
Directors by the Board of Directors in May 2001.
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.
The Board unanimously 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:
Andrew G. Kotsatos (age 61) has been a Director and Assistant Clerk since
co-founding the Company in February 1979. He served as Executive Vice
President of the Company from its inception until April 1986 and as President
until November 1996, when he became Chief Executive Officer and Treasurer. 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.
Moses A. Gabbay (age 56) was elected President of the Company in August
2000. He had been Chief Operating Officer since April 2000 and was elected a
Director in May 2000. He served as Vice President--Engineering since joining
the Company in 1981. Mr. Gabbay was previously Director of Engineering at Avid
Corporation and an acoustic engineer for Teledyne Acoustic Research.
Alexander E. Aikens, III (age 52) has been a Director of the Company since
May 2001. Mr. Aikens has been an Adjunct Professor in the Graduate School of
International Economics and Finance at Brandeis University since July 2000.
Between 1980 and 1999, Mr. Aikens held several managerial positions at
Fleet/BankBoston, including the bank's Multinational Group, Emerging Market
Investment Banking and his last position as Managing Director--Portfolio
Management for the bank's corporate loan equity portfolio. Prior to 1980, Mr.
Aikens was a commercial lender in Chase Manhattan's Chemical and Rubber
Division of Corporate Banking department. Mr. Aikens holds an undergraduate
degree from Brandeis University and a law degree from Northeastern Law School.
Mr. Aikens is a member of the Board of Directors of the Pension Retirement
Investment Management (PRIM) Board of Commonwealth of Massachusetts and a
trustee of Wheelock College.
George J. Markos (age 52) has been a Director of the Company since August
1996. 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. Mr. Markos holds
an undergraduate degree from Rutgers University and a law degree from Suffolk
University School of Law.
2
Lisa M. Mooney (age 35) has been a Director of the Company since May 1996.
She was Director of Corporate Planning of the Company from January 1994 to
June 1996. Previously, Mrs. Mooney was a lending officer in the Global Banking
unit of the Bank of Boston. Mrs. Mooney holds an undergraduate degree from the
University of Pennsylvania and a MBA from Boston University. Mrs. Mooney is
the sister of Paul F. Reed, an executive officer.
Fletcher H. Wiley (age 58) has been a Director of the Company since May
2001. Since 1999, Mr. Wiley has been President and Chief Operating Officer of
PRWT Holdings, the holding company of PRWT Services, Inc., a Philadelphia-
based technology-oriented products and services company of which Mr. Wiley is
currently Principal, Executive Vice President and General Counsel. Previously,
Mr. Wiley was a Senior Partner with Goldstein & Manello, P.C. Mr. Wiley holds
an undergraduate degree from the U.S. Air Force Academy, as a Fulbright
Fellow, studied international relations at L'Institut des Etudes Politiques,
University of Paris, and holds a Masters degree in Public Policy from
Harvard's Kennedy School of Government and a law degree from Harvard Law
School. Mr. Wiley is a director and chairman of the audit committee of The TJX
companies, Inc., a New York Stock Exchange company. In addition, Mr. Wiley
holds directorships at KELLEE Communications Group, Inc., West Insurance
Agency, Inc., Urban Underwriters Insurance Agency, Inc., Coolidge Bank and
Trust Company, and The Greater Boston Chamber of Commerce (of which he is a
former chairman).
BOARD OF DIRECTORS
Meetings of the Board of Directors and Committees
The Board of Directors met four times during the fiscal year ended March 31,
2001. The Board of Directors has standing Audit and Compensation Committees.
The Board has no nominating committee. All of the Directors attended at least
75% or more of the meetings of the Board and of the Board committees on which
they served during the fiscal year ended March 31, 2001.
The Compensation Committee is responsible for evaluating compensation plans
for employees, management and Directors, and making recommendations on
compensation to the Board. During the fiscal year ended March 31, 2001, the
Compensation Committee consisted of George J. Markos and Lisa M. Mooney; in
May 2001, Alexander E. Aikens, III and Fletcher H. Wiley were elected as
additional members of the Compensation Committee. The Compensation Committee
met once during the fiscal year ended March 31, 2001. The Audit Committee
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 31, 2001, the Audit Committee consisted of George
J. Markos and Lisa M. Mooney; in May 2001, Alexander E.Aikens, III and
Fletcher H. Wiley were elected as additional members of the Audit Committee.
In May 2001, Lisa M. Mooney resigned from the Audit Committee in compliance
with independence relationship rules of the Company's Audit Committee charter.
The Audit Committee met once during the fiscal year ended March 31, 2001.
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. Directors of the Company are
entitled to non-employee stock option grants under the 1997 Stock Plan. During
the fiscal year ended March 31, 2001, no non-employee Directors received any
stock option grants.
3
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table reflects the number of shares of the Company's Common
Stock beneficially owned as of July 7, 2001 (i) by each person who is known by
the Company to own beneficially more than 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, nominees for Director 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 7, 2001. As used herein "voting power" is the power to vote or direct
the voting of shares, and "investment power" is the power to dispose of or
direct the disposition of shares. Except as indicated in the notes following
the table below, each person 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............................ 1,435,361(1) 28.9
c/o Boston Acoustics, Inc.
300 Jubilee Drive
Peabody, MA 01960
Wellington Management Company, LLP............ 496,000(2) 10.1
Capital Management Group
75 State Street
Boston, MA 02109
Lisa M. Mooney................................ 160,761 3.3
Moses A. Gabbay............................... 121,680(3) 2.4
Robert L. Spaner.............................. 52,333(4) 1.1
Michael B. Chass.............................. 32,499(5) *
Martin J. Harding............................. 13,648(6) *
Alexander E. Aikens, III...................... 1,020 *
George J. Markos.............................. 0 *
Fletcher H. Wiley............................. 0 *
All Directors and Executive Officers as a
group (13 persons)........................... 1,895,625(7) 36.7
- ---------------------
* Indicates less than 1% ownership.
(1) Includes (a) 369,728 shares owned by Mr. Kotsatos' wife, individually and
as trustee for the benefit of their children, as to which beneficial
ownership is disclaimed by Mr. Kotsatos and (b) 42,000 shares issuable
upon exercise of certain options which are currently exercisable or become
exercisable within 60 days of July 7, 2001 ("Currently Exercisable
Options").
(2) According to a letter dated February 14, 2001 from Brian P. Hillery,
Assistant Vice President of Wellington Management Company, LLP
("Wellington Management"), Wellington Management has shared voting power
for 436,000 shares and shared dispositive power for 496,000 shares. These
securities are owned by various individual and institutional investors
which Wellington Management 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, Wellington Management is deemed to be a beneficial owner of such
securities; however, Wellington Management expressly disclaims that it is,
in fact, the beneficial owner of such securities.
(3) Includes (a) 11,317 shares jointly owned by Mr. Gabbay and his son and
11,319 shares jointly owned by Mr. Gabbay and his daughter and (b) 68,000
shares issuable upon exercise of Currently Exercisable Options.
(4) Includes 52, 333 shares issuable upon exercise of Currently Exercisable
Options.
(5) Includes 32,499 shares issuable upon exercise of Currently Exercisable
Options.
(6) Includes 13,648 shares issuable upon exercise of Currently Exercisable
Options.
(7) Includes (a) 369,728 shares as to which beneficial ownership is disclaimed
and (b) 240,623 shares issuable upon exercise of Currently Exercisable
Options. See footnotes 1, 3, 4, 5 and 6.
4
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 other than the Chief Executive Officer for each of the last three
fiscal years.
Annual Compensation
------------------------------------------------------
Securities
Underlying
Options
Other Annual (#) All Other
Name and Fiscal Salary Bonus Compensation Long-Term Compensation
Principal Position Year(1) ($) ($) ($)(2) Compensation ($)
------------------ ------- ------- ------- ------------ ------------ ------------
Andrew G. Kotsatos ..... 2001 350,000 42,000 -- 0 100,684(3)
(Chief Executive Officer
& 2000 350,000 42,000 -- 18,000 100,961
Treasurer) 1999 350,000 39,000 14,023 -- 101,053
Moses A. Gabbay......... 2001 290,625 25,863 14,100 100,000 2,375(4)
(President & Chief
Operating 2000 221,875 103,669 14,100 28,000 2,375
Officer) 1999 200,000 70,450 3,525 10,000 2,375
Robert L. Spaner ....... 2001 221,539 20,031 -- 50,000 2,244(4)
(Executive Vice
President-- 2000 201,154 37,435 -- 20,000 2,182
Sales & Marketing) 1999 182,885 36,302 -- 5,000 2,223
Michael B. Chass ....... 2001 143,846 22,431 -- 20,000 1,656(4)
(Vice President--
Multimedia 2000 121,538 19,587 -- 20,000 900
Products Group) 1999 95,192 15,692 -- 15,000 663
Martin J. Harding ...... 2001 140,000 10,251 -- 5,000 --
(Vice President--
International 2000 122,500 18,751 -- 8,000 1,402
Sales)(5) 1999 118,000 9,680 3,200 5,000 --
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(1) The Company's fiscal year ends on the last Saturday of March.
(2) Reflects car allowances provided by the Company.
(3) Includes $98,309 paid in premiums for three life insurance policies, each
with split dollar arrangements, one covering the life of Mr. Kotsatos and
two policies 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 beneficiary of the policies will receive the excess. Also includes
$2,375 contributed by the Company under a defined contribution plan
established under Section 401(k) of the Internal Revenue Code, as amended
(the Code).
(4) Reflects Company contributions under a defined contribution plan
established under Section 401(k) of the Code.
(5) During the period November 1996 through April 30, 1999, Mr. Harding was
a consultant to the Company and was compensated in the form of
consulting fees during that time. Mr. Harding has performed the function
of Vice President--International Sales since November 1998 and
subsequently on May 1, 1999, he became an employee of the Company.
5
Option Grants in the Last Fiscal Year
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended March 31, 2001 to the named
executive officers:
Individual Grants
------------------------------------------
Potential Realizable
Percent Value at Assumed
Number of of Total Annual Rates of
Securities Options Exercise Stock Price
Underlying Granted to or Base Appreciation for
Options Employees Price per Option Term (2)
Granted in Fiscal Share Expiration ----------------------
Name (#) 2001 ($/sh)(1) Date 5% ($) 10% ($)
---- ---------- ---------- --------- ---------- ---------- -----------
Andrew G. Kotsatos...... 0 0 0 n/a 0 0
Moses A. Gabbay......... 100,000(3) 43.9 10.22 7/7/07 282,332.13 623,880.117
Robert L. Spaner........ 50,000(4) 21.9 10.22 7/7/07 141,166.06 311,940.08
Michael B. Chass........ 20,000(5) 8.8 10.22 7/7/05 56,466.43 124,776.03
Martin J. Harding....... 5,000(6) 2.2 9.63 4/24/05 13,296.05 29,380.79
- ---------------------
(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. Gabbay remains an employee of the Company, options for the
purchase of shares of Common Stock are exercisable in annual installments
equal to one fifth of the total number of shares underlying such options
on each of April 24, 2001, 2002, 2003, 2004 and 2005. Mr. Gabbay also has
options for the purchase of shares of Common Stock exercisable in annual
installments equal to one fifth of the total number of shares underlying
such options on each of July 7, 2001, 2002, 2003, 2004, and 2005.
(4) So long as Mr. Spaner remains an employee of the Company, options for the
purchase of shares of Common Stock are exercisable in annual installments
equal to one fifth of the total number of shares underlying such options
on each of April 24, 2001, 2002, 2003, 2004, and 2005. Mr. Spaner also has
options for the purchase of shares of Common Stock exercisable in annual
installments equal to one fifth of the total number of shares underlying
such options on each of July 7, 2001, 2002, 2003, 2004, and 2005.
(5) So long as Mr. Chass remains an 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 April 24, 2001, 2002, and 2003. Mr. Chass also has options for
the purchase of shares of Common Stock exercisable in annual installments
equal to one third of the total number of shares underlying such options
on each of July 7, 2001, 2002, and 2003.
(6) So long as Mr. Harding remains an 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 April 24, 2001, 2002, and 2003.
6
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 at
Shares Options at FY-End FY-End ($)(2)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized ($)(1) Unexercisable Exercisable Unexercisable
---- ----------- --------------- Exercisable ------------- ----------- -------------
Andrew G. Kotsatos...... -- -- 34,800 37,200(3) (70,954) (97,270)
Moses A. Gabbay......... -- -- 48,000 145,500(4) (44,510) 101,973
Robert L. Spaner........ -- -- 43,033 76,967(5) (28,418) 32,467
Michael B. Chass........ -- -- 45,833 14,167(6) (98,644) 6,349
Martin B. Harding....... -- -- 11,666 9,334(7) (40,831) 1,456
- ---------------------
(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 30, 2001 ($12.25 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 prices of these options are $12.79, $12.83 and $19.89 per
share.
(4) The exercise prices of these options are $9.63, $10.81, $11.63, $11.67,
$18.08 and $20.25 per share.
(5) The exercise prices of these options are $9.63, $10.81, $11.63, $18.08 and
$20.25 per share.
(6) The exercise prices of these options are $9.63, $10.81, $11.63, $17.33 and
$20.25 per share.
(7) The exercise prices of these options are $9.63, $11.63, $17.33 and $20.25
per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Lisa M. Mooney, a member of the Compensation Committee of the Board of
Directors during the fiscal year ended March 31, 2001, is the sister of Paul
F. Reed, an executive officer. Lisa M. Mooney and Paul F. Reed were the
daughter and son of Francis L. Reed, the former Chief Executive Officer and
Treasurer of the Company, who died on November 16, 1996, and Dorothea T. Reed,
a former Director of the Company, who died on January 5, 1997.
7
REPORT OF THE COMPENSATION COMMITTEE
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.
During the fiscal year ended March 31, 2001, 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. The
Compensation Committee met once during the fiscal year and was attended by all
members.
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 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 2001,
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 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
2000, the base salary for the named executive officers, other than the Chief
Executive Officer and the President, increased on average approximately
$20,064. The Compensation Committee awarded such increases to keep the Company
a competitive employer and to allow for increases in the cost of living.
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.
8
In Fiscal 2001, the Compensation Committee maintained relatively even bonus
levels of the executive officers, generally in proportion to increases in base
compensation. The Compensation Committee 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. 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 believes that the long-term incentives awarded by the Company in
Fiscal 1995 and 1996 were generally below the levels found at comparable
companies. In Fiscal 1997, 1998, 1999, 2000 and 2001, the Company made awards
to middle and upper level managers in an effort to improve this aspect of the
Company's compensation program and will continue to monitor this aspect of
compensation.
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.
Chief Executive Officer Compensation. In determining the compensation of the
Company's Chief Executive Officer, the Compensation Committee considered the
demonstrated leadership he has brought to the Company and the excellent
performance of the Company during Fiscal 1997 and 1998. Mr. Kotsatos' salary
did not increase during Fiscal 1997 as a result of his assuming the role of
Chief Executive Officer and Treasurer. However, Mr. Kotsatos was awarded
options to purchase 60,000 shares of Common Stock in 1997, 18,000 shares in
1998, and 18,000 shares in 2000 in recognition of his additional
responsibilities. On April 1, 1998 the Compensation Committee approved an
increase in Mr. Kotsatos' salary to $350,000 annually.
Respectfully Submitted by the
Compensation Committee
Alexander E. Aikens, III
George J. Markos
Lisa M. Mooney
Fletcher H. Wiley
9
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return over a
five-year period beginning March 31, 1996 and ending March 31, 2001 of the
Company's Common Stock to the cumulative total return on the Center for
Research in Securities Price ("CRSP") Total Return Index for the Nasdaq Stock
Market (U.S. Companies) ("Nasdaq Market-U.S. Index") and a Company-selected
peer group index that includes: Harmon Industries, Inc., Phoenix Gold Int'l,
Inc., Koss Corporation, and Recoton Corp. (the "Peer Group Index"). The Peer
Group Index was formed on a weighted average basis based on market
capitalizations, adjusted at the end of each year. Cumulative total return is
measured assuming an initial investment of $100 on March 31, 1996 and
reinvestment of dividends.
Research Data Group Peer Group Total Return Worksheet
BOSTON ACOUSTICS INC
Cumulative Total Return
-----------------------------------------------------------
3/96 3/97 3/98 3/99 3/00 3/01
BOSTON ACOUSTICS, INC 100.00 140.34 177.06 141.29 91.67 112.63
PEER GROUP 100.00 84.62 120.18 91.92 134.79 122.99
NASDAQ STOCK MARKET (U.S.) 100.00 111.15 168.47 227.60 423.35 169.48
10
REPORT OF THE AUDIT COMMITTEE
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 shall not be incorporated by reference into any such filings nor shall
it 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, except to the extent the Company
specifically incorporates this Report by reference.
During Fiscal 2001, the Audit Committee of the Board of Directors developed
a charter for the Committee which was approved by the full Board on June 12,
2000. The complete text of the Audit Committee's new charter, which reflects
the standards set forth in new SEC regulations and the Nasdaq Rules, is
reproduced in the appendix to this proxy statement. As set forth in more
detail in the charter, the Audit Committee's primary responsibilities fall
into three broad categories:
. first, the Committee is charged with monitoring the preparation of
quarterly and annual financial reports by the Company's management,
including discussions with management and the Company's outside auditors
about draft annual financial statements and key accounting and reporting
matters;
. second, the Committee is responsible for matters concerning the
relationship between the Company and its outside auditors, including
recommending their appointment or removal; reviewing the scope of their
audit services and related fees, as well as any other services being
provided to the Company; and determining whether the outside auditors
are independent (based in part on the annual letter provided to the
Company pursuant to Independence Standards Board Standard No. 1); and
. third, the Committee oversees management's implementation of effective
systems of internal controls, including review of policies relating to
legal and regulatory compliance, ethics and conflicts of interests and
review of the activities and recommendations of the Company's internal
auditing program.
The Committee has implemented procedures to ensure that during the course of
each fiscal year it devotes the attention that it deems necessary or
appropriate to each of the matters assigned to it under the Committee's
charter. During the period March 26, 2000 through March 31, 2001, the Audit
Committee comprised of George J. Markos and Lisa M. Mooney, met once. On May
15, 2001, the Board of Directors elected two new members to the Board of
Directors and also appointed them as members of the Audit Committee. In May
2001, Lisa M. Mooney resigned from the Audit Committee in compliance with
independence relationship rules of the Company's Audit Committee charter.
In overseeing the preparation of the Company's financial statements for
Fiscal 2001, the current members of the Committee met with both management and
the Company's outside auditors to review and discuss all financial statements
prior to their issuance and to discuss significant accounting issues.
Management advised the Committee that all financial statements were prepared
in accordance with generally accepted accounting principles, and the Committee
discussed the statements with both management and the outside auditors. The
Committee's review included discussion with the outside auditors of matters
required to be discussed pursuant to Statement on Auditing Standards No. 61
(Communication With Audit Committees).
With respect to the Company's outside auditors, the Committee, among other
things, discussed with Arthur Andersen LLP matters relating to its
independence, including the disclosures made to the Committee as required by
the Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees). The Committee received the following information concerning
the fees of the independent auditors for the fiscal year
11
ended March 31, 2001, and have considered whether the provision of these
services is compatible with maintaining the independence of the independent
auditors:
Audit Fees (including review of 10-Qs).............................. $83,000
Tax compliance services............................................. $45,000
International tax consultation...................................... $13,000
Finally, the Committee continued to monitor the scope and adequacy of the
Company's internal auditing program, including proposals for adequate staffing
and to strengthen internal procedures and controls where appropriate.
On the basis of these reviews and discussions, the Committee recommended to
the Board of Directors that the Board approve the inclusion of the Company's
audited financial statements in the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 2001, for filing with the Securities and
Exchange Commission.
Current Members of the Audit Committee:
George J. Markos (Independent) *
Alexander E. Aikens, III (Independent)
Fletcher H. Wiley (Independent)
- ---------------------
* Denotes Chairman of the Audit Committee.
PROPOSAL NO. 2--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 30, 2002 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 31, 2001. The Company paid Arthur Andersen LLP a total
of $141,000 during the fiscal year, of which $83,000 represented audit fees
and $58,000 represented tax compliance and international tax consulting
services.
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 unanimously recommends that you vote FOR the proposal
to ratify the choice of Arthur Andersen LLP as the Company's auditors.
PROPOSAL NO. 3--APPROVAL OF AMENDMENT TO 1997 STOCK PLAN
The Company's 1997 Stock Plan (the "Plan") was adopted by the Board of
Directors in May 1997, and was approved by the Company's stockholders in
August 1997. 450,000 shares of Common Stock (reflecting an adjustment for the
August 1998 3:2 stock split) were initially reserved for issuance under the
Plan (the "Original Plan Shares"). The Board of Directors in May 2001 approved
an increase by 500,000 in the number of shares covered by the 1997 Stock Plan.
Since such increase constitutes an amendment of the Plan, approval by the
holders of at least a majority of the shares of Common Stock represented in
person or by proxy and entitled to vote at the Meeting is required.
The Company's management relies on stock options as an essential part of the
compensation packages necessary for the Company to attract and retain
experienced employees, Directors and consultants. There remain, however, only
approximately 49,850 shares of stock available for grant for this purpose
under the Plan. The Board of Directors of the Company believes that the
proposed amendment is essential to permit the company's management to continue
to provide long-term, equity-based incentives to present and future employees,
Directors and consultants.
12
General. The Plan provides for the grant of options to employees, officers,
Directors and consultants of the Company and permits Directors who are not
also an officer or employee of the Company to purchase shares of Common Stock
with their cash fees for service as Directors (the 1997 Stock Plan, as
amended, the "Plan"). The Board of Directors has reserved 30,000 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, as amended (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.
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 and based on the recommendations of the Chief
Executive Officer, 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 296
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 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
13
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) May 28,
2007 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.
Direct Purchases of Stock by Directors Who Are Not Officers. The Plan
authorizes the purchase of up to 30,000 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 29, 2001, there are four Eligible Directors.
Certain Federal Income Tax Consequences. The following is a brief summary of
certain Federal income tax consequences of option grants and exercises 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
14
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, as amended) 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 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
15
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.
PLAN BENEFITS
The following table sets forth the number of options and shares of
restricted stock granted under the 1997 Stock Plan through March 31, 2001,
with respect to each person named in the Summary Compensation Table, all
current executive officers as a group (including the named executive officers
who are currently executive officers as a group). Because additional options
and other grants under the 1997 Stock Plan may be made by the Compensation
Committee from time to time at its discretion, it is impossible to state what
grants, if any, may in the future be made to such persons utilizing the
additional shares included in the 1997 Stock Plan (with respect to which
shares approval is being sought).
1997 Stock Plan
------------------------------------------
Number of Shares
subject to Number of Shares
Options Currently Held of Restricted Stock
---------------------- -------------------
Andrew G. Kotsatos, C.E.O.......... 36,000 0
Moses A. Gabbay, President and
C.O.O............................. 106,000 0
Robert L. Spaner, Executive V.P.
Sales & Marketing................. 65,000 0
Michael B. Chass, V.P. Multimedia
Products Group.................... 50,000 0
Martin B. Harding, V.P.
International Sales............... 21,000 0
Current Executive Officer Group.... 307,750 0
Non-Executive Officer Director
Group............................. 0 0
Non-Executive Officer Employee
Group............................. 85,850 0
The Board of Directors unanimously recommends that you vote FOR the proposal
to ratify the amendment to the 1997 Stock Plan.
16
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 31, 2001, except that, through inadvertence Andrew G.
Kotsatos, Moses A. Gabbay, Robert L. Spaner, Martin J. Harding, Debra A.
Ricker-Rosato and Michael B. Chass, executive officers, all made one late
filing on Form 5.
STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING
Any stockholder proposal intended to be presented for consideration at the
Company's 2002 Annual Meeting of Stockholders must be received by the Company
not later than March 31, 2002 in order to be considered for inclusion in the
Company's proxy statement for the 2002 Annual Meeting of Stockholders. To be
considered for presentation at the 2002 Annual Meeting of Stockholders
(although not included in the Company's proxy materials), proposals must be
received by the Company no later than June 1, 2002. 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.
17
Appendix A
CHARTER OF THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF
BOSTON ACOUSTICS, INC.
As Adopted June 12, 2000
Purpose
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the Company to
its shareholders, to any governmental body or the public; the Company's system
of internal controls regarding finance, accounting, legal compliance and
ethics that management and the Board have established; and the Company's
accounting and financial reporting processes generally. The Audit Committee's
primary duties and responsibilities are to:
. Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control systems.
. Ensure that the independent auditor is ultimately accountable to the
Board of Directors and the Audit Committee.
. Review and appraise the audit efforts of the Company's independent
accountants.
. Provide an open avenue of communication among the independent
accountants, financial and senior management and the Board of Directors.
Organization
The Audit Committee shall be comprised of at least two members and shall on
and after June 1, 2001, consist of not less than three members as determined
by the Board. Each Director shall be independent and financially literate, as
defined in the attachment A to this document.
The members of the Committee shall be elected by the Board on an annual
basis or until their successors shall be duly elected and qualified.
Meetings
The Committee shall meet quarterly (telephonically or in person) to discuss
with management and the independent auditors the results of the auditors'
review of the Company's quarterly financial statements. This discussion should
take place prior to the Company's quarterly earnings release. These meetings
may also be combined with other meetings with the independent auditors to
discuss the scope and results of the annual audit. Meetings may be scheduled
more frequently as circumstances dictate. As part of its responsibility to
foster open communications, the Committee should meet at least annually with
management and the independent accountants in separate executive sessions to
discuss any matters that the Committee or each of these groups believe should
be discussed privately. In addition, the Committee should meet with the
independent accountants and management prior to the annual audit concerning
the scope of the annual audit and reviewing and approving the independent
accountant's engagement letter. The Committee should also review the year-end
balance sheet, income and cash flow statements and audit results before
release to the Company's shareholders. This meeting will include the Company's
management and independent accountants and may be conducted by telephone at
the Committee's discretion.
The Company's chief financial officer will serve as secretary to the
Committee.
A-1
Responsibilities
To fulfill these responsibilities and duties, the Audit Committee shall:
1. Review and update this Charter periodically, as conditions require.
2. Review the Company's annual financial statements and any reports or other
financial information submitted to any governmental body, or the public,
including any certification, report, opinion, or review rendered by the
independent accountants.
3. Recommend to the Board of Directors the selection of the independent
accountants, considering independence and effectiveness and approve the
fees and other compensation to be paid to the independent accountants. On
an annual basis, the Committee should receive in writing from the
independent auditors a confirmation of their independence and review and
discuss with the accountants all significant relationships the accountants
have with the Company to determine the accountants' independence.
4. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
5. Periodically review with the independent accountants out of the presence
of management about internal controls and the fullness and accuracy of the
Company's financial statements.
6. Consider the independent accountants' judgement about the quality and
appropriateness of the Company's accounting principles as applied to its
financial reporting.
7. Consider and approve, if appropriate, major changes to the Company's
accounting principles and practices as suggested by the independent
accountants or management.
8. Following completion of the annual audit, review separately with each of
management and the independent accountants any significant difficulties
encountered during the course of the audit, including any restrictions on
the scope of the audit or access to required information.
9. Review any significant disagreement among management and the independent
accountants in connection with the preparation of the financial
statements.
10. Review with management and the independent accountants any recommendations
of the independent accountants arising during the conduct of the annual
audit for the improvement of internal control procedures or particular
areas where new or more detailed controls or procedures are desirable
together with management's responses.
11. Review periodically the Company's Code of Ethical Conduct and ensure that
management has established procedures to enforce this Code.
12. Review with the Company's legal counsel, legal compliance matters
including corporate securities trading policies.
13. Review with the Company's legal counsel any legal matter that could have a
material impact on the Company's financial statements.
14. Perform any other activities consistent with this Charter, the Company's
By-laws and governing law, as the Committee or the Board deems necessary
or appropriate.
15. Prepare a formal written report to the full Board of Directors at least
once per year or as necessary, reviewing the Committee's activities for
the year, its conclusions and actions taken as a result of those
activities.
A-2
Specific Approval/Recommendation Actions
The Committee will have approval authority for the following items:
. The discharge of the Company's independent accountants.
. Major changes to the Company's accounting principles and practices.
. Conduct or authorize investigations into any matters within the
Committee's scope of responsibilities. The Committee shall be empowered
to retain independent counsel and other professionals to assist in the
conduct of the investigation.
The Committee will review the following items and make recommendations to
the Board:
. The selection of independent accountants;
. The scope of the annual audit, including any recommended limitations,
and the engagement letter of the Company's independent accountants.
A-3
Attachment A
Independence Policy
The Audit Committee is responsible for overseeing the financial reporting
processes and, in doing so, may need to question the judgement of management
or take positions that may be contrary to those of management or the Board of
Directors. It must act in favor of the shareholders and other users of the
financial statements. Because of this oversight role, there is no doubt that
independence is essential for an Audit Committee to effectively function.
Members of the Audit Committee shall be considered independent if they have
no relationship to Boston Acoustics, Inc. that may interfere with the exercise
of their independence from management and the Company. Examples of such
relationships include:
. A Director being employed by the Company for the current year or any of
the past three years.
. A Director accepting compensation in excess of $60,000 from the Company
other than compensation for board services, benefits under a tax
qualified plan, or non-discretionary compensation.
. A Director being a member of the immediate family of an individual who
is, or has been in the past three years, employed by the Company as an
executive officer.
. A Director who is a partner in, or a controlling shareholder or an
executive officer of, any for-profit business to which the Company made,
or from which the Company received, payments (other than for investments
in the Company's securities) that exceed 5% of the Company's
consolidated revenues for the year; or $200,000, whichever is more, in
any of the past three years.
. A Director being employed as an executive of another company where any
of the Company's executives serves on that company's Compensation
Committee.
Financial Literacy Policy
Financial literacy is defined as the ability to read and understand
fundamental financial statements, including the Company's balance sheet,
income statement and cash flow statement. This requirement is deemed to be
fulfilled if the Director has had past employment experience in finance or
accounting, a professional certification in accounting or any other comparable
experience/background that results in the Director's financial sophistication,
including having been a chief executive officer (CEO), chief financial officer
(CFO) or other senior officer with financial oversight responsibilities.
A-4
BOSTON ACOUSTICS, INC.
AMENDED 1997 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 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.
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 950,000
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
-2-
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.
(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
-3-
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).
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
-4-
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 an 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;
(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
-5-
(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 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.
-6-
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.
(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 Purchasers. 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
-7-
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
-8-
transactions other than a public offering of stock of the Company to a
single person, entity or group of persons acting in concert.
(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, 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.
-9-
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.
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
-10-
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.
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)
-11-
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 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
-12-
"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
May 28, 1997
Amended by the Board of Directors
May 15, 2001
-13-
PROXY
BOSTON ACOUSTICS, INC.
Proxy Solicited on Behalf of the Board of Directors of the Company
for the Annual Meeting of Stockholders - August 14, 2001
The undersigned hereby appoints Andrew G. Kotsatos and Moses A. Gabbay, or
either of them, with full power of substitution, as 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 14, 2001 at 9:00 am., 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 MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- ------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------- -------------
[X] Please mark
votes as in
this example.
1. To elect six directors for the ensuing year. FOR AGAINST ABSTAIN
Nominees: (01) Andrew G. Kotsatos, (02) Moses A. Gabbay, 2. To ratify the action of the Directors [_] [_] [_]
(03) Alexander E. Aikens, III, (04) George J. Markos, on selecting Arthur Andersen LLP to
(05) Lisa M. Mooney and (06) Fletcher H. Wiley. serve as auditors for the Company for
the ensuing fiscal year.
FOR WITHHELD 3. To approve an increase by 500,000 in [_] [_] [_]
ALL [_] [_] FROM ALL the number of shares covered by the
NOMINEES NOMINEES 1997 Stock Plan.
[_]_______________________________________ 4. To transact such other business as may properly come before
For all nominees except as noted above the meeting or any adjournments thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
MARK HERE FOR COMMENTS [_]
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:________________