EXHIBIT 4
CAMBRIDGE SOUNDWORKS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 4, 1997
You are hereby notified that the Annual Meeting of Stockholders of
Cambridge SoundWorks, Inc. (the "Company") will be held on November 4, 1997 at
11:00 a.m. at the principal executive offices of Cambridge SoundWorks, Inc.
located at 311 Needham Street, Newton, Massachusetts 02164, to consider and act
upon the following matters:
l. To elect directors for the ensuing year.
2. To ratify the action of the Directors in appointing Arthur Andersen
LLP as auditors for the Company.
3. To transact such other business as may properly come before the
meeting.
Even if you plan to attend the meeting, please be sure to sign, date and
return the enclosed proxy in the enclosed envelope to:
Boston EquiServe Limited Partnership
150 Royall Street
Canton, Massachusetts 02021
Attention: Laurie Batstone
Only stockholders of record on the books of the Company at the close of
business on September 12, 1997 will be entitled to receive notice of and vote at
this meeting.
By order of the Board of Directors,
WAYNE P. GARRETT,
Clerk
September 29, 1997
IMPORTANT: IN ORDER TO SECURE A QUORUM AND TO AVOID THE EXPENSE OF SENDING
FOLLOW-UP LETTERS, PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
YOUR COOPERATION IS GREATLY APPRECIATED.
CAMBRIDGE SOUNDWORKS, INC.
311 NEEDHAM STREET
NEWTON, MASSACHUSETTS 02164
PROXY STATEMENT
SOLICITATION AND VOTING OF PROXIES
This proxy statement and the accompanying proxy card are being mailed to
stockholders commencing on or about September 29, 1997. The accompanying proxy
is solicited by the Board of Directors of Cambridge SoundWorks, Inc.
(hereinafter called the "Company") for use at the Annual Meeting of Stockholders
to be held on November 4, 1997, and any adjournment or adjournments thereof.
The cost of solicitation of proxies will be borne by the Company. Directors,
officers and a few employees may assist in the solicitation of proxies by mail,
telephone, telegraph and personal interview without additional compensation.
When a proxy is returned properly signed, the shares represented thereby
will be voted by the proxies named in accordance with the stockholder's
directions. 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" proposals 1 and 2 and in the discretion of the proxies as to
other matters that may properly come before the meeting. Sending in a proxy
will not affect a stockholder's right to attend the meeting and vote in person.
A proxy may be revoked by notice in writing delivered to the Clerk at any time
prior to its use or by voting in person at the meeting. A proxy may also be
revoked by a later dated proxy. A stockholder's attendance at the meeting will
not by itself revoke a proxy.
VOTING SECURITIES AND RECORD DATE
The Board of Directors has fixed September 12, 1997 as the record date for
the meeting. Only stockholders of record on the record date are entitled to
notice of and to vote at the meeting. On the record date, there were 3,803,027
shares of Common Stock, without par value, of the Company issued and
outstanding, all of which shares are entitled to one vote per share.
The Company's By-laws provide that a quorum shall consist of the
representation in person or by proxy at the annual meeting of stockholders
entitled to vote 51% of the votes that are entitled to be cast at the meeting.
Abstentions and broker non-votes will be counted for purpose of determining the
presence or absence of a quorum. "Broker non-votes" are shares held by brokers
or nominees which are present in person or represented by proxy, but which are
not voted on a particular matter because instructions have not been received
from the beneficial
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owner. The effect of abstentions and broker non-votes to be brought before the
Annual Meeting of Stockholders is discussed below.
With respect to the two matters scheduled to come before the stockholders
at the Annual Meeting, (i) directors shall be elected by a plurality of the
voting power present in person or represented by proxy at the meeting and
entitled to vote and (ii) the appointment of the auditors shall be determined by
a majority of the voting power present in person or represented by proxy at the
meeting and entitled to vote. With respect to the election of directors, only
shares that are voted in favor of a particular nominee will be counted towards
such nominee's achievement of a plurality. Shares present at the meeting that
are not voted for a particular nominee, shares present by proxy with respect to
which the stockholder properly withholds authority to vote for such nominee and
broker non-votes will not be counted towards such nominee's achievement of a
plurality. With respect to ratification of the appointment of the auditors,
abstentions and broker non-votes are considered present at the meeting for such
matter but, since they are not affirmative votes for the matter, they will have
the same effect as votes against the matter.
The Company's Annual Report to Stockholders, including financial statements
for the fiscal year ended June 29, 1997, is being mailed to stockholders of
record of the Company concurrently with this proxy statement. The Annual Report
is not, however, a part of the proxy soliciting materials.
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 12, 1997, by (i) each director of
the Company, (ii) each of the executive officers named in the Summary
Compensation Table, (iii) all directors and executive officers of the Company as
a group and (iv) each person known by the Company to own beneficially more than
5% of the Common Stock.
In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner, for purposes of this table, of any
voting securities of the Company 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 60 days of September 12, 1997. 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 shares listed
as being beneficially owned by such person.
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SHARES OF COMMON STOCK
BENEFICIALLY OWNED
-----------------------
NUMBER PERCENT
----------- ----------
Creative Technology Ltd (1) 1,169,608 27.02%
31 International Business Park
Creative Resource
Singapore, 609921
William R. Hambrecht (2) 337,000 7.78%
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Henry E. Kloss 322,766 7.46%
174 Brattle Street
Cambridge, MA 02138
DIRECTORS AND OFFICERS
Thomas J. DeVesto (3) 338,605 7.82%
Thomas E. Brew, Jr. (4) 8,000 *
Franklin S. Browning, Jr. (4) 8,000 *
Wayne P. Garrett (5) 21,666 *
Thomas J. Hannaher (6) 25,394 *
Leo Kahn (4) 15,300 *
Robert S. Mainiero (7) 15,000 *
Craig L. McHugh --- ---
Sandy Ruby (8) 21,666 *
Peter B. Seamans (4) 8,000 *
All directors and executive officers as a group (10 461,631 10.64%
persons)(3)(4)(5)(6)(7)(8)
_______________________
* Less than one percent.
(1) According to a report filed with the Securities and Exchange Commission on
Schedule 13D, dated March 5, 1997, Creative Technology Ltd. exercises sole
voting power with respect to 1,169,608 shares of Common Stock including
currently exercisable warrants to purchase 257,314 shares of Common Stock.
(2) According to a report filed with the Securities and Exchange Commission on
Amendment No. 1 to Schedule 13D, dated August 15, 1997, William R.
Hambrecht is the Chairman of Hambrecht & Quist Group ("H&Q Group", which is
the sole parent of Hambrecht & Quist California), Hambrecht & Quist
California ("H&Q California", which is a member of Hambrecht & Quist LLC)
and Hambrecht & Quist LLC ("H&Q LLC") and is a trustee
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of The Hambrecht 1980 Revocable Trust ("Trust"). Mr. Hambrecht shares
voting and investment power with respect to the 145,000 shares (3.4%) held
by H&Q LLC and 192,000 shares (4.4%) held by the Trust. Mr. Hambrecht
disclaims beneficial ownership as to 337,000 shares. Each of H&Q Group and
H&Q California disclaims beneficial ownership as to 145,000 shares.
(3) Includes currently exercisable options granted to Mr. DeVesto to purchase
74,167 shares of Common Stock. Includes 11,530 shares of Common Stock held
by Mr. DeVesto as custodian for minor children with respect to all of which
shares Mr. DeVesto disclaims beneficial ownership.
(4) Includes currently exercisable options granted to each of Messrs. Brew,
Browning and Kahn to purchase 8,000 shares of Common Stock.
(5) Includes currently exercisable options granted to Mr. Garrett to purchase
21,666 shares of Common Stock.
(6) Includes currently exercisable options granted to Mr. Hannaher to purchase
25,394 shares of Common Stock.
(7) Includes currently exercisable options granted to Mr. Mainiero to purchase
15,000 shares of Common Stock.
(8) Includes currently exercisable options granted to Mr. Ruby to purchase
21,666 shares of Common Stock.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and stockholders who own more than 10% of the outstanding
Common Stock of the Company to file with the Securities and Exchange Commission
and Nasdaq reports of ownership and changes in ownership of voting securities of
the Company and to furnish copies of such reports to the Company. To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company, during the year ended June 29, 1997, or written
representations in certain cases, the Company believes that all Section 16(a)
filling requirements were satisfied during the year ended June 29, 1997, except
that through inadvertence, Leo Kahn failed to file a Form 4 to reflect certain
Common Stock purchases for which a Form 5 has now been filed with the Commission
and Nasdaq.
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PROPOSAL NO. 1 - ELECTION OF DIRECTORS
One of the purposes of the meeting is to elect seven (7) 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 seven (7) nominees named
below, unless otherwise specified on the proxy card. All of the nominees except
Joseph M. Piccirilli are currently members of the Board and have consented to be
named and to serve if elected. Mr. Piccirilli has also consented to be named
and serve, if elected. There are no family relationships between any nominees,
directors or executive officers of the Company.
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 OF DIRECTORS 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:
PRESENT PRINCIPAL EMPLOYMENT
NAME AGE AND PRIOR BUSINESS EXPERIENCE DIRECTOR SINCE
- ---------------------- --- --------------------------------------- --------------
Thomas J. DeVesto 50 Mr. DeVesto, a co-founder of the 1988
Company, has served as Director,
President and Chief Executive Officer
since 1988. From 1985 to 1988, he
was a consultant to ITT Corporation
and represented ITT Corporation in
connection with its relationship with
Kloss Video Corporation. From 1978
to 1985, he was Vice President of
Sales and Marketing of Kloss Video
Corporation. From 1976 to 1978,
Mr. DeVesto held various sales
management positions in the
international and domestic divisions
of Advent Corporation.
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Thomas E. Brew, Jr. 55 Mr. Brew served as Acting Co-Chief 1995
Executive Officer and President of
Kurzweil Applied Intelligence, Inc., a
speech recognition software company,
from May 1994 until November 1994
when he was elected President, Chief
Executive Office and a director.
From 1979 to May 1994, Mr. Brew
was a founder and Executive Vice
President of Argus Management
Corporation, a firm that provides
interim management services in crisis
situations.
Franklin S. 69 Franklin S. Browning, Jr. has been a 1996
Browning, Jr. director of the Company since
November 1996. Mr. Browning co-
founded the Boston advertising
agency Humphrey Browning
McDoughall in 1970. He was
chairman of Humphrey Browning
McDoughall from 1970 until 1983.
Leo Kahn 80 Mr. Kahn was a founder, President 1995
and Chief Executive Officer of Purity
Supreme, Inc. prior to the sale of the
company in 1984. After the sale,
Mr. Kahn co-funded Staples, Inc., a
retail office supply chain and took
part in various other business
ventures including Health
Development Corporation, a
chain of exercise centers and Fresh
Fields, Inc., a chain of health food
supermarkets. He has been a partner
of United Properties since 1985, a
director of Big V Supermarkets and
Grossmans, Inc. since 1986.
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Craig L. McHugh 40 Craig L. McHugh has been a director 1997
of the Company since August 1997.
In connection with Creative Labs,
Inc.'s investment in the Company,
Mr. McHugh was elected to the
Board of Directors. Mr. McHugh
has been Vice President, General
Manager of Creative Labs, Inc. since
January 1996. He joined Creative
Labs, Inc. in October 1993 as
General Manager of Worldwide OEM
and later served as Vice President of
Sales and Marketing of Creative
Labs, Inc.
Prior to his employment at Creative
Labs, Inc., Mr. McHugh was Vice
President of Sales and Marketing at
Trace, Inc. and was also a member of
Trace, Inc.'s Board of Directors.
Joseph M. Piccirilli 48 Mr. Piccirilli has been consultant to
the consumer electronics industry
since 1988. He is also President of
the Academy for the Advancement of
High End Audio and Video. In 1974,
Mr. Piccirilli was one of the founders
of Sound Advice Inc., a publicly
traded, Florida based consumer
electronics retailer.
Peter B. Seamans 73 Mr. Seamans has been a partner with 1996
the law firm of Peabody & Arnold
since 1957. He previously served as
a director of Kloss Video Corporation
and Advent Corporation and currently
serves on the Board of Directors of
the Peabody Essex Museum and the
USS Constitution Museum.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Woody Kaplan, a former director of the Company, owns a minority interest in
six shopping mall locations in which the Company leases space.
In February, 1994, the Company entered into a License Agreement (the
"License Agreement") with Henry Kloss. The License Agreement provides that the
Company has the perpetual right to use Henry Kloss's name on products that Mr.
Kloss designed or had a substantial role in designing. The rights granted to the
Company by Mr. Kloss terminate as to any product whose appearance or performance
specifications are materially changed by the Company without Mr. Kloss's
consent. Upon termination of Mr. Kloss's employment, the Company agreed not to
use his name generically or in connection with a product unless the Company had
previously done so or Mr. Kloss consented to such use. Under this Agreement, the
Company was not required to make any payments to Mr. Kloss for the right to use
his name.
In April 1996, the Company entered into a Consulting Agreement (the
"Consulting Agreement") with Henry Kloss whereby Mr. Kloss agreed to assist the
Company in its selection and design of current and future products. The
Consulting Agreement expires in September 1999. Pursuant to the terms of the
Consulting Agreement, the Employment Agreement and the License Agreement were
effectively terminated. No Additional payments were due to Mr. Kloss upon the
termination of his Employment Agreement. The Consulting Agreement called for
annual payments to Mr. Kloss of $330,000, plus certain fringe benefits, through
September 1996 with annual payments thereafter of $110,000, plus certain fringe
benefits. The term of the Consulting Agreement extends through September 1999.
Effective September 30, 1996, Mr. Kloss terminated the Consulting
Agreement. At the same time, Mr. Kloss notified the Company of his intention not
to stand for reelection as a Director. Mr. Kloss continues to act as a
consultant to the Company, for which he is paid $10,565 per month, but for which
there is no formal agreement. This arrangement can be terminated by either party
at will. Mr. Kloss provided consulting services to the Company during year ended
June 29, 1997 for which he received approximately $179,000 from the Company.
The Company will not extend or guarantee loans to officers, directors,
employees or affiliates of the Company unless such loans (i) are approved both
by a majority of the Board of Directors and by a majority of the disinterested
directors, and (ii) are on terms no less favorable to the Company than could be
obtained from unaffiliated parties.
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INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors met five times during the fiscal year ended June 29,
1997. There was no director who during the fiscal year attended fewer than 75
percent of the aggregate of all board meetings and all meetings of committees on
which he served.
The Board of Directors has a three-member Audit Committee which is
reconstituted at the first meeting of the Board following the annual meeting of
stockholders. The Audit Committee, which met one time during fiscal 1997, meets
with the Company's independent auditors and principal financial personnel to
review the scope and results of the annual audit and the Company's financial
reports. The Audit Committee also reviews the scope of audit and non-audit
services performed by the independent public accountants, reviews the
independence of the independent public accountants and reviews the adequacy and
effectiveness of internal accounting controls. The present members of the Audit
Committee are Messrs. Brew, Kahn and Seamans.
The "disinterested" directors, for purposes for Rule 16b-3 under the
Exchange Act, Messrs. Brew, Kahn and Seamans acting as a Compensation Committee,
have the authority, subject to the express provisions of the Company's 1993
Stock Option Plan, to determine the employees of the Company to receive options,
the number of shares to be optioned and the terms of the options granted; to
construe and interpret the 1993 Stock Option Plan and outstanding options; and
to make all other determinations that they deem necessary and advisable for
administering the 1993 Stock Option Plan.
The Board of Directors does not have a standing committee on nominations.
Directors' Compensation
Outside directors are compensated for their service on the Board of
Directors at the rate of $1,000 per meeting plus expenses. Directors who are
employees of the Company are not paid any additional compensation for serving as
directors.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
compensation paid or accrued by the Company for services rendered to the Company
in all capacities for the years ended June 29, 1997, June 30, 1996 and July 2,
1995, by its Chief Executive Officer and each of the Company's other executive
officers whose total salary and bonus exceeded $100,000 during such 12 month
periods:
LONG-TERM
-------------------
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- -------------------
OTHER ALL
ANNUAL STOCK OTHER
NAME AND YEARS SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION ENDED(1) $ $ ($)(2) (#)(3) ($)(4)
- ---------------------------------- ------- -------- ------- ------------ ------- -------------
Thomas J. DeVesto
President and Chief Executive
Officer 6/29/97 371,162 27,000 --- 205,000 ---
6/30/96 335,692 --- --- 155,000 ---
7/2/95 312,693 --- --- 25,000 ---
Henry E. Kloss
Former Chairman of the
Board and
Former Director of Product
Development 6/29/97 0 --- --- --- ---
6/30/96 269,077 --- --- 6,250 ---
7/2/95 312,693 --- --- 25,000 ---
Wayne P. Garrett
Vice President - Finance and
Chief Financial Officer 6/29/97 144,498 10,800 --- 45,000 ---
6/30/96 126,947 --- --- 30,000 ---
7/2/95 18,269 --- --- 20,000 ---
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Thomas J. Hannaher
Vice President - Marketing 6/29/97 148,984 10,800 --- 45,000 ---
6/30/96 126,947 --- --- 30,000 ---
7/2/95 148,000 --- --- 13,720 ---
Robert S. Mainiero
Vice President - Business
Development 6/29/97 130,772 10,800 --- 45,000 ---
6/30/96 62,500 --- --- 30,000 ---
7/2/95 0 --- --- --- ---
Sandy Ruby
Vice President - Retail 6/29/97 126,526 10,800 --- 45,000 ---
6/30/96 117,789 --- --- 30,000 ---
7/2/95 0 --- --- --- ---
_________________________
(1) On March 14, 1995, the Company's fiscal year was changed to end on the
Sunday nearest the end of June. Therefore, the Company's fiscal year for
1995 consisted of only six months ended on July 2, 1995. The amount shown
for July 2, 1995 has been restated to include the 12 months ended July 2,
1995.
(2) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constituted less than the lesser of $50,000 or ten percent of the total
annual salary and bonus reported for the executive officer during the years
ended June 29, 1997, June 30, 1996 and July 2, 1995.
(3) Options represent the right to purchase shares of Common Stock at a fixed
price per share (fair market value) in accordance with vesting schedules
applicable to each option.
(4) The Company did not grant any restricted stock awards or stock appreciation
rights (SARs) or make any long-term incentive plan payouts during the year
ended June 29, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
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The following table shows all options granted to each of the named executive
officers of the Company during the year ended June 29, 1997, and the potential
value at stock price appreciation rates of 5% and 10% over the ten year term of
the options. The 5% and 10% rates of appreciation are not intended to forecast
possible future actual appreciation, if any, in the Company's stock prices. The
Company did not use an alternative present value formula because the Company is
not aware of any such formula that can determine with reasonable accuracy the
present value based on future unknown or volatile factors.
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INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS/SARS STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM(4)
---------------------------------
OPTIONS/SARS IN THE YEAR PRICE EXP.
NAME GRANTED (#) ENDED 6/29/97 ($/SH)(3) DATE 5%()$ 10%($)
- -------------------- ---------- ------------- -------- --------- --------- --------
Thomas J. DeVesto 50,000(1) 26.6% 4.13 1/14/07 129,867 329,108
Wayne P. Garrett 15,000(1) 8.0% 3.75 1/14/07 35,375 89,648
Thomas J. 15,000(1) 8.0% 3.75 1/14/07 35,375 89,648
Hannaher
Robert S. Mainiero 10,000(2) 5.3% 5.38 12/30/06 33,835 85,743
15,000(1) 8.0% 3.75 1/14/07 35,375 89,648
Sandy Ruby 15,000(1) 8.0% 3.75 1/14/07 35,375 89,648
(1) These options are exercisable on January 14, 1997, at which time the
options are 33 1/3% vested with options vesting in additional 33 1/3%
increments in two annual installments commencing on January 14, 1998.
(2) These options are exercisable on December 30, 1997, at which time the
options are 33 1/3% vested with options vesting in additional 33 1/3%
increments in two annual installments commencing on December 30, 1998.
(3) The exercise price per share is the market price of the underlying Common
Stock on the date of grant.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed rates of share price appreciation set by the
Securities and Exchange Commission of five percent and ten percent
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise. Actual gains, if any, are dependent on the performance
of the Common Stock and the date on which the option is exercised. There
can be no assurance that the amounts reflected will be achieved.
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AGGREGATED OPTION EXERCISES IN THE YEAR ENDED JUNE 29, 1997 AND OPTION VALUES AT
JUNE 29, 1997
The following table sets forth certain information with respect to the
unexercised stock options held as of June 29, 1997, by the executive officers
named in the Summary Compensation Table above.
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF SECURITIES IN-THE-MONEY
ON VALUE UNDERLYING UNEXERCISED OPTIONS AT
EXERCISE REALIZED(1) OPTIONS AT JUNE 29, 1997 JUNE 29, 1997($)
-------- ----------- ------------------------ --------------------
EXER- UNEXER- EXER- UNEXER-
CISABLE CISABLE CISABLE CISABLE
------- ------- ------- -------
Thomas J. --- --- 74,167 130,833 43,875 88,375
DeVesto
Wayne P. Garrett --- --- 21,666 23,334 6,850 13,100
Thomas J. --- --- 25,394 19,606 10,750 17,000
Hannaher
Robert S. Mainiero --- --- 15,000 30,000 12,917 25,833
Sandy Ruby --- --- 21,666 23,334 6,250 12,500
- ----------
(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.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 29, 1997, the Compensation Committee of
the Board of Directors of the Company was responsible for establishing executive
compensation. No executive officer of the Company served as a director or
member of a Compensation Committee, or its equivalent, of another entity, one of
whose executive officers served as director of the Company.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE EXCHANGE ACT,
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 EXCHANGE ACT.
REPORT OF THE COMPENSATION COMMITTEE AND THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
During the fiscal year ended June 29, 1997, the Compensation Committee of
the Board of Directors of the Company was responsible for establishing and
administering the policies which govern annual compensation for the Company's
executive officers and was responsible for considering stock option compensation
for the Company's executive officers.
OVERVIEW
The Compensation Committee of the Board of Directors has historically
established levels of executive compensation that provide for a base salary and
bonuses intended to allow the Company to hire, motivate and retain qualified
executive officers. Bonuses were declared in fiscal 1997. From time to time,
the Compensation Committee also grants stock options to executive officers and
key employees in order to bring the stockholders' interests more sharply into
the focus of such officers and employees.
The Compensation Committee of the Board of Directors establishes the annual
salary and bonus of each of the executive officers other than the Chief
Executive Officer, based on the recommendations made by the Chief Executive
Officer. In determining the recommendations for salary and bonus for each of
the other executive officers, the Chief Executive Officer considers each
officer's individual performance, attainment of individual goals and the
contribution to the overall attainment of the Company's goals.
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STOCK OPTIONS AND OTHER COMPENSATION
Long-term incentive compensation for executive officers consists
exclusively of stock options granted under the Company's Stock Option Plans (the
"Plans"). Executive officers as well as other key employees of the Company
participate in the Plans. During fiscal 1997, the Compensation Committee granted
options to Mr. DeVesto and Robert S. Mainiero, to certain newly appointed
executive officers and those executive officers whose duties and
responsibilities had increased since the prior fiscal year as a result of
promotions or departmental restructuring.
BASIS FOR THE COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation of Mr. DeVesto, Chief Executive Officer, during the year
ended June 29, 1997, was based upon the DeVesto Employment Agreement. The
DeVesto Employment Agreement, amended on February 14, 1997, provides for an
initial salary of not less than $385,000 and an annual $8,000 car allowance,
subject to adjustment at the discretion of the Board of Directors. The Company
also awarded Mr. DeVesto options to purchase 50,000 shares of Common Stock.
Mr. DeVesto received a bonus of $27,000 during the fiscal year ended June
29, 1997.
The Company does not have, nor does it intend to have in the future, a
Chairman of the Board of Directors.
Thomas E. Brew, Jr.
Leo Kahn
Peter B. Seamans
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COMPARISON OF FIVE YEAR CUMULATIVE RETURN
Set forth below is a line graph comparing the Company's 38 month cumulative
total stockholder return with the Nasdaq Stock market - US Index and the Nasdaq
Non-Financial Index. Cumulative total return is measured assuming an initial
investment of $100 and reinvestment of dividends.
-18-
EXECUTIVE AGREEMENTS
EMPLOYMENT AND CONSULTING AGREEMENTS
On February 14, 1997 the Company entered into a three year employment
agreement with Thomas J. DeVesto (the "DeVesto Employment Agreement") employing
him as President and Chief Executive Officer. Pursuant to the DeVesto
Employment Agreement, which provides for an initial salary of not less than
$385,000, with such adjustments thereto after the first year which the Board of
Directors of the Company may approve, Mr. DeVesto is also entitled to certain
fringe benefits, including the right to participate in all bonus and benefit
programs that the Company makes available to its employees and an annual $8,000
car allowance. The DeVesto Employment Agreement may be terminated by either
party on six month's prior notice for any reason in which event Mr. DeVesto is
entitled to a payment equal to his then annual salary in consideration of an
agreement not to compete with the Company for one year following the termination
of his employment.
Effective September 30, 1996, Henry Kloss terminated the Consulting
Agreement dated April 24, 1996 which he had entered into with the Company to
provide general and specific advice, counsel and assistance to the Company with
respect to the selection and design by the Company of its current and future
products. At the same time, Mr. Kloss notified the Company of his intention not
to stand for reelection as a Director. Mr. Kloss continues, on an informal
basis, to act as a consultant to the Company for which he is paid $10,565 per
month but for which there is no formal written agreement. This arrangement can
be terminated by Mr. Kloss or the Company at will.
STOCK PLANS
On December 31, 1993, the Company adopted, and on January 13, 1994, the
stockholders approved, the Company's 1993 Stock Option Plan (the "1993 Stock
Option Plan"), pursuant to which options to purchase up to 301,500 shares of
Common Stock may be granted to directors, officers and employees of, and
consultants or advisors to, the Company. The 1993 Stock Option Plan is
intended to encourage ownership of the Company's Common Stock by directors,
officers and employees of, and consultants and advisors to, the Company. The
1993 Stock Option Plan provides for the granting of incentive stock options
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 which do not meet the requirements of Section 422 of the Code. If any
unexercised option granted pursuant to the 1993 Stock Option Plan lapses or
terminates for any reason, the shares of Common Stock covered thereby may again
be optioned under the 1993 Stock Option Plan.
The 1993 Stock Option Plan is currently administered by the Compensation
Committee of the Board of Directors, which consists of three directors, each of
whom must be a "disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act. The
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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. No option is exercisable after 10 years from the date on which it is
granted.
The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to incentive stock options which first become exercisable in
any calendar year by an employee or officer may not exceed $100,000. Incentive
stock options 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 all
classes of voting stock of the Company.
Options issued under the 1993 Stock Option Plan are not transferable,
except by will or the laws of descent and distribution. Each option is
exercisable only while the optionee is in the employ or serving as a director
of, or consultant or advisor to, the Company, except that an incentive stock
option is exercisable within up to three months after termination of employment
or service to the extent such option has vested at the time of such termination
and non-qualified stock options may be exercisable for a longer period after
termination of employment or any service arrangement. If an optionee dies
while employed or retained by the Company or within three months of the
termination of his or her employment by or service to the Company, such
optionee's options may be exercised up to 12 months after his or her death. If
an optionee is permanently disabled during his or her employment by or service
to the Company, such optionee's options may be exercised up to one year
following termination of his or her employment or service due to such
disability. The exercise price of options granted under the 1993 Stock Option
Plan must be paid in full upon exercise in cash, shares of Common Stock already
owned by the optionee or by any other means the Board of Directors determines,
or a combination thereof.
The 1993 Stock Option Plan will terminate on January 13, 2004, 10 years
from the date the plan was approved by the Company's stockholders, but the Board
of Directors may, at any time, terminate, modify or amend such plan. The Board
of Directors may not, without the prior approval of the stockholders of the
Company, increase the maximum aggregate number of shares for which options may
be granted under the 1993 Stock Option Plan.
The 1993 Stock Option Plan was amended at a Special Meeting of the
Stockholders of the Company on November 28, 1995 which was temporarily adjourned
and reconvened on December 12, 1995. The amendment to the 1993 Stock Option
Plan (i) increased the number of shares of Common Stock authorized for issuance
under the 1993 Stock Option Plan, by 168,500, to 470,000 shares, (ii) granted
existing and future non-employee directors of the Company options to purchase
8,000 shares of Common Stock under certain conditions and (iii) provided for the
immediate vesting of all options under the 1993 Stock Option Plan in the event
of a sale of all or substantially all of the Company's assets or Common Stock to
a third party.
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In fiscal year 1997, the Company granted incentive stock options under the
1993 Stock Option Plan to an aggregate of 18 employees of the Company
exercisable for an aggregate of 187,820 shares at exercise prices between $3.75
and $5.38 per share, all of which vest over a period of two years or three
years. Of the 187,820 shares granted, an option to purchase 10,000 shares was
issued to Robert S. Mainiero, on December 31, 1997, at an exercise price of
$5.38 per share and an option to purchase 50,000 shares was issued to Thomas J.
DeVesto on January 14, 1997, at an exercise price of $4.13, and an option to
purchase 15,000 shares was issued to each of Thomas J. Hannaher, Wayne P.
Garrett, Robert S. Mainiero and Sandy Ruby, on January 14, 1997, at an exercise
price of $3.75 per share.
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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 June 28, 1998 and has 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 June 29, 1997.
Representatives of Arthur Andersen LLP are expected to be present at the
meeting, with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO RATIFY
THE CHOICE OF ARTHUR ANDERSEN LLP AS THE COMPANY'S AUDITORS.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Any stockholder desiring to present a proposal for consideration at the
Company's 1998 annual meeting of stockholders, scheduled to be held on or about
November 2, 1998 and included in the Company's proxy statement, must submit the
proposal to the Company so that it is received at the executive offices of the
Company not later than August 1, 1998. 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
instructed 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.
FORM 10-K AVAILABLE
THE ANNUAL REPORT OF THE COMPANY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K IS AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE VICE PRESIDENT/FINANCE OF THE COMPANY AT 311 NEEDHAM
STREET, NEWTON, MASSACHUSETTS 02164.
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