DEF 14A 1 ddef14a.htm DEFINITIVE PROXY STATEMENT DEFINITIVE PROXY STATEMENT

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

 

Filed by the Registrant    x

 

Filed by a Party other than the Registrant    ¨

 

Check the appropriate box:

 

¨    Preliminary Proxy Statement

¨        Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x    Definitive Proxy Statement

 

¨    Definitive Additional Materials

 

¨    Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

 

BOSTON ACOUSTICS, INC.

(Name of Registrant as Specified In Its Certificate)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

x No fee required.

 

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

  1) Title of each class of securities to which transaction applies:

 

  2) Aggregate number of securities to which transaction applies:

 

  3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

  4) Proposed maximum aggregate value of transaction:

 

  5) Total fee paid:

 

¨    Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  1) Amount Previously Paid:

 

  2) Form, Schedule or Registration Statement No.:

 

  3) Filing Party:

 

  4) Date Filed:

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 12, 2003, 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 12th.

 

Sincerely yours,

ANDREW G. KOTSATOS

Chairman of the Board

BOSTON ACOUSTICS, INC.

300 Jubilee Drive

Peabody, MA 01960

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

AUGUST 12, 2003, 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 12, 2003 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 set the number of Directors constituting the Board of Directors for the ensuing year at six (6) and to elect a Board of Directors.

 

  2.   To ratify the action of the Board of Directors in appointing Ernst & Young LLP as auditors for the Company’s current fiscal year.

 

  3.   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 Company, NA

Proxy Department

P. O. Box 43010

Providence, RI 02940-3010

 

Only stockholders of record on the books of the Company at the close of business on June 27, 2003 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 18, 2003

 

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 18, 2003

 

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 27, 2003 of the Company’s outstanding shares of Common Stock, $.01 par value (“Common Stock”), commencing on or about July 18, 2003. 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 12, 2003 (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, 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 Common Stock is the only outstanding class of voting security of the Company. Each share of Common Stock is entitled to one vote. The Board of Directors has fixed June 27, 2003 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 4,401,595 shares of Common Stock issued and outstanding.

 

Under Massachusetts law and the Company’s By-laws, the presence of holders of a majority of the issued and outstanding shares of 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 Ernst & Young LLP as the Company’s auditors 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 29, 2003, is being mailed to stockholders of record of the Company as of June 27, 2003 concurrently with this Proxy Statement.

 

PROPOSAL NO. 1—ELECTION OF DIRECTORS

 

One of the purposes of the Meeting is to set the number of Directors constituting the Board of Directors and to elect 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 setting the number of Directors at six (6) and electing the 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.

 

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 63) co-founded the Company in February 1979 and has served as a Director since the Company’s inception. He was Executive Vice President from February 1979 until April 1986, President from April 1986 until November 1996, and Chairman of the Board, Chief Executive Officer and Treasurer from November 1996 until May 2002. Although no longer Chief Executive Officer, Mr. Kotsatos maintains his position as Chairman of the Board 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 58) was elected Chief Executive Officer of the Company in May 2002. He had held the office of President and COO of the Company since August 2000. Mr. Gabbay 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 54) 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.

 

2

George J. Markos (age 54) 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.

 

Lisa M. Mooney (age 37) 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.

 

Fletcher H. Wiley (age 60) 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).

 

Executive Officers of the Registrant

 

In addition to two directors who are also executive officers of the Company (Andrew G. Kotsatos, who is Chairman of the Board and Treasurer, and Moses A. Gabbay, who is President and Chief Executive Officer), the following persons serve as executive officers of the Company:

 

Name

    Age
   

Title

Robert R. Ain

    54    Senior Vice President—Marketing

Michael B. Chass

    33    Vice President—Automotive and Multimedia OEM

Debra A. Ricker-Rosato

    47    Vice President—Finance

Robert L. Spaner

    43    Executive Vice President—Sales

 

Robert R. Ain has been Senior Vice President—Marketing since joining the Company in April 2003. Prior to joining the Company, Mr. Ain was employed by KEF America, and its former corporate entity, ADCOM, from 1981, except for a three-year period when he served as Vice President of Marketing and a member of the Board of Directors for Polk Audio, Inc. Mr. Ain’s last position with KEF America was that of Executive Vice President. Mr. Ain has served on the Board of Directors of PARA, the Audio Board of CEA (Consumer Electronics Association) and CASA (Custom Auto Sound Association). Mr. Ain is currently on the Editorial Advisory Board of Custom Retailer, an industry trade journal.

 

Michael B. Chass has been Vice President—Automotive and Multimedia OEM since August 1999. He joined the Company in 1994 as an account manager. In 1996, he became a Sales Manager and in 1998 became a Director of Sales. Mr. Chass was formerly employed by C.P.S. Marketing as an Assistant Director of Sales and Marketing. He holds a BSBA in Marketing from the University of Missouri.

 

3

Debra A. Ricker-Rosato was named Vice President—Finance in May 1993. Prior to joining the Company in October 1986 as Controller, Ms. Ricker-Rosato was employed by Babco-Textron, a manufacturer of small aircraft engine components, where her last position was Assistant Controller. She holds a BS degree from Merrimack College and an MSF degree from Bentley College.

 

Robert L. Spaner has been Executive Vice President—Sales since November 2001. From August 2000 until November 2001, he served as Executive Vice President—Sales and Marketing. He joined the Company in 1987 as a regional sales manager. In 1990, he became National Sales Manager and in 1993 became Vice President—Sales. Mr. Spaner was formerly employed by Kloss Video as Western Regional Manager and worked six years in retail sales at Tweeter, Etc.

 

Each executive officer is elected for a term scheduled to expire at the meeting of Directors following the Annual Meeting of Stockholders or until a successor is duly chosen and qualified. There are no arrangements or understandings pursuant to which any executive officer was or is to be selected for election or reelection. There are no family relationships among any Directors or executive officers.

 

BOARD OF DIRECTORS

 

Meetings of the Board of Directors and Committees

 

The Board of Directors met four times during the fiscal year ended March 29, 2003. 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 29, 2003.

 

The Compensation Committee met once during the fiscal year ended March 29, 2003. 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 29, 2003, the Compensation Committee consisted of George J. Markos, Alexander E. Aikens, III, Lisa M. Mooney and Fletcher H. Wiley.

 

The Audit Committee met seven times during the fiscal year ended March 29, 2003. 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. The complete text of the Audit Committee’s charter is available upon request addressed to the Company’s Vice President—Finance, 300 Jubilee Drive, Peabody, Massachusetts 01960. During the period April 1, 2002 through December 31, 2002, the Audit Committee comprised of George J. Markos, Alexander E. Aikens, III, and Fletcher H. Wiley. On January 1, 2003, Lisa M. Mooney was added to the Audit Committee.

 

Compensation of Directors

 

Each Director who is not an officer of the Company is entitled to an annual fee of $6,000, and an additional annual fee of $1,500 for service on the Audit Committee and an additional annual fee of $1,000 for service on the Compensation Committee on which he or she serves. Directors who are not employees of the Company are eligible for stock option grants under the 1997 Stock Plan. During the fiscal year ended March 29, 2003, no non-employee Directors received any stock option grants.

 

4

PRINCIPAL AND MANAGEMENT STOCKHOLDERS

 

The following table reflects the number of shares of the Company’s Common Stock beneficially owned as of July 18, 2003 (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 18, 2003. 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.

 

Name of Beneficial Owner

   

Number of Shares

Beneficially Owned

    

Percent of

Common Stock

Andrew G. Kotsatos

c/o Boston Acoustics, Inc.

300 Jubilee Drive

Peabody, MA 01960

    1,463,561 (1)   32.7

Wellington Management Company, LLP

Capital Management Group

75 State Street

Boston, MA 02109

    489,700 (2)   11.1

Daeg Partners, LP (3)

100 Park Avenue

New York, NY 10017

    477,200 (4)   10.8

Moses A. Gabbay

    187,180 (5)   4.1

Lisa M. Mooney

    101,761     2.3

Robert L. Spaner

    78,000 (6)   1.7

Michael B. Chass

    49,250 (7)   1.1

Alexander E. Aikens, III

    1,020     *

George J. Markos

    0     *

Fletcher H. Wiley

    0     *
     0     *

All Directors and Executive Officers as a group (10 persons)

    1,932,387 (8)   40.6
*   Indicates less than 1% ownership.

 

(1)   Includes (a) 374,928 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) 73,400 shares issuable upon exercise of certain options which are currently exercisable or become exercisable within 60 days of July 18, 2003 (“Currently Exercisable Options”).

 

(2)   According to a letter dated February 14, 2003 from Brian P. Hillery, Assistant Vice President of Wellington Management Company, LLP (“Wellington Management”), Wellington Management has shared voting power for 424,700 shares and shared dispositive power for 489,700 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.

 

5

(3)   On July 12, 2001, a group consisting of Daeg Partners, LP, Kimelman & Baird, LLC, Daeg Capital Management, LLC, Sheila Baird, Michael Kimelman and A. Scott Kimelman (the “Daeg Group”) filed with the Securities and Exchange Commission a Statement of Acquisition of Beneficial Ownership on Schedule 13G.

 

(4)   Based on a Statement of Changes in Beneficial Ownership on Form 4 filed with the Securities and Exchange Commission on July 3, 2003 by Sheila Baird and Michael Kimelman, members of the Daeg Group.

 

(5)   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) 133,500 shares issuable upon exercise of Currently Exercisable Options.

 

(6)   Includes 78,000 shares issuable upon exercise of Currently Exercisable Options.

 

(7)   Includes 49,250 shares issuable upon exercise of Currently Exercisable Options.

 

(8)   Includes (a) 374,928 shares as to which beneficial ownership is disclaimed and (b) 360,400 shares issuable upon exercise of Currently Exercisable Options. See footnotes 1, 5, 6 and 7.

 

6

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following tables and notes present the compensation received by the Company’s Chief Executive Officer and the four most highly paid executive officers other than the Chief Executive Officer for each of the last three fiscal years.

 

          Annual Compensation
   

Long-Term

Compensation

       

Name and Principal Position

   

Fiscal

Year (1)

   

Salary

($)

   

Bonus

($)

   

Other Annual

Compensation

($)(2)

   

Securities
Underlying
Options

(#)

   

All Other

Compensation

($)

  

Andrew G. Kotsatos

(Chairman of the Board and Treasurer)(3)

   

2003

2002

2001

   

350,000

350,000

350,000

   

—  

—  

42,000

   

—  

—  

—  

   

—  

81,000

—  

   

7,372

100,684

100,684

(6)

 

 

Moses A. Gabbay

(President and Chief Executive Officer)(4)

   

2003

2002

2001

   

300,000

300,000

290,625

   

—  

56,833

25,863

   

11,586

14,100

14,100

   

—  

67,500

100,000

   

2,375

2,375

2,375

(7)

 

 

Allen J. Evelyn

(President)(5)

   

2003

2002

2001

   

243,750

83,333

—  

   

—  

1,667

—  

   

—  

—  

—  

   

10,000

20,000

—  

   

2,974

—  

—  

 

 

 

Robert L. Spaner

(Executive Vice President—Sales)

   

2003

2002

2001

   

220,000

220,000

221,539

   

—  

37,830

20,031

   

—  

—  

—  

   

—  

30,000

50,000

   

2,018

2,522

2,244

 

 

 

Michael B. Chass

(Vice President—Automotive and

Multimedia OEM)

   

2003

2002

2001

   

150,000

150,000

143,846

   

—  

9,278

22,431

   

—  

—  

—  

   

—  

—  

20,000

   

1,300

1,144

1,656

 

 

 

(1)   The Company’s fiscal year ends on the last Saturday of March.

 

(2)   Reflects car allowances provided by the Company.

 

(3)   For the fiscal year 2002 and 2001 periods reported, Mr. Kotsatos was Chairman of the Board, Chief Executive Officer and Treasurer. Effective May 13, 2002, Mr. Kotsatos resigned his position as Chief Executive Officer. Mr. Kotsatos continues to serve as Chairman of the Board and Treasurer.

 

(4)   Mr. Gabbay was elected Chief Executive Officer on May 13, 2002. From August 2000 through May 13, 2002, Mr. Gabbay was President and COO; from May 2000 through August 2000, he was Chief Operating Officer; and prior to May 2000, he was Vice President—Engineering. On May 19, 2003 Mr. Gabbay resumed the office of President while retaining the position of Chief Executive Officer.

 

(5)   Effective April 18, 2003, Mr. Evelyn resigned as President.

 

(6)   Includes $4,997 paid in premiums for a life insurance policy, with a split dollar arrangement, covering the life of Mr. Kotsatos. The Company and Mr. Kotsatos entered into an agreement concerning the life insurance policy pursuant to which the Company will receive, in the event of the insured’s death, an amount equal to the aggregate amount of its premium payments under the respective policy and the beneficiary of the policy will receive the excess. The Company ceased making arrangements under this plan after June 30, 2002. 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).

 

(7)   Reflects Company contributions under a defined contribution plan established under Section 401(k) of the Code.

 

7

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 29, 2003 to the named executive officers:

 

     Individual Grants
     

Name

   

Number of

Securities

Underlying

Options

Granted

(#)

   

Percent

of Total

Options

Granted to

Employees

in Fiscal

2003(1)

   

Exercise

or Base

Price per

Share

($/sh)

   

Expiration

Date

   

Potential Realizable

Value at Assumed

Annual Rates of

Stock Price

Appreciation for

Option Term(2)

               5% ($)
    10% ($)

Andrew G. Kotsatos

    —      —      —      —      —      —  

Moses A. Gabbay

    —      —      —      —      —      —  

Robert L. Spaner

    —      —      —      —      —      —  

Michael B. Chass

    —      —      —      —      —      —  

Allen J. Evelyn

    10,000    66.7    10.25    4/10/07    28,318.86    62,577.28
(1)   The Company awarded option grants to one named executive during fiscal 2003. The named executive, Allen J. Evelyn resigned his position as President on April 18, 2003. The option grant subsequently was cancelled on April 18, 2003.

 

(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.

 

8

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-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.

 

Name

   

Shares

Acquired

on Exercise

   

Value

Realized ($)(1)

   

Number of Shares
Underlying Unexercised

Options at FY-End

    

Value of Unexercised

In-The-Money Options at

FY-End ($)(2)

  
             Exercisable
    Unexercisable
     Exercisable
     Unexercisable
  

Andrew G. Kotsatos

    —    —    73,400    43,600 (3)   (186,583 )   (539 )

Moses A. Gabbay

    —    —    133,500    90,000 (4)   (133,240 )   (60,894 )

Robert L. Spaner

    —    —    78,000    42,000 (5)   (62,315 )   (64,230 )

Michael B. Chass

    —    —    49,250    10,750 (6)   (187,930 )   (5,765 )
(1)   Value realized equals fair market value on the date of exercise, less the exercise price, times the number of shares acquired without deducting taxes or commissions paid by employee.

 

(2)   Value of unexercised options equals fair market value of the shares underlying in-the-money options on March 29, 2003 ($10.56 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 $10.19, $10.37, $12.79, and $19.89 per share.

 

(4)   The exercise prices of these options are $9.26, $9.63, $9.73, $10.81, $11.63, $18.08 and $20.25 per share.

 

(5)   The exercise prices of these options are $9.26, $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, $18.08 and $20.25 per share.

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

The members of the Compensation Committee of the Board of Directors are Alexander E. Aikens, III, George J. Markos, Lisa M. Mooney, and Fletcher H. Wiley. Mrs. Mooney was Director of Corporate Planning of the Company from January 1994 to June 1996. The Chairman of the Board, Andrew G. Kotsatos, who, until May 2002, was the Company’s Chief Executive Officer, participated in the Compensation Committee’s meetings and made recommendations concerning the compensation of executive officers other than himself (but did not take part in any decisions of the Committee); he did not take part in any discussions or decisions regarding his own compensation.

 

9

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 29, 2003, 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. In fiscal 2003, the Compensation Committee determined the base salary and bonus for executive officers, other than for the Chief Executive Officer, 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 2002, the base salary for the named executive officers, other than the Chief Executive Officer, did not increase. 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.    With the exception of fiscal 2003 when there were no bonus awards to its executive officers, the Company has in the past 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.

 

 

10

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 1998, 1999, 2000, 2001 and 2002, 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. In fiscal 2003, the Company did not make any stock option awards to its named executive officers, with the exception of one option grant to a named executive who subsequently resigned his position on April 18, 2003.

 

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.    The annual salary of the Company’s Chief Executive Officer, Moses A. Gabbay, was set at $300,000 on April 1, 2002. In recognition of his demonstrated leadership,  Mr. Gabbay was awarded options to purchase 100,000 shares of Common Stock in 2001 and 67,500 shares in 2002, and received cash bonuses in the amount of $25,863 in fiscal year 2001 and $56,833 in fiscal 2002. No cash bonus was awarded in fiscal 2003. The Compensation Committee believes that the salary and overall compensation of Mr. Gabbay has been fair.

 

Respectfully Submitted by the

Compensation Committee

 

Alexander E. Aikens, III

George J. Markos

Lisa M. Mooney

Fletcher H. Wiley

 

11

STOCK PERFORMANCE GRAPH

 

Set forth below is a line graph comparing the cumulative total return over a five-year period beginning March 31, 1998 and ending March 29, 2003 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, 1998 and reinvestment of dividends.

 

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

AMONG BOSTON ACOUSTICS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX

AND A PEER GROUP

 

LOGO

 

* $100 invested on 3/31/98 in stock or index-

including reinvestment of dividends.

Fiscal year ending March 31.

 

12

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 charter is available upon request addressed to the Company’s Vice President—Finance, 300 Jubilee Drive, Peabody, Massachusetts 01960. 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 April 1, 2002 through December 31, 2002, the Audit Committee comprised of  George J. Markos, Alexander E. Aikens, III and Fletcher H. Wiley, met five times. On January 1, 2003, Lisa M. Mooney was added to the Audit Committee. During the period January 1, 2003 through March 29, 2003, the Audit Committee met twice.

 

In overseeing the preparation of the Company’s financial statements for fiscal 2003, the 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 accounting principles generally accepted in the United States, 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 Ernst & Young LLP matters relating to its independence. The Committee has received and reviewed the written disclosures and the letter from Ernst & Young LLP as independent accountants as required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The Committee reviewed the fees of the independent auditors for the fiscal year for both auditing and non-auditing services and determined that the provision of such services was compatible with maintaining the independence of the auditors.

 

Following the indictment of Arthur Andersen LLP on federal criminal charges in March 2002, the Committee met to consider the capacity of Arthur Andersen LLP to continue to audit the Company’s financial statements in accordance with auditing standards generally accepted in the United States and applicable professional and firm auditing standards, including quality control standards. During June 2002, the Committee dismissed Arthur Andersen LLP as the Company’s auditors and subsequently in July 2002 engaged Ernst & Young LLP to audit the Company’s financial statements.

 

13

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 29, 2003, for filing with the Securities and Exchange Commission.

 

Current Members of the Audit Committee:

George J. Markos (Independent) (Chairman)

Alexander E. Aikens, III (Independent)

Fletcher H. Wiley (Independent)

Lisa M. Mooney (Independent)

 

PROPOSAL NO. 2—RATIFICATION OF APPOINTMENT OF AUDITORS

 

The Board of Directors of the Company has appointed Ernst & Young LLP as auditors of the Company for the fiscal year ending March 27, 2004 and directed that management submit the selection of auditors for ratification by the stockholders.

 

Effective June 28, 2002, the Company dismissed Arthur Andersen LLP, which had served as the Company’s independent auditor since 1986. The decision to dismiss Arthur Andersen LLP was recommended by the Audit Committee and approved by the Board of Directors. The reports of Arthur Andersen LLP on the Company’s financial statements for fiscal years 2001 and 2002 did not contain an adverse opinion or a disclaimer of an opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. On July 9, 2002, the Company, on the recommendation of the Audit Committee, engaged Ernst & Young LLP as its independent auditor. There were no disagreements between the Company and Ernst & Young LLP during the most recent fiscal year on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures.

 

The Company paid Ernst & Young LLP a total of $19,500 during the fiscal year ended March 29, 2003 in the following categories:

 

Audit Fees (review of 10-Qs)

    $ 19,050

Financial Information Systems Design and Implementation Fees

      0

All Other Fees:

       

Tax compliance services

    $ 31,500

International tax consultation

    $ 11,900

 

The Audit Committee of the Board of Directors considered in advance each non-audit service proposed to be performed by Ernst & Young LLP during the fiscal year ended March 29, 2003 and determined in each case that the provision of such non-audit service and the receipt of fees therefore would be compatible with maintaining Ernst & Young LLP’s independence.

 

On July 9, 2002, the Company engaged Ernst & Young LLP as the principal independent accountant to audit the Company’s financial statements. The engagement of Ernst & Young LLP was recommended by the Audit Committee and approved by the Board of Directors, subject to ratification by the stockholders at the Meeting.

 

During fiscal years 2001 and 2002, the Company did not consult with Ernst & Young LLP on any matter.

 

Representatives of Ernst & Young 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 appointment of Ernst & Young LLP as the Company’s auditors.

 

14

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 29, 2003, except that one 10% shareholder, Daeg Partners LP made late filings on Form 4 on July 3, 2003.

 

STOCKHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING

 

Any stockholder proposal intended to be presented for consideration at the Company’s 2004 Annual Meeting of Stockholders must be received by the Company not later than March 27, 2004 in order to be considered for inclusion in the Company’s proxy statement for the 2004 Annual Meeting of Stockholders. To be considered for presentation at the 2004 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, 2004. Any stockholder desiring to submit a proposal should consult applicable regulations of the Securities and Exchange Commission.

 

OTHER MATTERS

 

As of the date of this Proxy Statement, management of the Company knows of no matter not specifically referred to above as to which any action is expected to be taken at the Meeting of Stockholders. It is intended, however, that the persons named as proxies will vote the proxies, insofar as the same are not limited to the contrary, in regard to such other matters and the transaction of such other business as may properly be brought before the Meeting, as seems to them to be in the best interests of the Company and its stockholders.

 

15

 

 

 

 

 

0880-PS-03

BOSTON ACOUSTICS, INC.

 

C/O EQUISERVE TRUST COMPANY N.A.

P.O. BOX 8694

EDISON, NJ 08818-8694

 

 

 

 

                                         DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL                                                                  ZBAI41

 

x Please mark

votes as in

this example.

 

1. To elect six directors for the ensuing year.

Nominees:       (01) Andrew G. Kotsatos, (02) Moses A. Gabbay,

(03) Alexander E. Aikens, III, (04) George J. Markos,

(05) Lisa M. Mooney and (06) Fletcher H. Wiley.

   

2. To ratify the action of the Directors on selecting Ernst & Young LLP to serve as auditors for the Company for the ensuing fiscal year.

  

FOR

¨

  

AGAINST

¨

  

ABSTAIN

¨

   

FOR

ALL

NOMINEES

  

¨

  

¨

  

WITHHELD

FROM ALL
NOMINEES

   

3. To transact such other business as may properly come before the meeting or any adjournments thereof.

   

¨                                                          

For all nominee(s) except as written above

   

 

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT

   ¨
                    

 

MARK HERE IF YOU PLAN TO ATTEND THE MEETING

   ¨
                    

 

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:_______________

DETACH HERE                                                                                         ZBAI42

 

PROXY

 

BOSTON ACOUSTICS, INC.

 

Proxy Solicited on Behalf of the Board of Directors of the Company for the

Annual Meeting of Stockholders - August 12, 2003

 

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 12, 2003 at 9:00 a.m., and at any adjournments thereof, as directed below, on all matters coming before said meeting.

 

This proxy when properly executed will be voted as directed on the reverse side. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION AS DIRECTORS OF THE NOMINEES LISTED ON THE REVERSE SIDE, FOR PROPOSAL 2 AND IN THE DISCRETION OF THE PROXIES ON ITEM 3.

 

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 SIDE

   CONTINUED AND TO BE SIGNED ON REVERSE SIDE  

SEE REVERSE

SIDE