<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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-2.
</TABLE>
Sensory Science Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than 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 0-12.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
SENSORY SCIENCE CORPORATION
7835 EAST MCCLAIN DRIVE
SCOTTSDALE, ARIZONA 85260
--------------------------------------------------------------------------------
July 28, 2000
Dear fellow Sensory Science Stockholder:
You are cordially invited to attend our 2000 Annual Meeting of
Stockholders, which will begin at 8:00 a.m. local time at The Fairmont
Scottsdale Princess, 7575 East Princess Drive, Scottsdale, Arizona on Thursday,
September 7, 2000.
The first item of business for the meeting is the election of directors. I
am delighted that Thomas F. Hartley, Jr. and Carmine F. Adimando have been
nominated for new three-year terms. Mr. Hartley has served as a director since
November 1991 and Mr. Adimando has served as a director since October 1996. The
continuing directors, in addition to me, are Thomas E. Linnen, and William T.
Walker, Jr. THE SENSORY SCIENCE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE PROPOSED DIRECTOR SLATE.
The second item of business is the adoption of the Sensory Science
Corporation 2000 Stock Incentive Plan. Approval of the plan will allow the
Company to provide employees and others with a personal incentive to generate
excellent returns to shareholders of the Company. The Company currently has an
insufficient number of options available for issuance under its other plans. THE
SENSORY SCIENCE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED
SENSORY SCIENCE CORPORATION 2000 STOCK INCENTIVE PLAN.
The third item of business is the adoption of the Sensory Science
Corporation Nonemployee Directors' Stock Option Plan. Approval of the plan will
strengthen the ability of the Company to attract and retain the services of
experienced and knowledgeable individuals as nonemployee directors of the
Company. THE SENSORY SCIENCE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
PROPOSED SENSORY SCIENCE CORPORATION NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN.
The fourth item of business is approval of an amendment to the Certificate
of Incorporation to authorize the issuance of up to 5,000,000 shares of
Preferred Stock. Our Certificate of Incorporation does not currently provide for
the issuance of Preferred Stock. The Board of Directors believes that the
authorization of Preferred Stock is in the best interests of the Company because
it will provide the Board with additional flexibility in future financing and
other transactional opportunities that may arise. THE SENSORY SCIENCE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED AMENDMENT TO THE CERTIFICATE
OF INCORPORATION TO PERMIT THE ISSUANCE OF PREFERRED STOCK.
I encourage you to attend this year's Annual Meeting in person. Whether or
not you plan to attend the meeting, it is critical that your shares are
represented. Accordingly, please mark, date, sign and return promptly your proxy
in the enclosed envelope. You may attend the meeting and vote your shares in
person if you wish, even if you have previously returned your proxy.
Sincerely,
/s/ Roger B. Hackett
ROGER B. HACKETT
Chairman, Chief Executive Officer, and
President
<PAGE> 3
SENSORY SCIENCE CORPORATION
7835 EAST MCCLAIN DRIVE
SCOTTSDALE, ARIZONA 85260
NOTICE AND PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 7, 2000
To the Stockholders of Sensory Science Corporation:
The 2000 Annual Meeting of Stockholders of SENSORY SCIENCE CORPORATION, a
Delaware corporation, will be held at The Fairmont Scottsdale Princess, 7575 E.
Princess Drive, Scottsdale, Arizona on September 7, 2000, at 8:00 a.m., local
time, for the following purposes:
1. To elect two (2) directors to the Board of Directors;
2. To adopt the Sensory Science Corporation 2000 Stock Incentive Plan;
3. To adopt the Sensory Science Corporation Nonemployee Directors'
Stock Option Plan;
4. To amend the Certificate of Incorporation to permit the issuance of
Preferred Stock; and
5. To act upon such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on July 26, 2000, as
the record date for determining the stockholders entitled to receive notice of
and to vote at the Annual Meeting or any adjournment thereof. Shares of Common
Stock can be voted at the meeting only if the holder is present at the meeting
in person or by valid proxy.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING, PLEASE MARK,
SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE ANNUAL MEETING BY
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY, BY VOTING IN PERSON AT THE
ANNUAL MEETING, OR BY SUBMITTING A LATER DATED PROXY.
Admission to the Annual Meeting is limited to stockholders or their
proxies. Stockholders who hold their shares in "Street" name (shares registered
under a broker, bank, or other nominee institution's name) will be admitted to
the meeting upon presentation of a written affidavit or statement from the
registered institution showing beneficial ownership as of the July 26, 2000
record date. The Annual Meeting will not be open to the public.
By Order of the Board of Directors
/s/ Thomas E. Linnen
THOMAS E. LINNEN
Executive Vice President, Corporate
Planning and Chief Financial Officer,
Secretary, Treasurer
Scottsdale, Arizona
July 28, 2000
<PAGE> 4
SENSORY SCIENCE CORPORATION
7835 EAST MCCLAIN DRIVE
SCOTTSDALE, ARIZONA 85260
(480) 998-3400
PROXY STATEMENT
This Proxy Statement is furnished by the Board of Directors (the "Board")
of SENSORY SCIENCE CORPORATION (the "Company") in connection with the Annual
Meeting of Stockholders to be held at The Fairmont Scottsdale Princess, 7575 E.
Princess Drive, Scottsdale, Arizona on September 7, 2000, at 8:00 a.m., local
time. The proxy materials were first mailed on or about July 28, 2000, to
shareholders of record at the close of business on July 26, 2000 (the "Record
Date"). As of June 16, 2000, there were outstanding 14,359,978 shares of the
Company's Common Stock ("Common Stock"). Each share of Common Stock is entitled
to one vote on each matter of business to be considered at the Annual Meeting.
THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE
COMPANY. A person giving the enclosed proxy has the power to revoke it at any
time before it is exercised by (i) attending the meeting and voting in person,
(ii) duly executing and delivering a proxy bearing a later date, or (iii)
sending a written notice of revocation to the Secretary of the Company, which
notice shall have been received by the Secretary prior to commencement of voting
at the Annual Meeting.
The Company will pay the cost of the proxy solicitation made by the Board,
including the charges and expenses of brokerage firms and others who forward
solicitation material to beneficial owners of Common Stock. In addition,
directors, officers, or employees of the Company may solicit proxies by mail,
personal interview, telephone, telegraph or facsimile transmission without
additional compensation.
If the enclosed proxy is properly executed and returned to the Company in
time to be voted at the meeting, it will be voted as specified on the proxy,
unless it is properly revoked prior thereto. If no specification is made in the
proxy, the shares represented by the proxy will be voted for the election of the
nominee for directors named below, for the adoption of the Sensory Science
Corporation 2000 Stock Incentive Plan (the "Employee Plan"), and for the
adoption of the Sensory Science Corporation Nonemployee Directors' Stock Option
Plan (the "Directors' Plan"). With respect to any other matters, except for the
amendment to the Certificate of Incorporation to permit the issuance of
Preferred Stock, that may properly come before the meeting, or any adjournment
thereof, the proxy will be voted at the discretion of the person(s) named in the
proxy.
The director candidates receiving the greatest number of votes cast at the
meeting will be elected. The proposed adoption of the Employee and Directors'
Plans requires the affirmative vote of a majority of the voting power of the
Common Stock represented at the meeting. The amendment to the Certificate of
Incorporation requires the affirmative vote of a majority of the outstanding
Common Stock. All other proposals that properly come before the meeting require
the affirmative vote of a majority of the voting power of the Common Stock
represented at the meeting. Abstentions are counted as present at the meeting
for proposals, but because they are not affirmative votes for the fourth
proposal, they would have the same effect as a vote against the fourth proposal.
Broker non-votes are not considered present at the meeting for particular
proposals for which the broker withheld authority.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO IS ENTITLED
TO VOTE AT THE MEETING AND WHO MAKES A WRITTEN REQUEST FOR SUCH, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2000,
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. REQUESTS SHOULD BE ADDRESSED TO THE SECRETARY
AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES.
<PAGE> 5
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company's Bylaws provide for a classified Board of Directors that is
divided into three classes. Each year the stockholders elect directors for terms
of up to three years. Two members of the Board are to be elected at the 2000
Annual Meeting.
NOMINEES FOR ELECTION
The Board has nominated Thomas F. Hartley, Jr. and Carmine F. Adimando for
election as directors for terms expiring at the 2003 Annual Meeting of
Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE FOLLOWING NOMINEES:
FOR A TERM EXPIRING AT THE 2003 ANNUAL MEETING
THOMAS F. HARTLEY, JR., age 50, has served as a director of the Company
since November 1991 and is Chairman of the Compensation Committee of the Board
of Directors and serves on the Audit Committee of the Board of Directors. Mr.
Hartley is currently a managing director of Marsh USA Inc., a subsidiary of
Marsh & McLennan Companies, Inc. (NYSE: MMC) which is an insurance brokerage and
consulting firm headquartered in New York City with over 200 offices worldwide.
Prior to joining Johnson & Higgins (a predecessor company to Marsh USA Inc.) in
1983, Mr. Hartley was Assistant Vice President with Marsh USA Inc. in Phoenix
and New York, and an officer in the U.S. Navy's nuclear submarine program. Mr.
Hartley is on the boards of directors of various community and professional
organizations, including the Phoenix Economic Club, the Arizona Property
Casualty Guarantee Fund, and the Arizona State University Center for Services
Marketing & Management. He is also a member of Valley Leadership and the Arizona
State University Business School Dean's Council of 100. Mr. Hartley received a
Bachelor of Science Degree from the U.S. Naval Academy and a Masters in Business
Administration from New York University.
CARMINE F. ADIMANDO, age 56, has served as a director of the Company since
October 1996 and is Chairman of the Audit Committee of the Board of Directors
and serves on the Compensation Committee of the Board of Directors. Mr. Adimando
is currently Chairman and President of CARMCO Investments, LLC, a private
investment and financial advisory firm. Prior to founding CARMCO Investments in
1996, Mr. Adimando was Vice President of Finance and Administration, Treasurer,
and Chief Financial Officer of Pitney Bowes, Inc., where he also served as
President of Pitney Bowes International Holdings, Inc. and as Chief Executive
Officer of The Wheeler Group until it was sold in 1992. Prior to joining Pitney
Bowes in 1979, Mr. Adimando held positions with American Airlines, Burndy
Corporation, and Deloitte, Haskins & Sells. Mr. Adimando currently serves as
Chairman of Cordillera Asset Management and as a director of Globalnet Inc., a
facilities-based provider of high-quality voice, fax and other value-added
applications over an Internet-protocol based network, and CNF Technologies,
Inc., a designer, manufacturer and marketer of portable computer peripherals and
accessories for laptop computers. He also serves on the Board of Trustees of
Manhattanville College and the Board of Overseers of the University of
Connecticut School of Business. Mr. Adimando received a Bachelor of Science
Degree in Accounting from St. John's University, graduated from the Senior
Financial Management Program at Stanford University's Graduate School of
Business, and is a Certified Public Accountant.
CONTINUING DIRECTORS
TERMS EXPIRING AT THE 2001 ANNUAL MEETING
THOMAS E. LINNEN, age 54, has served as a director of the Company since
August 1993. Since June 1999, Mr. Linnen has served as Executive Vice President,
Corporate Planning and Chief Financial Officer, Secretary and Treasurer for the
Company. From 1996 until he joined the Company, Mr. Linnen was Senior Vice
President of Corporate Development and Strategic Planning of Hypercom
Corporation (NYSE: HYC),
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<PAGE> 6
a manufacturer of point-of-sale terminals and computer networking products based
in Phoenix, Arizona. From 1987 until he joined Hypercom, Mr. Linnen was Vice
President of Finance, Secretary, Treasurer and a director of Continental
Circuits Corp. (NASDQ: CCIR), a manufacturer of circuit boards. Mr. Linnen also
serves as a director of Innovonics, Inc., a privately-owned company that
developed and markets PC Pay security products that facilitate secure credit,
debit, and smart card transactions from a personal computer. Mr. Linnen received
a Bachelor of Science Degree in Business Administration from the University of
Wisconsin and is a Certified Public Accountant.
WILLIAM T. WALKER, JR., age 68, has served as a director of the Company
since August 1993 and serves on the Compensation and Audit Committees of the
Board of Directors. Mr. Walker is Chairman and President of Walker Associates, a
Beverly Hills, California-based corporate finance consulting firm which he
founded in 1985. Mr. Walker has over forty years of experience in the capital
markets industry and currently serves as a member of the board of directors of
Aviation Distributors, Inc. and Supralife International, Inc. Mr. Walker has
been a member of the board of the Securities Industry Association, Chairman of
the California District Securities Industry Association, Governor of the Pacific
Stock Exchange, President of the Bond Club of Los Angeles, and a member of the
American Stock Exchange Advisory Committee. Mr. Walker graduated from Culver
Military Academy and attended Stanford University.
TERMS EXPIRING AT THE 2002 ANNUAL MEETING
ROGER B. HACKETT, age 49, was first elected to the Board of Directors in
December 1992 and joined the Company as President and Chief Operating Officer in
January 1993. In March 1994, Mr. Hackett was elected Chief Executive Officer and
Chairman of the Board. Prior to joining the Company as President, Mr. Hackett
served as Senior Vice President, Corporate Affairs, of Serving Software Inc., a
Minneapolis, Minnesota-based provider of computer software used in the health
care industry. In 1986, Mr. Hackett founded the CAMS division of ATI Medical,
Inc., a provider of "critical care" medical equipment, and over six years
developed CAMS into one of the leading providers of bar-code-based information
systems for the health care industry. In 1992, Mr. Hackett negotiated the sale
of the CAMS division to Serving Software. He also served as a director of
Serving Software from January 1993 until September 1994 when Serving Software
was acquired by HBO & Co., a health care information systems company. Mr.
Hackett also serves as a director of Microtest, Inc (Nasdaq: MTST) a producer of
network test and measurement products and network storage and application
servers. Mr. Hackett received a Bachelor of Science Degree in Business
Administration from Ohio State University.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended March 31, 2000, the Board met seven times. The
Board has standing Audit and Compensation committees. No director attended fewer
than 75% of the (1) total number of meetings of the Board of Directors held in
the most recent fiscal year and (2) total number of meetings held by all
committees on which that Director served in the most recent fiscal year.
REPORT OF THE AUDIT COMMITTEE
During the fiscal year ended March 31, 2000, the Audit Committee consisted
of Messrs. Adimando (Chairman), Walker and Hartley all of whom are considered
"independent" pursuant to the American Stock Exchange listing standards. The
Committee is responsible for evaluating the Company's system of accounting
controls and approving the scope of the annual audit. The Committee has adopted
a written charter for the Committee, which is attached as Appendix A. The
Committee met twice during the fiscal year ended March 31, 2000. The Committee
has reviewed and discussed the audited financial statements with management and
the Company's auditors and recommended to the Company's Board of Directors that
the audited financial statements for the fiscal year ended March 31, 2000 be
included in the Company's Annual Report and Form 10-K. The Committee has also
received the written disclosures and the letter from its
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<PAGE> 7
independent accountants as required by Independence Standards Board Standard No.
1 and has confirmed the auditor's independence.
AUDIT COMMITTEE
Carmine F. Adimando, Chairman
William T. Walker
Thomas F. Hartley, Jr.
COMPENSATION COMMITTEE
During the fiscal year ended March 31, 2000, the Compensation Committee
consisted of Messrs. Hartley (Chairman), Adimando, and Walker. The Committee
acts on matters related to executive officer compensation and grants of stock
options pursuant to the Company's stock option plans. The Compensation Committee
met four times during the fiscal year ended March 31, 2000.
All non-employee directors of the Company receive an annual retainer fee of
$15,000. All directors, including employee directors, also receive an annual
grant of options to purchase Common Stock from the 1991 Nonstatutory Directors'
Stock Option Plan (the "1991 Directors' Plan"). The Board of Directors and
stockholders of the Company adopted the 1991 Directors' Plan effective November
1, 1991. The 1991 Directors' Plan provides for the automatic annual grant of
stock options to directors serving as of September 1 of each year. On that date,
the Chairman is granted options to purchase 20,000 shares of Common Stock and
each other director is granted options to purchase 10,000 shares of Common
Stock. The 1991 Directors' Plan also provides for an initial grant of options
upon a director's commencement of service. The number of options granted is
equal to 10,000 multiplied by a fraction, the numerator of which is the number
of full calendar months from the date the Director was first appointed or
elected to the Board to the following September 1st and the denominator of which
is 12. The exercise price for all options is the fair market value of the Common
Stock on the date of grant. Each option expires on the 10th anniversary date of
its grant unless earlier terminated in accordance with the 1991 Directors' Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Thomas F. Hartley, Jr., a director of the Company and Chairman of the
Compensation Committee and member of the Audit Committee, is a managing director
of Marsh USA Inc. Marsh USA Inc. is an insurance brokerage firm that obtains
bids from and administers the Company's relations with commercial insurance
carriers. During fiscal 2000, Marsh USA Inc. was paid $208,746 in insurance
premiums by the Company.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
Compensation Committee Role
As part of its function, the Compensation Committee reviews the Company's
executive compensation programs to ensure they (i) are competitive with
companies of comparable size and complexity and those within the consumer
electronics equipment industry; (ii) reflect both stockholders' and
participants' best interests; (iii) are responsive to both short and long-term
corporate and individual performance goals; and (iv) provide the necessary
incentives for the executives to further stockholders' financial interests in
the Company. In performing this review, the Committee utilizes compensation data
collected from industry association studies on compensation and corporate
performance data provided by the Company. This data includes information
concerning a peer group of companies which the Company considers its primary
competitors for both executive talent and business opportunities. These peer
companies for executive talent are not identical to the group of companies
identified under the section "Stock Performance Graph". The
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<PAGE> 8
groups are not the same because compensation data was obtained from trade
studies which did not disclose individual company participants and also included
privately-owned competitors which do not have publicly-traded common stock
results to incorporate into the stock performance chart.
Compensation Philosophy
The Company's executive compensation philosophy, which serves as the
foundation of the total compensation package, is based on the following
principals:
- Programs must be supportive of the Company's strategic business
objectives and thereby stockholders' financial interests in the Company.
- A significant ownership interest in the Company by senior executives
promotes those behaviors and actions that will result in an alignment of
stockholder and management interests.
- The total compensation package for executive officers should be
competitive with those of an appropriate peer group of companies and
reflect the Company's performance against that peer group.
- Variable pay, in the form of annual incentives and long-term stock-based
compensation, is intended to create an incentive for superior performance
from executive officers.
Base Salaries
Initially, base salaries for executive officers are set based upon a review
of the responsibility level of each position and the relative pay levels for
comparable positions at peer companies. Base salaries may be periodically
increased as a result of an individual assuming increased responsibilities, as a
result of competitive data indicating a meaningful change in base pay levels
among peer companies or as a result of the Board of Directors increasing
performance objectives and goals for the individual executive officer or the
Company.
Annual Incentives
In making determinations to award incentive payments, the Compensation
Committee reviews a variety of Company performance measures as well as the
individuals' objectives and accomplishments. The source and amount of the annual
incentives to be paid to the Company's executives is subjective, with
consideration to revenue, operating income, net income, return on equity, and
various other quantitative and qualitative assessments. The annual incentive
payment for the Chief Executive Officer is based on a percentage of pre-tax
profit of the Company for a given fiscal period plus subjective components.
During fiscal 2000, payments were not made under this plan.
Long-Term Incentives
The Company's current method of providing long-term incentive compensation
opportunities to its executive officers is through the use of stock options.
Stock options allow the recipient to purchase shares of the Company's Common
Stock at a specified price that is not less than its fair market value on the
grant date during a fixed period of time following the grant date. This period
has typically been ten years. The Company believes that this form of long-term
incentive is presently the best vehicle by which to link stockholder and
management interests because value is provided to recipients only if the
Company's stock price increases.
The Compensation Committee is the administrator of the Company's stock
option plans and has the authority to approve awards to executive officers and
employees. The level of the awards granted is subjective and reflects the
relative impact which a recipient is expected to have on future corporate
results. In making this determination, the Committee considers the number of
options held by the executive officer and the dilution effect such grants may
have on existing stockholders.
Chief Executive Officer's Compensation and Company Performance
The Compensation Committee completed an individual performance review of
the Chief Executive Officer addressing such issues as the Company's financial
performance for the fiscal year ended March 31,
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<PAGE> 9
2000. The Committee determined that Mr. Hackett far exceeded his strategic goals
for fiscal 2000, met his operational goals and did not meet his financial goals.
Most notable strategically were Mr. Hackett's accomplishments in effectively
deploying the Company's diversification strategy and enhancing business
development. Sensory Science Corporation was honored as the number one high
definition television provider by the Inside Track Newsletter, named the number
one MP internet audio player provider by Time Digital magazine, introduced the
Cal Audio surround process and amp system, debuted the Pro Copy System, entered
into licensing agreements with Victor Company of Japan, Ltd. ("JVC") and
THOMPSON multimedia, and established other new business relationships. As a
result of the performance review and after giving consideration to factors
listed above in establishing executive compensation, the Committee set his base
salary effective May 29, 2000 at $315,000, did not award a performance bonus,
and is currently evaluating a Common Stock option grant.
Section 162(m) of the Internal Revenue Code
The Committee has reviewed the Company's compensation plans in light of the
Internal Revenue Code relating to the disallowance of deductions for
compensation in excess of $1.0 million to certain executive officers. All
compensation paid to executive officers for the fiscal year ended March 31, 2000
is deductible. The Committee does not believe that Section 162(m) limitations
will apply to compensation to be paid in fiscal 2001.
COMPENSATION COMMITTEE
Thomas F. Hartley, Jr., Chairman
Carmine F. Adimando
Thomas E. Linnen
William T. Walker, Jr.
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<PAGE> 10
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ended March 31, 2000, 1999,
and 1998, the compensation of the Chief Executive Officer and all executive
officers of the Company with compensation exceeding $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS/SAR'S COMPENSATION
IN FISCAL 2000 YEAR ($) ($) (#) ($)(1)
--------------------------- ---- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Roger B. Hackett........................ 2000 $280,000 $ 0 75,000(2) $15,875
Chairman, Chief Executive Officer, 1999 $250,000 $ 65,000 80,000(2) $16,124
President, and Chief Operating Officer 1998 $230,000 $135,000 65,000(2) $10,219
Ralph F. Palaia......................... 2000 $190,000 $ 0 35,000 $64,024(4)
Senior Vice President, 1999 $175,000 $ 35,000 0 $ 8,902
Sales & Marketing 1998 $ 53,846 $ 25,000 100,000 $ 1,848
Stephen G.T. Maine...................... 2000 $180,000 $ 0 25,000 $11,021
Senior Vice President & 1999 $144,615 $ 35,000 100,000 $17,959(3)
Chief Technology Officer 1998
Edward J. Brachocki..................... 2000 $155,000 $ 0 35,000 $11,539
Senior Vice President, 1999 $130,000 $ 30,000 30,000 $11,208
Corporate Development 1998 $120,000 $ 60,000 40,000 $ 9,677
Thomas E. Linnen........................ 2000 $148,154 $ 0 150,000(2) $21,533(5)
Executive Vice President, Corporate 1999 10,000(2)
Planning & Chief Financial Officer, 1998 7,500(2)
Secretary, Treasurer
</TABLE>
---------------
NOTE: Certain columns have been excluded because the information called for
therein is not applicable to the Company or the individuals named above
for the periods indicated.
(1) Amounts shown are Company contributions to the Sensory Science, Inc. 401(k)
Savings Plan, an employee retirement savings plan, and automobile expense
allowances of $15,000 per annum (2000 and 1999) and $9,000 per annum (1998)
for Mr. Hackett, $6,000 per annum (2000 and 1999) for Messrs. Palaia and
Maine, and $7,800 per annum (2000 and 1999) and $6,000 per annum (1998) for
Mr. Brachocki and $9,000 (2000) for Mr. Linnen.
(2) Includes annual option grants from the 1991 Non-Statutory Directors' Stock
Option Plan (the "1991 Directors' Plan") pursuant to stockholder-approved
plan rules. Options granted under the Directors' Plan totaled 20,000 shares
for each of 2000 and 1999 and 15,000 shares for 1998 for Mr. Hackett. In
addition, options granted under the 1991 Directors' Plan totaled 10,000
shares for each of 2000 and 1999 and 7,500 shares for 1998 for Mr. Linnen.
(3) Includes $11,054 in imputed interest at 8.25% per annum for a $535,941 loan
made by the Company on July 29, 1998 and repaid in full on October 29, 1999
to facilitate Mr. Maine's exercise of employee stock options from his
previous employer.
(4) Includes $52,112 for a moving allowance paid during fiscal 2000 and $2,681
of imputed interest on a relocation bridge loan as more fully described in
"Certain Transactions".
(5) Includes $10,000 of loan repayment forgiveness and $4,125 in imputed
interest on an employment loan as more fully described in "Certain
Transactions".
Non-cash personal benefits payable to executive officers during the fiscal
year ended March 31, 2000 did not exceed, in the aggregate, the lesser of 10% of
the cash compensation or $50,000 for any individual officer.
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<PAGE> 11
STOCK OPTIONS
The following tables set forth grants of options to purchase shares of
Common Stock of the Company made to the executive officers named in the Summary
Compensation Table who served during the fiscal year ended March 31, 2000. The
tables also set forth the potential realizable value of these options assuming a
5% and 10% compounded appreciation in the market value of the stock over the
term of the option grants.
OPTION GRANTS IN THE FISCAL YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER % OF TOTAL AT ASSUMED ANNUAL RATES
OF SECURITIES OPTIONS/SAR'S OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS/ EMPLOYEES PRICE OPTION TERM
SAR'S IN THE 2000 PER EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ------------- ------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Roger B. Hackett....... 55,000 8.2% $1.6875 12/16/09 $ 58,368 $147,919
20,000 3.0% $2.9375 9/01/09 $ 36,948 $ 93,632
Ralph F. Palaia........ 35,000 5.2% $1.6875 12/16/09 $ 37,144 $ 94,130
Stephen G.T. Maine..... 25,000 3.7% $1.6875 12/16/09 $ 26,531 $ 67,236
Edward J. Brachocki.... 35,000 5.2% $1.6875 12/16/09 $ 37,144 $ 94,130
Thomas E. Linnen....... 100,000 14.9% $2.3120 5/18/09 $145,400 $368,473
10,000 1.5% $2.9375 9/01/09 $ 18,474 $ 46,816
40,000 5.9% $1.6875 12/16/09 $ 42,450 $107,578
</TABLE>
The options granted to the individuals listed above were made at the fair
market value of the Company's Common Stock on the date of grant. Options held by
Mr. Hackett to acquire 20,000 shares and by Mr. Linnen to acquire 10,000 shares,
both at an exercise price of $2.9375 per share, will be fully vested following a
six-month holding period. The remaining options vest equally at the end of
eighteen month and three year holding periods.
OPTION EXERCISES AND HOLDINGS
The following table summarizes option exercises during the fiscal year
ended March 31, 2000 by the executive officers named in the Summary Compensation
Table and unexercised options held by these individuals on March 31, 2000.
AGGREGATED OPTION EXERCISES IN FISCAL 2000 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES ACQUIRED 3/31/00(#) 3/31/00(1)
ON EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (# OF SHARES) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------- --------------- -----------------
<S> <C> <C> <C> <C>
Roger B. Hackett............ -- -- 665,000/ 55,000 $920,625/$ 99,688
Ralph F. Palaia............. -- -- 125,000/ 35,000 $178,906/$ 63,438
Stephen G.T. Maine.......... -- -- 100,000/ 25,000 $100,000/$ 45,313
Edward J. Brachocki......... -- -- 185,080/ 35,000 $337,590/$ 63,438
Thomas E. Linnen............ -- -- 65,000/140,000 $ 75,156/$191,300
</TABLE>
---------------
(1) The closing price of the Company's Common Stock as reported for March 31,
2000 on the American Stock Exchange Composite Tape was $3.50.
8
<PAGE> 12
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has a Separation Agreement with Roger B. Hackett. The Agreement
provides that if Mr. Hackett's employment were terminated, he would be entitled
to receive:
(a) in the event that his employment is terminated as a result of a
"takeover" of the Company, he would receive 2.99 times his annual base
salary in a lump sum payment;
(b) in the event that the Company's Board initiates his separation
(absent a "takeover"), he would be entitled to receive payments equal to
two times his gross annual base salary in effect at the time of separation
payable in equal installments over twenty-four months. During the time of
such payments, he would also receive all standard employee benefits
including health insurance;
(c) in the event he initiates separation with a minimum of ninety days
notice, he would receive payments equal to (i) 0.125 times each year of
employment after his first, to a maximum multiplier of one; plus (ii) 1/2,
multiplied by his annual base salary in effect at the time of separation.
Payments would be payable in equal installments timed to coincide with the
Company's regular payroll. As of July 28, 2000, with seven years of
service, Mr. Hackett is entitled to receive his base salary for sixteen
months under this provision. During the time of such payments, he would
also receive all standard employee benefits including health insurance.
The Agreement provides for the extension of the right to exercise options
to purchase Common Stock for the maximum period, not to exceed seven years,
permitted by the plans under which such options were granted. The Agreement
continues in full force and effect during the life of the Company or its
successors and/or assigns, unless amended or terminated with the consent of both
parties.
9
<PAGE> 13
STOCK PERFORMANCE GRAPH
The following performance graph compares the yearly change since March 1995
in cumulative return on the Common Stock of the Company to the AMEX Broad Market
Index and a Company-constructed Industry Peer Index. The Industry Peer Index
shown below is comprised of companies competing either solely or substantially
within the consumer electronics industry with common stock or ADR's traded on an
exchange within the United States. Each company's stock performance is weighted
within the Industry Peer Index by its relative market capitalization. The graph
assumes $100 was invested on March 31, 1995 and shows the cumulative total
return for the fiscal years ended March 31, 1996, 1997, 1998, 1999 and 2000.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG SENSORY SCIENCE CORPORATION,
THE AMEX MARKET VALUE INDEX AND A PEER GROUP
[TOTAL RETURN ANALYSIS GRAPH]
<TABLE>
<S> <C> <C>
Total Return Analysis Sensory Science Corp. Peer Group
3/95 100 100
3/96 59.49 102.28
3/97 82.63 94.12
3/98 135.51 90.05
3/99 132.21 101.55
3/00 185.09 173.15
<S> <C>
Total Return Analysis AMEX Total Return
3/95 100
3/96 122.9
3/97 120.51
3/98 168
3/99 166.7
3/00 239.6
</TABLE>
* $100 INVESTED ON 3/31/95 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING MARCH 31.
Companies comprising the Industry Peer Index are: Audiovox Corp., Boston
Acoustics Inc., Carver Corp., Cobra Electronics Corp., Harman International
Industries Inc., Hitachi Ltd., Koss Corp., Matsushita Electronics Industries
Ltd., Philips Electronics NV, Pioneer Electronic Corp., Recoton Corp., Sanyo
Electronics Ltd., Sony Corp., and Wells Gardner Electronics Group.
10
<PAGE> 14
PROPOSAL 2
SENSORY SCIENCE CORPORATION
2000 STOCK INCENTIVE PLAN
The Board of Directors of the Company has approved, and recommends that the
shareholders approve, the adoption of the Sensory Science Corporation 2000 Stock
Incentive Plan (the "Employee Plan") for employees, officers and executives of,
and consultants and advisors to, the Company and any subsidiary. The Plan
authorizes grants of Incentive Stock Options ("ISOs"), Non-qualified Stock
Options ("NQSOs"), Stock Appreciation Rights ("SARs"), Restricted Stock,
Performance Shares, and Performance-Based Awards.
The Board believes that using long-term incentives under the Employee Plan
will be beneficial to the Company as a means to promote the success and enhance
the value of Sensory Science Corporation by linking the personal interests of
its employees, officers, executives, consultants and advisors to those of its
shareholders and by providing such individuals with an incentive for outstanding
performance. These incentives also provide the Company flexibility in its
ability to attract and retain the services of individuals upon whose judgment,
interest, and special effort the successful conduct of the Company's operation
is largely dependent. The Employee Plan, if approved by shareholders, will have
an effective date of June 15, 2000. The following summary of the Employee Plan
is qualified in its entirety by reference to the Employee Plan, a copy of which
in included at the end of this Proxy Statement as Exhibit A.
ADMINISTRATION
The Employee Plan will be administered by either the Board or a committee
appointed by the Board consisting of at least two (2) non-employee directors who
also qualify as "outside directors" under section 162(m) of the Internal Revenue
Code of 1986, as amended ("Code"). If the Board does not appoint a Committee,
any reference herein to the Committee shall be to the Board.
This committee will have the exclusive authority to administer the Employee
Plan, including the power to determine eligibility, the types and sizes of
awards, the price and timing of awards and the acceleration or waiver of any
vesting restriction, provided that the Committee will not have the authority to
waive any performance restrictions with respect to any performance-based awards.
ELIGIBILITY
Persons eligible to participate in the Employee Plan include all employees,
officers, and executives of, and consultants and advisors to, the Company and
its subsidiaries, as determined by the Committee, including employees who are
members of the Board, but excluding directors who are not employees. As of July
28, 2000, there were approximately 100 employees of the Company and its
subsidiaries.
LIMITATION ON AWARDS AND SHARES AVAILABLE
An aggregate of 1,300,000 shares of the Company's Common Stock are
available for grant under the Employee Plan. The maximum number of shares of
Stock that may be subject to one or more awards to a single participant under
the Employee Plan during any fiscal year is 500,000. The maximum number of
shares of Company Common Stock payable in the form of performance-based awards
for a performance period is 500,000 or if such performance-based compensation is
payable in cash, the maximum amount payable will be determined by multiplying
500,000 by the fair market value of one share of Stock on the first day of the
performance period. As of July 13, 2000, the closing price of the Company's
Common Stock on the American Stock Exchange Composite Tape was $3.00 per share.
DESCRIPTION OF THE AVAILABLE AWARDS
Incentive Stock Options
An ISO is a stock option that satisfies the requirements specified in
Section 422 of the Internal Revenue Code (the "Code"). Under the Code, ISOs may
only be granted to employees. In order for an option to
11
<PAGE> 15
qualify as an ISO, the price payable to exercise the option must equal or exceed
the fair market value of the stock at the date of the grant, the option must
lapse no later than 10 years from the date of the grant, and the stock subject
to ISOs that are first exercisable by an employee in any calendar year must not
have a value of more than $100,000 as of the date of grant. Certain other
requirements must also be met.
An optionee will not be treated as receiving taxable income upon either the
grant of an ISO or upon the exercise of an ISO. However, the difference between
the exercise price and the fair market value on the date of exercise will be an
item of tax preference at the time of exercise in determining liability for the
alternative minimum tax, assuming that the common stock is either transferable
or subject to a substantial risk of forfeiture under Section 83 of the Code.
If Common Stock acquired by the exercise of an ISO is not sold or otherwise
disposed of within two years from the date of its grant and is held for at least
one year after the date such Common Stock is transferred to the optionee, any
gain or loss resulting from its disposition will be treated as long-term capital
gain or loss. If such Common Stock is disposed of before the expiration of the
above-mentioned holding periods, a "disqualifying disposition" will occur. If a
disqualifying disposition occurs, the optionee will realize ordinary income in
the year of the disposition in an amount equal to the difference between the
fair market value of the Common Stock on the date of exercise and the exercise
price, or the selling price of the Common Stock and the exercise price,
whichever is less. The balance of the optionee's gain on a disqualifying
disposition, if any, will be taxed as capital gain.
In the event an optionee exercises an ISO using Common Stock acquired by a
previous exercise of an ISO, unless the stock exchange occurs after the required
holding periods, such exchange shall be deemed a disqualifying disposition of
the stock exchanged.
The Company will not be entitled to any tax deduction as a result of the
grant or exercise of an ISO, or on a later disposition of the common stock
received, except that in the event of a disqualifying disposition, the Company
will be entitled to a deduction equal to the amount of ordinary income realized
by the optionee.
Non-Qualified Stock Options
An NQSO is any stock option other than an Incentive Stock Option. Such
options are referred to as "non-qualified" because they do not meet the
requirements of, and are not eligible for, the favorable tax treatment provided
by Section 422 of the Code.
No taxable income will be realized by an optionee upon the grant of an
NQSO, nor is the Company entitled to a tax deduction by reason of such grant.
Upon the exercise of an NQSO, the optionee will realize ordinary income in an
amount equal to the excess of the fair market value of the Common Stock on the
date of exercise over the exercise price and the Company will be entitled to a
corresponding tax deduction.
Upon a subsequent sale or other disposition of Common Stock acquired
through exercise of an NQSO, the optionee will realize capital gain or loss to
the extent of any intervening appreciation or depreciation. Such a resale by the
optionee will have no tax consequence to the Company.
Stock Appreciation Rights
An SAR is the right granted to an employee to receive that appreciation in
the value of a share of Common Stock over a certain period of time. Under the
Employee Plan, the Company may pay that amount in cash, in Common Stock, or in a
combination of both.
A recipient who receives an SAR award is not subject to tax at the time of
the grant and the Company is not entitled to a tax deduction by reason of such
grant. At the time such award is exercised, the recipient must in include in
income the appreciation inherent in the SARs (i.e., the difference between the
fair market value of the Common Stock on the date of grant and the fair market
value of the Common Stock on the date the SAR is exercised). The Company is
entitled to a corresponding tax deduction in the amount equal to the income
includible by the recipient in the year in which the recipient recognizes
taxable income with respect to the SAR, provided that it withholds taxes from
the associate in the amount recognized upon exercise of the SARs.
12
<PAGE> 16
Performance Shares
Under the Employee Plan, the Committee may grant performance share units to
eligible individuals. Typically, each performance share unit will be deemed to
be the equivalent of one share of Stock. A recipient of a Performance Share
Award will not realize taxable income at the time of grant, and the Company will
not be entitled to a deduction by reason of such grant. Instead, a recipient of
Performance Shares will recognize ordinary income equal to the fair market value
of the Shares at the time the performance goals related to the Performance
Shares are attained and paid to the recipient. The Company is entitled to a tax
deduction equal to the amount of income recognized by the recipient in the year
in which the performance goals are achieved.
Restricted Stock Awards
Under the Restricted Stock feature of the Employee Plan, an eligible
individual may be granted a specified number of shares of Common Stock. However,
vested rights to such stock are subject to certain restrictions or are
conditioned on the attainment of certain performance goals. If the recipient
violates with any of the restrictions during the period specified by the
Committee or the performance standards fail to be satisfied, the Stock is
forfeited.
A recipient of a Restricted Stock Award will recognize ordinary income
equal to the fair market value of the Stock at the time the restrictions lapse.
The Company is entitled to a tax deduction equal to the amount of income
recognized by the recipient in the year in which the restrictions lapse.
Instead of postponing the income tax consequences of a Restricted Stock
Award, the recipient may elect to include the fair market value of the Common
Stock in income in the year the award is granted. This election is made under
Section 83(b) of the Code. This Section 83(b) election is made by filing a
written notice with the Internal Revenue Service office with which the recipient
files his or her Federal income tax return. The notice must be filed within 30
days of the date of grant and must meet certain technical requirements.
The tax treatment of the subsequent disposition of Restricted Stock will
depend upon whether the recipient has made a Section 83(b) election to include
the value of the Common Stock in income when awarded. If the recipient makes a
Section 83(b) election, any disposition thereafter will result in a capital gain
or loss equal to the difference between the selling price of the Common Stock
and the fair market value of the Common Stock on the date of grant. The
character of such capital gain or loss will depend upon the period the
Restricted Common Stock is held. If no Section 83(b) election is made, any
disposition thereafter will result in a capital gain or loss equal to the
difference between the selling price of the Common Stock and the fair market
value of the Common Stock on the date the restrictions lapsed.
Performance-Based Awards
Grants of performance-based awards under the Employee Plan enable the
Committee to treat restricted stock and performance share awards granted under
the Employee Plan as "performance-based compensation" under Section 162(m) of
the Code and preserve the deductibility of these awards for federal income tax
purposes. Because Section 162(m) of the Code only applies to those employees who
are "covered employees," as defined in Section 162(m) of the Code, only covered
employees are eligible to receive performance-based awards. Covered employees
include the Company's Chief Executive Officer and the four other most highly
compensated officers.
Participants for any given performance period are only entitled to receive
payment for a performance-based award for such period to the extent that
pre-established performance goals set by the Committee for the period are
satisfied. These pre-established performance goals must be based on one or more
of the following performance criteria: pre- or after-tax net earnings, sales
growth, operating earnings, operating cash flow, return on net assets, return on
shareholders' equity, return on assets, return on capital, stock price growth,
shareholder returns, gross or net profit margin, earnings per share, price per
share, and market share. These performance criteria may be measured in absolute
terms or as compared to any incremental increase or as compared to results of a
peer group. With regard to a particular performance period, the Committee shall
have
13
<PAGE> 17
the discretion to select the length of the performance period, the type of
performance-based awards to be granted, and the goals that will be used to
measure the performance for the period. In determining the actual size of an
individual performance-based award for a performance period, the Committee may
reduce or eliminate (but not increase) the award. Generally, a Participant will
have to be employed on the last day of the performance period in order to be
eligible for a performance-based award for that period.
Section 162(m)
Section 162(m) of the Code generally limits to $1 million the deduction
that can be claimed by any publicly-held corporation for compensation paid to
any covered employee in any taxable year. Performance-based compensation is
outside the scope of the $1 million limitation, and, hence, generally can be
deducted by a publicly-held corporation without regard to amount; provided that,
among other requirements, such compensation is approved by shareholders. Among
the items of performance-based compensation that can be deducted without regard
to amount (assuming shareholder approval and other applicable requirements are
satisfied) is compensation associated with the exercise price of a stock option
so long as the option has an exercise price equal to or greater than the fair
market value of the underlying stock at the time of the option grant. All
options granted under the Employee Plan and that are intended to qualify as
performance-based compensation will have an exercise price at least equal to the
fair market value of the underlying stock on the date of grant.
AMENDMENT AND TERMINATION
The Committee, subject to approval of the Board, may terminate, amend, or
modify the Executive Incentive Employee Plan at any time; provided, however,
that shareholder approval is required for any amendment to the extent necessary
or desirable to comply with any applicable law, regulation, or stock exchange
rule.
CHANGE OF CONTROL
In the event of a change of control of the Company: (i) all options and
other share based awards granted under the Employee Plan shall become
immediately exercisable; (ii) any restriction periods and restrictions imposed
on restricted stock will lapse; (iii) the target value attainable under all
performance units and other performance-based awards shall be deemed to have
been fully earned. Under the Employee Plan, a change in control occurs upon any
of the following events: (a) any person (other than any employee benefit plan)
becoming the beneficial owner of 50% or more of the Company's Common Stock; (b)
during any two-year period, the persons who are on the Company's Board of
Directors at the beginning of such period and any new person elected by
two-thirds of such directors cease to constitute a majority of the persons
serving on the Board of Directors; or (c) the Company's shareholders approve (1)
a merger or consolidation of the Company with another corporation where the
Company is not the surviving entity other than a merger in which the Company's
stockholders before the merger have the same proportionate ownership after the
merger, (2) a plan of complete liquidation or dissolution, or (3) any sale,
lease, or other transfer of 80% or more of the Company's assets, other than
pursuant to a sale-leaseback, structured finance or other form of financing
transaction.
VOTE REQUIRED
Adoption of the Employee Plan requires approval by holders of a majority of
the outstanding shares of Common Stock who are present, or represented, and
entitled to vote thereon, at the Annual Meeting of Shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2, THE ADOPTION OF
THE SENSORY SCIENCE CORPORATION 2000 STOCK INCENTIVE PLAN.
14
<PAGE> 18
PROPOSAL 3
SENSORY SCIENCE CORPORATION
NONEMPLOYEE DIRECTOR'S STOCK OPTION PLAN
The Company's Board of Directors has approved and recommends that the
stockholders approve the adoption of the Sensory Science Corporation Nonemployee
Directors' Stock Option Plan (the "Directors' Plan"), for non-employee directors
of the Company. The Directors' Plan authorizes two types of automatic grants of
nonqualified stock options to all non-employee directors of the Company.
Currently, the Company's Board of directors is composed of three non-employee
directors. The total number of shares of Common Stock available for awards under
the Directors' Plan is 750,000. The closing price for the Company's Common Stock
on July 13, 2000, as reported on the American Stock Exchange Composite Tape, was
$3.00 per share.
The Board believes that adoption of the Directors' Plan will promote the
success and enhance the value of the Company by (i) strengthening the Company's
ability to attract and retain the services of experienced and knowledgeable
persons as non-employee directors of the Company, and (ii) linking the personal
interest of non-employee directors to those of the Company's shareholders. The
Directors' Plan, if approved by shareholders, will be effective as of the date
adopted by the Board.
The Board of Directors of the Company or a committee, appointed by the
Board, will administer the Directors' Plan, and provides for initial option
grants to purchase 50,000 shares as of the fifth business day after the public
release of the Company's Results of Operations for the quarter ending June 30,
2000 and annual option grants to purchase 10,000 shares of the Company's Common
Stock in subsequent years. The following summary of the Directors' Plan is
qualified in its entirety by reference to the Directors' Plan, a copy of which
is included at the end of this proxy statement as Exhibit B.
STOCK OPTIONS
Under the Plan, a non-employee director is entitled to two types of option
grants.
The first is the initial option grant under which the non-employee director
who is a director on the date the Directors' Plan is adopted will be granted an
option to purchase 50,000 shares as of the fifth business day after the public
release of the Company's Results of Operations for the quarter ending June 30,
2000. These initial option grants are immediately exercisable and the exercise
price is equal to the fair market value of the per share price of the Company's
Common Stock on the date of grant.
The second type of option grant is the annual option grant under which the
non-employee director beginning in 2001 and thereafter will be granted an option
to purchase 10,000 shares of the Company's Common Stock on the third business
day following the public release of the Company's annual earnings release. The
annual option grants are immediately vested and exercisable. The exercise price
of the annual option grant is equal to the fair market value of the per share
price of the Company's Common Stock on the date of grant. The unexercised
options will be exercisable for one year after ceasing to be a director.
The grant of an option to a non-employee director under the Directors' Plan
will not produce any taxable income to the director, and the Company will not be
entitled to a deduction at that time. On the date the option is exercised, the
director will recognize ordinary income equal to the difference between the fair
market value of the Common Stock on the date of exercise and the exercise price.
The Company is entitled to a corresponding deduction in the same amount and in
the same year in which the director recognizes income.
VOTE REQUIRED
Adoption of the Plan requires approval by holders of a majority of the
outstanding shares of Stock who are present, or represented, and entitled to
vote thereon, at the Annual Meeting of Shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3, THE SENSORY
SCIENCE CORPORATION NONEMPLOYEE DIRECTOR'S STOCK OPTION PLAN.
15
<PAGE> 19
PROPOSAL 4
TO AMEND THE SENSORY SCIENCE CORPORATION
CERTIFICATE OF INCORPORATION
The Board of Directors has unanimously adopted and submitted to the
stockholders for approval an amendment to the Certificate of Incorporation (the
"Preferred Stock Amendment") to authorize the issuance by the Company of up to
5,000,000 shares of preferred stock, $.001 par value (the "Preferred Stock").
The text of the Preferred Stock Amendment is attached hereto as Exhibit C and is
incorporated herein by reference.
The Board of Directors believes that authorization of the Preferred Stock
is in the best interests of the Company and its stockholders. The Board believes
that it is advisable to authorize Preferred Stock and have it available to
provide flexibility to the Company to pursue transactions in the future that may
be beneficial to the Company. Such transactions may include public or private
offerings of shares for cash, other financing alternatives, strategic alliances,
corporate mergers, acquisitions, possible funding of new product programs or
businesses and other uses not presently determinable that, in the future, may be
deemed to be feasible and in the best interests of the Company. If such shares
are approved now and therefore available for issuance, the Board would have the
flexibility to issue shares of Preferred Stock in such transactions without
stockholder approval at the time of such a transaction.
The Company has no arrangements, agreements, understandings, or plans at
the present time for the issuance of Preferred Stock and no assurances can be
given that any offering or issuance of Preferred Stock will be effected.
The Preferred Stock will have such designations, preferences, conversion
rights, cumulative, relative, participating, optional or other rights, including
voting rights, qualifications, limitations or restrictions thereof as are
determined by the Board of Directors. Thus, if the Preferred Stock Amendment is
approved, the Board of Directors would be entitled to authorize the creation and
issuance of up to 5,000,000 shares of Preferred Stock in one or more series with
such limitations and restrictions as may be determined in the Board's sole
discretion, without further authorization by the Company's stockholders.
It is not possible to determine the actual effect of the Preferred Stock on
the rights of the stockholders of the Company until the Board of Directors
determines the rights of the holders of a series of the Preferred Stock.
However, such effects might include (i) restrictions on the payment of dividends
to holders of the Common Stock; (ii) dilution of voting power to the extent that
the holders of shares of Preferred Stock are given voting rights; (iii) dilution
of the equity interests and voting power if the Preferred Stock is convertible
into Common Stock; and (iv) restrictions upon any distribution of assets to the
holders of the Common Stock upon liquidation or dissolution and until the
satisfaction of any liquidation preference granted to the holders of Preferred
Stock.
POSSIBLE ANTI-TAKEOVER EFFECTS
Although the Board of Directors has no present intention of doing so, it
could issue shares of Preferred Stock (within the limits imposed by applicable
law) that could, depending on the terms of such series, make more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or other means, and thus make more difficult the
removal of management, even if it may be beneficial to the interests of the
shareholders. For example, when in the judgment of the Board of Directors such
action would be in the best interests of the shareholders and the Company, the
Board could issue shares of Preferred Stock to purchasers favorable to the Board
of Directors to create voting or other impediments to discourage persons seeking
to gain control of the Company. In addition, the Board of Directors could
authorize holders of a series of Preferred Stock to vote either separately as a
class or with the holders of Common Stock, on any merger, sale or exchange of
assets by the Company or any other extraordinary corporate transaction. The
existence of the additional authorized shares could have the effect of
discouraging unsolicited takeover attempts. The issuance of new shares could
also be used to dilute the stock ownership of a person, including shareholders,
or entity seeking to obtain control of the Company should the Board of Directors
consider the action of such entity or person not to be in the best interests of
the stockholders
16
<PAGE> 20
generally and the Company. Such issuance of Preferred Stock could also have the
effect of diluting the earnings per share and book value per share of the Common
Stock held by the holders of Common Stock.
OTHER ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws already contain other
provisions that have anti-takeover effects in addition to this proposal to
authorize the issuance of Preferred Stock. The Company's Certificate of
Incorporation authorizes the Board of Directors to create a stock option plan to
create and issue shares of stock of the Company, rights or options entitling
directors, officers or employees of the Company to purchase shares of the
Company's capital stock. In addition, the Company has adopted a shareholder
rights plan. Such plans could be used to make more difficult or discourage an
attempt to obtain control of the Company. The Company's Bylaws provide for
classification of Directors to serve for staggered terms. A classified Board
makes it more difficult for stockholders to change the majority of directors.
The proposal to provide for the issuance of Preferred Stock is not part of
a plan by the Company to make more difficult or discourage an attempt to obtain
control of the Company.
DISSENTERS' RIGHTS
Pursuant to Delaware corporate law, the Company's stockholders are not
entitled to dissenters' rights of appraisal with respect to the Preferred Stock
Amendment.
PREEMPTIVE RIGHTS
Pursuant to the Company's Certificate of Incorporation, the Company's
stockholders are not entitled to preemptive rights to subscribe for shares of
Preferred Stock.
CUMULATIVE VOTING
Pursuant to the Company's Certificate of Incorporation, the Company's
stockholders are not entitled to cumulative voting.
VOTE REQUIRED
Approval of Proposal 4 to amend the Certificate of Incorporation to
authorize the issuance of up to 5,000,000 shares of Preferred Stock requires the
affirmative vote of a majority of the outstanding Common Stock of the Company.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4 TO AMEND THE
CERTIFICATE OF INCORPORATION TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK.
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, as of July 28, 2000,
concerning shares of Common Stock beneficially owned by each stockholder known
by the Company to be the beneficial owner of more than five percent of the
Common Stock, by directors, named executive officers, and by all directors and
executive officers of the Company as a group. The address of each beneficial
owner is 7835 East McClain Dr.,
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<PAGE> 21
Scottsdale, Arizona, 85260. The information presented is based upon information
furnished to the Company by the beneficial owners.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
SHARES PERCENT OF
UNDERLYING OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OPTIONS SHARES
------------------------------------ --------- ------------ -----------
<S> <C> <C> <C>
Roger B. Hackett........................................... 26,000 665,000 4.8%
Thomas E. Linnen........................................... 1,600 65,000 0.5%
Ralph F. Palaia............................................ 17,000 125,000 1.0%
Stephen G.T. Maine......................................... -- 100,000 0.7%
Edward J. Brachocki........................................ 2,000 185,080 1.3%
Carmine F. Adimando........................................ 183,000 35,833 1.5%
Thomas F. Hartley, Jr. .................................... 14,100 78,000 0.6%
William T. Walker, Jr. .................................... 3,000 65,000 0.5%
------- --------- ----
Eight (8) officers and directors as a group................ 246,700 1,318,913 10.9%
======= ========= ====
</TABLE>
CERTAIN TRANSACTIONS
Certain transactions involving Thomas F. Hartley, Jr., a director of the
Company, are described in Compensation Committee Interlocks and Insider
Participation above.
During June 1999, the Company loaned $50,000 to Thomas E. Linnen when he
joined the Company as Executive Vice President, Corporate Planning and Chief
Financial Officer, Secretary and Treasurer. As part of the terms of this loan,
$10,000 in repayment is forgiven for each year of completed service with the
Company. As of July 28, 2000, a total of $10,000 in repayments has been
forgiven.
On September 9, 1999, the Company entered into a relocation bridge loan
agreement with Ralph F. Palaia, Senior Vice President of Marketing and Sales,
for $65,000. This loan is to be repaid to the Company with interest in lieu of
any bonus payments earned by Mr. Palaia. Mr. Palaia is liable for the
outstanding loan balance and accrued interest should his employment be
terminated. The loan plus accrued interest is currently outstanding.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, officers, and persons who own more than 10% of a registered class of
the Company's equity securities to file reports of ownership and changes of
ownership with the Securities and Exchange Commission. Employee stock options
granted on December 16, 1999 to the following executive officers, Messrs.
Hackett, Palaia, Maine, Brachocki and Linnen, were reported during July 2000 on
Form 4. These grants should have been reported on Form 4 during January 2000.
With this exception and based solely on its review of the copies of such forms
received by it, the Company believes that all filing requirements applicable to
its directors, officers, and greater-than-10% beneficial owners were complied
with during the fiscal year ending March 31, 2000.
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<PAGE> 22
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The principal independent public accounting firm utilized by the Company
during the fiscal year ending March 31, 2000 was Deloitte and Touche,
independent certified public accountants (the "Auditors"). It is presently
contemplated that the Auditors will be retained as the principal accounting firm
to be utilized by the Company during the current fiscal year. It is anticipated
that a representative of the Auditors will attend the Annual Meeting for the
purpose of responding to appropriate questions. At the meeting, a representative
of the Auditors will be afforded an opportunity to make a statement if the
Auditors so desire.
REPORTS TO STOCKHOLDERS
The Company has mailed this Notice and Proxy Statement and a copy of its
2000 Annual Report to each stockholder entitled to vote at the Annual Meeting.
Included in the 2000 Annual Report are the Company's financial statements for
the fiscal year ended March 31, 2000. The Company's 2000 Annual Report is not to
be regarded as proxy soliciting material.
PROPOSALS BY STOCKHOLDERS
Any stockholder proposal which is intended to be presented at the next
annual meeting must be received at the Company's principal executive offices by
no later than April 2, 2001, if such proposal is to be considered for inclusion
in the Company's Proxy Statement and Form of Proxy relating to such meeting.
OTHER BUSINESS
The meeting is being held for the purposes set forth in the Notice which
accompanies this Proxy Statement. The Board of Directors is not presently aware
of any business to be transacted other than the business described in the
Notice.
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<PAGE> 23
APPENDIX A
SENSORY SCIENCE CORPORATION
AUDIT COMMITTEE CHARTER
I. GENERAL
The Audit Committee is a committee of the Board of Directors of the
Company. Its primary function is to assist the Board of Directors in overseeing
the Company's financial reporting process, including the quality and integrity
of the Company's financial reports and system of internal controls. The
Company's outside auditor is ultimately accountable to the Board of Directors
and the Audit Committee.
II. COMPOSITION
The Audit Committee will consist of three or more directors. No member of
the Audit Committee may have a relationship with the Company that may interfere
with his or her exercise of independence from management and the Company. Each
member must also satisfy any additional "independence" requirements established
by the American Stock Exchange from time to time. Each member must be
financially literate, as the Company's Board of Directors interprets such
qualification in its business judgment. At least one member of the Audit
Committee must have accounting or related financial management expertise, as the
Company's Board of Directors interprets such qualification in its business
judgment.
III. MEETINGS
The Committee will meet at least three times annually, or more frequently
as circumstances dictate. The Committee may meet for a portion of each meeting
with the Company's management, controller, and the outside auditor, either
collectively or individually, as warranted, and a portion of each meeting will
be restricted to Committee members only.
IV. AUDIT COMMITTEE DUTIES AND RESPONSIBILITIES
1. Encourage open communication among the internal auditors, the outside
auditor, management, and the Board of Directors.
2. Review any matters brought to the Audit Committee's attention regarding
financial, ethical, or legal matters.
3. Evaluate the outside auditor and recommend to the Board of Directors the
selection, and where appropriate, the replacement of the outside auditor (or to
recommend to the Board of Directors the outside auditor to be nominated for
shareholder approval in any proxy statement).
4. Ensure that the outside auditor submits on a periodic basis to the Audit
Committee a formal written statement delineating all relationships between the
outside auditor and the Company, engage in a dialogue with the outside auditor
with respect to any disclosed relationship that may impact the objectivity and
independence of the outside auditor, and recommend to the Board of Directors
that the Board take appropriate action in response to the outside auditor's
report to satisfy itself of the outside auditor's independence.
5. Review the compensation of the outside auditor.
6. Maintain an awareness of key financial reporting issues and review
proposed changes in financial reporting rules affecting the Company.
7. On at least an annual basis, inquire of management and the outside
auditor about:
(a) the significant risks or exposures to the Company and assess the
steps management has taken to minimize these risks; and
(b) legal, environmental, and tax liabilities.
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<PAGE> 24
8. Consider, in consultation with the outside auditor, the audit scope and
plan of the outside auditor.
9. Consider and review with the outside auditor:
(a) The adequacy of the Company's internal controls; and
(b) Any related significant findings and recommendations of the
outside auditor, together with management's responses.
10. Review with management and the outside auditor at the completion of the
annual audit:
(a) The Company's annual financial statements and related footnotes;
(b) The outside auditor's audit of the financial statements and its
report thereon;
(c) Any significant changes required in the outside auditor's audit
plan;
(d) Any serious difficulties or disputes with management encountered
during the course of the audit; and
(e) Other matters related to the conduct of the audit that are to be
communicated to the Committee under generally accepted auditing standards.
11. Prepare for inclusion in the Company's proxy statement any report
required by Securities and Exchange Commission rules or regulations.
12. Annually review this Audit Committee Charter and, if appropriate,
recommend changes to the Board of Directors.
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EXHIBIT A
SENSORY SCIENCE CORPORATION
2000 STOCK INCENTIVE PLAN
ARTICLE 1
PURPOSE
1.1 General. The purpose of the Sensory Science Corporation 2000 Stock
Incentive Plan (the "Plan") is to promote the success and enhance the value of
Sensory Science Corporation (the "Company") by linking the personal interests of
its employees, officers, and executives of, and consultants and advisors to, the
Company to those of Company stockholders and by providing such individuals with
an incentive for outstanding performance in order to generate superior returns
to shareholders of the Company. The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract, and retain the
services of employees, officers, and executives of, and consultants and advisors
to, the Company upon whose judgment, interest, and special effort the successful
conduct of the Company's operation is largely dependent.
ARTICLE 2
EFFECTIVE DATE
2.1 Effective Date. The Plan is effective as of June 15, 2000 (the
"Effective Date"). Within 12 months of the Effective Date, the Plan must be
approved by the Company's shareholders. The Plan will be deemed to be approved
by the shareholders if it receives the affirmative vote of the holders of a
majority of the shares of stock of the Company present or represented and
entitled to vote at a meeting duly held in accordance with the applicable
provisions of the Company's Bylaws or by written consent of a majority of the
Company's shareholders in lieu of a meeting. Any awards granted under the Plan
prior to shareholder approval are effective when made (unless the Committee
specifies otherwise at the time of grant), but no Award may be exercised or
settled and no restrictions relating to any Award may lapse before the Plan is
approved by the shareholders as provided above. If the shareholders fail to
approve the Plan, any Award previously made shall be automatically canceled
without any further act.
ARTICLE 3
DEFINITIONS AND CONSTRUCTION
3.1 Definitions. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Sections 1.1 or 2.1 unless a clearly different meaning is required
by the context. The following words and phrases shall have the following
meanings:
(a) "Award" means any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share Award, or Performance-Based Award granted to
a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means (except as otherwise provided in an Award Agreement)
if the Committee, in its reasonable and good faith discretion, determines
that the Participant (i) fails to substantially perform his duties (other
than as a result of Disability), after the Board or the executive to which
the Participant reports delivers to the Participant a written demand for
substantial performance that specifically identifies the manner in which
the Participant has not substantially performed his duties; (ii) engages in
willful misconduct or gross negligence that is materially injurious to the
Company or a Subsidiary; (iii) breaches his duty of loyalty to the Company
or a Subsidiary; (iv) unauthorized removal from the premises of the Company
or a Subsidiary of a document (of any media or form) relating to the
Company or a Subsidiary
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<PAGE> 27
or the customers of the Company or a Subsidiary; or (v) commits a felony or
a serious crime involving moral turpitude. Any rights the Company or any of
its Subsidiaries may have hereunder in respect of the events giving rise to
Cause shall be in addition to the rights the Company or any of its
Subsidiaries may have under any other agreement with the Participant or at
law or in equity. If, subsequent to a Participant's termination of
employment or services, it is discovered that such Participant's employment
or services could have been terminated for Cause, the Participant's
employment or services shall, at the election of the Board, in its sole
discretion, be deemed to have been terminated for Cause retroactively to
the date the events giving rise to Cause occurred.
(e) "Change of Control" means any of the following:
(1) any merger of the Company in which the Company is not the
continuing or surviving entity, or pursuant to which the common stock of
the Company would be converted into cash, securities, or other property
other than a merger of the Company in which the holders of the Company's
common stock immediately prior to the merger have the same proportionate
ownership of beneficial interest of common stock or other voting
securities of the surviving entity immediately after the merger;
(2) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of assets or earning
power aggregating more than 80% of the assets or earning power of the
Company and its subsidiaries (taken as a whole), other than pursuant to
a sale-leaseback, structured finance, or other form of financing
transaction;
(3) the shareholders of the Company approve any plan or proposal
for liquidation or dissolution of the Company;
(4) any person (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act), other than any employee benefit plan of the
Company or any subsidiary of the Company or any entity holding shares of
capital stock of the Company for or pursuant to the terms of any such
employee benefit plan in its role as an agent or trustee for such plan,
shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 50% or more of the Company's outstanding
common stock; or
(5) during any period of two consecutive years, individuals who at
the beginning of such period shall fail to constitute a majority of the
Board at the end of such period, unless the election, or the nomination
for election by the Company's shareholders, of any new director is
approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the committee of the Board described in Article
4.
(h) "Covered Employee" means an Employee who is a "covered employee"
within the meaning of Section 162(m) of the Code.
(i) "Disability" shall mean (unless otherwise defined in an employment
agreement between the Company or any of its Subsidiaries and the
Participant or in the Participant's Award Agreement) any illness or other
physical or mental condition of a Participant which renders the Participant
incapable of performing his customary and usual duties for the Company, or
any medically determinable illness or other physical or mental condition
resulting from a bodily injury, disease, or mental disorder which in the
judgment of the Committee is permanent and continuous in nature. The
Committee may require such medical or other evidence as it deems necessary
to judge the nature and permanency of the Participant's condition.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any given date, the fair market
value of Stock on a particular date determined by such methods or
procedures as may be established from time to time by the
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<PAGE> 28
Committee. Unless otherwise determined by the Committee, the Fair Market
Value of Stock as of any date shall be the closing price for the Stock as
reported on the NASDAQ National Market System (or on any national
securities exchange on which the Stock is then listed) for that date or, if
no closing price is reported for that date, the closing price on the next
preceding date for which a closing price was reported.
(l) "Incentive Stock Option" means an Option that is intended to meet
the requirements of Section 422 of the Code or any successor provision
thereto.
(m) "Non-Employee Director" means a member of the Board who qualifies
as a "Non-Employee Director" as defined in Rule 16b-3(b)(3) of the Exchange
Act, or any successor definition adopted by the Board.
(n) "Non-Qualified Stock Option" means an Option that is not intended
to be an Incentive Stock Option.
(o) "Option" means a right granted to a Participant under Article 7 to
purchase Stock at a specified price during specified time periods. An
Option may be either an Incentive Stock Option or a Non-Qualified Stock
Option.
(p) "Participant" means a person who, as a member of the Board,
employee, officer, or executive of, or consultant or advisor providing
services to, the Company or any Subsidiary, has been granted an Award under
the Plan.
(q) "Performance-Based Awards" means the Performance Share Awards and
Restricted Stock Awards granted to selected Covered Employees pursuant to
Articles 9 and 10, but which are subject to the terms and conditions set
forth in Article 11. All Performance-Based Awards are intended to qualify
as "performance-based compensation" under Section 162(m) of the Code.
(r) "Performance Criteria" means the criteria that the Committee
selects for purposes of establishing the Performance Goal or Performance
Goals for a Participant for a Performance Period. The Performance Criteria
that will be used to establish Performance Goals are limited to the
following: pre-or after-tax net earnings, sales growth, operating earnings,
operating cash flow, return on net assets, return on stockholders' equity,
return on assets, return on capital, Stock price growth, stockholder
returns, gross or net profit margin, earnings per share, price per share of
Stock, and market share, any of which may be measured either in absolute
terms or as compared to any incremental increase or as compared to results
of a peer group. The Committee shall, within the time prescribed by Section
162(m) of the Code, define in an objective fashion the manner of
calculating the Performance Criteria it selects to use for such Performance
Period for such Participant.
(s) "Performance Goals" means, for a Performance Period, the goals
established in writing by the Committee for the Performance Period based
upon the Performance Criteria. Depending on the Performance Criteria used
to establish such Performance Goals, the Performance Goals may be expressed
in terms of overall Company performance or the performance of a division,
business unit, or an individual. The Committee, in its discretion, may,
within the time prescribed by Section 162(m) of the Code, adjust or modify
the calculation of Performance Goals for such Performance Period in order
to prevent the dilution or enlargement of the rights of Participants (i) in
the event of, or in anticipation of, any unusual or extraordinary corporate
item, transaction, event, or development, or (ii) in recognition of, or in
anticipation of, any other unusual or nonrecurring events affecting the
Company, or the financial statements of the Company, or in response to, or
in anticipation of, changes in applicable laws, regulations, accounting
principles, or business conditions.
(t) "Performance Period" means the one or more periods of time, which
may be of varying and overlapping durations, as the Committee may select,
over which the attainment of one or more Performance Goals will be measured
for the purpose of determining a Participant's right to, and the payment
of, a Performance-Based Award.
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<PAGE> 29
(u) "Performance Share" means a right granted to a Participant under
Article 9, to receive cash, Stock, or other Awards, the payment of which is
contingent upon achieving certain performance goals established by the
Committee.
(v) "Plan" means the Sensory Science Corporation 2000 Stock Incentive
Plan.
(w) "Restricted Stock Award" means Stock granted to a Participant
under Article 10 that is subject to certain restrictions and to risk of
forfeiture.
(x) "Stock" means the common stock of the Company and such other
securities of the Company that may be substituted for Stock pursuant to
Article 13.
(y) "Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Article 8 to receive a payment equal to the difference
between the Fair Market Value of a share of Stock as of the date of
exercise of the SAR over the grant price of the SAR, all as determined
pursuant to Article 8.
(z) "Subsidiary" means any corporation or other entity of which a
majority of the outstanding voting stock or voting power is beneficially
owned directly or indirectly by the Company.
ARTICLE 4
ADMINISTRATION
4.1 Committee. The Plan shall be administered by the Board or a Committee
appointed by, and which serves at the discretion of, the Board. If the Board
appoints a Committee, the Committee shall consist of at least two individuals,
each of whom qualifies as (i) a Non-Employee Director, and (ii) an "outside
director" under Code Section 162(m) and the regulations issued thereunder.
Reference to the Committee shall refer to the Board if the Board does not
appoint a Committee.
4.2 Action by the Committee. A majority of the Committee shall constitute
a quorum. The acts of a majority of the members present at any meeting at which
a quorum is present, and acts approved in writing by a majority of the Committee
in lieu of a meeting, shall be deemed the acts of the Committee. Each member of
the Committee is entitled to, in good faith, rely or act upon any report or
other information furnished to that member by any officer or other employee of
the Company or any Subsidiary, the Company's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.
4.3 Authority of Committee. Subject to any specific designation in the
Plan, the Committee has the exclusive power, authority and discretion to:
(a) Designate Participants to receive Awards;
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and the number of
shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the
Plan including but not limited to, the exercise price, grant price, or
purchase price, any provisions related to non-competition and recapture of
gain on an Award, any restrictions or limitations on the Award, any
schedule for lapse of forfeiture restrictions or restrictions on the
exercisability of an Award, and accelerations or waivers thereof, based in
each case on such considerations as the Committee in its sole discretion
determines; provided, however, that the Committee shall not have the
authority to accelerate the vesting or waive the forfeiture of any
Performance-Based Awards;
(e) Amend, modify, or terminate any outstanding Award, with the
Participant's consent unless the Committee has the authority to amend,
modify, or terminate an Award without the Participant's consent under any
other provision of the Plan.
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<PAGE> 30
(f) Determine whether, to what extent, and under what circumstances an
Award may be settled in, or the exercise price of an Award may be paid in,
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(g) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(h) Decide all other matters that must be determined in connection
with an Award;
(i) Establish, adopt, or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan; and
(j) Interpret the terms of, and any matter arising under, the Plan or
any Award Agreement;
(k) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable to
administer the Plan.
4.4 Decisions Binding. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1 Number of Shares. Subject to adjustment provided in Section 13.1, the
aggregate number of shares of Stock reserved and available for grant under the
Plan shall be 1,300,000.
5.2 Lapsed Awards. To the extent that an Award terminates, expires, or
lapses for any reason, any shares of Stock subject to the Award will again be
available for the grant of an Award under the Plan.
5.3 Stock Distributed. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4 Limitation on Number of Shares Subject to Awards. Notwithstanding any
provision in the Plan to the contrary, and subject to the adjustment in Section
13.1, the maximum number of shares of Stock with respect to one or more Awards
that may be granted to any one Participant during the Company's fiscal year
shall be 500,000.
ARTICLE 6
ELIGIBILITY AND PARTICIPATION
6.1 Eligibility.
(a) General. Persons eligible to participate in this Plan include all
employees, officers, and executives of, and consultants and advisors to, the
Company or a Subsidiary, as determined by the Committee.
(b) Foreign Participants. In order to assure the viability of Awards
granted to Participants employed in foreign countries, the Committee may provide
for such special terms as it may consider necessary or appropriate to
accommodate differences in local law, tax policy, or custom. Moreover, the
Committee may approve such supplements to, or amendments, restatements, or
alternative versions of the Plan as it may consider necessary or appropriate for
such purposes without thereby affecting the terms of the Plan as in effect for
any other purpose; provided, however, that no such supplements, amendments,
restatements, or alternative versions shall increase the share limitations
contained in Section 5.1 of the Plan.
6.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from among all eligible individuals,
those to whom Awards shall be granted and shall determine the nature and amount
of each Award. No individual shall have any right to be granted an Award under
this Plan.
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<PAGE> 31
ARTICLE 7
STOCK OPTIONS
7.1 General. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock under an
Option shall be determined by the Committee and set forth in the Award
Agreement. It is the intention under the Plan that the exercise price for
any Option shall not be less than the Fair Market Value as of the date of
grant; provided, however that the Committee may, in its discretion, grant
Options (other than Options that are intended to be Incentive Stock Options
or Options that are intended to qualify as performance-based compensation
under Code Section 162(m)) with an exercise price of less than Fair Market
Value on the date of grant.
(b) Time and Conditions of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in part.
The Committee shall also determine the performance or other conditions, if
any, that must be satisfied before all or part of an Option may be
exercised. Unless otherwise provided in an Award Agreement, an Option will
lapse immediately if a Participant's employment or services are terminated
for Cause.
(c) Payment. The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment, including,
without limitation, cash, promissory note, shares of Stock (through actual
tender or by attestation), or other property (including broker-assisted
"cashless exercise" arrangements), and the methods by which shares of Stock
shall be delivered or deemed to be delivered to Participants.
(d) Evidence of Grant. All Options shall be evidenced by a written
Award Agreement between the Company and the Participant. The Award
Agreement shall include such additional provisions as may be specified by
the Committee.
7.2 Incentive Stock Options. Incentive Stock Options shall be granted
only to employees and the terms of any Incentive Stock Options granted under the
Plan must comply with the following additional rules:
(a) Exercise Price. The exercise price per share of Stock shall be
set by the Committee, provided that the exercise price for any Incentive
Stock Option may not be less than the Fair Market Value as of the date of
the grant.
(b) Exercise. In no event, may any Incentive Stock Option be
exercisable for more than ten years from the date of its grant.
(c) Lapse of Option. An Incentive Stock Option shall lapse under the
following circumstances.
(1) The Incentive Stock Option shall lapse ten years from the date
it is granted, unless an earlier time is set in the Award Agreement.
(2) The Incentive Stock Option shall lapse upon termination of
employment for Cause or for any other reason, other than the
Participant's death or Disability, unless otherwise provided in the
Award Agreement.
(3) If the Participant terminates employment on account of
Disability or death before the Option lapses pursuant to paragraph (1)
or (2) above, the Incentive Stock Option shall lapse, unless it is
previously exercised, on the earlier of (i) the date on which the Option
would have lapsed had the Participant not become Disabled or lived and
had his employment status (i.e., whether the Participant was employed by
the Company on the date of his Disability or death or had previously
terminated employment) remained unchanged; or (ii) 12 months after the
date of the Participant's termination of employment on account of
Disability or death. Upon the Participant's Disability or death, any
Incentive Stock Options exercisable at the Participant's Disability or
death may be exercised by the Participant's legal representative or
representatives, by the person or persons entitled to do so under the
Participant's last will and testament, or, if the Participant fails to
make
28
<PAGE> 32
testamentary disposition of such Incentive Stock Option or dies
intestate, by the person or persons entitled to receive the Incentive
Stock Option under the applicable laws of descent and distribution.
(d) Individual Dollar Limitation. The aggregate Fair Market Value
(determined as of the time an Award is made) of all shares of Stock with
respect to which Incentive Stock Options are first exercisable by a
Participant in any calendar year may not exceed $100,000.00 or such other
limitation as imposed by Section 422(d) of the Code, or any successor
provision. To the extent that Incentive Stock Options are first exercisable
by a Participant in excess of such limitation, the excess shall be
considered Non-Qualified Stock Options.
(e) Ten Percent Owners. An Incentive Stock Option shall be granted to
any individual who, at the date of grant, owns stock possessing more than
ten percent of the total combined voting power of all classes of Stock of
the Company only if such Option is granted at a price that is not less than
110% of Fair Market Value on the date of grant and the Option is
exercisable for no more than five years from the date of grant.
(f) Expiration of Incentive Stock Options. No Award of an Incentive
Stock Option may be made pursuant to this Plan after the tenth anniversary
of the Effective Date.
(g) Right to Exercise. During a Participant's lifetime, an Incentive
Stock Option may be exercised only by the Participant.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1 Grant of Sars. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) Right to Payment. Upon the exercise of a Stock Appreciation
Right, the Participant to whom it is granted has the right to receive the
excess, if any, of:
(1) The Fair Market Value of a share of Stock on the date of
exercise; over
(2) The grant price of the Stock Appreciation Right as determined
by the Committee, which shall not be less than the Fair Market Value of
a share of Stock on the date of grant in the case of any SAR related to
any Incentive Stock Option.
(b) Other Terms. All awards of Stock Appreciation Rights shall be
evidenced by an Award Agreement. The terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any other
terms and conditions of any Stock Appreciation Right shall be determined by
the Committee at the time of the grant of the Award and shall be reflected
in the Award Agreement.
ARTICLE 9
PERFORMANCE SHARES
9.1 Grant of Performance Shares. The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Shares granted to each Participant. All
Awards of Performance Shares shall be evidenced by an Award Agreement.
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9.2 Right to Payment. A grant of Performance Shares gives the Participant
rights, valued as determined by the Committee, and payable to, or exercisable
by, the Participant to whom the Performance Shares are granted, in whole or in
part, as the Committee shall establish at grant or thereafter. Subject to the
terms of the Plan, the Committee shall set performance goals and other terms or
conditions to payment of the Performance Shares in its discretion which,
depending on the extent to which they are met, will determine the number and
value of Performance Shares that will be paid to the Participant.
9.3 Other Terms. Performance Shares may be payable in cash, Stock, or
other property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
ARTICLE 10
RESTRICTED STOCK AWARDS
10.1 Grant of Restricted Stock. The Committee is authorized to make
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as determined by the Committee. All Awards of Restricted
Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2 Issuance and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, or otherwise, as the Committee
determines at the time of the grant of the Award or thereafter.
10.3 Forfeiture. Except as otherwise determined by the Committee at the
time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period, Restricted Stock that is at that time
subject to restrictions shall be forfeited, provided, however, that the
Committee may provide in any Restricted Stock Award Agreement that restrictions
or forfeiture conditions relating to Restricted Stock will be waived in whole or
in part in the event of terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part restrictions or
forfeiture conditions relating to Restricted Stock.
10.4 Certificates for Restricted Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock, and
the Company may, at its discretion, retain physical possession of the
certificate until such time as all applicable restrictions lapse.
ARTICLE 11
PERFORMANCE-BASED AWARDS
11.1 Purpose. The purpose of this Article 11 is to provide the Committee
the ability to qualify the Performance Share Awards under Article 9 and the
Restricted Stock Awards under Article 10 as "performance-based compensation"
under Section 162(m) of the Code. If the Committee, in its discretion, decides
to grant a Performance-Based Award to a Covered Employee, the provisions of this
Article 11 shall control over any contrary provision contained in Articles 9 or
10.
11.2 Applicability. This Article 11 shall apply only to those Covered
Employees selected by the Committee to receive Performance-Based Awards. The
Committee may, in its discretion, grant Restricted Stock Awards or Performance
Share Awards to Covered Employees that do not satisfy the requirements of this
Article 11. The designation of a Covered Employee as a Participant for a
Performance Period shall not in any manner entitle the Participant to receive an
Award for the period. Moreover, designation of a Covered Employee as a
Participant for a particular Performance Period shall not require designation of
such Covered Employee as a Participant in any subsequent Performance Period and
designation of one Covered Employee
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as a Participant shall not require designation of any other Covered Employees as
a Participant in such period or in any other period.
11.3 Discretion of Committee with Respect to Performance Awards. With
regard to a particular Performance Period, the Committee shall have full
discretion to select the length of such Performance Period, the type of
Performance-Based Awards to be issued, the kind and/or level of the Performance
Goal, and whether the Performance Goal is to apply to the Company, a Subsidiary
or any division or business unit thereof.
11.4 Payment of Performance Awards. Unless otherwise provided in the
relevant Award Agreement, a Participant must be employed by the Company or a
Subsidiary on the last day of the Performance Period to be eligible for a
Performance Award for such Performance Period. Furthermore, a Participant shall
be eligible to receive payment under a Performance-Based Award for a Performance
Period only if the Performance Goals for such period are achieved. In
determining the actual size of an individual Performance-Based Award, the
Committee may reduce or eliminate the amount of the Performance-Based Award
earned for the Performance Period, if in its sole and absolute discretion, such
reduction or elimination is appropriate.
11.5 Maximum Award Payable. The maximum Performance-Based Award payable
to any one Participant under the Plan for a Performance Period is 500,000 shares
of Stock, or in the event the Performance-Based Award is paid in cash, such
maximum Performance-Based Award shall be determined by multiplying 500,000 by
the Fair Market Value of one share of Stock as of the date of grant of the
Performance-Based Award.
ARTICLE 12
PROVISIONS APPLICABLE TO AWARDS
12.1 Stand-Alone and Tandem Awards. Awards granted under the Plan may, in
the discretion of the Committee, be granted either alone, in addition to, or in
tandem with, any other Award granted under the Plan. Awards granted in addition
to or in tandem with other Awards may be granted either at the same time as or
at a different time from the grant of such other Awards.
12.2 Exchange Provisions. The Committee may at any time offer to exchange
or buy out any previously granted Award for a payment in cash, Stock, or another
Award, based on the terms and conditions the Committee determines and
communicates to the Participant at the time the offer is made.
12.3 Term of Award. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant.
12.4 Form of Payment for Awards. Subject to the terms of the Plan and any
applicable law or Award Agreement, payments or transfers to be made by the
Company or a Subsidiary on the grant or exercise of an Award may be made in such
forms as the Committee determines at or after the time of grant, including
without limitation, cash, promissory note, Stock, other Awards, or other
property, or any combination, and may be made in a single payment or transfer,
in installments, or on a deferred basis, in each case determined in accordance
with rules adopted by, and at the discretion of, the Committee.
12.5 Limits on Transfer. No right or interest of a Participant in any
Award may be pledged, encumbered, or hypothecated to or in favor of any party
other than the Company or a Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than the
Company or a Subsidiary. Except as otherwise provided by the Committee, no Award
shall be assignable or transferable by a Participant other than by will or the
laws of descent and distribution.
12.6 Beneficiaries. Notwithstanding Section 12.5, a Participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other
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person claiming any rights under the Plan is subject to all terms and conditions
of the Plan and any Award Agreement applicable to the Participant, except to the
extent the Plan and Award Agreement otherwise provide, and to any additional
restrictions deemed necessary or appropriate by the Committee. If the
Participant is married, a designation of a person other than the Participant's
spouse as his beneficiary with respect to more than 50% of the Participant's
interest in the Award shall not be effective without the written consent of the
Participant's spouse. If no beneficiary has been designated or survives the
Participant, payment shall be made to the person entitled thereto under the
Participant's will or the laws of descent and distribution. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a Participant
at any time provided the change or revocation is filed with the Committee.
12.7 Stock Certificates. Notwithstanding anything herein to the contrary,
the Company shall not be required to issue or deliver any certificates
evidencing shares of Stock pursuant to the exercise of any Awards, unless and
until the Board has determined, with advice of counsel, that the issuance and
delivery of such certificates is in compliance with all applicable laws,
regulations of governmental authorities and, if applicable, the requirements of
any exchange on which the shares of Stock are listed or traded. All Stock
certificates delivered under the Plan are subject to any stop-transfer orders
and other restrictions as the Committee deems necessary or advisable to comply
with Federal, state, or foreign jurisdiction, securities or other laws, rules
and regulations and the rules of any national securities exchange or automated
quotation system on which the Stock is listed, quoted, or traded. The Committee
may place legends on any Stock certificate to reference restrictions applicable
to the Stock. In addition to the terms and conditions provided herein, the Board
may require that a Participant make such reasonable covenants, agreements, and
representations as the Board, in its discretion, deems advisable in order to
comply with any such laws, regulations, or requirements.
12.8 Acceleration Upon a Change of Control. If a Change of Control
occurs, all outstanding Options, Stock Appreciation Rights, and other Awards
shall become fully exercisable and all restrictions on outstanding Awards shall
lapse. To the extent that this provision causes Incentive Stock Options to
exceed the dollar limitation set forth in Section 7.2(d), the excess Options
shall be deemed to be Non-Qualified Stock Options. Upon, or in anticipation of,
such an event, the Committee may cause every Award outstanding hereunder to
terminate at a specific time in the future and shall give each Participant the
right to exercise Awards during a period of time as the Committee, in its sole
and absolute discretion, shall determine.
ARTICLE 13
CHANGES IN CAPITAL STRUCTURE
13.1 General.
(a) Shares Available for Grant. In the event of any change in the number
of shares of Stock outstanding by reason of any stock dividend or split,
recapitalization, merger, consolidation, combination, or exchange of shares or
similar corporate change, the maximum aggregate number of shares of Stock with
respect to which the Committee may grant Awards shall be appropriately adjusted
by the Committee. In the event of any change in the number of shares of Stock
outstanding by reason of any other event or transaction, the Committee may, but
need not, make such adjustments in the number and class of shares of Stock with
respect to which Awards may be granted as the Committee may deem appropriate.
(b) Outstanding Awards -- Increase or Decrease in Issued Shares Without
Consideration. Subject to any required action by the shareholders of the
Company, in the event of any increase or decrease in the number of issued shares
of Stock resulting from a subdivision or consolidation of shares of Stock or the
payment of a stock dividend (but only on the shares of Stock), or any other
increase or decrease in the number of such shares effected without receipt or
payment of consideration by the Company, the Committee shall proportionally
adjust the number of shares of Stock subject to each outstanding Award and the
exercise price per share of Stock of each such Award.
(c) Outstanding Awards -- Certain Mergers. Subject to any required action
by the shareholders of the Company, in the event that the Company shall be the
surviving corporation in any merger or consolidation (except a merger or
consolidation as a result of which the holders of shares of Stock receive
securities of
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another corporation), each Award outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a holder of the
number of shares of Stock subject to such Award would have received in such
merger or consolidation.
(d) Outstanding Awards -- Certain Other Transactions. In the event of (i)
a dissolution or liquidation of the Company, (ii) a sale of all or substantially
all of the Company's assets, (iii) a merger or consolidation involving the
Company in which the Company is not the surviving corporation or (iv) a merger
or consolidation involving the Company in which the Company is the surviving
corporation but the holders of shares of Stock receive securities of another
corporation and/or other property, including cash, the Committee shall, in its
absolute discretion, have the power to:
(1) cancel, effective immediately prior to the occurrence of such
event, each Award outstanding immediately prior to such event (whether or
not then exercisable), and, in full consideration of such cancellation, pay
to the Participant to whom such Award was granted an amount in cash, for
each share of Stock subject to such Award, respectively, equal to the
excess of (A) the value, as determined by the Committee in its absolute
discretion, of the property (including cash) received by the holder of a
share of Stock as a result of such event over (B) the exercise of such
Award; or
(2) provide for the exchange of each Award outstanding immediately
prior to such event (whether or not then exercisable) for an option, a
stock appreciation right, restricted stock award, performance share award
or performance-based award with respect to, as appropriate, some or all of
the property for which such Award is exchanged and, incident thereto, make
an equitable adjustment as determined by the Committee in its absolute
discretion in the exercise price or value of the option, stock appreciate
right, restricted stock award, performance share award or performance-based
award or the number of shares or amount of property subject to the option,
stock appreciation right, restricted stock award, performance share award
or performance-based award or, if appropriate, provide for a cash payment
to the Participant to whom such Award was granted in partial consideration
for the exchange of the Award.
(e) Outstanding Awards -- Other Changes. In the event of any other change
in the capitalization of the Company or corporate change other than those
specifically referred to in Article 13, the Committee may, in its absolute
discretion, make such adjustments in the number and class of shares subject to
Awards outstanding on the date on which such change occurs and in the per share
exercise price of each Award as the Committee may consider appropriate to
prevent dilution or enlargement of rights.
(f) No Other Rights. Except as expressly provided in the Plan, no
Participant shall have any rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any dividend, any increase or
decrease in the number of shares of stock of any class or any dissolution,
liquidation, merger, or consolidation of the Company or any other corporation.
Except as expressly provided in the Plan, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of Stock subject to an Award or the exercise
price of any Award.
ARTICLE 14
AMENDMENT, MODIFICATION, AND TERMINATION
14.1 Amendment, Modification, and Termination. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend or
modify the Plan; provided, however, that to the extent necessary and desirable
to comply with any applicable law, regulation, or stock exchange rule, the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
14.2 Awards Previously Granted. Except as otherwise provided in the Plan,
including without limitation, the provisions of Article 13, no termination,
amendment, or modification of the Plan shall adversely affect in any material
way any Award previously granted under the Plan, without the written consent of
the Participant.
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ARTICLE 15
GENERAL PROVISIONS
15.1 No Rights to Awards. No Participant , employee, or other person
shall have any claim to be granted any Award under the Plan, and neither the
Company nor the Committee is obligated to treat Participants, employees, and
other persons uniformly.
15.2 No Stockholders Rights. No Award gives the Participant any of the
rights of a stockholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.
15.3 Withholding. The Company or any Subsidiary shall have the authority
and the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required by law to be withheld
with respect to any taxable event arising as a result of this Plan. With the
Committee's consent, a Participant may elect to have the Company withhold from
those Stock that would otherwise be received upon the exercise of any Option, a
number of shares having a Fair Market Value equal to the minimum statutory
amount necessary to satisfy the Company's applicable federal, state, local and
foreign income and employment tax withholding obligations.
15.4 No Right to Employment or Services. Nothing in the Plan or any Award
Agreement shall interfere with or limit in any way the right of the Company or
any Subsidiary to terminate any Participant's employment or services at any
time, nor confer upon any Participant any right to continue in the employ of the
Company or any Subsidiary.
15.5 Unfunded Status of Awards. The Plan is intended to be an "unfunded"
plan for incentive compensation. With respect to any payments not yet made to a
Participant pursuant to an Award, nothing contained in the Plan or any Award
Agreement shall give the Participant any rights that are greater than those of a
general creditor of the Company or any Subsidiary.
15.6 Indemnification. To the extent allowable under applicable law, each
member of the Committee or of the Board shall be indemnified and held harmless
by the Company from any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by such member in connection with or resulting from
any claim, action, suit, or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action or failure to act under
the Plan and against and from any and all amounts paid by him or her in
satisfaction of judgment in such action, suit, or proceeding against him or her
provided he or she gives the Company an opportunity, at its own expense, to
handle and defend the same before he or she undertakes to handle and defend it
on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or Bylaws, as a matter of
law, or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
15.7 Relationship to Other Benefits. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or other benefit plan of the
Company or any Subsidiary.
15.8 Expenses. The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.
15.9 Titles and Headings. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
15.10 Fractional Shares. No fractional shares of stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up or down as appropriate.
15.11 Securities Law Compliance. With respect to any person who is, on
the relevant date, obligated to file reports under Section 16 of the Exchange
Act, transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision
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of the Plan or action by the Committee fails to so comply, it shall be void to
the extent permitted by law and voidable as deemed advisable by the Committee.
15.12 Government and Other Regulations. The obligation of the Company to
make payment of awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by government agencies as
may be required. The Company shall be under no obligation to register under the
Securities Act of 1933, as amended, any of the shares of Stock paid under the
Plan. If the shares paid under the Plan may in certain circumstances be exempt
from registration under the Securities Act of 1933, as amended, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
15.13 Governing Law. The Plan and all Award Agreements shall be construed
in accordance with and governed by the laws of the State of Arizona.
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EXHIBIT B
SENSORY SCIENCE CORPORATION
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE 1
ESTABLISHMENT, PURPOSE, AND DURATION
1.1 Establishment of the Plan. Sensory Science Corporation hereby
establishes the Sensory Science Corporation Nonemployee Directors' Stock Option
Plan (the "Plan") for the benefit of its Nonemployee Directors. The Plan sets
forth the terms of grants of Nonqualified Stock Options to Nonemployee
Directors. All such grants are subject to the terms and provisions set forth in
this Plan.
1.2 Purpose of the Plan. The purpose of the Plan is to encourage
ownership in the Company by Nonemployee Directors, to strengthen the ability of
the Company to attract and retain the services of experienced and knowledgeable
individuals as Nonemployee Directors of the Company, and to provide Nonemployee
Directors with a further incentive to work for the best interests of the Company
and its stockholders.
1.3 Effective Date. The Plan is effective as of the date approved by the
Board (the "Effective Date"), subject to approval by the Company's Shareholders.
The Plan will be deemed to be approved by the shareholders if it receives the
affirmative vote of the holders of a majority of the shares of stock of the
Company present or represented and entitled to vote at a meeting duly held in
accordance with the applicable provisions of the Company's Bylaws or by written
consent of a majority of the Company's shareholders in lieu of a meeting. Any
awards granted under the Plan prior to shareholder approval are effective when
made, but no Award may be exercised or settled and no restrictions relating to
any Award may lapse before the Plan is approved by the shareholders as provided
above. If the shareholders fail to approve the Plan, any Award previously made
shall be automatically canceled without any further act.
1.4 Duration of the Plan. The Plan shall remain in effect until such time
as the Plan is terminated by the Board of Nonemployee Directors pursuant to
Article 7 or Section 8.4.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
2.1 Definitions. For purposes of the Plan, the following terms will have
the meanings set forth below:
(a) "Award" means a grant of Nonqualified Stock Options under the
Plan.
(b) "Board" or "Board of Directors" means the Board of Directors of
the Company, and includes any committee of the Board of Directors
designated by the Board to administer this Plan.
(c) "Change of Control" means and includes each of the following:
(1) any merger of the Company in which the Company is not the
continuing or surviving entity, or pursuant to which the common stock of
the Company would be converted into cash, securities, or other property
other than a merger of the Company in which the holders of the Company's
common stock immediately prior to the merger have the same proportionate
ownership of beneficial interest of common stock or other voting
securities of the surviving entity immediately after the merger;
(2) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of assets or earning
power aggregating more than 80% of the assets or earning power of the
Company and its subsidiaries (taken as a whole), other than pursuant to
a sale-leaseback, structured finance or other form of financing
transaction;
(3) the shareholders of the Company approve any plan or proposal
for liquidation or dissolution of the Company;
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(4) any person (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act), other than any employee benefit plan of the
Company or any subsidiary of the Company or any entity holding shares of
capital stock of the Company for or pursuant to the terms of any such
employee benefit plan in its role as an agent or trustee for such plan,
shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 50% or more of the Company's outstanding
common stock; or
(5) during any period of two consecutive years, individuals who at
the beginning of such period shall fail to constitute a majority of the
Board at the end of such period, unless the election, or the nomination
for election by the Company's shareholders, of any new director is
approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" means the committee appointed by the Board to
administer the Plan.
(f) "Company" means Sensory Science Corporation, or any successor as
provided in Section 8.3.
(g) "Disability" means any illness or other physical or mental
condition of a Participant which renders the Participant incapable of
performing his customary and usual duties for the Company, or any medically
determinable illness or other physical or mental condition resulting from a
bodily injury, disease, or mental disorder which in the judgment of the
Committee is permanent and continuous in nature. The Committee may require
such medical or other evidence as it deems necessary to judge the nature
and permanency of the Participant's condition.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor provision.
(i) "Fair Market Value" means, as of any given date, the fair market
value of Stock on a particular date determined by such methods or
procedures as may be established from time to time by the Committee. Unless
otherwise determined by the Committee, the Fair Market Value of Stock as of
any date shall be the closing price for the Stock as reported on the NASDAQ
National Market System (or on any national securities exchange on which the
Stock is then listed) for that date or, if no closing price is reported for
that date, the closing price on the next preceding date for which a closing
price was reported.
(j) "Nonemployee Director" means any individual who is a member of the
Board of Directors of the Company and who is not also an employee of the
Company.
(k) "Nonqualified Stock Option" or "NQSO" means an option to purchase
Stock, granted under Article 6, that is not intended to be an incentive
stock option qualifying under Section 422 of the Code.
(l) "Option" means a Nonqualified Stock Option granted under the Plan.
(m) "Participant" means a Nonemployee Director of the Company who has
been granted an Award under the Plan.
(n) "Stock" means the shares of the Company's Common Stock described
in the Company's Certificate of Incorporation.
2.2 Gender and Number. Except as indicated by the context, any masculine
term also shall include the feminine, the plural shall include the singular, and
the singular shall include the plural.
2.3 Severability of Provisions. With respect to persons subject to
Section 16 of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Board, and the remaining provisions of the Plan
or actions by Board shall be construed and enforced as if the invalid provision
or action had not been included or undertaken.
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2.4 Incorporation By Reference. In the event this Plan does not include a
provision required by Rule 16b-3 to be stated herein, such provision (other than
one relating to eligibility requirements or the price and amount of Awards)
shall be deemed automatically to be incorporated by reference herein, insofar as
Participants subject to Section 16 of the Exchange Act are concerned.
ARTICLE 3
ADMINISTRATION
3.1 The Committee. The Plan will be administered by the Committee,
subject to the restrictions set forth in the Plan.
3.2 Administration by the Committee. The Committee has the full power,
discretion, and authority to interpret and administer the Plan in a manner that
is consistent with the Plan's provisions. However, the Committee does not have
the power to determine Plan eligibility, or to determine the number, the price,
the vesting period, or the timing of Awards to be made under the Plan to any
Participant or take any action that would result in the Plan not being treated
as a "formula plan" within the meaning of Rule 16b-3 or any successor provision,
promulgated pursuant to the Exchange Act.
3.3 Decisions Binding. The Committee's determinations and decisions under
the Plan, and all related orders or resolutions of the Board shall be final,
conclusive, and binding on all persons, including the Company, its stockholders,
employees, Participants, and their estates and beneficiaries.
ARTICLE 4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. The total number of shares of Stock available for
grant under the Plan may not exceed 750,000, subject to adjustment as provided
in Section 4.3. The shares issued pursuant to the exercise of Options granted
under the Plan may be authorized and unissued Stock or Stock reacquired by the
Company, as determined by the Committee.
4.2 Lapsed Awards. If any Option granted under the Plan terminates,
expires, or lapses for any reason, any shares subject to purchase pursuant to
such Option again will be available for grant under the Plan.
4.3 Adjustments in Authorized Shares. In the event a stock split or stock
dividend is declared upon the Stock, the shares of Stock available for grant
under the Plan and the shares of Stock then subject to each Award (and the
number of shares subject thereto) shall be increased proportionately without any
change in the aggregate purchase price therefor. Subject to Section 6.11, in the
event the Stock shall be changed into or exchanged for a different number or
class of shares of Stock or of shares of another corporation, whether through
reorganization, recapitalization, stock split-up, or combination of shares,
there shall be substituted for each such share of Stock then subject to each
Award (and for each share of Stock then subject thereto) the number and class of
shares of Stock into which each outstanding share of Stock shall be so
exchanged, all without any change in the aggregate purchase price for the shares
then subject to each Award.
ARTICLE 5
ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Eligibility to participate in the Plan is limited to
Nonemployee Directors.
5.2 Actual Participation. All eligible Nonemployee Directors shall
receive a grant of Options pursuant to Article 6.
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ARTICLE 6
GRANT OF OPTIONS
6.1 Initial Grant. Each individual who is a Nonemployee Director on the
date this Plan is adopted by the Company's Board of Directors shall be granted
an Option to purchase 50,000 shares of Stock as of the fifth business day after
the public release of the Company's Results of Operations for the quarter ending
June 30, 2000. The specific terms of the Options are subject to the provisions
of this Article 6 and the Option Agreement executed pursuant to Section 6.3.
6.2 Annual Grant. Each individual who is a Nonemployee Director on the
third business day after the Company's annual earnings release beginning with
fiscal year 2001 and through and including fiscal year 2010, shall be granted an
Option as of such date to purchase 10,000 shares of Stock, subject to the
limitations on the number of shares that may be awarded under the Plan. The
specific terms of the Options are subject to the provisions of this Article 6
and the Option Agreement executed pursuant to Section 6.3.
6.3 Option Agreement. The grant of Options will be evidenced by an Option
Agreement that will not include any terms or conditions that are inconsistent
with the terms and conditions of this Plan.
6.4 Option Exercise Price Per Share. The Option exercise price per share
under the Options granted pursuant to Section 6.1 and Section 6.2 shall be the
Fair Market Value of such Stock on the date of grant (the "Exercise Price").
6.5 Duration of Options. Each Option granted to a Participant under this
Article 6 shall expire on the tenth (10th) anniversary date of the date of
grant, unless the Option is earlier terminated, forfeited, or surrendered
pursuant to a provision of this Plan.
6.6 Vesting of Options Subject to Exercise. The Options granted to the
Participants under this Article 6 shall vest and become exercisable on the date
of grant.
6.7 Payment. Options are exercised by delivering a written notice of
exercise to the Secretary of the Company, setting forth the number of Options to
be exercised and accompanied by a payment equivalent to the product of the
number of Options exercised multiplied by the Exercise Price (the "Total
Exercise Price"). The Total Exercise Price is payable:
(a) in cash or its equivalent;
(b) by tendering previously acquired shares of Stock having a Fair
Market Value at the time of exercise equal to the Total Exercise Price; or
(c) by a combination of (a) and (b).
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, stock certificates in an appropriate amount based upon the
number of shares purchased pursuant to the exercise of the Options.
6.8 Restrictions on Share Transferability. To the extent necessary to
ensure that Options granted under this Article 6 comply with applicable law, the
Board shall impose restrictions on the transferability of any Stock acquired
pursuant to the exercise of an Option under this Article 6, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Stock is then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Stock.
6.9 Termination of Service on Board of Nonemployee Directors due to Death
or Disability. To the extent an Option is exercisable as of the date of death
or Disability, it shall remain exercisable for one year after the date of death
or Disability by the Participant or such person or persons as shall have been
named as the Participant's legal representative or beneficiary, or by such
persons as shall have acquired the Participant's Options by will or by the laws
of descent and distribution. Any Option that is vested but not exercised during
this one-year period after death or Disability shall be immediately forfeited to
the Company.
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6.10 Termination of Service on Board of Directors for Other Reasons. To
the extent an Option is exercisable as of the date a Participant's service on
the Board is terminated for any reason other than for death or Disability, it
shall remain exercisable for one year after the date the Participant's service
on the Board terminates. Any Option that is not exercised during this one year
period after termination of service shall be immediately forfeited to the
Company.
6.11 Limitations on the Transferability of Options. Unless the Board
provides otherwise, no Option granted under this Article 6 may be sold,
transferred, pledged, assigned, or otherwise alienated, other than by will, the
laws of descent and distribution, or under any other circumstances allowed by
the Board.
6.12 Change of Control. If a Change of Control occurs, all outstanding
Options shall become fully exercisable. Upon, or in anticipation of, such an
event, the Committee may cause every Award outstanding hereunder to terminate at
a specific time in the future and shall give each Participant the right to
exercise Awards during a period of time as the Committee, in its sole and
absolute discretion, shall determine.
ARTICLE 7
AMENDMENT, MODIFICATION, AND TERMINATION
7.1 Amendment, Modification, and Termination. Subject to the terms set
forth in this Section 7.1, the Committee may terminate, amend, or modify the
Plan at any time; provided, however, that stockholder approval is required for
any Plan amendment that would materially increase the benefits to Participants
or the number of securities that may be issued, or materially modify the
eligibility requirements in the Plan.
7.2 Awards Previously Granted. Unless required by law, no termination,
amendment, or modification of the Plan shall in any manner adversely affect any
Award previously granted under the Plan, without the written consent of the
Participant holding the Award.
ARTICLE 8
MISCELLANEOUS
8.1 Indemnification. Each individual who is or shall have been a member
of the Board or the Committee shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under this Plan and against and from any and all amounts paid by
him or her in settlement thereof, with the Company's approval, or paid by him or
her in satisfaction of any judgment in any such action, suit, or proceeding
against him or her, provided he or she shall give the Company an opportunity, at
its own expense, to assume and defend the same before he or she undertakes to
defend it on his or her own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such
individuals may be entitled under the Company's Certificate of Incorporation or
Bylaws, as a matter of law, or otherwise, or any power that the Company may have
to indemnify them or hold them harmless.
8.2 Beneficiary Designation. Each Participant under the Plan may name any
beneficiary or beneficiaries to whom any benefit under the Plan is to be paid in
the event of his or her death. Each designation shall revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Committee during his or her lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
8.3 Successors. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
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8.4 Requirements of Law. The granting of Awards under the Plan shall be
subject to all applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
Notwithstanding any other provision of the Plan, the Committee may, in its sole
discretion, terminate, amend, or modify the Plan in any way necessary to comply
with the applicable requirements of Rule 16b-3 promulgated by the Securities and
Exchange Commission as interpreted pursuant to no-action letters and
interpretive releases.
8.5 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the State of Arizona.
8.6 Fractional Shares. No fractional shares of stock shall be issued and
the Board shall determine, in its discretion, whether cash shall be given in
lieu of fractional shares or whether such fractional shares shall be eliminated
by rounding up.
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EXHIBIT C
PROPOSED AMENDMENT TO THE CERTIFICATE
OF INCORPORATION OF
SENSORY SCIENCE CORPORATION
Section 4 of the Certificate of Incorporation of the Company shall be
amended to read as follows:
"The total number of shares of capital stock that the Company shall
have authority to issue is: Fifty-five million (55,000,000) shares,
consisting of Fifty Million (50,000,000) shares of common stock, $.001 par
value each (the "Common Stock") and Five Million (5,000,000) shares of
preferred stock, $.001 par value each (the "Preferred Stock").
Designation of Classes; Relative Rights, etc. The designation,
relative rights, preferences and limitations of the shares of the Preferred
Stock are as follows:
The shares of Preferred Stock may be issued from time to time in one
or more series of any number of shares, provided that the aggregate number
of shares issued and not canceled of any and all such series shall not
exceed the total number of shares of Preferred Stock hereinabove
authorized, and with distinctive serial designations, all as shall
hereafter be stated and expressed in the resolution or resolutions
providing for the issuance of such shares of Preferred Stock from time to
time adopted by the Board of Directors pursuant to authority so to do which
is hereby vested in the Board of Directors. Each series of shares of
Preferred Stock (a) may have such voting powers, full or limited, or may be
without voting powers; (b) may be subject to redemption at such time or
times and at such prices; (c) may be entitled to receive dividends (which
may be cumulative or non-cumulative) at such rate or rates, on such
conditions and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or series
of stock; (d) may have such rights upon the dissolution of, or upon any
distribution of the assets of, the Company; (e) may be made convertible
into or exchangeable for, shares of any other class or classes or of any
other series of the same or any other class or classes of shares of capital
stock of the Company at such price or prices or at such rates of exchange
and with such adjustments; (f) may be entitled to the benefit of a sinking
fund to be applied to the purchase or redemption of shares of such series
in such amount or amounts; (g) may be entitled to the benefit of conditions
and restrictions upon the creation of indebtedness of the Company or any
subsidiary, upon the issuance of any additional shares (including
additional shares of such series or of any other series) and upon the
payment of dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by the Company or any subsidiary
of, any outstanding shares of capital stock of the Company and (h) may have
such other relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof; all as shall be stated
in said resolution or resolutions providing for the issuance of such shares
of Preferred Stock. Shares of Preferred Stock of any series that have been
redeemed (whether through the operation of a sinking fund or otherwise) or
that if convertible or exchangeable, have been converted into or exchanged
for shares of any other class or classes shall have the status of
authorized and unissued shares of Preferred Stock of the same series and
may be reissued as a part of the series of which they were originally a
part or may be reclassified and reissued as part of a new series of shares
of Preferred Stock to be created by resolution or resolutions of the Board
of Directors or as part of any other series of shares of Preferred Stock,
all subject to the conditions or restrictions on issuance set forth in the
resolution or resolutions adopted by the Board of Directors providing for
the issuance of any series of shares of Preferred Stock.
Subject to the provisions of any applicable law or of the By-laws of
the Company as from time to time amended, with respect to the closing of
the transfer books or the fixing of a record date for the determination of
stockholders entitled to vote and except as otherwise provided by law or by
the resolution or resolutions providing for the issuance of any series of
shares of Preferred Stock, the holders of outstanding shares of Common
Stock shall exclusively possess voting power for the election of directors
and for all other purposes, each holder of record of shares of Common Stock
being entitled to one vote for each share of Common Stock standing in his
or her name on the books of the Company. Except as otherwise provided by
the resolution or resolutions providing for the issuance of any series of
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<PAGE> 47
shares of Preferred Stock, the holders of shares of Common Stock shall be
entitled, to the exclusion of the holders of shares of Preferred Stock of
any and all series, to receive such dividends as from time to time may be
declared by the Board of Directors. In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary,
after payment shall have been made to the holders of shares of Preferred
Stock of the full amount to which they shall be entitled pursuant to the
resolution or resolutions providing for the issuance of any series of
shares of Preferred Stock, the holders of Preferred Stock of any and all
series, to share, ratably according to the number of shares of Common Stock
held by them, in all remaining assets of the Company available for
distribution to its stockholders.
Subject to the provisions of this Certificate of Incorporation and
except as otherwise provided by law, the stock of the Company, regardless
of class, may be issued for such consideration and for such corporate
purposes as the Board of Directors may from time to time determine."
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PROXY
SENSORY SCIENCE CORPORATION
7835 EAST MCCLAIN DRIVE
SCOTTSDALE, ARIZONA 85260
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF SENSORY SCIENCE CORPORATION
The undersigned hereby appoints Roger B. Hackett and Thomas E. Linnen, or
any one of them acting in the absence of the other with full powers of
substitution, the true and lawful attorneys and proxies for the undersigned and
to vote, as designated below, all shares of Common Stock of Sensory Science
Corporation (the "Company") that the undersigned is entitled to vote at the
Annual Meeting of Stockholders of Sensory Science Corporation to be held on
Thursday, September 7, 2000, or at any postponement or adjournment thereof, with
the same effect as if the undersigned was (were) present and voting the stock on
all matters set forth in the Notice and Proxy Statement for the Annual Meeting
of Stockholders, dated September 7, 2000, as directed below.
1. Proposal 1 -- Election of Directors. The Board of Directors recommends a vote
for the nominees listed below:
Thomas F. Hartley, Jr. Carmine F. Adimando
[ ] VOTE FOR ALL [ ] WITHHOLD AUTHORITY FOR ALL [ ] FOR ALL EXCEPT NOMINEE
WRITTEN BELOW:
--------------------------------------------------------------------------------
2. Proposal 2 -- The adoption of the Sensory Science Corporation 2000 Stock
Incentive Plan for employees, officers and executives of, and consultants and
advisors to, the Company and any subsidiary. The Board of Directors
recommends a vote for Proposal 2.
[ ] VOTE FOR [ ] ABSTAIN [ ] VOTE AGAINST
3. Proposal 3 -- The adoption of the Sensory Science Corporation Nonemployee
Directors' Stock Option Plan for non-employee directors of the Company. The
Board of Directors recommends a vote for Proposal 3.
[ ] VOTE FOR [ ] ABSTAIN [ ] VOTE AGAINST
(continued, and to be signed, on other side)
<PAGE> 49
(continued from other side)
4. Proposal 4 -- The approval of an amendment to the Certificate of
Incorporation to authorize the issuance by the Company of up to 5,000,000
shares of preferred stock, $.001 par value. The Board of Directors recommends
a vote for Proposal 4.
[ ] VOTE FOR [ ] ABSTAIN [ ] VOTE AGAINST
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). UNLESS OTHERWISE DIRECTED, IF NO
SPECIFICATION IS MADE IN THE PROXY, THE SHARES REPRESENTED BY THE PROXY WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTORS NAMED IN PROPOSAL 1, FOR
THE ADOPTION OF THE SENSORY SCIENCE CORPORATION 2000 STOCK INCENTIVE PLAN IN
PROPOSAL 2, AND FOR THE ADOPTION OF THE SENSORY SCIENCE CORPORATION NONEMPLOYEE
DIRECTORS' STOCK OPTION PLAN IN PROPOSAL 3. WITH RESPECT TO ANY OTHER MATTERS,
EXCEPT FOR THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO PERMIT THE
ISSUANCE OF PREFERRED STOCK, THAT MAY PROPERLY COME BEFORE THE MEETING, OR ANY
ADJOURNMENT THEREOF, THE PROXY WILL BE VOTED AT THE DISCRETION OF THE PERSON(S)
NAMED IN THE PROXY.
THE UNDERSIGNED HEREBY ACKNOWLEDGE(S) RECEIPT OF THE NOTICE AND PROXY
STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS.
Dated , 2000
------------------------------------
--------------------------------------
SHAREHOLDER
--------------------------------------
JOINT OWNER
Please date and sign exactly as your
name or names appear herein. Person
signing in a fiduciary capacity or as
corporate officers should sign as
indicated.
