<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 [Fee Required]
for the fiscal year ended March 29, 1997
or
[] Transition Report pursuant Section 13 or 15(d)
of the Securities Exchange Act of 1934 [No Fee Required]
for the transition period from ___________ to ___________
Commission File No. 33-9875
______________________
BOSTON ACOUSTICS, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2662473
(State or other jurisdiction (I.R.S. employer
of incorporation or identification no.)
organization)
300 Jubilee Drive
Peabody, Massachusetts 01960
(Address of Principal Executive Offices) (Zip Code)
(508) 538-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
6,000,000 shares of Common Stock ($.01 Par Value)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No []
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. []
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $48,958,827 as of June 20, 1997.
There were 3,291,366 shares of Common Stock issued and outstanding as of June
20, 1997.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Registrant's Annual Report to Stockholders for the fiscal year ended
March 29, 1997 (Items 5, 6, 7, 8 and 14 (a)(1))
(2) Proxy Statement for Registrant's Annual Meeting of Stockholders to be
held on August 12, 1997 (Items 10, 11, 12 and 13)
<PAGE>
BOSTON ACOUSTICS, INC.
Securities and Exchange Commission
Item Number and Description Page
- -------------------------------- ----
PART I
ITEM 1. Business 1
ITEM 2. Properties 7
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 7
PART II
ITEM 5. Market for Registrant's Common Equity
and Related Stockholder Matters 8
ITEM 6. Selected Financial Data 8
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
ITEM 8. Financial Statements and Supplementary Data 8
ITEM 9. Changes in and Disagreements with Accounts on
Accounting and Financial Disclosure 8
PART III
ITEM 10. Directors and Executive Officers of the Registrant 9
ITEM 11. Executive Compensation 9
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 9
ITEM 13. Certain Relationships and Related Transactions 9
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 10
SIGNATURES 12
INDEX TO FINANCIAL STATEMENT SCHEDULES F-1
Inasmuch as the calculation of shares of the registrant's voting stock held
by non-affiliates requires a calculation of the number of shares held by
affiliates, such figure, as shown on the cover page hereof, represents the
registrant's best good faith estimate for purposes of this annual report on
Form 10-K, and the registrant disclaims that such figure is binding for any
other purpose. The aggregate market value of Common Stock indicated is based
upon $23.25, the price at which the Common Stock was last sold on June 20,
1997 as reported by The Nasdaq Stock Market. All outstanding shares
beneficially owned by executive officers and directors of the registrant or
by any shareholder beneficially owning more than 10% of registrant's Common
Stock, as disclosed herein, were considered for purposes of this disclosure
to be held by affiliates.
i
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Part I
Item 1. Business
Boston Acoustics, Inc. ("the Company") engineers, manufactures and markets
moderately-priced, high-quality loudspeaker systems for use in home audio and
video entertainment systems and in after-market automotive audio systems.
The Company believes that its products deliver better sound quality than
other comparably priced loudspeaker systems. Most of the Company's products
are assembled by the Company from purchased components, although certain
automotive speakers are manufactured by others according to Company
specifications. All of the Company's products and subassemblies, including
those supplied by outside sources, have been designed by the Company's
engineering department. Boston Acoustics' speakers are marketed nationwide
through selected audio and audio-video specialty dealers and through
distributors in certain foreign countries.
The Company was organized as a Massachusetts corporation in 1979 by Andrew G.
Kotsatos and former CEO, Francis L. Reed, who passed away in November 1996.
Its principal executive offices and manufacturing facilities are located at
300 Jubilee Drive, Peabody, Massachusetts.
Products
The Company operates in one business industry segment and has distinct
product lines as discussed below.
The Home Loudspeaker line consists of five bookshelf models currently ranging
in price from $150 to $420 per pair, three floor-standing systems currently
priced from $550 to $1400 per pair, two three-piece subwoofer/satellite
systems currently priced at $400 and $800 per system, and three powered
subwoofers priced at $400, $600 and $1200. Additional products for the home
theater market include four different center-channel speakers currently
ranging in price from $130 to $400 each. The Company also produces
magnetically shielded versions of most of its models and produces three
indoor/outdoor speaker systems (Voyager-Registered Trademark-,
Runabout-Registered Trademark- I, and Runabout-Registered Trademark- II)
currently priced from $200 to $400 per pair. The Company also produces a
complete THX-Registered Trademark- Home Theater speaker system priced at
$2,400.
The Designer Series line is a collection of speaker systems engineered for
flush mounting in the walls or ceilings of homes, businesses and recreational
vehicles. There are six models in the Designer Series line with prices
currently ranging from $130 to $500 per pair.
The Company has 38 models of automotive speakers with prices currently
ranging from $60 to $700 per pair. The automotive line includes high-quality
full-range replacement speakers, sophisticated component systems, and
subwoofers. The component systems permit flexible speaker placement and
provide sound rivaling that of fine home speakers. The automotive line
includes the CX Series, the
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700 Series of plate speakers, the Boston Rally-TM- RC Series of component
speakers, the Boston Rally RX Coaxial Series, the Boston Rally RS Subwoofers and
Band-Pass enclosure systems, the Boston Rally RM Series, and the premium
performance ProSeries Speaker Systems.
New Products
During fiscal 1997 the Company added a number of new products, described below,
to supplement or replace those products which have matured, to increase
penetration of current markets, and to gain footholds in new markets.
During fiscal 1997 the Company introduced two THX-certified speakers--the VR14
center channel and VR35 floorstanding main--to its flagship THX line that
includes VRS Pro surrounds and the VR2000 powered subwoofer. This premier
system offers our highest quality of movie sound reproduction. The suggested
retail price for the VR14 is $600 and $1,300 for a pair of the VR35 speakers.
During fiscal 1997 the Company introduced the Micro Reference Series, an upgrade
of the discontinued SubSat Series. The Micro Reference Series consists of the
three-piece Micro80, the three-piece Micro90 and the four-piece Micro90t theater
system with suggested retail prices of $400, $800 and $1,000, respectively.
The Company supplemented its Video Reference Series with the addition of VRS
Micro diffuse-field surround speakers. The VRS Micro surrounds, which are also
compatible with the Compact Reference and Micro Reference Series, carry a
suggested retail price of $200 per pair.
During fiscal 1997 the Company expanded its automotive line of products with
several new introductions. The flagship ProSeries line of products was
augmented by the introduction of the ProSeries 6.43 automotive three-way
component system with a suggested retail of $700. The introduction of the RM6
and RM9 integrated two-way automotive speakers are specifically designed for
component performance in factory drop-in locations. The RM6 and RM9 carry
suggested retail prices of $249.95 and $299.95, respectively. The RX Series was
supplemented with the addition of the RX47 carrying a suggested retail of
$139.95.
During fiscal 1997 the Company introduced the Boston Rally Subwoofer Band-Pass
enclosure systems consisting of four models--the RS110B, RS112B, RS208B and
RS210B. The enclosures incorporate one or two Rally Subwoofers in a balanced
band-pass configuration for exceptional volume and true plug and play
convenience. The suggested retail prices range from $299.95 to $499.95 per
system.
In June 1996, the Company acquired the business of Snell Acoustics (Snell), a
manufacturer of high-quality speaker systems for traditional audio and home
theater use. Snell specializes in creating furniture-quality speakers for
discriminating customers. It has products in three ranges -- bookshelf
speakers, floorstanding systems, and THX home theater systems. Products range
from $480 per pair for small bookshelf speakers, to $45,000 per system for a
complete 7-speaker THX theater system with state-of-the-art digital room
correction.
2
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Engineering and Development
The Company's engineering and development department is actively engaged in the
development of new products and manufacturing processes, the improvement of
existing products and the research of new materials for use in the Company's
products. The Company has designed all of its products and subassemblies,
including those supplied by outside sources.
The Company's engineering and development staff includes 38 full-time employees
and one outside consultant. During fiscal years 1997, 1996 and 1995 the Company
spent approximately $3,187,000, $2,497,000, and $2,046,000, respectively, for
engineering and development.
Marketing
The Company employs 17 salespersons and retains 12 manufacturer's
representatives who service the Company's dealer network. Boston Acoustics'
loudspeaker systems are distributed in the United States and Canada through
approximately 375 selected home dealers (some of whom have multiple outlets)
which are typically audio or audio-video specialty retailers. The Company sells
its automotive products through approximately 310 dealers located in the United
States and Canada including automotive sound specialty retailers and many of the
Company's home audio dealers. The Company's Designer Series speakers are sold
by many of its home audio dealers. The Company's dealers usually stock and sell
a broad variety of audio components including, in most cases, competing
loudspeaker lines. The Company seeks dealers who emphasize quality products and
who are knowledgeable about home and automotive entertainment products. One
dealer accounted for more than 10% of gross sales during fiscal year 1997.
Boston Acoustics' product lines are also exported to dealers in Canada and
through exclusive distributors in certain foreign countries, primarily in
Western Europe and Asia Pacific. Export sales accounted for approximately 22%
of net sales in fiscal 1995, 20% in fiscal 1996, and 21% in fiscal 1997. See
also Note 6 to Consolidated Financial Statements incorporated herein by
reference, pursuant to Part II, Item 8.
The Company emphasizes the high performance-to-price ratio of its speakers in
its advertising and promotion. Boston Acoustics believes that specialty
retailers can be effective in introducing retail customers to the high dollar
value of the Company's products. The Company directly supports its dealer
network with a cooperative advertising program and by providing Company prepared
advertisements and detailed product literature. In addition, the Company
advertises in national magazines including Stereo Review, Audio, Car Audio &
Electronics, Car Stereo Review, Video, Stereophile's Guide to Home Theater and
Audio Video International. During fiscal 1997 the Company spent approximately
$2,024,000 (4.0% of net sales) for advertising.
Competition
The Company competes primarily on the basis of performance, price and the
strength of its dealer organization.
The market for branded loudspeaker systems is served by many manufacturers,
both foreign and domestic. Many products are available over a broad price
range, and the market is highly fragmented and competitive. The Company
distributes its products primarily through specialty retailers where it
competes directly for space with other branded speaker manufacturers.
Loudspeaker systems produced by many of the Company's competitors can be
purchased by consumers through mass merchandisers, department stores,
mail-order merchants, and catalogue showrooms. The Company
3
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believes it is more advantageous to distribute through specialty retailers who
provide sales support and service to consumers.
Boston Acoustics competes with a substantial number of branded speaker
manufacturers, including Bose Corporation, Infinity and JBL (divisions of Harman
International Industries), Polk Audio, Inc., and Klipsch and Associates, Inc.
Some of these competitors have greater technical and financial resources than
the Company and may have broader brand recognition than Boston Acoustics.
In addition to competition from branded loudspeaker manufacturers, the Company's
products compete indirectly with single name "rack systems". Rack systems
contain all the various components needed to form an audio system, and are sold
by Sony, Pioneer, Technics, Yamaha and many others. Rack systems are generally
sold through mass merchandisers and department stores, although many of the
Company's dealers also sell rack systems.
Manufacturing and Suppliers
Most of the Company's products are assembled by the Company from components
specially fabricated for the Company, although certain automotive speakers are
manufactured by others according to Company specifications.
The Company purchases materials and component parts from approximately 154
suppliers located in the United States, Canada, Western Europe and the Far
East. Although Boston Acoustics relies on single suppliers for certain parts,
the Company could, if necessary, develop multiple sources of supply for these
parts. The Company does not have long-term or exclusive purchase commitments
nor does the Company have written agreements with any of its inventory
suppliers. No supplier accounted for more than 10% of the Company's purchases
during fiscal year 1997.
Seasonality and Consumer Discretion
The home and automotive audio markets are both somewhat seasonal, with a
majority of home speaker retail sales normally occurring in the period October
through March and a majority of automotive speaker retail sales normally
occurring in the period April through October.
The Company's sales and earnings can also be affected by changes in the general
economy since purchases of home entertainment and automotive audio products,
including loudspeakers, are discretionary for consumers.
Patents and Trademarks
Boston Acoustics holds two United States patents which relate to certain
automotive speaker assemblies and cabinet design. The Company also has several
registered trademarks including Boston-Registered Trademark-, Boston
Acoustics-Registered Trademark-, Varimount-Registered Trademark-,
Magnaguard-Registered Trademark-, PowerVent-Registered Trademark-,
Tempo-Registered Trademark-, Voyager-Registered Trademark-,_and
Runabout-Registered Trademark-. Trademarks used by the Snell subsidiary include
Snell Acoustics, Snell Multimedia, Snell Music & Cinema and Room
Ready-Registered Trademark-. The Company believes that its growth, competitive
position and success in the marketplace are more dependent on its technical and
marketing skills and expertise than upon the ownership of patent and trademark
rights. There can be no assurance that any patent or trademark would ultimately
be proven valid if challenged.
4
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Backlog
The Company currently has no significant backlog. The Company's policy is to
maintain sufficient inventories of finished goods to fill all orders within two
business days of receipt.
Warranties
Boston Acoustics warrants its home speakers to be free from defects in materials
and workmanship for a period of five years, its Designer Series speakers for a
period of one year and its automotive speakers for one year. Warranty costs
during fiscal 1997 were not significant.
Employees
As of June 20, 1997, the Company had 295 full-time employees who were engaged as
follows: 203 in production and materials management; 38 in engineering and
development; 34 in marketing and sales support; and 20 in administration.
None of the Company's employees are represented by a collective bargaining
agreement and the Company believes that its relations with its employees are
satisfactory.
5
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Executive Officers of the Registrant
There is incorporated herein by reference the information concerning Andrew G.
Kotsatos, who is Chairman of the Board, Chief Executive Officer and Treasurer of
the Company, and Fred E. Faulkner, Jr., who is President and Chief Operating
Officer of the Company, from the Company's definitive Proxy Statement for its
Annual Meeting of Stockholders to be held on August 12, 1997, under the headings
"Proposal No. 1 -- Election of Directors", "Board of Directors", and "Certain
Transactions and Relationships". Information concerning the Company's other
executive officers as of June 20, 1997 is set forth below.
<TABLE>
Name Age Title
<S> <C> <C>
Ira S. Friedman 37 Vice President - Marketing and President
Snell Acoustics
Moses A. Gabbay 52 Vice President - Engineering
Paul F. Reed 33 Vice President - Administrative Services
Debra A. Ricker-Rosato 41 Vice President - Finance
Robert L. Spaner 36 Vice President - Sales
</TABLE>
Ira S. Friedman has served as Vice President - Marketing since February 1991 and
President of Snell Acoustics since June 1996. He joined the Company in 1989 as
Director of Marketing. In 1990 he became Director of Marketing and Sales. Mr.
Friedman was previously a marketing consultant for various advertising agencies,
including Vector Research and Celltronics. He holds an MBA degree from Harvard
Business School.
Moses A. Gabbay has been Vice President - Engineering since joining the Company
in 1981. Mr. Gabbay was previously Director of Engineering at Avid Corporation
and an acoustic engineer for Teledyne Acoustic Research.
Paul F. Reed was named Vice President - Administrative Services in May 1993. He
has been with the Company since its inception in 1979. From production and
shipping, Mr. Reed moved to sales in 1986 and, in 1989, became a Regional Sales
Manager. He was named Director of Administrative Services in 1990.
Debra A. Ricker-Rosato was named Vice President - Finance in May 1993. Prior to
joining the Company in October 1986 as Controller, Ms. Ricker-Rosato was
employed by Babco-Textron from 1975, a manufacturer of small aircraft engine
components. Her last position with Babco-Textron was that of Assistant
Controller. She holds an MSF degree from Bentley College.
Robert L. Spaner was named Vice President - Sales in May 1993. He joined the
Company in 1987 as a regional sales manager. In 1990 he became National Sales
Manager. Mr. Spaner was formerly employed by Kloss Video as Western Regional
Manager and worked six years in retail sales at Tweeter, Etc.
Each executive officer is elected for a term scheduled to expire at the meeting
of Directors following the Annual Meeting of Stockholders or until a successor
is duly chosen and qualified. There are no arrangements or understandings
pursuant to which any executive officer was or is to be selected for election or
reelection. There are no family relationships among any Directors or executive
officers, except that Paul F. Reed, an executive officer, and Lisa M. Mooney, a
director, are brother and sister.
6
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Item 2. Properties
During fiscal 1995 and 1996, the Company purchased a total of three parcels of
land totaling 11 acres for approximately $1.4 million. This land was used to
construct the Company's new principal executive offices and manufacturing
facilities at 300 Jubilee Drive, Peabody, Massachusetts. Construction of the
150,000 square foot building began in June 1995 with occupancy taking place in
February 1996.
Snell Acoustics (Snell), a subsidiary of the Company, leases all of the
properties used in its business. Snell maintains its principal executive
offices and manufacturing facilities at 143 Essex Street, Haverhill,
Massachusetts. A total of 65,090 square feet of space is leased from an
unrelated party under an operating lease which expires in March 1999.
Item 3. Legal Proceedings
There are no material legal proceedings affecting the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of shareholders during the fourth
quarter of fiscal 1997.
7
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The information required by this item is incorporated by reference to the
section entitled "Stock Market Activity" on page 16 in the Registrant's 1997
Annual Report to Stockholders, which is filed herewith as Exhibit 13.
Item 6. Selected Financial Data
The information required by this item is incorporated by reference to the
section entitled "Selected Financial Data" on page 15 in the Registrant's 1997
Annual Report to Stockholders, which is filed herewith as Exhibit 13.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required by this item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 6 and 7 in the Registrant's 1997 Annual
Report to Stockholders, which is filed herewith as Exhibit 13.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated by reference to the
Consolidated Financial Statements at March 29, 1997 and notes thereto on pages 8
through 14 in the Registrant's 1997 Annual Report to Stockholders, which is
filed herewith as Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
8
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PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K and Instruction 3 to Item
401(b), the information required by this item concerning executive officers,
including certain information incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on August 12, 1997 concerning Andrew G.
Kotsatos, who is the Chairman of the Board, Treasurer and Chief Executive
Officer of the Company, and Fred E. Faulkner, Jr., who is President and Chief
Operating Officer of the Company, is set forth in Part I, Item 1, hereof, under
the heading "Executive Officers of the Registrant" and information concerning
Directors, including Messrs. Kotsatos and Faulkner, is incorporated by reference
to the sections entitled "Proposal No. 1 -- Election of Directors",
"Compensation Interlocks and Insider Participation" and "Board of Directors" in
the Registrant's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held August 12, 1997.
There is incorporated herein by reference to the discussion under "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held
August 12, 1997 the information with respect to delinquent filings of reports
pursuant to Section 16(a) of the Securities Exchange Act of 1934.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the
sections entitled "Executive Compensation" in the Registrant's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held August 12, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is incorporated by reference to the
section entitled "Principal and Management Stockholders" in the Registrant's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held
August 12, 1997.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the
section entitled "Certain Relationships and Transactions" in the Registrant's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held
August 12, 1997.
9
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are included as part of this report:
(1) Financial Statements
The following consolidated financial statements are incorporated by
reference to the Registrant's 1997 Annual Report to Stockholders:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of March 29, 1997 and March 30, 1996.
Consolidated Statements of Income for the three years ended March 29, 1997.
Consolidated Statements of Shareholders' Equity for the three years ended
March 29, 1997.
Consolidated Statements of Cash Flows for the three years ended March 29,
1997.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
The following financial statement schedules are filed as part of this
report and should be read in conjunction with the consolidated financial
statements:
Report of Independent Public Accountants on Schedules
Schedule I -- Valuation and Qualifying Accounts
Other financial schedules have been omitted because they are not required
or because the required information is given in the Consolidated Financial
Statements or notes thereto.
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(3) Listing of Exhibits
<TABLE>
Exhibits
<S> <C> <C>
3.A. - Articles of Organization (1)
3.B. - Amendment to Articles of Organization (1)
3.C. - Second Amendment to Articles of Organization (1)
3.D. - Bylaws (1)
4.A. - Specimen Share Certificate (1)
10.A*+ - 1996 Stock Plan adopted by Boston Acoustics, Inc. on
February 20, 1996, as amended
10.B.+ - 1986 Incentive Stock Option Plan adopted by Boston
Acoustics, Inc. on October 15, 1986, as amended (2)
10.C. - Lease between Boston Acoustics, Inc. and Newburyport
Turnpike Associates Limited Partnership dated August 24,
1988 relating to office and manufacturing facilities (3)
10.D. - First Amendment between Boston Acoustics, Inc. and
Newburyport Turnpike Associates Limited Partnership dated
March 23, 1994 relating to office and manufacturing
facilities (4)
10.E*# - Purchase Agreement dated March 27, 1997 by and between
Gateway 2000, Inc. and Boston Acoustics, Inc.
10.F* - Boston Acoustics, Inc. Warrant naming Gateway 2000, Inc.
as registered holder.
10.G*# - Letter of Agreement dated January 14, 1997 by and between
Gateway 2000, Inc. and Boston Acoustics, Inc.
13. * - 1997 Annual Report to Shareholders
21. * - Subsidiaries of the Registrant
23. * - Consent of Independent Public Accountants
27. * - Financial Data Schedule
99. - "Safe Harbor" Statement under Private Securities Litigation
Reform Act of 1995 (5)
</TABLE>
* Indicates an exhibit which is filed herewith.
+ Indicates an exhibit which constitutes an executive compensation plan.
# Indicates that portions of the exhibit have been omitted pursuant to a
request for confidential treatment.
________________
(1) Incorporated by reference to the similarly numbered exhibits in Part II of
File No. 33-9875.
(2) Incorporated by reference to the similarly numbered exhibit in Item 14 of
the Company's Annual Report on Form 10-K for the year ended March 27, 1993.
(3) Incorporated by reference to the similarly numbered exhibit in Item 14 of
the Company's Annual Report on Form 10-K for the year ended March 25, 1989.
(4) Incorporated by reference to the similarly numbered exhibit in Item 14 of
the Company's Annual Report on Form 10-K for the fiscal year ended March 26,
1994.
(5) Incorporated by reference to the similarly numbered exhibit in Item 14 of
the Company's Annual Report on Form 10-K for the fiscal year ended March 30,
1996.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the last quarter
covered by this report, and no other such reports were filed subsequent to March
29, 1997 through the date of this report.
11
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Peabody,
Commonwealth of Massachusetts, on the 20th day of June 1997.
BOSTON ACOUSTICS, INC.
(Registrant)
BY: s/Andrew G. Kotsatos
--------------------------
Andrew G. Kotsatos
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Capacities Date
s/Andrew G. Kotsatos Director, Chief Executive 6/20/97
- ----------------------- ----------
Andrew G. Kotsatos Officer and Treasurer
s/Fred E. Faulkner, Jr. Director, President and 6/20/97
- ----------------------- ----------
Fred E. Faulkner, Jr. Chief Operating Officer
s/Debra A. Ricker-Rosato Vice President and 6/20/97
- ------------------------ ---------
Debra A. Ricker-Rosato Chief Accounting Officer
s/George J. Markos Director 6/20/97
- ----------------------- ---------
George J. Markos
s/Lisa M. Mooney Director 6/20/97
- ----------------------- ---------
Lisa M. Mooney
12
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SCHEDULE I
BOSTON ACOUSTICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance, Charged to
Beginning of Costs and Other Balance, End
For the fiscal years ended Year Expenses Additions(1) Deductions(2) of Year
- --------------------------------------------------------------------------------------------------------------------
March 29, 1997 $ 307,000 $ 84,000 $ 60,000 $ (40,000) $ 411,000
---------- --------- --------- ----------- ----------
---------- --------- --------- ----------- ----------
March 30, 1996 $ 207,000 $ 134,000 $ - $ (34,000) $ 307,000
---------- --------- --------- ----------- ----------
---------- --------- --------- ----------- ----------
March 25, 1995 $ 173,000 $ 104,000 $ - $ (70,000) $ 207,000
---------- --------- --------- ----------- ----------
---------- --------- --------- ----------- ----------
</TABLE>
(1) Addition arising through the acquisition of Snell Acoustics, Inc.
(2) Amounts deemed uncollectible net of recoveries of previously reserved
amounts.
<PAGE>
Exhibit 10.A.
BOSTON ACOUSTICS, INC.
(MASSACHUSETTS CORPORATION)
1996 STOCK PLAN
1. Purpose. The purpose of this plan (the "Plan") is to secure for Boston
Acoustics, Inc. (the "Company") and its shareholders the benefits arising from
capital stock ownership by employees, officers and directors and consultants of
the Company and its parent and subsidiary corporations who are expected to
contribute to the Company's future growth and success. This Plan is intended to
provide incentives: (i) to employees, officers, directors and consultants of the
Company by providing them with opportunities to purchase shares of the Company's
Common Stock, $0.01 par value ("Common Stock"), pursuant to options granted
hereunder ("Options") and (ii) to directors of the Company by providing them
with the opportunity to purchase shares of Common Stock directly from the
Company ("Purchases"). Except where the context otherwise requires, the term
"Company" shall include the parent and all present and future subsidiaries of
the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue
Code of 1986, as amended or replaced from time to time (the "Code"). Those
provisions of the Plan which make express reference to Section 422 shall apply
only to ISOs (as that term is defined in the Plan).
2. Administration and Types of Options.
(a) Administration. Except as otherwise provided in Section 24, the
Plan shall be administered by a compensation committee (the "Committee") of
not less than two directors of the Company appointed by the Board of
Directors of the Company (the "Board") each of whom is not an employee of
the Company and who qualifies as a "disinterested person" within the
meaning of Rule 16b-3(c)(2)(i) promulgated under the Securities Exchange
Act of 1934, as amended (the "Act"). Subject to ratification of the grant
or authorization of each Option by the Board (if so required by applicable
state law), and subject to the terms of the Plan, the Committee, shall have
the authority to (i) determine the employees of the Company (from among the
class of employees eligible under Section 3 to receive ISOs (as such term
is defined below)) to whom ISOs may be granted, and to determine (from
among the class of individuals and entities eligible under Section 3 to
receive Non-Qualified Options(as such term is defined below)) to whom
Non-Qualified Options may be granted; (ii) determine the time or times at
which Options may be granted; (iii) determine the option price of shares
subject to each Option, which price shall not be less than the minimum
price specified in Section 6(a); (iv) determine whether each Option granted
shall be an ISO or a Non-Qualified Option; (v) determine (subject to
Section 8) the time or times when each Option shall become exercisable and
the duration of the exercise period; (vi) determine whether restrictions
such as repurchase options are to be imposed on shares subject to Options
and the nature of such restrictions, if any, and (vii) interpret the Plan
and prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take
whatever actions it deems necessary, under Section 422 of the
<PAGE>
Code and the regulations promulgated thereunder, to ensure that such Option
is not treated as an ISO. The interpretation and construction by the
Committee of any provisions of the Plan or of any Option granted under it
shall be final unless otherwise determined by the Board. The Committee may
from time to time adopt such rules and regulations for carrying out the
Plan as it may deem best. No member of the Board or the Committee shall be
liable for any action or determination made in good faith with respect to
the Plan or any Option or any Purchase granted under it.
(b) Compensation Committee. The Committee may select one of its
members as its chairman, and shall hold meetings at such times and places
as it may determine. Acts by a majority of the Committee, or acts reduced
to or approved in writing by a majority of the members of the Committee,
shall be valid acts of the Committee.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which
make express reference to Rule 16b-3 shall apply only to such persons as
are required to file reports under Section 16(a) of the Exchange Act (a
"Reporting Person").
(d) Types of Options. Options granted pursuant to the Plan may be
either incentive stock options ("ISOs") meeting the requirements of Section
422 of the Code or non-qualified stock options ("Non-Qualified Options")
which are not intended to meet the requirements of Section 422 of the Code.
3. Eligibility.
(a) Options. ISOs may be granted to any employee of the Company.
Those officers and directors of the Company who are not employees of the
Company may not be granted ISOs under the Plan. Non-Qualified Options may
be granted to any director, officer, employee or consultant of the Company.
The Committee may take into consideration a recipient's individual
circumstances in determining whether to grant an ISO or a Non-Qualified
Option. Granting an Option to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him, her or it from,
participation in any other grant of an Option.
(b) Purchases. Eligibility for Purchases under the Plan shall be
determined in accordance with Section 24 of the Plan.
4. Stock Subject to Plan.
(a) Options. Subject to adjustment as provided in Section 15 below,
the maximum number of shares of Common Stock of the Company which may be
issued and sold pursuant to Options issued under the Plan is 200,000
shares. The shares may be authorized, but unissued, or reacquired Common
Stock. If an Option granted under the Plan shall expire or terminate for
any reason without having been exercised
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<PAGE>
in full, the unpurchased shares subject to such Option shall again be
available for subsequent Option grants under the Plan. No shares issued
upon exercise of any Option shall be returned to the Plan nor become
available under the Plan for future distribution.
(b) Purchases. Subject to adjustment as provided in Section 15
below, the maximum number of shares of Common Stock of the Company which
may be issued and sold under Section 24 of the Plan is 20,000 shares. The
shares may be authorized, but unissued, or reacquired Common Stock. No
shares issued and sold under Section 24 of the Plan shall be returned to
the Plan nor become available under the Plan for future distribution.
5. Forms of Option Agreements. As a condition to the grant of an Option
under the Plan, each recipient of an Option shall execute an option agreement in
such form not inconsistent with the Plan as may be approved by the Committee.
Such option agreements may differ among recipients.
6. Exercise Price.
(a) General. The price per share of stock deliverable upon the
exercise of an Option shall be determined by the Committee, but it shall
not be less than the par value per share of the stock; provided, that in
the case of an ISO, the exercise price shall not be less than 100% of the
fair market value of such stock, as determined by the Committee, at the
time of grant of such Option, or less than 110% of such fair market value
in the case of Options described in Section 11(b).
(b) Fair Market Value. If, at the time an Option is granted under
the Plan or Common Stock is delivered to the Company, the Company's Common
Stock is publicly traded, the "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this
sentence are available prior to the date such Option is granted or Common
Stock is delivered to the Company and shall mean (i) the last reported sale
price (on that date) of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common
Stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the NASDAQ
National Market System, if the Common Stock is not then traded on a
national securities exchange; or (iii) the closing bid price (or average of
bid prices) last quoted (on that date) by an established quotation service
for over-the-counter securities, if the Common Stock is not reported on the
NASDAQ National Market System. However, if the Common Stock is not
publicly traded at the time an Option is granted or the Common Stock is
delivered, the "fair market value" shall be deemed to be the fair market
value of the Common Stock as determined by the Committee after it takes
into consideration all factors which it deems appropriate.
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<PAGE>
(c) Payment of Exercise Price. Payment of the exercise price of
Options granted under the Plan may be made (i) by delivery of cash or a
check to the order of the Company in an amount equal to the exercise price
of such Options, (ii) if authorized by the applicable option agreement or
at the discretion of the Committee, by delivery to the Company of shares of
Common Stock of the Company beneficially owned by the optionee for more
than six months and which the optionee may freely transfer having a fair
market value equal in amount to the exercise price of the options being
exercised, (ii) by any other means (including, without limitation, by
delivery of a promissory note of the optionee payable on such terms as are
specified by the Committee) which the Committee determines are consistent
with the purpose of the Plan and with then applicable laws and regulations
(including, without limitation, the provisions of Rule 16b-3, to the extent
that the Common Stock is registered under the Exchange Act, and Regulation
T promulgated by the Federal Reserve Board) or (iii) by any combination of
such methods of payment. The fair market value of any shares of the
Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an Option shall be determined by the Committee.
7. Option Period. Each Option and all rights thereunder shall expire on
such date as shall be set forth in the applicable option agreement, except that,
in the case of an ISO, such date shall not be later than ten years after the
date on which the Option is granted and, in all cases, Options shall be subject
to earlier termination as provided in the Plan.
8. Exercise of Options. Each Option granted under the Plan shall be
exercisable either in full or in installments at such time or times and during
such period as shall be set forth in the agreement evidencing such option,
subject to the provisions of the Plan. Notwithstanding the foregoing, Options
granted under the Plan to the Reporting Persons shall not be exercisable in any
part until at least six months after the date of grant.
9. Nontransferability.
(a) Nontransferability of Options. ISOs and Non-Qualified Options
granted to Reporting Persons shall not be assignable or transferable by the
person to whom they are granted, either voluntarily or by operation of law,
except by will or the laws of descent and distribution, and, during the
life of the optionee, shall be exercisable only by the optionee; provided,
that Non-Qualified Options held by Reporting Persons may be transferred
pursuant to a qualified domestic relations order (as defined in Rule
16b-3). Non-Qualified Options held by persons other than Reporting Persons
shall be subject to restrictions on transferability in the Plan or provided
in the applicable option agreement.
(b) Nontransferability of Rights Under Purchase Elections. Any right
under a Purchase Election shall not be assignable or transferable by the
director who made such Purchase Election, either voluntarily or by
operation of law, except by will or the laws of descent and distribution or
pursuant to a qualified domestic relations
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<PAGE>
order (as defined in Rule 16b-3).
10. Effect on Option of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to ISOs, and subject to the
provisions of the Plan, the Committee shall determine the period of time during
which an optionee may exercise an Option following (i) the termination of the
optionee's employment or other relationship with the Company or (ii) the death
or disability of the optionee. Such periods shall be set forth in the agreement
evidencing such Option.
11. ISOs. Options granted under the Plan which are intended to be ISOs
shall be subject to the following additional terms and conditions:
(a) Express Designation. All ISOs granted under the Plan shall, at
the time of grant, be specifically designated as such in the option
agreement covering such ISOs.
(b) 10% Shareholder. If any employee to whom an ISO is to be granted
under the Plan is, at the time of the grant of such Option, the owner of
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the ISO granted to such
individual:
(i) the purchase price per share of the Common Stock subject to
such ISO shall not be less than 110% of the fair market value
of one share of Common Stock at the time of grant; and
(ii) the exercise period of such ISO shall not exceed five years
from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
Options granted to any employee under the Plan (and any other stock option
plans of the Company) which are intended to constitute ISOs shall not
constitute ISOs to the extent that such options, in the aggregate, become
exercisable for the first time in any one calendar year for shares of
Common Stock with an aggregate fair market value (determined as of the
respective date or dates of grant) of more than $100,000.
(d) Termination of Employment, Death or Disability. No ISO may be
exercised unless, at the time of such exercise, the optionee is, and has
been continuously since the date of grant of his or her Option, employed by
the Company, except that:
(i) an ISO may be exercised within the period of three months
after the date the optionee ceases to be an employee of the
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<PAGE>
Company (or within such lesser period as may be specified in
the applicable option agreement); provided that the
agreement with respect to such Option may designate a longer
exercise period and that the exercise after such three-month
period shall be treated as the exercise of a Non-Qualified
Option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an
employee, the ISO may be exercised by the person to whom it
is transferred by will or the laws of descent and
distribution within the period of one year after the date
of death (or within such lesser period as may be specified
in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision
thereto) while in the employ of the Company, the ISO
may be exercised within the period of one year after
the date the optionee ceases to be such an employee
because of such disability (or within such lesser
period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no ISO may be exercised after its expiration date.
12. Additional Option Provisions
(a) Additional Option Provisions. The Committee may, in its sole
discretion, include additional provisions in Option agreements covering
options granted under the Plan, including without limitation restrictions
on transfer, repurchase rights, commitments to pay cash bonuses, to make,
arrange for or guaranty loans or to transfer other property to optionees
upon exercise of Options, or such other provisions as shall be determined
by the Committee; provided that such additional provisions shall not be
inconsistent with any other term or condition of the Plan and such
additional provisions shall not cause any ISO granted under the Plan to
fail to qualify as an ISO within the meaning of Section 422 of the Code.
(b) Option Acceleration, Extension, Etc. The Committee may, in its
sole discretion, (i) accelerate the date or dates on which all or any
particular Option or Options granted under the Plan may be exercised or
(ii) extend the dates during which all, or any particular, Option or
Options granted under the Plan may be exercised;
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<PAGE>
provided that no such extension shall be permitted if it would cause the
Plan to fail, to comply with Section 422 of the Code or with Rule 16b-3 as
then in effect, to the extent that the Common Stock is registered under the
Exchange Act.
13. General Restrictions.
(a) Investment Representations. The Company may require any person
to whom an Option is granted or shares are to be sold hereunder, as a
condition of exercising such Option or purchasing shares pursuant to
Section 24, to give written assurances in substance and form satisfactory
to the Company to the effect that such person is acquiring the Common Stock
for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effect as the Company deems necessary or appropriate in order to comply
with federal and applicable state securities laws, or with covenants or
representations made by the Company in connection with any public offering
of its Common Stock.
(b) Compliance with Securities Laws. Each Option shall be subject to
the requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares
subject to such Option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental or regulatory
body, or that the disclosure of non-public information or the satisfaction
of any other condition is necessary as a condition of, or in connection
with, the issuance or purchase of shares thereunder, such Option may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall
have been effected or obtained on conditions acceptable to the Committee.
Nothing herein shall be deemed to require the Company to apply for or to
obtain such listing, registration or qualification, or to satisfy such
condition.
14. Rights as a Shareholder. Neither a holder of an Option nor a director
having made a Purchase Election shall have any rights as a shareholder with
respect to any shares covered by the Option or Purchase Election (including,
without limitation, any rights to receive dividends or non-cash distributions
with respect to shares subject thereto) until the date of issue of a stock
certificate to him or her for such shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
(a) Adjustments Relating to Options. If, through or as a result of
any merger, consolidation, sale of all or substantially all of the assets
of the Company, reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction,
(i) the outstanding shares of Common Stock are increased, decreased or
exchanged for a different number or kind of shares or
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<PAGE>
other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash
assets are distributed with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (x)
the maximum number and kind of shares reserved for issuance pursuant to
Options issued under the Plan, (y) the number and kind of shares or other
securities subject to any then outstanding Options under the Plan, and (z)
the price for each share subject to any then outstanding Options, without
changing the aggregate purchase price as to which such Options remain
exercisable. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 15 to the extent such adjustment would cause any
ISO issued under the Plan to fail to comply with Section 422 of the Code or
the Plan to fail to comply with Rule 16b-3 as then in effect, to the extent
that the Common Stock is registered under the Exchange Act.
(b) Committee Authority to Make Adjustments. Any adjustments under
Section 15(a) will be made by the Committee, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan
on account of any such adjustments.
(c) Adjustments Relating to Purchasers. If, through or as a result
of any merger, consolidation, sale of all or substantially all of the
assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar
transaction, (i) the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of shares or other
securities of the Company, or (ii) additional shares or new or different
shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (x)
the maximum number and kind of shares reserved for issuance pursuant to
Section 24 of the Plan, (y) the number and kind of shares or other
securities subject to any then outstanding Purchase Elections, and (z) the
price for each share subject to any then outstanding Purchase Election,
without changing the aggregate purchase price as to such Purchases which
have not yet occurred. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 15(c) to the extent such adjustment would
cause any ISO issued under the Plan to fail to comply with Section 422 of
the Code or the Plan to fail to comply with Rule 16b-3 as then in effect,
to the extent that the Common Stock is registered under the Exchange Act.
(d) Board Authority to Make Adjustments. Any adjustment under
Section 15(c) will be made by the Board, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan
on account of any such adjustments.
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<PAGE>
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) Options. In the event of a consolidation or merger or sale of
all or substantially all of the assets of the Company in which outstanding
shares of Common Stock are exchanged for securities, cash or other property
of any other corporation or business entity or in the event of a
liquidation of the Company, the Committee, or the board of directors of any
corporation assuming the obligations of the Company may in its discretion,
take any one or more of the following actions, as to outstanding Options:
(i) provide that such Options shall be assumed, or equivalent options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such options substituted for ISOs shall meet
the requirements of Section 424(a) of the Code, (ii) upon written notice to
the optionees, provide that all unexercised Options will terminate
immediately prior to the consummation of such transaction unless exercised
by the optionee within a specified period following the date of such
notice, (iii) in the event of a merger under the terms of which holders of
the Common Stock of the Company will receive upon consummation thereof a
cash payment for each share surrendered in the merger (the "Merger Price"),
make or provide for a cash payment to the optionees equal to the difference
between (A) the Merger Price times the number of shares of Common Stock
subject to such outstanding Options (to the extent then exercisable at
prices not in excess of the Merger Price) and (B) the aggregate exercise
price of all such outstanding Options in exchange for the termination of
such options, and (iv) provide that all or any outstanding Options shall
become exercisable in full immediately prior to such event; provided that
notwithstanding anything to the contrary in this Section 16(a), any action
taken by the Committee hereunder shall be in compliance with Rule 16b-3 as
in effect at the time of such action and the conditions thereof necessary
to maintain qualification of the Plan under Rule 16b-3, to the extent that
the Common Stock is registered under the Exchange Act. In the case of any
Option which by the terms of the grant thereof (or the agreement or
instrument governing such grant) or pursuant to a decision by the Committee
under this Section 16(a) provides for such option becoming exercisable in
full upon a Change in Control or otherwise under this Section 16, such
option shall be deemed vested on the day immediately prior to the day on
which such Change in Control occurs and such optionee shall be given prior
written notice of such Change in Control sufficient to permit such optionee
to exercise such Options. For purposes of this Plan, a "Change in Control"
occurs if the Company (i) ceases operations; (ii) merges or consolidates
with another entity and is not the surviving entity; (iii) sells or
otherwise transfers all or substantially all of its operating assets; or
(iv) if more than 50% of the capital stock of the Company is transferred in
a single transaction or in a series of related transactions other than a
public offering of stock of the Company to a single person, entity or group
of persons acting in concert.
(b) Substitute Options. The Company may grant Options under the Plan
in substitution for options held by employees of another corporation who
become employees of the Company, or of a subsidiary of the Company, as the
result of a
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<PAGE>
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the
Company, or one of its subsidiaries, of property or stock of the employing
corporation. The Company may direct that substitute Options be granted on
such terms and conditions as the Committee considers appropriate in the
circumstances.
(c) Purchases. In the event of a consolidation or merger or sale of
all or substantially all of the assets of the Company in which outstanding
shares of Common Stock are exchanged for securities, cash or other property
of any other corporation or business entity or in the event of a
liquidation of the Company, any election to Purchase shares of Common Stock
pursuant to Section 24 of the Plan shall automatically be cancelled and any
Fee Deductions shall be paid to the appropriate directors promptly,
together with interest on such Fee Deductions, calculated in accordance
with Section 24(e) of the Plan.
17. No Special Employment Rights. Nothing contained in the Plan or in any
Option shall confer upon any optionee any right with respect to the continuation
of his or her employment by the Company or interfere in any way with the right
of the Company at any time to terminate such employment or to increase or
decrease the compensation of the optionee.
18. Other Employee Benefits. Except as to plans which by their terms
include such amounts as compensation, the amount of any compensation deemed to
be received by an employee as a result of the exercise of an Option or the sale
of shares received upon such exercise will not constitute compensation with
respect to which any other employee benefits of such employee are determined,
including, without limitation, benefits under any bonus, pension,
profit-sharing, life insurance or salary continuation plan, except as otherwise
specifically determined by the Committee or required by law.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the
approval of the shareholders of the Company is required under Section 422
of the Code or any successor provision with respect to ISOs, or under Rule
16b-3 as then in effect, to the extent that the Common Stock is registered
under the Exchange Act, the Board of Directors may not effect such
modification or amendment without such approval.
(b) The termination or any modification or amendment of the Plan
shall not, without the consent of an optionee, affect his or her rights
under an Option previously granted to him or her. With the consent of the
optionee affected, the Board of Directors may amend outstanding option
agreements in a manner not inconsistent with the Plan. The Board of
Directors shall have the right to amend or modify (i) the terms and
provisions of the Plan and of any outstanding ISOs granted
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<PAGE>
under the Plan to the extent necessary to qualify any or all such Options
for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive stock options under
Section 422 of the Code and (ii) the terms and provisions of the Plan and
of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3 as then in effect, to the extent
that the Common Stock is registered under the Exchange Act.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of Options under the Plan. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the optionee. The shares so
delivered or withheld shall have a fair market value equal to such
withholding obligation. The fair market value of the shares used to
satisfy such withholding obligation shall be determined by the Company as
of the date that the amount of tax to be withheld is to be determined. Such
determination of the fair market value shall be made in accordance with
Section 6(b). An optionee who has made an election pursuant to this
Section 20(a) may only satisfy his or her withholding obligation with
shares of Common Stock which are not subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of
Rule 16b-3 as then in effect.
21. Cancellation and New Grant of Options, etc. The Board of Directors
shall have the authority to effect, at any time and from time to time, with the
consent of the affected optionees, (i) the cancellation of any or all
outstanding Options under the Plan or the Company's 1986 Incentive Stock Option
Plan and the grant in substitution therefor of new Options under the Plan
covering the same or different numbers of shares of Common Stock and having an
exercise price per share which may be lower or higher than the exercise price
per share of the cancelled Options or (ii) the amendment of the terms of any and
all outstanding Options under the Plan to provide an exercise price per share
which is higher or lower than the then current exercise price per share of such
outstanding Options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by
the Board of Directors, but no ISO granted under the Plan shall become
exercisable unless
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and until the Plan shall have been approved by the Company's shareholders.
If such shareholder approval is not obtained within twelve months after the
date of the Board's adoption of the Plan, no Options previously granted
under the Plan shall be deemed to be ISOs and no ISOs shall be granted
thereafter. Amendments to the Plan not requiring shareholder approval shall
become effective when adopted by the Board of Directors; amendments
requiring shareholder approval (as provided in Section 19) shall become
effective when adopted by the Board of Directors, but no ISO granted after
the date of such amendment shall become exercisable (to the extent that
such amendment to the Plan was required to enable the Company to grant such
ISO to a particular optionee) unless and until such amendment shall have
been approved by the Company's shareholders. If such shareholder approval
is not obtained within twelve months of the Board's adoption of such
amendment, any ISOs granted on or after the date of such amendment shall
terminate to the extent that such amendment to the Plan was required to
enable the Company to grant such Option to a particular optionee. Subject
to this limitation, Options may be granted under the Plan at any time after
the effective date and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section
16, the Plan shall terminate, with respect to ISOs, upon the earlier of (i)
the close of business on the day next preceding the tenth anniversary of
the date of its adoption by the Board of Directors, or (ii) the date on
which all shares available for issuance pursuant to Options issued under
the Plan shall have been issued pursuant to the exercise or cancellation of
Options granted under the Plan. Unless sooner terminated in accordance
with Section 16, the Plan shall terminate with respect to Non-Qualified
Options on the date specified in (ii) above and with respect to Purchases
on the date on which all shares available for issuance pursuant to Section
24 of the Plan shall have been issued. If the date of termination is
determined under (i) above, then Options outstanding on such date shall
continue to have force and effect in accordance with the provisions of the
instruments evidencing such Options.
23. Provision for Foreign Participants. The Board of Directors may,
without amending the Plan, modify awards or options granted to participants who
are foreign nationals or employed outside the United States to recognize
differences in laws, rules, regulations or customs of such foreign jurisdictions
with respect to tax, securities, currency, employee benefit or other matters.
24. Purchases of Stock by Directors Who are not Officers or Employees.
(a) The Company will issue shares of Common Stock on the last day of
the fiscal year (the "Purchase Date") to any director of the Company who is
not an officer or an employee of the Company (an "Eligible Director") and
has made a then effective Purchase Election pursuant Section 24(b).
(b) An Eligible Director may elect to purchase shares (a "Purchase
Election") by
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submitting an election form to the Vice President-Finance on or before the
20th of August in the fiscal year in which he or she intends to
participate. On such election form, a director shall (i) state the
percentage to be deducted from the fee earned by such Eligible Director for
service as a director of the Company (a "Fee"), (ii) authorize the purchase
of Common Stock for him or her in accordance with the terms of the Plan,
(iii) agree to hold any shares of Common Stock purchased pursuant to this
Section 24 for at least six months from the date of acquisition and (iv)
consent to the placement of a stop order on the books of the Company with
regard to such shares for a period of at least six months from the date of
acquisition.
(c) Unless an Eligible Director files a new election form which
either changes the rate of deduction from his or her Fee or indicates his
or her withdrawal from the Plan, his or her deductions and purchases will
continue at the same rate, provided he or she remains an Eligible Director.
During a fiscal year, an Eligible Director may change the rate of deduction
from his or her Fee or withdraw from the Plan at any time prior to the last
Saturday in September. Any change or withdrawal indicated on a new
election form received by the Vice President-Finance on or after the last
Saturday in September will be effective as of the first day of the
following fiscal year.
(d) On the date on which cash payments of Fees are made, or would
have been made (the "Deduction Date"), the Company will deduct from cash
payments of Fees to each Eligible Director such amount indicated on his or
her then effective Purchase Election, if any (a "Fee Deduction"). Any Fee
Deduction made pursuant to this Section 24 will be held in the general
funds of the Company. The maximum amount an Eligible Director may have
deducted in a fiscal year is $8,500.
(e) All Fee Deductions shall accrue interest at the prime rate
reported in the Wall Street Journal at the Deduction Date from the
Deduction Date through the last day of the Company's fiscal year.
(f) Each Eligible Director who has elected to participate pursuant to
a then effective Purchase Election and is a director of the Company as of
the last day of the fiscal year shall acquire from the Company such whole
number of shares of Common Stock which his or her Fee Deductions during the
fiscal year and interest accrued thereon will purchase at the Purchase
Price (as such term is defined below). Any balance of the Fee Deductions
and interest accrued thereon will be refunded to the Eligible Director
promptly.
(g) The purchase price (the "Purchase Price") of Common Stock to be
issued to any Eligible Director pursuant to this Section 24 shall be the
fair market value of the Common Stock on the Purchase Date. "Fair market
value" shall mean (i) the last reported sale price of the Common Stock on
the Purchase Date on the principal national securities exchange on which
the Common Stock is traded, if the
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Common Stock is then traded on a national securities exchange; or (ii) the
last reported sale price on the Purchase Date of the Common Stock on the
NASDAQ National Market System, if the Common Stock is not then traded on a
national securities exchange; or (iii) the closing bid price (or average
of bid prices) last quoted on the Purchase Date by an established quotation
service for over-the-counter securities, if the Common Stock is not reported
on the NASDAQ National Market System. If no prices or quotes discussed in
the preceding sentence are available on the Purchase Date, such quotes or
prices shall be determined as of the last business day for which such prices
or quotes are available prior to the Purchase Date. However, if the Common
Stock is not publicly traded at the Purchase Date, the "fair market value"
shall be deemed to be the fair market value of the Common Stock as
determined by the Board of Directors after it takes into consideration all
factors which it deems appropriate.
(h) Purchases pursuant to this Section 24 shall be generally
administered by the Board of Directors. The provisions of this Section 24
are to be construed as a "formula plan" as defined by Rule 16b-3. As such,
the provision of Section 24 shall not be amended more than once every six
(6) months, other than to comply with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder.
Adopted by the Board of Directors on
February 20, 1996 and amended and
restated by the Board of Directors on July
1, 1996
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EXHIBIT 10.E.
* = THE MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is effective this 27th day
of March, 1997, and entered into by and between GATEWAY 2000, INC., a Delaware
corporation, 610 Gateway Drive, North Sioux City, SD 57049 and its
Subsidiaries (hereafter "Gateway") and BOSTON ACOUSTICS, INC., a _____________
corporation, 300 Jubilee Drive, Peabody, MA 01960 (hereafter "Supplier").
Gateway, a recognized manufacturer and/or distributor of
computer-related equipment, desires to secure a proven source of Product as
defined in this Agreement and attached Exhibits. Gateway prefers to establish
a strong relation with Supplier so as to determine that Supplier is
identified as a "Preferred Supplier".
Supplier manufactures and/or sells and distributes Product as defined
in this Agreement and attached Exhibits, and related equipment.
It is mutually agreed that Gateway will purchase and accept from
Supplier, and Supplier will deliver to Gateway, Product as defined in this
Agreement and attached Exhibits, pursuant to and in accordance with the
following definitions, terms, and conditions.
AGREEMENT
1. DEFINITIONS
A. "Product", as used in this Agreement shall mean the deliverables
in accordance with the product specifications mutually agreed to between the
parties, as listed on Exhibit "A".
B. "Specifications" as used in this Agreement shall mean the
specifications for the Product to be sold by Supplier to Gateway as described
on Exhibit "A".
C. "Defect(s)" as used in this Agreement shall mean a deficiency,
imperfection or insufficiency in the Product such that it is not fit for
ordinary purposes for which it was purchased, sold or used.
D. "Order", as used in this Agreement shall mean those purchase
orders that Gateway shall provide to Supplier.
E. "Confidential Information", as used in this Agreement shall mean
components, types of systems, new product development, technical information,
data, formulas, patterns, compilations, programs, devises, methods,
techniques, marketing plans, business procedures, customer and supplier
lists, agreements with any suppliers,
<PAGE>
supplements, techniques, or know-how, processes or other proprietary or
confidential or intellectual property information which is received from the
other under this Agreement, which is transmitted from the other party in
written form and which, if disclosed to the general public, would cause harm
to the transmitting party.
F. "Epidemic Failures", as used in this Agreement shall mean that
percentage of the units of Product accepted by Gateway in an Order therefor
which fails to operate in accordance with performance specifications
applicable to such Product solely as a result of the failure of such Product
to conform with the warranty applicable to such Product as set forth in
Section 9 of this Agreement.
G. "Preferred Supplier", as used in this Agreement shall mean a
supplier who is capable of meeting schedule, quality, and pricing
requirements.
H. The following Exhibits are incorporated into this Agreement:
Exhibit A - Product, Packaging and Performance Specifications
Exhibit B - Pricing
Exhibit C - Gateway's Sample-Purchase Order
Exhibit D - Routing Guide(s)
Exhibit D-1 - Center for Production Replenishment Procedure
Exhibit E - Engineering Change Requests
Exhibit F - Regulatory Compliance
Exhibit G - Supplier Certification
Exhibit H - Inspection Procedure
Exhibit I - Supplier Quality Engineering
Exhibit J - Gateway Trademarks
Exhibit K - Federal Acquisition Regulations
2. TERMS AND CONDITIONS
All purchase of Product shall be subject only to the terms and
conditions of this Agreement and any other terms and conditions, oral or
written, including, without limitation, any terms and conditions referenced
in any Order, shall have no force or effect, except for Product description,
Delivery Schedule, Price, and Amount of Product ordered.
3. ORDERING PROCEDURE AND DELIVERY
A. Gateway shall place all Orders under this Agreement by using
Gateway's model numbers for Product. All Orders are subject to acceptance by
Supplier and may be accepted in whole or in part within two (2) working days
after Supplier's receipt of each Order. If Supplier fails to give written
notice of rejection of any part of the Order within the time stated, the
Order shall be deemed accepted.
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B. Gateway agrees to place a ninety (90) day order upon execution of
this Agreement and maintain a continual ninety (90) day order, subject to the
cancellation and rescheduling provisions of Section 7 for the term of this
Agreement.
C. Gateway shall use its best efforts to forecast its intended
purchases of Product for the next six (6) month period. These forecasts are
intended for planning purposes only and shall not be considered as firm
commitments to purchase.
D. The prices set forth on Exhibit B hereto include packaging for
either air or surface transportation. All Product shall be suitably packaged
to comply with the method of transportation and in compliance with the
specifications set forth in this Agreement and the attached Exhibit A.
E. A sample purchase order is attached hereto as Exhibit C. In the
event of a conflict between the terms and conditions of this Agreement and
the purchase order, the terms of this Agreement shall comply.
4. PRICES
A. PRODUCT PRICES. The prices applicable to Product are listed in
U.S. Dollars on Exhibit B. Supplier and Gateway shall conference monthly to
discuss issues such as performance and price changes with respect to unfilled
and future orders. The prices are intended to remain in effect for the term
of this Agreement, but may be equitably adjusted upon review, at least
quarterly, by Gateway and Supplier consistent with a price reduction based
upon product maturation, equitable lot buys, and/or materials cost reduction.
B. *
C. EXCLUSIVITY. Gateway shall have a * exclusive from the date of
Gateway's receipt of first product shipment. This exclusive shall apply only
to OEM shipments of the respective products, and in no way precludes Supplier
from shipping said products into the retail or distribution market. Schedule
slippages caused by Supplier's negligence will result in a corresponding
extension to the start of the period of exclusivity.
5. PAYMENT.
Both parties acknowledge that all prices for Product shall be made in
U.S. Dollars. Terms of payment are net thirty (30) days from date of
delivery. If payment is made
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within ten (10) days of receipt, there is a one percent (1%) discount on
amount due. The prices include all fees for licenses, taxes and import fees.
6. TITLE AND DELIVERY
A. Title of Product shall pass to Gateway upon physical acceptance of
the Product at the final agreed point of delivery. Unless otherwise
specified, title will transfer at FOB (Free on Board) Gateway's manufacturing
facility as set forth in Exhibit D. Supplier is responsible for the export
license, paying any export taxes and fees, and providing evidence of delivery
of Product to the carrier. This section may be amended with the mutual
consent of Gateway and Supplier.
B. Supplier will provide ocean freight carriage of the Product, using
Supplier's appointed carriage/agents to any and all Gateway 2000 appointed
destinations and as set forth in the Center for Product Replenishment
procedure attached hereto as Exhibit D-1 and incorporated herein by reference.
C. At no time will ocean freight transportation charges exceed those
of Gateway ocean freight transportation charges.
D. Supplier agrees to provide line item detail of cost of
merchandise, cost of freight and incidental costs when invoicing Gateway.
E. Supplier will provide Gateway with contact information of
Supplier's appointed freight agents and carriers, including telephone,
facsimile and after hours numbers of any and all personnel. Gateway will also
provide Supplier with Gateway's approved contacts, including telephone,
facsimile and after hours contacts.
F. Supplier will, together with Gateway, establish means by which
Product can be expedited to designated Gateway destinations. This program
will be made resident with Supplier and all Gateway designated destinations.
G. Supplier and Gateway will monitor transportation pricing and
service on a quarterly basis. In the event that it is determined that either
price, service or a combination of both do not meet the requirements of
Gateway, re-negotiation of service/pricing will be mandatory, including
conversion of transportation service to appointed Gateway carriage.
H. At no time will Gateway be responsible for freight charges in
excess of amounts agreed upon between Supplier and Gateway jointly, or in
excess of what Gateway could reasonably expect to pay using Gateway's own
designated carriage.
I. Supplier will make reasonable efforts to * of the delivery dates
requested by Gateway. If Supplier fails to * of
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<PAGE>
the scheduled delivery date, Supplier will pay for all expedited shipping
costs or Gateway may cancel the affected Order without penalty.
J. Supplier shall deliver the Products in the quantities specified in
Gateway's Orders.
7. CANCELLATION AND RESCHEDULING.
For purposes of the commitment to purchase Product pursuant to the
Letter of Agreement executed between the parties dated January 14, 1997
("Letter of Agreement"), the following guidelines will apply to rescheduling:
0-30 days can
reschedule up to *
or
31-60 days can
reschedule up to *
or
61-90 days can
reschedule up to *
For purposes of all other Product purchases after the initial
commitment contained in the Letter of Agreement, the following guidelines
will apply to rescheduling and cancellation:
0-30 days can
reschedule or cancel up to *
or
31-60 days can
reschedule or cancel up to *
or
61-90 days can
reschedule or cancel up to *
8. ENGINEERING CHANGES.
A. Gateway will continuously work with Supplier on final approval of
all phases of Product design verification including, but not limited to, Bill
of Materials (BOM) and changes or additions to the Approved Supplier List
(ASL) and on-going approvals of Supplier Engineering Changes Requests/Notices
(SECRs/ECNs). No changes will be made in the form, fit, function, design or
appearance of the Product without the express written consent of Gateway. The
engineering specifications (revision level) of Product will not be changed
without forty-five (45) days prior written notice to and approval by Gateway,
except as noted below.
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<PAGE>
B. Supplier will provide Gateway with a written description of the
proposed change and the proposed implementation date by utilizing Gateway's
SECR set forth in the attached Exhibit E. A minimum of fifteen (15) component
samples will be provided for qualification to the Gateway compatibility
department. Gateway shall have the minimum number of days indicated by the
Class of change and identified in Exhibit E to approve or reject the change.
C. Within ten (10) business days of receipt of Gateway's written
response, Supplier will provide Gateway any updated specification material
that has changed as a result of the engineering change.
D. If Gateway wants to initiate an SECR/ECN, it must do so by
utilizing a mechanism similar to Exhibit J and obtaining Supplier's approval.
E. Supplier Engineering Change Requests/Notices shall be sent to the
following addresses:
Gateway: Supplier Quality Engineering, MS Y-09
610 Gateway Drive
North Sioux City, SD 57049
Supplier: Michael Chass
300 Jubilee Drive
P.O. Box 6015
Peabody, MA 01961-6015
F. Supplier shall implement a method of identification which clearly
distinguishes the changed Product.
9. WARRANTY, WARRANTY RETURNS, FIELD FAILURE RATE
A. WARRANTY.
i. The Product will comply with all Gateway approved product
descriptions and specifications, and other printed information relating to
the Product, provided to Gateway by Supplier and in effect as of the date of
the applicable Order.
ii. The Product, (a) will be new, (b) will be free from defects
in manufacture, materials and design, (c) will function properly under
ordinary use, and (d) will perform in accordance with all applicable
specifications and documentation for such Product for a period of thirty-six
(36) months from date of delivery.
iii. Supplier warrants that title to all Product purchased by
Gateway, no matter where delivered, shall be free and clear of all liens,
encumbrances, security interest, or other adverse interests or claims.
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<PAGE>
iv. The aforementioned warranties shall not apply to any
Product which has been altered or changed without Supplier's authorization
after receipt by Gateway or to any failure of the Product to conform to such
warranties as a result of improper maintenance, installation or service,
operation and use contrary to furnished instructions, the transportation or
improper storage of such items, abuse, misuse, neglect, negligence of
end-users. It is understood and agreed that the Product shall be used in
connection with and as components of a larger system, and that such inclusion
into the larger system does not and shall not constitute an unauthorized
alteration or change in the Product; provided that the design and
implementation of such inclusion into the larger system is in conformity with
specifications set forth in Exhibit A. However, should the Gateway misuse the
Product when performing its inclusion, the warranty is void.
v. The warranties set forth in this Section 9 are the only
warranties made by Supplier to Gateway with respect to Product. SUPPLIER
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH REGARD TO PRODUCT
SOLD PURSUANT TO THIS AGREEMENT AND EXHIBITS, INCLUDING ALL IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INCIDENTAL OR
CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE OR
PERFORMANCE OF PRODUCT, EXCEPT INDEMNIFICATION.
B. WARRANTY RETURNS/REPAIR.
i. Warranty Returns shall be Product which has been delivered to
Gateway or by Gateway to its customers and rejected by them due to defect(s).
ii. All Product returned will require a Return Material
Authorization (RMA) number which will be issued by Gateway. Supplier will
pay return shipping charges to Supplier.
iii. All Warranty Returns shall be returned to Supplier within
thirty (30) days of issuance of the RMA notice.
iv. All Warranty Returns shall be debited by Gateway against
outstanding invoices payable to Supplier after Supplier's receipt of returned
Product.
v. Supplier will acknowledge receipt of returned Product and
quantities received within five (5) business days of receipt of the returned
Product from Gateway. If Supplier fails to give written acknowledgment of
receipt and quantities received within the time stated, Supplier shall be
deemed to have received Gateway's Product and quantities listed on the vendor
return form.
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<PAGE>
C. EPIDEMIC FAILURES. Gateway will consider an Epidemic Failure as
being a single failure type, if the failure is 7% of the Product shipped
during a three (3) month period. Supplier will take action to correct the
defect in subsequent deliveries of Product and will notify Gateway of its
corrective action plan. The defect must be corrected by upgrading some or
all of the Product previously shipped within the twelve (12) months prior to
Gateway's notice to Supplier. Supplier will provide parts for the upgrades,
perform associated labor costs and pay freight to the customer.
10. PRODUCT ACCEPTANCE.
A. Design verification testing (DVT) is to be performed on all
newly designed products purchased by Gateway. DVT testing is to be completed
and results submitted to Gateway's supplier quality engineer (SQE)
responsible for the Product. DVT results are to be reported with respect to
the original Gateway approved design specification for the Product.
B. Supplier shall submit a capability analysis which indicates the
Supplier's equipment, staff and Supplier's ability to understand, support and
process to the level of design technology required by Gateway.
C. * Reliability testing shall be performed at * beyond the agreed
upon design specification limitations set by Gateway's Global Product
Organization (GPO) and Supplier.
D. The design shall specify the expected process, test and field
performance level of the Product. Supplier shall demonstrate the actual
performance level during a site risk analysis and assessment survey.
E. Gateway will consider an epidemic failure as being a single
failure type, if the failure is * of the Product shipped during a * period. An
epidemic failure could have a cost impact to Supplier.
F. Supplier shall perform a structural design test using Gateway's
standard for testing, unless Supplier's test procedure is more rigid than
Gateway's test procedure. Testing shall be conducted at a test provider
location agreed to between Gateway and Supplier. Testing shall include all
packaging which is used during transportation of the Product to Gateway's
customer.
G. Supplier Engineering Change Requests (SECR) will be completed
pursuant to the guidelines set forth on Exhibit E and will be routed to the
appropriate SQE in Singapore and North Sioux City, South Dakota. Gateway's
SQE in both locations will ensure that all ECR's are managed from submission to
approval.
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<PAGE>
H. Regulatory approval is the responsibility of the Supplier to
ensure that all newly designed and/or changed Products meets Gateway's dB
margins in conjunction with FCC industrial standards. All engineering changes
that affect the original test grant are Supplier's responsibility to ensure
that the change is tested and grant status is maintained. Supplier represents
and warrants that Supplier has obtained the necessary regulatory approvals
for the Product as set forth on Exhibit F.
I. Product purchased pursuant to this Agreement shall meet all
established industry operating standards. Product that is combined with other
technology shall be compatible with that standard.
J. Supplier accepts full responsibility for Product failure
caused by a safety defect and for corrective action regardless of when such
defect is detected. Corrective action for a major defect must be implemented
within three (3) business days and corrective action for a minor defect must
be implemented within seven (7) business days upon notification by Gateway.
K. Gateway requires its suppliers to go through the SQE
procedure in order to become a Preferred Supplier. Supplier shall follow and
work with Gateway on achieving Supplier Certification. The criteria for
Supplier Certification is defined on the attached Exhibit G.
L. Incoming Quality Assurance sample acceptable quality level
(AQL) for the three (3) main types of commodity families as per Mil Spec
105E are set forth on Exhibit H.
M. None of the foregoing shall limit any warranties as set out
in Section 9 or affect quality level of Product ordered by Gateway.
11. SERVICE AND ROOT CAUSE FAILURE ANALYSIS
A. Supplier agrees to enter into a service agreement to support
all in-warranty defective product returned from Gateway's customers. The
service of common Product used by Gateway regions, globally, are to be
considered when service centers are being planned.
B. Supplier shall record all root causes for failures repaired
and report this information on a weekly basis to Gateway and the Supplier's
original manufacturing location.
C. Gateway's SQE department shall create a corrective action
response to the root cause for failure. This action is to be completed
monthly. If a critical issue arises, Corrective Action Request (CAR) will be
issued as set forth in Exhibit I, to ensure the action taken has improved the
reliability of the Product.
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<PAGE>
12. PATENT, COPYRIGHT AND TRADE SECRET INDEMNITY
A. Supplier represents and warrants that:
i. It has sufficient right, title and interest in all
Product to enter into this Agreement;
ii. The Product does not infringe any United States,
Canada, Australia, Japan, Malaysian, European Community, Ireland, Sweden,
Norway, or Finland patent, copyright or trade secret;
iii. To the best of Supplier's knowledge, the
unauthorized combination, operation, or use of the Product with equipment,
data or programs Gateway sells the Product with, does not infringe any United
States, Canada, Australian, Japan, Malaysian, European Community, Ireland,
Sweden, Norway or Finland patent, copyright or trade secret.
iv. The Product does not violate the trade secret or
confidentiality rights of a third party.
Supplier agrees to indemnify, hold harmless and defend Gateway, Gateway's
agents and customers from and against any and all damages, losses, costs,
expenses, including attorneys' fees (including allocated costs for in-house
legal services), and liability incurred in connection with a claim for
infringement which constitutes a breach of the foregoing warranty
(hereinafter "Infringement Claims") whether in this or a foreign country;
provided that Supplier is notified promptly in writing of an Infringement
Claim. Supplier shall have sole control over the defense and settlement of
such a claim so long as no settlement adversely affects Gateway's ability
to exercise its rights under this Agreement. Gateway shall provide reasonable
assistance in defense of same. Supplier will pay all damages and costs
finally awarded against Gateway.
B. In the event that a final judgment is obtained against the
use of any Product by Gateway by reason of infringement of any such
Intellectual Property Right, or, if in Supplier's opinion the Product is likely
to become the subject of such a claim of infringement, Supplier shall, at its
option and expense:
(a) procure for Gateway the right to continue using the
Product; or
(b) replace or modify the Product so that it no longer
causes any such infringement but is still capable of performing its original
function.
13. PARTS
A. Supplier agrees to provide Gateway ninety (90) days written
notice prior to the discontinuance of any Product purchased by Gateway
pursuant to this Agreement.
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<PAGE>
Upon notification by Supplier, Supplier shall allow Gateway to make a final
purchase of Product at prices agreed to between the parties.
B. During the term of this Agreement, and for five (5) years after
the termination of this Agreement or any extension of it, Supplier shall make
services and parts available to Gateway at a mutually agreed upon price.
C. During the term of this Agreement, and for five (5) years after
the termination of this Agreement or any extension of it, Supplier shall make
available to Gateway custom plastics, custom packing material, and other
custom components for use by Gateway in providing on-going Product support
after Supplier's warranty period has ended.
14. ENVIRONMENTAL.
A. Supplier shall comply with all applicable federal, state and local
environmental laws, ordinances, orders or regulations affecting the Product.
Supplier does hereby agree to indemnify and hold Gateway harmless of, from
and against any and all claims, actions, liens, demands, costs, expenses,
fines and judgments (including legal costs and attorney's fees) resulting
from or arising by reason of the use of Hazardous Substances (as defined in
applicable federal, state, and local environmental laws, ordinances, orders
or regulations) or CFCs and HCFCs in the Product's manufacturing process or
included in the Product.
B. Supplier agrees to use reusable and recyclable packaging for
Product purchased under this Agreement.
15. CONFIDENTIALITY.
Each party agrees that it will keep in confidence and prevent the
acquisition, disclosure, use or misappropriation by any person or persons all
types of and/or quantities of components, types of systems, new product
development, technical information, data, formulas, patterns, compilations,
programs, devices, methods, techniques, marketing plans, business procedures,
customer and supplier lists, agreements with any suppliers, supplements,
techniques or know-how, processes or other proprietary or confidential or
intellectual proprietary information which is received from the other under
this Agreement, provided; however, that neither party shall be liable for
disclosure of any data if the same is disclosed with the prior written
approval of the other party. Each party agrees that if it breaches the
non-disclosure agreement, the owner of the confidential or proprietary
information shall suffer irreparable injury and be entitled immediately to a
temporary and permanent injunction, in addition to the other remedies for
breach of the entire agreement.
This non-disclosure agreement shall survive the termination or
expiration of the entire agreement.
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Both parties shall be entitled to attorneys' fees for enforcement of
this section.
The foregoing confidentiality obligation shall not apply to
information which the recipient can demonstrate by written evidence was (i)
lawfully in its possession prior to its first receipt from the deliverer (ii)
is or becomes publicly available without breach of this Agreement by the
party receiving the Confidential Information; (iii) is released for
disclosure by the disclosing party with its written consent; (iv) is known by
the receiving party prior to the disclosure; (v) is rightly received by the
receiving party from a third party without confidential limitations; (vi) is
hereafter disclosed to a third party without restriction on disclosure, which
at the date hereof or hereafter becomes available in the public domain
without breach by the recipient of this Agreement or any unlawful act.
Each party (i) agrees not to disclose Confidential Information given
to it by the other party to any person, real or legal, except as necesssary
for the other party to perform its obligation under this Agreement; (ii)
shall require its employees having access to Confidential Information and any
third party to whom disclosure of Confidential Information is necessary to
sign a confidentiality agreement containing provisions similar to this
Agreement; (iii) shall exercise the same degree of care to safeguard the
confidentiality of such Confidential Information as it would exercise in
protecting the confidentiality of similar property of its own (but in no
event less than is standard in the industry); and (iv) agrees to use its
diligent efforts to prevent inadvertent or unauthorized disclosure,
publication or dissemination of any Confidential Information.
Each party shall notify the other of any actual or suspected
unauthorized use or disclosure of Confidential Information or infringement of
any of Supplier's proprietary rights of which such party has knowledge and will
reasonably cooperate with the other party in the investigation and
prosecution of such unauthorized use, disclosure or infringement.
16. FORCE MAJEURE.
In the event that either party is prevented from performing or is
unable to perform any of its obligations under this Agreement due to any Act
of God, fire, casualty, flood, war, strike, lockout, epidemic, destruction of
production facilities, riot, insurrection, or any other cause beyond the
reasonable control of the party invoking this section, and if such party
shall have used its best efforts to mitigate its effects, such party shall
give prompt written notice to the other party, its performance shall be
excused, and the time for the performance shall be extended for the period of
delay or inability to perform due to such occurrences. However, if such
inability to perform continues for fifteen (15) days, the other party may
terminate this Agreement without penalty and without further notice.
17. TERM/TERMINATION.
A. Unless sooner terminated, this Agreement shall remain in effect
for a period of *. This Agreement may be renewed for additional * periods
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upon mutual written agreement between the parties. Either party shall have
the right to terminate this Agreement immediately if the other breaches any
of the material provisions of this Agreement and fails to cure the breach
within thirty (30) days after receipt of written notice.
B. If either Gateway or Supplier should become insolvent, or make any
assignment for the benefit of creditors, or enter into any compromise with
creditors or a general agreement for referral of payment with its creditor,
or make or suffer to be made any transfer to any person, trustee, receiver,
liquidator, or referee for the benefit of creditors, or file a voluntary
petition in bankruptcy, or suffer an involuntary petition in bankruptcy to be
filed against it, or file any petition in any reorganization, arrangement,
compromise, readjustment, liquidation, or dissolution or similar relief for
itself, or becomes unable to pay its debts generally as they become due, the
other party shall have the immediate right to terminate this Agreement upon
delivery of written notice without any liability to the insolvent party and
without further notice to it.
C. Either party may terminate this Agreement without cause by giving
ninety (90) days written notice to the other party.
18. APPLICABLE LAW AND JURISDICTION.
This Agreement shall be governed by and construed in accordance with
the laws of the State of South Dakota without resort to conflict of law
principles. The parties agree that any legal action by either party against
the other relating to this Agreement or Schedule as contained therein shall
be commenced in a court of competent jurisdiction in the State of South
Dakota.
19. DISPUTE RESOLUTION.
Each company shall designate in writing to the other the following
individuals for the following purposes:
A. Designated Representatives. Each company shall designate one Primary
Representative. These Primary Representatives shall also act as the
designated persons to resolve disputes under Section 20 (B) herein.
B. Senior Officers. Each company shall designate a Senior Officer of the
company, who is not an attorney, who shall serve for the purpose of resolving
disputes under Section 20 (C) herein.
C. Executive Officers. Each company shall designate its Chief Executive
Officer or its Chief Operating Officer who shall serve for the purpose of
resolving disputes under Section 20 (D) herein.
13
<PAGE>
D. Changes in Designation. Each party may change such designated
representatives within the parameters called for hereunder for such
representatives upon the giving of advance written notice to that effect.
20. PROCEDURES FOR HANDLING OF DISPUTES.
All disputes under this Agreement, of any nature whatsoever, shall be
handled in strict accordance with the following procedure, and the parties
agree that legal remedies cannot be resorted to until such time that each
step of this procedure has been followed:
A. A dispute shall be formalized, by the party raising the dispute,
when the issues relating to the dispute are placed in writing and submitted
to the other party with adequate backup material, in the submitting party's
reasonable judgment, to substantiate the dispute and the amount of claim
under the dispute. The submittal in writing shall be delivered to the other
party as required under Section 21 of this Agreement.
B. The dispute shall be handled by resolution by the two designated
Primary Representatives within thirty (30) days from submittal. The parties
must mutually agree to the resolution.
C. Failing resolution under B above, the dispute, including all
supporting documentation and the positions of the parties from step B above,
shall be submitted for resolution to the Senior Officers so designated for
this purpose by each company in Section 19 (B), within thirty (30) days from
submittal. The parties must mutually agree to the resolution.
D. Failing resolution under C above, the dispute, including all
supporting documentation and the positions of the parties under steps B and
C above, shall be submitted for resolution to the respective Chief Executive
Officer or Chief Operating Officer, as has been so designated for this
purpose in Section 19 (C), within thirty (30) days from submittal. The
parties must mutually agree to the resolution.
E. Failing resolution under D above:
All disputes under this Agreement shall be submitted to arbitration
under the rules of the American Arbitration Association ("AAA") with the
location for arbitration to be in the State of South Dakota. The dispute
shall be decided by one neutral arbitrator, to be selected by the parties by
providing to each other a list of three (3) names. If the parties are unable
to initially agree on the arbitrator, the selection process will be as
follows: The parties will submit the initial list of six (6) names to the
AAA. Each party will rank the six (6) names submitted in the order of their
choice. The first time a name in order of ranking on each list is common (the
level of ranking need not be common), that person shall be selected as the
arbitrator. Failing agreement under this procedure, the selection shall be
made by the AAA under its established rules. The parties shall agree on
mutually acceptable procedures and standards for said arbitration including,
but not
14
<PAGE>
limited to: authority of arbitrator respecting discovery and procedures, form
of evidence and/or witness evidence and presentation, submission and/or
hearing procedures, and other such matters; provided, however, that the scope
of the question to be decided by the arbitrator shall be narrowly construed
and shall be limited to the express issue presented, and there shall be no
punitive or exemplary damages allowed to be awarded. In the event the
arbitrator attempts to or does award incidental, exemplary, special,
indirect, consequential or punitive damages in favor of either party, the
jurisdiction of the arbitrator shall be and is hereby automatically
terminated and any decision as to such damages shall be void and of no force
or effect. The party prevailing as to the entire claim shall have its costs
and the other costs of arbitration, including the arbitrator's fees, if any,
paid by the other party, except where neither party prevails entirely, the
arbitrator may apportion such costs in accordance with the disposition of the
matter. The decision of the arbitrator shall be final and binding upon the
parties, except as to the propriety of the scope of the award and
disposition; and provided that the decision of the arbitrator must not be
against public policy, nor may it be arbitrary or capricious, as determined
by whether it is fairly supported by the evidence presented (including the
failure, if any, of either party to comply with the agreed arbitration
procedures), which shall mean that the decision of the arbitrator must be
such that it cannot be said that no reasonable person could reasonably and
logically have reached such result based upon the said evidence.
F. Failure to Act. Failure to take any action on the part of either or
both parties under any step of this procedure for the specified thirty (30)
day period shall automatically move the dispute process to the next step in
the procedure. After having given notice in accordance with A. above for the
first step of this procedure, the completion of the thirty (30) day time
period in each step shall be deemed to constitute notice to initiate the next
step of the procedure.
21. NOTICES.
Notices and other communication under this Agreement will be sent by
certified mail, return receipt requested, addressed to the other party at its
address as follows, provided either party may change its address by written
notice thereof.
Gateway: 610 Gateway Drive
North Sioux City, SD 57049
Attn: Director of Supply Management
with a copy to Gateway Law Department
Supplier: Boston Acoustics, Inc.
Attn: Michael Chass
300 Jubliee Drive
P.O. 6015
Peabody, MA 01961-6015
15
<PAGE>
22. PRODUCTS LIABILITY INDEMNITY.
Supplier shall indemnify, defend and save Gateway harmless from and
against any and all claims, demands, damages, liability, loss, cost, expense
or attorneys' fees which Gateway may incur, suffer or be required to pay
arising from damage to property, or bodily injury to or death of any person
arising out of or resulting from any defect in design, material, manufacture
or performance of the Product.
23. USE OF SUPPLIER DOCUMENTS.
Supplier further grants Gateway the right to modify, reproduce,
publish, and sell the Product documentation and to use internally the (1)
instruction/user manuals, including portions of supplier's manuals or product
information in Gateway's manuals, data sheets, faxable materials, training
materials, brochures, catalogs--any printed material Gateway creates.
Supplier grants Gateway the right to distribute and transmit in electronic
form, including CD-ROM, disk, preload, FAX, video tape, through the Bulletin
Board Service or telephone line; (2) packaging copy and artwork, as a
component of the Product, provided that Gateway's modifications shall not
render the Product documentation incomplete or inaccurate. Gateway shall have
the right to continue using the documentation after the term of this
Agreement for limited use to support Products in the field.
24. USE OF GATEWAY TRADEMARKS.
A. If Gateway requires its Trademark(s) to be affixed to the Product or
its packaging, then Supplier shall have the right to affix the Trademark(s)
attached hereto as Exhibit J only to Product and its associated packaging as
are being purchased by Gateway from Supplier. Supplier may not use or
reproduce the Trademark(s) in any manner whatsoever other than as expressly
described in the Specifications. Supplier agrees and acknowledges that
Gateway retains all right, title and interest in the Trademark(s). Except as
expressly granted in this Agreement, Supplier shall have no rights in the
Trademark(s). From and after termination or expiration of this Agreement,
Supplier shall cease and desist from all use of the Trademark(s). Within
thirty (30) days after termination or expiration of this Agreement, Supplier
shall submit to Gateway an affidavit stating that Supplier has ceased its use
of the Trademark(s). Supplier acknowledges that breach by Supplier of this
paragraph may cause irreparable damage which cannot be remedied in monetary
damages in an action at law, and may also constitute infringement of the
Trademark(s). In the event of any breach that could cause irreparable harm to
Gateway, or cause some impairment or dilution of its reputation or
Trademark(s), Gateway shall be entitled to an immediate injunction, in
addition to any other legal or equitable remedies. Supplier agrees that in
any action by Gateway for enforcement of this paragraph, Supplier shall not
contest the validity or ownership of the Trademark(s).
16
<PAGE>
B. It is acknowledged and agreed that the Supplier's name "Boston
Acoustics" and other appropriate licensed Trademark(s) of the Supplier and as
identified by the Supplier, will be affixed to the Product and its packaging.
Gateway may not use or reproduce the Supplier's Trademark(s) in any manner
other than as expressly approved by Supplier. Gateway agrees and acknowledges
that Supplier retains all right, title and interest in the Supplier's
Trademark(s). Except as expressly granted in this Agreement, Gateway shall
have no rights in the Supplier's Trademark(s). From and after termination or
expiration of this Agreement, Gateway shall cease and desist from all use of
the Supplier's Trademark(s). Upon the written request of Supplier, after
termination or expiration of this Agreement, Gateway will submit to Supplier
an Affidavit stating that Gateway has ceased its use of the Supplier's
Trademark(s). Gateway acknowledges that breach by Gateway of this paragraph
may cause irreparable damage which cannot be remedied in monetary damages in
an action at law, and may also constitute an infringement of Supplier's
Trademark(s). In the event of any breach that could cause irreparable harm to
Supplier, or cause some impairment or dilution of its reputation or of its
Trademark(s), Supplier shall be entitled to an immediate injunction, in
addition to any other legal or equitable remedies. Gateway agrees that in any
action by Supplier for enforcement of this paragraph, Gateway shall not
contest the validity or ownership of the Supplier's Trademark(s).
Notwithstanding the foregoing, in the event of a termination or expiration of
this Agreement, Gateway shall be entitled to a contiued use of the Supplier's
Trademark(s) to the extent the same are affixed to remaining Product owned by
Gateway or any packaging relating thereto.
25. U.S. EXPORT CONTROLS
Supplier refers to the U.S. Export Administration Regulations
("EAR") and the Commerce Control List therein. Supplier agrees that it will
not reexport any technical data or software programs received from Gateway or
any direct products thereof without first obtaining the permission of the
U.S. Department of Commerce or State, either in writing or as provided by an
applicable regulation. Such permission is required in addition to any
authorization required to be obtained from Gateway. Supplier agrees that it
shall not use or transfer without U.S. Government permission U.S. Origin
products, technology, or software of any type if Supplier knows that the
products, technology, or software will be used in the design, development,
production, or use of missiles, chemical or biological weapons, or sensitive
nuclear end uses in certain specific countries of concern designated from
time to time by the Commerce Department in Part 778 of the U.S. Export
Administration Regulations, as amended from time to time. This requirement
shall survive the term or termination of this contract.
Supplier certifies that the Products, which are the subject of
this Agreement, are not subject to the International Traffic and Arms
Regulation (ITAR) set forth at 22 C.F.R., Sections 120, et.seq.
17
<PAGE>
26. FEDERAL ACQUISITION REGULATIONS
Contract clauses from the Federal Acquisition Regulations ("FAR")
(48 C.F.R. Chapter 1) are attached hereto as Exhibit K, incorporated herein
by reference and shall have the same force and effect as if set forth in full
text. In all of the attached clauses, "Contractor" and "Offeror" shall mean
Supplier. The clauses are those in effect as of the date of this Agreement.
27. REGULATORY COMPLIANCE
Supplier shall obtain regulatory compliance approval as
referenced in Exhibit F.
28. GENERAL
A. All rights and remedies, whether conferred hereunder, or by any
other instrument or law will be cumulative and may be exercised singularly or
concurrently. Failure by either party to enforce any term will not be deemed a
waiver of future enforcement of that or any other term. The terms and
conditions stated herein are declared to be severable.
B. Neither party may assign or delegate any rights hereunder
without the prior written approval of the other party and any attempt to
assign any rights, duties or obligations hereunder without the other party's
written consent will be void.
C. These terms and conditions constitute the entire agreement
between the parties with respect to the subject matter hereof. Those terms
and conditions will prevail notwithstanding any different, conflicting or
additional terms and conditions which may appear on any order submitted by
Gateway.
D. It is understood that neither party is constituted an agent,
employee or servant of the other for any purpose whatsoever. Each party shall
conduct its business in its own name and shall be solely responsible for its
acts, conduct and expenses and the acts, conduct and expenses of its
employees and agents.
E. Each party acknowledges that the other party's employees are
critical to the servicing of its customers. Each party agrees not to employ
or otherwise engage the other party's employees for a period of one (1) year
following any employee's involvement in the performance of this Agreement.
Should a party violate this provision, the hiring party will pay the other
party the former employee's annual salary.
F. Neither party shall publicly announce or disclose the
existence of this Agreement or its terms and conditions or advertise or
release any publicity regarding this Agreement without the prior written
consent of the other party. This provision shall survive termination of this
Agreement.
G. Supplier will provide to Gateway a list of those persons
who license to Supplier intellectual property used by Supplier under this
Agreement. Supplier will update
18
<PAGE>
this list by written notice to Gateway, as soon as practicable and as
required during the term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement as of the date and year written below.
GATEWAY 2000, INC. BOSTON ACOUSTICS, INC.
By:/s/ William M. Elliott By:/s/ Andrew G. Kotsatos
---------------------------- ----------------------------
William M. Elliott
Title: Sr. Vice President and Title: CEO
------------------------- ------------------------
General Counsel
Date: March 27, 1997 Date: March 27, 1997
------------------------- -------------------------
19
<PAGE>
EXHIBIT A
Product, Packaging and Performance Specifications
Specifications
Signature by each party hereon confirms that the specifications provided
by Gateway are for the Product to be purchased under this Agreement and that
both parties have received a complete set of the specifications.
GATEWAY 2000, INC. BOSTON ACOUSTICS, INC.
By: /s/William M. Elliott By: /s/Andrew G. Kotsatso
--------------------- ---------------------
William M. Elliott
Title: Sr. Vice President and Title: CEO
------------------- -------------------
General Counsel
Date: March 27, 1997 Date: March 27, 1997
------------------- ------------------
20
<PAGE>
GATEWAY 2000 STANDARD PRACTICE FOR PERFORMANCE TESTING
OF SHIPPING CONTAINERS AND SYSTEMS
The following ASTM based Pre-Shipment Test Procedure applies to GATEWAY 2000
products as appropriate. When required, supplier should submit 5 samples to
Gateway 2000 for internal testing. Additionally supplier should perform
testing on 5 samples and submit test results to Gateway 2000 for comparison.
All packaging must comply with this Gateway 2000 standard based on ASTM
standards volume 15.09 D 4169 (Assurance Level I) as follows:
This specification is broken into two categories Individual shipments Section
1 Element A and Bulk shipments Section 2 Element B. Gateway 2000 will
determine the appropriate level of testing and timing for those tests
depending on commodity type.
1 ELEMENT A-- INDIVIDUAL PACKAGING SHIPPING REQUIREMENTS.
1.1 ROTARY VIBRATION TEST.
The test levels and the test method for this element of the
distribution cycle are intended to determine the ability of the
shipping unit to withstand the repetitive shocks occurring during
transportation of bulk or loose loads. The test levels are listed
below.
1.1.2 The unit will be placed on a Rotary Vibration table and
tested at approximately 4Hz or enough room to allow a 16 mil shim
under the unit as it is being tested. The unit will be test on one
side for 30 minutes then turned over and placed on the bottom for
30 minutes not to exceed a total of 60 minutes.
1.1.3 All units must be functional and have no visual damage
prior to and after the Rotary Vibration Test.
1.2 DROP TEST
The test levels and the test method for this element of the
distribution cycle are intended to determine the ability of the
shipping unit to withstand the hazards occurring during manual
handling such as loading, unloading, stacking, sorting, or
palletizing. The main hazards from these operations are the impacts
caused by dropping or throwing. Size, weight, and shape of the
shipping unit will affect the intensity of these hazards. There
will be two tests for this Element an Instrumented and
Uninstrumented Drop test.
1.2.1 INSTRUMENTED DROP TEST
This test must be performed after the Uninstrumented Drop test.
This test will be an instrumented drop test at 30" on the
six flat sides.
The instrument shall be placed inside the Desk top System units
and shall verify protection against a force greater than 40g +/-
10%.
The instrument shall be placed inside the Portable System units and
shall verify protection against a force greater than 70g +/- 5%.
The instrument shall be placed on the front face of the CRT and
shall verify protection against a force greater than 40g +/- 10%.
All other units will be specified by Gateway 2000.
1.2.2 All units must be functional and have no visual damage
prior to and after the Instrumented Drop Test.
1.2.3 UNINSTRUMENTED DROP TEST
Presented below are the recommended drop heights, the
number of drops, and the shipping unit orientation at impact:
<PAGE>
Number of drops
at Specified Height *
Impact Surface Uninstrumented
One Flat on Top.
One Flat on Smallest side.
One Flat on opposite Smallest side.
One Flat on Largest side .
One Flat on opposite Largest side.
One Bottom Manufacturer's joint corner.
One Shortest edge from that corner.
One Next Longest Edge from that corner.
One Longest Edge from that corner.
*One Flat on Bottom
* On the last handling operation of a distribution cycle, the bottom drop
shall be made at a greater specified height, this is considered a
destructive drop. The last drop is to verify the condition of the box and the
packaging and note if the unit is functional. This drop will not constitute a
failure.
1.2.4 Use the following test levels:
Drop Height Last Drop Height Type
Product inches inches Uninstrumented
14" and 15" Monitor 30 36
17" Monitor 30 36
20" and 21" Monitor 30 36
31" Monitor 18 21
Desk Top System 30 48
Portable System 30 48
Peripherals 30 48
Piece Parts 30 48
1.2.5 All units must be functional and have no visual damage prior to
the last drop of the test.
2 ELEMENT B-- BULK PACKAGING SHIPPING REQUIREMENTS
2.1 WAREHOUSE STACKING AND VEHICLE STACKING
The test levels and the test methods for these elements of a
distribution cycle are intended to determine the ability of the shipping unit
to withstand the compressive loads that occur during vehicle transport or
during warehousing. The required loading must consider, in addition to the
overload, the effects of length of time in storage, vibration, the alignment
or stacking pattern of the container, variability in container strength,
moisture content, temperature, previous handling, and method of load support.
The minimum required loads for typical shipping units which include the
combined effects of the above factors are recommended below:
Conditioning-- 73.4 + or - 1.8 d F (23 + or - 1 d C), 50 + or - 2%
relative humidity in accordance with Practice D 4332
2.1.1 Use the following test levels:
F Factors Assurance
Level 1
1. Shipping Unit Construction
Corrugated, fiberboard, or plastic container 8.0
<PAGE>
that may or may not have stress-bearing
interior packaging using these materials,
and where the product does not support
any of the load.
2. Corrugated, fiberboard, or plastic container 4.5
that has stress-bearing interior packaging
with rigid inserts such as wood.
3. Containers constructed of materials other 3.0
corrugated, fiberboard, or plastic that
are not temperature or humidity sensitive
or where the product supports the load
directly, for example, compression package.
4. If the product supports a known portion of
the load, the F factor is calculated in the
following manner: F = P(FP) + C(FMC)
WHERE:
FP = FACTOR GIVEN ABOVE FOR COMPRESSION PACKAGE (CONSTRUCTION TYPE 3),
P = PERCENTAGE OF LOAD SUPPORTED BY PRODUCT,
FMC = FACTOR GIVEN ABOVE FOR APPROPRIATE CONTAINER CONSTRUCTION, AND
C = PERCENTAGE OF LOAD SUPPORTED BY CONTAINER.
If a full pallet load is tested, F factors may be reduced by 30%.
2.1.2 Load the shipping unit to the maximum load value, as calculated
below. Remove the load immediately after reaching the specified value.
L = W(H-h) x F
---
h
WHERE:
L = MINIMUM REQUIRED LOAD, LB. OR N.
W = WEIGHT OF ONE SHIPPING UNIT OR INDIVIDUAL CONTAINER, OR LB. OR N.
H = MAXIMUM HEIGHT OF STACK IN STORAGE OR TRANSIT VEHICLE, IN. OR M.
h = HEIGHT OF SHIPPING UNIT OR INDIVIDUAL CONTAINER, IN. OR M. AND
F = A FACTOR TO ACCOUNT FOR THE COMBINED EFFECT OF THE INDIVIDUAL
FACTORS DESCRIBED ABOVE.
2.2 Truck and rail transport stacked or unitized load:
The test levels and test method for this element of the
distribution cycle are intended to determine the ability of stacked or
unitized shipping units to withstand the vertical vibration environment
during transport. The test levels and method account for the magnitude,
frequency range, duration, and direction of vibration.
Condition--See SECTION 6**
Special instructions - Perform the test along the vertical axis with
the load in normal shipping orientation. Dwell time is for
each noted product or package resonance up to four discrete
resonance's. If more than four resonance's are noted, test
at the four frequencies where the greatest response is noted.
It is permissible to use a concentrated dead load to simulate
an upper pallet load. In frequency sweeps it is advisable to
consider the frequency ranges normally encountered in the
type of transportation being considered. The resonant
frequency(ies) may shift during test due to changing
characteristics of the container system. It is suggested
that the resonant frequency be varied slightly during the
test to detect any shift and to continue testing at the
frequency of maximum response.
2.2.1 Use the following test levels:
Amplitude Dwell
Assurance (O-Peak).g Time.
Level Frequency Range, Hz Rail Truck min
I 3 to 100 0.25 0.5 15
<PAGE>
2.3 Loose load vibration:
The test levels and the test method for this element of the
distribution cycle are intended to determine the ability of the shipping unit
to withstand the repetitive shocks occurring during transportation of bulk or
loose loads. The test levels and test method account for amplitude,
direction, and duration of the repetitive shocks.
Conditioning--See SECTION 6**
Special instructions--Dwell time distributed 50% along normal
vertical shipping axis and remaining 50% evenly along all
other possible shipping orientations.
Use the following test levels:
Assurance Level Dwell Time min
I 60
2.4 Vehicle vibration:
The test levels and the test method for this element of the
distribution cycle are intended to determine the ability of the shipping unit
to withstand the vertical vibrations environment during transportation. The
test levels and test method account for the frequency range, amplitude, sweep
rate, dwell time for resonance's, and direction of vibration.
Conditioning--See SECTION 6**
Special instructions--Perform the test for each possible shipping
orientation. Dwell time for each noted package or product
resonance up to four discrete resonance's. Test at the four
frequencies where the greatest response is noted. In frequency
sweeps it is advisable to consider the frequency ranges
normally encountered in the type of transportation being
considered.
Use the following test levels:
Sweep and Swell Amplitude Dwell
Assurance (O-Peak), g Time,
Level Frequency Range, Hz Rail Truck min
I 3 to 100 0.25 0.5 15
2.5 Climate, Atmospheric Condition:
The levels of atmospheric conditioning for this element are intended
to provide the minim preconditioning necessary to expose the shipping unit to
an atmospheric hazard that may affect performance in distribution. The user
is cautioned to determine if climate hazards other than those given exist,
or if additional conditioning is necessary between other elements of a
distribution cycle. It should be noted that different atmospheric conditions
are likely to exist between the origin and the destination points of a
distribution cycle, particularly for export/import cycles.
Special instructions--The user may select the Standard Conditioning
Atmosphere of 23 D C and 50% relative humidity or any of the
special standard atmospheres as appropriate. The same
atmospheric condition should be used for any assurance
level. A conditioning period of 72 h, or sufficient time to
reach equilibrium of all parts of the package and product is
recommended.
Tests should be conducted in the conditioned atmosphere
whenever possible. If not possible, test for one hazard
element immediately after removal from the conditioned
atmosphere and then immediately return to reconditioning
before testing the next hazard element. For atmosphere other
than the Standard Conditioning Atmosphere, the user must
determine the appropriate compressive load factor for
Elements C and D, as the factors given there are based on
testing under the Standard test atmosphere.
**SECTION 6**
<PAGE>
6.1 If the distribution cycle contains climatic conditions that have an
effect on the performance characteristics of the product, shipping container,
or components such as cushioning, use one of the following procedures:
6.1.1 Conduct the test at standard conditions and compensate for the
effects of any climatic condition. Condition the shipping units to a standard
atmosphere of 73.4 +or- 2% relative humidity. If testing cannot be conducted at
the standard condition, conduct the tests as soon after removal from the
conditioning chamber as practicable. Recondition the shipping units to the
standard atmosphere as necessary during the test plan.
6.1.2 Condition the shipping units to the climatic conditions (salt spray,
water immersion, humidity, or temperature) and conduct the tests at desired
conditions as soon after removal from the conditioning chamber as
practicable. Recondition the shipping units as necessary. If testing at
desired conditions is impossible, conditions at time of test shall be
recorded and reported.
6.1.3 In some circumstances, it may be necessary to conduct some or all
of the tests at special climatic conditions.
<PAGE>
EXHIBIT B
Pricing
Product Price Effective Date
- ------- ----- --------------
Boston Acoustics Micro Media * Current
<PAGE>
EXHIBIT C
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------
[LOGO] PURCHASE ORDER Rev.#:
------------------------------ Date:
Orig. PO Date:
BILL TO: P.O. Box 2000 Ship To: Supplier #: Order Type:
610 Gateway Drive Branch:
No. Sioux City, SD 57049 USA Ship Via:
605/232-2615(FAX) Terms:
605/232-2000 (International and Local) Delivery Instructions: Contact:
PH: FAX:
- -------------------------------------------------------------------------------------------------------------
Item Quantity U Item Number Description Reg Del. Unit Cost Extended Cost
No. M Date U.S. Currency U.S. Currency
- --------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
A Supplier Acknowledgment Date This Purchase Order is subject to Total U.S. Dollars:
P the Standard Terms and Conditions
P ------- ---------------------- ----- and U.S. Government Contracts ------------------
R ------- NOTE: Clauses attached hereto.
O ------- P.O. Number must appear on all invoices. Page No: Curr. Code:
V
A
L
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT D
Gateway 2000, Inc.
Supplier Routing Guide
1. Shipments to Gateway 2000, North Sioux City
1a. Gateway 2000, Inc.
610 Gateway Drive
North Sioux City, South Dakota 57049
Contact: Mr. Dave Davison
Tel: 605-232-2852
Fax: 605-232-2265
1b. Gateway 2000, Inc.
2000 Gateway Boulevard
Hampton, VA 23666
Contact: Mr. Dave Davison
Tel: 605-232-2852
Fax: 605-232-2265
All shipments dispatched FOB to this destination must be initially
coordinated with Mr. Davison in advance of shipment dispatch.
2. Gateway 2000 Pty Ltd.
2a. Gateway 2000 Pty Ltd.
6-10 Talavera Road
North Ryde, SYDNEY NSW 2113
Australia
Contact: Mr. Phil Raff
Tel: 011-612-844-8608
Fax: 011-612-844-8484
All shipments dispatched FOB to this destination must be initially
coordinated with Mr. Phil Raff in advance of shipment dispatch.
23
<PAGE>
3. Gateway 2000 Ireland Ltd.
3a. Gateway 2000 Ireland, Ltd.
Clonshaugh Industrial Estate
Dublin 17 Ireland
Contact: Mr. Jim O'Dea
Tel: 011-353-1-797-2000
Fax: 011-353-1-787-2036
All shipments dispatched FOB to this destination must be initially
coordinated with Mr. Jim O'Dea in advance of shipment dispatch.
4. Gateway 2000 Japan
4a. Gateway 2000 Japan
Ohmori Branch
C-To 2nd Floor
Heiwajima 1 Chome 2-20
143 Tokyo-To, Ohta-Ku Japan
Contact: Mr. Abe
Tel: 011-81-3-5493-3751
Fax: 011-81-3-5493-3760
All shipments dispatched FOB to this destination must be initially
coordinated with Mr. Abe in advance of shipment dispatch.
5. Gateway 2000 Malaysia
5a. Gateway 2000 Malaysia
No. 1 Jalan TTC 32, Taman Technology Cheng, Cheng
75250 Melaka, Malaysia
Contact: Mrs. Charlotte Leong
Tel: 011-06-236-2000
Fax: 011-06-237-2000
All shipments dispatched FOB to this destination must be initially
coordinated with Mrs. Charlotte Leong in advance of shipment dispatch.
24
<PAGE>
EXHIBIT D-1
Center for Production Replenishment Procedure
This Center for Production Replenishment (CPR) procedure outlines the manner in
which Supplier shall respond to forecasts and purchase orders issued by
Gateway.
This procedure supplements the terms and conditions of the Agreement to which
it is a part between Gateway and Supplier for the purchase and sale of
Products.
1. On a weekly basis, Gateway shall provide to Supplier a thirteen (13)
week rolling forecast indicating both model numbers and associated quantities
of Product. The forecast shall set forth Gateway's required deliveries of
Product for each week for the first eight (8) weeks of the forecast. The
balance of Gateway's requirements may be indicated in monthly quantities.
2. Promptly upon agreement with the provisions of this procedure and
thirty (30) days prior to the first day of each calendar quarter commencing
thereafter, Gateway agrees to provide to Supplier a blanket purchase order to
permit Supplier to respond to the "pull signals" set forth in Article 5
below. The quantities and dollar amounts set forth in such blanket purchase
order must be equal to or greater than the quantities and the value of the
quantities contained in Gateway's rolling thirteen (13) week forecast last
submitted to Supplier prior to Gateway's issuance of the purchase order.
Gateway is responsible for ensuring that there remains sufficient value on
the blanket purchase order to cover the value of all Product pulled; if the
value of the Product so pulled is greater than the value remaining on the
blanket purchase order, Supplier will withhold shipment and notify Gateway.
Gateway may at any time issue additional blanket purchase orders to increase
the quantities of Product that may be pulled as provided herein, consistent
with the rolling forecasts provided to and acknowledged by Supplier.
3. Supplier shipments shall be delivered to a designated CPR in North
Sioux City, South Dakota, or directly to a Gateway 2000 manufacturing site
(see Exhibit D) as prescribed by Gateway 2000, in quantities consistent with
Gateway's forecast. Supplier, however, will deliver Product in quantities
consistent with Supplier's standard pallet quantities.
4. Transportation of Product will be in accordance with the following:
4.1 If Gateway is responsible for selecting the carriers used to ship
Product from Supplier's shipping point to the CPR, Gateway shall be
responsible for all shipping costs including insurance and risk of loss of
the Product shall be assumed by Gateway in an amount equal to the actual cash
value of the Product; and
4.2 If Supplier is responsible for selecting the carriers used to
ship Product from Supplier's shipping point to the CPR, Product will be
shipped FOB destination,
25
<PAGE>
freight prepaid and charged back to Gateway according to Section 6, Title and
Delivery. Insurance and risk of loss shall be assumed by Supplier.
5. On a frequency determined by the rate at which Gateway consumes
Product, Gateway's manufacturing site will transmit a pull signal by
facsimile or other agreed upon means to communicate to the CPR indicating the
model numbers (part numbers) and quantity of Product required. The sole
responsibility for transmitting timely pull signals rests entirely with
Gateway. Gateway understands and agrees that the transmission of a pull
signal is authorization for the CPR operator to ship Product to Gateway and
for Supplier to invoice Gateway against the blanket purchase order for the
models and quantities set forth in the transmission.
6. Supplier agrees that there shall be available to Gateway at least ten
(10) days of inventory as established by the quantities set forth in Gateway's
then-current forecast, unless other amounts are mutually agreed to in writing.
7. Within 15 days of receipt of notice of additional quantities from
Gateway, Supplier agrees to expend its best efforts to comply with Gateway's
request. If such additional quantities result in a change in Supplier's
costs or in the time for performance, an adjustment in price and time for
performance will be made by the parties in writing.
8. Gateway shall have no liability for any Product held by Supplier or the
CPR operator in anticipation of Gateway's transmission of a pull signal.
9. If, for any consecutive four (4) week period, Gateway's purchase
quantities are less than the quantities held by Supplier consistent with the
forecasts submitted by Gateway in anticipation of orders, Supplier reserves
the right to direct the quantities represented by the difference to other
accounts and shall have no liability to Gateway for such diverted quantities.
26
<PAGE>
EXHIBIT E
Supplier Engineering Change Requests
(attached)
<PAGE>
GATEWAY 2000
SUPPLIER ENGINEERING CHANGE REQUEST
<TABLE>
<S> <C>
Date Requested: _____________
CHANGE TYPE
To: Supplier Quality / / N. Sioux City, SD, USA Fax (605) 232-2258 (SEE BACK FOR DETAILS)
/ / Singapore, Singapore Fax 65-334-6388 / / Class 1
/ / Class 2
Form: ___________________________ Fax ___________________________ / / Class 3
___________________________ / / Class 4
___________________________ Phone ___________________________
- --------------------------------------------------------------------------------------------------
ACKNOWLEDGMENT RECEIPT ONLY - DO NOT IMPLEMENT UNTIL NOTICE OF APPROVAL AND
REVISED PURCHASE ORDERS ARE RECEIVED
Date: ______________________ SECR Tracking #: ____________________
Signed: ______________________ Fax: ____________________
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Supplier Part # Gateway 2000 Part # Description Compatibility/
(if known) Interchangeability
(Yes / No)
- --------------------------------------------------------------------------------------------------
Current Forward?
- --------------------------------------------------------------------------------------------------
New Backward?
(if changing)
- --------------------------------------------------------------------------------------------------
Assy-Rev: From: To: Fab Rev: From: To:
- --------------------------------------------------------------------------------------------------
Board Rev: From: To: FW Rev: From: To:
- --------------------------------------------------------------------------------------------------
BIOS Rev: From: To 8W Download: From To:
- --------------------------------------------------------------------------------------------------
Utilities: From: To:
Drivers:
- --------------------------------------------------------------------------------------------------
Test Performed: Comments:
- --------------------------------------------------------------------------------------------------
LIST ALL TESTS PERFORMED: CONSIDER ALL TESTS RELEVANT TO VALIDATING THE CHANGE, E.G.: REGULATORY,
SAFETY, COMPATIBILITY, RELIABILITY, SHIPPING, FUNCTIONALITY, ETC. ATTACH EXTRA SHEETS IF NECESSARY
- --------------------------------------------------------------------------------------------------
1. Passed? / / Attach results
- --------------------------------------------------------------------------------------------------
2. Passed? / / Attach results
- --------------------------------------------------------------------------------------------------
3. Passed? / / Attach results
- --------------------------------------------------------------------------------------------------
Proposed Effectivity Date:
Reason for Change:
Detailed Description of Change being Requested:
(Drawing may be attached)
Benefit of Change to Gateway 2000:
- --------------------------------------------------------------------------------------------------
REJECTED. REASON:
1.
2.
- --------------------------------------------------------------------------------------------------
* Submittal of this form does not constitute Gateway 2000 approval of this request.
--------
* No revisions may be incorporated to product purchased by Gateway 2000 without:
1) The Supplier receiving back a Gateway 2000 "ECO Notice of Approval",
and
2) An updated Purchase Order
Gateway 2000 CONFIDENTIAL Form #30631401.000
</TABLE>
<PAGE>
GATEWAY 2000 ENGINEERING CHANGE ORDER
NOTICE OF APPROVAL TO SUPPLIER
- DOES NOT AUTHORIZE SHIPMENT -
TO: _______________________________ Fax _______________________________
_______________________________
_______________________________ Phone _______________________________
FROM: Supplier Quality / / N. Sioux City, SD, USA Fax (605) 232-2258
/ / Singapore, Singapore Fax 65-334-6388
Change Incorporates Supplier Engineering Change Request #s: ________________.
ECO# Date,
The following change was approved on ECO _________ on _________. Implementation
will be scheduled by Regional Purchasing groups on Gateway Purchase Orders.
- Current Gateway 2000 Part Number: __________________________
- Current Supplier Part Number: __________________________
This change: / / will not change the Gateway 2000 part number.
/ / will not change the supplier part number/revision level.
/ / will change the Gateway 2000 part number to __________________
/ / will change the supplier part number/revision level to_______.
Additiona comments:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please contact _______________________ with any questions at ___________________
Gateway 2000 CONFIDENTIAL Form #30631401.000
<PAGE>
GATEWAY 2000
SUPPLIER ENGINEERING REQUEST
--- ADDITIONAL INFORMATION ---
Class Definitions:
Class 1 Emergency - Safety or Regulatory related change.
Class 2 Urgent - Material lead time issue or problem resolution related
change. Major Cost Reduction.
Class 3 General Phase-In Related Changes
Class 4 Other
Contact Persons:
LOCATION PERSON PHONE
-------- ------ -----
North Sioux City, SD Matt Merk (605) 232-1620
Singapore K.H. Teh 65-434-7151
Gateway 2000 CONFIDENTIAL Form #30631401.000
<PAGE>
<TABLE>
<CAPTION>
SUPPLIER ECR PROCESS - COMMUNICATIONS AND TRACKING
<S> <C> <C>
Engineering requests
change to existing part-----------
|
|
|-------(If Gateway requests Change)
| |
| |
Corrective Action | Supplier submits SECR to NSC or---------------------------------------------
Request due to-------------------- Singapore Supplier Quality Group------------------------------- |
Quality problem | | |
(SQE) SQE: | |
- Checks SECR for completeness | |
- Assigns a Control # Acknowledgement |
- Creates database record and Receipt sent to |
Supplier Quality - (Singapore) forward information to------------------------Supplier |
NSC Supplier Quality |
- Fowards SECR to Product Team |
- Inform Regional Materials/Purchasing --------------
- Monitors progress. |
| | |
| ----------Return to SQE for |
SECR Supplier Notification |
necessary or | | |
1 worthwhile to--------No | |
Product Team pursue? | |
| | |
Yes | |
| | |
Engineering Testing and Verification | |
| | |
Engineering Testing | | |
| | |
Change/ | |
2 Revision perform as | |
expected?-----------------No |
| |
Yes |
| |
Internal SECR/ECR Approval Process |
| |
SQE: |
- Log SECR Approval Information SECR Notice of
- Forward to Singapore (if needed)--------------------Approval letter to
- Notify Supplier and Regional Supplier
Materials/Purchasing -Database Output-
Supplier Quality - Schedule follow-up Audit
|
Regional Purchasing to revise or issue
new Purchase Orders to determine
when material is to ship.
</TABLE>
<PAGE>
EXHIBIT F
REGULATORY PROCEDURAL REQUIREMENTS
1) It is the responsibility of the vendor to provide Gateway 2000 with a
product that meets the applicable regulatory requirements when placed in
or combined with current Gateway 2000 personal computer systems.
2) All regulatory standards that pertain to radiated emissions will be
measured at 10 meters. This will apply unless a regulatory standard
specifically calls out another distance and then only with written
acknowledgment for the Gateway 2000 Compliance department.
3) All products will permit Gateway 2000 systems to pass CISPR 22/EN 55022
Class B by a 4 dB margin when installed in or with current Gateway 2000
personal computer systems whether that configuration is to be sold world
wide or not.
4) Compliance work that is to be conducted on a product by Gateway will
be done at a test house that is specified by the Compliance Department of
Gateway 2000.
5) The complete documentation and data supporting the regulatory
certifications that a vendor has obtained for their product are to be
submitted with the first prototypes or test samples to the Gateway 2000
Compliance Engineering Department. This applies to all products whether
they are new products or products that are undergoing ECN's (Engineering
Change Notices).
6) Any initial regulatory testing that Gateway conducts on a component
prior to it being shipped in or with Gateway 2000 systems for the first
time any where in the world will be the expense of Gateway 2000. If a
component fails this initial testing it will be the responsibility of the
Vendor to remedy the situation. Any regulatory testing after the initial
regulatory test which may be necessary to get a failing component to pass
the regulatory requirements of Gateway 2000 will be at the expense of the
Vendor. After the Vendor makes the necessary adjustments to their
component to get it to pass, the components will then be retested at a
Gateway 2000 appointed test lab.
7) All products that Gateway 2000 sells can and will be periodically
audited while configured in or with complete systems to ensure continued
compliance with the relevant regulations. These audits (first test)
will be conducted at a Gateway 2000 appointed test lab. When and/or if a
given system is found to be non-compliant, the Compliance department or
the appointed test lab will locate the source of the offending emission
and the component that is responsible for producing it. At that time,
the Vendor of that component will be notified that their product is no
longer compliant and will, at their expense, remedy the situation. The
fact that a given component has been repaired will be demonstrated in a
follow up test (second test) at a Gateway 2000 appointed test lab. Upon
successfully passing this second test this component will then be audited
on a more frequent basis over the course of the next four months. If the
component does not pass this test (second test) the vendor will again be
notified and expected to remedy the situation. Any subsequent testing
(after
28
<PAGE>
second test) to demonstrate compliance in or with Gateway systems will be at
the expense of the Vendor. This phase of testing (second test) will be
repeated until the component is again found to be compliant in or with
Gateway 2000 computer systems.
CAUTION: The data contained herein is current as of June 12, 1996. Any
changes in the countries that Gateway 2000 may begin to market into in the
future are not reflected in the contents of this document. The regulations
that are listed herein apply to the following countries: United States,
Canada, European Community, Japan, Australia, New Zealand and Mexico. It is
suggested that if you have a components that is not listed herein that you
contact that Compliance/Engineering Department for a list of applicable
regulations before the testing and evaluation process is scheduled to take
place. Likewise, if Gateway begins to market into a country that is not
listed above contact the Compliance Engineering department for assistance in
compiling the regulations that are applicable in that country for your
particular component. The Compliance/Engineering department reserves the
right to change the above requirements at any time.
Although VCCI Class 2 ITE is listed for each component type listed herein,
this set of regulations applies at the system level. That means that each
time a different component is added to a system configuration the entire
system must be re-tested to meet the standards.
External Speaker Kit Compliance Specifications
The Electromagnetic Compatibility and Safety regulations/standards outlined
below are to be adhered to by every External Speakers that Gateway purchases
with the intent of being added to any of the personal computer systems that
Gateway currently sells or intends to sell in the future.
- All External Speaker kits will allow any Gateway system to pass the
following EMC Regulations, by the margins stated as applicable.
- External Speaker kits will not degrade the EMC attributes of any Gateway
system.
EMC REQUIREMENTS
*
1 FCC Part 15 Digital Computing and Radio
Class B Frequency Devices
2 CE Mark
EN 50081-1 Electromagnetic Compatibility -
Generic Emission Standard, Part 1 -
Residential, Commercial and Light Industry
29
<PAGE>
EN 55022: 1995 Limits and Methods of Measurements of Radio
Class B Interference Characteristics of Information
Technology Equipment
EN 61000-3-2: 1995 Limits for Harmonic Currents Emissions
(Equipment input current < 16 A per Phase)
EN 61000-3-3: 1995 Voltage Fluctuations (Equipment input current < 16
A per phase)
EN 50082-1: 1992 Electromagnetic Compatibility Generic Immunity
Standard; Part 1: Residential, Commercial and
Light Industry
EN 6100-4-2: 1995 Electromagnetic Compatibility Part 4: Testing and
Measurement Techniques, Section 2: Electrostatic
Discharge Immunity Test - Test Level 4
ENV 50140: 1994 Electromagnetic Compatibility for Industrial Process
Measurement and Control Equipment, Part 3: Radiated
Electromagnetic Field Requirements
EN 61000-4-4: 1995 Electromagnetic Compatibility Part 4: Testing and
Measurement Techniques, Section 4: Electrical fast
transient/burst Immunity Test
3 VCCI Voluntary Control Council for Interference by
Class 2 ITE Information Technology Equipment
4 AS/NZS 3548: 1992 Electromagnetic Interference - Limits and Methods
of Measurement of Information Technology Equipment
4 AS/NZS 3548: 1992 Electromagnetic Interference - Limits and Methods of
Measurement of Information Technology Equipment
- - All radiated emissions testing will be conducted to CISPR 22 limits minus 4
dB conducted at 10 meters in compliance with ANSI C63.4.
- All conducted emissions testing will be conducted to CISPR 22 limits
minus 4 dB in accordance with ANSI C 63.4 requirements.
SAFETY REQUIREMENTS
*
1 UL 1950 Safety for Information Technology Equipment
2 CSA C22.2 No. 950 Information Processing and Business Equipment
or
30
<PAGE>
cUL issued by UL based on the jointly issued Third
Edition of C22.2 No. 950/UL 1950
3 CE Mark Safety of Information Technology Equipment,
EN 60950 including Electrical Business Equipment
4 CB Scheme Safety of Information Technology Equipment,
IEC 950 including Electrical Business Equipment
- With country specific deviations for Chez
Republic, China, Hungary, Iceland, India, Israel,
Japan, Republic of Korea, Norway, Poland, Russian
Federation, Singapore, Slovenia, Switzerland,
Yugoslavia.
5 Dentori Japanese Safety Standards
T Mark
6 AS/NZS 3260: 1993 Safety of Information Technology Equipment
including Electrical Business Equipment
POWER CORDS
*
1 UL 1950 Safety for Information Technology Equipment
2 CSA C22.2 No. 950 Information Processing and Business Equipment
or
cUL issued by UL based on the jointly issued Third
Edition of C22.2 No. 950/UL 1950
3 Dentori Japanese Safety Standard
T Mark
31
<PAGE>
EXHIBIT G
Supplier Certification Plan
SUMMARY:
The Supplier Certification Plan will consist of three functions: (1) on-site
survey results, (2) Gateway acceptance and (3) Supplier's process capability.
Supplier's CPK level is to be >1.33; Gateway's acceptance is to be >99.7%;
and the on-site survey is to be completed with no outstanding improvements or
corrective actions.
PROCEDURE:
1) An on-site survey shall be conducted using the Gateway Supplier
Qualification Survey procedure. The results of the survey shall be discussed
with Supplier's representatives at the end of the survey. A copy of the
completed survey procedure, along with implementation dates for any
improvements (implementation dates to be provided by Supplier), shall remain
with Supplier before leaving the Supplier being surveyed.
2) The Commodity Qualification Procedure is to be completed.
3) The commodity will be inspected/tested by Incoming Quality Assurance
(IQA). When twenty (20) continuous lots have been accepted, the commodity
will go to a reduced sampling size inspection. At the reduced sample size,
ten (10) continuous lots have been accepted, the commodity will go to skip lot
inspection. The skip lot inspection will consist of inspection of every
tenth (10th) lot for four (4) skip lots. If the four (4) skip lots are
accepted, the commodity can go to "Ship to Stock" status provided that the
99.7% customer acceptance is met.
4) During Step 3, above, factory fallout and RMA retest statistical data
will be evaluated for acceptance. If the trend from these two (2) locations
show that quality enhancements are necessary, a corrective action plan will be
generated. The commodity acceptance percentage is to be >99.7% to achieve a
certification status.
5) Supplier's process capability must be >1.33 CPK/CP level or a 3000
parts per million (ppm) defect level. This defect level can be measured
during the manufacturing process at critical process testing and data
collection points. The manufacturing process flow chart should show these
critical points and have histogram charts posted at each location reporting
the CPK/CP level.
32
<PAGE>
EXHIBIT H
Inspection Procedure
IQA Sample Acceptable Quality Level (AQL) for the three main types of
commodity families as per Mil Spec 105E are:
1.0% = Printed Circuit Boards
1.0% = Mass Storage Devices, Monitors and Portables
2.5% = Sheet Metal and Plastic Parts
33
<PAGE>
EXHIBIT I
Supplier Quality Engineering Program
Gateway has an established Supplier Certification Program with established
process survey and performance requirements. Supplier agrees to support
these requirements.
If quality issues arise, Gateway SQE shall generate a Corrective Action
Request (CAR). Supplier shall agree to support the CAR in the timeframe
requested based on the critical nature of the action.
Supplier shall commit to the established process quality and performance
goals established by Gateway with a continuous quality improvement program.
The quality and performance goals are established for each commodity type
based on the technology of that commodity to meet the MTBF at th system level.
34
<PAGE>
EXHIBIT J
Gateway Trademarks
(attached)
<PAGE>
[LOGO]
<PAGE>
GRAPHICS
General Logo Guideline
1. Use it.
The corporate logo must be placed prominently on all Gateway 2000 communication
materials. That doesn't mean it has to be large and obnoxious - understated is
usually better - but it should be plainly visible, visually separated from other
type and graphics and positioned to draw the eye to it. It's our signature. You
wouldn't send a letter without signing it, so don't produce materials for
Gateway without using the corporate signature.
2. Don't change it.
It's equally important to leave the logo alone. Don't change it. The
elements which make up the corporate logo should not be respaced or
changed in proportionate size.
Don't add things to it. The logo must not be altered or have any other
graphic device or typography attached. The only type that can be attached to
the corporate logo is the slogan and only from the artwork provided.
[LOGO]
Exceptions: There are few "legal" exceptions to these guidelines.
The black bar may be omitted for used on product bezels. The design
firm that created our cases in 1991 dropped the black bar and positioned
Gateway 2000 slightly lower in relation to the "G." This was done because
the black bar looked awkward on the cool gray cases. This logo style has
since been used on all products. Therefore, we will continue to use it this way
until cases are redesigned again we have the opportunity to re-evaluate
how the logo looks on products. Artwork of this version of the logo is
available, but you need approval from Global Marketing to use it.
Another exception is the use of drop shadows with the logo. It is acceptable
to add subtle, soft drop shadow to make the logo stand off the page.
[LOGO]
<PAGE>
GRAPHICS
3. Don't let other elements upstage it.
The corporate logo must never be used as a background. Do not screen it back
and put other type over it. In short, the logo must never be upstaged by other
graphics. It should be used as a dominant graphic element.
[LOGO]
4. Don't invent new logos or brand icons.
Over the years we have accumulated a fleet of logos representing everything
from software bundles to cow-spotted merchandise. This is counter-productive
to building a strong brand. Viewers of our communications cannot be expected
to remember multiple messages and symbols. We can only hope they remember one
or two which is why we need to carefully evaluate the creation of any new
symbols. Therefore, you must have approval from Brand Board before you can
create a new logo or brand Icon.
5. Use only authorized artwork.
Don't even think about making your own artwork for the logo. Authorized
artwork is available from Global Marketing. There are many copies
of incorrect, distorted and generally mutilated logos out there, the result of
years of unmitigated bootlegging. It's important to correct misuses of the
logo and to eliminate all unauthorized copies of the logo.
[LOGO]
[LOGO]
<PAGE>
GRAPHICS
Positioning
Don't crowd the logo. Keep other type and graphics at a respectful distance.
That means measure the height of the zeros in 2000 and keep other elements
at least this distance from the edge of the black bar. This measurement on all
four sides of the logo creates a positioning boundary inside which no type
of graphics are permitted.
[LOGO]
The logo should also be reproduced against a background that provides strong
readability. Don't print the logo on a background that is so busy it
competes with the logo. Either a very dark or very light background works best.
[LOGO]
[LOGO]
<PAGE>
GRAPHICS
CORPORATE COLORS
Gateway 2000's offical corporate colors are black and gold. The gold
is a metalic color and should be as close as possible in color
to real gold. The ink that reproduces our gold color best is Pantone
Matching System (PMS) #872. An acceptable color can also be achieved
using process printing colors in this combination:
[LOGO]
<PAGE>
EXHIBIT K
Federal Acquisition Regulations
The following contract clauses from the Federal Acquisition Regulations
("FAR") (48 C.F.R. Chapter 1) are incorporated by reference and shall have
the same force and effect as if set forth in full text. In all of the
following clauses, "Contractor" and "Offeror" shall mean Supplier. The
clauses are those in effect as of the date of this contract.
52.203-7 Anti-Kickback Procedures.
52.204-2 Security Requirements.
52.212-8 Defense Priority and Allocation Requirements.
52.215-25 Subcontractor Cost or Pricing Data-Modification.
52.222-21 Certification of Nonsegregated Facilities.
52.222-26 Equal Opportunity.
52.222-36 Affirmative Action for Handicapped Workers.
52.223-3 Hazardous Material Identification and Material Safety Data.
52.225-11 Restrictions on Certain Foreign Purchases.
52.227-19 Commercial Computer Software--Restricted Rights.
If the Total Purchase Order Amount Exceeds $25,000, the following additional
clauses shall be incorporated by reference:
52.215-2 Audit-Negotiations.
52.227-2 Notice and Assistance Regarding Patent and Copyright Infringement.
If the Total Purchase Order Amount excess $500,000, the following
additional clauses shall be incorporated by reference:
52.219-9 Small Business and Small Disadvantaged Business Subcontractor's
Plan.
The following clause form the General Services Acquisition Regulation (48
C.F.R., Chapter 5) in effect on the date of this Purchase Order shall be
incorporated by references and shall have the same force and effect as if set
forth in full text. The term "Contractor" as used in this clause shall mean
Supplier.
552.215-70 Examination of Records by GSA.
<PAGE>
Exhibit 10.F
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, UNLESS THE COMPANY HAS RECEIVED THE WRITTEN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH SALE,
ASSIGNMENT OR TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
Issue Date: January 14, 1997 Right to Purchase
Void After: January 13, 2000 100,000 Shares
of Common Stock
BOSTON ACOUSTICS, INC.
WARRANT
THIS CERTIFIES that, for value received, Gateway 2000, Inc., or registered
assigns (the "Holder") is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase from BOSTON ACOUSTICS,
INC., a Massachusetts corporation (the "Company"), the number of fully paid and
nonassessable shares of the Company's Common Stock, $.01 par value per share
("Common Stock") set forth above in the caption of this Warrant. The Exercise
Price per share of the Common Stock that may be purchased upon the exercise of
this Warrant shall be $17.50 per share, subject to adjustment as set forth
herein. This Warrant has been issued in accordance with Addendum A to that
certain Letter of Agreement dated as of January 14, 1997 ("Purchase Agreement")
among the Company and the Holder, pursuant to which the Holder and the Company
have agreed that the Holder will purchase and accept from the Company, and the
Company will deliver to the Holder, Product as defined in the Purchase
Agreement.
1. Exercise Period - The purchase rights represented by this Warrant are
exercisable by the Holder, in whole or in part, at any time from time to time
during the Exercise Period, which shall commence at 12:00 noon Boston time on
the Issue Date set forth in the caption of this Warrant and shall end at 5:00
p.m. Boston time on January 13, 2000.
2. Exercise of Warrant
(a) During the Exercise Period, this Warrant shall be exercised, in
whole or in part and from time to time, by the surrender of this Warrant and the
Notice of Exercise annexed hereto duly executed at the principal office of the
Company (or such other office or agency of the Company as it may designate) and
upon payment of the Exercise Price of the shares thereby purchased. Payment of
the Exercise Price may be made by check or bank draft payable to the order of
the Company. If the amount of the payment received by the
<PAGE>
Company is less than the Exercise Price, the Holder will be notified of the
deficiency and shall make payment in that amount within three days. In the
event the payment exceeds the Exercise Price, the Company will refund the
excess to the holder within three days of receipt. Upon exercise, the Holder
shall be entitled to receive, promptly after payment in full, one or more
certificates, issued in the Holder's name or in such name or names as the
Holder may direct, subject to the limitations on transfer contained herein,
for the number of shares of Common Stock so purchased. The shares so
purchased shall be deemed to be issued as of the close of business on the
date on which this Warrant shall have been exercised. Unless this Warrant
has been fully exercised or expired, a new Warrant representing the portion
of the shares of Common Stock, if any, with respect to which this Warrant
shall not then have been exercised shall also be issued to the Holder as soon
as possible.
The Company covenants that all shares of Common Stock that are issued upon
the exercise of rights represented by this Warrant (the "Warrant Shares") will
be fully paid, validly issued, nonassessable, and free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
(b) This Warrant shall be exercisable for all or any portion of the
Warrant Shares upon the reorganization, consolidation or merger of the Company
with another corporation after which the Company is not the surviving entity, or
a sale or other transfer of all or substantially all of the Company's assets to
another corporation. The Company shall give thirty days' written notice to the
Holder of the effective date of any transaction described in the preceding
sentence in accordance with section 15 hereof, in order to permit the Holder to
exercise this Warrant by such date.
3. No Fractional Shares or Scrip - No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu thereof, a cash payment shall be made equal to such fraction
multiplied by the Exercise Price per share as then in effect.
4. Charges, Taxes and Expenses - Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company.
5. No Rights as Shareholder - This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to
exercise and payment of the Exercise Price in accordance with section 2 hereof.
6. Investment Representation - The Holder, by acceptance of this Warrant,
represents and warrants to the Company that this Warrant and all securities
acquired upon any and all exercises of this Warrant are purchased for the
Holder's own account for
-2-
<PAGE>
investment, and not with view to resale or distribution of either this
Warrant or any securities purchasable upon exercise hereof.
7. Sale or Transfer of the Warrant; Legend - This Warrant may not be sold
or transferred. The Warrant Shares, however, may be sold or transferred if
either (i) they first shall been have registered under the Securities Act of
1933, as amended (the "1933 Act") and any applicable state securities laws, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel reasonably satisfactory to the Company to the effect that such sale or
transfer is exempt from the registration requirements of the 1933 Act and such
state laws. Each certificate representing any Warrant Shares that has not been
registered and that has not been sold pursuant to an exemption that permits
removal of the legend shall bear a legend referring to such restrictions on
transfer, substantially in the form of the legend affixed to this Warrant. Upon
the request of a holder of a certificate representing any Warrant Shares, the
Company shall remove the foregoing legend from the certificate or issue to such
holder a new certificate therefor free of any transfer legend, if, with such
request, the Company shall have received either (i) an opinion of counsel
reasonably satisfactory to the Company to the effect that such legend may be
removed from such certificate, provided that the Company shall promptly provide
any information reasonably requested by such counsel to prepare the opinion, or
(ii) if Paragraph (k) of Rule 144 or a substantially similar successor rule
remains in force and effect, representations from the Holder that such Holder is
not then, and has not been during the preceding three months, an affiliate of
the Company and that such Holder has beneficially owned the security (within the
meaning of Rule 144) for three years or more (or such shorter period as may then
be specified in Rule 144).
8. Registration Rights
(a) If at any time the Company shall determine to register under the
Securities Act any of its securities, other than on Form S-8 or Form S-4 or
their then equivalents, it shall send to each Holder written notice of such
determination and if within 30 days after receipt of such notice, such Holder
shall so request in writing, the Company shall use its best efforts to include
in such registration statement all or any part of the Common Stock issued or
issuable upon exercise of this Warrant (the "Registrable Shares"), that such
Holder requests to be registered therein, except that, if, in connection with
any offering involving an underwriting of Common Stock to be issued by the
Company, the managing underwriter shall impose a limitation on the number of
shares of such Common Stock which may be included in any such registration
statement because, in its judgment, such limitation is necessary to effect an
orderly public distribution, and such limitation is imposed pro rata with
respect to all securities whose holders have a contractual, incidental ("piggy
back") right to include such securities in the registration statement and as to
which inclusion has been requested pursuant to such right, then, in such case,
the Company shall be obligated to include in such registration statement only
the amount as is determined in good faith by the managing underwriter in the
case of a public offering of Common Stock of the Company.
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<PAGE>
(b) The Holder of this Warrant (or Common Stock issued upon the
exercise of this Warrant) shall have the right to require the Company to file as
promptly as practicable following the Holder's demand thereof, one short form
registration statement on Form S-3 with respect to all or any portion of the
Registrable Shares (provided that the Company is eligible to use Form S-3),
within three years from the Issue Date on the caption of this Warrant, provided
such registration on Form S-3 has, on the date of said request, a minimum market
value of $1,750,000. The Company represents and warrants that, as of the date
of this Warrant Agreement, the Company is eligible to use Form S-3. During the
three year period commencing on the Issue Date of this Warrant, the Company will
use its best efforts to continue to be eligible to use Form S-3 (or any
substantially equivalent replacement form of registration statement subsequently
available under the rules and regulations of the Securities and Exchange
Commission).
(c) In the case of a registration under this section 8 hereof for the
account of the Company in which the Company is receiving proceeds from the sale
of its equity, securities, the Company shall bear all costs and expenses of each
such registration, including, but not limited to, printing, legal and accounting
fees and expenses, Securities and Exchange Commission and NASD filing fees and
"Blue Sky" fees and expenses; provided, however, that the Company shall have no
obligation to pay or otherwise bear any portion of the underwriters' commissions
or discounts attributable to the Registrable Shares being offered and sold by
the Holders. The Company shall indemnify the Holder, any underwriter, and their
respective officers, directors, agents and employees, and each person who
controls the Holder, from claims, losses, damages and liabilities under the 1933
Act to the fullest extent permitted by law, provided, however, that the Company
will not be liable in any such case if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in reliance
upon and in conformity with information furnished by Holder, any such
underwriter or any such controlling person in writing specifically for use in
such registration statement or prospectus, and, provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue or
alleged untrue statement or omission or an alleged omission made in any
preliminary prospectus or final prospectus if (1) such holder failed to send or
deliver a copy of the final prospectus or prospectus supplement with or prior to
the delivery of written confirmation of the sale of the Registrable Shares, and
(2) the final prospectus or prospectus supplement would have corrected such
untrue statement or omission.
9. Adjustments
9.1 Adjustments for Stock Splits, Reverse Stock Splits or Stock
Dividends - In the event that the outstanding shares of Common Stock shall be
subdivided (split), combined (reverse split), by reclassification or otherwise,
or in the event of any dividend or other distribution payable on the Common
Stock in shares of Common Stock, the number of shares of Common Stock available
for purchase in effect immediately prior to such subdivision, combination, or
dividend or other distribution, and the Exercise Price, shall be
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proportionately adjusted. Adjustments set forth herein shall be readjusted
in the same manner for any successive event or events described herein.
9.2 Adjustment for Capital Reorganizations - If at any time there
shall be a capital reorganization of the Company or a merger or consolidation of
the Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that the Holder of this Warrant shall thereafter be
entitled to receive on exercise of this Warrant during the period specified in
this Warrant and on payment of the Exercise Price then in effect, the number of
shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such merger or consolidation, to which a
holder of the Common Stock deliverable on exercise of this Warrant would have
been entitled on such capital reorganization, merger, consolidation, or sale if
this Warrant had been exercised immediately before that capital reorganization,
merger, consolidation, or sale. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Warrant with respect to the
rights and interests of the Holder of this Warrant after the reorganization,
merger, consolidation, or sale to the end that the provisions of this Warrant
(including adjustment of the number of shares purchasable on exercise of this
Warrant) shall be applicable after that event, as near as reasonably may be, in
relation to any shares or other securities or property deliverable after that
event on exercise of this Warrant. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this paragraph 9.2, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in paragraph 9.6.
9.3 Adjustments for Issuances of Common Stock below Exercise Price -
(a) For the purposes of adjustment of the Exercise Price
pursuant to this paragraph 9.3, the following definitions shall apply:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock other than Excluded Stock (as such term is defined below).
"Convertible Securities" shall mean any evidences of
indebtedness, shares or securities, in each case convertible into or
exchangeable for Additional Shares of Common Stock.
-5-
<PAGE>
"Excluded Stock" shall mean (i) all shares of Common Stock
issued or issuable upon the exercise of stock options issued pursuant to the
Company's 1986 Incentive Stock Option Plan and 1996 Incentive Stock Option Plan
at exercise prices which are not less than the fair market value of the Common
Stock on the date of grant thereof as determined in good faith by the Board of
Directors of the Company; (ii) all shares of Common Stock issued or issuable
pursuant to any merger, reorganization, or sale of the Company's assets.
"Options" shall mean rights, options or warrants to
subscribe for purchase or otherwise acquire Common Stock or Convertible
Securities.
(b) If the Company shall issue any Additional Shares of Common
Stock other than Excluded Stock for a consideration per share less than the
Exercise Price in effect immediately prior to the issuance of such Common Stock
(excluding stock splits, stock dividends, combinations, reclassifications and
capital reorganizations which are covered by paragraphs 9.1 and 9.2, above) the
Exercise Price concurrently with each such issuance shall forthwith (except as
hereinafter otherwise provided) be reduced by an amount equal to the quotient
obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock
outstanding plus the total number of shares of Common Stock issuable upon
conversion or exercise of outstanding preferred stock or convertible securities
or options (including the Warrants) immediately prior to such issuance, plus
(y) the number of shares of Common Stock which the net
aggregate consideration received by the Company for the total number of such
additional shares of Common Stock so issued would purchase at the Exercise Price
in effect immediately prior to such issuance, by
(B) the total number of shares of Common Stock outstanding
plus the total number of shares of Common Stock issuable (as contemplated in
clause (x) above) immediately prior to such issuance plus the additional shares
of Common Stock issued in such issuance.
No adjustment in the Exercise Price need be made if such
adjustment would result in a change in the Exercise Price of less than $0.01.
Any such adjustment which is not made shall be carried forward and shall be made
at the time of and together with any subsequent adjustment which, on a
cumulative basis, amounts to an adjustment of $0.01 or more in the Exercise
Price. No adjustment in the Exercise Price of this Warrant shall be made in
respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for such Additional Shares of Common Stock issued or
deemed to be
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<PAGE>
issued by the Company is less than the Exercise Price in effect on
the date of, and immediately prior to, such issue, for this Warrant.
In the event of any adjustment of the Exercise Price pursuant to
this paragraph 9.3, the number of Warrant Shares issuable upon exercise of this
Warrant shall be simultaneously adjusted to that number determined by dividing
(i) the aggregate Exercise Price which would have been payable had this Warrant
been exercised in full, for cash, immediately prior to such issuance by (ii) the
Exercise Price as so adjusted.
For the purposes of making any adjustment required under this
paragraph 9.3, the consideration received by the Company for any issue or sale
of securities shall (1) to the extent it consists of cash be computed at the net
amount of cash received by the Company after deduction of any underwriting or
similar commissions, compensation or concessions paid or allowed by the Company
in connection with such issue or sale, (2) to the extent it consists of property
other than cash, be computed at the fair value of that property as agreed to by
the parties hereto and (3) if Additional Shares of Common Stock, Convertible
Securities or rights or Options are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers both,
be computed (as provided in clauses (1) and (2) above) as the portion of the
consideration so received that may be reasonably determined as agreed to by the
parties hereto, to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or Options.
For the purposes of the adjustment required under this paragraph
9.3, if at any time or from time to time after the Issue Date set forth above in
the caption of this Warrant, the Company issues or sells any Options or
Convertible Securities, then in each case the Company shall be deemed to have
issued at the time of the issuance of such Options or Convertible Securities the
maximum number of Additional Shares of Common Stock (as set forth in the
instruments relating thereto, giving effect to any provision contained therein
for a subsequent upward adjustment of such number) issuable upon exercise or
conversion thereof and to have received as consideration for the issuance of
such shares an amount equal to the total amount of the consideration, if any,
received by the Company for the issuance of such Options or Convertible
Securities plus, in the case of such Options, the minimum amounts of
consideration, if any (as set forth in the instruments relating thereto, giving
effect to any provision contained therein for a subsequent downward adjustment
of such consideration), payable to the Company upon the exercise of such Options
and, in the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities). No
further adjustment of the Exercise Price, adjusted upon the issuance of such
Options or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any such
Options or the conversion of any such Convertible Securities. If any such
Options or the conversion privilege represented by any such Convertible
Securities shall expire without having been exercised, the Exercise Price
adjusted upon the issuance of such Options or Convertible Securities shall be
readjusted to the Exercise Price which would have been in effect had an
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<PAGE>
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold on the exercise of such Options or rights of conversion of such
Convertible Securities, and such Additional Shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Company upon such
exercise, plus the consideration, if any, actually received by the Company for
the granting of all such Options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities.
9.4 Certificate as to Adjustments - Upon the occurrence of each
adjustment or readjustment pursuant to this section 9, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request, at any time, of any Holder, furnish or cause to be furnished to such
Holder, a like certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares of Common Stock and the amount, if any, of other property that
at the time would be received upon the exercise of the Warrant.
9.5 Notices of Record Date - In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend that is the same as cash dividends paid in previous
quarters) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the Company to
or consolidation or merger of the Company with or into any other person, or any
voluntary or involuntary dissolution, liquidation or winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of any class of securities shall be entitled to exchange
their shares of securities for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be mailed at
least 20 business days prior to the date specified in such notice on which any
such action is to be taken.
9.6 No Impairment - The Company will not, by amendment of its
Articles of Organization or through any reorganization, transfer of assets,
consolidation, merger,
-8-
<PAGE>
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant
against impairment. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any shares of stock receivable
on the exercise of this Warrant above the amount payable therefor on such
exercise, (b) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of this Warrant, and (c) will
not transfer all or substantially all of its properties and assets or Common
Stock to any other person (corporate or otherwise), or consolidate with or
merge into any other person or permit any such person to consolidate with or
merge into the Company (if the Company is not the surviving person), unless
such other person shall expressly assume in writing and will be bound by all
the terms of this Warrant.
10. Call Option - If at any time after two years from the Issue Date set
forth on the caption of this Warrant, the price of the Common Stock of the
Company should exceed $25.00 per share, the Company shall be granted the right
to repurchase from the Holders of the Warrants, each Warrant at a price of $7.00
per Warrant (the "Call Option"). Should the Company choose to exercise the Call
Option, Holders of the Warrants will be notified pursuant to section 15 hereof
and will within thirty (30) days receive payment in the form of check paid to
the Holder by the Company. The Warrants will then be cancelled and deemed null
and void by the Company. Notwithstanding the foregoing, in no event can the
Company exercise the Call Option if it has received the Notice of Exercise of
Warrant from the Holder.
11. Reservation of Common Stock; Qualification
11.1 Reservation - From and after the date of this Agreement, the
Company shall at all times reserve and keep available for issue upon the
exercise of this Warrant such number of its authorized but unissued shares of
Common Stock as will be sufficient to permit the exercise in full of this
Warrant. All shares of Common Stock which shall be so issuable, when issued
upon exercise of this Warrant, shall be duly and validly issued and fully paid
and nonassessable, and not subject to preemptive rights.
11.2 Certain Adjustments - Before taking any action which would cause
an adjustment reducing the Exercise Price below the then par value, if any, of
the shares of Common Stock issuable upon exercise of this Warrant, the Company
shall take any corporate action which may be necessary in order that the Company
may validly and legally issue fully paid and non-assessable shares of such
Common Stock at such adjusted Exercise Price.
11.3 Qualification - If any shares of Common Stock required to be
reserved for issuance upon exercise of Warrants require registration or
qualification with any governmental authority or other governmental approval or
filing under any federal or state law before such shares may be so issued, the
Company will in good faith and as
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<PAGE>
expeditiously as possible and at its expense endeavor to cause such shares to
be duly registered or qualified.
12. Listing on Securities Exchange - If the Company shall list any shares
of Common Stock on any securities exchange it will, at its expense, list
thereon, maintain and increase when necessary such listing of all Common Shares
issued pursuant to this Agreement, and to the extent permissible under the
applicable securities exchange rules, all such Common Shares that may be issued
pursuant to this Warrant so long as any shares of Common Stock shall be so
listed. The Company will also list on each securities exchange, and will
maintain such listing of, any other securities which the holder of this Warrant
shall be entitled to receive upon the exercise thereof, if at the time any
securities of the same class shall be listed on such securities exchange by the
Company.
13. Availability of Information - The Company will cooperate with the
Holder hereof or of any Common Shares issued hereunder in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the 1933 Act for the sale
of this Warrant or of Common Shares issued pursuant to this Warrant.
14. Loss, Theft, Destruction or Mutilation of Warrant - Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction, or mutilation of this Warrant, and in case of loss, theft, or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new warrant of like tenor and dated as of such cancellation
in lieu of this Warrant; provided, however, if any Warrant of which the original
holder, its nominee, or any of its partners or affiliates is the registered
holder is lost, stolen or destroyed, the affidavit of the registered holder
setting forth the circumstances with respect to such loss, theft or destruction
shall be accepted as satisfactory evidence thereof, and no indemnification bond
or other security shall be required as a condition to the execution and delivery
by the Company of a new Warrant in replacement of such lost, stolen or destroyed
Warrant other than the registered holder's unsecured written agreement to
indemnify the Company.
15. Remedies - The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not adequate and may be enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
16. Dissolution. In the event of any dissolution of the Company following
the transfer of all or substantially all of its properties or assets, the
Company, prior to such dissolution, shall at its expense deliver or cause to be
delivered the stock and other securities
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<PAGE>
and property (including cash, where applicable) receivable by the holders of
the Warrants after the effective date of such dissolution pursuant to this
section 14 to a bank or trust company having its principal office in Boston,
Massachusetts, as trustee for the holder or holders of the Warrants. Such
bank or trust company shall be appointed by the Company, by written notice to
each holder of a Warrant, for the purpose of issuing Common Stock (or other
securities) on the exercise of the Warrants, exchanging Warrants, and
replacing Warrants, or any of the foregoing, all in accordance with the
provisions hereof, and thereafter any such issuance, exchange or replacement,
as the case may be, shall be made at such office by such agent. In the event
that a bank or trust company shall have been appointed as trustee for the
holders of the Warrants pursuant to this section 14, such bank or trust
company shall have all the powers and duties of a warrant agent appointed
pursuant to this section 14 and shall accept, in its own name for the account
of the Company or such successor person as may be entitled thereto, all
amounts otherwise payable to the Company or such successor, as the case may
be, on exercise of this Warrant.
17. Notices - All notices and other communications pursuant to this
Warrant shall be mailed, by first class or express mail, to the following
address unless written notice is received by the other party of any change:
If to Gateway 2000, Inc.:
Gateway 2000, Inc.
P.O. Box 2000
North Sioux City, SD 57049-2000
Attn: Mr. Stephen Johns, Director of Corporate Development
with a copy to the attention of William M. Elliott, Senior Vice President,
General Counsel & Secretary of Gateway at the same address.
If to Boston Acoustics, Inc.:
Boston Acoustics, Inc.
300 Jubilee Drive
Peabody, MA 01960
Attn: Mr. Andrew Kotsatos, President
With a copy to:
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Attn: Joseph D.S. Hinkley, Esq.
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<PAGE>
18. Miscellaneous - This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
Remainder of Page Intentionally Left Blank
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in
its corporate name by its duly authorized officer and to be dated as of the
issue date set forth on the first page of this Warrant.
BOSTON ACOUSTICS, INC.
[CORPORATE SEAL]
By: /s/ Andrew G. Kotsatos
------------------------------------
Attest: Title: Chief Executive Officer
/s/ Joseph D. S. Hinkley
- -----------------------------
Clerk
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<PAGE>
NOTICE OF EXERCISE OF WARRANT
TO: BOSTON ACOUSTICS, INC.
(1) Pursuant to the terms of the attached Warrant, the undersigned hereby
elects to purchase ______ shares of ________________ Stock of Boston Acoustics,
Inc. (the "Company"), and either (i) tenders herewith payment of the Exercise
Price of such shares in full or (ii) by indicating "cashless exercise" below,
directs that payment of the Exercise Price be made by cancellation as of the
date of exercise of a portion of this Warrant having a net fair market value
equal to the Exercise Price.
(2) Please issue a certificate or certificates representing said shares of
Common Stock, in the name of the undersigned or in such other name(s) as is/are
specified immediately below or, if necessary, on an attachment hereto:
Name Address
---- -------
(3) In the event of partial exercise, please reissue an appropriate
Warrant exercisable into the remaining shares.
DATE:____________________ HOLDER:_____________________________
Check here if cashless exercise: ______
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<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
TO: BOSTON ACOUSTICS, INC.
For value received, the undersigned hereby sells, assigns, and transfers
unto ___________________________ the right represented by the within Warrant to
purchase ________ shares of Common Stock of Boston Acoustics, Inc. to which the
within Warrant relates, and appoints ___________________________ Attorney to
transfer such right on the books of Boston Acoustics, Inc. with full power of
substitution in the premises.
Dated: _______________________ ____________________________________________
(Signature must conform to name of Holder as
specified on the face of this Warrant)
____________________________________
(Address)
Signed in the presence of:
_____________________________
PABOS2:RCD:23277_6
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<PAGE>
Exhibit 10.G
* = THE MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
[GATEWAY 2000 LETTERHEAD]
January 14, 1997
Bob Spaner
Boston Acoustics, Inc.
300 Jubilee Drive
Peabody, MA 01960
Dear Mr. Spaner:
This Letter of Agreement ("LOA") will confirm the understanding and intent of
Boston Acoustics, Inc. ("Boston Acoustics") and Gateway 2000, Inc. and its
subsidiaries and affiliates ("Gateway") to enter into an Agreement for the
provision of services and products by Boston Acoustics to Gateway worldwide.
The Agreement will be established under terms and conditions to be set forth
in a mutually acceptable definitive written agreement ("Definitive
Agreement").
Boston Acoustics and Gateway agree to negotiate with each other in good faith
to reach a Definitive Agreement by February 15, 1997, a draft copy of which
has been sent to you previously for review.
Gateway hereby agrees to commit to purchase, worldwide, the following number
of Boston Acoustics Micro Media or subsequent revisions speaker systems
during the timeframes set forth below:
*
This commitment is the minimum number of systems Gateway may purchase.
This commitment is conditioned upon the following:
1. Receipt of speaker system product for delivery to Gateway's
customers, based upon the project schedule, no later than
May 19, 1997.
2. Receipt of thirty (30) qualification samples by February 15, 1997.
3. Master version of the users manual received by March 1, 1997.
4. Receipt of one hundred (100) production samples on or before
April 29, 1997.
5. The agreed upon cost by both parties for speaker system products.
6. Gateway's specifications being met.
7. Compliance with the Definitive Agreement, once executed.
<PAGE>
Bob Spaner
January 14, 1997
Page Two
Boston Acoustics and Gateway acknowledge that, while this LOA sets forth
their intentions, this LOA does not contain all matters upon which agreement
must be reached in order to proceed. The parties agree to diligently pursue
the drafting and execution of the Definitive Agreement which shall set forth
the respective rights, duties and obligations of the parties by no later than
February 15, 1997. If the parties have not executed the Definitive Agreement
on or before February 15, 1997, or such later date as may be agreed upon by
the parties in writing, this LOA will terminate without liability on the part
of either party.
All information exchanged to date and hereafter until the Definitive
Agreement is executed between the parties is proprietary to the party
submitting the information and shall be held in the strictest confidence
between the parties.
Please indicate your acceptance of and agreement to this Letter of Agreement
by signing below.
Sincerely,
Bern Ebert
Vice President
ACCEPTED AND AGREED: ACCEPTED AND AGREED:
Boston Acoustics, Inc. Gateway 2000, Inc.
By: /s/ Andrew G. Kotsatos By: /s/ Bern Ebert
------------------------- -------------------------
Name: Andrew G. Kotsatos Name: Bern Ebert
---------------------- ----------------------
Title: President Title: Vice President
---------------------- ----------------------
Date: 1-14-97 Date: 1-14-97
---------------------- ----------------------
<PAGE>
ADDENDUM A
to Letter Agreement
dated January 14, 1997
between
GATEWAY 2000, INC. and BOSTON ACOUSTICS, INC.
This is Addendum A to the Letter Agreement dated January 14, 1997
("Agreement"), between Gateway 2000, Inc. (hereafter "Gateway") and
Boston Acoustics, Inc. (hereafter "Boston Acoustics").
As additional consideration for the commitment contained in the Agreement,
Boston Acoustics agrees to issue to Gateway warrants to purchase common stock
(the "Warrants") as follows subject to full documentation in the definitive
agreement:
Number of Warrants: 100,000
Warrant exercise price: $17.50
Warrant life Three (3) years
Call option: Boston Acoustics has the right to
repurchase each warrant at $7.00 after
two (2) years, if the stock price is
greater than $25.00.
Warrant price: None
Warrant exercise: Upon exercise equivalent to 2.2179%
fully diluted of the common shares of
Boston Acoustics.
The Warrants may be exercised at any
time at the option of the holders. The
conversion rate is one-to-one.
Registration: [Not agreed to]
Transferability: Warrants are transferable by holder
subject to applicable securities laws.
Anti-dilution: Conversion rate to be adjusted in the
event of a stock split, sale, dividends,
etc., or other dilutive financings.
Mergers and consolidations: The holders of the Warrants shall be
entitled to the same consideration they
would have received if they had
exercised their Warrants, in the event
of a merger, consolidation, sale of
assets, or other business combination.
All other terms and conditions of the Agreement shall remain in full force
and effect.
GATEWAY 2000, INC. BOSTON ACOUSTICS, INC.
By: /s/ Bern Ebert By:
------------------------- -------------------------
Name: Name:
---------------------- ----------------------
Title: Title:
---------------------- ----------------------
Date: Date:
---------------------- ----------------------
<PAGE>
FINANCIAL HIGHLIGHTS
BOSTON ACOUSTICS
1997
ANNUAL
REPORT
[PHOTO OF BOSTON ACOUSTICS STEREO SYSTEM]
[GRAPH OF FINANCIAL HIGHLIGHTS]
<PAGE>
[PHOTO OF ANDREW G. KOTSATOS]
Andrew G. Kotsatos
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
[PHOTO OF FRED E. FAULKNER, JR.]
Fred E. Faulkner, Jr.
PRESIDENT AND
CHIEF OPERATING OFFICER
TO THE SHAREHOLDERS:
FISCAL 1997 WAS OUR EIGHTEENTH STRAIGHT YEAR OF RECORD SALES. THEY TOPPED $50
MILLION FOR THE FIRST TIME IN THE COMPANY'S HISTORY, INCREASING TO $50,308,962,
UP APPROXIMATELY 9% FROM $46,324,791 THE PREVIOUS YEAR. COSTS ASSOCIATED WITH
SNELL ACOUSTICS, THE ENGINEERING OF NEW PRODUCTS, AND OTHER FACTORS CUT INTO NET
INCOME, HOWEVER, AND IT DROPPED TO $5,485,092 IN FISCAL 1997 FROM $6,630,576 IN
FISCAL 1996.
IT WAS A YEAR OF HISTORIC TRANSITION FOR THE COMPANY. WE MADE OUR FIRST
ACQUISITION, INITIATED AN AGREEMENT TO SUPPLY SPEAKER SYSTEMS TO A MAJOR
COMPUTER COMPANY, LAUNCHED INNOVATIVE NEW PRODUCTS FOR EMERGING AND CHANGING
MARKETS, AND ELECTED A NEW PRESIDENT. IN CONTRAST TO THESE EXCITING EVENTS, WE
LOST OUR CEO, CO-FOUNDER AND CLOSE FRIEND, FRANCIS L. REED. WE WILL MISS HIM.
<PAGE>
[PHOTO OF MICROMEDIA]
CHANGING MARKETS
The home entertainment industry is changing rapidly. Core markets are
changing and emerging technologies are driving the pace of change. In 1996,
sales of computers were greater than sales of television sets for the first
time. CD sales declined. The Digital Versatile Disk (DVD)--capable of storing
feature-length films and full surround sound on a disk the size of a CD--looms
on the horizon.
We see changes as opportunities, breathing new vigor into an otherwise
maturing industry, creating new and different markets. Much of what we did in
fiscal 1997 was indicative of how we expect to take advantage of them.
A GATEWAY TO GROWTH
In February, we reached a preliminary agreement, which was finalized in May
of 1997, to supply speaker systems to Gateway 2000, Inc.
Gateway is a global leader in the direct marketing of personal computers,
shipping 1.9 million computers--worth $5 billion--in 1996.
Initial shipments to Gateway began in May with full production slated for
the second quarter of fiscal 1998. We expect the contract to have a material
effect on our fiscal 1998 sales and earnings.
[PHOTO OF MICRO90T WITH VRS SURROUNDS]
MICROMEDIA-TM-
The product covered in the Gateway agreement is our new high performance
MicroMedia system, consisting of a pair of miniature desktop speakers and a
separate subwoofer containing a three-channel amplifier that powers the whole
system. It is capable of producing true high fidelity sound for music, games and
multi-media applications--from a computer, portable CD or tape player, TV or
VCR.
Gateway's choice was based on quality. Our Boston-designed drive units and
active system equalization deliver a performance level that's comparable to much
larger and more costly systems.
MICRO REFERENCE-TM-
We replaced our SubSat products with a new Micro Reference Series.
Two Micro Reference systems were introduced in fiscal 1997. The Micro80 is a
three-piece system consisting of two miniature two-way satellite speakers and a
compact PowerVent subwoofer. It sells for $400.
Moving up the scale, our new Micro90 system consists of two satellites and a
75-watt powered subwoofer with an 8" Deep Channel Design (DCD-TM-) bass unit.
To further enrich sound quality, the housings are made of extraordinarily strong
and rigid die-cast aluminum to eliminate cabinet vibrations that can degrade
sound quality. The system is priced at $800.
THE BEST SMALL SATELLITE HOME THEATER SYSTEM
The new Micro90t package adds a matching center-channel speaker. For a total
home theater experience, the Micro90t package can be used with a pair of our new
VRS Micro diffuse-field surround speakers. The VRS Micro emulates the
performance of multiple theater surround speakers. STEREO REVIEW'S critic said
"... by a wide and clearly audible margin, the Micro90t is the best small
satellite home theater speaker system I have ever
3
<PAGE>
reviewed." The five-speaker Micro90t with VRS Micro package creates an
extraordinary surround-sound system for only $1,200.
Once again, we are living up to our reputation for great value at a
reasonable price.
[PHOTO OF BOSTON RALLY-TM- SUBWOOFER BAND-PASS ENCLOSURES]
NEW HIGH-END PRODUCTS
We also introduced two new products for the finest home theater and music
systems. The Lynnfield VR14 is a three-way, five-driver horizontal
center-channel speaker. The Lynnfield VR35 is a three-way, five-driver front
tower speaker. Both offer the accurate frequency response and precise dispersion
that make them perfect for high-end music, THX-Registered Trademark- and Dolby
AC-3-Registered Trademark- systems.
NEW AUTO PRODUCTS
As more and more consumers lease cars rather than buy them, the automotive
market is changing. People who lease cars are less inclined to have extra holes
cut out for custom speaker locations. For Boston Acoustics, this means
developing products that fit factory cut holes and standard locations.
Our new Boston Rally RM Series reflects this reality. Both the Boston Rally
RM9 and RM6 systems can be installed in OEM speaker locations without
modification, so lease customers can enjoy the advantages of premium two-way
speaker systems.
We also launched four new Boston Rally Subwoofers in Balanced Band-Pass
Enclosures that offer maximum output with smooth response. With a slant fronted
trapezoidal design, charcoal carpeted exteriors and rounded corners, they are
"ready to roll" in hatchbacks, sedans and sport utility vehicles.
For the serious automotive audiophiles, we introduced the ProSeries 6.4(3)
system. Its premium components, a 6-inch woofer, 4-inch midrange and 1-inch
tweeter are combined into a unified speaker system with a new system-specific
three-way crossover. The result is an ultimate component package with
unparalleled sonic performance and installation flexibility.
RECOGNIZING QUALITY AND INNOVATION
Awards continue to be important in our industry. They are third-party
endorsements of quality, noted by the people who recommend and sell audio
systems. Thus, we're always happy to see our name on the winners' lists.
We captured eight INNOVATIONS '97 awards for new product design and
engineering excellence at the International Winter Consumer Electronics Show in
Las Vegas. The MicroMedia was a personal stereo and computer winner. Home
speaker award recipients included the Micro90t, the VRS Micro, the VR35
floorstanding main and the VR14 center channel. The ProSeries 6.4(3) and the
Boston Rally RM6 and RM9 took automotive system honors.
We also received eight AUDIOVIDEO INTERNATIONAL Hi Fi Grand Prix awards.
Named "Product of the Year" in their respective categories were our: Lynnfield
VR system; VR40 Floor Speaker;
[PHOTO OF RM6 SPEAKERS]
4
<PAGE>
[PHOTO OF MICRO80 SPEAKERS]
Micro90t; 381 In-wall Speaker; VRS Rear Speaker; CR8 Bookshelf Speaker; VR500
Subwoofer; and VR12 Center Channel.
Six of our automotive products earned AUDIOVIDEO INTERNATIONAL Autosound
Grand Prix awards. "Products of the Year" included the ProSeries 5.4 component,
the ProSeries 6.4 midrange, the RX67 flushmount, the CX9(2) speaker, and the
Neo4t tweeter. The RS12 subwoofer received special recognition.
THE SNELL ACQUISITION
In June, 1996, we completed the acquisition of Snell Acoustics of Haverhill,
Massachusetts, a manufacturer of high-end home speakers for the audiophile
market. Ira Friedman, our Vice President of Marketing, was named President of
Snell.
[PHOTO OF PROSERIES 6.4(3) SYSTEM]
The company--operating as an autonomous subsidiary--is not doing as well as
we would like. To help improve its situation, Snell is eliminating products that
are not selling well, redesigning others, and taking other steps to stimulate
sales.
FRANK AND DOROTHEA REED
Francis L. Reed passed away on November 16, 1996. He was co-founder of the
company and a friend to all of us. There is no way to measure Frank's
contributions, except perhaps to recognize that the company would never have
existed without him.
His wife, Dorothea, passed away on January 4, 1997. She was also active in
the beginning, as the company's first accountant, and as a member of our Board
of Directors.
We miss their friendship and support, and their contributions to Boston
Acoustics. All of us are the better for having known them.
A NEW PRESIDENT
On December 2, 1996, the Board of Directors elected Andy Kotsatos to the
positions previously held by Frank Reed: CEO, Treasurer, and Chairman of the
Board.
In March, 1997, Fred E. Faulkner, Jr. was named President and Chief
Operating Officer. He had been with Millipore Corporation for 28 years, most
recently as Vice President of Technical Operations for its Microelectronics
Division. He brings more than extensive executive experience and skill to the
job--as a member of our Board of Directors since the company went public in
1986, Fred knows the company, its products, and its markets well.
A NEW ERA
Fiscal 1997 was our tenth year as a public company. It was, as reported, a
year of profound change. Taking the long view, however, we see it as a point in
a continuum of change. We have evolved from an entrepreneurial company into a
professionally managed organization. Our product lines have grown from pairs of
speakers for stereo to systems of three, five and even more components for home
theater and entertainment applications. The growth of auto sound, CDs and home
theater systems contributed to our first decade. Computer multi-media, Digital
Versatile Disks and other technologies will play increasingly important roles in
the future, and "lifestyle" issues will shape new product development.
In short, we're looking forward to a healthy and exciting future.
Sincerely,
/s/ ANDREW G. KOTSATOS /s/ FRED E. FAULKNER, JR.
ANDREW G. KOTSATOS FRED E. FAULKNER, JR.
CHAIRMAN AND PRESIDENT AND
CHIEF EXECUTIVE OFFICER CHIEF OPERATING OFFICER
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the years ended
March 29, 1997, March 30, 1996, and March 25, 1995 expressed as percentages of
net sales.
For the Year Ended
March 29, March 30, March 25,
1997 1996 1995
(53 wks)
- --------------------------------------------------------------------------------
Net Sales 100.0% 100.0% 100.0%
Cost of goods sold 57.4 57.1 56.1
- --------------------------------------------------------------------------------
Gross profit 42.6 42.9 43.9
Selling and marketing
expenses 14.4 12.6 12.4
General & administrative
expenses 5.9 5.5 6.0
Engineering & development
expenses 6.3 5.4 5.0
- --------------------------------------------------------------------------------
26.6 23.5 23.4
- --------------------------------------------------------------------------------
Income from operations 16.0 19.4 20.5
Interest income 0.8 1.7 1.9
- --------------------------------------------------------------------------------
Income before provision for
income taxes 16.8 21.1 22.4
Provision for income taxes 5.9 6.8 7.9
- --------------------------------------------------------------------------------
Net income 10.9% 14.3% 14.5%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FISCAL 1997 COMPARED WITH FISCAL 1996
Operating results for Fiscal 1997 represents 52 weeks of sales and earnings
compared to 53 weeks during fiscal 1996. Fiscal 1997 includes the results of
operations of Snell Acoustics (Snell) since June 1, 1996 as a result of the
acquisition of the business of Snell, a manufacturer of high-end loudspeaker
systems.
Net sales increased 9% from approximately $46.3 million to $50.3 million.
New product introductions in both the home and automotive loudspeaker categories
contributed to the overall sales increase during the twelve-month period ended
March 29, 1997.
Leading the increase in home sales was the introduction of the Micro
Reference (Micro) category of products, replacements for the SubSat series. The
models include the Micro80 and Micro90, 3-piece systems with suggested retails
of $400 and $800, respectively, and the Micro90t, a 4-piece theater system with
a suggested retail of $1,000. The Company also introduced two new THX-certified
front speaker systems. The Lynnfield VR35 front tower speaker and the Lynnfield
VR14 horizontal center channel, with suggested retails of $650 and $600,
respectively, can be used in many combinations to fit a variety of applications.
The Company continued to extend its offering of automotive products. The
ProSeries 6.4(3) system is a premium performance three-way component speaker
system with a suggested retail of $700. The Boston Rally-TM- RX47 is a 4-inch
two-way coaxial speaker system retailing for $139.95 per pair. During the fourth
quarter of fiscal 1997 the Company launched the Boston Rally RM Series of
component speakers and four new Boston Rally Balanced Band-Pass Subwoofer
Systems. The RM9 and RM6 have suggested retails of $299.95 and $249.95,
respectively, and the RS110B, RS112B, RS208B, and RS210B have suggested retails
ranging from $299.95 to $499.95 per system.
The Company's gross margin decreased slightly from 42.9% to 42.6% primarily
due to production inefficiencies associated with new product introductions,
increased freight costs associated with raw material purchases and lower margins
corresponding with products sold by the Company's subsidiary, Snell.
Total operating expenses increased both in absolute dollars and as a
percentage of net sales during fiscal 1997. Selling and marketing expenses have
increased from 12.6% of net sales to 14.4% of net sales primarily due to
increased advertising and literature expenditures associated with new product
introductions and increased international sales related expenses. General and
administrative expenses have increased due primarily to costs associated with
the acquisition of Snell, and the related amortization of goodwill acquired.
Engineering and development expenses have increased primarily due to increased
salaries and benefits relating to additional personnel, as well as increases in
the cost of materials and supplies relating to new product development.
Interest income has decreased in both absolute dollars and as a percentage
of net sales because of the utilization of certain investments for the
construction of the Company's new facility during fiscal 1996, the repurchase of
222,800 shares of the Company's common stock under its Common Stock Repurchase
Program and the acquisition of the business of Snell during fiscal 1997.
The Company's effective income tax rate increased from 32.0% in fiscal 1996
to 35.3% in fiscal 1997 primarily as a result of non-recurring tax credits
realized in fiscal 1996 in connection with capital expenditures.
Net income decreased 17% to $5.5 million from $6.6 million and earnings per
share decreased 16% from $1.52 per share to $1.28 per share.
FISCAL 1996 COMPARED WITH FISCAL 1995
Net sales increased 13% from approximately $41.0 million to $46.3 million.
Because the Company works on a 5-4-4 week quarter, there is an extra week every
five years. The third quarter fiscal 1996 represents 14 weeks of sales and
earnings compared to 13 weeks during the third quarter fiscal 1995. Fiscal 1996,
therefore, represents 53 weeks of sales and earnings compared to 52 weeks during
fiscal 1995.
New product introductions throughout fiscal 1996 contributed to the
continued growth in sales, both domestically and to international distributors.
The Company augmented its automotive speaker categories by completing the
introduction of the Boston Rally-TM- Coaxial Series during the first quarter.
The RX57, RX67, RX87 and RX97 have suggested retail prices ranging from $140 to
$200 per pair. In addition, during the second fiscal quarter the Rally RS
subwoofer category of products were introduced. The Rally RS subwoofers are high
power handling, low distortion woofers that work in small enclosures. The three
models, the RS8, RS10, and RS12, have suggested retail prices ranging from $200
to $260 per pair.
The Company also expanded its home category of loudspeaker models. The CR2
video-shielded center channel
6
<PAGE>
speaker with a suggested retail of $200 and the CR400 powered subwoofer with a
suggested retail price of $400 were added to the CR Series of products. The
VR2000, a powered subwoofer, the THX-certified VRS Pro diffuse-field surround
speakers and the VR10 center channel with suggested retail prices of $1200, $500
and $300, respectively, were added to the highly acclaimed Lynnfield VR Series
of products. These products make excellent components of a first class home
theater speaker system. Our Designer Series was enhanced with the introduction
of the 351, 361, and 381 models featuring improved sound and weather-proofing
qualities.
The Company's gross margin decreased from 43.9% in fiscal 1995 to 42.9%
primarily due to a shift in sales mix to products with lower margins, certain
raw material price increases absorbed by the Company, and increased expenses
relating to new production equipment and tooling. In addition, the Company had
increased costs relating to temporary additional offsite warehouse space during
the fiscal year, as well as an increased allocation of costs relating to the
relocation of the Company's office and manufacturing facilities.
Total operating expenses remained relatively stable as a percentage of net
sales in fiscal 1996 despite an increase in absolute dollars and increases
associated with the allocation of facility relocation costs. Selling and
marketing expenses have increased slightly due primarily to increased salaries
and related payroll expenses along with certain advertising and international
sales related expenses. General and administrative expenses as a percentage of
net sales decreased slightly from 6.0% in fiscal 1995 to 5.5% in fiscal 1996.
Increased salary and related expenses, as well as costs associated with the
termination of the lease of the Company's former manufacturing and office
facilities were partially offset by non-recurring legal costs expensed during
fiscal 1995. Engineering and development expenses have increased primarily due
to increased salaries and payroll related expenses, as well as materials and
supplies relating to new product development.
Interest income decreased slightly as a percentage of net sales due
primarily to long-term investments maturing and designated for capital
expenditures during fiscal 1996.
The Company's effective income tax rate decreased from 35.3% in fiscal 1995
to 32.0%, primarily due to a lower effective state tax rate resulting from the
favorable tax treatment afforded the Company's foreign sales corporation and
Massachusetts securities corporation, as well as to tax credits relating to
fiscal 1996 capital expenditures.
Net income increased 11%, from approximately $5.9 million to $6.6 million,
while earnings per share increased 10% from $1.38 to $1.52 per share.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal years 1995, 1996, and 1997, the Company financed its growth
with cash generated by operations. As of March 29, 1997, the Company's working
capital was approximately $24,681,000. The Company's cash and cash equivalents
were approximately $4,937,000, short-term investments were approximately
$2,594,000, and long-term investments were approximately $1,022,000. At March
29, 1997 the Company had a $1,500,000 unsecured bank line of credit and had not
used any line of credit borrowings since December 1985.
During fiscal 1995 and 1996 the Company purchased three parcels of land for
approximately $1.4 million. This land was used to construct the Company's new
manufacturing and office facilities. Construction of these facilities began in
June 1995 with occupancy taking place in February 1996. Approximately $6.8
million of cash and investments were used to construct these facilities. As a
result of the new facility construction, the Company expects to realize certain
cost savings, primarily the difference between rent and depreciation, in future
fiscal periods.
During fiscal 1997, the Company repurchased 222,800 shares of its common
stock under its stock repurchase program approved by the Board of Directors on
May 17, 1996. The shares were repurchased in open market transactions at a cost
of approximately $4.3 million provided from available working capital.
On June 13, 1997 the Company announced the redemption of an aggregate of
898,201 shares of its common stock from the estates of its co-founder, Francis
L. Reed, and his wife, Dorothea T. Reed. The shares were repurchased at $26 5/8
per share. As a result of this transaction, the number of outstanding shares of
Boston Acoustics has been reduced to 3,291,366 shares. Funds to complete the
redemption were obtained from an unsecured $25.0 million revolving credit
agreement with a bank.
The Company believes that its current resources are adequate to meet its
requirements for working capital and capital expenditures through fiscal 1998.
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its directors, officers, or
employees may contain "forward-looking" information which involve risk and
uncertainties. Any statements in this report that are not statements of
historical fact are forward-looking statements (including, but not limited to,
statements concerning the characteristics and growth of the Company's market and
customers, the Company's objectives and plans for future operations, possible
acquisitions, and the Company's expected liquidity and capital resources). Such
forward-looking statements are based on a number of assumptions and involve a
number of risks and uncertainties, and accordingly, actual results could differ
materially. Factors that may cause such differences include, but are not limited
to: the continued and future acceptance of the Company's products, the rate of
growth in the audio industry; the presence of competitors with greater technical
marketing and financial resources; the Company's ability to promptly and
effectively respond to technological change to meet evolving consumer demands;
capacity and supply constraints or difficulties; and the Company's ability to
successfully integrate new operations. For a further discussion of these and
other significant factors to consider in connection with forward-looking
statements concerning the Company, reference is made to Exhibit 99 of the
Company's Annual Report on Form 10-K for fiscal year March 30, 1996.
7
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 29, 1997 March 30, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,937,232 $ 4,702,299
Short-term investments 2,594,454 6,678,735
Accounts receivable, net of reserve of approximately
$411,000 and $307,000, respectively 9,328,881 8,401,038
Inventories 9,540,757 8,458,593
Deferred income taxes 791,000 730,000
Prepaid expenses and other current assets 809,761 343,066
- ----------------------------------------------------------------------------------------------------
Total current assets 28,002,085 29,313,731
- ----------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, AT COST:
Land 1,433,365 1,433,365
Building 7,012,347 6,762,323
Machinery and equipment 7,414,269 6,344,220
Office equipment and furniture 1,597,499 1,448,950
Motor vehicles 373,177 373,177
- ----------------------------------------------------------------------------------------------------
17,830,657 16,362,035
Less--Accumulated depreciation and amortization 6,936,205 5,665,178
- ----------------------------------------------------------------------------------------------------
10,894,452 10,696,857
OTHER ASSETS:
Long-term investments 1,022,164 2,305,992
Other assets 2,311,411 807,012
- ----------------------------------------------------------------------------------------------------
Total other assets 3,333,575 3,113,004
- ----------------------------------------------------------------------------------------------------
$ 42,230,112 $ 43,123,592
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,020,146 $ 1,167,933
Accrued payroll and payroll-related expenses 1,210,101 1,078,186
Dividends payable 523,279 551,088
Other accrued expenses 499,446 350,031
Accrued income taxes 68,135 83,617
- ----------------------------------------------------------------------------------------------------
Total current liabilities 3,321,107 3,230,855
- ----------------------------------------------------------------------------------------------------
COMMITMENTS (NOTE 8)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 6,000,000 shares
Issued - 4,602,954 and 4,602,621 shares in 1997
and 1996, respectively 46,029 46,026
Additional paid-in capital 4,973,409 4,966,918
Retained earnings 38,322,082 34,963,583
- ----------------------------------------------------------------------------------------------------
43,341,520 39,976,527
Less--Treasury stock, 416,720 and 193,920 shares in 1997
and 1996, respectively, at cost 4,432,515 83,790
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity 38,909,005 39,892,737
- ----------------------------------------------------------------------------------------------------
$42,230,112 $43,123,592
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
8
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended
------------------------------------------------------
March 29, 1997 March 30, 1996 March 25, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $50,308,962 $46,324,791 $41,045,703
COST OF GOODS SOLD 28,875,471 26,468,207 23,015,685
- ---------------------------------------------------------------------------------------------------------------
Gross profit 21,433,491 19,856,584 18,030,018
- ---------------------------------------------------------------------------------------------------------------
SELLING AND MARKETING EXPENSES 7,219,881 5,833,300 5,080,559
GENERAL AND ADMINISTRATIVE EXPENSES 2,965,267 2,552,389 2,475,894
ENGINEERING AND DEVELOPMENT EXPENSES 3,187,131 2,496,523 2,046,087
- ---------------------------------------------------------------------------------------------------------------
Total expenses 13,372,279 10,882,212 9,602,540
- ---------------------------------------------------------------------------------------------------------------
Income from operations 8,061,212 8,974,372 8,427,478
INTEREST INCOME, NET 416,880 777,204 763,944
- ---------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 8,478,092 9,751,576 9,191,422
PROVISION FOR INCOME TAXES 2,993,000 3,121,000 3,242,000
- ---------------------------------------------------------------------------------------------------------------
Net income $ 5,485,092 $ 6,630,576 $5,949,422
- ---------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $1.28 $1.52 $1.38
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,284,974 4,353,032 4,299,196
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE $.50 $.50 $.425
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
Additional Total
Number of $.01 Par Paid-in Retained Treasury Shareholders'
Shares Value Capital Earnings Stock Equity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 26, 1994 4,481,624 $44,816 $3,431,005 $27,233,204 $ (83,790) $30,625,235
Exercise of stock options 36,700 367 308,096 - - 308,463
Dividends - - - (1,829,152) - (1,829,152)
Net income - - - 5,949,422 - 5,949,422
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 25, 1995 4,518,324 45,183 3,739,101 31,353,474 (83,790) 35,053,968
Exercise of stock options 124,400 1,244 1,189,819 - - 1,191,063
Purchase and retirement of
treasury stock (40,103) (401) (60,818) (840,485) - (901,704)
Income tax benefits of
stock options - - 98,816 - - 98,816
Dividends - - - (2,179,982) - (2,179,982)
Net income - - - 6,630,576 - 6,630,576
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 30, 1996 4,602,621 46,026 4,966,918 34,963,583 (83,790) 39,892,737
Exercise of stock options 333 3 6,491 - - 6,494
Purchase of treasury stock - - - - (4,348,725) (4,348,725)
Dividends - - - (2,126,593) - (2,126,593)
Net income - - - 5,485,092 - 5,485,092
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 29, 1997 4,602,954 $46,029 $4,973,409 $38,322,082 $(4,432,515) $38,909,005
- ------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
9
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the Years Ended
------------------------------------------------------
MARCH 29, 1997 March 30, 1996 March 25, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,485,092 $6,630,576 $5,949,422
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 1,377,766 1,195,993 899,681
Deferred income taxes (37,000) 18,000 (290,000)
Changes in assets and liabilities, net of acquisition
of Snell Acoustics-
Accounts receivable (585,615) (641,162) (1,191,431)
Inventories (540,047) 268,351 (2,754,323)
Prepaid expenses and other current assets (365,693) 131,026 (169,854)
Accounts payable (373,461) 291,902 196,722
Accrued payroll and payroll-related expenses 228,070 161,304 341,924
Accrued income taxes (15,482) (557,941) 400,400
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,173,630 7,498,049 3,382,541
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Snell Acoustics (2,818,925) - -
Purchases of property and equipment, net (1,240,356) (9,062,407) (2,302,217)
Purchase of held-to-maturity investments (2,012,856) (3,793,876) (7,180,359)
Purchase of available-for-sale investments - (400,000) -
Proceeds from sale of available-for-sale investments 1,274,734 1,202,465 372,379
Proceeds from sale of held-to-maturity investments 6,106,231 7,447,430 5,766,333
Decrease (increase) in other assets 249,108 21,117 (159,029)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,557,936 (4,585,271) (3,502,893)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 6,494 1,191,063 308,463
Income tax benefit from stock options - 98,816 -
Purchase of treasury stock (4,348,725) (901,704) -
Dividends paid (2,154,402) (2,169,444) (1,716,472)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (6,496,633) (1,781,269) (1,408,009)
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 234,933 1,131,509 (1,528,361)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,702,299 3,570,790 5,099,151
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $4,937,232 $4,702,299 $3,570,790
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Dividends payable $ 523,279 $ 551,088 $ 540,550
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $3,045,742 $3,562,125 $3,198,600
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 29,1997
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Boston Acoustics, Inc. (the Company) engineers, manufactures and markets
home loudspeakers and automotive speakers. The Company's products are
principally marketed in the United States, Canada, Europe and Asia through
selected audio and audio-video specialty dealers and distributors.
The accompanying consolidated financial statements reflect the operations of
the Company and its wholly owned subsidiaries. All significant intercompany
amounts have been eliminated in consolidation.
The accompanying consolidated financial statements reflect the application
of the following significant accounting policies.
A. REVENUE RECOGNITION
Revenue is recognized when products are shipped to customers.
B. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to be cash
equivalents.
C. SHORT-TERM AND LONG-TERM INVESTMENTS
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Accordingly, at March 29, 1997, the
Company's investments are classified as held-to-maturity (recorded at amortized
cost) and as available-for-sale (recorded at fair market value).
D. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
March 29, 1997 March 30, 1996
- ------------------------------------------------------------------------------
Raw materials and work-in-process $5,889,305 $4,518,656
Finished goods 3,651,452 3,939,937
- ------------------------------------------------------------------------------
$9,540,757 $8,458,593
- ------------------------------------------------------------------------------
Work-in-process and finished goods inventories consist of materials, labor
and manufacturing overhead.
E. DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization using both straight-
line and accelerated methods by charges to operations in amounts estimated to
allocate the cost of the assets over their estimated useful lives as follows:
Asset Classification Estimated Useful Life
- ---------------------------------------------------------------------------
Building 39 years
Machinery and equipment 3-5 years
Office equipment and furniture 5 years
Motor vehicles 3 years
F. WARRANTY COSTS
Warranty costs are recorded when incurred by the Company. During the three-
year period ended March 29, 1997, warranty costs were not significant, and
future warranty costs are not expected to be significant.
G. INCOME TAXES
The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities.
H. NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number of
shares of common stock and common stock equivalents (stock options) outstanding
during each year when dilutive. Fully diluted earnings per share have not been
presented, as the amounts would not differ significantly from primary earnings
per share.
I. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company has no obligation for postretirement or postemployment benefits.
J. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
11
<PAGE>
K. CONCENTRATION OF CREDIT RISK
SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains the majority of its cash
balances with three financial institutions. The Company's accounts receivable
credit risk is not concentrated within any geographic area and does not
represent a significant credit risk to the Company. During fiscal 1997 and 1996,
one customer represented 11% of the Company's net sales.
L. FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosure about fair value of financial instruments. Financial
instruments consist of cash equivalents, marketable securities and accounts
receivable. The estimated fair value of these financial instruments approximates
their carrying value and, except for accounts receivable, is based primarily on
market quotes. The Company's cash equivalents and marketable securities are
generally obligations of the federal government or investment-grade corporate or
municipal issuers. The Company, by policy, limits the amount of credit exposure
to any one financial institution.
M. IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
SFAS No. 121 addresses accounting and reporting requirements for impairment of
long-lived assets based on their fair market values. The carrying value of
intangible assets, principally goodwill, is periodically reviewed by the Company
based on the expected future undiscounted operating cash flows of the related
business unit. Based on its most recent analysis, the Company believes that no
material impairment of intangible assets exists as of March 29, 1997.
N. NEW ACCOUNTING STANDARD
On March 31, 1997, the Financial Accounting Standards Board issued SFAS No.
128, EARNINGS PER SHARE. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. SFAS No. 128 is effective for fiscal years
ending after December 15, 1997, and early adoption is not permitted. When
adopted by the Company, SFAS No. 128 will require restatement of prior year's
earnings per share. The Company believes that the adoption of SFAS No. 128 will
not have a material effect on its financial statements.
2. INVESTMENTS
The Company's portfolio of investments consists of marketable securities
classified as available-for-sale and held-to-maturity. Investments held at March
29, 1997 and March 30, 1996 are presented below.
<TABLE>
<CAPTION>
March 29, 1997 March 30, 1996
------------------------------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term investments-
Available-for-sale-
Money market and equity
securities - - $1,274,734 $1,274,734
Held-to-maturity-
U.S. Treasury Notes and state
and municipal general
obligation and revenue bonds 2,594,454 2,595,400 5,404,001 5,421,311
- ----------------------------------------------------------------------------------------------------
Total short-term investments $2,594,454 $2,595,400 $6,678,735 $6,696,045
- ----------------------------------------------------------------------------------------------------
Long-term investments
(one- to two-year maturity)-
Held-to-maturity-
State and municipal general
obligation and revenue bonds $1,022,164 $1,021,543 $2,305,992 $2,311,928
- ----------------------------------------------------------------------------------------------------
</TABLE>
Realized gains and losses on sales of marketable securities for each of the
three years in the period ended March 29, 1997 were not material to the
Company's results of operations.
3. INCOME TAXES
The components of deferred tax assets consist of temporary differences
between the financial reporting and tax bases of assets and liabilities. A
valuation allowance has not been provided, as the Company expects to realize all
deferred tax amounts.
The approximate tax effect of each temporary difference is as follows:
March 29, 1997 March 30, 1996
- ------------------------------------------------------------------------------
Current deferred tax assets-
Accruals not currently deductible $ 320,000 $262,000
Receivable reserves 286,000 228,000
Inventory reserves 185,000 240,000
- ------------------------------------------------------------------------------
791,000 730,000
Noncurrent deferred tax assets-
Depreciation 243,000 267,000
- ------------------------------------------------------------------------------
Total deferred tax assets $1,034,000 $997,000
- ------------------------------------------------------------------------------
12
<PAGE>
The noncurrent deferred income taxes are included in other assets in the
accompanying consolidated balance sheets.
The components of the provision for income taxes shown in the accompanying
consolidated statements of income consist of the following:
<TABLE>
<CAPTION>
March 29, March 30, March 25,
1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current-
Federal $2,402,000 $2,800,000 $2,796,000
State 628,000 303,000 736,000
- ------------------------------------------------------------------------------------------
3,030,000 3,103,000 3,532,000
- ------------------------------------------------------------------------------------------
Deferred-
Federal (29,000) 23,000 (231,000)
State (8,000) (5,000) (59,000)
- ------------------------------------------------------------------------------------------
(37,000) 18,000 (290,000)
- ------------------------------------------------------------------------------------------
Provision for
income taxes $2,993,000 $3,121,000 $3,242,000
- ------------------------------------------------------------------------------------------
</TABLE>
The effective income tax rate varies from the amount computed using the
statutory U.S. income tax rate as follows:
<TABLE>
<CAPTION>
March 29, March 30, March 25,
1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
Increase in taxes resulting from
state income taxes, net of
federal income tax benefit 4.9 2.0 4.9
Municipal bond interest (1.3) (1.7) (2.2)
Foreign sales corporation (2.7) (2.2) (1.7)
Other .4 (.1) .3
- ---------------------------------------------------------------------------------------------
35.3% 32.0% 35.3%
- ---------------------------------------------------------------------------------------------
</TABLE>
4. SHAREHOLDERS' EQUITY
A. STOCK OPTIONS
The Company maintained an incentive stock option plan, which expired in
October 1996. The Company has 60,667 options outstanding under this plan as of
March 29, 1997. In February 1996, the Board of Directors approved a new
incentive stock option plan (collectively, the Plan) authorizing 200,000 shares
of common stock. The Plan is administered by the Board of Directors, and options
are granted at not less than the fair market value of the Company's common stock
on the date of grant. In July 1996, the Board of Directors amended the Plan to
permit the granting of nonqualified stock options and to allow the purchase of
up to 20,000 shares of common stock by a director who is not an officer or
employee of the Company.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
Weighted
Number of Price Average
Options Range Price
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at March 26, 1994 161,100 $8.125 - $9.90 $9.31
Options granted 10,000 17.00 17.00
Options exercised (36,700) 8.125 - 9.00 8.40
- -------------------------------------------------------------------------------------------
Outstanding at March 25, 1995 134,400 8.875 - 17.00 10.11
Options granted 62,000 18.50 - 19.50 19.32
Options exercised (124,400) 8.875 - 9.90 9.57
- -------------------------------------------------------------------------------------------
Outstanding at March 30, 1996 72,000 17.00 - 19.50 19.00
Options granted 98,000 17.50 - 19.25 18.21
Options exercised (333) 19.50 19.50
Options canceled (11,000) 17.00 - 19.50 18.36
- -------------------------------------------------------------------------------------------
Outstanding at March 29, 1997 158,667 $17.00 - $19.50 $18.55
- -------------------------------------------------------------------------------------------
Exercisable at March 29, 1997 21,658 $17.00 - $19.50 $18.95
- -------------------------------------------------------------------------------------------
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation, which requires the measurement of
the fair value of stock options and warrants to be included in the statement of
income or disclosed in the notes to the financial statements. The Company has
determined that it will continue to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under SFAS No. 123 for options granted after January
1, 1996 using the Black-Scholes option pricing model prescribed by SFAS No. 123.
The weighted average assumptions are as follows:
March 29, 1997 March 30, 1996
- ------------------------------------------------------------------------------
Risk-free interest rate 6.33% 6.38%
Expected dividend yield .50 .50
Expected lives 5 5
Expected volatility 42% 42%
Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net income and net income per share would have been
reduced to the following pro forma amounts:
March 29, 1997 March 30, 1996
- ------------------------------------------------------------------------------
Net income-
As reported $5,485,092 $6,630,576
Pro forma 5,438,212 6,469,619
Net income per share-
As reported $1.28 $1.52
Pro forma 1.27 1.51
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
13
<PAGE>
B. WARRANTS
In connection with a supply agreement entered into in March 1997, the
Company granted a customer warrants to purchase up to 100,000 shares of common
stock at an exercise price of $17.50 per share, which are fully exercisable at
March 29, 1997. The Company has the right to purchase any unexercised warrants
at a price of $7.00 per warrant if at any time after March 1999 the price of the
Company's common stock exceeds $25.00 per share. The warrants expire in March
2000. In accordance with SFAS 123, the Company has calculated the value of these
warrants at $484,000, which will be charged to operations as product is shipped
to the customer.
5. LINE OF CREDIT
The Company has a $1,500,000 unsecured line of credit with a bank available
for letters of credit, bankers' acceptances and direct advances. Interest on
letters of credit and bankers' acceptances is based on the prevailing rate (1.5%
at March 29, 1997). Direct advances accrue interest at the bank's commercial
base rate (8.50% at March 29, 1997). No amounts were outstanding under the line
of credit at March 29, 1997 and March 30, 1996.
6. EXPORT SALES
Export sales (primarily to Europe, Asia and Canada) accounted for
approximately 21%, 20% and 22% of net sales during fiscal 1997, 1996 and 1995,
respectively.
7. EMPLOYEE BENEFIT PLAN
On March 1, 1995, the Company established the Boston Acoustics, Inc. 401(k)
Retirement Plan (the 401(k) Plan). The 401(k) Plan is a defined contribution
plan established under the provisions of Section 401(k) of the Internal Revenue
Code. The Company may make a matching contribution of 25% of each participant's
contribution, up to a maximum of 5% of a participant's compensation for the plan
year. The Company contributed approximately $53,000, $55,000 and $4,000 to the
401(k) Plan during fiscal 1997, 1996 and 1995, respectively.
8. COMMITMENTS
The Company leases a facility which is occupied by Snell Acoustics under an
operating lease agreement that expires in fiscal 1999. The lease requires annual
payments of approximately $148,000 through fiscal 1999.
9. ACQUISITION OF SNELL ACOUSTICS, INC.
Effective June 1, 1996, the Company acquired all of the assets and the
business and assumed certain liabilities of Snell Acoustics, Inc. (Snell). Snell
manufactures high-end home loudspeaker systems for the audiophile market. The
acquisition, which was financed with available cash, was accounted for as a
purchase, and accordingly, the results of Snell since June 1, 1996 are included
in the accompanying consolidated statements of income.
The aggregate purchase price of $3,098,000 (which consisted of $720,000 in
cash, approximately $2,300,000 of assumed liabilities and $78,000 of direct
acquisition costs) was allocated based on the fair value of the tangible and
intangible assets acquired as follows:
Current assets $ 988,000
Property and equipment 228,000
Goodwill 1,882,000
- ---------------------------------------------------------------------------
$3,098,000
- ---------------------------------------------------------------------------
The excess of the purchase price over the fair value of the net assets
acquired was allocated to goodwill and will be charged to operations over four
years. Unaudited pro forma results of operations to reflect the Snell
acquisition have not been presented, as they are not material.
10. SUBSEQUENT EVENT
On June 13, 1997, the Company entered into an agreement with the estates of
its founder and former Chief Executive Officer and his spouse. Under the terms
of the agreement, the Company will acquire approximately 898,000 shares of the
Company's common stock owned by the estate for approximately $23,915,000. The
Company has obtained a $25,000,000 unsecured line of credit with a bank to
finance this transaction.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO BOSTON ACOUSTICS, INC.:
We have audited the accompanying consolidated balance sheets of Boston
Acoustics, Inc. (a Massachusetts corporation) and subsidiaries as of March 29,
1997 and March 30, 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended March 29, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Boston Acoustics, Inc. and
subsidiaries as of March 29, 1997 and March 30, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
March 29, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 9, 1997 (except with respect to the matter discussed in Note 10, as to which
the date is June 13, 1997)
FIVE YEAR SELECTED FINANCIAL DATA (Amounts In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net Sales $ 50,309 $ 46,325 $ 41,046 $ 34,488 $ 32,603
Net Income 5,485 6,631 5,949 4,682 4,772
Net Income Per Common Share 1.28 1.52 1.38 1.10 1.10
Weighted Average Number of
Common Shares Outstanding 4,285 4,353 4,299 4,250 4,333
Dividends Per Share $ .50 $ .50 $ .425 $ .40 $ .30
BALANCE SHEET DATA
Working Capital $ 24,681 $ 26,083 $ 25,924 $ 22,723 $ 19,532
Total Assets 42,230 43,124 38,379 32,899 29,430
Shareholders' Equity 38,909 39,893 35,054 30,625 27,280
<CAPTION>
QUARTERLY FINANCIAL DATA (Amounts In Thousands Except Per Share Data)
- -------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 29, 1997
Net Sales $ 11,052 $ 12,199 $ 14,779 $ 12,279 $ 50,309
Gross Profit 4,775 5,027 6,458 5,173 21,433
Net Income 1,319 1,203 1,795 1,168 5,485
Net Income per Common Share .30 .28 .42 .28 1.28
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 30, 1996
Net Sales $ 9,862 $ 11,648 $ 13,558 $ 11,257 $ 46,325
Gross Profit 4,373 5,048 5,807 4,629 19,857
Net Income 1,464 1,790 2,120 1,257 6,631
Net Income per Common Share .34 .41 .49 .28 1.52
</TABLE>
15
<PAGE>
SHAREHOLDER INFORMATION
Boston Acoustics, Inc. encourages investors to become informed about its
business. Additional information, copies of this report and the Company's Form
10-K filed with the Securities and Exchange Commission may be obtained by
writing to Debra A. Ricker-Rosato, VICE PRESIDENT - FINANCE.
DIVIDEND POLICY
In August of 1992 the Company authorized a 50% increase in its annual
dividend rate from $.20 to $.30 per share. In February 1993 the Company
authorized an increase to $.40 per share and a further increase to $.50 per
share was authorized in February 1995. Dividends are declared and paid
quarterly. Four quarterly dividends totaling $.50 were declared during fiscal
1997.
STOCK MARKET ACTIVITY
The common stock of Boston Acoustics, Inc. has been listed on the NASDAQ
National Market System under the symbol BOSA since its initial public offering
on December 12, 1986. The following table sets forth high and low closing prices
by quarter reported by NASDAQ:
Fiscal 1997 High Low
- ------------------------------------------------------------------------------
First Quarter 26 18 1/4
Second Quarter 23 3/4 19 1/2
Third Quarter 21 3/4 16 3/4
Fourth Quarter 30 3/4 16 3/4
Fiscal 1996 High Low
- ------------------------------------------------------------------------------
First Quarter 19 1/4 17
Second Quarter 21 18 1/4
Third Quarter 24 3/4 19 3/4
Fourth Quarter 23 18 1/4
There were 144 shareholders of record as of March 29, 1997. Shareholders
who beneficially own common stock held in nominee of street name are not
included in the number of shareholders of record.
BOARD OF DIRECTORS
ANDREW G. KOTSATOS
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND TREASURER
Boston Acoustics,Inc.
FRED E. FAULKNER, JR.
PRESIDENT AND CHIEF OPERATING
OFFICER
Boston Acoustics,Inc.
GEORGE J. MARKOS
SENIOR VICE PRESIDENT
AND GENERAL COUNSEL
Yell-O-Glow Corporation
LISA M. MOONEY
Executive Officers
ANDREW G. KOTSATOS
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND TREASURER
FRED E. FAULKNER, JR.
PRESIDENT AND CHIEF OPERATING
OFFICER
IRA S. FRIEDMAN
VICE PRESIDENT - MARKETING AND
PRESIDENT Snell Acoustics
MOSES A. GABBAY
VICE PRESIDENT - ENGINEERING
PAUL F. REED
VICE PRESIDENT - ADMINISTRATIVE SERVICES
DEBRA A. RICKER-ROSATO
VICE PRESIDENT - FINANCE
ROBERT L. SPANER
VICE PRESIDENT - SALES
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
Boston Acoustics, Inc.
300 Jubilee Drive
Peabody, MA 01960
Telephone: (508) 538-5000
Fax: (508) 538-5091
AUDITORS
Arthur Andersen LLP
Boston, Massachusetts
LEGAL COUNSEL
Peabody & Arnold
Boston, Massachusetts
TRANSFER AGENT
Bank of Boston
c/o Boston EquiServe, LP
Boston, Massachusetts
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NAME JURISDICTION
-------- ---------------
<TABLE>
<S> <C>
Boston Acoustics Foreign Sales Corporation U.S. Virgin Islands
Boston Acoustics Securities Corp. Massachusetts
BA Acquisition Corp. Massachusetts
Boston Acoustics Italia, s.r.l. Italy
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated May 9, 1997, (except with respect to the
matter discussed in Note 10, as to which the date is June 13, 1997) included
in this annual report on Form 10-K, into the Company's previously filed
Registration Statements No.'s 33-18793 and 33-36630.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Company's Financial Statements in its Annual Report to Shareholders for Fiscal
Year ended March 29, 1997, which are incoroporated by reference into the
Company's Annual Report on Form 10-K for such fiscal year and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> MAR-29-1997
<CASH> 4937232
<SECURITIES> 2594454
<RECEIVABLES> 9328881
<ALLOWANCES> 411000
<INVENTORY> 9540757
<CURRENT-ASSETS> 28002085
<PP&E> 17830657
<DEPRECIATION> 6936205
<TOTAL-ASSETS> 42230112
<CURRENT-LIABILITIES> 3321107
<BONDS> 0
46029
0
<COMMON> 0
<OTHER-SE> 43295491
<TOTAL-LIABILITY-AND-EQUITY> 42230112
<SALES> 50308962
<TOTAL-REVENUES> 50308962
<CGS> 28875471
<TOTAL-COSTS> 13372279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8478092
<INCOME-TAX> 2993000
<INCOME-CONTINUING> 5485092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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