<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
NUWAVE TECHNOLOGIES, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
NUWAVE TECHNOLOGIES, INC.
ONE PASSAIC AVENUE
FAIRFIELD, NEW JERSEY 07004
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
ON THURSDAY, MAY 29, 1997
----------------
The Annual Meeting of Shareholders of NUWAVE Technologies, Inc., (the
"Company") will be held on May 29, 1997 at the Radisson Hotel and Suites, 690
Route 46-E, Fairfield, NJ 07004 at 10:30 a.m., local time, to consider and act
upon the following matters:
1. To elect five directors to serve for the ensuing year.
2. To approve the Company's Non-Employee Director Stock Option Plan.
3. To ratify the selection by the Board of Directors of Coopers &
Lybrand, LLP as the Company's independent accountants for the current fiscal
year.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on April 28, 1997 will be
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. The stock transfer books of the Company will remain open following the
record date.
All shareholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors,
Gerald Zarin
President and Chief Executive Officer
Fairfield, New Jersey
April 30, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY
IS MAILED IN THE UNITED STATES.
<PAGE>
NUWAVE TECHNOLOGIES, INC.
ONE PASSAIC AVENUE
FAIRFIELD, NEW JERSEY 07004
201-882-8810
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
Dated: April 30, 1997
This Proxy Statement has been prepared and is furnished by the Board of
Directors of NUWAVE Technologies, Inc. (the "Company") in connection with the
solicitation of proxies for the Annual Meeting of Shareholders of the Company to
be held on May 29, 1997, and at any adjournment thereof, for the purposes set
forth in the accompanying Notice of Meeting.
It is anticipated that this Proxy Statement and the accompanying form of
proxy will be mailed to shareholders on or about April 30, 1997. The Company's
Annual Report, including audited financial statements for the fiscal year ended
December 31, 1996, is being mailed or delivered concurrently with this Proxy
Statement. The Annual Report is not to be regarded as proxy soliciting material.
Only holders of record of the Company's common stock, $.01 par value (the
"Common Stock"), on the books of the Company at the close of business on April
28, 1997, are entitled to vote at the Annual Meeting. On that date, there were
5,348,334 issued and outstanding shares of Common Stock entitled to vote on each
matter to be presented at the meeting. Each shareholder is entitled to one vote
for each share of Common Stock registered in that person's name on the books of
the Company on the record date on all business to come before the meeting.
Shares represented by a properly executed proxy received in time to permit
its use at the Annual Meeting or any adjournment thereof will be voted in
accordance with the instructions indicated therein. If no instructions are
indicated, the shares represented by the proxy will be voted for the election of
all nominees for director, for approval of the Company's Non-Employee Director
Stock Option Plan, for the ratification of the appointment of Coopers & Lybrand
LLP as the independent certified public accountants of the Company for the
fiscal year ending December 31, 1997, and in the discretion of the proxy holders
as to any other matter which may properly come before the Annual Meeting. A
shareholder who has given a proxy may revoke it at any time before it is voted
at the Annual Meeting by giving written notice of revocation to the Secretary of
the Company, by submitting a proxy bearing a later date, or by attending the
Annual Meeting and voting in person.
The expense of soliciting proxies will be borne by the Company. Proxies
will be solicited principally by mail, but directors, officers and regular
employees of the Company may solicit proxies personally, by telephone or by
facsimile transmission. The Company will reimburse custodians, nominees or other
persons for their out-of-pocket expenses in sending proxy material to beneficial
owners.
Each share of Common Stock entitles the holder thereof to cast one vote on
each matter to be voted upon at the 1997 Annual Meeting. A majority of the
outstanding shares will constitute a quorum at the meeting. Abstentions and
broker non-votes are counted only for purposes of electing directors in
accordance with Proposal One. None of the actions to be voted upon at the 1997
Annual Meeting shall create dissenters' rights under the Delaware General
Corporation Law.
You are requested, regardless of the number of shares you hold, to sign the
proxy and return it promptly in the enclosed envelope.
1
<PAGE>
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The table below is based on information obtained from the persons named
below with respect to the shares of Common Stock beneficially owned, as of March
31, 1997 (except as noted below), by (i) each person known by the Company to be
the owner of more than 5% of the outstanding shares of Common Stock, (ii) each
director and nominee for director, (iii) each executive officer included in the
Summary Compensation Table and (iv) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND NATURE OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) SHARES OWNED(2)
- ------------------------------------------------ ------------------------ ---------------
<S> <C> <C>
Gerald Zarin ................................. 650,000 11.7%
36 Troy Drive
Short Hills, NJ 07078(3)
Ed Bohn ....................................... 23,000 *%
322 Broadway
Pompton Lakes, NJ 07442(4)
Lyle Gramley ................................. 23,000 *%
12901 Three Sisters Road
Potomoc, MD 20854(5)
David Kwong .................................... 1,123,000 20.9%
13694 Fremont Pines Road
Los Altos, CA 94022(5,6,7)
Joseph A. Sarubbi .............................. 26,334 *%
3221 S. Ocean Blvd., Suite 908
Highland Beach, FL 33487(5)
Jeremiah F. O'Brien ........................... 30,357 *%
525 W. 236th St., #5-F
Riverdale, NY 10463(8)
Robert Webb .................................... 50,000 *%
298 Stanton Mountain Rd.
Lebanon, NJ 08833
Helen Burgess ................................. 577,854 10.8%
40 E. 30th St., 10th Fl.
New York, NY 10016
Prime Technology, Inc. ........................ 1,090,000 20.4%
2041 Mission College Blvd.
Suite 175
Santa Clara, CA 95054(6)
Ted Wong ....................................... 1,090,000 20.4%
663 Spruce Drive
Sunnyvale, CA 94086(6,9)
Rave Engineering Corporation .................. 1,090,000 20.4%
10930 Technology Place, Suite B
San Diego, CA 92127(6,10)
All executive officers and directors as a group
(7 persons)(11) ............................... 1,925,691 34.4%
</TABLE>
- ------------
* Less than 1%.
2
<PAGE>
(1) The number of shares of Common Stock beneficially owned by each person is
determined under the rules of the Securities and Exchange Commission, and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or
investment power and also any shares of Common Stock which the individual
has the right to acquire within 60 days after April 28, 1997 through the
exercise of any stock option or other right. The inclusion herein of any
shares of Common Stock deemed beneficially owned does not constitute an
admission of beneficial ownership of those shares. Unless otherwise
indicated, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by them.
(2) The number of shares deemed outstanding includes shares outstanding as of
March 31, 1997 plus any shares subject to options held by the person in
question that are currently exercisable within 60 days after April 28,
1997.
(3) Includes 200,000 shares that may be acquired within 60 days of April 28,
1997, upon the exercise of outstanding options.
(4) Includes 18,000 shares that may be acquired within 60 days of April 28,
1997, upon the exercise of outstanding options.
(5) Includes 3,000 shares that may be acquired within 60 days of April 28,
1997, upon the exercise of outstanding options.
(6) David Kwong, a director of the Company, and Rave (substantially all of the
stock of which is owned by the family of Randy Burnworth) each own
approximately 21.6% of Prime's stock. Ted Wong, a former director of the
Company, owns approximately 16.1% of the Prime's stock. Messrs. Kwong,
Burnworth and Wong are each directors of Prime. Each of Messrs. Kwong,
Burnworth and Wong disclaim beneficial interest in the Company's Common
Stock owned by Prime.
(7) Includes 1,090,000 shares of the Company's Common Stock owned by Prime, as
to which Mr. Kwong disclaims beneficial interest. See footnote 6 above.
(8) Includes 22,857 shares that may be acquired within 60 days of April 28,
1997, upon the exercise of outstanding options. Also includes 2,500 shares
that may be acquired within 60 days of April 28, 1997, upon the exercise of
outstanding warrants held by Mr. O'Brien's wife. As to these 2,500 shares,
Mr. O'Brien disclaims beneficial interest.
(9) Includes 1,090,000 shares of the Company's Common Stock owned by Prime, as
to which Mr. Wong disclaims beneficial interest. See footnote 6 above.
(10) Includes 1,090,000 shares of the Company's Common Stock owned by Prime, as
to which Rave disclaims beneficial interest. See footnote 6 above.
(11) See footnotes (1) through (10) above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and any persons who beneficially
own ten percent or more of the Company's Common stock, to file with the
Securities and Exchange Commission (the "Commission") initial reports of
beneficial ownership and reports of changes in beneficial ownership of Common
Stock. Such persons are required by regulations of the Commission to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely upon a review of (i) copies of Section 16(a) filings received
by the Company during or with respect to the 1996 fiscal year and (ii) certain
written representations of its officers and directors with respect to the filing
of annual reports of changes in beneficial ownership on Form 5, the Company
believes that each filing required to be made pursuant to Section 16(a) of the
Exchange Act during the 1996 fiscal year, when the Company completed its initial
public offering, has been filed in a timely manner.
3
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
The persons named in the accompanying form of proxy intend to vote all
valid proxies received in favor of the election of each of the persons named
below as nominees for director unless authority is withheld. Directors elected
at the Annual Meeting will serve until the next Annual Meeting of Shareholders
and until their successors are elected and qualified, subject to the election
and qualification of their successors and to their earlier death, resignation or
removal. In the event that any nominee is unable or unwilling to serve,
discretionary authority is reserved to the persons named in the accompanying
form of proxy to vote for substitute nominees. Management does not anticipate
that such an event will occur. Each director shall be elected by a plurality of
the votes cast.
NOMINEES FOR DIRECTOR
The Company's Board of Directors is set at five persons. The following five
persons have been nominated by the Board of Directors to fill such positions.
All are currently Directors of the Company.
GERALD ZARIN, age 56, has served as President and Chief Executive Officer
of the Company since its inception in July 1995, and, since January 28, 1996, as
Chairman of the Board of Directors. From June 1991 until January 1993, Mr. Zarin
was the Chairman, President and Chief Executive Officer of Emerson Radio
Corporation, which designs and sells consumer electronics products. Emerson
Radio filed in the United States Bankruptcy Court, District of new Jersey, for
protection under Chapter 11 of the Federal Bankruptcy Act on September 29, 1993
and was discharged on March 31, 1994. From June 1991 to July 1992, he was
President and Chief Executive Officer at AMD Consulting, Inc., a business
consulting firm. From November 1990 to June 1991, he was President and Chief
Executive Officer of JEM, Inc., an importer of fine furnishings. From August
1987 to October 1990, he was Senior Vice President and Chief Financial Officer
of Horn & Hardart, Inc., a holding company for various catalog, hotel and
restaurant businesses. From 1976 to 1986, he was President and Chief Executive
Officer of Morse Electro, Inc., which designed and sold consumer electronics
products.
ED BOHN, age 50, has been a director of the Company since July 1995. From
March 1995 to the present, he has been engaged as a Consultant for Borlas Sales
Corp. of New Jersey, an importer/exporter of consumer electronics goods. Borlas
also handles the sale and installation of software. From February 1995 to the
present, he has been a Director and Consultant of Jennifer Convertibles, a
furniture manufacturer. From September 1994 to the present, he has operated as
an independent consultant in financial and operational matters. From January
1983 to March 1994, Mr. Bohn was employed in various capacities by Emerson Radio
Corporation, which designs and sells consumer electronics products. From March
1993 to March 1994, he was Senior Vice President-Special Projects; from March
1991 to March 1993, he was Chief Financial Officer and Treasurer/Vice President
of Finance. Emerson Radio filed in the United States Bankruptcy Court, District
of New Jersey, for protection under Chapter 11 of the Federal Bankruptcy Act on
September 29, 1993 and was discharged on March 31, 1994.
LYLE E. GRAMLEY, age 70, has been a Director of the Company since December
1995. He has been employed by the Mortgage Bankers Association in Washington,
D.C. since 1985, as Senior Staff Vice President and Chief Economist from 1985 to
1992, and as a Consulting Economist from 1992 to the present. From 1980 to 1985,
Mr. Gramley was a member of the Board of Governors of the Federal Reserve Board.
DAVID KWONG, age 36, has been a Director of the Company since July 1995.
From August 1993 to the present, he has been President of Premier Source
International, an importer/exporter of computer memory chips and from August
1993 to the present, he has been Executive Vice President of Prime Technology,
Inc., which performs business development for technology companies. From August
1989 to June 1993, he was Vice-President of Advanced Computer Link, Inc., a
computer integration company.
JOSEPH A. SARUBBI, age 68, has been a director of the Company since March
1996. From October 1993 to June 6, 1996, he was a director of The Panda Project,
Inc., a manufacturer of computers and semiconductor packages. Since April 1988,
Mr. Sarubbi has been a self-employed management and technical consultant to
vari-
4
<PAGE>
ous technology companies. From February 1986 to April 1988, he was Senior Vice
President of Manufacturing Operations for Tandon Corporation, a computer
manufacturer. From December 1952 to January 1986, Mr. Sarubbi was employed by
IBM in various senior engineering positions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" ALL NOMINEES FOR DIRECTOR.
EXECUTIVE OFFICERS
Certain information relating to each executive officer of the Company
(other than those set forth above) is set forth below.
JEREMIAH F. O'BRIEN, age 50, has been Vice President and Secretary of the
Company since July 1995. Mr. O'Brien has been Chief Financial Officer of the
Company since January 28, 1996. From 1983 to 1989, he served as Chief Financial
Officer and Executive Vice President for Cardiac Resuscitator Corporation, a
medical electronics manufacturer. From September 1989 to June 1991, he served as
Senior Vice President of Finance for Emerson Computer Corporation and Emerson
Technologies, Inc., both of which manufacture and sell electronic components and
products. From June 1993 to March 1994, Mr. O'Brien was Corporate Controller of
Andin International Corporation, a jewelry manufacturing company. During the
period of July 1991 to July 1995, he also acted as an independent financial
consultant to various private corporations.
ROBERT WEBB, age 60, has been the Vice President of Marketing of the
Company since September 1995. In March 1997, his title was changed to Vice
President of Marketing/Technical Development to more accurately reflect his
duties with the Company. From June 1995 to September 1995, Mr. Webb acted as an
independent consultant to various private corporations. From July 1994 to March
1995, he was Vice President of New Product Development for Studio Magic, Inc., a
company involved in the design and manufacture of computer video equipment, and
served as a consultant for such company from October 1993 to July 1994 and in
April 1995. Studio Magic, Inc. was liquidated in May 1995 under the Federal
bankruptcy laws. From October 1973 to October 1993, he was employed by Grass
Valley Tektronix, which produces broadcast television equipment. From February
1993 to September 1993, he served as a special advisor to the President of Grass
Valley Tektronix. From November 1990 to February 1993, he was Division General
Manager -- Graphics Systems and held various executive positions prior to that
time.
BOARD AND COMMITTEE MEETINGS
The Board of Directors of the Company held 5 meetings during its fiscal
year ended December 31, 1996. The Board has a standing Audit Committee and a
standing Compensation Committee. The Compensation Committee met twice during the
fiscal year ended December 31, 1996 and the Audit Committee met 1 time. The
Company does not have a nominating committee. During the most recent fiscal
year, each director attended at least 75% of the meetings of the Board and any
committee on which such director served.
Messrs. Kwong, Bohn and Gramley comprise the Audit Committee of the Board
of Directors, the members of which make recommendations concerning the
engagement of independent public accountants, review with the independent public
accountants the results of the audit engagement, approve professional services
provided by the independent accountants, review the independence of the
independent public accountants, consider the range of audit and non-audit fees,
and review the adequacy of the Company's internal accounting controls.
Messrs. Bohn, Gramley and Zarin comprise the Compensation Committee of the
Board of Directors, which makes recommendations to the Board regarding the
executive and employee compensation programs of the Company. See "Report of
Compensation Committee On Executive Compensation" below.
The 1996 Performance Incentive Plan is, and the Non-Employee Director Stock
Option Plan will be, when approved by the shareholders, administered by the
entire Board of Directors.
5
<PAGE>
DIRECTORS' COMPENSATION
All directors hold office until the next annual meeting of shareholders and
the election and qualification of their successors. Directors who are not
employees and do not otherwise receive compensation from the Company are
entitled to a fee of $2,500 per year and $500 per meeting attended (other than
telephonic meetings) for serving on the Board of Directors in addition to the
reimbursement of reasonable expenses incurred to attend any meetings.
See "Stock Incentive Plans" below for a description of the Company's
Non-Employee Director Stock Option Plan, for which shareholder approval is being
requested at this meeting.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table sets forth the annual and long term compensation paid
by the Company for services performed on the Company's behalf since the
Company's inception in July 1995 through December 31, 1995 and for the fiscal
year ended December 31, 1996, with respect to those persons who were, as of
December 31, 1996, the Company's Chief Executive Officer and the Company's
executive officers (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
-------------------------------------- ------------------------------------
Securities
Other Annual Underlying Options All Other
Name and Principal Position Year Salary Bonus Compensation (Number of Shares) Compensation
- -------------------------------------------- ------- ----------- --------- -------------- -------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Zarin, President and 1995 $ 39,800 $ 0 $0 200,000 $37,500(1)
Chief Executive Officer 1996 $ 115,700 $50,000 $0 0 $ 0
Jeremiah O'Brien, Chief Financial Officer, 1995 $ 22,000 $ 0 $0 25,000 $ 0
Vice President and Secretary 1996 $ 93,100 $ 7,500 $0 5,000 $ 0
Robert Webb, Vice President-Marketing/ 1995 $ 19,600 $ 0 $0 70,000 $ 0
Technical Development 1996 $ 99,900 $17,500 $0 0 $ 0
</TABLE>
- ------------
(1) Payments made on account of services rendered in connection with the
organization of the Company prior to July 17, 1995. In consideration for
such services, Mr. Zarin also received 450,000 shares of Common Stock valued
at $.01 per share. Mr. Zarin was elected Chairman of the Board on January
28, 1996.
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all grants of options for the Company's
Common Stock to the Named Executive Officers of the Company during fiscal 1996.
In addition, the table shows the hypothetical gains or "option spreads" that
would exist for the respective options. These gains are based on assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
options were granted over the full option terms.
Option Grants For Year Ended December 31, 1996
Individual Grants
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Exercise or Price Appreciation for
Underlying Granted to Base Price Option Term(1)
Name Options Employees ($/Share) Expiration Date 5% 10%
- ------------------------- ------------- ------------- -------------- ------------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Jeremiah O'Brien ...... 5,000 100% 2.00 March 1, 2001 $2,750 $6,050
------- ------- -------
TOTAL .................. 5,000 100% $2,750 $6,050
======= ======= =======
</TABLE>
- ------------
(1) The dollar amounts under these columns represent the potential tangible
value, before income taxes, of each option assuming that the market price of
the Common Stock appreciates in value from fair market value at the date of
grant to the end of the option term at 5% and 10% annual rates and therefore
are not intended to forecast possible future appreciation, if any, of the
price of the Common Stock. All grants of options have been made with
exercise prices equal to fair value at date of grant.
No options were exercised in fiscal year 1996 by any of the Named Executive
Officers. The following table sets forth, as of December 31, 1996, the number of
stock options and the value of unexercised stock options held by the Named
Executive Officers.
Aggregated Option Exercises in Year Ended December 31, 1996
and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options(1)
Options at December 31, 1996 at December 31, 1996
--------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- -------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Gerald Zarin ......... 200,000 -0- $1,400,000 $ 0
Robert Webb ............ 50,000 20,000 275,000 110,000
Jeremiah O'Brien ...... 22,857 7,143 123,213 39,286
--------- ------- ----------- ----------
TOTAL: ............... 272,857 27,143 $1,798,213 $ 149,286
========= ======= =========== ==========
</TABLE>
- ------------
(1) The dollar value of the unexercised options has been calculated by
determining the difference between the fair market value of the securities
underlying the options and the exercise or base price of the option at
exercise or fiscal year-end, respectively.
EMPLOYMENT AGREEMENTS
Mr. Zarin has entered into an Employment Agreement with the Company dated
as of July 20, 1995, pursuant to which he has agreed to serve as the Company's
President and Chief Executive Officer through December 31, 2000. The agreement
provided for an initial salary of $90,000 per year and increased to $120,000 on
March 15, 1996. Mr. Zarin is also entitled to an annual bonus equal to (i) 30%
of his base compensation if the Company's net income before taxes is equal to
projections to be approved by the Company's Board of Directors (ii) 60% of his
base compensation if the Company's net profits before taxes are equal to 110% of
such projections, and (iii) 100% of his base compensation if the Company's net
profits before taxes are equal to 120% of projections. Mr. Zarin can terminate
the agreement upon 180 days notice. The Company can terminate the
7
<PAGE>
agreement for good cause at any time. If the Company terminates the agreement
other than for good cause, or otherwise materially breaches the contract during
the first 30 months of the agreement, Mr. Zarin is entitled to receive monthly
payments equal to his base compensation at the time of his termination for the
remainder of such 30 month period, plus an amount equal to a good faith estimate
of the bonus payments he would be entitled to receive during such period. At the
end of such 30 month period, or immediately if such termination occurs after
such 30 month period, Mr. Zarin will receive a single payment equal to the
remaining payments he would have been entitled to receive during the unexpired
portion of the agreement. In addition, the employment agreement provides Mr.
Zarin with an option to purchase 200,000 shares of common stock at $1.50 per
share. The option expires December 31, 2000 and terminates if Mr. Zarin
voluntarily leaves the Company or the employment agreement is terminated by the
Company for good cause. In connection with services rendered in establishing the
Company and creating its business plan and projections, Mr. Zarin received
450,000 shares of the Company's common stock valued at $.01 per share.
Mr. Webb has entered into an employment agreement with the Company dated as
of September 11, 1995 pursuant to which Mr. Webb was appointed Vice President --
Marketing. In March 1997, his title was changed to Vice-President-Marketing/
Technical Development in order to more accurately reflect his duties. The
employment agreement continues until March 31, 1996 and thereafter for
successive 3 month periods or upon termination. Mr. Webb's initial salary was
$5,000 per month and was increased to $108,000 per annum as of August 14, 1996.
In connection with his employment agreement, Mr. Webb received options to
purchase 70,000 shares of the Company's common stock.
In connection with services performed by Mr. O'Brien, on July 17, 1995 he
received 5,000 shares of the Company's Common Stock valued at $.01 per share and
has been granted options to purchase 25,000 shares of the Company's Common Stock
at $1.50 per share pursuant to an Option Agreement for the Purchase of Common
Stock dated September 11, 1995 and 5,000 shares of the Company's Common Stock at
$2.00 per share pursuant to an Option Agreement dated March 1, 1996.
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors (the "Committee"), which is
composed of two non-employee Directors and one employee Director. The Committee
is responsible for establishing and administering the policies which govern both
annual compensation and equity ownership programs. All decisions by the
Committee relating to the compensation of the Company's executive officers are
reviewed by the full Board of Directors. The one employee Director does not
participate in the Committee's discussions concerning his own compensation. This
report is submitted by the Committee and addresses the Company's policies for
1996 as they apply to Gerald Zarin, the President and Chief Executive Officer of
the Company, and the other two Named Executive Officers.
OVERVIEW AND PHILOSOPHY
The Company's executive compensation program is designed to promote the
following objectives:
To provide competitive compensation that will help attract, retain and
reward highly qualified executives who contribute to the long-term success
of the Company.
To align management's interests with the success of the Company by placing a
portion of the executive's compensation at risk in relation to the Company's
performance.
To align management's interests with stockholders by including long-term
equity incentives.
The Committee believes that the Company's executive compensation program
provides an overall level of compensation that is competitive within its
industry and among companies of comparable size and complexity. To ensure that
compensation is competitive, the Company regularly compares its compensation
practices with those of other similar companies and sets its compensation
guidelines based on this review. The Committee also seeks to achieve an
appropriate balance of the compensation paid to a particular individual and the
compensation paid to other executives both inside the Company and at comparable
companies and attempts to maintain
8
<PAGE>
an appropriate mix of salary and incentive compensation. While compensation data
are useful guides for comparative purposes, the Company believes that a
successful compensation program also requires the application of judgment and
subjective determinations of individual performance.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program consists of base salary,
periodic incentive compensation and long-term equity incentives in the form of
stock options. Executive officers also are eligible to participate in certain
benefit programs which are generally available to all employees of the Company,
such as medical insurance programs. In addition to the basic medical insurance
program, the executive officers are eligible to participate in an enhanced
medical insurance program which is available only to the executive officers of
the Company.
BASE SALARY
At the beginning of each fiscal year, the Committee establishes an annual
salary plan for the Company's senior executive officers based on recommendations
made by the Company's Chief Executive Officer. The Committee attempts to set
base salary compensation within its perceived range of salaries of executive
officers with comparable qualifications, experience and responsibilities at
other companies in the same or similar businesses and of comparable size and
success. Because of the Company's limited operating history, the Committee has
not previously reviewed compensation for comparable positions by reviewing
published compensation data as part of its efforts to set the annual cash
compensation for Company executives. Instead, the Committee has attempted to
base salary determinations both upon the Company's financial performance and
upon the individual's performance as measured by certain subjective
non-financial objectives. These non-financial objectives include the
individual's contribution to the Company as a whole, including his or her
ability to motivate others, develop the skills necessary to grow as the Company
matures, recognize and pursue new business opportunities and initiate programs
to enhance the Company's growth and success.
ANNUAL AND LONG-TERM INCENTIVE COMPENSATION
The Company has no formal bonus program for its key employees, although the
Committee may consider adopting such a program during the current fiscal year.
Occasionally, bonus payments may be made to key employees based on the
achievement of agreed upon performance objectives or as a part of the
recruitment process. During 1996, bonuses were awarded to the Company's
president, the Chief Financial Officer and the Vice-President-Marketing/
Technical Development.
The Company's stock option plan (see "1996 Performance Incentive Plan"
below) is designed to promote the identity of long-term interests between the
Company's employees and its stockholders and to assist in the retention of
executives. The size of option grants is generally intended by the Committee to
reflect the executive's position with the Company and his or her contributions
to the Company. Stock options generally vest over a period not to exceed five
years from the date of the grant in order to encourage key employees to continue
in the employ of the Company. Stock options are granted at an option price equal
to the fair market value of the Company's Common Stock on the date of grant;
however, the Company reserves the right to grant stock options having exercise
prices less than the fair market value of the Common Stock on the date of grant,
to modify the terms of existing options and to reprice the options as an
incentive for employees to remain with the Company.
BENEFITS
The Company's executive officers are entitled to receive medical insurance
benefits on the same basis as other full-time employees of the Company. In
addition to the basic medical insurance program, the executive officers are
eligible to participate in an enhanced medical insurance program which is
available only to the executive officers of the Company.
The amount of perquisites, as determined in accordance with the rules of
the Securities Exchange Commission relating to executive compensation, did not
exceed 10% of salary and bonus for 1996 for any of the Named Executive Officers.
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1996 PERFORMANCE INCENTIVE PLAN
As of January 31, 1996, the Company adopted its 1996 Performance Incentive
Plan (the "Plan"), pursuant to which stock options (both Nonqualified Options
and Incentive Options, as defined in the Plan), stock appreciation rights and
restricted stock may be granted to key employees and consultants (the
"Participants").
The Plan is administered by the Board of Directors acting as the Committee
(the "Committee"). The Committee will determine persons to be granted stock
options, stock appreciation rights and restricted stock, the amount of stock or
rights to be optioned or granted to each such person, and the terms and
conditions of any stock options, stock appreciation rights and restricted stock.
Both Incentive Options and Nonqualified Options may be granted under the
Plan. An Incentive Option is intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Any Incentive Option granted
under the Plan will have an exercise price of not less than 100% of the fair
market value of the shares on the date on which such option is granted. With
respect to an Incentive Option granted to a Participant who owns more than 10%
of the total combined voting stock of the Company or of any parent or Subsidiary
of the Company, the exercise price for such option must be at least 110% of the
fair market value of the shares subject to the option on the date the option is
granted. A Nonqualified Option granted under the Plan (i.e., an option to
purchase the Common Stock that does not meet the Code's requirements for
Incentive Options) must have an exercise price of at least the par value of the
stock.
Stock appreciation rights may be granted in conjunction with the grant of
an Incentive or Nonqualified Option under the Plan or independently of any such
stock option. A stock appreciation right granted in conjunction with a stock
option may be an alternative right. In which event, the exercise of the stock
option terminates the stock appreciation right to the extent of the shares
purchased upon exercise of the stock option and, correspondingly, the exercise
of the stock appreciation right terminates the stock option to the extent of the
shares with respect to which such right is exercised. Alternatively, a stock
appreciation right granted in conjunction with a stock option may be an
additional right, in which case both the stock appreciation right and the stock
option may be exercised. A stock appreciation right may not, however, be granted
in conjunction with an Incentive Option under circumstances in which the
exercise of the stock appreciation right affects the right to exercise the
Incentive Option or vice versa, unless certain terms and conditions are met.
Subject to the terms of the Plan, the Committee may award shares of
restricted stock to the Participants. Generally, a restricted stock award will
not require the payment of any option price by the Participant but will call for
the transfer of shares to the Participant subject to forfeiture, without payment
of any consideration by the Company, if the Participant's employment terminates
during a "restricted" period (which must be at least six months) specified in
the award of the restricted stock.
There are 200,000 shares available in the Plan. On February 10, 1997, in
connection with the execution of an employment agreement, the Company granted
its Vice President - Sales options to purchase 60,000 shares of common stock at
$6.875 per share, the underlying value of the Company's common stock at the date
of the grant. The Board has approved the grant of these options. No other
options or other rights have been granted pursuant to the Plan. The Company and
Rickel & Associates, the Underwriter of the Company's initial public offering
(the" Underwriter") have agreed that for a period of 18 months after the
offering (i.e. July 3, 1996) the Company will not grant options to purchase more
than 205,000 shares pursuant to the Plan or grant any options pursuant to the
Plan at less than $5.00 per share and not below the market price as of the date
of grant without the Underwriter's prior written consent.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN: See Proposal Two for description of
Plan.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK INCENTIVE PLANS
The Company understands that, under current federal income tax rules,
awards under the 1996 Performance Incentive Plan and the Non-Employee Director
Plan have the consequences described below:
The holder of an incentive stock option will not be treated as receiving
taxable income upon either the grant or exercise of such option; however, the
excess of the fair market value of the stock subject to the option at the time
of exercise over the option price is a tax preference item in the year of
exercise and is thus a component
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of alternative minimum taxable income in the year of exercise. Provided that the
stock acquired pursuant to an incentive stock option is not sold or otherwise
disposed of within two years from the date of grant of the option and is held
for at least one year after the date of exercise of the option, any gain or loss
resulting upon disposition of the shares will be treated as capital gain or loss
and will be treated as long term capital gain or loss if such stock is held for
more than one year. If stock acquired upon exercise of an incentive stock option
is disposed of prior to the expiration of such holding periods, the optionee
will realize ordinary income in the year of such disposition in an amount equal
to the excess of the fair market value of the stock on the date of exercise over
the option price. Any gain in excess of such ordinary income amount generally
will be taxed as capital gains. The Company would be entitled to a tax deduction
at the time of sale equal to the amount that compensation income is realized by
the participant.
The holder of a nonstatutory stock option will not be treated as receiving
taxable income upon the grant of such option. Upon exercise thereof the optionee
will realize ordinary income in an amount measured by the excess of the fair
market value of the shares on the date of exercise over the option price, and
the Company will be entitled to a corresponding deduction. Assuming the shares
of Common Stock received upon exercise of a nonstatutory stock option constitute
capital assets in the optionee's hands, any gain or loss upon disposition of the
shares will be treated as capital gain or loss, which will be long-term if the
shares of Common Stock have been held longer than one year.
To the extent that the aggregate fair market value of stock with respect to
which incentive stock options are exercisable for the first time in any calendar
year exceeds $100,000, the options will be treated as nonstatutory stock
options.
Generally, an employee receiving restricted stock realizes ordinary income
in an amount equal to the fair market value of such stock less any amount paid
for such stock at the time when the employee's rights with respect to such stock
are no longer subject to a substantial risk of forfeiture. However, the
recipient may make a special election provided in the Internal Revenue Code to
be taxed at the time of the receipt of the award (as if the restrictions did not
exist), but the recipient will not be allowed any deduction if the restricted
stock is later forfeited. Dividends, if any, paid to the holder of the
restricted stock award during the restriction period will be taxable as ordinary
compensation income (or as dividend income if the election referred to in the
preceding sentence has been made). The Company also believes that it will be
entitled to a tax deduction at the time and equal to the amount that ordinary
compensation income is realized by the recipient of the restricted stock.
SUMMARY OF COMPENSATION OF NAMED EXECUTIVE OFFICERS
CHIEF EXECUTIVE OFFICER
In 1996, Mr. Zarin, the Company's President and Chief Executive Officer,
received a salary of $115,700. This amount represents his base salary for 1996.
In addition, he received a bonus payment in the amount of $50,000 which was
awarded him for accomplishing certain goals for the Company for the year 1996.
The amount of Mr. Zarin's base salary and provisions for bonus payments to him
are included in an employment agreement between the Company and him. See
"Employment Agreement."
CHIEF FINANCIAL OFFICER
In 1996, Mr. O'Brien, the Company's Vice-President, Secretary and Chief
Financial Officer, received an aggregate salary of $93,100. At December 31,
1996, his base salary was $100,000. In addition, he received a bonus payment in
the amount of $7,500 which was awarded him for accomplishing certain goals for
the Company for the year 1996.
VICE PRESIDENT-MARKETING/TECHNICAL DEVELOPMENT
In 1996, Mr. Webb, the Company's Vice-President of Marketing/Technical
Development, received an aggregate salary of $99,900. At December 31, 1996, his
base salary was $108,000. In addition, he received a bonus
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payment in the amount of $17,500 which was awarded him for accomplishing certain
goals for the Company for the year 1996. The amount of Mr. Webb's base salary
and provisions for issuance of options to him are included in an employment
agreement between the Company and him. See "Employment Agreement."
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
The deductibility of executive compensation in excess of the limit set in
Section 162(m) of the Internal Revenue Code 1986, as amended, was not a factor
in the Committee's determination of 1996 compensation levels. The Committee will
continue to review the Company's executive compensation plans to determine what
changes, if any, may be advisable in connection with Section 162(m).
COMPENSATION COMMITTEE
Gerald Zarin
Ed Bohn
Lyle Gramley
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Gerald Zarin, Lyle Gramley
and Edward Bohn. No member of the Compensation Committee, other than Mr. Zarin,
was at any time during 1996, or formerly, an officer or employee of the Company
or any subsidiary of the Company. Mr. Zarin has been President of the Company
since July 1995 and Chief Executive Officer since January 28, 1996.
Additionally, Mr. Bohn has acted as a consultant to the Company from time to
time on matters specified by the Company's President. In March 1997, Mr. Bohn
entered into a consulting agreement with the Company pursuant to which he agreed
to act as the Company's consultant with regard to certain agreements for a three
month period. See "Certain Relationships and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was conceived of by Mr. Ernest Chu in June 1994 when he met Mr.
Ted Wong, the President of Prime Technology, Inc. ("Prime") as a result of an
introduction by employees of a high-technology company for which Mr. Chu was
then rendering consulting services in his individual capacity. At that time,
Prime was the exclusive licensee of all of the technology belonging to Rave
Engineering Corp. ("Rave"). Mr. Chu believed that the technology had the
potential to be commercialized on a mass basis for use in the video broadcast
industry. In the fall of 1994, Mr. Chu and Mr. Wong determined that the Rave
technology could be most effectively exploited if a new company were organized
to license the technology and related products and devote its principal
attention to directly commercialize and manufacture them, rather than relying on
sublicensing. They agreed that Prime and Mr. Chu would directly participate in
the equity of the new entity, and Rave would participate through its
approximately 20% equity ownership in Prime and through royalty and development
payments from the new company. Prime would continue to be responsible for
sublicensing through an agency agreement with the new company. The parties
recognized the need for an experienced president to operate the new company and
to commercialize the products, and began negotiations with Mr. Gerald Zarin,
whom Mr. Wong had recently met, to accept that position and participate in the
Company's equity.
Negotiations commenced in December 1994 and continued among Mr. Zarin, Mr.
Chu, Mr. Wong on behalf of Prime and Mr. Randy Burnworth on behalf of Rave
through early July 1995. As a result of these negotiations, the Company was
organized in July 1995, at which time Prime terminated its exclusive license
arrangement with Rave, and the Company entered into the License Agreement, as
described below . In addition, Rave agreed to continue the development of the
technology and the Initial Products pursuant to the Development Agreement
described below. Prime became the Company's exclusive agent to sublicense the
Rave technology-related products to third parties (subject in all cases to the
Company's approval) under the terms of the Agency Agreement described below.
Zarin became the Company's President and Mr. Chu became the Chairman of its
Board of Directors and acting Chief Financial Officer. Mr. Wong also became a
director of the Company. The Company also entered into a consulting agreement
with Corporate Builders, L.P., a limited partnership controlled by Mr. Chu.
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In connection with their organizational activities, Messrs. Chu, Wong,
Burnworth and Zarin, as well as Rave and Prime, acted as "Promoters" of the
Company within the meaning of the regulations promulgated by the Commission
pursuant to the provisions of the Securities Act of 1933 (the "Act").
Mr. Wong, a former director of the Company, is a director of Prime and an
approximate 16% shareholder in Prime. Mr. Wong is also the President and Chief
Executive Officer of Prime. Mr. David Kwong, a director of the Company, is a
director and approximate 22% shareholder of Prime. Mr. Kwong is also a Vice
President of Prime. Rave is an approximate 20% shareholder of Prime, and Mr.
Burnworth is a director of Prime. Mr. Burnworth is not a shareholder or officer
of Rave; however, he is the primary source of Rave's technology and provides the
direct supervision with respect to all of the development performed by Rave.
Substantially all of the stock of Rave is owned by members of Mr. Burnworth's
immediate family. No officer or director of the Company, except for Mr. Kwong,
has any ownership interest in, or serves as a director or officer of, Prime. No
officer or director of the Company has any ownership interest in, or serves as a
director or officer of, Rave.
A substantial portion of the Company's technology has been licensed from
Rave pursuant to the License Agreement between the Company and Rave dated July
21, 1995 (the "License Agreement"). Pursuant to the terms of the License
Agreement, the Company is obligated to pay Rave royalties ("Royalties") of (i)
2 1/2% of net sales of products utilizing Rave's technology ("Sales Royalties"),
and (ii) 25% of any sublicensing fees received by the Company from sublicenses
of the products and technology covered by the License Agreement ("Licensed
Products and Technology"). Payments of Sales Royalties will commence upon the
earlier of (i) accumulated net sales of Licensed Products and Technology sold by
the Company or its future affiliates reaching an aggregate of $50,000,000, or
(ii) the Company's aggregate net profits from sales of Licensed Products and
Technology equaling $5,000,000. As of the date hereof, the Company has not sold
or licensed any products and no Royalties, other than the Rave Minimum Payments
have been paid to Rave pursuant to the License Agreement.
The License Agreement also obligates the Company to pay $60,000 per year to
Rave for consulting services (the "Rave Consulting Fees") through July 21, 1998.
The Rave Consulting Fees are payable in $15,000 quarterly installments, in
advance, plus reasonable expenses. The License Agreement also provides that Rave
will receive minimum aggregate payments (the "Rave Minimum Payments") of
Royalties and Development Fees (pursuant to the Development Agreement described
below) of at least $65,000 per month. If Rave does not receive the Rave Minimum
Payments, it may elect to make the License Agreement non-exclusive. If the
Company fails to pay the Royalties, Rave may terminate the License Agreement and
become the licenser with respect to licenses granted by the Company pursuant to
the License Agreement.
The License Agreement terminates upon the later to occur of either (i) the
expiration of the last to expire of the patents obtained with respect to the
Company's technology, or (ii) July 21, 2012.
In March 1997, the Company agreed with Rave to exclude from the License
Agreement certain video transmission technology which Rave may develop for
application in the video game industry (the "Video Game Technology"). In return,
Rave agreed to pay the Company 2.5% of net sales of products using the Video
Game Technology and 25% of any fees it receives from licensing such technology.
The Video Game Technology is not used in any of the Company's current products,
and the Company had no current plans to develop it. As a result, the Company
determined that it was more likely that it would derive economic benefit from
the technology if its development and commercialization was undertaken by
another party. The Company continues to hold the rights to the technology
outside the video game industry under the License Agreement.
The Company has also entered into the Development Agreement with Rave,
pursuant to which the Company has formulated a development plan (the
"Development Plan") extending through October 1998. The Development Plan focuses
principally on the development of defined products. Pursuant to its terms, it
will be revised from time to time to provide for the development of additional
related products. The Development Agreement provides for the payment to Rave of
a monthly fee (the "Development Fee") which, when aggregated with the Royalties
provided for in the License Agreement, must equal at least $65,000 per month.
The Development Plan is to be revised by October 2, 1998 and on each anniversary
thereafter for each year the Development Agreement remains in effect. The
Development Agreement, which terminates on October 2, 1998, provides that it
continues for successive 12-month periods if the parties agree to additional
services to be performed by Rave and related compensation at least 12 months
prior to its expiration. In addition, the Develop-
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ment Agreement provides for Rave to receive payments aggregating $850,000 to
purchase or lease equipment (the "Equipment") for use in developing the licensed
products and technology. The payments are to be made in monthly installments of
$23,611 with a lump sum payment of $283,336 due in March 1998. In that
connection, the Company has arranged for Rave to lease certain equipment and
secured the lease with a letter of credit in the amount of $300,000.
The Development Agreement provides that all results of development,
including unrelated developments, belong to the Company, and that Rave will not
undertake any development activities for third parties without the consent of
the Company. Rave and the Company are discussing possible collaboration with a
third party pursuant to which Rave would undertake development activities for
such third party of medical devices, some of which might incorporate the
Company's licensed technology, but no agreements have been reached with respect
to such development activities or arrangements made with the Company with
respect to the use of such licensed technology. Rave has not sought the
Company's consent with respect to any other third party development activities
and is not providing development activities for any third parties.
Through December 31, 1996, all amounts paid to Rave pursuant to the License
Agreement and the Development Agreement have been charged to research and
development expenses ("Rave R & D Expenses"). For the cumulative period from
July 17, 1995 (inception) to December 31, 1996, Rave R & D Expenses were
$1,560,453; from July 17, 1995 to December 31, 1995, Rave R & D Expenses were
$416,628 and for the year ended December 31, 1996, they were $1,143,825.
In order to assist it in obtaining sublicensing revenue, the Company
entered into an agency agreement with Prime dated July 21, 1995 (the "Agency
Agreement"), The Agency Agreement provides that Prime will be the Company's
exclusive agent for entering into sublicenses with respect to the products and
technology licensed to the Company pursuant to the License Agreement. Because
its products are not fully developed, and because it has emphasized product
sales rather than sublicensing, the Company has not developed a licensing
program, established proposed royalties, or otherwise determined the terms or
conditions of the arrangements it may want to make with proposed licensees or
others. These programs will be developed in conjunction with product research
and development and with Prime pursuant to the Agency Agreement. For its
services, with respect to the first $50,000,000 of aggregate net sales made by
the Company's sublicenses, after subtracting the payments to Rave pursuant to
the Licensing Agreement and licensing expenses, Prime will receive 35% of net
sublicensing fees received by the Company and thereafter 45%. Because the
Company has retained the right to enter into license and sublicenses
independently, payments to Prime are to be made regardless of whether the
relevant sublicenses are entered into through Prime's efforts or by the Company
itself. Prime will also receive up to an additional $1,500,000 of which (i)
$400,000 is payable regardless of the receipt of sublicense fees in installments
of $15,000 per month which began January 1, 1996 and increased in accordance
with the terms of the agreement to installments of $40,000 per month in July
1996, (ii) $400,000 is payable out of the Company's first sublicensing fees, and
(iii) $700,000 is payable out of the Company's portion of sublicensing royalties
when net sublicensing sales exceed $200,000,000.
The Agency Agreement also provides that Prime will contribute its royalty
participation to pay Rave in any month in which the Company, after making
reasonable commercial effort, is unable to make the $65,000 Rave Minimum Payment
necessary to maintain the License Agreement on an exclusive basis with such
amounts to be repaid by the Company to Prime out of the Company's next available
royalty payment or 12 months from the date of such advance.
The Agency Agreement terminates upon the termination of the License
Agreement or upon a default, as defined in the Agency Agreement.
No amounts were paid to Prime pursuant to the Agency Agreement in the year
ended December 31, 1995. For the year ended December 31, 1996, Prime was paid
$330,000 pursuant to the Agency Agreement.
Rave's principal activities are providing services for the Company pursuant
to the Development Agreement. Prime was organized in 1993 and, at that time,
substantially all of its activities related to proposed licensing of Rave's
products and technology and the organization of the Company. The exclusive
licensing arrangement between Rave and Prime relating to the technology used by
the Company was terminated in July 1995.
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In connection with the organization of the Company and the termination of
Prime's then existing licensing arrangements with Rave, on July 17, 1995, Prime
received 1,090,000 shares of the Company's Common Stock valued at $.01 per
share.
In connection with the organization of the Company, on July 17, 1995, Mr.
Gerald Zarin, the Company's President and Chairman of its Board of Directors
received 450,000 shares of the Company's Common Stock valued at $.01 per share.
Mr. Zarin entered into an employment agreement with the Company as of July 20,
1995 and in that connection was granted options to purchase 200,000 shares of
the Company's Common Stock at $1.50 per share. The options expire December 31,
2000.
The Company has entered into a Consulting Agreement effective as of August
1, 1995 (the "Corporate Builders Agreement") with Corporate Builders, L.P. (the
"Consultant") of which Mr. Chu (who served as the Chairman of the Company's
Board of Directors and its acting Chief Financial Officer from its inception
until January 28, 1996) is a principal. The Corporate Builders Agreement
provides, among other things, that the Consultant will serve as an advisor to
the Company with regard to its relationship with the investment community,
assist the Company in developing a corporate strategy and business and
management goals, assist in the preparation of media presentations, oversee the
production of video production relating to the Company's products and services,
and, at the Company's request, have a representative of the Consultant serve as
a member of the Company's board of directors up to the time the Company offers
its securities to the public pursuant to a registration statement filed pursuant
to the Securities Act. The term of the agreement is for two years unless
terminated by either party for any reason. The Consultant received fees of
$7,500 per month until August 1997, and thereafter $5,000 per month until the
agreement terminates. In connection with services rendered in establishing the
Company and creating its business plan and projections performed by Mr. Chu,
commencing in mid-1994, at the direction of Mr. Chu, in July 1995 the Company
issued 450,000 shares of the Company's common stock valued at $.01 per share
earned by Mr. Chu to First Earth Investors, Consultant, and W2 Technologies,
Inc., all entities affiliated with Mr. Chu, in the amounts of 250,000 shares,
125,000 shares and 75,000 shares, respectively, as capital contributions to each
of the respective entities. As of June 19, 1996, Consultant returned its 125,000
shares of the Company's Common Stock back to Mr. Chu. As of June 28, 1996, the
125,000 shares of the Company's Common Stock received by Mr. Chu from Consultant
were returned to the Company. The 125,000 shares of the Company's Common Stock
were returned to Mr. Chu and, subsequently, to the Company to prevent such
shares from being considered underwriting compensation to either Consultant or
Mr. Chu.
The total consulting fees paid to Consultant pursuant to the Consulting
Agreement for the period from inception (July 17, 1995) to December 31, 1996 was
$115,000 plus out-of-pocket expenses; from July 17, 1995 to December 31, 1995,
$37,500 plus out-of-pocket expenses and for the year ended December 31, 1996,
$77,500 plus out-of-pocket expenses. The total aggregate payments made to Mr.
Chu and the affiliated entities for the cumulative period from inception to
December 31, 1996 was $198,669; from inception to December 31, 1995 was $88,302,
and for the year ended December 31, 1996, was $110,000.
In connection with the organization of the Company, Mr. Jeremiah O'Brien,
the Company's Vice President--Finance and Chief Financial Officer, received
5,000 shares of the Company's Common Stock valued at $.01 per share. In
connection with his employment by the Company, as of July 17, 1995 Mr. O'Brien
was granted options to purchase 25,000 shares of Common Stock at $1.50 per
share, 10,714 of which vested immediately, the remainder of which vest equally
on July 17, 1996 and July 17, 1997. All of such options expire on the fifth
anniversary of their vesting. On March 1, 1996, Mr. O'Brien was granted options
to purchase an additional 5,000 shares of Common Stock at an exercise price of
$2.00 per share, which options expire March 1, 2001.
In connection with his employment, on September 11, 1995, Mr. Robert Webb
was granted options to purchase 70,000 shares of Common Stock at an exercise
price of $1.50 per share, 30,000 of which vested immediately and the remainder
of which vest equally on September 11, 1996 and September 11, 1997. All of these
options expire after the fifth anniversary of their vesting.
In connection with the organization of the Company, on July 17, 1995, Mr.
Edward Bohn received 5,000 shares of the Company's Common Stock valued at $.01
per share. In connection with his agreement to continue serving as a director of
the Company, on March 1, 1996, Mr. Bohn was granted options to purchase 15,000
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shares of Common Stock at $2.00 per share. The options expire March 1, 2001. In
addition, beginning in 1996, Mr. Bohn has acted as a consultant to the Company
from time to time on matters specified by the Company's President. In that
connection he has received compensation on a per diem basis of $1,000 per day.
For the year ended December 31, 1996, Mr. Bohn received $14,250 on account of
such consulting services. In March 1997 Mr. Bohn entered into a consulting
agreement with the Company pursuant to which he agreed to act as the Company's
consultant with regard to certain agreements for a three month period for a rate
of $1,000 per day with a minimum of $1,750 per week and a maximum of $2,750 per
week regardless of the actual time spent on the Company's behalf.
In connection with his agreement to serve as a director, on November 9,
1995, Mr. Lyle Gramley was granted options to purchase 20,000 shares of the
Company's Common Stock at $1.50 per share. Mr. Gramley exercised his options as
of June 30, 1996.
In connection with his agreement to serve as a director, on March 1, 1996,
Mr. Joseph A. Sarubbi was granted options to purchase 35,000 shares of Common
Stock at $2.00 per share, 11,667 of which vested immediately and 11,667 of which
vested March 1, 1997 and 11,666 of which March 1, 1998. All of these options
expire on the fifth anniversary of their vesting. As of March 19, 1997, Mr.
Sarubbi exercised all of his vested options. In addition, beginning in 1996, Mr.
Sarubbi has acted as a consultant to the Company from time to time on matters
specified by the Company's President. In that connection he has received
compensation on a per diem basis of $1,000 per day. For the year ended December
31, 1996, Mr. Sarubbi received $6,000 on account of such consulting services.
The Company has entered into an employment agreements with Mr. Zarin. See
"Employment Agreements."
In July and August 1995, Helen Burgess purchased 437,854 shares of the
Company's Series A Preferred stock for $1.50 per share in a private placement
which shares were converted into Common Stock on a one-for-one basis at the time
of the Company's initial public offering in July 1996. In December 1995 Ms.
Burgess purchased the certain promissory notes in the principal amount of
$350,000 and 70,000 shares of Common Stock. In March 1996 Ms. Burgess exchanged
such notes for Bridge Notes in the principal amount of $350,000 and 70,000
additional shares of Common Stock. The Bridge Notes were repaid from the
proceeds of the Company's initial public offering. Ms. Burgess is a limited
partner in the Consultant.
On March 27, 1996, Mr. Kwong, a director of the Company, purchased $150,000
principal amount of Bridge Notes and 30,000 Bridge Shares. The Bridge Notes were
repaid from the proceeds of the Company's initial public offering.
With respect to each transaction between the Company and an affiliate of
the Company, a majority of the disinterested members of the Board of Directors
determined that such transactions were on terms at least as fair as had they
been consummated with unrelated third parties. The Board of Directors has
adopted a policy that prior to entering into any transaction with a related
party, a similar determination must be made with respect to such transaction by
a majority of the Company's disinterested directors.
16
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PROPOSAL TWO
ADOPTION OF NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
On November 25, 1996, the Company's Board of Directors adopted, subject to
shareholder approval, the Non-Employee Director Stock Option Plan (the
"Directors' Plan"), in order to attract and retain the services of non-employee
members of the Board of Directors and to provide them with increased motivation
and incentive to exert their best efforts on behalf of the Company by enlarging
their personal stake in the Company. The Directors' Plan provides that:
The maximum number of shares of Common Stock with respect to which options
may be granted is 80,000.
Each member of the Board of Directors (an "Eligible Director") who
otherwise (1) is not currently an employee of the Company, or (2) is not a
former employee still receiving compensation for prior services (other than
benefits under a tax-qualified pension plan) is eligible for the grant of stock
options under the Directors' Plan. Provided a sufficient number of shares remain
available under the Directors' Plan, each Eligible Director serving as a
Director on the date it was adopted, and each new Director who is an Eligible
Director at the time of his election to the Board of Directors, was, or shall
be, granted an option to purchase 3,000 shares of the Company's common stock at
the fair market value at the close of business at the date of such grant (i.e.
$5.75 per share on November 25, 1996), such option to vest immediately and to
expire five years from the date of such grant.
Beginning with this annual meeting of the stockholders of the Company and
provided that a sufficient number of shares remain available under the
Directors' Plan, each year immediately following the date of the annual meeting
of the Company, there automatically will be granted to each Eligible Director
who is then serving of the Board an option to purchase 5,000 shares of the
Company Common Stock which options will be vested with respect to 1,000 shares
at the time of such grant and thereafter with respect to 1,000 shares at each of
the next 4 anniversaries of such grant and be exercisable at the closing price
of such shares of common stock at the date of such grant.
Pursuant to the Directors' Plan, each of the four current non-employee
directors now serving on the Board of Directors received options for 3,000
shares of the Company Common Stock on November 25, 1996, the date upon which the
Board of Directors adopted the Plan. The options vested on that date and are
exercisable at the closing trading price of the Common Stock on that date which
was $5.75 per share.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
ADOPTION OF THE NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
17
<PAGE>
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Coopers & Lybrand LLP to
continue as independent certified public accountants for the Company for the
fiscal year ending December 31, 1997. Coopers & Lybrand LLP has been acting as
independent certified public accounts of the Company since its inception in July
1995. Unless otherwise indicated, properly executed proxies will be voted for
the ratification of the appointment of Coopers & Lybrand LLP, independent
certified public accountants, to audit the books and accounts of the Company for
the fiscal year ending December 31, 1997.
Representatives of Coopers & Lybrand LLP are expected to be present at the
Annual Meeting, will be given an opportunity to make a statement if they desire
to do so, and will also be available to respond to appropriate questions from
shareholders.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF
COOPERS & LYBRAND LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
SHAREHOLDER PROPOSALS
Shareholders who intend to submit proposals to the Company's shareholders
at the 1998 Annual Meeting of Shareholders must submit such proposals to the
Company no later than April 15, 1998, in order to be considered for inclusion in
the Proxy Statement and Proxy to be distributed by the Board of Directors in
connection with that meeting. Shareholder proposals should be submitted to
Jeremiah F. O'Brien, Secretary, NUWAVE Technologies, Inc., One Passaic Avenue,
Fairfield, NJ 07004.
ADDITIONAL INFORMATION
The Board of Directors is not aware of any matters to be presented at the
meeting other than the matters described herein and does not intend to bring any
other matters before the meeting. However, if any other matters should come
before the meeting, or any adjournment thereof, the persons soliciting the
proxies will have discretionary authority to vote all proxies in accordance with
their best judgment.
If you do not plan to attend the meeting, in order that your shares may be
represented and in order to assure the required quorum, please sign, date and
return your proxy promptly. In the event you are able to attend the meeting, at
your request, the Company will cancel any proxy executed by you.
18
<PAGE>
FINANCIAL MATTERS
Detailed financial information of the Company for the fiscal year ended
December 31, 1996 is included in the Company's Annual Report to Stockholders, a
copy of which is enclosed herewith.
REPORT TO STOCKHOLDERS
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1996 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE FURNISHED WITHOUT
CHARGE TO ANY SHAREHOLDER UPON WRITTEN REQUEST TO THE COMPANY AT ONE PASSAIC
AVENUE, FAIRFIELD, NJ 07004, ATTENTION: CHIEF FINANCIAL OFFICER.
EXPENSES OF SOLICITATION
The Company will bear the cost of soliciting proxies from its shareholders
and will enlist the help of banks and brokerage houses in soliciting proxies
from their customers. The Company will reimburse these institutions for
out-of-pocket expenses incurred thereby. In addition to being solicited through
the mails, proxies may also be solicited personally or by telephone by the
directors, officers and employees of the Company.
Kindly date, sign and return the enclosed proxy card.
By Order of the Board of Directors
GERALD ZARIN
President and Chief Executive Officer
19
<PAGE>
NUWAVE TECHNOLOGIES, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 29, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s) Gerald
Zarin and Jeremiah F. O'Brien, and each of them, with full power of
substitution, as proxies to represent and vote, as designated herein, all shares
of stock of NUWAVE TECHNOLOGIES, INC., (the "Company"), which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Shareholders of the Company to be held at the Radisson Hotel and Suites, 690
Route 46-E, Fairfield, N.J. 07004 on Thursday, May 29, 1997 at 10:30 a.m.,
local time, and at any adjournment thereof (the "Meeting").
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy will
be voted FOR all proposals. Attendance of the undersigned at the meeting or at
any adjournment thereof, will not be deemed to revoke this proxy unless the
undersigned shall revoke this proxy in writing or shall deliver a subsequently
dated proxy to the Secretary of the Company or shall vote in person at the
Meeting.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
1. To elect the following five (5) directors (except as marked below) for the
ensuing year.
NOMINEES: Gerald Zarin, Ed Bohn, Lyle Gramley, David Kwong and
Joseph A. Sarubbi
[ ] FOR all nominees (except as marked below)
[ ] WITHHOLD authority to vote for all nominees
For all nominees except the following nominee(s):
- -------------------------------------------------------------------------------
(CONTINUED AND TO BE SIGNED, ON REVERSE SIDE)
<PAGE>
2. To approve the Company's Non-Employee Director Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the selection by the Board of Directors of Coopers & Lybrand LLP as
the Company's independent accountants for the fiscal year ending December
31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated: , 1997
------------------ ----------------------------------
Signature
----------------------------------
Signature if held jointly
Please sign exactly as name appears hereon. If the stock is registered in the
names of two or more persons, each should sign. Executors, administrators,
trustees, guardians, attorneys and corporate officers should add their titles.
