UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
------------------
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission file number 0-28606
NUWAVE TECHNOLOGIES, INC.
(name of small business issuer in its charter)
DELAWARE 22-3387630
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
ONE PASSAIC AVENUE
FAIRFIELD, NEW JERSEY 07004
(Address of principal executive offices)(Zip Code)
(973) 882-8810
(Issuer's telephone number, including area code)
---------------------
Securities registered under Section 12(b) of
the Exchange Act:
NONE
Securities registered under Section 12(g) of
the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
Check whether the issuer (1) 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 [XX] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference to Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [XX]
<PAGE>
State issuer's revenues for its most recent fiscal year: $10,275
Aggregate market value of the voting stock held by non-affiliates based on the
last sale price for such stock at March 12, 1998: $23,507,750
The number of shares of Common Stock outstanding as of March 12, 1998: 5,601,819
Transitional Small Business Disclosure Format: Yes [ ] No [XX]
ii
<PAGE>
NUWAVE TECHNOLOGIES, INC.
FORM 10-KSB
INDEX
<TABLE>
<CAPTION>
<S> <C>
GLOSSARY ........................................................................................................iv
PART I 1
ITEM 1. BUSINESS........................................................................................1
ITEM 2. PROPERTY.......................................................................................14
ITEM 3. LEGAL PROCEEDINGS..............................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................14
PART II 15
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...................................................................15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......................................16
ITEM 7. FINANCIAL STATEMENTS...........................................................................32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...................................................33
PART III 33
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.....................................34
ITEM 10 EXECUTIVE COMPENSATION..........................................................................37
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...........................................................................40
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................42
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...............................................................49
SIGNATURES.......................................................................................................55
</TABLE>
iii
<PAGE>
GLOSSARY
A/B Roll Editing. The ability to access two or more playback tape machines
simultaneously and combine the video signals in the process of Video Production.
Analog Light Waves. A spectrum (band) of electro magnetic waves of different
frequencies in which each frequency represents a specific color..
Analog Video Waves. Electric currents that represent corresponding light waves
in an electrical circuit.
ASIC. An Application Specific Integrated Circuit. ASICs are produced in the form
of a silicon wafer (a "chip") containing electrical circuits through which
information in the form of electric signals flows and is processed. ASICs are
generally produced in large quantities by highly automated equipment.
Compression. The process of reducing actual data transmitted or stored through
the removal of data, with the objective that enough of the data removed will be
retrieved during expansion by interpolation or other processing methods that
attempt to recreate such data in order to create an acceptable image.
Digital Process. The process by which information is broken down into discrete
binary bits and thereafter manipulated and transmitted.
FPS. Frames Per Second. The rate at which video frames are presented. In
standard broadcast television, frames are presented at 30 fps.
Frame Extrapolation Process. Process by which one or more Virtual Frames are
produced by comparing two real frames and inferring location and other
information in the Virtual Frame by manipulating the compared data. The Virtual
Frame is then inserted in the video to create a smooth motion.
Frame Synchronization. The presentation of two or more video frames of the same
duration at the same time, from different sources, usually for purposes of
mixing or otherwise manipulating them in the course of a video production.
Initial Products. The principal products currently being developed by the
Company, i.e., the AVP, the Magic Card, the NUWAVE Dual TBC and the NUWAVE
Ministudio.
Interlaced Scanning. The presentation of video information in the form of
alternate horizontal lines in two separate fields representing one composite
frame. The NTSC and PAL standards are based on Interlaced Scanning.
iv
<PAGE>
Morphing. The application of a Frame Extrapolation Process to different images,
in which several Virtual Frames provide a smooth transition from one image to
the other.
Multimedia Computer. A computer that combines computing ability with the ability
to produce sound and process video from traditional sources attached to the
computer.
Noise. Salt and pepper patterns appearing at random in video presentations
usually caused by deterioration of the signal in data transmission, data
compression or decompression.
Non-Linear Editing. Editing by means of random instantaneous access to video
source material that is stored as discrete segments.
NTSC or PAL. National Television Standard Codes or Phase Alternate Lines, used
in virtually all broadcast television in North America and Europe, respectively,
based on interlaced scanning of alternating horizontal lines (525 in the case of
NTSC and 625 in the case of PAL). In these systems, two separate fields are
presented on an alternating basis, each at the rate of 30 fps.
OEM. Original Equipment Manufacturer. A manufacturer who includes components
such as the AVP or the Magic Card in a final product that such manufacturer
markets under its own label.
PCB. A printed circuit board. Generally a multi-layered board comprised of
several layers of insulating material (usually fiberglass) on which copper
traces (copper lines capable of carrying electric current) have been imprinted.
Randall Connectors. Refers to two mechanical connector schemes for which patents
have been granted: 1) A universal connector to allow different kinds of
connectors to fit on the same printed circuit board; 2) A computer card
extension board for audio/video signals.
Real Time. Transmission of data as an event occurs.
Satellite Distribution System. A system based on the transmission of information
from a point of origination to a orbiting satellite relay station, from which
such information may be retransmitted directly over a large area to discrete
receivers.
Settop Box. A device providing for the conversion and/or distribution of video
signals interposed between individual items of video equipment, such as between
a television and an arcade game, a personal computer and/or a satellite
broadcast receiver.
TBC. Time Base Corrector. A device attached to a video source that corrects to a
known timing source distortions in the rate each frame containing video
information is presented and presents a consistent timed signal and frame
synchronization. TBCs are an
v
<PAGE>
essential component in sophisticated video production processes in which multi
video sources are manipulated, combined and otherwise processed.
VGA. Video Graphics Array. The typical form in which video is encoded in a
computer for processing or display on a computer monitor. A VGA display is based
on individual "pixels" making up a computer screen. VGA must be converted into
broadcast signals that are displayed in compliance with NTSC or PAL standards.
Video Production. The process by which individual video source material is
collected , created, combined, edited and recorded.
Virtual Frame. An artificial frame produced by a Frame Extrapolation Process.
vi
<PAGE>
PART I
ITEM 1. BUSINESS
NUWAVE Technologies, Inc. (the "Company"), a development stage
enterprise organized in July 1995, was formed to develop, manufacture and market
products which improve picture quality in set-top boxes, televisions, VCRs,
camcorders and other video devices by enhancing and manipulating video signals,
and facilitate the production of sophisticated consumer and professional videos.
The television, telecommunications and computer markets are converging and, in
the process, redefining the way their constituencies interact. The Company
believes that video display is the common denominator of that interaction, and
that the products it is developing will allow it to participate in the growth of
the converging market.
The Company has produced fully operational prototypes of (1) an analog
video processor which significantly enhances video picture quality (the "AVP"),
(2) another video enhancement device which combined the AVP with digitally based
frame extrapolation video noise reduction circuits for use in NTSC or PAL
standard devices (the "Magic Card"), and (3) a time base corrector providing for
analog to digital conversion and the synchronization of up to 3 video sources
(the "NUWAVE Dual TBC"). The Company also has produced an initial prototype of a
video editing "studio" mounted on PCBs (the "NUWAVE Ministudio"). The AVP, the
Magic Card, the NUWAVE Dual TBC and the NUWAVE Ministudio are called the
"Initial Products."
The Company originally anticipated devoting significant resources to
the final commercial development of the Initial Products. However, with the
introduction and apparent favorable reception of the "NUWAVE Video Processor"
("NVP") and a separate proprietary software product ("Softsets") (as described
below) by the OEM, Professional and Retail markets and to best capitalize on the
expanding and converging markets, the Company has determined to devote
substantially all of the personnel and economic resources it would have devoted
to the Initial Products to the marketing of the NVP and Softsets. The decision
to commit substantial resources towards the final commercial development of the
Initial Products will be based in large part on the Company's experience in
marketing the NVP, therefore the Company cannot predict when, if at all, it will
finalize commercial development of these products or commence marketing them.
The Company, using its Advanced Engineering Group (as described below),
created the NVP which significantly enhances video images. The Advanced
Engineering Group also developed Softsets which provides end users and
manufacturers who use the NVP in their products with an option to manipulate the
attributes of video images to their own taste or standards. A more detailed
explanation of Softsets is described below in this Item 1 under the heading "The
Company's Video Enhancement Products."
<PAGE>
During 1997 the Company began marketing its NVP as the "NUWAVE Video
Processor" and the "Crystal Wave Video(TM)" circuit, and the Active and/or
Passive Softsets as "Crystal Wave Softsets" through comprehensive sales
presentations to prospective customers. Although the Company is unable to
predict whether its marketing efforts will be successful, it believes based upon
its presentations that the products have been well received, and several
potential customers have indicated their desire to continue discussions. The
Company recently entered into its first OEM contract, a multi-year supply
agreement with Thomson Consumer Electronics, Inc. ("Thomson") for the purchase
of the NVP Application Specific Integrated Circuit ("ASIC") chip. Thomson is the
largest manufacturer and marketer of television receivers and related video
products in the U.S. under the RCA, GE and ProScan brands. The Company expects
to produce the ASIC chips in accordance with the customer's specific application
requirements supported by firm commitments rather than producing and
inventorying standard ASIC chips in anticipation of the requirements of its
potential customers.
The technology on which the Company's Initial Products is based was
originated by Rave Engineering Corporation ("Rave") prior to the Company's
organization and is licensed to the Company by Rave pursuant to an Exclusive
Worldwide License Agreement between the Company and Rave dated July 21, 1995
(the "License Agreement"). The Company also entered into a Development Agreement
dated July 21, 1995 (the "Development Agreement") with Rave pursuant to which
Rave did work in connection with the development of the Initial Products. Rave's
role in the development of these products is substantially completed. See Item
6, "Management's Discussion and Analysis," for a discussion of the terms of the
License Agreement and the Development Agreement.
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. The Company continues to
hold the rights to the technology outside the video game industry under the
License Agreement.
The Company has established an Advanced Engineering Group (the
"Advanced Engineering Group") made up of its own employees and third party
consultants who work with the Company on a project by project basis. The
Advanced Engineering Group operates under the direction of the Vice
President-Marketing/Technical Development to support the continuing development
of its products and related or new technology, and the identification of
additional sources of new technology. The Company has used its Advanced
Engineering Group to create the NVP, to develop a significant amount of the
software included in each of its products and to develop circuitry to allow
certain of the products to be produced as ASICs for which the Company has filed
patent applications. The Advanced Engineering Group also developed
2
<PAGE>
the Softsets for the NVP and certain of the enhancements to it. The Company
intends to continue to use the Advanced Engineering Group to finalize the
commercialization of the products it has developed.
The Company is a development stage enterprise. It has had only a
limited operating history and has sold only limited quantities of its products
to date (primarily to independent sales representatives for demonstration
purposes). The Company's prospects must be considered in light of the risks
associated with the establishment of a new business in the evolving electronic
video industry, as well as further risks encountered in the shift from
development to commercialization of new products based on innovative technology.
There can be no assurance that the Company will be able to generate revenues or
achieve profitable operations. See Item 7, "Financial Statements," and Item 6,
"Management's Discussion and Analysis."
History
The Company was conceived of by Mr. Ernest Chu in June 1994 when he met
with 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 Rave's technology. 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 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, and 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. In
addition, Rave agreed to continue the development of the technology and the
Initial Products pursuant to the Development Agreement and Prime became the
Company's exclusive agent to sublicense the products covered by the License
Agreement to third parties (subject in all cases to the Company's approval)
under the terms of the Agency Agreement. See Item 6, "Management's Discussion
and Analysis," for a description of the Agency Agreement. Mr. Zarin became the
Company's President and Mr. Chu became the Chairman of its Board of
3
<PAGE>
Directors and acting Chief Financial Officer. Mr. Wong 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.
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 "Securities Act").
Mr. Wong, a former director of the Company, is a director 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.
Rave's principal activities were to provide services for the Company
pursuant to the Development Agreement. 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. Except for the "Game Engine
Technology" referred to above and certain medical industry activities (which
consent was given and has subsequently lapsed) no other requests to the Company
have been made. 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.
Background--Video Images
The human eye perceives all images as a result of its ability to
recognize light. Light travels as continuous electromagnetic waves ("Analog
Light Waves") that are either emitted by the object being observed or reflected
from it. Analog Light Waves vary in frequency and amplitude, and can be directly
captured as images. For example, in photography, light waves strike film treated
with certain chemicals and the energy from the light wave causes chemical
reactions that change the translucency of the film. As a result, the image can
be recreated by again passing light through the film. In computers, visual
images can be stored and manipulated after Analog Light Waves have been broken
down into smaller constituent parts expressed as digital signals. These digital
signals are
4
<PAGE>
transmitted as bits and then reconstituted into Analog Light Waves visible to
the human eye.
Broadcast television technology is based on analog light wave
transmissions. Analog Light Waves are captured by an electronic television
camera and turned into usable electrical energy in the form of a lower frequency
Analog Video Wave. That wave is transmitted to a receiver, where it is projected
at the standard broadcast rate of 30 fps against a phosphorescent screen. The
screen then emits Analog Light Waves, making the image visible to the human eye.
Modern video telecommunications, such as satellite broadcasting and
cable television, generally combine both analog and digital processes in order
to capture and transmit images. For example, in digital satellite video
telecommunication the image is digitized by a computer processor and then
broadcast to a satellite. The digital information is received and rebroadcast by
the satellite directly to a receiver, and then reconstituted into energy in the
form of an analog wave and displayed at 30 fps to create a visible image.
Band widths available for satellite video transmission are limited by
the Federal Communications Commission ("FCC"). These limitations significantly
restrict the amount of information that can be transmitted in any time interval
and require most information to be transmitted in a compressed digitized format.
Internet telecommunication is subject to greater limitations. All sites
on the Internet are computers that process data on a digital basis linked by
telephone lines. Information is typically transmitted over these lines from
computers through modems. Currently, the fastest modems available for general
use can transmit only a fraction of the digital information necessary to create
real time images at 30 fps. Even if the speed of a modem was increased, the
limitations of currently available personal computers for general use make it
unlikely that a user would be able to retrieve and display data at a rate
greater than 15 fps. One result is that real time teleconferences are generally
accomplished by using special high speed modems and dedicated telephone lines
rather than using the Internet. These telephone lines are usually provided by a
national carrier having the equivalent band width of approximately 24 standard
telephone lines, which is then able to transmit the video images at 30 fps.
Charges for these dedicated lines are substantially the same as for standard
line equivalents, making real time teleconferences expensive. The ability to use
the Internet or otherwise use standard telephone lines for teleconferencing
would substantially reduce costs of teleconferencing.
Given the physical limitations of satellite, cable and telephone
systems, and their increasing interactivity, ever more emphasis is being placed
on compression technology as a means to allow more data to be transmitted in any
time interval. Using a variety of techniques, portions of a digital description
of an image are omitted in the transmission of information, and, by mathematical
formula or inference, most of the omitted data is then replaced after reception.
The result of this compression technology has been to increase the number of
channels available for digital satellite broadcasting from
5
<PAGE>
50 to 150, and to significantly improve the quality of images transmitted over
the Internet. The Company believes that improvements in the amount of
compression possible will continue. However, as the amount of compression
increases, more data will likely be lost, and the quality of the image will
deteriorate.
Image information may be lost in the process of compression or
distorted during recording, transmission or playback because of various factors,
including signal interference or deterioration of original film quality and
camera focus. Some of the problems from this loss or distortion of image
information include lack of clarity, a "washed out" look and excessive or
inadequate black level.
One of the methods used to compress digitized video information for
storage and transmission (other than television transmission) is to eliminate
frames. A phenomenon causing analogous results occurs when the hard drive of a
computer, or some other component, cannot retrieve or present data at
sufficiently high fps. In either case, image movement is erratic and
unrealistic. Regardless of whether the signal is compressed, the image may be
subject to Noise.
The Company's Video Enhancement Products
The NVP and Softsets
The NVP controls, corrects and improves analog video signals' use of
digital control (software). The NVP first detects and replaces all important
picture synchronization and stability attributes. It then separates and corrects
the color and black and white information. The NVP enhances fine details of an
image and reduces distortions incurred in the course of transmitting the image,
corrects the pure black content of images and adjusts perceived light on
projected images. Fine detail enhancement is achieved by a proprietary circuit
that analyzes the form of the analog waves at the point of origin or display,
and processes the wave to significantly increase the clarity of the image.
The NVP achieves "blackness" correction by establishing a "reference to
true black" and adjusting the rest of the color spectrum to that reference,
making a "washed out" image appear more vivid. Similar referencing currently is
available only in expensive video display units, TV monitors, and projection
systems; the NVP's proprietary circuits enable the process to be performed
inexpensively on a PCB, ASIC or a small portion of a integrated circuit chip.
The NVP also contains circuits that provide for the adjustment of light
in images and brightness of the colors presented, similar to circuits
traditionally included in televisions.
The NVP can be used prior to further processing of the Analog Video
Wave at the source of the video signal and/or at the other end of the process
prior to the display of the video image. In the form of a chip, it can be
included in a television set,
6
<PAGE>
video projector or in a video conference display or in the decoder or routing
box that connects a typical television to a cable broadcasting company or a
multichannel satellite provider. The NVP also can be included in any personal
computer that has a capture board, a device enabling the computer to convert
standard broadcast video signals into a digitized form. This enables the image
to be enhanced prior to digitization.
Through its Advanced Engineering Group, the Company has developed
Softsets to control the functions of the NVP. The Softsets give both end users
and manufacturers who use the NVP in their products the ability to manipulate
the attributes of video images to their own taste or standards. For example, the
manufacturer of a set-top box who includes the NVP and Softsets in its product
could offer viewers the ability to select predetermined optimum video parameters
for "Sports," "Movies" "Drama" or other predesignated programming from their
remote control ("Active Softsets"). Additionally, program providers or other
transmitters can encode their signal so that a receiving device containing the
NUWAVE Softsets and enhanced NVP will automatically adjust its video parameters
to a predetermined value when the signal is received ("Passive Softsets"). The
encoded signal can also be included in the actual programming.
During 1997 the Company began marketing the NVP as the "NUWAVE Video
Processor" and the "Crystal Wave Video(TM)" circuit, and the Active and/or
Passive Softsets as "Crystal Wave Softsets" through comprehensive sales
presentations to prospective customers. Although the Company is unable to
predict whether its marketing efforts will be successful, it believes, based on
its presentations, that the products have been well received, and several
potential customers have indicated their desire to continue discussions. The
Company recently entered into its first OEM contract, a multi-year supply
agreement with Thomson for the purchase of the NVP ASIC. The Company expects to
produce the ASIC chips in accordance with the customer's specific application
requirements supported by firm commitments rather than producing and
inventorying standard ASIC chips in anticipation of the requirements of its
potential customers.
The Initial Products
The Company originally anticipated devoting significant resources to
the final commercial development of the Initial Products including the Magic
Card, NUWAVE Dual TBC and the NUWAVE Ministudio. However, with the introduction
and apparent favorable reception of the NVP and Softsets by the OEM (including
an order from Thomson), Professional and Retail markets and to best capitalize
on the expanding and converging markets, the Company has determined to devote
substantially all of the personnel and economic resources it would have devoted
to these products to the marketing of the NVP and Softsets. Because the final
commercial development of the Initial Products will be based in large part on
the Company's experience in marketing the NVP, the Company cannot predict when,
if at all, it will finalize commercial development of these products or commence
marketing them.
7
<PAGE>
The Company's Other Potential Products
The Company intends to continue to use outside consultants to assure
exposure to new ideas and technology. The Company through its Advanced
Engineering Group, its Development Agreement with Rave and other potential
sources of new technologies with other third parties, is conducting
investigation, research and development activities with respect to other
products relating to video telecommunications although none are material to the
Company's present plan of operation. These activities may give rise to
additional products which may be commercialized by the Company. However, there
can be no assurance that its efforts will result in marketable products or
products which can be produced at commercially acceptable costs.
Research and Development
Research and development activity with respect to the Company's Initial
Products was carried out by Rave prior to July 21, 1995 when the Company and
Rave entered into the License Agreement and the Development Agreement. The
technology on which the Company's Initial Products were based was originated by
Rave prior to the Company's organization and the Company relied on Rave for the
development of the Initial Products. The technology is licensed to the Company
by Rave pursuant to the License Agreement. Rave's role in the development of the
Initial Products is substantially completed.
In March 1997 the Company agreed with Rave to exclude from the License
Agreement 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. The Company continues to hold the rights to the
technology outside the video game industry under the License Agreement.
The Company's Advanced Engineering Group currently operates to support
the continuing development of its products and related technology, and the
identification of additional sources of new technology. The Advanced Engineering
Group has been used to create the NVP, to develop a significant amount of the
software included in each of its products and to develop new circuitry to allow
certain of the products to be produced as ASICs for which the Company has filed
patent applications. The Advanced Engineering Group also developed Softsets for
the NVP and certain of the enhancements to it. As of March 10, 1998, the
Advanced Engineering Group consisted of 3 of the Company's employees and outside
consultant organizations who have on their respective staffs engineers,
technicians and support personnel (totaling more than 30 personnel) who devote
time to NUWAVE on an as needed project by project basis. The Company anticipates
that the make up of its Advanced Engineering Group will change from time to time
depending on its current and anticipated development and commercialization
plans.
8
<PAGE>
The Company's strategy with respect to new products and technologies is to
continue to utilize the Advanced Engineering Group as well as other independent
third party sources and to increase its internal technical and engineering staff
as appropriate.
From July 17, 1995 through December 31, 1997, the Company incurred
expenses of $3,808,800 on research and development, of which approximately 71%
was paid to Rave pursuant to the Development Agreement. During the next 12
months, the Company intends to spend approximately $2,073,500 on research and
development and in support of the commercialization of its products. Of that
amount the Company estimates that approximately 49% will be paid to Rave
pursuant to the Development Agreement and approximately 51% will be spent by the
Advanced Engineering Group for software development, ASIC chip development, and
supervising and directing production engineering undertaken by third parties and
on internal research and development. In the event the Company is able to
generate sufficient revenues from sales of its Softsets and NVP products during
such 12-month period, it anticipates it will increase its expenditures on
research and development and the identification of new sources of technology.
Marketing and Distribution
The Company commenced the marketing of its NVP and Softsets to
manufacturers of video products including televisions, VCR's, Digital Video Disk
Players ("DVD's"), set-top boxes, satellite distribution systems, digital
cameras, camcorders, etc. The Company has also introduced its technology to
companies that manufacture component parts and semiconductors used in the
manufacture of such video products. The Company believes that the inclusion of
its NVP and Softsets in such video products will allow them to produce
significantly better images, allow for product differentiation and the low cost
to the user will make it an attractive product. The Company's goal is to
position itself to take advantage of the converging television,
telecommunication and computer markets by developing multiple products from its
unique video enhancement technology.
In that regard, the Company established three independent sales and
marketing divisions to service the market needs: 1) the Crystal Wave Division
for OEM, 2) the ProWave Division for the professional market as described below,
and 3) the CWave Division for the Retail and Direct Consumer markets. The core
of NUWAVE's unique technology is the NVP ASIC chip. This integrated circuit will
be incorporated into each of NUWAVE's divisional product lines.
The Crystal Wave potential customer base is manufacturers of products
that can utilize the NVP ASIC including the following product categories: TV,
VCR, Camcorder, Digital Camera, Set Top Box, Large Screen TV, LCD TV, Plasma LCD
TV, Audio/Video Receivers, Direct TV (DSS systems) and Web TV. Such
manufacturers include Thomson, Sony, Matsushita, Phillips, Mitsubishi, Sharp,
Sanyo, Samsung, JVC, Zenith, General Instruments, Packard Bell, Compaq, IBM,
Dell Computers, LSI Logic, etc.
9
<PAGE>
Initially, the Company elected to contact all of the potential
customers listed above directly or in conjunction with selected consultant
organizations such as Competitive Technologies, Inc. ("CTI") with whom the
Company has contracted with on a commission basis. CTI, for over twenty six
years, has been in the business of taking R&D and technology companies and
introducing them to major companies specializing in their respective markets.
The Company's sales strategy is a direct consultative sales approach that
requires the direct presence of its own engineering and sales personnel to
properly present and demonstrate the technology, explain the sales and marketing
concepts, and maintain direct contact from an engineering position throughout
the entire sales cycle. Although the Company is unable to predict whether its
marketing efforts will be successful, it believes, based on its presentations,
that the products have been well received, and several potential customers have
indicated their desire to continue discussions. The Company recently entered
into its first OEM contract, a multi-year supply agreement with Thomson for the
purchase of the NVP ASIC chip.
During 1997, the Company formed its ProWave Division for sales and
marketing of the NVP 2.2 and related products to the professional video
marketplace. NUWAVE's potential customer base in this division fall into three
major categories: 1) Integrated Systems Dealers; 2) Professional Security and
Surveillance Dealers; and 3) Medical Imaging Dealers. These dealers will sell to
the ultimate user of the product. The Company plans to utilize independent
commissioned sales representatives along with its own internal staff and
management team to manage, oversee, train and support the sales effort of the
dealers. In November 1997 the Company contracted with The LACOM Group to help
the Company activate a national independent sales "rep" and dealer network to
support the launch of this Division. Through February 23, 1998 eight
organizations had signed contracts to represent the Company's ProWave Division.
Management anticipates adding several additional sales rep organizations over
the next two months and expects to have their product and sales training along
with the necessary sales and marketing programs and materials in place by the
end of the third quarter of 1998. To date, the Company has sold limited
quantities of the NVP 2.2. (primarily for sales demonstration purposes).
The Company is currently developing a retail product for those
Consumers that have a TV and do not have a NUWAVE enabled product but want to
improve the picture quality of their home viewing. This product will be marketed
by the Company's CWave Division. NUWAVE's potential customer base for the retail
product(s) are all major retail outlets for consumer electronics products such
as: Retail Consumer Electronics Dealers; Retail Electronics & Personal Computer
Distributors; Home Shopping Networks; Infomercial Companies; Mail Order Consumer
Electronics; Wholesale Clubs; Mass Merchants; Discount Retail Stores; Department
Stores and OEM Manufacturers.
In addition to product sales, the Company may license the manufacture
of its product and use of its technology in situations in which such
arrangements are to its economic advantage. However, because its emphasis has
been on product sales and OEM
10
<PAGE>
manufacturing, it has not yet developed a comprehensive licensing program,
established proposed royalties or otherwise determined the terms and conditions
of the arrangements it may want to make with proposed licensees or others. These
programs will be developed and considered in conjunction with Prime pursuant to
the terms of the Agency Agreement, with product research and development, and
prevailing market conditions.
The Company intends to support the above sale efforts through various
sales and marketing programs/ activities including trade advertising, attendance
at industry trade shows, attendance at participating dealer shows, attendance at
end user events, literature mailers and Co-op dealer advertising.
Manufacturing
The Company does not contemplate that it will directly manufacture any
of its products. It intends to contract with third parties to manufacture its
proposed NVP and Softsets. It also may license to third parties the rights to
manufacture the products, either through direct licensing, OEM arrangements or
otherwise.
The Company intends to produce the NVP ASIC chip in accordance with the
customer's specific application requirements supported by firm commitments
rather than producing and inventorying ASIC chips in anticipation of
applications required by customers in the future. In this regard, the Company
contracted with Adaptive Micro-Wave, Inc. ("Adaptive"), an engineering firm
specializing in engineering product management to provide necessary technical
support and manage this process under the Company's direction. The Company also
contracted with The Engineering Consortium ("TEC"), a specialized design
engineering group, to complete the work necessary to convert the Company's
current NVP PC board design to ASIC specifications and contracted with Zentrum
Mikroelectronik Dresden GmbH ("ZMD"), a fabricator and manufacturer of
integrated circuits for production of the ASIC. The Company anticipates
producing the initial ASIC during the second half of 1998 in accordance with the
requirements of the Thomson supply agreement and believes that this initial ASIC
will be readily adaptable to other customer specifications, if required.
The Company will be dependent on third parties such as ZMD for the
manufacture of its NVP ASIC chips. Although management believes it will be able
to continue to negotiate satisfactory manufacturing and supply agreements, the
failure to do so would have a material adverse effect on the Company.
Furthermore, there can be no assurance that such manufacturers will dedicate
sufficient production capacity to satisfy the Company's requirements within
scheduled delivery times or at all. Failure or delay by the Company's suppliers
in fulfilling its anticipated needs would adversely affect the Company's ability
to develop and market its products. However, the Company may have difficulty in
continuing to obtain contractual agreements with the suppliers of such materials
due to, among other things, possible material shortages or possible lack of
adequate purchasing power.
11
<PAGE>
Patents; Proprietary Information
To the extent practicable, the Company has filed or intends to file
U.S. patents and/or copyright applications relating to certain of its proposed
products and technologies either on its own behalf (or on behalf of Rave with
respect to products and technology licensed pursuant to the License Agreement
and/or Development Agreement) and to file corresponding applications in key
industrial countries worldwide. In April 1996, the Company filed on behalf of
Rave two patent applications for its Randall connector system and received one
patent in respect thereof in November 1997 and the second patent in respect
thereof in January 1998.
In July 1996, the Company filed for a patent on behalf of Rave with
respect to AVP. In January 1998, an initial rejection was received from the
patent examiner's office based on similarity to an existing patent. The Company
has filed an amendment more thoroughly differentiating the invention for which
the application is being filed from the existing patent. Although the Company
believes such patent application contains patentable claims, no assurance can be
given that a patent will be obtained. In March 1998, the Company filed three
additional patent applications (one with regard to its NVP and two with regard
to its Softsets). Although the Company believes that each of these applications
contains patentable claims which are independent of the technology involved in
the above-mentioned patent application filed on behalf of Rave, there is no
assurance that any patents will be granted. If granted, there is no assurance
that any patent will afford the Company commercially significant protection of
its technology or that the Company will have adequate resources to enforce its
patents. Because the Company also intends to license and/or sell its technology
and products in foreign markets, it intends to seek foreign patent protection.
With respect to foreign patents, the patent laws of other countries may differ
significantly from those of the United States as to the patentability of the
Company's products or technology. Moreover, the degree of protection afforded by
foreign patents may be different from that in the United States. Patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by several months, the Company cannot be
certain that it will be the first creator of inventions covered by any patent
applications it makes or the first to file patent applications on such
inventions.
Based on Rave's experience in the video industry, that of the Company's
own officers and directors with technical backgrounds, third party advisors who
are familiar with the patent process, and patent searches made in connection
with the patent applications filed for the AVP and the Company's NVP, the
Company believes that the products it intends to market and sell do not infringe
the patents or other proprietary rights of third parties and is not aware of any
patents held by its competitors that will prevent, limit or otherwise interfere
with the Company's ability to make and sell the products it intends to market.
However, it is possible that competitors in both the United States and foreign
countries, many of which have substantially greater resources and have made
substantial investments in competing technologies, may have applied for, or may
in the future apply for and obtain, patents which have an adverse impact on the
Company's
12
<PAGE>
ability to make and sell its products. In addition, because of the developmental
stage of the Company, claims that the Company's products infringe on the
proprietary rights of others are more likely to be asserted after commencement
of commercial sales incorporating the Company's technology. There can also be no
assurance that competitors will not infringe the Company's patents. Defense and
prosecution of patent suits, even if successful, are both costly and time
consuming. An adverse outcome in the defense of a patent suit could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed from third parties or require the Company to cease selling its
products.
To the extent the Company determines to keep certain aspects of its
technology as trade secrets, the Company intends to protect these developments
by manufacturing techniques (principally by reducing its circuits to ASIC form
which prevents visual inspection of the relevant circuits) that make it more
difficult to reverse-engineer or understand the mechanisms by which either
designs or process technology operate.
Competition
The markets that the Company intends to enter are characterized by
intense competition, and, particularly with respect to the market for video,
editing, production and processing products, significant price erosion over the
life of a product. The Company's products may compete with those of numerous
well-established companies, such as Sony Electronics, Inc., Panasonic Division
of Matsushita Electric Industrial Co., Motorola, Inc., Mitsubishi International
Corp., and Phillips Electronics, NV which already design, manufacture and/or
market video technology and other products. These companies have substantially
greater financial, technical, personnel and other resources than the Company and
have established reputations for success in the development, licensing, sale and
service of their products and technology. Certain of those competitors dominate
their industries and have the financial resources necessary to enable them to
withstand substantial price competition or downturns in the market for video
products.
The markets for the technology and products being developed by the
Company are characterized by rapid changes and evolving industry standards often
resulting in product obsolescence or short product life cycles. As a result,
certain companies may be developing technologies or products the Company is
unaware of which may be functionally similar, or superior, to some or all of
those being developed by the Company. Consequently, the ability of the Company
to compete successfully will depend on its ability to complete development and
introduce its products and technology to the marketplace in a timely and
cost-competitive manner, to continually enhance and improve such products and
technology, to adapt its proposed products to be compatible with specific
products manufactured by others, and to successfully develop and market new
products and technology. There can be no assurance that the Company will be able
to compete successfully, that its competitors or future competitors will not
develop technologies or products that render the Company's products and
technology obsolete or
13
<PAGE>
less marketable or that the Company will be able to successfully enhance its
proposed products or technology or adapt them satisfactorily.
Management Information Systems
The Company believes that the capacity of its existing data processing
and management information systems is sufficient to allow the Company to expand
its business without significant additional capital expenditures. In addition,
the Company has consulted with its software vendor about the year 2000 and data
processing changes that will be required and has been assured that our software
will be capable of handling process dates beyond the year 2000 by the end of
1998.
Employees
The Company currently has nine full-time employees and, depending on
its level of business activity, expects to hire additional employees in the next
12 months, as needed, to support marketing and sales, manufacturing and research
and development.
ITEM 2. PROPERTY
Facilities
The Company has established its headquarters in Fairfield, New Jersey.
Pursuant to the sublease relating to such facility, the Company is obligated to
make monthly rental payments of $5,400. The lease is on a month-to-month basis.
The Company's subleased portion of the facility is approximately 2,500 square
feet and the sublease entitles the Company to share certain common areas.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1998.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, par value $.01 per share ("Common Stock"),
has been traded since July 1996 on the NASDAQ SmallCap Stock Market under the
symbol "WAVE" for Common Stock and "WAVEW" for Common Stock Warrants. Prior to
that time, there was no public market for the Common Stock or Warrants. The
following table sets forth the range of high and low closing sale prices for the
Common Stock as reported on the NASDAQ SmallCap Stock Market during each of the
quarters presented. The quotations set forth below are inter-dealer quotations,
without retail mark-ups, mark-downs or commissions and do not necessarily
represent actual transactions.
COMMON STOCK
QUARTERLY PERIOD ENDED HIGH LOW
March 31, 1997 $ 9.75 $ 6.50
June 30, 1997 $ 8.50 $ 5.63
September 30, 1997 $ 8.13 $ 4.50
December 31, 1997 $ 6.38 $ 3.68
As of March 12, 1998, there were approximately 71 holders of record of
the Company's Common Stock. This number does not include beneficial owners of
the Common Stock whose shares are held in the names of various dealers, clearing
agencies, banks, brokers and other fiduciaries.
The Company has never declared or paid any cash dividends. The Company
currently intends to retain any future earnings to finance the growth and
development of its business and future operations, and therefore does not
anticipate paying any cash dividends in the foreseeable future.
15
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Summary Financial Information
The summary financial data set forth below is derived from and should
be read in conjunction with the financial statements, including the notes
thereto, filed as part of this Form 10-KSB.
<TABLE>
<CAPTION>
Statement of Operations Year Ended Year Ended July 17, 1995
Data December 31, December 31, (Inception) to
1996 1997 December 31,
1997
<S> <C> <C> <C>
Revenues $ 0.00 $ 10,275 $ 10,275
Net Loss $ 4,430,649 $ 3,848,316 $ 9,189,556
Net loss per common share $ (1.18) $ (0.72)
Weighted average number of 3,767,403 5,343,348
shares
</TABLE>
Balance Sheet Data: December 31, December 31,
1996 1997
Working capital $ 5,776,740 $ 1,709,988
Total assets $ 6,291,898 $ 2,270,763
Total liabilities $ 373,110 $ 153,623
Deficit accumulated during $ 5,341,240 $ 9,189,556
the development stage
Stockholders' equity $ 5,918,788 $ 2,117,140
Forward Looking Statements
This Report on Form 10-KSB contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements
other than statements of historical facts included in this Report, including
without limitation, the statements under "General," "Marketing and Sales,"
"Research and Development," "Manufacturing," "Liquidity and Capital Resources,"
and "Plan of Operation" are forward-looking statements. The Company cautions
that forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those indicated in the
forward-looking statements, due to several important factors herein identified.
Important factors that could cause actual results to differ materially from
those indicated in the forward-looking statements ("Cautionary Statements")
include
16
<PAGE>
delays in product development, competitive products and pricing, general
economic conditions, risks of intellectual property litigation, product demand
and industry capacity, new product development, commercialization of new
technologies, the Company's ability to raise additional capital when required,
and the risk factors detailed from time to time in the Company's annual report
on Form 10-KSB and other materials filed with the Securities and Exchange
Commission ("SEC").
All subsequent written and oral forward-looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
General
The Company, a development stage enterprise organized in July 1995, was
formed to develop, manufacture and market products which improve picture quality
image in set top boxes, televisions, VCR's, DVD's, camcorders and other video
devices by enhancing and manipulating video signals, and to facilitate the
production of sophisticated consumer and professional videos. In July 1996 the
Company completed an initial public offering ("IPO") of its common stock and
warrants from which it received net proceeds of $9,538,428 and repaid $2,000,000
principal amount of promissory notes issued in a previous financing. On February
11, 1998, the Company received net proceeds of $915,000 for issuance of 253.485
shares of its Common Stock to an investor. The Company also issued warrants to
purchase up to 50,000 shares of its Common Stock to such investor. In addition
the Company may issue "Puts" to the investor over a two year period whereby the
investor shall purchase a minimum of $1,000,000 up to an maximum of $5,000,000
of the Company's Common Stock (valued at 88% of the market value thereof) if
certain pre-conditions are met.
At the time of the IPO, the Company had produced and tested fully
operational working prototypes of the Initial Products. Subsequent to the IPO,
the Company established the Advanced Engineering Group to support the continuing
development of its products and related technology, and the identification of
additional sources of new technology. The Advanced Engineering Group is made up
of the Company's own employees and third party consultants who work with the
Company on a project by project basis. The Advanced Engineering Group operates
under the direction of the Vice President-Marketing/Technical Development. The
Company has used its Advanced Engineering Group to create the NVP, to develop a
significant amount of the software included in each of its products and to
develop new circuitry to allow certain of the products to be produced as ASICs.
The Advanced Engineering Group also developed the Softsets for the NVP and
certain of the enhancements to it. Utilizing this technology, the Company has
developed the ProWave NVP 2.2 that is currently available as a stand-alone unit
or a PC board with software. The Advanced Engineering Group is currently
developing a commercial video retail product also utilizing the NVP technology
(the "retail version"). During the first half of 1997, the Company began
marketing the NVP
17
<PAGE>
and Softsets as well as the NVP 2.2 as a stand-alone unit and as a PC board with
software. In September, 1997 the Company began selling limited quantities of the
NVP 2.2 (primarily to representatives for demonstration purposes).
The Company intends to produce the NVP in the form of an ASIC chip in
accordance with the customer's specific application requirements supported by
firm commitments rather than producing and inventorying ASIC chips in
anticipation of applications required by customers in the future. In this
regard, the Company contracted with Adaptive to provide necessary technical
support and manage this process under the Company's direction. The Company also
contracted with TEC to complete the work necessary to convert the Company's
current NVP PC board design to ASIC specifications and contracted with ZMD for
production of the ASIC. The Company anticipates the ASIC will be in production
during the second half of 1998 and recently entered into a multi-year supply
agreement with Thomson for the purchase of the NVP ASIC chip.
The Company has significantly scaled back its research and development,
and marketing and related activities with respect to all other existing or
proposed products in order to concentrate its resources on the continued
development and marketing of its Softsets and NVP products (i.e., ASIC chip for
the OEM market, the NVP 2.2 in the stand alone unit and PC board version for the
professional video market and the consumer video retail version). The Company
believes this product strategy will allow it to take full advantage of the
growth opportunity presented by the converging PC, television, HDTV and
telecommunication markets, which the Company believes to be quite significant.
The Company anticipates this strategy will also allow it to conserve its
resources and at the same time maximize the benefits to be derived from
introducing these products into these converging and expanding markets.
As of December 31, 1997, the Company had accumulated a deficit during
the development stage of $9,189,556, which includes a net loss for the year
ended December 31, 1997 of $3,848,316. The loss for the year ended December 31,
1997 included $2,336,000 in selling, general and administrative expenses,
representing an increase of $527,432 compared to the year ended December 31,
1996. Such increase was primarily a result of sales and marketing efforts
discussed more fully below ($417,757), and general operating expenses as a
result of the Company's planned growth and expansion following the IPO,
including increased personnel and payroll costs ($94,952), professional and
legal services costs ($100,794), insurance costs ($95,848), depreciation expense
($23,497), office rent ($22,629) and other ($31,955). Such increases were
partially offset by a $260,000 decrease in the payments made to Prime
Technologies, Inc. pursuant to the Exclusive Agency Agreement (see Liquidity and
Capital Resources below). Although the Company anticipates deriving some revenue
from the sale of its proprietary software (Softsets) and the NVP products within
the next 12 months, no assurance can be given that these products will be
successfully marketed during such period. Even if revenues are produced from the
sale of such products, the Company expects to continue to incur losses for at
least the next 12 months. See "Liquidity and Capital Resources."
18
<PAGE>
Marketing and Sales
During the past twelve months, the Company contracted with a
professional marketing communications firm to assist in the development and
implementation of a program to develop market awareness and commercialization of
its products. This program has included development of Company and product
brochures and press kits, product specification sheets, development of a Company
booth for use at trade shows, attendance at key trade shows, mailers, the
production of corporate videos for use at sales presentations, development of
and placement of advertisements in key industry journals, etc. During 1997, the
Company began sales presentations of the NVP and Softsets to prospective OEM
customers (i.e., original equipment manufacturers of set top boxes, televisions,
multimedia computers and teleconferencing equipment). Although the Company is
unable to predict whether its marketing efforts will be successful, it believes
that the products have been well received. The Company anticipates the ASIC will
be in production during the second half of 1998 and as indicated above recently
entered into a multi-year supply agreement with Thomson for the purchase of the
NVP ASIC chip. Several other potential customers have signed Confidentiality/Non
Disclosure agreements with NUWAVE allowing them to expand their review and
examination of NUWAVE's exclusive video enhancement technology.
In April 1997, the Company formed its ProWave Division for sales and
marketing of the NVP 2.2 and related products to the professional video market
(e.g., medical imaging and security surveillance systems). In September 1997,
the Company began selling limited quantities (primarily for demonstration
purposes) of its first commercial product, the NVP 2.2. In November 1997 the
Company contracted with The LACOM Group to help the Company activate a national
"rep" and dealer sales network to support the launch of this Division. Through
February 23, 1998 eight organizations had signed contracts to represent the
Company's ProWave Division. Management anticipates adding several additional rep
organizations over the next two months and expects to have their product and
sales training along with the necessary sales and marketing programs and
materials in place by the end of the second quarter of 1998. During the last
quarter of 1997, the Company began its premarketing efforts with regards to the
retail market by introducing a prototype of its stand-alone consumer product to
selected retail chains.
The Company is currently developing a retail product for those
Consumers that have a TV and do not have a NUWAVE enabled product but want to
improve the picture quality of their home viewing. This product will be marketed
by the Company's CWave Division.
During the past twelve months the Company has recruited a Vice
President of Sales, and contracted with professional sales consultants to
establish the development of the Company's sales organization managed by the
Vice President of Sales. In this regard, the Company has contracted with
Competitive Technologies, Inc. ("CTI") to assist it in the development of
NUWAVE's OEM business. CTI, for over twenty six years, has
19
<PAGE>
been in the business of taking R&D and technology companies and introducing them
to the major companies specializing in their respective markets. The Company
also has contracts with several individuals and organizations that will act in a
commissioned sales representation capacity regarding the Company's products.
During the year ended December 31, 1997, the Company's sales and marketing costs
included $230,361 for professional sales and marketing consultants compared to
$43,509 for the year ended December 31, 1996; $289,892 for advertising and
public relations compared to $131,231 for the year ended December 31, 1996; and
$47,610 for trade shows (no expenditures for trade shows in 1996). The Company
began its sales and marketing activities during the fourth quarter of 1996
resulting in the increases for the full year activities shown for 1997. The
Company is continually reviewing its needs with a view to maximizing efficiency
while conserving its resources.
Research and Development
Research and development activity with respect to the Company's Initial
Products was carried out by Rave prior to July 21, 1995, the date upon which the
Company and Rave entered into the License Agreement and the Development
Agreement. The technology on which the Company's Initial Products is based was
originated by Rave prior to the Company's organization and is licensed to the
Company by Rave pursuant to the License Agreement. Pursuant to the Development
Agreement the Company has utilized Rave to continue the development of the
Initial Products. Rave's role in the development of these products is
substantially completed.
The Development Agreement terminates on October 2, 1998 unless the
parties agree to additional services to be performed by Rave and related
compensation. Because (i) the development of the Initial Products has been
substantially completed, (ii) the Company has increased its ability to take
advantage of the expertise of its Advanced Engineering Group, and (iii) it has
determined to devote substantially all of its resources to its Softsets and the
NVP products, the Company believes that in the event the Development Agreement
were not extended, there would not be a materially adverse effect on its
operations or ability to develop new technology.
The Company's Advanced Engineering Group utilizes the services of third
party contractors in connection with its research and development activities.
The Company intends to continue to use outside consultants to assure exposure to
new ideas and technology and its Advanced Engineering Group to direct, supervise
and coordinate such efforts. The Company has used its Advanced Engineering Group
to create the NVP, to develop a significant amount of the software included in
each of its products and to develop new circuitry to allow certain of the
products to be produced as ASICs. In April 1997, it contracted with Adaptive to
assist in the ASIC development process. In November of 1997 the Company
contracted with TEC to complete the ASIC design in coordination with Adaptive
under the supervision of the Company's Vice President of Marketing/Technical
Development. The Advanced Engineering Group also developed Softsets and certain
of the enhancements to the NVP. The Company intends to use
20
<PAGE>
members of the Advanced Engineering Group to assist it with the continued
development of the NVP in its OEM and retail versions but otherwise
significantly reduce its research & development activities for the Initial
Products.
From July 17, 1995 through December 31, 1997, the Company incurred
expenses of $3,808,800 on research and development, of which approximately 71%
was paid to Rave pursuant to the Development Agreement. During the next 12
months, the Company intends to spend approximately $2,073,500 on research and
development and in support of the commercialization of its products. Of that
amount the Company estimates that approximately 49% will be paid to Rave
pursuant to the Development Agreement and approximately 51% will be spent by the
Company's Advanced Engineering Group for software development, ASIC chip
development, and supervising and directing production engineering undertaken by
third parties and on internal research and development. In the event the Company
is able to generate sufficient revenues from sales of its Softsets and NVP
products during such 12-month period, it anticipates it will increase its
expenditures on research and development and the identification of new sources
of technology.
Manufacturing.
The Company does not contemplate that it will directly manufacture any
of its products. It intends to contract with third parties to manufacture its
proposed NVP and Softsets. It also may license to third parties the rights to
manufacture the products, either through direct licensing, OEM arrangements or
otherwise.
The Company intends to produce the NVP ASIC chip in accordance with the
customer's specific application requirements supported by firm commitments
rather than producing and inventorying ASIC chips in anticipation of
applications required by customers in the future. In this regard, the Company
contracted with Adaptive to provide necessary technical support and manage this
process under the Company's direction, contracted with TEC to complete the work
necessary to convert the Company's current NVP PC board design to ASIC
specifications and contracted with ZMD for production of the ASIC. The Company
anticipates producing the initial ASIC during the second half of 1998 in
accordance with the requirements of the Thomson supply agreement and believes
that this initial ASIC will be readily adaptable to other customer
specifications, if required.
Employees
The Company currently has nine full-time employees and, depending on
its level of business activity, expects to hire additional employees in the next
12 months, as needed, to support marketing and sales, manufacturing and research
and development.
21
<PAGE>
Liquidity and Capital Resources
From its inception until the IPO, the Company relied for all of its
funding ($2,900,000 in cash plus the cancellation of the notes in the principal
amount of $350,000) on private sales of its debt and equity securities (the
"Private Financings"). In July 1996, the Company completed its IPO and received
net proceeds of $9,538,428. The Company used $2,073,652 of the net proceeds of
the IPO to repay the principal and interest on the outstanding notes issued to
investors in connection with the Private Financings. On February 11, 1998, the
Company received net proceeds of approximately $915,000 from the sale of 253,485
shares of common stock pursuant to an agreement with ProFutures Special equities
Fund, L.P. ("ProFutures") dated February 6, 1998. The agreement provides up to
$5,000,000 in additional equity funding under certain terms and conditions (see
Note 10 to Notes to Financial Statements -"Subsequent Events"). Under the terms
of the agreement, after the registration statement filed on Form S-3 on March 3,
1998 becomes effective, the Company shall have the right to draw up to
$5,000,000 in cash (in exchange for shares of Common Stock at a 12% discount to
market) at any time through February 5, 2000. The decision to make draws, and
the timing and amount of such draws are solely at the Company's discretion,
subject to certain conditions; however the Company is required to draw a minimum
of $1,000,000 by February 5, 2000.
Pursuant to the terms of the License Agreement and the Development
Agreement, the Company is paying Rave minimum aggregate royalties to maintain
the exclusivity under the license agreement and development fees of $65,000 per
month for the term of the License Agreement. The License Agreement also provides
for additional payments of $60,000 per year through July 22, 1998 to be made to
Rave for consulting services to be rendered to the Company. The Development
Agreement also provides for Rave to receive additional payments under certain
conditions aggregating $850,000 to purchase or lease equipment for use in
developing the Licensed Products and Technology. The payments were originally to
be made in monthly installments not to exceed $23,611 with a lump sum payment of
$283,336 due in March 1998, if certain conditions were met. In this regard, on
April 22, 1997, the Company deposited $300,000 into a certificate of deposit.
The certificate of deposit has been pledged as collateral for an irrevocable
standby letter of credit opened by the Company to guarantee monthly equipment
lease payments (not to exceed $23,611 per month) to be made by the Company on
behalf of Rave pursuant to the Development Agreement. The balance of the standby
letter of credit will be reduced by any payments made and any cash restriction
on the certificate of deposit is limited to the balance of the standby letter of
credit. Through December 31, 1997, the Company had made payments of $386,657
against the $850,000 of equipment purchases and at that date had $221,481
pledged as collateral to guarantee the monthly equipment lease payments.
Expenditures of the remaining $241,862 of the $850,000 will depend on finalizing
mutually agreed plans for the development of additional products for evaluation
by the Company during the remaining term of the Development Agreement.
The technology on which the Initial Products is based has been licensed
from Rave pursuant to the License Agreement. Pursuant to the terms of the
License
22
<PAGE>
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.
Pursuant to the terms of an Exclusive Agency Agreement ("the "Agency
Agreement") dated as of July 21,1995 between the Company and Prime, Prime will
receive 35% of net sublicensing fees received by the Company with respect to the
first $50,000,000 of aggregate net sales made by the Company's sublicensees,
after subtracting the payments to Rave and licensing expenses, and thereafter
45%. Prime will also receive up to an additional $1,500,000 of which (i)
$400,000 has been paid in accordance with the terms of the Agency Agreement,
(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 only pertains
to the Licensed Products and Technology covered by the License Agreement with
Rave.
The Company has determined to concentrate its resources and product
strategy on the sale of its Softsets and NVP products and therefore the Company
anticipates that its available cash will be sufficient to satisfy its
contemplated cash requirements for at least through the remainder of 1998.
Plan of Operation
The Company's plan of operation over the next 12 months focuses
primarily on the marketing and sales of its Softsets and NVP products in the
OEM, professional video and retail markets and the continued effort necessary to
support the sales and marketing of these products.
The Company anticipates, based on its current proposed plans and
assumptions relating to its operations, that it has sufficient cash to satisfy
the estimated cash requirements of the Company for the next 12 months from the
date of this document. In the event of unanticipated expenses, delays or other
problems the Company might be required to either utilize the equity financing
available under the terms of its agreement with ProFutures (see Note 10 to Notes
to Financial Statement - "Subsequent Events") or to seek additional funding
elsewhere. In addition, in the event that the Company receives a larger than
anticipated number of initial purchase orders upon introduction of Softsets and
the NVP products, it may require resources greater than its available cash or
than are otherwise available to the Company. In such event the Company may be
required to raise additional capital. There can be no assurance that such
additional capital will be available to the Company if needed, on commercially
reasonable terms or at all.
23
<PAGE>
The Company's future performance will be subject to a number of
business factors, including those beyond the Company's control, such as economic
downturns and evolving industry needs and preferences, as well as the level of
competition and the ability of the Company to successfully market its products
and technology. There can be no assurance that the Company will be able to
successfully implement a marketing strategy, generate significant revenues or
achieve profitable operations. In addition, because the Company has had only
limited operations to date, there can be no assurance that its estimates will
prove to be accurate or that unforeseen events will not occur.
Year 2000 Project
The Company believes that the capacity of its existing data processing
and management information systems is sufficient to allow the Company to expand
its business without significant additional capital expenditures. In addition,
the Company has consulted with its software vendor about the year 2000 and data
processing changes that will be required and has been assured that our software
will be capable of handling process dates beyond the year 2000 by the end of
1998.
Impact of the Adoption of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 130 requires that a business enterprise classify items of
other comprehensive income by their nature in the financial statements and
display the account balance of other comprehensive income separately from
retained earnings and accumulated paid in capital in the equity section of the
balance sheet. SFAS 131 requires that a business enterprise report certain
information about operating segments, products and services, geographic areas of
operation, and major customers in complete sets of financial statements and in
condensed financial statements for interim periods. These standards are
effective for years beginning after 1997. The Company believes that these
standards will not have a material effect, if any, upon the Company's financial
condition or its results of operations.
In February 1998, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 132 "Employers' Disclosure about Pensions and
other Retirement Benefits" ("SFAS 132"). SFAS 132, an amendment of SAFS #'s 87,
88 and 106, standardizes the disclosure requirements for pensions and other post
retirement benefits, requires additional information on changes in the benefit
obligations and fair values of plan assets and eliminates certain disclosures
that are no longer useful. This standard is effective for years beginning after
December 15, 1997. The Company believes that this standard will not have a
material effect, if any, upon the Company's financial condition or its results
of operations.
24
<PAGE>
Certain Factors That May Affect Future Results
The following factors, among others, could cause actual results to
differ materially from those contained in forward-looking statements made in
this Annual Report on Form 10-KSB and presented elsewhere by management from
time to time.
1. Development Stage Enterprise; Absence of Operating History. The
Company is a development stage enterprise. It has had only a limited operating
history and has sold only a limited quantity of its products to date (primarily
for demonstration purposes). Since its inception in July 1995, the Company has
been engaged primarily in raising funds, directing, supervising and coordinating
its Advanced Engineering Group and Rave in the continuing development of the
AVP, the NUWAVE Dual TBC, the NUWAVE Ministudio, the Magic Card, the NVP and
Softsets, pre-marketing and more recently the commencement of comprehensive
program for manufacturing and marketing the NVP and the recruitment of
management and technical personnel, including members of the Advanced
Engineering Group.
The Company's prospects must be considered in light of the risks
associated with the establishment of a new business in the evolving electronic
video industry, as well as further risks encountered in the shift from
development to commercialization of new products based on innovative technology.
There can be no assurance that the Company will be able to generate revenues or
achieve profitable operations.
2. Limited Revenues; Accumulated Deficit; Anticipated Future Losses. To
date, the Company has received only limited revenue from the sale of its
products (primarily from sales made for demonstration purposes) and does not
anticipate significant operating revenue until such time, if ever, as its
relevant technology and one or more of its products are completely developed,
manufactured in commercial quantities and available for commercial delivery.
There can be no assurance that the Company's technology and products, if
developed and manufactured, will be able to compete successfully in the
marketplace and/or generate significant revenue. The Company anticipates
incurring significant costs in connection with the development of its
technologies and proposed products and there is no assurance that the Company
will achieve sufficient revenues to offset anticipated operating costs. As of
December 31, 1997, the Company had an accumulated deficit of $9,189,556.
Although the Company anticipates deriving some revenue from the sale of its NVP
and related products and its Softsets within the next 12 months, no assurance
can be given that these products will be successfully marketed or even
completely developed and tested for commercial use during such period, and the
Company has projected its expenses based on the assumption that it will receive
no revenues from the sale of its products during the remainder of 1998. Even if
revenues are derived from the sale or license of the Company's products, the
Company will continue to incur substantial losses for at least the next 12
months from the date of this document. Included in such losses are research and
development expenses, marketing costs,
25
<PAGE>
manufacture and assembly, and general and administrative expenses. In as much as
the Company will continue to have high levels of operating expenses and will be
required to make significant expenditures in connection with its continued
research and development activities, the Company anticipates that such losses
will continue until such time, if ever, as the Company is able to generate
sufficient revenues to support its operations. See "Summary of Financial
Information" and "Management's Discussion and Analysis."
3. Significant Capital Requirements; Dependence on Available Cash; Need
for Additional Financing. The Company's capital requirements in connection with
its development activities have been and will continue to be significant. The
Company has been dependent upon the proceeds of sales of its securities to
private investors to fund its initial development activities. On February 11,
1998, the Company received net proceeds of approximately $915,000 from the sale
of Common Stock to ProFutures pursuant to the Investment Agreement. Under the
terms of the Investment Agreement, the Company, subject to certain conditions,
has the right to draw up to $5,000,000 in cash by selling shares of Common Stock
to ProFutures from time to time for the next two years. The decision to make
draws and the timing and amount of such draws are solely at the Company's
discretion, subject to certain conditions. However, pursuant to the terms of the
Investment Agreement, the Company is required to draw a minimum of $1,000,000 in
cash in exchange for shares of Common Stock. The Company anticipates, based on
its current proposed plans and assumptions relating to its operations, that it
has sufficient cash to satisfy the estimated cash requirements of the Company
for the remainder of 1998. In the event of unanticipated expenses, delays or
other problems, the Company might be required to either utilize the equity
financing available under the Investment Agreement or seek additional funding
elsewhere. In addition, in the event that the Company receives a larger than
anticipated number of initial purchase orders upon introduction of Softsets or
the NVP products, it may require resources greater than its available cash or
than are otherwise available to the Company. In such event, the Company may be
required to raise additional capital. There can be no assurance that such
additional capital will be available to the Company if needed, on commercially
reasonable terms, or at all. The inability to obtain additional financing, when
needed, would have a material adverse effect on the Company, including possibly
requiring the Company to curtail or cease operations. To the extent that any
future financing involves the sale of the Company's equity securities, the
Company's then existing stockholders could be substantially diluted. See
"Management's Discussion and Analysis - Liquidity and Capital Resources."
4. New Concept; Uncertainty of Market Acceptance; Lack of Marketing
Experience. The technology and products currently being developed by the Company
utilize new concepts and designs in video imagery and processing. The Company's
prospects for success will therefore depend on its ability to successfully sell
its products to key manufacturers and distributors who may be inhibited from
doing business with the Company because of their commitment to their own
technologies and products. As a result, demand and market acceptance for the
Company's technologies and products is subject to a high level of uncertainty.
The Company currently has limited financial, personnel and other resources to
undertake the extensive marketing activities that will be
26
<PAGE>
necessary to market its technology and products once their development is
completed. There is no assurance that any of the Company's potential customers
will enter into any arrangements with the Company. There is no assurance that
the Company's marketing efforts will be successful. See "Business - Marketing"
and "Business - Research and Development."
5. Dependence on Third-Party Design Changes. Commercialization of the
NVP and sale to manufacturers of the relevant video equipment will require such
manufacturers to adopt new circuit configurations to accommodate the relevant
chip in their products. Although the Company expects that manufacturers wishing
to utilize the NVP will make such modifications based on the benefits derived
from the improved performance of their products and the relative simplicity of
such modifications, there is no assurance that the necessary modifications will
be adopted widely, or at all. Additionally, the cost of such modifications may
inhibit or prevent their adoption. The failure of designers and manufacturers to
make such modifications would have a material adverse effect on the Company's
ability to sell and/or license the relevant products. See "Business -
Manufacturing."
6. License. A portion of the technology from which the Company's
Initial Products were derived is licensed to the Company pursuant to the License
Agreement with Rave. The License Agreement provides that Rave will receive
minimum aggregate payments of Royalties and Development Fees, as defined in the
Development Agreement of $65,000 per month (the "Rave Minimum Payments"). If
Rave does not receive the Rave Minimum Payments, Rave has the option of electing
to make the License Agreement non-exclusive, which could, under some
circumstances, interfere with the Company's exploitation of its own technology.
The License Agreement also provides for the payment of Royalties based on the
net sales of the licensed products and technology as well as any sublicensing
fees paid to the Company. If the Company fails to pay the Royalties, Rave has
the option to terminate the License Agreement. See "Management's Discussion and
Analysis."
7. Uncertainty of Product and Technology Development; Need for Product
Testing; Technological Factors. The Company originally anticipated devoting
significant resources to the final commercial development of its Magic Card
(which combines the analog based NVP with digitally based enhancements).
However, with the introduction and initial favorable reception of the NVP and
Softsets, the Company determined to devote substantially all of the personnel
and economic resources it would have devoted to the Magic Card to the marketing
of the NVP and Softsets. The Company believes this will give it the opportunity
to further refine the Magic Card based on its experience with the NVP and market
reaction. Because the final commercial development of the Magic Card will be
based in large part on the Company's experience in marketing the NVP, the
Company cannot predict when, if at all, it will finalize commercial development
of the Magic Card or commence marketing it.
27
<PAGE>
Product development efforts, with respect to all of the Company's
proposed products, are subject to all of the risks inherent in the development
of new technology and products (including unanticipated delays, expenses,
technical problems or difficulties, as well as the possible insufficiency of
funding to complete development). There can be no assurance as to when, or
whether, such developments will be successfully completed. No assurance can be
given that the products can be developed in commercially salable form within the
projected development schedule. If the Company, either through its Advanced
Engineering Group or Rave, is unable to complete its development activities with
respect to the Company's proposed products, it would have to complete
development through third parties. Although the Company presently believes it
has sufficient resources to complete development of these products, there is no
assurance that the Company will be able to complete such development in a timely
manner, or at all, or that it could enter into economically reasonable
arrangements for the completion of such products by third parties. In connection
with the development of commercially salable prototypes, the Company must
successfully complete a testing program for the products before they can be
marketed. Unforeseen technical problems arising out of such testing could
significantly and adversely affect the Company's ability to manufacture a
commercially acceptable version. In addition, the Company's success will depend
upon its technologies and proposed products meeting acceptable cost and
performance criteria and upon their timely introduction into the marketplace.
There can be no assurance the technologies and proposed products will
satisfactorily perform the functions for which they are designed, that they will
meet applicable price or performance objectives or that unanticipated technical
or other problems will not occur which would result in increased costs and/or
material delays in their development. See "Business - The Company's Video
Enhancement Products."
8. Unconditional Obligation to Share Sublicense Fees. The Company has
entered into an Agency Agreement with Prime which 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 and will assist the Company in the development and implementation of a
sublicensing program. Subject to certain minimum sales requirements, the Agency
Agreement provides for the payment to Prime of 35% to 45% of net sublicense fees
received by the Company along with certain additional payments. To the extent
payments to Prime are based on sublicensing payments made to the Company, the
Agency Agreement provides that such payments must be made regardless of whether
the relevant sublicense is entered into through Prime's efforts or by the
Company itself. The unconditional obligation to pay Prime a portion of such
sublicensing fees may have an adverse effect on the Company's ability to enter
into profitable sublicensing arrangements with respect to the products and
technology licensed to the Company pursuant to the License Agreement or
adversely affect its ability to set competitive sublicense fees for those
products.
9. Dependence on Third-Party Development and Manufacturing. The Company
does not contemplate that it will directly manufacture any of its products. It
intends to contract with third parties to manufacture its proposed NVP and
Softsets, and
28
<PAGE>
related retail products. It also may license to third parties the rights to
manufacture the products, either through direct licensing, original equipment
manufacturer arrangements or otherwise.
The Company will be dependent on third parties for the manufacture of
the ASIC-based NVP and related products as well as future products it may choose
to commercialize. Although the Company has entered into an agreement with a
potential manufacturer of its NVP ASIC chip, there can be no assurance that such
manufacturer will dedicate sufficient production capacity to satisfy the
Company's requirements within scheduled delivery times, or at all. Failure or
delay by the Company's suppliers in fulfilling its anticipated needs would
adversely affect the Company's ability to develop and market its products. In
addition, the Company will be dependent on third party vendors for many of the
components necessary for the final assembly of its ProWave Division products and
its anticipated retail products. The Company may have difficulty in obtaining
contractual agreements with the suppliers of such materials due to, among other
things, possible material shortages or possible lack of adequate purchasing
power. While management believes that these components are available from
multiple sources, it anticipates that the Company will obtain certain of them
from a single source, or limited number of sources, of supply. In the event that
certain of such suppliers are unable or unwilling to provide the Company with
such components on commercially reasonable terms, or at all, delays in securing
alternative sources of supply would result and could have a material adverse
effect on the Company's operations.
10. Competition. The markets that the Company intends to enter are
characterized by intense competition, and, particularly with respect to the
market for video, editing, production and processing products, significant price
erosion over the life of a product. The Company's products will directly compete
with those of numerous well-established companies, such as Sony Electronics,
Inc., Panasonic Division of Matsushita Electric Industrial Co., Motorola, Inc.,
Mitsubishi International Corp. and Phillips Electronics, NV, which design,
manufacture and/or market video technology and other products. All of these
companies have substantially greater financial, technical, personnel and other
resources than the Company and have established reputations for success in the
development, licensing, sale and service of their products and technology.
Certain of these competitors dominate their industries and have the necessary
financial resources to enable them to withstand substantial price competition or
downturns in the market for video products. See "Business - Competition."
11. Rapid Changes to Industry Standards; Product Obsolescence. The
markets for the technology and products being developed by the Company are
characterized by rapid changes and evolving industry standards often resulting
in product obsolescence or short product life cycles. As a result, certain
companies may be developing technologies or products of which the Company is
unaware which may be functionally similar, or superior, to some or all of those
being developed by the Company. As a result of all of the above, the ability of
the Company to compete will depend on its ability to complete development and
introduce to the marketplace in a timely and cost-
29
<PAGE>
competitive manner its proposed products and technology, to continually enhance
and improve such products and technology, to adapt its proposed products to be
compatible with specific products manufactured by others, and to successfully
develop and market new products and technology. There is no assurance that the
Company will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technology obsolete or less marketable or that the Company will be
able to successfully enhance its proposed products or technology or adapt them
satisfactorily. See "Business - Competition."
12. Enforceability of Patents and Similar Rights; Possible Issuance of
Patents to Competitors; Trade Secrets. To the extent practicable, the Company
has filed or intends to file U.S. patents and/or copyright applications relating
to certain of its proposed products and technologies either on its own behalf
(or on behalf of Rave with respect to products and technology licensed pursuant
to the License Agreement) and to file corresponding applications in key
industrial countries worldwide. In April 1996, the Company filed two patent
applications on behalf of Rave for its Randall connector system and received one
patent in respect thereof in November 1997 and the second patent in respect
thereof in January 1998.
In July 1996, the Company filed for a patent on behalf of Rave with
respect to the AVP. In January 1998, an initial rejection was received from the
patent examiner's office based on similarity to an existing patent. The Company
has filed an amendment more thoroughly differentiating the invention for which
the application is being filed from the existing patent. Although the Company
believes this patent application contains patentable claims, no assurance can be
given that a patent will be obtained. In April, 1998 the Company filed three
additional patent applications (one with regard to its NVP and two with regard
to its Softsets). Although the Company believes that each of these applications
contains patentable claims which are independent of the technology involved in
the above-mentioned patent application filed on behalf of Rave, there is no
assurance that any patents will be granted. If granted, there is no assurance
that any patent will afford the Company commercially significant protection of
its technology or that the Company will have adequate resources to enforce its
patents. Because the Company also intends to license and/or sell its technology
and products in foreign markets, it intends to seek foreign patent protection.
With respect to foreign patents, the patent laws of other countries may differ
significantly from those of the United States as to the patentability of the
Company's products or technology. Moreover, the degree of protection afforded by
foreign patents may be different from that in the United States. Patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by several months, the Company cannot be
certain that it will be the first creator of inventions covered by any patent
applications it makes or the first to file patent applications on such
inventions.
Based on Rave's experience in the video industry, that of the Company's
own officers and directors with technical backgrounds; third party advisors who
are
30
<PAGE>
familiar with the patent process; and patent searches made in connection with
the patent applications filed for the AVP and the Company's NVP, the Company
believes that the products it intends to market and sell do not infringe the
patents or other proprietary rights of third parties and is not aware of any
patents held by its competitors that will prevent, limit or otherwise interfere
with the Company's ability to make and sell the products it intends to market.
However, it is possible that competitors in both the United States and foreign
countries, many of which have substantially greater resources and have made
substantial investments in competing technologies, may have applied for, or may
in the future apply for and obtain, patents which have an adverse impact on the
Company's ability to make and sell its products. In addition, because of the
developmental stage of the Company, claims that the Company's products infringe
on the proprietary rights of others are more likely to be asserted after
commencement of commercial sales incorporating the Company's technology. There
can also be no assurance that competitors will not infringe the Company's
patents. Defense and prosecution of patent suits, even if successful, are both
costly and time consuming. An adverse outcome in the defense of a patent suit
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require the Company to
cease selling its products.
The Company also relies on unpatented proprietary technology, and there
can be no assurance that others may not independently develop the same or
similar technology or otherwise obtain access to the Company's unpatented
technology. To protect its trade secrets and other proprietary information, the
Company requires employees, consultants, advisors and collaborators to enter
into confidentiality agreements. There can be no assurance that these agreements
will provide meaningful protection for the Company's trade secrets, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. If the Company is unable to maintain the proprietary
nature of its technologies, the Company could be adversely affected. See
"Business - Proprietary Information."
13. Control by Management and Prime. The officers of the Company own
455,000 shares of Common Stock (not including currently exercisable options for
330,000 shares of Common Stock) or approximately 8.12% of the Company's
outstanding shares of Common Stock, and Prime (21.6% of the capital stock of
which is owned by Mr. David Kwong, a director of the Company, 21.6% of which is
owned by Rave and 16.1% of which is owned by Mr. Ted Wong, a former director of
the Company) beneficially owns 1,090,000 shares of Common Stock or approximately
19.5% of the Company's outstanding shares of Common Stock. Such officers and
Prime are therefore in a position to significantly influence the election of the
Company's directors and thereby select the management, and direct the policies,
of the Company.
14. No Dividends. The Company has paid no cash dividends to date.
Payment of dividends on the Common Stock is within the discretion of the Board
of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not currently intend to
31
<PAGE>
declare any dividends on its Common Stock in the foreseeable future. Currently,
the Company plans to retain any earnings it receives for development of its
business operations. See "Summary Financial Information."
15. Limitation on Tax Loss Carryforwards. At December 31, 1997, the
Company had available unused net operating loss carryforwards ("NOLs")
aggregating approximately $3,761,463 to offset future taxable income. The unused
net operating loss carryforwards expire in various years from 2010 to 2012.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
utilization of prior NOLs is limited after an ownership change, as defined in
such Section 382, to an amount equal to the value of the loss corporation's
outstanding stock immediately before the date of the ownership change,
multiplied by the federal long-term tax-exempt rate in effect during the month
that the ownership change occurred. The Company may be subject to limitations on
the use of its NOLs as provided under Section 382. Accordingly, there can be no
assurance that a significant amount of the Company's existing NOLs will be
available to the Company. In the event that the Company achieves profitability,
as to which there can be no assurance, such limitation would have the effect of
increasing the Company's tax liability and reducing the net income and available
cash resources of the Company in the future.
16. Limitation on Liability of Directors and Officers. The Certificate
of Incorporation of the Company provides that (i) the Company will indemnify any
director, officer, employee or agent of the Company with respect to actions,
suits or proceedings relating to the Company and (ii) subject to certain
limitations, a director shall not be personally liable for monetary damages for
breach of his fiduciary duty. In addition, the Company has entered into an
indemnification agreement with each of the directors of the Company, which
provides that the director is entitled to indemnification to the fullest extent
permitted by law. Such indemnification will cover all expenses, liabilities,
judgments, penalties, fines and amounts paid in settlement which are incurred or
imposed upon the director if the director is a party, threatened to be made a
party to any action, suit or proceeding of any kind by reason of the fact that
such person served or serves as a director of the Company or served as a
director, officer, employee or agent with any other enterprise at the request of
the Company.
17. General. Because of these and other factors, past financial
performance should not be considered an indicator of future performance.
Investors should not use historical trends to anticipate future result and
should be aware that the trading price of the Company's Common Stock may be
subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, general conditions in the computer, video and
telecommunications industries, changes in earnings estimates and recommendations
by analysts and other events.
32
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is incorporated by reference to
pages F-1 through F-23 of this Annual Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) Dismissal Of Independent Accounting Firm
(i) Coopers & Lybrand L.L.P. ("Coopers"), the independent accounting
firm which audited the financial statements of the registrant
during fiscal year 1996, was dismissed by the Company on February
11, 1998.
(ii) Coopers' report on the Company's financial statements for either
of the past two years did not contain an adverse opinion or a
disclaimer of opinion, and was neither qualified nor modified as
to uncertainty, audit scope, or accounting principles.
(iii) The decision to change accountants was approved by the Board of
Directors of the Company at the Meeting of the Board of Directors
of the Company on February 4, 1998.
(iv) During the Company's two most recent fiscal years and any
subsequent interim period preceding such dismissal, there were no
disagreements with Coopers on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement(s), if not resolved to the
satisfaction of Coopers, would have caused it to make reference to
the subject matter of the disagreement(s) in connection with its
report.
(b) Engagement of New Independent Accountants
The Company has engaged Richard A. Eisner & Company, LLP as its new
independent accountants effective February 11, 1998. During the Company's two
most recent fiscal years and any subsequent interim period prior to engaging
such accountants, the Company has not consulted with Richard A. Eisner &
Company, LLP regarding any of the matters specified in Item 304(a)(2) of
Regulation S-B.
The disclosure called for by this Item 8 has been previously disclosed
by the Company under Item 4 of the Company's Current Report on Form 8-K filed
with the SEC on February 18, 1998.
33
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages as of March 7, 1997 and business
experience of the directors and executive officers of the Company:
Name Age Position
============= === =======================================
Gerald Zarin 57 Chairman of the Board of Directors,
Chief Executive Officer and President
Ed Bohn 52 Director
Lyle E. Gramley 71 Director
David Kwong 37 Director
Joseph A. Sarubbi 69 Director
Don Legato 54 Vice President - Sales
Jeremiah F. O'Brien 51 Vice President, Secretary and Chief
Financial Officer
Robert Webb 62 Vice President - Marketing/Technical
Development
GERALD ZARIN has been a Director and President and Chief Executive
Officer of the Company since July 1995. He has been Chairman of the Board of
Directors since January 28, 1996. 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. From June
1993 to July 1995, 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. Horn & Hardart, Inc. is the
parent company for Hanover House and various other hotels and fast food chains.
From 1976 to 1986, he was President and Chief Executive Officer of Morse
Electro, Inc., which designed and sold consumer electronics products.
ED BOHN, has been a director of the Company since July 1995. From
February 1995 to the present, he has been a Director and Consultant of Jennifer
34
<PAGE>
Convertibles, a furniture distributor. 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, 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, 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, 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 various
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.
DON LEGATO has been the Vice President-Sales of the Company since
February, 1997. From April 1994 to February 1997, he was the President of Gale
Group Ltd., Inc., a management consulting firm. From May 1993 to April 1994, he
served as Vice President Sales and Marketing and also as a Director for Applied
Safety Inc., (makers of the "World's First" Retrofit Driver's Side Airbag System
in the US). From June 1992 to May 1993 he was President of Technology Solutions
Distributing Inc., a computer products distribution company. From November 1972
to June 1992, he was President and CEO of T.L.D. Limited , Inc., a
manufacturer's representative company representing major electronics and
computer consumer products firm such as Sanyo, Sharp, Sony and Apple Computer.
He also served on Manufacturer's Advisory Councils for several of these
companies.
35
<PAGE>
JEREMIAH O'BRIEN has been Vice President and Secretary of the Company
since July, 1995 and Chief Financial Officer since January, 1996. From 1983 to
1989, he served as CFO and Executive Vice President for Cardiac Resuscitator
Corporation, a medical electronics manufacturer. From September 1989 through
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 through March 1994, Mr.
O'Brien was Corporate Controller for Andin International, a jewelry
manufacturing company. During the period of July 1991 through July 1995, he also
functioned as an independent consultant in financial matters to various private
corporations.
ROBERT WEBB has been the Vice President-Marketing/Technical Development
of the Company since September, 1995. From June 1995 to September 1995 Mr. Webb
acted as an independent consultant to various private corporations. From July
1994 until 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. From October 1973 until October 1993 he was
employed by Grass Valley Tektronix, which produces broadcast television
equipment. He served as a special advisor to the President of Grass Valley
Tektronix from February 1993 to September 1993; he was Division General Manager
- - - Graphics Systems from November 1990 to February 1993 and held various
executive positions prior to that time.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act 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 SEC initial reports of beneficial
ownership and reports of changes in beneficial ownership of Common Stock. Such
persons are required by regulations of the SEC 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
IPO, has been filed in a timely manner.
36
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
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
years ended December 31, 1996 and December 31, 1997, with respect to those
persons who were, as of December 31, 1997, 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
Underlying Options
Other Annual (Number of Shares) All Other
Name and Principal Position Year Salary Bonus Compensation 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
1997 $120,000 $0 $0 0 $0
Don Legato, Vice President- 1997 $129,800 $0 $0 60,000 $0
Sales
Jeremiah O'Brien, Chief 1995 $ 22,000 $0 $0 25,000 $0
Financial Officer, Vice 1996 $ 93,100 $7,500 $0 5,000 $0
President and Secretary 1997 $100,000 $0 $0 0 $0
Robert Webb, Vice 1995 $ 19,600 $0 $0 70,000 $0
President-Marketing/ 1996 $ 99,900 $17,500 $0 0 $0
Technical Development 1997 $108,000 $0 $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 $.01 per share. Mr. Zarin was elected Chairman of the
Board on January 28, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all grants of options for the Company's
Common Stock to the Named Executive Officers of the Company during fiscal 1997.
37
<PAGE>
OPTION GRANTS FOR YEAR ENDED DECEMBER 31, 1997
(Individual Grants in Fiscal Year)
<TABLE>
<CAPTION>
%of Total
Number of Options
Securities Granted
Underlying to Employees Exercise or Base Price
Name Options in Fiscal Year ($/Share) (1) Expiration Dates
- - ---- ------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Don Legato 5,000 5.8 6.875 February 10, 2001
5,000 5.8 6.875 June 10, 2002
20,000 23.6 6.875 February 10, 2003
30,000 35.4 6.875 February 10, 2004
TOTAL 60,000 70.6%
====== =========
</TABLE>
(1) All grants of options have been made with exercise prices equal to fair
value at date of grant.
AGGREGATED OPTION EXERCISES
No options were exercised in fiscal year 1997 by any of the Named
Executive Officers. The following table sets forth, as of December 31, 1997, 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, 1997
and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options1
Name Options at December 31, 1997 at December 31, 1997
- - ---- ---------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Gerald Zarin 200,000 0 $1,000,000 $0
Robert Webb 70,000 0 350,000 0
Don Legato 60,000 0 0 0
Jeremiah O'Brien 30,000 0 150,000 0
------ - -------- --
TOTAL 360,000 0 $1,500,000 $ 0
============ = ================= ===
</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.
38
<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 of 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. For the year ended December 31,1997, each non-employee
director received compensation of $500 for attendance at one non-telephonic
board meeting.
EMPLOYMENT AGREEMENTS
Mr. Zarin entered into an Employment Agreement with the Company, dated
as of July 20, 1995, pursuant to which he agreed to serve as the Company's
President and Chief Executive Officer through December 31, 2000. In December,
1997, the term of the agreement was extended for two additional years to
December 31, 2002. The agreement provided for an initial salary of $90,000 per
year and increased to $120,000 per year 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 agreement for good cause at any time. If the
Company terminates the agreement other than for good cause, or otherwise
materially breaches the contract, 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 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 year 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.
39
<PAGE>
Mr. Legato entered into an Employment Agreement with the Company dated
as of February 11, 1997 pursuant to which Mr. Legato was appointed Vice
President-Sales. The Employment Agreement continues until March 31, 1996 and
thereafter for successive 3-month periods or upon termination. Mr. Legato's
initial salary was $150,000 per annum as of August 14, 1996 and has not been
increased. In connection with his Employment Agreement, Mr. Legato received
options to purchase 60,000 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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.
AMOUNT AND NATURE OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OF BENEFICIAL OUTSTANDING
OWNER OWNERSHIP1 SHARES OWNED2
- - ------------------------------------ ------------------------ --------------
Gerald Zarin 650,000 3 10.9%
36 Troy Drive
Short Hills, NJ 07078
Ed Bohn 28,000 4 *
322 Broadway
Pompton Lakes, NJ 07442
Lyle Gramley 28,000 5 *
12901 Three Sisters Road
Potomac, MD 20854
David Kwong 1,113,000 5, 6, 7 18.8%
13694 Fremont Pines Road
Los Altos, CA 94022
40
<PAGE>
Joseph A. Sarubbi 43,000 5 *
3221 S. Ocean Blvd., Suite 908
Highland Beach, FL 33487
Don Legato 30,000 8 *
2 West Close Street
Moorestown, NJ 08057
Jeremiah F. O'Brien 37,500 9 *
525 W. 236th St., #5-F
Riverdale, NY 10463
Robert Webb 70,000 1.1%
298 Stanton Mountain Rd.
Lebanon, NJ 08833
Helen Burgess 577,854 9.7%
40 E. 30th St., 10th FL.
New York, NY 10016
Prime Technology, Inc. 1,090,000 6 18.2%
2041 Mission College Blvd.
Suite 175
Santa Clara, CA 95054
Ted Wong 1,090,000 6, 10 18.2%
663 Spruce Drive
Sunnyvale, CA 94086
1,090,000 6, 11 18.2%
Rave Engineering Corporation
10930 Technology Place, Suite B
San Diego, CA 92127
All executive officers and directors as a 1,999,500 12 33.5%
group (8 persons)
* Less than 1%.
(1) The number of shares of Common Stock beneficially owned by each person
is determined under the rules of the SEC, 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 March 24, 1998 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 24, 1998 plus any shares subject to options held by the person
in question that are currently exercisable within 60 days after March
24, 1998.
41
<PAGE>
(3) Includes 200,000 shares that may be acquired within 60 days of March
24, 1998, upon the exercise of outstanding options.
(4) Includes 23,000 shares that may be acquired within 60 days of March 24,
1998, upon the exercise of outstanding options.
(5) Includes 8,000 shares that may be acquired within 60 days of March 24,
1998, 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 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 30,000 shares that may be acquired within 60 days of March 24,
1998, upon the exercise of outstanding options.
(9) Includes 30,000 shares that may be acquired within 60 days of March 24,
1998, upon the exercise of outstanding options. Also includes 2,500
shares that may be acquired within 60 days of March 24, 1998, 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.
(10) 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.
(11) 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.
(12) See footnotes (1) through (11) above.
ITEM 12. 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 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. 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 such products,
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 and 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
42
<PAGE>
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. Mr.
Zarin became the Company's President and Mr. Chu became the Chairman of its
Board of Directors and acting Chief Financial Officer. Mr. Wong 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.
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.
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.
Pursuant to the terms of the License Agreement, the Company is obligated to pay
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 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
43
<PAGE>
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 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 also entered into the Development Agreement with Rave
pursuant to which the Company formulated 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 Development 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. In this regard, on April 22,
1997, the Company deposited $300,000 into a certificate of deposit. The
certificate of deposit has been pledged as collateral for an irrevocable standby
letter of credit opened by the Company to guarantee monthly equipment lease
payments (not to exceed $23,611 per month) to be made by the Company on behalf
of Rave pursuant to the Development Agreement. The balance of the standby letter
of credit will be reduced by any payments made and any cash restriction on the
certificate of deposit is limited to the balance of the standby letter of
credit. Through December 31, 1997, the Company had made payments of $386,657
against the $850,000 of equipment purchases and at that date had $221,481
pledged as collateral to guarantee
44
<PAGE>
the monthly equipment lease payments. Expenditures of the remaining $241,862 of
the $850,000 will depend on finalizing mutually agreed plans for the development
of additional products for evaluation by the Company during the remaining term
of the Development Agreement.
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. To the best of the Company's knowledge, Rave is not providing
development activities for any third parties.
Through December 31, 1997, 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, 1997, Rave R & D Expenses were
$2,657,355.
In order to assist it in obtaining sublicensing revenue, the Company
entered into the Agency Agreement with Prime which 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.
45
<PAGE>
The Agency Agreement terminates upon the termination of the License
Agreement or upon a default, as defined in the Agency Agreement.
Prime has been paid $400,000 pursuant to the Agency Agreement through
December 31,1997.
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.
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.
The Company entered into a Consulting Agreement with Corporate
Builders, L.P. (the "Consultant") effective as of August 1, 1995 (the "Corporate
Builders Agreement"). 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 of the Consultant. 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 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.
46
<PAGE>
The total consulting fees paid to Consultant pursuant to the Consulting
Agreement for the period from inception (July 17, 1995) to December 31, 1997 was
$175,000 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, 1997 was $264,998.
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 dated
as of July 20, 1995 and in that connection was granted options to purchase
200,000 shares of the Company's Common Stock at an exercise price of $1.50 per
share. The options expire December 31, 2000.
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 an exercise
price of $1.50 per share, 10,714 of which vested immediately and the remainder
of which vested 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 by the Company, 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 vested equally on September 11, 1996 and
September 11, 1997. All of such options expire on 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 shares of Common Stock at an exercise price of $2.00 per share.
The options expire March 1, 2001. In addition, since 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 and on May 29, 1997, Mr. Bohn was granted options
to purchase 12,500 shares of Common Stock at an exercise price of $6.750. The
options expire as follows: 4,167 on May 29, 2003, 4,167 on May 29, 2004, and
4,167 on May 29, 2005. 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
47
<PAGE>
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. For
the year ended December 31, 1997, Mr. Bohn received $57,250 on account of such
consulting services.
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 Common
Stock at an exercise price of $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 an exercise price of $2.00 per share, 11,667 of which vested
immediately and 11,667 of which vested March 1, 1997 and 11,666 of which vested
March 1, 1998. As of March 19, 1998, 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.
In July and August 1995, Ms. 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 IPO in July 1996. In December 1995, Ms. Burgess
purchased certain promissory notes in the principal amount of $350,000 and
70,000 shares of Common Stock. In March 1996, when the Company concluded a
Private Placement of an aggregate of (i) $2,000,000 senior subordinated
non-negotiable promissory notes (collectively, the "Bridge Notes") bearing
interest at the rate of 6% per annum and (ii) 400,000 shares of Common Stock
(the "Bridge Shares") to certain accredited investors, 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 IPO. Ms. Burgess is a limited partner in the
Consultant.
On March 27, 1996, Mr. David 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 IPO.
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.
48
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT DESCRIPTION
- - ------- -----------
1.1* Form of Underwriting Agreement (See Exhibit 1.1 to Registration
Statement on Form SB-2 filed with the Commission on April 2, 1996).
3.1* Articles of Incorporation of the Company (Delaware) (See
Exhibit 3.1(a) to Registration Statement on Form SB-2 filed
with the Commission on April 2, 1996).
3.2* Certificate of Amendment to Articles of Incorporation of the Company
(Delaware) (See Exhibit 3.1(b) to Registration Statement on Form SB-2
filed with the Commission on April 2, 1996).
3.3* Certificate of Authority (New Jersey) (See Exhibit 3.1(c) to
Registration Statement on Form SB-2 filed with the Commission on
April 2, 1996).
3.4* Amended Certificate of Authority (New Jersey) (See Exhibit
3.1(d) to Registration Statement on Form SB-2 filed with the
Commission on April 2, 1996).
3.5* Certificate of Amendment to Articles of Incorporation of the
Company (Delaware) (See Exhibit 3.1(e) to Registration Statement on
Form SB-2 filed with the Commission on April 2, 1996).
3.6* By-Laws of the Company (See Exhibit 3.2 to Registration Statement
on Form SB-2 filed with the Commission on April 2, 1996).
4.1* Form of Common Stock Certificate (See Exhibit 4.1 to Amendment No. 2 to
Registration Statement on Form SB-2 filed with the Commission on July
3, 1996).
4.2* Form of Public Warrant Agreement between the Company, American
Stock Transfer & Trust Company and Rickel & Associates, Inc. (See
Exhibit 4.2 to Amendment No. 1 to Registration Statement on Form SB-2
filed with the Commission on May 22, 1996).
4.3* Form of Public Warrant Certificate (See Exhibit 4.3 to Amendment
No. 2 to Registration Statement on Form SB-2 filed with the Commission
on July 3, 1996).
4.4* Form of Underwriter's Warrant Agreement (including Warrant Certificate)
between the Company and Rickel & Associates (See Exhibit 4.4 to
Amendment No. 1 to Registration Statement on Form SB-2 filed with the
Commission on May 22, 1996).
4.5* Selected Dealer Agreement among Rickel & Associates, Inc. and certain
underwriters (See Exhibit 4.5 to Amendment No. 2 to Registration
Statement on Form SB-2 filed with the Commission on July 3, 1996).
5.1* Opinion of counsel to the Company concerning the legality of the
securities offered in the Company's Initial Public Offering (See
Exhibit 5.1 to
49
<PAGE>
Amendment No. 2 to Registration Statement on Form SB-2 filed with the
Commission on July 3, 1996).
5.2* Opinion of Greenberg Taurig Hoffman Lipoff Rosen & Quentel, P.A. (See
Exhibit 5.1 to Registration Statement on Form S-8 filed with the
Commission on November 12, 1997).
5.3* Opinion of counsel to the Company concerning the legality of the
securities being offered (See Exhibit 5 to Registration Statement on
Form S-3 filed with the Commission on March 8, 1998).
10.1* Restated Employment Agreement dated as of July 20, 1995 between NUWAVE
Engineering, Inc. and Gerald Zarin (See Exhibit 10.1 to Registration
Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.2* Employment Agreement dated as of September 11, 1995 between NUWAVE
Engineering, Inc. and Robert I. Webb (See Exhibit 10.2 to Registration
Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.3* Consulting Agreement dated as of July 18, 1995 between NUWAVE
Engineering, Inc. and Corporate Builders, L.P. (See Exhibit 10.3 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
10.4* Letter Agreement dated as of November 22, 1995 between NUWAVE
Technologies, Inc. and Rickel & Associates, Inc. (See Exhibit 10.5 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
10.5* 1996 Performance Incentive Plan (See Exhibit 10.6 to Registration
Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.6* Exclusive Worldwide License Agreement dated as of July 21, 1995 between
NUWAVE Engineering, Inc. and Rave Engineering Corporation (See Exhibit
10.7 to Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
10.7* Development Agreement dated as of July 21, 1995 between NUWAVE
Engineering, Inc. and Rave Engineering Corporation (See Exhibit 10.8 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
10.8* Exclusive Agency Agreement dated as of July 21, 1995 between NUWAVE
Engineering, Inc. and Prime Technology, Inc. (See Exhibit 10.9 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
10.9* Assignment dated as of July 21, 1995 between NUWAVE Engineering, Inc.,
Prime Technology, Inc. and Rave Engineering Corporation (See Exhibit
10.10 to Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
10.10* Shareholders' Agreement dated as of July 21, 1995 (See Exhibit 10.11 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
50
<PAGE>
10.11* Finder's Agreement dated as of September 1, 1995 among NUWAVE
Technologies, Inc., Prime Technology, Inc. and Harvest Technologies,
Inc. (See Exhibit 10.12 to Registration Statement on Form SB-2 filed
with the Commission on April 2, 1996).
10.12* Finder's Agreement dated as of January 16, 1996 among NUWAVE
Engineering, Inc., Prime Technology, Inc. and Jay Vahl (See Exhibit
10.13 to Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
10.13* Option Agreement for the Purchase of Common Stock dated as of July 17,
1995 between NUWAVE Engineering, Inc. and Jeremiah F. O'Brien (See
Exhibit 10.14 to Registration Statement on Form SB-2 filed with the
Commission on April 2, 1996).
10.14* Option Agreement for the Purchase of Common Stock dated as of September
11, 1995 between NUWAVE Engineering, Inc. and Robert I. Webb (See
Exhibit 10.15 to Registration Statement on Form SB-2 filed with the
Commission on April 2, 1996).
10.15* Option Agreement for the Purchase of Common Stock dated as of November
9, 1995 between NUWAVE Engineering, Inc. and Lyle E. Gramley (See
Exhibit 10.16 to Registration Statement on Form SB-2 filed with the
Commission on April 2, 1996).
10.16* Option Agreement for Purchase of Common Stock dated as of March 1, 1996
between NUWAVE Technologies, Inc. and Jeremiah F. O'Brien (See Exhibit
10.17 to Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
10.17* Option Agreement for Purchase of Common Stock dated as of July 20, 1995
between NUWAVE Technologies, Inc. and Gerald Zarin (See Exhibit 10.18
to Registration Statement on Form SB-2 filed with the Commission on
April 2, 1996).
10.18* Option Agreement for Purchase of Common Stock dated as of March 1, 1996
between NUWAVE Technologies, Inc. and Joseph A. Sarubbi (See Exhibit
10.19 to Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
10.19* Option Agreement for Purchase of Common Stock dated as of March 1, 1996
between NUWAVE Technologies, Inc. and Ed Bohn (See Exhibit 10.20 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
10.20* Shareholder's Agreement dated as of July 17, 1995 between NUWAVE
Engineering, Inc. and its Common Stockholders (See Exhibit 10.21 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
10.21* Form of Subscription Agreement between NUWAVE Engineering, Inc. and its
Series A Preferred Stockholders through August 1995 (See Exhibit 10.22
to Registration Statement on Form SB-2 filed with the Commission on
April 2, 1996).
51
<PAGE>
10.22* Loan and Stock Purchase Agreement dated as of December 15, 1995
between NUWAVE Engineering, Inc. and Helen Burgess (See Exhibit 10.23
to Registration Statement on Form SB-2 filed with the Commission on
April 2, 1996).
10.23* Form of Indemnification Agreement between the Company and its
directors, dated as of January 31, 1996 (See Exhibit 10.24 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
10.24* Form of Note entered into between the Company and the Initial Bridge
Investor relating to the Initial Bridge Financing (See Exhibit 10.25 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
10.25* Form of 10% Promissory Note delivered by the Company in connection with
the private placement of 80 Units (the "Private Placement Bridge"),
each unit consisting of an unsecured 10% non-negotiable promissory
note in the amount of $25,000 and 5,000 shares of Common Stock of the
Company, during February and March of 1996 (See Exhibit 10.26 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
10.26* Form of Securities Registration Rights Agreement entered into between
the Company and the purchasers of Common Stock in the Private Placement
(See Exhibit 10.27 to Registration Statement on Form SB-2 filed with
the Commission on April 2, 1996).
10.27* Form of Registration Rights Agreement entered into between Company and
the purchasers of its Series A Preferred Stock (See Exhibit 10.28 to
Registration Statement on Form SB-2 filed with the Commission on April
2, 1996).
10.28* Form of Lock-up letter between the Company and certain holders of its
Common Stock (See Exhibit 10.29 to Registration Statement on Form SB-2
filed with the Commission on April 2, 1996).
10.29* Lease Letter Agreement between the Company and Simon, Sarver &
Rosenberg dated July 28, 1995 (See Exhibit 10.30 to Registration
Statement on Form SB-2 filed with the Commission on April 2, 1996).
10.30* Guaranty executed by the Company as of October 13, 1995 in
connection with Standard Industrial Net Lease between Collins Tech RB
and Rave Engineering, Inc. (See Exhibit 10.31 to Registration Statement
on Form SB-2 filed with the Commission on April 2, 1996).
10.31* Amendment to Employment Agreement dated as of September 11, 1995
between NUWAVE Engineering, Inc. and Robert I. Webb dated June 3, 1996
(See Exhibit 10.32 to Amendment No. 2 to Registration Statement on Form
SB-2 filed with the Commission on July 3, 1996).
10.32* Financial Consulting Agreement between Prime Technology, Inc. and
Ernest Chu dated January 15, 1995 (See Exhibit 10.33 to Amendment No. 2
to Registration Statement on Form SB-2 filed with the Commission on
July 3, 1996).
52
<PAGE>
10.33* Letter Agreement concerning the Gaming Technology among the Company,
Rave Engineering Corp. and Prime Technology, Inc. dated March 24, 1997
(See Exhibit 10.34 to Annual Report filed with the Commission on April
30, 1997).
10.34* Non-Employee Director Stock Option Plan (See Exhibit 10.1 to Current
Report on Form 8-K filed with the Commission on June 6, 1997).
10.35* Form of Incentive Stock Option Agreement (See Exhibit 4.3 to
Registration Statement on Form S-8 filed with the Commission on
November 12, 1997).
10.36* Form of Non-Employee Director Stock Option Agreement (See Exhibit 4.4
to Registration Statement on Form S-8 filed with the Commission on
November 12, 1997).
10.37* Form of Non-Qualified Stock Option Agreement covering options not
granted under either the 1996 Performance Incentive Plan or the
Non-Employee Director Stock Option Plan (See Exhibit 4.5 to
Registration Statement on Form S-8 filed with the Commission on
November 12, 1997).
10.38* Registration Rights Agreement, dated February 6, 1998, between NuWave
Technologies, Inc. and ProFutures Special Equities Fund, L.P. (See
Exhibit 4.1 to Current Report on Form 8-K filed with the Commission on
February 18, 1998).
10.39* Private Securities Subscription Agreement, dated as of February 6,
1998, between NuWave Technologies, Inc. and ProFutures Special Equities
Fund, L.P. (See Exhibit 10.1 to Current Report on Form 8-K filed with
the Commission on February 18, 1998).
10.40* Warrant, dated February 6, 1998, executed by NuWave Technologies, Inc.
in favor of ProFutures Special Equities Fund, L.P., to purchase up to
50,000 shares of Common Stock, par value $.01 per share, of NuWave
Technologies, Inc. (See Exhibit 10.2 to Current Report on Form 8-K
filed with the Commission on February 18, 1998).
10.41** Component Purchase Agreement, dated December 31, 1997, between Thomson
Consumer Electronics, Inc. and NuWave Technologies, Inc.
10.42** Letter Agreement, dated March 3, 1998, between NuWave Technologies,
Inc. and Janssen/Meyers Associates, L.P.
10.43** Warrant, dated March 3, 1998, executed by NuWave Technologies, Inc. in
favor of Janssen/Meyers Associates, L.P., to purchase up to 400,000
shares of Common Stock, par value $.01 per share, of NuWave
Technologies, Inc.
16.1* Letter from Coopers & Lybrand L.L.P. to the Commission dated February
16, 1998 (See Exhibit 16.1 to Current Report on Form 8-K filed with the
Commission on February 18, 1998).
23.1** Consent of Coopers & Lybrand L.L.P.
27.1** Financial Date Schedule
53
<PAGE>
*The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit heretofore filed with the Commission, to which there have been no
amendments or changes.
**Filed herewith.
(b) REPORTS ON FORM 8-K:
None.
<PAGE>
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.
NUWAVE TECHNOLOGIES, INC.
(Registrant)
Date: March 25, 1997 By: /s/ Gerald Zarin
------------------------------------
Gerald Zarin
Chairman of the Board, President and
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.
SIGNATURE TITLE DATE
/s/ Gerald Zarin President, Chief Executive March 25, 1998
- - ----------------------------
Gerald Zarin Officer and Chairman of
the Board (Principal
Executive Officer)
/s/ Jeremiah F. O'Brien Chief Financial Officer and March 25, 1998
- - ----------------------------
Jeremiah F. O'Brien Secretary (Principal
Financial Officer and
Accounting Officer)
/s/ Ed Bohn Director March 25, 1998
- - ----------------------------
Ed Bohn
/s/ Lyle Gramley Director March 25, 1998
- - ----------------------------
Lyle Gramley
/s/ David Kwong Director March 25, 1998
- - ----------------------------
David Kwong
/s/ Joseph A. Sarubbi Director March 25, 1998
- - -----------------------------
Joseph A. Sarubbi
55
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description Number
- - ------ ----------- ------
1.1* Form of Underwriting Agreement (See Exhibit 1.1 to
Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
3.1* Articles of Incorporation of the Company (Delaware) (See
Exhibit 3.1(a) to Registration Statement on Form SB-2 filed
with the Commission on April 2, 1996).
3.2* Certificate of Amendment to Articles of Incorporation of the
Company (Delaware) (See Exhibit 3.1(b) to Registration
Statement on Form SB-2 filed with the Commission on April 2,
1996).
3.3* Certificate of Authority (New Jersey) (See Exhibit 3.1(c) to
Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
3.4* Amended Certificate of Authority (New Jersey) (See Exhibit
3.1(d) to Registration Statement on Form SB-2 filed with the
Commission on April 2, 1996).
3.5* Certificate of Amendment to Articles of Incorporation of the
Company (Delaware) (See Exhibit 3.1(e) to Registration
Statement on Form SB-2 filed with the Commission on April 2,
1996).
3.6* By-Laws of the Company (See Exhibit 3.2 to Registration
Statement on Form SB-2 filed with the Commission on April 2,
1996).
4.1* Form of Common Stock Certificate (See Exhibit 4.1 to
Amendment No. 2 to Registration Statement on Form SB-2 filed
with the Commission on July 3, 1996).
4.2* Form of Public Warrant Agreement between the Company,
American Stock Transfer & Trust Company and Rickel &
Associates, Inc. (See Exhibit 4.2 to Amendment No. 1 to
Registration Statement on Form SB-2 filed with the Commission
on May 22, 1996).
4.3* Form of Public Warrant Certificate (See Exhibit 4.3 to
Amendment No. 2 to Registration Statement on Form SB-2 filed
with the Commission on July 3, 1996).
4.4* Form of Underwriter's Warrant Agreement (including Warrant
Certificate) between the Company and Rickel & Associates (See
Exhibit 4.4 to Amendment No. 1 to Registration Statement on
Form SB-2 filed with the Commission on May 22, 1996).
4.5* Selected Dealer Agreement among Rickel & Associates, Inc. and
certain underwriters (See Exhibit 4.5 to Amendment No. 2 to
56
<PAGE>
Registration Statement on Form SB-2 filed with the Commission
on July 3, 1996).
5.1* Opinion of counsel to the Company concerning the legality of
the securities offered in the Company's Initial Public
Offering (See Exhibit 5.1 to Amendment No. 2 to Registration
Statement on Form SB-2 filed with the Commission on July 3,
1996).
5.2* Opinion of Greenberg Taurig Hoffman Lipoff Rosen & Quentel,
P.A. (See Exhibit 5.1 to Registration Statement on Form S-8
filed with the Commission on November 12, 1997).
5.3* Opinion of counsel to the Company concerning the legality of
the securities being offered (See Exhibit 5 to Registration
Statement on Form S-3 filed with the Commission on March 8,
1998).
10.1* Restated Employment Agreement dated as of July 20, 1995
between NUWAVE Engineering, Inc. and Gerald Zarin (See
Exhibit 10.1 to Registration Statement on Form SB-2 filed
with the Commission on April 2, 1996).
10.2* Employment Agreement dated as of September 11, 1995 between
NUWAVE Engineering, Inc. and Robert I. Webb (See Exhibit 10.2
to Registration Statement on Form SB-2 filed with the
Commission on April 2, 1996).
10.3* Consulting Agreement dated as of July 18, 1995 between NUWAVE
Engineering, Inc. and Corporate Builders, L.P. (See Exhibit
10.3 to Registration Statement on Form SB-2 filed with the
Commission on April 2, 1996).
10.4* Letter Agreement dated as of November 22, 1995 between NUWAVE
Technologies, Inc. and Rickel & Associates, Inc. (See Exhibit
10.5 to Registration Statement on Form SB-2 filed with the
Commission on April 2, 1996).
10.5* 1996 Performance Incentive Plan (See Exhibit 10.6 to
Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
10.6* Exclusive Worldwide License Agreement dated as of July 21,
1995 between NUWAVE Engineering, Inc. and Rave Engineering
Corporation (See Exhibit 10.7 to Registration Statement on
Form SB-2 filed with the Commission on April 2, 1996).
10.7* Development Agreement dated as of July 21, 1995 between
NUWAVE Engineering, Inc. and Rave Engineering Corporation
(See Exhibit 10.8 to Registration Statement on Form SB-2
filed with the Commission on April 2, 1996).
10.8* Exclusive Agency Agreement dated as of July 21, 1995 between
NUWAVE Engineering, Inc. and Prime Technology, Inc. (See
Exhibit 10.9 to Registration Statement on Form SB-2 filed
with the Commission on April 2, 1996).
57
<PAGE>
10.9* Assignment dated as of July 21, 1995 between NUWAVE
Engineering, Inc., Prime Technology, Inc. and Rave
Engineering Corporation (See Exhibit 10.10 to Registration
Statement on Form SB-2 filed with the Commission on April 2,
1996).
10.10* Shareholders' Agreement dated as of July 21, 1995 (See
Exhibit 10.11 to Registration Statement on Form SB-2 filed
with the Commission on April 2, 1996).
10.11* Finder's Agreement dated as of September 1, 1995 among NUWAVE
Technologies, Inc., Prime Technology, Inc. and Harvest
Technologies, Inc. (See Exhibit 10.12 to Registration
Statement on Form SB-2 filed with the Commission on April 2,
1996).
10.12* Finder's Agreement dated as of January 16, 1996 among NUWAVE
Engineering, Inc., Prime Technology, Inc. and Jay Vahl (See
Exhibit 10.13 to Registration Statement on Form SB-2 filed
with the Commission on April 2, 1996).
10.13* Option Agreement for the Purchase of Common Stock dated as of
July 17, 1995 between NUWAVE Engineering, Inc. and Jeremiah
F. O'Brien (See Exhibit 10.14 to Registration Statement on
Form SB-2 filed with the Commission on April 2, 1996).
10.14* Option Agreement for the Purchase of Common Stock dated as of
September 11, 1995 between NUWAVE Engineering, Inc. and
Robert I. Webb (See Exhibit 10.15 to Registration Statement
on Form SB-2 filed with the Commission on April 2, 1996).
10.15* Option Agreement for the Purchase of Common Stock dated as of
November 9, 1995 between NUWAVE Engineering, Inc. and Lyle E.
Gramley (See Exhibit 10.16 to Registration Statement on Form
SB-2 filed with the Commission on April 2, 1996).
10.16* Option Agreement for Purchase of Common Stock dated as of
March 1, 1996 between NUWAVE Technologies, Inc. and Jeremiah
F. O'Brien (See Exhibit 10.17 to Registration Statement on
Form SB-2 filed with the Commission on April 2, 1996).
10.17* Option Agreement for Purchase of Common Stock dated as of
July 20, 1995 between NUWAVE Technologies, Inc. and Gerald
Zarin (See Exhibit 10.18 to Registration Statement on Form
SB-2 filed with the Commission on April 2, 1996).
10.18* Option Agreement for Purchase of Common Stock dated as of
March 1, 1996 between NUWAVE Technologies, Inc. and Joseph A.
Sarubbi (See Exhibit 10.19 to Registration Statement on Form
SB-2 filed with the Commission on April 2, 1996).
10.19* Option Agreement for Purchase of Common Stock dated as of
March 1, 1996 between NUWAVE Technologies, Inc. and Ed Bohn
(See Exhibit 10.20 to Registration Statement on Form SB-2
filed with the Commission on April 2, 1996).
58
<PAGE>
10.20* Shareholder's Agreement dated as of July 17, 1995 between
NUWAVE Engineering, Inc. and its Common Stockholders (See
Exhibit 10.21 to Registration Statement on Form SB-2 filed
with the Commission on April 2, 1996).
10.21* Form of Subscription Agreement between NUWAVE Engineering,
Inc. and its Series A Preferred Stockholders through August
1995 (See Exhibit 10.22 to Registration Statement on Form
SB-2 filed with the Commission on April 2, 1996).
10.22* Loan and Stock Purchase Agreement dated as of December 15,
1995 between NUWAVE Engineering, Inc. and Helen Burgess (See
Exhibit 10.23 to Registration Statement on Form SB-2 filed
with the Commission on April 2, 1996).
10.23* Form of Indemnification Agreement between the Company and its
directors, dated as of January 31, 1996 (See Exhibit 10.24 to
Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
10.24* Form of Note entered into between the Company and the Initial
Bridge Investor relating to the Initial Bridge Financing (See
Exhibit 10.25 to Registration Statement on Form SB-2 filed
with the Commission on April 2, 1996).
10.25* Form of 10% Promissory Note delivered by the Company in
connection with the private placement of 80 Units (the
"Private Placement Bridge"), each unit consisting of an
unsecured 10% non- negotiable promissory note in the amount
of $25,000 and 5,000 shares of Common Stock of the Company,
during February and March of 1996 (See Exhibit 10.26 to
Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
10.26* Form of Securities Registration Rights Agreement entered into
between the Company and the purchasers of Common Stock in the
Private Placement (See Exhibit 10.27 to Registration
Statement on Form SB-2 filed with the Commission on April 2,
1996).
10.27* Form of Registration Rights Agreement entered into between
Company and the purchasers of its Series A Preferred Stock
(See Exhibit 10.28 to Registration Statement on Form SB-2
filed with the Commission on April 2, 1996).
10.28* Form of Lock-up letter between the Company and certain
holders of its Common Stock (See Exhibit 10.29 to
Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
10.29* Lease Letter Agreement between the Company and Simon, Sarver
& Rosenberg dated July 28, 1995 (See Exhibit 10.30 to
Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
59
<PAGE>
10.30* Guaranty executed by the Company as of October 13, 1995 in
connection with Standard Industrial Net Lease between Collins
Tech RB and Rave Engineering, Inc. (See Exhibit 10.31 to
Registration Statement on Form SB-2 filed with the Commission
on April 2, 1996).
10.31* Amendment to Employment Agreement dated as of September 11,
1995 between NUWAVE Engineering, Inc. and Robert I. Webb
dated June 3, 1996 (See Exhibit 10.32 to Amendment No. 2 to
Registration Statement on Form SB-2 filed with the Commission
on July 3, 1996).
10.32* Financial Consulting Agreement between Prime Technology, Inc.
and Ernest Chu dated January 15, 1995 (See Exhibit 10.33 to
Amendment No. 2 to Registration Statement on Form SB-2 filed
with the Commission on July 3, 1996).
10.33* Letter Agreement concerning the Gaming Technology among the
Company, Rave Engineering Corp. and Prime Technology, Inc.
dated March 24, 1997 (See Exhibit 10.34 to Annual Report
filed with the Commission on April 30, 1997).
10.34* Non-Employee Director Stock Option Plan (See Exhibit 10.1 to
Current Report on Form 8-K filed with the Commission on June
6, 1997). 10.35* Form of Incentive Stock Option Agreement
(See Exhibit 4.3 to Registration Statement on Form S-8 filed
with the Commission on November 12, 1997).
10.36* Form of Non-Employee Director Stock Option Agreement (See
Exhibit 4.4 to Registration Statement on Form S-8 filed with
the Commission on November 12, 1997).
10.37* Form of Non-Qualified Stock Option Agreement covering options
not granted under either the 1996 Performance Incentive Plan
or the Non-Employee Director Stock Option Plan (See Exhibit
4.5 to Registration Statement on Form S-8 filed with the
Commission on November 12, 1997).
10.38* Registration Rights Agreement, dated February 6, 1998,
between NuWave Technologies, Inc. and ProFutures Special
Equities Fund, L.P. (See Exhibit 4.1 to Current Report on
Form 8-K filed with the Commission on February 18, 1998).
10.39* Private Securities Subscription Agreement, dated as of
February 6, 1998, between NuWave Technologies, Inc. and
ProFutures Special Equities Fund, L.P. (See Exhibit 10.1 to
Current Report on Form 8-K filed with the Commission on
February 18, 1998).
10.40* Warrant, dated February 6, 1998, executed by NuWave
Technologies, Inc. in favor of ProFutures Special Equities
Fund, L.P., to purchase up to 50,000 shares of Common Stock,
par value $.01 per share, of NuWave Technologies, Inc. (See
Exhibit
60
<PAGE>
10.2 to Current Report on Form 8-K filed with the Commission
on February 18, 1998).
10.41** Component Purchase Agreement, dated December 31, 1997,
between Thomson Consumer Electronics, Inc. and NuWave
Technologies, Inc.
10.42** Letter Agreement, dated March 3, 1998, between NuWave
Technologies, Inc. and Janssen/Meyers Associates, L.P.
10.43** Warrant, dated March 3, 1998, executed by NuWave
Technologies, Inc. in favor of Janssen/Meyers Associates,
L.P., to purchase up to 400,000 shares of Common Stock, par
value $.01 per share, of NuWave Technologies, Inc.
16.1* Letter from Coopers & Lybrand L.L.P. to the Commission dated
February 16, 1998 (See Exhibit 16.1 to Current Report on Form
8-K filed with the Commission on February 18, 1998).
23.1** Consent of Coopers & Lybrand L.L.P.
27.1** Financial Date Schedule
*The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit heretofore filed with the Commission, to which there have been no
amendments or changes.
**Filed herewith.
61
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Index to Financial Statements
Page(s)
-------
Report of Independent Accountants................................... F-2-F-3
Balance Sheet as of December 31, 1997............................... F-4
Statements of Operations for the years ended December 31, 1996
and December 31, 1997 and for the cumulative period
from July 17, 1995 (inception) to December 31, 1997............ F-5
Statements of Stockholders' Equity for cumulative period from
July 17, 1995 to December 31, 1997............................. F-6-F-7
Statements of Cash Flows for the years ended December 31, 1996
and December 31, 1997 and for the cumulative period from
July 17, 1995 (inception) to December 31, 1997................. F-8-F-9
Notes to Financial Statements....................................... F-10-F-23
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
NUWAVE Technologies, Inc.
Fairfield, New Jersey
We have audited the accompanying balance sheet of NUWAVE Technologies,
Inc. (a development stage enterprise) as at December 31, 1997, and the related
statements of operations, changes in stockholders' equity and cash flows for the
year ended December 31, 1997 and the amounts for such year included in the
period (inception) to December 31, 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the financial position of NUWAVE Technolgies,
Inc. at December 31, 1997, and the results of their operations and their cash
flows for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
Florham Park, New Jersey
March 2, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
NUWAVE Technologies, Inc.
We have audited the accompanying statement of operations, stockholder's equity
and cash flows of NUWAVE Technologies, Inc. (a development Stage enterprise) for
the period from July 17, 1995 (inception) to December 31, 1997, and for the year
ended December 31, 1996. 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 or 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 results of operations and cash flows of NUWAVE
Technologies, Inc. for the period from July 17, 1995 (inception) to December 31,
1997 and for the year ended December 31, 1996 included in the cumulative amounts
for the period from July 17, 1995 (inception) to December 31, 1997, and for the
year ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand LLP
New York, New York
March 26, 1997
F-3
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Balance Sheet
ASSETS
December 31,
1997
--------------
Current assets:
Cash and cash equivalents $ 1,692,788
Inventory 59,818
Prepaid expenses and other current assets 111,005
--------------
Total current assets 1,863,611
Property and equipment 103,471
Restricted Cash 221,481
Other assets 82,200
--------------
Total assets $ 2,270,763
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 153,623
--------------
Commitments and contingencies
Stockholders' equity:
Series A Convertible Preferred Stock, noncumulative,
$.01 par value; authorized 400,000 shares; issued and
outstanding -none as of December 31, 1997
Preferred stock, $.01 par value; authorized 1,000,000
shares; issued and oustanding - none as of December 31,
1997.(Such preferences and rights to be designated by
the Board of Directors)
Common stock, $.01 par value; authorized 20,000,000
shares: issued and outstanding 5,348,334 shares as
of December 31, 1997 53,483
Additional paid in capital 11,253,213
Deficit accumulated during the development stage (9,189,556)
--------------
Total stockholders' equity 2,117,140
--------------
Total liabilties and stockholders' equity $ 2,270,763
==============
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NUWAVE TECHNOLOGIES, INC
(A Development Stage Enterprise)
Statements of Operations
Cumulative from
July 17, 1995
Year Year (inception)
ended ended to
December 31 December 31 December 31
1996 1997 1997
------------- ------------- ----------------
Net sales $ 10,275 $ 10,275
Cost of Sales (4,214) (4,214)
------------- ----------------
6,061 6,061
------------- ----------------
Operating expenses:
Research and development
expenses $ (1,620,594) (1,697,084) (3,808,800)
General and administrative
expenses (1,808,567) (2,336,000) (4,562,231)
------------ ------------- ----------------
(3,429,161) (4,033,084) (8,371,031)
------------ ------------- ----------------
Loss from operations (3,429,161) (4,027,023) (8,364,970)
------------ ------------- ----------------
Other income (expense):
Interest income 172,539 178,707 355,116
Interest expense (325,867) (331,542)
------------ ------------- ----------------
Total other income (expense) (153,328) 178,707 23,574
------------ ------------- ----------------
Net loss before extraordinary item (3,582,489) (3,848,316) (8,341,396)
Extraordinary item (848,160) (848,160)
------------ ------------- ----------------
Net loss $(4,430,649) $(3,848,316) $(9,189,556)
============= ============= ================
Basic and diluted loss per share:
Weighted average
number of common
shares outstanding 3,767,403 5,343,348
============= ============
Basic and diluted
loss per share before
extraordinary item $ (0.95) $ (0.72)
Basic and diluted
loss per share on
extraordinary item $ (0.23) $ -
------------- ------------
Basic and diluted
loss per share $ (1.18) $ (0.72)
============= ============
The accompanying notes are an integral part of these fnancal statments
F-5
<PAGE>
<TABLE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
<CAPTION>
Deficit
Series A Accumulated
Convertible Additional Deferred During the
Preferred Stock Common Stock Paid-in Equity Development
------------------- -----------------------
Shares Amount Shares Amount Capital Costs Stage Total
--------- -------- ----------- ---------- ----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common shares issued in
connection with the
formation of the
company......................... 2,060,000 $ 20,600 $ 20,600
Common shares returned
and retired without
consideration................... (125,000) (1,250) $ 1,250
Sale of Series A convertible
preferred stock for
cash of $1.50 per share......... 600,000 $ 6,000 894,000 900,000
Common shares issued with
initial bridge notes
payable for cash of
$1.50 per share................. 70,000 700 104,300 105,000
Costs incurred in
connection with
equity financing................ $ (38,400) (38,400)
Net loss for the period
from July 17, 1995
(inception) to
December 31, 1995............... $ (910,591) (910,591)
-------- ------- --------- -------- -------- ---------- ----------- ----------
Balance at December 31, 1995....... 600,000 6,000 2,005,000 20,050 999,550 (38,400) (910,591) 76,609
Common shares issued
in connection with the
exchange of the initial
bridge notes for 14
bridge units..................... 70,000 700 139,300 140,000
Common shares issued
with bridge notes
payable for cash
of $2.00 per share.............. 330,000 3,300 656,700 660,000
Costs incurred in
connection with the
private placement
offering relating to
the equity financing............ (134,000) $ 13,400) (120,600)
Common shares issued
in connection with
the initial public
offering for cash of
$5.00 per share................. 2,300,000 23,000 11,477,000 11,500,000
2,530,000 common stock
purchase warrants issued
in connection with the
initial public offering
for cash of $0.10 per
warrant......................... 253,000 253,000
220,000 common stock
purchase warrants and
220,000 redeemable
warrants issued to
the underwriter in
connection with the
initial public offering
for cash of $10.00.............. 10 10
Conversion of 600,000
preferred shares into
600,000 common shares in
connection with the initial
public offering................. (600,000) (6,000) 600,000 6,000 -
The accompanying notes are an integral part of these financial statements
F-6
</TABLE>
<PAGE>
<TABLE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
<CAPTION>
Deficit
Series A Accumulated
Convertible Additional Deferred During the
Preferred Stock Common Stock Paid-in Equity Development
------------------- -----------------------
Shares Amount Shares Amount Capital Costs Stage Total
--------- -------- ----------- ---------- ----------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Costs incurred in
connection with the
initial public offering..... (2,214,582) 25,000 (2,189,582)
Common shares issued
in connection with the
exercise of 20,000
stock options for cash
of $1.50 per share.......... 20,000 200 29,800 30,000
Net loss for the
year ended
December 31, 1996........... (4,430,649) (4,430,649)
---------- --------- ----------- ---------- ----------- ------------ ------------ -----------
Balance at December 31, 1996... $ - 5,325,000 $ 53,250 $11,206,778 $ - $(5,341,240) $ 5,918,788
Common shares issued in
connection with the
exercise of 23,334
stock options for
cash of $2.00 per
share....................... 23,334 233 46,435 46,668
Net loss for the year ended
December 31, 1997........... (3,848,316) (3,848,316)
========== ========= =========== ========== =========== ========= ============= ===========
Balance at December 31, 1997... - $ - 5,348,334 $ 53,483 $11,253,213 $ - $ (9,189,556) $ 2,117,140
========== ========= =========== ========== =========== ========= ============= ===========
The accompanying notes are an integral part of these financial statements
F-7
</TABLE>
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Cumulative
from
July 17, 1995
Year Year (inception)
ended ended to
December 31, December 31, December 31,
1996 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,430,649) $ (3,848,316) $ (9,189,556)
Adjustments to reconcile net loss to net cash
used in operating activities:
Extraordinary item 848,160 848,160
Depreciation expense 18,856 42,354 62,070
Amortization of unamortized debt discount 163,103 168,778
Amortization of deferred financing costs 89,062 89,062
Issuance of common stock for services rendered 20,600
Increase in inventory (59,818) (59,818)
Increase in prepaid expenses and other
current assets (70,218) (19,096) (111,005)
Increase (decrease) in accounts payable and
accrued liabilities 274,066 (219,487) 153,623
Increase in other assets (68,275) (9,925) (82,200)
-------------- -------------- --------------
Net cash used in operating activities (3,175,895) (4,114,288) (8,100,286)
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (80,892) (76,052) (165,541)
-------------- -------------- --------------
Net cash used in investing activities (80,892) (76,052) (165,541)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from sales of Series A Convertible
Preferred Stock 900,000
Proceeds from issuance of initial bridge units 350,000
Proceeds from issuance of bridge units, net of
exchange of initial bridge notes 1,650,000 1,650,000
The accmpanying notes are an integral part of these financial statements
F-8
</TABLE>
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Cumulative
from
July 17, 1995
Year Year (inception)
ended ended to
December 31, December 31, December 31,
1996 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C> <C>
Proceeds from IPO 11,753,010 11,753,010
Repayment of notes issued in connection with
initial bridge notes (2,000,000) (2,000,000)
Costs incurred for equity offerings (2,310,182) (2,348,582)
Issuance of common stock in connection with
exercise of stock options 30,000 46,668 76,668
Increase in restricted cash (221,481) (221,481)
Deferred financing costs (180,900) (201,000)
-------------- -------------- --------------
Net cash provided (used in) by financing activities 8,941,928 (174,813) 9,958,615
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 5,685,141 (4,365,153) 1,692,788
Cash and cash equivalents at the beginning of the period 372,800 6,057,941 -
-------------- -------------- --------------
Cash and cash equivalents at the end of the period $ 6,057,941 $ 1,692,788 $ 1,692,788
============== ============== ==============
Supplemental disclosure of cash flow information:
Interest paid during the period $ 73,702 $ 73,702
============== ==============
Supplemental disclosure of non cash investing and
financing activities:
Deferred financing costs incurred in connection with the
exchange of the initial bridge notes for 14 bridge units $ 140,000 $ 140,000
============== ==============
Deferred equity costs charged to additional paid in
capital in connection with the PPO $ 13,400 $ 13,400
============== ==============
Deferred financing costs charged to additional paid-in capital in
connection with the IPO $ 25,000 $ 25,000
============== ==============
600,000 Series A Convertible Preferred Stock converted
into Common Stock $ 6,000 $ 6,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-9
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS:
NUWAVE Technologies, Inc. (the "Company"), a development stage enterprise,
was incorporated in Delaware on July 17, 1995. It was formed to develop,
manufacture and market products which improve picture quality in set-top boxes,
televisions, VCR's, camcorders and other video devices by enhancing and
manipulating video signals, and facilitate the production of sophisticated
consumer and professional videos. It has had only a limited operating history
and has had only limited sales of its products to date. Since its inception in
July 1995, the Company has been engaged primarily in raising funds, directing,
supervising and coordinating Rave Engineering Corporation ("Rave") and its own
Advanced Engineering Group in the continuing development of its products,
pre-marketing activities, the commencement of comprehensive marketing of the
NUWAVE Video processor and the recruitment of management and technical
personnel, including members of the Advanced Engineering Group. The Company
conducts its operations primarily in the United States.
There is no assurance that the Company's research and development and
marketing efforts will be successful, that the Company will ever have
commercially accepted products, or that the Company will achieve significant
sales of any such products. The Company has incurred net losses and negative
cash flows from operations since its inception. In addition, the Company
operates in an environment of rapid change in technology and is dependent upon
the services of its employees and its consultants. If the Company is unable to
successfully market its NUWAVE Video Processor and related products it is
unlikely the Company could continue its business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period. The
most significant estimates relate to the valuation allowance in connection with
deferred tax assets. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances, money market
instruments, and other highly liquid investments with insignificant interest
rate risk and original maturities of three months or less.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
F-10
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Property and Equipment
Property and equipment are recorded at cost. The cost of maintenance and
repairs is charged against results of operations as incurred.
Depreciation is charged against results of operations by an accelerated
method over the estimated useful lives of the related assets.
Sales and retirements of depreciable property are recorded by removing the
related cost and accumulated depreciation from the accounts. Gains or losses on
sales and retirements of property and equipment are reflected in the results of
operations.
Research and Development Expenses
Expenditures for research and development are expensed as incurred.
Advertising Expenses
The Company expenses advertising costs which consist primarily of
promotional items and print media. Advertising and promotional expenses charged
to operations for the cumulative period from July 17, 1995 (inception) to
December 31, 1997 amounted to $421,124 and for the years ended December 31, 1997
and December 31, 1996 amounted to $289,892 and $131,232, respectively.
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist of cash and cash equivalents. The Company places its cash
and cash equivalents in a commercial bank with three types of accounts, 1) an
operating account where the cash balance is in excess of the FDIC insurance
limit, 2) a money market fund which invests only in U.S. Government securities,
3) Certificates of Deposit.
Per Share Data
The Company has adapted the standards set by the Financial Accounting
Standards Board and computes earnings per share data in accordance with SFAS No.
128 "Earnings per Share". The basic per share data has been computed on the
basis of the loss for the period divided by the historic weighted average number
of shares of common stock outstanding.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined on the basis of the differences between the tax basis of
assets and liabilities and their respective financial reporting amounts
("temporary differences") at enacted tax rates in effect for the years in which
the differences are expected to reverse.
F-11
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
3. INVENTORY
Inventory consists of the following:
December 31,
1997
------------
Finished goods . . . . . . . $ 46,316
Work in process . . . . . 13,502
------------
$ 59,818
============
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
Useful Lives December 31,
in Years 1997
-------------- ------------
Furniture and Fixtures . . 10 $ 4,323
Computers . . . . . . . . 5 100,954
Equipment . . . . . . . . 5 60,264
------------
$165,541
Less, accumulated
depreciation . . . . 62,070
------------
$103,471
============
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
December 31,
1997
------------
Accounts payable . . . . $ 36,964
Legal and accounting
fees . . . . . . . . 90,908
Accrued payroll. . . . . 18,399
Payroll taxes payable. . 7,352
------------
$153,623
============
6. CAPITAL TRANSACTIONS:
Common Stock
On July 17, 1995, the Company issued 2,060,000 shares of common stock for a
fair market value of $.01 per share as consideration for services rendered in
connection with the formation of the Company, as follows:
F-12
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
o 1,090,000 shares to Prime Technologies, Inc. ("Prime"). Rave and two
members of the Company's Board of Directors have ownership interests in
Prime of 22%, 22% and 16%, respectively;
o 450,000 shares to the Company's President;
o 450,000 shares to three entities affiliated with an individual who was
then a member of the Company's Board of Directors (125,000 of such shares
were subsequently returned and retired without consideration); and
o 70,000 shares to individuals who were either employees of, or consultants
to, the Company.
On April 30, 1996, the board of directors and the Company's stockholders
authorized the increase in the shares of common stock to 20,000,000 common
shares, par value $.01 per share.
In July 1996 the Company completed an IPO in which it sold 2,300,000 common
shares and 2,530,000 Redeemable Common Stock Purchase Warrants (the "Warrants")
to purchase an additional 2,530,000 common shares. The Warrants are exercisable
at $5.50 per share commencing on July 3, 1997, and have an expiration date of
July 3, 2001. The Warrants are redeemable by the Company at any time commencing
twelve months after date of the IPO on not less than 30 days prior written
notice to the holders of the Warrants, provided the average closing bid
quotation of the Common Stock as reported on the NASDAQ Stock Market, if traded
thereon, or if not traded thereon, the average closing sale price of the Common
Stock if listed on a national securities exchange (or other reporting system
that provides last sale prices), has been at least 150% of the then current
exercise price of the Warrants (initially, $8.25 per share), for a period of 20
consecutive trading days ending on the third day prior to the date on which the
Company gives notice of redemption. The Warrants will be exercisable until the
close of business on the day immediately preceding the date fixed for
redemption. The Underwriter will receive from the Company a Warrant Solicitation
fee of five percent (5%) of the aggregate exercise price of the Warrants if the
market price of the Common Stock is greater than the exercise price of the
Warrants on the date of exercise.
Also in connection with the IPO, the Company issued to the Underwriter, for
an aggregate purchase price of $10.00, 220,000 warrants to purchase Common Stock
and 220,000 Redeemable Warrants to purchase 220,000 Redeemable Warrants (the
"Underwriter's Warrants"). Thereafter, for a period of four years, the
Underwriter's Warrants will be exercisable at an amount of 165% above the
offering price of the Common Stock and Warrants. The warrants expire five years
after the date of issue.
Preferred Stock
During July and August 1995, the Company sold 600,000 shares of Series A
Convertible Preferred Stock for $900,000 to several investors, one of whom was
the purchaser of the initial bridge notes. The preferred
F-13
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
shares were convertible into common shares on a one-for-one basis, either at the
option of each holder or automatically upon the effective date of an IPO.
On April 30, 1996, the board of directors and the Company's stockholders
authorized an additional 1,000,000 shares of preferred stock, $.01 par value,
which may have such preferences and rights as the board of directors may
designate.
On July 3, 1996, the effective date of the IPO, the Series A Convertible
Preferred Stock consisting of 600,000 shares was converted to common shares on a
one for one basis.
Bridge Units
On December 15, 1995, the Company issued to a Series A Convertible
Preferred stockholder 14 initial bridge units, each unit consisting of the
Company's unsecured initial bridge notes in the principal amount of $25,000 with
a stated interest rate of 10% per annum and 5,000 shares of the Company's common
stock with a fair market value of $1.50 per share for proceeds of $350,000.
After giving effect to the amortization of the initial bridge notes debt
discount, the effective interest rate of the initial bridge notes was 33% per
annum.
On March 1, 1996, based upon an offer from the Company, the initial bridge
noteholder elected to exchange the 14 initial bridge units for 14 bridge units.
On March 1 and March 27, 1996, the Company sold and exchanged to accredited
investors an accumulative total of 80 units (the "bridge units") respectively,
in its PPO. Each bridge unit consisted of (i) a senior subordinated
non-negotiable promissory note ("Bridge Notes") in the principal amount of
$25,000, with a stated interest rate of 10% per annum, and (ii) 5,000 shares of
common stock with a fair market value of $2.00 per share. After giving effect to
the amortization of the Bridge Notes debt discount, the effective interest rate
of the Bridge Notes was 49%.
On July 9, 1996, the aggregate principal amount of the Bridge Notes of
$2,000,000 and accrued interest of $73,652 was repaid upon the consummation, and
out of the proceeds, of the IPO.
Stock Options
The accompanying financial position and results of operations of the
Company have been prepared in accordance with APB Opinion No. 25, Accounting for
Stock Issued to Employees ("APB No. 25"). Under APB No. 25, generally, no
compensation expense is recognized in the accompanying financial statements in
connection with the awarding of stock option grants to employees provided that,
as of the grant date, all terms associated with the award are fixed and the
quoted market price of the Company's stock, as of the grant date, is not more
than the amount an employee must pay to acquire the stock as defined; however,
to the extent that stock options are granted to non employees, for goods or
services, the fair value of these options are included in operating results as
an expense.
F-14
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
A summary of the Company's stock option activity, and related information, is
as follows:
Number Exercise Weighted -
of Price Average Number of
Common Range per Exercise Shares
Shares Share Price Exercisable
------------------------------------------------------------
Outstanding at
December 31, 1995 315,000 $ 1.50 $ 1.50 260,714
=======
Granted 67,000 $ 2.00 - $ 5.75 $ 2.67
Exercised (20,000) $ 1.50 $ 1.50
---------
Outstanding at
December 31, 1996 362,000 $ 1.50 - $ 5.75 $ 1.72 311,524
--------- =======
Granted 192,500 $ 5.78 - $ 6.88 $ 6.54
Exercised (23,334) $ 2.00 $ 2.00
---------
Cancelled (25,000) $ 6.38 - $6.81 $ 6.64
---------
Outstanding at
December 31, 1997 506,166 $ 1.50 - $6.88 $ 2.92 401,000
--------- =======
During 1995, the Company granted options to purchase 315,000 shares of
Common Stock , exercisable at $1.50 per share. The options vested as follows:
260,714 at date of grant, 27,143 in 1996 and 27,143 in 1997. The options expire
as follows: 240,714 in 2000, 27,143 in 2001 and 27,143 in 2002.
During 1996, the Company granted options to purchase 55,000 shares of
Common Stock , exercisable at $2.00 per share. The options vested as follows:
31,667 at date of grant, 11,667 in 1997 at 11,666 in 1998. The options expire as
follows: 8,333 in 2001, 11,667 in 2002 and 11,666 in 2003.
Performance Incentive Stock Option Plan
On January 31, 1996, the Company adopted its 1996 Performance Incentive
Stock Option Plan (the "Plan"). Under the Plan, incentive and nonqualified stock
options, stock appreciation rights and restricted stock may be granted to key
employees and consultants (the "Participants") by certain disinterested
directors of the Board of Directors. 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
F-15
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
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 on
which 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 Internal Revenue
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. The directors determine the vesting
of the options under the Plan at the date of grant. A maximum of 260,000 options
can be awarded under the Plan. As of December 31, 1996 no options had been
issued. During 1997, 192,500 options were granted and 25,000 options were
cancelled under the plan.
Non-Employee Director Stock Option Plan
On November 25, 1996, the Company established a Non-Employee Director
Stock Option Plan (the "Director's Plan"). The Director's Plan provides that
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) shall be eligible for the grant of stock options
under the Director's Plan. Each Eligible Director at the time of his election to
the Board of Directors, shall be granted an option to purchase 3,000 shares of
the Company's common stock at an exercise price equal to closing price of such
common stock at close of business at the date of such grant, such option to vest
immediately and to expire five years from the date of such grant.
Beginning with the annual meeting of the stockholders of the Company held
on May 29,1997 and provided that a sufficient number of shares remain available
under the Director's 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 on the Board an option to purchase 5,000
shares of the Company Common Stock. The first 1,000 options vest immediately,
the remainder vest equally over the next four years from the date of grant and
are exercisable at the closing price of such shares of common stock at the date
of grant. Such options expire five years from the date of vesting.
On November 25, 1996, four Eligible Directors were each granted 3,000 stock
options at an exercise price of $5.75 per share. On May 29, 1997, four Eligible
Directors were each granted 5,000 stock options at an exercise price of $5.75
per share. The maximum number of shares of Common Stock with respect to which
options may be granted under the Director's Plan is 80,000 shares. As of
December 31, 1997, there are 48,000 stock options reserved for issuance in the
Director's Plan.
Disclosures required by Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123"), including pro
forma operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation are shown below.
Exercise prices and weighted-average contractual lives for stock options
outstanding as of December 31, 1997 are as follows:
F-16
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercisable
Prices Outstanding Life Price Exercisable Price
- - -------- ----------- ----------- -------- ----------- -----------
$ 1.50 -
$ 2.00 326,666 3.4 $ 1.55 315,000 $ 1.53
$ 5.75 -
$ 6.88 179,500 5.6 $ 6.47 86,000 $ 6.16
The following table summarizes the pro forma operating results of the
Company had compensation costs for the stock options granted been determined in
accordance with the fair value based method of accounting for stock based
compensation as prescribed by SFAS No. 123. Since certain option grants awarded
during 1996 and 1997 vest over several years and additional awards are expected
to be issued in the future, the pro forma results noted below are not likely to
be representative of the effects on future years of the application of the fair
value based method.
1996 1997
----------- -----------
Pro forma net loss $ 4,496,349 $ 4,029,183
Pro forma basic and
Diluted loss per share $ (1.19) $ (.75)
For the purpose of the above pro forma information, the fair value of these
options was estimated at the date of grant using the Black-Scholes option
pricing model. The weighted-average fair value of the options granted during
1996 and 1997 was $.84 and $1.75, respectively. The following weighted-average
assumptions were used in computing the fair value of option grants for 1996 and
1997: weighted-average risk-free interest rates of 5.32% for 1996 and 5.64% for
1997; zero dividend yields for both years; volatility of the Company's Common
Stock of 50% for both years; and an expected life of the options of two years
for 1996 and 1997, respectively.
7. INCOME TAXES
There is no provision for federal, state or local income taxes for the
years ended December 31, 1997 and December 31, 1996, since the Company has
incurred operating losses. In addition, the Company has fully reserved the net
potential future tax benefits resulting from its organization costs and a net
operating loss carryforwards.
F-17
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The tax effect of temporary differences consists of the following:
December 31,
1997
-----------
Deferred tax assets:
Organization costs . . . . . . . . . $ 2,130,610
Property and equipment . . . . . . . 24,828
Net operating loss carryforward. . . 1,504,585
-----------
3,660,023
Valuation allowance. . . . . . . . . 3,660,023
-----------
$ --
-----------
Certain costs in the statement of operations have been capitalized under
Internal Revenue Code and will be amortized over five years commencing with the
date the Company begins its trade or business, as defined by Internal Revenue
Service regulations. The valuation allowance offsets all of the deferred tax
assets as of December 31, 1997.
As of December 31, 1997, the Company has unused net operating loss
carryforwards of $3,761,463 available for income tax purposes. The unused net
operating loss carryforwards expire in various years from 2010 to 2012.
8. COMMITMENTS AND CONTINGENCIES:
License and Development agreements
Pursuant to the terms of the License Agreement dated July 21, 1995, the
Company is obligated to pay to Rave royalties ("Royalties") of (i) 2 1/2 % of
net sales ("Sales Royalties"), as defined, of products sold by the Company
utilizing Rave's technology and (ii) 25% of any sublicensing fees received by
the Company from sublicenses of the products and technology covered by the
License Agreement. 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 sublicensees 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, whichever comes first.
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 has no current plans to develop it.
The License Agreement became effective on July 21, 1995 and continues in
force until either (1) the expiration of the last patent rights or (2) July 21,
2012, whichever is later.
F-18
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The Company has entered into a development agreement (the "Development
Agreement") with Rave, pursuant to which the Company has formulated a
development plan (the "Development Plan") extending through October 1998, with
annual renewals, subject to one year's written notice. The Development Plan
focuses principally on the development of the products, as defined, and 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 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
terminates on October 2, 1998. The Development Agreement also provides for Rave
to receive additional payments under certain conditions aggregating $850,000 to
purchase or lease equipment for use in developing the Licensed Products and
Technology. The payments were originally to be made in monthly installments not
to exceed $23,611 with a lump sum payment of $283,336 due in March 1998, if
certain conditions were met. In this regard, on April 22, 1997, the Company
deposited $300,000 into a certificate of deposit. The certificate of deposit has
been pledged as collateral for an irrevocable standby letter of credit opened by
the Company to guarantee monthly equipment lease payments (not to exceed $23,611
per month) to be made by the Company on behalf of Rave pursuant to the
Development Agreement. The balance of the standby letter of credit will be
reduced by any payments made and any cash restriction on the certificate of
deposit is limited to the balance of the standby letter of credit. Through
December 30, 1997, the Company had made payments of $386,657 against the
$850,000 of equipment purchases and at that date had $221,481 pledged as
collateral to guarantee the monthly equipment lease payments. Expenditures of
the remaining $241,862 of the $850,000 will depend on finalizing mutually agreed
plans for the development of additional products for evaluation by the Company
during the remaining term of the Development Agreement.
The Rave research and development expenses charged to the statement of
operations for the cumulative period from July 17, 1995 (inception) to December
31, 1997 amounted to $2,657,355; and for the years ended December 31, 1997 and
December 31, 1996 amounted to $1,096,903 and $1,143,825, respectively.
Agency Agreement
In order to assist it in obtaining sublicensing revenue, the Company has
entered into an Agency Agreement (the "Agency Agreement") with Prime. The Agency
Agreement provides that Prime will be the Company's exclusive agent for entering
into sublicenses with respect to the licensed products and technology. Because
its products are not fully developed, 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 of the
Company's licensees and sublicensees, after subtracting the payments to Rave and
licensing expenses, Prime will receive 35% of net sublicense fees received by
the Company, and thereafter 45%. Because the Company has retained the right
F-19
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
to enter into licenses 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 receive an additional
agency fee of up to $1,500,000, of which (i) $400,000 has been paid (ii)
$400,000 is payable out of the Company's first sublicensing royalties 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 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.
The agency fee charged to operations for the cumulative period from July
17, 1995 (inception) to December 31, 1997 amounted to $400,000 and for the years
ended December 31, 1997 and December 31, 1996 amounted to $70,000 and $330,000,
respectively.
The minimum annual commitments under the Rave License and Development
Agreements, and the Agency Agreement, as of December 31, 1997 are as follows:
For the Year Royalty and
Ended Development Consulting Equipment
December 31, Fees Fees Financing Total
- - ------------ ------------ ------------ ----------- ------------
1998 $650,000 $35,000 $463,342 $1,148,342
============= ============ =========== ============
Employment Agreements
The Company entered into an employment agreement with its President
originally expiring December 31, 2000. In December 1997, the agreement was
extended for two years to December 31, 2002. The employment agreement provides
for a minimum annual salary, and bonus incentives, based upon the Company
meeting profit levels to be set by the Board of Directors. The agreement also
provides for termination payments to the President under certain circumstances.
The minimum annual salary commitment as of December 31, 1996 and December 31,
1997, excluding bonus arrangements, amounted to $120,000 per annum.
On February 10, 1997, the Company entered into an employment agreement with
its Vice President - Sales. As part of the agreement, the Company granted to
this individual, under the Company's Plan, 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 grant. 5,000 options vested immediately; 5,000 options vest
on June 10, 1997; 20,000 options vest on February 10, 1998; 30,000 options vest
on February 10, 1999.
F-20
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Consulting and Representative Agreements
The Company has a consulting agreement with a Limited Partnership (the
"Consultant") rendering business advice. One of the general partners of the
Consultant is a former member of the Company's Board of Directors. In addition,
this general partner was a partner in two other affiliated entities. Together
the Consultant and the two other affiliated entities (which also provided
services to the Company) received 450,000 shares of the Company's common stock
for an aggregate consideration of $4,500 (see Note 6). The term of the agreement
was initially for two years and has been orally extended for one additional year
to June 30,1998. The Consultant received fees of $7,500 per month until the
completion of the IPO. Once the IPO was completed, the fee was reduced to $5,000
per month until the agreement terminates. The total consulting fee per the
consulting agreement charged to the statement of operations for the cumulative
period from July 17, 1995 (inception) to December 31, 1997 amounted to $175,000
plus out-of-pocket expenses; and for the years ended December 31, 1997 and
December 31, 1996 amounted to $60,000 and $77,500 plus out of pocket expenses,
respectively. The total aggregate consideration charged to operations in
connection with the services rendered by the principal of the Consultant and his
affiliated entities for the cumulative period from July 17, 1995 (inception) to
December 31, 1997 amounted to $264,998; and for the years ended December 31,
1997 and December 31, 1996 amounted to $66,329 and $110,367, respectively.
Effective August 1,1995, the Company entered into an agreement with a
consultant whereby the consultant provided to the Company on a non-exclusive
basis, certain services, among others: evaluation of the Company's technologies
and products, assistance in product development and the development of a
marketing strategy and plan, and the recommendation of candidates for marketing
and sales positions. On April 7, 1997, the Company entered into a Representative
Agreement with this same consultant whereby the consultant was appointed as an
exclusive sales representative for selected accounts, identified in the
agreement, to obtain Strategic Alliance Contracts for the Company and to sell
Products during the term of the Agreement. The term of the Agreement was from
April 7, 1997 to November 30,1997. Under the terms of the Agreement, the
consultant or his designees will receive options to purchase shares of common
stock of the Company for each Strategic Alliance Contract the Company enters
into through the efforts of the Representative and/or his designees. For options
granted, the options price is equal to the fair market value as of the date of
the grant and will expire five years after the date of grant. In addition, the
Company shall pay the Representative a commission on net sales of all products
sold by the Company solely through the efforts of the Representative and/or his
designees if the Representative and/or his designees made substantial efforts to
sell the Products to the purchaser during the term of this Agreement. The
commission rate is based on the type of sale and timing of the sale. For all
purchase orders accepted by the company during the period April 7,1997 to
November 15, 2001, the Company will also pay to the Representative a commission
of three percent of net sales of active and/or passive presets and device
drivers whether or not the representative made any effort to sell these items.
As of December 31, 1997, no commissions had been earned and 45,000 options had
been granted pursuant to this Agreement. Since inception to December 31, 1997
the Company has incurred $376,122; and for the years ended December 31,1997 and
December 31, 1996, $143,657 and $195,968, respectively, of
F-21
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
consulting fees and out of pocket expenses for this consultant which have been
charged to operations.
On November 12,1997, the Company contracted with Adaptive Miro-Ware, Inc to
work with TEC (see below) in the design and development of a custom integrated
circuit ("ASIC") in accordance with the Company's specifications. The total cost
of the project was estimated to be $179,550 to be paid in intervals based upon
milestones. The contract is expected to be completed during the first half of
1998. At December 31,1997 $17,500 had been paid under the terms of the contract.
On November 14,1997, the Company contracted with The Engineering Consortium
("TEC") to design and develop a custom integrated circuit ("ASIC") in accordance
with the Company's specifications. The total cost of the project was estimated
to be $130,000 to be paid in intervals based upon milestones. The contract is
expected to be completed during the first half of 1998. At December 31,1997 no
payments had been made under the terms the contract.
On December 3, 1997, the company contracted with Lippert/Heilshorn &
Associates, Inc. ("LHA") to provide various Investor Relations and Public
Relations services for the Company. In return for such services the Company
granted to the LHA 30,000 options for the purchase of the Company's common stock
at $5.78 per share (market price on date of grant. In addition the Company
agreed to pay LHA a fee of $7,500 per month plus normal business expenses. The
contract terminates on March 31,1998, at which time the contract will continue
on a month-to-month basis. However, the Company may terminate the agreement at
any time after March 31,1998 upon 60 days notice to LHA.
The Company has entered into numerous sales representation agreements with
various organizations whereby the Company will pay to the representative
organization commissions based on the type of sale and timing of sale. The
commission rates vary from 2% to 16%. No commissions had been earned through
December 31,1997 pursuant to these agreements.
Leases
The Company leases shared office space on a month-to-month basis for a
monthly rental of $5,400. Rent expense incurred for the cumulative period from
July 17, 1995 (inception) to December 31, 1997 amounted to $122,348; and for the
years ended December 31, 1997 and December 31, 1996 amounted to $78,496 and
$37,452,respectively. In addition, the Company is a guarantor on lease payments
of $4284 per month regarding Rave's facility. The lease expires on June 14,1998.
9. EXTRAORDINARY ITEM
The terms of the Bridge Notes of the Company contained early repayment
provisions in the event the Company completed an IPO. As a result of the
Company's completing an IPO in July 1996, the Bridge Notes were repaid and the
unamortized financing costs of $251,938 and the unamortized debt discount of
$596,222 as of that date, totaling $848,160, were written off and recorded as an
extraordinary item for the year ended December 31, 1996.
F-22
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
10. SUBSEQUENT EVENT
On February 6, 1998, the Company entered into a two-year agreement with an
investor whereby the Company issued 253,485 shares of the Company's Common Stock
for an aggregate purchase price of $1,000,000. In addition, subject to certain
conditions, the agreement provides that, from time to time over the life of the
agreement the Company shall issue "Puts" to the investor whereby the Company
shall issue for each Put and the investor shall purchase a minimum of $250,000
and a maximum of $750,000 of the Company's common stock. The total aggregate
value of the Puts over the life of the agreement must be a minimum of $1,000,000
and cannot exceed $5,000,000. The purchase price of the stock will be at 88% of
the fair market value of the stock at the time of the Put. The following
restrictions apply beginning with the second Put: 1) there must be 20 business
days between Puts; 2) the average trading volume in the Company's Common Stock
for the 30 trading days prior to the Put date must be at least 20,000; 3) The
minimum bid price for the Company's Common Stock on the trading day immediately
preceding the put date must be at least $2.50; 4) unless the investor agrees
otherwise, no put can be made which cause the investor to own more than 9.9% of
the Company's then outstanding stock.
In connection with the agreement the Company issued to the investor
warrants to purchase an aggregate of 50,000 shares of Common Stock at a purchase
price of $6.41 per share. The warrants may be exercised at any time beginning
August 6,1998 and ending three years thereafter. Also, in the event that the
market price as of the effective date of the registration statement filed with
the Securities and Exchange Commission on March 3,1998 regarding the resale of
the underlying securities is less than $3.95, then the Company will issue to the
investor a supplemental warrant to purchase 50,000 shares of Common stock at a
stick price of $3.95. The supplemental warrant may be exercised at any time
beginning 5 days after the effective date and ending 5 years thereafter.
On March 3,1998, the Company entered into a consulting agreement with an
organization (the "Consultant") whereby the Consultant will perform consulting
services relating to corporate finance and other financial services matters. As
compensation for the services described in paragraph 1 above, the Company shall
pay the consultant $5,000 per month during an initial term ending September
3,1999 subject to automatic one-year terms unless either the Company or the
Consultant shall have given written notice at least 30 days prior to the end of
the initial or subsequent terms.
In connection with this agreement, the Company issued to the Consultant
400,000 common stock purchase warrants. The warrants The warrants have an
exercise price of $4 and are exercisable after September 3,1999. The warrants
expire on March 3, 2003.
F-23
EXHIBIT 10.41
COMPONENT PURCHASE AGREEMENT
By and between: Thomson Consumer Electronics, Inc., a company organized under
the laws of Delaware with a principle place of business at 10330 North Meridian
Street, Indianapolis, Indiana 46290, hereinafter referred to as "Buyer;" and
NUWAVE Technologies, Inc., a company organized under the laws of Delaware and
having offices at One Passaic Avenue, Fairfield, New Jersey 07004, hereinafter
referred to as "Seller."
WHEREAS Seller has offered to sell its Application Specific Integrated Circuit
Chip ("ASIC") Video Processor integrated circuit under software control for
video enhancement;
WHEREAS Seller also wishes to sell SOFSETS(TM) video signal processing firmware
applicable; and
WHEREAS Buyer wishes to purchase such ASICS and SOFSETS from Seller for
inclusion in its [*] under certain terms and conditions, as specified in this
Agreement; and
WHEREAS Seller and Buyer entered into a Letter of Intent signed by the parties
on November 12, 1997, and hereby wish to set forth the terms and conditions
under which ASICS and SOFSETS will be sold by Seller and purchased by Buyer;
NOW THEREFORE in consideration of the above, the parties agree to the following
terms and conditions:
1. QUANTITY
1.1. This Agreement is based upon an anticipated procurement of those ASICS
and SOFSETS described in Schedule 1 (hereinafter "Products"). The
estimated quantity to be purchased is described in the same schedule.
1.2. The quantities mentioned above and any schedules supplied by Buyer are
for planning purposes only and may vary due to changing economic and
commercial conditions. Buyer's obligation under this Agreement is
limited to those Products ordered as provided in Article 2, entitled
"ORDERING", and Seller shall deliver accordingly.
1.3 In addition, due to Buyer's short range production schedule
fluctuations, quantities required to be delivered by Seller for any
given time period may vary
1
NOTE: Anywhere in this document where there is a "[*]" indicates that
information has been omitted and filed separately with the SEC pursuant
to a request for confidential treatment.
<PAGE>
considerably from the average quantity which Seller may have expected
to deliver over that period, taking into account the duration of the
Agreement and the total estimated quantities indicated. Accordingly,
Seller agrees to ship at the monthly minimum capacity rate quoted by
Seller for Buyer, so long as notification of the need for such
shipments and order coverage is given by Buyer within the lead time for
new orders as specified in this Agreement.
2. ORDERING
2.1. This Agreement, including the Schedules attached hereto, sets forth the
terms and conditions which shall govern the transactions related to the
purchasing of Products between the parties. Purchase orders, which
shall be considered firm orders after having been accepted by Seller as
defined below, shall be issued by the Buyer to Seller from time to time
during the term of this Agreement, as Buyer's needs arise. Seller shall
ship and bill the Buyer location as indicated on each individual
purchase order.
2.2. In addition, other Buyer [*], including subsidiaries and/or affiliates
("ordering entity") may submit purchase orders directly to Seller for
Product, and Seller, shall supply same to the ordering entity pursuant
to the terms and conditions of this Agreement. Buyer shall provide a
list of such ordering entities, as Schedule 1A. Buyer shall be liable
for payment on any orders of Product for the ordering entities.
2.3. All purchase orders shall indicate the Products to be purchased and
their quantities and prices. Purchase Orders shall also indicate the
date of delivery.
2.4. Seller shall return to Buyer one copy, signed by Seller, of Buyer's
open order, if Buyer so requests. Such signed return of the Buyer's
order shall mean acceptance of the order by the Seller. If Seller
objects to any of the terms included in an ordering entity's purchase
order, it shall make such objection in writing within five (5) business
days upon receipt. Otherwise, the terms of the purchase order shall be
deemed accepted.
3. DELIVERY
3.1. Terms of delivery for each location appear in Schedule 2. Lead time and
cancellation liability are specified in Schedule 1.
3.2. "Lead Time" is defined as the time between the date the Seller receives
a purchase order and the date the Products are delivered to the named
delivery point. Delivery terms shall be defined by the Uniform
Commercial Code.
2
<PAGE>
3.3. Buyer will periodically provide a delivery schedule reflecting, by time
period, shipping quantities required for each part number to support
manufacturing schedules.
3.4. Should the Products be delivered at least fifteen (15) days ahead of
Schedule, Buyer may make payment based on the agreed upon delivery date
or as otherwise expressly agreed between the Parties in writing. In the
event Products are delivered more than fifteen (15) days behind the
agreed upon delivery date, Seller shall enter into good-faith
negotiations with Buyer, if requested, to come to an agreement
concerning allocation of any additional costs incurred by Buyer as a
result of such delay. The above remedies are without prejudice to any
of Buyer's other rights.
3.5. Additionally, in the event of any delay which exceeds fifteen (15) days
and which is not attributable to Buyer, nor to an event of force
majeure as defined in Article 10.9 below, Buyer may, at its option:
(i) Modify the means of transport used in order to minimize the
delay; Seller shall bear all additional costs resulting from
this change.
(ii) If the delay has put the validity of the established schedules
into question, Buyer may cancel any order, in whole or in
part, to be deducted from the total volume commitment, with no
increase on Product price or penalty due.
3.6. Seller shall ensure that the destination of Products, forwarding agent,
shipping line and destination of documents conform exactly to the
instructions received.
4. EXCLUSIVITY
4.1 For the term of this Agreement, provided that Buyer purchases those
quantities set forth in Article 4.2 herein, Seller agrees that it shall
not sell Products to any third party for use in the [*] to be sold in
the U.S. and Canada.
4.2 For the purpose of determining exclusivity, the parties agree that the
following quantities shall be applicable: 50,000 units of Products
purchased by Buyer in the first 12-month period from full-scale
production (Year One); 150,000 units of Product purchased by Buyer in
the following 12-month (Year Two) or 200,000 units of Product in the
24-month period from first shipment, regardless of yearly break-down;
and 250,000 units of Products in the next 12-month period (Year Three).
4.3 If, after the expiration of Year Two, Buyer has not purchased at least
seventy-five percent (75%) of the above-mentioned quantities of Product
(or one hundred
3
<PAGE>
fifty thousand (150,000) units of Product) for reasons other than
Seller's failure to meet schedules or maintain quality, then Seller
shall have the right to sell Products to other companies for use in
HTIB. Seller's sole remedy in the event Buyer fails to make such
purchases is the right to sell Products to other companies for use in
HTIB within the U.S. and Canada, and Buyer shall have no liability to
Seller for failure to purchase such quantities.
5. PRICING / PAYMENTS
5.1. Seller shall provide all Products as specified in this Agreement and
ordered by Buyer at the prices set forth in Schedule 1, and as such
Schedule shall be updated at least on a yearly basis as provided
herein.
5.2. Should Seller, at any time during the term of this Agreement, sell
substantially similar or equivalent products to third parties, in
similar quantities, for the types of uses contemplated herein, at
prices lower than those granted to Buyer under this Agreement, then
Seller shall immediately lower the prices of Products sold to Buyer
hereunder, so that Product prices match the prices granted to said
third party. If Seller is unable or unwilling to match said prices,
then Buyer shall have the right to terminate this Agreement with
fifteen (15) days notice, and with no liability whatsoever due Seller
except for Products delivered and accepted.
5.3 Furthermore, Seller's prices should not be higher than reasonable
competitive prices Buyer would have to pay for like products from other
approved Buyers' suppliers for like quantities. If Seller's prices or
services are not competitive with those offered by other qualified
suppliers, Buyer may terminate this Agreement with fifteen (15) days
notice in whole or in part without liability, provided, however, that
Seller is first given an opportunity to meet such competitive prices or
services.
5.4 Invoicing procedures and any applicable discounts are set forth in
Schedule 2.
5.5 To the extent that other Buyer ordering entities place purchase orders
under this Agreement, or enter into their own agreement, Seller agrees
to reduce Buyer's price for Product accordingly.
6. QUALITY - GUARANTEE
6.1. Buyer's specifications entitled "Thomson Consumer Electronics Quality,
Reliability and Safety Manual (QRSM)" reference #15065980 concerning
quality and reliability for Products and packaging shall be considered
a part of this Agreement and shall apply to all purchase orders issued
by Buyer to Seller. The QRSM, which includes Buyer's specifications and
reject procedure, is set forth in Schedule 3. Seller hereby warrants to
Buyer that all Products purchased under this Agreement shall meet the
stipulated quality levels.
4
<PAGE>
6.2 The Parties shall agree in writing to applicable specifications
("Specifications"). Seller warrants that its Products shall conform to
Specifications for a period of twelve (12) months from delivery. Should
Products not meet "Quality - Guarantee" provisions as set forth above,
Buyer shall notify Seller, providing information concerning the
defect(s). Unless such defect is determined to be the result of a
specification, drawing, or modification, provided by Buyer, then Seller
shall (a) repair or replace defective Products or credit Buyer at
Buyer's option, and (b) reimburse Buyer's documented expenses related
to such defective Product, including labor, materials and shipping
expenses. This warranty shall not apply if Products have been abused or
misused by Buyer.
7. TERM/TERMINATION
7.1. This Agreement shall become effective as of January 1, 1998 and shall
remain in force for a period of thirty-six (36) months following the
date of first shipment of product, unless otherwise terminated as
provided below. Upon conclusion of negotiations of this Agreement,
Buyer may immediately issue purchase orders for Products required
during the new Agreement term.
7.2. In the event the Products do not meet the Specifications, or in the
event Seller does not meet schedules or for other material breach of
this Agreement, except when excused by an event of force majeure, Buyer
has the right to unilaterally terminate this Agreement without cost,
except as regards Products delivered and accepted, provided, however,
that Buyer first provides Seller of notice of the problem and Seller
does not remedy to Buyer's satisfaction within a thirty (30) day period
from said notice.
7.3. Either party may immediately terminate this Agreement and any accepted
purchase orders by giving notice to the other party in the event that:
(i) the other party is adjudicated bankrupt, becomes insolvent or
makes a general assignment for the benefit of creditors;
(ii) a petition shall be filed against the other party under a
bankruptcy law, a corporate reorganization law, or any other
law for the relief of debtors or similar law analogous in
purpose or effect;
(iii) the other party (and/or its affiliates/subsidiaries) enters
dissolution or liquidation proceedings.
7.4 Should Buyer terminate this Agreement or cancel all or any portion of a
purchase order, for reasons other than Seller's failure to meet its
obligations, Seller must make reasonable efforts to mitigate Buyer's
obligations and Seller's damages. In such event, if finished Products
cannot be applied to any other
5
<PAGE>
purchase order then open, or used for other customers of Seller, Buyer
shall be liable for all finished Products attributable to Buyer's
purchase orders in Seller's inventory, and/or in transit to Buyer, for
a period specified in Schedule 1, as defined by the delivery schedule
sent by Buyer which is ======== in effect at the time of decision to
terminate. Buyer shall have no liability for raw materials or work in
progress. Buyer shall have no other liability to Seller, and in
particular Buyer shall not be liable for lost profits, overhead,
incidental or consequential damages.
7.5. Buyer reserves the right to reduce estimated quantities or substitute
new materials for those referenced in the Agreement, in the event that
new materials offering a superior technological or economic advantage
become available during the term of this Agreement. Seller shall be
given a reasonable amount of time to match such new materials. In the
event Seller cannot offer such competitive materials, Buyer may
unilaterally terminate this Agreement. In such an event, Seller may
ship orders that have been issued and scheduled.
8. INTELLECTUAL PROPERTY AND CONFIDENTIALITY
8.1. Seller hereby grants Buyer a non-exclusive license to use the word and
design trademarks (the "Trademarks") as set forth in Exhibit 4 which is
attached hereto and incorporated by reference in this Agreement in
connection with the advertising sale, marketing and other promotion of
the Products. Buyer agrees to place the Trademarks on its finished
goods incorporating the Products and/or external packaging for same
and, at Buyer's sole discretion, may place the Trademarks in
advertising and promotional materials for finished goods incorporating
the Products.
Seller shall have the right to review and approve all uses of its
Trademarks by Buyer on finished goods incorporating the packaging,
advertising and promotional materials. Buyer shall submit all new
materials bearing the Trademarks to Seller for prior approval, which
approval shall be deemed to be granted if Seller has not given notice
to Buyer within 10 business days after receipt of such materials of any
objections to such use of the Trademarks. If such approval is not
received, Buyer will no longer be obligated to place the Trademarks on
its finished goods incorporating the Products and/or packaging. Buyer
acknowledges that the Trademarks are owned by Seller and all use of the
Trademarks by Buyer shall inure to the benefit of Seller. This license
shall terminate in the event that this Agreement is terminated for any
reason and Seller shall terminate all use of the Trademarks within
thirty (30) days after any such termination date.
8.2 Seller hereby agrees to indemnify and defend Buyer against all claims
that the Product infringes any patent, copyright, trademark or trade
secret rights of a third party and Seller shall pay all costs, damages
and attorneys' fees arising from or
6
<PAGE>
in connection with any such claim, provided that Buyer shall (i) give
Seller prompt notice of any such claim; (ii) give Seller a reasonable
opportunity to defend the same; and (iii) provide Seller with all
reasonably necessary assistance in defending such claim upon Seller's
request. In case the Products are, in any proceeding, held to infringe
any such third party right(s), Seller may, at its option, terminate
this Agreement. The duty to indemnify, however, will survive the
termination of this contract.
In case the Products are, in any proceeding, held to constitute
infringement of any such right, Seller may, at its option:
(i) procure for the Buyer the right to continue using the
Products, or
(ii) replace or modify the Products so that they become
non-infringing, or
(iii) refund to Buyer the cost of the relevant Product as provided
for in the purchase order.
8.3. Seller further agrees to submit to personal jurisdiction in any forum
in which Buyer may be sued on any claim subject to indemnification.
Seller shall defend Buyer or its customers, or pay costs, damages, and
attorneys' fees for any claim based upon the combination, operation, or
use of Products with any programs or data supplied by Seller unless
such combination, operation or use is specified by Buyer, and such
infringement would have been avoided without such combination,
operation, or use.
8.4. Each Party may, during the term of this Agreement disclose certain
CONFIDENTIAL INFORMATION to the other Party as deemed necessary by the
disclosing Party for the performance of this Agreement.
8.5 With respect to CONFIDENTIAL INFORMATION released during the term of
this Agreement, each Party shall identify the confidential nature of
documents it may disclose to the other Party by marking it as
"CONFIDENTIAL". CONFIDENTIAL INFORMATION disclosed orally and
designated by the disclosing Party as confidential at the time of
disclosure shall be confirmed in writing within thirty (30) days after
such disclosure and marked as "CONFIDENTIAL". The existence of this
Agreement is considered confidential, and neither Party shall divulge
its existence or terms thereof, without the express written consent of
the other Party.
8.6 Each Party agrees that, for a period of five (5) years from the date of
this Agreement, with regard to CONFIDENTIAL INFORMATION it received
during the term of this Agreement, it shall use the same degree of care
as it uses with respect to its own CONFIDENTIAL INFORMATION to prevent
any CONFIDENTIAL INFORMATION disclosed to it by the disclosing Party
from
7
<PAGE>
being disclosed to any third party. Each Party further agrees not to
use such CONFIDENTIAL INFORMATION for any purposes other than those
contemplated by this Agreement, unless authorized in writing by the
disclosing Party. Additionally, each Party agrees to disclose such
CONFIDENTIAL INFORMATION only to its employees having a need to know
such CONFIDENTIAL INFORMATION.
8.7 No provisions set forth in this Article 9 will apply to any information
which:
8.7.1 is or becomes publicly known, through publication, inspection of
the product, or otherwise, and through no wrongful act of the receiving
Party, or
8.7.2. is received by either Party rightfully from any third party
without confidential restriction in favor of the other Party, or
8.7.3. is known to either Party before receipt of the same from the
other Party as demonstrated by documentation in its files, or
8.7.4. is developed by either Party independently of the other Party's
CONFIDENTIAL INFORMATION as demonstrated by documentation in its files
provided the person or persons developing such information has had no
access to the other Party's CONFIDENTIAL INFORMATION, or
8.7.5. is approved for release by written authorization of the
disclosing Party, or
8.7.6. is disclosed pursuant to the lawful requirement or request of a
Governmental agency or disclosure is permitted by operation of law, or
8.7.7. is reasonably necessary to support a patent application, the
subject of which belongs to the receiving Party and which the receiving
Party discloses to an appropriate Patent Agent, Patent Office and/or
Court of any country of the world in pursuance thereof, provided that
such information has already been disclosed to a Patent Office by the
disclosing Party.
8.8 All samples, drawings, documents, or other tangible media, including
any copies thereof, delivered by one Party hereto to the other Party
pursuant to this Agreement shall be and remain the property of such one
Party, and shall be promptly returned to such one Party upon written
request, or destroyed at such one Party's option.
8.9 Neither Party shall utilize any CONFIDENTIAL INFORMATION of the other
Party in the manufacture of articles sold or offered for sale without
the other Party's prior written consent.
8
<PAGE>
8.10 Nothing contained in this Agreement shall constitute a commitment by
either Party to the development or release of any future information or
any products and/or programs, and participation in the information
exchanged pursuant to this Agreement shall not constitute or imply a
commitment by either Party to favor or recommend any product or service
of the other Party.
9. GENERAL INDEMNIFICATION
9.1 Seller shall at all times indemnify and hold harmless Buyer and Buyer's
agents and employees, against and from every suit, claim, liability,
prosecution, penalty, settlement, loss, damage, cost or other expense
including reasonable counsel fees relating to or arising out of any
claim for death or injury to any person or damage to property alleged
to have resulted from any actual or alleged defect in or any actual or
alleged unsafe feature of any Product, provided said defect or unsafe
feature is not the proximate result of any act or omission to act on
the part of Buyer. In case of any suits or proceedings as contemplated
above, Buyer shall promptly notify Seller in writing of any such suit
or proceeding and shall give information and assistance for the defense
of the same, the Seller at its option, shall resist and defend such
action or proceeding by reputable counsel retained at its expense or
settle such action or proceeding.
9.2 Seller shall at all times indemnify and hold harmless Buyer, Buyer's
agents and employees, against and from any suit, claim, penalty or
other expense including counsel fees relating to or arising out of or
resulting from Seller's noncompliance with law or breach of warranty as
defined herein.
9.3 NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER, AND IN PARTICULAR
NEITHER PARTY SHALL BE LIABLE FOR LOST PROFITS, OVERHEAD, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF THE OTHER EXCEPT AS EXPRESSLY PROVIDED HEREIN.
All development, pilot, tooling, and related expenses borne by a Party
shall be that Party's sole responsibility.
10. GENERAL PROVISIONS
10.1. Entire Agreement. This Agreement, combined with its Schedules 1-5
attached hereto, cancels and supersedes any previous proposals and
understandings between the parties, whether written or oral on the
subject matter hereof. Any terms and conditions printed on the back of
the Parties standard invoices or purchase orders are expressly
excluded.
10.2 Modifications. Additional conditions or modifications to the above
applicable terms shall be made only with the mutual consent of the
parties hereto as set forth in writing signed by a duly authorized
officer of each party and expressly stating the parties' intent to
amend this Agreement.
9
<PAGE>
10.3 Severability. In case any provision of this Agreement infringes any
applicable law or legally enforceable rule, said law or rule shall
prevail, but only to the extent necessary to comply therewith, and the
infringing provision shall be null and void to that extent, while the
other provisions of this Agreement shall remain in full force and
effect.
10.4 Environment. Seller recognizes that Buyer has a corporate environment
policy and hereby guarantees its compliance with all applicable laws
for the protection of the environment. In particular, (i) it guarantees
that no ozone depleting substances are used in the manufacture of
Products, and (ii) it will provide Buyer with all reasonable assistance
with the application of Buyer's environment policy, including, if
requested by Buyer, the development of environment-friendly packaging
for Products.
10.5. EDI. Should the parties agree to use Electronic Data Interchange for
the operations contemplated by this agreement, the provisions of
Schedule 5 hereto shall apply.
10.6 Assignment. Neither party shall assign its rights and obligations
arising under this Agreement without the prior consent of the other,
which shall not be unreasonably withheld, except that Buyer may assign
its rights and obligations to a successor corporation.
10.7 Applicable Law-Jurisdiction In the event a dispute arises pursuant to
this Agreement, such dispute should be resolved by negotiation. If the
dispute cannot be resolved, then this Agreement shall be governed by
and construed, interpreted and enforced in accordance with the laws of
Indiana, without giving effect to the conflicts of laws provisions
theoreof. Seller hereby agrees to submit to the jurisdiction of such
courts.
10.8 Headings. The headings used throughout this Agreement are used for
convenience only.
10.9 Force Majeure. Neither party shall be liable for failure to perform any
of its obligations hereunder during any period in which such
performance is delayed by an event of force majeure. A force majeure
event is defined as an Act of God, including fire, flood, earthquakes,
typhoons, etc., and government actions, war, unforeseen strikes, riots
and embargoes. The Party seeking a delay in performance due to a force
majeure event shall promptly notify the other Party in writing, and
shall specify in detail the reasons the force majeure event shall
prevent performance. Upon cessation of the force majeure event, this
Agreement shall continue in full force and effect for the remainder of
its term. Notwithstanding the above, if an event of force majeure lasts
more than ninety (90) days, either party shall have the right to
terminate this Agreement upon notice to the other.
10
<PAGE>
10.10 Notice. Whenever under this Agreement one party is required or
permitted to give notice to the other, such notice shall be deemed
given when delivered in hand or three days after being sent by United
States mail, registered or certified mail, return receipt requested,
postage prepaid, and addressed as follows:
In the case of Seller: In the case of Buyer:
Nuwave Technologies, Inc. Thomson Consumer Electronics, Inc.
One Passaic Avenue 10330 North Meridian Street
Fairfield, New Jersey 07004 Indianapolis, Indiana 46290-1024
Attention: General Business Manager
[*]
with required copy to: with required copy to:
Attention: Fredric J. Klink, Attention: Legal Department
Esquire
Dechert Price & Rhoads Thomson Consumer Electronics, Inc.
30 Rockefeller Plaza 10330 North Meridian Street
New York, NY 10112 Indianapolis, Indiana 46290-1024
Fax: (212) 698-3599
Either party hereto may change its address for notification purposes
from time to time by giving the other party prior written notice in
accordance with this Section of the new address and the date upon which
it will become effective.
Signed in two originals, one for each party.
Thomson Consumer Electronics, Inc. Supplier
NUWAVE Technologies, Inc.
/s/ Timothy M. DiGoia /s/ Jeremiah F. O'Brien
Signature Signature
Timothy M. DiGoia Jeremiah F. O'Brien
Typed Typed
General Business Mgr. [*] Chief Financial Officer
Title Title
12/31/97 12/31/97
Date Date
11
<PAGE>
SCHEDULE 1
PRODUCTS AND PRICES/
LEAD TIMES AND CANCELLATION LIABILITY
Commodity 039
Business [*]
Lead Time
New Orders: 60 days Reschedule: None within 30 days
Cancellation Liability
Finished Goods 60 Days
Estimated
Part/Item No. Qty/K Price
NVP103 50K $7.10 ea.
NVP103 150K $7.10 ea.
NVP103 250k $7.10 ea.
12
<PAGE>
SCHEDULE 1A
BUYER ORDERING ENTITIES
[*]
13
<PAGE>
SCHEDULE 2
AGREED TERMS OF DELIVERY
(INCLUDES MINIMUM ORDER QUANTITY PROVISIONS, IF APPLICABLE.)
Payment Shipping MOQ MOQ
Term Condition Other TCE
Net 45 FOB Dresden, N/A N/A
Germany
14
<PAGE>
SCHEDULE 3
QUALITY SPECIFICATIONS
1. All Products will conform to the following:
AQL Major Discrepancies: 0.04
AQL Minor Discrepancies: 0.10
Parts per Million Quality Level 100
2. See also QRSM #15065980, attached
3. See also Classification of Discrepancies
15
<PAGE>
THOMSON MULTI MEDIA FAMILY CODE
-----------------
| D60000 |
-----------------
These drawings and specifications are the property of THOMSON MULTI MEDIA
and shall not be reproduced or copied, or used as the basis for the
manufacture or sale of apparatus or devices without permission.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
Engineering Change Notice -- Record
- - --------------------------------------------------------------------------------------------------------
| | | | |
Revision | EOP | | | |
Number | Number | Date | Signature | Revision Description |
| | | | |
- - -----------|-----------|-----------------|----------------------|--------------------------------------|
<S> <C> <C> <C> <C> <C>
| | | | PART 15065980 S/O (CHECKED & |
1 | NONE | 18 OCT 1994 | I. J. KRATZ CEAM | ISSUED) |
- - -----------|-----------|-----------------|----------------------|--------------------------------------|
| | | | |
| | | | REFORMATTED & REWORDED TO AGREE |
2 | NONE | 17 MAY 1995 | I. J. KRATZ CEAM | WITH CURRENT TERMINOLOGY. |
- - -----------|-----------|-----------------|----------------------|--------------------------------------|
| | | | |
| | | | MIL-STD-105D REPLACED BY ANSI/ASQC |
3 | NONE | 01 AUG 1996 | C. HACKETT CEAM | Z1.4 (LATEST REVISION). |
- - -----------|-----------|-----------------|----------------------|--------------------------------------|
| | | | |
| | | | SIMPLIFIED & REFORMATTED TO DEFINE |
4 | NONE | 22 SEP 1997 | C. HACKETT CTI | GLOBAL PRACTICE. SUPPLIER & |
| | | | MATERIAL APPROVAL FLOW CHARTS ADDED. |
| | | R SPENCER SQA | |
- - -----------|-----------|-----------------|----------------------|--------------------------------------|
| | | | REMOVED "PRODUCER AUDIT SUMMARY" |
5 | NONE | 23 SEP 1997 | C. HACKETT CTI | AND "PRODUCER CHECKLIST" FROM |
| | | | SECTION 4. |
- - --------------------------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
REVISION NO. | DOCUMENT ID: |
5 QRSM | |
PAGE NO. 1 OF | 15065980 |
10 -----------------
<PAGE>
THOMSON MULTI MEDIA FAMILY CODE
-----------------
| D60000 |
-----------------
These drawings and specifications are the property of THOMSON MULTI MEDIA
and shall not be reproduced or copied, or used as the basis for the
manufacture or sale of apparatus or devices without permission.
- - --------------------------------------------------------------------------------
QUALITY, RELIABILITY & SAFETY MANUAL (QRSM)
-------------------------------------------
0. TABLE OF CONTENTS
- - --------------------------------------------------------------------------------
0. TABLE OF CONTENTS 2
1. DISTRIBUTION 3
2. PURPOSE 4
3. SCOPE 4
3.1 Sellers 4
3.2 Approval Processes 4
4. SELLER APPROVAL PROCESS 4
5. MATERIAL APPROVAL PROCESS 5
5.1 Initial Approval 5
5.2 Samples 5
5.3 Temporary Approval 6
5.4 Dis-Approval 6
5.5 Re-Approval 6
5.6 Non Conforming Material 6
ATTACHMENTS:
A. `Seller' Approval Process flow chart 8
B. Material Approval Process flow chart 9
- - --------------------------------------------------------------------------------
REVISION NO. | DOCUMENT ID: |
5 QRSM | |
PAGE NO. 2 OF | 15065980 |
10 -----------------
<PAGE>
THOMSON MULTI MEDIA FAMILY CODE
-----------------
| D60000 |
-----------------
These drawings and specifications are the property of THOMSON MULTI MEDIA
and shall not be reproduced or copied, or used as the basis for the
manufacture or sale of apparatus or devices without permission.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1. DISTRIBUTION
- - -----------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C>
--------|-----------------------------------------------|---------------------------|
# | Function | Location |
--------|-----------------------------------------------|---------------------------|
0 | Component Technology America (Master) | Indianapolis |
--------|-----------------------------------------------|---------------------------|
1 | Global Sourcing | Boulogne |
--------|-----------------------------------------------|---------------------------|
2 | Sourcing Europe | Boulogne |
--------|-----------------------------------------------|---------------------------|
3 | Sourcing QA | Boulogne |
--------|-----------------------------------------------|---------------------------|
4 | Legal | Boulogne |
--------|-----------------------------------------------|---------------------------|
5 | Finished Goods | Indianapolis |
--------|-----------------------------------------------|---------------------------|
6 | Sourcing America | Indianapolis |
--------|-----------------------------------------------|---------------------------|
7 | Sourcing IPO | Indianapolis |
--------|-----------------------------------------------|---------------------------|
8 | Sourcing Control, Admin. & Systems | Boulogne |
--------|-----------------------------------------------|---------------------------|
9 | SBU Americas Quality | Indianapolis |
--------|-----------------------------------------------|---------------------------|
10 | Component Technology America | Indianapolis |
--------|-----------------------------------------------|---------------------------|
11 | Sourcing QA America | TBD |
--------|-----------------------------------------------|---------------------------|
12 | Product Technology | Angers |
--------|-----------------------------------------------|---------------------------|
13 | SBU Europe Quality | Angers |
--------|-----------------------------------------------|---------------------------|
14 | Component Technology Europe | Angers |
--------|-----------------------------------------------|---------------------------|
15 | Mechanical Parts Development | Angers |
--------|-----------------------------------------------|---------------------------|
16 | Sourcing Asia | Singapore |
--------|-----------------------------------------------|---------------------------|
17 | SBU A&C Quality, Logistics & Manuf. Support | Singapore |
--------|-----------------------------------------------|---------------------------|
18 | Component Technology Asia | Singapore |
--------|-----------------------------------------------|---------------------------|
19 | Sourcing QA Asia | Singapore |
--------|-----------------------------------------------|---------------------------|
20 | SBU Key Components Quality | Genlis |
--------|-----------------------------------------------|---------------------------|
21 | Sourcing QA Europe | Celle |
--------|-----------------------------------------------|---------------------------|
</TABLE>
- - --------------------------------------------------------------------------------
REVISION NO. | DOCUMENT ID: |
5 QRSM | |
PAGE NO. 3 OF | 15065980 |
10 -----------------
<PAGE>
THOMSON MULTI MEDIA FAMILY CODE
-----------------
| D60000 |
-----------------
These drawings and specifications are the property of THOMSON MULTI MEDIA
and shall not be reproduced or copied, or used as the basis for the
manufacture or sale of apparatus or devices without permission.
- - --------------------------------------------------------------------------------
2. PURPOSE
- - --------------------------------------------------------------------------------
This document specifies the minimum requirements for material
producers of THOMSON multimedia1. It details the inputs and outputs of
both `Seller' and `Buyer.'
3. SCOPE
- - --------------------------------------------------------------------------------
3.1 Sellers
It relates to a `Seller' of electrical, electronic, electro-mechanical
or mechanical components or sub assemblies. The term `Seller' relates
to the business that supplies the materials.
3.2 Approval Processes
This covers the approval and disapproval processes for `Sellers' and
materials. The approval processes apply to the manufacturer of the
materials, whether controlled directly by the `Seller' or whether an
independent subcontractor.
4. `SELLER' APPROVAL PROCESS
- - --------------------------------------------------------------------------------
To be approved as a supplier to THOMSON multimedia, the `Seller' shall
have:
O Quality systems that are at least equivalent to ISO 9001 or
ISO 90022 at the `Seller's' own and or their subcontractor's
manufacturing location.
O Technical, process, equipment, test, environmental, safety and
capacity capabilities to meet `Buyer' commodity requirements
at `Seller's own or their subcontractor's manufacturing
locations.
The `Buyer' will issue the following questionnaire, as appropriate, for
the `Seller' to complete and return with requested attachments.
O Quality questionnaire 15065950
The `Buyer' shall determine the type of audit necessary to assess
suitability based on the questionnaire response. The `Buyer' reserves
the right to conduct an audit of the `Seller's own or subcontracted
manufacturing facility, at any time, at a minimum of 12 hours notice.
- - -------------------
1 Throughout this document, the terms 'Seller' and 'Buyer' are used to
represent the supplier and THOMSON multimedia respectively, in accordance
with the Thomson Component Purchase Agreement and Thomson Purchase Order.
2 Possession of Second Party quality system approvals (major customers) and
or other Third Party quality system approvals (equivalent or superior to
the ISO 9000 series), will greatly assist the approval process.
- - --------------------------------------------------------------------------------
REVISION NO. | DOCUMENT ID: |
5 QRSM | |
PAGE NO. 4 OF | 15065980 |
10 -----------------
<PAGE>
THOMSON MULTI MEDIA FAMILY CODE
-----------------
| D60000 |
-----------------
These drawings and specifications are the property of THOMSON MULTI MEDIA
and shall not be reproduced or copied, or used as the basis for the
manufacture or sale of apparatus or devices without permission.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Refer to Supplier Approval Process flow chart, attachment `A.'
5. MATERIAL APPROVAL PROCESS
- - --------------------------------------------------------------------------------
5.1 Initial Approval
Before being approved to supply full scale production orders, the
`Seller' will provide evidence of capability to consistently meet
requirements of material and component specifications and related
standards. This includes technical, process, equipment, test,
environmental, safety and application capabilities, using one or more
of the following means, as requested by the `Buyer':
o samples,
o specification and standards correlation results,
o design capability data,
o process capability data,
o reliability questionnaires and data,
o inspection and or test results.
Refer to Material Approval Process flow chart, attachment `B.'
5.2 Samples
Sample components or materials shall be submitted to THOMSON
multimedia as defined below.
5.2.1 Requirements
The quantity of samples and the accompanying test data shall be as
defined in the THOMSON multimedia document "Sample Requirements,"
15065850.
5.2.2 Packaging and identification
The `Seller' is responsible for proper packaging and shipment of
samples to THOMSON multimedia. Damaged samples received by THOMSON
multimedia shall be the responsibility of the `Seller'. All samples
shall bear clear and appropriate identification: i.e., Thomson
Approval Samples, Appearance Approval Samples, etc..
- - --------------------------------------------------------------------------------
REVISION NO. | DOCUMENT ID: |
5 QRSM | |
PAGE NO. 5 OF | 15065980 |
10 -----------------
<PAGE>
THOMSON MULTI MEDIA FAMILY CODE
-----------------
| D60000 |
-----------------
These drawings and specifications are the property of THOMSON MULTI MEDIA
and shall not be reproduced or copied, or used as the basis for the
manufacture or sale of apparatus or devices without permission.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
5.2.3 Correlation samples
Following full Thomson Approval or Temporary Approval, the `Seller'
may be required to provide samples to confirm that the correlation of
measurements on critical parameters, attributes or measurement
devices, are being maintained. This requirement shall be identified to
the `Seller' by the `Buyer' Component Technology department.
5.3 Temporary Approval (TA)
Temporary approval of components or materials may be granted by
Component Technology, based upon partial evaluation or sufficient
evidence to demonstrate capability to meet the `Buyer' requirements.
The Temporary Approval shall specify the limits of the approval for
applicable `Buyer' locations, duration and maximum quantities to be
purchased on this basis. Full approval will be subject to the
requirements defined in section 5.1, Initial Approval.
5.4 Dis-Approval
Failure to comply with supplier or material approval requirements can
result in Thomson Approval being reduced to Temporary Approval, or
being completely rescinded, at the discretion of the `Buyer' Component
Technology department, based upon:
o the frequency or severity of the problems experienced,
o the responsiveness and effectiveness of `Seller' corrective
and preventive actions.
5.5 Re-Approval
Re-Approval may be required, at the discretion of the Component
Technology department, when:
o an Engineering Change Notice is issued against an existing
drawing or specification of an approved part,
o previous samples were rejected,
o the `Seller' changes the process, raw materials, or the
manufacturing location3,
o approval is reduced to Temporary Approval or rescinded as
defined in paragraph 5.4 above,
o periodic samples pulled from production shipments fail to meet
approval requirements,
o the latest approval becomes obsolete, by any other means.
5.6 Non Conforming Material
- - -------------------
3 The 'Seller' is responsible for notifying the 'Buyer' in writing, in
sufficient time to perform re-approval, of all changes of own or
subcontractor manufacturing locations and or responsibilities.
- - --------------------------------------------------------------------------------
REVISION NO. | DOCUMENT ID: |
5 QRSM | |
PAGE NO. 6 OF | 15065980 |
10 -----------------
<PAGE>
THOMSON MULTI MEDIA FAMILY CODE
-----------------
| D60000 |
-----------------
These drawings and specifications are the property of THOMSON MULTI MEDIA
and shall not be reproduced or copied, or used as the basis for the
manufacture or sale of apparatus or devices without permission.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
5.6.1 Incoming Inspection
The goal of the `Buyer' is to use material that has a certified status
(incoming inspection not required), retaining the option to employ
incoming inspection at any time, but primarily when items:
1. are safety critical,
2. have not consistently met specified requirements,
3. do not have proven capability to meet specified requirements.
Inspection and sampling techniques used at incoming inspection to
demonstrate compliance with specifications and drawings, shall be at
the discretion of the `Buyer.'
Any safety critical defect, wherever found, shall result in rejection
of the entire lot.
5.6.2 Process Line & Consumer Acceptance Laboratory (CAL) Defects
The target for the `Seller' is to supply parts or materials with zero
defects.
Progress towards this objective shall be determined by `process line'
reject rates and or `Customer Acceptance Laboratory' (CAL) failure
rates, measured in Parts Per Million (PPM). PPM goals shall be defined
annually in the Component Supplier Agreement. The `Buyer' reserves the
right to return shipments of parts to the `Seller' when actual PPM
levels of defectives are greater than the PPM goal.
5.6.3 Defective Material Action
The `Buyer' using location shall notify the `Seller' of any defective
material and define in writing:
o the nature (actual versus specification) and extent
(proportion) of the nonconformity,
o the proposed disposition of the material (return, scrap, sort,
repair, etc.),
o a breakdown of costs involved where compensation is claimed.
The `Seller' shall provide in writing to the `Buyer':
o analysis of the nonconformity,
o identification and confirmation of the root cause,
o action taken to correct the problem,
o action taken or planned to prevent recurrence,
o confirmation of the `Buyer' disposition,
o confirmation of compensation to be paid, where applicable.
- - --------------------------------------------------------------------------------
REVISION NO. | DOCUMENT ID: |
5 QRSM | |
PAGE NO. 7 OF | 15065980 |
10 -----------------
<PAGE>
THOMSON MULTI MEDIA FAMILY CODE
-----------------
| D60000 |
-----------------
These drawings and specifications are the property of THOMSON MULTI MEDIA
and shall not be reproduced or copied, or used as the basis for the
manufacture or sale of apparatus or devices without permission.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Attachment `A'
`Seller' Approval Process
[OBJECT OMITTED]
- - --------------------------------------------------------------------------------
REVISION NO. | DOCUMENT ID: |
5 QRSM | |
PAGE NO. 8 OF | 15065980 |
10 -----------------
>
<PAGE>
THOMSON MULTI MEDIA FAMILY CODE
-----------------
| D60000 |
-----------------
These drawings and specifications are the property of THOMSON MULTI MEDIA
and shall not be reproduced or copied, or used as the basis for the
manufacture or sale of apparatus or devices without permission.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Attachment `B'
Material Approval Process
- - --------------------------------------------------------------------------------
REVISION NO. | DOCUMENT ID: |
5 QRSM | |
PAGE NO. 9 OF | 15065980 |
10 -----------------
<PAGE>
THOMSON MULTI MEDIA FAMILY CODE
-----------------
| D60000 |
-----------------
These drawings and specifications are the property of THOMSON MULTI MEDIA
and shall not be reproduced or copied, or used as the basis for the
manufacture or sale of apparatus or devices without permission.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
REVISION NO. | DOCUMENT ID: |
5 QRSM | |
PAGE NO. 10 OF | 15065980 |
10 -----------------
<PAGE>
SCHEDULE 4
SUPPLIER TRADEMARKS
Schedule 4
Nuwave's trademark shall appear substantially as follows:
16
<PAGE>
SCHEDULE 5
ELECTRONIC DATA INTERCHANGE
Not applicable
17
Exhibit 10.42
Janssen/Meyers Associates, L.P.
17 State Street
New York, NY 10004
March 3, 1998
The Board of Directors
NuWave Technologies, Inc.
One Passaic Avenue
Fairfield, NJ 07004
Attn: Mr. Gerald Zarin, Chairman/President/CEO
Dear Mr. Zarin:
This letter, when executed by the parties hereto, will constitute an
agreement between Nuwave Technologies, Inc. (the "Company") and Janssen/Meyers
Associates L.P. ("Janssen/Meyers") pursuant to which the Company agrees to
retain Janssen/Meyers and Janssen/Meyers agrees to be retained by the Company
under the terms and conditions set forth below.
1. The Company hereby retains Janssen/Meyers to perform consulting
services related to corporate finance and other financial services matters,
including introducing the Company to the financial and stock brokerage
community, and Janssen/Meyers hereby accepts such retention. The services which
Janssen/Meyers will perform shall include, without limitation, assisting the
Company in raising additional capital, including the solicitation of the holders
of the Company's warrants, issued in July 1996 as part of its IPO, to exercise
such warrants, subject (a) to compliance with applicable law and the rules of
the NASD and (b) payment of a 5% soliciting fee to Janssen/Meyers provided that
such fee shall be paid only if the Company requests Janssen/Meyers to assist it
in soliciting the Warrant holders. In this regard, subject to the terms set
forth below, Janssen/Meyers shall furnish to the Company advice and
recommendations with respect to such aspects of the business and affairs of the
Company as the Company shall, from time to time, reasonably request upon
reasonable notice. In addition, Janssen/Meyers shall hold itself ready to assist
the Company in evaluating and negotiating particular contracts or transactions,
if requested to do so by the Company, upon reasonable notice.
2. As compensation for the services described in paragraph 1 above,
the Company shall pay to Janssen/Meyers a fee of $5,000 per month during an
initial term (the "Initial Term") ending 18 months from the date hereof,
<PAGE>
subject to automatic extension for successive one-year terms (the "Additional
Terms") unless either the Company or Janssen/Meyers shall have given written
notice of termination at least 30 days prior to the expiration of the Initial
Term or the Additional Terms (the Initial Term and the Additional Terms are
hereinafter collectively called the "Term"). The Company hereby issues to
Janssen/Meyers (or its designated affiliates) upon the execution of this
agreement, 400,000 common stock purchase warrants (the "Warrants"). The Warrants
will expire five years after the date hereof and will be exercisable at the
current market price per share, after 18 months from the date hereof, at an
exercise price of $4.00 per share. The Warrants may be exercised as to all or a
lesser number of shares and will contain provisions for registration of the
resale of the underlying shares at the Company's expense, cashless exercise and
for adjustment in the number of such shares and the exercise price to prevent
dilution. The Warrants will have one demand registration right exercisable after
18 months from the date hereof and the piggyback rights, both of which are
specified in the form of Warrant. The issuance of the Warrants is irrevocable
and the Warrants have been fully earned on execution of this Letter Agreement.
In addition to its compensation hereunder, the Company will reimburse
Janssen/Meyers for any and all reasonable expenses incurred by Janssen/Meyers in
the performance of its duties to the Company and shall furnish the Company with
appropriate supporting documentation; provided, however, that any expense in
excess of $1,000 shall require the prior written approval of the Company, which
will not be unreasonably withheld. Such reimbursement shall accumulate and be
paid monthly. Nothing contained herein shall prohibit Janssen/Meyers from
receiving any additional compensation under paragraphs 3 and 4 herein or
otherwise.
3. If during the Term the Company intends to raise equity or debt
financing, it shall first discuss with Janssen/Meyers the terms, if any, upon
which Janssen/Meyers is prepared to raise such capital for the Company. If the
Company and Janssen/Meyers are unable to reach agreement upon such terms, the
Company shall be free to engage another securities firm to raise equity capital
for the Company, provided that Janssen/Meyers shall have 20 business days after
receipt of notice from the Company of the terms upon which such other securities
firm proposes to raise equity capital for the Company to commit to raise such
equity capital on the same or more favorable terms for the Company. If
Janssen/Meyers and the Company shall have failed to reach agreement prior to the
expiration of such 20 business day period then Janssen/Meyers shall have no
further claim or right with respect to the financing of the proposal contained
in such notice from the Company. If, however, the terms of such proposal are
subsequently modified in any material respect, the preferential right
2
<PAGE>
referred to herein shall apply to such modified proposal as if the original
proposal had not been made. Janssen/Meyers' failure to exercise its preferential
right with respect to any particular proposal shall not affect its preferential
rights relative to future proposals.
4. In addition, Janssen/Myers shall hold itself ready to assist the
Company in evaluating and negotiating particular contracts or transactions, if
requested to do so by the Company, upon reasonable notice, and will undertake
such evaluations and negotiations upon prior written agreement as to additional
compensation to be paid by the Company to Janssen/Meyers with respect to such
evaluations and negotiations. Nothing herein shall require the Company to
utilize Janssen/Meyers' services in any particular transactions nor shall it
limit the Company's obligations arising under any other agreement or
understanding.
5. The Company and Janssen/Meyers further acknowledge and agree that
Janssen/Meyers may act as a finder or financial consultant in various business
transactions in which the Company may be involved, which involves (i) a transfer
of control, including without limitation, a merger, a sale of assets, a sale of
stock, a tender offer, or (ii) an acquisition by the Company of another business
or an agreement for a joint venture with a third-party ("M&A Transactions"). The
Company hereby agrees that in the event Janssen/Meyers shall introduce to the
Company another party or entity, and that as a result of such introduction, an
M&A Transaction is consummated, the Company shall pay to Janssen/Meyers a fee of
five (5%) percent of the first $5,000,000 and two and one-half (2-1/2%) percent
of the amount over $5,000,000 of the consideration paid or received by the
Company (or by any subsidiary or affiliated entity of the Company) in such M&A
Transaction consummated by the Company or any subsidiary or affiliated entity of
the Company. Such fee shall be paid in cash at the closing of the M&A
Transaction to which it relates, and shall be payable whether or not the M&A
Transaction involves stock, or a combination of stock and cash, or is made on
the installment sale basis. In addition, if the Company shall, within 12 months
immediately following the termination of this Agreement, consummate an M&A
Transaction with any party first introduced by Janssen/Meyers to the Company
prior to such termination, the Company shall pay to Janssen/Meyers a fee with
respect to such M&A Transaction calculated in accordance with this paragraph.
Nothing contained herein shall obligate the Company to enter into any M&A
Transaction proposed by Janssen/Meyers or to obligate the Company to pay
Janssen/Meyers a fee on an M&A Transaction introduced to the Company by a
third-party.
3
<PAGE>
6. All obligations of Janssen/Meyers contained herein shall be
subject to Janssen/Meyers' reasonable availability for such performance, in view
of the nature of the requested service and the amount of notice received.
Janssen/Meyers shall devote such time and effort to the performance of its
duties hereunder as Janssen/Meyers shall determine is reasonably necessary for
such performance. Janssen/Meyers may look to such others for such factual
information, investment recommendations, economic advice and/or research, upon
which to base its advice to the Company hereunder, as it shall deem appropriate.
The Company shall furnish to Janssen/Meyers all information reasonably relevant
and properly disclosable to the performance by Janssen/Meyers of its obligations
under this Agreement, or particular projects as to which Janssen/Meyers is
acting as advisor, which will permit Janssen/Meyers to know all facts material
to the advice to be rendered, and all material or information reasonably
requested by Janssen/Meyers. In the event that the Company fails or refuses to
furnish any such material or information reasonably requested by Janssen/Meyers,
and thus prevent or impede Janssen/Meyers' performance hereunder, any inability
of Janssen/Meyers to perform shall not be a breach of its obligations hereunder.
7. Nothing contained in this Agreement shall limit or restrict the
right of Janssen/Meyers or of any partner, employee, agent or representative of
Janssen/Meyers, to be a partner, director, officer, employee, agent or
representative of, or to engage in, any other business, whether of a similar
nature or not, nor to limit or restrict the right of Janssen/Meyers to render
services of any kind to any other corporation, firm, individual or association.
8. Janssen/Meyers will hold in confidence any confidential
information which the Company provides to Janssen/Meyers pursuant to this
Agreement unless the Company gives Janssen/Meyers permission in writing to
disclose such confidential information to a specific third party. In addition,
all confidential information which the Company provided to Janssen/Meyers in
connection with any prior or ongoing offering shall be considered confidential
information for purposes of this Agreement. Notwithstanding the foregoing,
Janssen/Meyers shall not be required to maintain confidentiality with respect to
information (i) which is or becomes part of the public domain; (i) of which it
had independent knowledge prior to disclosure; (iii) which comes into the
possession of Janssen/Meyers in the normal and routine course of its own
business from and through independent non-confidential sources; or (iv) which is
required to be disclosed by Janssen/Meyers by governmental requirements. If
Janssen/Myers is requested or required (by oral questions, interrogatories,
4
<PAGE>
requests for information or document subpoenas, civil investigative demands, or
similar process) to disclose any confidential information supplied to it by the
Company, or the existence of other negotiations in the course of its dealings
with the Company or its representatives, Janssen/Meyers shall, unless prohibited
by law, promptly notify the Company of such request(s) so that the Company may
seek an appropriate protective order.
9. The Company agrees to indemnify Janssen/Meyers pursuant to the
terms of the Indemnification Agreement, a copy of which is attached hereto as
Exhibit A (the "Indemnification Agreement").
10. This Agreement may not be transferred, assigned or delegated by
any of the parties hereto without the prior written consent of the other party
hereto.
11. The failure or neglect of the parties hereto to insist, in any
one or more instances, upon the strict performance of any of the terms or
conditions of this Agreement, or their waiver of strict performance of any of
the terms or conditions of this Agreement, shall not be construed as a waiver or
relinquishment in the future of such term or condition, but the same shall
continue in full force and effect.
12. Paragraphs 5 and 8 and the Indemnification Agreement shall
survive the expiration or termination of this Agreement under all circumstances.
13. Any notices hereunder shall be sent to the Company and to
Janssen/Meyers at their respective addresses set forth above, with copies to:
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
Attention: Fredric J. Klink, Esq.
and
Goldstein & Digioia, LLP
369 Lexington Avenue
New York, NY 10017
Attention: Stanley R. Goldstein, Esq.
Any notice shall be given by fax or registered or certified
mail, postage prepaid. Either party may designate any other address to which
notice shall
5
<PAGE>
be given, by giving written notice to the other of such change of address in the
manner herein provided.
14. This Agreement has been made in the State of New York and shall
be construed and governed in accordance with the laws thereof without giving
effect to principles governing conflicts of law. Any dispute arising under this
Agreement shall be submitted for arbitration to the American Arbitration
Association in New York, New York, provided that any claim for equitable relief
which cannot be obtained by arbitration may be brought before the United States
District Court for the Southern District of New York or the New York Supreme
Court, New York County.
15. This Agreement contains the entire agreement between the
parties, may not be altered or modified, except in writing and signed by the
party to be charged thereby, and supersedes any and all previous agreements
between the parties relating to the subject matter hereof.
16. This Agreement shall be binding upon the parties hereto, the
indemnified parties referred to in the Indemnification Agreement, and their
respective heirs, administrators, successors and permitted assigns.
If you are in agreement with the foregoing, please execute two
copies of this letter in the space provided below and return them to the
undersigned.
Very truly yours,
JANSSEN/MEYERS ASSOCIATES L.P.
By JANSSEN/MEYERS CORP., General Partner
By: /s/ Bruce Meyers
------------------------------------
Bruce Meyers
Executive Vice President
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN
NuWave Technologies, Inc.
By: /s/ Gerald Zarin
------------------------
Name: Gerald Zarin
Title: President
6
Exhibit 10.43
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS, AND MAY NOT BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.
NUWAVE TECHNOLOGIES, INC.
March 3, 1998
Warrant to Purchase up to 400,000 Shares of Common Stock
NUWAVE Technologies, Inc., a Delaware corporation (the "Company"), hereby
acknowledges that Janssen/Meyers Associates, L.P. ("Janssen/Meyers") is
entitled, on the terms and conditions set forth below, to purchase from the
Company at any time during the Exercise Period up to 400,000 fully paid and
nonassessable shares of Common Stock, par value $0.01 per share, of the Company
(the "Common Stock"), as the same may be adjusted pursuant to Section 5 herein,
at the Exercise Price (hereinafter defined), as the same may be adjusted
pursuant to Section 5 herein.
Section 1. Definitions.
"Bid Price" shall mean the closing bid price of the Common Stock on the
Principal Market.
"Date of Exercise" shall mean the date on which an original Exercise
Form and the original Warrant, together with the full Exercise Price for each
share of Common Stock as to which the Warrant is exercised, if applicable, are
actually received by the Company.
"Exercise Form" shall mean either the Cash Exercise Form or the Net
Exercise Form.
"Exercise Period" shall mean the period beginning on September 3, 1999,
and ending on March 3, 2003.
"Exercise Price" shall mean $4.00 per share of Common Stock, subject to
adjustments in accordance with Section 5 herein.
"Outstanding" shall mean, at any date as of which the number of Common
Stock is to be determined, all issued and outstanding Common Stock, and shall
include all Common Stock issuable in respect of outstanding scrip or any
certificates representing fractional interests in Common Stock; provided,
however, that "Outstanding" shall not mean any Common Stock then directly or
indirectly owned or held by or for the account of the Company.
1
<PAGE>
"Per Share Warrant Value" shall mean the difference resulting from
subtracting the Exercise Price from the Bid Price of one share of Common Stock
on the Trading Day next preceding the Date of Exercise.
"Public Offering" shall mean an underwritten public offering of
securities pursuant to an effective registration statement under the Securities
Act.
"Principal Market" shall mean the Nasdaq SmallCap Market, the Nasdaq
National Market, the American Stock Exchange or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock.
"SEC Documents" shall mean the Company's latest Form 10-K as of the
time in question, all Forms 10-Q and 8-K filed thereafter, and the Proxy
Statement for its latest fiscal year as of the time in question.
"Securities Act" shall mean the U.S. Securities Act of 1933, as
amended.
"Trading Day" shall mean any day during which the New York Stock
Exchange shall be open for business.
"Warrant Holder(s)" shall mean Janssen/Meyers and/or any assignee or
transferee of all or any portion of this Warrant.
"Warrant Shares" shall mean all shares of Common Stock issued or
issuable pursuant to the exercise of this Warrant.
Section 2. Exercise.
(a) Cash Exercise. This Warrant may be exercised by the Warrant
Holder, in whole or in part, at any time and from time to time during the
Exercise Period by delivery to the Company at its principal executive offices at
the address set forth in Section 13 of (i) this Warrant; (ii) the form of
exercise attached hereto as Exhibit A (the "Cash Exercise Form") duly executed
by the Warrant Holder, and (iii) the full Exercise Price for each share of
Common Stock as to which this Warrant is exercised. In the event that the
Warrant is not exercised in full, the number of Warrant Shares shall be reduced
by the number of such Warrant Shares for which this Warrant is exercised, and
the Company, at its expense, shall forthwith issue and deliver to or upon the
order of the Warrant Holder a new Warrant of like tenor in the name of the
Warrant Holder or as the Warrant Holder may request, reflecting such adjusted
number of Warrant Shares within ten (10) Trading Days.
(b) Net Exercise. This Warrant may be exercised by the Warrant Holder,
in whole or in part, at any time and from time to time during the Exercise
Period by delivery to the Company at its principal executive offices at the
address set forth in Section 13 of (i) this Warrant; and (ii) the form of
exercise attached hereto as Exhibit B (the "Net Exercise Form") duly executed by
the Warrant Holder, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"Cashless Exercise"). In the event of a Cashless Exercise, the Warrant Holder
shall surrender this Warrant for that number of shares of
2
<PAGE>
Common Stock determined by (i) multiplying the number of Warrant Shares for
which this Warrant is being exercised by the Per Share Warrant Value and (ii)
dividing the product by the Bid Price of one share of Common Stock on the
Trading Day next preceding the Date of Exercise. In the event that the Warrant
is not exercised in full, the number of Warrant Shares shall be reduced by the
number of such Warrant Shares for which this Warrant is exercised, and the
Company, at its expense, shall forthwith issue and deliver to or upon the order
of the Warrant Holder a new Warrant of like tenor in the name of the Warrant
Holder or as the Warrant Holder may request, reflecting such adjusted number of
Warrant Shares within ten (10) Trading Days.
Section 3. Delivery of Stock Certificates.
(a) Delivery. Subject to the terms and conditions of this Warrant, as
soon as practicable after the Date of Exercise of this Warrant in full or in
part, and in any event within ten (10) Trading Days thereafter, the Company at
its expense (including, without limitation, the payment by it of any applicable
issue taxes) will cause to be issued in the name of and delivered to the Warrant
Holder, or as the Warrant Holder may lawfully direct, a certificate or
certificates for the number of validly issued, fully paid and non-assessable
Warrant Shares to which the Warrant Holder shall be entitled on such exercise,
together with any other stock or other securities or property (including cash,
where applicable) to which the Warrant Holder is entitled upon such exercise in
accordance with the provisions hereof.
(b) Fractional Shares. This Warrant may not be exercised as to
fractional shares of Common Stock. In the event that the exercise of this
Warrant, in full or in part, would result in the issuance of any fractional
share of Common Stock, then in such event the Warrant Holder shall receive in
cash an amount equal to the Bid Price of such fractional share within ten (10)
Trading Days.
Section 4. Covenants of the Company.
(a) From the date hereof through the last date on which this Warrant is
exercisable, the Company shall take all steps reasonably necessary and within
its control to insure that the Common Stock remains listed or quoted on the
Principal Market. Further, the Company shall use its best efforts to effect the
listing of the Warrant Shares on the Principal Market as soon as practicable but
prior to the Date of Exercise.
(b) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable.
(c) The Company has authorized and reserved for issuance to the
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Warrant. The Company shall at all times reserve and keep
available, solely for issuance and delivery as Warrant Shares hereunder, such
shares of Common Stock as shall from time to time be issuable as Warrant Shares.
3
<PAGE>
Section 5. Adjustment of the Exercise Price.
The Exercise Price and, accordingly, the number of Warrant Shares
issuable upon exercise of the Warrant, shall be subject to adjustment from time
to time upon the happening of certain events as follows:
(a) Reclassification, Consolidation, Merger or Mandatory Share
Exchange. If the Company, at any time while this Warrant is unexpired and not
exercised in full (i) reclassifies or changes its Outstanding Common Stock
(other than a change in par value, or from par value to no par value per share,
or from no par value per share to par value or as a result of a subdivision or
combination of Outstanding Common Stock issuable upon exercise of the Warrant)
or (ii) consolidates, merges or effects a mandatory share exchange with or into
another corporation (other than a merger or mandatory share exchange with
another corporation in which the Company is a continuing corporation and that
does not result in any reclassification or change in its Outstanding Common
Stock, other than a change in par value, or from par value to no par value per
share, or from no par value per share to par value, or as a result of a
subdivision or combination of Outstanding Common Stock issuable upon exercise of
the Warrant), then in any such event, the Company, or such successor
corporation, as the case may be, shall, without payment of any additional
consideration therefore, amend this Warrant or issue a new Warrant providing
that the Warrant Holder shall have rights not less favorable to the Warrant
Holder than those then applicable to this Warrant and providing the right to
receive upon exercise of such amended or new Warrant, in lieu of each share of
Common Stock theretofore issuable upon exercise of the Warrant hereunder, the
kind and amount of shares of stock, other securities, money or property
receivable upon such reclassification, change, consolidation, merger or
mandatory share exchange, by the holder of one share of Common Stock issuable
upon exercise of the Warrant had the Warrant been exercised immediately prior to
such reclassification, change, consolidation, merger or mandatory share
exchange. Such amended or new Warrant shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Section 5. The provisions of this subsection (a) shall similarly apply to
successive reclassifications, changes, consolidations, mergers and mandatory
share exchanges.
(b) Subdivision or Combination of Shares. If the Company, at any time
while this Warrant is unexpired and not exercised in full, shall subdivide its
Common Stock, the Exercise Price shall be proportionately reduced as of the
effective date of such subdivision, or, if the Company shall take a record of
holders of its Common Stock for the purpose of so subdividing, as of such record
date, whichever is earlier. If the Company, at any time while this Warrant is
unexpired and not exercised in full, shall combine its Common Stock, the
Exercise Price shall be proportionately increased as of the effective date of
such combination, or, if the Company shall take a record of holders of its
Common Stock for the purpose of so combining, as of such record date, whichever
is earlier.
(c) Stock Dividends. If the Company, at any time while this Warrant is
unexpired and not exercised in full, shall pay a dividend on its Common Stock in
shares of Common Stock, or shall make any other distribution of its Common
Stock, then the Exercise Price shall be adjusted, as of the date the Company
shall take a record of the holders of its Common Stock for the purpose of
receiving such dividend or other distribution (or if no such record is taken, as
of the
4
<PAGE>
date of such divided or other distribution), to that price determined by
multiplying the Exercise Price in effect immediately prior to such dividend or
other distribution by a fraction:
(1) the numerator of which shall be the total number of shares of
its Outstanding Common Stock immediately prior to such dividend or distribution,
and
(2) the denominator of which shall be the total number of shares of
its Outstanding Common Stock immediately after such dividend or distribution.
The provisions of this subsection (c) shall not apply under any of the
circumstances for which an adjustment is provided in subsection (a) or (b).
(d) Adjustment of Number of Shares. Upon each adjustment of the
Exercise Price pursuant to any provisions of this Section 5, the number of
Warrant Shares issuable hereunder at the option of the Warrant Holder shall be
calculated, to the nearest one hundredth of a whole share, by multiplying the
number of Warrant Shares issuable prior to an adjustment by a fraction
(1) the numerator of which shall be the Exercise Price before any
adjustment pursuant to this Section 5; and
(2) the denominator of which shall be the Exercise Price after such
adjustment.
(e) No Adjustments. No adjustments to the Exercise Price shall be made
whatsoever as a result of (i) warrants and stock options granted or reserved for
issuance to employees, consultants and directors as described in the SEC
Documents on file with the SEC as of the date of this Warrant, (ii) securities
issued pursuant to an Employee Stock Purchase Plan qualified under Section 423
of the Internal Revenue Code, (iii) the Warrant or (iv) any Common Stock
issuable upon conversion or exercise of any of the foregoing.
(f) Notice of Adjustments. Whenever the Exercise Price or number of
Warrant Shares shall be adjusted pursuant to Section 5 hereof, the Company shall
promptly make a certificate signed by its President or a Vice President and by
its Treasurer or Assistant Treasurer or its Secretary or Assistant Secretary,
setting forth in reasonable detail the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Company's Board of Directors
made any determination hereunder), and the Exercise Price and number of Warrant
Shares purchasable at that Exercise Price after giving effect to such
adjustment, and shall promptly cause copies of such certificate to be mailed (by
first class and postage prepaid) to the Warrant Holder.
Section 6. No Impairment.
The Company will not, by amendment of its Articles of Incorporation or
By-Laws or through any reorganization, transfer of assets, consolidation,
merger, 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 Warrant Holder against
impairment. Without limiting the generality of the
5
<PAGE>
foregoing, the Company (a) will not increase the par value of any Warrant Shares
above the amount payable therefor on such exercise, and (b) will take all such
action as may be reasonably necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable Warrant Shares on the
exercise of this Warrant.
Section 7. Registration Rights.
(a) Demand Registration Rights. The Company covenants and agrees with
the Warrant Holder(s) that, after September 3, 1999, within 60 days after
receipt of a written request from Warrant Holder(s) of more than 50% in interest
of the aggregate number of Warrant Shares issuable under the Warrant that such
holder(s) desire and intend to transfer more than 50% in interest of the
aggregate number of Warrant Shares, the Company shall file a registration
statement (or a post-effective amendment thereto, if appropriate) and use its
best efforts to cause such registration statement or post-effective amendment to
become effective under the Securities Act with respect to the resale of the
Warrant Shares by the Warrant Holder(s), provided, that the Company shall have
no obligation to comply with the foregoing provisions if, in the opinion of
counsel to the Company reasonably acceptable to the Warrant Holder(s) from whom
such written request has been received, registration under the Securities Act
(as well as any other applicable statute) is not required for the transfer of
the Warrant Shares in the manner proposed by such person or persons or that a
post-effective amendment to a existing registration statement would be legally
sufficient for such transfer (in which latter event the Company shall promptly
file such post-effective amendment and use its best efforts to cause such
amendment to become effective under the Securities Act).
The provisions of this Section 7(a) shall be subject to the following
conditions, qualifications and limitations, among others:
(1) The Company shall not be obligated to file a registration
statement or post-effective amendment pursuant to this Section 7(a) which, under
the Securities Act and the then effective rules, regulations, forms and releases
of the SEC thereunder, would be required to contain audited financial statements
as of a date other than the end of a fiscal year of the Company and the related
fiscal periods then ended unless the Warrant Holder(s) requesting registration
undertake to pay (or reimburse) the incremental expenses incurred by the Company
in preparing such audited financial statements for inclusion.
(2) The Company may defer the filing of a registration statement or
post-effective amendment for up to 90 days after the request for registration is
made if the Board of Directors of the Company determines in good faith that such
registration or post-effective amendment would adversely affect or otherwise
interfere with a proposed or pending transaction by the Company, including
without limitation, a material financing or a corporate reorganization, or
during any period of time in which the Company is in possession of material
inside information concerning the Company or its securities, which information
the Company determines in good faith is not ripe for disclosure.
(3) The Company may defer the filing of a registration statement for
up to 180 days after the request for registration is made if the Company is not
then eligible to effect a
6
<PAGE>
registration on Form S-3 under the Securities Act or any successor form, or
similar short-form registration.
(4) If a demand registration pursuant to this Section 7(a) ("Demand
Registration") involves a Public Offering and the managing underwriter(s) shall
advise the Company that, in its view, marketing factors require a limitation of
the number of shares of Common Stock to be underwritten in such Demand
Registration, then the Company shall register the Common Stock in such Demand
Registration in the following order: (i) first, the Warrant Shares requested to
be included in such Demand Registration by the Warrant Holder(s), (ii) second,
the Common Stock requested to be included in such Demand Registration by holders
of Common Stock other than the Warrant Holder(s) (the "Electing Holders") and
(iii) any Common Stock proposed to be registered by the Company; provided that
(y) if all the Common Stock requested to be included in such Demand Registration
by members of any group set forth above are not to be included, selection of
Common Stock to be included from within such group shall be made pro rata based
on the number of Common Stock that each member of such group shall have
requested to be included therein, and (z) if any Warrant Holder has requested
inclusion in such Demand Registration and if at least 50% of the Warrant Shares
requested to be included by such Warrant Holder are not so included, the Company
shall, within 180 days after such Warrant Holder's request for inclusion in such
Demand Registration, file another registration statement (or a post-effective
amendment thereto, if appropriate) and use its best efforts to cause such
registration statement or post-effective amendment to become effective under the
Securities Act with respect to the resale of the remaining Warrant Shares by
such Warrant Holder.
(b) Incidental Registration Rights. In the event the Company proposes
to file a registration statement under the Securities Act with respect to its
Common Stock (other than a registration (i) on Form S-8 or S-4 or any successor
or similar forms or (ii) relating to Common Stock issuable upon exercise of
employee stock options or in connection with any employee benefit or similar
plan of the Company), the Company shall give written notice of such proposed
filing at least concurrently with the initial filing date of such registration
statement to the Warrant Holder(s), which notice shall set forth the Warrant
Holder(s)' rights under this Section 7(b) and shall offer the Warrant Holder(s)
the opportunity to include in such registration statement such amount of Warrant
Shares as the Warrant Holder(s) shall request (an "Incidental Registration").
Upon the written request of the Warrant Holder(s), which must be made within 15
Trading Days after the receipt of notice from the Company (which request shall
specify the amount of Warrant Shares intended to be disposed of by the Warrant
Holder(s)), the Company will use its best efforts to effect the registration
under the Securities Act of all such Warrant Shares which the Company has been
so requested to register by the Warrant Holder(s) (the "Piggy-back Shares") to
the extent required to permit the disposition of such Piggy-back Shares to be so
registered; provided that (y) if such Incidental Registration involves a Public
Offering, the Warrant Holder(s) requesting an Incidental Registration must sell
its Piggy-back Shares to the underwriters on the same terms and conditions as
applicable to the Company and other selling shareholders and (z) if, at any time
after giving written notice of its intention to register any Common Stock
pursuant to this Section 7(b) and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such Common Stock, the Company
shall give written notice thereof to the Warrant Holder(s) and, thereupon,
7
<PAGE>
shall be relieved of its obligation to register the Piggy-back Shares in
connection with such registration.
If a registration under this Section 7(b) involves a Public Offering
and the managing underwriter(s) shall advise the Company that, in its view,
marketing factors require a limitation of the number of shares of Common Stock
to be underwritten in such registration, then the Company shall register the
Common Stock in such registration in the following order: (i) if such
registration is a primary registration on behalf of the Company, the Company
shall register in such registration (a) first, the shares of Common Stock that
the Company proposes to sell, and (b) second, the Piggy-back Shares held by the
Warrant Holder(s) and the shares of Common Stock held by each Electing Holder,
on a pro rata basis, based upon the number of shares such holders, respectively,
originally sought to include in such registration; and (ii) if such registration
was initiated solely as a secondary registration on behalf of a holder of
securities of the Company (each a "Secondary Holder"), the Company shall
register in such registration (a) first, the number of shares of Common Stock
sought to be included in such registration by such Secondary Holders, on a pro
rata basis, based upon the number of shares such Secondary Holders,
respectively, originally sought to include in such registration, (b) second, the
shares of Common Stock, if any, that the Company seeks to include in such
registration and (c) third, the Piggy-back Shares held by the Warrant Holder(s)
and the shares of Common Stock held by each Electing Holder, on a pro rata
basis, based upon the number of shares such holders, respectively, originally
sought to include in such registration. Notwithstanding the foregoing, if any
Warrant Holder has requested inclusion in such Incidental Registration and if at
least 50% of the Piggy-back Shares requested to be included by such Warrant
Holder are not so included, the Company shall, within 180 days after such
Warrant Holder's request for inclusion in such Incidental Registration, file
another registration statement (or a post-effective amendment thereto, if
appropriate) and use its best efforts to cause such registration statement or
post-effective amendment to become effective under the Securities Act with
respect to the resale of the remaining Piggy-back Shares by such Warrant Holder.
(c) Other Conditions to Registration. The Company shall not be required
(i) to maintain the effectiveness of a registration statement or post-effective
amendment beyond the earlier to occur of 270 days after the effective date of
the registration statement or post-effective amendment or the date on which all
of the Warrant Shares have been sold (the "Termination Date"), provided, that if
at the Termination Date the Warrant Shares are covered by a registration
statement which also covers other securities and which is required to remain in
effect beyond the Termination Date, the Company shall maintain in effect such
registration statement as it relates to the Warrant Shares for so long as such
registration statement (or any substitute registration statement) remains or is
required to remain in effect for any of such other securities, or (ii) to comply
with more than one request for registration pursuant to Section 7(a) or (iii) to
honor any request to register the Warrant Shares pursuant to Section 7(a) or
7(b) received before September 3, 1999 or after March 3, 2003.
(d) Registration Expenses. The Company shall pay all registration
expenses incurred in connection with the registration of the Warrant Shares
pursuant to this Section 7 ("Registration Expenses"). Notwithstanding anything
to the contrary contained herein, Registration Expenses shall not include (i)
underwriting fees, discounts, transfer taxes or commissions, if any,
8
<PAGE>
attributable to the sale of the Warrant Shares, which shall be payable by the
Warrant Holder(s) pro rata on the basis of the number of Warrant Shares of each
Warrant Holder that are included in a registration pursuant to Section 7(a) or
7(b), and (ii) the incremental expenses incurred by the Company as described in
Section 7(a)(1).
(e) State Securities Laws. In connection with the registration of the
Warrant Shares in accordance with Section 7(a) or 7(b) above, the Company agrees
to use its best efforts to register or qualify the Warrant Shares for resale
under the state securities or Blue Sky laws of such states which the Warrant
Holder(s) of such Warrant Shares shall designate, until the dates specified in
Section 7(c) above in connection with registration under the Securities Act,
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not otherwise qualified or planning to
so qualify or to take any action which would subject it to general service of
process in any jurisdiction where it is not otherwise so subject or to register
or obtain a license as a broker or dealer in securities in any jurisdiction
where it is not otherwise so registered or licensed.
(f) Indemnification by the Company. The Company agrees to indemnify and
hold harmless the Warrant Holder, its partners, affiliates, officers, directors,
employees and duly authorized agents, and each person or entity, if any, who
controls the Warrant Holder within the meaning of the Securities Act, together
with the partners, affiliates, officers, directors, employees and duly
authorized agents of such controlling Person or entity (collectively, the
"Controlling Persons"), from and against any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements) (collectively, "Damages"), and any action or proceeding in
respect thereof to which the Warrant Holder, its partners, affiliates, officers,
directors, employees and duly authorized agents, and any such Controlling Person
may become subject under the Securities Act or otherwise as incurred and,
insofar as such Damages (or actions or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Warrant Shares or any preliminary prospectus, or arises out of, or are based
upon, any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based upon information furnished in writing to
the Company by the Warrant Holder expressly for use therein. Notwithstanding the
foregoing, the Company shall not be liable to the Warrant Holder, its partners,
affiliates, officers, directors, employees and duly authorized agents, and any
such Controlling Person, to the extent that any such Damages arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if (i) the Warrant Holder
failed to send or deliver a copy of the final prospectus delivered by the
Company to the Warrant Holder with or prior to the delivery of written
confirmation of the sale by the Warrant Holder to the person asserting the claim
from which such Damages arise, and (ii) the final prospectus would have
corrected such untrue statement or alleged untrue statement or such omission or
alleged omission.
(g) Indemnification by the Warrant Holder. The Warrant Holder agrees to
indemnify and hold harmless the Company, its partners, affiliates, officers,
directors, employees
9
<PAGE>
and duly authorized agents, and each person or entity, if any, who controls the
Company within the meaning of the Securities Act, together with the partners,
affiliates, officers, directors, employees and duly authorized agents of such
controlling Person or entity (collectively, the "Company Controlling Persons"),
from and against any and all Damages, and any action or proceeding in respect
thereof to which the Company, its partners, affiliates, officers, directors,
employees and duly authorized agents, and any such Company Controlling Person
may become subject under the Securities Act or otherwise as incurred and,
insofar as such Damages (or actions or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Warrant Holders or any preliminary prospectus, or arises out of, or are
based upon, any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said prospectus or said preliminary prospectus,
in reliance upon and in conformity with the information furnished in writing to
the Company by the Warrant Holder expressly for use therein.
(h) Conduct of Indemnification Proceedings. Promptly after receipt by
any person or entity in respect of which indemnity may be sought pursuant to
subsection (f) or (g) above (an "Indemnified Party") of notice of any claim or
the commencement of any action, the Indemnified Party shall, if a claim in
respect thereof is to be made against the person or entity against whom such
indemnity may be sought (the "Indemnifying Party"), notify the Indemnifying
Party in writing of the claim or the commencement of such action; in the event
an Indemnified Party shall fail to give such notice as provided in this
subsection (h) and the Indemnifying Party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, the indemnification
provided for in subsection (f) or (g) shall be reduced to the extent of any
actual prejudice resulting from such failure to so notify the Indemnifying
Party; provided, that the failure to notify the Indemnifying Party shall not
relieve it from any liability that it may have to an Indemnified Party otherwise
than under subsection (f) or (g). If any such claim or action shall be brought
against an Indemnified Party, and it shall notify the Indemnifying Party
thereof, the Indemnifying Party shall be entitled to participate therein, and,
to the extent that it wishes, jointly with any other similarly notified
Indemnifying Party, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. After notice from the Indemnifying Party
to the Indemnified Party of its election to assume the defense of such claim or
action, the Indemnifying Party shall not be liable to the Indemnified Party for
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party shall have the right to
employ separate counsel to represent the Indemnified Party and its controlling
persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Indemnified Party against the Indemnifying
Party, but the fees and expenses of such counsel shall be for the account of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of the Indemnifying Party and the Indemnified Party,
representation of both parties by the same counsel would be inappropriate due to
actual or potential conflicts of interest between them, it being understood,
however, that the Indemnifying Party shall not, in connection with any one such
claim or action or separate but substantially similar or related claims or
actions in the same jurisdiction arising out of
10
<PAGE>
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (together with appropriate
local counsel) at any time for all Indemnified Parties, or for fees and expenses
that are not reasonable. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any claim or pending
or threatened proceeding in respect of which the Indemnified Party is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such claim or
proceeding. Whether or not the defense of any claim or action is assumed by the
Indemnifying Party, such Indemnifying Party will not be subject to any liability
for any settlement made without its consent, which consent shall not be
unreasonably withheld.
(i) Contribution. If the indemnification provided for in subsection (f)
or (g) is unavailable to the Indemnified Parties in respect of any Damages
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages as between the Company on the one
hand and the Warrant Holder on the other, in such proportion as is appropriate
to reflect the relative fault of the Company and of the Warrant Holder in
connection with such statements or omissions, as well as other equitable
considerations. The relative fault of the Company on the one hand and of the
Warrant Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Warrant Holder agree that it would not be just and
equitable if contribution pursuant to this subsection (i) were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Section 8. Rights as a Stockholder.
Prior to the exercise of this Warrant, the Warrant Holder shall not be
entitled to any rights as a stockholder of the Company with respect to the
Warrant Shares, including (without limitation) the right to vote such shares,
receive dividends or other distributions thereon or be notified of stockholder
meetings. However, 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) or
other distribution, 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, the Company shall mail to each Warrant Holder, at least
10 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
11
<PAGE>
Section 9. Replacement of Warrant.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of the Warrant and, in the case of any
such loss, theft or destruction of the Warrant, upon delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
Section 10. Choice of Law.
This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of New York, without giving effect to
provisions regarding conflicts of law or choice of law.
Section 11. Entire Agreement; Amendments.
This Warrant contains the entire understanding of the parties with
respect to the matters covered hereby. No provision of this Warrant may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
Section 12. Restricted Securities.
(a) Registration or Exemption Required. This Warrant has been issued in
a transaction exempt from the registration requirements of the Securities Act in
reliance upon the provisions of Section 4(2) promulgated by the SEC under the
Securities Act. This Warrant and the Warrant Shares issuable upon exercise of
this Warrant may not be resold except pursuant to an effective registration
statement or an exemption to the registration requirements of the Securities Act
and applicable state laws.
(b) Legends.
(1) This Warrant and any new or amended Warrants issued pursuant
hereto shall bear the following legend:
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS, AND MAY NOT BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.
(2) Any Warrant Shares issued upon exercise of the Warrant shall
bear the following legend:
12
<PAGE>
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS, AND MAY NOT BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.
(c) No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 12(b) has been or shall be placed on any new
or amended Warrants or any share certificates representing the Common Stock and
no instructions or "stop transfer orders," so called "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Section 12.
(d) Assignment. Assuming the conditions of Section 12(a) above
regarding registration or exemption have been satisfied, the Warrant Holder may
sell, transfer, assign, pledge or otherwise dispose of this Warrant, in whole or
in part. The Warrant Holder shall deliver a written notice to the Company,
substantially in the form of the Assignment attached hereto as Exhibit C,
indicating the person or persons to whom the Warrant shall be assigned and the
respective number of warrants to be assigned to each assignee. The Company shall
effect the assignment within ten (10) Trading Days, and shall deliver to the
assignee(s) designated by the Warrant Holder a Warrant or Warrants of like tenor
and terms for the appropriate number of Warrant Shares.
(e) Warrant Holder's Compliance. Nothing in this Section 12 shall
affect in any way the Warrant Holder's obligations under any agreement to comply
with all applicable securities laws upon resale of the Common Stock.
Section 13. Notices.
Any notice or other communication required or permitted under this
Warrant shall be in writing and shall be deemed given (a) when it is personally
delivered; (b) immediately upon transmission if it is transmitted by facsimile,
telex, or telegram; (c) three days after it is sent by a nationally recognized
overnight courier service, or (d) seven days after it is sent by United States
mail with postage prepaid; to the following addresses (or to such other
addresses as each party may designate in writing to the other parties) (in the
event that any notice or communication is made on a day that is not a business
day in New York or New Jersey, such notice or communication shall be deemed to
have been given on the next succeeding business day):
If to NUWAVE Technologies, Inc.: Jeremiah O'Brien
Chief Financial Officer
One Passaic Avenue
Fairfield, New Jersey 07004
Telephone (973) 882-8810 ext. 212
Facsimile (973) 882-8812
13
<PAGE>
with a copy to: Fredric Klink, Esq.
(shall not constitute notice) Dechert, Price & Rhoads
30 Rockefeller Plaza, 23rd Floor
New York, New York 10112
Telephone (212) 698-3537
Facsimile (212) 698-3599
If to Janssen/Meyers: Bruce Meyers
Partner
Janssen/Meyers Associates, L.P.
17 State Street
New York, New York 10004
Telephone (212) 742-4200
Facsimile (212) 742-4222
with a copy to: Stanley R. Goldstein, Esq.
(shall not constitute notice) Goldstein & Digioia, LLP
369 Lexington Avenue
New York, New York 10017
Telephone (212) 599-3322
Facsimile (212) 557-0295
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 13 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 14. Miscellaneous.
The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
14
<PAGE>
IN WITNESS WHEREOF, this Warrant was duly executed on the date first
written above.
NUWAVE Technologies, Inc.
By: /s/ Gerald Zarin
------------------------------------
Gerald Zarin
Chairman and Chief Executive Officer
Attested
By: /s/ Jeremiah F. O'Brien
-------------------------------------
Jeremiah F. O'Brien
Secretary and Chief Financial Officer
15
<PAGE>
EXHIBIT A TO THE WARRANT
NUWAVE Technologies, Inc.
CASH EXERCISE
The undersigned hereby irrevocably exercises the right to purchase
__________________ shares of Common Stock of NUWAVE Technologies, Inc., a
Delaware corporation, evidenced by the attached Warrant, and herewith makes
payment of the Exercise Price with respect to such shares in full in the form of
[wire transfer, cash or check in the amount of $___], [_____ Warrant Shares
which represent the amount of Warrant Shares as provided in the attached Warrant
to be canceled in connection with such exercise], all in accordance with the
conditions and provisions of said Warrant.
The undersigned requests that stock certificates for such Warrant
Shares be issued, and a Warrant representing any unexercised portion hereof be
issued pursuant to this Warrant in the name of the registered Holder and
delivered to the undersigned at the address set forth below.
Dated:_______________________________________
- - ---------------------------------------------
Signature of Registered Holder
- - ---------------------------------------------
Name of Registered Holder (Print)
- - ---------------------------------------------
- - ---------------------------------------------
Address of Registered Holder (Print)
16
<PAGE>
EXHIBIT B TO THE WARRANT
NUWAVE Technologies, Inc.
NET EXERCISE
The undersigned hereby irrevocably exercises the right to exchange the
attached Warrant for a number of shares of Common Stock of NUWAVE Technologies,
Inc., a Delaware corporation, as determined by multiplying the number of Warrant
Shares for which the Warrant is being exercised by the Per Share Warrant Value
and dividing the product by the Bid Price of one share of Common Stock on the
Trading Day next preceding the Date of Exercise as set forth below:
No. of Shares for which this Warrant is exercised:
Per Share Warrant Value $
Bid Price (as of preceding Trading Day) $
No. of Shares to be sent to Warrant Holder
The undersigned requests that stock certificates for such Warrant
Shares be issued, and a Warrant representing any unexercised portion hereof be
issued pursuant to this Warrant in the name of the registered Holder and
delivered to the undersigned at the address set forth below.
Dated:_______________________________________
- - ---------------------------------------------
Signature of Registered Holder
- - ---------------------------------------------
Name of Registered Holder (Print)
- - ---------------------------------------------
- - ---------------------------------------------
Address of Registered Holder (Print)
17
<PAGE>
EXHIBIT C TO THE WARRANT
NUWAVE Technologies, Inc.
ASSIGNMENT
(To be executed by the registered Warrant Holder desiring to transfer
the Warrant) FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached
Warrant hereby sells, assigns and transfers unto the persons below named the
right to purchase ______________ shares of the Common Stock of NUWAVE
TECHNOLOGIES, INC. evidenced by the attached Warrant.
Name(s) of Assignee(s) Address No. of Shares
Dated:
---------------------------------------
- - ---------------------------------------------
Signature of Registered Holder
- - ---------------------------------------------
Name of Registered Holder (Print)
- - ---------------------------------------------
- - ---------------------------------------------
Address of Registered Holder (Print)
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this annual report on
Form 10-KSB of our report dated March 26, 1997, on our audits of the statements
of operations, stockholders' equity and cash flows of NuWave Technologies, Inc.
(a development stage company) for the period from July 17, 1995 (inception) to
December 31, 1996 included in the cumulative amounts for the period from July
17, 1995 (inception) to December 31, 1997, and for the year ended December
31, 1996, appearing in the registration statement on Form S-3 (File No. 0-28606)
of NuWave Technologies, Inc. filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 24, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,693
<SECURITIES> 0
<RECEIVABLES> 4
<ALLOWANCES> 0
<INVENTORY> 60
<CURRENT-ASSETS> 1,864
<PP&E> 165
<DEPRECIATION> 62
<TOTAL-ASSETS> 2,271
<CURRENT-LIABILITIES> 154
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 11,253
<TOTAL-LIABILITY-AND-EQUITY> 2,271
<SALES> 10
<TOTAL-REVENUES> 10
<CGS> 4
<TOTAL-COSTS> 4,033
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,848)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
