SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sections 240.14a-11(c)
or sections 240.14a-12
Wave Systems Corp.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (check the appropriate box):
[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate Number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: N/A
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4) Date Filed: N/A
<PAGE>
PRELIMINARY COPY
WAVE SYSTEMS CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held November 9, 1998
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Wave Systems Corp. (the
"Company") will be held Monday, November 9, 1998, at the offices of the Company,
540 Madison Avenue, New York, New York, for the following purposes:
1. To elect six directors to hold office until the next Annual
Meeting and until their successors are duly elected and qualified;
2. To consider and act upon a proposal to approve an Amendment to
the Restated Certificate of Incorporation of the Company to increase
the number of shares of Class A Common Stock that the Company shall
have authority to issue from 50 million to 75 million shares;
3. To consider and act upon a proposal to amend the Company's
1994 Employee Stock Option Plan to (i) increase the number of shares
of Class A Common Stock reserved for issuance thereunder by 5,000,000
shares, and (ii) increase the maximum number of shares of the
Company's Class A Common Stock covered by options that may be granted
to any single individual in any fiscal year from 100,000 shares to
500,000 shares;
4. To consider and act upon a proposal to amend the Company's
1994 Non-Employee Directors Stock Option Plan to (i) increase the
number of shares of Class A Common Stock reserved for issuance
thereunder by 500,000 shares, and (ii) provide that options issued to
non-employee directors under such plan vest on the date following the
grant;
5. To consider and act upon a proposal to ratify the appointment
of KPMG Peat Marwick LLP as the Company's independent auditors for the
year ending December 31, 1998; and
6. To transact such other business as may properly come before
the Annual Meeting or at any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on October 5, 1998
as the record date for the determination of the stockholders entitled to notice
of, and to vote at, the Annual Meeting of Stockholders and at any adjournments
or postponements thereof.
By Order of the Board of Directors,
/s/ Thomas J. Petrarca
---------------------------
By: Thomas J. Petrarca
Title: Secretary
Lee, Massachusetts
October 12, 1998
YOUR VOTE IS IMPORTANT
If you do not expect to attend the Annual Meeting, or if you do plan to
attend but wish to vote by proxy, please complete, sign, date and return
promptly the enclosed proxy card in the enclosed postage-paid envelope.
<PAGE>
WAVE SYSTEMS CORP.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
November 9, 1998
General
This Proxy Statement is being furnished in connection with the solicitation
by the Board of Directors of Wave Systems Corp., a Delaware corporation (the
"Company") of proxies for use at the Annual Meeting of Stockholders to be held
on Monday, November 9, 1998, commencing at 4:00 P.M., at the offices of the
Company, 540 Madison Avenue, New York, New York, and at any adjournments or
postponements thereof. The matters to be considered and acted upon at the
meeting are described below in this Proxy Statement.
The principal executive offices of the Company are located at 480 Pleasant
Street, Lee, Massachusetts 01238. The approximate mailing date of this Proxy
Statement and the accompanying proxy is October 12, 1998.
Voting Rights and Votes Required
Only stockholders of record at the close of business on October 5, 1998
will be entitled to notice of, and to vote at, the Annual Meeting. As of such
record date, the Company had outstanding ________ shares of Class A Common Stock
and ________ shares of Class B Common Stock. Each stockholder is entitled to one
vote for each share of common stock held on the matters to be considered at the
Annual Meeting. The holders of a majority of the outstanding shares will
constitute a quorum for the transaction of business at the meeting. Shares of
common stock present in person, or represented by proxy (including shares which
abstain or do not vote with respect to one or more of the matters presented for
stockholder approval) will be counted for purposes of determining whether a
quorum exists at the meeting.
The affirmative vote of the holders of a plurality of the shares of common
stock present or represented at the meeting is required for the election of
directors. The affirmative vote of the holders of a majority of the shares of
common stock entitled to vote at the meeting is required for the approval of the
Amendment to the Restated Certificate of Incorporation to increase the
authorized amount of Class A Common Stock from 50 million to 75 million shares.
The affirmative vote of the holders of a majority of the shares of common stock
present or represented at the meeting and entitled to vote is required for the
approval of the Amendments to the 1994 Employee Stock Option Plan, for the
approval of the Amendments to the 1994 Non-Employee Directors Stock Option Plan,
and for the ratification of the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the year ending December 31, 1998.
Abstentions will be treated as shares that are present and entitled to vote for
purposes of determining the number of shares present and entitled to vote with
respect to any particular matter, but will not be counted as a vote in favor of
such matter. Accordingly, an abstention from voting on a matter will have the
same legal effect as a vote against the matter. If a broker or nominee holding
stock in "street name" indicates on the proxy that it does not have
discretionary authority to vote as to a particular matter, those shares will not
be considered as present and entitled to vote with respect to such matter.
The accompanying proxy may be revoked at any time before it is exercised by
giving a later proxy, notifying the Secretary of the Company in writing, or
voting in person at the meeting.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning the
beneficial ownership of the Company's Class A and Class B Common Stock as of
September 30, 1998 (except as otherwise noted) by (i) each stockholder who is
known by the Company to own beneficially more than five percent of the
outstanding Class A or Class B Common Stock, (ii) each director of the Company,
(iii) each of the executive officers of the Company named in the Summary
Compensation Table below, and (iv) all directors and executive officers of the
Company as a group. Holders of Class A Common Stock are entitled to one vote per
share on all matters submitted to a vote of the stockholders of the Company.
Holders of Class B Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders, except that holders of Class B
Common Stock will have five votes per share in cases where one or more directors
are nominated for election by persons other than the Company's Board of
Directors and where there is a vote on any merger, consolidation or other
similar transaction which is not recommended by the Company's Board of
Directors. In addition, holders of Class B Common Stock will have five votes per
share on all matters submitted to a vote of the stockholders in the event that
any person or group of persons acquires beneficial ownership of twenty percent
(20%) or more of the outstanding voting securities of the Company. Shares of
Class B Common Stock are convertible into shares of Class A Common Stock on a
one-for-one basis at the option of the holder.
<TABLE>
<CAPTION>
Percent
Number of Shares of All
of Class A Common Percent Number of Shares Percent Outstanding
Stock Owned(2) of of Class B Common of Common
Beneficial Owner(1) Class Stock Owned Class Stock(3)
<S> <C> <C> <C> <C> <C>
Peter J. Sprague(4) 1,995 * 1,359,834 41.2 7.0
Steven Sprague(5) 152,195 * 194,659 5.9 1.3
John E. Bagalay, Jr.(6) 43,500 * 0 - *
Philippe Bertin(7) 43,500 * 0 - *
George Gilder(8) 52,667 * 2,000 * *
John E. McConnaughy, Jr.(9) 56,030 * 335,000 10.2 1.5
Aladdin Knowledge Systems,
Ltd.(10) 4,120,028 13.6 0 - 12.3
All executive officers and
directors as a group
(6 persons)(11) 373,403 1.4 1,891,493 57.3 7.8
*Less than one percent.
</TABLE>
(1) Each individual or entity has sole voting and investment power, except as
otherwise indicated.
(2) Does not include shares of Class A Common Stock issuable upon the
conversion of Class B Common Stock.
(3) In circumstances where the Class B Common Stock has five votes per share,
the percentages of total voting power would be as follows: Peter J.
Sprague, 24.2%; Steven Sprague, 2.9%; John E. Bagalay, Jr., less than 1%;
Philippe Bertin, less than 1%; George Gilder, less than 1%; John E.
McConnaughy, Jr., 4.5%; Aladdin Knowledge Systems, 11.7%; and all Executive
Officers and Directors as a group, 32.6%.
(4) Includes 331,995 shares which are subject to options presently exercisable
or exercisable within 60 days. Also includes 320,000 shares held in trust
for the benefit of Mr. Sprague's adult children, and for which Mr. Sprague
is a trustee.
(5) Includes 145,195 shares which are subject to options presently exercisable
or exercisable within 60 days.
(6) Includes 39,500 shares which are subject to options presently exercisable
or exercisable within 60 days.
(7) Includes 39,500 shares which are subject to options presently exercisable
or exercisable within 60 days.
(8) Includes 72,833 shares which are subject to options presently exercisable
or exercisable within 60 days.
(9) Includes 52,030 shares which are subject to options presently exercisable
or exercisable within 60 days.
(10) Includes 4,037,973 shares which are subject to warrants presently
exercisable or exercisable within 60 days.
(11) Includes 681,043 shares which are subject to options presently exercisable
or exercisable within 60 days.
1. ELECTION OF DIRECTORS
At the Annual Meeting, six directors are to be elected, each to hold office
until the next annual meeting of stockholders and until his respective successor
has been duly elected and qualified. If no direction is given to the contrary,
all proxies received by the Board of Directors will be voted "FOR" the election
as directors of each of the following nominees. In the event that any nominee
declines or is unable to serve, the proxy solicited herewith may be voted for
the election of another person in his stead at the discretion of the proxies.
The Board of Directors has no reason to believe that any of the nominees will
not be available to serve. Set forth below is certain information concerning
each nominee. Each nominee is currently a director of the Company.
<TABLE>
<CAPTION>
Business Experience and Principal Occupation or
Employment During Past 5 Years; Positions held with Director
Name and Age Company; Other Directorships Since
<S> <C> <C>
Peter J. Sprague 58 Chairman of the Company since 1988 and Chief Executive 1988
(1)(4) Officer of the Company since July 1991; Chairman of National
Semiconductor Corporation from 1965 until May 1995; Director
of EnLighten Software, Inc.; Chairman and Director of
Imagek, Inc.; Trustee of the Strang Clinic; Member of
Academy of Distinguished Entrepreneurs, Babson College.
John E. Bagalay, Jr., Managing Director of Community Technology Fund, a venture 1993
Ph.D. 64 (1)(2)(4) capital affiliate of Boston University, since September
1989; General Counsel of Lower Colorado River Authority from
October 1984 to September 1988; former General Counsel of
Texas Commerce Bancshares, Inc. and Houston First Financial
Group; Director of Seragen, Inc., Cytogen, Inc., Hymedix,
Inc. and several privately-held corporations; President and
CEO of Cytogen Corporation since January 1998, CFO since
October 1997; Managing Director of Boston University Venture
Capital Fund from 1989-1997; Senior Advisor to Chancellor,
Boston University since January 1998.
Philippe Bertin 48 (3) Manager of Financiere Wagram Poncelet (direct marketing; 1993
media) since December 1991; Manager of Midial S.A. (consumer
goods) from 1984 until 1991; manager of FINOVELEC since
October 1997.
George Gilder 58(4) Chairman of the Executive Committee of the Company since 1993
1996; Senior Fellow at the Discovery Institute in Seattle,
Washington; author of nine books, including Life After
Television, Microcosm, The Spirit of Enterprise and Wealth
and Poverty; contributing editor to Forbes Magazine;
Director and President of Gilder Technology Group, Inc.
(publisher of monthly technology reports); former chairman
of the Lehrman Institute Economic Roundtable; former Program
Director for the Manhattan Institute; recipient of White
House award for Entrepreneurial Excellence from President
Reagan.
<PAGE>
John E. McConnaughy, Chairman and Chief Executive Officer of JEMC Corporation 1988
Jr. 68 (1)(2)(3)(4) (private investments); Chairman and Chief Executive Officer
of Peabody International Corporation (an environmental
services company) from 1969 through 1985; Chairman and Chief
Executive Officer of GEO International Corporation (a
nondestructive testing, screen printing and oil field
services company which was spun-off from Peabody) from
February 1981 to October 1992; Director of Riddell Sports,
Inc., Levcor International, Inc., Transact International,
Inc., De-Vlieg Bullard, Inc., and Mego Financial Corp. Mr.
McConnaughy is also a member of the Board of Trustees of the
Strang Clinic and the Chairman of the Board of the Harlem
School of the Arts.
Steven Sprague 33 President and Chief Operating Officer of the Company since 1997
May 1996; President of Wave Interactive Network from June
1995 to December 30, 1996; Vice President of Operations of
the Company from April 1994 to June 1995; employee of the
Company in areas of operations and strategic planning from
November 1992 to April 1994; consultant to the Company from
March 1992 to November 1992; President of Tech Support, Inc.
(hardware technical support information on CD-ROM) from June
1992 to November 1992; sole proprietor of SKS Environmental
Sales (manufacturers' representative for water treatment
companies) from June 1991 to November 1992.
(1) Member of Nominating Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee
(4) Member of Executive Committee
Mr. Steven Sprague, President and Chief Operating Officer of the Company,
is the son of Mr. Peter J. Sprague, Chairman and Chief Executive Officer of the
Company.
</TABLE>
<PAGE>
Board and Committee Meetings; Directors' Compensation
The Board of Directors met three times during 1997. No director attended
fewer than 75 percent of the aggregate number of meetings of the Board and the
Board Committees on which such director served. The Board Committees include an
Audit Committee, a Compensation Committee, a Nominating Committee and an
Executive Committee.
The members of the Audit Committee are Messrs. Bertin and McConnaughy. The
Audit Committee reviews the services provided by the Company's independent
auditors, consults with the independent auditors on audits and proposed audits
of the Company, and reviews the need for internal auditing procedures and the
adequacy of the Company's internal control systems. In 1997, the Audit Committee
held no meetings.
The members of the Compensation Committee are Messrs. Bagalay and
McConnaughy. The Compensation Committee administers the Company's stock option
plans, and reviews and recommends compensation levels of the Company's executive
officers. In 1997, the Compensation Committee held two meetings.
The members of the Nominating Committee are Messrs. Bagalay, McConnaughy
and Peter J. Sprague. The Nominating Committee establishes procedures for
identifying potential candidates for appointment or election as directors,
reviews and makes recommendations regarding the criteria for Board membership,
and proposes nominees for election at the annual meeting and candidates to fill
Board vacancies. The Nominating Committee will consider recommendations for
nominees from any stockholder who is entitled to vote for the election of
directors. Stockholders should send recommendations of candidates for nomination
for the 1999 slate of directors, in writing, no later than December 31, 1998 to
the Company's Secretary, 480 Pleasant Street, Lee, Massachusetts 01238.
Recommendations must be accompanied by the consent of the individual being
recommended to be nominated, to be elected and to serve. The submission also
should include a statement of the candidate's business experience and other
business affiliations. In 1997, the Nominating Committee held no meetings.
The members of the Executive Committee are Messrs. Bagalay, Gilder,
McConnaughy, and Peter J. Sprague. The Executive Committee assists the Chairman
of the Company in the absence of a meeting of all members of the Board of
Directors. The Executive Committee brings material matters to the attention of
the Board of Directors and prepares the deliberation process of the Board of
Directors, thus accelerating vital decisions for the Company. However, the Board
of Directors did not delegate its full power to the Executive Committee and
asked that the Executive Committee include all members of the Board of Directors
in major decisions affecting the Company. In 1997, the Executive Committee held
no meetings.
Directors presently receive no cash compensation for serving on the Board
of Directors. Under the Company's Non-Employee Directors Stock Option Plan, each
director who is not an employee of the Company receives an annual grant of
options to purchase 10,000 shares of Class A Common Stock at fair market value.
The options are granted upon re-election after the annual meeting of the
stockholders and vest 25% after each three-month period following grant. The
stockholders are being asked to approve an amendment to the plan which would
provide for immediate vesting of options. See "4. Amendments to the 1994
Non-Employee Stock Option Plan" below. Options terminate upon the earliest to
occur of (i) subject to (ii) below, three months after the optionee ceases to be
a director of the Company, (ii) one year after the death or disability of the
optionee, and (iii) ten years after the date of grant. If there is a change of
control of the Company, all outstanding stock options will become immediately
exercisable.
<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth information with respect to the compensation
paid or awarded by the Company to the Chief Executive Officer and the only other
executive officer whose cash compensation exceeded $100,000 (collectively, the
"Named Executive Officers") for services rendered in all capacities during 1995,
1996 and 1997.
<TABLE>
<CAPTION>
Long Term
Compensation
Awards(3)
Annual Compensation ---------------------
------------------------- Number of Shares
Name and Principal Year Salary($) Bonus($) Underlying Options(#)
-------- ---------- ---------- ---------------------
<S> <C> <C> <C> <C>
Peter J. Sprague 1997 $160,000 $100,000(1) 10,000
Chairman and Chief 1996 $160,000 $ 50,000 -0-
Executive Officer 1995 $160,000 $ -0- 1,995
Steven Sprague(2) 1997 $150,000 $ 117,500 -0-
President and 1996 $131,666 $ -0- 150,000
Chief Operating Officer 1995 $110,000 $ -0- 1,995
</TABLE>
(1) Mr. Peter J. Sprague received a bonus of $100,000 for 1997; $50,000 was
received in cash and $50,000 was applied to reduce his debt to the Company
(see "Certain Relationships and Related Transactions -- Note Receivable
from Director/Officer" below).
(2) Mr. Steven Sprague was elected President and Chief Operating Officer on May
23, 1996 and was not previously an executive officer during 1996. Prior to
that, Mr. Steven Sprague was Vice President of Operations of the Company
from April 1994 to June 1995 and an employee of the Company in the areas of
operations and strategic planning from November 1992 to April 1994.
(3) In addition, in February, 1998, the Compensation Committee awarded 250,005
options and 50,005 options to Messrs. Steven Sprague and Peter J. Sprague,
respectively.
Option Grants Table
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1997 by the Company to the
Named Executive Officers.
<TABLE>
<CAPTION>
Potential Realizable Value
Number of % of Total at Assumed Annual Rates of
Shares Options Stock Price Appreciation For
Underlying Granted to Exercise Option Term (1)
Options Employees Price Expiration --------------------------
Name Granted (#) Fiscal Year ($/Share) Date 5% ($) 10% ($)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Sprague 10,000(2) 4.9 $1.94 07/17/07 13,200 32,500
Steven Sprague -0- -0- - - -0- -0-
</TABLE>
(1) The potential realizable value of the options reported above was calculated
by assuming 5% and 10% compounded annual rates of appreciation of the
common stock from the date of grant of the options until the expiration of
the options, based upon the market price on the date of grant. These
assumed annual rates of appreciation were used in compliance with the rules
of the Securities and Exchange Commission and are not intended to forecast
future price appreciation of the common stock.
(2) These options vest in equal installments of 33% on each anniversary of the
grant.
Fiscal Year End Option Value Table
The following table sets forth information regarding the aggregate number
and value of options held by the Named Executive Officers as at December 31,
1997. No options were exercised by the Named Executive Officers during 1997.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised Options In-The-Money Options
at December 31, 1997 (#) at December 31, 1997 ($)(1)
-------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter J. Sprague................. 331,330 10,665 $46 $23
Steven Sprague................... 94,530 100,665 $47 $23
</TABLE>
(1) The last reported sale price for the Company's Class A Common Stock on OTC
Bulletin Board on December 31, 1997 was $1.125 per share. Value is calculated on
the basis of the difference between the respective option exercise prices and
$1.125, multiplied by the number of shares of common stock underlying the
respective options.
Certain Relationships and Related Transactions
Note Receivable from Director/Officer
On November 16, 1992, the Company made a personal loan to Mr. Peter J.
Sprague, Chairman and Chief Executive Officer of the Company, as evidenced by a
note for $150,000, which sum was due and payable to the Company on January 16,
1993 and which bore interest at the rate of ten percent (10%) per annum. On the
due date, the note was canceled and the total amount owed was "rolled-over" into
a subsequent note, dated May 12, 1993 for $150,000, plus accrued interest. The
note is due on demand by the Company and accrues interest at the rate of ten
percent (10%) per annum. On April 22, 1993, the Company made an additional loan
to Mr. Sprague for $23,175 as evidenced by a subsequent note, which is due on
demand by the Company and which bears interest at a rate of ten percent (10%)
per annum. All of these loans were made to Mr. Sprague for personal reasons. As
part of Mr. Sprague's $100,000 bonus for 1997, $50,000 was applied against his
indebtedness to the Company. As of December 31, 1997, Mr. Sprague's aggregate
indebtedness (including accrued interest) to the Company under the notes totaled
$212,024. No demand has been made as of the date hereof. The notes are secured
by a pledge of 67,000 shares of Class B Common Stock.
Amended and Restated License Agreement and Assignment
The Company has been issued three United States patents relating to
encryption and to the Company's proprietary WaveMeter(R) and WaveNet(R)
technology. The Company also has one patent pending before the United States
Patent Office and three corresponding foreign patent applications pending before
the European Patent Office (collectively the "Wave Patents"). The Wave Patents
are material to protecting certain of the Company's technology. The Company's
rights to the Wave Patents derive from a license, amended and restated in
February 1994, from Mr. Peter J. Sprague, Chairman and Chief Executive Officer
of the Company, of his rights in the Wave Patents (the "Amended License
Agreement"), and several agreements with former officers of the Company
regarding their rights in the Wave Patents. The Amended License Agreement
provides for royalty payments to be made to Mr. Peter J. Sprague and Mr. John R.
Michener, a former officer of the Company, in the aggregate amount of two
percent (2%) of gross revenue less actual amounts paid to information, database
and content providers, hardware manufacturers and suppliers, search and
retrieval software suppliers, consolidators of information and network providers
as defined in the Amended License agreement. The royalty payment is to be
apportioned seventy-five percent (75%) to Mr. Peter J. Sprague and twenty-five
(25%) to Mr. John R. Michener. Payment of royalties is secured by a security
interest in and to the Wave Patents.
Compensation to Steven Sprague
Steven Sprague received aggregate compensation of $267,500, $131,666, and
$110,000 for services rendered to the Company in 1997, 1996, and 1995,
respectively. Steven Sprague is the son of Mr. Peter J. Sprague, the Chairman
and Chief Executive Officer of the Company.
Transactions Involving Michael Sprague
Wave paid $182,209 to Enterprise Engineering Associates ("EEA") in 1997,
during which time Mr. Michael Sprague was an employee of EEA. On August 1, 1997,
Michael Sprague became an employee of the Company, at an annual salary of
$110,000. Michael Sprague is the son of Mr. Peter J. Sprague, the Chairman and
Chief Executive Officer of the Company.
Report of the Compensation Committee
General
The Compensation Committee of the Board of Directors (the "Committee") is
comprised of non-employee directors. The current members of the Committee are
Messrs. John E. Bagalay, Jr. and John E. McConnaughy, Jr. The Committee reviews
and recommends to the Board of Directors compensation levels for the Company's
executive officers, and administers the Company's stock option plans, including
the awarding of grants thereunder.
Compensation Philosophy
Executive compensation is heavily tied to corporate performance through the
granting of stock options. As a development stage company, the Company has
sought to contain costs with low cash salaries and bonuses.
The Company has not established a policy with regard to Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") since the Company has
not and does not currently anticipate paying cash compensation in excess of $1
million per annum to any employee. The Company intends to administer its stock
option plans in accordance with Section 162(m) of the Code.
Base Salaries and Bonuses for 1997
Base salaries for 1997 remained substantially lower than levels in the
competitive marketplace for executives with comparable experience, consistent
with the Company's position as a development stage company. A bonus of $100,000
was awarded to Mr. Peter J. Sprague, Chairman and Chief Executive Officer, in
recognition of Mr. Sprague's efforts in closing outside financing for the
continued operations of the Company in 1997. A bonus of $100,000 was awarded to
Mr. Steven Sprague, President and Chief Operating Officer, in recognition of his
closure of OEM Master Purchase Agreements.
Compensation of the Chief Executive Officer
Compensation of the Chief Executive Officer was determined in accordance
with the criteria set forth above. The Committee believes that CEO compensation
was appropriately based upon the Company's financial position and performance.
John E. Bagalay, Jr. John E. McConnaughy, Jr.
Performance Graph
The following line graph compares the Company's cumulative total return to
stockholders with the cumulative total return of the Nasdaq Market Value Index
and the Computer Related Services SIC Code Index from August 31, 1994 (the date
on which the Company's Class A Common Stock was first publicly traded) through
December 31, 1997. These comparisons assume the investment of $100 on August 31,
1994 and the reinvestment of dividends.
Wave Systems Corp.
Comparison of Cumulative Total Return to Stockholders
August 31, 1994 through December 31, 1997
<TABLE>
<CAPTION>
Peer Group
Wave Systems (SIC Code 7379) NASDAQ Market
--------------- --------------- ---------------
<S> <C> <C> <C>
BASE (8/31/94) 100.00 100.00 100.00
12/30/94 60.00 93.67 96.91
12/29/95 55.00 79.09 120.64
12/31/96 43.75 122.40 145.85
12/31/97 22.50 228.60 231.01
</TABLE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers, and
persons owning more than ten percent of a registered class of the Company's
equity securities, to file with the Securities and Exchange Commission reports
of ownership and changes in ownership of equity securities of the Company. Such
persons are also required to furnish the Company with copies of all such forms.
Based solely upon a review of the copies of such forms furnished to the
Company and, in certain cases, written representations that no Form 5 filings
were required, the Company believes that, with respect to the 1997 fiscal year,
all required Section 16(a) filings were made, except that a Form 4 for Peter J.
Sprague, the Chairman and Chief Executive Officer, was filed late in connection
with the sale of 10,000 shares of Class A Common Stock, and the Form 5 for 1997
for Philippe Bertin, a director, was filed late.
2. AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF CLASS A COMMON STOCK
The Board of Directors recommends that the shareholders approve the
proposal to amend the Restated Certificate of Incorporation of the Company to
increase the number of authorized shares of Class A Common Stock from 50 million
to 75 million shares. At September 30, 1998, 26,266,069 shares of Class A Common
Stock and 3,299,491 shares of Class B Common Stock were outstanding. Thus,
including the number of shares of Class A Common Stock reserved for the
conversion of the Company's Class B Common Stock, the conversion of the
outstanding shares of the Company's convertible preferred securities, and the
exercise of outstanding warrants and options, there were only 10,111,365 shares
of Class A Common Stock available for issuance (or delivery from the treasury of
the Company), and if the current proposal is adopted, this amount will be
increased to approximately 35 million shares. If the proposed amendment is
adopted, the first paragraph of Article Fourth of the Company's Restated
Certificate of Incorporation will be amended to read as follows:
FOURTH. (1) The total number of shares of stock which the Corporation shall
have authority to issue is Ninety Million (90,000,000) shares divided into the
following classes:
(a) Seventy-Five Million (75,000,000) shares of Class A Common stock with a
par value of one cent ($0.01) per share;
(b) Thirteen Million (13,000,000) shares of Class B Common Stock with a par
value of one cent ($0.01) per share; and
(c) Two Million (2,000,000) shares of Preferred Stock with a par value of
one cent ($0.01) per share.
The increase in authorized shares of Class A Common Stock would permit the
Company to (i) sell shares for cash, (ii) continue the issuance of shares in
connection with the Company's stock option plans, (iii) provide flexibility in
raising additional equity capital to fund the Company's growth and general
corporate needs, and (iv) use the Class A Common Stock for other purposes,
without the delay and expense of calling a special meeting of stockholders for
such purpose. If the proposed increase in the amount of authorized shares of
Class A Common Stock is approved, the shares could be issued by action of the
Board of Directors, at any time and for any purpose, without further approval or
action by the stockholders, subject to the provisions of the Restated
Certificate of Incorporation and other applicable legal requirements. The
Company currently plans to issue shares in connection with the Company's stock
option plans and upon conversion of the Company's outstanding convertible
securities.
The issuance of additional shares of Class A Common Stock in certain
transactions and under certain circumstances could have the effect of
discouraging or impeding an unfriendly attempt to acquire control of the
Company. Shares of Class A Common Stock could be issued to persons, firms or
entities known to be more favorable to management, thus creating possible voting
impediments and assisting management to retain their positions. The Board of
Directors is unaware of any pending or proposed effort to take control of the
Company or to change management and there have been no contacts or negotiations
with the Board of Directors in this connection.
Stockholders have no preemptive rights to purchase any additional shares of
Class A Common Stock which may be issued. Accordingly, the issuance of
additional shares would reduce the percentage interest of current stockholders
in the total outstanding shares and, depending upon the price at which they are
issued, could be dilutive to the existing stockholders. The terms of the
additional shares of Class A Common Stock will be identical to those of the
currently outstanding Class A Common Stock.
Recommendation and Vote
An affirmative vote of the holders of the majority of shares of common
stock entitled to vote at the Annual Meeting is required for the approval of the
proposal to amend the Restated Certificate of Incorporation of the Company to
increase the number of authorized shares of Class A Common Stock from 50 million
to 75 million shares. If no direction is given to the contrary, all proxies
received by the Board of Directors will be voted "FOR" approval of the
Amendment.
The Board of Directors recommends that the stockholders vote "FOR" this
proposed amendment to the Restated Certificate of Incorporation.
3. AMENDMENT TO THE 1994 EMPLOYEE STOCK OPTION PLAN
The Board of Directors adopted on February 6, 1998, subject to approval by
the stockholders, an amendment (the "1998 Amendment") to the Company's 1994
Employee Stock Option Plan (the "1994 Employee Plan"). The 1998 Amendment (i)
increases by a total of 5,000,000 the number of shares of the Company's Class A
Common Stock reserved for issuance under the 1994 Employee Plan, and (ii)
increases to 500,000 the number of shares of the Company's Class A Common Stock
that may be granted to any single individual in any fiscal year. The Company has
in the past used, and intends in the future to use, stock options as an
incentive device to motivate and compensate its salaried officers and other key
employees, and believes that equity incentives represented by stock options
enhance the Company's ability to attract and retain needed personnel. As of
September 30, 1998, options to purchase an aggregate of 189,652 shares of Class
A Common Stock had been exercised under the 1994 Employee Plan, and options to
purchase 1,931,942 shares of Class A Common Stock were outstanding under the
1994 Employee Plan. Accordingly, only 878,406 shares remained available for
future grants under the 1994 Employee Plan as of such date.
Under the terms of the 1994 Employee Plan, as currently in effect, the
Company is authorized to grant stock options that qualify as incentive stock
options ("ISOs") under Section 422 of the Code and non-qualified stock options
("NQSOs") to salaried officers and other key employees of the Company and its
subsidiaries who are in a position to affect materially the profitability and
growth of the Company and its subsidiaries, for up to an aggregate of 3,000,000
shares of Class A Common Stock. The following summary of certain features of the
1994 Employee Plan is qualified in its entirety by reference to the full text of
the 1994 Employee Plan, a copy of which will be furnished to any stockholder,
upon written request of such stockholder directed to Mr. Thomas J. Petrarca,
Secretary, 480 Pleasant Street, Lee, Massachusetts 01238.
Summary of the 1994 Employee Plan and the 1998 Amendment
General
The 1994 Employee Plan, as currently in effect, permits the Company to
grant ISOs and NQSOs to salaried officers and other key employees. The 1994
Employee Plan terminates on January 1, 2004 and no options may be granted after
the termination date. The 1994 Employee Plan covers a maximum of 3,000,000
shares of Class A Common Stock, which will be increased to a total of 8,000,000
shares if the 1998 Amendment is approved (subject to share adjustments as
described below), which may be either authorized and unissued shares of Class A
Common Stock or shares held in the Company's treasury. When an option lapses,
expires, terminates or is forfeited, the related shares of Class A Common Stock
may be available for distribution in connection with future options. Adjustments
may be made in the number of shares reserved under the 1994 Employee Plan, in
the option price and in the number of shares subject to stock options, in the
event of a merger, reorganization, consolidation, recapitalization or stock
dividend, and in the event of certain other changes described in the 1994
Employee Plan or any other changes in the Company's corporate structure that
affect the Class A Common Stock or has an effect similar to any of the
foregoing. No employee may be granted options covering, in the aggregate, more
than 100,000 shares of Class A Common Stock in any fiscal year of the Company,
which will be increased to 500,000 if the 1998 Amendment is approved (subject to
adjustment as provided above).
Because grants under the 1994 Employee Plan are discretionary, the Company
cannot now determine the number of options to be received by any particular
current executive officer, by all current executive officers as a group or by
non-executive officer employees or directors as a group. The number of such
options and awards shall be determined by the Compensation Committee, pursuant
to the terms of the 1994 Employee Plan. It is currently estimated that there are
60 employees eligible to participate in the 1994 Employee Plan. For information
concerning the ownership of options by the Named Executive Officers, see
"Executive Compensation" above.
Administration
The 1994 Employee Plan is administered by the Compensation Committee. The
Compensation Committee is comprised of directors who are non-employee directors
within the meaning of Rule 16b-3 promulgated under the Exchange Act. The
Compensation Committee has the sole and complete discretion, subject to the
terms of the 1994 Employee Plan, to (i) select the individuals from among the
eligible employees of the Company and its subsidiaries to whom options may be
granted, (ii) determine the type of options to be granted and the terms and
conditions of any options granted, and (iii) determine the number of shares of
common stock subject to each option granted. In addition, the Compensation
Committee is authorized to interpret the 1994 Employee Plan, to make and rescind
rules and regulations related thereto, and to make all determinations necessary
or advisable for the administration of the 1994 Employee Plan.
Stock Options
Stock options granted under the 1994 Employee Plan may be either ISOs or
NQSOs. The aggregate fair market value (determined as of the time of the grant
of an ISO) of the Class A Common Stock with respect to which ISOs are
exercisable for the first time by a single optionee during any calendar year
under the Plan and any other stock option plan of the Company may not exceed
$100,000.
The exercise price for stock options shall be determined by the
Compensation Committee and shall be set forth in an option agreement entered
into with the optionee, provided, however, that the exercise price for an option
shall not be less than the fair market value of a share of Class A Common Stock
on the date of grant (110% in the case of an ISO granted to a 10% or more
stockholder). On September 30, 1998, the closing sale price of the Class A
Common Stock, as reported by CNN/FN, was $2.91 per share.
The Compensation Committee is to specify the time or times at which such
options will be exercisable, except that the termination date for any stock
option shall not exceed 10 years from the date of grant (five years in the case
of an ISO granted to a 10% or more stockholder). Options may be exercised within
three months following the retirement of an optionee and within twelve months
following the death or disability of an optionee; provided, that no option may
be exercised following the period of exercisability set forth in the agreement
related thereto.
Stock options may be exercised by an optionee in whole or in part by giving
notice to the Company and the exercise price therefor may be paid by delivering
cash or shares of unrestricted common stock having a fair market value equal to
the cash exercise price of the options being exercised. Optionees may also
utilize a cashless exercise feature which will enable them to exercise their
options without a concurrent payment of the option price, provided that the
purchased option shares are immediately sold by a designated broker and the
option price is paid directly to the Company out of the sale proceeds. Options
granted under the 1994 Employee Plan may also provide for the option holder to
receive an additional option (the "Reload Option") to purchase the number of
shares tendered by an optionee in exercising a stock option. The exercise price
of the Reload Option shall equal the fair market value of the Class A Common
Stock on the date of the grant of the Reload Option.
Stock options are nontransferable other than by will or by the laws of
descent and distribution, and stock options are exercisable during the
optionee's lifetime only by the optionee.
Change of Control
In the event of a "Change of Control," as defined in the 1994 Employee
Plan, all options outstanding shall be immediately and fully exercisable and
shall become fully vested.
Amendments
The Board of Directors may terminate, suspend or amend the 1994 Employee
Plan, provided that such amendment, suspension, or termination may not affect
the validity of the then outstanding options, and provided further that the
Board may not, without the approval of stockholders (i) increase the maximum
number of shares which may be issued pursuant to the provisions of the 1994
Employee Plan, (ii) change the class of individuals eligible to receive options
under the 1994 Employee Plan, (iii) materially increase the benefits accruing to
participants under the 1994 Employee Plan, or (iv) extend the term of the 1994
Employee Plan.
Withholding Taxes
The 1994 Employee Plan provides that the Company may deduct from any
distribution to an employee an amount equal to all federal, state and local
income taxes or other amounts as may be required by law to be withheld.
Federal Income Tax Consequences
The following general description of federal income tax consequences is
based upon current statutes, regulations and interpretations. This description
is not intended to address specific tax consequences applicable to individual
participants.
Incentive Stock Options
No regular income tax consequences result from the grant of an ISO or the
exercise of an ISO by the employee, provided the employee continues to hold the
stock acquired on the exercise of an ISO for the requisite holding periods
described below. The employee will be taxed only upon the sale or disposition of
the stock acquired under an ISO and the gain recognized at that time will be
long-term capital gain. The holding period requirements necessary for ISO
treatment are as follows: (i) such shares may not be disposed of within two
years from the date the ISO is granted, and (ii) such shares must be held for at
least one year from the date the shares are transferred to the employee upon the
exercise of the ISO. In addition, to receive ISO treatment, the option holder
generally must be an employee of the Company or a subsidiary of the Company from
the date the stock option is granted until three months before the date of
exercise.
If an employee disposes of stock acquired upon exercise of an ISO before
expiration of the applicable holding periods, the employee will be taxed at
ordinary income tax rates on the date of disposition measured by the lesser of:
(i) the fair market value of the stock on the date of exercise of the ISO minus
the option price or (ii) the amount realized on disposition minus the option
price, and the Company will receive a corresponding income tax deduction. In the
case of a sale where a loss, if sustained, would be recognized, the amount of
the optionee's income, and the amount of the Company's corresponding expense
deduction, will not exceed the difference between the sale price and the
adjusted basis of the shares.
The amount by which the fair market value of shares received upon exercise
of an ISO exceeds the option price constitutes an item of tax preference that
may be subject to the alternative minimum tax. If an employee is subject to the
alternative minimum tax as a result of the exercise of an ISO, for purposes of
calculating the gain on a disposition of the stock solely for purposes of the
alternative minimum tax, the amount treated as a preference item will be added
to his tax basis for the stock. Gain realized by an employee upon the
disposition of stock acquired through the exercise of an ISO is taxable in the
year of disposition, but such income is not subject to income tax withholding if
the requisite holding periods have been satisfied. If either of the holding
periods is not satisfied, however, the disposition of the stock may result in
taxable income to the employee as additional compensation which is subject to
withholding.
Non-Qualified Stock Options
With regard to NQSOs, the employee will recognize ordinary income at the
time of the exercise of the option in an amount equal to the difference between
the exercise price and the fair market value of the shares received on the date
of exercise. Such income will be subject to withholding. When the employee
disposes of shares acquired upon the exercise of the option, any amount received
in excess of the fair market value of the shares on the date of exercise will be
treated as long-term or short-term capital gain, depending upon the holding
period of the shares. If the amount received upon sale is less than the fair
market value of the shares on the date of exercise, the loss will be treated as
long-term or short-term capital loss, depending upon the holding period of the
shares.
Section 162(m) of the Code generally prohibits the Company from deducting
compensation of a "covered employee" to the extent the compensation exceeds
$1,000,000 per year. For this purpose, "covered employee" means the chief
executive officer of the Company and the four other highest compensated officers
of the Company. Certain performance-based compensation (including, under certain
circumstances, stock option compensation) will not be subject to, and will be
disregarded in applying, the $1,000,000 deduction limitation. It is the
Company's intention that options granted under the 1994 Employee Plan qualify as
"performance-based" compensation under Section 162(m).
Recommendation and Vote
An affirmative vote of the holders of a majority of shares of common stock
present in person or by proxy and entitled to vote at the Annual Meeting is
required to approve the 1998 Amendment. If no direction is given to the
contrary, all proxies received by the Board of Directors will be voted "FOR"
approval of the 1998 Amendment.
The Board of Directors recommends that the stockholders vote "FOR" approval
of the 1998 Amendment.
4. AMENDMENTS TO THE 1994 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Board of Directors adopted on February 6, 1998, subject to approval by
the stockholders, an amendment (the "1998 NED Amendment") to the Company's 1994
Non-Employee Directors Stock Option Plan (the "1994 NED Plan"). The 1998 NED
Amendment increases by a total of 500,000 the number of shares of the Company's
Class A Common Stock reserved for issuance under the 1994 NED Plan, and provides
that options granted under the 1994 NED Plan will vest on the day following
grant. The Company has in the past used, and intends in the future to use, stock
options as a device to attract and retain the highest-quality outside directors,
and to provide an incentive for such directors to increase their proprietary
interest in the Company's long-term success. As of September 30, 1998, options
to purchase an aggregate of 30,000 shares of Class A Common Stock had been
exercised under the 1994 NED Plan, and options to purchase 404,533 shares of
Class A Common Stock were outstanding under the 1994 NED Plan. Accordingly, only
65,467 shares were available for future grants under the 1994 NED Plan.
Under the terms of the 1994 NED Plan, as currently in effect, the Company
is authorized to grant NQSOs only to non-employee directors upon their election
and upon their re-election at each annual meeting of stockholders thereafter,
for up to an aggregate of 500,000 shares of Class A Common Stock. The following
summary of certain features of the 1994 NED Plan is qualified in its entirety by
reference to the full text of the 1994 NED Plan, a copy of which will be
furnished to any stockholder, upon written request of such stockholder, directed
to Mr. Thomas J. Petrarca, Secretary, 480 Pleasant Street, Lee, Massachusetts
01238.
Summary of the 1994 NED Plan and the 1998 NED Amendment
General
The 1994 NED Plan, as currently in effect, permits the Company to grant
NQSOs to non-employee directors. The 1994 NED Plan covers a maximum of 500,000
shares of Class A Common Stock, which will be increased to a total of 1,000,000
shares if the 1998 NED Amendment is approved (subject to share adjustments as
described below), which may be either authorized and unissued shares of Class A
Common Stock or shares held in the Company's treasury. The 1994 NED Plan
provides that options issued thereunder to re-elected directors vest in four
equal installments of 2,500 options every three months following grant, which
will be amended to provide for immediate vesting the day following grant if the
1998 NED Amendment is approved. If and to the extent that options granted under
the 1994 NED Plan expire or terminate without having been exercised, new options
may be granted thereunder with respect to the shares covered by such expired or
terminated option, provided that the grant and the terms of such new options
shall in all respects comply with the provisions of the 1994 NED Plan.
Adjustments may be made in the number of shares reserved in the 1994 NED Plan,
in the option price and in the number of shares subject to outstanding options,
or such other adjustments as in the Board's sole determination are equitable in
the event of merger, reorganization, consolidation, recapitalization, stock
dividend and in the event of certain other changes described in the 1994 NED
Plan.
Grants
Under the 1994 NED Plan, each newly-elected non-employee director elected
to the Board receives options to purchase 12,000 shares (the "Initial Grant").
On the date of each annual meeting of the stockholders of the Company at which
directors are elected, each non-employee director re-elected to the Board
receives options to purchase 10,000 shares (the "Annual Grants"). The exercise
price per share of options granted under the 1994 NED Plan is 100% of the fair
market value of the shares subject to such options on the date the options are
granted.
Options granted pursuant to an Initial Grant vest in three equal
installments of 4,000 shares on each of (i) the date of grant; (ii) the first
anniversary of the date of grant; and (iii) the second anniversary of the date
of grant. Options granted pursuant to Annual Grants vest in four equal
installments of 2,500 shares on each of (i) the date three months following the
date of grant; (ii) the date six months following the date of grant; (iii) the
date nine months following the date of grant; and (iv) the first anniversary of
the date of grant. If the 1998 NED Amendment is approved, all options granted
pursuant to Annual Grants will fully vest on the day following grant.
Term
Options granted under the 1994 NED Plan terminate on the earliest to occur
of the following: (i) subject to (ii) below, three months after the date on
which the optionee ceases to be a director of the Company, unless by death or
disability; (ii) one year after the death or disability of the director, if such
event occurs while the optionee is a director of the Company; and (iii) ten
years after the date on which the option was granted.
Options granted under the plan are nontransferable other than by will or by
the laws of descent and distribution, and stock options are exercisable during
the optionee's lifetime only by the optionee.
Administration
The 1994 NED Plan is administered by the Board of Directors. The Board has
the authority to adopt, alter and repeal such administrative rules, guidelines
and practices governing the plan as it shall, from time to time, deem advisable;
to interpret the terms and provisions of the 1994 NED Plan and any option
granted and any agreements, notifications or other documents relating thereto;
and to otherwise supervise the administration of the 1994 NED Plan. No member of
the Board may participate in any vote by the Board on any matter materially
affecting the right of any such member under the 1994 NED Plan.
Change of Control
In the event of a "Change of Control," as defined in the 1994 NED Plan, all
options outstanding shall be immediately and fully exercisable and shall become
fully vested.
Amendment
The Board of Directors may terminate, suspend or amend the 1994 NED Plan,
provided that no amendment shall be made without the approval of the
stockholders of the Company, that will (i) increase the maximum number of shares
that may be issued under the 1994 NED Plan, (ii) change the class of individuals
eligible to receive options under the 1994 NED Plan, or (iii) materially
increase the benefits accruing to participants under the 1994 NED Plan.
Withholding Taxes
The 1994 NED Plan provides that the Company may require a non-employee
director to reimburse the Company for any taxes required by any government to be
withheld or otherwise deducted and paid by the Company in respect of the
issuance or distribution of the shares.
Federal Income Tax Consequences
The following general description of federal income tax consequences is
based upon current statutes, regulations and interpretations. This description
is not intended to address specific tax consequences applicable to individual
participants.
Non-Qualified Stock Options
With regard to NQSOs, the director will recognize ordinary income at the
time of the exercise of the option in an amount equal to the difference between
the exercise price and the fair market value of the shares received on the date
of exercise. Such income will be subject to withholding. When the director
disposes of shares acquired upon the exercise of the option, any amount received
in excess of the fair market value of the shares on the date of exercise will be
treated as long-term or short-term capital gain, depending upon the holding
period of the shares. If the amount received upon sale is less than the fair
market value of the shares on the date of exercise, the loss will be treated as
long-term or short-term capital loss, depending upon the holding period of the
shares.
Recommendation and Vote
An affirmative vote of the holders of a majority of shares of common stock
present in person or by proxy and entitled to vote at the Annual Meeting is
required to approve the 1998 NED Amendment. If no direction is given to the
contrary, all proxies received by the Board of Directors will be voted "FOR"
approval of the 1998 NED Amendment.
The Board of Directors recommends that the stockholders vote "FOR" approval
of the 1998 NED Amendment.
5. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG Peat Marwick LLP to act as the
Company's independent auditors for the year ending December 31, 1998, subject to
the ratification of such appointment by the stockholders at the Annual Meeting.
If no direction is given to the contrary, all proxies received by the Board of
Directors will be voted "FOR" ratification of the appointment of KPMG Peat
Marwick LLP as the Company's independent auditors for the year ending December
31, 1998.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting and will be available to respond to appropriate questions from
stockholders and to make a statement if they desire to do so.
The Board of Directors recommends that the stockholders vote "FOR"
ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the current fiscal year.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any other matters which may come before the Annual Meeting. If any other
matters properly come before the meeting, the accompanying proxy confers
discretionary authority with respect to any such matters, and the persons named
in the accompanying proxy intend to vote in accordance with their best judgment
on such matters.
All expenses in connection with the solicitation of proxies will be borne
by the Company. In addition to this solicitation, officers, directors and
regular employees of the Company, without any additional compensation, may
solicit proxies by mail, telephone or personal contact. Kissel-Blake Inc. has
been retained to assist in the solicitation of proxies for a fee of
approximately $4,000 plus reasonable out-of-pocket expenses. The Company will,
upon request, reimburse brokerage houses and other nominees for their reasonable
expenses in sending proxy materials to their principals.
<PAGE>
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the proxy materials for the 1998
Annual Meeting should be addressed to the Company's Secretary, 480 Pleasant
Street, Lee, Massachusetts 01238 and must be received a reasonable time before
the Company begins to print and mail its proxy materials. In addition, the
Company's By-laws currently require that for business to be properly brought
before an annual meeting by a stockholder, regardless of whether included in the
Company's proxy statement, the stockholder must give written notice of his or
her intention to propose such business to the Secretary of the Company, which
notice must be delivered to, or mailed and received at, the Company's principal
executive offices not less than sixty (60) days and not more than ninety (90)
days prior to the scheduled annual meeting (except that if less than seventy
(70) days' notice of the date of the scheduled annual meeting is given, notice
by the stockholder may be delivered or received not later than the tenth (10th)
day following the day on which such notice of the date of the scheduled annual
meeting is given). Such notice must set forth as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (ii) the name and address of the stockholder
proposing such business, (iii) the class and number of shares which are
beneficially owned by the stockholder; and (iv) any material interest of the
stockholder in such proposal. The By-laws further provide that the chairman of
the annual meeting may refuse to permit any business to be brought before an
annual meeting without compliance with the foregoing procedures.
By Order of the Board of Directors,
/s/ Thomas J. Petrarca
---------------------------
By: Thomas J. Petrarca
Title: Secretary
Lee, Massachusetts
October 5, 1998
The Company will provide without charge to each person solicited
hereby, upon the written request of any such person, a copy of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, as filed with
the Securities and Exchange Commission (without exhibits). Requests should be
made to Mr. Thomas J. Petrarca, 480 Pleasant Street, Lee, Massachusetts 01238.
<PAGE>
PRELIMINARY COPY
PROXY
Wave Systems Corp.
For Annual Meeting of the Stockholders of Wave Systems Corp.
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Peter J. Sprague and John E. McConnaughy,
Jr., and each of them, each with power to act alone and with full power of
substitution, as proxies to vote the shares which the undersigned is entitled to
vote at the Annual Meeting of the Company to be held at the offices of the
Company, 540 Madison Avenue, New York, New York, on Monday, November 9, 1998
commencing at 4:00 PM and at any adjournments thereof.
(Continued and to be signed on Reverse Side)
Please date, sign and mail your proxy card
back as soon as possible!
AnnualMeeting of Stockholders WAVE
SYSTEMS CORP.
November 9, 1998
Please Detach and mail in the Envelope Provided
The Board of Directors recommends a vote FOR all proposals listed below. Please
mark your votes with an "X" as in this example: [X]
1. Election of Directors: [ ] FOR all nominees listed: Peter J. Sprague, John
E. Bagalay, Jr., Philippe Bertin, George Gilder, John E. McConnaughy, Jr.
and Steven Sprague, except vote withheld from following nominees listed in
space below (if any):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ]VOTE WITHHELD FOR all nominees
2. FOR [ ] AGAINST [ ] ABSTAIN [ ] Proposal to approve an Amendment to the
Restated Certificate of Incorporation of the Company to increase the number
of shares of Class A Common Stock that the Company shall have authority to
issue from 50 million to 75 million shares.
3. FOR [ ] AGAINST [ ] ABSTAIN [ ] Proposal to amend the Company's 1994
Employee Stock Option Plan to (i) increase the number of shares of Class A
Common Stock reserved for issuance thereunder by 5,000,000 shares, and (ii)
increase the maximum number of shares of the Company's Class A Common Stock
covered by options that may be granted to any single individual in any
fiscal year from 100,000 to 500,000 shares.
4. FOR [ ] AGAINST [ ] ABSTAIN [ ] Proposal to amend the Company's 1994
Non-Employee Directors Stock Option Plan to (i) increase the number of
shares of Class A Common Stock reserved for issuance thereunder by 500,000
shares, and (ii) to provide that options issued to re-elected directors
fully vest on the day following the grant.
5. FOR [ ] AGAINST [ ] ABSTAIN [ ] Proposal to ratify the appointment of KPMG
Peat Marwick LLP as the Company's independent auditors for the year ending
December 31, 1998.
6. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR Proposals 1,2,3,4 and 5.
Dated: ____________, 1998
----------------------------------
Signature
NOTE: This proxy must be signed exactly as name appears hereon. Executors,
administrators, trustees, etc. should give full title as such. For joint
accounts, each owner should sign. If the signer is a corporation, please sign
full corporate name by duly authorized officer.
