<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Racom Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
RACOM SYSTEMS, INC.
6080 Greenwood Plaza Blvd.,
Greenwood Village, CO 80111
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders (the "Annual
Meeting") of Racom Systems, Inc., a Delaware corporation (the "Company"), will
be held on April 22, 1998, at 8:30 a.m., Mountain Time, at the Plaza III, 6400
S. Fiddlers Green Cir., Englewood, CO 80111, for the following purposes, each
as more fully described in the attached Proxy Statement:
1. To elect six directors. The names of the nominees intended to be presented
for election are: Charles Fear, Mark Davison, Chas Yap Hock Eng, George
Stathakis, John Hinds and Richard Horton.
2. To ratify the appointment of Arthur Andersen LLP as independent auditors of
the Company for the fiscal year ending December 31, 1998.
3. To transact other business as may properly come before the Annual Meeting or
any adjournment(s) thereof.
Only record holders of Common Stock at the close of business on March 16, 1998
are entitled to notice of, and to vote at, the Annual Meeting and at any
adjournment(s) thereof.
All stockholders are cordially invited to attend the Annual Meeting in person.
Whether or not you expect to attend the Annual Meeting in person, in order to
ensure your representation at the Annual Meeting, please mark, sign, date and
return the enclosed proxy card as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. Any stockholder attending the Annual
Meeting may vote in person even if such stockholder has returned a proxy.
By Order of the Board of Directors
/S/ Lillian V. Burkey
-------------------
Lillian V. Burkey
Acting Secretary
Greenwood Village, Colorado
March 31, 1998
<PAGE>
March 27, 1998
Dear Shareholder,
1997 was a year of investment and a financially disappointing year for Racom
Systems, Inc., yielding a loss of $3.7 million on revenues of $902,000, well
short of our financial goals. Several contracts, including a multi-million
dollar alliance agreement with Hitachi, Ltd., were not closed as originally
anticipated during 1997. The Hitachi license agreement was finally executed
after fourteen months of negotiation on January 15, 1998, giving Racom a
strong financial start to 1998.
The Company's initial public offering ("IPO") on March 12, 1997, provided
funds to repay outstanding debt, and more importantly, to expand its product
development, marketing and sales. In September 1997, Racom announced the
first in a series of advanced smart card products that are now under
development. The RX Series became the first smart card to integrate contact
and contactless operation on a single, smart card micro-controller. Currently
used by the French National Rail in northern France, RX technology is the
only microprocessor smart card technology utilizing contact and contactless
technology to be successfully deployed in a real world multi-application
setting.
Racom products continue to penetrate new markets that hold promise for future
growth. Honeywell, Inc. adopted Racom smart tags to automate its thermostat
production lines, while Tyco, a leading provider of printed circuit boards,
uses Racom smart tags to track work-in-process. In Holland, residents of
five cities now use Racom smart cards to store electronic cash for use in
concessions and to gain access to swimming pools and lockers.
In North America, the demand for smart cards continues to lag behind the rest of
the world. During 1997, Racom focused its sales and marketing efforts on
automatic fare collection opportunities in Cleveland, Denver and Delaware.
However, these projects were delayed as transit properties and local governments
await the direction of the federal government, banks and bank associations with
respect to smart card technology. While these events affected Racom's 1997
growth, leading technology corporations continue to invest in Racom technology
to manufacture card products.
Racom has now signed multi-million dollar alliance agreements with three of the
world's leading semiconductor companies, including Hitachi, Fujitsu and Rohm,
each of which has licensed Racom technology for use in smart cards and radio
frequency identification systems. These agreements have a significant impact on
Racom and merit further discussion.
In addition to increased revenues generated by the sale of Racom smart card
products and services in targeted markets, Racom's long term goals include
earning a royalty on every contactless smart card and radio frequency
identification ("RFID") tag sold worldwide by other companies using
ferroelectric technology. According to market research performed by
Dataquest, the smart card market is projected to grow at a rate of 30% per
year to over 3 billion units by 2001. Royalties generated from the sale of
smart card microchips in this market would be in addition to the nearer term
license fees typically paid to Racom by licensees, who also provide access to
their manufacturing capabilities for Racom products. Racom also earns
additional non-recurring engineering revenues for products jointly developed
with its license partners. Since royalties generate nearly 100% profit
margins and the majority of the fifty-plus patents issued to Racom have
<PAGE>
expiration dates ranging from 2007 to 2015, each alliance agreement is a
major potential contributor to Racom and shareholder value.
In 1997, Racom appointed two new members to its board of directors. Chas Yap
Hock Eng joined the board in October 1997. Mr. Yap is the current technology
development director of IRIS Technologies, which is based in Kuala Lumpur,
Malaysia and one of Asia's leading developers of smart cards systems. On
December 18, 1997, John A. Hinds joined Racom's board. A former executive vice
president of VeriFone, Inc. until July 1996, Mr. Hinds replaced board member
David Sikes, chairman and CEO of Ramtron International Corp., who left to focus
on the growing demand for Ramtron's specialty memory products. While at
VeriFone, Mr. Hinds was responsible for all field operations worldwide,
including engineering, marketing, and sales for products in the U.S. and in more
than 80 countries internationally. Prior to his employment at Verifone, Mr.
Hinds was the President of AT&T International. We believe Mr. Yap and Mr. Hinds
bring valuable experience and insight to Racom.
Racom's mission is to be the leader in contactless smart card technology, but
more importantly to generate corporate profitability and increased shareholder
value. While new products and licensing agreements take many months to develop,
royalty streams take years to grow. Once they begin to flow, however, both
quarterly revenues and profits tend to become more predictable and highly valued
by the investment community. Our message to shareholders is to be patient with
the company and the stock as we lay the foundation for long-term growth and
profitability.
We appreciate the support of our employees and you, our shareholders, and hope
that this provides a better understanding of Racom's goals, opportunities and
commitment.
Sincerely,
/s/ Richard L. Horton /s/ Charles A. Fear
- --------------------------- ---------------------------
Richard L. Horton Charles A. Fear
President and CEO Chairman
<PAGE>
RACOM SYSTEMS, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by and on behalf of the Board of Directors of
Racom Systems, Inc., a Delaware corporation ("Racom" or the "Company"), for use
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Wednesday, April 22, 1998, at 8:30 a.m., Mountain Time, or at any adjournment(s)
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at the Plaza
III, 6400 S. Fiddlers Green Cir., Englewood, CO 80111.
These proxy solicitation materials were first mailed on or about March 31, 1998
to all stockholders entitled to vote at the Annual Meeting.
Only stockholders of record at the close of business on March 16, 1998 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. At
the Record Date, 13,272,532 shares of the Company's $.01 par value per share
Common Stock ("Common Stock") were issued and outstanding.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Acting Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
The Company's principal place of business is 6080 Greenwood Plaza Blvd.,
Greenwood Village, Colorado 80111.
VOTING AND SOLICITATION
On all matters, each share of Common Stock has one vote. The affirmative vote
of a majority of shares present, in person or by proxy, and entitled to vote at
the Annual Meeting is required for the approval of matters submitted to the
stockholders for a vote. Abstentions are counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum.
Abstentions, however, do not constitute a vote "for" or "against" any matter and
thus will be disregarded in the calculation of a plurality or of "votes cast."
Broker non-votes are counted as shares that are present and entitled to vote for
purposes of determining a quorum. If a broker indicates on the proxy that it
does not have discretionary authority to vote on a particular matter as to
certain shares, those shares will be counted for purposes of determining the
presence of a quorum but will not be treated as present and entitled to vote
with respect to that matter (even though such shares are considered present and
entitled to vote for quorum purposes and may be entitled to vote on other
matters).
The costs of this solicitation will be borne by the Company. The Company has
retained the services of American Securities Transfer & Trust, Inc. to assist in
distributing proxy materials to brokerage houses, banks, custodians and other
nominee holders. The estimated cost of such services is $533 plus out-of-pocket
expenses. Although there are no formal agreements to do so, the Company may
reimburse brokerage houses and other persons representing beneficial owners of
shares for their expenses in forwarding proxy materials to such beneficial
owners. Proxies may be solicited personally or by telephone or telegram by
certain of the Company's directors, officers and regular employees, without
additional compensation.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of stockholders of the Company which are intended to be presented by
such stockholders at the 1999 annual meeting of stockholders of the Company must
be received by the Company no later than November 2, 1998, in order that they
may be included in the proxy statement and form of proxy relating to that annual
meeting. It is recommended that stockholders submitting proposals direct them
to the Secretary of the Company by certified mail, return receipt
<PAGE>
requested, in order to ensure timely delivery. No such proposals were
received with respect to the Annual Meeting scheduled for April 22, 1998.
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
A board of six directors will be elected at the Annual Meeting. Unless
otherwise instructed, proxy holders will vote the proxies received by them for
the six nominees named below, all of whom are currently directors of the
Company. It is not expected that any nominee will be unable or will decline to
serve as a director. If, however, any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who shall be designated by the present Board of
Directors to fill the vacancy. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them for the nominees listed below and not for a greater
number of persons than the number of nominees listed below. The term of office
of each person elected as a director at the Annual Meeting will continue until
the next annual meeting of stockholders and such time as his successor is duly
elected and qualified or until his earlier resignation, removal or death.
The names of the nominees, who constitute all of the current directors, and
certain information about them, are set forth below:
<TABLE>
<CAPTION>
Name Age Position(s) with the Company
- ---- --- ------------------------------------
<S> <C> <C>
Charles A. Fear 44 Chairman of the Board of Directors
Richard L. Horton 52 Chief Executive Officer, President,
Chief Financial Officer and Director
Mark R. Davison 48 Director
George J. Stathakis 66 Director
Chas Yap Hock Eng 52 Director
John A. Hinds 61 Director
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION OF
EACH OF THE NOMINEES NAMED ABOVE.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held a total of six meetings during 1997 and did not act
by unanimous written consent during 1997. Mr. Chas Yap Hock Eng was appointed
to the Company's Board of Directors in October 1997 and was unable to attend the
Board meeting held in December 1997.
The Compensation Committee, which during 1997 was comprised of Charles A. Fear
and George Stathakis, did not have any meetings during 1997. The Compensation
Committee makes recommendations to the Board of Directors regarding salaries,
bonuses, stock option grants and other compensation and benefits for directors,
officers and employees.
The Audit Committee was established in early 1998. The Audit Committee is
currently comprised of Messrs. Hinds and Stathakis and recently met on March 9,
1998 to review the results of the audit of the 1997 financial statements. The
Audit Committee recommends the engagement of independent auditors, reviews the
scope of audits proposed by the
<PAGE>
independent auditor, reviews results of audit engagements and generally
performs functions related to financial matters of the Company.
The Company does not have a nominating committee or any committee. The Board
as a whole performs the functions thereof.
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company are not paid monthly fees.
Directors are reimbursed for reasonable expenses for attending Board of
Directors' meetings. Non-employee directors of the Company are eligible to
be granted nonqualified stock options under the Company's Amended and
Restated 1993 Employee Stock Plan.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, and certain information about them, are
as follows:
<TABLE>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Richard L. Horton 52 Chief Executive Officer, President,
Chief Financial Officer and Director
Douglas J. Sheldon 39 Vice President of Product Development and Operations
Oliver W. Gatchell 45 Vice President, Alliances and
Corporate Relations
Perry H. Moss 38 Vice President, Marketing and Sales
</TABLE>
Officers are appointed by and serve at the discretion of the Board of
Directors. Each officer was appointed for a term ending upon his death,
resignation, removal or appointment and qualification of a successor.
The principal occupation of each director and executive officer of the
Company, for at least the past five years, is as follows:
CHARLES A. FEAR is an Investment Banker and was formerly Chairman of Intag
International Limited ("Intag"), a publicly held Australian company. Intag,
a promoter and founder of the Company, is currently one of its principal
stockholders and also holds a license from the Company to use the Company's
FRAM technology. Since 1992, Mr. Fear has been an Executive Director of
Poynton Corporate Limited, the corporate advisory arm of Hartley Poynton
Limited, a regional Australian stockbroker, and an associate of RBC Dominion
Securities Ltd. Mr. Fear is also a shareholder of Hartley Poynton. Mr. Fear
is a Fellow of the Institute of Chartered Accountants and a Fellow of the
Australian Institute of Company Directors. From 1985 to 1992 he was a partner
of KPMG Peat Marwick ("KPMG"), where he provided corporate advisory services
for KPMG clients involving business valuations, mergers, acquisitions,
corporate reconstructions and capital raisings.
RICHARD L. HORTON joined the Company as President in June 1992 and has acted
as its Chief Executive Officer since May 1995 and its Chief Financial Officer
since January 1996. From 1988 to June 1992, he was President of Ramtron
International Corporation ("Ramtron"), a publicly-held specialty
semiconductor manufacturer. Ramtron was a promoter and founder of the Company
and is currently a principal stockholder and licensor to the Company of the
FRAM technology upon which the Company's Smart Card products are based. From
1981 to 1987, Mr. Horton founded two start-up ventures in the computer
systems and semiconductor industries, which were subsequently acquired by
other firms. From 1985 to 1987, Mr. Horton also acted as the Director of the
digital products division for Honeywell, Inc. Mr. Horton served in the United
States Navy from 1962 to 1966 and earned B.S.E.E. and M.B.A. degrees from
Southern Methodist University and Pepperdine University, respectively.
<PAGE>
MARK R. DAVISON was a partner with the law firm of Freehill Hollingdale &
Page from 1978 to 1984, a Director of Rothschild Australia Limited from 1984
to 1985 and a founding Director of Gresham Partners Limited from 1985 to
1991. He has been a director of Intag since July 1992. In December 1991 Mr.
Davison founded the AusAsean Group, which provides investment banking,
development and venture capital funds management. Mr. Davison is also a
director of BRL Hardy Limited, Intag International Limited and other Australian
public and private companies. Mr. Davison is an investment banker and has been
a solicitor of the Supreme Court of New South Wales. He holds a degree in Arts
(1971) and Law (1973) from the Australian National University, a Masters of
Laws from the University of London (1976) and has completed the Advanced
Management Programme at Harvard School of Business Administration (1983).
GEORGE J. STATHAKIS has been a director of Ramtron since March 1990. Mr.
Stathakis serves on the Board of Directors for Calpine Corporation, Ramtron
International and Oregon Steel Mills, Inc. Mr. Stathakis also served as
Chairman of the Board and Chief Executive Officer of Ramtron from March 1990
until June 1994 and, in an interim capacity, from February 1995 until April
1995. Since 1991, he has acted as a consultant to Calpine Corporation, a
publicly held independent power company. From 1986 until 1989, Mr. Stathakis
served as Chairman of the Board and Chief Executive Officer of International
Capital Corporation, a subsidiary of American Express. Mr. Stathakis retired
from General Electric Corporation ("GE") after 32 years in management and
executive positions. In 1971, he was appointed Vice President of GE and
General Manager of the Nuclear Energy Division. In 1977, he was appointed
General Manager of GE's International Trading Operations. Mr. Stathakis
founded the General Electric Trading Company in 1982 and was appointed its
first President and Chief Executive Officer. Mr. Stathakis graduated from the
University of California at Berkeley with Bachelor of Science and Master of
Science degrees in engineering. In 1985, Mr. Stathakis was appointed by
President Reagan as a member of the President's Export Council, and he served
on such Council until 1987.
CHAS YAP HOCK ENG joined the Company's Board of Directors in October 1997.
Mr. Yap is currently, and has been for six years, the Technology Development
Director of IRIS Technologies Sdn. Bhd. in Kuala Lumpur, Malaysia. As
Technology Development Director, his principal responsibilities include
developing smart card technology, integrating disparate technologies to
result in security solutions and to enhance contact and contactless smart
card technology enabling technologies in the area of biometrics. Mr. Yap
also serves on the Board of Directors of TL Technology Research (Malaysia,
Hong Kong and the United Kingdom), Power Metric Consultants (Malaysia),
Summit Technology Ltd. (Hong Kong) and MCS Ltd. (United Kingdom). Prior to
his position at IRIS, Mr. Yap founded three companies in the United Kingdom,
including MCS, Ltd., Supply Technology Ltd. and Peripherals Connection Ltd.,
which specialized in the import, assembly and sale of personal computers and
associated peripherals. Mr. Yap received a Business Management degree from
the Harrow College of Business Administration and conducted engineering
studies at Holloway Polytechnic and South West London Polytechnic in the
United Kingdom.
JOHN A. HINDS joined the Company's Board of Directors on December 18, 1997.
Mr. Hinds currently serves on the Board of Directors and has provided
consulting services to various domestic and international business, cultural,
and educational organizations. Mr. Hinds, an executive vice president of
VeriFone, Inc. until July 1996, replaced board member David Sikes, chairman
and CEO of Ramtron International Corp., who left to focus on the growing
demand for his time to manage Ramtron's specialty memory products. While at
VeriFone, Mr. Hinds was responsible for all field operations worldwide,
including engineering, marketing, and sales for products in the U.S. and in
more than 80 countries internationally. He joined VeriFone in March 1993 from
AT&T, where he served as senior vice president, international, of the parent
company and president of AT&T International. Prior to AT&T, Mr. Hinds spent
11 years with the General Electric company in a variety of management
positions. Mr. Hinds was also president of the Geneva-based International
Organization for Standardization for the 1992-1994 term.
DOUGLAS J. SHELDON is the Company's Vice President of Product Development and
Operations. Prior to joining the company, he was responsible for the
manufacturing engineering activities of FLASH EEPROMs for ATMEL Corporation.
Dr. Sheldon was at Ramtron from 1988 to 1994 in positions of Reliability/QA
Manager and Technology Development Manager. He has developed patented
ferroelectric processes and been an invited speaker on ferroelectric memory
reliability. Dr. Sheldon held various positions in device physics and process
integration with INMOS Corporation, Honeywell SSED, and NCR Corporation.
Dr. Sheldon holds a bachelor's degree in Physics from University of Colorado,
a Masters degree in Physics from University of Oregon, and a Doctorate degree
in Management from Colorado Technical University.
PERRY H. MOSS is the Company's Vice President of Marketing and Sales and is
responsible for the development, marketing, and sales of Smart Card and Smart
Card related products. From January 1987 until he joined the Company
<PAGE>
in February 1997 he held various positions at Metrum, a former division of
Honeywell. His most recent position at Metrum was Marketing Manager where he
was responsible for the development and marketing of the Metrum' s line of
instrumentation recording systems. He was also responsible for International
Sales and Contracts. Previous responsibilities at Metrum included product
management, engineering project management and software development. Prior
to joining Honeywell/Metrum, Mr. Moss was employed by Quark, Inc. and United
Technologies in various engineering capacities. Mr. Moss has a B.S.E.E./C.S.
degree and a M.B.A. from the University of Colorado.
OLIVER W. GATCHELL is the Company's Vice President of Alliances and Corporate
Relations and is responsible for managing Racom alliance partners. Mr.
Gatchell joined the company in January 1994 and managed European Sales and
Distribution until 1998. From April 1990 to December 1993, Mr. Gatchell was a
North American and international regional sales manager for Ramtron
International. Prior to his employment with Ramtron, Mr. Gatchell worked for
Digital Equipment Corp. from April 1985 to March 1990, where he was account
manager for the sale of enterprise systems and services to MCI, AT&T and
Contel. From June 1980 to March 1985, Mr. Gatchell worked for two Trammel
Crow Companies as an international sales manager. Mr. Gatchell holds an MA
Economics from the University of Arkansas and a BA Philosophy from Hendrix
College.
CHARLES R. BROSHOUS, was the Company's Vice President for Transportation,
until February 1998, and was responsible for managing the Company's
transportation-related Smart Card business, including its automated fare
collection (AFC) systems for public transit. From August 1993 until he joined
the Company in January 1996, Mr. Broshous served as the first President of
the MTA Card Company, a fare collection subsidiary of the New York
Metropolitan Transportation Authority ("Authority"). From 1982 to August
1993, Mr. Broshous served the Authority in a variety of capacities,
completing service as its Senior Vice President for Operations Support. In
this capacity, Mr. Broshous managed the logistics portfolio of the Authority,
overseeing among other functions a $2 billion per year fare collection
operation which covered approximately 60% of the Authority's operating
expenses. During his tenure, he converted the Authority from its historic
reliance on tokens to a new, all-electronic AFC system. Mr. Broshous is a
West Point graduate and U.S. Army veteran who holds Masters degrees in civil
engineering and in economics from Princeton University.
MICHAEL L. MALMER was the Company's Vice President of Engineering until
November 1997 and was responsible for the engineering development of the
Company's Smart Card products. Prior to joining the Company in February 1992,
he was Engineering Vice President of Destron/IDI, an early participant in
radio frequency identification technologies, from July 1986 to October 1991.
In 1980, he was a founder of Prolink Corporation and acted as its Vice
President from 1980 to 1984. Mr.Malmer held engineering positions at Unisys
and Boeing from 1961 to 1973. He holds a B.S.E.E. degree from Case Institute
of Technology and engaged in computer engineering masters degree work at the
University of Michigan (Ann Arbor) and other universities.
WILLIAM H. JACOBS was the Company's Vice President of Business Development
until February 1998 and was responsible for the development and marketing of
new Smart Card products. From March 1990 until he joined the Company in June
1996, he was Director of Product Marketing for Netwise, Inc. Mr. Jacobs
marketed the Netwise, Inc. line of network software integration tools to
support personal computers, UNIX systems and IBM mainframes systems until the
line was sold to Microsoft in November of 1995. Prior to his employment with
Netwise, Inc., Mr. Jacobs managed computer operating system product lines for
11 years as an employee of Apple Computer, Inc. and Hewlett Packard Co. He
holds a B.S.E.E. degree from the University of Missouri.
<PAGE>
COMMON STOCK OWNERSHIP OF
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 16, 1998 by: (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of the Company's Common Stock; (ii) each of the Company's
directors; (iii) each of the executive officers named in the Summary
Compensation Table; and (iv) all current directors and executive officers of
the Company as a group:
<TABLE>
Number of Shares
Name of Beneficial Owner(1) Beneficially Owned Percent of Class
- --------------------------- ------------------ ----------------
<S> <C> <C>
Charles A. Fear(1) 45,000 .3%
Level 22 Allendale Square
77 St. Georges Terrace
Perth, Western Australia 6000
Richard L. Horton(2) 550,000 4.0%
6080 Greenwood Plaza Blvd.
Greenwood Village, CO 80111
Mark R. Davison(3) 45,000 .3%
Level 6
36 Carrington Street
Sydney, NSW 2154 Australia
George J. Stathakis(4) 45,000 .3%
One Bush Street, 15th Floor
San Francisco, CA 94104
Chas Yap Hock Eng(5) 25,000 .2%
10 JLN SS20/7 Damansara Utama
Petaling, Jaya 47400
Malaysia
John A. Hinds(6) 80,000 .6%
61818 Red Meadow Ct.
Bend, Oregon 97702
Intag International Limited(7) 5,744,298 42.3%
9th Floor, Kyle House
27-31 Macquarie Place
Sydney NSW 2000
Australia
Ramtron International Corporation(8) 5,051,452 37.4%
1850 Ramtron Drive
Colorado Springs, CO 80921
Michael M. Malmer(9) 200,000 1.5%
1766 W. Choke Cherry Dr.,
Louisville, CO 80027
Charles R. Broshous(10) 25,000 .2%
1320 Old Antlers Way
Monument, CO 80132
All directors and officers as a
group (11 persons)(1)(2)(3)(4)(5)(6)(9)(10) 1,068,500 6.2%
</TABLE>
<PAGE>
(1) Includes options to purchase 25,000 shares of Common Stock at $2.50 per
share until October 26, 2000, or 90 days after termination, whichever is
earlier, and options to purchase 20,000 shares of Common Stock at $1.40 per
share until December 31, 2002, or 90 days after termination, whichever is
earlier, issued under the Company's 1993 Employee Stock Plan.
(2) Includes options to purchase 550,000 shares of Common Stock at $1.13 per
share until December 18, 2002 issued under the Company's 1993 Employee Stock
Plan.
(3) Includes options to purchase 25,000 shares of Common Stock at $2.50 per
share until May 15, 2001, or 90 days after termination, whichever is earlier,
and options to purchase 20,000 shares of Common Stock at $1.40 per share
until December 31, 2002, or 90 days after termination, whichever is earlier,
issued under the Company's 1993 Employee Stock Plan. Does not include
5,422,532 shares of Common Stock or 321,766 common stock purchase warrants
held by Intag, a publicly held Australian company for which Mr. Davison
serves as a director.
(4) Includes options to purchase 25,000 shares of Common Stock at $2.50 per
share until October 26, 2000, or 90 days after termination, whichever is
earlier, and options to purchase 20,000 shares of Common Stock at $1.40 per
share until December 31, 2002, or 90 days after termination, whichever is
earlier, issued under the Company's 1993 Employee Stock Plan. Does not
include 4,800,000 shares of common stock or 251,452 common stock purchase
warrants held by Ramtron International Corporation, a publicly-held
corporation for which Mr. Stathakis serves as a director.
(5) Comprised of options to purchase 25,000 shares of Common Stock at $2.44
per share until June 10, 2002, or 90 days after termination, whichever is
earlier, issued under the Company's 1993 Employee Stock Plan. Does not
include 5,422,532 shares of Common Stock or 321,766 common stock purchase
warrants held by Intag, a publicly held Australian company for which Mr. Yap
serves as a director.
(6) Comprised of 5,000 shares and options to purchase 75,000 shares of Common
Stock at $1.13 per share until December 18, 2002, or 90 days after
termination, whichever is earlier, issued under the Company's 1993 Employee
Stock Plan.
(7) Includes 200,000 common stock purchase warrants exercisable at $2.50 per
share at any time until June 13, 1999 and 121,766 common stock purchase
warrants exercisable at $2.50 per share exercisable at any time until October
4, 2001.
(8) Includes 251,452 common stock purchase warrants exercisable at $2.50 per
share at any time until October 4, 2001.
(9) Includes options to purchase 200,000 shares of Common Stock at $1.00 per
share until May 25, 1998.
(10) Includes options to purchase 25,000 shares of Common Stock at $2.50 per
share until June 30, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's directors and officers and persons holding
more than ten percent of the Company's Common Stock are required to report
their ownership of the Company's Common Stock and any changes in that
ownership to the Securities and Exchange Commission (the "SEC"). The
specific due dates for these reports have been established by the SEC, and
the Company is required to report in this Proxy Statement any failure to file
by the established dates. To the knowledge of the Company and based solely
on a review of the Section 16(a) reports furnished to the Company during
1997: (i) Chas Yap Hock Eng was delinquent in filing one Form 3, and (ii)
John A. Hinds was delinquent in filing one Form 3.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for the three years ended
December 31, 1997 concerning compensation paid or accrued by the Company to
or on behalf of the Company's Chief Executive Officer during 1997 and each of
the four other most highly compensated executive officers of the Company
whose compensation during 1997 exceeded $100,000:
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------
Name and Stock Other annual
Principal Position Year Salary($) Bonus($) Options Compensation ($)(4)
- ------------------ ---- --------- -------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Richard L. Horton,
President(1) 1997 180,000 0 550,000 17,877
1996 179,122 0 0 0
1995 158,244 0 0 0
Michael M. Malmer, Vice
President of Engineering(2) 1997 115,502 0 0 9,648
1996 107,850 0 0 0
1995 104,200 0 0 0
Charles R. Broshous, Vice
President of Business
Solutions(3) 1997 123,500 0 0 0
1996 60,000 0 100,000 0
</TABLE>
The Company has not paid or granted any long-term compensation awards or
payouts. The Company's independent directors do not receive compensation for
Board meetings but are reimbursed for out-of-pocket expenses incurred connection
therewith. In addition, Directors are granted non-qualified options to purchase
25,000 shares of common stock of the Company upon appointment to the Board of
Directors. Each Director earns additional non-qualified options to purchase
20,000 shares of common stock of the Company upon completion of each full
calendar year of service on the Board of Directors.
- -------------
(1) Mr. Horton joined the Company as President in 1994. In 1993, Mr. Horton
was granted options to purchase 500,000 shares of the Company's Common Stock
at $1.00 per share which were to expire in May 1998. During December, 1997,
the Board of Directors approved the grant to Mr. Horton of options to
purchase 550,000 shares of Common Stock at the then current market price of
$1.13 per share and to expire on December 18, 2002, and Mr. Horton agreed to
cancel his original stock option grant.
(2) Mr. Malmer was employed as the Vice President of Engineering until November,
1997.
(3) Mr. Broshous joined the Company in 1996 and served as Vice President of
Transportation, a business group charged with marketing and selling the
Company's products vertically into the transportation and banking industries
until February 1998. Mr. Broshous was granted options to purchase 100,000
shares of the Company's common stock at $2.50 per share.
(4) During May 1997, the Company changed its vacation policy to allow for
only eighty hours to be carried over at the end of each calendar year. In
order to compensate those employees who had carried over more than 80 hours
at the end of 1996, the Company paid out the accrued vacation in excess of 80
hours. Mr. Horton was paid $17,877 for 206.58 hours and Mr. Malmer was paid
$9,648 for 179.96 hours of accrued vacation.
<PAGE>
OPTION GRANTS IN 1997
The following table sets forth certain information concerning stock option
grants in 1997 to each of the executive officers named in the Summary
Compensation Table who received stock option grants in 1997.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------
No. of
Securities % of Total
Underlying Options
Options Granted to Exercise
Granted Employees Price Expiration
Name (#) in 1997(1) ($/Share) Date
- ------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Richard L. Horton,
President 550,000 80% $1.13 December 2002
</TABLE>
<PAGE>
AGGREGATED OPTIONS EXERCISED IN 1997 AND OPTION VALUES AT DECEMBER 31, 1997
The following table sets forth the aggregate number of options held as of the
end of 1997 by the executive officers named in the Summary Compensation Table.
None of the executive officers named in the Summary Compensation Table exercised
options during 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 12/31/97(#) at 12/31/97($)*
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard L. Horton 550,000 -0- 151,800 -0-
Michael M. Malmer(1) 250,000 -0- 101,500 -0-
Charles R. Broshous(2) 25,000 -0- -0- -0-
</TABLE>
- -------------
* Represents the difference between the closing price of the Company's Common
Stock on December 31, 1997 as reported on The Nasdaq Stock Market (i.e., $1.406
per share) and the exercise price of such options.
(1) Mr. Malmer exercised options to purchase 40,000 and 10,000 shares of
the Company's Common Stock in February and March, 1998, respectively.
(2) Exercise price of these options to purchase shares of the Company's
Common Stock is $2.50, which exceeds the closing price of the Company's Common
Stock on December 31, 1997.
COMPENSATION COMMITTEE
The members of the Company's Compensation Committee during 1997 were George J.
Stathakis, and Charles A. Fear. There were no executive officers or employees
of the Company that were members of the Company's Compensation Committee during
1997. The Compensation Committee did not have any meetings during 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, the Company issued 160,000 common shares to INTAG for consideration
received related to the amendments to the Technology and Supply Agreements.
During 1996, INTAG advanced approximately $340,000 to the Company under various
notes payable agreements, which carried interest at 10% per annum and were due
on demand. As of December 31, 1996, the related party notes payable to INTAG
had total principal and interest outstanding of $879,576. Additionally, $55,452
of accrued interest remained outstanding from a working capital facility
previously provided the Company by INTAG. In 1996, Ramtron advanced $175,000 to
the Company under a note payable agreement which carried interest at prime plus
2% (10.25% at December 31, 1996) and was due on demand. As of December 31,
1996, the related party note payable to Ramtron had total principal and interest
outstanding of $94,568. During 1997, the Company used proceeds from its IPO to
repay all debt and interest outstanding to Ramtron and INTAG.
<PAGE>
On April 15, 1997, the Company signed an agreement ("Tripartite Agreement") with
Ramtron and INTAG to significantly increase the availability of Ramtron's FRAM
technology for use in RFID markets and applications. The Tripartite Agreement
replaces all existing licensing, supply and memorandum of understanding
agreements between the related parties. Under the Tripartite Agreement, the
Company retained the rights to sublicense Ramtron's ferroelectric technology for
use in ferroelectric RFID products to no more than five (5) parties pursuant to
Ramtron's approval. The Company has, to date, sublicensed such technology to
two separate companies. Ramtron has agreed to coordinate its own licensing of
FRAM technology, including the licensing of FRAM technology for use in RFID
applications with the Company, until such time as the Company completes its five
sublicensing agreements. The parties to the Tripartite Agreement have agreed to
share, with certain limitations, future licensing and royalty revenues
associated with such ferroelectric RFID licensing activities. In addition,
Ramtron granted the Company the right to purchase certain agreed upon
percentages of its FRAM product manufacturing capacity. As of December 31,
1997, the Company had not received or paid any royalties or licensing fees under
the Tripartite Agreement as there were no sales of products, as defined, through
December 31, 1997. The Tripartite Agreement eliminates the requirements that
the Company purchase from Ramtron minimum quantities of ferroelectric RFID
semiconductor chips as originally required under the Technology and Supply
Agreements. For the years ended December 31, 1996 and 1997, the Company made
purchases from Ramtron of approximately $281,000 and $34,000, respectively. The
Tripartite Agreement remains effective until expiration of the last of Ramtron's
patents.
The Company believes the terms of the above transactions were fair, reasonable
and consistent with terms that could be obtained from nonaffiliated third
parties. Any future transactions with affiliates of the Company will be
approved by the disinterested members of the Company's Board of Directors.
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP, independent auditors,
to audit the Company's consolidated financial statements for the year ending
December 31, 1998. In the event of a negative vote on such ratification, the
Board of Directors will reconsider its selection. A representative of Arthur
Andersen LLP is expected to be present at the Annual Meeting, will have an
opportunity to make a statement if he or she desires to do so and is expected to
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF APPOINTMENT OF THE INDEPENDENT AUDITORS NAMED ABOVE.
OTHER MATTERS
The Company currently knows of no matters to be submitted at the Annual Meeting
other than those described herein. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named on the enclosed
proxy card to vote the shares they represent as the Board of Directors may
recommend.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER
31, 1997 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE PROVIDED
TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO THE CORPORATE SECRETARY,
Racom Systems, Inc., 6080 GREENWOOD PLAZA BLVD., GREENWOOD VILLAGE, COLORADO
80111.
<PAGE>
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
RACOM SYSTEMS, INC.
1998 Annual Meeting of Stockholders
The undersigned stockholder(s) of Racom Systems, Inc., a Delaware corporation
(the "Company"), hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and Proxy Statement, each dated March 31, 1998, and hereby
appoints Richard L. Horton and John A. Hinds, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and
in the name of the undersigned, to represent the undersigned at the Annual
Meeting of Stockholders of the Company to be held April 22, 1998, at
8:30 a.m., Mountain Time, at the Plaza III, 6400 S. Fiddlers Green Cir.,
Englewood, CO 80111, and at any adjournment(s) thereof, and to vote all
shares of Common Stock to which the undersigned would be entitled, if then
and there personally present, on the matters set forth on reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR PROPOSALS 1 AND 2 AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
DO NOT FOLD, STAPLE OR MUTILATE.
(To be Signed on Reverse Side)
SEE REVERSE SIDE
<PAGE>
RACOM SYSTEMS, INC.
PLEASE MARK VOTES AS IN THIS EXAMPLE USING DARK INK ONLY.
(X)
1. ELECTION OF DIRECTORS:
Nominees: Charles Fear; Mark Davison; Chas Yap Hock Eng; George Stathakis;
John Hinds and Richard Horton
FOR WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
( ) ( )
FOR, except vote withheld from the following nominee(s):
( )
---------------------------------------------------------------------
List Nominees(s)
2. APPOINTMENT OF INDEPENDENT AUDITORS:
To ratify the appointment of Arthur Andersen LLP as independent auditors of the
Company for the fiscal year ending December 31, 1998, as described in the Proxy
Statement.
FOR AGAINST ABSTAIN
( ) ( ) ( )
3. OTHER BUSINESS: In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the meeting or any
adjournment(s) thereof.
Any one of such attorneys-in-fact or substitutes as shall be present and shall
act at said meeting or any adjournment(s) thereof shall have and may exercise
all powers of said attorney-in-fact hereunder.
Dated ________________1998
Signature(s)______________________________________________
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
<PAGE>
================================================================================
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Lillian V. Burkey
----------------------
Lillian V. Burkey
Acting Secretary
Greenwood Village, Colorado
March 31, 1998
