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Filed pursuant to Rule 424(b)2
SEC File No. 333-63173
BLUE WAVE SYSTEMS INC.
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7,876,964 SHARES
COMMON STOCK, $0.01 PAR VALUE
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The 7,876,964 shares (the "Shares") of Common Stock, $0.01 par value (the
"Common Stock"), of Blue Wave Systems Inc., a Delaware corporation (the
"Company"), offered hereby are being sold by the Selling Stockholders (as
defined). See "Selling Stockholders." The Company will not receive any of the
proceeds from the sale of the Shares offered hereby.
The Shares may be offered by the Selling Stockholders from time to time in
open market transactions (which may include block transactions) or otherwise
in the over-the-counter market through the Nasdaq National Market (the "NMS"),
or in private transactions at prices relating to prevailing market prices or
at negotiated prices. The Selling Stockholders may effect such transactions by
selling the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders and/or purchasers of the Shares for whom such broker-
dealers may act as agent or to whom they sell as principal or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). The Selling Stockholders and any broker-dealer acting in
connection with the sale of the Shares offered hereby may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended
(the "Act"), in which event any discounts, concessions or commissions received
by them, which are not expected to exceed those customary in the types of
transactions involved, or any profit on resales of the Shares by them, may be
deemed to be underwriting commissions or discounts under the Act. The offering
contemplated hereby will terminate as to the Shares upon the earlier to occur
of (i) April 27, 2001, or (ii) such time as all of the Shares either have been
sold by the Selling Stockholders or have become eligible for resale under the
Act without the volume limitations of Rule 144 under the Act, pursuant to an
agreement to which the Company and Blue Wave Systems Limited (f/k/a
Loughborough Sound Images Limited), a company registered in England and Wales
("Blue Wave Sub"), are parties. Blue Wave Sub, which is a wholly owned
subsidiary of the Company, was acquired by the Company from the Selling
Stockholders. See "Selling Stockholders."
The Company's principal offices are located at 2410 Luna Road, Carrollton,
Texas 75006, and its telephone number is 972-277-4600.
The costs, expenses and fees incurred in connection with the registration of
the Shares, which are estimated to be $50,000 (excluding selling commissions
and brokerage fees incurred by the Selling Stockholders), will be paid by the
Company, which has also agreed to indemnify certain of the Selling
Stockholders against certain liabilities, including liabilities under the Act.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL PURCHASERS OF THE COMMON STOCK.
The Common Stock is traded on the NMS under the symbol "BWSI." The last
reported sale price of the Common Stock on the NMS on November 17, 1998 was
$2.81 per share.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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The date of this Prospectus is November 18, 1998.
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RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before making
an investment in the Shares.
Technological Change. The market for high performance computer sub-systems
and components has traditionally experienced short product life cycles and
rapid technological change, requiring high levels of expenditures for research
and development. The Company has introduced several digital signal processing
("DSP") products during the past five years and, in order to retain its
competitive position, must continue to enhance its existing products,
including Blue Wave Sub's products, and must successfully develop and
introduce new products to the market. In the event the Company does not
continue to incorporate new advances in DSP technology into its products, the
Company's business will be adversely affected. To the extent that technologies
other than those offered by the Company prove to be superior for the high
performance applications required by the Company's customers, the Company's
business would be significantly impaired.
Quarterly Fluctuations. The Company's quarterly financial results may vary
significantly depending upon factors such as the timing of significant orders
and the timing and success of new product introductions by the Company and
Blue Wave Sub and their competitors. In the most recent fiscal years, the
Company's business has been increasingly dominated by longer and larger
customer contracts, and Blue Wave Sub is increasingly entering into larger
volume customer contracts. Therefore, the procurement or loss of a single
contract, or the change in delivery schedules thereunder, can significantly
affect quarterly financial results. Factors such as quarterly variations in
financial results could cause the market price of the Common Stock to
fluctuate substantially.
Integration of the Company's and Blue Wave Sub's Operations. The Company and
Blue Wave Sub may not be able to successfully continue to integrate their
operations, facilities and management. Such integration could also have an
adverse effect upon the Company and Blue Wave Sub's respective relationships
with customers, suppliers and key employees. The diversion of management time
towards such integration may also adversely affect customer support of
existing products and the development of new products.
Defense Industry Customer Concentration. The Company's largest single
concentration of customers are prime contractors in the United States Military
and Aerospace Industry. The United States federal government has reduced
overall defense spending and, in certain cases, delayed or deferred funding
for defense applications, which in turn has, in certain occasions, adversely
affected the Company's revenues. The Company believes, however, that reduced
defense spending has increased the demand for efficiency and for upgraded
electronics in new and existing defense electronics systems. There can be no
assurance that continued defense cutbacks would not adversely affect the
Company's customers and its business. Additionally, there has been extensive
consolidation of companies in the defense industry, and further consolidation
is possible in the future. There can be no assurance that such consolidation
will not adversely affect the Company. The combination between the Company and
Blue Wave Sub lessened this customer concentration for the Company.
Dependence upon Suppliers and Subcontractors. All of the Company's products
incorporate electronic components available from a limited number of sources.
In the event of shortages of any of the single source components, the Company
would be severely impacted. The vendors of these single source components
include Texas Instruments, Cypress Semiconductor, Linear Technology,
Matsushita, Motorola, Philips, Quality Semiconductor, Quick Logic, Advanced
Interconnection Technology and Xilinx. In addition, neither the Company nor
Blue Wave Sub has internal manufacturing capability. In the event that one or
more of the several qualified subcontractors currently used by the Company
should cease operations or become unable or unwilling to handle the Company's
requirements, the Company may be adversely affected. In many cases, the
Company's contracts with its key customers contain remedial and penalty
clauses that could be triggered as a result of non-performance by one of the
Company's suppliers or subcontractors.
Dependence on Key Personnel. The Company and Blue Wave Sub are highly
dependent on their key sales and technical personnel. The Company's future
success will also depend, in part, on its ability to attract and retain highly
qualified personnel, which are in high demand in the job marketplace. There
can be no assurance that the Company will be successful in hiring or retaining
qualified personnel. The loss of key personnel, or the
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inability to hire and retain qualified personnel, could have an adverse effect
on the Company's business, financial condition and results of operations.
Competition. The Company participates in a highly competitive industry,
which is subject to rapid and innovative technological change. There can be no
assurance that future technological changes or the development of new or
competitive products by others will not render the Company's or Blue Wave
Sub's current or planned products less competitive or obsolete. Additionally,
many of the companies with which the Company competes have significantly
greater financial and other resources than the Company.
Historical Operating Losses. Recently, the Company has incurred significant
operating losses, including approximately $1,084,000, $311,000 and $9,770,000
(including a non-recurring provision of $8,426,000 for merger and realignment
expenses) in the second, third and fourth quarters of fiscal 1998,
respectively. The Company also reported a $760,000 operating loss in its first
quarter of fiscal 1999, ended September 30, 1998. The recent losses are due
primarily to a decrease in the Company's revenues and, to a lesser extent,
increased spending for product and market development. The decline in revenues
is attributable to the risks identified in "Risk Factors", specifically
"Technological Change", "Quarterly Fluctuations", "Dependence upon Suppliers
and Subcontractors", and "Defense Industry Concentration." Many of the
Company's potential customers, including those involved in telecommunications
and defense industries, are evaluating new DSP microprocessor technology for
their next generation products, which appear to have dramatic performance
enhancements as compared to the current, widely available DSP microprocessors.
Since many customers are in an evaluation stage, and availability of certain
new DSP microprocessors is limited, the Company's ability to generate
significant revenues from new DSP microprocessors is currently limited. The
Company's ability to begin to generate future profits will, in large part,
depend on market acceptance of the Company's new products which incorporate
these next generation DSP microprocessors.
Year 2000 Compliance. Currently, there is significant uncertainty in the
software industry and among software users regarding the impact of the year
2000 on installed software. Software database modifications, and/or
implementation modifications, will be required to enable such software to
distinguish between 21st and 20th century dates. The Company has implemented a
plan ("Y2K Plan") to attempt to assess and mitigate the potential impact of
the Year 2000 problem throughout the Company. The Company uses third-party
system software which will need to be modified or replaced in order to address
Year 2000 compliance. Although the Company believes that its Y2K Plan will
adequately address the potential impact caused by the Year 2000 problem, there
can be no assurance that the Company's Y2K Plan will be sufficiently
comprehensive or that it will be completed on a timely basis. In addition,
there can be no assurance that the systems of other companies on which the
Company's systems rely will be Y2K compliant, or that a failure to convert by
a supplier or customer, or a conversion that is incompatible with the
Company's systems, would not have a material adverse affect on the Company. If
a key supplier of the Company fails to be Y2K compliant, the Company could
suffer a material loss of business or incur significant additional expenses.
The Company has developed the framework for contingency plans in the event it
or third parties are unable to complete system modifications to address the
Year 2000 issue.
SELLING STOCKHOLDERS
The Selling Stockholders acquired their shares of Common Stock from the
Company pursuant to its acquisition (the "Acquisition") of all of the
outstanding share capital of Blue Wave Sub, which was effected on April 27,
1998. In connection with the Acquisition, former holders of securities issued
by Blue Wave Sub received approximately 8,441,000 shares of Common Stock
(including shares issuable under options of the Company exchanged for similar
options that had been granted by Blue Wave Sub prior to the Acquisition). The
Selling Shareholders include all the former shareholders and certain former
option holders of Blue Wave Sub who received the Shares in the Acquisition.
The Company is registering the Shares of the Selling Stockholders pursuant to
certain registration rights granted to them pursuant to a Letter Agreement
dated March 24, 1998, whereby the Share Purchase Agreement between Blue Wave
Sub and the Company, which provided for the Acquisition, was amended to extend
the closing date, remove the requirement that the Shares be registered before
the Acquisition and grant such registration rights to the Selling
Stockholders. The offering of the Shares
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contemplated hereby will terminate on April 27, 2001, or such earlier date as
all Shares offered hereby either have been sold or have become eligible for
resale under the Act without the volume limitations of Rule 144 under the Act.
The table below sets forth the beneficial ownership of the Common Stock by
the persons selling shares of Common Stock pursuant to this Prospectus (the
"Selling Stockholders") at August 1, 1998, and after giving effect to the sale
of the shares of Common Stock offered hereby. Except as otherwise noted, each
of the persons named below has sole voting and investment power with respect
to the shares of Common Stock beneficially owned by him or it. For the
purposes of reporting beneficial ownership herein, a person is considered the
beneficial owner of the shares over which such person holds or shares voting
or investment power, including the power to direct the disposition of such
shares, or over which such a person can acquire such power within 60 days, for
example, by the exercise of stock options or the conversion of securities.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
NAME OF SHARES OWNED SHARES SHARES OWNED OWNED AFTER
SHAREHOLDER BEFORE THE OFFERING OFFERED HEREBY AFTER THE OFFERING(1) THE OFFERING(1)
----------- ------------------- -------------- --------------------- ------------------
<S> <C> <C> <C> <C>
David John Quarmby(2)..... 1,519,126 1,519,126 -- --
Rhoda Mary Quarmby(3)..... 1,519,126 1,519,126 -- --
Rhoda Mary Quarmby &
A.M.C. Dalgleish (As
Trustees for Quarmby
Family Settlement Account
QAU6).................... 94,632 94,632 -- --
Dr. G. M. Duck(4)......... 1,746,811 1,746,811 -- --
E. A. Duck(5)............. 1,746,811 1,746,811 -- --
Dr. G. M. Duck & E. A.
Duck (As Trustees of G.
M. Duck Children's
Settlement Trust)........... 83,465 83,465 -- --
Simon Yates(6)(7)......... 2,561,402 2,473,868 -- --
The Regent Trust Company
Limited (As Trustee of
the A. Christofi
Settlement).............. 227,116 227,116 -- --
Steve Warman(8)........... 296,481 296,481 -- --
O. H. Securities Limited
(As Nominee for RHB Trust
Co. Ltd)(9).............. 170,337 170,337 -- --
March Investments Party
Ltd...................... 117,627 117,627 -- --
R. S. Management Party.... 236,958 236,958 -- --
John Forrest(10).......... 18,926 18,926 -- --
Eagle Trustees Limited (As
Trustee of the
Loughborough Sound Images
PLC, Employee Share
Trust)................... 223,142 223,142 -- --
Brian T. Newall(11)....... 312,568 265,726 -- --
Pauline Elizabeth
Newall(12)............... 312,568 265,726 -- --
Brian T. Newall & Pauline
Elizabeth Newall (As
Trustees of the Newall
Children's Trust)........ 42,300 42,300 -- --
Kevin Parslow(13)(7)...... 446,565 198,819 -- --
Robert N. Shaddock &
Robert P. Harris(14)..... 52,520 52,520 -- --
Shelley M. Shaddock(15)... 693,366 605,832 -- --
Robert N.
Shaddock(16)(7).......... 693,366 605,832 -- --
Kevin Parslow & Robert P.
Harris (as Trustees for
"No. 1 Holding RNS" and
"No. 2 Holding
RNS")(17)................ 98,038 98,038 -- --
Cornhill Holdings
Limited.................. 56,873 56,873 -- --
Seonaid R. Dudley......... 9,463 9,463 -- --
Sylvia H. Thomas.......... 9,463 9,463 -- --
N. J. Keeling(18)(7)...... 4,068 946 -- --
Angela Dunton(7).......... 4,069 4,069 -- --
R. Weir(7)................ 4,069 4,069 -- --
Kevin Pott(7)............. 4,069 4,069 -- --
John Anthony Edwards(7)... 4,069 4,069 -- --
Steven Hendry(7).......... 4,069 4,069 -- --
</TABLE>
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(1) Assumes that all of the Shares offered hereby are sold.
(2) Served as a director of Blue Wave Sub from its formation until the
Acquisition. Includes 123,021 shares beneficially owned by his spouse,
Rhoda Mary Quarmby, of which 94,632 shares are held as trustee for the
Quarmby Family Settlement Account QAU6.
(3) Includes 94,632 shares held as trustee for the Quarmby Family Settlement
Account QAU6 and 1,396,105 shares beneficially owned by her spouse, David
John Quarmby.
(4) Served as Joint Chairman of Blue Wave Sub until September 30, 1995, and
served thereafter as a non-executive director of Blue Wave Sub until the
Acquisition. Includes 83,465 shares held by Dr. Duck as trustee for the G.
M. Duck Children's Settlement Trust and 101,445 shares beneficially owned
by his spouse, E. A. Duck.
(5) Includes 83,465 shares held by Mrs. E. A. Duck as trustee for the G. M.
Duck Children's Settlement Trust and 1,561,901 shares owned by her spouse,
Dr. Duck.
(6) Serves as the Chief Executive Officer and President and Director of the
Company, and has served as the sole managing director of Blue Wave Sub
since 1995. Includes 1,903,616 shares held by Mr. Yates as trustee under a
voting trust agreement for the benefit of Boston Holdings Limited, a
former shareholder of Blue Wave Sub and 87,534 shares issuable upon
exercise of options for shares of Common Stock issued by the Company in
the Acquisition.
(7) Current or former employee of the Company and/or Blue Wave Sub.
(8) Includes 170,337 shares held by RHB Trust Co. Ltd. for the benefit of Mr.
Warman.
(9) Held by RHB Trust Co. Ltd. for the benefit of Steve Warman.
(10) Served as a non-executive director of Blue Wave Sub until the
Acquisition, after which he has served as a director of the Company.
(11) Served as a director of Blue Wave Sub until 1995. Includes 138,825 shares
owned as nominee for Bentley Investments Ltd., 42,300 shares held with
his spouse as trustees for Newall Children's Trust, 84,601 additional
shares beneficially owned by his spouse, Pauline Elizabeth Newell, and
46,842 shares issuable upon the exercise of options for shares of Common
Stock issued by the Company in the Acquisition.
(12) Includes 42,300 shares held with her spouse as trustees for the Newall
Children's Trust and 185,667 additional shares beneficially owned by her
spouse, Brian T. Newall, 46,842 of which are issuable upon the exercise
of options for shares of Common Stock issued by the Company in the
Acquisition.
(13) Served as sales director of Blue Wave Sub since 1994, and was named Vice
President, Worldwide Sales of the Company after the Acquisition. Includes
52,520 shares held by Robert N. Shaddock and Robert Harris for the
benefit of Mr. Parslow, 98,038 shares held as trustee for the benefit of
Robert N. Shaddock and 247,746 shares issuable upon exercise of options
for shares of Common Stock issued by the Company in the Acquisition.
(14) Held for the benefit of Kevin Parslow.
(15) Includes 608,765 shares beneficially owned by her spouse, Robert N.
Shaddock, of which 52,520 are held as trustee, 98,038 are held in trusts
for his benefit and 87,534 are issuable upon the exercise of options for
shares of Common Stock issued by the Company in the Acquisition.
(16) Served as marketing director of Blue Wave Sub since 1997, and was named
Executive Vice President of the Company after the Acquisition. Includes
84,601 shares held by his spouse, Shelley M. Shaddock, 52,520 shares held
as trustee with Robert Harris for the benefit of Kevin Parslow, 98,038
shares held by Kevin Parslow and Robert P. Harris as trustees for the
benefit of Mr. Shaddock, and 87,534 shares issuable upon the exercise of
options for shares of Common Stock issued by the Company in the
Acquisition.
(17) Held for the benefit of Robert N. Shaddock.
(18) Includes 3,122 shares issuable upon the exercise of options for shares
of Common Stock issued by the Company in the Acquisition.
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LEGAL MATTERS
The validity of the Shares offered hereby has been passed upon by Crouch &
Hallett, L.L.P., Dallas, Texas.
EXPERTS
The financial statements and schedule of Blue Wave Systems Inc. as of June
30, 1998 and for the three years in the period ended June 30, 1998,
incorporated by reference in this prospectus and elsewhere in the registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report. In the report, that firm states
that with respect to certain subsidiaries, and for certain periods, its
opinion is based on the report of other independent public accountants, namely
PricewaterhouseCoopers, independent accountants. The financial statements and
supporting schedule referred to above have been included in reliance upon the
authority of those firms as experts in giving said reports.
The financial statements of Loughborough Sound Images Limited (n/k/a Blue
Wave Systems Ltd.), as of September 30, 1997 and for the two years in the
period ended September 30, 1997, not presented separately herein, have been
audited by PricewaterhouseCoopers, independent accountants, whose report
thereon is incorporated by reference herein. The report on such financial
statements has been so incorporated in reliance on such independent
accountants given on the authority of such firm as experts in auditing and
accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information concerning the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at its offices at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10046.
Copies of such material can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, such material can be inspected at the offices of the
Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Reports, proxy statements and other information concerning the Company can
also be obtained electronically through a variety of databases, including
among others, the Commission's Electronic Data Gathering, Analysis and
Retrieval program, Knight-Ridder Information, Inc., Federal Filings/Dow Jones
and Lexis/Nexis. Additionally, the Commission maintains a Website (at
http://www.sec.gov) that contains such information regarding the Company.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
1. the Company's Annual Report on Form 10-K for the year ended June 30,
1998, as amended to date;
2. the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998; and
3. the description of the Common Stock which is contained in the Company's
latest registration statement filed under the Exchange Act, including any
amendments or reports filed for the purpose of updating such description.
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All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering of the Shares hereunder shall be deemed to be incorporated herein by
reference and shall be a part hereof from the date of the filing of such
documents. Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or replaced
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or replaces such statement.
Any such statement so modified or replaced shall not be deemed, except as so
modified or replaced, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of Common Stock to whom a Prospectus is delivered, upon
written or oral request of such person, a copy of the documents incorporated
by reference herein, other than exhibits to such documents not specifically
incorporated by reference. Such requests should be directed to Blue Wave
Systems Inc., 2410 Luna Road, Carrollton, Texas 75006, Attention: Investor
Relations (telephone (972) 277-4600).
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