<PAGE>
As filed with the Securities and Exchange Commission on September 10, 1998
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BLUE WAVE SYSTEMS INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1425902
(State of incorporation) (I.R.S. employer identification no.)
2410 Luna Road
Carrollton, Texas 75006
972-277-4600
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
-------------------
Charles D. Brockenbush
Vice President-Finance and Chief Financial Officer
Blue Wave Systems Inc.
2410 Luna Road
Carrollton, Texas 75006
972-277-4600
(Name, address including zip code, and telephone number, including area
code, of agents for service)
-------------------
Copy to:
Bruce H. Hallett
Crouch & Hallett, L.L.P.
717 N. Harwood St., Suite 1400
Dallas, Texas 75201
(214) 953-0053
-------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities Being Amount Being Offering Price Per Aggregate Offering Registration
Registered Registered Share(1) Price Fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 7,876,964
par value shares $2.8125 $22,153,962 $6,536
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the
registration fee pursuant to the provisions of Rule 457(c) under the Securities
Act of 1933 based on the average of the high and low prices for the Common Stock
as reported on the Nasdaq National Market on September 2, 1998.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with +
+ the Securities and Exchange Commission. These securities may not be +
+ sold nor may an offer to buy be accepted prior to the time the +
+ registration statement becomes effective. This prospectus shall not +
+ constitute an offer to sell or the solicitation of an offer to buy, nor +
+ shall there be any sale of these securities in any state in which such +
+ offer, solicitation or sale would be unlawful prior to registration or +
+ qualification under the securities laws of any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated September __, 1998
BLUE WAVE SYSTEMS INC.
----------------
7,876,964 SHARES
COMMON STOCK, $0.01 PAR VALUE
----------------
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 costs, expenses and fees incurred in connection with the
registration of the Shares, which are estimated to be $47,472 (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 prices of the Common Stock on the NMS on September ___, 1998
was $___ per share.
----------------
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.
----------------
The date of this Prospectus is September ___, 1998.
<PAGE>
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.
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 customer contracts, and Blue
Wave Sub is increasingly entering into larger volume customer contracts.
Therefore, the 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 integrate their operations,
facilities and management following the completion of the Acquisition. 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 Acquisition lessened this customer concentration for the Company.
2
<PAGE>
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 addition, approximately 60% of Blue Wave Sub's
products are based on processors supplied by Texas Instruments or software
licensed from them. Other semiconductor manufacturers produce DSP processors
with similar functionality to those manufactured by Texas Instruments. Because
of Blue Wave Sub's relationships with other DSP processor vendors, substitute
products are generally available for most applications. However, because Blue
Wave Sub's products are designed specifically to utilize a particular device,
the ability to switch manufacturers would be limited by the necessity and
expense of modification of each product.
Dependence on Key Personnel. The Company and Blue Wave Sub are 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 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 and Anticipated Future Operating Losses. Recently, the Company
has incurred significant operating losses, including losses of approximately
$342,000 ($1,083,000 operating loss on a pro forma combined basis) and
$9,771,000 (including a non-recurring provision of $8,426,000 for merger and
realignment expenses) in the second and fourth quarters of fiscal 1998,
respectively. The Company had net income of approximately $88,000 (but an
operating loss of approximately $310,000 on a pro forma combined basis) for the
third quarter of 1998. The recent losses are due primarily to a decrease in the
Company's revenues and, to a lesser extent increased, spending for production
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 quite limited, the
Company's ability to generate significant revenues from new DSP microprocessors
is currently limited. Therefore, the Company anticipates that it will incur an
operating loss in the first quarter of fiscal 1999. There can be no assurance
that the Company's current business strategy will enable it to achieve
profitable operations. For additional information, prospective investors should
review the Company's most recent quarterly reports on Form 10-Q and annual
report on Form 10-K. See "Available Information."
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
21/st/ and 20/th/ century dates. The Company uses third-party system software
which will need to be modified or replaced in order to address Year 2000
compliance. The Company considers the cost to become Year 2000 compliant to be a
normal operating cost necessary to periodically upgrade system software. See
"The Company -- Year 2000."
3
<PAGE>
THE COMPANY
Principal Offices
The Company's principal offices are located at 2410 Luna Road, Carrollton,
Texas 75006, Attention: President, and its telephone number is 972-277-4600.
Year 2000
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.
This problem can arise when time-sensitive embedded software utilizes a two
digit year date field, sorting years beginning in 2000 ("00") before the year
1999 ("99"). Improper sorting can result in data corruption and processing
errors. This problem can be present in licensed software, software developed for
internal use, software developed for customer use and technology equipment.
Additionally, Year 2000 problems resident with key business partners to the
Company can also have a significant impact on the Company's operations.
The Company has completed a detailed assessment of its internal systems and
will have to replace portions of software used internally so that its computer
systems will function properly with respect to dates beginning in 2000, and
thereafter. The total Year 2000 project cost is not expected to be material in
relation to the Company's financial position or results of operations. 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.
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 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 & 94,632 94,632 -- --
A. M.C. Dalgleish
(As Trustees for
Quarmby Family
Settlement Account
QAU6)
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. 83,465 83,465 -- --
Duck (As Trustees of
G. M. Duck Children's
Settlement Trust)
Simon Yates/(6)(7)/ 2,561,402 2,473,868 -- --
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
The Regent Trust 227,116 227,116 -- --
Company Limited (As
Trustee of the A.
Christofi
Settlement)
Steve Warman/(8)/ 296,481 296,481 -- --
O. H. Securities 170,337 170,337 -- --
Limited (As Nominee
for RHB Trust Co.
Ltd)/(9)/
March Investments 117,627 117,627 -- --
Party Ltd.
R. S. Management Party 236,958 236,958 -- --
John Forrest/(10)/ 18,926 18,926 -- --
Eagle Trustees Limited 223,142 223,142 -- --
(As Trustee of the
Loughborough Sound
Images PLC, Employee
Share Trust)
Brian T. Newall/(11)/ 312,568 265,726 -- --
Pauline Elizabeth 312,568 265,726 -- --
Newall/(12)/
Brian T. Newall & 42,300 42,300 -- --
Pauline Elizabeth
Newall (As Trustees
of the Newall
Children's Trust)
Kevin Parslow/(13)(7)/ 446,565 198,819 -- --
Robert N. Shaddock & 52,520 52,520 -- --
Robert P. Harris/(14)/
Shelley M. Shaddock/(15)/ 693,366 605,832 -- --
Robert N. 693,366 605,832 -- --
Shaddock/(16)(7)/
Kevin Parslow & Robert 98,038 98,038 -- --
P. Harris (as
Trustees for "No. 1
Holding RNS" and "No.
2 Holding RNS")/(17)/
Cornhill Holdings 56,873 56,873 -- --
Limited
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>
5
<PAGE>
- -------------------
(1) Assumes that all of the Shares offered hereby are sold.
(2) Served as a director of Blue Wave Sub from its foundation 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) 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.
6
<PAGE>
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 of Blue Wave Systems Inc. (f/k/a Mizar, Inc.) at
June 30, 1996 and 1997, and for each of the fiscal years ended June 30, 1995,
1996 and 1997, incorporated by reference in this Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included in reliance
upon the authority of said firm as experts in giving said reports.
The consolidated financial statements of Blue Wave Systems Limited as of
September 30, 1996 and 1997, and for each of the three years in the period ended
September 30, 1997, incorporated by reference in this Registration Statement
have been so included in reliance on the report of PricewaterhouseCoopers,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The supplemental consolidated financial statements included in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their reports. In those reports, that firm
states that with respect to Blue Wave Systems Limited its opinion is based on
the reports of other independent public accountants, namely
PricewaterhouseCoopers. The financial statements referred to above have been
included herein in reliance upon the authority of those firms as experts in
giving said reports.
7
<PAGE>
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,
1997, including all amendments thereto;
2. the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ending September 30 and December 31, 1997 and March 31, 1998;
3. the Company's Current Report on Form 8-K dated May 12, 1998; and
4. 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.
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).
8
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants.................. F-2
Supplemental Consolidated Balance Sheets as of March 31,
1998 (unaudited) and June 30, 1997 and 1996.............. F-3
Supplemental Consolidated Statements of Operations for the
nine month periods ended March 31, 1998 and 1997
(unaudited) and for the fiscal years ended June 30, 1997,
1996, and 1995........................................... F-4
Supplemental Consolidated Statements of Stockholders'
Equity for the years ended June 30, 1997, 1996 and
1995..................................................... F-5
Supplemental Consolidated Statements of Cash Flows for the
nine month periods ended March 31, 1998 and 1997
(unaudited) and for the years ended June 30, 1997, 1996
and 1995................................................. F-6
Notes to Supplemental Consolidated Financial Statements... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Blue Wave Systems Inc.:
We have audited the accompanying supplemental consolidated balance sheets of
Blue Wave Systems Inc. (formerly Mizar, Inc.) and subsidiaries (the "Company")
at June 30, 1997 and 1996, and the related supplemental consolidated statements
of operations, stockholders' equity and cash flows for each of the years in the
three-year period ended June 30, 1997. The supplemental consolidated financial
statements give retroactive effect to the merger with Blue Wave Systems Limited
("Blue Wave Sub")(formerly Loughborough Sound Images Limited) on April 27, 1998,
which has been accounted for as a pooling of interests as described in Note 1.
These supplemental consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
supplemental consolidated financial statements based on our audits.
We did not audit the consolidated financial statements of Blue Wave Systems
Limited included in the supplemental consolidated financial statements of the
Company, which statements reflect total assets and revenues constituting 47% and
67%, respectively, in 1997 and 43% and 60%, respectively, in 1996 of the related
supplemental consolidated totals. These statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for Blue Wave
Systems Limited, is based solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audit and the report of the other auditors, the
supplemental consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June 30,
1997 and 1996, and the results of its operations and its cash flows for each of
the years in the three-year period ended June 30, 1997, after giving retroactive
effect to the merger with Blue Wave Systems Limited as described in Note 1, all
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
July 25, 1997 (except with respect
to Note 2 as to which the date is
April 27, 1998)
F-2
<PAGE>
BLUE WAVE SYSTEMS INC.
----------------------
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
----------------------------------------
AS OF MARCH 31, 1998 (UNAUDITED) AND JUNE 30, 1997 AND 1996
-----------------------------------------------------------
(in thousands, except par value per share)
<TABLE>
<CAPTION>
As of June 30, (Note 1)
March 31, -------------------------
ASSETS 1998 1997 1996
------ ----------- ------------ -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,358 $ 2,406 $ 1,745
Restricted cash 836 810 -
Marketable securities, at fair value 4,071 8,598 10,286
Accounts receivable, net of allowances of
$220 at March 31, 1998, $306 in 1997 and $337 in 1996 5,624 7,842 5,772
Inventories, net 6,193 4,602 4,348
Prepaid expenses and other 2,661 1,585 934
Deferred tax asset 1,101 1,110 826
------- ------- -------
Total current assets 25,844 26,953 23,911
CERTIFICATE OF DEPOSIT - - 100
PROPERTY, PLANT AND EQUIPMENT:
Buildings and equipment 6,788 5,998 4,659
Furniture and fixtures 3,387 3,250 3,020
------- ------- -------
10,175 9,248 7,679
Less- Accumulated depreciation (5,514) (4,692) (3,743)
------- ------- -------
Property, plant and equipment, net 4,661 4,556 3,936
OTHER ASSETS 30 46 46
------- ------- -------
Total assets $30,535 $31,555 $27,993
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 3,476 $ 4,505 $ 2,853
Accrued compensation 296 421 191
Other current liabilities 2,358 3,354 2,665
Line of credit 1,954 - 2,341
Current maturities of debt and capital lease obligations 42 284 1,311
------- ------- -------
Total current liabilities 8,126 8,564 9,361
DEFERRED INCOME TAXES 187 632 743
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current maturities 836 810 282
------- ------- -------
Total liabilities 9,149 10,006 10,386
MANDATORILY REDEEMABLE PREFERENCE SHARES 9,102 8,173 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000 shares authorized; no shares
issued and outstanding at March 31, 1998, and June 30, 1997 and 1996 - - -
Common stock, $.01 par value; 25,000 shares authorized; 11,597, 10,820,
and 11,383 issued; 10,852, 9,930, and 10,883 outstanding as of
March 31, 1998, and June 30, 1997, and 1996, respectively 116 108 114
Additional paid-in capital 15,123 14,758 13,696
Net unrealized loss on marketable securities (1) (16) (66)
Retained earnings (deficit) (1,989) 235 4,323
Cumulative translation adjustment 436 201 126
------- ------- -------
13,685 15,286 18,193
Less- Treasury stock (745, 890 and 500 shares, respectively) (1,401) (1,910) (586)
------- ------- -------
Total stockholders' equity 12,284 13,376 17,607
------- ------- -------
Total liabilities and stockholders' equity $30,535 $31,555 $27,993
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-3
<PAGE>
BLUE WAVE SYSTEMS INC.
----------------------
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------
FOR THE THE NINE-MONTH PERIOD ENDED MARCH 31, 1998 AND 1997
(UNAUDITED) AND THE FISCAL YEARS ENDED JUNE 30, 1997, 1996, AND 1995
--------------------------------------------------------------------
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
March 31, For the Fiscal Years (Note 1)
-------------------- --------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $25,661 $25,261 $34,388 $35,194 $32,043
COST OF SALES 11,389 11,618 15,599 16,070 14,302
------- ------- ------- ------- -------
Gross margin 14,272 13,643 18,789 19,124 17,741
OPERATING EXPENSES:
Product development and engineering 5,543 5,158 6,959 5,466 5,735
Sales and marketing 5,942 4,293 6,315 5,591 5,092
General and administrative 3,153 3,823 5,309 2,952 2,353
Loss on assets held for sale - - - - 204
------- ------- ------- ------- -------
Total operating expenses 14,638 13,274 18,583 14,009 13,384
------- ------- ------- ------- -------
OPERATING INCOME (LOSS) (366) 369 206 5,115 4,357
OTHER INCOME (EXPENSE):
Interest expense (75) (249) (205) (419) (447)
Interest income 427 443 611 491 117
Other, net 131 58 77 68 539
------- ------- ------- ------- -------
Total other income (expense) 483 252 483 140 209
------- ------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 117 621 689 5,255 4,566
PROVISION (BENEFIT) FOR INCOME TAXES (154) 350 397 291 899
------- ------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS 271 271 292 4,964 3,667
LOSS FROM DISCONTINUED OPERATIONS, net of
tax benefit of $62, $553, $560, $661, and
$581, respectively (137) (1,122) (1,248) (1,341) (1,179)
------- ------- ------- ------- -------
NET INCOME (LOSS) 134 (851) (956) 3,623 2,488
------- ------- ------- ------- -------
PREFERENCE SHARE DIVIDENDS, accretion
and amortization of issuance costs
of preference shares (1,369) - (874) - -
------- ------- ------- ------- -------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK $(1,235) $ (851) $(1,830) $ 3,623 $ 2,488
======= ======= ======= ======= =======
BASIC NET INCOME (LOSS) PER SHARE:
Continuing operations $ (0.11) $ 0.02 $ (0.05) $ 0.48 $ 0.40
Discontinued operations (0.01) (0.10) (0.12) (0.13) (0.13)
------- ------- ------- ------- -------
(0.12) (0.08) (0.17) 0.35 0.27
------- ------- ------- ------- -------
DILUTED NET INCOME (LOSS) PER SHARE:
Continuing operations $ (0.11) $ 0.02 $ (0.05) $ 0.41 $ 0.33
Discontinued operations (0.01) (0.09) (0.12) (0.11) (0.11)
------- ------- ------- ------- -------
(0.12) (0.07) (0.17) 0.30 0.22
------- ------- ------- ------- -------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic 10,674 10,876 10,594 10,457 9,118
======= ======= ======= ======= =======
Diluted 10,674 12,480 10,594 12,218 11,204
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-4
<PAGE>
BLUE WAVE SYSTEMS INC.
----------------------
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
------------------------------------------------------------
FOR THE FISCAL YEARS ENDED 1997, 1996, AND 1995 (NOTE 1)
--------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Common Stock Additional Loss On Retained Cumulative
------------------ Paid-In Marketable Earnings/ Translation Treasury
Shares Amount Capital Securities Deficit Adjustment Stock Total
------- --------- ----------- ----------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, beginning of
fiscal year 1995 9,186 $ 92 $ 5,636 $ - $(1,788) $134 $ - $ 4,074
BLUE WAVE
Purchase of treasury stock at cost - - - - - - (214) (214)
Obligation to purchase treasury
stock at cost - - - - - - (232) (232)
Payment for option to purchase
treasury stock - - - - - - (31) (31)
Issuance of treasury stock for
exercise of warrants - - (20) - - - 138 118
Issuance of treasury stock for
exercise of stock options - - (6) - - - 7 1
SUB
Foreign currency translation - - - - - 20 20
Consolidated
Net income - - - - 2,488 - - 2,488
------ -------- ------- ---------- --------- ----------- ------- -------
BALANCE, end of fiscal year 1995 9,186 92 5,610 - 700 154 (332) 6,224
BLUE WAVE
Issuance of common shares for
initial public offering 918 9 7,188 - - - - 7,197
Initial public offering expenses - - (372) - - - - (372)
Issuance of common shares for
conversion of debentures 891 9 1,039 - - - - 1,048
Issuance of common shares for
exercise of stock options 388 4 206 - - - - 210
Purchase of treasury stock, at cost - - - - - - (254) (254)
Payments on employee loans for
exercise of stock options - - 25 - - - - 25
Change in unrealized loss on
marketable securities - - - (66) - - - (66)
SUB
Foreign currency translation - - - - - (28) - (28)
Consolidated
Net income - - - - 3,623 - - 3,623
------ -------- ------- ---------- --------- ----------- ------- -------
BALANCE, end of fiscal year 1996 11,383 114 13,696 (66) 4,323 126 (586) 17,607
BLUE WAVE
Issuance of common shares for
exercise of stock options 5 - 11 - - - - 11
Purchase of treasury stock, at cost - - - - - - (514) (514)
Payments on employee loans for
exercise of stock options - - 4 - - - - 4
Tax effect of disqualifying
dispositions - - 263 - - - - 263
Change in unrealized loss on
marketable securities - - - 50 - - - 50
SUB
Issuance of ordinary shares 57 1 204 - - - - 205
Issuance of warrants - - 583 - - - - 583
Dividend, accretion and
amortization of issuance costs - - - - (874) - - (874)
Purchase and cancellation of
treasury shares (625) (7) (3) - (2,258) - - (2,268)
Purchase of shares for ESOP - - - - - - (810) (810)
Foreign currency translation - - - - - 75 - 75
Consolidated
Net income - - - - (956) - - (956)
------ -------- ------- ---------- --------- ----------- ------- -------
BALANCE, end of fiscal year 1997 10,820 $108 $14,758 $(16) $ 235 $201 $(1,910) $13,376
====== ======== ======= ========== ========= =========== ======= =======
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-5
<PAGE>
BLUE WAVE SYSTEMS INC.
----------------------
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------
FOR THE THE NINE-MONTH PERIOD ENDED MARCH 31, 1998 AND 1997
(UNAUDITED) AND THE FISCAL YEARS ENDED JUNE 30, 1997, 1996, AND 1995
--------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31, For the Fiscal Years (Note 1)
--------------------- --------------------------------
1998 1997 1997 1996 1995
----------- -------- ---------- ---------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 134 $ (851) $ (956) $ 3,623 $ 2,488
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation 965 964 1,256 1,013 624
Amortization of deferred loan costs - - - 4 15
Loss on assets held for sale - - - - 204
Prepaid rent - - (13) (16) (16)
Deferred tax provision (benefit) (436) (692) (230) (984) 762
Changes in assets and liabilities-
Accounts receivable, net 2,218 3,149 (2,069) (654) 30
Inventories, net (1,591) 1,863 (253) (490) 87
Prepaid expenses and other (1,060) 832 (638) 853 (1,195)
Accounts payable and accrued liabilities (2,150) (1,097) 2,641 (501) 374
------- ------- ------- -------- -------
Net cash provided by (used in) operating activities (1,920) 4,168 (262) 2,848 3,373
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of machinery and equipment (927) (1,446) (1,842) (881) (1,091)
Proceeds from dispositions of machinery and equipment
and assets held for sale - 771 98 529 76
Purchases of marketable securities - (3,398) (3,398) (11,526) -
Proceeds from maturities of marketable securities 4,568 3,392 3,903 1,114 -
Proceeds from sales of marketable securities before maturity - 1,360 1,360 - -
------- ------- ------- -------- -------
Net cash provided by (used in) investing activities 3,641 679 121 (10,764) (1,015)
------- ------- ------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock (net of expenses) - - - 6,834 -
Proceeds from sales of preference shares - - 8,914 - -
Payment of preference shares issuance costs - - (827) - -
Purchase of ESOP shares - - (810) - -
Exercise of stock warrants and options (net of employee loans) 592 278 15 235 119
Payment for option to purchase stock - - - - (31)
Purchase of treasury stock (573) (59) (2,782) (486) (214)
Proceeds from debt borrowings 1,954 - 810 500 579
Restricted cash in escrow - - (810) - -
Net payments on long-term debt, capital leases obligations,
and subordinated debentures (242) (3,929) (3,796) (1,405) (386)
------- ------- ------- -------- -------
Net cash provided by (used in) financing activities 1,731 (3,710) 714 5,678 67
Effect of translation rates on cash 62 - 88 (32) 15
Net decrease in cash attributable to
overlapping period (see Note 1) (562) (214) - - -
------- ------- ------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,952 923 661 (2,270) 2,440
CASH AND CASH EQUIVALENTS, beginning of year 2,406 1,745 1,745 4,015 1,575
------- ------- ------- -------- -------
CASH AND CASH EQUIVALENTS, end of year $ 5,358 $ 2,668 $ 2,406 $ 1,745 $ 4,015
======= ======= ======= ======== =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest 104 229 206 411 440
Cash paid for income taxes 596 29 1,090 568 62
Assets acquired under capital leases - 186 - 257 1,400
Common stock issued in conversion of convertible debentures - - - 1,048 -
Tax effect of disqualifying dispositions on stock options - 263 263 - -
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-6
<PAGE>
BLUE WAVE SYSTEMS INC.
----------------------
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------
FISCAL YEARS 1997, 1996, AND 1995 (NOTE 1)
------------------------------------------
(in thousands except share and per share amounts)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------------------
Blue Wave Systems Inc. (formerly Mizar, Inc.) (a Delaware corporation) (the
"Company" or "Blue Wave") designs, develops and markets multiprocessor Digital
Signal Processing ("DSP") computing sub-systems used primarily for real-time
image and signal processing. The Company's products have been used primarily for
defense applications, but are also incorporated by OEM customers in a variety of
commercial applications. The Company continues to sell its prior generation of
non-DSP computing sub-systems primarily to existing commercial customers for
industrial automation applications.
Blue Wave Systems Limited ("Blue Wave Sub" or "Sub") (formerly Loughborough
Sound Images Limited) was incorporated in England in 1983 and is registered as a
private limited company. Blue Wave Sub and its wholly owned subsidiaries are
collectively referred to herein as "Sub." Sub is a leading supplier of DSP
technology and products used in a range of industries, including automotive
electronics, medical electronics, defense and communications intelligence. Sub's
products are generally comprised of a DSP board and related software which are
included in the products of OEM customers. During 1997, Sub discontinued its
Video Multimedia business activities, the details of which are discussed in Note
10.
Certain previously reported amounts have been reclassified to conform with
current year presentation.
Basis of Presentation
- ---------------------
The supplemental consolidated financial statements of the Company have been
prepared to give retroactive effect, for all periods presented, to the
combination with Sub on April 27, 1998, which has been accounted for as a
pooling of interests (see Note 2). Generally accepted accounting principles
prohibit giving effect to a consummated business combination accounted for by
the pooling of interests method in financial statements that do not include the
date of consummation. These financial statements do not extend through the date
of consummation and are presented as supplementary information and should be
read in conjunction with the primary financial statements. However, they will
become the historical consolidated financial statements of Blue Wave after
consolidated financial statements covering the date of consummation of the
business combination are issued.
The supplemental consolidated balance sheets combine Blue Wave's historical
balance sheets as of June 30, 1997 and 1996, with the corresponding Sub
historical balance sheets at September 30, 1997, and September 30, 1996 (as
combined "at fiscal year-end 1997 and 1996").
The supplemental consolidated statements of operations, stockholders' equity and
cash flows combine Blue Wave's historical statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1997, with the corresponding Sub historical statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1997 (as combined, the "fiscal years 1997, 1996,
and 1995" or the "three fiscal years ended 1997"). The supplemental
consolidated statements of stockholders' equity reflect the exchange of each Sub
common share for 94.632 shares of Blue Wave common stock (see Note 2).
Sub's historical statements of operations and cash flows for the years ended
September 30, 1997, and 1996 include the same unaudited statements of operations
and cash flow information for the quarters ended September 30, 1997, and 1996
which are included in the unaudited interim supplemental consolidated statements
of operations and cash flows for the nine months ended March 31, 1998, and 1997.
F-7
<PAGE>
Accounting Convention
- ---------------------
The accompanying supplemental consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles.
Foreign Currency Translation
- ----------------------------
The functional currency of Sub is the United Kingdom pound sterling ("pound
sterling").
The historical financial statements of Sub have been translated into U.S.
dollars ("$") from pound sterling using the exchange rate at each balance sheet
date for assets and liabilities and average exchange rate for each period for
net sales, costs, expenses and other income and expenses. Translation
adjustments have been recorded as a separate component of stockholders' equity.
Principles of Consolidation
- ---------------------------
The supplemental consolidated financial statements includes the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions are eliminated in consolidation.
Revenue Recognition
- -------------------
Revenue from product sales is recorded only when the earnings process is
completed, which is principally when the product is shipped.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents includes cash placed in money market funds or
investments in highly liquid securities with original maturities of three months
or less.
Restricted Cash
- ---------------
In connection with the establishment of an employee stock ownership plan
("ESOP"), Sub has guaranteed the debt of the ESOP. The guarantee required Sub
to place cash in escrow in an amount equal to the debt. Such cash has been
reflected as restricted cash in the accompanying supplemental consolidated
financial statements (see Note 13).
F-8
<PAGE>
Marketable Securities
- ---------------------
The Company has determined that all of its marketable securities should be
classified as available for sale and reflected in the accompanying supplemental
consolidated balance sheets at their respective market values. The Company's
results of operations include earnings from such securities as calculated on a
yield-to-maturity basis. Unrealized gains and losses from the changes in fair
value are excluded from income and are reported as an adjustment to
stockholders' equity, net of the deferred tax effect. The Company's marketable
securities consist of direct and implied obligations of the U.S. Government,
certificates of deposit, and investment grade corporate debt securities.
The Company does not invest in or use derivative financial instruments.
Inventories
- -----------
Inventories are stated at the lower of cost (including direct materials, labor,
and applied overhead) or market using the first-in, first-out method (FIFO).
The Company periodically reviews inventory items on hand and provides
allowances, if necessary, to reduce inventory to its realizable value.
Property, Plant, and Equipment
- ------------------------------
Property, plant and equipment, including assets under capital lease, are carried
at cost and depreciated using the straight-line method over the estimated
economic lives of the assets as follows:
Buildings/Leasehold Improvements 7 - 25 years
Equipment 3 - 5 years
Furniture and fixtures 2 - 5 years
Software 1 - 3 years
Repair and maintenance expenditures are charged to operations as incurred, and
expenditures for major renewals and betterments are capitalized.
When property, plant and equipment are sold or otherwise retired, the cost and
accumulated depreciation applicable to such assets are eliminated from the
accounts, and any resulting gain or loss is reflected in current operations.
The Company assesses the realizability of long-lived assets in accordance with
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
Income Taxes
- ------------
The Company uses the liability method to determine deferred taxes. Deferred tax
assets and liabilities are based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of enacted tax law.
Research and Development
- ------------------------
Research and development costs are included in and inseparable from product
development and engineering and are charged to expense as incurred.
F-9
<PAGE>
Net Income (Loss) Per Share
- ---------------------------
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share" (SFAS No. 128). This statement established a new methodology for
calculating earnings per share ("EPS"). All periods presented in the
accompanying supplemental consolidated financial statements have been restated
to conform with the requirements of SFAS No. 128 (see Note 8).
In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 requires companies to either
recognize compensation expense related to employee stock options in the income
statement or disclose the proforma effect on earnings of the stock options in
the footnotes to the financial statements. The Company has elected to follow
the proforma disclosure requirements promulgated by SFAS No. 123 and has opted
to continue to account for the stock option plan under APB Opinion No. 25, under
which no compensation cost has been recognized. The proforma disclosure can be
found in Note 13 to the supplemental consolidated financial statements.
Initial Public Offering
- -----------------------
On September 28, 1995, the Company completed an initial public offering ("IPO")
of 918,000 shares of common stock. Proceeds from the offering, net of expenses,
aggregated $6,834 and were used to retire $856 of debt and fulfill a commitment,
as well as an option, to purchase the Company's common stock owned by United
Technologies, Inc. ("UTC"), and to add to working capital.
The Company sold John G. Kinnard and Company, Incorporated, as representative of
the underwriters in connection with the IPO, a five-year warrant to purchase up
to 15,000 shares of the Company's common stock, exercisable at $10.20 per share.
As of March 31, 1998, this warrant had not been exercised.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
- -----------------------------------
Management believes the recorded values of financial instruments approximate
their current fair values as such items are current in nature and/or generally
bear variable interest rates which adjust yield to derive current market value.
New Accounting Pronouncements
- -----------------------------
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information About Capital Structure" (SFAS No. 129). The
adoption of this standard is required for financial statements issued for
periods ending after December 15, 1997. This Statement establishes standards
for disclosing information about an entity's capital structure. The impact of
this adoption was not significant to the Company's disclosures.
F-10
<PAGE>
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income is defined as the
total of net income and all other nonowner changes in equity. The adoption of
SFAS No. 130 is required for fiscal years beginning after December 15, 1997.
The Company has two types of nonowner changes in equity, excluding net income,
including foreign currency translation gains and losses and unrealized gains and
losses on investments.
The Financial Accounting Standards Board has issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information" (SFAS No. 131). This
pronouncement changes requirements under which public businesses must report
segment information. The objective of the pronouncement is to provide
information about a company's different types of business activities and
different economic environments. SFAS No. 131 requires companies to select
segments based on their internal reporting system. The adoption of SFAS No. 131
is required for fiscal years beginning after December 15, 1997. The Company is
evaluating what impact SFAS No. 131 will have on the Company's disclosures.
The Financial Accounting Standards Board has issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirements Benefits" (SFAS No. 132).
This pronouncement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans, however, it does require additional information on changes in
the benefit obligations and fair values of plan assets in order to facilitate
financial analysis. The adoption of SFAS No. 132 is required for fiscal years
beginning after December 15, 1997. The Company currently does not have any
pension or postretirement benefit plans.
The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting
for Derivative and Similar Financial Instruments For Hedging Activities" (SFAS
No. 133). This pronouncement revises the accounting for derivative financial
instruments. It requires entities to recognize all derivatives as either assets
or liabilities in the balance sheet and measure those instruments at fair value.
The adoption of this statement is required for fiscal years beginning after
December 15, 1997. Currently, the Company does not invest in derivatives nor
hedge any significant risks with the use of derivative financial instruments. As
a result, the adoption of SFAS No. 133 will not have a significant impact on the
Company's financial position or results of operations.
Unaudited Interim Supplemental Consolidated Financial Statements
- ----------------------------------------------------------------
The Company's supplemental consolidated balance sheet as of March 31, 1998, and
the supplemental consolidated statements of operations and cash flows for the
nine months ended March 31, 1998 and 1997, have been prepared by the Company
without audit. The unaudited supplemental consolidated balance sheet at March
31, 1998, combines Blue Wave's unaudited balance sheet at March 31, 1998, with
the unaudited Sub consolidated balance sheet at March 31, 1998. The unaudited
supplemental consolidated statements of operations and cash flows for the nine
months ended March 31, 1998 and 1997, of the Company are combined with Sub's
unaudited statements of income and cash flows for the nine months ended March
31, 1998 and 1997. In the opinion of management, all adjustments (which include
only normal, recurring adjustments) necessary to present fairly the supplemental
consolidated financial position of the Company at March 31, 1998, and the
supplemental consolidated results of operations and cash flows of the Company
for the nine months ended March 31, 1998 and 1997, have been made. The results
of operations for the interim periods are not necessarily indicative of results
to be expected for the full year.
2. COMBINATION WITH SUB:
---------------------
On April 27, 1998, Mizar, Inc. and Sub completed the combination (the
"Combination") transaction announced in November 1997. The new enterprise has
changed its name to Blue Wave Systems Inc. and trades on the Nasdaq National
Market tier of The Nasdaq Stock Market/SM /under the symbol "BWSI." The
combination was completed via a share exchange with the Company issuing
approximately 7,877,000 common shares of the Company (the "Common Stock"),
including shares issued in exchange for warrants exercised by Boston Holdings
Limited, as described below, to Sub shareholders in exchange for all outstanding
Sub shares and issuing options exercisable for approximately 564,000 shares of
Common Stock in exchange for the outstanding Sub options. The foregoing
issuances were based upon the exchange ratio of 94.632 shares of Common Stock
for each ordinary share of Sub transferred to the Company, including shares
issuable under options. Costs of $1,070 incurred to date associated with the
Merger are currently reflected in prepaid expenses in the accompanying balance
sheet. Total Merger related costs and provisions will be approximately
$8,426 and will be reflected as an expense in the first post-combination
accounting period. In conjunction with completion of the business combination,
there was a redemption, in cash, of redeemable preference shares of Sub owned by
Boston Holdings Limited as well as an exercise of warrants for common stock of
Sub, also owned by Boston Holdings Limited, which were then exchanged into
approximately 1,904,000 shares of Common Stock. The preference shares and
F-11
<PAGE>
warrants of Sub were mandatorily redeemable on the sale or merger of Sub (see
Note 15). The resultant net impact of these transactions with Boston Holdings
Limited on cash to the combined companies was an outlay of approximately $4,500.
The table below presents a reconciliation of revenues and net income, as
reported in the supplemental consolidated statements of income with those
previously reported by the Company. The references to Blue Wave in this table
are to the Company's historical operating results prior to the acquisition of
Sub.
<TABLE>
<CAPTION>
Nine Months Fiscal Years Ended
Ended ----------------------------
March 31, 1998 1997 1996 1995
--------------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Blue Wave $ 9,145 $11,507 $14,052 $14,018
Sub 16,516 22,881 21,142 18,025
------- ------- ------- -------
Total supplemental
consolidated revenues $25,661 $34,388 $35,194 $32,043
======= ======= ======= =======
NET INCOME (LOSS):
Blue Wave $ 335 $ 179 $ 3,274 $ 2,654
Sub (201) (1,135) 349 (166)
------- ------- ------- -------
Total supplemental
consolidated net
income (loss) $ 134 $ (956) $ 3,623 $ 2,488
======= ======= ======= =======
</TABLE>
Included in the net income (loss) of Sub for fiscal years 1997, 1996, and 1995
are losses from discontinued operations of $1,248, $1,341, and $1,179 (net of
income tax benefits of $560, $661, and $581, respectively). Included in the net
loss of Sub for the nine months ended March 31, 1998, are losses from
discontinued operations of $137 (net of income tax benefits of $62).
3. INVENTORIES:
------------
Net inventories at March 31, 1998, and at fiscal year-end 1997 and 1996,
consisted of the following:
<TABLE>
<CAPTION>
March 31, 1998 1997 1996
-------------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Raw materials $2,736 $2,047 $1,471
Work-in-process 2,447 1,729 1,324
Finished goods 1,010 826 1,553
------ ------ ------
Inventories, net $6,193 $4,602 $4,348
====== ====== ======
</TABLE>
F-12
<PAGE>
4. OTHER CURRENT LIABILITIES:
--------------------------
At fiscal year-end 1997 and 1996, other current liabilities consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Sales representative commissions $ 19 $ 56
Property tax 34 31
Warranties 278 150
Accrued franchise tax 171 231
Professional services and other 194 168
Accrued expenses 1,250 1,182
Distributor settlement payable 668 -
Taxes payable, other than income 407 306
Other current liabilities 286 191
Income tax payable 47 350
------ ------
$3,354 $2,665
====== ======
</TABLE>
The distributor settlement payable relates to an amount due pursuant to a
dispute concerning the termination of an agreement.
5. ROYALTIES:
----------
During the fiscal years 1997, 1996, and 1995, the Company paid royalties of
$225, $360, and $410, primarily related to license agreements with Texas
Instruments Incorporated ("TI"). The royalties due pursuant to the majority of
these licensing agreements were fully paid up in fiscal 1997. On July 11, 1997,
TI completed the sale of its DSEG group to Raytheon Company. TI and the Company
have executed an agreement whereby all of TI's rights and interests in the
licensing agreements have been assigned to Raytheon Company.
The license agreements allow the Company to use certain products in its DSP sub-
system business. These licenses are subject to several restrictions and
requirements, and the termination of one or more of the licenses could adversely
affect the Company's business.
6. MARKETABLE SECURITIES:
----------------------
A summary of the amortized cost, unrealized gains and losses, and fair values of
available for sale marketable securities at fiscal year-end 1997 and 1996
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------------------------- ------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Fair Amortized Holding Fair
Type of Security Cost Losses Value Cost Losses Value
- --------------------------- --------- ---------- ------ --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
U.S. government $4,160 $ 3 $4,157 $ 2,054 $ 7 $ 2,047
Corporate bonds 4,358 22 4,336 7,835 94 7,741
Commercial paper - - - 498 - 498
Certificate of deposit 105 - 105 - - -
------ ----- ------ ------- ----- -------
Totals $8,623 $ 25 $8,598 $10,387 $ 101 $10,286
====== ===== ====== ======= ===== =======
</TABLE>
F-13
<PAGE>
Net of the tax effect, the unrealized loss on securities available for sale is
$16 and $66, respectively, which is included in stockholders' equity.
The Company established a $100 certificate of deposit as collateral for a stand-
by letter of credit which was required by a customer. This certificate of
deposit matured in December 1997, and was classified as a long-term security in
fiscal 1996.
A comparison of the amortized cost and fair value of the Company's available for
sale marketable securities at fiscal year-end 1997, by maturity date follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- ------
<S> <C> <C>
One year or less $5,564 $5,549
Two through three years 3,059 3,049
------ ------
Total $8,623 $8,598
====== ======
</TABLE>
7. DEBT:
-----
Line of Credit
- --------------
Sub makes short-term borrowings under a short-term credit facility made
available by a commercial bank. At fiscal year-end 1997, Sub had no amounts
outstanding, but had approximately $3,242 in aggregate availability under such
credit facility. The credit facility bears interest at the bank's reference
rate, plus 1.75% (8.75% at fiscal year-end 1997).
Long-term Debt
- --------------
Long-term debt (including capital lease obligations) consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Note payable to a commercial bank,
interest at the bank's base rate, plus
1.5% (7.25% at fiscal year-end 1997);
payable in 2002; secured by escrow of
$810 cash $ 810 $ -
Note payable to a commercial bank,
interest at the bank's base rate, plus
3.75%, (9.5% at fiscal year-end 1996);
payable monthly; secured by all assets
of the Company; due in 1997 - 747
Capital lease obligations, secured by
related equipment 284 846
------ ------
1,094 1,593
Less- Current maturities (284) (1,311)
------ -------
$ 810 $ 282
====== =======
</TABLE>
F-14
<PAGE>
The debt agreements related to the above contain warranties and covenants and
require maintenance of certain financial ratios. Default on any warranty or
covenant could, if not waived or corrected, accelerate the maturity of any
borrowings outstanding. Management believes the Company is in compliance with
such warranties and covenants.
8. INCOME PER SHARE:
-----------------
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." The Statement establishes standards for computing and
presenting earnings per share ("EPS"). It replaces the presentation of primary
EPS with a presentation of basic earnings per share. Additionally, it requires
presentation of diluted EPS which is similar to fully diluted EPS, pursuant to
APB Opinion No. 15. The net income (loss) per share information for the three
fiscal years ended 1997 have been restated to reflect the new standard.
Basic net income (loss) per share for the nine months ended March 31, 1998 and
1997, and the three fiscal years ended 1997, were computed by dividing net
income applicable to common stock by the weighted average number of shares of
common stock outstanding during the periods presented, as adjusted for the
exchange ratio in the Acquisition (Note 2). Diluted net income per share for the
nine months ended March 31, 1997, and the two fiscal years ended 1996, were
computed by dividing net income (loss) applicable to common stock by the
weighted average number of shares of common stock outstanding and other dilutive
securities outstanding during the periods presented, as adjusted for the
exchange ratio for the Acquisition (Note 2). Diluted net income (loss) per share
for the nine months ended March 31, 1998, and the fiscal year ended June 30,
1997, were computed by dividing net income (loss) applicable to common stock by
the weighted average number of shares of common stock outstanding, other
dilutive securities outstanding during these periods were anti-dilutive to the
net loss per share. Other dilutive securities included in diluted net income
(loss) per share are stock options calculated under the treasury stock method
using the prevailing average market price for the period presented. Shares used
in basic and diluted net income (loss) per share calculations for the fiscal
years 1997, 1996, and 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
Nine-Months Ended
March 31 Fiscal Year
----------------- ----------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Basic:
Weighted average common stock outstanding
during the period 10,674 10,876 10,594 10,457 9,118
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Nine-Months Ended
March 31 Fiscal Year
----------------- ----------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Diluted:
Weighted average common stock outstanding
during the period 10,674 10,876 10,594 10,457 9,118
Other dilutive securities of stock programs - 1,604 - 1,761 2,086
------ ------ ------ ------ ------
Shares used in net income (loss) per share calculation 10,674 12,480 10,594 12,218 11,204
====== ====== ====== ====== ======
</TABLE>
Dilutive securities equivalent to 2,105 and 1,199 shares of common stock were
outstanding during the Nine-Months Ended March 31, 1998 and fiscal year 1997,
respectively but were not included in the computation of diluted EPS because the
Company incurred net losses attributable to common shareholders. The inclusion
of these options would have been anti-dilutive to diluted EPS.
F-15
<PAGE>
9. COMMITMENTS AND CONTINGENCIES:
------------------------------
The Company leases certain buildings and equipment under operating leases. Rent
expense applicable to operating leases was $1,093, $705, and $628 for the fiscal
years 1997, 1996, and 1995, respectively. At fiscal year-end 1997, the future
minimum lease payments required by operating leases were as follows:
1998 $ 1,136
1999 1,057
2000 929
2001 922
2002 520
Thereafter 14,820
The Company is party to certain legal proceedings incidental to its business.
Certain claims arising in the ordinary course of business have been filed or are
pending against the Company. The Company accrues for claims that are both
probable and for which expected loss can be reasonably estimated. Management
believes that the resolution of any such claims will not materially affect the
financial position or results of operations of the Company.
10. DISCONTINUED OPERATIONS:
------------------------
In April 1997, Sub adopted a plan to discontinue its Video Multimedia Group
("VMG") operations in order to focus resources on its digital signal processing
activities. The VMG operations principally designed, manufactured, and sold
products for the video conferencing industry. These activities operated as a
distinct business segment and the results have been separately disclosed as
discontinued operations in the accompanying supplemental consolidated statements
of operations. The VMG operations were fully abandoned by September 30, 1997.
Sales of VMG were $277, $1,462, and $189 for fiscal years 1997, 1996, and 1995,
respectively.
11. SIGNIFICANT CUSTOMERS, RECEIVABLES, AND CONCENTRATION OF CREDIT RISK:
---------------------------------------------------------------------
The following table summarizes sales by major customer group and gross accounts
receivable by major customer group for the fiscal years 1997, 1996, and 1995:
1997 1996 1995
------- ------- -------
SALES BY CUSTOMER GROUP:
Commercial and other $27,433 $28,179 $24,351
Prime contractors to the U.S. government 6,955 7,015 7,692
------- ------- -------
$34,388 $35,194 $32,043
======= ======= =======
1997 1996
------- -------
ACCOUNTS RECEIVABLE BY CUSTOMER GROUP:
Commercial and other $ 7,555 $ 5,218
Prime contractors to the U.S. government 593 891
------- -------
$ 8,148 $ 6,109
======= =======
During 1997, one customer accounted for 14% of net sales. During 1996, no
customers individually accounted for more than 10% of net sales. During 1995,
one customer accounted for 11% of net sales.
F-16
<PAGE>
12. GEOGRAPHICAL INFORMATION:
-------------------------
The Company's net sales, operating income and identifiable assets by geographic
region were as follows:
<TABLE>
<CAPTION>
United Europe (excluding North Rest of the
Kingdom United Kingdom) America World Total
------- ------------------ -------- ----------- -------
<S> <C> <C> <C> <C> <C>
1997
Net sales $19,931 $ 3,142 $11,307 $ 8 $34,388
------- ------- ------- ---- -------
Transfers between geographic areas 2,069 (2,069) - - -
------- ------- ------- ---- -------
Operating income $ 1,581 $ (553) $ (822) $ - $ 206
Identifiable assets $12,961 $ 1,639 $16,955 $ - $31,555
1996
Net sales $19,367 $ 2,081 $13,458 $288 $35,194
------- ------- ------- ---- -------
Transfers between geographic areas 1,132 (1,132) - - -
------- ------- ------- ---- -------
Operating income $ 2,965 (166) $ 2,267 $ 49 $ 5,115
Identifiable assets $10,801 $ 1,097 $16,095 $ - $27,993
1995
Net sales $16,473 $ 2,002 $13,086 $482 $32,043
------- ------- ------- ---- -------
Transfers between geographic areas 910 (910) - - -
------- ------- ------- ---- -------
Operating income $ 1,463 $ 99 $ 2,695 $100 $ 4,357
Identifiable assets $11,458 $ 980 $ 7,122 $ - $19,560
</TABLE>
13. EMPLOYEE BENEFIT PLANS:
-----------------------
Bonus Plan
- ----------
Full-time employees of the Company (excluding Sub employees) participate in a
bonus program in which yearly bonus amounts are calculated on a predetermined
performance formula. There were $8 of bonuses earned in 1997, no bonuses earned
in 1996, and $269 of bonuses earned under this program in 1995. A limited
number of Sub employees are eligible to participate in a bonus program, in which
yearly bonus amounts are calculated on a predetermined performance formula.
There were $15 of bonuses earned in 1997 and 1996, and no bonus earned in 1995
at Sub. Bonuses, if earned, are included in accrued compensation in the
accompanying supplemental consolidated financial statements.
F-17
<PAGE>
Stock Option Plan
- -----------------
The Company has a stock option plan, which includes incentive and nonqualified
stock options, for directors and employees which authorizes options for
approximately 2,500,000 shares of common stock to be granted at fair value as
determined by the Board of Directors. Options are exercisable on a schedule
determined by the Board of Directors and expire 10 years after the date of grant
or earlier, in accordance with the terms of the plan.
In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company accounts for the stock option plan under APB Opinion
No. 25, under which no compensation cost has been recognized. Had compensation
cost been determined pursuant to the fair value recognition provisions of SFAS
No. 123, the cost would have been $131 and $66 for fiscal 1997 and 1996,
respectively. The Company's proforma net (loss) income for fiscal 1997 and 1996
would have been $(1,087) and $3,557, respectively, resulting in diluted (loss)
earnings per share of $(0.19) and $0.29, respectively. The fair value of each
option grant is estimated on the date of grant using the Black Scholes option
pricing model with the following weighted-average assumptions used for options
granted in fiscal 1997 and 1996: risk-free interest rate of 6.14% and 5.69%,
expected dividend yield of zero, expected lives of 3 years and expected
volatility of 69.3% and 46.8%, respectively.
Because SFAS No. 123 fair value method of accounting has not been applied to
options granted prior to July 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years, and the
weighted average exercise prices for fiscal 1995 have not been disclosed in the
table below. All options are granted at fair value on the date of grant. The
following summarizes the activity under the plan (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- ---------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price Options
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Options outstanding,
beginning of the year 2,147 $2.18 1,816 $ .74 1,133
Options granted 286 4.21 803 7.52 746
Options exercised (5) 2.21 (388) .54 (7)
Options forfeited (255) 5.12 (84) 1.45 (56)
----- ----- -----
Options outstanding,
end of year 2,173 2.11 2,147 2.18 1,816
===== ===== =====
Options exercisable,
end of year 1,170 1.16 1,055 .86 1,082
===== ===== =====
Exercise price range $.15 to $9.13 $.15 to $9.13 $.15 to $2.55
</TABLE>
F-18
<PAGE>
The following table summarizes information about the outstanding and exercisable
stock options at fiscal year-end 1997 (number of shares in thousands):
<TABLE>
<CAPTION>
Stock Options Outstanding Stock Options Exercisable
------------------------------------ -------------------------
Weighted
Weighted Average Weighted
Shares Average Remaining Shares Average
Range of at Fiscal Exercise Contractual at Fiscal Exercise
Exercise Prices Year-End 1997 Price Life Year-End 1997 Price
- --------------- ------------- -------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$ .15 to $2.55 1,876 $ .74 6.9 years 1,128 $ .72
$3.63 to $4.88 167 4.09 9.6 years 9 4.88
$5.00 to $6.75 81 5.73 9.0 years 14 6.03
$8.38 to $9.13 49 8.44 8.4 years 19 8.46
----- -----
2,173 1,170
===== =====
</TABLE>
Defined Contribution Plan and Employee Savings Plan
- ---------------------------------------------------
The Company maintains a defined contribution profit sharing and retirement plan
for substantially all U.S. employees. Participants may elect to contribute up to
the lesser of the statutory maximum or 20% of total compensation. The Company
made total contributions to this plan of $15, $0, and $0 in 1997, 1996, and
1995, respectively. The Company also maintains an employee savings plan for
substantially all non-U.S. employees which allows employees to contribute up to
the statutory maximum of total compensation. The Company does not contribute to
this plan.
Employee Stock Ownership Plan
- -----------------------------
In April 1997, Sub established an employee stock ownership plan (the "ESOP") for
the benefit of employees of Sub. The ESOP borrowed pound sterling 500, ($810)
from a commercial bank and used the proceeds to purchase 2,358 shares
(approximately 223,000 equivalent Blue Wave shares) of Sub's ordinary shares
from a director of Sub at pound sterling 212 (approximately $343)per share which
was estimated to be the fair value of Sub's ordinary shares. Sub has guaranteed
the debt of the ESOP and has placed in escrow cash in an equal amount of the
debt. Sub has reflected the guaranteed ESOP debt and a corresponding amount of
guaranteed ESOP obligations as a reduction of stockholders' equity in the
supplemental consolidated balance sheet at fiscal year-end 1997. None of the
shares acquired had been allocated to the participants of the ESOP. Interest
payments in 1997 were $35.
Other
- -----
The Company does not offer any postemployment or postretirement benefits to its
employees. David Irwin, former President and CEO of the Company who resigned in
June 1997, and one other officer have employment agreements that provide up to
one year of compensation for termination under certain circumstances. The
Company accrued approximately $250 in the fiscal year ended 1997, related to Mr.
Irwin's resignation from the aforementioned positions.
F-19
<PAGE>
14. INCOME TAXES:
-------------
At fiscal year-end 1997, Blue Wave had net operating loss (NOL) carryforwards of
approximately $9,100, which begin to expire in 2003. Research and development
tax credit carryforwards of approximately $41 at fiscal year ended 1997, were
also available to reduce future federal income taxes. Pursuant to Section 382
of the Internal Revenue Code, a change in ownership occurred with the initial
public offering of Blue Wave. As a result, Blue Wave was subject to a $2,300
annual net operating loss utilization limitation. A change in ownership pursuant
to Section 382 also occurred with the Combination. As a result, Blue Wave will
be subject to a $1,373 annual net operating loss utilization limitation.
Blue Wave had net deferred tax assets of $511 (composed primarily of the tax
effect of NOL's) at fiscal year ended 1997. In accordance with the criteria
contained in SFAS No. 109, "Accounting for Income Taxes," a valuation allowance
associated with Blue Wave's NOL was reduced in 1996 and a deferred tax asset of
$790 was recognized. In fiscal 1997, the net deferred tax asset was increased
$463, primarily as a result of the tax benefit recorded as a result of the
disqualifying dispositions of employee incentive stock options.
Blue Wave believes it is more likely than not that it will be able to realize
the benefit of the recognized net deferred tax asset.
The components of the income tax provisions in the accompanying supplemental
consolidated statements of operations consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
CONTINUING OPERATIONS:
State-
Current $ 70 $ 63 $ 72
Deferred - 108 -
Federal-
Current 557 1,033 65
Deferred (182) (123) 762
Reduction in valuation allowance (48) (790) -
----- ------ -----
Provision for income taxes 397 291 899
DISCONTINUED OPERATIONS -- Federal current (560) (661) (581)
----- ------ -----
$(163) $ (370) $ 318
===== ====== =====
</TABLE>
The difference between the federal statutory tax rate and the effective tax rate
for continuing operations is reconciled as follows:
<TABLE>
<CAPTION>
1997 % 1996 % 1995 %
------ --- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Income tax provision at statutory rate $ 222 32% $1,789 34% $1,563 34%
Utilization of NOL (61) (9) (920) (17) (916) (20)
Deduction for state taxes 70 10 63 1 47 1
Reduction in valuation allowance (48) (7) (790) (15) - -
Unrecognized losses 332 48 - - - -
Capital allowance on ineligible property (57) (8) 18 - 68 2
Withholding taxes - - - - 74 2
Other (61) (8) 131 3 63 1
----- -- ------ --- ------ ---
$ 397 58% $ 291 6% $ 899 20%
===== == ====== === ====== ===
</TABLE>
F-20
<PAGE>
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial reporting and tax bases of assets and
liabilities given the provisions of the enacted tax laws. The net deferred tax
asset (liability) is comprised of the following:
<TABLE>
<CAPTION>
1997 Change 1996
-------- ------- --------
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Current-
Nondeductible allowances $ 296 $ 85 $ 211
UCC adjustment 7 3 4
Other 336 132 204
Noncurrent-
Nondeductible accruals 74 13 61
Depreciation 50 20 30
Disqualifying dispositions 263 263 -
Net operating losses 2,354 (290) 2,644
Other 26 26 -
------- ----- -------
3,406 252 3,154
Valuation allowance (2,205) 98 (2,303)
------- ----- -------
1,201 350 851
DEFERRED TAX LIABILITY:
Current deferred gain (58) 2 (60)
Noncurrent depreciation (632) 111 (743)
------- ----- -------
(690) 113 (803)
------- ----- -------
NET DEFERRED TAX ASSET $ 511 $ 463 $ 48
======= ===== =======
</TABLE>
15. CAPITAL STOCK:
--------------
In May 1997, Blue Wave announced a plan to repurchase up to $1,000 worth of the
common stock outstanding. As of fiscal year-end 1997, 144,400 shares had been
repurchased for a total of $509. In August 1997, Blue Wave announced a $1,000
expansion to its common stock repurchase plan. As of September 12, 1997, a
total of 281,900 shares had been repurchased for a total of $1,081 since the
commencement of the program in May. In the second quarter of fiscal 1998, the
Board of Directors cancelled the stock repurchase plan in connection with the
plans to merge with Sub.
Preference Shares
- -----------------
Effective April 10, 1997, Sub restated its Articles of Association resulting in
the authorization of 7,500,000 preference shares with a par value of pound
sterling 0.75 per share.
F-21
<PAGE>
On April 10, 1997, Sub entered into an agreement with Boston Holdings Limited
("BHL"), a subsidiary of BancBoston Capital Limited, to sell to BHL at a
subscription price of pound sterling 5,500 ($8,914), 5,500,000 preference
shares, one "B" ordinary share, and warrants to acquire an additional 20,115 "B"
ordinary shares. The warrants are exercisable in whole or in part through March
31, 2012, at a price determined by a formula but will be between pound sterling
165 to pound sterling 212 per share. If a controlling interest in Sub has not
been sold privately or through a public offering by March 31, 2000, the exercise
price of the warrants will be reduced by 5% to 10% per year. Under the terms of
Sub's Articles of Association, any proceeds resulting from the exercises of the
warrants must be used to redeem the preference shares.
Sub valued the warrants at pound sterling 360 ($583) and reflected such amount
of the proceeds noted above as an increase to additional paid-in capital. In
addition, Sub incurred $1,032 in costs ($827 cash and the issuance of 601
ordinary shares valued at $205) to issue the preference shares. Such amount has
been reflected as a reduction of the preference shares. Both the value of the
warrants and the issuance costs are being amortized to retained earnings over
the estimated life of the warrants and preference shares. The preference
shares, net of the unamortized value of the warrants and the issuance costs, has
been reflected in the accompanying supplemental consolidated financial
statements as mandatorily redeemable preference shares.
The preference shares and accrued dividends thereon rank first in liquidation
priority over all other equity shares and accrue first preference cumulative
dividends of 6% per annum beginning on April 1, 1998, such dividends being
payable in cash biannually on March 31 and September 30. The preference shares
also accrue a second preference cumulative dividend of 8% per annum until March
31, 1998, and 2% per annum thereafter, such dividends being payable in cash (or
in, at the election of the preference shareholders, one additional preference
share for each pound sterling 1 in dividends due) on March 31 and September 30.
The preference shares are, to the extent possible, mandatorily redeemable on the
earlier of (a) the sale of Sub, (b) the sale of businesses or assets comprising
more than 50% of the net assets, sales or profits of Sub, (c) a public offering
of Sub's shares, or (d) as follows:
Proportion of Then
Outstanding Preference
Redemption Date Shares to be Redeemed
--------------- --------------------------
March 31, 2002 One-quarter
March 31, 2003 One-third
March 31, 2004 One-half
March 31, 2005 Balance
Sub may, at its option, redeem a portion (in 100,000 share increments) or all
preference shares at any time for pound sterling 1 per share plus accrued and
unpaid dividends. These shares were redeemed in connection with the Merger (see
Note 2).
F-22
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
-------------------------------------------
The following expenses will be paid by the Company:
Item Amount (1)
- ---- ----------
SEC registration fee $ 6,972
Legal fees and expenses 8,000
Accounting fees 20,000
Printing 10,000
Miscellaneous 2,500
---------
Total $ 47,472
________
(1) All items other than SEC registration fee are estimated
Item 15. Indemnification of Directors and Officers.
-----------------------------------------
The Registrant's Certificate of Incorporation eliminates to the fullest
extent permissible under the General Corporation Law of Delaware the liability
of directors of the Registrant and the stockholders for monetary damages for
breach of fiduciary duty as a director. This provision does not eliminate
liability (a) for any breach of a director's duty of loyalty to the Registrant
or its stockholders; (b) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (c) in
connection with payment of any illegal dividend or illegal stock repurchase; or
(d) for any transaction from which the director derives an improper personal
benefit. In addition, these provisions do not apply to equitable remedies such
as injunctive relief.
The Bylaws of the Registrant provide that indemnification of directors and
officers shall be provided to the fullest extent permitted under Delaware law
and the Registrant's Certificate of Incorporation. Reference is also made to the
indemnification and contribution provisions of the Underwriting Agreement filed
as an exhibit to this Registration Statement.
The Registrant has entered into Indemnification Agreements with each of its
directors contractually requiring the Registrant to provide such indemnification
to the extent permitted by law.
II-1
<PAGE>
Item 16. Exhibits.
--------
2.1 Share Purchase Agreement, dated November 17, 1997, between the
Registrant and Loughborough Sound Images Limited (formerly
Loughborough Sound Images plc) (1)
2.2 Letter Agreement dated March 24, 1998, between the Registrant and
Loughborough Sound Images Limited. (1)
3.1 Certificate of Incorporation of the Registrant, as amended. (3)
3.2 Bylaws, as amended, of the Registrant. (2)
5 Opinion of Crouch & Hallett, L.L.P. (3)
10.1 Form of Indemnification and Hold Harmless Agreement. (2)
10.2 Commercial Quad-C40 Program ("Commercial") by and between Texas
Instruments, Incorporated ("TI") and the Registrant dated October 9,
1992. (2)
10.3 Amendment 1 to Commercial dated March 19, 1993. (2)
10.4 Amendment 2 to Commercial dated July 1, 1993. (2)
10.5 Amendment 3 to Commercial dated January 12, 1995. (2)
10.6 MIL-SPEC Quad-C40 Program ("MIL-SPEC") by and between TI and the
Registrant dated January 20, 1993. (2)
10.7 Amendment 1 to MIL-SPEC dated March 19, 1993. (2)
10.8 Amendment 2 to MIL-SPEC dated July 1, 1993. (2)
10.9 ASP048 License Agreement ("ASP048 License Agreement") by and between
TI and the Registrant dated December 29, 1992. (2)
10.10 Amendment 1 to ASP048 License Agreement dated July 15, 1993. (2)
10.11 MIL-SPEC Octal-C40 Program ("MIL-SPEC Octal") by and between TI and
the Registrant dated March 28, 1994. (2)
10.12 Dual MVP Digital Computer Board License Agreement by and between TI
and the Registrant dated January 12, 1995. (2)
23.1 Consent of Arthur Andersen, LLP. (3)
23.2 Consent of PricewaterhouseCoopers. (3)
23.3 Consent of Crouch & Hallett, L.L.P. (included in Exhibit 5)
24 Power of Attorney (included on p. II-4)
- --------------------
(1) Filed as an exhibit to the Registrant's Current Report on Form 8-K
dated May 12, 1998.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (File No. 33-95852).
(3) Filed herewith.
Item 17. Undertakings.
------------
(a) Rule 415 Offering
The registrant hereby undertakes (1) to file, during any period in
which offers or sales are being made of the Shares registered hereby, a post-
effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed in
this Registration Statement or any material change to such information in this
Registration Statement; (2) that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and (3) to remove from registration by
means of a post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
II-2
<PAGE>
(b) Filings Incorporating Subsequent Exchange Act Documents by Reference
The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's annual
report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Indemnification for Liability under the Securities Act of 1933
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Carrollton and State of Texas on the 9th day of
September, 1998.
BLUE WAVE SYSTEMS INC.
By /s/ SIMON YATES
--------------------------------------------------
Simon Yates, President and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned hereby appoints Charles D. Brockenbush as attorney and
agent for the undersigned, with full power of substitution, for and in the name,
place and stead of the undersigned, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 any and all amendments and
exhibits to this Registration Statement and any and all applications,
instruments and other documents to be filed with the Securities and Exchange
Commission pertaining to the registration of the securities covered hereby, with
full power and authority to do and perform any and all acts and things
whatsoever requisite or desirable.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on September 9, 1998.
Signature Title
- --------- -----
/s/ SIMON YATES
- ------------------------------ President and Chief Executive Officer
Simon Yates (Chief Executive Officer)
/s/ CHARLES BROCKENBUSH
- ------------------------------ Vice President-Finance and Chief Financial
Charles Brockenbush Officer (Chief Financial and Accounting
Officer)
/s/ SAM SMITH
- ------------------------------ Chairman of the Board
Sam Smith
/s/ JOHN FORREST
- ------------------------------ Director
John Forrest
/s/ JOHN RYNEARSON
- ------------------------------ Director
John Rynearson
- ------------------------------ Director and Executive Vice President
Rob Shaddock
II-4
<PAGE>
EXHIBIT INDEX
-------------
2.1 Share Purchase Agreement, dated November 17, 1997, between the
Registrant and Loughborough Sound Images Limited (formerly
Loughborough Sound Images plc) (1)
2.2 Letter Agreement dated March 24, 1998, between the Registrant and
Loughborough Sound Images Limited. (1)
3.1 Certificate of Incorporation of the Registrant, as amended. (3)
3.2 Bylaws, as amended, of the Registrant. (2)
5 Opinion of Crouch & Hallett, L.L.P. (3)
10.1 Form of Indemnification and Hold Harmless Agreement. (2)
10.2 Commercial Quad-C40 Program ("Commercial") by and between Texas
Instruments, Incorporated ("TI") and the Registrant dated October 9,
1992. (2)
10.3 Amendment 1 to Commercial dated March 19, 1993. (2)
10.4 Amendment 2 to Commercial dated July 1, 1993. (2)
10.5 Amendment 3 to Commercial dated January 12, 1995. (2)
10.6 MIL-SPEC Quad-C40 Program ("MIL-SPEC") by and between TI and the
Registrant dated January 20, 1993. (2)
10.7 Amendment 1 to MIL-SPEC dated March 19, 1993. (2)
10.8 Amendment 2 to MIL-SPEC dated July 1, 1993. (2)
10.9 ASP048 License Agreement ("ASP048 License Agreement") by and between
TI and the Registrant dated December 29, 1992. (2)
10.10 Amendment 1 to ASP048 License Agreement dated July 15, 1993. (2)
10.11 MIL-SPEC Octal-C40 Program ("MIL-SPEC Octal") by and between TI and
the Registrant dated March 28, 1994. (2)
10.12 Dual MVP Digital Computer Board License Agreement by and between TI
and the Registrant dated January 12, 1995. (2)
23.1 Consent of Arthur Andersen, LLP. (3)
23.2 Consent of PricewaterhouseCoopers. (3)
23.3 Consent of Crouch & Hallett, L.L.P. (included in Exhibit 5)
24 Power of Attorney (included on p. II-4)
- ---------------------
(1) Filed as an exhibit to the Registrant's Current Report on Form 8-K
dated May 12, 1998.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (File No. 33-95852).
(3) Filed herewith.
II-5
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MIZAR, INC.
-----------
The undersigned, acting as the incorporator of a corporation under and in
accordance with the General Corporation Law of the State of Delaware (the
"Act"), hereby adopts the following Certificate of Incorporation for such
corporation.
ARTICLE A.
NAME
----
The name of the corporation is MIZAR, INC. (the "Corporation").
ARTICLE B.
PERIOD OF DURATION
------------------
The period of duration of the Corporation is perpetual or until dissolved
or merged or consolidated in some lawful manner.
ARTICLE C.
PURPOSE AND POWERS
------------------
Section 1. Purpose. The purpose for which the Corporation is organized is
-------
to engage in any lawful acts or activities for which corporations may be
organized under the General Corporation Law of the State of Delaware (the
"Act").
Section 2. Powers. Subject to any specific written limitations or
------
restrictions imposed by the Act, by other law, or by this Certificate of
Incorporation, and solely in furtherance thereof, but not in addition to the
purposes set forth in Section 1 of this Article, the Corporation shall have and
exercise all of the powers specified in the Act, which powers are not
inconsistent with this Certificate of Incorporation.
<PAGE>
ARTICLE D.
CAPITALIZATION, PREEMPTIVE RIGHTS AND VOTING
--------------------------------------------
Section 1. Authorized Shares. The Corporation shall have authority to
-----------------
issue two classes of shares to be designated respectively, "Common Stock" and
"Preferred Stock." The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is TWENTY SIX MILLION (26,000,000), of
which TWENTY FIVE MILLION (25,000,000) shall be Common Stock, par value $.01 per
share; and ONE MILLION shall be Preferred Stock, par value $.01 per share.
The Preferred Stock authorized by this Certificate of Incorporation may be
issued from time to time in one or more series, at the discretion of the Board
of Directors without stockholder approval, with each such series to consist of
such number of shares and to have such voting powers (whether full or limited,
or no voting powers) and such designations, powers, preferences and relative,
participating, optional, redemption, conversion, exchange or other special
rights, and such qualifications, limitations or restrictions thereof, as shall
be stated in the resolution or resolutions providing for the issuance of such
series adopted by the Board of Directors prior to the issuance thereof. The
Board of Directors is hereby expressly vested with the authority, to the fullest
extent now or hereafter provided by law, to adopt any such resolution or
resolutions. Each share of any series of Preferred Stock shall be identical
with all other shares of such series, except as to the date from which
dividends, if any, shall accrue.
Section 2. Preemptive Rights. No holder of shares of capital stock of the
-----------------
Corporation shall, as such holder, have any right to purchase or subscribe for
any capital stock of any class which the Corporation may issue or sell, whether
or not exchangeable for any capital stock of the
2
<PAGE>
Corporation of any class or classes, whether issued out of unissued shares
authorized by this Certificate of Incorporation as originally filed or by any
amendment thereof, or out of shares of capital stock of the Corporation acquired
by it after the issue thereof; nor shall any holder of shares of capital stock
of the Corporation, as such holder, have any right to purchase, acquire or
subscribe for any securities which the Corporation may issue or sell whether or
not convertible into or exchangeable for shares of capital stock of the
Corporation of any class or classes, and whether or not any such securities have
attached or appurtenant thereto warrants, options or other instruments which
entitle the holders thereof to purchase, acquire or subscribe for shares of
capital stock of any class or classes.
Section 3. Voting. In the exercise of voting privileges, each holder of
------
shares of the Common Stock of the Corporation shall be entitled to one (1) vote
for each share held in his name on the books of the Corporation, and each holder
of any series of Preferred Stock of the Corporation shall have such voting
rights, if any, as shall be specified for such series. In all elections of
Directors of the Corporation, cumulative voting is expressly prohibited. With
respect to any action to be taken by the stockholders of the Corporation as to
any matter, the affirmative vote of the holders of a majority of the shares of
the capital stock of the Corporation entitled to vote thereon and represented in
person or by proxy at a meeting of the stockholders at which a quorum is present
shall be sufficient to authorize, affirm, ratify or consent to such action. Any
action required by the Act to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice, and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holder or holders of a majority of the outstanding shares
of the capital stock of the Corporation entitled to vote thereon and shall be
3
<PAGE>
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business or an officer or agent of the Corporation having
custody of the Corporation's minute book.
ARTICLE E.
REGISTERED OFFICE AND AGENT
---------------------------
Section 1. Registered Office. The street address of the registered office
-----------------
of the Corporation is 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801.
Section 2. Registered Agent. The name of the initial registered agent of
----------------
the Corporation at such address is The Corporation Trust Company.
ARTICLE F.
DIRECTORS
---------
Section 1. Board of Directors. The business and affairs of the
------------------
Corporation shall be managed by or be under the direction of the Board of
Directors which shall consist of not less than one director, the exact number of
which shall be determined in accordance with the Bylaws of the Corporation. The
number of directors of the Corporation may from time to time be changed in
accordance with the Bylaws of the Corporation and the Act. A director shall
hold office until the next annual meeting of the stockholders of the Corporation
and until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessor. A director elected by the Board of Directors to fill a newly
created directorship resulting from an increase
4
<PAGE>
in the number of directors shall hold office until the next annual meeting of
the stockholders of the Corporation and until his successor shall be elected and
shall qualify.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Certificate of Designations applicable thereto, and such directors
so elected shall not be divided into classes unless expressly provided by such
terms. Further, any such directors elected by one or more classes or series of
Preferred Stock may be removed at any time, with or without cause, by, and only
by, the affirmative vote of the holders of record of a majority of the
outstanding shares of such class or series given at a special meeting of such
stockholders called for such purpose.
Section 2. Name and Address. The name and address of the person who shall
----------------
serve as the initial director of the Corporation until the first annual meeting
of stockholders after the date hereof or until his successors are duly elected
and qualified or until his earlier death, resignation or removal are as follows:
Name Address City, State
- ---- ------- -----------
DAVID H. IRWIN 2410 LUNA ROAD CARROLLTON, TEXAS
DOUGLAS E. JOHNSON 2410 LUNA ROAD CARROLLTON, TEXAS
JOHN RYNEARSON 2410 LUNA ROAD CARROLLTON, TEXAS
ROBERT G. SMITH 2410 LUNA ROAD CARROLLTON, TEXAS
5
<PAGE>
SAMUEL K. SMITH 2410 LUNA ROAD CARROLLTON, TEXAS
Section 3. Limitation on Liability of Directors. Pursuant to Section
------------------------------------
102(b)(7) of the Act, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to the Corporation or its stockholders; (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (3) under Section 174 of the Act; or (4) for any
transaction from which the director derived an improper personal benefit. If
the Act or other applicable provision of Delaware law hereafter is amended to
authorize further elimination or limitation of the liability of directors, then
the liability of a director of this Corporation, in addition to the limitation
on personal liability provided herein, shall be limited to the fullest extent
permitted by the Act or other applicable provision of Delaware law as amended.
Any repeal or modification of this Section 3 by the stockholders of this
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
Section 4. Election and Removal of Directors. Election of directors need
---------------------------------
not be by written ballot. Any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except as otherwise provided by
law.
6
<PAGE>
ARTICLE G.
SPECIAL POWERS OF BOARD OF DIRECTORS
------------------------------------
In furtherance and not in limitation of the powers conferred under the Act,
the Board of Directors is expressly authorized:
1. To adopt, amend or repeal the Bylaws of the Corporation;
2. To authorize and cause to be executed mortgages and liens upon the real
and personal property of the Corporation;
3. To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose, and to abolish any such
reserve in the manner in which it was created;
4. By a majority of the whole board, to designate one or more committees,
each committee to consist of one or more of the directors of the Corporation;
the board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee; any such committee, to the extent provided in the resolution or
in the Bylaws of the Corporation, shall have and may exercise any or all of the
powers of the Board of Directors in the management of the business and affairs
of the Corporation, except to the extent that the Act requires a particular
matter to be authorized by the Board of Directors, and may authorize the seal of
the Corporation to be affixed to all papers which may require it; provided,
however, the Bylaws may provide that in the absence or disqualification of any
member of the committee or committees, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may
7
<PAGE>
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member;
5. When and as authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding having voting power given at a
stockholders meeting duly called upon such notice as is required by statute, or
when authorized by the written consent of the holders of a majority of the
voting stock issued and outstanding, to sell, lease or exchange all or
substantially all of the property and assets of the Corporation, including its
good will and its corporate franchises, upon such terms and conditions and for
such consideration, which may consist in whole or in part of money or property,
including shares of stock in, and/or other securities of, any other corporation
or corporations, as its Board of Directors shall deem expedient and in the best
interests of the Corporation; and
6. From time to time, to determine whether and to what extent and at what
times and places and under what conditions and provisions the accounts and books
of the Corporation shall be maintained and made available for inspection by any
stockholder, and no stockholder shall have any right to inspect any account or
books or records of the Corporation, except as provided in the Act, or
authorized by the Board of Directors.
ARTICLE H.
ADDITIONAL POWERS IN BYLAWS
---------------------------
The Corporation may in its Bylaws confer powers and authorities upon the
Board of Directors in addition to the foregoing and those expressly conferred
upon them by the Act.
8
<PAGE>
ARTICLE I.
TRANSACTIONS WITH INTERESTED PARTIES
------------------------------------
No contract or other transaction between the Corporation and any other
corporation and no other acts of the Corporation with relation to any other
corporation shall, in the absence of fraud, in any way be invalidated or
otherwise affected by the fact that any one or more of the directors or officers
of the Corporation are pecuniarily or otherwise interested in, or are directors
or officers of, such other corporation. Any director or officer of the
Corporation individually, or any firm or association of which any director or
officer may be a member, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of the Corporation, provided that the
fact that he individually or as a member of such firm or association is such a
party or is so interested shall be disclosed or shall have been known to the
board of directors or a majority of such members thereof as shall be present at
any meeting of the board of directors at which action upon any such contract or
transaction shall be taken; and any director of the Corporation who is also a
director or officer of such other corporation or who is such a party or so
interested may be counted in determining the existence of a quorum at any
meeting of the board of directors which shall authorize any such contract or
transaction and may vote thereat to authorize any such contract or transaction,
with like force and effect as if he were not such a director or officer of such
other Corporation or not so interested. Any director of the Corporation may
vote upon any contract or any other transaction between the Corporation and any
subsidiary or affiliated corporation without regard to the fact that he is also
a director or officer of such subsidiary or affiliated corporation.
9
<PAGE>
Any contract, transaction, act of the Corporation or of the directors,
which shall be ratified at any annual meeting of the stockholders of the
Corporation, or at any special meeting of the stockholders of the Corporation,
or at any special meeting called for such purpose, shall, insofar as permitted
by law, be as valid and as binding as though ratified by every stockholder of
the Corporation; provided, however, that any failure of the stockholders to
-------- -------
approve or ratify any such contract, transaction or act, when and if submitted,
shall not be deemed in any way to invalidate the same or deprive the
Corporation, its directors, officers or employees, of its or their right to
proceed with such contract, transaction or act.
Subject to any express agreement which may from time to time be in effect,
any stockholder, director or officer of the Corporation may carry on and conduct
in his own right and for his own personal account, or as a partner in any
partnership, or as a joint venturer in any joint venture, or as a trustee of any
trust, or as an officer, director or stockholder of any corporation, or as a
participant in any syndicate, pool, trust or association, any business which
competes with the business of the Corporation and shall be free in all such
capacities to make investments in any kind of property in which the Corporation
may make investments.
ARTICLE J.
INDEMNIFICATION
---------------
Section 1. Mandatory Indemnification and Advancement of Expenses. Each
-----------------------------------------------------
person who was or is made a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, any
appeal in such action, suit or proceeding, and any inquiry or
10
<PAGE>
investigation that could lead to such an action, suit, or proceeding
("Proceeding"), by reason of the fact that he is or was an officer or a director
of the Corporation, or who, while a director or officer of the Corporation, is
or was serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise, shall be indemnified and held
harmless by the Corporation to the fullest extent permitted by the Act against
all judgments, penalties (including excise and similar taxes), fines,
settlements, and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such Proceeding. Such right shall be
a contract right and shall include the right to require advancement by the
Corporation of reasonable expenses (including attorneys' fees) incurred in
defending any such Proceeding in advance of its final disposition; provided,
however, that the payment of such expenses in advance of the final disposition
of such Proceeding shall be made by the Corporation only upon delivery to the
Corporation of a written affirmation by such person of his good faith belief
that he has met the standard of conduct necessary for indemnification under the
Act and a written undertaking, by or on behalf of such person, to repay all
amounts so advanced if it should be ultimately determined that such person has
not satisfied such requirements.
Section 2. Nature of Indemnification. The indemnification and advancement
-------------------------
of expenses provided for herein shall not be deemed exclusive of any other
rights permitted by law to which a person seeking indemnification may be
entitled under any Bylaw, agreement, vote of stockholders or otherwise, and
shall continue as to a person who has ceased to be a director or
11
<PAGE>
officer of the Corporation and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 3. Insurance. The Corporation shall have power to purchase and
---------
maintain insurance or another arrangement on behalf of any person who is or was
a director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article or the Act.
ARTICLE K.
ARRANGEMENT WITH CREDITORS
--------------------------
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code, or on the application of trustees
in dissolution or of any receiver or receivers appointed for this Corporation
under the provisions of Section 279 of Title 8 of the Delaware Code, order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
12
<PAGE>
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE L.
AMENDMENT OF BYLAWS
-------------------
The Board of Directors of the Corporation shall have the power to adopt,
alter, amend or repeal the Bylaws of the Corporation. Notwithstanding the
preceding, the stockholders of the Corporation shall also have the power to
adopt, alter, amend or repeal the Bylaws of the Corporation.
ARTICLE M.
AMENDMENTS
----------
The Corporation reserves the right to amend, alter, change or repeal any
provision continued in this Certificate of Incorporation or in its Bylaws in the
manner now or hereafter prescribed by the Act or this Certificate of
Incorporation, and all rights conferred on stockholders herein are granted
subject to this reservation.
13
<PAGE>
ARTICLE N.
CAPTIONS
--------
The captions used in this Certificate of Incorporation are for convenience
only and shall not be construed in interpreting the provisions hereof.
ARTICLE O.
INCORPORATOR
------------
The name and address of the incorporator are as follows:
Name Address City, State
- ---- ------- -----------
BRUCE H. HALLETT 717 N. HARWOOD Dallas, Texas 75201
Suite 1400
IN WITNESS WHEREOF, I have hereunto set my hand to this Certificate of
Incorporation on this 20TH day of JULY, 1995, and I affirm that the statements
contained therein are true under penalties of perjury.
INCORPORATOR:
/s/ Bruce H. Hallett
-------------------------------------
BRUCE H. HALLETT
14
<PAGE>
THE STATE OF TEXAS *
*
COUNTY OF DALLAS *
BEFORE ME, a notary public, on this day personally appeared BRUCE H.
HALLETT, known to me to be the person whose name is subscribed to the foregoing
Certificate of Incorporation as incorporator of the Corporation named therein,
and acknowledged to me that such instrument is his act and deed and that the
facts contained therein are true.
Given under my hand and seal of office on this 20TH day of JULY, 1995.
/s/ Nadine Baxter
---------------------------------------
Notary Public, State of Texas
15
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
MIZAR, INC.
Pursuant to the provisions of Section 242 of the General Corporation Law of
the State of Delaware, Mizar, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That the Board of Directors of the Corporation has adopted a
resolution setting forth and declaring advisable that Article A of the
Certificate of Incorporation of the Corporation be deleted and that new Article
A be inserted which shall read in its entirety as follows:
"ARTICLE A
NAME
----
The name of the corporation is Blue Wave Systems Inc. (the "Corporation")."
SECOND: That the Board of Directors of the Corporation has adopted a
resolution setting forth and declaring advisable that Section 1 of Article D of
the Certificate of Incorporation of the Corporation be deleted and new Section 1
of Article D be inserted which shall read in its entirety as follows:
"ARTICLE D
CAPITALIZATION, PREEMPTIVE RIGHTS AND VOTING
--------------------------------------------
Section 1. Authorized Shares. The Corporation shall have the authority to
-----------------
issue two classes of shares to be designated respectively, "Common Stock" and
"Preferred Stock." The Aggregate number of shares of capital stock which the
Corporation shall have authority to issue is FIFTY ONE MILLION (51,000,000), of
which FIFTY MILLION (50,000,000) shall be Common Stock, par value $.01 per
share; and ONE MILLION shall be Preferred Stock, par value $.01 per share.
<PAGE>
The Preferred Stock authorized by this Certificate of Incorporation may be
issued from time to time in one or more series, at the discretion of the Board
of Directors without stockholder approval, with each such series to consist of
such number of shares and to have such voting powers (whether full or limited,
or no voting powers) and such designations, powers, preferences and relative,
participating, optional, redemption, conversion, exchange or other special
rights, and such qualifications, limitations or restrictions thereof, as shall
be stated in the resolution or resolutions providing for the issuance of such
series adopted by the Board of Directors prior to the issuance thereof. The
Board of Directors is hereby expressly vested with the authority, to the fullest
extent now or hereafter provided by law, to adopt any such resolution or
resolutions. Each share of any series of Preferred Stock shall be identical
with all other shares of such series, except as to the date from which
dividends, if any, shall accrue."
THIRD: That thereafter, pursuant to resolution of the Board of Directors,
the proposed amendment was submitted to the stockholders of the Corporation, and
the necessary number of shares, as required by statute was voted in favor of the
amendment.
FOURTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FIFTH: That this Certificate of Amendment shall be effective upon the
filing hereof.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to its
Certificate of Incorporation to be executed this 27th day of April, 1998.
MIZAR, INC.
By: /s/ Simon Yates
----------------------------------------
Simon Yates
President and Chief Executive Officer
ATTEST:
/s/ John Rynearson
- -----------------------------
John Rynearson, Secretary
2
<PAGE>
EXHIBIT 5
(214) 953-0053
September ___, 1998
Blue Wave Systems Inc.
2410 Luna Road
Carrollton, Texas 75006
Gentlemen:
We have served as counsel for Blue Wave Systems Inc., a Delaware
corporation (the "Company"), and certain stockholders of the Company (the
"Selling Stockholders") in connection with the Registration Statement on Form S-
3 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, covering the proposed
sale from time to time by the Selling Stockholders of a maximum of 7,876,964
shares (the "Shares") of Common Stock, $0.01 par value, of the Company.
With respect to the foregoing, we have examined such documents and
questions of law as we have deemed necessary to render the opinions expressed
below. Based upon the foregoing, we are of the opinion that the Shares, when
sold and delivered in accordance with the Registration Statement, will be duly
and validly issued and outstanding and fully paid and nonassessable.
We consent to the use of this opinion as Exhibit 5 to the Registration
Statement and to the use of our name in the Registration Statement and in the
Prospectus included therein under the heading "Legal Matters."
Very truly yours,
CROUCH & HALLETT, L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated July 25, 1997 (except with respect to Note 2, as to which the date
is April 27, 1998) included in this Registration Statement and to the
incorporation by reference in this Registration Statement of our report dated
July 25, 1997 included in the Blue Wave Systems Inc. (formerly Mizar, Inc.)
Form 10-K for the year ended June 30, 1997 and to all references to our Firm
included in this Registration Statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
September 8, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Blue Wave
Systems Inc. (formerly Mizar, Inc.) of our report dated December 9, 1997
relating to the consolidated financial statements of Loughborough Sound Images
Limited (n/k/a Blue Wave Systems Limited) as of and for the three years ended
September 30, 1997, appearing in Blue Wave Systems, Inc.'s Report on Form 8-K as
filed on May 12, 1998. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS
Leicester, England
September 8, 1998
