<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
_________________________________________________________________________
Blue Wave Systems Inc.
(Name of Registrant as Specified In Its Charter)
_________________________________________________________________________
Toya Martin, Controller and Secretary
(Name of Person Filing Proxy Statement)
Payment of Filing Fee:
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies
(2) Aggregate number of securities to which transaction applies
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
__/ Set forth the amount on which the filing fee is calculated and
state how it was determined.
[_] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party
(4) Date Filed
<PAGE>
BLUE WAVE SYSTEMS INC.
2410 Luna Road
Carrollton, Texas 75006
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held November 16, 2000
To the holders of common stock of
Blue Wave Systems Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Blue Wave
Systems Inc. (the "Company") will be held at the offices of the Company, 2410
Luna Road, Carrollton, Texas, on November 16, 2000, at 10:00 a.m., local time,
for the following purposes:
(a) To elect five directors of the Company;
(b) To consider and vote upon a proposed amendment to the Blue Wave
Systems Inc. Stock Option Plan to increase the number of shares of common
stock issuable upon exercise of stock options under the plan from 2,427,500
shares to 2,950,000 shares; and
(c) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on October 10, 2000
are entitled to notice of, and to vote at, the meeting or any adjournment
thereof.
Whether or not you plan to attend the Annual Meeting and regardless of the
number of shares you own, please date, sign and return the enclosed proxy card
in the enclosed envelope (which requires no postage if mailed in the United
States).
By Order of the Board of Directors
Toya Martin
Secretary
Carrollton, Texas
October 16, 2000
<PAGE>
BLUE WAVE SYSTEMS INC.
2410 Luna Road
Carrollton, Texas 75006
PROXY STATEMENT
for
ANNUAL MEETING OF STOCKHOLDERS
To Be Held November 16, 2000
This Proxy Statement is furnished to stockholders of Blue Wave Systems
Inc., a Delaware corporation (the "Company" or "Blue Wave"), in connection with
the solicitation of proxies by the Board of Directors of the Company for use at
the Annual Meeting of Stockholders to be held on November 16, 2000, and at any
and all adjournments or postponements thereof. Proxies in the form enclosed
will be voted at the meeting, if properly executed, returned to the Company
prior to the meeting and not revoked. The proxy may be revoked at any time
before it is voted by giving written notice to the Secretary of the Company.
This Proxy Statement and accompanying form of proxy are being mailed to the
Company's stockholders on or about October 16, 2000. The Company's Annual
Report, covering the Company's fiscal year ended June 30, 2000, is enclosed
herewith but does not form any part of the materials for solicitation of
proxies.
ACTION TO BE TAKEN AT THE MEETING
Only holders of record of common stock at the close of business on October
10, 2000 (the "Record Date") are entitled to notice of, and to vote at, the
Annual Meeting. At the close of business on the Record Date, the Company had
outstanding, and entitled to vote at the Annual Meeting, approximately
15,736,000 shares of common stock. The presence, either in person or by
properly executed proxy, of the holders of record of a majority of the common
stock outstanding on the Record Date is necessary to constitute a quorum at the
Annual Meeting.
At the Annual Meeting, holders of the Company's common stock will consider
and vote for the election as directors of the Company John R. Forrest, Lynn J.
Davis, John L. Rynearson, Rob N. Shaddock, and Richard J. Thompson, and to
approve an amendment to the Blue Wave Systems Inc. Stock Option Plan (the "Stock
Option Plan") to increase the number of shares of common stock issuable upon the
exercise of stock options under the plan from 2,427,500 to 2,950,000 shares.
Should any nominee become unable or unwilling to accept nomination or election,
the proxy holders may vote the proxies for the election in his stead of any
other person the Board of Directors may recommend. Each nominee has expressed
his intention to serve the entire term for which election is sought.
<PAGE>
Voting by Street Name Holders
If a stockholder owns shares in "street name" by a broker, the broker, as
the record holder of the shares, is required to vote those shares in accordance
with your instructions. If you do not give instructions to the broker, the
broker will nevertheless be entitled to vote the shares with respect to
"discretionary" items but will not be permitted to vote the shares with respect
to "non-discretionary" items (in which case, the shares will be treated as
"broker non-votes").
Required Vote
The election as a director of each nominee requires the affirmative vote of
the holders of record of a plurality of the outstanding voting power of the
shares of common stock represented, in person or by proxy, at the Annual
Meeting. Abstentions and "broker non-votes" are counted as present and entitled
to vote for the purposes of determining a quorum but are not counted for
purposes of the election of a director.
The affirmative vote of the holders of a majority of the outstanding common
stock represented at the Annual Meeting is required to approve the proposal to
amend and restate the Stock Option Plan. An abstention is counted as a vote
against the Stock Option Plan proposal. A broker "non-vote" is also counted as a
vote against the Stock Option Plan proposal.
If any other matter or business is brought before the meeting, the proxy
holders may vote the proxies in their discretion. The directors do not know of
any such other matter or business.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of October 1, 2000 for (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each director of the Company, (iii)
each of the current executive officers of the Company named in the table under
"Summary of Executive Compensation" below, and (iv) all of the directors and
officers of the Company as a group. Except pursuant to applicable community
property laws and except as otherwise indicated, each stockholder identified in
the table possesses sole voting and investment power with respect to its or his
shares.
2
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
-----------------------------
Name Number Percent
---- ------ -------
<S> <C> <C>
Directors and Named Executive Officers:
Rob N. Shaddock (2) 568,166 3.6%
Kevin Parslow (3) 332,316 2.1
John L. Rynearson (4) 235,500 1.5
John R. Forrest (5) 42,426 *
Richard J. Thompson (6) 31,500 *
Lynn J. Davis (7) 25,500 *
M. Keith Burgess (8) 25,250 *
All directors and officers as a group (9 individuals) 1,130,100 7.0
More than 5% Stockholders:
None known by the Company
</TABLE>
______________________
* Less than one percent.
(1) Includes shares issuable upon exercise of stock options which will be
vested on or prior to December 1, 2000.
(2) Includes (i) 32,001 shares owned by Mr. Shaddock's spouse; (ii) 98,038
shares held in trust for the benefit of Mr. Shaddock; and (iii) 52,520
shares held as one of the two trustees of a trust for the benefit of Mr.
Kevin Parslow. Also includes 107,534 shares of common stock issuable upon
the exercise of options exercisable on December 1, 2000.
(3) Includes (i) 52,520 shares held in trust for the benefit of Mr. Parslow;
(ii) 98,038 shares held as one of the two trustees of a trust for the
benefit of Mr. Shaddock; and (iii) 181,496 shares of common stock issuable
upon the exercise of options exercisable on December 1, 2000.
(4) Includes 51,000 shares of common stock issuable upon the exercise of
options exercisable on December 1, 2000.
(5) Includes 23,500 shares of common stock issuable upon the exercise of
options exercisable on December 1, 2000.
(6) Includes 23,500 shares of common stock issuable upon the exercise of
options exercisable on December 1, 2000.
(7) Includes 23,500 shares of common stock issuable upon the exercise of
options exercisable on December 1, 2000. Also includes 2,000 shares of
common stock that must be purchased in order to receive the grant of 8,500
shares on November 15, 2000 under the Directors' Option Plan.
(8) Includes 250 shares held in the name of the son of Mr. Burgess and 25,000
shares of common stock issuable upon the exercise of options exercisable on
December 1, 2000.
ELECTION OF DIRECTORS
A brief description of each director of the Company is provided below. Each
of the Company's directors holds office until the next annual meeting of
stockholders and until their respective successors shall have been elected and
qualified or until their earlier death, resignation or removal. References to
"Mizar" and "LSI" mean Mizar, Inc. and
3
<PAGE>
Loughborough Sound Images Ltd., respectively, which combined (the "Combination")
to form the Company in April 1998.
Rob N. Shaddock, 42, joined LSI in October 1992 as Technical Director, when
LSI merged with Data Beta Ltd. He served as Marketing Director of LSI from 1997
until the time of the Combination. In April 1998, he was named Executive Vice
President and a director of the Company. In November 1999, he was appointed
President and Chief Executive Officer.
John R. Forrest, 56, a director of LSI since 1996, was elected as a
director of the Company on the date of the Combination. He was a Professor of
Electronic Engineering from 1970 to 1984 at University College London, following
which he joined Marconi Defense Systems as Technical Director. Between 1986 and
1991, he was Director of Engineering at the Independent Broadcasting Authority.
In 1991, he was appointed Chief Executive of National Transcommunications
Limited ("NTL") from which he resigned in 1994. In February 2000, he was
elected as Chairman of the Board of Directors of the Company. Mr. Forrest has
served since 1994 as Chairman or director of several entities based in the
United Kingdom, and currently serves as a director of 3i Group plc, TCTi plc,
Human IT Ltd., Morgan Howard International Group Ltd. and Egan International
Ltd.
Lynn J. Davis, 53, was appointed as a director of the Company in November
1999. He is a senior vice president of ADC Telecommunications Inc. and serves as
President of ADC's Broadband Connectivity Group. He has headed the ADC Broadband
Connectivity Group since 1990. ADC Telecommunications Inc. is a supplier of
transmission and networking systems for telecommunications, cable television,
broadcast, wireless and enterprise networks. He is also a director of Flexsteel
Industries.
John L. Rynearson, 53, has been a director since 1982. Mr. Rynearson co-
founded Mizar in 1982 and held a variety of technical and managerial positions
with Mizar until 1991. He has served as the Technical Director of VITA (the
VMEbus International Trade Association) since 1993. He is a director of Open
Systems Service Corporation, a subsidiary of VITA.
Richard J. Thompson, 51, was appointed as a director of the Company in
February 2000. He has served as the Vice President - Finance, Chief Financial
Officer and Secretary of Artesyn Technologies, Inc. since 1990. Artesyn
Technologies is a provider of power conversion products and systems, I/O
controllers and real-time systems, and logistics management to the
communications industry.
The Board of Directors held six meetings in fiscal 2000. No director
attended fewer than 75% of the meetings of the Board (and any committees
thereof) which they were required to attend.
4
<PAGE>
Committees of the Board of Directors
The Audit Committee, comprised of Messrs. Davis, Rynearson and Thompson, is
empowered to recommend to the Board the appointment of the Company's independent
public accountants and to periodically meet with such accountants to discuss
their fees, audit and non-audit services, and the internal controls and audit
results for the Company. The Audit Committee also is empowered to meet with the
Company's accounting personnel to review accounting policies and reports. The
Audit Committee met five times during fiscal 2000.
The Compensation Committee, comprised of Messrs. Forrest, Rynearson and
Thompson, met one time during fiscal 2000.
EXECUTIVE COMPENSATION
Report of the Compensation Committee
The Compensation Committee (the "Committee") is responsible for setting and
administering the various elements of the Company's executive compensation
program. In carrying out its duties, the Committee reviews compensation surveys,
including that published by the American Electronics Association ("AEA"), and
other available information regarding salary, bonus and stock options with a
particular focus on companies in similar industries and of comparable size. The
goals of the Committee's executive compensation program are to (i) align
executive compensation with the Company's performance and (ii) attract, retain,
and reward executive officers who contribute to the Company's success. The
compensation philosophy of the Committee is that annual compensation should be
leveraged on the basis of the Company's performance. To achieve this leverage,
executive compensation is comprised of a base salary, contingent cash bonus, and
stock options. The annual cash compensation paid to executive officers will
generally approximate that of comparable companies if agreed-upon objectives,
such as revenues, operating income, and agreed upon personal goals for each
officer are met. As a matter of compensation philosophy, Blue Wave generally
attempts to set salaries at or near the median level of its peer group; however,
competitive market forces, particularly in the hiring of new executives, may
strongly influence salary. Total cash compensation including salary and
contingent cash bonuses is targeted to be near the median of its peer group if
Company performance meets its business goals, and is significantly above its
peer group if such goals are exceeded. With respect to fiscal 2000, agreed upon
goals were met; therefore, cash bonuses were earned.
The Committee strives to maintain the equity position of all executive
officers at competitive levels with comparable companies. The Committee believes
that employee equity ownership provides critical additional motivation to
executive officers to maximize value for the Company's stockholders, and
therefore makes periodic grants of
5
<PAGE>
stock options. Option grants to executive officers are based upon the relative
positions and responsibilities of each executive officer, the historical and
expected contributions of that officer to Blue Wave and previous grants to that
officer. The Committee believes that stock options serve to align the interests
of executive officers closely with other stockholders because of the direct
benefit executive officers receive through improved stock performance.
Consistent with this philosophy, and after taking into account increased post-
merger responsibilities, all executive officers were granted stock options
during fiscal 2000.
The Committee is responsible for determining the compensation of the Chief
Executive Officer. In order to determine an appropriate level of compensation
and incentives the Committee reviewed the Company's peer group and AEA study.
For fiscal 2000, the Committee established Mr. Yates base rate of pay at
$150,000. In addition to the above mentioned compensation, the Committee also
approved the reimbursement of certain living expenses for Mr. Yates and his
family upon his relocation to the United States during fiscal 1999. After the
resignation of Mr. Yates, the Board of Directors appointed Mr. Shaddock as
President and Chief Executive Officer. The Committee established the base rate
of pay for Mr. Shaddock at $200,000 (approximately (Pounds)125,000). Mr.
Shaddock was also entitled to additional cash compensation if the Company
achieved a defined level of revenue and net income. This goal was met and,
accordingly, the cash incentive of $70,000 was earned. In order to provide a
continued long-term incentive, Mr. Shaddock was granted an option for 30,000
common shares during fiscal 2000.
Section 162(m) of the Internal Revenue Code of 1986 limits to $1,000,000
per person the amount that Blue Wave may deduct for compensation paid to any of
its most highly compensated officers in any year. The levels of salary and bonus
paid by Blue Wave have not exceeded this limit. It is the Company's policy
generally to grant options that meet the requirements of the Internal Revenue
Code and regulations so that any such compensation recognized by an optionee
will be fully deductible.
John L. Rynearson, Chair
John R. Forrest
Richard J. Thompson
Summary of Executive Compensation
The following table sets forth information concerning cash compensation
paid or accrued by the Company during the three-year period ended June 30, 2000
to or for the Company's Chief Executive Officer and all other executive officers
of the Company whose total salary and bonus exceeded $100,000.
6
<PAGE>
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Other Securities All Other
Name and Fiscal Annual Underlying Compen-
Principal Position Year Salary Bonus Compensation (1) Options (#) sation(2)
------------------ ---- ------ ----- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rob N. Shaddock, President and 2000 $200,000 $70,000 $ - 30,000 $31,600
Chief Executive Officer (3)(5) 1999 147,345 - - 25,000 32,600
1998 132,000 - - - -
Simon Yates, Former President 2000 56,258 - 81,080 - -
and Chief Executive Officer (3) 1999 150,000 - 38,852 25,000 32,600
(4)(5) 1998 132,000 - - - -
Kevin Parslow, Executive Vice 2000 160,000 40,000 - 25,000 31,600
President, Worldwide Sales and 1999 136,920 - - 25,000 32,600
Marketing (5) 1998 132,000 - - - -
Charles D. Brockenbush, Former 2000 144,713 40,000 - 25,000 1,390
Vice President-Finance and CFO 1999 124,218 - - 50,000 1,378
(6) 1998 107,056 - - - 1,235
M. Keith Burgess, Chief 2000 129,266 15,000 - 15,000 1,723
Technology Officer 1999 106,745 - - 50,000 1,534
1998 97,272 - - - 1,459
</TABLE>
______________________
(1) The amounts reflected for Mr. Yates relate to (i) the use of a Company
owned automobile and payment of related expenses and (ii) certain living
and moving expenses in the aggregate amount of $73,603 and $31,440 in
fiscal 2000 and 1999, respectively, incurred by Mr. Yates and his family
upon his relocation to the United States.
(2) Messrs. Shaddock, Parslow and, in fiscal 1999 Mr. Yates, participate in a
discretionary defined contribution plan. Under the plan, participants may
elect to have any payments made under the plan paid as salary or as a tax-
deferred contribution to the plan. The amounts indicated reflect the
payments under the plan accrued for these individuals in fiscal 1999 and
2000. The amounts with respect to Mr. Brockenbush and Mr. Burgess reflect
the Company's contribution under its 401(k) plan.
(3) Mr. Shaddock was named President and Chief Executive Officer in November
1999 after the resignation of Mr. Yates.
(4) The amount of fiscal year 2000 salary reported for Mr. Yates does not
include amounts paid to him after his resignation date, which were paid per
the terms of a severance agreement between Mr. Yates and the Company.
(5) Messrs. Yates, Shaddock and Parslow were officers of LSI prior to the
Combination in April 1998. The amounts indicated in fiscal 1998 include
compensation received by them while they were officers of LSI as well as
the compensation received by them from the Company after they became
executive officers of the Company in April 1998.
(6) Mr. Brockenbush resigned from the Company effective in August 2000.
Employment Agreements
Two of the Company's executive officers (Rob N. Shaddock and Kevin Parslow)
entered into Service Agreements with LSI that, upon the occurrence of the
Combination, were assumed by the Company. These agreements provide that their
employment may be terminated without cause with 12 months prior written notice.
The agreements also provide for stated salaries (in 2000, $200,000
(approximately (Pounds)125,000) for Mr. Shaddock and $160,000 (approximately
(Pounds)100,000) for Mr. Parslow) and other customary benefits.
7
<PAGE>
Stock Options
The Company maintains its stock option plan (the "Stock Option Plan") which
provides for the grant of options for the purchase of common stock of the
Company. The Stock Option Plan covers, in the aggregate, a maximum of 2,427,500
shares of common stock. This amount does not include the 564,001 options that
had been granted by LSI that were assumed by the Company at the time of the
Combination. The Stock Option Plan provides for the granting of both incentive
stock options (as defined in Section 422 of the Internal Revenue Code of 1986)
and nonqualified stock options (options which do not meet the requirements of
Section 422). Under the Stock Option Plan, the exercise price may not be less
than the fair market value of the common stock on the date of the grant of the
option.
The Compensation Committee of the Board of Directors administers and
interprets the Stock Option Plan and is authorized to grant options thereunder
to all eligible employees of the Company, including officers. The Compensation
Committee designates the optionees, the number of shares subject to the options
and the terms and conditions of each option. Options under the Stock Option Plan
generally vest over a 48 month period. Certain changes in control of the Company
will cause the options to vest immediately. Each option granted under the Stock
Option Plan must be exercised, if at all, during a period established in the
grant which may not exceed 10 years from the date of grant. An optionee may not
transfer or assign any option granted and may not exercise any options after a
specified period subsequent to the termination of the optionee's employment with
the Company.
The following table sets forth certain information with respect to the
options granted during fiscal year 2000 to each of the current executive
officers of the Company named in the table under "Summary of Executive
Compensation" set forth above.
<TABLE>
<CAPTION>
Percent of
Total Options Potential Realizable Value at
Granted to Assumed Annual Rates of Stock
Number of Employees Exercise or Price Appreciation for Option
Options in Base Price Expiration Term (1)
Name Granted Fiscal Year $/Share Date 5% 10%
--------------------- ----------- -------------- --------------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Mr. Shaddock 30,000 8.6% $4.00 11/16/09 $75,467 $191,249
Mr. Parslow 25,000 7.1 4.00 11/16/09 62,889 159,374
Mr. Burgess 15,000 4.3 4.00 11/16/09 37,734 95,625
</TABLE>
______________________
(1) The 5% and 10% assumed annual rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not reflect the
Company's estimates or projections of future prices of the shares of the
Company's common stock. There can be no assurance that the amounts
reflected in this table will be achieved.
8
<PAGE>
The following table sets forth certain information with respect to the
options exercised by the executive officers named in the table under "Summary of
Executive Compensation" during the fiscal year ended June 30, 2000, or held by
such persons at June 30, 2000:
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised In-the-Money Options
Acquired Value Options at June 30, 2000 At June 30, 2000 (1)
------------------------ --------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Shaddock - $ - 93,784 48,750 $ 916,650 $333,540
Mr. Yates - - 87,534 - 868,600 -
Mr. Parslow 85,000 1,198,612 168,996 43,750 1,662,979 301,975
Mr. Brockenbush 48,450 526,247 6,550 70,000 33,481 495,348
Mr. Burgess 17,500 281,360 5,250 59,250 29,956 425,795
</TABLE>
______________________
(1) Based upon the closing price of Blue Wave's common stock on June 30, 2000,
which was $10.313 per share.
Director Compensation
Prior to April 1, 2000, the Company did not pay annual retainer or per
meeting fees to its directors, other than to Mr. Forrest, who also served as a
non-employee director of LSI. Effective April 1, 2000, monthly retainers and
per meeting fees, payable only to non-employee directors, are as follows:
<TABLE>
<CAPTION>
Type of Fee Amount of Fee
----------- -------------
<S> <C>
Monthly retainer $ 1,000
Additional monthly retainer for the chairman 1,500
Board meeting attendance fees, if in person 1,500
Board meeting attendance fees, if attended telephonically 1,000
Committee meeting attendance fees, if in person 750
Committee meeting attendance fees, if attended telephonically 500
Additional committee meeting attendance fees for committee chairman 250
</TABLE>
In the event of multiple meetings on the same day, a maximum of $2,500 per
day for meeting attendance will be paid. The Company reimburses all of the
directors for their out-of-pocket expenses in connection with performing their
duties as directors of the Company.
The Company also has in effect a stock option plan for directors (the
"Directors' Plan"), under which an aggregate of 150,000 shares of common stock
have been or may be issued in the future upon exercise of stock options granted
under the Directors' Plan. On an annual basis, each non-employee director is
granted options to purchase 8,500 shares of common stock under the Directors'
Plan if the director owns 2,000 shares of the Company's common stock for each
year of service as a director of the Company. Currently, Mr. Shaddock is the
only non-employee director of the Company.
9
<PAGE>
The Company's Board of Directors adopted the Directors' Plan in order to
provide non-employee directors with an incentive for serving as a director by
providing a proprietary interest in the Company through the granting of options.
Administration of the Directors' Plan is vested in the Compensation Committee of
the Company's Board of Directors.
As of September 30, 2000, options to purchase an aggregate of 113,000
shares of the Company's common stock have been granted pursuant to the
Directors' Plan, 8,500 options have expired or been canceled, 17,000 options
have been exercised, options to purchase 87,500 shares remain outstanding, and
45,500 shares remain available for future grant. During fiscal year 2000,
options covering 62,000 shares of the Company's common stock were granted to the
Company's directors.
The purchase price of the shares for each stock option granted under the
Directors' Plan may not be less than 100% of the fair market value of the common
stock at the time of grant. The term of an option may not be more than ten years
from the date of grant. The Directors' Plan will terminate on June 30, 2005;
however, options outstanding at the termination of the Directors' Plan will not
be affected by such termination. If an option expires or terminates before it
has been exercised in full, the shares of common stock allocable to the
unexercised portion of such option will again be available for the grant of
options under the Directors' Plan.
Certain Filings by Executive Officers and Directors
Under the securities laws of the United States, the Company's directors,
executive officers and persons who own more than 10% of the Company's common
stock are required to report their initial ownership of the Company's common
stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates have been established for these
reports, and the Company is required to disclose in this proxy statement any
failure to file by these dates. All of these filing requirements were
satisfied, except that Mr. Forrest failed to timely file a report reflecting an
option grant made to him in fiscal 2000.
Compensation Committee Interlocks and Insider Participation
During fiscal 2000, no executive officer of the Company served as a member
of the board of directors or compensation committee of any entity which has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
10
<PAGE>
APPROVAL OF AMENDMENT TO THE STOCK OPTION PLAN
The proposed amendment to the Stock Option Plan would increase the number
of shares of the Company's common stock subject to the plan from 2,427,500
shares to 2,950,000 shares. Approval of this amendment requires the affirmative
vote of the holders of a majority of the shares of the Company's common stock
represented at the Annual Meeting. The Company's Board of Directors recommends a
vote FOR approval of the amendment of the Stock Option Plan.
The Company's Board of Directors adopted the Stock Option Plan in order to
provide employees and directors with an incentive for serving the Company by
providing a proprietary interest in the Company through the granting of options.
Administration of the Stock Option Plan is vested in the Compensation Committee
of the Company's Board of Directors.
As of September 30, 2000, options to purchase an aggregate of 2,216,747
shares of the Company's common stock (net of options canceled) have been granted
pursuant to the Stock Option Plan, and an additional 564,001 options that had
been granted by LSI were assumed by the Company at the time of the Combination.
Out of the combined total of the Stock Option Plan and the options acquired in
the Combination, options to purchase 1,853,823 shares have been exercised,
options to purchase 926,925 shares remain outstanding, and 210,753 shares remain
available for future grant. As of September 29, 2000, the market value of all
shares of the Company's common stock (i) subject to outstanding options under
the Stock Option Plan and (ii) remaining available for future grant was
approximately $4,663,360, and $1,060,298, respectively (based on the closing
sale price of the Company's common stock as reported on the Nasdaq National
Market on such date). During the 2000 fiscal year, options covering 299,000
shares of the Company's common stock were granted to the Company's employees
under the Stock Option Plan. None of the information above includes option
transactions under the Directors' Stock Option Plan or the Employee Stock
Ownership Plan.
The purchase price of the shares for each stock option granted under the
Stock Option Plan may not be less than 100% of the fair market value of the
common stock at the time of grant. The term of an option may not be more than
ten years from the date of grant. The Stock Option Plan will terminate on
February 19, 2002; however, options outstanding at the termination of the Stock
Option Plan will not be affected by such termination. If an option expires or
terminates before it has been exercised in full, the shares of common stock
allocable to the unexercised portion of such option will again be available for
the grant of options under the Stock Option Plan.
The preceding discussion summarizes the material terms of the Stock Option
Plan. The full text of the Stock Option Plan is available upon written request
to the Company.
The following discussion deals solely with United States federal income tax
consequences applicable to the Stock Option Plan. Participants in the plan
should consult their tax advisors as to foreign, state and local tax laws.
11
<PAGE>
Non-qualified Stock Options. A Participant will not be deemed to receive
any income at the time a Non-qualified Stock Option (NQSO) is granted, nor will
the Company be entitled to a tax deduction at that time. However, when any part
of an NQSO is exercised, the Participant will generally be deemed to have
received compensation taxable as ordinary income in an amount equal to the
excess of the fair market value of the shares received on the exercise of the
NQSO over the exercise price of the NQSO and the Company will receive a tax
deduction of an equivalent amount in the taxable year of the Company in which
the disposition occurs.
Upon any subsequent sale of the shares acquired upon the exercise of an
NQSO, any gain (the excess of the amount received over the fair market value of
the shares on the date ordinary income was recognized) or loss (the excess of
the fair market value of the shares on the date ordinary income was recognized
over the amount received) will be a long-term capital gain or loss if the sale
occurs more than one year after such date of recognition and otherwise will be a
short-term capital gain or loss.
Incentive Stock Options. In general, a Participant will not be deemed to
receive any income at the time an Incentive Stock Option (ISO) is granted or
exercised if a Participant does not dispose of the shares acquired on exercise
of the ISO within two years after the grant of the ISO and one year after the
exercise of the ISO. In such a case, the gain (if any) on a subsequent sale
(the excess of the amount received over the exercise price) or loss (if any) on
a subsequent sale (the excess of the exercise price over the amount received)
will be a long-term capital gain or loss. However, for purposes of computing
the "alternative minimum tax" applicable to a Participant, the Participant will
include in the Participant's alternative minimum taxable income the amount that
would have been included in income if the ISO was a NQSO. Such amount may be
subject to an alternative minimum tax. Similarly, for purposes of making
alternative minimum tax calculations, the Participant's basis in the stock
received on the exercise of an ISO will be determined as if the ISO were an
NQSO.
If the Participant sells the shares acquired on exercise of an ISO within
two years after the date of grant of the ISO or within one year after the
exercise of the ISO, the disposition is a "disqualifying disposition," and the
Participant will recognize income in the year of the disqualifying disposition
equal to the excess of the amount received for the shares over the exercise
price. Of that income, the portion equal to the excess of the fair market value
of the shares at the time the ISO was exercised over the exercise price will be
treated as compensation to the Participant, taxable as ordinary income, and the
balance (if any) will be long-term or short-term capital gain depending on
whether the shares were sold more than one year after the ISO was exercised. If
the Participant sells the shares in a disqualifying disposition at a price that
is below the exercise price, the loss will be a short-term capital loss if the
Participant has held the shares for one year or less and otherwise will be a
long-term capital loss.
The Company is not entitled to a deduction as the result of the grant or
exercise of an ISO. If the Participant has compensation taxable as ordinary
income as a result of a
12
<PAGE>
disqualifying disposition, the Company will be entitled to a deduction of an
equivalent amount in the taxable year of the Company in which the disposition
occurs.
STOCK PRICE PERFORMANCE
The Company completed the initial public offering of its common stock in
September 1995. Prior to such date, there was no established market for its
common stock. Set forth below is a line graph indicating a comparison of
cumulative total returns (change in stock price plus reinvested dividends) for
the Company's common stock from the initial offering price of $8.50 on September
28, 1995 through June 30, 2000 as contrasted with the Nasdaq Market Index and
the index for the electronic computer industry (SIC Code 3571). Each index
assumes $100 invested at September 28, 1995 and is calculated assuming
reinvestment of dividends.
COMPARE CUMULATIVE TOTAL RETURN
AMONG BLUE WAVE SYSTEMS INC.
NASDAQ MARKET INDEX AND SIC CODE INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
09/28/95 06/30/96 06/30/97 06/30/98 06/30/99 06/30/00
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BLUE WAVE SYSTEMS INC. 100.00 76.47 45.65 41.18 42.71 121.29
------------------------------------------------------------------------------------------------------------------------------------
SIC CODE INDEX 100.00 105.60 161.77 221.51 375.87 427.49
------------------------------------------------------------------------------------------------------------------------------------
NASDAQ MARKET INDEX 100.00 111.47 134.28 178.00 249.44 375.32
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
STOCKHOLDERS' PROPOSALS
Any proposals that stockholders of the Company desire to have presented at
the 2001 annual meeting of stockholders must be received by the Company at its
principal executive offices no later than June 16, 2001.
MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. The expense of preparing, printing and mailing the
form of proxy and the material used in the solicitation thereof will be borne by
the Company. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegram by directors and regular officers and
employees of the Company. Arrangements may also be made with brokerage houses
and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons, and the Company may reimburse them for reasonable out-of-pocket
expenses incurred by them in connection therewith.
Representatives of Arthur Andersen LLP, the Company's independent public
accountants, are expected to be present at the Annual Meeting with the
opportunity to make a statement if they desire and to be available to respond to
appropriate questions.
By Order of the Board of Directors
Toya Martin
Secretary
Carrollton, Texas
October 16, 2000
14
<PAGE>
PROXY
BLUE WAVE SYSTEMS INC.
The undersigned hereby (a) acknowledges receipt of the Notice of Annual Meeting
of Stockholders of Blue Wave Systems Inc. (the "Company") to be held on
November 16, 2000, at 10:00 a.m., local time, and the Proxy Statement in
connection therewith, and (b) appoints Rob N. Shaddock and Donald B. Crosbie,
or each of them, his proxies, with full power of substitution and revocation,
for and in the name, place and stead of the undersigned, to vote upon and act
with respect to all of the shares of Common Stock of the Company standing in
the name of the undersigned or with respect to which the undersigned is
entitled to vote and act at said meeting or at any adjournment thereof, and the
undersigned directs that his proxy be voted as follows:
1. ELECTION OF DIRECTORS
[_] FOR nominees listed below except as marked to the contrary below
[_] WITHHOLD AUTHORITY to vote for all nominees listed below
John R. Forrest, Lynn J. Davis, John L. Rynearson, Rob N. Shaddock and
Richard J. Thompson
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below.
------------------------------------------------------------------
2. Proposal to amend the Blue Wave Systems Inc. Stock Option Plan (the "Plan")
to increase the number of shares of Common Stock issuable upon exercise of
options granted under the Plan from 2,427,500 to 2,950,000.
[_] FOR [_] AGAINST [_] ABSTAIN
<PAGE>
P R O X Y
If more than one of the proxies listed on the reverse side shall be present
in person or by substitute at the meeting or any adjournment thereof, the
majority of said proxies so present and voting, either in person or by
substitute, shall exercise all of the powers hereby given.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES FOR DIRECTORS
AND FOR THE NAMED PROPOSAL.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all
that said proxies, their substitutes, or any of them, may lawfully do by virtue
hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
Dated: _________________________
________________________________
Signature
________________________________
(Signature if held jointly)
Please date the proxy and sign
your name exactly as it appears
hereon. Where there is more
than one owner, each should
sign. When signing as an
attorney, administrator,
executor, guardian or trustee,
please add your title as such.
If executed by a corporation,
the proxy should be signed by a
duly authorized officer. Please
sign the proxy and return it
promptly whether or not you
expect to attend the meeting.
You may nevertheless vote in
person if you do attend.
