SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ____)
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Filed by a party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
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14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material under ss. 240.14a-12
ARC WIRELESS SOLUTIONS, INC.
----------------------------------------------
(Name of Registrant as Specified in Its Charter)
Not Applicable
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PAGE>
ARC WIRELESS SOLUTIONS, INC.
10601 West 48th Avenue
I-70 Frontage Road North
Wheat Ridge, Colorado 80033-2660
(303) 421-4063
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held November 9, 2004
The Annual Meeting of the shareholders of ARC Wireless Solutions, Inc. (the
"Company") will be held on November 9, 2004 at 10:00 a.m. (Denver, Colorado
time) at the offices of the Company for the following purposes:
1. To elect a Board Of Directors consisting of four directors;
2. To consider and vote upon a proposal recommended by the Board Of
Directors to ratify the selection of HEIN + Associates LLP to serve as
our certified independent accountants for the year ending December 31,
2004;
3. To consider and vote upon a proposal recommended by the Board Of
Directors to amend our 1997 Stock Option and Compensation Plan to
increase from 5,000,000 to 10,000,000 the number of shares of common
stock issuable pursuant to options granted under our 1997 Stock Option
and Compensation Plan;
4. To consider and vote upon a proposed recommendation by the Board Of
Directors to authorize the Board Of Directors to determine whether to
effect a reverse stock split of our outstanding Common Stock; and
5. To transact any other business that properly may come before the
Annual Meeting.
Only the shareholders of record as shown on the transfer books at the close
of business on September 27, 2004 are entitled to notice of, and to vote at, the
Annual Meeting.
All shareholders, regardless of whether they expect to attend the meeting
in person, are requested to complete, date, sign and return promptly the
enclosed form of proxy in the accompanying envelope. The person executing the
proxy may revoke it by filing with the Secretary of the Company an instrument of
revocation or a duly executed proxy bearing a later date, or by electing to vote
in person at the Annual Meeting.
ALL SHAREHOLDERS ARE EXTENDED A CORDIAL INVITATION TO ATTEND THE ANNUAL
MEETING.
By the Board Of Directors:
/s/ Randall P. Marx
---------------------------
Wheat Ridge, Colorado Randall P. Marx
October 6, 2004 Chief Executive Officer
PROXY STATEMENT
ARC WIRELESS SOLUTIONS, INC.
10601 West 48th Avenue
I-70 Frontage Road North
Wheat Ridge, Colorado 80033-2660
(303) 421-4063
ANNUAL MEETING OF SHAREHOLDERS
to be held
November 9, 2004
SOLICITATION AND REVOCABILITY OF PROXIES
This proxy statement is provided in connection with the solicitation of
proxies by the Board Of Directors of ARC Wireless Solutions, Inc., a Utah
corporation (the "Company"), to be voted at the Annual Meeting Of Shareholders
to be held at 10:00 a.m. (Denver, Colorado time) on November 9, 2004 at the
offices of the Company, or at any adjournment or postponement of the meeting. We
anticipate that this proxy statement and the accompanying form of proxy will be
first mailed or given to shareholders on or about October 6, 2004.
The shares represented by all proxies that are properly executed and
submitted will be voted at the Annual Meeting in accordance with the
instructions indicated on the proxies. Unless otherwise directed, the shares
represented by proxies will be voted: (1) FOR each of the four nominees for
director whose names are set forth on the proxy card; (2) FOR the ratification
of the selection of HEIN + Associates LLP as our independent certified
accountants; (3) FOR the authorization of the Board Of Directors to determine
whether to effect a reverse stock split of our outstanding Common Stock at the
time and at the ratio, between 1-for-10 and 1-for-50, that the Board Of
Directors deems appropriate; and (4) FOR the approval of the increase in the
number of options authorized for grant under the Company's 1997 Stock Option and
Compensation Plan.
A shareholder giving a proxy may revoke it at any time before it is
exercised by delivering written notice of revocation to our Secretary, by
substituting a new proxy executed at a later date, or by requesting, in person
at the Annual Meeting, that the proxy be returned.
The solicitation of proxies by the Company is to be made principally by
mail; however, following the initial solicitation, further solicitations may be
made by telephone or oral communication with shareholders. Our officers,
directors and employees may solicit proxies, but these persons will not receive
compensation for that solicitation other than their regular compensation.
Arrangements also will be made with brokerage houses and other custodians,
nominees and fiduciaries to forward solicitation materials to beneficial owners
of the shares held of record by those persons. We may reimburse those persons
for reasonable out-of-pocket expenses incurred by them in so doing. We will pay
all expenses involved in preparing, assembling and mailing this proxy statement
and the enclosed material.
1
VOTING SECURITIES
The close of business on September 27, 2004 has been fixed as the record
date for the determination of holders of record of the Company's common stock,
$.0005 par value per share (the "Common Stock"), entitled to notice of and to
vote at the Annual Meeting. On the record date, 153,988,063 shares of Common
Stock were outstanding and eligible to be voted at the Annual Meeting. A
majority of the issued and outstanding shares of Common Stock entitled to vote,
represented either in person or by proxy, constitutes a quorum at any meeting of
the shareholders. If sufficient votes for approval of the matters to be
considered at the Annual Meeting have not been received prior to the meeting
date, we intend to postpone or adjourn the Annual Meeting in order to solicit
additional votes. The form of proxy we are soliciting requests authority for the
proxies, in their discretion, to vote the shareholders' shares with respect to a
postponement or adjournment of the Annual Meeting. At any postponed or adjourned
meeting, we will vote any proxies received in the same manner described in this
proxy statement with respect to the original meeting.
VOTING PROCEDURES
Votes at the Annual Meeting are counted by an inspector of election
appointed by the Chairman of the meeting. If a quorum is present, an affirmative
vote of a majority of the votes entitled to be cast by those present in person
or by proxy is required for the approval of items submitted to shareholders for
their consideration, unless a different number of votes is required by Utah law
or our Articles Of Incorporation. Abstentions by those present at the Annual
Meeting are tabulated separately from affirmative and negative votes and do not
constitute affirmative votes. If a shareholder returns his or her proxy card and
withholds authority to vote for any or all of the nominees, the votes
represented by the proxy card will be deemed to be present at the meeting for
purposes of determining the presence of a quorum but will not be counted as
affirmative votes. Shares in the names of brokers that are not voted on a
particular matter are treated as not present with respect to that matter.
BENEFICIAL OWNERSHIP OF THE COMPANY'S EQUITY SECURITIES
At the Annual Meeting, holders of 153,988,063 shares of Common Stock, the
number of shares of Common Stock outstanding as of the record date, will have
the right to vote. Each share, unless otherwise set forth herein, is entitled to
one vote. On September 9, 2004, there were 153,988,063 shares of Common Stock
issued and outstanding. The following table summarizes certain information as of
that date with respect to the beneficial ownership of our Common Stock by each
director, by all executive officers and directors as a group, and by each other
person known by us to be the beneficial owner of more than five percent of our
Common Stock.
The number of shares beneficially owned includes shares of Common Stock
with respect to which the persons named below have either investment or voting
power. A person is also deemed to be the beneficial owner of a security if that
person has the right to acquire beneficial ownership of that security within 60
days through the exercise of an option or through the conversion of another
security. Except as noted, each beneficial owner has sole investment and voting
power with respect to the Common Stock.
2
Common Stock not outstanding that is subject to options or conversion
privileges is deemed to be outstanding for the purpose of computing the
percentage of Common Stock beneficially owned by the person holding such options
or conversion privileges, but is not deemed to be outstanding for the purpose of
computing the percentage of Common Stock beneficially owned by any other person.
Number of Shares Percent of
Name and Address of Beneficial Owner Beneficially Owned(1) Class
------------------------------------ --------------------- -----
Officers and Directors
Randall P. Marx 9,454,195(2) 6.1
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO 80033
Sigmund A. Balaban 1,513,247(3) 1.01
10 Grecian Street
Parsippany, NJ 07054
Donald A. Huebner 109,579(4) *
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO 80033
Gregory E. Raskin 4,069,162 2.6
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO 80033
Steven C. Olson 61,422 *
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO 80033
Monty R. Lamirato 219,210(5) *
ARC Wireless Solutions, Inc.
10601 West 48th Ave.
Wheat Ridge, CO 80033
5% or Greater Beneficial Owners
Barry Nathanson 11,798,559(7) 7.7
6 Shore Cliff Place
Great Neck, NY 11023
3
Number of Shares Percent of
Name and Address of Beneficial Owner Beneficially Owned(1) Class
------------------------------------ --------------------- -----
Hudson River Investments, Inc. 12,373,225(7) 8.01
Nemazee Capital Corp.
720 Fifth Avenue
New York, NY 10019
Evansville Limited 9,301,060(7) 6.0
c/o Quadrant Management Inc.
720 Fifth Avenue, 9th Floor
New York, NY 10019
All officers and directors as a group
(seven persons) 15,646,220(6) 10.1
-----------------------------
* Less than one percent.
(1) "Beneficial ownership" is defined in the regulations promulgated by the
U.S. Securities and Exchange Commission as having or sharing, directly or
indirectly (1) voting power, which includes the power to vote or to direct
the voting, or (2) investment power, which includes the power to dispose or
to direct the disposition, of shares of the Common Stock of an issuer. The
definition of beneficial ownership includes shares underlying options or
warrants to purchase Common Stock, or other securities convertible into
Common Stock, that currently are exercisable or convertible or that will
become exercisable or convertible within 60 days. Unless otherwise
indicated, the beneficial owner has sole voting and investment power.
(2) Includes 8,385,732 shares directly held by Mr. Marx, 40,000 shares held by
his spouse's IRA and 28,463 shares owned beneficially through an LLC of
which Mr. Marx is a 50% owner and manager. Includes options to purchase
500,000 shares of common stock at a price per share of $0.18 until January
2, 2007, granted under the 1997 Stock Option and Compensation Plan all of
which are currently exercisable. Also includes options to purchase 500,000
shares of common stock at a price per share of $0.18 until January 2, 2007,
granted under the 1997 Stock Option and Compensation Plan. This does not
include 750,000 shares owned plus warrants to purchase 150,000 shares at
$1.00 per share owned by the Harold A. Marx Living Trust, of which Mr.
Marx' father is the trustee, as Mr. Marx disclaims beneficial ownership of
these shares. This also does not include 150,000 shares owned by Warren E.
Spencer Living Trust, of which Mr. Marx' mother-in-law is trustee, as Mr.
Marx disclaims beneficial ownership of these shares.
(3) Includes 1,438,247 shares directly held by Mr. Balaban. Pursuant to the
Company's 1997 Stock Option and Compensation Plan and the Company's
policies concerning option grants to outside directors, on February 26,
2004, Mr. Balaban was granted options to purchase 125,000 shares of the
Company's Common Stock at a price per share of $0.16 for two years, of
which options to purchase 25,000 become exercisable for each meeting of the
Board Of Directors attended by Mr. Balaban, of which 75,000 are currently
exercisable.
(4) Includes 83,017 shares directly held by Mr. Huebner. Pursuant to the
Company's 1997 Stock Option and Compensation Plan and the Company's
policies concerning option grants to outside directors, on February 26,
2004 Mr. Huebner was granted options to purchase 125,000 shares of the
Company's Common Stock at a price per share of $.16 for two years, of which
options to purchase 25,000 become exercisable for each meeting of the Board
Of Directors attended by Mr. Huebner, of which 25,000 are currently
exercisable.
4
(5) Includes 44,210 shares directly held by Mr. Lamirato and also includes
options to purchase 175,000 shares at a price per share of $.14 until July
1, 2005 all granted under the 1997 Stock Option and Compensation Plan all
of which are currently exercisable.
(6) Includes Footnotes (1) through (5).
(7) Disclosure regarding shares owned by these shareholders is based upon
written confirmations of these shareholders as of December 31, 2003 and
upon any public SEC filings made by these shareholders subsequent to
December 31, 2003.
ITEM 1. ELECTION OF DIRECTORS
At the Annual Meeting, the shareholders will elect four directors to serve
as our Board Of Directors. Each director will be elected to hold office until
the next annual meeting of shareholders and thereafter until his successor is
elected and qualified. The affirmative vote of a majority of the shares
represented at the meeting is required to elect each director. Cumulative voting
is not permitted in the election of directors. Consequently, each shareholder is
entitled to one vote for each share of Common Stock held in his or her name.
Each record holder of stock shall be entitled to vote in the election of
directors and shall have as many votes for each of the shares owned by him as
there are directors to be elected and for whose election he has the right to
vote. As a result, a shareholder may vote all of his or her shares for each
nominee, but may not cumulate the votes to vote more than the total number of
shares owned for any one nominee. In the absence of instructions to the
contrary, the person named in the accompanying proxy shall vote the shares
represented by that proxy for the persons named below as management's nominees
for directors. Each of the nominees currently is a director of the Company.
Each of the nominees has consented to be named in this Proxy Statement and
to serve on the Board if elected. It is not anticipated that any of the nominees
will become unable or unwilling to accept his nomination or election, but, if
that should occur, the persons named in the proxy intend to vote for the
election of such other person as the Board Of Directors may recommend.
5
The following table sets forth, with respect to each nominee for director,
the nominee's age, his positions and offices with the Company, the expiration of
his term as a director, and the year in which he first became a director.
Individual background information concerning each of the nominees follows the
table. For additional information concerning the nominees, including stock
ownership and compensation, see "Executive Compensation," "Beneficial Ownership
Of The Company's Equity Securities," and "Certain Transactions With Management
And Principal Shareholders."
Expiration Of Initial Date
Name Age Position With The Company Term As Director As Director
---- --- ------------------------- ---------------- -----------
Randall P. Marx 52 Chief Executive Officer; Next Annual Meeting 1990
Secretary; Director
Gregory E. Raskin 51 President; President of
Winncom; Director Next Annual Meeting 2001
Donald A. Huebner 59 Director Next Annual Meeting 1998
Sigmund A. Balaban 62 Director Next Annual Meeting 1994
Randall P. Marx became our Chief Executive Officer in February 2001 and has
served as Director since May 1990. Mr. Marx served as President from November
1991 until July 2000, as Treasurer from December 1994 until June 30, 2000 and as
Director of Acquisitions from July 2000 until February 2001. From 1983 until
1989, Mr. Marx served as President of THT Lloyd's Inc., Lloyd's Electronics
Corp. and Lloyd's Electronics Hong Kong Ltd., international consumer electronics
companies. Lloyd's Electronics had domestic revenues of $100 million and
international revenues of $30 million with over 400 employees worldwide. As CEO
and President of THT Lloyd's Inc., a $10 million electronics holding company,
Mr. Marx supervised the purchase of the Lloyd's Electronics business from
Bacardi Corp. in 1986. As CEO and President of Lloyd's Electronics, Mr. Marx was
directly responsible for all domestic and international operations including
marketing, financing, product design and manufacturing with domestic offices in
New Jersey and Los Angeles and international offices in Hong Kong, Tokyo and
Taiwan. Mr. Marx is a director and member of the Audit Committee of InfoSonics
Corporation, a distributor and retailer of wireless handsets with common stock
listed on the American Stock Exchange.
Gregory E. Raskin, President of the Company and Winncom, founded Winncom in
1995 and joined us with the acquisition of Winncom in May 2000. Mr. Raskin was
elected as a Director of the Company in February 2001. Prior to joining Winncom,
he was founder and President of a company that introduced (and certified)
wireless local area networks, or LANs, to former Soviet Block Countries. He
holds MS degrees in Electrical Engineering and Control System Engineering.
6
Donald A. Huebner was our Chief Scientist from July 2000 to January 2002
and a consulting engineer from January 2002 and has served as Director since
1998. Dr. Huebner served as Department Staff Engineer with Lockheed Martin
Astronautics in Denver, Colorado from 1986 to July 2000. In this capacity, Dr.
Huebner served as technical consultant for phased array and spacecraft antennas
as well as other areas concerning antennas and communications. Prior to joining
Lockheed Martin, Dr. Huebner served in various capacities with Ball
Communication Systems and Hughes Aircraft Company. Dr. Huebner also served as a
part-time faculty member in the electrical engineering departments at the
University of Colorado at Boulder, California State University at Northridge,
and University of California, Los Angeles ("UCLA"). Dr. Huebner has also served
as a consultant to various companies, including as a consultant to the Company.
Dr. Huebner received his Bachelor of Science in Electrical Engineering from UCLA
in 1966 and his Masters of Science in Electrical Engineering from UCLA in 1968.
Dr. Huebner received his Ph.D. from UCLA in 1972 and a Masters in
Telecommunications from the University of Denver in 1996. Dr. Huebner is a
member of a number of professional societies, including the Antennas And
Propagation Society and Microwave Theory And Technique Society of the Institute
of Electrical and Electronic Engineers.
Sigmund A. Balaban has served as Director since December 1994. Mr. Balaban
served as Senior Vice President / Corporate Secretary of Fujitsu General
America, Inc. of Fairfield, New Jersey, from 2000 until July of 2001 when he
retired. Mr. Balaban was Vice President, Credit of Teknika Electronics from 1986
to 1992 and as Senior Vice President and General Manager of Teknika Electronics
from 1992 to 2000. In October 1995, Teknika Electronics changed its name to
Fujitsu General America, Inc. Fujitsu General America, Inc. is a subsidiary of
Fujitsu General, Ltd., a Japanese multiline manufacturer.
Recommendation of the Board Of Directors
The Board Of Directors unanimously recommends that the shareholders vote
FOR the election of the four nominees named above.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Other Executive Officers
The following table sets forth with respect to each other executive
officer, the officer's age, the officer's positions and offices with the
Company, the expiration of his term as an officer and the period during which he
has served.
Initial Date
Name Age Position With The Company As Officer
---- --- ------------------------- ----------
Monty R. Lamirato 48 Chief Financial Officer;
Treasurer 2001
Steven C. Olson 48 Chief Technology Officer 2001
7
Monty R. Lamirato has been Chief Financial Officer and Treasurer since June
2001. Prior to joining the Company Mr. Lamirato served as the VP Finance for
GS2.Net, Inc, an application service provider, from November 2000 to May 2001
and from June 1999 to October 2000 was Vice President of Finance for Planet
Outdoors.com, an e-commerce retailer. From November 1993 to June 1999 Mr.
Lamirato was President and Shareholder of Monty R. Lamirato, PC, a business
consulting firm. Mr. Lamirato has been a certified public accountant in the
State of Colorado since 1978.
Steven C. Olson. Prior to joining ARC Wireless, Mr. Olson was employed at
Ball Aerospace for 14 years, during the most recent five years of which, he
served as Director of Engineering for Ball's Wireless Communications Products
Division. In this capacity, Mr. Olson led the development of new technologies,
resulting in industry leading antenna solutions for the wireless communications
market. Before the Ball Wireless Communications unit was formed, Mr. Olson
developed Ball's high performance, low cost AirBASE((TM)) antenna technology
specifically for use in its future commercial wireless business. He received his
Bachelors and Masters of Science degrees in Electrical Engineering from the
University of Utah in 1984 and 1985, respectively.
Each of our officers serves at the pleasure of the Board Of Directors.
There are no family relationships among our officers and directors.
Board Meetings
The Board Of Directors met two times during the fiscal year ended December
31, 2003, and each director participated in at least 75% of the meetings of the
Board Of Directors.
Committees of the Board
The Company has standing audit and compensation committees of the Board Of
Directors. The Company does not currently have a standing nominating committee
of the Board Of Directors because it believes that the nominating functions
should be relegated to the full Board.
Audit Committee
The Company's audit committee (the "Audit Committee"), consisting of
Sigmund Balaban, Randall Marx and Gregory Raskin, met one time during the fiscal
year ended December 31, 2003. All members of the Audit Committee participated in
such meetings. The Company has determined that Mr. Marx qualifies as an "audit
committee financial expert" as that term is defined in Item 401 of Regulation
S-B promulgated under the Securities Exchange Act of 1934. Mr. Marx is not an
independent director.
Audit Committee Report
The Audit Committee consists of one non-employee director, our Chief
Executive Officer/Secretary and our President. The non-employee director has
been determined to be "independent", as that term is defined in Rule 4200
(a)(15) of the National Association of Securities Dealers' ("NASD") listing
standards. The Board Of Directors has not yet adopted an Audit Committee
Charter.
8
Management is responsible for the Company's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Company's financial statements in
accordance with auditing standards generally accepted in the United States of
America and to issue a report thereon. The Audit Committee's responsibility is
to monitor and oversee these processes and to engage and discharge the Company's
auditors. It is not our duty or our responsibility to conduct auditing or
accounting reviews or procedures. We may not be, and we may not represent
ourselves to be or to serve as, accountants or auditors by profession or experts
in the fields of accounting or auditing. Therefore, we have relied, without
independent verification, on management's representation that the financial
statements have been prepared with integrity and objectivity and in conformity
with accounting principles generally accepted in the United States of America,
and on the representations of the independent auditors included in the report on
the Company's financial statements. Our oversight does not provide us with an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or policies, or appropriate
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, our considerations
and discussions with management and the independent auditors do not assure that
the Company's financial statements are presented in accordance with generally
accepted accounting principles, that the audit of the Company's financial
statements has been carried out in accordance with generally accepted auditing
standards or that the Company's independent accountants are in fact
"independent."
In this context, the Audit Committee has met and held discussions
separately with management and the independent accountants. Management
represented to the Audit Committee that the Company's financial statements were
prepared in accordance with accounting principles generally accepted in the
United States of America, and the Audit Committee has reviewed and discussed the
financial statements with management and the independent accountants. The Audit
Committee discussed with the independent accountants matters required to be
discussed by the Statement on Auditing Standards No. 61, Communications with
Audit Committees, as currently in effect.
The Company's independent accountants also provided to the Audit Committee
the written disclosure required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. The Committee discussed with the
independent accountants that firm's independence and considered whether the
non-audit services provided by the independent accountants are compatible with
maintaining its independence.
Based on the Audit Committee's discussion with management and the
independent accountants, and the Audit Committee's review of the representations
of management and the report of the independent accounts to the Audit Committee,
the Audit Committee recommended that the Board Of Directors include the audited
financial statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2003 filed with the Securities and Exchange Commission.
9
Submitted by the Audit Committee of the Company's Board Of Directors:
Sigmund A. Balaban, Chair
Randall P. Marx
Gregory E. Raskin
Compensation Committee
The Board Of Directors currently has a Compensation Committee, consisting
of Randall P. Marx, Gregory E. Raskin and Sigmund A. Balaban, which did not meet
during the fiscal year ended December 31, 2003.
Compensation Committee Report
The following is a report of the Compensation Committee of the Board Of
Directors (the "Committee") on executive compensation policies for the fiscal
year ended December 31, 2003. The Committee is composed of our President and two
non-employee directors and is responsible for administering the compensation
program for executive officers of the Company and making all related decisions.
The principal elements of the compensation program for executive officers
are base salary, performance-based annual bonuses, and options granted under the
Company's 1997 Stock Option and Compensation Plan. The goals of the program are
to ensure that a strong relationship exists between executive compensation and
the creation of shareholder value, and that executive officers are strongly
motivated and retained. The Company's compensation philosophy is to create a
direct relationship between the level of total executive officer compensation
and the Company's success in meeting its annual performance goals as represented
by its annual business plan. An additional element of this philosophy is to
reward equitably relative contribution and job performance of individual
executive officers.
Base Salary
The Company's executive officers, including the Chief Executive Officer and
President, historically have had multi-year employment agreements with the
Company. As of September 9, 2004, neither the Chief Executive Officer nor the
Chief Financial Officer has an employment agreement with the Company. Annual
salaries for the Company's executive officers, including the Chief Executive
Officer and President, are generally reviewed prior to the expiration of
employment agreements in effect, based on a number of objective and subjective
factors. Objective factors considered include Company's financial performance
relative to business plan profit objectives, although no specific formulas based
on such factors are used to determine salaries. Salary decisions are based
primarily on the Committee's subjective analysis of the factors contributing to
the Company's success and of the executive's individual contributions to that
success.
10
Options
Executive officers are eligible to receive stock options of the Company
pursuant to the Company's 1997 Stock Option and Compensation Plan (the "Plan").
The Plan is administered by an option committee.
Performance-based Annual Bonuses
Cash bonuses based on the Company's performance are awarded to the
executive officers under an incentive compensation plan. Under the plan which
historically has served as the basis for bonuses paid, executive officers
received a percentage of their base pay based on the overall performance of the
Company. Additional bonuses may be awarded at the discretion of the Committee in
recognition of special accomplishments. Thus, whether the executive officers'
total pay is comparable to the compensation of executives with similar
responsibilities at comparable companies may vary from year to year depending
upon the Company's performance.
CEO Compensation
The Company entered into an employment agreement with Mr. Marx with total
annual base salary of $195,000 effective January 2, 2002. This agreement
terminated on January 2, 2004. Mr. Marx' salary since January 2, 2004 has
continued at the annual base rate of $195,000. Pursuant to this employment
agreement, Mr. Marx was eligible to receive an annual base salary of $195,000
per year during the term of the agreement and was eligible to receive a bonus
ranging from $50,000 to $80,000 for the year ended December 31, 2002 if the
Company achieved certain predetermined revenue and earnings before interest,
taxes, depreciation, and amortization ("EBITDA") goals. Specifically, Mr. Marx
was eligible to earn the following bonuses if the Company achieved revenues of
$23,000,000 or more: (i) if EBITDA equaled or exceeded $250,000, Mr. Marx' bonus
would have been $50,000; (ii) if EBITDA equaled or exceeded $500,000, Mr. Marx'
bonus would have been $60,000; (iii) if EBITDA equaled or exceeded $750,000 Mr.
Marx' bonus would have been $70,000; and (iv) if EBITDA equaled or exceeded
$1,000,000, Mr. Marx' bonus would have been $80,000. These goals were determined
based on discussions between the Compensation Committee and Mr. Marx and were
approved by the Compensation Committee. In fiscal year 2002, the Company
achieved revenues greater than $23,000,000 and had EBITDA in excess of $750,000.
As a result, Mr. Marx earned a bonus of $70,000 for 2002 based on the Company's
performance in light of the predetermined goals. Mr. Marx was eligible to
receive a bonus for 2003 ranging from $50,000 to $100,000 if the Company
achieved certain predetermined revenue of $29,000,000 or higher and had EBITDA
between $500,000 and $1,500,000. Mr. Marx did not receive a bonus for fiscal
year 2003.
Other Compensation
An additional element of the executive officer's compensation, which is not
performance-based, is the matching of eligible contributions by the Company
under the Company's 401(k) plan.
11
The Compensation Committee believes that linking executive compensation to
corporate performance results in a better alignment of compensation with
corporate goals and shareholder interests. As performance goals are met or
exceeded, resulting in increased value to shareholders, executives are rewarded
commensurately. The Committee believes that compensation levels during 2003
adequately reflect the Company's compensation goals and policies.
Submitted by the Compensation Committee of the Company's Board Of
Directors:
Randall P. Marx
Gregory E. Raskin
Sigmund A. Balaban
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is composed of our Chief Executive
Officer/Secretary, our President and one non-employee director.
On September 25, 2001 the Company and Randall Marx signed a 6% promissory
note pursuant to which Mr. Marx borrowed $35,000 from the Company. This note was
repaid in full on May 31, 2003.
At this time the Board has not made any changes regarding shareholder
communications with the Board because the Chairman of the Board, who is also the
Company's Chief Executive Officer, has had a longstanding practice of striving
to promptly respond to shareholder inquiries, either by e-mail, letter or
telephone.
Nominating Committee
As disclosed above, the entire Board Of Directors serves as the Company's
Nominating Committee. The Nominating Committee does not currently have a
Charter. Nominees for director will be selected by a majority of the Company's
directors. In selecting nominees for the Board, the Company is seeking a board
with a variety of experiences and expertise, and therefore will consider
business experience in the telecommunications industry, financial expertise,
independence from transactions with the Company, experience with publicly traded
companies, experience with relevant regulatory matters in which the Company is
involved and reputation for integrity and professionalism.
12
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation of our
current and past Chief Executive Officer and each other executive officer who
received total salary and bonus exceeding $100,000 during any of the three
successive fiscal years ending December 31, 2003 (the "Named Executive
Officers").
Long-Term Compensation
---------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------- ---------------------- -------------------------
Salary Bonus Other Annual Restricted LTIP All Other
Name and Principal Fiscal ($) ($) Compensation Stock Options Payouts Compensation
Position Year (1) (2) ($) (3) Awards ($) (#) ($) (4) ($) (5)
-------- ---- --- --- ------- ---------- --- ------- -------
Randall P. Marx 2003 195,000 0 0 0 0 0 0
Chief Executive 2002 195,000 70,000 0 0 1,000,000 0 0
Officer, Secretary
and Director 2001 175,000 0 0 0 0 0 0
Gregory E. Raskin 2003 300,000 25,000 0 0 0 0 0
President and
Director 2002 277,000 50,000 0 0 0 0 0
2001 250,000 0 0 0 0 0 0
Monty R. Lamirato 2003 125,000 20,000 0 0 0 0 0
Chief Financial
Officer and Treasurer 2002 118,000 27,000 0 0 175,000 0 0
2001 56,000 0 0 0 175,000 0 0
Steve C. Olson 2003 155,000 16,000 0 0 0 0 0
Chief Technology
Officer 2002 155,000 19,000 0 0 0 0 0
2001 58,000 0 0 0 500,000 0 0
Burton Calloway 2003 107,000 0 0 0 0 0 0
Executive Vice
President(6) 2002 115,000 19,000 0 0 200,000 0 0
2001 106,000 0 0 0 200,000 0 0
------------------------------------
(1) The dollar value of base salary (cash and non-cash) earned during the year
indicated.
(2) The dollar value of bonus (cash and non-cash) earned during the year
indicated.
(3) During the period covered by the Summary Compensation Table, we did not pay
any other annual compensation not properly categorized as salary or bonus,
including perquisites and other personal benefits, securities or property.
(4) We do not have in effect any plan that is intended to serve as incentive
for performance to occur over a period longer than one fiscal year except
for our 1997 Stock Option and Compensation Plan.
13
(5) All other compensation received that we could not properly report in any
other column of the Summary Compensation Table including our annual
contributions or other allocations to vested and unvested defined
contribution plans, and the dollar value of any insurance premiums paid by,
or on behalf of, the Company with respect to term life insurance for the
benefit of the named executive officer, and, the full dollar value of the
remainder of the premiums paid by, or on behalf of, us.
(6) Mr. Calloway was Executive Vice President of our Wireless Communications
Solutions Division until July 7, 2003 when his employment terminated.
Salary for 2003 includes severance paid through November 2003.
Option Grants In Last Fiscal Year
The following table provides certain summary information concerning
individual grants of stock options made to Named Executive Officers during the
fiscal year ended December 31, 2003 under the Company's incentive plans. Except
as set forth in the table below, during fiscal year 2003, the Company did not
grant any stock options under the Company's Incentive Plans to any of the Named
Executive Officers.
Option Grants In Last Fiscal Year
Number of % of Total
Securities Options Potential Realizable Value
Underlying Granted to Exercise at Assumed Annual Rates of
Options Employees in Price Expiration Stock Price Appreciation
Name Granted (#) Fiscal Year ($/Share) Date for Option Term
---- ----------- ----------- --------- ---- ---------------
5% 10%
--- ---
Randall P. Marx 0 - N/A N/A N/A N/A
Gregory E. Raskin 0 - N/A N/A N/A N/A
Monty R. Lamirato 0 - N/A N/A N/A N/A
Steve C. Olson 0 - N/A N/A N/A N/A
Barton Calloway(1) 0 - N/A N/A N/A N/A
--------------------------
(1) Mr. Calloway was Executive Vice President of our Wireless Communications
Solutions Division until July 7, 2003 when his employment terminated.
------------------------
14
Aggregated Option Exercises And Fiscal Year-End Option Value Table
The following table provides certain summary information concerning stock
option exercises during the fiscal year ended December 31, 2003 by the Named
Executive Officers and the value of unexercised stock options held by the Named
Executive Officers as of December 31, 2003.
Aggregated Option Exercises For Fiscal Year Ended
December 31, 2003 And Year-End Option Values (1)
------------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at Fiscal
at Fiscal Year-End (#) (4) Year-End ($) (5)
Shares ------------------------------- -------------------------------
Acquired on Value Realized
Name Exercise (2) ($) (3) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------- ----------- ------------- ----------- -------------
Randall P. Marx 0 0 1,000,000 0 0
Gregory E. Raskin 0 0 0 0 0 0
Monty R. Lamirato 0 0 350,000 0 3,500 0
Steve C. Olson 0 0 500,000 0 0 0
Barton Calloway(6) 0 0 0 0 0 0
-----------------
(1) No stock appreciation rights are held by any of the Named Executive
Officers.
(2) The number of shares received upon exercise of options during the year
ended December 31, 2003.
(3) With respect to options exercised during the year ended December 31,
2003, the dollar value of the difference between the option exercise
price and the market value of the option shares purchased on the date
of the exercise of the options.
(4) The total number of unexercised options held as of December 31, 2003,
separated between those options that were exercisable and those
options that were not exercisable on that date.
(5) For all unexercised options held as of December 31, 2003, the
aggregate dollar value of the excess of the market value of the stock
underlying those options over the exercise price of those unexercised
options. These values are shown separately for those options that were
exercisable, and those options that were not yet exercisable, on
December 31, 2003. As required, the price used to calculate these
figures was the closing sale price of the common stock at year's end,
which was $0.16 per share on December 31, 2003.
(6) Mr. Calloway was Executive Vice President of our Wireless
Communications Solutions Division until July 7, 2003 when his
employment terminated.
15
Employee Retirement Plans, Long-Term Incentive Plans, And Pension Plans
Other than our stock option and 401(k) plan, we have no employee retirement
plan, pension plan, or long-term incentive plan to serve as incentive for
performance to occur over a period longer than one fiscal year.
1997 Stock Option And Compensation Plan
In November 1997, the Board Of Directors approved our 1997 Stock Option and
Compensation Plan (the "Plan"). Pursuant to the Plan, we may grant options to
purchase an aggregate of 5,000,000 shares of our Common Stock to key employees,
directors, and other persons who have or are contributing to our success. The
options granted pursuant to the Plan may be incentive options qualifying for
beneficial tax treatment for the recipient or they may be non-qualified options.
The Plan is administered by an option committee that determines the terms of the
options subject to the requirements of the Plan, except that the option
committee shall not administer the Plan with respect to automatic grants of
options to our directors who are not our employees. The option committee may be
the entire Board or a committee of the Board.
Directors who are not also our employees ("Outside Directors")
automatically receive options to purchase 25,000 shares pursuant to the Plan at
the time of their election as an Outside Director and may receive options to
purchase 25,000 shares per meeting. The options have two year terms and the
exercise price for the options is equal to the closing price per share of our
Common Stock on the date of the grant. No options were granted during 2003.
As of December 31, 2003, there were 600,000 exercisable options outstanding
related to the grants to Outside Directors. Dr. Donald Huebner's employment
terminated on January 31, 2002 but he continues as a Director of the Company. As
such, all of Dr. Huebner's options are disclosed as Outside Directors options.
In addition to Outside Directors' grants, the Board Of Directors may grant
incentive options to our key employees pursuant to the Plan. There were no
options granted in 2003 but in 2002, the Board granted a total of 1,625,000
options under the Plan to employees at prices ranging from $.13 to $.18 and in
2001, the Board granted a total of 1,560,000 options under the Plan to employees
at prices ranging from $.21 to $.58. As of December 31, 2003, there were
1,875,000 exercisable options outstanding related to grants to employees, all of
which were granted under the Plan.
In connection with his separation from the Company, Glenn A. Befort was
granted options to purchase 250,000 shares for $0.325 per share until February
21, 2004. See below, "Employment Contracts and Termination of Employment and
Change-In-Control Arrangements".
16
Compensation Of Outside Directors
Standard Arrangements. Outside Directors are paid $250 for each meeting of
the Board Of Directors that they attend. For meetings in excess of four meetings
per year, Outside Directors receive $50 per meeting. Pursuant to the terms of
the 1997 Stock Option and Compensation Plan, Outside Directors may elect to
receive payment of the meeting fee in the form of our restricted common stock at
a rate per share equal to the fair market value of the common stock on the date
of the meeting by informing our Secretary, Chief Executive Officer or President
of that election on or before the date of the meeting. Directors are also
reimbursed for expenses incurred in attending meetings and for other expenses
incurred on our behalf. In addition, each Outside Director receives options to
purchase shares of common stock (for details see the "1997 Stock Option and
Compensation Plan" section above).
Outside Directors vested 100,000 and 175,000 stock options, respectively,
during fiscal years ended December 31, 2003 and 2002. Outside Directors earned
$1,000 and $2,250, respectively in meeting attendance fees in 2003 and 2002 and
were paid with the issuance of 9,280 shares of restricted common stock in 2003
and 17,380 shares of restricted common stock in 2002.
Other Arrangements. During the years ended December 31, 2003 and 2002 Mr.
Sigmund Balaban, one of our outside directors, was paid $30,000 and $15,000,
respectively, in connection with his position as Chairman of the Audit
Committee.
Employment Contracts And Termination Of Employment And Change-In-Control
Arrangements
We entered into an employment agreement with Mr. Marx effective January 2,
2002, which terminated on January 2, 2004. Mr. Marx' salary since January 2,
2004 has continued at an annual base rate of $195,000. In accordance with his
employment agreement, Mr. Marx received an annual base salary of $195,000 in
2002 and 2003 and earned a bonus of $70,000 for 2002. He did not earn a bonus
for 2001 or 2003.
We entered into a written employment agreement with Gregory E. Raskin,
President of our Winncom subsidiary and beneficial owner of 2.6 percent of our
stock, or 4,069,162 shares, effective May 24, 2000. The employment agreement was
for the period May 24, 2000 through May 31, 2002, at an annual base salary of
$250,000. Mr. Raskin also was eligible to earn bonuses of up to $500,000 over
the term of the agreement, based on Winncom's periodic attainment of certain
revenues and earnings objectives. Mr. Raskin earned his maximum bonus of
$125,000 in 2000 but no bonus was earned in 2001. Mr. Raskin also received
options to purchase 250,000 shares of our common stock at a price of $0.89 per
share from December 19, 2000 through May 24, 2002. We entered into a new
employment agreement with Mr. Raskin effective as of June 1, 2002 with a term of
two and one-half years. Pursuant to the new agreement, Mr. Raskin is to receive
an annual base salary of $300,000 per year. Mr. Raskin is eligible to receive
bonuses for each of the years ending December 31, 2002, 2003 and 2004 of between
$50,000 and $300,000 depending upon Winncom achieving certain predetermined
revenues and EBIDTA goals for those periods. Mr. Raskin earned a bonus of
$24,000 for 2003, $50,000 for 2002 and none for 2001.
17
We entered into a written employment agreement with Burton J Calloway,
Executive Vice President of the Wireless Communications Solutions Division,
effective May 30, 2000. The employment agreement was for the period May 30, 2000
through May 29, 2003, at an annual base salary of $100,000. The base salary was
adjusted to $115,000 effective October 1, 2001. Mr. Calloway also was eligible
to earn bonuses of 3% of net profits in excess of $180,000 of the Wireless
Communications Solutions Division over the term of the agreement. A nominal
bonus was earned for 2001, and a bonus of $19,000 was earned for 2002. Mr.
Calloway did not receive a bonus in 2003. Mr. Calloway also received options to
purchase 150,000 shares of our common stock at a price of $1.01 on May 30, 2000
and was granted options to purchase 200,000 shares, at exercise prices ranging
from $.145 to $1.01 on May 30, 2001 and May 30, 2002. Mr. Calloway's employment
with us terminated on July 7, 2003. These options expired without having been
exercised.
We entered into a written employment agreement with Monty R. Lamirato, our
Chief Financial Officer and Treasurer, effective June 22, 2001. The employment
agreement was for the period June 22, 2001 through June 30, 2004, at an annual
base salary of $111,000, adjusted to $125,000 on July 1, 2002. This employment
agreement has not yet been renewed. Pursuant to his expired agreement, Mr.
Lamirato was eligible to earn bonuses of $35,000 or 3% of EBITDA (Earnings
Before Interest, Taxes, Depreciation and Amortization), whichever is greater,
over the term of the agreement. Mr. Lamirato earned a bonus of $20,000 for 2003
and $27,000 for 2002, and no bonus was earned for 2001. Mr. Lamirato also
received options to purchase 350,000 shares of our common stock at prices
ranging from $.14 to $0.33 per share exercisable from June 22, 2001 through June
30, 2004. These options expired without having been exercised.
We entered into a written employment agreement with Steven C. Olson, our
Chief Technology Officer, effective August 13, 2001. The employment agreement
was for the period August 13, 2001 through August 13, 2004 at an annual base
salary of $155,000. Mr. Olson also is eligible to earn bonuses, upon achieving
certain gross margin objectives, over the term of the agreement. Mr. Olson
earned a bonus of $16,000 for 2003 and $19,000 in 2002, and no bonus was earned
for 2001. Mr. Olson also received options to purchase 500,000 shares of our
common stock at a price of $0.27 per share from August 13, 2001 through August
13, 2004. These options expired without having been exercised.
We have no compensatory plan or arrangement that results or will result
from the resignation, retirement or any other termination of an executive
officer's employment with us or from a change-in-control or a change in an
executive officer's responsibilities following a change-in-control, except that
the 1997 Stock Option and Compensation Plan provides for vesting of all
outstanding options in the event of the occurrence of a change-in-control.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires our directors, executive officers and beneficial owners of more than
ten percent of our Common Stock to file with the Securities Exchange Commission
initial reports of ownership and reports of changes in ownership of our Common
Stock and other equity securities. We believe that during the year ended
December 31, 2003, our officers, directors and beneficial owners of more than
10% of our Common Stock complied with all Section 16(a) filing requirements. In
18
making these statements concerning compliance with Section 16(a), we have relied
upon the written representations of our directors, officers and 10% or greater
stockholders and our review of the monthly statements of changes filed with us
by our officers and directors.
Certain Transactions With Management And Principal Shareholders
Except for the employment arrangements described elsewhere in this Proxy
Statement, during fiscal year 2003 and during the interim period since the end
of fiscal year 2003, there were no transactions between the Company and its
directors, executive officers or known holders of greater than five percent of
the Company's Common Stock in which the amount involved exceeded $60,000 and in
which any of the foregoing persons had or will have a material interest.
Comparison of Return on Equity
Our common stock is traded in the Over-the-Counter Market under the symbol
"ARCS". The following stock performance graph illustrates the yearly percentage
change in the cumulative total stockholder return on our common stock, compared
with the cumulative total return, assuming reinvestment of dividends (regarding
shares other than our Common Stock on which no dividends have been paid) on: (i)
the NASDAQ (U.S. Companies) Stock Index (the "NASDAQ U.S. Index") and (ii) an
index (the "Peer Group Index"), based on a peer group (the "Peer Group") of four
companies selected by us, whose primary business includes the manufacture and
sale of antennas and distribution of wireless communication products, during the
period from December 31, 1998 through December 31, 2003:
19
Common Stock Performance Graph
------------------------------
[GRAPHIC OMITTED][GRAPHIC OMITTED]
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
--------------------------------------------------------------------------
ARC Wireless Solutions, Inc. $ 100.00 $ 214.29 $ 357.14 $ 257.14 $ 142.86 $ 160.00
Peer Group $ 100.00 $ 59.71 $ 94.54 $ 152.14 $ 72.53 $ 145.76
NASDAQ Market Index $ 100.00 $ 248.76 $ 156.35 $ 124.64 $ 86.94 $ 127.60
The entities included in the Peer Group are: EMS Technologies, Inc., Phazar
Corp., Ingram Micro, Inc. and Tech Data Corp.
In all cases, the cumulative total return assumes, as contemplated by
Commission rules, the investment of $100 at December 31, 1998 in the common
stock and the traded securities of the entities which comprise the NASDAQ U.S.
Index and the Peer Group Index, and that any cash dividends on the common stock
of each entity included in the data presented above were reinvested in that
security. We have paid no dividends on our common stock.
All data contained in the stock performance graph and data chart set forth
above are derived from sources believed to be reliable, but, because of the
possibility of human and mechanical error and other factors, are provided from
such sources with no express or implied warranties of any kind, and without any
representations, warranties or guarantees as to either the accuracy or
timeliness of such data.
Historical stock price performance should not be relied upon as indicative
of future stock price performance.
Notwithstanding any reference in our prior or future filings with the
Commission which purport to incorporate this Proxy Statement by reference into
another filing, such incorporation does not include any material included herein
under the caption "Common Stock Performance Graph."
20
ITEM 2. PROPOSAL TO RATIFY THE SELECTION OF HEIN + ASSOCIATES LLP
AS THE COMPANY'S CERTIFIED INDEPENDENT ACOUNTANTS
The Board Of Directors and its Audit Committee recommends that the
shareholders vote in favor of ratifying the selection of the certified public
accounting firm of HEIN + Associates LLP of Denver, Colorado as the auditors who
will continue to audit financial statements, review tax returns, and perform
other accounting and consulting services for the year ending December 31, 2003
or until the Board Of Directors, in its discretion, replaces them. HEIN +
Associates LLP also audited our financial statements for the fiscal years ended
December 31, 2001, 2002, and 2003.
An affirmative vote of the majority of shares represented at the meeting is
necessary to approve the selection of auditors. There is no legal requirement
for submitting this proposal to the shareholders; however, the Board Of
Directors believes that it is of sufficient importance to seek approval. Whether
the proposal is approved or defeated, the Board may reconsider, at their
discretion, its selection of HEIN + Associates LLP. It is expected that one or
more representatives of HEIN + Associates LLP will be present at the Annual
Meeting and will be given an opportunity to make a statement if they desire to
do so and to respond to appropriate questions from shareholders.
Audit Fees
The following table sets forth the aggregate fees billed to us by HEIN +
Associates LLP for the years ended December 31, 2003 and December 31, 2002:
2003 2002
--------- ---------
Audit fees $83,500(1) $82,700(1)
Audit-related fees -- (2) -- (2)
Tax fees 11,200(3) 11,000(3)
All other fees -- 2,300
--------- ---------
Total audit and non-audit fees $94,700 $96,000
========= =========
(1) Includes fees for professional services rendered for the audit of ARC's
annual financial statements and review of ARC's annual report on Form 10-K
for the year 2003 and 2002 and for reviews of the financial statements
included in ARC's quarterly reports on Form 10-Q for the first three
quarters of fiscal 2003 and 2002.
(2) Includes fees billed for professional services rendered in fiscal 2003 and
2002, in connection with acquisition planning, due diligence and related
SEC registration statements.
(3) Includes fees billed for professional services rendered in fiscal 2003 and
2002, in connection with tax compliance (including U.S. federal and state
returns) and tax consulting.
21
Financial Information Systems Design and Implementation Fees
During fiscal year 2003, the aggregate fees billed for the professional
services described in paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X
rendered by HEIN + Associates LLP for fiscal year 2002 totaled $0.
All Other Fees
During fiscal year 2003, all other fees billed for services rendered by
HEIN + Associates LLP (other than the services described above) totaled $0.
The Audit Committee's pre-approved policy requires that all services that
the Company's independent auditor may provide to the Company, including audit
services, must be pre-approved by the Committee. In the event that an audit or
non-audit service requires approval prior to the next scheduled meeting of the
Audit Committee, the auditor must contact the Chairman of the Audit Committee to
obtain such approval. The approval must be reported to the Audit Committee at
its next scheduled meeting.
The Board Of Directors has considered whether the provision of the services
covered in this section is compatible with maintaining HEIN + Associates LLP's
independence and believes that it is.
Recommendation of the Board Of Directors
The Board Of Directors unanimously recommends that the shareholders vote
FOR the ratification of the selection of HEIN + Associates LLP as our certified
independent accountants for the year ending December 31, 2004.
ITEM 3. THE REVERSE STOCK SPLIT
Although our Board Of Directors has not reached a conclusion, we believe
that it is possible that at some time a reverse stock split may be beneficial to
us due primarily to the large number of shares that are outstanding. We believe
that the low trading price of our Common Stock may impair the efficiency of the
trading market for our Common Stock and that brokerage commissions on the
purchase or sale of a relatively lower priced stock generally tend to represent
a higher percentage of the sales price than the commission on a relatively
higher priced stock. We believe that a reverse stock split could improve these
factors and could inure to the benefit of our shareholders, of the Company and
of the market for the Common Stock. As a result, our Board of Directors is
requesting that the shareholders authorize the Board Of Directors, in its sole
discretion at any time on or before December 31, 2005, to determine whether to
implement a reverse stock split; provided that any such reverse stock split be
in a range between and including 1 for 10 and 1 for 50. This authorization would
apply to only one reverse split and would expire on January 1, 2006.
If the reverse stock split was effected, we would have fewer shares
outstanding. A reduction in the number of shares would increase the book value
per share as well as the earnings (or loss) per share. These increases could
make the Common Stock more attractive to larger brokerage houses, thereby
22
possibly expanding the group of brokers interested in making a market for the
Common Stock. Nevertheless, we cannot predict what effect the reverse stock
split would have on the market price of the Common Stock.
If the reverse stock split authorization is approved by the shareholders,
the effective time for the reverse stock split, if at all, will be as determined
by our Board Of Directors. If our Board Of Directors so determines, between each
10 shares and 50 shares of Common Stock at the effective time shall be deemed to
be one share of Common Stock without further action by our shareholders. It will
not be necessary for a shareholder to exchange certificates representing stock
issued prior to the reverse stock split for certificates representing shares
resulting after the reverse stock split.
If the reverse stock split is effected, we will not issue certificates for
fractional shares. Instead, persons who are shareholders at the effective time
of the reverse stock split and who otherwise would be entitled to a fractional
share would receive the closest whole number of shares to which their fractional
share entitles them. Therefore, shareholders having a fractional share of 0.50
or more will receive a whole share in lieu of their fractional share, and
shareholders having a fractional share of less than 0.50 will receive nothing
for their fractional share. All shares of Common Stock held by a record holder
will be aggregated for purposes of computing the number of shares of Common
Stock subject to the reverse stock split.
We have not sought and do not intend to seek an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of a reverse stock split. Based on consultation with counsel, we
believe that a shareholder who does not receive cash in connection with a
reverse stock split would not recognize any gain or loss on the exchange and we
would not recognize any gain or loss as a result of a reverse stock split.
An affirmative vote of the majority of the outstanding shares is required
to approve the reverse stock split.
Recommendation of the Board Of Directors
The Board Of Directors unanimously recommends that the shareholders vote
FOR the authorization of the Board Of Directors to determine whether to effect a
reverse stock split of our outstanding common stock.
ITEM 4. PROPOSAL TO INCREASE THE NUMBER OF OPTIONS AUTHORIZED
FOR GRANT UNDER THE COMPANY'S 1997 STOCK OPTION AND
COMPENSATION PLAN
The Board Of Directors recommends that the shareholders vote in favor of
increasing the number of options authorized for grant under the Company's 1997
Stock Option and Compensation Plan (the "Plan") from 5,000,000 to 10,000,000.
The Plan was approved by the Board Of Directors in 1997 and by the
stockholders of the Company in 1998. Shares of Common Stock and options (the
"Options") to purchase shares of Common Stock may be granted pursuant to the
Plan in any combination up to 5,000,000 shares of Common Stock. The Options
granted pursuant to the Plan may be either Incentive Options, Non-Qualified
Options or Non-Qualified Non-Discretionary Options. The Plan is intended to
provide incentives to key employees, directors and other persons who have or are
contributing to the success of the Company by offering them Options to purchase
shares of the Company's Common Stock. The effect of the increase in the number
of shares issuable upon the exercise of options granted under the Plan is to
allow us to grant more options from time to time and thereby augment our program
of providing incentives to employees. The terms of the Plan concerning Incentive
Options and Non-Qualified Options are substantially the same except that only
employees of the Company or its subsidiaries are eligible for Incentive Options
and employees and other persons who have contributed or are contributing to the
success of the Company are eligible for Non-Qualified Options. Non-Qualified
23
Non-Discretionary Options may only be granted to Outside Directors who are
contributing to the Company. Grants of shares of Common Stock ("Grant Shares")
may be made only to Outside Directors who elect to receive the payment of their
meeting attendance fee (currently $250 per meeting) in shares of the Company's
Common Stock rather than cash. The number of Options and Grant Shares authorized
is a maximum aggregate so that the number of Incentive Options granted reduces
the remaining number of Options that can be granted as Non-Qualified Options,
Non-Qualified Non-Discretionary Options or Incentive Options and the number of
Grant Shares that may be granted; and similarly for grants of Non-Qualified
Options, Non-Qualified Non-Discretionary Options, and Grant Shares.
The portion of the Plan concerning Incentive Options and Non-Qualified
Options is administered by the Option Committee, which may consist of either (i)
the Company's Board Of Directors, or (ii) a committee, appointed by the Board Of
Directors, of two or more non-employee directors. A non-employee director is a
director who (i) is not currently an officer or employee of the Company or any
of its subsidiaries; (ii) does not receive compensation from the Company in
excess of $60,000 for services rendered other than as a director; and (iii) is
not involved in a transaction that is required to be disclosed in the Company's
Form 10-K and proxy reports as a related party transaction. The Option Committee
has discretion to select the persons to whom Incentive Options and Non-Qualified
Options will be granted ("Optionees"), the number of shares to be granted, the
term of those Options and the exercise price of those Options. However, no
Option may be exercisable more than 10 years after the granting of the Option,
and no Incentive Option or Non-Qualified Option may be granted under the Plan
after November 18, 2007.
There currently are approximately 15 employees eligible to receive
Incentive Options, two Outside Directors currently eligible to receive
Non-Qualified Non-Discretionary Options and Grant Shares, and an unspecified
number of persons eligible to receive Non-Qualified Options.
The Company granted a total of 250,000 options to Outside Directors under
the Plan during 2002, at an exercise price of $.13 per share and granted a total
of 25,000 options to Outside Directors under the Plan during 2001, at an
exercise price of $.28 per share. No options were granted during 2003.
As of December 31, 2003, there were 600,000 exercisable options outstanding
related to the grants to Outside Directors. Dr. Donald Huebner's employment
terminated on January 31, 2002 but he continues as a Director of the Company, as
such all of his options are disclosed as Outside Directors options.
24
In addition to Outside Directors grants, the Board Of Directors may grant
incentive options to our key employees pursuant to the Plan. There were no
options granted in 2003 but in 2002, the Board granted a total of 1,625,000
options under the Plan to employees at prices ranging from $.13 to $.18 and in
2001, the Board granted a total of 1,560,000 options under the Plan to employees
at prices ranging from $.21 to $.58. As of December 31, 2003, there were
1,875,000 exercisable options outstanding related to grants to employees, all of
which were granted under the Plan.
The Plan provides that the exercise price of Incentive Options granted
cannot be less than the fair market value of the underlying Common Stock on the
date the Incentive Options are granted. No Incentive Option may be granted to an
employee who, at the time the Incentive Option would be granted, owns more than
ten percent of the outstanding stock of the Company unless the exercise price of
the Incentive Option granted to the employee is at least 110 percent of the fair
market value of the stock subject to the Incentive Option, and the Incentive
Option is not exercisable more than five years from the date of grant. In
addition, the aggregate fair market value (determined as of the date an Option
is granted) of the Common Stock underlying the Options granted to a single
employee which become exercisable in any single calendar year may not exceed the
maximum permitted by the Internal Revenue Code for incentive stock options. This
amount currently is $100,000.
The portion of the Plan concerning Non-Qualified Non-Discretionary Option
provides that Outside Directors automatically receive options to purchase
250,000 shares pursuant to the Plan at the time of their election as an Outside
Director. These options held by Outside Directors are not immediately
exercisable at the time of grant. Options to purchase 50,000 shares become
exercisable for each meeting of the Board Of Directors attended by each Outside
Director on or after the date of grant of the options to that Outside Director.
The exercise price for options granted to Outside Directors is the fair
market value of the Company's Common Stock on the date of grant. All options
granted to Outside Directors expire five years from the date of grant. On the
date that all of an Outside Director's options have become exercisable, options
to purchase an additional 250,000 shares, which are not exercisable at the time
of grant, shall be granted to that Outside Director. The exercise price for the
Non-Qualified Non-Discretionary Options shall be the fair market value of the
Company's Common Stock on the date the Options are granted. Shares acquired upon
exercise of these Options cannot be sold for six months following the date of
grant. If not previously exercised, Non-Qualified Non-Discretionary Options that
have been granted expire upon the later to occur of five years after the date of
grant and two years after the date those Options first became exercisable. The
Non-Qualified Non-Discretionary Options also expire 90 days after the
optionholder ceases to be a director of the Company. Outside Directors also may
elect to receive their meeting attendance fees, which currently are $250 per
meeting up to the first four meeting per year and $50 per meeting thereafter, in
the form of Grant Shares under the Plan. The election to receive Grant Shares
must be made at or prior to the meeting for which the meeting fee is payable.
The number of Grant Shares is determined by dividing the amount of the meeting
fee by the fair market value of the Company's Common Stock on the date of the
meeting.
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All options granted under the Plan will become fully exercisable upon the
occurrence of a change in control of the Company or certain mergers or other
reorganizations or asset sales described in the Plan.
Options granted pursuant to the Plan will not be transferable during the
Optionee's lifetime. Subject to the other terms of the Plan, the Option
Committee has discretion to provide vesting requirements and specific expiration
provisions with respect to the Incentive Options and Non-Qualified Options
granted.
Although the Company may in the future register with a registration
statement the issuance of the options and underlying shares of Common Stock
issuable pursuant to the Plan, the Company currently plans to use the exemption
from registration set forth in Section 4(2) of the Securities Act Of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder due to the limited number, and of the relationship to the Company, of
the persons currently anticipated to participate in the Plan. The Common Stock
acquired through the exercise of the Options may be reoffered or resold only
pursuant to an effective registration statement or pursuant to Rule 144 under
the Securities Act or another exemption from the registration requirements of
the Securities Act.
In the event a change, such as a stock split, is made in the Company's
capitalization which results in an exchange or other adjustment of each share of
Common Stock for or into a greater or lesser number of shares, appropriate
adjustment shall be made in the exercise price and in the number of shares
subject to each outstanding Option. The Option Committee also may make
provisions for adjusting the number of shares subject to outstanding Options in
the event the Company effects one or more reorganizations, recapitalizations,
rights offerings, or other increases or reductions of shares of the Company's
outstanding Common Stock.
The Board Of Directors may at any time terminate the Plan or make such
amendments or modifications to the Plan that the Board Of Directors deems
advisable, except that no amendments may impair previously outstanding Options
and amendments that materially modify eligibility requirements for receiving
Options, that materially increase the benefits accruing to persons eligible to
receive Options or Grant Shares, or that materially increase the number of
shares under the Plan must be approved by the Company's stockholders.
The Incentive Options issuable under the Plan are structured to qualify for
favorable tax treatment provided for "incentive stock options" by Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). All references to
the tax treatment of the Incentive Options are under the Code as currently in
effect. Pursuant to Section 422 of the Code, Optionees will not be subject to
federal income tax at the time of the grant or at the time of exercise of an
Incentive Option. In addition, provided that the stock underlying the Incentive
Option is not sold less than two years after the grant of the Incentive Option
and is not sold less than one year after the exercise of the Option, then the
difference between the exercise price and the sales price will be treated as
long-term capital gain or loss. An Optionee also may be subject to the
alternative minimum tax upon exercise of his Incentive Options. The Company will
not be entitled to receive any income tax deductions with respect to the
granting or exercise of Incentive Options or the sale of the Common Stock
underlying the Incentive Options.
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Non-Qualified and Non-Qualified Non-Discretionary Options will not qualify
for the special tax benefits given to Incentive Options under Section 422 of the
Code. An Optionee does not recognize any taxable income at the time he is
granted a Non-Qualified Option or Non-Qualified Non-Discretionary Option.
However, upon exercise of these Options, the Optionee recognizes ordinary income
for federal income tax purposes measured by the excess, if any, of the then fair
market value of the shares over the exercise price. The ordinary income
recognized by the Optionee will be treated as wages and will be subject to
income tax withholding by the Company. Upon an Optionee's exercise of a
Non-Qualified Option or Non-Qualified Non-Discretionary Option, the Company will
be entitled to a tax deduction in the amount recognized as ordinary income to
the Optionee provided that the Company effects withholding with respect to the
deemed compensation. Upon an Optionee's sale of shares acquired pursuant to the
exercise of a Non-Qualified Option or Non-Qualified Non-Discretionary Option,
any difference between the sale price and the fair market value of the shares on
the date when the Option was exercised will be treated as long-term or
short-term capital gain or loss.
As of September 9, 2004, there were options to purchase 1,425,000 shares of
Common Stock and no Grant Shares outstanding under the Plan. The Option
Committee may grant 2,466,333 additional Options and Grant Shares pursuant to
the Plan. The Board believes that the number of Options and Grant Shares
authorized for grant under the plan should be increased so that the Company will
have greater flexibility in determining future option grants.
The market price of the Company's common stock as of September 9, 2004 was
$0.13 per share.
The following table sets forth information as of September 9, 2004 with
respect to compensation plans under which equity securities of the Company are
authorized for issuance:
EQUITY COMPENSATION PLAN INFORMATION
Number of securities to Weighted-average Number of securities remaining
be issued upon exercise exercise price of available for future issuance
of outstanding options, outstanding options, under equity compensation
warrants and rights warrants and rights plans (excluding securities
Plan Category (a) (b) reflected in column (a))
------------- ----------------------- -------------------- ------------------------------
Equity compensation plans 1,425,000 $.17 2,466,333
approved by security holders
Equity compensation plans -- -- --
not approved by security
holders
Total 1,425,000 $.17 2,466,333
An affirmative vote of the majority of shares represented at the meeting is
necessary to approve the increase in options authorized for grant under the
Plan.
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The Board Of Directors unanimously recommends that the shareholders vote
FOR the increase in the number of options authorized for grant under the Plan.
OTHER BUSINESS
The Board Of Directors is not aware of any other matters that are to be
presented at the Annual Meeting, and it has not been advised that any other
person will present any other matters for consideration at the meeting.
Nevertheless, if other matters should properly come before the Annual Meeting,
the shareholders present, or the persons, if any, authorized by a valid proxy to
vote on their behalf, shall vote on such matters in accordance with their
judgment.
RESOLUTIONS PROPOSED BY INDIVIDUAL SHAREHOLDERS;
DISCRETIONARY AUTHORITY TO VOTE PROXIES
In order to be considered for inclusion in the proxy statement and form of
proxy relating to our next annual meeting of shareholders following the end of
our 2004 fiscal year, proposals by individual shareholders must be received by
us no later than August 20, 2005.
In addition, the proxy solicited by the Board Of Directors for the next
annual meeting of shareholders will confer discretionary authority on any
shareholder proposal presented at that meeting unless we are provided with
notice of that proposal no later than August 20, 2005.
AVAILABILITY OF REPORTS ON FORM 10-K
A copy of our Annual Report on Form 10-K for the fiscal year ended December
31, 2003 and a copy of our Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2004 are being mailed to each Shareholder with this proxy
statement. Upon written request, we will provide, without charge, a copy of our
2003 Form 10-K to any shareholder of record, or to any shareholder who owns
Common Stock listed in the name of a bank or broker as nominee, at the close of
business on September 27, 2004. Any request for a copy of our 2003 Form 10-K
should be mailed to ARC Wireless Solutions, Inc., 10601 West 48th Avenue, I-70
Frontage Road North, Wheat Ridge, Colorado 80033-2660, Attention: Investor
Relations.
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FORWARD-LOOKING STATEMENTS
This proxy statement and materials delivered with this proxy statement
include "forward-looking" statements. All statements other than statements of
historical facts included in this proxy statement and materials delivered with
this proxy statement, including without limitation statements regarding our
financial position, business strategy, and plans and objectives of management
for future operations and capital expenditures, are forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements and the assumptions upon which the forward-looking statements are
based are reasonable, we can give no assurance that such expectations and
assumptions will prove to have been correct. Additional statements concerning
important factors that could cause actual results to differ materially from our
expectations ("Cautionary Statements") are disclosed in the "Forward-Looking
Statements--Cautionary Statements" section of our Annual Report on Form 10-K for
the year ended December 31, 2003. All written and oral forward-looking
statements attributable to us or persons acting on our behalf subsequent to the
date of this proxy statement are expressly qualified in their entirety by the
Cautionary Statements.
This notice and proxy statement are sent by order of the Board Of
Directors.
Dated: October 6, 2004 Randall P. Marx
Chief Executive Officer
* * * * *
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Proxy - ARC WIRELESS SOLUTIONS, INC.
For the Annual Meeting of Stockholders on November 9, 2004
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Randall P. Marx or Monty Lamirato, or either or
them, as proxies with full power of substitution to vote all the shares of the
undersigned with all of the powers which the undersigned would possess if
personally present at the Annual Meeting of Stockholders of ARC Wireless
Solutions, Inc. (the "Company") to be held at 10:00 a.m. (Denver, Colorado time)
on November 9, 2004, at the offices of the Company, or any adjournments thereof,
on the matters stated on the reverse side.
Unless contrary instructions are given, the shares represented by this proxy
will be voted in favor of Items 1,2, 3, 4, 5 and 6. This proxy is solicited on
behalf of the Board of directors of ARC Wireless Solutions, Inc.
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN, ON THE
REVERSE SIDE, AND RETURN THIS PROXY IN THE ACCOMPANYING ENVELOPE.
(Continued and to be signed on the reverse side.)
ARC WIRELESS SOLUTIONS, INC.
Mark this box with an X if you have made changes to your name or address details
above. [ ]
A. Election of Directors
The Board of Directors recommends a vote FOR the listed nominees.
1. To elect the following four directors:
Nominees: Randall P. Marx, Gregory E. Raskin, Donald A. Huebner,
and Sigmund A. Balaban
FOR ALL NOMINEES [ ]
WITHHELD AUTHORITY FOR ALL NOMINEES [ ]
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE [ ]
2. To consider and vote upon a proposal recommended by the Board Of Directors
to ratify the selection of HEIN + Associates LLP to serve as our certified
independent accountants for the year ending December 31, 2004;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To consider and vote upon a proposal recommended by the Board Of Directors
to amend our 1997 Stock Option and Compensation Plan to increase from
5,000,000 to 10,000,000 the number of shares of common stock issuable
pursuant to options granted under our 1997 Stock Option and Compensation
Plan;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To consider and vote upon a proposed recommendation by the Board Of
Directors to authorize the Board Of Directors to determine whether to
effect a reverse stock split of our outstanding Common Stock at the time
and at the ratio between 1 for 10 and 1 for 50 that the Board Of Directors
deems appropriate; and
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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5. In their discretion, the proxies are authorized to vote upon an adjournment
or postponement of the meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Authorized Signatures - Sign Here - This section must be completed for your
instructions to be executed.
Please sign exactly as shown on your stock certificate and on the envelope in
which this proxy was mailed. When signing as partner, corporate officer,
attorney, executor, administrator, trustee, guardian, etc., give full title as
such and sign your own name as well. If stock is held jointly, each joint owner
must sign.
Signature 1 :_________________________________
Signature 2: _________________________________
Date (mm/dd/yyyy):____________________________________
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