UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
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
o
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appropriate box:
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Preliminary
Proxy Statement
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Confidential,
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Definitive
Proxy Statement
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Commission
Only (as permitted by
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o
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Definitive
Additional Materials
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Rule
14a-6(e)(2))
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o
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Soliciting
Material Pursuant to
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(§)240.14a-11(c)
or (§)240.14a-12
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EAU
TECHNOLOGIES, INC.
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(Name
of Registrant as Specified In Its
Charter)
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N/A
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(Name
of Person(s) Filing Proxy Statement if other than the
Registrant)
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computed on table below per Exchange Act Rules 14a-6(i)(1) and
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2)
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Aggregate
number of securities to which transaction
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Per
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pursuant to
Exchange Act
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0-11 (Set forth the amount on which the filing fee is calculated
and state
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EAU
TECHNOLOGIES, INC.
1890
Cobb International Blvd.
Suite
A
Kennesaw,
Georgia 30152
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
Be Held December 12, 2008
To
the
Stockholders:
The
Annual Meeting of Stockholders of EAU Technologies, Inc. (the “Company”) will be
held at the Marriott SpringHill Suites, located at 3399 Town Point Drive,
Kennesaw, Georgia 30144, on Friday, December 12, 2008 at 8:00 a.m., Atlanta
time, for the following purposes, all as set forth in the attached Proxy
Statement:
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1.
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To
elect seven directors to serve for one-year terms expiring at the
Annual
Meeting in 2009 and until their successors are elected and qualified.
The
Board of Directors’ nominees are named in the attached Proxy Statement.
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2.
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To
ratify the appointment of HJ & Associates, LLC as independent auditors
for the fiscal year ending December 31,
2008.
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3.
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To
transact such other business as may properly come before the meeting,
or
any adjournment thereof.
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Only
stockholders of record on the books of the Company at the close of business
on
November 3, 2008, are entitled to receive notice of and to vote at the meeting.
Stockholders
are cordially invited to attend the meeting in person. However, whether or
not
you expect to attend, we urge you to read the accompanying Proxy Statement
and
then complete, sign, date and return the enclosed proxy card in the enclosed
postage-prepaid envelope. It is important that your shares be represented
at the
meeting, and your promptness will assist us in preparing for the meeting
and
avoiding the cost of a follow-up mailing. If you receive more than one proxy
card because you own shares registered in different names or at different
addresses, each proxy card should be completed and returned.
Sincerely,
WADE
R.
BRADLEY
President
and Chief
Executive Officer
Kennesaw,
Georgia
November
6, 2008
EAU
TECHNOLOGIES, INC.
1890
Cobb International Blvd.
Suite
A
Kennesaw,
Georgia 30152
PROXY
STATEMENT
for
Annual
Meeting of Stockholders To Be Held December 12, 2008
GENERAL
INFORMATION
This
Proxy Statement is furnished to stockholders of EAU Technologies, Inc., a
Delaware corporation (“EAU” or the “Company”), in connection with the
solicitation by the Board of Directors of the Company (the “Board of Directors”
or “Board”) of proxies for use at the Annual Meeting of Stockholders (the
“Meeting”) scheduled to be held on Friday, December 12, 2008, at 8:00 a.m.,
Atlanta time, at the Marriott SpringHill Suites, located at 3399 Town Point
Drive, Kennesaw, Georgia 30144, and at any and all adjournments or postponements
thereof. This Proxy Statement and the accompanying form of proxy were first
mailed to stockholders on or about November 3, 2008.
At
the
Meeting, stockholders of the Company will vote upon: (1) the election of
seven
directors, (2) the ratification of the appointment of HJ & Associates, LLC
as independent auditors, and (3) such other business as may properly come
before
the Meeting and any and all adjournments thereof.
VOTING
RIGHTS AND VOTES REQUIRED
The
close
of business on November 3, 2008, has been fixed as the record date for the
determination of stockholders entitled to receive notice of and to vote at
the
Meeting. As of the close of business on such date, the Company had outstanding
and entitled to vote 17,485,918 shares of Common Stock, $.001 par value per
share (“Common Stock”).
The
presence of a majority of the issued and outstanding shares of Common Stock
entitled to vote, represented in person or by properly executed proxy, is
required for a quorum at the Annual Meeting. Abstentions and broker non-votes,
which are indications by a broker that it does not have discretionary authority
to vote on a particular matter, will be counted as “represented” for the purpose
of determining the presence or the absence of a quorum. Under the General
Corporation Law of the State of Delaware, once a quorum is established,
stockholder approval with respect to a particular proposal is generally obtained
when the votes cast in favor of the proposal exceed the votes cast against
such
proposal.
Directors
are elected by a plurality of the votes cast. Stockholders may not cumulate
their votes. The seven candidates receiving the highest number of votes will
be
elected. In tabulating the votes, abstentions and broker non-votes will be
disregarded and will have no effect on the outcome of the vote for the election
of directors.
The
affirmative vote of the holders of the majority of the shares of Common Stock
voting on each proposal is required to approve the ratification of independent
auditors. In determining whether the proposal has received the requisite
number
of affirmative votes, broker non-votes and abstentions will be disregarded
and
will have no effect on the outcome of the vote. It is expected that shares
held
by executive officers and directors of the Company, which in the aggregate
represent approximately 65.8% of the outstanding shares of Common Stock,
will be
voted in favor of this proposal.
VOTING
OF PROXIES
Shares
represented by all properly executed proxies will be voted at the Meeting
in
accordance with the instructions specified thereon. If no instructions are
specified, the shares represented by any properly executed proxy will be
voted
FOR the election of the nominees listed below under “Proposal 1: Election of
Directors” and FOR the ratification of the appointment of independent auditors.
The
Board
of Directors is not aware of any matter that will come before the Meeting
other
than as described above. However, if any such other matter is duly presented,
in
the absence of instructions to the contrary, such proxies will be voted in
accordance with the judgment of the proxy holders with respect to such matter
properly coming before the Meeting. There are no rights of appraisal or similar
dissenter’s rights with respect to any matter to be acted upon pursuant to this
Proxy Statement.
REVOCATION
OF PROXIES
Any
proxy
given pursuant to this solicitation may be revoked by a stockholder at any
time
before it is exercised. Any proxy may be revoked by a written notice of
revocation, by a valid proxy bearing a later date delivered to the Company
or by
attending the Meeting and voting in person.
SOLICITATION
OF PROXIES
The
expenses of this solicitation will be paid by the Company. To the extent
necessary to ensure sufficient representation at the Meeting, proxies may
be
solicited by any appropriate means (including mail, telephone and electronic
transmission) by officers, directors and regular employees of the Company,
who
will receive no additional compensation therefor. The Company will pay persons
holding shares in their names or in the names of their nominees, but not
owning
such stock beneficially (such as brokerage houses, banks and other fiduciaries),
for the expense of forwarding soliciting material to their principals. The
Company, in its discretion, may pay third parties such as proxy solicitation
firms to assist the Company in obtaining the requisite vote with respect
to the
proposals to be presented at the meeting. The cost of such third-party
solicitation is not anticipated to exceed $10,000.
PROPOSAL
1: ELECTION OF DIRECTORS
Proxies
will be voted with respect to the election of the following seven nominees
as
directors to serve until the 2009 Annual Meeting of Stockholders or until
their
successors are elected and qualified. The election of each nominee for director
requires the affirmative vote of the holders of a plurality of the shares
cast
in the election of directors. The Board of Directors has no reason to believe
that any of the nominees will be unavailable for service if elected, but
if any
are unavailable, proxies will be voted for such substitute as the Board may
designate.
Name
|
Age
|
Director
Since
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Wade
R. Bradley
|
48
|
2006
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Karl
Hellman
|
61
|
2007
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Theodore
C. Jacoby, Jr.
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67
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2007
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J.
Leo Montgomery
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68
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2007
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Jay
S. Potter
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44
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2005
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Peter
F. Ullrich
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66
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2007
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William
J. Warwick
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74
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2003
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Wade
R. Bradley
has
served as a member of the Board and as President and Chief Executive Officer
of
the Company since 2006. Before joining EAU, Mr. Bradley was employed by Oil-Dri
Corporation of America (NYSE: ODC), serving as President of the Retail and
Wholesale Group from November 2005 to November 2006 and as Vice President
of the
Consumer Products Group from June 2000 to November 2005. He worked at various
other positions with Oil-Dri from 1990 to 2000. Mr. Bradley began his
career at the public accounting firm of Arthur Young & Company in their
Entrepreneurial Services Group. He then worked as the Executive Director
of a
non-profit organization that assisted disadvantaged youths in furthering
their
education. Mr. Bradley received his Bachelor of Science in Accountancy from
the
University of Illinois. He then attended the Harvard Business School for
a
Masters of Business Administration. Mr. Bradley’s employment agreement with the
Company provides that he shall be nominated to serve as a director.
Karl
Hellman
was
appointed as a director in October 2007. Mr. Hellman is the founder of
Resultrek, a management consulting and marketing training firm, where he
has
served as Chief Executive Officer and President since 1999. Prior to that,
from
1997 to 1999, Mr. Hellman served as a Principal of Scott, Madden &
Associates, a management consulting firm. Mr. Hellman has more than 30 years
of
consulting and corporate experience. He received his B.A. from Beloit College
and his Masters Degree from Northwestern University.
Theodore
C. Jacoby, Jr.
was
appointed as a director in September 2007. Mr. Jacoby is currently President
and
Chief Executive Officer of T.C. Jacoby & Company, the leading independent
distributor of bulk dairy products in the U.S., including raw milk, cream,
condensed milk, powdered milk, butter and cheese. Mr. Jacoby has expanded
T.C. Jacoby to numerous international markets. Mr. Jacoby is an active member
of
the international dairy community, serving on the Board of Directors of the
U.S.
Dairy Export Committee Council since 1995. He currently serves on the
Trade Policy Committee. T.C. Jacoby & Company is a member of
many other prominent dairy trade organizations, including the International
Dairy Foods Association, California Milk Processors Association and is an
associate member of National Milk Producers Federation. Mr. Jacoby received
his
Bachelor of Science degree in Agriculture from the Missouri College of
Agriculture, Food, and Natural Resources. After graduation, Mr. Jacoby
proudly served in the United States Marine Corp for four years.
J.
Leo Montgomery
was
appointed as a director and non-executive Chairman of the Board in October
2007.
Mr. Montgomery was a senior partner at Ernst & Young, retiring in 2003 after
a 39-year career. Mr. Montgomery served in several leadership roles at Ernst
& Young and was the coordinating partner for many major clients of the firm.
He is currently an Advisory Director at SunTrust Robinson Humphrey (a division
of SunTrust Capital Markets). He is also a member of the Board of Directors
of
Cypress Communications, Inc. Beginning in May 2006, Mr. Montgomery has served
as
a consultant to EAU Technologies. Mr. Montgomery is a Certified Public
Accountant and holds a B.A. degree from Harding University.
Jay
S. Potter
has
served as a director of the Company since September 2005. He also served
as
Interim Chairman of the Board from May 2006 until October 2007 and Interim
CEO
of the Company from May 2006 until October 2006. He is the founder of Voice
Vision
,
Inc., a
private digital communication company,
and has
been the Chairman of its Board of Directors since its inception in March
2007. Mr. Potter has been active in the financial industry for 20 years
and has successfully participated, directed or placed over one hundred million
dollars of capital in start-up and early stage companies. Mr. Potter takes
an active role in the development of the funded companies and to that end
has
participated as advisor, director and officer. Currently, Mr. Potter is a
director for Envision Solar, LLC, and Envirepel Energy, Inc., two companies
in
the renewable energy sector that he helped fund and that he continues to
guide
and advise. He has served as Chairman, President and CEO of Nexcore
Capital, Inc. and its financial service affiliates since co-founding the
company
in 1989. Mr. Potter serves as Founder and Chairman of Sterling Energy
Resources, Inc., a public oil and gas company (Symbol: SGER) involved in
the
acquisition, exploration and development of oil and natural gas from its
numerous leases
.
Mr.
Potter holds Series 7, 24 and 63 licenses in good standing with the National
Association of Securities Dealers, Inc.
Peter
F. Ullrich
has
served as a director of the Company since April 2007. Mr. Ullrich is
currently EAU’s largest stockholder and single largest customer. He is the owner
of Water Science, LLC (“Water Science”), Latin America’s exclusive licensee of
EAU’s Empowered Water™ technologies. Mr. Ullrich is also the owner and Chairman
of the Board of Esmeralda Farms, an innovative leader in the international
floral industry. Mr. Ullrich has been involved in all aspects of the
international floral industry for over 35 years. He is a pioneer in developing
and adopting cutting-edge technologies that not only assist in building better
business in the floral industry but creating cleaner and safer working
environments for his 5,000-plus employees. Esmeralda Farms is certified by
various international “green” organizations, such as Florverde, Flower Label
Program and VeriFlora. Mr. Ullrich was the recipient of the 2006 SAF Gold
Medal
Achievement Award. He was born and educated in Germany.
William
J. Warwick
has
served as a director since 2003. He retired from AT&T after 39 years of
service with responsibilities including President of AT&T Consumer Products
and Senior Vice President of AT&T. In 1993, he was elected Chairman and CEO,
AT&T China. His business activities are numerous and worldwide, having
served on many high-profile boards of directors and industry associations.
He is
currently Chairman, Executive Advisory Board, Cameron School of Business
and a
member of the Board of Directors of the UNC-W Corporation at the University
of
North Carolina at Wilmington, North Carolina. Mr. Warwick obtained his
undergraduate degree from the University of North Carolina, Chapel Hill,
and his
MBA from Northwestern University, Chicago.
The
Board of Directors recommends that the stockholders vote “FOR” the nominees
listed above. Proxies solicited by the Board of Directors will be so voted
unless stockholders specify otherwise.
Equity
Compensation Plan Information
The
following table sets forth certain information about the Company’s equity
compensation plans as of December 31, 2007.
EQUITY
COMPENSATION PLAN INFORMATION
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights (a)
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
700,260
|
|
$
|
1.99
|
|
|
1,769,740
|
|
Equity
compensation plans not approved by security holders (1)
|
|
|
9,941,579
|
|
$
|
1.52
|
|
|
N/A
|
|
Total
|
|
|
10,641,839
|
|
$
|
1.55
|
|
|
N/A
|
|
(1)
Equity compensation plans not approved by security holders consist of
individually negotiated grants of options or warrants to consultants, directors,
suppliers, vendors and others who provide goods or services to the Company,
and
grants of warrants to investors in connection with limited offerings of the
Company’s Common Stock.
PROPOSAL
2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The
Audit
Committee of the Board of Directors has retained HJ & Associates, LLC, of
Salt Lake City, Utah, as the Company’s independent auditors for the Company and
its subsidiaries for the fiscal year ended December 31, 2008. The Board of
Directors has proposed that the appointment of HJ & Associates, LLC as the
Company’s independent auditors for the year ended December 31, 2008 be ratified
and approved by the stockholders of the Company.
Although
the company is not required to seek ratification, the Audit Committee and
the
Board believe it is sound corporate governance to do so. If stockholders
do not
ratify the appointment of HJ & Associates, LLC, the current appointment will
stand, but the Audit Committee will consider the stockholders’ action in
determining whether to appoint HJ & Associates, LLC, as the Company’s
independent auditors for fiscal 2009.
A
representative of HJ & Associates, LLC is expected to be present in person
or available via conference call at the Annual Meeting and will have the
opportunity to make statements and to respond to appropriate questions raised
at
the Annual Meeting.
The
Board of Directors recommends that the stockholders vote “FOR” the ratification
of the appointment of HJ & Associates, LLC as the Company’s independent
auditors for the year ended December 31, 2008. Proxies solicited by the Board
of
Directors will be so voted unless stockholders specify
otherwise.
CORPORATE
GOVERNANCE
Information
Regarding the Board of Directors and Its Committees
The
Board
of Directors maintains standing Audit and Compensation Committees.
Audit
Committee.
The
Audit Committee, which consists of Theodore C. Jacoby, Jr., J. Leo Montgomery,
Jay S. Potter and William J. Warwick, serves as an independent and objective
party to, among other things, review the Company’s financial statements and
annual report, review and appraise the audit efforts of the Company’s auditors
and pre-approve permissible services to be performed for the Company by its
auditors, and is responsible for the appointment, compensation and oversight
of
the work of the independent public accountants that audit the Company’s
financial statements. The primary function of the Audit Committee involves
oversight functions to support the quality and integrity of the Company’s
accounting and financial reporting processes generally. It should be noted,
however, that the members of the Committee are not necessarily experts in
the
fields of auditing and accounting and do not provide special assurances on
such
matters. The Audit Committee met four times during 2007. The Board of Directors
has determined that J. Leo Montgomery is an “audit committee financial expert”
as that term is defined by applicable rules of the Securities and Exchange
Commission. The report of the Audit Committee appears below in this Proxy
Statement. A copy of the Audit Committee’s charter is included on the Company’s
website at www.eau-x.com.
Compensation
Committee.
The
Compensation Committee, which consists of Karl Hellman, Theodore C. Jacoby,
Jr.
and William J. Warwick, sets the compensation of executive officers and
administers the Company’s incentive plans, including the Company’s stock option
plans.
The
Compensation Committee met two times during 2007. The Compensation Committee
has
adopted a written charter, a copy of which is available on the Company’s website
at www.eau-x.com. As set forth in the Compensation Committee charter, the
Committee:
·
|
Has
the authority to engage independent compensation consultants and
legal
advisors when determined by the Committee to be necessary or appropriate.
In
2007, the Committee engaged a compensation consultant, Phillip Blount
& Associates, Inc., to assist it with, among other things, research
on
appropriate director, executive and employee compensation
levels.
|
·
|
Has
the authority to delegate its responsibilities as it may deem appropriate,
to the extent allowed under applicable law. The Committee generally
does
not delegate its responsibilities to
others.
|
·
|
Requests
that the Chief Executive Officer provide to the Committee his
recommendations relative to compensation of other executive officers
of
the Company. The Committee meets in executive session to determine
the
compensation of the Chief Executive Officer of the
Company.
|
Meetings
and Attendance.
The
Board of Directors held 10 meetings during 2007. Each incumbent directors
attended at least 75 percent of the aggregate of the meetings of the Board
of
Directors and of the committees of which he was a member. The Company strongly
encourages each Board member to attend the Company’s annual meeting of
stockholders.
Director
Independence
The
Board
of Directors has determined in accordance with the listing standards of The
NASDAQ Stock Market that each of the following directors is an independent
director: Mr. Hellman,
Mr.
Jacoby and Mr. Warwick. To be an independent director under those listing
standards, a director must have no relationships which, in the opinion of
the
Company’s Board of Directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director, and must have
no
relationships that are specified in the independence standards to preclude
an
independence determination. Mr. Bradley is not independent because he is
an
executive officer. Mr. Ullrich is not independent due to the level of beneficial
ownership of Common Stock of the Company. Mr. Potter is independent under
SEC
Rule 10A-3, but does not satisfy the definition of independence under the
NASDAQ
Marketplace Rules due to the fees received from the Company in 2005 by Nexcore
Capital, his affiliate. In making the foregoing determination, the Board
considered all relationships between members of the Board of Directors and
the
Company, including the relationships described at “Certain Relationships and
Related Party Transactions.”
The
Board
of Directors unanimously concluded that the relationships listed above would
not
affect the independent judgment of the three independent directors, Mr. Hellman,
Mr. Jacoby and Mr. Warwick, based on their experience, character and independent
means, and therefore do not preclude an independence determination.
The
Board
approved the participation of J. Leo Montgomery and Jay S. Potter as
non-independent members of the Audit Committee in accordance with the NASDAQ
listing standards exception. Mr. Potter is a principal of Nexcore Capital,
which
received placement fees from the Company in 2005 for assisting it with a
private
placement. Due to this relationship, Mr. Potter is not deemed an independent
director under NASDAQ’s listing standards relating to Audit Committees. The
listing standards include restrictions on receiving compensation from the
Company for the past three years. The Board believes that Mr. Potter will
qualify as an independent director under the NASDAQ rules beginning in 2008
after more than three years have elapsed since the receipt of the last of
the
placement fees. The Board determined Mr. Potter’s membership was necessary due
to his extensive financial expertise and his comprehensive knowledge of the
history of the Company.
The
Board
has determined that J. Leo Montgomery does not meet the above independence
standards due to his consulting arrangement with the Company. The Board
nonetheless appointed Mr. Montgomery to the Audit Committee due to his extensive
financial and accounting expertise. The Board has determined that Mr. Montgomery
is an “audit committee financial expert” as that term is defined by applicable
rules of the Securities and Exchange Commission. The Audit Committee previously
did not have such an expert.
Communications
to the Board
The
Board
of Directors requests that any stockholders who desire to send communications
to
the Board mail those communications to:
Vice
President of Investor Relations
EAU
Technologies, Inc.
1890
Cobb
International Boulevard
Suite
A
Kennesaw,
Georgia 30152
All
mail
addressed in this manner will be delivered to the chair or chairs of the
committees with responsibilities most directly related to the matters addressed
in the communication.
Code
of Ethics
The
Company adopted a Code of Ethics on April 6, 2004 that applies to its principal
executive officer, principal financial officer, principal accounting officer
and
controller or persons performing similar functions. This Code is available
on
the Company’s website at
www.eau-x.com
.
The
Company will disclose on its website any amendments to or waivers from
provisions of the Code as required by the rules of the Securities and Exchange
Commission. The Board of Directors has also established procedures for the
receipt, retention and treatment of complaints regarding accounting, internal
accounting controls or auditing matters and the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters. Complaints regarding these matters will be reviewed under
Audit Committee direction and oversight.
Report
of the Audit Committee
The
following Report of the Audit Committee shall not be deemed to be “soliciting
material” or to be “filed” with the Securities and Exchange Commission (the
“Commission” or the “SEC”) or subject to Regulations 14A or 14C of the
Commission or to the liabilities of Section 18 of the Securities Exchange
Act of
1934 (the “Exchange Act”) and shall not be deemed incorporated by reference into
any filing under the Securities Act of 1933 or the Exchange Act, notwithstanding
any general incorporation by reference of this Proxy Statement into any other
document.
The
Board
of Directors maintains an Audit Committee comprised of four of the Company’s
non-employee directors. The Board of Directors and the Audit Committee believe
that the Audit Committee’s current member composition satisfies the rule of the
NASDAQ Stock Market (“NASDAQ”) that governs audit committee composition as
currently in effect, including the requirement that audit committee members
all
be “independent directors” as that term is defined by NASDAQ Marketplace Rule
4200(a)(15) and Rule 10A-3(b)(1) of the Exchange Act, except that the Board
has
determined that it is in the best interests of the Company to have J. Leo
Montgomery and Jay S. Potter serve on the Audit Committee despite certain
relationships that do not qualify under the rules. The Board has adopted
a
written Charter of the Audit Committee.
The
Audit
Committee oversees the Company’s financial reporting process on behalf of the
Board of Directors. Management has the primary responsibility for the financial
statements and the reporting process including the systems of internal controls.
The independent auditors are responsible for expressing an opinion on the
conformity of the financial statements with United States generally accepted
accounting principles. In fulfilling its oversight responsibilities, the
Audit
Committee reviewed and discussed the audited financial statements in the
Annual
Report on Form 10-KSB for the year ended December 31, 2007 with management
and
the independent auditors, including without limitation, a discussion with
the
independent auditors of the matters required to be discussed with the Audit
Committee under Statement on Auditing Standards No. 61.
In
discharging its oversight responsibility as to the audit process, the Audit
Committee obtained from the independent auditors the written disclosures
required by the Independence Standards Board Standard No. 1 and discussed
with
the independent auditors their independence.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements
be
included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2007 for filing with the Securities and Exchange
Commission.
AUDIT
COMMITTEE
Theodore
C. Jacoby,
Jr.
J.
Leo
Montgomery
Jay
S.
Potter
William
J.
Warwick
Section
16(a) Beneficial Ownership Reporting Compliance
Pursuant
to Section 16(a) of the Securities Exchange Act of 1934 and the rules issued
thereunder, the Company’s executive officers and directors and any persons
holding more than 10% percent of the Company’s Common Stock are required to file
with the Securities and Exchange Commission reports of their initial ownership
of the Company’s Common Stock and any changes in ownership of such Common Stock.
Specific due dates have been established and the Company is required to disclose
in its Annual Report on Form 10-KSB and Proxy Statement any failure to file
such
reports by these dates. Copies of such reports are required to be furnished
to
the Company. Based solely on its review of the copies of such reports furnished
to the Company, or written representations that no reports were required,
the
Company believes that, during 2007, all of its executive officers, directors
and
persons owning more than 10% of its Common Stock complied with the Section
16(a)
requirements.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT
The
following table presents information about the beneficial ownership of our
Common Stock as of
October
31, 2008 by:
·
|
each
person or entity who is known by us to own beneficially more than
5% of
the outstanding shares of our Common
Stock;
|
·
|
each
of our named executive officers; and
|
·
|
all
directors and executive officers as a group.
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities, subject to community property laws, where applicable.
The
percentage of beneficial ownership is based on 17,485,918 shares of Common
Stock
outstanding as of
October
31, 2008.
Name
and Address of Beneficial Owner
|
|
Number
of
Shares
Beneficially
Owned
|
|
Percentage
of
Shares
Outstanding
|
Peter
F. Ullrich (1)
1800
NW 89th Place
Miami,
FL 33172
|
|
18,985,569
|
|
74.0%
|
Water
Science, LLC (1)
1800
NW 89th Place
Miami,
FL 33172
|
|
15,500,000
|
|
60.4%
|
Wade
R. Bradley (2)
1890
Cobb International Blvd., Ste 100
Kennesaw,
GA 30152
|
|
200,000
|
|
1.1%
|
Joseph
A. Stapley (3)
1890
Cobb International Blvd., Ste 100
Kennesaw,
GA 30152
|
|
123,250
|
|
*
|
Doug
Kindred (4)
1890
Cobb International Blvd., Ste 100
Kennesaw,
GA 30152
|
|
323,250
|
|
1.8%
|
Larry
Earle (5)
1890
Cobb International Blvd., Ste 100
Kennesaw,
GA 30152
|
|
108,250
|
|
*
|
William
J. Warwick
1063
Ocean Ridge Drive
Wilmington,
NC 28405
|
|
173,077
|
|
1.
0
%
|
Jay
S. Potter (
6
)
10509
Vista Sorrento Pkwy. #300
San
Diego, CA 92121
|
|
512,982
|
|
2.9%
|
Theodore
C. Jacoby, Jr.
1716
Hidden Creek Ct.
St.
Louis, MO 63131
|
|
73,077
|
|
*
|
Karl
Hellman
555
Northpoint Center East, 4th Floor
Alpharetta,
GA 30022
|
|
23,077
|
|
*
|
J.
Leo Montgomery (
7
)
1890
Cobb International Blvd., Ste 100
Kennesaw,
GA 30152
|
|
567,377
|
|
3.2%
|
All
current directors and executive officers
as
a group (11 persons)
*Less
than 1%
|
|
21,100,75
9
|
|
77.9%
|
(1)
|
Mr.
Ullrich is the managing member of Water Science, LLC. Mr. Ullrich
beneficially owns 3,485,769 shares and indirectly through Water Science
beneficially owns 7,330,770 shares, warrants to purchase 5,169,230
shares
at an exercise price of $1.30 per share and a convertible note currently
convertible into 3,000,000 shares. The warrants and convertible note
are
held by Water Science, LLC.
|
(2)
|
Mr.
Bradley holds options to purchase a total of 500,000 shares at an
exercise
price of $1.30 per share; only 200,000 shares are currently exercisable
or
exercisable within 60 days of the date of this
report.
|
(3)
|
Mr.
Stapley beneficially owns 98,250 shares and holds options to purchase
a
total of 25,000 shares at an exercise price of $3.50 per share, options
to
purchase 25,000 shares at an exercise price of $2.45 per share and
options
to purchase 159,230 shares at an exercise price of $1.30. Only 25,000
shares with an exercise price of $3.50 are currently exercisable
or
exercisable within 60 days of the date of this
report.
|
(4)
|
Mr.
Kindred beneficially owns 128,250 shares and holds options to purchase
a
total of 575,000 shares at exercise prices between $1.30 and $3.50
per
share. Only 20,000 shares with an exercise price of $3.50 are currently
exercisable or exercisable within 60 days of the date of this
report.
|
(5)
|
Mr.
Earle owns 8,250 shares and holds options to purchase a total of
136,000
shares at an exercise price of $2.45 (75,000 shares), $3.50 (25,000
shares) and $1.30 (36,000 shares) per share. Only the 100,000 shares,
with
an exercise price of $3.50, are currently exercisable.
|
(6)
|
Mr.
Potter beneficially owns 114,816 shares. Warrants to purchase a total
of
398,166 shares at exercise prices ranging from $0.01 to $5.00 per
share
are owned by companies controlled by Mr.
Potter.
|
(7)
|
Mr.
Montgomery beneficially owns 67,377 shares and beneficially holds
warrants
to purchase up to 500,000 shares at an exercise price of $2.76 per
share
held by JL Montgomery Consulting, LLC.
|
EXECUTIVE
COMPENSATION
Compensation
Tables
The
following tables describe the cash and non-cash compensation paid by the
Company
to the Company’s Chief Executive Officer and Chief Financial Officer and each of
the other persons who served as an executive officer of the Company during
all
or a portion of 2007 (collectively, the “Named Executive Officers”).
Compensation
of Executive Officers
The
Summary Compensation Table below provides certain summary information concerning
the compensation paid or accrued by us and our subsidiaries, to or on behalf
of
our Named Executive Officers. Other than as set forth in the table, no executive
officer’s cash salary and bonus exceeded $100,000 in any of the applicable
years. The following information includes the dollar value of base salaries,
bonus awards, the value of restricted shares issued in lieu of cash compensation
and certain other compensation, if any, whether paid or deferred:
SUMMARY
COMPENSATION TABLE
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other Compensation
($)
|
Total
($)
|
Wade
R. Bradley
President
and Chief Executive Officer
|
2007
2006
|
240,000
40,000
|
0.00
0.00
|
0.00
0.00
|
332,533
63,216
|
0.00
0.00
|
0.00
0.00
|
5,750
(1)
1,000
(1)
|
578,283
104,216
|
Doug
Kindred
Chief
Technology Officer
|
2007
2006
|
125,936
120,000
|
0.00
0.00
|
0.00
0.00
|
33,892
0.00
|
0.00
0.00
|
0.00
0.00
|
6,330
(1)
8,884
(1)
|
166,158
128,884
|
Larry
Earle
Senior
Vice President, Live Processing
|
2007
2006
|
120,000
120,000
|
0.00
0.00
|
0.00
0.00
|
1,469
0.00
|
0.00
0.00
|
0.00
0.00
|
6,227
(1)
5,351
(1)
|
127,696
125,351
|
Joseph
Stapley
Senior
Vice President, Investor Relations
|
2007
2006
|
120,000
120,000
|
0.00
0.00
|
0.00
0.00
|
6,496
0.00
|
0.00
0.00
|
0.00
0.00
|
0.00
3,920
(1)
|
126,496
123,920
|
(1)
|
Other
compensation consists of car allowances.
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The
following table sets forth information regarding stock options and restricted
stock held by the Company’s Named Executive Officers at December 31,
2007.
|
Option
Awards
|
Name
|
Number
of
Securities Underlying Unexercised Options
(#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Wade
R. Bradley (1)
|
200,000
|
300,000
|
-
|
1.30
|
11/6/2016
|
Doug
Kindred (2)
Chief
Technology Officer
|
150,000
150,000
25,000
-
-
|
-
-
-
25,000
530,000
|
-
-
-
|
0.01
1.50
3.50
2.45
1.30
|
1/02/2008
1/02/2008
5/27/2015
6/01/2015
11/08/2017
|
Joseph
Stapley (2)
Senior
Vice President, Investor Relations
|
25,000
-
-
|
-
25,000
159,230
|
-
-
-
|
3.50
2.45
1.30
|
5/27/2015
6/01/2015
12/06/2017
|
Larry
Earle (2)
Senior
Vice President, Live Processing
|
-
25,000
-
|
75,000
-
36,000
|
-
-
-
|
2.45
3.50
1.30
|
6/01/2015
5/27/2015
12/06/2017
|
John
Hopkins (2)
Former
President & Founder
|
25,000
|
-
|
-
|
1.80
|
7/25/2010
|
(1)
|
Mr.
Bradley’s options vest over a term of three years. See below under
Employment Agreements.
|
(2)
|
All
outstanding options are fully vested.
|
Employee
Compensation
In
April
2007, the Company
engaged
Phillip Blount & Associates, Inc., a human resources consulting firm, to
review the Company’s overall compensation program. Based upon the findings of
that study, recommendations of management, and review by the Board, the
compensation changes noted below were made.
Base
compensation - Phillip Blount & Associates, Inc. performed an analysis on
compensation levels for each employee based on job description and comparative
compensation levels to companies our size. Based on the results of their
findings, base compensation for certain employees was adjusted upon approval
by
the Company’s Board of Directors. Among the employees whose base compensation
levels were adjusted was Joseph Stapley and Doug Kindred (named executives).
The
base pay for Mr. Stapley was increased from $120,000 to $136,000. Mr. Kindred’s
employment agreement is summarized below.
Incentive
Stock Options - Based on the recommendations of Phillip Blount & Associates,
Inc. and upon approval from the Board of Directors, a total of 480,260 stock
options were granted to various employees, pursuant to the Company’s 2007 Stock
Incentive Plan. The following executives were included in the stock option
grants: Joseph Stapley and Larry Earle, effective immediately. The options
were
issued at a $1.30 exercise price and vest ratably over a period of four years.
Mr. Stapley was awarded a stock option grant of 159,230 shares. Mr. Earle
was
awarded a stock option grant of 36,000 shares. It was also recommended that
Doug
Kindred be granted stock options, which were granted in November 2007 as
part of
Mr. Kindred’s employment agreement.
Corporate
Bonus Program - In connection with the adjustments to our Human Resources
policies, the Board approved a corporate bonus program. Bonuses will be paid
to
executive officers when the Company achieves an approximate operational
break-even run rate, measured as the achievement of consistent revenues of
$250,000 per month over two consecutive months, not taking into account capital
or one-time extraordinary charges. In the calculation of monthly revenues,
equipment revenues will only comprise up to $50,000 of the $250,000 monthly
revenue target for the calculation of the bonus. Once this target is achieved,
the payout of the bonus will be over a period of 2 months to 12 months, at
the
discretion of management.
The
following executives are included in the Bonus Program: Mr. Bradley is eligible
for a $72,000 bonus, 30% of his base pay. Mr. Kindred is eligible for a $61,600
bonus, 35% of his base pay. Mr. Stapley is eligible for a $40,800 bonus,
30% of
his base pay. Mr. Earle is eligible for a $30,000 bonus, 25% of his base
pay.
401(k)
retirement plan - As part of the compensation package, the Company established
a
“safe-harbor” retirement plan for its employees. Effective January 1, 2008, the
Company established the EAU 401(k) Retirement Trust, wherein all full time
employees are eligible to participate, including executives. The plan allows
the
employees to defer a portion of their income in a retirement account. As
an
incentive for the employees to participate in the retirement plan, the Company
has agreed to match each employee’s deferral as follows: 100% of the amount of
the deferrals that do not exceed 3% of the participant’s compensation, plus 50%
of the amount of each participant’s deferrals that exceed 3% of the
participant’s compensation but do not exceed 5% of the participant’s
compensation.
Employment
Agreements
As
of
December 31, 2007, two executives, Doug Kindred and Wade Bradley, had current
employment agreements.
Employment
Agreement and Option Agreement with Doug Kindred
In
connection with the continued employment of Mr. Kindred as Chief Technology
Officer, on November 8, 2007, Mr. Kindred and the Company entered into an
employment agreement, a copy of which is attached as Exhibit 10.1 to the
Form
8-K filed by the Company dated November 8, 2007 and incorporated herein by
reference.
The
material terms of the agreement include the following:
1.
Appointment
.
Per the
terms of the agreement, Mr. Kindred will continue to serve as the Company’s
Chief Technology Officer.
2.
Base
Salary
.
Mr.
Kindred’s initial base salary will be $176,985 per year.
3.
Annual
Bonuses
.
Beginning with the Company’s fiscal year that commences on January 1, 2008,
Mr. Kindred is entitled to receive a bonus of up to 35% of his base salary
($61,945), upon the achievement of annual performance benchmarks, to be set
by
the Board of Directors and the CEO.
4.
Inducement
Stock Option Grant
.
Mr.
Kindred is entitled to receive stock options to purchase 530,000 shares of
the Company’s Common Stock. The options will not constitute incentive stock
options under Section 422 of the Internal Revenue Code of 1986. The
options vest in installments in accordance with the schedule below:
•
|
132,500
shares vest on November 8, 2008
|
•
|
132,500
shares vest on November 8, 2009
|
•
|
132,500
shares vest on November 8, 2010
|
•
|
132,500
shares vest on November 8, 2011
|
The
exercise price per option is $1.30. The terms and conditions of the options
are
included in a separate option grant agreement substantially in the form attached
in the Form 8-K the Company filed with the SEC dated November 8,
2007.
5.
Standard
Benefits
.
Mr.
Kindred will be eligible to participate in the Company’s standard benefits
package, on the same basis as other senior executives of the Company.
6.
Vacation
.
Mr.
Kindred will be entitled to 20 business days of paid vacation per calendar
year.
7.
Company
Car
.
The
Company shall reimburse Mr. Kindred for the amount required to lease an
automobile of Mr. Kindred’s choice up to a maximum of $500 per month. In
addition, the Company will reimburse Mr. Kindred, up to a maximum of $1,000
per
year, for the following properly documented expenses related to such automobile:
(i) service, (ii) maintenance, (iii) repair and (iv) excess mileage fees
required by the automobile lease, if such excess mileage is the result of
required business travel by Mr. Kindred on behalf of the Company.
8.
Term
.
The
employment agreement expires on the third anniversary of the effective date,
subject to automatic renewal for a one-year term unless either party has
given
the other 60 days’ prior written notice.
9.
Severance
.
Mr.
Kindred will be entitled to certain severance payments and other rights if
his
employment is terminated: (i) by the Company without “Cause,” as that term is
defined in his agreement, or (ii) by Mr. Kindred for “Good Reason,” as that term
is defined in his agreement. In each such instance, Mr. Kindred’s severance
benefits will be as follows:
•
|
Salary
.
Any unpaid base salary through the date of
termination.
|
•
|
Vacation
.
Any earned but unused vacation
time.
|
•
|
Severance
Payment
.
He will be entitled to an amount equal to 12 months of base salary
payable
over the 12-month period immediately following
termination.
|
•
|
Options
.
All unvested options shall immediately vest and, together with
the
previously vested options, must be exercised during the 60 days
immediately following the date of termination (and if not so exercised,
all such options shall automatically and irrevocably
terminate).
|
10.
Additional
Covenants
.
The
employment agreement contains restrictive covenants, including anti-solicitation
provisions extending one year after termination of his employment, as well
as
standard confidentiality obligations.
Employment
Agreement, Option Agreement, and Escrow Agreement with Wade
Bradley
In
connection with the appointment of Wade R. Bradley as President and Chief
Executive Officer, on October 24, 2006, Mr. Bradley and the Company entered
into
an employment agreement, a copy of which is filed as Exhibit 10.1 in the
Form
8-K the Company filed with the SEC dated October 30, 2006 and incorporated
herein by reference. Mr. Bradley agreed to begin working for the Company
on a date determined by him and in no event later than November 6, 2006
(the “Effective Date”).
The
material terms of the agreement include the following:
1.
Appointment
.
Beginning on the Effective Date, Mr. Bradley will serve as President and
Chief
Executive Officer of the Company. The Company’s Board of Directors is obligated
to nominate him to serve on the Board. Subject to stockholder elections, he
will serve on the Board through the term of his employment, with no additional
compensation for services as a director.
2.
Base
Salary
.
Mr.
Bradley’s initial base salary will be $240,000 per year. The Board may increase
his base salary from time to time.
3.
Annual
Bonuses
.
Beginning with the Company’s fiscal year commencing on January 1, 2007, Mr.
Bradley is entitled to receive a bonus of up to 30% of his base salary
($72,000), upon the achievement of annual performance benchmarks, to be set
by
the Board from time to time in advance of each fiscal year.
4.
Inducement
Stock Option Grant
.
Mr.
Bradley is entitled to receive stock options to purchase 500,000 shares of
the Company’s Common Stock, which will represent approximately 2.17% of the
Company’s fully diluted capital stock. The options will not constitute incentive
stock options under Section 422 of the Internal Revenue Code of 1986. The
options vest in installments in accordance with the schedule below:
•
|
100,000
shares vest on February 6, 2007
|
•
|
100,000
shares vest on November 6, 2007
|
•
|
100,000
shares vest on November 6, 2008
|
•
|
100,000
shares vest on November 6, 2009
|
•
|
100,000
shares vest on November 6, 2010
|
The
exercise price per option shall be equal to the closing sale price of the
Company’s Common Stock on October 24, 2006. The number of shares subject to the
options will be equitably adjusted in the event of any stock split, stock
dividend, reverse stock split or other similar event. The terms and conditions
of the options are included in a separate option grant agreement substantially
in the form attached in the Form 8-K the Company filed with the SEC dated
October 30, 2006 as Exhibit 10.2.
5.
Standard
Benefits
.
Mr.
Bradley will be eligible to participate in the Company’s standard benefits
package, on the same basis as other senior executives of the Company.
6.
Vacation
.
Mr.
Bradley will be entitled to 20 business days of paid vacation per calendar
year.
7.
Company
Car
.
The
Company shall reimburse Mr. Bradley for the amount required to lease an
automobile of Mr. Bradley’s choice up to a maximum of $500 per month. In
addition, the Company will reimburse Mr. Bradley, up to a maximum of $1,000
per
year, for the following properly documented expenses related to such automobile:
(i) service, (ii) maintenance, (iii) repair and (iv) excess mileage fees
required by the automobile lease, if such excess mileage is the result of
required business travel by Mr. Bradley on behalf of the Company.
8.
Term
.
The
employment agreement expires on the third anniversary of the Effective Date,
subject to automatic renewal for a one-year term unless either party has
given
the other 60 days’ prior written notice.
9.
Severance
.
Mr.
Bradley will be entitled to certain severance payments and other rights if
his
employment is terminated: (i) by the Company without “Cause,” as that term is
defined in his agreement, (ii) by Mr. Bradley for “Good Reason,” as that term is
defined in his agreement or (iii) non-renewal other than for “Cause.” In each
such instance, Mr. Bradley’s severance benefits will be as follows:
•
Salary
.
Any unpaid base salary through the date of
termination.
|
•
Vacation
.
Any earned but unused vacation
time.
|
•
Severance
Payment
.
He will be entitled to an amount equal to 12 months of base salary
payable
over the 12-month period immediately following
termination.
|
•
Options
.
All unvested options shall immediately vest and, together with
the
previously vested options, must be exercised during the 60 days
immediately following the date of termination (and if not so exercised,
all such options shall automatically and irrevocably
terminate).
|
10.
Additional
Covenants
.
The
employment agreement contains restrictive covenants, including anti-solicitation
provisions extending one year after termination of his employment, as well
as
standard confidentiality obligations.
Director
Compensation
The
following table shows the compensation paid to our non-employee directors
for
the 2007 fiscal year.
Name
|
Fees
Earned or
Paid
in Cash
($)
|
Stock
Awards
($)
(1) (2)
|
Option
Awards
($)
(2)
|
Total
($)
|
Jay
S. Potter
|
$0
|
$30,000
|
$0
|
$30,000
|
William
J. Warwick
|
$0
|
$30,000
|
$0
|
$30,000
|
Karl
Hellman
|
$0
|
$30,000
|
$0
|
$30,000
|
Ted
Jacoby
|
$0
|
$30,000
|
$0
|
$30,000
|
Peter
Ullrich
|
$0
|
$30,000
|
$0
|
$30,000
|
Leo
Montgomery
|
$0
|
$30,000
|
$0
|
$30,000
|
(1)
Represents
for each director a grant of 23,077 restricted shares valued at $1.30 per
share.
(2)
The
following directors hold stock options or warrants as of December 31, 2007
covering the following number of shares of the Company’s Common Stock:
Jay
S. Potter
|
398,166
|
|
William
J. Warwick
|
0
|
|
Karl
Hellman
|
0
|
|
Ted
Jacoby
|
0
|
|
Peter
Ullrich
|
7,330,770
|
|
J.
Leo Montgomery
|
500,000
|
|
Directors
of the Company are not paid a salary. They are reimbursed for their costs
incurred in attending Board meetings. In December 2007, the Board determined,
based on a study from the compensation consultants, that the directors should
receive a total package of $30,000 per year, in a combination of cash fees
and
equity, beginning in 2008. The Board subsequently approved this package,
to be
paid entirely in restricted stock. The non-employee members of the Board
receive
a grant of $30,000 in cash or restricted shares of the Company’s Common Stock
for each year of service on the Board, which shares are restricted for a
period
of three years from the date of grant. For the year ended December 31, 2007,
each director earned 23,077 shares.
The
Company’s Certificate of Incorporation adopts the provisions of the Delaware
General Corporation Law providing that no member of the Company’s Board of
Directors shall be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except
liability for (i) any breach of the director’s duty of loyalty to this
corporation or its stockholders, (ii) acts or omissions not in good faith
or
which involve intentional misconduct or a knowing violation of law, (iii)
actions under Section 174 of the Act, or (iv) any transaction from which
a
director derived an improper personal benefit.
The
Company’s Bylaws provide that the Company shall indemnify a director who was
successful, on the merits or otherwise, in the defense of any proceeding,
or in
the defense of any claim, issue, or matter in the proceeding, to which he
or she
was a party because he or she is or was a director of the Company, against
reasonable expenses, including attorneys’ fees, incurred by him or her in
connection with the proceeding or claim with respect to which he or she has
been
successful. In addition, the Bylaws include a provision that the Company
shall
indemnify any individual made a party to a proceeding because he or she is
or
was a director of the Company, against liability incurred in the proceeding,
but
only if a determination has been made that the director met the following
standards of conduct: he conducted himself in good faith; he reasonably believed
that his conduct was in, or not opposed to, the Company’s best interests; and in
the case of any criminal proceeding, he had no reasonable cause to believe
his
conduct was unlawful. However the Company shall not indemnify a director
under
this provision in connection with a proceeding by or in the right of the
Company
in which the director was adjudged liable to the Company; or in connection
with
any other proceeding charging improper personal benefit to him, whether or
not
involving action in his official capacity, in which he was adjudged liable
on
the basis that personal benefit was improperly received by him. The Bylaws
also
provide for the advancement of expenses with respect to any such action.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The
following are certain transactions during the year ended December 31, 2007,
involving our
officers
,
directors and stockholders owning more than 10% of our outstanding stock.
We
believe that the terms of these transactions are at least as favorable to
us as
we would expect to negotiate with unrelated third parties.
Sale
of Products to Affiliates of Stockholders
Sales
to Water Science
-
Water
Science, LLC, which has exclusive rights to sell the EAU products in South
America and Mexico, is a major stockholder of the Company and its managing
member, Peter Ullrich, is currently on our Board of Directors. Water Science
may
purchase machinery from the Company at cost plus 25 percent.
During
the year ended December 31, 2007, the Company sold two large water generators,
three small water generators and related parts to Water Science for $517,503.
In
connection with the sales of the machines and products, the Company has recorded
approximately $357,615 in accounts receivable at December 31, 2007. During
the
year ended December 31, 2007, the Company sold approximately $517,503 in
products and services related to the installation and maintenance of machines
to
Water Science.
Pursuant
to the Amended and Restated Exclusive License and Distribution Agreement,
certain terms in the original Exclusive License and Distribution Agreement
between Water Science and us on or about September 19, 2005, were clarified,
specifically with respect to what products and technology are intended to
be
covered by the License Agreement, and to specify the initial pricing with
respect to such products.
Licensing
Fee
-
In
September 2006, the Company received $1,000,000 in exchange for providing
Water
Science exclusive licensing and distribution rights for a five-year term
for a
specified market area. The agreement provides termination rights by Water
Science and a pro rata refund of the fee. The Company recognizes the fee
on a
pro rata basis over the life of the agreement. The Company recognized $200,000
for the year ended December 31, 2007.
Amended
Licensing Agreement with Zerorez
-
On
January 10, 2007, the Company entered into an Amended and Restated License
Agreement (the “Amended License Agreement”) with Zerorez. As revised, the
Amended License Agreement provides a licensing arrangement whereby Zerorez
and
its franchisees may use the Company’s equipment and technology to produce
electrolyzed fluids for use in carpet cleaning and related applications,
at
rates that are set forth in the agreement. The Amended License Agreement
has a
term of five years with automatic renewal clauses for three additional five-year
terms. Generally, neither party may terminate the agreement unless there
is a
breach by, or consent from, the other party. During the year ended December
31,
2007, Zerorez paid $0 to the Company under the agreement.
Zerorez
is an affiliated entity having similar stockholders and was founded by the
same
individuals who founded the Company. John Hopkins, William Warwick and Jay
Potter are stockholders of Zerorez. Mr. Hopkins is also a Board member and
franchisee of Zerorez. The Company has had a license agreement with Zerorez
since March 2001, as disclosed in the Company’s previous reports as filed with
the SEC.
Senior
Note Payable
- In
September 2005, the Company sold a senior convertible note to Water Science
in
exchange for $3,000,000. Due to the discount of this note and the beneficial
conversion feature, the Company recognized $1,000,000 in interest expense
and
recorded a gain of approximately $714,404 in the change of the derivative
liability to fair market value for the year ended December 31, 2006. The
Company
recorded a loss of approximately $2,118,761 in the change of the derivative
liability to fair market value for the year ended December 31, 2007. For
the
year ended December 31, 2007, the Company recognized $90,000 in interest
expense
related to the Senior Note. The Company also recognized $1,000,000 in interest
expense due to the discount of this note and the beneficial conversation
feature.
In
May
2008, Water Science entered into an Amended and Restated Senior Secured
Convertible Promissory Note. The original note was amended to change
the
maturity date of the note from September 16, 2008 to March 16, 2009.
On October
10, 2008, the Board of Directors approved a a Second Amended and Restated
Senior
Secured Convertible Promissory Note (the “Second Amended Convertible Note”). The
Amended and Restated Senior Secured Convertible Promissory Note dated
as of May
8, 2008, was amended to change the conversion rate from $3.00 per share
to $1.00
per share, as reflected in the Second Amended Convertible Note. The Second
Amended Convertible Note includes an interest rate of 3% and a maturity
date of
March 16, 2009.
Refinancing
Transaction with Water Science
- On May
9, 2007, Peter F. Ullrich, a director, and Water Science, a stockholder of
the
Company, entered into an agreement (the “Termination Agreement”) for the
cancellation and reissuance of existing warrants held by Water Science
(“Original Warrants”) to purchase a total of 8.4 million shares of the Company’s
Common Stock. In the Termination Agreement, the parties agreed as
follows:
·
|
The
Original Warrants were cancelled.
|
·
|
The
Company granted to Water Science replacement warrants (“Replacement
Warrants”) to purchase a total of 8.4 million shares of Common Stock at
an
exercise price of $1.30 per share, with an expiration date of May
9,
2010.
|
·
|
The
Company has a right (“Put Right”) to require Water Science to exercise one
of the Replacement Warrants for up to 3,230,769 shares. The Company
may
exercise the Put Right from time to time, but not more often than
once per
month.
|
·
|
The
warrant shares are subject to an amended registration rights
agreement.
|
In
April
2007, Water Science advanced $1,000,000 to the Company. In June 2007, Water
Science advanced $500,000 to the Company. In August 2007, Water Science advanced
$500,000 to the Company. In October 2007, Water Science exercised 1,538,463
warrants to purchase shares of Common Stock. In October 2007, Water Science
advanced $500,000 to the Company. The advances were used to purchase the
shares.
Water Science exercised warrants to purchase a total of 1,538,463 shares
in 2007
and 1,692,306 shares in the nine months ended September 30, 2008.
Pursuant
to the registration rights agreement, we agreed to register with the Securities
and Exchange Commission all of the shares purchased by Water Science, all
of the
shares underlying the warrants, and all shares issuable upon conversion of
the
note held by Water Science.
On
October 10, 2008, the Board of Directors approved a transaction with Water
Science pursuant to (1) a Stock Purchase Agreement (the “Purchase Agreement”)
and (2) a Second Amended and Restated Senior Secured Convertible Promissory
Note
(the “Second Amended Convertible Note”). The Purchase Agreement provides for the
purchase of 2.5 million shares of Common Stock of the Company at a price
of
$1.00 per share and the amendment of the Amended and Restated Senior Secured
Convertible Promissory Note dated as of May 8, 2008, to change the conversion
rate from $3.00 per share to $1.00 per share, as reflected in the Second
Amended
Convertible Note. The purchase of the Common Stock will occur in six monthly
installments of $350,000 beginning October 14, 2008 plus a final installment
of
$400,000 on April 15, 2009. If Water Science defaults on its obligation to
purchase the stock under the Purchase Agreement, then the conversion price
reverts back to $3.00 per share. The Second Amended Convertible Note includes
an
interest rate of 3% and a maturity date of March 16, 2009.
Consulting
Arrangement with Mr. Montgomery
- The
Company has a consulting agreement with JL Montgomery Consulting, LLC, a
consulting practice owned by Leo Montgomery. Under the agreement, in April
2006,
Mr. Montgomery received a warrant to purchase 500,000 shares of Common Stock
at
$2.76 per share, to expire at the end of five years. In October 2007, the
warrant was amended to expire in ten rather than five years. This agreement
also
provides for consulting fees in a monthly amount to be negotiated after the
Company achieves two consecutive quarters of positive EBITDA. As the Company
has
not achieved this milestone, no fees have been payable to date.
Consulting
Arrangement with Mr. Hellman
- The
Company engages the services of a company owned by Mr. Hellman from time
to time
for business planning and various marketing projects. Mr. Hellman was paid
$24,375 in consulting fees in 2007 and $56,625 for the nine months ended
September 30, 2008.
Escrow
Arrangement with Chief Executive Officer
-
In
October 2006, the Company entered into an escrow agreement with Mr. Bradley.
Pursuant to the escrow agreement, to secure the Company’s obligation to make his
severance payment, the Company is required to deposit, at its election, either
(1) cash in the amount of $240,000 or (2) an irrevocable letter of credit
with a
face amount of $240,000, with an agreed upon escrow agent who shall hold
such
funds (or letter of credit) in escrow. In January 2007, the Company elected
to
deposit $240,000 in cash with an escrow agent. The escrow agreement provides
different scenarios upon which either the Company or Mr. Bradley shall be
entitled to interest on the escrowed funds.
The
Company has adopted a Statement of Policy with Respect to Related Party
Transactions. The Policy states that any related party transaction, as defined
in the Policy, shall be consummated or shall continue only if the Board of
Directors or a committee of the Board shall approve or ratify such transaction,
or the transaction involves either compensation approved by the Company’s
Compensation Committee or compensation of directors. The Policy defines the
term
“related party transaction” in a manner consistent with SEC regulations at Item
404(a) of Regulation S-B. The Board of Directors has determined that the
Audit
Committee is generally the appropriate body to review and authorize related
party transactions. In reviewing and considering related party transactions,
the
Policy states that the Audit Committee shall examine all factors it deems
relevant including, among other things, the business purpose of the transaction,
the terms of the transaction and issues related to the Company’s code of conduct
and governance matters.
RELATIONSHIP
WITH INDEPENDENT PUBLIC ACCOUNTANTS
Independent
Public Accountants
The
Audit
Committee selected HJ & Associates, LLC to audit the financial statements of
the Company for the fiscal year ended December 31, 2008. It is expected that
a
representative of HJ & Associates, LLC will be present at the Meeting to
respond to any appropriate questions and to make a statement on behalf of
his or
her firm, if such representative so desires.
Audit
Fees
The
following table shows the audit fees schedule for the fiscal years ending
December 31, 2007 and 2006, for professional services rendered with respect
to
the audit of our annual financial statements and the auditor’s review of the
financial statements included in our Form 10-KSB.
HJ
& Associates, LLC
During
fiscal 2007 and 2006, the Company incurred the following fees for services
performed by HJ & Associates, LLC:
|
|
2007
|
|
2006
|
|
Audit
Fees (1)
|
|
$
|
58,900
|
|
$
|
44,233
|
|
Audit-Related
Fees
|
|
|
0
|
|
|
0
|
|
Tax
Fees
|
|
|
0
|
|
|
0
|
|
All
Other Fees
|
|
|
0
|
|
|
0
|
|
(1)
These
are fees for professional services performed by
by
HJ
& Associates
for the
audit of the Company’s annual financial statements and review of financial
statements included in the Company’s 10-Q filings, and services that are
normally provided in connection with statutory and regulatory filings or
engagements.
Policy
on Pre-Approval of Independent Auditor Services
The
Audit
Committee has adopted a written policy providing guidelines and procedures
for
the pre-approval of all audit and permissible non-audit services provided
by the
Company’s independent auditors. This policy contemplates that the independent
auditors will provide to the Audit Committee a proposed engagement letter
and an
audit service fee proposal during the first quarter of each of the Company’s
fiscal years with a target of approving an engagement letter and appointing
an
independent auditor for the audit of the Company’s financial statements as of
and for the year ended during such fiscal year prior to the review by the
Company’s independent auditor of the Company’s financial statements for the
Company’s first quarter. For non-audit services, the Company’s management is
expected to submit to the Audit Committee for approval a list of non-audit
services that it recommends that the Committee engage the independent auditor
to
provide for the fiscal year, together with a budget estimating non-audit
service
spending for the fiscal year. Prior to commencing the engagement, the Audit
Committee must approve both the engagement of the auditor to provide the
non-audit services and the budget for such services. To ensure prompt handling
of unexpected matters, the Audit Committee has delegated to its Chair the
authority to amend or modify the list of approved permissible non-audit services
and fees. The Audit Committee approved all of the audit, audit-related and
tax
services of the Company’s principal accountant described in the preceding
paragraphs.
Auditor
Independence
Our
Board
of Directors considers that the work done for us in the year ended December
31,
2007 by HJ & Associates, LLC
is
compatible with maintaining HJ & Associates, LLC’s independence.
Auditor’s
Time on Task
All
of
the work expended by HJ & Associates, LLC on our December 31, 2007 audit was
attributed to work performed by HJ & Associates, LLC’s full-time, permanent
employees.
HOUSEHOLDING
Stockholders
who share the same last name and address may receive only one copy of our
annual
report and proxy statement, unless we receive contrary instructions from
any
stockholder at that address. This is referred to as “householding.” If you
prefer to receive multiple copies of the annual report and proxy statement
at
the same address, additional copies will be provided to you promptly upon
written or oral request, and if you are receiving multiple copies of the
annual
report and proxy statement, you may request that you receive only one copy.
All
communications should be directed to Vice President of Investor Relations,
EAU
Technologies, Inc., 1890 Cobb International Blvd., Suite A, Kennesaw, Georgia
30152, (678) 388-9492.
STOCKHOLDER
PROPOSALS FOR THE 2009 ANNUAL MEETING OF STOCKHOLDERS
Stockholder
proposals to be presented at the 2009 Annual Meeting of Stockholders of the
Company must be received at the Company’s executive offices at 1890 Cobb
International Blvd., Suite A, Kennesaw, Georgia 30152, addressed to the
attention of the Secretary, by July 9, 2009, in order to be included in the
proxy statement and form of proxy relating to such meeting. Appropriate
proposals of stockholders intended to be presented at the Company’s 2009 annual
meeting without inclusion in the Company’s proxy statement must be received by
the Company, at the above address and attention, by September 22, 2009 in
order
to be considered timely. If such stockholder proposals are not timely received,
proxy holders will have discretionary voting authority with regard to any
such
stockholder proposals that may come before the 2009 Annual Meeting. If the
date
of the next annual meeting is advanced or delayed by more than 30 calendar
days
from the date of the annual meeting to which this Proxy Statement relates,
the
Company shall, in a timely manner, inform its stockholders of the change,
and
the date by which proposals of stockholders must be received.
ANNUAL
REPORT
The
Company’s 2007 Annual Report on Form 10-KSB is concurrently being mailed to
stockholders. The Annual Report contains consolidated financial statements
of
the Company and the report thereon of HJ & Associates, LLC, independent
public accountants.
The
Company will provide a copy of the Form 10-KSB, free of charge, to any
stockholder who sends a request to: Chief Financial Officer, EAU Technologies,
Inc., 1890 Cobb International Blvd., Suite A, Kennesaw, Georgia
30152.
By
Order of the Board
of Directors
Wade
R. Bradley,
President
and Chief
Executive Officer
November
6, 2008