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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NOISE CANCELLATION TECHNOLOGIES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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NOISE CANCELLATION TECHNOLOGIES, INC.
1025 WEST NURSERY ROAD SUITE 120
LINTHICUM, MARYLAND 21090
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 17, 1996
---------------------
To the Stockholders of
NOISE CANCELLATION TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Noise Cancellation Technologies, Inc., a Delaware corporation (the "Company"),
will be held at the Ball Room at the International Plaza Hotel, 700 Main
Street, Stamford, CT 06901 on Wednesday, July 17, 1996, at 2:00 P.M., for the
following purposes:
1. To elect five directors for the year following the Annual Meeting or
until their successors are elected.
2. To approve the amendment of the Company's Certificate of Incorporation
to increase the number of shares of Common Stock authorized thereunder
from 100,000,000 shares to 140,000,000 shares.
3. To approve the adoption of an amendment of the Noise Cancellation
Technologies, Inc. Stock Incentive Plan (the "Incentive Plan").
4. To approve the adoption of an amendment of the Noise Cancellation
Technologies, Inc. Option Plan for Certain Directors (the "Directors
Plan").
5. To ratify the appointment of Richard A. Eisner & Company, LLP as the
Company's independent auditors for the fiscal year ending December
31, 1996.
6. To transact such other business as may properly come before the
Meeting.
Only stockholders of record at the close of business on May 20, 1996,
are entitled to notice of and to vote at the Meeting or at any adjournment
thereof.
IRENE LEBOVICS
Secretary
Linthicum, Maryland
May 22, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY SIGN THE ACCOMPANYING PROXY, WHICH
IS SOLICITED BY THE COMPANY'S BOARD OF DIRECTORS, AND MAIL IT IN THE ENCLOSED
POSTAGE PAID ENVELOPE. ANY STOCKHOLDER MAY REVOKE HIS OR HER PROXY AT ANY TIME
BEFORE THE MEETING BY WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A
SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
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NOISE CANCELLATION TECHNOLOGIES, INC.
1025 WEST NURSERY ROAD SUITE 120
LINTHICUM, MARYLAND 21090
---------------------
PROXY STATEMENT
---------------------
SOLICITATION OF PROXY, REVOCABILITY AND VOTING
SOLICITATION
This Proxy Statement is being mailed on or about May 22, 1996, to all
stockholders of record at the close of business on May 20, 1996, in connection
with the solicitation by the Board of Directors of Proxies for the Annual
Meeting of Stockholders to be held on July 17, 1996. Proxies will be solicited
by mail, and all expenses of preparing and soliciting such proxies will be paid
by the Company. All proxies duly executed and received by the persons
designated as proxy thereon will be voted on all matters presented at the
Meeting in accordance with the instructions given thereon by the person
executing such Proxy or, in the absence of specific instructions, will be voted
in favor of each of the proposals indicated on such Proxy. Management does not
know of any other matter that may be brought before the Meeting, but, in the
event that any other matter should properly come before the Meeting, or any
nominee should not be available for election, the persons named as proxy will
have authority to vote all proxies not marked to the contrary in their
discretion as they deem advisable.
REVOCABILITY
Any stockholder may revoke his or her Proxy at any time before the
Meeting by written notice to such effect received by the Company at the address
shown above, attention: Corporate Secretary, by delivery of a subsequently
dated Proxy, or by attending the Meeting and voting in person.
VOTING
The total number of shares of common stock of the Company outstanding as
of May 20, 1996, was __________________. The common stock is the only class of
securities of the Company entitled to vote, each share being entitled to one
noncumulative vote. Only stockholders of record as of the close of business on
May 20, 1996, will be entitled to vote. A majority of the shares outstanding
and entitled to vote, or ____________ shares, must be present at the Meeting in
person or by proxy in order to constitute a quorum for the transaction of
business. The affirmative vote of a majority of all of the outstanding shares
of common stock of the Company is required to approve the amendment of the
Company's Certificate of Incorporation. The affirmative vote of a plurality
of the shares of common stock present and voting in person or by proxy at the
Meeting is required to elect directors and the affirmative vote of a majority
of the shares of common stock present and voting in person or by proxy at the
Meeting is required to approve the adoption of the amendment of the Incentive
Plan, to approve the adoption of the amendment of the
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Directors Plan, to ratify the appointment of the Company's independent auditors
for the year ending December 31, 1996, and to transact such other business as
may properly come before the Meeting. With respect to abstentions, shares are
considered present at the Meeting for a particular proposal, but as they are
not affirmative votes for the proposal, they will have the same effect as votes
against the proposal. With respect to broker non-votes, shares are not
considered present at the Meeting for the particular proposal for which the
broker withheld authority and, accordingly, will have the same effect as votes
against approval of the amendment of the Company's Certificate of Incorporation
and will have no effect on the other proposals.
A list of stockholders entitled to vote at the Meeting will be available
at the Company's offices, 1025 West Nursery Road Suite 120 Linthicum, MD.
21090, for a period of ten (10) days prior to the Meeting for examination by
any stockholder, and at the Meeting itself.
ELECTION OF DIRECTORS
Five directors are to be elected at the Annual Meeting of Stockholders to
serve until the next Annual Meeting of Stockholders of the Company and until
their successors are elected and qualified. Proxies not marked to the contrary
will be voted in favor of the election of each named nominee.
INFORMATION CONCERNING NOMINEES
The following table sets forth the positions and offices presently held
with the Company by each nominee, his age, and the year from which such
nominee's service on the Company's Board of Directors dates:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES DIRECTOR
NAME AGE PRESENTLY HELD WITH THE COMPANY SINCE
<S> <C> <C> <C>
Jay M. Haft . . . . . 60 Co-Chairman of the Board, 1990
Chief Executive Officer and Director
John J. McCloy II . . 58 Co-Chairman of the Board and Director 1986
Michael J. Parrella . 48 President and Director 1986
Sam Oolie . . . . . . 59 Director 1986
Alastair Keith . . . 49 Director 1991
</TABLE>
JAY M. HAFT currently serves as Chief Executive Officer and
Co-Chairman of the Board of Directors of the Company. He served as President
of the Company from November 1994 to July 1995. He is counsel to the law firm
of Parker Duryee Rosoff & Haft in New York, and has been engaged in the
practice of law since 1959. Mr. Haft also serves as a director of Robotic
Vision Systems Inc., Nova Technology, Inc., Extech Corporation, Oryx
Technology, Inc., CAS Medical Systems, Inc., and Viragen, Inc.
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JOHN J. McCLOY II currently serves as Co-Chairman of the Board of
Directors. He served as Chief Executive Officer of the Company from September
1987 to November 1994 and as its Chairman of the Board from September 1986 to
November 1994. Additionally he served as Chief Financial Officer from November
1990 to February 1993 and as its Secretary-Treasurer from October 1986 to
September 1987. Since 1981, he has also been a private investor concentrating
on venture capital and early stage investment projects in a variety of
industries. Mr. McCloy is also a director of American University in Cairo, the
Sound Shore Fund, Inc., and the Atlantic Council.
MICHAEL J. PARRELLA currently serves as President and Director of the
Company. He was elected President and Chief Operating Officer of the Company in
February 1988 and served in that capacity until November 1994. From November
1994 to July 1995 Mr. Parrella served as Executive Vice President of the
Company. He initially became a director in 1986 after evaluating the
application potential of the Company's noise cancellation technology. At that
time, he formed an investment group to acquire control of the Board and to
raise new capital to restructure the Company and its research and development
efforts. He was also Chairman of the Board of Environmental Research
Information, Inc., an environmental consulting firm, from December 1987 to
March 1991.
SAM OOLIE currently serves as a Director of the Company. He is
Chairman and Chief Executive Officer of NoFire Technologies, Inc., a
manufacturer of high performance fire retardant products, and has held those
positions since August 1995. He is also Chairman of Oolie Enterprises, an
investment company, and has held that position since July 1985. Mr. Oolie
currently serves as a director of Avesis, Inc. and Comverse Technology, Inc. He
has also been a director of CFC Associates, a venture capital partnership,
since January 1984.
ALASTAIR KEITH currently serves as a Director of the Company. He has
been a general partner of CA Partners, a general partner in three investment
funds, since March 1992. From January 1992 to April 1995 he acted as an advisor
to the Ministry of Privatization in the Czech Republic. For 20 years prior
thereto, he was employed by Brown Brothers Harriman & Company where he held
senior management positions in a variety of the firm's domestic and
international banking businesses.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than 10% stockholders are
required by regulations of the Securities and Exchange Commission to furnish
the Company with copies of all such reports. Based solely on its review of the
copies of such reports received by it, or written representations from certain
reporting persons that no reports were required for those persons, the Company
believes that, during the period from January 1, 1995, to December 31, 1995,
all filing requirements applicable to its officers, directors, and greater than
10% stockholders were complied with except that John J. McCloy, II, Co-Chairman
of the Board of Directors, failed to file two Form 4's reporting four
transactions. Such transactions were reported on Form 5 which was filed late.
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INFORMATION CONCERNING THE BOARD
The Board of Directors of the Company held six meetings (not including
six actions by unanimous written consent) during the fiscal year ended December
31, 1995. No incumbent director during such time was in attendance at fewer
than 75% of the aggregate of: (i) the total number of meetings of the Board of
Directors held during the period; and (ii) the total number of meetings held by
all committees of the Board of Directors on which he served.
The Company has a Compensation Committee, an Option Committee and an
Audit Committee. During the period between January 1, 1995, and February 15,
1995, the Board of Directors delegated the authority and responsibilities of
the Option Committee described below to the Compensation Committee. The
Compensation Committee, which reviews and determines the compensation of the
Company's senior management, is composed of Messrs. Keith, McCloy, and Oolie.
The Option Committee reviews and takes action with respect to matters relating
to the grant or issuance of warrants or options to acquire shares of the
Company's common stock and other securities of the Company or rights to acquire
other derivative securities of the Company and in this regard to establish and
provide for the administration of plans under which any of the same may be
granted or issued. The Option Committee is composed of Messrs. McCloy and
Oolie, each of whom is a "disinterested person" as defined under Rule 16b-3
promulgated under the Exchange Act. During the fiscal year ended December 31,
1995, the Compensation Committee held one meeting and took action by unanimous
written consent twice and the Option Committee took all of its action by
unanimous written consent on five occasions.
The Audit Committee, which reviews the activities of the Company's
independent auditors and which is composed of Messrs. McCloy, Keith and Oolie
held two meetings during the fiscal year ended December 31, 1995.
The Company does not have a nominating committee. The functions of
recommending potential nominees for Board positions are performed by the Board
as a whole. The Board will consider stockholder recommendations for Board
positions which are made in writing to the Company's Co-Chairmen.
DIRECTORS' FEES, RESTRICTED STOCK AND STOCK OPTIONS
With the exception of the consulting fee paid to Mr. Haft, and the
options granted under the Directors Plan, as described below under
"Compensation Arrangements for Certain Officers and Directors," none of the
Company's directors received any fees for his services as a director during
1995, except that under the Incentive Plan, each non-employee director of the
Company is granted 5,000 restricted shares of the Company's common stock each
year for service as a director of the Company. Such restricted shares are
granted to each non-employee director upon his or her initial election to the
Board and upon each subsequent election. All of such restricted shares are made
subject to a restriction period of three (3) years from the date of grant
during which such shares may not be transferred or encumbered. On November 8,
1995, 5,000 restricted shares were granted to each of Messrs. Keith, and Oolie,
pursuant to the Incentive Plan. In addition, all new non-employee directors
will be granted stock options for 75,000 shares of the Company's common stock
as an inducement to become members of the Board of Directors. Such grants will
be made upon a new director's initial election to the Board of Directors at an
exercise price equal to the market value of the Company's common stock on the
date of grant. Such options will vest as to
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25,000 shares on the date of initial election to the Board of Directors and
25,000 shares on each of the first and second anniversaries of such election.
AMENDMENT OF CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED
CAPITALIZATION
The Board of Directors has approved and declared advisable an amendment
to the Company's Certificate of Incorporation to increase the number of
shares of common stock, par value $.01 per share, which the Company shall be
authorized to issue, from 100,000,000 to 140,000,000. As of the record date,
the Company had outstanding ________________ shares of common stock and had
reserved an additional ____________ shares of common stock for issuance upon
the exercise of options and warrants. The Board believes such action to be in
the best interest of the Company so as to make additional shares of common
stock available for obligations undertaken by the Company in connection with
the "Kingdon Private Placement" described below, acquisitions, public or
private financings, stock splits and dividends, present and future employee
benefit programs and other corporate purposes. Except as noted in the next
sentence, the Company does not have any plans, arrangements or understandings
for the issuance of any of such additional shares. For the reasons set forth
in the immediately succeeding paragraphs describing the "Exchange Program", the
"Directors' Standstill Agreements" and the "Kingdon Private Placement" and
under "Adoption of an Amendment to the Incentive Plan" and "Adoption of an
Amendment to the Directors Plan" below, the Company plans to reserve: (i)
8,581,329 shares of such additional shares for issuance upon the exercise of
options granted or to be granted and future grants of restricted stock awards
under the Incentive Plan, of which 2,045,749 shares will be reserved for
issuance upon the exercise of "New Options" granted under the "Exchange
Program" (as defined below) with the balance reserved for future grants of
options and restricted stock awards, (ii) 591,000 shares of such
additional shares for issuance upon the exercise of options granted under the
Directors Plan, of which 591,000 shares will be reserved for issuance upon
the exercise of "New Options" granted under the "Exchange Program" (as defined
below) (iii) 2,418,750 shares of such additional shares for issuance upon
the exercise of "New Warrants" granted under the Exchange Program (as defined
below); (iv) 2,390,000 shares of such additional shares for issuance upon the
exercise of options held by the Directors of the Company which are subject to
the "Directors' Standstill Agreements" (as defined below), and (v) approximately
15,000,000 shares of such additional shares for issuance or possible issuance
under the continuing provisions of the "Kingdon Private Placement" described
below.
On November 8, 1995 the Company received an offer from a Canadian
institutional investor to purchase 4,800,000 shares of the Company's common
stock at a price of $0.75 per share, the fair market value of such shares on
that date. At that time virtually all of the Company's authorized capital of
100,000,000 shares of common stock was issued and outstanding or reserved for
issuance upon the exercise of outstanding warrants and options to purchase
common stock of the Company. Therefore, in order to make sufficient shares
available to effect the sale of 4,800,000 shares of common stock to such
investor, the Company adopted a program (the "Exchange Program"), to be
partially implemented through the Incentive Plan and the Directors Plan and
partially outside such plans, under which all directors, officers, certain
active consultants (all of whom were former directors or officers of the
Company) and all current employees were given the right to exchange presently
owned warrants and options that had shares of common stock reserved for
issuance upon their exercise (respectively, "Old Warrants" and "Old Options")
for new warrants and options which initially, and until the requisite corporate
action was taken to increase the authorized capital of the Company and reserve
the required number of shares of common stock
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for issuance upon their exercise, would not have any shares of common stock
reserved for issuance upon their exercise (respectively, "New Warrants" and
"New Options"). The exercise price of the New Warrants and New Options was
established at $0.75 per share, the fair market value of the Company's common
stock on November 8, 1995, the date the Exchange Program was adopted, and
exchanges were to be effected starting with the Old Warrants and Old Options
having the highest exercise prices and proceeding in descending order of
exercise prices until sufficient shares of common stock became available for
the Company to implement the sale of common stock to the Canadian investor. If
possible, no exchanges were to be made which would involve Old Warrants or Old
Options having an exercise price below $0.75 per share, and, in fact, no such
exchanges were required. The exercise prices of the Old Warrants and Old
Options exchanged for New Warrants and New Options ranged from a high of $5.09
per share to $0.75 per share.
The consideration to the participants in the Exchange Program for
exchanging Old Warrants and Old Options that had shares of common stock of the
Company reserved for issuance upon their exercise at exercise prices above
$0.75 per share for New Warrants and New Options initially having no shares
reserved for issuance upon their exercise was the reduction in the exercise
price. With respect to Old Warrants and Old Options having an exercise price
of $0.75 per share that were exchanged for New Warrants and New Options that
did not have shares reserved for issuance upon their exercise, such
consideration was provided by a provision in the Exchange Program that granted
the holders of such Old Warrants and Old Options New Warrants and New Options
having the right to purchase 115% of the shares available for purchase upon the
exercise of the Old Warrants and Old Options exchanged.
The New Warrants and New Options became fully vested upon the surrender
and forfeiture of Old Warrants and Old Options to purchase a corresponding
number of shares (as adjusted in accordance with the foregoing formula in the
case of those having a $0.75 per share exercise price). However, the New
Warrants and New Options do not become exercisable until: (i) approval by the
Company's stockholders of an amendment to the Certificate of Incorporation
increasing the authorized capital by an amount of additional shares of common
stock at least sufficient to provide the number of shares needed to be reserved
to permit the exercise of all New Warrants and New Options, and (ii) the
completion of such further corporate action including amendments to the
Incentive Plan and the Directors Plan that may be necessary or appropriate in
connection with the implementation of the Exchange Program. The expiration
dates of the New Warrants and New Options are the same as the expiration dates
of the Old Warrants and Old Options exchanged except that if such expiration
date occurs prior to the date on which the New Warrants or New Options become
exercisable, the expiration date for such New Warrants or New Options will be
ninety (90) days following the date on which such New Warrants and New Options
become exercisable. In all other respects, the terms and conditions of the New
Warrants and New Options are the same as the terms and conditions of the Old
Warrants and Old Options exchanged.
Under the Exchange Program, 4,800,249 shares of the Company's common
stock were made available for issuance to the Canadian institutional investor
(4,800,000 of which were sold and delivered to such investor on November 14,
1995) and it will be necessary in order to make the New Warrants and New
Options fully exercisable for the Company to take the appropriate corporate
action to reserve 5,055,499 shares of the Company's common stock for issuance
upon their exercise. For this reason and in order to provide the Company the
continued ability to attract and retain the services of qualified executives,
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employees, directors and consultants while providing an incentive for such
persons to make a maximum contribution to the Company's success and aligning
their interests with those of the Company's stockholders, the Company, as
described below, is seeking stockholder approval of an amendment to the
Incentive Plan increasing the aggregate number of shares of the Company's
common stock reserved for issuance under the Incentive Plan from 6,000,000
shares to 10,000,000 shares. Solely for the purpose of providing sufficient
shares for issuance upon the exercise of New Options which were exchanged under
the Exchange Program for Old Options originally granted under the Directors
Plan, the Company is also seeking, as described below, stockholder approval of
an amendment to the Directors Plan increasing from 725,000 shares to 821,000
shares the aggregate number of shares of common stock issuable upon the
exercise of options granted under the Directors Plan.
On March 5, 1996, in order to enable the Company to obtain 2,390,000
authorized but unissued shares of common stock to sell to four investors in two
private placements to raise additional working capital, each member of the
Board of Directors agreed not to exercise any warrants or options to purchase
common stock of the Company which had exercise prices between $0.50 and $0.75
per share and to permit the Company to issue the shares reserved for issuance
upon the exercise of such warrants and options in the two proposed private
placements (individually, a "Directors' Standstill Agreement" and collectively,
the "Directors Standstill Agreements"). In consideration for this action by
the directors, the Company agreed to reserve sufficient shares of common stock
of the Company to permit the full exercise of all such warrants and options
once the Company had obtained sufficient additional authorized shares of common
stock to permit such action by the Company. These 2,390,000 "unreserved"
shares of common stock when added to the authorized and unissued shares of
common stock then remaining in the Company's authorized capital provided the
Company with 3,000,000 shares of common stock that were available for sale in
the proposed private placements.
On March 28, 1996, the Company sold 2,000,000 shares of its common
stock in a private placement to one investor.
On April 10, 1996, the Company sold an additional 1,000,000 shares, in
the aggregate, of its common stock in a private placement with three
institutional investors (the "Kingdon Private Placement"). Contemporaneously,
the Company sold secured convertible term notes in the aggregate principal
amount of $1,200,000 to those institutional investors and granted them each an
option to purchase an aggregate of $3,450,000 of additional shares of the
Company's common stock. The per share conversion price under the notes and the
exercise price under the options are equal to the price received by the Company
for the sale of such 1,000,000 shares subject to certain adjustments. In
conjunction with this sale of common stock and secured convertible term notes,
the Company also agreed to file a registration statement with the Securities
and Exchange Commission covering the applicable shares and to use its best
efforts to have such registration statement declared effective by the
Commission as soon as practicable. The conversion of the notes and the
exercise of the options are both subject to an appropriate amendment to the
Company's Certificate of Incorporation increasing its authorized capital to
provide for the requisite shares. The amendment to the Company's Certificate
of Incorporation for which stockholder approval is being sought included such
shares as well as shares of common stock reserved for the payment of interest on
the notes and other amounts payable by the Company to said investors in the
event such notes are not paid or such registration statement does not become
effective on a timely basis.
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The additional shares of common stock to be authorized pursuant to the
proposed amendment may be issued from time to time as the Board of Directors
may determine without further action of the stockholders of the Company.
Stockholders of the Company do not currently possess, nor upon the
adoption of the proposed amendment will they acquire, preemptive rights which
would entitle such persons, as a matter of right, to subscribe for the purchase
of any securities of the Company.
The affirmative vote of the holders of a majority of all the outstanding
shares of Common Stock of the Company is required for approval of this
proposal. The Board of Directors recommends a vote FOR such proposal.
ADOPTION OF AN AMENDMENT TO THE INCENTIVE PLAN
On October 6, 1992, the Company adopted, subject to stockholder approval,
the Incentive Plan, under which options to purchase shares of the Company's
common stock were granted to officers, employees and certain directors of the
Company in consideration and recognition of the rights those persons forfeited
as a result of the cancellation of the Company's stock appreciation rights
program and the forfeiture of stock options by certain officers and employees
agreed to by such persons in furtherance of the Company's efforts to conclude a
private placement of shares of the Company's common stock with various
institutional and other qualified investors by the end of August 1992. On
April 14, 1993, the Option Committee amended the Incentive Plan, subject to
stockholder approval, to provide ongoing benefits to officers, employees and
non-employee directors of the Company in a manner which would enhance the
Company's ability to attract and retain the services of qualified executives,
employees and directors while providing an incentive for such persons to make a
maximum contribution to the Company's success and aligning their interests with
those of the Company's stockholders. On May 27, 1993 the stockholders approved
the Incentive Plan as adopted on October 6, 1992 and amended on April 14, 1993.
On November 8, 1995 the Option Committee amended the Incentive Plan,
subject to stockholder approval, to increase the aggregate number of shares of
the Company's common stock reserved for awards of restricted stock and for
issuance upon the exercise of stock options granted under the Incentive Plan
from 6,000,000 to 10,000,000 shares and to add to those persons who are
eligible to participate under the Incentive Plan active consultants to the
Company. The purpose of the amendment was to enable the Company to
continue in the future to provide benefits to officers, employees,
non-employee directors and active consultants of the Company in a manner that
would enhance the Company's ability to attract and retain the services of
qualified executives, employees, directors and consultants while providing an
incentive for such persons to make a maximum contribution to the Company's
success and aligning their interests with those of the Company's stockholders.
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The material ongoing features of the Incentive Plan, as amended,
include the following:
- - The aggregate number of shares of the Company's common stock reserved for
grants of restricted stock and grants of options to purchase shares of the
Company's common stock is 10,000,000 shares. The amendment for which
stockholder approval is being sought increased the number of shares so
reserved from 6,000,000 shares to 10,000,000 shares.
- - The Incentive Plan is administered by the Option Committee of the Board of
Directors, no member of which has received or will be eligible to receive
restricted stock or options under the Incentive Plan except in a manner
which will not preclude the receiving member from acting as a
"disinterested administrator" as defined for the purposes of Rule 16b-3 (or
any successor rule) under the Exchange Act.
- - The Incentive Plan authorizes the granting of options which may be either
non-statutory options or "incentive stock options" (as defined in the
Internal Revenue Code of 1986, as amended) and restricted stock awards.
- - The shares of common stock covered by the Incentive Plan may be either
treasury shares or authorized but unissued shares. If any option granted
under the Incentive Plan expires or terminates without having been
exercised in full or any restricted stock award is forfeited, the shares
covered by the unexercised portion of the option or by the forfeited
restricted stock award may be used again for new grants under the Incentive
Plan.
- - There is no maximum number of shares that can be allowed to one participant
in any grant of non-statutory options or restricted stock awards, but the
aggregate fair market value of the shares, at the time of grant, with
respect to which options intended to be incentive stock options are
exercisable for the first time by a participant in any calendar year may
not exceed one hundred thousand ($100,000) dollars.
- - The persons who are eligible to participate under the Incentive Plan
("Participants") include executive officers (currently 8 persons),
non-employee directors (currently 2 persons), non-executive officer
employees (currently 65 persons) and persons retained by the Company
for consulting services (currently 8 persons). Non-employee directors are
only eligible to receive options and restricted stock awards in accordance
with the formulas set forth in the Incentive Plan. The amendment for which
stockholder approval is being sought added active consultants to the
Company as persons who are eligible to participate under the Incentive
Plan.
- - The exercise price for all of the options to be granted under the Incentive
Plan is to be not less than the market value of a share of the Company's
common stock on the date of the grant of the option.
- - Any grant of an option or restricted stock award under the Incentive Plan
must be made no later than May 27, 2003, ten (10) years from the date the
Incentive Plan originally was approved by the stockholders.
10
<PAGE> 12
- - The Incentive Plan provides for adjustments in the number of shares subject
to the Incentive Plan and other relevant provisions in the event of a stock
split, merger or similar occurrence.
- - The Option Committee, in its discretion, may determine the provisions of
the options granted under the Incentive Plan, including installment
exercise terms for an option under which the option may be exercised in a
series of cumulative installments; the form of consideration, including
cash, shares of common stock or any combination thereof, which may be
accepted in payment of the purchase price of shares purchased pursuant to
the exercise of an option; special rules regarding exercise in the case of
retirement, death, disability or other termination of employment; and other
provisions consistent with the terms of the Incentive Plan and applicable
law.
- - The Option Committee may determine the term of each option granted but no
option may be exercised after the expiration of ten (10) years from the
date it is granted.
- - Options may be granted under the Incentive Plan on such terms and
conditions as the Option Committee considers appropriate which may differ
from those provided in the Incentive Plan where such options (substitute
options) are granted in substitution for stock options held by employees of
other companies who concurrently become employees of the Company or a
subsidiary of the Company as the result of a merger or consolidation of the
other company with, or the acquisition of the property or stock of the
other company by, the Company or a subsidiary of the Company.
- - All new non-employee directors will be granted stock options for 75,000
shares of the Company's common stock upon a new director's initial election
to the Board of Directors at an exercise price equal to the market value of
the Company's common stock on the date of grant, such option to vest as to
25,000 shares on the date of initial election to the Board of Directors and
25,000 shares on each of the first and second anniversaries of such
election.
- - Each non-employee director of the Company will be granted 5,000 restricted
shares of the Company's common stock each year for service as a director of
the Company, such grants to be made upon a director's initial election to
the Board and upon each subsequent election with all such restricted shares
subject to a restriction period of three (3) years from the date of grant
during which such shares may not be transferred or encumbered.
- - In addition to the foregoing restricted stock awards to non-employee
directors, the Option Committee may grant restricted stock awards of shares
of the Company's common stock to any other Participant under the Incentive
Plan. The Option Committee in its discretion may determine the provisions
of grants of restricted stock awards including the time at which such
awards become non- forfeitable and fully transferable, the terms of
forfeiture, the entitlement of grantees to vote the shares and receive
dividends paid thereon and any other provisions consistent with the terms
of the Incentive Plan and applicable law.
- - The Option Committee may at any time or times amend the Incentive Plan
provided that, except as required by adjustments in the case of changes in
capitalization, no such amendment shall without the approval of the
stockholders of the Company: (i) increase the maximum number of shares of
common stock for which options or restricted stock awards may be granted
under the Incentive Plan; (ii) reduce
11
<PAGE> 13
the price at which options may be granted below the price describe above;
(iii) reduce the exercise price of outstanding options; (iv) extend the
period during which options or restricted stock awards may be granted; (v)
extend the period during which an outstanding option may be exercised
beyond the maximum period provided for under the Incentive Plan; (vi)
materially increase in any other way the benefits accruing to Participants;
(vii) change the class of persons eligible to be Participants, or (viii)
disqualify an optionee or grantee under the Incentive Plan that is a
member of the Option Committee from being a "disinterested administrator"
(as defined for the purposes of Rule 16b-3 (or any successor rule) under
the Exchange Act) of the Incentive Plan or of any other stock-based
employee benefit plan of the Company. The Incentive Plan provides that the
formula setting the amount of options and restricted stock awards to which
a non-employee director may be entitled may not be amended more than once
every six (6) months.
The following table sets forth certain additional details concerning
the Incentive Plan.
NEW PLAN BENEFITS
AS ADDED BY AMENDMENT FOR WHICH APPROVAL IS SOUGHT
<TABLE>
<CAPTION>
ADDED BY AMENDMENT
ADOPTED 11/8/95 (1)
NUMBER
NAME AND POSITION (2) $ VALUE (3) OF UNITS
<S> <C> <C>
Jay M. Haft, Co-Chairman and Chief Executive Officer --- ---
Michael J. Parrella, President --- ---
Stephen J. Fogarty, Senior Vice President and Chief Financial Officer --- ---
James W. Hiney, Vice President, General Counsel and Secretary --- ---
Executive Group (4) --- ---
Non-Executive Director Group (5) --- ---
Non-Executive Officer Employee group (6) --- ---
Active consultant Group (7) 890,072 1,186,763
</TABLE>
- ------------
(1) The table includes grants under the Exchange Program to 7 active consultants
to the Company who recently had ceased being employees and who forfeited Old
Options under the Exchange Program. The New Options granted to such
consultants will not be exerciseable until certain action is taken by
the stockholders and the Company authorizing and reserving shares of common
stock of the Company for issuance upon their exercise. See "Amendment of
Certificate of Incorporation to Increase Authorized Capitalization" above.
(2) Named executive officers are those for the 1995 fiscal year.
(3) The value per unit in the case of options equals the exercise price of
the options, the fair market value on the date of grant. The fair market
value of the Company's common stock on November 8, 1995 was $0.75 per
share. The value per unit in the case of restricted stock awards to
non-executive directors is the fair market value of the Company's common
stock on the date of grant, the date of election or re-election as a
director. The last Annual Meeting of Stockholders at which directors were
elected was November 8, 1995 on which date the fair market value of the
Company's common stock was $0.75.
(4) 6 persons on 11/8/95.
12
<PAGE> 14
(5) 0 persons on 11/8/95.
(6) 17 persons on 11/8/95.
(7) 7 persons on 11/8/95.
Nonstatutory stock options without ascertainable fair market value at
grant for federal income tax purposes are not taxed to the participant until
exercised or otherwise disposed of. If the option is exercised, the
participant realizes compensation income equal to the fair market value of the
stock at the time it is transferred to him or her less the amount paid for it
(the option or exercise price). If the Company satisfies its tax withholding
obligations arising from the exercise of the options, it would receive a
business expense deduction for the amount that the participant must include in
gross income as compensation because of the exercise of a nonstatutory stock
option. This deduction is taken for the same year in which or within which
that income is taxable to the participant. If the participant later sells the
stock, any further gain would be capital gain.
With respect to incentive stock options, in general, no income to a
participant will result for federal tax purposes upon either the granting or
the exercise of an option under the Incentive Plan. If the participant later
sells the acquired stock at least two years after the date the option is
granted and a least one year after the transfer of the acquired stock to the
participant, the participant would realize capital gain equal to the difference
between the option price and the proceeds of the sale. If the participant's
gain is taxed as capital gain, the Company would not be allowed a business
expense deduction. If the participants dispose of the acquired stock before
the end of the required holding periods, the participant would realize ordinary
income in the year of disposition equal to the lesser of: (i) the difference
between the option price and the fair market value of the stock on the exercise
date, or (ii) if the disposition is a taxable sale or exchange, the amount of
gain realized; the Company would receive an equivalent deduction. If the
participant later sells the stock, any further gain would be capital gain.
With respect to restricted stock awards, the participant would generally
realize ordinary income in the year the shares of common stock covered by the
award become non-forfeitable or fully transferable, in an amount equal to the
fair market value of the shares on the date they become non-forfeitable or
fully transferable. The Company would be entitled to an equivalent deduction.
If the participant later sells the stock, any further gain would be capital
gain. Further, the participant may elect to treat the award as ordinary income
in the year of grant within thirty (30) days of the date of grant. If the
participant makes such an election, the Company would be entitled to an
equivalent deduction.
The Board of Directors recommends a vote FOR approval of the adoption of
the amendment of the Incentive Plan described above.
ADOPTION OF AN AMENDMENT TO THE DIRECTORS PLAN
On November 15, 1994, the Board of Directors adopted, subject to
stockholder approval, the Directors Plan and on May 8, 1995 amended the
Directors Plan subject to stockholder approval. Under the Directors Plan,
options to purchase shares of the Company's common stock were granted to two
(2)
13
<PAGE> 15
Directors of the Company, Messrs. Haft and Keith, in consideration and
recognition of Mr. Haft assuming additional responsibilities as President and
Chief Executive Officer and Mr. Keith assuming additional responsibilities as
Chairman of the Finance Committee of the Company and for the purpose of
promoting the interests of the Company and its stockholders by providing
Messrs. Haft and Keith with an incentive to share in the increase in the value
of the common stock of the Company and to exert their maximum efforts on behalf
of the Company in fulfilling such additional responsibilities. On November 8,
1995 the stockholders approved the Directors Plan as adopted on November 15,
1994 and as amended on May 8, 1995.
On November 8, 1995 the Board of Directors further amended the Directors
Plan to provide: (i) that it be administered by the Option Committee, and (ii)
that thereafter options under the Directors Plan may be granted to the
participants on dates and in amounts and with terms relating to vesting
exercisability, expiration and exercise prices other than as specifically set
forth in the Directors Plan as may be determined from time to time by the
Option Committee. Then, also on November 8, 1995, the Option Committee amended
the Directors Plan, subject to the approval of the stockholders, to: (i)
increase from 725,000 shares to 821,000 shares the aggregate number of shares
of common stock of the Company issuable upon the exercise of stock options to
be granted pursuant to the Directors Plan; (ii) provide that options may be
granted to the participants on such other dates in such other amounts and with
such other terms relating to vesting exercisability, expiration and exercise
prices than those specifically set forth in the Directors Plan as may be
determined from time to time by the Option Committee; (iii) provide that if any
option granted under the Directors Plan expires or terminates without having
been exercised in full, the shares covered by the unexercised portion of such
option may be used again for new grants under the Directors Plan; and (iv)
provide that no grant of an option may be made after November 15, 2004 and no
options granted may be exercised after the expiration of ten years from the
date it is granted.
The purpose of the amendment adopted on November 8, 1995 was to enable
the Company to implement the Exchange Program as it applied to options granted
under the Directors Plan and effect certain procedural changes in the
administration of the Directors Plan.
The material features of the Director's Plan as amended include the
following:
- - The aggregate number of shares of the Company's common stock reserved for
grants of options to purchase shares of the Company's common stock is
821,000 shares. The amendment for which stockholder approval is being
sought increased the number of shares so reserved from 725,000 shares to
821,000 shares.
- - The Directors Plan is administered by the Option Committee of the Board of
Directors. Prior to the amendment of the Directors Plan by the Board of
Directors on November 8, 1995 the Directors Plan was administered by the
Board of Directors. The Option Committee is composed of two (2) Directors
each of which is a "disinterested person" as defined under Rule 16b-3
promulgated under the Exchange Act.
- - The persons who are eligible to receive options under the Directors Plan
are limited solely to the members of the Board of Directors who served in
the positions of: (a) Co-Chairman, President and Chief Executive Officer,
and (b) Chairman of the Finance Committee on November 15, 1994.
14
<PAGE> 16
- - Under the Directors Plan options were granted as follows:
-- Mr. Haft, Co-Chairman, President and Chief Executive Officer of the
Company on November 15, 1994, was granted options to purchase
525,000 shares of common stock of the Company on the following
dates in the amounts set forth opposite each such date:
<TABLE>
<CAPTION>
Grant Date Number of Shares Exercise Price
<S> <C> <C>
November 15, 1994 120,000 $1.0625
December 15, 1994 45,000 0.75
January 15, 1995 45,000 0.875
February 15, 1995 45,000 0.6875
March 15, 1995 45,000 0.7813
April 15, 1995 45,000 0.6875
May 15, 1995 . 45,000 0.75
June 15, 1995 . . . 45,000 0.6563
July 15, 1995 . . . 45,000 0.7188
August 15, 1995 . . 45,000 1.2188
</TABLE>
-- Mr. Keith, Chairman of the Finance Committee of the Company on
November 15, 1994, was granted options to purchase 200,000 shares of
common stock of the Company on the following dates in the amounts set
forth opposite each such date:
<TABLE>
<CAPTION>
Grant Date Number of Shares Exercise Price
<S> <C> <C>
November 15, 1994 50,000 $1.0625
December 15, 1994 25,000 0.75
January 15, 1995 25,000 0.875
February 15, 1995 25,000 0.6875
March 15, 1995 . 25,000 0.7813
April 15, 1995 . 25,000 0.6875
May 15, 1995 . . 25,000 0.75
</TABLE>
- - Under the amendment for which stockholder approval is being sought no grant
of an option may be made after November 15, 2004.
- - Options granted under the Directors Plan prior to November 8, 1995 became
fully exercisable on November 8, 1995. Under the amendment for which
stockholder approval is being sought, thereafter options may be granted with
such terms relating to vesting and exercisability as may be determined from
time to time by the Option Committee provided that no option may be
exercised after the expiration of ten (10) years from the date it is
granted.
15
<PAGE> 17
- - All options granted under the Directors Plan expire on November 15, 1999.
Under the amendment for which stockholder approval is being sought, after
such approval options may be granted with such terms relating to expiration
as may be determined from time to time by the Option Committee provided that
no option may be exercised after the expiration of ten (10) years from the
date it is granted.
- - The purchase price for each share of common stock subject to an option
granted under the Directors Plan prior to November 8, 1995 is the fair
market value of the common stock on the relevant grant date. Under the
amendment for which stockholder approval is being sought, thereafter said
purchase price shall be as may be determined from time to time by the Option
Committee.
- - The Board of Directors may, in its discretion, make loans available to the
participants, on reasonable terms, with funds to be provided by the Company,
to facilitate the payment by a participant of the exercise price of, or any
tax withholding obligation incurred with respect to, any options granted
under the Directors Plan.
- - If there is a change in the number or type of outstanding shares of the
Company's common stock by reason of a stock dividend, stock split,
recapitalization, merger, consolidation, combination or other similar event,
or if there is a distribution to stockholders of the Company's common stock
other than a cash dividend, appropriate adjustments shall be made to the
number and kind of shares subject to options under the Directors Plan; the
purchase price for shares of common stock covered by options; and other
relevant provisions, to the extent that the Option Committee in its sole
discretion, determines that such changes make such adjustment necessary to
be equitable.
- - Options are non-assignable and non-transferable other than by will or the
laws of descent and distribution.
- - The Option Committee may at any time or times amend the Directors Plan or
amend any outstanding options for the purpose of satisfying the requirements
of any changes in applicable laws or regulations or for any other purpose
which at the time may be permitted by law provided that no amendment of any
outstanding option shall contain terms or conditions inconsistent with the
provisions of the Directors Plan and provided that no amendment of the
Directors Plan or of any outstanding option shall without the approval of
the stockholders: (i) increase the maximum number of shares of common stock
to which options may be granted under the Directors Plan; (ii) reduce the
price at which options may be granted below the price specified in the
Directors Plan; (iii) reduce the exercise price of outstanding options; (iv)
extend the period during which an outstanding option may be exercised beyond
the maximum period specified in the Directors Plan; (v) materially increase
in any other way the benefits accruing to the participants; or (vi) change
the class of persons eligible to be participants.
The following table sets forth certain additional details concerning the
Directors Plan.
16
<PAGE> 18
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
ADDED BY AMENDMENT
ADOPTED 11/8/95 (1)
NAME AND POSITION $ VALUE NUMBER OF UNITS
<S> <C> <C>
Jay M. Haft, Co-chairman,
President and Chief Executive Officer . $10,125 13,500
Alastair Keith, Chairman, Finance
Committee . . . . . . . . . . . . . . . . 65,875 82,500
Executive Group (3) . . . . . . . . . . . 10,125 13,500
Non-Executive Director Group (4) . . . . 65,875 82,500
Non-Executive Officer Employee Group (5) --- ---
</TABLE>
- ----------
(1) The table includes grants under the Exchange Program which will not be
exerciseable until certain action is taken by the stockholders and the
Company authorizing and reserving shares of common stock of the Company
for issuance upon their exercise. See "Amendment of Certificate of
Incorporation to Increase Authorized Capitalization" above.
(2) The value per unit in the case of options equals the exercise price of
the options, the fair market value on the date of grant. The fair market
value of the Company's common stock on November 8, 1995 was $0.75 per
share.
(3) One person.
(4) One person.
(5) None.
Nonstatutory stock options without ascertainable fair market value at
grant for federal income tax purposes are not taxed to the participant until
exercised or otherwise disposed of. If the option is exercised, the participant
realizes compensation income equal to the fair market value of the stock at the
time it is transferred to him or her less the amount paid for it (the option or
exercise price). If the Company satisfies its tax withholding obligations
arising from the exercise of the options, it would receive a business expense
deduction for the amount that the participant must include in gross income as
compensation because of the exercise of a nonstatutory stock option. This
deduction is taken for the same year in which or within which that income is
taxable to the participant. If the participant later sells the stock, any
further gain would be capital gain.
The Board of Directors recommends a vote FOR approval of the adoption of
the amendment of the Directors Plan, as described above.
17
<PAGE> 19
INDEPENDENT AUDITORS
INDEPENDENT ACCOUNTANTS FOR 1996
The Board of Directors, upon the recommendation of its Audit Committee,
has selected Richard A. Eisner & Company, LLP to audit the accounts of the
Company for the fiscal year ending December 31, 1996. Such firm has reported to
the Company that none of its members has any direct financial interest or
material indirect financial interest in the Company. The Company's Audit
Committee is composed of Messrs. McCloy, Keith and Oolie and has responsibility
for selecting auditors.
Richard A. Eisner & Company, LLP was selected by the Board of Directors
to audit the accounts of the Company for the fiscal year ended December 31,
1995.
Representatives of Richard A. Eisner & Company, LLP are expected to be
present at the Annual Meeting of Stockholders. Such persons will have an
opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions.
The Board of Directors recommends a vote FOR the ratification of the
appointment of Richard A. Eisner & Company, LLP as independent auditors.
CHANGE IN INDEPENDENT ACCOUNTANTS
On December 21, 1994, Coopers & Lybrand LLP (formerly Coopers & Lybrand),
the independent accountants who audited the Company's consolidated financial
statements for the fiscal year ended December 31, 1993, notified the Company
that the client-auditor relationship between the Company and Coopers & Lybrand
LLP had ceased.
During the Company's fiscal year ended December 31, 1993, and during the
interim period preceding their resignation as the Company's independent
accountants there were no disagreements with Coopers & Lybrand LLP on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreement(s), if not resolved to the
satisfaction of Coopers & Lybrand LLP, would have caused it to make reference
to the subject matter of the disagreement(s) in connection with its report.
The report of Coopers & Lybrand LLP dated March 24, 1994 on the Company's
consolidated financial statements as of and for the year ended December 31,
1993, did not contain an adverse opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. On December 19, 1994,
Coopers & Lybrand LLP reissued its report on the Company's consolidated
financial statements as of and for the fiscal year ended December 31, 1993,
which reissued report was filed in the Company's Current Report on Form 8-K on
December 19, 1994, and is contained in the Company's 1994 Annual Report. The
reissued report of Coopers & Lybrand LLP contains a paragraph which emphasizes
certain uncertainties arising subsequent to the date of their original report
which are described in "Risk Factors -- Current Financial Condition; Cash
Position" appearing in the Company's Current Report on Form 8-K,
18
<PAGE> 20
Item 5, filed on December 19, 1994. Such subsequent uncertainties with respect
to the availability of funds to sustain the Company's activities indicated at
December 19, 1994 that the Company may be unable to continue as a going concern
through 1995.
On January 5, 1995, the Company engaged Richard A. Eisner & Company LLP
(formerly Richard A. Eisner & Company) as independent accountants to audit the
consolidated financial statements of the Company for the year ended December
31, 1994, replacing Coopers & Lybrand LLP. The decision to engage Richard A.
Eisner & Company LLP was approved by the Audit Committee of the Company's Board
of Directors. During the fiscal year ended December 31, 1993, and the
subsequent period, neither the Company nor any person on the Company's behalf
consulted Richard A. Eisner & Company LLP regarding either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's
consolidated financial statements.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
As reported in the Compensation Committee Report for the fiscal year
ended December 31, 1994, contained in the 1995 Proxy Statement, on November 15,
1994, the Compensation Committee awarded Mr. Haft a consulting fee of $10,000
per month for a period of six months and granted him options to purchase
390,000 shares of the Company's common stock in monthly installments over that
six month period as compensation to Mr. Haft for his services as Co-chairman of
the Board of Directors, Chief Executive Officer and President of the Company.
In May, 1995 the Compensation Committee extended Mr. Haft's compensation of
$10,000 per month for an additional three months and granted him further
options to purchase 135,000 shares of the Company's common stock in three equal
installments over the three month extension period. On July 6, 1995, Mr. Haft
resigned as President and, with the approval of the Board retained, for an
indefinite term, the titles and responsibilities of Chief Executive Officer and
Co-chairman of the Board of Directors. At this time, Mr. Parrella was elected
President of the Company. In light of these changes in their respective
responsibilities, Mr. Haft's compensation was reduced by $4,000 per month and
Mr. Parrella's salary was increased by $4,000 per month effective August 16,
1995. On August 1, 1995, Mr. Haft's status changed from that of consultant to
an employee of the Company. This change did not result in any change in Mr.
Haft's compensation although as an employee he became covered by the Company's
health and dental benefits program.
From January 1, 1995 to August 16, 1995, Mr. Parrella's salary was at the
rate of $70,000 per year, the salary approved by the Compensation Committee on
November 15, 1994 at the time of the restructuring of the Company's senior
management as reported previously. As stated above, effective August 16, 1995,
Mr. Parrella's base salary was increased to an annual rate of $118,000. In
addition to this cash compensation, Mr. Parrella was also granted options to
purchase 15,000 shares of the Company's common stock on the fifteenth day of
each of the first eight months of 1995. On May 8, 1995, the Compensation
Committee, in recognition of the efforts of Mr. Parrella under the difficult
conditions the Company was then facing and in recognition of the importance of
his continued services to the ongoing restructuring program, awarded Mr.
Parrella a cash bonus of $25,000 plus 1% of the cash to be received
19
<PAGE> 21
by the Company upon the establishment of certain significant business
relationships. Any such percentage bonus was made contingent upon the
execution of relevant documentation or other form of closing with regard to
these relationships prior to January 1, 1996. Mr. Parrella was paid a bonus of
$20,168 under this percentage bonus arrangement. On July 11, 1995, in order to
enable the Company to obtain 1,100,000 authorized but unissued shares of common
stock to sell to an investor in a private placement to raise additional working
capital, Mr. Parrella forfeited options to purchase 500,000 shares of the
Company's common stock. In recognition of the ongoing efforts of Mr. Parrella
on behalf of the Company and the fact that his cash compensation had been
significantly reduced the prior year, the Company agreed that if the private
placement was successfully concluded and Mr. Parrella agreed to work for the
Company through 1996 (without any obligation on the part of the Company to
employ him for any given period), Mr. Parrella would be granted options to
purchase 500,000 shares of common stock under the Incentive Plan. Of this
amount, 250,000 options would become vested and exercisable immediately. The
other 250,000 options would become vested and exercisable either on December
31, 1996 provided Mr. Parrella was employed by the Company on that date or on
such earlier date if the price of the Company's common stock as traded on the
NASDAQ Stock Market had maintained a price of $1.25 per share or above for the
previous 45 days. On December 12, 1995 the Option Committee granted Mr.
Parrella options to purchase 500,000 shares of common stock subject to the
foregoing terms and conditions. The exercise price of such options is $0.6563
per share, the fair market value of the Company's common stock on the date of
grant. On August 1, 1995, the Company reinstated Mr. Parrella's
$16,450 annual automobile allowance.
The base salary of Messrs. Fogarty and Hiney for 1995 was established at
$104,434 and $81,144 respectively. In addition, on June 15, 1995, Mr.
Fogarty was awarded a cash bonus of $10,083 and on June 15, 1995 and July 15,
1995, Mr. Hiney was awarded a cash bonus of $20,000 in connection with his
resignation as an officer and employee of the Company on June 15, 1995. On
January 22, 1996, Mr. Fogarty was awarded a further bonus of a grant of options
to purchase 75,000 shares of the Company's common stock, which options, however
would not be exercisable until certain action by the stockholders and the
Company to authorize and reserve shares for issuance upon the exercise of such
options was completed. See "Amendment of Certificate of Incorporation to
Increase Authorized Capitalization", "Adoption of Amendment to the Incentive
Plan" and "Adoption of Amendment to the Directors Plan" above.
On January 3, 1995, Mr. Fogarty, in consideration for his agreeing to
remain an employee of the Company to July 1, 1995, was granted the right to
exchange options to buy 158,200 shares of common stock of the Company having
exercise prices of between $2.38 and $4.00 per share for an equal number of
options having an exercise price of $1.25 per share. Mr. Hiney, for the same
consideration, was granted the right to exchange 34,554 of such options for an
equal number of options having an exercise price of $1.50 per share. Messrs.
Fogarty and Hiney each exercised this right of option exchange. As part of Mr.
Hiney's severance arrangement relating to his leaving the Company on June 15,
1995, the condition of continuing employment to July 1, 1995 was waived by the
Company. See "Repricing of Options/SARs" below.
On November 8, 1995, as participants in the Exchange Program, each of
Messrs. Haft, Parrella and Fogarty were given the right to exchange and did
exchange Old Warrants and Old Options having exercise prices of $0.75 per share
or more and having shares of common stock reserved for issuance upon their
exercise for New Warrants and New Options having exercise prices of $0.75 per
share but having no
20
<PAGE> 22
shares reserved for issuance upon their exercise until the stockholders and the
Company completed the action necessary to authorize and reserve such shares.
In this regard, Mr. Haft forfeited Old Warrants to purchase 190,000 shares of
common stock at $0.75 per share and was granted New Warrants to purchase
218,500 shares of common stock at $0.75 per share. He also forfeited Old
Options to purchase 345,000 shares of common stock at prices between $0.75 and
$1.22 per share and was granted New Options to purchase 358,500 shares of
common stock at $0.75 per share. Mr. Parrella forfeited Old Warrants to
purchase 750,000 shares of common stock at $0.75 per share and was granted New
Warrants to purchase 862,500 shares of common stock at $0.75 per share. He
also forfeited Old Options to purchase 135,000 shares of common stock at prices
between $0.75 and $1.22 per share and was granted New Options to purchase
139,500 shares of common stock at $0.75 per share. Mr. Fogarty forfeited Old
Options to purchase 158,200 shares of common stock at $1.25 per share and was
granted New Options to purchase 158,200 share of common stock at $0.75 per
share. As described above, the reason for the Exchange Program was to enable
the Company to obtain 4,800,000 authorized but unissued shares of common stock
for use in a private placement to raise needed working capital. See "Repricing
of Options/SARs" below and "Amendment of Certificate of Incorporation" above.
Because of the Company's uncertain business prospects and limited cash
resources, in determining the appropriate levels of compensation for the Chief
Executive Officer and the named executive officers, the Compensation Committee
did not deem it relevant, useful or even feasible to consider the compensation
practices of other companies having more certain prospects and greater cash
resources. Rather, the Compensation Committee took into consideration the
contribution being made to the Company's turn-around by these officers, the
extent to which they had received previous reductions in their overall level of
compensation in November of 1994 in connection with the Company's
restructuring, the importance of the Company continuing to receive their
services and the benefit of their knowledge of the Company's technologies, and
the Company's ability to provide them with adequate levels of remuneration
either in cash or in securities.
COMPENSATION
Set forth below is certain information for the three fiscal years ended
December 31, 1995, 1994 and 1993 relating to compensation received by the
Company's Chief Executive Officer and all executive officers of the Company
other than the Chief Executive Officer (collectively the "Named Executive
Officers") whose total annual salary and bonus for the fiscal year ended
December 31, 1995, exceeded $100,000 for services rendered in all capacities.
21
<PAGE> 23
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
------------------------------------------------------- RESTRICTED OPTIONS
OTHER ANNUAL STOCK WARRANTS ALL OTHER
NAME AND POSITION YEAR SALARY ($) BONUS($) COMPENSATION ($) AWARDS SARS (#) COMPENSATION
- ------------------------------------- ------------------------------------------------------------------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jay M. Haft 1995 $110,000(1) $ --- $ --- $ --- 1,187,000(4) $ ---
Co-Chairman, Chief 1994 30,000 --- --- 8,750 165,000 ---
Executive Officer &
President (1)
Michael J. Parrella 1995 90,833 47,168 6,395 --- 1,622,000(5) ---
President; Executive 1994 195,000 --- 9,458 --- 75,000 3,858
Vice President (1) 1993 165,000 50,000 8,907 --- 250,000 5,676
James W. Hiney 1995 81,144 20,000 --- --- 69,554(6) ---
Vice President/Patent 1994 85,000 50,000 --- --- 30,000 ---
Counsel; Vice President 1993 80,000 --- --- --- 30,000 ---
General Counsel &
Secretary (3)
Stephen J. Fogarty 1995 104,434 10,083 --- --- 391,400(7) ---
Senior Vice President 1994 110,000 --- --- --- --- ---
and Chief Financial Officer 1993 100,000 30,000 --- --- 50,000 ---
</TABLE>
----------
(1) Mr. Haft, an employee and director of the Company, was elected
Co-Chairman of the Board, Chief Executive Officer and President on
November 15, 1994. On July 6, 1995, the former Executive Vice
President was elected President and Mr. Haft retained the positions of
Co-Chairman of the Board and Chief Executive Officer.
(2) Consists of 5,000 restricted shares of the Company's common stock
granted to Mr. Haft on May 11, 1994 pursuant to the Company's Stock
Incentive Plan valued at $1.75 per share, the market price of the
common stock on that date. See "Directors' Fees and Stock Options." As
of December 31, 1995, Mr. Haft held 10,000 restricted shares of common
stock which were worth $6,250 based on the market price of the common
stock on that date.
(3) On June 15, 1995, Mr. Hiney resigned as Vice President, General Counsel
and Secretary and ceased being an employee of the Company.
(4) Excludes options and warrants to purchase 1,000,000 shares of the
Company's common stock forfeited under the Exchange Program and
other activity for a net new grant of 387,000 options and warrants of
which none are exercisable.
(5) Excludes options and warrants to purchase 1,385,000 shares of the
Company's common stock forfeited under the Exchange Program and
other activity for a net new grant of 237,000 options and warrants.
(6) Excludes options to purchase 39,554 shares of the Company's common
stock forfeited for a net new grant of 30,000 options of which
25,000 are exercisable.
(7) Excludes options to purchase 316,000 shares of the Company's common
stock forfeited under the Exchange Program and other activity for a
net new grant of 75,000 of which none are exercisable.
(8) Consists of the annual premiums for a $2 million personal life
insurance policy for 1993, and 1994 paid by the Company on behalf of
Mr. Parrella in 1993 and 1994.
22
<PAGE> 24
STOCK OPTIONS AND WARRANTS
The following tables summarize the Named Executive Officers' stock option
and warrant activity during 1995. The Options and Warrants Granted Table
includes information relating to options granted on January 22, 1996 as part
of bonus compensation for 1995.
OPTIONS AND WARRANTS GRANTED IN 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES TOTAL OPTIONS POTENTIAL REALIZED VALUE AT
UNDERLYING AND WARRANTS ASSUMED ANNUAL RATES OF
OPTIONS GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
GRANTED(#) EMPLOYEES IN PRICE EXPIRATION OPTION AND WARRANT TERM(6)
(1) 1995 (1) $/SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Jay M. Haft(2) 45,000 0.5% $0.8750 11/15/99 $10,472 $23,039
45,000 0.5 0.6875 11/15/99 8,069 17,714
45,000 0.5 0.7813 11115/99 8,990 19,694
45,000 0.5 0.6875 11115/99 7,753 16,948
45,000 0.5 0.7500 11/15/99 8,286 18,075
45,000 0.5 0.6562 11/15/99 7,101 15,456
45,000 0.5 0.7187 11/15/99 7,614 16,538
45,000 0.5 1.2187 11/15/99 12,637 27,388
218,500 2.5 0.7500 12/31/97 18,100 37,216
358,500 4.0 0.7500 11/15/99 61,955 134,277
Michael J. Parrella(3) 15,000 0.2 0.8750 11/15/99 3,491 7,680
15,000 0.2 0.6875 11/15/99 2,690 5,905
15,000 0.2 0.7812 11/15/99 2,996 6,564
15,000 0.2 0.6876 11/15/99 2,585 5,650
15,000 0.2 0.7500 11/15/99 2,762 6,025
15,000 0.2 0.7187 11/15/99 2,592 5,643
15,000 0.2 0.7187 11/15/99 2,538 5,513
15,000 0.2 1.2187 11/15/99 4,212 9,129
139,500 1.6 0.7500 11/15/99 22,668 48,841
500,000 5.6 0.6563 11/15/99 69,261 148,872
862,500 9.7 0.7500 12/31/97 71,446 146,904
James W. Hiney 5,000 0.1 1.5000 02/11/01 2,603 5,921
30,000 0.3 0.8750 12/31/98 4,867 10,346
34,654 0.4 1.5000 12/31/98 9,610 20,428
Stephen J. Fogarty(4) 43,200 0.5 1.2500 05/27/00 16,277 36,347
43,200 0.5 0.7500 05/27/00 9,766 21,808
50,000 0.6 1.2500 02/11/01 21,688 49,342
50,000 0.6 0.7500 02/11/01 13,013 29,605
65,000 0.7 1.2500 07/15/00 25,182 56,427
65,000 0.7 0.7500 07/15/00 15,109 33,856
75,000 0.8 0.6563 01/22/03 20,039 46,698
</TABLE>
- ----------
(1) The Options and Warrants Granted Table includes grants under the Exchange
Program which will not be exerciseable until certain action is taken by
the stockholders and the Company authorizing and reserving shares of
common stock of the Company for issuance upon their exercise. See
"Amendment of Certificate of Incorporation to Increase Authorized
Capitalization", "Adoption of Amendment to the Incentive Plan" and
"Adoption of Amendment to the Directors Plan" above.
(2) Options to purchase 360,000 shares granted to Mr. Haft were granted
pursuant to the Directors Plan and are fully vested. Of these, options to
purchase 180,000 shares were forfeited under the Exchange Program along
with other options to purchase 165,000 shares following which New Options
to purchase 358,500 shares were granted to Mr. Haft under the Directors
Plan and the Exchange Program which will not be exercisable until the
action described in footnote (1) is completed. New Warrants to purchase
218,500 shares were granted to Mr. Haft pursuant to the Exchange Program
following the forfeiture of warrants to purchase 190,000 shares. Such
New Warrants will not be exercisable until the action described in
footnote (1) is completed.
(3) Options to purchase 620,000 shares granted to Mr. Parrella were granted
pursuant to the Incentive Plan and are fully vested. Of these, 370,000
options were immediately exercisable, 250,000 will become exercisable on
December 31, 1996 if Mr. Parrella is employed by the Company on that date
or on such earlier date as the Company's common stock as traded on the
NASDAQ Stock Market has maintained a price of $1.25 or more for the
preceding forty-five days, and options to purchase 60,000 shares were
forfeited under the Exchange Program along with other options to purchase
75,000 shares following which New Options to purchase 139,500 shares
were granted to Mr. Parrella under the Incentive Plan and the Exchange
Program. Such New Options will not be exercisable until the action
described in footnote (1) is completed. New Warrants to purchase
862,500 shares were granted to Mr. Parrella pursuant to the Exchange
Program following the forfeiture of warrants to purchase 750,000
shares. Such New Warrants will not be exercisable until the action
described in footnote (1) is completed.
(4) Options to purchase 391,400 shares granted to Mr. Fogarty were granted
pursuant to the Incentive Plan and are fully vested. Of these, options to
purchase 158,200 shares were granted on January 3, 1995, in consideration
of Mr. Fogarty agreeing to remain with the Company to July 1, 1995, and
his forfeiting options to purchase 158,200 shares (see "Compensation
Committee Report on Executive Compensation" above). These options to
purchase 158,200 shares were forfeited under the Exchange Program
following which New Options to purchase 158,200 shares were granted to
Mr. Fogarty under the Incentive Plan and the Exchange Program none of
which will be exercisable until the action described in footnote (1) is
completed. The other options to purchase 75,000 shares also will not be
exercisable until the action described in footnote (1) is completed.
(5) Options to purchase 34,554 shares granted to Mr. Hiney were granted
pursuant to the Incentive Plan and are fully vested and exercisable.
These options were granted on January 3, 1995 in consideration of Mr.
Hiney agreeing to remain with the Company to July 1, 1995 and his
forfeiting options to purchase 34,554 shares (see "Compensation Committee
Report on Executive Compensation" above).
(6) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates required by the SEC and, therefore, are not intended
to forecast possible future appreciation if any, of the stock price.
23
<PAGE> 25
1995 AGGREGATED OPTIONS AND WARRANT EXERCISES AND
DECEMBER 31, 1995 OPTION AND WARRANT VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED IN-THE-
SHARES UNEXERCISED OPTIONS AND MONEY OPTIONS AND WARRANTS AT
ACQUIRED ON VALUE WARRANTS AT DECEMBER 31, 1995 DECEMBER 31, 1995
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Jay M. Haft . . . . . -- $ -- 788,500 218,500 $ 15,625 $ --
Michael J. Parrella -- -- 1,009,456 1,252,000 132,378 --
Stephen J. Fogarty . 205,000 91,588 233,200 -- -- --
James W. Hiney . . . 25,000 7,500 59,554 -- -- --
</TABLE>
REPRICING OF OPTIONS, WARRANTS AND SAR'S
The following table summarizes the repricings of options, warrants and
SAR's held by any then executive officer during the last ten completed fiscal
years.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE
UNDERLYING OF STOCK AT EXERCISE PRICE LENGTH OF ORIGINAL
OPTIONS/SARS TIME OF AT TIME OF NEW OPTION TERM REMAINING
REPRICED OR REPRICING OR REPRICING OR EXERCISE AT DATE OF REPRICING
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE OR AMENDMENT
# ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
-- $--
Jay M. Haft
Options 11/8/95 120,000 0.750 1.063 0.750 11/15/99
11/8/95 103,500 0.750 0.750 0.750 11/15/99
11/8/95 45,000 0.750 0.875 0.750 11/15/99
11/8/95 45,000 0.750 0.781 0.750 11/15/99
11/8/95 45,000 0.750 1.219 0.750 11/15/99
Warrants 11/8/95 218,500 0.750 0.750 0.750 12/31/97
Michael J. Parrella
Options 10/6/92 250,000 3.000 2.000 2.375 10/6/99
11/8/95 60,000 0.750 1.063 0.750 11/15/99
11/8/95 30,000 0.750 0.750 0.750 11/15/99
11/8/95 15,000 0.750 0.875 0.750 11/15/99
11/8/95 15,000 0.750 0.781 0.750 11/15/99
11/8/95 15,000 0.750 1.219 0.750 11/15/99
Warrants 11/8/95 862,500 0.750 0.750 0.750 12/31/97
6/17/87 80,435 0.7500 0.200 0.000 12/31/97
6/17/87 40,217 0.7500 0.200 1.000 12/31/97
11/9/90 40,217 0.2815 1.000 0.400 12/31/97
11/9/90 375,109 0.2815 1.000 0.400 12/31/97
11/9/90 9,130 0.2815 1.000 0.400 12/31/97
11/9/90 25,000 0.2815 1.000 0.400 12/31/97
Stephen J. Fogarty
Options 1/3/95 43,200 1.250 2.375 1.250 5/27/00
1/3/95 65,000 1.250 4.000 1.250 7/15/00
1/3/95 50,000 1.250 2.875 1.250 2/11/01
Options 11/8/95 43,200 0.750 1.250 0.750 5/27/00
11/8/95 65,000 0.750 1.250 0.750 7/15/00
11/8/95 50,000 0.750 1.250 0.750 2/11/01
Jim Hiney
Options 1/3/95 4,554 1.500 2.375 1.500 5/27/00
1/3/95 25,000 1.500 4.000 1.500 7/15/00
1/3/95 5,000 1.500 2.875 1.500 2/11/01
John J. McCloy II
Options 10/6/92 250,000 3.000 2.000 0.375 10/6/99
Warrants 6/17/87 270,435 0.7500 0.200 0.000 12/31/97
6/17/87 135,217 0.7500 0.200 1.000 12/31/97
6/17/87 43,478 0.4375 1.000 0.400 12/31/97
6/17/87 33,967 0.4375 1.000 0.400 12/31/97
6/17/87 13,587 0.4375 1.000 0.400 12/31/97
Irene Lebovics
Warrants 2/19/90 600,000 0.5000 0.7800 0.500 12/31/97
Luc Verschueren
Options
10/6/92 16,200 3.0000 2.0000 2.3750 10/6/99
10/6/92 212,054 3.0000 0.5600 2.3750 10/6/99
</TABLE>
COMPENSATION ARRANGEMENTS WITH CERTAIN OFFICERS AND DIRECTORS
On November 15, 1994, the Board of Directors and its Compensation
Committee took a number of compensation actions. Mr. Haft was to be paid a
consulting fee of $10,000 per month for such period that he serves as Chief
Executive Officer and President of the Company. Mr. McCloy's salary was reduced
to $75,000 per year and Mr. Parrella's salary was reduced to $70,000 per year.
In connection with the reduction in his salary, Mr. Parrella was granted five
year options to purchase 150,000 shares of the Company's common stock under the
Company's Stock Incentive Plan, of which options to purchase 60,000 shares were
granted immediately and options to purchase 15,000 shares were to be deemed
granted on the 15th day of each month from December 1994 through May 1995
provided that Mr. Parrella was employed by the Company on each such date. The
options granted Mr. Parrella under the Stock Incentive Plan have exercise
prices equal to the fair market value of the Company's common stock on the
grant dates. On May 8, 1995, The Compensation Committee granted Mr. Parrella
additional five year options to purchase 45,000 shares of the Company's common
stock of which options to purchase 15,000 shares were to be
24
<PAGE> 26
deemed granted on the 15th day of June, July and August 1995. Such options have
exercise prices equal to the fair market value of the common stock on their
respective grant dates and were subject to the same other terms and conditions
as the earlier options. In addition the Compensation Committee also awarded
Mr. Parrella a $25,000 cash bonus and an incentive bonus equal to 1% of the
cash received by the Company at the execution of the agreement or other
documentation evidencing transactions with unaffiliated parties (other than
certain parties involved in transactions then in negotiation) or otherwise
received at the closing of said transactions which occurred between May 8, 1995
and January 1, 1996. On November 15, 1994, the Board also adopted the Directors
Plan. Under the Directors Plan, which was adopted subject to stockholder
approval, Mr. Haft was granted five-year options to purchase 390,000 shares of
the Company's common stock, of which options to purchase 120,000 shares were
granted immediately and options to purchase 45,000 shares were to be deemed
granted on the 15th day of each month from December 1994 through May 1995, and
Mr. Keith was granted five-year options to purchase 200,000 shares of common
stock, of which options to purchase 50,000 shares were granted immediately and
options to purchase 25,000 shares were to be deemed granted on the 15th day of
each month from December 1994 through May 1995, provided, in each instance,
that Mr. Haft or Mr. Keith was a director of the Company on such date. On May
8, 1995, under an amendment to the Directors Plan, which was also subject to
shareholder approval, Mr. Haft was granted additional five-year options to
purchase 135,000 shares of the Company's common stock of which options to
purchase 45,000 shares of common stock were to be deemed granted on the 15th
day of June, July and August 1995. Such options were subject to the same other
terms and conditions as the earlier options. The options granted under the
Directors Plan have exercise prices equal to the fair market value of the
Company's common stock on the grant dates. The stockholders approved the
Directors Plan, as amended, at the Annual Meeting of Stockholders held on
November 8, 1995.
On July 6, 1995, Mr. Haft relinquished the title of President of the
Company and Mr. Parrella was elected as President of the Company at which time,
effective August 16, 1995, Mr. Haft's consulting fee was reduced to $6,000 per
month and Mr. Parrella's salary was increased to $118,000 per year.
On July 11, 1995, in order to enable the Company to obtain 1,100,000
authorized but unissued shares of common stock to sell to an investor in a
private placement to raise additional working capital, Mr. Parrella forfeited
options to purchase 500,000 shares of the Company's common stock. Three other
directors, Messrs. Haft, McCloy and Oolie, also forfeited options to purchase
respectively 50,000; 500,000 and 50,000 shares of the Company's common stock
for the same reason. In recognition of the on-going efforts of Mr. Parrella
on behalf of the Company and the fact that his cash compensation had been
significantly reduced the prior year, the Company agreed that if the private
placement was successfully concluded and Mr. Parrella agreed to work for the
Company through 1996 (without any obligation on the part of the Company to
employ him for any given period), Mr. Parrella would be granted options to
purchase 500,000 shares of common stock under the Incentive Plan. Of this
amount, 250,000 options would become vested and exercisable immediately. The
other 250,000 options would become vested and exercisable either on December
31, 1996 provided Mr. Parrella was employed by the Company on that date or on
such earlier date if the price of the Company's common stock as traded on
the NASDAQ Stock Market had maintained a price of $1.25 per share or above
for the previous 45 days. On December 12, 1995 the Option Committee granted
Mr. Parrella options to purchase 500,000 shares of common stock subject to
the foregoing terms and conditions. The exercise price of such options is
$0.6563 per share, the fair market value of the Company's common stock on the
date of grant.
25
<PAGE> 27
On November 8, 1995, as participants in the Exchange Program, each of
Messrs. Haft, McCloy, Parrella and Keith were given the right to exchange and
did exchange Old Warrants and Old Options having exercise prices of $0.75 per
share or more and having shares of common stock reserved for issuance upon
their exercise for New Warrants and New Options having exercise prices of $0.75
per share but having no shares reserved for issuance upon their exercise until
the stockholders and the Company completed the action necessary to authorize
and reserve such shares. In this regard, Mr. Haft forfeited Old Warrants to
purchase 190,000 shares of common stock at $0.75 per share and was granted New
Warrants to purchase 218,500 shares of common stock at $0.75 per share. He
also forfeited Old Options to purchase 345,000 shares of common stock at prices
between $0.75 and $1.22 per share and was granted New Options to purchase
358,500 shares of common stock at $0.75 per share. Mr. McCloy forfeited Old
Warrants to purchase 750,000 shares of common stock at $0.75 per share and was
granted New Warrants to purchase 862,500 shares of common stock at $0.75 per
share. Mr. Parrella forfeited Old Warrants to purchase 750,000 shares of
common stock at $0.75 per share and was granted New Warrants to purchase
862,500 shares of common stock at $0.75 per share. He also forfeited Old
Options to purchase 135,000 shares of common stock at prices between $0.75 and
$1.22 per share and was granted New Options to purchase 139,500 shares of
common stock at $0.75 per share. Mr. Keith forfeited Old Options to purchase
225,000 shares of common stock at prices between $0.75 and $1.50 per share and
was granted New Options to purchase 232,500 shares of common stock at $0.75 per
share. As described above, the reason for the Exchange Program was to enable
the Company to obtain 4,800,000 authorized but unissued shares of common stock
for use in a private placement to raise needed working capital. See "Repricing
of Options/SAR's" below and "Amendment of Certificate of Incorporation" above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In October 1990, the Company's Board of Directors authorized the issuance
of warrants to acquire 420,000 shares of common stock to each of Messrs.
McCloy, Parrella and Oolie and Ms. Lebovics, exercisable through September 30,
1994, at $.375 per share, being the market price of the Company's common stock
on the date of such authorization, based upon each such person's commitment to
extend his or her personal guarantee on a joint and several basis with the
others in support of the Company's attempt to secure bank or other
institutional financing, the amount of which to be covered by the guarantee
would not exceed $350,000. No firm commitment for any such financing has been
secured by the Company and at present no such financing is being sought.
However, each of such persons' commitment to furnish said guarantee continues
in full force and effect.
In 1989, the Company established a joint venture with Environmental
Research Information, Inc., ("ERI") to jointly develop, manufacture and sell
(i) products intended for use solely in the process of electric power
generation, transmission and distribution and which reduce noise and/or
vibration resulting from such process, (ii) personal quieting products sold
directly to the electric utility industry and (iii) products that reduce noise
and/or vibration emanating from fans and fan systems (collectively, "Power and
Fan Products"). In 1991, in connection with the termination of this joint
venture, the Company agreed, among other things, during the period ending
February 1996, to make payments to ERI equal to (i) 4.5% of the Company's sales
of Power and Fan Products and (ii) 23.75% of fees derived by the Company from
its license of Power and Fan Products technology, subject to an overall maximum
of $4,500,000. Michael J. Parrella, Executive Vice President of the Company,
was Chairman of ERI at the time of both the
26
<PAGE> 28
establishment and termination of the joint venture and owns approximately 12%
of the outstanding capital of ERI. In addition, Jay M. Haft, Co-Chairman,
President and Chief Executive Officer of the Company, shares investment control
over an additional 24% of the outstanding capital of ERI. The Company believes
that the respective terms of both the establishment of the joint venture with
ERI and its termination were comparable to those that could have been
negotiated with other persons or entities. During the fiscal year ended
December 31, 1995, the Company was not required to make any such payments to
ERI under these agreements.
In 1993, the Company entered into three Marketing Agreements with
QuietPower Systems, Inc. ("QSI") (until March 2, 1994, "Active Acoustical
Solutions, Inc."), a company which is 33% owned by ERI and 2% owned by Mr.
Haft. Under the terms of one of these Marketing Agreements, QSI has undertaken
to use its best efforts to seek research and development funding for the
Company from electric and natural gas utilities for applications of the
Company's technology to their industries. In exchange for this undertaking, the
Company has issued a warrant to QSI to purchase 750,000 shares of the Company's
common stock at $3.00 per share. The last sale price for the Company's common
stock reported on the NASDAQ National Market System on May 15, 1993, the date
of the Marketing Agreement, was $2.9375. The warrant becomes exercisable as to
specific portions of the total 750,000 shares of common stock upon the
occurrence of defined events relating to QSI's efforts to obtain such funding
for the Company. When such defined events occur, the Company will record a
charge for the amount by which the market price of its common stock on such
date exceeds $3.00 per share, if any. The warrant remains exercisable as to
each such portion from the occurrence of the defined event through October 13,
1998. As of December 31, 1994, contingencies had been removed against 525,000
warrants resulting in a 1993 non-cash charge of $120,250. This Marketing
Agreement also grants to QSI a non-exclusive right to market the Company's
products that are or will be designed and sold for use in or with equipment
used by electric and/or natural gas utilities for non-retrofit applications in
North America. QSI is entitled to receive a sales commission on any sales to a
customer of such products for which QSI is a procuring cause in obtaining the
first order from such customer. In the case of sales to utility company
customers, the commission is 6% of the revenues received by the Company. On
sales to original equipment manufacturers for utilities, the commission is 6%
on the gross revenue NCT receives on such sales from the customer in the first
year, 4% in the second year, 2% in the third year and 1% in the fourth year,
and .5% in any future years after the fourth year. QSI is also entitled to
receive a 5% commission on any research and development funding it obtains for
NCT, and on any license fees it obtains for the Company from the license of the
Company's technology. The initial term of this Agreement is three years
renewable automatically thereafter on a year-to-year basis unless a party
elects not to renew.
Under the terms of the second of the three Marketing Agreements, QSI is
granted a nonexclusive right to market the Company's products that are or will
be designed and sold for use in or with feeder bowls throughout the world,
excluding Scandinavia and Italy. Under this Marketing Agreement, QSI is
entitled to receive commissions similar to those payable to end user and
original equipment manufacturer customers described above. QSI is also entitled
to receive the same 5% commission described above on research and development
funding and technology licenses which it obtains for the Company in the feeder
bowl area. The initial term of this Marketing Agreement is three years with
subsequent automatic one-year renewals unless a party elects not to renew.
27
<PAGE> 29
Under the terms of the third Marketing Agreement, QSI is granted an
exclusive right to market the Company's products that are or will be designed
and sold for use in or with equipment used by electric and/or natural gas
utilities for retrofit applications in North America. QSI is entitled to
receive a sales commission on any sales to a customer of such products equal to
129% of QSI's marketing expenses attributable to the marketing of the products
in question, which expenses are to be deemed to be the lesser of QSI's actual
expenses or 35% of the revenues received by the Company from the sale of such
products. QSI is also entitled to receive a 5% commission on research and
development funding similar to that described above. QSI's exclusive rights
continue for an indefinite term provided it meets certain performance criteria
relating to marketing efforts during the first two years following product
availability in commercial quantity and minimum levels of product sales in
subsequent years. In the event QSI's rights become non-exclusive, depending on
the circumstances causing such change, the initial term then becomes either
three or five years from the date of this Marketing Agreement, with subsequent
one-year automatic renewals in each instance unless either party elects not to
renew. During the fiscal year ended December 31, 1994, the Company was not
required to pay any commissions to QSI under any of these Marketing Agreements.
The Company has also entered into a Teaming Agreement with QSI under
which each party agrees to be responsible for certain activities relating to
transformer quieting system development projects to be undertaken with utility
companies. Under this Teaming Agreement, QSI is entitled to receive 19% of the
amounts to be received from participating utilities and the Company is entitled
to receive 81%. During the fiscal year ended December 31, 1994, the Company
made no payments to QSI for project management services.
In March 1995, the Company entered into a Master Agreement with QSI under
which QSI was granted an exclusive worldwide license under certain NCT patents
and technical information to market, sell and distribute transformer quieting
products, turbine quieting products and certain other products in the utility
industry. Under the Master Agreement, QSI is to fund development of the
products by the Company and the Company is to manufacture the products.
However, QSI may obtain the right to manufacture the products under certain
circumstances including NCT's failure to develop the products or the failure of
the parties to agree on certain development matters. In consideration of the
rights granted under the Master Agreement, QSI is to pay the Company a royalty
of 6% of the gross revenues received from the sale of the products and 50% of
the gross revenues received from sublicensing the rights granted to QSI under
the Master Agreement after QSI has recouped 150% of the costs incurred by QSI
in the development of the products in question. The Company is obligated to
pay similar royalties to QSI on its sale of the products and the licensing of
rights covered under the Master Agreement outside the utility industry and from
sales and licensing within the utility industry in the Far East. In addition to
the foregoing royalties, QSI is to pay an exclusivity fee to the Company of
$750,000; $250,000 of which QSI paid to the Company in June 1994. The balance
is payable in equal monthly installments of $16,667 beginning in April 1995.
QSI's exclusive rights become non-exclusive with respect to all products if it
fails to pay any installment of the exclusivity fee when due and QSI loses such
rights with respect to any given product in the event it fails to make any
development funding payment applicable to that product. The Master Agreement
supersedes all other agreements relating to the products covered under the
Master Agreement, including those agreements between the Company and QSI
described above.
28
<PAGE> 30
Immediately following the execution to the Master Agreement, the Company
and QSI entered into a letter agreement providing for the termination of the
Master Agreement at the Company's election if QSI did not pay approximately
$500,000 in payables then owed to the Company by May 15, 1995.
In April 1995, the Company and QSI entered into another letter agreement
under which QSI agreed to forfeit and surrender the five year warrant to
purchase 750,000 shares of the Company's common stock issued to QSI under the
first Marketing Agreement described above. In addition, the $500,000 balance of
the exclusivity fee provided for under the Master Agreement was reduced to
$250,000 to be paid in 30 monthly installments of $8,333 each and the payment
of the indebtedness to be paid under the letter agreement described in the
preceding paragraph was revised to be the earlier of May 15, 1996, or the date
of closing of a financing of QSI in an amount exceeding $1.5 million, whichever
first occurs. Such indebtedness is to be evidenced by a promissory note, non
payment of which is to constitute an event of termination under the Master
Agreement.
The Company believes that the terms of its agreements with QSI are
comparable to those that it could have negotiated with other persons or
entities.
PERFORMANCE GRAPH
Note: The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
NOISE CANCELLATION TECHNOLOGIES, INC. --STOCK PERFORMANCE(1)
<TABLE>
<CAPTION>
NCT NASDAQ COMPOSITE NASDAQ ELECTRONIC
INDEX COMPONENTS STOCK
INDEX(3)
<S> <C> <C> <C>
12/31/90 100 100 100
12/31/91 1,123 161 142
12/31/92 852 187 222
12/31/93 668 215 306
12/31/94 170 210 337
12/31/95 143 296 560
</TABLE>
- ----------
(1) Assumes an investment of $100.00 in the Company's common stock and in each
index on December 31, 1990.
29
<PAGE> 31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of May 20, 1996, information
concerning the shares of common stock beneficially owned by each person who, to
the knowledge of the Company, is the holder of 5% or more of the common stock
of the Company, each Director, and each Named Executive Officer, and all
executive officers and Directors of the Company as a group. Except as otherwise
noted, each beneficial owner has sole investment and voting power with respect
to the listed shares.
<TABLE>
<CAPTION>
Amount and Nature Approximate
Name of Beneficial Owner of Beneficial Ownership(1)(2) Percentage
of Class(1)(2)
- -------------------------------------------------------- ------------------------------------ -----------------------------
<S> <C> <C>
John J. McCloy II 1,985,717 (3) 2.05
Michael J. Parrella 2,605,565 (4) 2.65
Sam Oolie 1,204,562 (5) 1.25
Jay M. Haft 474,891 (6) 0.49
Alastair Keith 40,000 (7) 0.08
Stephen J. Fogarty 0 (8) 0
James W. Hiney 59,554 (9) 0.06
All executive officers & Directors as a
group (12 persons) 7,726,794 (10) 7.96
Carole Salkind 4,000,000 (11) 4.17
Her Majesty The Queen, Province of Alberta Canada 4,800,000 (12) 5.01
</TABLE>
- ---------------------------
(1) On March 5, 1996, in order to enable the Company to obtain 2,390,000
authorized but unissued shares of common stock to sell to four investors
in two private placements to raise additional working capital, each member
of the Board of Directors agreed not to exercise any warrants or options
to purchase common stock of the Company which had exercise prices between
$0.50 and $0.75 per share and to permit the Company to issue the shares
reserved for issuance upon the exercise of such warrants and options in
the two proposed private placements (individually, a "Directors'
Standstill Agreement" and collectively, the "Directors Standstill
Agreements"). In consideration for this action by the directors, the
Company agreed to reserve sufficient shares of common stock of the Company
to permit the full exercise of all such warrants and options once the
Company had obtained sufficient additional authorized shares of common
stock to permit such action by the Company.
30
<PAGE> 32
(2) Assumes the exercise of currently exercisable outstanding options or
warrants to purchase shares of common stock and therefore does not include
New Options or New Warrants granted under the Exchange Program or options
subject to a Director's Standstill Agreement which will not become
exercisable until the action described above under "Amendment of
Certificate of Incorporation to Increase Authorized Capital", "Adoption of
Amendment to Incentive Plan" and "Adoption of Amendment to Director's
Plan" is completed. The percent of class ownership is calculated
separately for each person based on the assumption that the person listed
on the table has exercised all options and warrants shown for that person,
but that no other holder of options or warrants has exercised such options
or warrants.
(3) Includes 222,825 shares issuable upon the exercise of currently
exercisable warrants. Excludes 862,500 shares issuable upon the exercise
of New Warrants, and 850,000 shares issuable upon the exercise of
options subject to a Director's Standstill Agreement none of which will
become exercisable until the action referred to in footnote (2) is
completed.
(4) Includes 449,456 shares issuable upon the exercise of currently
exercisable warrants. Excludes 862,500 shares issuable upon the
exercise of New Warrants, 139,500 shares issuable upon the exercise
of New Options and 810,000 shares issuable upon the exercise of options
subject to a Director's Standstill Agreement none of which will become
exercisable until the action referred to in footnote (2) is completed.
(5) Includes 15,000 restricted shares. Excludes 250,000 shares issuable
upon the exercise of options subject to a Director's Standstill Agreement
none of which will become exercisable until the action referred to in
footnote (2) is completed.
(6) Includes 10,000 restricted shares. Excludes 218,500 shares issuable upon
the exercise of New Warrants, 258,500 shares issuable upon the exercise
of New Options and 430,000 shares issuable upon the exercise of options
subject to a Director's Standstill Agreement none of which will become
exercisable until the action referred to in footnote (2) is completed.
(7) Includes 15,000 restricted shares. Excludes 232,500 shares issuable upon
the exercise of New Options and 50,000 shares issuable upon the exercise
of options subject to a Director's Standstill Agreement none of which
will become exercisable until the action referred to in footnote (2) is
completed.
(8) Excludes 158,200 shares issuable upon the exercise of New Options which
will not become exercisable until the action referred to in footnote (2)
is completed.
(9) Includes 59,554 shares issuable upon the exercise of currently
exercisable options.
(10) Includes 915,781 shares issuable to 4 executive officers and Directors
of the Company upon the exercise of currently exercisable warrants,
309,554 shares issuable to 3 executive officers and directors of the
Company upon the exercise of currently exercisable options and 40,000
restricted shares issued to 3 directors of the Company. Excludes
2,184,750 shares issuable to 4 officers and directors of the Company
upon the exercise of New Warrants, 891,218 shares issuable to 5 officers
and directors of the Company upon the exercise of New Options and
2,390,000 shares issuable to 5 directors of the Company upon the exercise
of options subject to Directors' Standstill Agreements none of which will
become exercisable until the action referred to in footnote (2) is
completed.
(11) Carole Salkind's address is 801 Harmon Cove Towers, Secaucus, New Jersey
07094
(12) Her Majesty The Queen, Province of Alberta, Canada's address
is Room 530, Terrace Building, 9515 107th Street, Edmondton, Alberta T5K
2C3, Canada.
31
<PAGE> 33
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's 1997
Annual Meeting of Stockholders must be received by the Company by December 6,
1996, for inclusion in the Company's proxy statement and form of proxy relating
to that meeting.
Linthicum, Maryland
May 22, 1996
32
<PAGE> 34
NOISE CANCELLATION TECHNOLOGIES, INC.
1025 WEST NURSERY ROAD SUITE 120
LINTHICUM, MD. 21090
----------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jay M. Haft, Michael J. Parrella and
Stephen J. Fogarty, as Proxies, each with the power to appoint his substitute,
and hereby authorizes them, and each of them, to represent and vote, as
designated below, all the shares of Common Stock of Noise Cancellation
Technologies, Inc. held of record by the undersigned on May 20, 1996, at the
Annual Meeting of Stockholders to be held on July 17, 1996, or any adjournment
thereof.
<TABLE>
<S> <C>
1. Election of directors: FOR all nominees listed below WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below) / / all nominees listed below / /
Jay M. Haft John J. McCloy II Michael J. Parrella Alastair Keith Sam Oolie
</TABLE>
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S
NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. To approve the amendment of the Companys Certificate of Incorporation to
increase the number of shares of Common Stock authorized thereunder from
100,000,000 shares to 140,000,000 shares.
FOR / / AGAINST / / ABSTAIN / /
3. To approve the adoption of the amendment of the Noise Cancellation
Technologies, Inc. Stock Incentive Plan.
FOR / / AGAINST / / ABSTAIN / /
4. To approve the adoption of the amendment of the Noise Cancellation
Technologies, Inc. Option Plan for Certain Directors.
FOR / / AGAINST / / ABSTAIN / /
5. To ratify the selection of Richard A. Eisner & Company, LLP as independent
auditors for the fiscal year ending December 31, 1996.
FOR / / AGAINST / / ABSTAIN / /
6. At their discretion, the Proxies are authorized to vote upon such other
matter as may properly come before the meeting.
(continued on reverse side)
<PAGE> 35
(continued from other side)
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
Proposals 1, 2, 3, 4 and 5.
Dated: ________________________, 1996
------------------------------------
Signature
------------------------------------
Signature if held jointly
PLEASE SIGN EXACTLY AS NAME
APPEARS HEREON. WHEN SHARES ARE HELD
BY JOINT TENANTS, BOTH SHOULD SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE TITLE. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE NAME BY
THE PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE
SIGN IN PARTNERSHIP NAME BY AUTHORIZED
PERSON.
PLEASE MARK, SIGN, DATE AND
RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
2
