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.2)
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.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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):
- - --------------------------------------------------------------------------------
(4)Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5)Total fee paid:
- - --------------------------------------------------------------------------------
/ / 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:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<PAGE>
NOISE CANCELLATION TECHNOLOGIES, INC.
1025 West Nursery Road Suite 120
Linthicum, Maryland 21090
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 19, 1997
---------------
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 in the ____________ Room at the Stamford Marriott Hotel, The Stamford
Forum, Stamford, Connecticut 06901 on Thursday, June 19, 1997, at 2:00 P.M., for
the following purposes:
1.To elect four 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
140,000,000 shares to 185,000,000 shares.
3.To approve the extension of certain warrants owned by certain officers and
directors of the Company.
4.To ratify the appointment of Richard A. Eisner & Company, LLP as the
Company's independent auditors for the fiscal year ending December 31,
1997.
5.To transact such other business as may properly come before the Meeting.
Only stockholders of record at the close of business on April 21, 1997, are
entitled to notice of and to vote at the Meeting or at any adjournment thereof.
JOHN B. HORTON
Secretary
Linthicum, Maryland
May ___, 1997
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.
<PAGE>
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 ___, 1997, to all
stockholders of record at the close of business on April 21, 1997, in connection
with the solicitation by the Board of Directors of Proxies for the Annual
Meeting of Stockholders to be held on June 19, 1997. 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
April 21, 1997, was 119,028,933. 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
April 21, 1997, will be entitled to vote. A majority of the shares outstanding
and entitled to vote, or 59,514,467 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 extension of certain warrants owned by
certain officers and directors of the Company, to ratify the appointment of the
Company's independent auditors for the year ending December 31, 1997, 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, Maryland
21090, for a period of ten (10) days prior to the Meeting for examination by any
stockholder, and at the Meeting itself.
<PAGE>
ELECTION OF DIRECTORS
Four 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:
Positions and Offices Director
Name Age Presently Held with the Since
Company
- - ----------------- ----- ---------------------------- --------
Jay M. Haft 61 Chairman of the Board and 1990
Director
Michael J. 49 President and Director 1986
Parrella
John J. McCloy 59 Director 1986
II
Sam Oolie 60 Director 1986
Jay M. Haft currently serves as Chairman of the Board of Directors of the
Company. He served as President of the Company from November 1994 to July 1995.
He is a strategic and financial consultant for growth stage companies. He is
active in international corporate finance, mergers and acquisitions, as well as
in the representation of emerging growth companies. He has actively participated
in strategic planning and fund raising for many high-tech companies, leading
edge medical technology companies and technical product, service and marketing
companies. He is a Managing General Partner of Venture Capital Associates, Ltd.
and of Gen Am "1" Venture Fund, a domestic and an international venture capital
fund, respectively. Mr. Haft is also a Director of numerous other public and
private corporations, including Robotic Vision Systems, Inc. (OTC), Extech Inc.
(OTC), Encore Medical Corp. (OTC), Viragen, Inc. (OTC), PC Service Source, INC.
(OTC), DUSA Pharmaceuticals, Inc. (OTC), Oryx Technology Corp. (OTC) and Jenna
Lane, Inc. (OTC). He serves as Chairman of the Board of Extech, Inc. and Jenna
Lane, Inc. He is currently of counsel to Parker Duryee Rosoff & Haft, in New
York. He was previously a senior corporate partner of such firm (1989-1994), and
prior to that a founding partner of Wolfsey, Certilman, Haft, et. al.
(1966-1988). He is a member of the Florida Commission for Government
Accountability to the People, a Vice President of the Miami Ballet and a
Director of the Concert Association of Florida. He is a graduate of Yale College
and Yale Law School.
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.
John J. McCloy II currently serves as a Director of the Company. 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.
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 that position 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.
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, 1996, to December 31, 1996, all
filing requirements applicable to its officers, directors, and greater than 10%
stockholders were complied with.
<PAGE>
Information Concerning the Board
The Board of Directors of the Company held eleven meetings (not including
three actions by unanimous written consent) during the fiscal year ended
December 31, 1996. Other than Mr. McCloy, 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 an Executive Committee, a Compensation Committee and an Audit
Committee. The Executive Committee was appointed by the Board of Directors on
July 17, 1996, and is composed of Messrs. Haft and Parrella. The Executive
Committee has the authority and responsibility of acting in the place and stead
and on behalf of a Chief Executive Officer of the Company and of exercising all
the powers of that office. During the fiscal year ended December 31, 1996, the
members of the Executive Committee conferred with each other not less frequently
than once each week.
The Company had an Option Committee until August 26, 1996, at which time its
authority and responsibilities were assumed by the Board of Directors until
April 10, 1997, when they were assumed by the Compensation Committee appointed
by the Board of Directors on that date. During the period between August 26,
1996, and April 10, 1997, the authority and responsibilities of the Compensation
Committee were assumed by the Board of Directors. The Compensation Committee,
which reviews and determines the compensation of the Company's senior management
and now performs the duties of the former Option Committee hereinafter
described, is composed of Messrs. Haft, McCloy, and Oolie. The Option Committee
reviewed and took 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 was composed of Messrs. McCloy and Oolie, each of whom was
a "disinterested person" as defined under Rule 16b-3 promulgated under the
Exchange Act. During the fiscal year ended December 31, 1996, the Compensation
Committee held no meetings, and the Option Committee took all of its action by
unanimous written consent on two occasions.
The Audit Committee, which reviews the activities of the Company's
independent auditors and which is composed of Messrs. McCloy and Oolie held one
meeting during the fiscal year ended December 31, 1996.
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 Chairman of the Board of
Directors.
Directors' Fees, Restricted Stock and Stock Options
None of the Company's directors received any fees for his services as a
director during 1996, except that under the Noise Cancellation Technologies,
Inc. Stock Incentive Plan (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 July 17, 1996, 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 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.
<PAGE>
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 140,000,000 to 185,000,000. As of the record date, the Company had
outstanding 119,028,933 shares of common stock and had reserved an additional
19,615,220 shares of common stock for issuance upon the conversion of
convertible debentures and 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 "Verity Transaction" 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
"Verity Transaction" and the sale by the Company of certain convertible
debentures, the Company plans to reserve: (i) 3,850,000 shares of such
additional shares for issuance upon the exercise of the option granted to Verity
Group PLC in the Verity Transaction; and (ii) 2,596,132 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.
In March and April 1997, the Company, Verity Group PLC, a leading
audio-speaker manufacturer headquartered in London, ("Verity") and New
Transducers Limited, a wholly owned subsidiary of Verity ("NTL") entered into a
technology cross licensing agreement and certain other related agreements (the
"Verity Transaction"). Under terms of the agreements included in the Verity
Transaction, the Company has licensed patents and patents pending which relate
to Flat Panel Transducer(TM) technology to NTL, and NTL has licensed patents and
patents pending which relate to parallel technology to the Company. In
consideration of the license granted to Verity and NTL, the Company received
3,350,000 ordinary shares of Verity as well as royalties on future licensing and
product revenue. At the time the agreements were signed, the price of an
ordinary share of Verity as traded on the London Stock Exchange was
approximately $0.90. The Company and Verity also executed agreements granting
each an option for a four year period commencing on March 28, 1998, to acquire a
specified amount of the common stock of the other subject to certain conditions
and restrictions. With respect to the Company's option to Verity (the "Verity
Option"), 3,850,000 shares of common stock (approximately 3.4% of the then
issued and outstanding common stock) of the Company are covered by such option.
5,000,000 ordinary shares (approximately 2.0% of the then issued and outstanding
ordinary shares) of Verity are covered by the option granted by Verity to the
Company. The exercise price under each option is the fair value of a share of
the applicable stock on the date negotiations concerning the applicable
agreements were concluded which, with respect to the Company's common stock, was
$0.30 per share. If the Company does not obtain stockholder approval of an
amendment to its Certificate of Incorporation increasing its authorized common
stock by an amount sufficient to provide shares of the Company's common stock
for issuance upon the full exercise of the option granted to Verity by September
30, 1997, both options expire.
If the stockholders approve the amendment to the Company's Certificate of
Incorporation (the "Amendment") increasing the authorized common stock from
140,000,000 shares of such stock to 185,000,000 shares, upon the requisite
filing of the Amendment with the Secretary of State of the State of Delaware
(the "Filing"), the Company will reserve up to 3,850,000 of such newly
authorized shares for issuance upon the exercise of the Verity Option.
During the first quarter of 1997, in order to obtain additional working
capital, the Company sold $3,175,000 aggregate principal amount of 8% non-voting
subordinated convertible debentures ("Debentures") to five offshore investors
pursuant to Regulation S under the Securities Act of 1933, as amended (the
"Securities Act"). One such investor has subscribed to purchase an additional
$500,000 aggregate principal value of Debentures once it has converted one-half
of the Debentures which it had purchased initially. In order to make sufficient
shares of common stock available for issuance upon the conversion of the
Debentures by such investors, the Company un-reserved 2,596,132 shares of its
common stock previously reserved for issuance under the Incentive Plan and
reserved such shares for issuance upon conversion of the Debentures. If the
stockholders approve the Amendment as described above, then upon the Filing, the
Company will reserve 2,596,132 of the newly authorized shares covered by the
Amendment for issuance under the Incentive Plan.
The additional shares of common stock to be authorized pursuant to the
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 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.
<PAGE>
EXTENSION OF WARRANTS
On January 22, 1997, the Board of Directors extended for two years the
expiration dates of warrants to purchase 2,734,423 shares of the Company's
common stock at the price of $0.75 per share held by seventeen persons. Such
extension with respect to the warrants owned by the five directors and officers
of the Company was made subject to the approval of the Company's stockholders.
The closing price of the Company's common stock as traded on The Nasdaq Stock
Market National Market System was $0.50 per share. The original expiration date
of these warrants was December 31, 1997, and the new expiration date is December
31, 1999. If, prior to December 31, 1999, all of these warrants are exercised,
the Company would receive $2,050,817 in consideration for the issuance of
2,734,423 shares of common stock. Five of the persons who own these warrants are
directors or officers of the Company and the others are current non-officer
employees or former directors, officers or non-officer employees of the Company.
The following table sets forth the names of the present directors and officers
of the Company who own the subject warrants and the number of shares of common
stock of the Company issuable to them upon exercise:
Shares Issuable
Name Upon Exercise
Jay M. Haft 218,500
Michael J. Parrella 862,500
John J. McCloy II 862,500
Irene Lebovics 201,250
Cy E. Hammond 25,000
The rules of The Nasdaq Stock Market require the approval of the Company's
stockholders with respect to the grant of warrants by the Company to its
directors and officers. The extension of a warrant may be considered a new grant
for certain purposes and accordingly the approval of the Company's stockholders
is being sought for the two-year extension of the warrants held by the directors
and officers of the Company described above. If such approval of the Company's
stockholders is not obtained, the expiration date of the foregoing warrants
owned by the listed directors and officers of the Company will revert to
December 31, 1997, the original expiration date.
The Board of Directors recommends a vote FOR approval of the extension of the
warrants held by the directors and officers of the Company as described above.
INDEPENDENT AUDITORS
Independent Accountants for 1997
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, 1997. 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 and Oolie and has responsibility for recommending the
selection of auditors.
Richard A. Eisner & Company, LLP was appointed by the Board of Directors to
audit the accounts of the Company for the fiscal year ended December 31, 1996.
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.
<PAGE>
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
As reported in the Compensation Committee Report for the fiscal year ended
December 31, 1995, contained in the 1996 Proxy Statement, on July 6, 1995, Mr.
Haft resigned as President and, with the approval of the Board of Directors
retained, for an indefinite term, the titles and responsibilities of Chief
Executive Officer and Co-chairman of the Board of Directors. Also, at this time,
Mr. Parrella was elected President of the Company. Effective August 16, 1995,
and in recognition of the changes in their respective responsibilities, Mr.
Haft's compensation was reduced by $4,000 per month to $72,000 annually and Mr.
Parella's salary was increased by approximately the same amount to $120,000
annually. The annual rates of salary for Messrs. Haft and Parrella remained
unchanged for 1996 except as noted in the last sentence of this paragraph. At
the conclusion of the Annual Meeting of the Stockholders on July 17, 1996, Mr.
Haft resigned as Chief Executive Officer of the Company and was appointed
Chairman of the Board of Directors. The Board of Directors designated an
Executive Committee comprised of Messrs. Haft and Parrella with Mr. Haft acting
as the Chairman of the Committee. The Board of Directors granted the Executive
Committee the power and authority to act in the place of the Chief Executive
Officer. Effective September 1, 1996, Mr. Haft's compensation was further
reduced to $48,000 annually in recognition of this change in his duties.
As noted above, Mr. Parrella's salary for 1996 was continued at the rate of
$120,000 per year. As also reported in last year's Compensation Committee
Report, 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 1% of the
cash to be received 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. Effective January 1, 1996, the above noted percentage bonus
arrangement was extended until modified or terminated by the Board of Directors.
Mr. Parrella was paid a bonus of $106,885 under this percentage bonus
arrangement during 1996. 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 the Company's common stock under the Incentive Plan. Of this amount, options
to purchase 250,000 shares of common stock would become vested and exercisable
immediately.. The options to purchase the remaining 250,000 shares would become
vested and exercisable either on December 31, 1996 if Mr. Parrella was employed
by the Company on that date, or on such earlier date when 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
the Company's 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. In addition, Mr. Parrella
received a $15,348 annual 1996 automobile allowance.
The base salary of Mr. Fogarty, a Senior Vice President and the Chief
Financial Officer of the Company, was established at $105,833 for 1996 which was
substantially the same as his salary for 1995. The 1996 base salaries of Ms.
Lebovics and Mr. Zeitlin, both also Senior Vice Presidents, were established at
$105,000 and $110,000, respectively. Mr. Zeitlin's salary, while continued at
the rate applicable for 1995 was higher than the salaries for other Senior Vice
Presidents due to the results of the negotiations relating to his joining the
Company in 1995.
<PAGE>
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 (as defined below), 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. Accordingly it is the opinion of the Committee
that the above described rates of compensation are reasonable in light of these
factors and the financial condition of the Company.
THE COMPENSATION COMMITTEE
By: Jay M. Haft, Chairman
John J. McCloy II
Sam Oolie
<PAGE>
Compensation
Set forth below is certain information for the three fiscal years ended
December 31, 1996, 1995 and 1994 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, 1996, exceeded $100,000 for services rendered in all capacities.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Other Restricted Options
Annual Stock Warrants All Other
Name and Position Year Salary($) Bonus($) Compensation Awards SARS(#) Compensation
----------------- ---- -------- -------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jay M. Haft 1996 $ 64,000 (1) $ - $ - $ - 200,000 $ -
Chairman (1) 1995 110,000 - - - 937,000 (2)(8) -
1994 30,000 - - 8,750 (3) 165,000 -
Michael J. Parrella 1996 120,000 106,885 15,348 - 475,000 5,218 (5)
President (1) 1995 90,833 47,168 6,395 - 1,622,000 (4)(8) -
1994 195,000 - 9,458 - 75,000 3,858 (5)
Stephen J. Fogarty 1996 105,833 - - - - -
Senior Vice President; 1995 104,434 10,083 - - 391,400 (6)(8) -
Chief Financial Officer 1994 110,000 - - - - -
Irene Lebovics 1996 105,000 - - - - -
Senior Vice President; 1995 88,000 - - - 533,850 (7)(8) -
President, NCT Hearing Products 1994 107,250 - - - - -
Jeffrey Zeitlin 1996 110,000 - - - 275,000 -
Senior Vice President, 1995 - - - - - -
Operations 1994 - - - - - -
- - ----------------
</TABLE>
(1) Mr. Haft was elected Chairman of the Board and relinquished the title of
Chief Executive Officer on July 17, 1996. Prior thereto, and from November
15, 1994, Mr. Haft served as Co-Chairman of the Board and Chief Executive
Officer. Mr. Haft also served as President from November 15, 1994, to July
6, 1995, when Mr. Parrella, who had served as Executive Vice President from
November 15, 1994, to July 6, 1995, was elected President. Mr. Parrella
also had served as President until November 15, 1994.
(2) Excludes options and warrants to purchase 585,000 shares of the Company's
common stock forfeited under the "Exchange Program" described in footnote
(8) below, and other activity for a net new grant of 402,000 options and
warrants all of which were exercisable at December 31, 1996.
(3) 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
(the "Incentive Plan") valued at $1.75 per share, the market price of the
common stock on that date. As of December 31, 1996, Mr. Haft held 10,000
restricted shares of common stock which were worth $4,060 based on the
market price of the common stock on that date.
(4) Excludes options and warrants to purchase 1,385,000 shares of the Company's
common stock forfeited under the "Exchange Program" described in footnote
(8) below, and other activity for a net new grant of 237,000 options and
warrants all of which were exercisable at December 31, 1996.
(5) Consists of the annual premiums for a $2 million personal life insurance
policy paid by the Company on behalf of Mr. Parrella.
(6) Excludes options to purchase 316,400 shares of the Company's common stock
forfeited under the "Exchange Program" described in footnote (8) below, and
other activity for a net new grant of 75,000 all of which are exercisable
at December 31, 1996.
(7) Excludes options and warrants to purchase 507,600 shares of the Company's
common stock forfeited under the "Exchange Program" described in footnote
(8) below, and other activity for a net new grant of 26,250 all of which
are exercisable at December 31, 1996.
(8) 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
Company's Option Plan for Certain Directors (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 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 would 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. Such stockholder approval and further corporate action
were obtained and completed on July 17, 1996, and August 14, 1996,
respectively. 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 occurred prior to the date on
which the New Warrants or New Options become exercisable, the expiration
date for such New Warrants or New Options would 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 and it was 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 which action was completed following the above
described increase in the Company's authorized capital.
<PAGE>
Stock Options and Warrants
The following tables summarize the Named Executive Officers' stock option
and warrant activity during 1996.
<TABLE>
<CAPTION>
Options and Warrants Granted in 1996
Percent Potential Realized Value
of Total at Assumed Annual
Options and Rates of Stock Price
Shares Warrants Appreciation for
Underlying Granted to Exercise Option and Warrant Term (4)
Options Employees Price Expiration ---------------------------
Name Granted in 1996 Per Share Date 5% 10%
---- ------- ----------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jay M. Haft(1) 200,000 11.7% $0.6563 1/22/03 $ 53,436 $ 124,529
Michael J.Parrella(2) 475,000 27.8% 0.6563 1/22/03 126,911 295,755
Jeffrey Zeitlin(3) 275,000 16.1% 0.6563 1/23/03 73,475 171,227
- - --------------
</TABLE>
(1) Options to purchase 200,000 shares granted to Mr. Haft were granted
pursuant to the Incentive Plan and are fully vested.
(2) Options to purchase 475,000 shares granted to Mr. Parrella were granted
pursuant to the Incentive Plan and are fully vested.
(3) Options to purchase 275,000 shares granted to Mr. Zeitlin were granted
pursuant to the Incentive Plan and are fully vested.
(4) 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.
<TABLE>
<CAPTION>
1996 Aggregated Options and Warrant Exercises and
December 31, 1996 Option and Warrant Values
Number of Shares
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Number of and Warrants at and Warrants at
Shares December 31,1996 December 31, 1996
Acquired Value --------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jay M. Haft - $ - 1,207,000 - $ - $ -
Michael J. Parrella - - 2,736,456 - 2,697 -
Stephen J. Fogarty - - 233,200 - - -
Irene Lebovics - - 492,550 - - -
Jeffrey Zeitlin - - 275,000 - - -
</TABLE>
Compensation Arrangements with Certain Officers and Directors
On February 1, 1996, the Compensation Committee awarded Mr. Parrella an
incentive bonus equal to 1% of the cash received by the Company upon 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
occur subsequent to January 1, 1996.
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.
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,
President of the Company, was Chairman of ERI at the time of both the
establishment and termination of the joint venture and owns approximately 12% of
the outstanding capital of ERI. In addition, Jay M. Haft, Co-Chairman, 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, 1996, 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 Common Stock at $3.00 per share. The last
sale price for the 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 the 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 non-exclusive 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.
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, 1996, 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, 1996, 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 include
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.
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.
On May 21, 1996, the Company and QSI entered into another letter agreement
extending the time by which the payments from QSI to the Company under the April
1995 letter agreement described above were to be made. Under the letter the
payment of certain arrearages in the payment of the exclusivity fee was to be
made not later than June 15, 1996, with the balance continuing to be payable by
monthly payments of $8,333 and as provided in the May 1995 letter agreement. In
addition the payment of the other indebtedness owed by QSI to the Company was to
be paid by a payment of $25,000 at the time QSI obtained certain anticipated
financing with the balance paid by monthly payments of $15,000 each. Default in
QSI's timely payment of any of the amounts specified in the May 21, 1996 letter
agreement was to cause the immediate termination of the Master Agreement and all
rights granted to QSI thereunder.
On April 9, 1997, the Company and QSI entered into another letter agreement
revising the payment schedule set forth in the May 21, 1996 letter agreement
applicable to the payment of the indebtedness owed to the Company by QSI other
than the unpaid portion of the exclusivity fee. Under the revised schedule, the
full amount of such indebtedness is to be paid by an initial payment of $125,000
on or before April 21, 1997, and a second payment of $200,000 upon the closing
of a proposed financing in June 1997 or on January 1, 1998, whichever first
occurs. The Company is also entitled to receive 15% of any other financing
obtained by QSI in the interim as well as interest at the rate of 10% per annum
on the unpaid amount of such indebtedness from July 1, 1997. The letter
agreement also provides for the continuation of QSI's payment of the exclusivity
fee in accordance with the earlier letter agreements as well as the payment of
$11,108 by April 21, 1997, for headset products sold by the Company to QSI in
1996. In the event of a default in QSI's timely payment of any of the amounts
specified in the April 9, 1997 letter agreement, the Company has the right to
cause the termination of the Master Agreement and all rights granted by QSI
thereunder upon 10 days notice of termination to QSI.
As of April 30, 1997, QSI has paid all installments due and payable for the
exclusivity fee and, other than as described above, owes no other amounts to the
Company.
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.
<PAGE>
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)
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NCT $100 $76 $59 $15 $13 $8
NASDAQ Composite 100 116 134 131 185 227
Index
NASDAQ Electronic 100 156 215 237 393 679
Component Stock
Index (2)
</TABLE>
(1) Assumes an investment of $100.00 in the Company's common stock and in each
index on December 31, 1991.
(2) The Company has selected the NASDAQ Electronic Components Stock Index
composed of companies in the electronics components industry listed on the
NASDAQ National Market System. Because the Company knows of no other
publicly owned company whose business consists solely or primarily of the
development, production and sale of systems for the cancellation or control
of noise and vibration by electronic means and other applications of Active
Wave Management(TM) technology, it is unable to identify a peer group or an
appropriate published industry or line of business index other than the
NASDAQ Electronics Components Stock Index.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of March 31, 1997, 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.
Amount and Nature Approximate
of Beneficial Percentage of
Name of Beneficial Owner Ownership (1) Class (1)
- - ------------------------ ----------------- -------------
John J. Mccloy 3,651,591 ( 2) 3.18%
Michael J. Parrella 2,749,789 ( 3) 2.38%
Jay M. Haft 1,251,891 ( 4) 1.10%
Sam Oolie 925,194 ( 5) 0.82%
Irene Lebovics 1,288,067 ( 6) 1.14%
Stephen J. Fogarty 233,200 ( 7) 0.21%
Jeffrey C. Zeitlin 275,000 ( 8) 0.24%
All Executive Officers
and Directors as a
Group (10 persons) 11,213,867 ( 9) 9.28%
Carole Salkind 5,285,000 (10) 4.63%
Her Majesty The Queen,
Province of Alberta,
Canada 11,250,000 (11) 9.43%
Kingdon Capital
Management Corporation 13,660,930 (12) 12.11%
- - ----------
(1) Assumes the exercise of currently exercisable outstanding options or
warrants to purchase shares of common stock. 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.
(2) Includes 1,085,325 shares issuable upon the exercise of currently
exercisable warrants and 850,000 shares issuable upon the exercise of
currently exercisable options.
(3) Includes 1,311,956 shares issuable upon the exercise of currently
exercisable warrants and 1,424,500 shares issuable upon the exercise of
currently exercisable options.
(4) Includes 218,500 shares issuable upon the exercise of currently exercisable
warrants, 10,000 restricted shares and 988,500 shares issuable upon the
exercise of currently exercisable options.
(5) Includes 25,000 restricted shares and 48,913 shares issuable upon the
exercise of currently exercisable warrants and 250,000 shares issuable upon
the exercise of currently exercisable options.
(6) Includes 291,300 shares issuable upon the exercise of currently exercisable
options and 201,250 shares issuable upon the exercise of currently
exercisable warrants.
(7) Consists of 233,200 shares issuable upon the exercise of currently
exercisable options.
(8) Consists of 275,000 shares issuable upon the exercise of currently
exercisable options.
(9) Includes 2,910,944 shares issuable to 3 executive officers and Directors of
the Company upon the exercise of currently exercisable warrants, 5,096,635
shares issuable to 6 executive officers and Directors of the Company upon
the exercise of currently exercisable options and 35,000 restricted shares
issued to 2 Directors of the Company.
(10) Carole Salkind's address is 801 Harmon Cove Towers, Secaucus, New Jersey
07094.
(11) Her Majesty The Queen, Province of Alberta, Canada's address is Room 530,
Terrace Building, 9515 107th Street, Edmondton, Alberta T5K 2C3, Canada.
(12) Kingdon Capital Management Corporation's address is 152 West 57th Street,
New York, New York 10019.
<PAGE>
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's 1998 Annual
Meeting of Stockholders must be received by the Company by December 31, 1997,
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
Linthicum, Maryland
May ___, 1997
<PAGE>
NOISE CANCELLATION TECHNOLOGIES, INC.
1025 West Nursery Road, Suite 120
Linthicum, Maryland 21090
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Jay M. Haft, Michael J. Parrella and Jeffrey C.
Zeitlin, 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 April 21, 1997, at the Annual Meeting of
Stockholders to be held on June 19, 1997, or any adjournment thereof.
1. ELECTION OF DIRECTORS
FOR all nominees listed below
(except as marked to the contrary) / /
WITHHOLD AUTHORITY to vote for all nominees listed below / /
Jay M. Haft, Michael J. Parrella, John J. McCloy II, Sam Oolie
(To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.)
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2. To approve the amendment of the Company's Certificate of Incorporation to
increase the number of shares of Common Stock authorized thereunder from
140,000,000 shares to 185,000,000 shares.
FOR / / AGAINST / / ABSTAIN / /
3. To approve the extension of certain warrants owned by certain officers and
directors of the Company.
FOR / / AGAINST / / ABSTAIN / /
4. To ratify the selection of Richard A. Eisner & Company, LLP as
independent auditors for the fiscal year ending December 31, 1997.
FOR / / AGAINST / / ABSTAIN / /
5. 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>
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 and 4.
Dated: _______________________________________, 1997
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Signature
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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.
