UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/ x / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 1997
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COMMISSION FILE NUMBER: 0-18267
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Noise Cancellation Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware
59-2501025
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1025 West Nursery Road, Suite 120, Linthicum, Maryland 21090
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(Address of principal executive offices) (Zip Code)
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(410) 636-8700
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(Registrant's telephone number, including area code)
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(Former name,former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
x Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
131,164,298 shares outstanding as of August 5, 1997
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NOISE CANCELLATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Note 1)
(Unaudited)
(In thousands, except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
1996 1997 1996 1997
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Technology licensing fees and royalties $ 713 $ 210 $ 1,068 $ 3,210
Product sales, net 559 348 692 581
Engineering and development services 32 132 224 213
--------- -------- -------- --------
Total revenues $ 1,304 $ 690 $ 1,984 $ 4,004
--------- -------- -------- --------
COSTS AND EXPENSES:
Costs of sales $ 395 $ 306 $ 574 $ 505
Costs of engineering & development services 37 110 168 200
Selling, general and administrative 1,356 1,417 2,325 2,251
Research and development 1,160 1,420 2,761 3,012
Equity in net loss of unconsolidated
affiliates - - 80 -
Interest expense 29 47 24 47
--------- -------- -------- --------
Total costs and expenses $ 2,977 $ 3,300 $ 5,932 $ 6,015
--------- -------- -------- --------
NET (LOSS) $ (1,673) $ (2,610) $ (3,948) $ (2,011)
========= ======== ======== ========
Weighted average number of common
shares outstanding 95,696 121,566 94,468 117,332
========= ======== ======== ========
NET (LOSS) PER COMMON SHARE $ (.02) $ (.02) $ (.04) $ (.02)
========= ======== ======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOISE CANCELLATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Note 1)
(Unaudited)
(In thousands of dollars)
December 31, June 30,
ASSETS 1996 1997
------------ -----------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents (Note 1) $ 368 $ 1,122
Accounts receivable:
Trade:
Technology license fees and royalties $ 150 $ 210
Joint ventures and affiliates 2 27
Other 392 447
Unbilled 63 77
Allowance for doubtful accounts (123) (112)
----------- ----------
Total accounts receivable $ 484 $ 649
Inventories, net of reserves (Note 2) 900 1,244
Other current assets 207 16
----------- ----------
Total current assets $ 1,959 $ 3,031
Property and equipment, net 2,053 1,831
Patent rights and other intangibles, net 1,823 1,656
Other assets 46 52
----------- ----------
$ 5,881 $ 6,570
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,465 $ 1,201
Accrued expenses 1,187 711
Accrued payroll, taxes and related expenses 618 491
Customers' advances 1 -
----------- ----------
Total current liabilities $ 3,271 $ 2,403
----------- ----------
Long term obligations $ - $ 113
Commitments and contingencies (Note 4)
----------- ----------
Total other liabilities $ - $ 113
----------- ----------
STOCKHOLDERS' EQUITY (Note 3)
Preferred stock, $.10 par value, 10,000,000 shares
authorized, none issued
Common stock, $.01 par value, 140,000,000 and
185,000,000 shares, respectively, authorized;
issued and outstanding 111,614,405 and
128,297,155 shares, respectively $ 1,116 $ 1,283
Additional paid-in-capital 85,025 88,317
Accumulated deficit (83,673) (85,684)
Cumulative translation adjustment 142 138
----------- ----------
Total stockholders' equity $ 2,610 $ 4,054
----------- ----------
$ 5,881 $ 6,570
=========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOISE CANCELLATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 1)
(Unaudited)
(Thousands of dollars)
Six Months
Ended June 30,
--------------------------
1996 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (3,948) $ (2,011)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 481 443
Common stock issued as consideration for:
Compensation 6 -
Interest - 52
Common stock retired as consideration for:
Employee expenses (5) -
Provision for doubtful accounts 46 209
Equity in net loss of unconsolidated affiliates 80 -
Unrealized foreign currency (gain) (46) (8)
Loss on disposition of fixed assets - 63
Changes in operating assets and liabilities:
(Increase) in accounts receivable (120) (378)
(Increase) decrease in inventories 513 (344)
Decrease in other assets 155 184
(Decrease) in accounts payable and accrued expenses (208) (672)
(Decrease) in other liabilities (51) (77)
----------- -----------
Net cash (used in) operating activities $ (3,097) $ (2,539)
----------- -----------
Cash flows from investing activities:
Capital expenditures $ (105) $ (115)
Acquisition of patent rights - -
----------- -----------
Net cash (used in) investing activities $ (105) $ (115)
----------- -----------
Cash flows from financing activities:
Proceeds from:
Notes (net) $ 1,170 $ 3,408
Sale of common stock 996 -
Exercise of stock purchase warrants and options 104 -
---------- ----------
Net cash provided by financing activities $ 2,270 $ 3,408
---------- ----------
Net increase (decrease) in cash and cash equivalents $ (932) $ 754
Cash and cash equivalents - beginning of period 1,831 368
---------- ----------
Cash and cash equivalents - end of period $ 899 $ 1,122
========== ==========
Cash paid for interest $ 2 $ 2
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
NOISE CANCELLATION TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and certain adjustments to reserves and allowances)
considered necessary for a fair presentation have been included. Operating
results for the six month period ended June 30, 1997, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Noise Cancellation Technologies, Inc. (the
"Company" or "NCT") Annual Report on Form 10-K, as amended, for the year ended
December 31, 1996.
The Company has incurred substantial losses from operations since its
inception, which have been recurring and amounted to $85.7 million on a
cumulative basis through June 30, 1997. These losses, which include the costs
for development of products for commercial use, have been funded primarily from
the sale of common stock, including the exercise of warrants or options to
purchase common stock, and by technology licensing fees and engineering and
development funds received from joint venture and other strategic partners.
Agreements with joint venture and other strategic partners generally require
that a portion of the initial cash flows, if any, generated by the ventures or
alliances be paid on a preferential basis to the Company's co-venturers until
the technology licensing fees and engineering and development funds provided to
the venture or the Company are recovered.
Cash, cash equivalents and short-term investments amount to $1.1 million at
June 30, 1997, increasing from $0.4 million at December 31, 1996. Management
does not believe that available funds are sufficient to sustain the Company for
the next 12 months. Management believes that available cash and cash anticipated
from the exercise of warrants and options, the funding derived from forecasted
technology licensing fees, royalties and product sales and engineering and
development revenue along with reduced operating expenses and capital
expenditures and the "First Quarter 1997 Financing" and the July 22, 1997
private placement discussed below should be sufficient to sustain the Company's
anticipated future level of operations into 1998. However, the period during
1998 through which it can be sustained is dependent upon the level of
realization of funding from technology licensing fees and royalties and product
sales and engineering and development revenue and the achievement of the
operating cost savings from the events described above, all of which are
presently uncertain. In the event that forecasted technology licensing fees,
royalties and product sales, and engineering and development revenue are not
realized as planned, then management believes available funds will only be
sufficient to sustain the Company into the third quarter of 1997 unless
additional working capital financing can be obtained. There is no assurance any
such financing is or would become available.
There can be no assurance that additional funding will be provided by the
Company's efforts to raise additional capital or by technology licensing fees,
royalties and product sales and engineering and development revenue. In that
event, the Company would have to further and substantially cut back its level of
operations in order to conserve cash. These reductions could have an adverse
effect on the Company's relations with its strategic partners and customers.
Uncertainty exists with respect to the adequacy of current funds to support the
Company's activities until positive cash flow from operations can be achieved,
and with respect to the availability of financing from other sources to fund any
cash deficiencies.
Between January 15, 1997 and March 25, 1997, the Company entered into a
series of subscription agreements to sell an aggregate amount of $3.9 million of
non-voting subordinated convertible debentures (the "Debentures") in a private
placement to five unrelated investors (the "Investors") through multiple dealers
(the "First Quarter 1997 Financing"). Of these subscriptions, sales of
Debentures in an aggregate amount of $3.4 million were completed from which the
net proceeds to the Company were $3.2 million. An additional $0.5 million of
Debentures has been subscribed for by one investor which may close, at the
Company's election, after that investor converts $0.75 million of its current
holdings of $1.5 million of Debentures into common stock of the Company. The
Debentures, issued pursuant to Regulation S of the Securities Act of 1933, as
amended, are due between January 15, 2000 and March 25, 2000 and earn 8%
interest per annum, payable quarterly in either cash or the Company's common
stock at the Company's sole option. Subject to certain common stock resale
restrictions, the Investors, at their discretion, have the right to convert the
principal due on the Debentures into the Company's common stock at any time
after the 45th day following the date of the sale of the Debentures to the
Investors. In the event of such a conversion, the conversion price is the lesser
of 85% of the closing bid price of the Company's common stock on the closing
date of the Debentures' sale or between 75% to 60% (depending on the Investor
and other conditions) of the average closing bid price for the five trading days
immediately preceding the conversion. To provide for the above noted conversion
and interest payment options, the Company reserved 15 million shares of the
Company's common stock for issuance upon such conversion. Subject to certain
conditions, the Company also has the right to require the Investors to convert
all or part of the Debentures under the above noted conversion price conditions
after February 15, 1998. As of June 30, 1997, the Investors had converted all
$3.4 million of the Debentures into 16.3 million shares of the Company's common
stock. At the Company's election, interest due through the conversion dates of
the Debentures was paid through the issuance of an additional 0.2 million shares
of the Company's common stock.
Please refer to Note 8. for a discussion of the July 22, 1997 private
placement.
On March 28, 1997, the Company and New Transducers Ltd. ("NXT"), a wholly
owned subsidiary of Verity Group PLC ("Verity") executed a cross licensing
agreement (the "Cross License"). Under terms of the Cross License, the Company
licensed patents and patents pending which relate to Flat Panel Transducer(TM)
("FPT(TM)") technology to NXT, and NXT licensed patents and patents pending
which relate to parallel technology to the Company. In consideration of the
license, NCT recorded a $3.0 million license fee receivable from NXT as well as
royalties on future licensing and product revenue. The Company also executed a
security deed (the "Security Deed") in favor of NXT granting NXT a conditional
assignment in the patents and patents pending licensed to NXT under the Cross
License in the event a default in a certain payment to be made by the Company
under the Cross License continued beyond fifteen days. Concurrent with the Cross
License, the Company and Verity 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"), 3.8
million shares of common stock (approximately 3.4% of the then issued and
outstanding common stock) of the Company are covered by such option and the
Company executed a registration rights agreement (the "Registration Rights
Agreement") covering such shares. Five million 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 March 28, 1997,
the date of grant. If the Company does not obtain stockholder approval of an
amendment to its Restated Certificate of Incorporation increasing its common
stock capital by an amount sufficient to provide shares of the Company's common
stock issuable upon the full exercise of the option granted to Verity by
September 30, 1997, both options expire. On April 15, 1997, Verity, NXT and the
Company executed several agreements and other documents (the "New Agreements")
terminating the Cross License, the Security Deed, the Verity Option and the
Registration Rights Agreement and replacing them with new agreements
(respectively the "New Cross License", the "New Security Deed", the "New Verity
Option" and the "New Registration Rights Agreement"). The material changes
effected by the New Agreements were the inclusion of Verity as a party along
with its wholly owned subsidiary NXT; providing that the license fee payable to
NCT could be paid in ordinary shares of Verity stock; and reducing the exercise
price under the option granted to Verity to purchase shares of the Company's
common stock to $0.30 per share. At the June 19, 1997 Annual Meeting, the
stockholders approved an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of common stock from
140 million shares to 185 million shares, and such amendment became effective
when it was filed in the office of the Secretary of State of Delaware on June
20, 1997.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates continuity of
operations, realization of assets and satisfaction of liabilities in the
ordinary course of business. The propriety of using the going concern basis is
dependent upon, among other things, the achievement of future profitable
operations and the ability to generate sufficient cash from operations, public
and private financings and other funding sources to meet its obligations. The
uncertainties described above raise substantial doubt at June 30, 1997, about
the Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the recoverability of the
carrying amount of recorded assets or the amount of liabilities that might
result from the outcome of these uncertainties.
2. INVENTORIES:
Inventories comprise the following:
(Thousands of dollars) December 31, June 30,
1996 1997
------------ ---------------
Components $543 $ 578
Finished Goods 619 834
------ ------
Gross Inventory $1,162 $1,412
Reserve for Obsolete & Slow Moving
Inventory (262) (168)
------ ------
Inventory, Net of Reserves $900 $1,244
====== ======
<PAGE>
3. STOCKHOLDERS EQUITY:
The changes in stockholders' equity during the six months ended June 30,
1997, were as follows:
(In thousands) Net Net Balance
Balance at Sale of loss at
December 31, Common for the Translation June 30,
1996 Stock Period Adjustment 1997
------------ ------- ------- ----------- --------
Common Stock:
Shares 111,614 16,683 -- -- 128,297
Amount $ 1,116 $ 167 $ -- $ -- $ 1,283
Additional
Paid-in
Capital 85,025 3,292 -- -- 88,317
Accumulated
Deficit (83,673) -- (2,011) -- (85,684)
Cumulative
Translation
Adjustment 142 -- -- (4) 138
4. LITIGATION:
On or about June 15, 1995, Guido Valerio filed suit against the Company in
the Tribunal of Milan, Milan, Italy. The suit requests the Court to award
judgment in favor of Mr. Valerio as follows: (i) establish and declare that a
proposed independent sales representation agreement submitted to Mr. Valerio by
the Company and signed by Mr. Valerio but not executed by the Company was made
and entered into between Mr. Valerio and the Company on June 30, 1992; (ii)
declare that the Company is guilty of breach of contract and that the purported
agreement was terminated by unilateral and illegitimate withdrawal by the
company; (iii) order the Company to pay Mr. Valerio $30,000 for certain amounts
alleged to be owing to Mr. Valerio by the Company; (iv) order the Company to pay
commissions to which Mr. Valerio would have been entitled if the Company had
followed up on certain alleged contacts made by Mr. Valerio for an amount to be
assessed by technicians and accountants from the Court Advisory Service; (v)
order the Company to pay damages for the harm and losses sustained by Mr.
Valerio in terms of loss of earnings and failure to receive due payment in an
amount such as shall be determined following preliminary investigations and the
assessment to be made by experts and accountants from the Court Advisory Service
and in any event no less than 3 billion Lira ($18.9 million); and (vi) order the
Company to pay damages for the harm done to Mr. Valerio's image for an amount
such as the judge shall deem equitable and in case for no less than 500 million
Lira ($3.1 million). The Company retained an Italian law firm as special
litigation counsel to the Company in its defense of this suit. On March 6, 1996,
the Company, through its Italian counsel, filed a brief of reply with the
Tribunal of Milan setting forth the Company's position that: (i) the Civil
Tribunal of Milan is not the proper venue for the suit, (ii) Mr. Valerio's claim
is groundless since the parties never entered into an agreement, and (iii)
because Mr. Valerio is not enrolled in the official Register of Agents, under
applicable Italian law Mr. Valerio is not entitled to any compensation for his
alleged activities. A preliminary hearing before the Tribunal was held on May
30, 1996, certain pretrial discovery has been completed and a hearing before a
Discovery Judge was held on October 17, 1996. Submissions of the parties final
pleadings were to be made in connection with the next hearing which was
scheduled for April 3, 1997. On April 3, 1997, the Discovery Judge postponed
this hearing to May 19, 1998, due to a reorganization of all proceedings before
the Tribunal of Milan. Management is of the opinion that the lawsuit is without
merit and will contest it vigorously. In the opinion of management, after
consultation with outside counsel, resolution of this suit should not have a
material adverse effect on the Company's financial position or operations.
However, in the event that the lawsuit does result in a substantial final
judgment against the Company, said judgment could have a severe material effect
on quarterly or annual operating results.
<PAGE>
5. COMMON STOCK
As discussed above in Note 1., between January 15, 1997 and March 25, 1997,
the Company entered into a series of subscription agreements to sell an
aggregate amount of $3.9 million of Debentures. Of these subscriptions, sales of
Debentures in an aggregate amount of $3.4 million were completed. As of June 30,
1997, the Investors had converted $3.4 million of the Debentures into 16.3
million shares of the Company's common stock. At the Company's election,
interest due through the conversion dates of the Debentures was paid through the
issuance of an additional 0.2 million shares of the Company's common stock.
On June 19, 1997 the stockholders approved an amendment to the Company's
Restated Certificate of Incorporation to increase the authorized number of
shares of common stock from 140 million shares to 185 million shares. Such
action was deemed by the Board of Directors to be in the best interest of the
Company to make additional shares of the Company's common stock available for
obligations undertaken by the Company in connection with the New Agreements with
Verity and NXT described in Note 1., public or private financings, present and
future employee benefit programs and other corporate purposes. The Company plans
to reserve 3,9 million shares of such additional shares for issuance upon the
exercise of the New Verity Option and 2.6 million 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 Noise Cancellation
Technologies, Inc. Stock Incentive Plan (the "1992 Plan").
6. COMMON STOCK OPTIONS
On May 2, 1997, under the 1992 Plan, the Company granted to certain employees
and consultants options to purchase the Company's common stock at the then fair
market value of such stock. The options were granted as part of the compensation
to be paid to certain employees and consultants for their services to the
Company in 1997. A total of 1.8 million options to purchase shares of the
Company's common stock were issued of which 0.8 million were granted to officers
of the Company. Such options become exercisable only when an amendment to the
Company's Restated Certificate of Incorporation to increase the number of
authorized common shares becomes effective. Such an amendment was approved by
the Company's stockholders on June 19, 1997, and became effective upon
completion of the requisite filing on June 20, 1997, at which time the above
noted options became fully vested and exercisable.
Also on May 2, 1997, options to purchase 0.1 million shares of the Company's
common stock were issued outside the 1992 Plan to two non-employee directors of
the Company. Such options will be exercisable only upon stockholder approval of
their issuance which the Company plans to seek at the next Annual Meeting of
Stockholders.
The fair market value of the Company's common stock on May 2, 1997 was
$0.2656 per share, the closing price of the Company's common stock on the NASDAQ
Stock Market.
On June 19, 1997, the Company granted, in connection with an offer of
employment, options to purchase 10,000 shares of the Company's common stock
under the 1992 Plan. The fair market value of the Company's common stock on June
19, 1997 was $0.2813 per share, the closing price of the Company's common stock
on the NASDAQ Stock Market.
7. COMMON STOCK WARRANTS
On January 22, 1997, the Board of Directors extended for two years the
expiration dates of warrants to purchase 2.7 million 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 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
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 $2.1 million in consideration for the issuance of 2.7 million shares of
common stock. Five of the persons who own 2.2 million of 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.
On June 19, 1997 the stockholders approved the extension of such of those
warrants held by directors and officers of the Company.
8. SUBSEQUENT EVENTS
On July 22, 1997 the Company sold 2.9 million shares, in the aggregate, of
its common stock at a price of $0.175 per share, pursuant to Regulation D of the
Securities Act of 1933, as amended, in a private placement that provided net
proceeds to the Company of $0.5 million (the "July 22, 1997 Private Placement").
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
GENERAL BUSINESS ENVIRONMENT
The Company is focused on the commercialization of its technology through
technology licensing fees, royalties and product sales. In prior years, the
Company derived the majority of its revenues from engineering and development
funding provided by established companies willing to assist the Company in the
development of its active noise and vibration control technology, and from
technology licensing fees paid by such companies. The Company's strategy
generally has been to obtain technology licensing fees when initiating joint
ventures and alliances with new strategic partners. Revenues from product sales
were limited to sales of specialty products and prototypes. During the first six
months of 1997, the Company received approximately 5.3% of its operating
revenues from engineering and development funding. Since 1991, excluding quarter
to quarter variations, revenues from product sales have been increasing and
management expects that technology licensing fees, royalties and product sales
will become the principal source of the Company's revenue as the
commercialization of its technology proceeds.
The Company has shifted its focus to technology licensing fees, royalties and
products that represent near term revenue generation. This is reflected in the
fact that 80.2% of the Company's total revenue in the first six months of 1997
represents technology licensing fees. There can be no assurance that additional
technology licensing fees, will continue at that level.
Note 1. to the accompanying Condensed Consolidated Financial Statements and
the liquidity and capital resources section which follows describe the current
status of the Company's available cash balances and the uncertainties which
exist that raise substantial doubt as to the Company's ability to continue as a
going concern.
As distribution channels are established and as product sales and market
acceptance and awareness of the commercial applications of active noise and
vibration control build, revenues from technology licensing fees, royalties and
product sales are forecast to fund an increasing share of the Company's
requirements. The funding from these sources, if realized, will reduce the
Company's former dependence on engineering and development funding and equity
financing.
From the Company's inception through June 30, 1997, its operating revenues,
including technology licensing fees and royalties, product sales and engineering
and development services, have consisted of approximately 22% product sales, 47%
engineering and development services and 31% technology licensing fees.
The Company has entered into a number of alliances and strategic
relationships with established firms for the integration of its technology into
products. The speed with which the Company can achieve the commercialization of
its technology depends in large part upon the time taken by these firms and
their customers for product testing, and their assessment of how best to
integrate the technology into their products and into their manufacturing
operations. While the Company works with these firms on product testing and
integration, it is not always able to influence how quickly this process can be
completed.
The Company continues to sell and ship ProActive(TM) and NoiseBuster(TM)
headsets in 1997. The Company is now selling products through three of its
alliances: Walker is manufacturing and selling industrial silencers; Siemens is
buying and contracting with the Company to install quieting headsets for patient
use in Siemens' MRI machines; and Ultra is installing production model aircraft
cabin quieting systems in turboprop aircraft. The Company is entitled to receive
royalties from Walker on its sales of industrial silencers, direct product sales
revenue from Siemens' purchase of headsets, and commencing in 1998, royalties
from Ultra on its sale of aircraft cabin quieting systems. Management believes
these activities help demonstrate the range of commercial potential for the
Company's technology and will contribute to the Company's transition from
engineering and development to technology licensing fees, royalties and product
sales.
<PAGE>
Product revenues for the six months ended June 30, 1996 and 1997 were:
PRODUCT REVENUES
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
Amount As a % of Total Amount As a % of Total
----------- ---------------- ----------- ----------------
Product 1996 1997 1996 1997 1996 1997 1996 1997
- ------------- ----- ----- ------- ------- ----- ----- ------- --------
Headsets $537 $333 96.1% 95.7% $667 $549 96.4% 94.5%
Fan Quieting - 8 0.0% 2.3% - 14 0.0% 2.4%
Communications - 6 0.0% 1.7% - 11 0.0% 1.9%
Other 22 1 3.9% 0.3 25 7 3.6% 1.2%
----- ----- ------- ------- ----- ----- ------- --------
Total $559 $348 100.0% 100.0% $692 $581 100.0% 100.0%
===== ===== ======= ======= ===== ===== ======= ========
The Company has continued to make substantial investments in its technology
and intellectual property and has incurred development costs for engineering
prototypes, pre-production models and field testing of several products.
Management believes that the Company's investment in its technology has resulted
in the expansion of its intellectual property portfolio and improvement in the
functionality, speed and cost of components and products.
Between January 15, 1997 and March 25, 1997, the Company conducted the First
Quarter 1997 Financing, by entering into a series of subscription agreements to
sell an aggregate amount of $3.9 million of Debentures in a private placement to
five Investors through multiple dealers. Of these subscriptions, sales of
Debentures in an aggregate amount of $3.4 million were completed from which the
net proceeds to the Company were $3.2 million. An additional $0.5 million of
Debentures has been subscribed for by one investor which may close, at the
Company's election, after that investor converts $0.75 million of its current
holdings of $1.5 million of Debentures into common stock of the Company. The
Debentures, issued pursuant to Regulation S of the Securities Act of 1933, as
amended, are due between January 15, 2000 and March 25, 2000 and earn 8%
interest per annum, payable quarterly in either cash or the Company's common
stock at the Company's sole option. Subject to certain common stock resale
restrictions, the Investors, at their discretion, have the right to convert the
principal due on the Debentures into the Company's common stock at any time
after the 45th day following the date of the sale of the Debentures to the
Investors. In the event of such a conversion, the conversion price is the lesser
of 85% of the closing bid price of the Company's common stock on the closing
date of the Debentures' sale or between 75% to 60% (depending on the Investor
and other conditions) of the average closing bid price for the five trading days
immediately preceding the conversion. To provide for the above noted conversion
and interest payment options, the Company reserved 15 million shares of the
Company's common stock for issuance upon such conversion. Subject to certain
conditions, the Company also has the right to require the Investors to convert
all or part of the Debentures under the above noted conversion price conditions
after February 15, 1998. As of June 30, 1997, the Investors had converted all
$3.4 million of the Debentures into 16.3 million shares of the Company's common
stock. At the Company's election, interest due through the conversion dates of
the Debentures was paid through the issuance of an additional 0.2 million shares
of the Company's common stock.
<PAGE>
On March 28, 1997, the Company and NXT, a wholly owned subsidiary of Verity,
executed the Cross License. Under terms of the Cross License, the Company
licensed patents and patents pending which relate to Flat Panel Transducer(TM)
("FPT(TM)") technology to NXT, and NXT licensed patents and patents pending
which relate to parallel technology to the Company. In consideration of the
license, NCT recorded a $3.0 million license fee receivable from NXT as well as
royalties on future licensing and product revenue. The Company also executed the
Security Deed in favor of NXT granting NXT a conditional assignment in the
patents and patents pending licensed to NXT under the Cross License in the event
a default in a certain payment to be made by the Company under the Cross License
continued beyond fifteen days. Concurrent with the Cross License, the Company
and Verity 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"), 3.8 million shares of common
stock (approximately 3.4% of the then issued and outstanding common stock) of
the Company are covered by such option and the Company executed the Registration
Rights Agreement covering such shares. Five million 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
March 28, 1997, the date of grant. If the Company does not obtain stockholder
approval of an amendment to its Restated Certificate of Incorporation increasing
its common stock capital by an amount sufficient to provide shares of the
Company's common stock issuable upon the full exercise of the option granted to
Verity by September 30, 1997, both options expire. On April 15, 1997, Verity,
NXT and the Company executed the New Agreements terminating the Cross License,
the Security Deed, the Verity Option and the Registration Rights Agreement and
replacing them respectively with the New Cross License, the New Security Deed,
the New Verity Option and the New Registration Rights Agreement. The material
changes effected by the New Agreements were the inclusion of Verity as a party
along with its wholly owned subsidiary NXT; providing that the license fee
payable to NCT could be paid in ordinary shares of Verity stock; and reducing
the exercise price under the option granted to Verity to purchase shares of the
Company's common stock to $0.30 per share. At the June 19, 1997 Annual Meeting,
the stockholders approved an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of common stock from
140 million shares to 185 million shares, and such amendment became effective
when it was filed in the office of the Secretary of State of Delaware on June
20, 1997.
Management believes that available cash and cash anticipated from the
exercise of warrants and options, the funding derived from forecasted technology
licensing fees, royalties and product sales, and engineering and development
revenue, along with reduced operating expenses and capital expenditures and the
First Quarter 1997 Financing and the July 22, 1997 Private Placement should be
sufficient to sustain the Company's anticipated future level of operations into
1998. However, the period during 1998 through which it can be sustained is
dependent upon the level of realization of funding from technology licensing
fees and royalties and product sales and engineering and development revenue and
the achievement of the operating cost savings from the events described above,
all of which are presently uncertain. In the event that forecasted technology
licensing fees, royalties and product sales, and engineering and development
revenue are not realized as planned, then management believes available funds
will only be sufficient to sustain the Company into the third quarter of 1997
unless additional working capital financing can be obtained. There is no
assurance any such financing is or would become available.
There can be no assurance that additional funding will be provided by the
Company's efforts to raise additional capital or by technology licensing fees,
royalties and product sales and engineering and development revenue. In that
event, the Company would have to further and substantially cut back its level of
operations in order to conserve cash. These reductions could have an adverse
effect on the Company's relations with its strategic partners and customers.
Uncertainty exists with respect to the adequacy of current funds to support the
Company's activities until positive cash flow from operations can be achieved,
and with respect to the availability of financing from other sources to fund any
cash deficiencies.
Management believes that the funding provided by the additional capital
referred to above coupled with anticipated increased product sales, technology
licensing fees, royalties, and cost savings, if realized, should enable the
Company to continue operations into 1998. If the Company is not able to generate
additional capital, increase technology licensing fees, royalties and product
sales, or generate additional capital, it will have to further cut its level of
operations substantially in order to conserve cash. (Refer to "Liquidity and
Capital Resources" below and to Note 1. - "Notes to the Condensed Consolidated
Financial Statements" for a further discussion relating to continuity of
operations.)
<PAGE>
RESULTS OF OPERATIONS
Total revenues for the first six months of 1997 were $4.0 million compared to
$2.0 million for the same period in 1996, an increase of $2.0 million or 100%.
Product sales decreased to $0.6 million versus $0.7 million in 1996, a
decrease of $0.1 million or 16% primarily reflecting decreased hearing products
sales due to a backlog of primarily NoiseBuster Extreme(TM). Engineering and
development services remained flat at $0.2 million in the first half of 1996 and
1997.
Technology licensing fees in the first six months of 1997 were $3.2 million
versus $1.1 million in 1996, an increase of $2.1 million or 191% primarily due
to the $3.0 million in Verity license fees described above.
Cost of product sales decreased to $0.5 million versus $0.6 million in
1996, a decrease of $0.1 million or 20% primarily due to the decrease in product
sales discussed above. Product margin decreased to 13% percent from 17% during
the same period in 1996 reflecting first half 1997 increases in reserves for
obsolete and slow moving inventory. Cost of engineering and development services
were unchanged remaining at $0.2 million in both 1996 and 1997. The gross margin
on engineering and development services decreased to 6% from 25% during the same
period in 1996, primarily due to more profitable contracts in 1996.
Selling, general and administrative expenses were unchanged remaining at $2.3
million in both 1996 and 1997.
Research and development expenditures for the first six months of 1997 were
$3.0 million versus $2.8 million in 1996, an increase of $0.2 million or 9%
primarily due to supporting product development in the Company's efforts in
audio, communications, and microphones. The Company continues to be focused on
products utilizing its hearing products, audio, communications and microphone
technologies, products which have been developed within a short time period and
are targeted for rapidly emerging markets.
Under most of the Company's joint venture agreements, the Company is not
required to fund any capital requirements of these joint ventures beyond its
initial capital contribution. In accordance with U.S. generally accepted
accounting principles, when the Company's share of cumulative losses equals its
investment and the Company has no obligation or intention to fund such
additional losses, the Company suspends applying the equity method of accounting
for its investment. The Company will not be able to record any equity in income
with respect to an entity until its share of future profits is sufficient to
recover any cumulative losses that have not previously been recorded. During the
first half of 1996, the Company recognized a $0.1 million charge related to its
share of losses in OnActive Technologies, L.L.C. which brought the Company's
equity in the joint venture to zero. There was no such charge in the first half
of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred substantial losses from operations since its
inception, which have been recurring and amounted to $85.7 million on a
cumulative basis through June 30, 1997. These losses, which include the costs
for development of products for commercial use, have been funded primarily from
the sale of common stock, including the exercise of warrants or options to
purchase common stock, and by technology licensing fees and engineering and
development funds received from joint venture and other strategic partners.
Agreements with joint venture and other strategic partners generally require
that a portion of the initial cash flows, if any, generated by the ventures or
alliances be paid on a preferential basis to the Company's co-venturers until
the license fees and engineering and development funds provided to the venture
or the Company are recovered.
In January 1996, the Company adopted a plan that management believed would
generate sufficient funds for the Company to continue its operations into 1997.
The Company did not meet the plan's revenue targets for 1996 and as noted below,
found it necessary to raise additional capital to fund it's 1997 operations.
<PAGE>
Between January 15, 1997 and March 25, 1997, the Company conducted the First
Quarter 1997 Financing by entering into a series of subscription agreements to
sell an aggregate amount of $3.9 million of Debentures in a private placement to
the five unrelated Investors. Of these subscriptions, sales of Debentures in an
aggregate amount of $3.4 million were completed from which the net proceeds to
the Company were $3.2 million. An additional $0.5 million of Debentures has been
subscribed for by one investor which may close, at the Company's election, after
that investor converts $0.75 million of its current holdings of $1.5 million of
Debentures into common stock of the Company. The Debentures, issued pursuant to
Regulation S of the Securities Act of 1933, as amended, are due between January
15, 2000 and March 25, 2000 and earn 8% interest per annum, payable quarterly in
either cash or the Company's common stock at the Company's sole option. Subject
to certain common stock resale restrictions, the Investors, at their discretion,
have the right to convert the principal due on the Debentures into the Company's
common stock at any time after the 45th day following the date of the sale of
the Debentures to the Investors. In the event of such a conversion, the
conversion price is the lesser of 85% of the closing bid price of the Company's
common stock on the closing date of the Debentures' sale or between 75% to 60%
(depending on the Investor and other conditions) of the average closing bid
price for the five trading days immediately preceding the conversion. To provide
for the above noted conversion and interest payment options, the Company
reserved 15 million shares of the Company's common stock for issuance upon such
conversion. Subject to certain conditions, the Company also has the right to
require the Investors to convert all or part of the Debentures under the above
noted conversion price conditions after February 15, 1998. As of June 30, 1997,
the Investors had converted all $3.4 million of the Debentures into 16.3 million
shares of the Company's common stock. At the Company's election, interest due
through the conversion dates of the Debentures was paid through the issuance of
an additional 0.2 million shares of the Company's common stock.
On July 22, 1997 the Company sold 2.9 million shares, in the aggregate, of
its common stock at a price of $0.175 per share in the July 22, 1997 Private
Placement that provided net proceeds to the Company of $0.5 million.
Management adopted a plan for 1997 which it believes will generate
sufficient funds for the Company to continue its operations into 1998.
Satisfactory execution of this plan, and avoidance of seeking additional working
capital from further sales of the Company's common stock, is contingent upon
management's ability to successfully complete its current negotiations
concerning agreements which will provide additional technology license fees,
royalty revenues and product sales to the Company in 1997 and 1998. No assurance
can be given concerning a favorable outcome to these negotiations.
Management believes that available cash and cash anticipated from the
exercise of warrants and options, the funding derived from forecasted technology
licensing fees, royalties and product sales, and engineering and development
revenue, the operating cost savings from the reduction in employees, and reduced
capital expenditures and the First Quarter 1997 Financing and July 22, 1997
Private Placement should be sufficient to sustain the Company's anticipated
future level of operations into 1998. However, the period during 1998 through
which it can be sustained is dependent upon the level of realization of funding
from technology licensing fees and royalties and product sales and engineering
and development revenue and the achievement of the operating cost savings from
the events described above, all of which are presently uncertain. In the event
that forecasted technology licensing fees, royalties and product sales, and
engineering and development revenue are not realized as planned, then management
believes available funds will only be sufficient to sustain the Company into the
third quarter of 1997 unless additional working capital financing can be
obtained. There is no assurance any such financing is or would become available.
There can be no assurance that additional funding will be provided by the
Company's efforts to raise additional capital or by technology licensing fees,
royalties and product sales and engineering and development revenue. In that
event, the Company would have to further and substantially cut back its level of
operations in order to conserve cash. These reductions could have an adverse
effect on the Company's relations with its strategic partners and customers.
Uncertainty exists with respect to the adequacy of current funds to support the
Company's activities until positive cash flow from operations can be achieved,
and with respect to the availability of financing from other sources to fund any
cash deficiencies.
Management believes that the funding provided by the additional capital
referred to above coupled with anticipated increased product sales, technology
licensing fees, royalties, and cost savings, if realized, should enable the
Company to continue operations into 1998. (Refer to Note 1. - "Notes to the
Condensed Consolidated Financial Statements" for a further discussion relating
to continuity of operations.) Success in generating technology licensing fees,
royalties and product sales are significant and critical to the Company's
ability to overcome its present financial difficulties. The Company cannot
predict whether it will be successful in obtaining market acceptance of its new
products or in completing its current negotiations with respect to technology
license fees and royalty revenues. The Company will monitor its performance
against the 1997 plan on a monthly basis and, if necessary, reduce its level of
operations accordingly. The Company believes that the plan discussed above
constitutes a viable plan for the continuation of the Company's business into
1998.
There can be no assurance that funding will be provided by additional
capital, technology licensing fees, royalties, product sales, engineering and
development revenue. In that event, the Company would have to further cut back
its level of operations substantially in order to conserve cash. These
reductions could have an adverse effect on the Company's relations with its
strategic partners and customers. The uncertainty with respect to the adequacy
of current funds to support the Company's activities until positive cash flow
from operations can be achieved, and with respect to the availability of
financing from other sources to fund any cash deficiencies, raises substantial
doubt about the Company's ability to continue as a going concern. Further
discussion of these uncertainties is presented in Note 1. - "Notes to the
Condensed Consolidated Financial Statements".
<PAGE>
At June 30, 1997, cash and short-term investments were $1.1 million. The
available resources were invested in interest bearing money market accounts. The
Company's investment objective is preservation of capital while earning a
moderate rate of return.
The Company's working capital increased to $0.6 million at June 30, 1997,
from $(1.3) million at December 31, 1996. This increase of $1.9 million was
funded primarily by the revenue and equity transactions described above and used
primarily to fund operations for the period.
During the first six months of 1997, the net cash used in operating
activities was $2.5 million, compared to $3.1 million used in operating
activities during the same period of 1996.
Net inventory increased during the first six months of 1997 by $0.3 million
due primarily to stocking for anticipated sales of the ProActiveTM headsets and
initial stocking of the Company's new communications products.
Cash provided by financing activities amounted to $3.4 million reflecting the
sale of the Debentures discussed above.
The Company has no lines of credit with banks or other lending institutions
and therefore has no unused borrowing capacity.
CAPITAL EXPENDITURES
The Company intends to continue its business strategy of working with supply,
manufacturing, distribution and marketing partners to commercialize its
technology. The benefits of this strategy include: (i) dependable sources of
controllers, integrated circuits and other system components from supply
partners, which leverages on their purchasing power, provides important cost
savings and accesses the most advanced technologies; (ii) utilization of the
existing manufacturing capacity of the Company's allies, enabling the Company to
integrate its active technology into products with limited capital investment in
production facilities and manufacturing personnel; and (iii) access to
well-established channels of distribution and marketing capability of leaders in
several market segments.
The Company's strategic agreements have enabled the Company to focus on
developing product applications for its technology and limit the Company's
capital requirements.
There were no material commitments for capital expenditures as of June 30,
1997, and no material commitments are anticipated in the near future.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
For discussion of legal proceedings, see Note 4 - "Notes to the Condensed
Consolidated Financial Statements" which is incorporated by reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
An annual meeting of stockholders of the Company was held on June 19,
1997. At the meeting, Jay M. Haft, Michael J. Parrella, John J. McCloy II and
Sam Oolie were elected directors, each to serve until the next annual meeting of
stockholders and until his successor is elected and qualified. The stockholders
also approved an amendment of the Company's Restated Certificate of
Incorporation to increase the number of shares of common stock authorized
thereunder from 140,000,000 shares to 185,000,000 shares, approved the extension
of certain warrants owned by certain officers and directors of the Company, and
ratified the appointment of Richard A. Eisner & Company, LLP as the Company's
independent auditors for the year ending December 31, 1997. The vote taken at
such meeting was as follows:
(a) With respect to the election of the directors
FOR WITHHELD
Jay M. Haft 87,411,429 2,807,968
Michael J. Parrella 87,673,769 2,545,628
John J. McCloy II 87,532,669 2,686,728
Sam Oolie 87,710,269 2,509,128
(b) With respect to the proposal to approve the amendment of the
Company's Restated Certificate of Incorporation
ABSTENTIONS AND
FOR AGAINST BROKER NON-VOTES
83,656,241 6,063,314 482,812
(c) With respect to the proposal to approve the extension of certain
warrants owned by certain officers and directors of the Company.
ABSTENTIONS AND
FOR AGAINST BROKER NON-VOTES
76,003,140 6,095,500 890,770
(d) With respect to the proposal to ratify the selection of Richard A.
Eisner & Company, LLP independent auditors for the Company's fiscal
year ending December 31, 1997
ABSTENTIONS AND
FOR AGAINST BROKER NON-VOTES
88,530,794 1,235,054 453,549
<PAGE>
ITEM 6 - EXHIBITS
(a) Exhibits
Exhibit No. Description
3(a) Certificate of Amendment of the Restated Certificate of
Incorporation of the Company filed in the Office of the
Secretary of State of the State of Delaware on June 20,
1997.
10(a) Cross License Agreement dated April 15, 1997, among
Verity Group plc, New Transducers Limited and Noise
Cancellation Technologies, Inc. **
10(b) Security Deed dated April 14, 1997, from Noise
Cancellation Technologies, Inc. to Verity Group plc.
10(c) Common Stock Purchase Option dated April 15, 1997,
from Noise Cancellation Technologies, Inc. to Verity
Group plc.
10(d) Letter Agreement dated April 17, 1997, from Noise
Cancellation Technologies, Inc. to Verity Group plc.
11 Computation of Net Profit (Loss) Per Share.
27 Financial Data Schedule.
** Confidential treatment requested for a portion of this document. Such
portion has been omitted from the document and identified by asterisks. Such
portion also has been filed separately with the Commission pursuant to the
Company's application for confidential treatment.
<PAGE>
NOISE CANCELLATION TECHNOLOGIES, INC.
SIGNATURE
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NOISE CANCELLATION TECHNOLOGIES, INC.
By: /s/ MICHAEL J. PARRELLA
-----------------------
Michael J. Parrella, President
By: /s/ JEFFREY C. ZEITLIN
-----------------------
Jeffrey C. Zeitlin
Senior Vice President, Operations, and
Chief Financial Officer
Dated: August 14, 1997
<PAGE>
EXHIBIT 3(a)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
NOISE CANCELLATION TECHNOLOGIES, INC.
NOISE CANCELLATION TECHNOLOGIES, INC., a Delaware corporation (the
"Corporation") hereby certifies as follows:
FIRST: That the Board of Directors of the Corporation, at a meeting of
such Board held May 2, 1997, adopted a resolution proposing and declaring
advisable the following amendment to the Restated Certificate of
Incorporation of the Corporation, and declaring that such proposed
amendment be submitted for consideration by the stockholders of the
Corporation entitled to vote in respect thereof. The resolution setting
forth the proposed amendment is as follows:
"RESOLVED, that paragraph (a) of Article IV of the Restated Certificate of
Incorporation of the Corporation, be amended to read as follows:
`(a) Authorized Shares. The total number of shares of stock which the
Corporation shall have authority to issue is 195,000,000 which shall
consist of 185,000,000 shares, $.01 par value, designated as Common Stock
and 10,000,000 shares, $.10 par value, designated as Preferred Stock.'"
SECOND: Paragraph (a) of Article IV of the Restated Certificate of
Incorporation, relating to the capitalization of the Corporation,is hereby
deleted and amended to read in its entirety as follows:
"(a) Authorized Shares. The total number of shares of stock which the
Corporation shall have authority to issue is 195,000,000 which shall
consist of 185,000,000 shares, $.01 par value, designated as Common Stock
and 10,000,000 shares, $.10 par value, designated as Preferred Stock."
THIRD: The amendment effected herein has been approved by the holders of
at least a majority of all the outstanding shares of the Corporation
entitled to vote thereon at the Annual Meeting of Stockholders of the
Corporation held on June 19, 1997.
FOURTH: The amendment effected herein was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation
law of the State of Delaware.
IN WITNESS WHEREOF, Noise Cancellation Technologies, Inc. has caused this
Certificate of Amendment to be signed by Michael J. Parrella, its President, and
attested to by John B. Horton, its Secretary, this 19th day of June, 1997.
ATTEST: Noise Cancellation Technologies, Inc.
By: /s/ JOHN B. HORTON By: /s/ MICHAEL J. PARRELLA
------------------------- -----------------------
John B. Horton, Secretary Michael J. Parrella, President
<PAGE>
CONFIDENTIAL TREATMENT
EXHIBIT NO. 10(a)
CROSS LICENCE AGREEMENT
Cross Licence Agreement made this 15th day of April, 1997 by and between (1)
Verity Group plc, a public company incorporated in England and Wales under
number 514718 with its registered office at Stonehill, Huntingdon PE18 6ED,
England ("Verity"); (2) New Transducers Limited, a private company limited by
shares incorporated in England and Wales under number 3135528 with its
registered office at Stonehill, Huntingdon PE18 6ED, England ("NXT") and (3)
Noise Cancellation Technologies, Inc., a Delaware corporation with offices at
1025 West Nursery Road, Linthicum, Maryland 21090, USA, ("NCTI").
WHEREAS NXT is engaged in the development and commercial exploitation of flat
panel speakers including distributed mode loudspeakers and ancillary panel and
transducer technology; and
WHEREAS NCTI is engaged in the development and commercial exploitation of active
wave management technology including flat panel speakers; and
WHEREAS NXT and NCTI are both engaged in the separate and parallel development
of panel loudspeaker technologies whereby controversies between NXT and NCTI may
have already arisen and could arise in the future or continue to arise as to
their rights as against each other relating to their respective technologies at
31 December 1996; and
WHEREAS NXT and NCTI wish to settle such controversies amicably between
themselves in full accordance with the applicable laws in order to avoid
litigation, to promote healthy competition by accelerating the process of
bringing products which benefit from both technologies to market and to broaden
access to both technologies for potential licensees; and
WHEREAS NXT and NCTI also recognize that, in view of the nature of their
respective technologies and the fields and potential fields of applications,
each party's technology as at 31 December 1996 will or is likely to contribute
to new products which are brought to the market and for this reason each of the
parties is willing to grant the licences in this Agreement.
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants contained herein, as
well as other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Definitions
As used herein, the terms described below have the following meanings.
1.1 "Affiliate" shall mean:
(A) any legal entity in which a party has an Interest;
(B) any legal entity which directly or indirectly Controls a party
("Parent");
(C) any legal entity in which a Parent has an Interest; or
(D) any company listed in Schedule D so long as the percentage of shares
held by a party or an Affiliate as defined in (A) - (C) does not fall
below the percentage stated for that company in Schedule D.
For purposes of this Agreement "Control" of an entity shall be deemed to
exist by virtue of having the right to influence the operation and affairs
thereof by holding directly 51% or more of each of the equity interests
and voting rights in such entity. "Interest" in an entity shall be deemed
to exist by virtue of owning voting rights equal to or greater than 50% of
all voting rights in such entity.
1.2 "Cardinal Breach" shall mean any of the following:
(A) the granting or purporting to grant by NCTI of any licence which is
outside the terms of the NXT Technology Licence;
(B) any challenge by NCTI or any of its Affiliates or any challenge by a
third party assisted in any manner by NCTI or any of its Affiliates
as to the validity, subsistence, or scope of the Licensed NXT
Patents, any other related future NXT patents or the Licensed NXT
Technology, including NXT's ownership of or entitlement to the same;
(C) the commencement or maintenance of infringement proceedings by NCTI
or any of its Affiliates or licensees, or by any third party with
the assistance of NCTI or any of its Affiliates, against NXT or any
of its Affiliates or licensees in respect of products covered by or
embodying patents or technology used or licensed by NXT;
(D) the occurrence of any event or transaction which results in any
third party acquiring directly or indirectly majority beneficial
ownership of or effective control of the Licensed NCTI Patents or
the Licensed NCTI Technology.
1.3 "Chairman's Letter" means the letter addressed to Verity from Jay M. Haft
(Chairman of NCTI) in agreed terms.
1.4 "DERA Technology" means the patents,
associated know how and other intellectual property rights licensed at any time
to Verity and/or NXT by the Defence and Evaluation Research Agency or by any
other similar emanation of the Secretary of State for Defence.
1.5 "Effective Date" means 28 March 1997.
1.6 "Ground Based Vehicles" shall mean all civil and all military vehicles
running on two or more wheels or on one or more tracks or treads, including
without limitation automobiles, jeeps (and other vehicles competitive with
jeeps), all-terrain vehicles and snow cats, hovercraft, trucks and vans of any
class, emergency vehicles, buses, all agricultural and farm vehicles, all
construction vehicles (including, without limitation, cranes, lifts and earth
moving equipment) motorcycles, snowmobiles, trolleys, trains and other vehicles
that travel on or are guided by one or more rails.
1.7 "Letter of Opinion" means the letter addressed to Verity from John Horton
(in-house legal counsel to NCTI) and countersigned by Michael Parrella, each of
NCTI, under which an opinion is given in relation to, inter alia, the due
execution, authorisation and enforceability of, inter alia, this Agreement in
agreed terms.
1.8 "Licensed NCTI Patents" shall mean all published or unpublished patents and
patent applications and filed disclosures (including any continuations,
continuations-in-part, divisions, extensions, reissues, re-examinations,
renewals or equivalent applications whenever and wherever filed) which:
(A) have been filed or made prior to 31 December 1996; and
(B) relate to flat panel speakers, acoustic objects, transducers or
related acoustic technology; and
(C) are owned by or licensed to NCTI or its Affiliates (other than the
Licensed NXT Patents)
including, without limitation, those listed in Schedule A and those also
included by operation of the further undertaking in Schedule A.
<PAGE>
1.9 "Licensed NCTI Technology" shall mean confidential information in existence
prior to 31 December 1996 and within the custody, possession, power or control
of NCTI or its Affiliates which supports, amplifies, explains or enables the
design or manufacture of products embodying any of the specifications or claims
of the Licensed NCTI Patents, but excluding such confidential information which
is held under a duty of non-disclosure to a non-Affiliate.
1.10 "Licensed NXT Patents" shall mean all published or unpublished patents and
patent applications (including any continuations, continuations-in-part,
divisions, extensions, reissues, re-examinations or renewals) which:
(A) have been filed or made prior to 31 December 1996; and
(B) relate to flat panel speakers, acoustic objects, transducers or
related acoustic technology; and
(C) are owned by or licensed to NXT or its Affiliates (other than the
Licensed NCTI Patents and the DERA Technology).
including, without limitation, those listed in Schedule B.
1.11 "Licensed NXT Technology" shall mean confidential information in existence
prior to 31 December 1996 and within the custody, possession, power or control
of NXT excluding the DERA Technology which supports, amplifies, explains or
enables the design or manufacture of products embodying any of the
specifications or claims of the Licensed NXT Patents, but excluding such
confidential information which is held under a duty of non-disclosure to a
non-Affiliate.
1.12 "Licensed Products" shall mean any product or component
which incorporates, embodies, is covered by, is claimed by, or is based upon any
of the Licensed NXT Patents, the Licensed NXT Technology, the Licensed NCTI
Patents or the Licensed NCTI Technology.
<PAGE>
1.13 "Multi-Field Components" shall mean:
(A) components to be incorporated in sound propagation or sound
reproduction devices (including but not limited to panels, exciters
or transducers) which may be utilised in one or more fields of use
as defined in articles 1.14 and 1.26 but are not specifically
designed for any particular field of use; or
(B) devices designed to replace traditional loudspeaker drive units.
1.14 "NCTI Fields" shall mean the following fields of use for flat panel
transducer and audio speaker products:
(A) Ground Based Vehicles.
(B) Aircraft including, but not limited to, all civil and military
fixed and rotary wing aircraft of any nature and any other craft
capable of sustained flight.
(C) Marine vessels including, but not limited to all civil and military
surface and subsurface vessels, ships and boats.
(D) Communications handsets the sole purpose of which is audio
communication limited to telephones, cellular telephones, speaker
telephones, telephone conferencing, two-way radios, mobile
radios, ham radios, CB radios, public telephones, wireless
telephones, SMR telephones, answering machines, pagers.
(E) Headsets, headphones, earplugs, earbuds, earmuffs, and all forms of
"on the ear" and "in the ear" sound generating devices.
(F) Hearing aids, hearing assistance devices and other devices to
assist impaired hearing.
(G) All devices and systems where the sole purpose is reducing,
isolating, controlling or attenuating noise or vibration.
1.15 "NCTI Option Agreement" shall mean the Common Stock Purchase Option to be
granted by NCTI to Verity in agreed terms.
1.16 "NCTI Technology Licence" shall mean the licence granted to Verity under
articles 2.1-2.4 of this Agreement.
1.17 "Net Sales Revenues" shall mean the revenues received from the sale, lease
or other transfer by a party of Licensed Products less:
(A) costs of packing, transportation and insurance;
(B) sales, value added and other taxes not based on income;
(C) ordinary trade discounts and commissions;
(D) customs duties and expenses; and
(E) royalties payable to third parties.
1.18 "Net Licensing Revenues" shall mean the gross revenues received by either
party from its respective licensing of third parties including Affiliates to
make or produce Licensed Products less:
(A) royalties payable to third parties; and
(B) taxes not based upon income.
1.19 "Non US Patents" means the Licensed NCTI Patents excluding the US Patents.
1.20 "NXT Technology Licence" shall mean the licence granted to NCTI under
articles 2.5 - 2.6 of this Agreement.
1.21 "Premium Shares" means 3,350,000 ordinary shares of 5p each in the
capital of Verity credited as fully paid.
1.22 "Premium Reduction" means US$150,000 multiplied by the number of
anniversaries since the date of this Agreement up to a maximum of
US$3,000,000.
1.23 "Registration Rights Agreement" means the registration rights agreement
to be entered into by NCTI and Verity in agreed terms.
1.24 "Security Deed" shall mean the agreement of even date between NCTI, Verity
and NXT relating to the Licensed NCTI Patents.
1.25 "US Patents" shall mean such of the Licensed NCTI Patents as have been
made, filed or registered in the United States.
<PAGE>
1.26 "Verity Fields" shall mean the following fields of use for flat panel
transducer and audio speaker products:
(A) Consumer audio including but not limited to flat panel speakers for
stereos, home theatres, radios, televisions and the like (whether
separate or integrated).
(B) Pro-audio including but not limited to ceiling tiles, wall speakers,
theatre speakers, speakers for commercial uses, airport speakers and
outdoor speakers.
(C) Multi-media including but not limited to personal computers,
workstations, laptop computers, notebook computers, personal digital
assistants, game machines, teleconferencing and video conferencing
equipment, dealing room equipment, Internet equipment and monitors
and displays of all types.
(D) Marketing and promotional devices including but not limited to bill
boards, point of purchase devices, display cases and windows.
(E) Domestic and industrial appliances including but not limited to dish
washers, clothes washers, vacuum cleaners, microwave ovens, clothes
dryers, stoves, range hoods (cooker hoods), air conditioners, air
coolers, humidifiers and air purifiers.
(F) Multi-Field Components except where the application of the component
is known to be in NCTI Fields.
(G) Any field for the propagation and reproduction of sound not
otherwise covered by the NCTI Fields or this definition.
1.27 "Verity Option Agreement" shall mean the deed of option in respect of the
option to be granted by Verity to NCTI dated 28 March 1997.
1.28 "Verity Option Amendment Agreement" shall mean the letter agreement to be
entered into between Verity and NCTI in agreed terms.
In this Agreement where the context admits:
1.29 words and phrases the definitions of which are contained or referred to in
Part XXIV Companies Act 1985 shall be construed as having the meanings so
attributed to them.
1.30 references to any document being in agreed terms are to that document in
the form signed on behalf of the parties for identification.
<PAGE>
2. Licences
NCTI Technology Licence
2.1 Subject to the terms and conditions of this Agreement and subject to certain
rights granted previously by NCTI to Electrolux (to the extent that such rights
have been disclosed in writing to Verity) and in consideration of the Premium
Shares (deemed for the purposes of this Agreement to have a value of
US$3,000,000 by reference to the mid market price on close of business on 14
April 1997) to be allotted under article 3 and the royalties payable under
article 4, NCTI hereby grants to Verity with effect from the Effective Date an
exclusive worldwide licence (with a right to sub-license on a non-exclusive
basis only) for the Verity Fields to make, have made, use, distribute, sell and
have sold products which incorporate, embody, are covered by, are claimed by, or
are based upon any of the US Patents.
2.2 Subject to the terms and conditions of this Agreement and subject to certain
rights granted previously by NCTI to Electrolux (to the extent that such rights
have been disclosed in writing to Verity) and also in consideration of the
payment of the royalties in article 4, NCTI hereby grants to Verity with effect
from the Effective Date an exclusive worldwide licence (with a right to
sub-license on a non-exclusive basis only) for the Verity Fields to make, have
made, use, distribute, sell and have sold products which incorporate, embody,
are covered by, are claimed by, or are based upon any of the Non US Patents or
the Licensed NCTI Technology.
2.3 In further consideration for the payment of the royalties in article 4, NCTI
hereby undertakes to use its best endeavours to discharge the restrictions which
prevent it from granting any non-exclusive licences for ** and, to the extent
that such restrictions are discharged and NCTI is in a position to grant any
licence, NCTI grants to Verity a non-exclusive worldwide licence (with a right
to sub-license) for ** to make, have made, use, distribute, sell and have sold
products which incorporate, embody, are covered by, are claimed by, or are based
upon any of the Licensed NCTI Patents or the Licensed NCTI Technology.
2.4 Verity shall use reasonable endeavours to exploit the patents and
technology licensed under this Agreement.
NXT Technology Licence
2.5 Subject to the terms and conditions of this Agreement and in consideration
for the royalties payable under article 4, NXT hereby grants to NCTI with effect
from the Effective Date a worldwide licence (with a right to sub-license on a
non-exclusive basis only) to make, have made, use, distribute, sell and have
sold products which incorporate, embody, are covered by, are claimed by, or are
based upon any of the Licensed NXT Patents or Licensed NXT Technology:
(A) on an exclusive basis for the NCTI Fields excluding Ground Based
Vehicles; and
(B) on a non-exclusive basis for Ground Based Vehicles.
** Confidential Treatment requested for a portion of this document. Such
portion has been omitted from the document and identified by asterisks. Such
portion also has been filed separately with the Commission pursuant to the
Company's application for confidential treatment.
<PAGE>
2.6 NCTI shall use reasonable endeavours to exploit the patents and technology
licensed under this Agreement.
2.7 Licensing
(A) None of the parties shall grant or purport to grant any licences of
the rights granted under this Agreement on terms which do not comply
with articles 2, 6, 9, 10, and 13. Further, the parties shall ensure
that all licences granted in respect of any Licensed Product after
the date of this Agreement shall include the Licensed NCTI Patents,
the Licensed NCTI Technology, the Licensed NXT Patents and the
Licensed NXT Technology to the extent that this is permitted by the
terms of this Agreement.
(B) Any licence granted by any of the parties under this Agreement shall
prohibit assignment and sublicensing by the licensee. Further, other
than the difference in the permitted fields of use, none of the
parties shall grant licences to its Affiliates on preferential terms
compared to non-Affiliates.
2.8 Notice of licensing
Within 3 months of granting any licence under the terms of this Agreement,
the relevant party shall give written notice to the other parties of the
identity of the licensee and the terms of such licence.
2.9 Patent Notice
The parties shall use all reasonable endeavours to ensure that any party,
which is licensed to use the Licensed NCTI Patents and/or the Licensed NXT
Patents as a consequence of this Agreement, shall use a legend on each Licensed
Product (or where not practical, on the packaging for such Licensed Product) to
identify the patent or patents (if any) from the Licensed NCTI Patents and the
Licensed NXT Patents which are applicable to the Licensed Product.
2.10 Ownership
Each of the parties acknowledges that ownership of the Licensed NCTI
Patents, the Licensed NCTI Technology, the Licensed NXT Patents and the Licensed
NXT Technology shall not be affected by the operation of this Agreement.
Further, none of the parties shall acquire any rights in any of the other
party's intellectual property rights except as is expressly set out in this
Agreement.
3. Exclusivity Premium
3.1 In consideration of the grant by NCTI of the exclusive licence under article
2.1 of this Agreement, Verity shall by 15 May 1997, and subject in all respects
to due compliance prior to such allotment with any legal regulatory or other
requirements including the London Stock Exchange Limited agreeing to admit the
Premium Shares to listing and listing becoming effective, allot the Premium
Shares to NCTI.
3.2 In the event that the Premium Shares are not allotted pursuant to
article 3.1 by 15 May 1997 then:
(A) the obligation on Verity to allot the Premium Shares pursuant to
article 3.1 shall lapse and article 3.1 shall have no further force
and effect and none of the parties shall have any liability
hereunder; and
(B) Verity shall pay to NCTI the cash sum of US$3,000,000.
3.3 For the avoidance of doubt, the operation of article 3.2 shall have no
effect upon the licences granted by NCTI to Verity pursuant to article 2 which
shall remain in full force and effect.
4. Royalties
4.1 Royalties
As part of the consideration for the rights granted by NCTI to Verity in
this Agreement, Verity shall pay royalties to NCTI in accordance with Schedule
C. In consideration of the rights granted by NXT to NCTI in this Agreement, NCTI
shall pay royalties to NXT in accordance with Schedule C.
4.2 Payment
Royalties shall be paid to the party entitled to the same within
forty-five (45) days from the end of each quarter of each calendar year as
provided in Article 7. The paying parties agree that the receiving party may
inspect its royalty/revenue records once a year upon thirty (30) days written
notice, at the inspecting party's own expense. All such royalty payments shall
be exclusive of VAT or any other sales tax. All payments under this Agreement
shall be made in US dollars.
4.3 Late Payment
Any payment not made on its due date will require the defaulting party to
pay interest in order to cover the default at the rate of the then current prime
rate at The Chase Manhattan Bank NA. The non-defaulting party shall be entitled
to set-off any late payment and interest against any royalty payment otherwise
due to the defaulting party.
5. Disclosure of Information, Data and Know-How
5.1 NCTI shall disclose to Verity such of the Licensed NCTI Technology as NCTI
believes in its sole opinion is necessary to assist with the design, manufacture
and marketing of Licensed Products. NXT shall disclose to NCTI such of the
Licensed NXT Technology as NXT in its sole opinion believes is necessary to
assist with the design, manufacture and marketing of Licensed Products.
<PAGE>
6. Confidentiality
6.1 Treatment
Any of the Licensed NCTI Technology, the Licensed NXT Technology, or other
information of one party relating to trade secrets, processes, formulas, data
and know-how, discoveries, developments, designs, improvements, inventions,
techniques, marketing plans, strategies, forecasts, new products, software
documentation, unpublished financial statements, budgets, projections, licences,
prices, costs, customer lists, supplier lists and any other material marked in
some reasonable manner to indicate it is confidential which is disclosed to the
other party and also the terms and conditions of this Agreement (the
"Confidential Information") shall be held in confidence and not disclosed, and
shall be subject to the following terms:
(A) any Confidential Information disclosed between the parties hereto
orally or visually, in order to be subject to this Agreement, shall
be so identified to the receiving party at the time of disclosure
and, if not identified in writing at the time, confirmed in writing
within ten (10) days after such oral or visual disclosure;
(B) only those of its officers, employees, consultants, sub-contractors
and licensees who need to receive the Confidential Information in
order to carry out the purposes of this Agreement shall have access
to such information and such access shall be limited to only so much
of such information as is necessary for the particular officer,
employee, consultant, sub-contractor and licensee to properly
perform his or her functions;
(C) all officers, employees, consultants, sub-contractors and licensees
who shall have access to the Confidential Information shall be under
written obligation:
(1) to hold in confidence and not disclose all the Confidential
Information made available to them; and
(2) to use the Confidential Information only as permitted by the
party retaining them;
(D) all documents, drawings, writings and other embodiments which
contain the Confidential Information shall be maintained in a
prudent manner in a secure fashion separate and apart from other
information in its possession and shall be removed therefrom only as
needed to carry out the purposes of this Agreement; and
(E) all documents, drawings, writings and other embodiments of the
Confidential information the security or safekeeping of which are
subject to governmental regulations shall be kept in accordance with
those regulations.
6.2 Exclusions
Confidential Information shall not include information that:
(A) was at the time of disclosure in the public domain through no fault
of the party receiving it;
(B) becomes part of the public domain after disclosure to the party
receiving it through no fault of such party;
(C) was in the possession of the party receiving it (as evidenced by
written records) at the time of disclosure and was not acquired
directly or indirectly from the other party, or a third party, as
the case may be, under a continuing obligation of confidence of
which the party receiving it was aware;
(D) was received by the party receiving it (as evidenced by written
records) after the time of disclosure hereunder from a third party
who did not require it to be held in confidence and who did not
acquire it directly or indirectly from the disclosing party under a
continuing obligation of confidence of which the party receiving it
was aware;
(E) is required by law or the rules of any relevant Court or securities
exchange to be disclosed, but only to the extent of such required
disclosure; provided, that a party required so to disclose
Confidential Information shall use all reasonable endeavours to
notify the disclosing party of such potential disclosure so that
such party may seek a protective order or other remedies to maintain
in confidence any such Confidential Information;
(F) was developed independently by the receiving party and without the
use of any Confidential Information received from the disclosing
party under this Agreement; or
(G) was or is disclosed by the disclosing party to third parties without
restrictions on use or disclosure comparable to those contained
herein.
<PAGE>
7. Payments, Reports and Records
7.1 Royalties Payable to NCTI
Royalties payable to NCTI shall be due and payable in U.S. dollars in
immediately available New York, New York funds within forty-five (45) days after
the last business day of each March, June, September and December of each
calendar year during the term of this Agreement. If requested by NCTI, Verity
shall direct its chartered accountants at Verity's expense to provide NCTI with
a certified written royalty report (the "Verity Royalty Report") for each
calendar year of this Agreement within sixty (60) days of the end of each
calendar year of this Agreement. Such Verity Royalty Reports shall be prepared
in accordance with the standard reporting procedures of such chartered
accountants applied in a consistent manner. A similar Verity Royalty Report
shall be rendered and royalty payment shall be made within sixty (60) days after
termination of this Agreement.
7.2 Royalties Payable to NXT
Royalties payable to NXT shall be due and payable in U.S. dollars in
immediately available New York, New York funds within forty-five (45) days after
the last business day of each March, June, September and December of each
calendar year during the term of this Agreement. If requested by NXT, NCTI shall
direct its independent certified public accountants at NCTI's expense to provide
NXT with a certified written royalty report (the "NCTI Royalty Report") for each
calendar year of this Agreement within sixty (60) days of the end of each
calendar year of this Agreement. Such NCTI Royalty Reports shall be prepared in
accordance with the standard reporting procedures of such independent certified
public accountants applied in a consistent manner. A similar NCTI Royalty Report
shall be rendered and royalty payment shall be made within sixty (60) days after
termination of this Agreement.
8. Term
8.1 The term of this Agreement shall begin with effect from the Effective Date
and shall expire immediately upon:
(A) with respect to rights granted under any patent hereunder, the
expiration of that patent under applicable law;
(B) with respect to the other rights granted to Verity hereunder, upon
the expiration of the last to expire of the Licensed NCTI Patents;
and
(C) with respect to the other rights granted to NCTI hereunder, upon the
expiration of the last to expire of the Licensed NXT Patents.
8.2 Other than as set out in articles 8.1 and 9, this Agreement shall not be
terminable by either party unilaterally and shall not terminate automatically.
<PAGE>
9. Termination
9.1 Cardinal Breach
NXT shall have the right to terminate the NXT Technology Licence, without
prejudice to the continuation of the NCTI Technology Licence (with respect to
the rights granted to Verity, the royalties and the other obligations imposed on
Verity), for any reason which constitutes Cardinal Breach and which:
(A) cannot be remedied by NCTI; or
(B) where capable of remedy by NCTI, is not remedied by NCTI within 30
days of receiving written notice from NXT.
9.2 The termination in article 9.1 shall be of immediate effect upon NXT giving
written notice to NCTI.
9.3 Following termination under article 9.1:
(A) US$3,000,000 (being for the purposes of this Agreement the deemed
cash equivalent of the Premium Shares at the date of this Agreement)
less the Premium Reduction, shall be paid to Verity within 14 days;
(B) the NXT Technology Licence shall be terminated in accordance with
the provisions of article 10 amended to apply only to the
termination of the NXT Technology Licence.
9.4 If NCTI fails to make payment as required by article 9.3(A), then Verity
shall be entitled to register the transfer of ownership of the Licensed NCTI
Patents under the terms of the Security Deed. This right shall be without
prejudice to Verity's rights, whether under this Agreement or otherwise, and to
its general right to record at any time the Security Deed with the US Patent
Office and to file a UCC1 Financing Statement. Upon lapse of the Security Deed,
Verity shall be obliged to take all reasonable steps to cancel or remove the
Security Deed at the US Patent Office.
Insolvency
9.5 Any party may terminate its licence under this Agreement to the other party
(the "Insolvent Party") at any time, without prejudice to the continuation of
the licence under this Agreement from the Insolvent Party, where the Insolvent
Party becomes insolvent, is adjudicated bankrupt or compounds with or makes any
arrangement with or makes any general assignment for the benefit of its
creditors or enters into liquidation, whether compulsorily or voluntarily
(except for the purposes of a bona fide reconstruction or amalgamation) or has a
receiver, administrative receiver or administrator (or the equivalent under
United States or other relevant local bankruptcy law) appointed over the whole
or any part of its undertaking or assets or a similar occurrence under any
jurisdiction affects the other party or if the other party ceases or threatens
to cease or makes any material change in its business.
9.6 The termination of the NCTI Technology Licence or the NXT Technology Licence
in article 9.5 shall be of immediate effect upon a party (the "Terminating
Party") giving written notice to the Insolvent Party.
9.7 Following termination under article 9.6:
(A) the licence granted to the Insolvent Party under articles 2.1 - 2.4
or under articles 2.5 - 2.6 shall immediately terminate in
accordance with the provisions of article 10 amended to apply only
to the termination of the licence granted to the Insolvent Party;
and
(B) if NCTI is the Insolvent Party, US$3,000,000 (being for the purposes
of this Agreement the deemed cash equivalent of the Premium) less
the Premium Reduction, shall be paid to Verity within 14 days.
9.8 If NCTI fails to make payment as required by article 9.7(B), then NXT shall
be entitled to register the transfer of ownership of the Licensed NCTI Patents
under the terms of the Security Deed. This right shall be without prejudice to
Verity's rights, whether under this Agreement or otherwise, and to its general
right to record at any time the Security Deed with the US Patent Office and to
file a UCC1 Financing Statement. Upon lapse of the Security Deed, Verity shall
be obliged to take all reasonable steps to cancel or remove the Security Deed at
the US Patent Office.
Infringement Proceedings
9.9 If NCTI or any of its Affiliates or licensees commence or maintain
infringement proceedings against Verity or any of its Affiliates or licensees as
regards products covered by or embodying the Licensed NXT Patents and/or the
Licensed NXT Technology then:
(A) if a plaintiff to such infringement proceedings is NCTI or one of
its Affiliates, NXT shall have the right to terminate the NXT
Technology Licence which shall be terminated in accordance with the
provisions of article 10 amended to apply only to the termination of
the NXT Technology Licence;
(B) if a plaintiff to such infringement proceedings is a licensee of
NCTI, then in respect of that licensee NCTI shall be obliged within
30 days to either:
(1) procure that such licensee of NCTI withdraws such proceedings;
or
(2) terminate such sub-licence with immediate effect.
<PAGE>
9.10 If Verity or any of its Affiliates or licensees commence or maintain
infringement proceedings against NCTI or any of its Affiliates or licensees as
regards products covered by or embodying the Licensed NCTI Patents and/or the
Licensed NCTI Technology then:
(A) if a plaintiff to such infringement proceedings is Verity or any of
its Affiliates, NCTI shall have the right to terminate the NCTI
Technology Licence which shall be terminated in accordance with the
provisions of article 10 amended to apply only to the termination of
the NCTI Technology Licence;
(B) if a plaintiff to such infringement proceedings is a licensee of
Verity, then in respect of that licensee Verity shall be obliged
within 30 days to either:
(1) procure that such licensee of Verity withdraws such
proceedings; or
(2) terminate such sub-licence with immediate effect.
10. Effect of Termination
10.1 Except as otherwise expressly provided herein, on termination of this
Agreement:
(A) all rights and licences granted pursuant to article 2 shall
immediately terminate; and
(B) all documents, drawings, writings and other embodiments of the
Confidential Information, as well as those produced, created or
derived from the Confidential Information which incorporate the
Confidential Information and all copies thereof shall be returned
promptly to the disclosing party of this Agreement without prejudice
to the continuation of the obligations under article 6.
10.2 After termination of this Agreement, NCTI and all its licensees under this
Agreement and Verity and all its licensees under this Agreement may continue to
sell Licensed Products manufactured before the date of termination and, if their
stock of Licensed Products are insufficient to fulfil orders accepted before the
date of termination, they may manufacture sufficient quantities of Licensed
Products to fulfil such order, provided that:
(A) such Licensed Products are manufactured within 6 months of
termination of this Agreement; and
(B) any applicable royalties are paid in accordance with article 4.
10.3 Notwithstanding the termination of this Agreement, the terms and conditions
of articles 6 and 7, and the accrued rights of the parties shall survive
termination of this Agreement and shall continue to be applicable and govern the
parties with respect to the subject matter thereof.
10.4 In the event of termination all monies due to either party in respect of
royalty payments shall be settled within 30 days of the date of termination.
11. Force Majeure
11.1 In the event of enforced delay in the performance by any party of
obligations under this Agreement due to unforeseeable causes beyond its
reasonable control and without its fault or negligence, including, but not
limited to, acts of God, acts of the government, acts of the other party, fires,
floods, strikes, freight embargoes, unusually severe weather, or delays of
subcontractors or licensees due to such causes (an "Event of Force Majeure"),
the time for performance of such obligations shall be extended for the period of
the enforced delay; provided that the party seeking the benefit of the
provisions of this paragraph shall, within ten (10) days after the beginning of
any such enforced delay, have first notified the party to whom the obligation is
owed in writing of the causes and requested an extension for the period of the
enforced delay and shall use all reasonable endeavours to minimize the effects
of any Event of Force Majeure.
12. Applicable Law
12.1 The terms and conditions of this Agreement and the performance thereof
shall be governed by and construed in accordance with English law.
13. Conduct in Relation to Licensed Patents and Technology
13.1 None of the parties shall do, procure or omit to do, or assist others to
do, procure or omit to do, anything that diminishes the validity or subsistence
of another party's licensed patents or licensed technology nor the relevant
party's ownership thereof. However, neither this article nor anything in the
Agreement shall prevent any party from challenging or assisting others to
challenge the ownership, validity, or subsistence of the said licensed patents
and technologies.
13.2 Further, none of the parties nor their Affiliates shall publicly do or say
anything which is detrimental to or otherwise diminishes the reputation or
goodwill of the other parties or which challenges the validity, subsistence or
value of the Licensed NXT Patents or any other related future NXT patents or the
Licensed NXT Technology. Further, neither of the parties nor their Affiliates
shall assist third parties to do the same.
<PAGE>
14. Dispute Resolution
14.1 The parties shall meet as soon as possible to discuss and to attempt to
resolve all matters not specifically provided for in the Agreement and which
requires a decision including all differences, disputes or disagreements which
may arise out of or in connection with this Agreement. If the parties are unable
to resolve any such matter or dispute then it shall be referred to the Chairman
of NXT and the Chairman (or equivalent officer) of NCTI, who shall meet within
five days of being requested to do so and in good faith attempt to resolve the
matter of dispute.
14.2 The parties agree to refer any matter or dispute which is not able to be
resolved pursuant to article 14.1 to the Centre for Dispute Resolution ("CEDR")
in London, England in an attempt to settle the same in good faith by Alternate
Dispute Resolution ("ADR").
14.3 Neither party shall be deemed to be precluded from taking such interim
formal steps as may be considered necessary to protect such party's position
while the procedures referred to in articles 14.1 and 14.2 are pursued.
14.4 In the event that the matter remains unresolved by such ADR procedure
within thirty days of commencement of such procedure, then the parties shall be
at liberty to take such other Proceedings (as defined below) as they think fit.
14.5 Except as provided for in articles 14.1, 14.2, and 14.3, in relation to any
legal action or proceedings to enforce this Agreement (including the licences
granted herein) or arising out of or in connection this Agreement
("Proceedings"), NCTI irrevocably submits to the exclusive jurisdiction of the
English Courts and waives any objection to Proceedings in such Courts on the
grounds of venue or on the grounds that Proceedings have been brought in an
inappropriate forum. This article operates for the sole benefit of Verity and
NXT who shall retain the right to take Proceedings in any other jurisdiction.
15. Announcements
15.1 Except for any disclosure which may be required by law or by any securities
exchange or regulatory or governmental body having jurisdiction over it,
wherever situated (and including, without limitation, the London Stock Exchange,
the Panel on Takeovers and Mergers, the Serious Fraud Office and the Securities
Exchange Commission), and whether or not the requirement has the force of law,
neither party may use the other's name or disclose the terms of this Agreement
without the consent of the other, which consent shall not be unreasonably
withheld or delayed.
16. Severability
16.1 If any part of this Agreement for any reason shall be declared invalid or
unenforceable, such decision shall not affect the validity or enforceability of
any remaining portion, which shall remain in full force and effect; provided,
however, that in the event a part of this Agreement is declared invalid and the
invalidity or enforceability of such part has the effect of materially altering
the obligations of any party under this Agreement, the parties agree, promptly
upon such declaration being made, to negotiate in good faith to amend this
Agreement so as to put such party in a position substantially similar to the
position such party was in prior to such declaration.
17. Rights of Assignment; Successors and Assigns
17.1 None of the parties may assign any of their rights under this Agreement
without the prior written consent of the other parties (not to be unreasonably
withheld or delayed). However, NCTI may assign its rights and obligations under
this Agreement to an Affiliate (which for the purpose of this article shall not
include OnActive) upon giving NXT 30 days' written notice. Further, Verity may
assign its rights and obligations under this Agreement to an Affiliate upon
giving NCTI 30 days' written notice.
<PAGE>
18. Notices
18.1 Any notices under this Agreement shall be in writing and shall be deemed
delivered if delivered by personal service, or sent by fax or by first class
registered or certified mail, or same day or overnight courier service with
postage or charges prepaid. Unless subsequently notified in writing in
accordance with this article by the other party, any notice or communication
hereunder shall be addressed to NCTI as follows:
to NCTI as follows:
Michael J. Parrella
President
Noise Cancellation Technologies, Inc.
1025 West Nursery Road
Linthicum, Maryland 21090
Fax No: 001 - (410) 636-5989
to Verity or NXT as follows:
Farad Azima
Chairman
Verity Group plc/New Transducers Limited
Stonehill
Huntingdon PE18 6ED
England
Fax No: (011-44) 1480-432777
19. Taxes
19.1 Each party shall be responsible for any sales, use, occupational or
privilege taxes, duties, fees or other similar charges imposed by any
governmental authority in connection with the manufacture, sale, lease,
distribution, use or other disposition by it of products or the exercise of any
other rights under the licence granted to it hereunder. Subject to sub-article
19.2 below, any other taxes, including income or withholding taxes based on
royalties and other payments received by a party hereto, shall be the
responsibility of that party.
19.2 In the event that the Inland Revenue raise an assessment on Verity
asserting that tax should properly have been withheld from the payment effected
by the issue of the Premium Shares to NCTI, Verity shall notify NCTI of such
assessment and NCTI shall pay to Verity in cleared funds the amount of such
assessment (including any element of interest or penalties) within 5 days of
receiving such notice, or 5 days prior to the date for payment by Verity
specified in such assessment, whichever is the later.
20. Maintenance and Defence of Licensed Patents
NCTI Obligations
20.1 Throughout the term of this Agreement, NCTI shall maintain in force the
Licensed NCTI Patents. In this connection, NCTI shall promptly pay all costs of
any and all continuations, continuations-in-part, divisions, extensions,
reissues, re- examinations, or renewals of the Licensed NCTI Patents, including,
without limitation, the costs and expenses of any and all attorneys, experts or
other professionals engaged in connection with any of the foregoing. At NCTI's
expense, Verity shall comply with all reasonable requests of NCTI aimed at
maintaining in force the Licensed NCTI Patents.
20.2 Where an actual or threatened infringement of the Licensed NCTI Patents or
unauthorised disclosure or use of the Licensed NCTI Technology (collectively the
"Infringement") falls or appears to fall wholly or partly within the Verity
Fields, then the party who becomes aware of the Infringement shall promptly
report the same to the others. If the Infringement appears to NCTI to fall
solely within the Verity Fields, then NCTI shall assist Verity in any action
which Verity wishes to take in relation to the Infringement, but only by lending
its name to such action (subject to Verity fully indemnifying NCTI against all
costs, damages and other liabilities arising out of or in connection with such
action) and by providing copies of all relevant files in its custody, power,
possession or control. Any further assistance required by Verity shall be
subject to agreement between the parties. Verity shall, subject to such
indemnity, be entitled as against NCTI to retain all costs, damages and sums
awarded or agreed to be paid to it in connection with such action and shall have
sole conduct of such action. Verity shall however regularly inform NCTI of any
significant developments of such action and shall not consent to any order as to
the amendment or validity of the Licensed NCTI Patents without NCTI's prior
written consent.
<PAGE>
NXT Obligations
20.3 Throughout the term of this Agreement, NXT shall maintain in force the
Licensed NXT Patents. In this connection, NXT shall promptly pay all costs of
any and all continuations, continuations-in-part, divisions, extensions,
reissues, re- examinations, or renewals of the Licensed NXT Patents, including,
without limitation, the costs and expenses of any and all attorneys, experts or
other professionals engaged in connection with any of the foregoing. At NXT's
expense, NCTI shall comply with all reasonable requests of NXT aimed at
maintaining in force the Licensed NXT Patents.
20.4 Where an actual or threatened infringement of the Licensed NXT Patents or
unauthorised disclosure or use of the Licensed NXT Technology (collectively the
"Infringement") falls or appears to fall wholly or partly within the NCTI
Fields, then the party who becomes aware of the Infringement shall promptly
report the same to the others. If the Infringement appears to NXT to fall solely
within the NCTI Fields, then NXT shall assist NCTI in any action which NCTI
wishes to take in relation to the Infringement, but only by lending its name to
such action (subject to NCTI fully indemnifying NXT against all costs, damages
and other liabilities arising out of or in connection with such action) and by
providing copies of all relevant files in its custody, power, possession or
control. Any further assistance required by NCTI shall be subject to agreement
between the parties. NCTI shall, subject to such indemnity, be entitled as
against NXT to retain all costs, damages and sums awarded or agreed to be paid
to it in connection with such action and shall have sole conduct of such action.
NCTI shall however regularly inform NXT of any significant developments of such
action and shall not consent to any order as to the amendment or validity of the
Licensed NXT Patents without NXT's prior written consent.
21. Warranties
21.1 Each of the parties represents and warrants to the others that:
(A) it has the right, power and authority to enter into this Agreement
and to grant the licenses and other rights contained herein;
(B) it will not breach or be in violation of any agreement, licence, or
grant made with or to any other party by virtue of entering into
this Agreement:
(C) so far as it is aware the patents licensed by it do not infringe any
other patent issued prior to the date hereof.
21.2 NCTI warrants that the patents listed in Schedule A constitute all the
patents and patent applications (including unpublished applications) filed
before 31 December 1996 of which NCTI or its Affiliates is the beneficial owner
or registered proprietor or applicant or in respect of which it is a licensee.
NXT warrants that the patents listed in Schedule B constitute all the patents
and patent applications (including unpublished applications) filed before 31
December 1996 of which it is the beneficial owner or registered proprietor or
applicant or in respect of which it is a licensee.
22. Disclaimer
22.1 EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, NCTI HEREBY DISCLAIMS:
(A) ANY EXPRESS OR IMPLIED WARRANTY OF THE ACCURACY, RELIABILITY,
TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR
MERCHANTABILITY OF THE LICENSED NCTI PATENTS, THE LICENSED NCTI
TECHNOLOGY, OR THE PRODUCTS INCORPORATING, BASED UPON OR
DERIVED FROM SAID PATENTS OR TECHNOLOGY, OR THEIR
SUITABILITY OR FITNESS FOR ANY PURPOSE WHATSOEVER;
(B) ALL OTHER WARRANTIES OR WHATEVER NATURE, EXPRESS OR IMPLIED; AND
(C) ALL LIABILITY FOR ANY LOSS OR DAMAGE RESULTING, DIRECTLY OR
INDIRECTLY, FROM THE USE OF THE LICENSED NCTI PATENTS, THE
LICENSED NCTI TECHNOLOGY, OR THE PRODUCTS INCORPORATING, BASED ON
OR DERIVED FROM SAID PATENTS OR TECHNOLOGY.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THIS DISCLAIMER EMBRACES
CONSEQUENTIAL DAMAGES, LOSS OF PROFITS OR GOOD WILL, EXPENSES FOR DOWNTIME OR
FOR MAKING UP DOWNTIME, DAMAGES FOR WHICH LICENSEE MAY BE LIABLE TO OTHER
PERSONS, DAMAGES TO PROPERTY.
22.2 EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, VERITY AND NXT
HEREBY DISCLAIM:
(A) ANY EXPRESS OR IMPLIED WARRANTY OF THE ACCURACY, RELIABILITY,
TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR
MERCHANTABILITY OF THE LICENSED NXT PATENTS, THE LICENSED NXT
TECHNOLOGY, OR THE PRODUCTS INCORPORATING, BASED UPON OR DERIVED
FROM SAID PATENTS OR TECHNOLOGY, OR THEIR SUITABILITY OR FITNESS FOR
ANY PURPOSE WHATSOEVER;
(B) ALL OTHER WARRANTIES OR WHATEVER NATURE, EXPRESS OR IMPLIED; AND
(C) ALL LIABILITY FOR ANY LOSS OR DAMAGE RESULTING, DIRECTLY OR
INDIRECTLY, FROM THE USE OF THE LICENSED NXT PATENTS, THE LICENSED
NXT TECHNOLOGY, OR THE PRODUCTS INCORPORATING, BASED ON OR DERIVED
FROM SAID PATENTS OR TECHNOLOGY.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THIS DISCLAIMER EMBRACES
CONSEQUENTIAL DAMAGES, LOSS OF PROFITS OR GOOD WILL, EXPENSES FOR DOWNTIME OR
FOR MAKING UP DOWNTIME, DAMAGES FOR WHICH LICENSEE MAY BE LIABLE TO OTHER
PERSONS, DAMAGES TO PROPERTY.
<PAGE>
22.3 Nothing in this article 22 shall exclude, restrict or modify any condition
or warranty implied in this Agreement by law where to do so would render any
part of this article void.
23. Trade Marks
23.1 Nothing in this Agreement shall entitle any of the parties to use any trade
or service mark (including logos, devices and signs) which is used by another
party or its Affiliates (the "Marks"). Further, none of the parties shall use or
apply for registration as a trade mark or business name of any word or words,
device, logo or sign which is identical or confusingly similar to any of the
Marks.
24. No Agency and No Partnership
24.1 Save as otherwise expressly provided for in this Agreement or unless
otherwise agreed between the parties in writing, none of the parties shall:
(A) make purchases or sales or incur any liabilities whatsoever on
behalf of any of the others; or
(B) pledge a credit of any of the others; or (C) hold itself out as acting
as agent for any of the others.
24.2 Nothing in this Agreement is intended to or shall give rise to any
relationship of partnership or profit sharing in the nature of partnership
between the parties.
25. Scope of the Agreement and General Obligations
25.1 This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior oral or written
agreements or understandings of the parties with regard to the subject matter
hereof including, without limitation, the Cross Licence between NXT and NCTI of
28 March 1997. No interpretation, change, termination or waiver of any provision
hereof shall be binding upon a party unless in writing and executed by the other
party. No modification, waiver, termination, recession, discharge or
cancellation of any right or claim under this Agreement shall affect the right
of any party hereto to enforce any other claim or right hereunder.
25.2 NCTI shall deliver to Verity within 14 days of the execution of this
Agreement the duly signed Letter of Opinion and Chairman's Letter.
26. Security Deed
26.1 Upon signing this Agreement, the parties shall enter into the Security Deed
in its agreed form.
27. Equity Options
27.1 (A) On the date hereof, NCTI shall enter into the NCTI Option
Agreement and the Registration Rights Agreement, and thereupon
Verity shall enter into the Registration Rights Agreement; and
(B) On the date hereof, NCTI and Verity shall enter into the Verity
Option Amendment Agreement which provides, inter alia, that the
Verity Option Agreement shall lapse on 30 September 1997 if the
consent and approval of NCTI's shareholders to increase the
authorised share capital of NCTI to permit exercise in full by
Verity of the option pursuant to the NCTI Option Agreement (as such
consent and approval referred to in the NCTI Option Agreement) shall
not have been obtained by 30 September 1997.
28. Novation
28.1 At the request of Verity, the parties to this Agreement shall promptly
enter into a novation agreement in the form set out in Schedule E to this
Agreement.
<PAGE>
29. Recording of Formal Licence
29.1 On execution of this Agreement, the parties shall execute:
(A) a short form agreement in the form set out in Schedule F for filing
with the Registrar of Companies pursuant to Section 88 of the
Companies Act 1985;
(B) a formal exclusive licence in respect of the Licensed NCTI Patents
in the form set out in Schedule G for registration at the UK Patent
Office (and in substantially the same form for registration at all
other relevant patent offices); and
(C) documents substantially in the same form as above for use by NCTI in
the United States.
30. Stamp Duty and Legal Costs
30.1 All stamp duty payable in relation to this Agreement and any other
agreement executed pursuant to it shall be paid by NCTI.
30.2 Within 30 days of being presented with paid and receipted invoices, NCTI
shall pay 50% of Verity's and NXT's external legal costs and disbursements
incurred in negotiating, preparing and drafting all the documents associated
with this Agreement including prior versions of such documents.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed the day
and year first before written.
VERITY GROUP plc
/s/ FARAD AZIMA
- --------------------
By: Farad Azima
Title: Director
Date: 15 April 1997
NEW TRANSDUCERS LIMITED
/s/ PETER THOMAS
- --------------------
By: Peter Thomas
Title: Director
Date: 15 April 1997
NOISE CANCELLATION TECHNOLOGIES, INC.
/s/ MICHAEL J. PARRELLA
- --------------------
By: Michael J. Parrella
Title: President
Date: April 15, 1997
<PAGE>
Schedule A
NCTI INTELLECTUAL PROPERTY
VIRGINIA POLYTECHNIC INSTITUTE
Patents
US 4,715,559 Issued December 29, 1987, entitled "Apparatus and
Method for Global Noise Reduction". Describes a method for
quieting within an enclosed space by anti-vibrating the walls
with piezo-electric devices. It formed the basis for NCTI's work
on active panels.
US 5,335,417 Issued October 11, 1992, entitled "Active Control of
Aircraft Engine Inlet Noise Using Compact Sound Sources and
Distributed Error Sensors". Part of this patent describes the
use of piezo actuators bonded to curved panels as a means of
generating sound. The panel geometry is chosen to emphasize
particular frequencies. This technique is used in transformer
quieting.
US 5,515,444 Issued May 7, 1996. Continuation of US 5,335,417, in
which the curved panel is dynamically tuned to maintain optimal
performance.
<PAGE>
Schedule A
NCTI INTELLECTUAL PROPERTY
PIEZO TECHNOLOGY
Patents
US 5,473,214 Issued December 5, 1995, entitled "Low Voltage Bender
Piezo Actuators". The use of a stack of piezo electric layers to
produce a vibration actuator. Multiple layers reduce the voltage
levels required to drive the actuator. This makes packaging
easier and allows cheaper amplifiers to be used.1
Patents Pending
PCT/xUS94/04553 (filed May 04, 1994) Publication No. W004/27331
Low Voltage Bender Piezo Actuators. The use of a stack of piezo
electric layers to produce a vibration actuator. Multiple layers
reduce the voltage levels required to drive the actuator. This
makes packaging easier and allows cheaper amplifications to be
used.
EPO 94914908.2 (filed May 04, 1994) Publication No. 0698298 Low
Voltage Bender Piezo Actuators. The use of a stack of piezo
electric layers to produce a vibration actuator. Multiple
layers reduce the voltage levels required to drive the actuator.
This makes packaging easier and allows cheaper amplifications to
be used.
<PAGE>
Schedule A
NCTI INTELLECTUAL PROPERTY
PIEZO TECHNOLOGY
Patents pending
(253) No. PCT/US95/05720 (filed 09/05/95) Publication No. W095/31805
Multimedia Personal Computer with Active Noise Reduction and
Piezo Speakers: US filed May 11, 1994. A piezo patch is bonded
to the case of a PC so that the whole case acts as loudspeaker.
Active Noise Reduction and microphones are included to fully
equip the PC for multimedia applications. EPO 95918420.1 (filed
May 09, 1995) Publication No. 0760996 Multimedia Personal
Computer with Active Noise Reduction and Piezo Speakers: A
piezo patch is bonded to the case of a PC so that the whole
case acts as loudspeaker. Active Noise Reduction and
microphones are included to fully equip the PC for multimedia
applications.
US 08/241440
Multimedia Personal Computer with Active Noise Reduction and
Piezo Speakers: US filed May 11, 1994. A piezo patch is bonded
to the case of a PC so that the whole case acts as loudspeaker.
Active Noise Reduction and microphones are included to fully
equip the PC for multimedia applications.
(256) No. PCT/US95/08131 (filed 29/06/95) Publication No. W096/01547
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: US filed July 6,
1994. A piezo patch is bonded to the case of a PC to act as a
loudspeaker. Dampening materials and stiffeners to improve the
performance of a piezo loudspeaker. (U.S. application approved
for issue).
EPO 95924733.9 (filed June 29, 1995) Publication No. 0772953
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: A piezo patch is
bonded to the case of a PC to act as a loudspeaker. Dampening
materials and stiffeners to improve the performance of a piezo
loudspeaker.
US 08/267218
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: US filed July 6,
1994. A piezo patch is bonded to the case of a PC to act as a
loudspeaker. Dampening materials and stiffeners to improve the
performance of a piezo loudspeaker. (U.S. application approved
for issue).
(260) US 08/533048
Piezo Speaker for Improved Passenger Cabin Audio Systems: US
filed September 25, 1995. Improvements include the addition of
combined constrained damping/insulation layer, integrated
electronics and the inclusion of intermediate coupling plates
to enhance performance. This technique is applied to all flat
interior surfaces of a car interior. PCT to be advised Piezo
Speaker for Improved Passenger Cabin Audio Systems: US filed
September 25, 1995. Improvements include the addition of
combined constrained damping/insulation layer, integrated
electronics and the inclusion of intermediate coupling plates
to enhance performance. This technique is applied to all flat
interior surfaces of a car interior.
(269) US 08/554049
Piezoelectric Transducers: US filed November 6, 1995. An
extension of (260). Improved transducer coupling systems
that significantly improves piezo performance.
PCT to be advised
Piezoelectric Transducers: US filed November 6, 1995. An
extension of (260). Improved transducer coupling systems that
significantly improves piezo performance.
<PAGE>
Schedule A
NCTI INTELLECTUAL PROPERTY
FLAT PANEL TRANSDUCERS
Patents Pending
(277) US 08/720163
Vehicular Loudspeaker System: US filed September 25, 1996. An
improved loudspeaker system for a passenger vehicle such as an
automobile. The system comprises a transducer capable of being
excited by applied electric potential and electronic means that
is electrically connected to the transducer to apply electric
potential thereto. The diaphragm driven by the excited
transducer is comprised of the headliner of the vehicle or
other flat surfaces.
(400) No. GB 961 9835.3 (filed 23/09/96)
Audio System Using Flat Panel Loudspeakers: UK filed September
23, 1996. A home entertainment system consisting of a plurality
of flat panel loudspeakers and electroacoustics transducer
apparatus having a flatter frequency response than previously
possible.
(401) No. GB 961 9967.4 (filed 25/09/96)
Electroacoustics Transducer Arrangement: UK filed September 25,
1996. An electroacoustics transducer consisting of two panel
membranes. The phase of the sound wave produced at the rear
panel is set so that if that wave is reflected, it will
constructively interfere with the wave produced at the forward
panel.
(402) No. GB 962 1523.1 (filed 16/10/96)
A Flat Panel Loudspeaker Arrangement and Hands Free Telephone
System Using the Same: UK filed October 16, 1996. A flat panel
loudspeaker arrangement which can be attached to the roof or
headlining of a vehicle to position the loudspeaker of a hands
free telephone more conveniently.
(403) No. GB 962 5315.8 (filed 05/12/96)
Electroacoustics Transducer Arrangement: UK filed December 5,
1996. (An extension of 401). An electroacoustics transducer
consisting of two panel membranes. The phase of the sound wave
produced at the rear panel is set so that if that wave is
reflected, it will constructively interfere with the wave
produced at the forward panel. The constructive interference
effect can also be used to flatten or equalise the frequency
response of the system.
<PAGE>
(404) No. GB 962 4302.7 (filed 22/11/96)
Flat Panel Loudspeaker Arrangement: UK filed November 22, 1996.
Involves the selection and arrangement of piezoelectric
elements so that the piezoelectric elements provide the flat
panel loudspeaker with an equalised frequency response.
(405) No. GB 962 6439.5 (filed 20/12/96)
A Multiple Panel Electroacoustic Transducer: UK filed December
20, 1996. An improved electroacoustic transducer comprising
multiple parallel panel members with an actuator arrangement
for driving the panel members in phase.
(406) No. GB 970 0336.2 (filed 09/01/97)
Panel Mounting Arrangement for Electroacoustic Transducer: UK
filed January 9, 1997. An improved electroacoustic transducer
that isolates acoustic vibrations generated by the front and
rear faces of a panel so that they do not interfere.
<PAGE>
Schedule A
NCTI INTELLECTUAL TECHNOLOGY
LOUDSPEAKER TECHNOLOGY
Patents Pending
(121) PCT/US91/02731 Publication No. W092/19080
Improvements in and relating to Transmission Line Loudspeakers
Filed April 19, 1991. The sound wave radiated from the front
surface of a loudspeaker driver diaphragm is of opposite
polarity with respect to that radiated from the back surface.
If the two signals are directly combined, they will tend to
cancel one another. An acoustic phase inversion network is used
to insure that the back wave is in phase with the front wave,
and the combined signals are used to drive the inlet of a
loudspeaker transmission line. EPO 91920600.3 Publication No.
0580579 Improvements in and relating to Transmission Line
Loudspeakers Filed April 19, 1991. The sound wave radiated from
the front surface of a loudspeaker driver diaphragm is of
opposite polarity with respect to that radiated from the back
surface. If the two signals are directly combined, they will
tend to cancel one another. An acoustic phase inversion network
is used to insure that the back wave is in phase with the front
wave, and the combined signals are used to drive the inlet of a
loudspeaker transmission line.
(149) No. PCT/US91/07324 Publication No. W093/07729
Vacuum Speaker
Filed October 2, 1991. A speaker enclosure with a partial
vacuum behind the speaker. A spring is used to offset the
static forces. The result is a smaller enclosed volume while
maintaining low frequency performance.
(???) No. PCT/US92/05771 Publication No. WO94/01979
Hydraulic Powered Loudspeaker
A hydraulic powered low-damped loudspeaker including a
hydraulic cylinder (21) attached to the cone (22) of a speaker
which can be used in a bandpass loudspeaker.
<PAGE>
Patent
UK 2,858,759 Issued March 11, 1981, entitled "Depressing the
Resonant Frequency of a Suspended Mass". Described the use of
active control to reduce the spring force constant of a
suspended mass (e.g. a loudspeaker cone) so as to reduce the
effective resonant frequency of the structure.
US 3,247,925 Issued April 26, 1966, entitled "Loudspeaker".
Described the improvement of the efficiency of low frequency
loudspeakers by exciting bending waves in a light weight, stiff
panel which remains essentially stationary, except for the
bending waves.
<PAGE>
Schedule A
NCTI INTELLECTUAL TECHNOLOGY
NCTI's FURTHER UNDERTAKING
Any additional intellectual property in relation to sound propagation or
reproduction whether in existence now or on any future date which is owned by or
licensed to NCTI or any of its Affiliates shall be deemed to be included in the
definition of Licensed NCTI Technology or Licensed NCTI Patents upon:
(A) Verity identifying in writing the intellectual property (including
know how) which is to be included within such definitions; and
(B) Verity agreeing in writing to pay a royalty in respect of such
additional intellectual property under the terms of article 4 to the
extent that such intellectual property is licensed or is used in
Licensed Products at the following rates:
(1) in the case of intellectual property existing on or prior
to the date of this Agreement; and
(2) in the case of intellectual property not existing on the date of
this Agreement.
<PAGE>
Confidential
Schedule B
Appn. No. Date Filed Short Title
1. PCT/GB96/02145 02/09/96 Acoustic Device
2. U.S. 08/707.012 03/09/96 Acoustic Device
3. PCT/GB96/02140 02/09/96 Baffle Loaded Loudspeakers
4. PCT/GB96/02166 02/09/96 Mixed Technology Loudspeaker
5. PCT/GB96/02167 02/09/96 Inertial Transducer
(electro-magnetic)
6. PCT/GB96/02160 02/09/96 Inertial Transducer (piezo)
7. PCT/GB96/02148 02/09/96 Bender Transducers
8. PCT/GB96/02162 02/09/96 Loudspeaker with Separate
Transducers
9. PCT/GB96/02163 02/09/96 Loudspeaker/Microphone Combination
10. PCT/GB96/02158 02/09/96 Mixed Technology Loudspeakers
11. PCT/GB96/02155 02/09/96 Microphone
12. PCT/GB96/02153 02/09/96 Ceiling Tile
13. PCT/GB96/02151 02/09/96 Visual Display Unit
14. PCT/GB96/02142 02/09/96 Laptop Computer
15. PCT/GB96/02147 02/09/96 Portable CD Player
16. PCT/GB96/02157 02/09/96 Automotive etc. Applications
including Seat Shell Loudspeaker
and Door Mounted and Parcel
Shelf Loudspeakers
17. PCT/GB96/02164 02/09/96 Keyboard Musical Instrument
18. PCT/GB96/02159 02/09/96 Vending Machine
19. PCT/GB96/02165 02/09/96 Notice Board
20. PCT/GB96/02146 02/09/96 Packaging
21. PCT/GB96/02144 02/09/96 Greetings Card
22. PCT/GB96/02137 02/09/96 Projection Screen Loudspeaker
<PAGE>
Schedule C
Royalties
a) Royalties paid by NCTI to NXT
o 2.5% of Net Sales Revenues
o 5% of Net Licensing Revenues
b) Royalties paid by Verity to NCTI
o 2.5% of Net Sales Revenues
o 5% of Net Licensing Revenues
NB The Onactive subsidiary of NCTI is organized as a limited liability
company. NCTI owns 42.5% of the company. NCTI will treat the profits of
Onactive attributable to NCTI as Net Licensing Revenue for computation
of the royalty payments due to NXT.
NB For the purposes of royalty calculation, Net Licensing Revenues shall
include revenues received (as from the Effective Date) by NCTI or its
Affiliates and NXT or its Affiliates from their existing respective
licensees of the Licensed NCTI Patents and the Licensed NXT Patents.
<PAGE>
Schedule D
Affiliates
Onactive L.L.C. - 42.5%
<PAGE>
Schedule E
Novation Agreement
THIS DEED is dated Fifteen April 1997 and made
- ---------
BETWEEN:
- --------
(1) Verity Group plc a public company incorporated in England and Wales under
number 514718 whose registered office is at Stonehill, Huntingdon PE18
6ED, England ("Verity");
(2) New Transducers Limited a private company limited by shares incorporated
in England and Wales under number 3135528 whose registered office is at
Stonehill, Huntingdon PE18 6ED, England ("NXT"); and
(3) Noise Cancellation Technologies, Inc a Delaware corporation with offices
at 1025 West Nursery Road, Linthicum, Maryland 21090, USA ("NCTI").
WHEREAS:
(A) This novation agreement is entered into pursuant to the request of Verity
under clause 28 of a cross licence of April 1997 between the parties to
this Agreement ("the New Cross Licence").
(B) Verity wishes to be released and discharged from the New Cross Licence and
NCTI has agreed to release and discharge Verity upon the terms of NXT's
undertaking to perform the New Cross Licence and to be bound by the terms
of the New Cross Licence in place of Verity.
NOW IT IS HEREBY AGREED as follows:
1. Novation
1.1 In consideration of:
(A) NXT assuming the duties and obligations of Verity in favour of NCTI
under the New Cross Licence; and
(B) NXT undertaking to pay to Verity the sum of US$3,000,000 within 14
days of receiving a written demand from Verity
NCTI and Verity hereby irrevocably and unconditionally consent to the
substitution of NXT for Verity in the New Cross Licence and expressly
agree that all rights and liabilities of Verity under the New Cross
Licence shall be deemed to be vested, with effect from the date hereof
("Completion") in NXT for all purposes.
1.2 In consideration of NXT assuming the covenants and obligations of Verity
in favour of NCTI under the New Cross Licence, NCTI hereby irrevocably and
unconditionally waives and releases Verity from all claims, obligations,
liabilities, costs and demands whatsoever arising directly or indirectly
in respect of the New Cross Licence and hereby confirms that there are no
obligations of Verity outstanding at the date hereof in respect of the New
Cross Licence.
1.3 NXT hereby covenants, undertakes, confirms, accepts and agrees that it
shall perform and be bound by the terms of the New Cross Licence as from
Completion in every way as if it were a party in substitution of Verity
and undertakes all obligations and liabilities arising thereunder, except
the obligation to allot shares of Verity (which has been performed).
2. Execution
2.1 This Agreement may be executed in any number of counterparts by the
several parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts
shall together constitute one and the same agreement.
3. Jurisdiction
3.1 This Agreement shall be governed by, and construed in accordance with, the
laws of England and the parties irrevocably submit to the exclusive
jurisdiction of the English Courts.
IN WITNESS the hands of the duly authorised representatives of the parties the
day and year first above written.
EXECUTED as a Deed ) ___________________________
by VERITY GROUP plc ) Director
acting by FARAD AZIMA )
a director and PETER THOMS ) ___________________________
a director/the secretary ) Director/Secretary
EXECUTED as a Deed ) ___________________________
by NEW TRANSDUCERS ) Director
LIMITED acting by )
FARAD AZIMA a director and ) ___________________________
PETER THOMS ) Director/Secretary
a director/the secretary )
EXECUTED BY MICHAEL )
PARRELLA duly authorised ) ___________________________
for and on behalf of NOISE ) Director
CANCELLATION )
TECHNOLOGIES, INC and )
thereby executed by NOISE )
CANCELLATION )
TECHNOLOGIES, INC as its ) ___________________________
deed in the presence of: )
<PAGE>
Schedule F
Short Form Agreement
THIS AGREEMENT is made the 15th day of April 1997
- -----------------
BETWEEN:
- --------
(1) Noise Cancellation Technologies, Inc. a Delaware corporation with
offices at 1025 West Nursery Road, Linthicum, Maryland 21090, USA
(the "Licensor");
(2) Verity Group plc, a public company incorporated in England and Wales under
number 514718 with its registered office at Stonehill, Huntingdon PE18
6ED, England ("Verity"); and
(3) New Transducers Limited, a private company limited by shares incorporated
in England and Wales under No. 3135528 whose registered office is at
Stonehill, Huntingdon, PE18 6ED, England ("NXT").
THE PARTIES AGREE THAT:
1. In this Agreement the following expressions shall have the following
meanings:
1.1 "US Patents" means, inter alia, those patent and
patent applications listed in the
Schedule to this Agreement which are
filed or registered with the United
States Patent Office.
1.2 "Non US Patents" means, inter alia, those patents and
patent applications listed in the
Schedule to this Agreement which are
not US Patents.
2. Pursuant to a cross licence agreement of even date made between the parties
(the "Agreement"), in consideration of the allotment by Verity to the
Licensor of 3,350,000 ordinary shares of 5p each in the capital of Verity
credited as fully paid, the Licensor has granted to Verity an exclusive
worldwide licence for the exploitation in the fields of use relating to
Consumer audio, Pro-audio, Multimedia, Communications handsets, Marketing
and promotional devices, Domestic and industrial appliances, Multi-Field
Components and other fields for the propagation and reproduction of sound
(all as defined in the Agreement) (together referred to herein as the
"Fields of Use") under the US Patents subject to the terms and conditions
of the Agreement.
3. Further, pursuant to the Agreement, in consideration for the payment of
royalties in accordance with the Agreement, the Licensor has granted to
Verity an exclusive worldwide licence for exploitation in the Fields of
Use under the Non US Patents subject to the terms of the Agreement.
4. The Licensor, Verity and NXT have entered into this Agreement for the
purposes of filing details with the Registrar of Companies pursuant to
Section 88 of the Companies Act 1985.
5. In the event of conflict between the terms of the Agreement and this
Agreement, the terms of the Agreement shall prevail. In particular, this
Agreement shall not extend the licences granted under article 2 of the
Agreement.
6. This Agreement shall be governed by and construed in accordance with
English law. Each of the parties irrevocably submits to the jurisdiction
of the English Courts.
Schedule
NCTI INTELLECTUAL PROPERTY
VIRGINIA POLYTECHNIC INSTITUTE
Patents
US 4,715,559 Issued December 29, 1987, entitled "Apparatus and
Method for Global Noise Reduction". Describes a method for
quieting within an enclosed space by anti-vibrating the walls
with piezo-electric devices. It formed the basis for NCTI's work
on active panels.
US 5,335,417 Issued October 11, 1992, entitled "Active Control of
Aircraft Engine Inlet Noise Using Compact Sound Sources and
Distributed Error Sensors". Part of this patent describes the
use of piezo actuators bonded to curved panels as a means of
generating sound. The panel geometry is chosen to emphasize
particular frequencies. This technique is used in transformer
quieting.
US 5,515,444 Issued May 7, 1996. Continuation of US 5,335,417, in
which the curved panel is dynamically tuned to maintain optimal
performance.
<PAGE>
PIEZO TECHNOLOGY
Patents
US 5,473,214 Issued December 5, 1995, entitled "Low Voltage Bender
Piezo Actuators". The use of a stack of piezo electric layers to
produce a vibration actuator. Multiple layers reduce the voltage
levels required to drive the actuator. This makes packaging
easier and allows cheaper amplifiers to be used.2
Patents Pending
PCT/US94/04553 (filed May 04, 1994) Publication No. W004/27331
Low Voltage Bender Piezo Actuators. The use of a stack of
piezo electric layers to produce a vibration actuator.
Multiple layers reduce the voltage levels required to drive
the actuator. This makes packaging easier and allows cheaper
amplifications to be used.
EPO 94914908.2 (filed May 04, 1994) Publication No. 0698298
Low Voltage Bender Piezo Actuators. The use of a stack of
piezo electric layers to produce a vibration actuator.
Multiple layers reduce the voltage levels required to drive
the actuator. This makes packaging easier and allows cheaper
amplifications to be used.
PIEZO TECHNOLOGY
Patents pending
(253) No. PCT/US95/05720 (filed 09/05/95) Publication No. W095/31805
Multimedia Personal Computer with Active Noise Reduction and
Piezo Speakers: US filed May 11, 1994. A piezo patch is bonded to
the case of a PC so that the whole case acts as loudspeaker.
Active Noise Reduction and microphones are included to fully
equip the PC for multimedia applications.
EPO 95918420.1 (filed May 09, 1995) Publication No. 0760996
Multimedia Personal Computer with Active Noise Reduction andPiezo
Speakers: A piezo patch is bonded to the case of a PC so that the
whole case acts as loudspeaker. Active Noise Reduction and
microphones are included to fully equip the PC for multimedia
applications.
US 08/241440
Multimedia Personal Computer with Active Noise Reduction and
Piezo Speakers: US filed May 11, 1994. A piezo patch is bonded to
the case of a PC so that the whole case acts as loudspeaker.
Active Noise Reduction and microphones are included to fully
equip the PC for multimedia applications.
(256) No. PCT/US95/08131 (filed 29/06/95) Publication No. W096/01547
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: US filed July 6,
1994. A piezo patch is bonded to the case of a PC to act as a
loudspeaker. Dampening materials and stiffeners to improve the
performance of a piezo loudspeaker. (U.S. application approved
for issue).
EPO 95924733.9 (filed June 29, 1995) Publication No. 0772953
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: A piezo patch is
bonded to the case of a PC to act as a loudspeaker. Dampening
materials and stiffeners to improve the performance of a piezo
loudspeaker.
US 08/267218
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: US filed July 6,
1994. A piezo patch is bonded to the case of a PC to act as a
loudspeaker. Dampening materials and stiffeners to improve the
performance of a piezo loudspeaker. (U.S. application approved
for issue).
(260) US 08/533048
Piezo Speaker for Improved Passenger Cabin Audio Systems: US
filed September 25, 1995. Improvements include the addition of
combined constrained damping/insulation layer, integrated
electronics and the inclusion of intermediate coupling plates to
enhance performance. This technique is applied to all flat
interior surfaces of a car interior.
PCT to be advised
Piezo Speaker for Improved Passenger Cabin Audio Systems: US
filed September 25, 1995. Improvements include the addition of
combined constrained damping/insulation layer, integrated
electronics and the inclusion of intermediate coupling plates to
enhance performance. This technique is applied to all flat
interior surfaces of a car interior.
(269) US 08/554049
Piezoelectric Transducers: US filed November 6, 1995. An
extension of (260). Improved transducer coupling systems that
significantly improves piezo performance.
PCT to be advised
Piezoelectric Transducers: US filed November 6, 1995. An
extension of (260). Improved transducer coupling systems that
significantly improves piezo performance.
<PAGE>
FLAT PANEL TRANSDUCERS
Patents Pending
(277) US 08/720163
Vehicular Loudspeaker System: US filed September 25, 1996. An
improved loudspeaker system for a passenger vehicle such as an
automobile. The system comprises a transducer capable of being
excited by applied electric potential and electronic means that
is electrically connected to the transducer to apply electric
potential thereto. The diaphragm driven by the excited
transducer is comprised of the headliner of the vehicle or other
flat surfaces.
(400) No. GB 961 9835.3 (filed 23/09/96)
Audio System Using Flat Panel Loudspeakers: UK filed September
23, 1996. A home entertainment system consisting of a plurality
of flat panel loudspeakers and electroacoustics transducer
apparatus having a flatter frequency response than previously
possible.
(401) No. GB 961 9967.4 (filed 25/09/96)
Electroacoustics Transducer Arrangement: UK filed September 25,
1996. An electroacoustics transducer consisting of two panel
membranes. The phase of the sound wave produced at the rear panel
is set so that if that wave is reflected, it will constructively
interfere with the wave produced at the forward panel.
(402) No. GB 962 1523.1 (filed 16/10/96)
A Flat Panel Loudspeaker Arrangement and Hands Free Telephone
System Using the Same: UK filed October 16, 1996. A flat panel
loudspeaker arrangement which can be attached to the roof or
headlining of a vehicle to position the loudspeaker of a hands
free telephone more conveniently.
(403) No. GB 962 5315.8 (filed 05/12/96)
Electroacoustics Transducer Arrangement: UK filed December 5,
1996. (An extension of 401). An electroacoustics transducer
consisting of two panel membranes. The phase of the sound wave
produced at the rear panel is set so that if that wave is
reflected, it will constructively interfere with the wave
produced at the forward panel. The constructive interference
effect can also be used to flatten or equalise the frequency
response of the system.
(404) No. GB 962 4302.7 (filed 22/11/96)
Flat Panel Loudspeaker Arrangement: UK filed November 22, 1996.
Involves the selection and arrangement of piezoelectric elements
so that the piezoelectric elements provide the flat panel
loudspeaker with an equalised frequency response.
(405) No. GB 962 6439.5 (filed 20/12/96)
A Multiple Panel Electroacoustic Transducer: UK filed December
20, 1996. An improved electroacoustic transducer comprising
multiple parallel panel members with an actuator arrangement for
driving the panel members in phase.
(406) No. GB 970 0336.2 (filed 09/01/97)
Panel Mounting Arrangement for Electroacoustic Transducer: UK
filed January 9, 1997. An improved electroacoustic transducer
that isolates acoustic vibrations generated by the front and rear
faces of a panel so that they do not interfere.
<PAGE>
LOUDSPEAKER TECHNOLOGY
Patents Pending
(121) PCT/US91/02731 Publication No. W092/19080
Improvements in and relating to Transmission Line Loudspeakers
Filed April 19, 1991. The sound wave radiated from the front
surface of a loudspeaker driver diaphragm is of opposite polarity
with respect to that radiated from the back surface. If the two
signals are directly combined, they will tend to cancel one
another. An acoustic phase inversion network is used to insure
that the back wave is in phase with the front wave, and the
combined signals are used to drive the inlet of a loudspeaker
transmission line.
EPO 91920600.3 Publication No. 0580579
Improvements in and relating to Transmission Line Loudspeakers
Filed April 19, 1991. The sound wave radiated from the front
surface of a
loudspeaker driver diaphragm is of opposite polarity with respect
to that radiated from the back surface. If the two signals are
directly combined, they will tend to cancel one another. An
acoustic phase inversion network is used to insure that the back
wave is in phase with the front wave, and the combined signals
are used to drive the inlet of a loudspeaker transmission line.
(149) No. PCT/US91/07324 Publication No. W093/07729
Vacuum Speaker Filed October 2, 1991. A speaker enclosure with a
partial vacuum behind the speaker. A spring is used to offset the
static forces. The result is a smaller enclosed volume while
maintaining low frequency performance.
(???) No. PCT/US92/05771 Publication No. WO94/01979
Hydraulic Powered Loudspeaker A hydraulic powered low-damped
loudspeaker including a hydraulic cylinder (21) attached to the
cone (22) of a speaker which can be used in a bandpass
loudspeaker.
Patent
UK 2,858,759 Issued March 11, 1981, entitled "Depressing the
Resonant Frequency of a Suspended Mass". Described the use of
active control to reduce the spring force constant of a
suspended mass (e.g. a loudspeaker cone) so as to reduce the
effective resonant frequency of the structure.
US 3,247,925 Issued April 26, 1966, entitled "Loudspeaker".
Described the improvement of the efficiency of low frequency
loudspeakers by exciting bending waves in a light weight, stiff
panel which remains essentially stationary, except for the
bending waves.
<PAGE>
AS WITNESS the parties have executed this Agreement the day and year first above
written.
SIGNED BY )
)
)
)
for NOISE CANCELLATION TECHNOLOGIES, INC. )
SIGNED BY )
)
and )
)
for VERITY GROUP plc )
SIGNED BY )
)
and )
)
for NEW TRANSDUCERS LIMITED )
<PAGE>
Schedule G
Short Form Licence
THIS AGREEMENT is made the 15th day of April 1997
- --------------
BETWEEN:
- --------
(1) Noise Cancellation Technologies, Inc. a Delaware corporation with
offices at 1025 West Nursery Road, Linthicum, Maryland 21090, USA
(the "Licensor");
(2) Verity Group plc, a public company incorporated in England and Wales under
number 514718 with its registered office at Stonehill, Huntingdon PE18
6ED, England ("Verity"); and
(3) New Transducers Limited, a private company limited by shares incorporated
in England and Wales under No. 3135528 whose registered office is at
Stonehill, Huntingdon, PE18 6ED, England (the "Licensee").
THE PARTIES AGREE THAT:
1. In this Agreement the following expressions shall have the following
meanings:
1.1 "US Patents" means, inter alia, those patent and patent
applications listed in the Schedule to this
Agreement which are filed or registered with
the United States Patent Office.
1.2 "Non US Patents" means, inter alia, those patents and patent
applications listed in the Schedule to this
Agreement which are not US Patents.
2. Pursuant to a cross licence agreement of even date made between the parties
(the "Agreement"), in consideration of the allotment by Verity to the Licensor
of 3,350,000 ordinary shares of 5p each in the capital of Verity credited as
fully paid, the Licensor has granted to Verity an exclusive worldwide licence
for the exploitation in the fields of use relating to Consumer audio, Pro-audio,
Multimedia, Communications handsets, Marketing and promotional devices, Domestic
and industrial appliances, Multi-Field Components and other fields for the
propagation and reproduction of sound (all as defined in the Agreement)
(together referred to herein as the "Fields of Use") under the US Patents
subject to the terms and conditions of the Agreement.
3. Further, pursuant to the Agreement, in consideration for the payment of
royalties in accordance with the Agreement, the Licensor has granted to Verity
an exclusive worldwide licence for exploitation in the Fields of Use under the
Non US Patents subject to the terms of the Agreement.
4. By a novation agreement of even date entered into between the parties, the
Licensor and Verity irrevocably and unconditionally consented to the
substitution of the Licensee for Verity in the Agreement (except the obligation
of Verity to allot shares of Verity) and expressly agreed that all rights and
liabilities of Verity under the Agreement shall be deemed to be vested, with
effect from the date hereof, in the Licensee for all purposes.
5. The Licensor, Verity and the Licensee have entered into this Agreement for
the purposes of recording the Licensee as an exclusive licensee for exploitation
in the Fields of Use under the Patents at the UK Patent Office (and other
relevant Patent Offices).
6. In the event of conflict between the terms of the Agreement and this
Agreement, the terms of the Agreement shall prevail. In particular, this
Agreement shall not extend the licences granted under article 2 of the Agreement
7. This Agreement shall be governed by and construed in accordance with English
law. Each of the parties irrevocably submits to the jurisdiction of the English
Courts.
Schedule
NCTI INTELLECTUAL PROPERTY
VIRGINIA POLYTECHNIC INSTITUTE
Patents
US 4,715,559 Issued December 29, 1987, entitled "Apparatus and
Method for Global Noise Reduction". Describes a method for
quieting within an enclosed space by anti-vibrating the walls
with piezo-electric devices. It formed the basis for NCTI's work
on active panels.
US 5,335,417 Issued October 11, 1992, entitled "Active Control of
Aircraft Engine Inlet Noise Using Compact Sound Sources and
Distributed Error Sensors". Part of this patent describes the
use of piezo actuators bonded to curved panels as a means of
generating sound. The panel geometry is chosen to emphasize
particular frequencies. This technique is used in transformer
quieting.
US 5,515,444 Issued May 7, 1996. Continuation of US 5,335,417, in
which the curved panel is dynamically tuned to maintain optimal
performance.
<PAGE>
PIEZO TECHNOLOGY
Patents
US 5,473,214 Issued December 5, 1995, entitled "Low Voltage Bender
Piezo Actuators". The use of a stack of piezo electric layers to
produce a vibration actuator. Multiple layers reduce the voltage
levels required to drive the actuator. This makes packaging
easier and allows cheaper amplifiers to be used.3
Patents Pending
PCT/US94/04553 (filed May 04, 1994) Publication No. WO04/27331
Low Voltage Bender Piezo Actuators. The use of a stack of
piezo electric layers to produce a vibration actuator.
Multiple layers reduce the voltage levels required to drive
the actuator. This makes packaging easier and allows cheaper
amplifications to be used.
EPO 94914908.2 (filed May 04, 1994) Publication No. 0698298
Low Voltage Bender Piezo Actuators. The use of a stack of
piezo electric layers to produce a vibration actuator.
Multiple layers reduce the voltage levels required to drive
the actuator. This makes packaging easier and allows cheaper
amplifications to be used.
PIEZO TECHNOLOGY
Patents pending
(253) No. PCT/US95/05720 (filed 09/05/95) Publication No. W095/31805
Multimedia Personal Computer with Active Noise Reduction and
Piezo Speakers: US filed May 11, 1994. A piezo patch is bonded to
the case of a PC so that the whole case acts as loudspeaker.
Active Noise Reduction and microphones are included to fully
equip the PC for multimedia applications.
EPO 95918420.1 (filed May 09, 1995) Publication No. 0760996
Multimedia Personal Computer with Active Noise Reduction andPiezo
Speakers: A piezo patch is bonded to the case of a PC so that the
whole case acts as loudspeaker. Active Noise Reduction and
microphones are included to fully equip the PC for multimedia
applications.
US 08/241440
Multimedia Personal Computer with Active Noise Reduction and
Piezo Speakers: US filed May 11, 1994. A piezo patch is bonded to
the case of a PC so that the whole case acts as loudspeaker.
Active Noise Reduction and microphones are included to fully
equip the PC for multimedia applications.
(256) No. PCT/US95/08131 (filed 29/06/95) Publication No. W096/01547
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: US filed July 6,
1994. A piezo patch is bonded to the case of a PC to act as a
loudspeaker. Dampening materials and stiffeners to improve the
performance of a piezo loudspeaker. (U.S. application
approved for issue).
EPO 95924733.9 (filed June 29, 1995) Publication No. 0772953
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: A piezo patch is
bonded to the case of a PC to act as a loudspeaker. Dampening
materials and stiffeners to improve the performance of a piezo
loudspeaker.
US 08/267218
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: US filed July 6,
1994. A piezo patch is bonded to the case of a PC to act as a
loudspeaker. Dampening materials and stiffeners to improve the
performance of a piezo loudspeaker. (U.S. application approved
for issue).
(260) US 08/533048
Piezo Speaker for Improved Passenger Cabin Audio Systems: US
filed September 25, 1995. Improvements include the addition of
combined constrained damping/insulation layer, integrated
electronics and the inclusion of intermediate coupling plates to
enhance performance. This technique is applied to all flat
interior surfaces of a car interior.
PCT to be advised
Piezo Speaker for Improved Passenger Cabin Audio Systems: US
filed September 25, 1995. Improvements include the addition of
combined constrained damping/insulation layer, integrated
electronics and the inclusion of intermediate coupling plates to
enhance performance. This technique is applied to all flat
interior surfaces of a car interior.
(269) US 08/554049
Piezoelectric Transducers: US filed November 6, 1995. An
extension of (260). Improved transducer coupling systems that
significantly improves piezo performance.
PCT to be advised
Piezoelectric Transducers: US filed November 6, 1995. An
extension of (260). Improved transducer coupling systems that
significantly improves piezo performance.
<PAGE>
FLAT PANEL TRANSDUCERS
Patents Pending
(277) US 08/720163
Vehicular Loudspeaker System: US filed September 25, 1996. An
improved loudspeaker system for a passenger vehicle such as an
automobile. The system comprises a transducer capable of being
excited by applied electric potential and electronic means that
is electrically connected to the transducer to apply electric
potential thereto. The diaphragm driven by the excited
transducer is comprised of the headliner of the vehicle or other
flat surfaces.
(400) No. GB 961 9835.3 (filed 23/09/96)
Audio System Using Flat Panel Loudspeakers: UK filed September
23, 1996. A home entertainment system consisting of a plurality
of flat panel loudspeakers and electroacoustics transducer
apparatus having a flatter frequency response than previously
possible.
(401) No. GB 961 9967.4 (filed 25/09/96)
Electroacoustics Transducer Arrangement: UK filed September 25,
1996. An electroacoustics transducer consisting of two panel
membranes. The phase of the sound wave produced at the rear panel
is set so that if that wave is reflected, it will constructively
interfere with the wave produced at the forward panel.
(402) No. GB 962 1523.1 (filed 16/10/96)
A Flat Panel Loudspeaker Arrangement and Hands Free Telephone
System Using the Same: UK filed October 16, 1996. A flat panel
loudspeaker arrangement which can be attached to the roof or
headlining of a vehicle to position the loudspeaker of a hands
free telephone more conveniently.
(403) No. GB 962 5315.8 (filed 05/12/96)
Electroacoustics Transducer Arrangement: UK filed December 5,
1996. (An extension of 401). An electroacoustics transducer
consisting of two panel membranes. The phase of the sound wave
produced at the rear panel is set so that if that wave is
reflected, it will constructively interfere with the wave
produced at the forward panel. The constructive interference
effect can also be used to flatten or equalise the frequency
response of the system.
(404) No. GB 962 4302.7 (filed 22/11/96)
Flat Panel Loudspeaker Arrangement: UK filed November 22, 1996.
Involves the selection and arrangement of piezoelectric elements
so that the piezoelectric elements provide the flat panel
loudspeaker with an equalised frequency response.
(405) No. GB 962 6439.5 (filed 20/12/96)
A Multiple Panel Electroacoustic Transducer: UK filed December
20, 1996. An improved electroacoustic transducer comprising
multiple parallel panel members with an actuator arrangement for
driving the panel members in phase.
(406) No. GB 970 0336.2 (filed 09/01/97)
Panel Mounting Arrangement for Electroacoustic Transducer: UK
filed January 9, 1997. An improved electroacoustic transducer
that isolates acoustic vibrations generated by the front and rear
faces of a panel so that they do not interfere.
<PAGE>
LOUDSPEAKER TECHNOLOGY
Patents Pending
(121) PCT/US91/02731 Publication No. W092/19080
Improvements in and relating to Transmission Line Loudspeakers
Filed April 19, 1991. The sound wave radiated from the front
surface of a loudspeaker driver diaphragm is of opposite polarity
with respect to that radiated from the back surface. If the two
signals are directly combined, they will tend to cancel one
another. An acoustic phase inversion network is used to insure
that the back wave is in phase with the front wave, and the
combined signals are used to drive the inlet of a loudspeaker
transmission line.
EPO 91920600.3 Publication No. 0580579
Improvements in and relating to Transmission Line Loudspeakers
Filed April 19, 1991. The sound wave radiated from the front
surface of a loudspeaker driver diaphragm is of opposite polarity
with respect to that radiated from the back surface. If the two
signals are directly combined, they will tend to cancel one
another. An acoustic phase inversion network is used to insure
that the back wave is in phase with the front wave, and the
combined signals are used to drive the inlet of a loudspeaker
transmission line.
(149) No. PCT/US91/07324 Publication No. W093/07729
Vacuum Speaker
Filed October 2, 1991. A speaker enclosure with a partial vacuum
behind the speaker. A spring is used to offset the static forces.
The result is a smaller enclosed volume while maintaining low
frequency performance.
(???) No. PCT/US92/05771 Publication No. WO94/01979
Hydraulic Powered Loudspeaker
A hydraulic powered low-damped loudspeaker including a hydraulic
cylinder (21) attached to the cone (22) of a speaker which can be
used in a bandpass loudspeaker.
Patent
UK 2,858,759 Issued March 11, 1981, entitled "Depressing the
Resonant Frequency of a Suspended Mass". Described the use of
active control to reduce the spring force constant of a
suspended mass (e.g. a loudspeaker cone) so as to reduce the
effective resonant frequency of the structure.
US 3,247,925 Issued April 26, 1966, entitled "Loudspeaker".
Described the improvement of the efficiency of low frequency
loudspeakers by exciting bending waves in a light weight, stiff
panel which remains essentially stationary, except for the
bending waves.
<PAGE>
AS WITNESS the parties have executed this Agreement the day and year first above
written.
SIGNED BY )
)
)
)
for NOISE CANCELLATION TECHNOLOGIES, INC. )
SIGNED BY )
)
and )
)
for VERITY GROUP plc )
SIGNED BY )
)
and )
)
for NEW TRANSDUCERS LIMITED )
<PAGE>
EXHIBIT 10(b)
SECURITY DEED
WHEREAS, NOISE CANCELLATION TECHNOLOGIES, INC., a Delaware corporation
having its principal place of business at 1025 West Nursery Road, Linthicum,
Maryland 21090, USA (hereinafter "NCTI"), VERITY GROUP plc, a public company
incorporated in England and Wales with its registered office at Stonehill,
Huntingdon PE18 6ED, England (hereinafter "Verity") and NEW TRANSDUCERS LIMITED,
a private company limited by shares incorporated in England and Wales with its
registered office at Stonehill, Huntingdon PE18 6ED, England (hereinafter
"NXT"), have entered into a Cross License Agreement on even date;
WHEREAS, under the terms of the Cross License Agreement, Verity has
agreed to allot to NCTI a certain number of ordinary shares of 5p each in the
capital of Verity credited as fully paid (the "Premium Shares") in consideration
for an exclusive license to use and sub-license the United States patents and
patent applications listed within Schedule 1 attached hereto, and NCTI has
agreed to repay to Verity a diminishing percentage of the deemed cash equivalent
of the Premium Shares under certain conditions described in the Cross Licence
Agreement; and
WHEREAS, in order to secure NCTI's performance of its repayment
obligations to Verity pursuant to the Cross License Agreement, NCTI has agreed
to transfer to Verity the ownership of all the patents and the patent
applications listed in Schedule 1 attached hereto (the "Patents") in the event
NCTI defaults in its repayment obligation;
NOW, THEREFORE, for and in consideration of the sum of One Dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, NCTI hereby conditionally assigns to Verity,
its successors and assigns, the entire right, title and interest in and to the
Patents, said assignment being conditioned on the continuance of a default at
any time during a period of three years from the date of this Security Deed in
the payment of US$3,000,000 (being the deemed cash equivalent of the Premium
Shares at the date of this Agreement) less the Premium Reduction (as defined in
the Cross License Agreement) pursuant to Article 9 of the Cross License
Agreement for a period of 14 days, upon which occurrence this assignment
shall become operative.
IN WITNESS WHEREOF, NCTI, by its duly authorized officer, has executed
this Security Deed as an instrument under seal, this 14th day of April, 1997.
NOISE CANCELLATION TECHNOLOGIES, INC.
By: /s/ MICHAEL J. PARRELLA
-----------------------
Michael J. Parrella
(SEAL) Title: President
ACKNOWLEDGEMENT
Before me this fourteenth day of April, 1997, personally appeared
Michael Joseph Parrella, known to me to be the person who executed this Security
Deed, and who acknowledged that such Security Deed was executed for the purpose
therein expressed.
/s/ RICHARD J. SAVILLE
----------------------
Notary Public
My Commission expires at Death
Saville & Co., Notaries Public
2 Throgmorton Avenue
London EC2N 2ER
Telephone: 0171 920 0000
Fax: 0171 920 0088
<PAGE>
SCHEDULE 1
NCTI INTELLECTUAL PROPERTY
VIRGINIA POLYTECHNIC INSTITUTE
Patents
US 4,715,559 Issued December 29, 1987, entitled "Apparatus and
Method for Global Noise Reduction". Describes a method for
quieting within an enclosed space by anti-vibrating the walls
with piezo-electric devices. It formed the basis for NCTI's work
on active panels.
US 5,335,417 Issued October 11, 1992, entitled "Active Control of
Aircraft Engine Inlet Noise Using Compact Sound Sources and
Distributed Error Sensors". Part of this patent describes the
use of piezo actuators bonded to curved panels as a means of
generating sound. The panel geometry is chosen to emphasize
particular frequencies. This technique is used in transformer
quieting.
US 5,515,444 Issued May 7, 1996. Continuation of US 5,335,417, in
which the curved panel is dynamically tuned to maintain optimal
performance.
PIEZO TECHNOLOGY
Patents
US 5,473,214 Issued December 5, 1995, entitled "Low Voltage Bender
Piezo Actuators". The use of a stack of piezo electric layers to
produce a vibration actuator. Multiple layers reduce the voltage
levels required to drive the actuator. This makes packaging
easier and allows cheaper amplifiers to be used.4
Patents Pending
PCT/US94/04553 (filed May 04, 1994) Publication No. WO04/27331
Low Voltage Bender Piezo Actuators. The use of a stack of piezo
electric layers to produce a vibration actuator. Multiple layers
reduce the voltage levels required to drive the actuator. This
makes packaging easier and allows cheaper amplifications to be
used. EPO 94914908.2 (filed May 04, 1994) Publication No.
0698298 Low Voltage Bender Piezo Actuators. The use of a stack
of piezo electric layers to produce a vibration actuator.
Multiple layers reduce the voltage levels required to drive the
actuator. This makes packaging easier and allows cheaper
amplifications to be used.
PIEZO TECHNOLOGY
Patents pending
(253) No. PCT/US95/05720 (filed 09/05/95) Publication No. W095/31805
Multimedia Personal Computer with Active Noise Reduction and
Piezo Speakers: US filed May 11, 1994. A piezo patch is bonded
to the case of a PC so that the whole case acts as loudspeaker.
Active Noise Reduction and microphones are included to fully
equip the PC for multimedia applications.
EPO 95918420.1 (filed May 09, 1995) Publication No. 0760996
Multimedia Personal Computer with Active Noise Reduction and
Piezo Speakers. A piezo patch is bonded to the case of a PC so
that the whole case acts as loudspeaker. Active Noise Reduction
and microphones are included to fully equip the PC for
multimedia applications.
US 08/241440
Multimedia Personal Computer with Active Noise Reduction and
Piezo Speakers: US filed May 11, 1994. A piezo patch is bonded
to the case of a PC so that the whole case acts as loudspeaker.
Active Noise Reduction and microphones are included to fully
equip the PC for multimedia applications.
(256) No. PCT/US95/08131 (filed 29/06/95) Publication No. W096/01547
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: US filed July 6,
1994. A piezo patch is bonded to the case of a PC to act as a
loudspeaker. Dampening materials and stiffeners to improve the
performance of a piezo loudspeaker. (U.S. application approved
for issue).
<PAGE>
EPO 95924733.9 (filed June 29, 1995) Publication No. 0772953
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications. A piezo patch is
bonded to the case of a PC to act as a loudspeaker. Dampening
materials and stiffeners to improve the performance of a piezo
loudspeaker.
US 08/267218
Piezo Speaker and Installation Method for Laptop Personal
Computer and other Multimedia Applications: US filed July 6,
1994. A piezo patch is bonded to the case of a PC to act as a
loudspeaker. Dampening materials and stiffeners to improve the
performance of a piezo loudspeaker. (U.S. application approved
for issue).
(260) US 08/533048
Piezo Speaker for Improved Passenger Cabin Audio Systems: US
filed September 25, 1995. Improvements include the addition of
combined constrained damping/insulation layer, integrated
electronics and the inclusion of intermediate coupling plates to
enhance performance. This technique is applied to all flat
interior surfaces of a car interior.
PCT to be advised
Piezo Speaker for Improved Passenger Cabin Audio Systems: US
filed September 25, 1995. Improvements include the addition of
combined constrained damping/insulation layer, integrated
electronics and the inclusion of intermediate coupling plates to
enhance performance. This technique is applied to all flat
interior surfaces of a car interior.
(269) US 08/554049
Piezoelectric Transducers: US filed November 6, 1995. An
extension of (260). Improved transducer coupling systems that
significantly improves piezo performance.
PCT to be advised
Piezoelectric Transducers: US filed November 6, 1995. An
extension of (260). Improved transducer coupling systems that
significantly improves piezo performance.
<PAGE>
FLAT PANEL TRANSDUCERS
Patents Pending
(277) US08/720163 Vehicular Loudspeaker System: US filed September 25,
1996. An improved loudspeaker system for a passenger vehicle
such as an automobile. The system comprises a transducer capable
of being excited by applied electric potential and electronic
means that is electrically connected to the transducer to apply
electric potential thereto. The diaphragm driven by the excited
transducer is comprised of the headliner of the vehicle or other
flat surfaces.
(400) No. GB 961 9835.3 (filed 23/09/96)
Audio System Using Flat Panel Loudspeakers: UK filed September
23, 1996. A home entertainment system consisting of a plurality
of flat panel loudspeakers and electroacoustics transducer
apparatus having a flatter frequency response than previously
possible.
(401) No. GB 961 9967.4 (filed 25/09/96)
Electroacoustics Transducer Arrangement: UK filed September 25,
1996. An electroacoustics transducer consisting of two panel
membranes. The phase of the sound wave produced at the rear
panel is set so that if that wave is reflected, it will
constructively interfere with the wave produced at the forward
panel.
(402) No. GB 962 1523.1 (filed 16/10/96)
A Flat Panel Loudspeaker Arrangement and Hands Free Telephone
System Using the Same: UK filed October 16, 1996. A flat panel
loudspeaker arrangement which can be attached to the roof or
headlining of a vehicle to position the loudspeaker of a hands
free telephone more conveniently.
(403) No. GB 962 5315.8 (filed 05/12/96)
Electroacoustics Transducer Arrangement: UK filed December 5,
1996. (An extension of 401). An electroacoustics transducer
consisting of two panel membranes. The phase of the sound wave
produced at the rear panel is set so that if that wave is
reflected, it will constructively interfere with the wave
produced at the forward panel. The constructive interference
effect can also be used to flatten or equalise the frequency
response of the system.
<PAGE>
(404) No. GB 962 4302.7 (filed 22/11/96)
Flat Panel Loudspeaker Arrangement: UK filed November 22, 1996.
Involves the selection and arrangement of piezoelectric elements
so that the piezoelectric elements provide the flat panel
loudspeaker with an equalised frequency response.
(405) No. GB 962 6439.5 (filed 20/12/96)
A Multiple Panel Electroacoustic Transducer: UK filed December
20, 1996. An improved electroacoustic transducer comprising
multiple parallel panel members with an actuator arrangement for
driving the panel members in phase.
(406) No. GB 970 0336.2 (filed 09/01/97)
Panel Mounting Arrangement for Electroacoustic Transducer: UK
filed January 9, 1997. An improved electroacoustic transducer
that isolates acoustic vibrations generated by the front and
rear faces of a panel so that they do not interfere.
LOUDSPEAKER TECHNOLOGY
Patents Pending
(121) PCT/US91/02731 Publication No. W092/19080
Improvements in and relating to Transmission Line Loudspeakers
Filed April 19, 1991. The sound wave radiated from the front
surface of a loudspeaker driver diaphragm is of opposite
polarity with respect to that radiated from the back surface. If
the two signals are directly combined, they will tend to cancel
one another. An acoustic phase inversion network is used to
insure that the back wave is in phase with the front wave, and
the combined signals are used to drive the inlet of a
loudspeaker transmission line.
EPO 91920600.3 Publication No. 0580579
Improvements in and relating to Transmission Line Loudspeakers
Filed April 19, 1991. The sound wave radiated from the front
surface of a loudspeaker driver diaphragm is of opposite
polarity with respect to that radiated from the back surface. If
the two signals are directly combined, they will tend to cancel
one another. An acoustic phase inversion network is used to
insure that the back wave is in phase with the front wave, and
the combined signals are used to drive the inlet of a
loudspeaker transmission line.
<PAGE>
(149) No. PCT/US91/07324 Publication No. W093/07729
Vacuum Speaker
Filed October 2, 1991. A speaker enclosure with a partial vacuum
behind the speaker. A spring is used to offset the static
forces. The result is a smaller enclosed volume while
maintaining low frequency performance.
(???) No. PCT/US92/05771 Publication No. WO94/01979
Hydraulic Powered Loudspeaker
A hydraulic powered low-damped loudspeaker including a hydraulic
cylinder (21) attached to the cone (22) of a speaker which can
be used in a bandpass loudspeaker.
Patent
UK 2,858,759 Issued March 11, 1981, entitled "Depressing the
Resonant Frequency of a Suspended Mass". Described the use of
active control to reduce the spring force constant of a
suspended mass (e.g. a loudspeaker cone) so as to reduce the
effective resonant frequency of the structure.
US 3,247,925 Issued April 26, 1966, entitled "Loudspeaker".
Described the improvement of the efficiency of low frequency
loudspeakers by exciting bending waves in a light weight, stiff
panel which remains essentially stationary, except bending
waves.
1 Pending in Canada and Europe
2 Pending in Canada and Europe
3 Pending in Canada and Europe
4 Pending in Canada and Europe
<PAGE>
EXHIBIT NO. 10(c)
THIS OPTION AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY U.S. STATE SECURITIES LAW, AND MAY NOT BE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH,
IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO NOISE CANCELLATION
TECHNOLOGIES, INC., QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE ACT AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER.
NOISE CANCELLATION TECHNOLOGIES, INC.
Common Stock Purchase Option
NOISE CANCELLATION TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), hereby certifies that, for value received, VERITY GROUP PLC (the
"Holder"), or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company, at any time and from time to time during the period
beginning on the first anniversary of the date hereof and ending on the fifth
anniversary of the date hereof, in whole or in part, an aggregate of three
million eight hundred fifty thousand (3,850,000) fully paid and non-assessable
shares of common stock, $.01 par value ("Common Stock"), of the Company at a
purchase price, subject to the provisions of Paragraph 3 hereof, of $0.48 per
share (the "Purchase Price"). The Purchase Price and the number and character of
such shares are subject to adjustment as provided below, and the term "Common
Stock" shall mean, unless the context otherwise requires, the shares of common
stock or other securities or property at the time deliverable upon the exercise
of this Option. This Option is herein called the "Option" and shall lapse
forthwith if the consent and approval by the Company's stockholders to increase
the authorized share capital of the Company to permit exercise in full by the
Holder of the Option pursuant to Clause 1 hereof is not obtained by 30 September
1997.
1. EXERCISE OF OPTION. The purchase rights evidenced by this Option shall
be exercised by the Holder surrendering this Option, with the form of
subscription at the end hereof duly executed by such Holder, to the Company at
its office in One Dock Street, Suite 300, Stamford, Connecticut 06902, U.S.A.,
Attention: General Counsel, accompanied by payment, in cash, by certified or
official bank check or by wire transfer of an amount equal to the Purchase Price
multiplied by the number of shares being purchased pursuant to such exercise of
the Option.
1.1 Partial Exercise. This Option may be exercised for less than the full
number of shares of Common Stock, in which case the number of shares receivable
upon the exercise of this Option as a whole, and the sum payable upon the
exercise of this Option as a whole, shall be proportionately reduced. Upon any
such partial exercise, the Company at its expense will forthwith issue to the
Holder hereof a new Option or Options of like tenor calling for the number of
shares of Common Stock as to which rights have not been exercised, such Option
or Options to be issued in the name of the Holder hereof or his nominee (upon
payment by such Holder of any applicable transfer taxes).
2. DELIVERY OF SHARE CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Option and payment of the Purchase Price, and in any
event within ten (10) days thereafter, the Company, at its expense, will cause
to be issued in the name of and delivered to the Holder hereof a certificate or
certificates for the number of fully paid and non-assessable shares or other
securities or property to which such Holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash in an amount determined in accordance with Paragraph
3.7 hereof. The Company agrees that the shares so purchased shall be deemed to
be issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which this Option shall have been surrendered
and payment made for such shares as aforesaid.
3. ADJUSTMENTS. In the event of changes in the outstanding Common Stock of
the Company by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations, exchange of shares, separations,
reorganization, or liquidations, the number of shares issuable upon the exercise
of the Option, and the exercise price thereof shall be adjusted by the Company
in such manner as shall be fair and equitable. Any such adjustment in the number
of shares shall apply proportionately to only the then unexercised portion of
the Option. If fractional shares would result from any such adjustment, the
adjustment shall be revised to the next lower whole number of shares.
3.1 For the avoidance of doubt, there shall be no adjustments to the
number of shares issuable upon the exercise of the Option and the exercise price
thereof other than herein provided.
<PAGE>
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Option, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder hereof against dilution or other impairment arising as a result of any of
the events specified in Section 3 above. Without limiting the generality of the
foregoing, the Company will not increase the par value of any shares or stock
receivable upon the exercise of this Option above the amount payable therefor
upon such exercise, and at all times will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable stock upon the exercise of this Option.
5. RESERVATION OF SHARES, ETC., ISSUABLE ON EXERCISE OF OPTIONS. Upon the
approval of the Company's stockholders to an amendment to the Company's
certificate of incorporation to increase the number of authorized shares of
Common Stock in an amount sufficient to permit the Company to issue the number
of shares of Common Stock issuable upon exercise of the Option in full (as
contemplated in the preamble to this Option), the Company shall at all times
reserve and keep available out of its authorized but unissued stock, solely for
the issuance and delivery upon the exercise of this Option and other similar
Options, such number of its duly authorized shares of Common Stock as from time
to time shall be issuable upon the exercise of this Option and all other similar
Options at the time outstanding.
6. BOARD OF DIRECTORS. The Company shall, if requested by the Holder, no
later than fifteen days after the date of this Agreement and subject at all
times to the provisions of the Company's certificate of incorporation and
by-laws, take all action within its power (including, without limitation,
amendment to the Company's by-laws increasing the number of directors) to
appoint one individual designated by the Holder and reasonably acceptable to the
Company as a member of the Board of Directors of the Company, to serve until the
next election of directors. From and after the next election of directors and
until the third anniversary of this Agreement (whether the individual designated
by the Holder in the immediately preceding sentence was actually appointed to
the Board of Directors of the Company or not), the Company shall, if requested
by the Holder, nominate and take all action within its power to have one
individual designated by the Holder and reasonably acceptable to the Company
elected to the Company's Board of Directors. This clause 6 is subject to Board
approval. Michael Parrella agrees to use his best endeavours to secure such
Board approval.
For the avoidance of doubt, the lack of approval of the Board of
Directors of the Company shall in no way affect the validity of the Option
granted hereunder, which shall remain in full force and effect.
7. REPLACEMENT OF OPTION. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Option and
(in the case of loss, theft or destruction) upon delivery of an indemnity
agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Option of
like tenor.
8. REMEDIES. The Company stipulates that the remedies at law of the
Holder of this Option in the event of any default by the Company in the
performance of or compliance with any of the terms of this Option are
not and will not be adequate, and that the same may be specifically enforced.
9. NEGOTIABILITY, ETC. This Option is issued upon the following
terms, to all of which each taker or owner hereof consents and agrees:
(i) This Option shall be binding upon and inure for the benefit of
the successors of the parties, but shall not be assignable or
transferable.
(ii) Prior to the exercise of this Option, the Holder hereof shall
not be entitled to any rights of a shareholder of the Company with respect
to shares for which this Option shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions
or to exercise any preemptive rights, and shall not be entitled to receive
any notice of any proceedings of the Company, except as provided herein.
<PAGE>
(iii) The Company shall not be required to pay any Federal or
state transfer tax or charge that may be payable in respect of any
transfer involved in the transfer or delivery of this Option or the
issuance or conversion or delivery of certificates for Common Stock in a
name other than that of the registered Holder of this Option or to issue
or deliver any certificates for shares of Common Stock upon the exercise
of this Option until any and all such duty, taxes and charges shall have
been paid by the Holder of this Option or until it has been established to
the Company's satisfaction that no such tax or charge is due.
10. SUBDIVISION OF RIGHTS. This Option (as well as any new options issued
pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the Holder hereof, at the principal office of the Company
for any number of new options of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock of the Company which may be subscribed for and purchased hereunder.
11. MAILING OF NOTICES, ETC. All notices and other communications from the
Company to the Holder of this Option shall be mailed by first-class certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last Holder of this Option who shall have furnished an address to the Company in
writing.
12. HEADINGS, ETC. The headings in this Option are for purposes of
reference only, and shall not limit or otherwise affect the meaning hereof.
13. CHANGE, WAIVER, ETC. Neither this Option nor any term hereof may
be changed, waived, discharged or terminated orally but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought.
14. GOVERNING LAW. THIS OPTION SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
NOISE CANCELLATION TECHNOLOGIES INC.
By: /s/ MICHAEL J. PARRELLA
--------------------
Michael J. Parrella
Dated: April 15, 1997
Attest:
/s/ M. A. PATERSON
- --------------------
M. A. Paterson
Solicitor
21 Wilson St EC2
<PAGE>
[To be signed only upon exercise of Option]
To Noise Cancellation Technologies, Inc.
The undersigned, the Holder of the within Option, hereby irrevocably
elects to exercise the purchase right represented by such Option for, and to
purchase thereunder, ____________ shares of Common Stock of Noise Cancellation
Technologies, Inc. and herewith makes payment of $_____________ therefor, and
requests that the certificates for such shares be issued in the name of, and
be delivered to _______ whose address is __________________________.
Dated:
- --------------------
(Signature must conform in all respects to name of Holder as specified on
the face of the Option)
-------------------------------
-------------------------------
Address
<PAGE>
EXHIBIT No. 10(d)
NOISE CANCELLATION TECHNOLOGIES, INC.
April 17, 1997
Verity Group PLC
Stonehill
Huntingdon PE 18 6ED England
Dear Sirs:
This letter, when countersigned by Verity Group PLC ("Verity") shall constitute
an agreement between Noise Cancellation Technologies, Inc. ("NCTI") and Verity
in relation to the common stock purchase option granted by NCTI in favor of
Verity dated April 15, 1997 (the "NCTI Option"). All capitalized terms used in
this Agreement shall bear the meanings given thereto in the NCTI Option unless
the context otherwise requires.
1. Amendment of NCTI Option.
Effective the date hereof, the Purchase Price specified in the NCTI Option shall
be $0.30 per share.
Except as provided in this Paragraph 1, all of the terms and conditions of the
NCTI Option (other than the Purchase Price) are hereby ratified and confirmed
and remain in full force and effect.
2. Termination of Prior Option.
Effective April 15, 1997, the common stock purchase option granted by NCTI in
favor of Verity dated March 28, 1997 is canceled, terminated and of no force or
effect.
Kindly acknowledge your acceptance and agreement to the terms of this letter by
signing the enclosed copy of this letter and returning it to NCTI as soon as
possible.
Very truly yours,
NOISE CANCELLATION TECHNOLOGIES, INC.
By: /s/ MICHAEL J. PARRELLA
-----------------------
Michael J. Parrella, President
Verity Group PLC hereby accepts and agrees to the terms of this letter:
VERITY GROUP PLC
By: /s/ FARAD AZIMA
----------------------
Farad Azima, Chairman
One Dock Street, Suite 300, Stamford, Connecticut 06902
Tel 203-961-0500, Fax 203-348-4106, www.nct-active.com
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
NOISE CANCELLATION TECHNOLOGIES, INC. AND SUBSIDIARIES
Computation of Net Profit (Loss) Per Share
(In thousands, except per share amounts)
Six months ended June 30,
----------------------------------------
1996 1997
--------------- --------------
PRIMARY
<S> <C> <C>
Net (loss) ($3,948) ($2,011)
Less: reduction of interest expense or interest
earned attributable to utilization of assumed
proceeds from exercise of options and warrants
in excess of amounts required to repurchase
20% of the outstanding common stock at average
market price --------------- --------------
ADJUSTED NET (LOSS) ($3,948) ($2,011)
=============== ==============
Weighted average number of shares outstanding. 94,468 117,332
Add: common equivalent shares (determined using
the "Treasury Stock" method) representing shares
issuable upon assumed exercise of options and
warrants in excess of average market price 2,514 531
Shares issuable upon conversion of Series B
preferred shares - -
--------------- --------------
SHARES USED FOR COMPUTATION 96,982 117,863
=============== ==============
PRIMARY NET (LOSS) PER SHARE ($0.04) ($0.02)
=============== ==============
FULLY DILUTED
Net (loss) ($3,948) ($2,011)
Less: reduction of interest expense or interest
earned attributable to utilization of assumed
proceeds from exercise of options and warrants
in excess of amounts required to repurchase
20% of the outstanding common stock at year-end
market price if greater than average market price --------------- --------------
ADJUSTED NET (LOSS) ($3,948) ($2,011)
=============== ==============
Weighted average number of shares outstanding. 94,468 117,332
Add: common equivalent shares (determined using
the "Treasury Stock" method) representing shares
issuable upon assumed exercise of options and
warrants in excess of year-end market price
if greater than average market price 2,514 531
Shares issuable upon conversion of Series B
preferred shares - -
--------------- --------------
SHARES USED FOR COMPUTATION 96,982 117,863
=============== ==============
FULLY DILUTED NET (LOSS) PER SHARE ($0.04) ($0.02)
=============== ==============
The above per share data are not reported on the statement of operations because
such data is anti-dilutive.
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AND NOTES TO THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996, AS AMENDED, FILED ON APRIL 15, 1997.
</LEGEND>
<CIK> 0000722051
<NAME> NOISE CANCELLATION TECHNOLOGIES, INC.
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,122
<SECURITIES> 0
<RECEIVABLES> 761
<ALLOWANCES> 112
<INVENTORY> 1,244
<CURRENT-ASSETS> 3,031
<PP&E> 5,416
<DEPRECIATION> 3,585
<TOTAL-ASSETS> 6,570
<CURRENT-LIABILITIES> 2,403
<BONDS> 0
0
0
<COMMON> 1,283
<OTHER-SE> 2,771
<TOTAL-LIABILITY-AND-EQUITY> 6,570
<SALES> 581
<TOTAL-REVENUES> 4,004
<CGS> 505
<TOTAL-COSTS> 705
<OTHER-EXPENSES> 5,310
<LOSS-PROVISION> 209
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> (2,011)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,011)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
