<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 15, 1997
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Noise Cancellation Technologies, Inc.
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(Exact name of Registrant as specified in Charter)
Delaware 0-18267 59-2501025
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification
Number)
1025 West Nursery Road, Suite 120, Linthicum, Maryland 21090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (410) 636-8700
None
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(Former name or former address, if changes since last report)
<PAGE>
Item 5. Subsequent Event
In its Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1996, the Company described a contemplated private placement (therein
described as the "November 1996 Financing") of $3.0 million of non-voting
subordinated convertible debentures the closing of which was to be November 27,
1996, as to $2.0 million of such debentures and December 16, 1996, as to the
remaining $1.0 million of debentures. See Part I - "Financial Information", Item
1 - "Financial Statements", footnote 6 and Item 2 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations" - "General Business
Environment" and "Liquidity and Capital Resources" of said Quarterly Report on
Form 10-Q. Unanticipated events have caused a delay in the two stage closing of
this private placement as well as a change in the identity of the non-"U.S.
Person" investor (as such term is defined under Regulation S promulgated under
the Securities Act of 1933, as amended).
Management believes the closings of the November 1996 Financing with substituted
investors will occur on or before January 31, 1997 as to $1,750,000 of such
debentures and on or about March 31, 1997 as to $500,000 of such debentures. In
the event the first closing of the November 1996 Financing does not occur, then
Management believes available funds will only be sufficient to sustain the
Company through the first month of 1997 unless additional working capital
financing can be obtained. There is no assurance any such additional financing
is or would become available.
If the closings of the November 1996 Financing do so occur, then 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 together with the cash received by the Company from the November
1996 Financing while not sufficient to sustain the Company for the next 12
months, should be sufficient to sustain the Company's anticipated future level
of operations into the second half of 1997. However, the period during the
second half of 1997 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 as well as the closing of
such financing agreement, all of which are presently uncertain.
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.
<PAGE>
Item 7. Exhibits
Exhibit No. Description Sequential Page
1(a) Agreement dated December 10, 1996, between
Noise Cancellation Technologies, Inc. and
Schwebel Capital Investments, Inc.
1(b) Agreement dated December 10, 1996, between
Noise Cancellation Technologies, Inc. and
Alexander Wescott and Co., Inc.
4(a) Form of Noise Cancellation Technologies, Inc.
8% Convertible Debenture due January 15, 2000.
Issued to Sage Capital Investments Limited.
<PAGE>
Item 9. Sales of Equity Securities Pursuant to Regulation S
(a) January 15, 1997. Eight Percent (8%) Non-Voting Subordinated Convertible
Debentures Due January 15, 2000 each in the principal amount of fifty thousand
dollars ($50,000) (the "Debentures"). Aggregate principal amount of two hundred
fifty thousand dollars ($250,000.00).
(b) Name of placement agents - Alexander, Wescott & Co., Inc. and Schwebel
Capital Investments, Inc. Identity of person to which the Registrant sold the
Debentures - Sage Capital Investments Limited, Nassau, Bahamas (the
"Purchaser").
(c) Total offering price - two hundred fifty thousand dollars ($250,000.00).
Total commissions - twenty-seven thousand five hundred dollars ($27,500.00).
(d) Exemption from registration claimed under Regulation S promulgated under the
Securities Act of 1933, as amended (respectively, "Regulation S" and the "Act").
To the best of the Registrant's knowledge and belief and in accordance with
representations and warranties made by the Purchaser of the Debentures, the
Purchaser is not a "U.S. Person" as defined under Regulation S, the Registrant
did not engage in any "directed selling efforts" as defined under Regulation S
in connection with the offer or sale of the Debentures and said offer and sale
complied in all other respects with the provisions of Regulation S required to
permit the sale of the Debentures by the Registrant without compliance with the
registration requirements of the Act.
(e) The holder of the Debentures is entitled, at its option, at any time
commencing on or after forty-five (45) days after the closing date of the
purchase thereof (the "Closing Date") to convert the full unpaid principal
amount of the Debentures into shares of Common Stock of the Registrant (the
"Conversion Shares") at a conversion price (the "Conversion Price") for each
Conversion Share equal to the lesser of eighty-five percent (85%) of the closing
bid of the Common Stock on the Closing Date or seventy percent (70%) of the
average closing bid price of the Common Stock for the five (5) NASDAQ trading
days immediately preceding the date of conversion as reported by the National
Association of Securities Dealers Automated Quotation System; provided, however,
that in no event shall the Conversion Price ever be less than $0.14 per share.
The number of Conversion Shares to be received by the holder on conversion shall
be the product of the unpaid principal amount of the Debentures being converted
divided by the Conversion Price. The Registrant may, at its own option, cause
the automatic conversion into Conversion Shares of all or any part of the
Debentures after February 15, 1998 at the aforesaid Conversion Price. The
Registrant may exercise its option to cause the automatic conversion as set
forth herein after sixty (60) days notice to the holder during which sixty (60)
days the holder may convert in accordance with the holder's conversion
privileges. After the sixty (60) days and the exercise of said automatic
conversion, Registrant may only exercise further automatic conversion(s) in
connection with not less than twenty-five percent (25%) of the then remaining
amounts of outstanding Conversion Shares pertaining to all of the unconverted
Debentures per automatic conversion and only after thirty (30) days notice to
the holder during which thirty (30) days the holder may convert in accordance
with the holder's conversion privileges. Payment of each interest payment
payable under the Debentures may, at the Registrant's option, be made in cash or
by delivery of shares of the Registrant's Common Stock. The number of shares to
be delivered shall be based on one hundred percent (100%) of the average closing
bid price of the Registrant's Common Stock as reported on NASDAQ for the Five
(5) Trading Days immediately preceding the record date for the interest payment.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NOISE CANCELLATION TECHNOLOGIES, INC.
By: /s/ STEPHEN J. FOGARTY
-----------------------
Stephen J. Fogarty
Senior Vice President and
Chief Financial Officer
Dated: January 27, 1997
<PAGE>
EXHIBIT 1(a)
Jack Schwebel
Schwebel Capital Investments, Inc.
10451 Mill Run Circle
Owings Mills, MD 21117
Dear Jack:
This letter, together with Schedules A,
B, C & D, constitutes our agreement (the "Agreement") between Noise Cancellation
Technologies, Inc. ("NCT") and Schwebel Capital Investments, Inc. ("SCI")
regarding the introduction by SCI of certain persons to NCT for the purpose of
providing capital to NCT for a debenture sale by NCT (the "Financing")
substantially in accordance with the term sheet attached hereto (the "Term
Sheet").
1. NCT hereby appoints SCI and SCI hereby agrees to serve, as NCT's
exclusive agent for the purpose of introducing to NCT persons, groups or
entities (whether or not such persons, groups or entities were previously known
to NCT or previously knew of NCT) that may provide up to $18,000,000 of capital
to NCT in accordance with the terms described on Schedule A hereto, for the
consideration described on Schedule B hereto. The term of this relationship
shall last until 5:00 P.M. Eastern Standard Time on December 16, 1996 (the
"Termination Date").
2. In pursing the activities contemplated under this
Agreement, you and all agents, brokers and other dealers described in paragraph
4 below have not heretofore and will not hereafter engage in any Directed
Selling Effort as defined under Regulation S as promulgated under the United
States Securities Act of 1933, as amended (respectively "Regulation S" and the
"Act") or in any other activity in contravention of the provisions of Regulation
S or the Act.
3. You will exercise your best efforts acting reasonably to
provide introductions to arrange the Funds but assume no responsibility or
liability if the Funds are not arranged before the Termination Date. If you fail
to provide introductions to arrange the Funds before the Termination Date this
Agreement and your rights hereunder shall become null and void and the parties
shall be released from all obligations contracted for hereunder to the same
extent as if this Agreement had not been executed.
4. You may, at your own
expense, use the services of any agents, brokers or other dealers to assist in
arranging the Funds. NCT will not, during the term of this agreement, directly
arrange for funds with Alexander, Wescott and Company without the compensation
to SCI, as agreed upon by the parties.
5. You, acting reasonably, will select an
appropriate escrow agent to carry out the duties required of such in this
transaction at no cost to NCT and NCT will sign an appropriate escrow agreement
in that regard.
6. No modification, variation or amendment of this Agreement and
no waiver of the performance of any of the responsibilities of any of the
parties hereto shall be valid and binding unless such is set forth in writing
and is signed by all parties.
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7. Time shall be of the essence in this Agreement,
8. Any notice, demand or other communication required or permitted to
be given to any party to this Agreement shall be in writing and shall be:
(i) personally delivered to such; or
(ii) sent by facsimile transmission or similar
method of communication, charges prepaid.
Any notice, demand of other Communication given pursuant to
subparagraphs (i) and (ii) shall be sent to the intended recipient
at its address as follows:
NCT: Noise Cancellation Technologies, Inc.
1025 West Nursery Road
Linthicum, Maryland 21090
Fax: (410)636-2141
Attention. Stephen J. Fogarty
Chief Financial Officer
With a copy to:
Noise Cancellation Technologies, Inc.
1 Dock Street
Stamford, Connecticut 06902
U.S.A.
Fax: (203) 348-4106
Attention: John B. Horton General Counsel
SCI:
Schwebel Capital Investments, Inc.
10451 Mill Run Circle
Owings Mills, MD 21117
Fax: (410) 654-3319
Attention: Jack Schwebel
With a copy to:
Gordon, Feinblatt,
Rothman, Hoffberger and Hollander, LLC.
Attorneys at Law
The Garrett Building
233 East Redwood Street
Baltimore, MD 21202
U.S.A.
Fax: (410) 576-4246
Attention: Abba David Poliakoff
<PAGE>
Any notice if delivered in accordance with subparagraph (i), shall be deemed to
have been received on the day of its delivery, and if sent in accordance with
subparagraph (ii) above, shall be deemed to be received on the day following its
transmission.
9. This Agreement constitutes and contains the entire and only agreement among
the parties relating to the matters described herein and supersedes and cancels
any and all previous arrangements and understandings between all or any of the
parties relative hereto. Any and all prior and contemporaneous negotiations,
memoranda or understanding or position, and preliminary drafts and prior
versions of this Agreement, whether signed or unsigned, between the parties
leading up to the execution hereof shall not be used by any party to construe
the terms or affect the validity of this Agreement. There are no
representations, inducements, promises, understandings, conditions or warranties
express, implied or statutory, between the parties other than as expressly set
forth in this Agreement.
10. This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
11. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware and of the United States of America.
12. This agreement may be executed in several counterparts, each of which, when
so executed, shall be deemed to be an original and such counterparts together
shall constitute one and the same instrument and also this agreement may be
exchanged between the parties by facsimile.
13. NCT shall indemnify and hold harmless SCI against any lawsuits, actions,
proceedings, claims, damages, liabilities, costs and expenses, including
attorneys' fees, expert fees, costs of investigation and preparation of any
defense, and sums expended in settlement of any of the foregoing, arising out
of, in connection with or relating to any action or omission of NCT in
connection with any transaction entered into with or through SCI or Alexander,
Wescott & Co., Inc. under this letter agreement including those arising out of
any untrue or alleged untrue statement of a material fact. The obligations of
NCT under this paragraph shall survive any termination of this letter agreement.
Kindly acknowledge your agreement with the foregoing by signing a copy of this
letter in the space below and returning it to NCT as provided above.
Very truly yours,
NOISE CANCELLATION TECHNOLOGIES, INC.
By: /s/ STEPHEN J. FOGARTY
Stephen J. Fogarty
Senior Vice President
Chief Financial Officer
Accepted and Agreed:
SCHWEBEL CAPITAL INVESTMENTS, INC.
By: /s/ JACK SCHWEBEL
Jack Schwebel
President
Attached: Schedule A Term Sheet
Schedule B Fees payable
Schedule C Representations & Warranties
Schedule D Additional Financing
<PAGE>
EXHIBIT 1(b)
TO: SCHWEBEL CAPITAL INVESTMENTS, INC.
10451 Mill Run Circle
Suite 400
Owings Mills, Maryland
21117, U.S.A.
RE: $3,000,000.00 8% non-voting subordinated convertible debenture financing
arranged by, or on behalf of, Schwebel Capital Investments Inc.
("Schwebel") for Noise Cancellation Technologies, Inc. (the "Issuer")
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In consideration of the closing of the above transaction and other good and
valuable consideration (the receipt and sufficiency of which is hereby
acknowledged), the Issuer agrees as follows:
INCREASE IN CAPITAL AND POSSIBLE FURTHER FINANCING
After the Closing Date of the above financing, the Issuer will use its best
efforts to carry out such action, steps and proceedings, eg. Approvals of Board
of Directors (before the Closing Date) and Shareholders (as soon after May 1,
1997 as reasonably possible), SEC and so on, as necessary, as the case may be,
to effect an increase in the authorized capital of the Issuer either by means of
a simple increase or an increase in conjunction with at least a reverse 1:10
split of the Issuer's Common Stock as may be determined by the Board of
Directors of the Issuer. In either event such increase will be in an amount
reasonably sufficient to provide for the further financing described in the next
sentence.
Upon the completion of the said increase in capital, "Schwebel" shall have the
right to arrange further financing by "Schwebel" for the Issuer of up to
$15,000,000 debentures, on the same terms and conditions as those in the
financing set out above. If the Issuer, acting reasonably, believes that such
further financing is not in its best interests at that time, then "Schwebel", in
lieu of such right, shall have a first right of refusal on any debenture or
convertible preferred stock financing by the Issuer thereafter for a period of
one year from May 1, 1997 or the date of the increase in capital whichever is
later.
FEES PAYABLE
1. If capital is raised as a result of introductions made by Alexander,
Wescott & Co., Inc. the Issuer will pay on the closing date the following
to be pro-rated if there is more than one closing:
a. 7% of the capital raised to be paid in cash to Alexander, Wescott & Co.,
Inc.;
b. $15,000 to Gowling, Strathy & Henderson for Schwebel's lawyers' fees and
disbursements;
c. 4% of the capital raised to be paid to Schwebel in cash; and d. $1,500 to
Mellon Bank FSB for acting as Escrow Agent of which $70 will be paid by
each of Schwebel and Gowling, Strathy & Henderson.
2. If the capital is raised other than by introductions made by Alexander,
Wescott & Co., Inc. the Issuer will pay on the closing date the following
to be pro-rated if there is more than one closing:
a. to Schwebel, 10% of the gross principal amount of the capital raised to be
paid on the closing date by 5% cash and 5% Common Stock of the Company at a
value per share equal to 90% of the closing bid price of the Common Stock
on the closing date.
b. $15,000 in the aggregate to Gowling, Strathy & Henderson for Escrow Agent's
fees and disbursements and for Schwebel's lawyers' fees and disbursements.
THIRD PARTY RIGHT OF FIRST REFUSAL
The offering by the Issuer described herein and all obligations of the Issuer
contemplated hereunder are subject to the right of first refusal of the "Buyers"
under a certain Securities Purchase Agreement dated April 8, 1996 between the
Issuer and the "Buyers" as defined therein.
SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and enure to the benefit of the parties
hereto and their respective successors and assigns.
DATED at Linthicum, Maryland, this 10th day of December, 1996.
NOISE CANCELLATION TECHNOLOGIES, INC.
Per: /s/ STEPHEN J. FOGARTY
--------------------------
Stephen J. Fogarty
Senior Vice-President
and Chief Financial Officer
BK-RE Doc #:20797-1
December 5, 1996
<PAGE>
INTRODUCTION TO ARRANGE FUNDS
TO: Alexander, Wescott & Co., Inc.
63 Wall Street, 21st Floor
New York, New York
10005
RE: $3,000,000.00 8% non-voting subordinated convertible debenture financing
arranged by, or on behalf of, Schwebel Capital Investments Inc.
("Schwebel") for Noise Cancellation Technologies, Inc. (the "Issuer")
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In consideration of Two Dollars ($2.00) and other good and valuable
consideration (the receipt and sufficiency of which is hereby acknowledged):
Schwebel hereby introduces you to the Issuer for the purpose of you arranging
the funds and acting as the exclusive selling agent in accordance with the Term
Sheet attached hereto as Schedule "A" and the list of fees attached hereto as
Schedule "B", provided that the fees payable to Schwebel and others shall in all
events be payable as provided in Schedule "B".
Dated at Owings Mills, Maryland, this 10th day of December, 1996
SCHWEBEL CAPITAL INVESTMENTS, INC.
Per: /s/ JACK SCHWEBEL
---------------------
Name: Jack Schwebel
Title: President
The undersigned hereby each acknowledge, receipt of a copy of, and the contents
of this Introduction to Arrange Funds.
Dated at Linthicum, Maryland, this 10th day of December, 1996
NOISE CANCELLATION TECHNOLOGIES, INC.
Per: /s/ STEPHEN J. FOGARTY
----------------------
Name: Stephen J. Fogarty
Senior Vice President
Chief Financial Officer
Dated at New York, New York this 10th day of December 1996
ALEXANDER, WESCOTT & CO., INC.
Per: /s/ ROBERT L. BROWN
-------------------------
Name: Robert L. Brown
Title:
<PAGE>
EXHIBIT 4(a)
No._______________ USD$50,000.00
NOISE CANCELLATION TECHNOLOGIES, INC.
8% CONVERTIBLE DEBENTURE DUE JANUARY 15, 2000
THE DEBENTURE REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE DEBENTURE HAS BEEN ACQUIRED FOR INVESTMENT AND NEITHER THIS
DEBENTURE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE DEBENTURE OR SUCH SECURITIES, AS THE CASE MAY BE, UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE SECURITIES LAW.
THIS DEBENTURE is one of a duly authorized issue of Debentures of NOISE
CANCELLATION TECHNOLOGIES, INC., a corporation duly organized and existing under
the laws of the State of Delaware (the "Issuer") designated as its Eight Percent
(8%) Non-Voting Subordinated Convertible Debentures due JANUARY 15, 2000, in an
aggregate principle amount of Two Hundred Fifty Thousand United States Dollars
(USD$250,000.00).
FOR VALUE RECEIVED, the Issuer promises to pay to
Sage Capital Investments Limited
P.O. Box N-4826
Marron House
Virginia Street
Nassau, Bahamas
the registered holder hereof and its successors and assigns (the "Holder"), the
principle sum of
FIFTY THOUSAND
UNITED STATES DOLLARS (USD$50,000.00)
on
January 15, 2000
(the "Maturity Date"),
and to pay interest on the principle sum outstanding at the rate of Eight
Percent (8%) per annum due and payable on March 31st, June 30th, September 30th
and December 31st of each year until maturity. Interest shall begin to accrue on
the closing date applicable to the issuance of this Debenture as provided in the
"Subscription Agreement" defined below (the "Closing Date"). Payment of each
interest payment may, at the Issuer's option, be made in cash or by delivery of
the shares of the Issuer's Common Stock ("Common Stock"). The number of shares
to be delivered shall be based on one hundred percent (100%) of the average
closing bid price of the Issuer's Common Stock as reported on NASDAQ for the
Five (5) Trading Days immediately preceding the record date for the interest
payment. The interest so payable will be paid to the person in whose name this
Debenture is registered on the record of the Issuer regarding registration and
transfers of the Debenture (the "Debenture Register"); provided, however, that
the Issuer's obligation to a transferee of this Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions of the Offshore Debenture Securities Subscription Agreement dated as
of December 13, 1996 between the Issuer and the Holder (the "Subscription
Agreement"). The principle of, and interest of this Debenture (to the extent not
payable by delivery of shares of Issuer's Common Stock in accordance with the
terms thereof) are payable in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the debenture Register of the
Issuer as designated in writing by the Holder hereof from time to time. The
Issuer will pay the principal of and accrued and unpaid interest due upon this
debenture on the Maturity Date, less any amounts required by law to be deducted
or withheld, to the Holder at the last address on the Debenture Register. The
receipt of such check or shares of Common Stock shall constitute a payment of
principal and interest hereunder and shall satisfy and discharge the liability
for principal and interest on this Debenture to the extent of the sum
represented by such check or shares of Common Stock plus any amounts so
deducted.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Fifty Thousand United
States Dollars (USD$50,000.00).
2. The Issuer shall be entitled to withhold from all payments of principle of,
and interest on, this Debenture any amounts required to withheld under the
applicable provisions of the United States income tax or other applicable
laws at the time of such payments.
3. This Debenture has been issued subject to investment and other
representations of the original Holder hereof as set forth in the
Subscription Agreement and may be transferred or exchanged in the United
States only in compliance with the Securities Act of 1933, as amended (the
"Act") and applicable state securities laws. Prior to the due presentment
for such transfer of this Debenture, the Issuer and any agent of the Issuer
may treat the person in whose name this Debenture is duly registered on the
Issuer's Debenture Register as the owner hereof for the purpose of
receiving payment as provided and all other purposes, whether or not this
Debenture be overdue, and neither the Issuer nor any agent shall be
affected by notice to contrary.
4. The Holder of this Debenture is entitled, at its option, at any time
commencing on or after forty-five (45) days after the Closing Date to
convert the full unpaid principle amount of this Debenture into shares of
Common Stock of the Issuer (the "Conversion Shares") at a conversion price
(the "Conversion Price") for each Conversion Share equal to the lesser of
eighty-five percent (85%) of the closing bid of the Common Stock on the
Closing Date or seventy percent (70%) of the average closing bid price of
the Common Stock for the five (5) NASDAQ Trading Days immediately preceding
the Conversion Date (as hereinafter defined), as reported by the National
Association of Securities Dealers Automated Quotation System. Provided,
however, that in no event shall the Conversion Price ever be less than
$0.14 per share. The number of Conversion Shares to be received by Holder
on conversion shall be the product of the unpaid principal amount of the
Debenture being converted divided by the Conversion Price. On the Closing
Date as defined in the Subscription Agreement, the Issuer will reserve on
its books nine hundred thirty-seven thousand five hundred (937,500) shares
of Common Stock for use in connection with conversion of the Debentures.
The Issuer does hereby irrevocably agree to instruct its Transfer Agent to
provide Common Stock Certificates representing Conversion Shares to the
Holder in accordance with the terms of conversion hereinafter set out.
Holder shall not sell any Conversion Shares so converted until forty-five
(45) days after the Closing Date. Such conversion by the Holder shall be
effected by the Holder surrendering to the Issuer this Debenture with the
form of Conversion Notice attached hereto as Exhibit 1, executed by the
Holder of this Debenture and accompanied, if required by the Issuer, by
proper assignment hereof in blank delivered in the manner and time period
as hereinafter set out. The Issuer shall then instruct its Transfer Agent
to deliver the appropriate Common Stock Certificate to the Holder. For
purposes of this Debenture, the "Conversion Date" shall be deemed to be the
date on which the Holder has sent by facsimile the executed and completed
Conversion notice together with a copy of this Debenture and any applicable
executed assignment to the Issuer. In order to convert, this Debenture
together with the Original Conversion Notice duly executed, must be
delivered by express courier to the Issuer within Two (2) NASDAQ Trading
Days of the Conversion Date. The Conversion Shares must be issued and
returned by the Transfer Agent to the Holder by express courier with Five
(5) NASDAQ Trading Days after the Conversion Date. Accrued but unpaid
interest shall, at the option of the Issuer, be subject to conversion under
the terms and conditions concerning the payment of interest set forth above
at the time of conversion of this Debenture or at the time any quarterly
interest payments are due. No fractional shares or scrip representing
fractional shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The Issuer may, at
its own option, cause the automatic conversion into Conversion Shares of
the full unpaid amount of this Debenture after February 15, 1998 at the
aforesaid Conversion Price. The Issuer may exercise its option to cause the
automatic conversion as set forth herein after said sixty (60) days notice
to Holder during which sixty (60) days Holder may convert in accordance
with Holder's conversion privileges hereunder. After the sixty (60) days
and the exercise of said automatic conversion, Issuer may only exercise
further automatic conversion(s) in connection with not less than
twenty-five percent (25%) of the then remaining amounts of outstanding
Conversion Shares pertaining to all of the unconverted Debentures per
automatic conversion and only after thirty (30) days notice to Holder
during which thirty (30) days Holder may convert in accordance with
Holder's conversion privileges hereunder. The option shall be effectively
exercised on the date on which the Issuer transmits by facsimile
transmission and mails notice of said conversion to the registered Holder
of the effected Debentures. To effect such conversion by the Issuer, the
Conversion Shares must be issued and delivered by the Transfer Agent to the
Holder by express courier on or before the fifth (5th) NASDAQ Trading Day
after the last day of such sixty (60) or thirty (30) day notice period, as
the case may be, or the date on which the Holder notifies the Issuer that
the Holder elects not to exercise the Holder's conversion privileges
hereunder. Upon receipt of the Conversion Shares and the payment (in cash
or Common Stock as herein provided) of any unpaid interest, the Holder
shall immediately deliver the Debenture, appropriately marked to indicate
payment in full thereof, to the Issuer or its assignee pursuant to Issuer
or its assignee's instructions.
5. No provision of this Debenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the place, time and rate, and in the coins
or currency, herein prescribed.
6. The Issuer hereby expressly waives demand and presentment for payment,
notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, bringing of suit and
diligence in taking any action to collect amounts called for hereunder and
shall be directly and primarily liable for the payment of all sums owing
and to be owing hereon, regardless of and without any notice, diligence,
act or omission as or with respect to the collection of any amount called
for hereunder.
7. The Issuer agrees to pay all cost and expenses, including reasonable
attorneys' fees, which may be incurred by the Holder in collecting any
amount due or exercising the conversion rights under this Debenture.
8. If one or more of the following described "Events of Default" shall occur:
(a) The Issuer shall default in the payment of principal or interest on this
Debenture; or
(b) Any of the representations or warranties made by the Issuer herein, in the
Subscription Agreement, or in any certificate or financial or other
statements heretofore or hereafter furnished by or on behalf of the Issuer
in connection with the execution and delivery of this Debenture or the
Subscription Agreement shall be false or misleading in any material respect
at the time; or
(c) The Issuer shall fail to issue the Conversion Shares in accordance with the
terms of conversion set out in Section 4 above or to perform or observe any
other covenant, term, provision, condition, agreement or obligation of the
Issuer under this Debenture and such failure shall continue uncured for a
period of seven (7) days after notice from the Holder of such failure; or
(d) The Issuer shall (1) become insolvent; (2) admit in writing its inability
to pay its debt generally as they mature; (3) make an assignment for the
benefit of creditors or commence proceedings for its dissolution; or (4)
apply for or consent to the appointment of a trustee, liquidator or
receiver for it or for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the Issuer or a
substantial part of its property or business without its consent and shall
not be discharged within thirty (30) days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control off the
whole or any substantial portion of the properties or assets of the Issuer
and shall not be dismissed within thirty (30) calendar days thereafter; or
<PAGE>
(g) Bankruptcy, reorganization, insolvency or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Issuer, and if instituted
against the Issuer, shall not be dismissed within thirty (30) calendar days
after such institution or the Issuer shall by any action or answer approve
of, consent to, or acquiesce in any such proceedings or audit the material
allegations of, or default in answering a petition filed in such
proceeding; or
(h) The Issuer's Common Stock shall cease to be quoted on any of the New York
Stock Exchange, American Stock Exchange, NASDAQ-National Market,
NASDAQ-Small Cap or OTC Electronic Bulletin Board for a period in excess of
ninety (90) Calendar Days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately, and without expiration of any period of grace,
enforce any and all of the Holder's rights and remedies provided herein or nay
other rights or remedies afforded by law.
9. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director,
as such, past, present or future, of the Issuer or any successor
corporation, whether by virtue of any constitution, statue or rule of law,
or by enforcement by any assessment or penalty or otherwise, all such
liability being, by acceptance hereof and as part of the consideration for
the issue hereof expressly waived and released.
10. The Holder of this Debenture, by execution of the Subscription Agreement
and acceptance hereof agrees that this Debenture is being acquired for
investment purposes and that such Holder will not offer, sell or otherwise
dispose of this debenture or the shares of Common Stock issuable upon
conversion thereof except under circumstances which shall not result in a
violation of the Act or any applicable State Blue Sky law or similar laws
relating to the sale of securities.
11. By acceptance of this Debenture, the Holder hereby grants to the Issuer or
its assignee the option ("Prepayment Option"), for a period beginning after
February 15, 1998 to repurchase all of the outstanding portion of the
Debenture plus accrued interest, after sixty (60) days notice to Holder
during which sixty (60) days Holder may convert in accordance with Holder's
conversion privileges hereunder. The repurchase price of this Debenture
(the "Repurchase Price") shall be equal to One Hundred and Five Percent
(105%) of the full unpaid principal amount of the Debenture, plus accrued
interest payable in cash. This Prepayment Option may be exercised by
written notice via telecopy transmission to the Holder (with written notice
to the registered address by overnight courier) after February 15, 1998 and
delivery of the Repurchase Monies to the Holder on or before the fifth
(5th) NASDAQ trading day after the last day of such sixty (60) day notice
period or the date on which the Holder notifies the Issuer that the Holder
elects not to exercise the Holder's conversion privileges hereunder. Upon
receipt of the Repurchase Monies, Holder shall immediately deliver the
Debenture, appropriately marked to indicate payment in full thereof, to the
Issuer or its assignee pursuant to Issuer's or its assignee's instructions.
12. In the case that there is any outstanding amount of the Debenture
unconverted on January 15, 2000, the outstanding unconverted portion of the
Debenture will be subject to automatic conversion pursuant to the
provisions of the last four sentences in Section 4 hereunder.
13. In case any provision of this Debenture is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or unenforceable
such provision shall be adjusted rather than voided, if possible, so that
such is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this debenture will not in
any way be affected or impaired thereby.
14. This Debenture and the agreements referred to in this Debenture constitute
the full and entire understanding and agreement between the Issuer and the
Holder with respect hereof. Neither this Debenture nor any terms hereof may
be amended, waived, discharged or terminated other than by a written
statement signed by the Issuer and the Holder.
15. This Debenture shall be governed by and construed in accordance with the
laws of the state of Delaware and the United State of America.
IN WITNESS WHEREOF the Issuer has caused this instrument to be duly executed by
an officer thereunto duly authorized.
ISSUER:
NOISE CANCELLATION
TECHNOLOGIES, INC.
By: /s/ STEPHEN J. FOGARTY
-----------------------
Official Signatory of Issuer
Name (Printed:) Stephen J. Fogarty
Title: Senior Vice-President and Chief Financial Officer
Date: January 15,199
<PAGE>
EXHIBIT 1
Notice of Conversion
(To be executed by the Registered Holder in order to Convert the Debenture)
TO: Noise Cancellation Technologies, Inc.
1 Dock Street
Stamford, Connecticut 06903
Attention: John Horton, General Counsel
Fax: (203) 348-4106
Tel: (203) 961-0500 ext. 388
The undersigned (the "Holder") hereby irrevocably elects to convert Fifty
Thousand (USD $50,000.00) of the Debenture No___of NOISE CANCELLATION
TECHNOLOGIES, INC. (the "Issuer") according to the conditions set forth in such
Debenture, as of the date written below. The shares are to be issued in the
"Street Name" written below:
The undersigned represents and warrants as follows:
(a) The offer to convert the Debenture was made to the Issuer outside of the
United States and the undersigned was, at the time the subscription form
was executed and delivered, and is now outside the United States;
(b) It is not a U.S. person (as such term is defined in Section 902(a) of
Regulation S ("Regulation S") promulgated under the United States
Securities Act of 1933 (the "Securities Act"); and it is converting the
Debenture for its own account and not for the account or benefit of any
U.S. person;
(c) All offers and sales of the Common Stock shall be made pursuant to an
effective registration statement under the Securities Act or pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act;
(d) It is familiar with and understands the terms and conditions, and
requirements contained in Regulation S and definitions of U.S. persons
contained in Regulation S.
Holder:_________________________________ (seal)
By:____________________________________
Official Signatory of Holder
Title:__________________________________Country of Execution:____________
<PAGE>
Conversion Date (See Section 4) _______________________
Closing Bid on the Closing Date (See Section 4) _______________________
Average Closing Bid Price (See Section 4) _______________________
Conversion Price (See Section 4) _______________________
Number of common shares to be
received by Holder (see Section 4) _______________________
Name of Holder for Registration _______________________
Address for Registration _______________________
-----------------------
"Street Name" for certificate _______________________
<PAGE>
