<PAGE>
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: September 30, 1997
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COMMISSION FILE NUMBER: 0-18267
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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(Registrant's telephone number, including area code) (410- 636-8700
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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.
132,739,795 shares outstanding as of November 4, 1997
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOISE CANCELLATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Note 1)
(Unaudited)
(In thousands, except per share amounts)
Three Nine
Months Months
Ended September 30, Ended September 30,
---------------------------------------
1996 1997 1996 1997
------------------ ------------------
REVENUES:
Technology licensing fees and $160 $220 $1,229 $3,430
royalties
Product sales, net 358 488 1,049 1,069
Engineering and development 1 128 225 341
services
------------------ ------------------
Total revenues $519 $836 $2,503 $4,840
------------------ ------------------
COSTS AND EXPENSES:
Costs of sales $276 $896 $850 $1,401
Costs of engineering and 8 96 175 295
development services
Selling, general and administrative 1,779 1,483 4,105 3,734
Research and development 2,029 1,501 4,790 4,513
Equity in net loss of 80
unconsolidated affiliates - - -
Interest expense 2 28 26 75
------------------ ------------------
Total costs and expenses $4,094 $4,004 $10,026 $10,018
------------------ ------------------
NET (LOSS) $(3,575) $(3,168) $(7,523) $(5,178)
================== ==================
Weighted average number of common
shares outstanding 103,840 130,467 98,060 121,490
================== ==================
NET (LOSS) PER COMMON SHARE $ (.03) $ (.02) $ (.08) $ (.04)
================== ==================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
NOISE CANCELLATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Note 1)
(In thousands
of dollars)
December September
31, 30,
ASSETS 1996 1997
---------- ----------
Current assets: (Unaudited)
Cash and cash equivalents (Note 1)
$ $
368 1,038
Accounts receivable:
Trade :
Technology license fees and
royalties $ 150 210
Joint ventures and affiliates 2 21
Other 392 630
Unbilled 63 7
Allowance for doubtful accounts (123) (124)
---------- ----------
Total accounts receivable $ 484 $ 744
Inventories, net of reserves (Note 2) 900 1,350
Other current assets 207 35
---------- ----------
Total current assets 1,959 3,167
Property and equipment, net 2,053 1,466
Patent rights and other intangibles, net 1,823 1,572
Other assets 46 49
---------- ----------
$ 5,881 $ 6,254
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,465 2,383
Accrued expenses 1,187 981
Accrued payroll, taxes and related expenses 618 427
Customers' advances 1 87
---------- ----------
Total current liabilities $ 3,271 $ 3,878
---------- ----------
Commitments and contingencies (Note 4)
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
131,214,081 shares, respectively $ 1,116 $ 1,312
Additional paid-in-capital 85,025 89,804
Accumulated deficit (83,673) (88,851)
Cumulative translation adjustment 142 116
Common stock subscriptions receivable - (5)
----------------------
Total stockholders' equity $ 2,610 2,376
$ 5,881 6,254
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
1
<PAGE>
NOISE CANCELLATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 1)
(Unaudited)
(Thousands of dollars)
Nine Months
Ended September 30,
------------------
1996 1997
--------- --------
Cash flows from operating activities:
Net (loss) $ (7,523) $ (5,178)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation and amortization 706 877
Common stock issued as consideration for:
Compensation 13 3
Interest - 52
Common stock retired as consideration for:
Employee expenses (5) -
Provision for doubtful accounts 74 148
Equity in net loss of unconsolidated
affiliates 80 -
Unrealized foreign currency (gain) 168 (8)
Loss on disposition of fixed assets - 63
Changes in operating assets and liabilities:
(Increase) in accounts receivable (65) (412)
(Increase) decrease in inventories 682 (450)
Decrease in other assets 152 167
Increase (decrease) in accounts payable
and accrued expenses (354) 780
Increase (decrease) in other liabilities 161 (48)
--------- --------
Net cash (used in) operating activities $(5,911) $(4,006)
--------- --------
Cash flows from investing activities:
Capital expenditures $ (179) (127)
Proceeds of sales of short-term investments
(net) - -
--------- --------
Net cash (used in) investing activities $ (179) (127)
--------- --------
Cash flows from financing activities:
Proceeds from:
Notes (net) $ - $ 3,795
Sale of common stock 6,377 -
Investment by minority shareholder in
subsidiary - 1,000
Exercise of stock purchase warrants and
options 104 8
--------- --------
Net cash provided by financing activities $6,481 $ 4,803
--------- --------
Net increase (decrease) in cash and cash
equivalents $ 391 670
Cash and cash equivalents - beginning of period 1,831 368
--------- --------
Cash and cash equivalents - end of period $ 2,222 $ 1,038
========= ========
Cash paid for interest $ 5 $ 2
========= ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<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 nine month period ended September 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 $88.9 million on a
cumulative basis through September 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 $1.0 million at
September 30, 1997, increasing from $0.4 million at December 31, 1996.
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", the "July 30, 1997 Private Placement", the "1997
Preferred Stock Private Placement" and the "NCT Audio Financing" discussed below
should be sufficient to sustain the Company's anticipated future level of
operations into 1999. However, the period during 1999 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, all of which are presently uncertain.
Between January 15, 1997 and March 25, 1997, the Company issued and sold an
aggregate amount of $3.4 million of non-voting subordinated convertible
debentures (the "Debentures") in a private placement pursuant to Regulation S of
the Securities Act of 1933, as amended, (the "Securities Act") to five unrelated
investors (the "Investors") through multiple dealers (the "First Quarter 1997
Financing") from which the Company realized $3.2 million of net proceeds. The
Debentures mature 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 6, 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 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 did 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 would have expired. 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. On September 27, 1997, Verity, NXT, NCT Audio Products, Inc. and the
Company executed several agreements and other documents, terminating the New
Cross License and the New Security Deed and replacing them with new agreements
(respectively, the "Cross License Agreement dated September 27, 1997" and the
"Master License Agreement"). The material changes effected by the most recent
agreements were an expansion of the fields of use applicable to the exclusive
licenses granted to Verity and NXT, an increase in the royalties payable on
future licensing and product revenues, cancellation of the New Security Deed
covering the patents licensed by the Company, and the acceleration of the date
on which the parties can exercise their respective stock purchase option to
September 27, 1997.
On July 30, 1997 the Company sold 2.9 million shares, in the aggregate, of
its common stock at a price of $0.175 per share, in a private placement exempt
from the registration requirements of the Securities Act under Section 4(2)
thereof that provided net proceeds to the Company of $0.5 million (the "July 30,
1997 Private Placement").
On September 4, 1997, the Company transferred $5,000 cash and all of the
business and assets of its Audio Products Division as then conducted by the
Company and as reflected on the business books and records of the Company to a
newly incorporated company, NCT Audio Products, Inc. ("NCT Audio") in
consideration for 5,867 shares of NCT Audio common stock whereupon NCT Audio
became a wholly owned subsidiary of the Company. The Company also granted NCT
Audio an exclusive worldwide license with respect to all of the Company's
relevant patented and unpatented technology relating to flat panel transducers
and flat panel transducer based audio speaker products for all markets for such
products excluding (a) markets licensed to or reserved by Verity and NXT under
the Company's cross licensing agreements with Verity and NXT, (b) the ground
based vehicle market licensed to OnActive Technologies, LLC ("OnActive"), (c)
all markets for hearing aids and other hearing enhancing or assisting devices,
and (d) all markets for headsets, headphones and other products performing
functions substantially the same as those performed by such products in
consideration for a license fee of $3,000,000 to be paid when proceeds are
available from the sale of NCT Audio common stock and on-going royalties payable
by NCT Audio to the Company as provided in such license agreement. In addition,
the Company agreed to transfer all of its rights and obligations under its cross
licensing agreements with Verity and NXT to NCT Audio and to transfer the
Company's interest in OnActive to NCT Audio. On September 27, 1997, Verity
agreed to purchase 533 shares of NCT Audio common stock for an aggregate
purchase price of $1.0 million. The issuance and purchase of such shares closed
on October 10, 1997. It is anticipated that NCT Audio will issue additional
shares of its common stock in transactions exempt from registration in order to
raise additional working capital.
Please refer to Note 6. Subsequent Events for a discussion relating to the
recent 1997 Preferred Stock Private Placement.
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.
2. INVENTORIES
Inventories comprise the following:
(Thousands of dollars) December 31, September 30,
1996 1997
------------ -------------
Components $ 543 $ 426
Finished Goods 619 1,365
------------ -------------
Gross Inventory $ 1,162 $ 1,791
Reserve for Obsolete & Slow Moving
Inventory (262) (441)
Inventory, Net of Reserves $ 900 $ 1,350
============ =============
<PAGE>
3. STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
The changes in stockholders' equity during the nine months ended September
30, 1997, were as follows:
(In thousands)
Net
Balance at Sale of Exercise Stock Net Loss Balance at
December 31, Common of Warrants Subscription for the Translation September 30,
1996 Stock And Options Receivable Period Adjustment 1997
------------ ------- ----------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock:
Shares 111,614 19,550 50 -- -- -- 131,214
Amount $ 1,116 $ 196 $ -- $ -- $ -- $ -- $ 1,312
Additional 85,025 4,766 13 -- -- -- 89,804
Paid-in Capital 89,804
Accumulated (83,673) -- -- -- (5,178) -- (88,851)
Deficit
Cumulative 142 -- -- -- -- (26) 116
Translation
Adjustment
Stock Subscription -- -- -- (5) -- -- (5)
Receivable
</TABLE>
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.
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 $3.4 million of Debentures. 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 has
reserved 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").
On July 7, 1997 the Company granted 5,000 shares of restricted stock under
the 1992 Plan to each non-employee director (2 recipients) as compensation for
1997 services. The fair market value of the Company's common stock on July 7,
1997 was $0.25 per share, the closing price of the Company's common stock on the
NASDAQ Stock Market.
On July 30, 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 30, 1997 Private
Placement that provided net proceeds to the Company of $0.5 million.
Please refer to Subsequent Events below for a discussion of the 1997
Preferred Stock Private Placement and the NCT Audio Financing.
6. SUBSEQUENT EVENTS
On September 27, 1997, Verity agreed to purchase 533 shares of NCT Audio
common stock for an aggregate purchase price of $1.0 million. The issuance and
purchase of such shares closed on October 10, 1997. It is anticipated that NCT
Audio will issue additional shares of its common stock in transactions exempt
from registration in order to raise additional working capital.
Between October 28, 1997 and November 13, 1997, the Company entered into a
series of subscription agreements (the "Subscription Agreements") to sell an
aggregate amount of $13.3 million of the Company's Series C Convertible
Preferred Stock (the "Preferred Stock") in a private placement, pursuant to
Regulation D of the Securities Act, to 32 unrelated accredited investors through
two dealers (the "1997 Preferred Stock Private Placement"). Subscription
Agreements totalling $11.3 million have been received and accepted by the
Company through November 13, 1997. Of the total Preferred Stock Offering, sales
of Preferred Stock in the aggregate amount of $6.1 million were completed as of
November 13, 1997, with the balance of the sales in the aggregate amount of $7.2
million scheduled to be completed by November 18, 1997. Assuming such
completion, the aggregate net proceeds to the Company of the 1997 Preferred
Stock Private Placement are estimated at $11.9 million. Each share of the
Preferred Stock has a par value of $.10 per share and a stated value of one
thousand dollars ($1,000) with an accretion rate of four percent (4%) per annum
on the stated value. Each share of Preferred Stock is convertible into fully
paid and nonassessable shares of the Company's common stock subject to certain
limitations. Under the terms of the Subscription Agreements the Company is
required to file a registration statement ("Registration Statement") on Form S-3
covering the resale of all shares of common stock of the Company issuable upon
conversion of the Preferred Stock then outstanding within sixty (60) days after
the first Closing of the 1997 Preferred Stock Private Placement. The shares of
Preferred Stock become convertible into shares of common stock at any time
commencing after the earlier of (i) the effective date of the Registration
Statement; or (ii) ninety (90) days after the date of filing of the Registration
Statement. Each share of Preferred Stock is convertible into a number of shares
of common stock of the Company as determined in accordance with the following
formula (the "Conversion Formula"):
<PAGE>
[(.04) x (N/365) x (1,000)] + 1,000
Conversion Price
where
N = the number of days between (i) the closing date of the
Preferred Stock being converted, and (ii) the conversion
date thereof.
Conversion
Price = the lesser of (x) 120% of the five (5) day average
closing bid Price of common stock immediately
prior to the closing date of the Preferred Stock
being converted or (y) 20% below the five (5) day
average closing bid price of common stock
immediately prior to the conversion date thereof.
Closing
Date = the date of the closing as set forth in the
subscription agreement pertaining to the Preferred
Stock being converted.
The conversion terms of the Preferred Stock also provide that in no event
shall the average closing bid price referred to in the Conversion Formula be
less than $0.625 per share and in no event shall the Company be obligated to
issue more than 26,000,000 shares of its common stock in the aggregate in
connection with the conversion of the Preferred Stock. Under the terms of the
Subscription Agreements the Company may be subject to a penalty if the
Registration Statement is not declared effective within one hundred twenty (120)
days after the first closing of any incremental portion of the offering of
Preferred Stock, such penalty to be in an amount equal to one and one half
percent (1.5%) per month of the aggregate amount of Preferred Stock sold in the
offering up to a maximum of ten percent (10%) of such aggregate amount. The
Subscription Agreements also provide that for a period commencing on the date of
the signing of the Subscription Agreements and ending ninety (90) days after the
closing of the offering the Company will be prohibited from issuing any debt or
equity securities other than Preferred Stock, and that the Corporation will be
required to make certain payments in the event of its failure to effect
conversion in a timely manner or in the event it fails to reserve sufficient
authorized but unissued common stock for issuance upon conversion of the
Preferred Stock.
<PAGE>
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share".
This new standard requires dual presentation of basic and diluted earnings per
share ("EPS") on the face of the statements of income and requires
reconciliation of the numerators and the denominators of the basic and diluted
EPS calculations. This statement will be effective for the Company's 1997 year
end. The Company has not yet quantified what effect the adoption of SFAS 128
will have on its loss/earnings per share of common stock.
The Financial Accounting Standards Board has recently issued Statements of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure", No. 130, "Reporting Comprehensive Income", and No. 131, "Disclosures
about Segments of an Enterprise and Related Information". The Company does not
believe the above pronouncements will not have a significant effect on the
information presented in the financial statements.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 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
nine months of 1997, the Company received approximately 7% 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 70.9% of the Company's total revenue in the first nine 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 and projected cash balances.
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 September 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 and royalties from NXT
on its sale of certain audio products. 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.
Product revenues for the nine months ended September 30, 1996 and 1997
were:
PRODUCT REVENUES
Three Months Ended Nine Months Ended September
September 30, 30,
---------------------------- ------------------------------
Amount As a % of Total Amount As a % of Total
----------- ---------------- ------------- ---------------
Product 1996 1997 1996 1997 1996 1997 1996 1997
- ------------- ----- ----- ------- -------- ------ ------ ------ -------
Headsets $355 $482 99.4% 98.8% $1,022 $1,032 97.4% 96.5%
Fan Quieting - - 0.0% 0.0% - 13 0.0% 1.2%
Communications - 5 0.0% 1.0% - 16 0.0% 1.5%
Other 2 1 0.6% 0.2% 27 8 2.6% 0.8%
----- ----- ------- -------- ------ ------ ------ -------
Total $357 $488 100.0% 100.0% $1,049 $1,069 100.0% 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 issued and sold an
aggregate amount of $3.4 million of the Debentures in First Quarter 1997
Financing from which the Company realized $3.2 million of net proceeds. The
Debentures mature 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 6, 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 March 28, 1997, the Company and NXT 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 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 did 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 would have expired. 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 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. On September 27, 1997, Verity, NXT, NCT Audio Products, Inc. and the
Company executed several agreements and other documents, terminating the New
Cross License and the New Security Deed, and replacing them with the Cross
License Agreement dated September 27, 1997 and the Master License Agreement. The
material changes effected by the new agreements were an expansion of the fields
of use applicable to the exclusive licenses granted to Verity and NXT and an
increase in the royalties payable on future licensing and product revenues;
cancellation of the New Security Deed covering the patents licensed by the
Company; and the acceleration of the date on which the parties can exercise
their respective stock purchase option to September 27, 1997.
On September 27, 1997, Verity agreed to purchase 533 shares of NCT Audio
common stock for an aggregate purchase price of $1.0 million. The issuance and
purchase of such shares closed on October 10, 1997. It is anticipated that NCT
Audio will issue additional shares of its common stock in transactions exempt
from registration in order to raise additional working capital.
Between October 28, 1997 and November 13, 1997, the Company entered into
the Subscription Agreements to sell an aggregate amount of $13.3 million of the
Preferred Stock in the 1997 Preferred Stock Private Placement. Subscription
Agreements totalling $11.3 million have been received and accepted by the
Company through November 13, 1997. Of the total Preferred Stock Offering, sales
of Preferred Stock in the aggregate amount of $6.1 million were completed as of
November 13, 1997, with the balance of the sales in the aggregate amount of $7.2
million scheduled to be completed by November 18, 1997. Assuming such
completion, the aggregate net proceeds to the Company of the 1997 Preferred
Stock Private Placement are estimated at $11.9 million. Each share of the
Preferred Stock has a par value of $.10 per share and a stated value of one
thousand dollars ($1,000) with an accretion rate of four percent (4%) per annum
on the stated value. Each share of Preferred Stock is convertible into fully
paid and nonassessable shares of the Company's common stock subject to certain
limitations. Under the terms of the Subscription Agreements the Company is
required to file the Registration Statement on Form S-3 covering the resale of
all shares of common stock of the Company issuable upon conversion of the
Preferred Stock then outstanding within sixty (60) days after the first Closing
of the 1997 Preferred Stock Private Placement. The shares of Preferred Stock
become convertible into shares of common stock at any time commencing after the
earlier of (i) the effective date of the Registration Statement; or (ii) ninety
(90) days after the date of filing of the Registration Statement. Each share of
Preferred Stock is convertible into a number of shares of common stock of the
Company as determined in accordance with the Conversion Formula described in
Note 6 to the Condensed Consolidated Financial Statement.
Under the terms of the Subscription Agreement the Company may be subject to a
penalty if the Registration Statement is not declared effective within one
hundred twenty (120) days after the first closing of any incremental portion of
the offering of Preferred Stock, such penalty to be in an amount equal to one
and one half percent (1.5%) per month of the aggregate amount of Preferred Stock
sold in the offering up to a maximum of ten percent (10%) of such aggregate
amount. The Subscription Agreements also provide that for a period commencing on
the date of the signing of the Subscription Agreements and ending ninety (90)
days after the closing of the offering the Company will be prohibited from
issuing any debt or equity securities other than Preferred Stock, and that the
Corporation will be required to make certain payments in the event of its
failure to effect conversion in a timely manner or in the event it fails to
reserve sufficient authorized but unissued common stock for issuance upon
conversion of the Preferred Stock..
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, the July 30, 1997 Private Placement, the 1997
Preferred Stock Private Placement and the NCT Audio Financing should be
sufficient to sustain the Company's anticipated future level of operations into
1999. However, the period during 1999 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.
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 1999.
RESULTS OF OPERATIONS
Total revenues for the first nine months of 1997 were $4.8 million compared
to $2.5 million for the same period in 1996, an increase of $2.3 million or 92%.
Product sales increased to $1.1 million versus $1.0 million in 1996, an
increase of $0.1 million or 10% primarily reflecting increased hearing product
sales of the NoiseBuster Extreme(TM). Engineering and development services
increased to $0.3 million versus $0.2 million in 1996, an increase of $0.1
million primarily due to communications related engineering contracts.
Technology licensing fees in the first nine months of 1997 were $3.4 million
versus $1.2 million in 1996, an increase of $2.2 million or 183% primarily due
to the $3.0 million in Verity license fees described above.
Cost of product sales increased to $1.4 million versus $0.9 million in 1996,
an increase of $0.5 million or 56% primarily due to additional reserves recorded
reflecting price reductions on certain headset products. Product margin
decreased to (31)% percent from 19% during the same period in 1996 reflecting
the above noted reserves. Cost of engineering and development services increased
to $0.3 million versus $0.2 million in 1996 due to the above noted efforts in
communications engineering contracts. The gross margin on engineering and
development services decreased to 13% from 22% during the same period in 1996,
primarily due to more profitable contracts in 1996.
Selling, general and administrative expenses decreased to $3.7 million versus
$4.1 million in 1996, a decrease of $0.4 million or 10% primarily due to limited
working capital to fund marketing efforts during the first nine months of 1997.
Research and development expenditures for the first nine months of 1997 were
$4.5 million versus $4.8 million in 1996, a decrease of $0.3 million or 6%
primarily due to the timing of spending on the Company's key near-term
engineering programs. 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 nine months 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 nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred substantial losses from operations since its
inception, which have been recurring and amounted to $88.9 million on a
cumulative basis through September 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 is not expected
to meet its revenue target for 1997 and as noted below, found it necessary to
raise additional capital to fund it's operations for 1997 and beyond.
Between January 15, 1997 and March 25, 1997, the Company issued and sold an
aggregate amount of $3.4 million of the Debentures in First Quarter 1997
Financing from which the Company realized $3.2 million of net proceeds. The
Debentures mature 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 6, 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 30, 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 30, 1997 Private
Placement that provided net proceeds to the Company of $0.5 million.
On September 27, 1997, Verity agreed to purchase 533 shares of NCT Audio
common stock for an aggregate purchase price of $1.0 million. The issuance and
purchase of such shares closed on October 10, 1997. It is anticipated that NCT
Audio will issue additional shares of its common stock in transactions exempt
from registration in order to raise additional working capital.
Between October 28, 1997 and November 13, 1997, the Company entered into
the Subscription Agreements to sell an aggregate amount of $13.3 million of the
Preferred Stock in the 1997 Preferred Stock Private Placement. Subscription
Agreements totalling $11.3 million have been received and accepted by the
Company through November 13, 1997. Of the total Preferred Stock Offering, sales
of Preferred Stock in the aggregate amount of $6.1 million were completed as of
November 13, 1997, with the balance of the sales in the aggregate amount of $7.2
million scheduled to be completed by November 18, 1997. Assuming such
completion, the aggregate net proceeds to the Company of the 1997 Preferred
Stock Private Placement are estimated at $11.9 million. Each share of the
Preferred Stock has a par value of $.10 per share and a stated value of one
thousand dollars ($1,000) with an accretion rate of four percent (4%) per annum
on the stated value. Each share of Preferred Stock is convertible into fully
paid and nonassessable shares of the Company's common stock subject to certain
limitations. Under the terms of the Subscription Agreements the Company is
required to file the Registration Statement on Form S-3 covering the resale of
all shares of common stock of the Company issuable upon conversion of the
Preferred Stock then outstanding within sixty (60) days after the first Closing
of the 1997 Preferred Stock Private Placement. The shares of Preferred Stock
become convertible into shares of common stock at any time commencing after the
earlier of (i) the effective date of the Registration Statement; or (ii) ninety
(90) days after the date of filing of the Registration Statement. Each share of
Preferred Stock is convertible into a number of shares of common stock of the
Company as determined in accordance with the Conversion Formula described above.
Under the terms of the Subscription Agreement the Company may be subject to a
penalty if the Registration Statement is not declared effective within one
hundred twenty (120) days after the first closing of any incremental portion of
the offering of Preferred Stock, such penalty to be in an amount equal to one
and one half percent (1.5%) per month of the aggregate amount of Preferred Stock
sold in the offering up to a maximum of ten percent (10%) of such aggregate
amount. The Subscription Agreements also provide that for a period commencing on
the date of the signing of the Subscription Agreements and ending ninety (90)
days after the closing of the offering the Company will be prohibited from
issuing any debt or equity securities other than Preferred Stock, and that the
Corporation will be required to make certain payments in the event of its
failure to effect conversion in a timely manner or in the event it fails to
reserve sufficient authorized but unissued common stock for issuance upon
conversion of the Preferred Stock.
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, July 22, 1997 Private
Placement, the 1997 Preferred Stock Private Placement and the NCT Audio
Financing should be sufficient to sustain the Company's anticipated future level
of operations into 1999. However, the period during 1999 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.
The Company believes that the financing plan discussed above constitutes a
viable plan for the continuation of the Company's business into 1999.
At September 30, 1997, cash and short-term investments were $1.0 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 $(0.7) million at September 30,
1997, from $(1.3) million at December 31, 1996. This increase of $0.6 million
was funded primarily by the revenue and equity transactions described above and
used primarily to fund operations for the period.
During the first nine months of 1997, the net cash used in operating
activities was $4.0 million, compared to $5.9 million used in operating
activities during the same period of 1996.
Net inventory increased during the first nine months of 1997 by $0.5 million
due primarily to initial stocking of the Company's new communications products.
Cash provided by financing activities amounted to $4.8 million reflecting the
above noted financings and the Verity investment in NCT Audio Products, Inc.
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 September
30, 1997, and no material commitments are anticipated in the near future.
FORWARD LOOKING STATEMENTS
Filings with the SEC and other information provided to the public contain
certain forward-looking statements regarding, among other items, the Company's
ability to sustain its anticipated future level of operations. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, future product sales, market
penetration and customer acceptance of the Company's products and future
business decisions by parties with whom the Company has alliances, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. Although the Company believes that its assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this document will prove to be accurate.
In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
<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 2 - CHANGES IN SECURITIES
(a) Recent Sales of Unregistered Securities
(i) July 30, 1997 - 2,857,143 shares of Common Stock
(ii) Carole Salkind, purchaser
(iii) $500,000.00 cash
(iv) Section 4(2) of the Securities Act of 1933, as amended
ITEM 5 - OTHER INFORMATION
On September 4, 1997, the Company transferred $5,000 cash and all of the
business and assets of its Audio Products Division as then conducted by the
Company and as reflected on the business books and records of the Company to a
newly incorporated company, NCT Audio Products, Inc. ("NCT Audio") in
consideration for 5,867 shares of NCT Audio common stock whereupon NCT Audio
became a wholly owned subsidiary of the Company. The Company also granted NCT
Audio an exclusive worldwide license with respect to all of the Company's
relevant patented and unpatented technology relating to flat panel transducers
and flat panel transducer based audio speaker products for all markets for such
products excluding (a) markets licensed to or reserved by Verity and NXT under
the Company's cross licensing agreements with Verity and NXT, (b) the ground
based vehicle market licensed to OnActive Technologies, LLC ("OnActive"), (c)
all markets for hearing aids and other hearing enhancing or assisting devices,
and (d) all markets for headsets, headphones and other products performing
functions substantially the same as those performed by such products in
consideration for a license fee of $3,000,000 to be paid when proceeds are
available from the sale of NCT Audio common stock and on-going royalties payable
by NCT Audio to the Company as provided in such license agreement. In addition,
the Company agreed to transfer all of its rights and obligations under its cross
licensing agreements with Verity and NXT to NCT Audio and to transfer the
Company's interest in OnActive to NCT Audio. On September 27, 1997, Verity
agreed to purchase 533 shares of NCT Audio common stock for an aggregate
purchase price of $1.0 million. The issuance and purchase of such shares closed
on October 10, 1997. It is anticipated that NCT Audio will issue additional
shares of its common stock in transactions exempt from registration in order to
raise additional working capital.
ITEM 6 - EXHIBITS
(a) Exhibits
Exhibit No. Description
10(a) New Cross License Agreement dated September 27, 1997,
among Verity Group plc, New Transducers Limited,
Noise Cancellation Technologies, Inc. and NCT Audio
Products, Inc.
10(b) Master License Agreement dated September 27, 1997,
between New Transducers Limited and NCT Audio
Products, Inc.
10(c) Letter Agreement dated September 27, 1997, from Noise
Cancellation Technologies, Inc. to Verity Group plc.
10(d) License Agreement dated September 4, 1997, between
Noise Cancellation Technologies, Inc. and NCT Audio
Products, Inc.
11 Computation of Net Profit (Loss) Per Share.
27 Financial Data Schedule.
<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,
Chief Executive Officer
By: /s/ CY E. HAMMOND
Cy E. Hammond
Senior Vice President,
Chief Financial Officer
Dated: November 14, 1997
<PAGE>
EXHIBIT NO. 10(a)
NEW CROSS LICENCE AGREEMENT
New Cross Licence Agreement made this 27th day of September 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"); (3) Noise
Cancellation Technologies, Inc., a Delaware corporation with offices at 1025
West Nursery Road, Linthicum, Maryland 21090, USA, ("NCTI"); and (4) NCT Audio
Products, Inc, a Delaware corporation with offices at 1025 West Nursery Road,
Linthicum, Maryland 21090, USA ("NAPI").
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 was engaged in the development and commercial exploitation of
active wave management technology including flat panel speakers but has now
exclusively licensed the NCTI Rights (as defined below) to NAPI (which has taken
over such development and exploitation) subject to certain rights already
granted to NXT, OnActive LLC and Electrolux; and
WHEREAS NXT, NCTI and Verity entered into a Cross Licence on 15 April 1997 under
which Verity paid US$3 million to NCTI by way of shares for exclusive rights to
certain fields and NXT granted exclusive rights to certain other fields to NCTI
in order to prevent controversies over their separate and parallel development
of panel loudspeaker technology, to accelerate the process of bringing products
which benefit from both technologies to market, and to broaden access to both
technologies for potential licensees ; and
WHEREAS by a novation agreement of 15 April 1997, NXT, NCTI and Verity agreed
that Verity be released and discharged from the Cross Licence and that NXT be
bound by the terms of the Cross Licence in the place of Verity; and
WHEREAS NXT, NCTI and Verity have now agreed to terminate the previous Cross
Licence and certain of the related agreements and enter into a New Cross Licence
in order to better exploit the panel loudspeaker technologies; and
WHEREAS this Agreement sets out the terms of the New Cross Licence which shall
come into effect as from the date of this Agreement.
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 C.
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 "Commencement Date" shall mean the date of this Agreement.
1.3 "Cross Licence" shall mean the Cross Licence Agreement of 15 April 1997
between Verity, NXT and NCTI.
1.4 "DERA Technology" shall mean the patents, associated know-how and other
intellectual property rights relating to flat panel loudspeakers
licensed 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 "Excluded Rights" shall mean both of:
(A) certain rights granted exclusively by NCTI to Electrolux prior
to 31 December 1996 (to the extent that such rights have been
disclosed in writing to NXT); and
(B) certain rights granted exclusively by NCTI to OnActive LLC prior
to 31 December 1996 (to the extent that such rights have been
disclosed in writing to NXT).
1.6 "Horton Opinion" shall mean the letter addressed to NXT from John Horton
(in-house legal counsel to NCTI and NAPI) under which an opinion is
given in relation to, inter alia, the due execution, authorisation and
enforceability of, inter alia, this Agreement, the Master Licence and
the Subscription Agreement.
1.7 "IPR" shall mean rights (whether registered or unregistered) in any
designs, applications for any of the foregoing, copyright, topography
rights and database rights.
1.8 "JIP Rights" shall mean the DERA Technology, the NCTI Rights and the
NXT Rights.
1.9 "Licensed Products" shall mean any product or component which
incorporates, embodies, is covered by, is claimed by, or is based upon
any of the NCTI Rights licensed under clause 3.1 or the NXT Rights
licensed under clause 4.
1.10 "Master Licence" shall mean a licence on agreed terms between NXT and
NAPI which, for the avoidance of doubt, shall not include any right to
sub-license.
1.11 "NCTI Fields" shall mean the following fields only:
(A) hearing aids, hearing assistance devices and other devices to
assist impaired hearing;
(B) headsets, headphones, earplugs. earbuds, earmuffs, and all
forms of "on the ear" and "in the ear" sound generating
devices (for the avoidance of doubt, this field shall not
include communications handsets such as 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); and
(C) 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.
1.12 "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 (with the right to sub-license) to
NCTI, NAPI or their Affiliates (other than under the Master
Licence) now or at any time
including, without limitation, those listed in Schedule A.
1.13 "NCTI Technology" shall mean all confidential information and know-how
in existence prior to 31 December 1996 within the power, possession,
custody and control of NCTI, NAPI or their Affiliates which supports,
amplifies, explains or enables the design or manufacture of any product
in the NXT Fields embodying any of the specifications or claims of the
NCTI Patents or otherwise making use of the NCTI IPR, but excluding such
confidential information and know-how which NCTI, NAPI or their
Affiliates are not entitled to disclose where NXT has been given full
written details of the reasons why such information may not be
disclosed.
1.14 "NCTI IPR" shall mean all IPR in existence prior to 31 December 1996
owned by or licensed to NCTI, NAPI or their Affiliates which relates to
panel loudspeakers acoustic objects, transducers or related acoustic
technology but excluding such other IPR which NCTI, NAPI or their
Affiliates are not entitled to license where NXT has been given full
written details of the reasons why such IPR may not be licensed.
1.15 "NCTI Rights" shall mean all of the NCTI Patents, the NCTI IPR and the
NCTI Technology subject only to the Excluded Rights.
1.16 "Net Licensing Revenues" shall mean the gross revenues received by a
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.
1.17 "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 "Novation Agreement" shall mean the novation agreement of 15 April 1997
between NXT, NCTI and Verity.
1.19 "NXT Fields" shall mean all fields of use excluding all devices and
systems whose sole purpose is reducing, isolating, controlling or
alternating noise or vibration.
1.20 "NXT IPR" shall mean all IPR in existence prior to 31 December 1996
owned by or licensed to NXT which relates to panel loudspeakers acoustic
objects, transducers or related acoustic technology but excluding the
DERA Technology and such other IPR which NXT is not entitled to license
where NAPI has been given full written details of the reasons why such
IPR may not be licensed
1.21 "NXT 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 (with the right to sub-license) to
NXT or its Affiliates (other than the NCTI Patents and the
DERA Technology)
including, without limitation, those listed in Schedule B.
1.22 "NXT Rights" shall mean all of the NXT Patents, the NXT IPR and the NXT
Technology.
1.23 "NXT Technology" shall mean all confidential information and know-how in
existence prior to 31 December 1996 within the power, possession,
custody and control of NXT which supports, amplifies, explains or
enables the design or manufacture of any product in the NCTI Fields
embodying any of the specifications or claims of the NXT Patents or
otherwise making use of the NXT IPR, but excluding the DERA Technology
and such confidential information and know-how which NXT or its
Affiliates are not entitled to disclose where NAPI has been given full
written details of the reasons why such information may not be
disclosed.
1.24 "Simmons & Simmons Opinion" shall mean the letter addressed to NAPI from
Simmons & Simmons (solicitors to Verity and NXT) under which an opinion
is given in relation to, inter alia, the due execution, authorisation
and enforceability of, inter alia, this Agreement, the Master Licence
and the Subscription Agreement.
1.25 "Subscription Agreement" shall mean the private placement offering
subscription agreement and questionnaire in agreed form between NCTI,
NAPI and Verity.
In this Agreement where the context admits:
1.26 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.
1.27 references to any document being in agreed terms are to that document in
the form signed on behalf of the parties for identification.
2._Termination of the Cross Licence
2.1 With effect from the Commencement Date, the parties hereby agree to that
the following agreements shall be terminated:
(A) the Cross Licence, without application of article 10 of the
Cross Licence;
(B) the Security Deed of 14 April 1997 between NCTI and Verity, in
respect of which the parties hereby agree to lend all reasonable
assistance as may be necessary in order to cancel any relevant
registrations;
(C) the confirmatory Patent Licence of 15 April 1997 between NCTI,
Verity and NXT, in respect of which the parties hereby agree to
lend all reasonable assistance as may be necessary in order to
cancel any relevant registrations;
(D) the further confirmatory Patent Licence of 15 April 1997 between
NCTI, Verity and NXT, in respect of which the parties hereby
agree to lend all reasonable assistance as may be necessary in
order to cancel any relevant registrations; and
(E) the two comfort letters of 15 April 1997 from NXT to NCTI.
2.2 The terminations in clause 2.1 shall be without prejudice to the accrued
rights of the parties. Further, article 19.2 of the Cross Licence shall
survive termination.
3.NCTI Licence
3.1 Subject to the terms and conditions of this Agreement and in
consideration of:
(A) the grant of the licences under clause 4;
(B) the grant of the Master Licence under clause 5.1;
(C) the royalties payable under clause 6.1;
(D) the release of the obligations of NCTI under the Cross
Licence, in particular the conditional obligation to repay
US$3 million;
(E) the cancellation of the security deed over the Licensed NCTI
Patents (as defined in the Cross Licence); and
(F) the payment of (pound)1 (receipt of which is hereby
acknowledged by NCTI)
NCTI and NAPI hereby grant to NXT an exclusive worldwide licence to use
the NCTI Rights to develop, make, have made, use, distribute, sell and
have sold Licensed Products in the NXT Fields together with the right to
grant sub-licences therefor.
3.2 NCTI and NAPI hereby jointly and severally undertake to use their best
endeavours to discharge the restrictions which prevent it from including
the rights described in clause 1.5(B) within the licence under clause
3.1.
3.3 NXT shall use reasonable endeavours to exploit the rights licensed
under this Agreement.
4._NXT Licence
4.1 Subject to the terms and conditions of this Agreement and in
consideration of:
(A) the grant of the licence under clause 3.1;
(B) the royalties payable under clause 6.2;
(C) the release of the obligations of NXT under the Cross
Licence; and
(D) the payment of (pound)1 (receipt of which is hereby acknowledged)
NXT hereby grants to NAPI an exclusive worldwide licence to use the JIP
Rights to develop, make, have made, use, distribute, sell and have sold
Licensed Products in the NCTI Fields together with the right to grant
sub-licences therefor but with respect to the DERA Technology such
licence shall be non-exclusive and without the right to sub-license.
4.2 NXT also hereby grants to NCTI and NAPI a licence of such of the JIP
Rights (excluding any rights to the DERA Technology) as are strictly
necessary for NCTI and NAPI to maintain those licences of the JIP Rights
which were automatically granted to OnActive LLC and Electrolux upon the
commencement of the Cross Licence and for so long as those arrangements
with OnActive LLC and Electrolux remain in force.
5._Master Licence
5.1 Subject to the terms and conditions of this Agreement and in
consideration for the rights granted under clauses 3.1 and 3.2, NXT
shall promptly grant NAPI the Master Licence for all fields of use;
5.2 Upon commencement of the Master Licence in clause 5.1, those terms in
this Agreement which are directly covered by the terms of the Master
Licence shall cease to be of further effect.
6._Royalties
6.1 Royalties from NXT
As part of the consideration for the rights granted by NCTI and NAPI to
NXT under clause 3.1, NXT shall pay royalties to NAPI in accordance with
Schedule C.
6.2 Royalties from NAPI under this Agreement
As part of the consideration for the rights granted by NXT under clause
4, NAPI shall pay royalties to NXT in accordance with Schedule C.
6.3 Payment
Royalties payable to NAPI under clause 6.1 or to NXT under clause 6.2
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. All such royalty payments shall be
exclusive of VAT or any other sales tax.
6.4 Verification
If requested by NAPI in respect of payments under clause 6.1 or by NXT
in respect of payments under clause 6.2, NXT and NAPI respectively shall
direct their chartered accountants at their own expense to provide the
other party with a certified written royalty report (the "Royalty
Report") for each calendar year of this Agreement within sixty (60) days
of the end of each calendar year of this Agreement. Such Royalty Reports
shall be prepared in accordance with the standard reporting procedures
of such chartered accountants applied in a consistent manner. A similar
Royalty Report shall be rendered and royalty payment shall be made
within sixty (60) days after termination of this Agreement. Further,
both NAPI and NXT agree that the other party may inspect their
royalty/revenue records once a year upon thirty (30) days written
notice, at the other party's own expense.
6.5 Late Payment
Any payment not made on its due date under clause 6.1 or 6.2 will
require NXT or NAPI respectively to pay interest in order to cover the
default at the rate of the then current prime rate at The Chase
Manhattan Bank NA.
7._Disclosure of Information, Data and Know-How
7.1 NCTI and NAPI shall jointly and severally disclose to NXT all the NCTI
Technology licensed under clause 3.1 within 30 days of the date of this
Agreement. NXT shall disclose to NAPI all the NXT Technology licensed
under clause 4.1 within 30 days of this Agreement.
7.2 For the purposes of this Agreement and the Master Licence, NAPI shall
not be at liberty to disclose the NXT Technology solely by virtue of the
fact that NAPI may have come into possession of the NXT Technology as a
result of disclosure by NCTI to NAPI under the terms of the Cross
Licence.
8._Confidentiality
8.1 Treatment
The NCTI Technology licensed under clause 3.1, the NXT Technology
licensed under clause 4.1 and any information of one party relating to
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 by the other party, 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.
8.2 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.
9._Term
9.1 This Agreement shall commence upon the Commencement Date and shall
remain in force until terminated under this clause 9 or clause 10.
9.2 This Agreement shall cease to have effect against the other party upon
the last to expire of the patents licensed to the other party under this
Agreement (but without prejudice to the terms of the Master Licence).
9.3 The Agreement shall automatically terminate upon clause 9.2 being
satisfied for both parties.
<PAGE>
10._Termination
10.1 NXT may at its sole option terminate this Agreement, without prejudice
to the continuation of the licence granted to NXT under clause 3.1,
immediately where either of NCTI or NAPI 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 NCTI or NAPI or if NCTI or
NAPI ceases or threatens to cease or makes any material change in its
business.
10.2 NAPI may at its sole option terminate this Agreement, without prejudice
to the continuation of the licence granted to NAPI under clause 4.1,
where the events or matters described in clause 10.1 apply to NXT.
11._Effect of Termination
11.1 Except as otherwise expressly provided herein, on termination of this
Agreement:
(A) all rights and licences granted pursuant to clauses 3 and 4
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
clause 8.
11.2 After termination of this Agreement, NAPI, NXT and all their licensees
may continue to sell Licensed Products manufactured before the date of
termination. If their stock of Licensed Products is insufficient to
fulfil orders accepted before the date of termination, then they may
manufacture sufficient quantities of Licensed Products to fulfil such
order, provided that:
(A) such products are manufactured within 6 months of termination
of this Agreement; and
(B) any applicable royalties are paid in accordance with clause 6.
11.3 Notwithstanding the termination of this Agreement, the terms and
conditions of clauses 6 and 8 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.
12._Force Majeure
12.1 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.
13._Applicable Law
13.1 The terms and conditions of this Agreement and the performance thereof
shall be governed by and construed in accordance with English law.
14._Conduct
14.1 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. Further, neither of the parties nor
their Affiliates shall assist other persons to do the same.
15._Dispute Resolution
15.1 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 NAPI, who shall meet within five
days of being requested to do so and in good faith attempt to resolve
the matter of dispute.
15.2 The parties agree to refer any matter or dispute which is not able to be
resolved pursuant to clause 15.1 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").
15.3 None of the parties 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 clauses 15.1 and
15.2 are pursued.
15.4 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.
15.5 Except as provided for in clauses 15.1, 15.2, and 15.3, 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 and NAPI irrevocably submit to the
exclusive jurisdiction of the English Courts and waive 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
clause operates for the sole benefit of Verity and NXT who shall retain
the right to take Proceedings in any other jurisdiction.
16._Announcements
16.1 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,
none of the parties may use any of the others' names or disclose the
terms of this Agreement without the consent of all the others, which
consent shall not be unreasonably withheld or delayed.
17._Severability
17.1 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.
18._Rights of Assignment; Successors and Assigns
18.1 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, NAPI may assign its rights
and obligations under this Agreement to an Affiliate (which for the
purpose of this clause shall not include OnActive) upon giving NXT 30
days' written notice. Further, NXT may assign its rights and obligations
under this Agreement to an Affiliate upon giving NAPI 30 days' written
notice.
19._Notices
19.1 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 clause by the other party, any notice or
communication hereunder shall be addressed to NCTI o NAPI as follows:
Michael J. Parrella, President
Noise Cancellation Technologies, Inc./NAPI
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
20._Taxes
20.1 Each of the parties 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 under this Agreement. 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.
21._Maintenance and Defence of Licensed Patents
NCTI Obligations
21.1 During the term of this Agreement, NCTI and NAPI shall jointly and
severally maintain in force the NCTI Patents. In this connection, NCTI
and NAPI shall promptly pay all costs of any and all continuations,
continuations-in-part, divisions, extensions, reissues, re-examinations,
or renewals of the 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, NXT shall comply with all reasonable requests of NCTI aimed at
maintaining in force the NCTI Patents.
21.2 Neither NCTI nor NAPI shall assign to any person any of the NCTI Patents
without the prior written consent of NXT which shall be given on such
terms as NXT reasonably believes are necessary to protect its position
under this Agreement.
21.3 Neither NCTI nor NAPI shall abandon or withdraw any of the NCTI Patents
nor permit any of them to lapse without giving NXT no less than two
months' written notice of its intention to do so. If during this two
month period NXT informs NCTI (or ,where relevant, NAPI) that it wishes
to maintain the relevant patent, then NCTI (or ,where relevant, NAPI)
shall assign it to NXT for nominal consideration.
21.4 Where an actual or threatened infringement of the NCTI Patents or
unauthorised disclosure or use of the NCTI Technology (collectively the
"Infringement") falls or appears to fall wholly or partly within the NXT
Fields, then the party who becomes aware of the Infringement shall
promptly report the same to the others. If the Infringement appears to
NCTI (or ,where relevant, NAPI) to fall within the NXT Fields (whether
entirely or partly), then NCTI and NAPI shall assist NXT in any action
which NXT wishes to take in relation to the Infringement, but only by
lending its name to such action (subject to NXT fully indemnifying NCTI
and NAPI 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 NXT shall be subject to agreement between the
parties. NXT shall, subject to such indemnity, be entitled as against
NCTI and NAPI 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. NXT shall however regularly inform NCTI and NAPI of any
significant developments of such action and shall not consent to any
order as to the amendment or validity of the NCTI Patents without the
prior written consent of NCTI (or, where relevant, NAPI).
<PAGE>
NXT Obligations
21.5 Throughout the term of this Agreement, NXT shall maintain in force the
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 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 and NAPI shall comply with all
reasonable requests of NXT aimed at maintaining in force the NXT
Patents.
21.6 NXT shall not assign to any person any of the NXT Patents without the
prior written consent of NAPI which shall be given on such terms as NAPI
reasonably believes are necessary to protect its position under this
Agreement.
21.7 NXT shall not abandon or withdraw any of the NXT Patents nor permit any
of them to lapse without giving NAPI no less than two months' written
notice of its intention to do so. If during this two month period NAPI
informs NXT that it wishes to maintain the relevant patent, then NXT
shall assign it to NAPI for nominal consideration.
21.8 Where an actual or threatened infringement of the NXT Patents or
unauthorised disclosure or use of the 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
and NAPI in any action which NCTI and NAPI wish to take in relation to
the Infringement, but only by lending its name to such action (subject
to NCTI and NAPI fully indemnifying NXT on a joint and several basis
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 and NAPI shall be subject to agreement
between the parties. NCTI and NAPI 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 and NAPI 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 NXT Patents
without NXT's prior written consent.
22._Warranties
22.1 NCTI and NAPI jointly and severally represent and warrant to NXT that:
(A) each of them has the right, power and authority to enter into
this Agreement and to grant the licenses and other rights
contained herein;
(B) neither of them will 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 each of them are aware, use of the NCTI Rights as
permitted by this Agreement will not infringe the rights of
any other person; and
(D) the patents listed in Schedule A constitute all the NCTI
Patents.
22.2 NXT represents and warrants to NAPI 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; and
(C) so far as NXT is aware, use of the NXT Rights as permitted by
this Agreement will not infringe the rights of any other person.
(D) the patents listed in Schedule B constitute all the NXT Patents.
23._Disclaimer
23.1 Except as specifically set forth in this Agreement, NCTI and NAPI hereby
disclaim:
(A) any express or implied warranty of the accuracy, reliability,
technological or commercial value, comprehensiveness or
merchantability of the NCTI Rights or Licensed Products, or
their suitability or fitness for any purpose whatsoever; and
(C) all liability for any loss or damage resulting, directly or
indirectly, from the use of the NCTI Rights or Licensed Products
including 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.
23.2 Except as specifically set forth in this Agreement, Verity and NXT
hereby disclaims:
(A) any express or implied warranty of the accuracy, reliability,
technological or commercial value, comprehensiveness or
merchantability of the NXT Rights or Licensed Products, or their
suitability or fitness for any purpose whatsoever; and
(C) all liability for any loss or damage resulting, directly or
indirectly, from the use of the NXT Rights or Licensed Products
including 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.
24._Trade Marks and IP Notices
24.1 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.
24.2 Each party shall comply with the other party's reasonable requests
regarding the marking of Licensed Products (including any packaging and
promotional materials) with such notices regarding the intellectual
property rights relevant to such Licensed Products as may be appropriate
in each jurisdiction.
25._No Agency and No Partnership
25.1 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.
25.2 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.
26._Scope of the Agreement and General Obligations
26.1 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.
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.
27._Recording of Formal Licence
27.1 Following commencement of this Agreement, each party shall render all
assistance as may be reasonably required (including, without limitation,
the signing of short form licences) in order to register any party with
a licence under this Agreement with any relevant Patent Office. For the
avoidance of doubt, such short form licences shall not alter the meaning
or effect of this Agreement.
28._Stamp Duty and Legal Costs
28.1 All stamp duty payable in relation to this Agreement and any other
agreement executed pursuant to it shall be paid by NAPI.
29._Guarantee
29.1 NCTI hereby agrees to guarantee performance of all the obligations of
NAPI under this Agreement until the later of:
(A) NAPI achieving a net worth of US$10 million or more; or
(B) two years elapsing from the date of this Agreement.
30._Opinions
30.1 As soon as practicable after the Commencement Date:
(A) NCTI and NAPI shall deliver the Horton Opinion to NXT in a
form satisfactory to NXT; and
(B) Verity and NXT shall deliver the Simmons & Simmons Opinion to
NAPI in a form satisfactory to NAPI.
<PAGE>
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: September 27, 1997
NEW TRANSDUCERS LIMITED
/s/ PETER THOMS
By: Peter Thoms
Title: Director
Date: September 27, 1997
NOISE CANCELLATION TECHNOLOGIES, INC.
/s/ MICHAEL J. PARRELLA
By: Michael J. Parrella
Title: President
Date: September 27, 1997
NCT AUDIO PRODUCTS, INC
/s/ MICHAEL J. PARRELLA
By: Michael J. Parrella
Title: President
Date: September 27, 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/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.
<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.
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.
(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>
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
1.1 Royalties payable by NAPI to NXT:
(A) 2% of Net Sales Revenue but not less than $0.10 per Licensed
Product; and
(B) 6% of Net Licensing Revenue*.
1.2 Royalties payable by NXT to NAPI:
(A) 2% of Net Sales Revenue but not less than $0.10 per Licensed
Product; and
(B) 6% of Net Licensing Revenue.
- -----------
* NAPI shall treat profits of OnActive LLC attributable to NAPI/NCTI as Net
Licensing Revenues in calculating royalties payable to NXT.
<PAGE>
Schedule D
Affiliates
OnActive L.L.C. - 42.5%
<PAGE>
EXHIBIT NO. 10(b)
MASTER LICENCE AGREEMENT between:
(1) NEW TRANSDUCERS LIMITED a company incorporated under the laws of England
and Wales and registered in England with number 3135528 and having its
registered office at Stonehill, Huntingdon PE18 6ED, England ("NXT").
(2) NCT AUDIO PRODUCTS, INC. a Delaware corporation with offices at 1025
West Nursery Road, Linthicum, Maryland 21090 USA ("the Licensee").
WHEREAS:
(A) NXT has developed distributed mode acoustic technology enabling the
manufacture of a lightweight panel loudspeaker which radiates sound
efficiently and evenly over a wide frequency range and a wide acoustic
area.
(B) NXT owns certain patent and other rights, together with substantial
know-how relating to its distributed mode loudspeaker technology covering,
amongst other things, both the manufacture of loudspeakers and their
integration into other systems.
(C) NXT has acquired a reputation in relation to distributed mode loudspeakers
and has valuable goodwill in its trade marks and names.
(D) NXT has entered into exclusive licensing arrangements with the Defence
Evaluation & Research Agency of the United Kingdom Ministry of Defence and
with Noise Cancellation Technologies Inc., for additional patent and other
rights, but both of which limit NXT to certain fields and applications.
Therefore, NXT must ensure that its licensees' activities correspond to
those fields and applications.
(E) NXT has selected licensed end users who are able to use the distributed
mode acoustic technology to make or assemble products to the required
technical standard.
(F) The Licensee believes it can develop a substantial demand for NXT's
distributed mode loudspeakers using NXT's patent rights, know-how and trade
marks.
<PAGE>
NOW IT IS AGREED AS FOLLOWS:
NXT hereby grants to the Licensee the rights set out in the attached Standard
Licence Terms (which are incorporated into this Licence Agreement) in
consideration for the Licensee's payments, covenants and obligations set out
below and in the said Standard Licence Terms.
In this Licence Agreement and in the accompanying Standard Licence Terms the
following words and expressions shall have the meanings shown.
"Field of Use" all Fields subject to Schedule 2 of the Standard
Licence Terms which contains details of particular
matters which are expressly excluded.
"Licensed Products" flat panel loudspeakers using the IPRs.
"NXT Assemblies" loudspeakers which use the IPRs and which are
supplied by an NXT Master Licensee.
"NXT Licensee" a party which has the right under a licence
agreement with NXT to use the IPRs to manufacture and
assemble, distribute, market, sell and use products in
the Field of Use.
"NXT Master Licensee" a party which has entered into a
licence agreement in the same terms (or substantially
the same terms) as this Licence Agreement.
"NXT User Licensee" a party which has the right under a
licence agreement with NXT to use the IPRs to
incorporate NXT Assemblies into products in the Field of
Use to the required technical and quality standards.
"NXT User Licence" a licence agreement with NXT to
incorporate NXT Assemblies in the Field of Use supplied
by an NXT Master Licensee into its NXT User Licensee's
own products.
"Production Territory" worldwide
"Sales Territory" worldwide
The following payments referred to in the Standard Licence Terms shall be:
"Initial Licensing Fee" US$: nil
"Annual Licensing Fee" US$: nil
"Royalty Rate" 1. For Licensed Products manufactured, assembled,
supplied or sold as finished products destined for sale
to end users the Royalty Rate shall be the greater of 2%
of Net Sales Revenue or US$0.10 (ten cents) per Licensed
Product or
2. for Licensed Products manufactured, assembled,
supplied or sold as products adapted or destined for incorporation into
products of NXT Licensees the Royalty Rate shall be:
US$0.92 per each electrodynamic transducer
US$0.74 per each piezoelectric transducer
provided that (a) where NXT agrees Royalty Rates with
other NXT Master Licensees which are lower than the
rates specified in 2 above ("the Third Party Rate") the
Royalty Rate payable by the Licensee shall be reduced to
the Third Party Rate less eight percent (8%) ("the New
Royalty Rate") and NXT shall inform the Licensee
accordingly. The New Royalty Rate shall be payable by
the Licensee with effect from the quarter day
immediately following notification of the New Royalty
Rate by NXT; and (b) in order to take into account
market conditions the parties may need to renegotiate
separate Royalty Rates for Licensed Products for
different Fields of Use provided that the concept of the
new Royalty Rate referred to in (a) above shall continue
to apply to such renegotiated rates.
The Licencee shall have the right to execute NXT User Licences on behalf of NXT
in the precise terms as notified in writing by NXT from time to time and shall
send to NXT a copy of any such User Licence within 14 calendar days of
execution.
<PAGE>
IN WITNESS WHEREOF the duly authorised representatives of the parties have
executed this Licence Agreement which is made the day and year of the signature
for and on behalf of New Transducers Limited.
Signed for and on behalf of )
NEW TRANSDUCERS LIMITED ) /s/ Ernest Schneider
this 27th day of September 1997 ) name and position: Director
date of signature and of this Agreement )
Signed for and on behalf of the )
LICENSEE ) /s/ Michael J. Parrella
) name and position: CEO
<PAGE>
These are the Standard License Terms referred to in the
accompanying Licence Agreement and initialled for
identification purposes
ES MJP
New Transducers Limited The Licensee
STANDARD LICENCE TERMS
1 Definitions
In these Standard Licence Terms and the accompanying Licence Agreement, the
following words and expressions shall have the meanings shown.
"the Agreement" the accompanying Licence Agreement and these
Standard Licence Terms.
"New Cross Licence" the New Cross Licence Agreement dated 27
September 1997 by
and between Verity Group plc, NXT, Noise
Cancellation
Technologies, Inc. and the Licensee.
"Associated Company" (i) any legal entity in which a party has an
Interest;
(ii) any legal entity which directly or indirectly
Controls a party ("Parent");
(iii) any legal entity in which a Parent has an
Interest; or
(iv) OnActive Technologies LLC so long as the
percentage of voting rights held by the Licensee
in that Company does not fall below 42.5%
(forty-two point five percent).
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.
"Commencement Date" the date of the attached Licence Agreement
which is the date of its signature for and on
behalf of NXT.
"Copyright" copyright, design right and all other rights in
the nature of copyright and design right in the
Supporting Documentation.
"Improvement(s)" any addition, development, improvement,
modification or adaptation of any of the IPRs or
new application of any of the IPRs.
"IPRs" the NCTI Patents, the NCTI Technology, the NCTI
IPR, the NXT Patents, the NXT Technology and the
NXT IPR as defined in the New Cross Licence
together with Know How, the Marks and the
Copyright which are owned by or licensed (with a
right to sublicense) to NXT and which directly
concern the manufacture, assembly, distribution,
marketing, sale and use of the Licensed Products
under the Marks.
"Know How" the Supporting Documentation together with
confidential information, advice, descriptions and
other technical data (whether written, oral or in
any other form, provided that where such
information, advice, descriptions or data is first
disclosed orally it shall be confirmed in writing)
which are supplied by NXT to the Licensee at any
time under the Agreement which support, amplify or
explain the specifications or claims of the
Patents to the extent that the aforesaid
i) is not published or otherwise in the public
domain (otherwise than by any unauthorised
disclosure by the Licensee); or
ii)was known to the Licensee (otherwise than through
NXT or its agents or the unauthorised disclosure
by any third party).
"Marks" the registered and unregistered trade marks set
out in Schedule 1.
"Net Revenue Sales" the revenues received from the sale by the
Licensee of the Licensed Products less:
i) costs of packing, transportation and insurance;
ii) sales, value added and other taxes not based
on income;
iii) ordinary trade discounts and commissions;
iv) customs duties and expenses; and
v) royalties payable to third parties
In the event of sales of Licensed Products by the
Licensee other than to a third party in a commercial
arm's length transaction, the Net Sales Revenues
shall be the amount which would have been charged by
the Licensee in a commercial arm's length
transaction.
"NXT Improvements" an Improvement created or arising as a
result of technical assistance, training, research or
development carried out by NXT for the Licensee.
"Sale" sale or any other disposal by the Licensee (whether
for value or not) which shall (including "sales", "sell", "sold" etc.)
include lease, hire or any other transaction which transfers ownership
or possession of any Licensed Product.
"Supporting Documentation" the documents, software and other
materials to be supplied by NXT to the Licensee to
assist the Licensee to manufacture, assemble,
distribute, market sell and use the Licensed Products.
"US Consumer Price Index" the Consumer Price Index for all Consumers, US City
Average (1982 - 84 = 100 ("CPI") All Item Index, published by the Bureau of
Labor
Statistics, United States Department of Labor.
If the CPI shall cease to be compiled and published at
any time during the term of the Agreement, but a
comparable successor index is compiled and published
by the Bureau of Labor Statistics, United States
Department of Labor, such successor index shall be
used for the purposes of the Agreement. If neither the
CPI, nor a comparable successor index is compiled by
the Bureau of Labor Statistics, the index reflecting
cost of living increases generally recognised by
financial and insurance institutions in the United
States shall be used.
2 Commencement and Duration
2.1 Subject to the following provisions, the Agreement shall come into effect
on the Commencement Date.
2.2 If any governmental or other approval is required, then the Licensee shall
use its best efforts to secure such approval of the Agreement in the same
form as executed and the Commencement Date shall be the date of such
approval being obtained by the Licensee. If such approval is not obtained
within one year from the date of the Agreement then the Agreement shall
automatically cease to be of any further effect.
2.3 The Agreement and the licence granted under it shall continue from the
Commencement Date until terminated in accordance with the terms hereof.
3 Grant
3.1 In consideration for the Initial Licensing Fee, the Annual Licensing Fee
and the royalties payable under the Agreement, NXT hereby grants to the
Licensee a non-exclusive non-assignable licence to use in the Field of Use
the IPRs and the NXT Improvements to manufacture and assemble the Licensed
Products in the Production Territory and to distribute, market, sell and
use the Licensed Products in the Field of Use in the Sales Territory.
3.2 The Licensee may not sub-license the IPRs to any party (including without
limitation any Associated Company of the Licensee).
3.3 NXT shall upon written request by the Licensee extend the Agreement to an
Associated Company of the Licensee on the same terms (except that no
further Initial and Annual Licensing Fees shall become due) provided the
Associated Company covenants directly with NXT to observe the terms and
conditions of the Agreement in the terms of the draft letter agreement set
out in Schedule 3. The Licensee shall be jointly and severally responsible
with any Associated Company to which the Agreement has been extended for
the performance by that Associated Company of the terms and conditions of
this Agreement. For the purposes of reporting sales and making royalty
payments, the Licensee shall inform NXT whether sales of an Associated
Company shall be deemed to be sales of the Licensee or whether the
Associated Company shall make the reports and royalty payments directly to
NXT.
3.4 The Licensee may sub-contract in the Production Territory the manufacture
and/or assembly of the Licensed Products (and/or components therefor which
require the use of the IPRs) provided:
i) the Licensee informs NXT in writing of the identity of such
sub-contractor;
ii) the sub-contractor has a separate written agreement with the
Licensee which expressly prohibits the sub-contractor from
supplying any third party and which requires the
sub-contractor to comply mutatis mutandi with the terms and
conditions of this Agreement (including without limitation the
confidentiality obligations in clause 13); and
The Licensee may not commence using the proposed sub-contractor until both
of the above conditions are satisfied. The use of a sub-contractor shall
not relieve the Licensee of any of its obligations under the Agreement to
NXT. The Licensee shall be liable for any activities or threatened
activities of the sub-contractor (whether authorised by the Licensee or
not) which are inconsistent with the terms and conditions of this
Agreement and the Licensee shall fully and promptly protect, hold harmless
and indemnify NXT against all damage, loss, expenses and costs (including
reasonable legal fees and expenses) arising out of the sub-contractor's
activities or threatened activities and any steps taken by NXT to
terminate such matters.
3.5 The Licensee acknowledges that the grant of rights to the Licensee
pursuant to clause 3 is conditional on the Licensee marking all Licensed
Products with the Marks in accordance with the terms of the Agreement. The
Licensee further acknowledges that a failure to comply with the marking
provisions will result in the manufacture, assembly, distribution,
marketing, sale or use (as the case may be) of unlicensed products and
will constitute both a material breach of the Agreement and infringement
of the IPRs.
4 Supply of Supporting Documentation and Know How
4.1 Within sixty days from the Commencement Date NXT shall supply to the
Licensee the Supporting Documentation. At the Licensee's request, NXT may
provide additional copies of the Supporting Documentation where it
believes that it is appropriate to do so and at such cost as it may
decide.
4.2 NXT may (in its absolute discretion) supply to the Licensee such further
Know How in its possession which it is free to disclose to the Licensee
and which may assist the Licensee to manufacture the Licensed Products.
<PAGE>
==============================================================================
==============================================================================
5 Technical assistance
5.1 In addition to the Supporting Documentation, NXT shall provide the
Licensee with a two-day technical briefing (at such date and location as
NXT may in its absolute discretion determine) on the use of the IPRs to
manufacture the Licensed Products.
5.2 To the fullest extent as is permissible by law, all liability for the
technical assistance provided by NXT to the Licensee or for NXT's failure
to provide such assistance is excluded.
5.3 Should the Licensee require technical assistance beyond that allowed in
sub-clause 5.1 or require training, research or development, NXT may
provide such services at the rate of US$ 1,000 per day (plus out of pocket
expenses and VAT if applicable) and on further terms to be agreed between
the parties.
6 Intellectual property
6.1 The Agreement licenses a package of rights consisting of the Patents, the
Know How and the Marks. No territorial restrictions relating to
distribution, marketing and sales of the Licensed Products are placed
either on the Licensee or its customers. Under sub-clause 15.2, the
royalty payments reduce by 33% upon expiry of the last of the Patents.
Accordingly, the Licensee acknowledges NXT's right to receive royalties
for the full period during which the Licensee continues to manufacture,
assemble, market, distribute or sell the Licensed Products notwithstanding
that within the Sales Territory some or even all of the registrations for
patent and/or trade mark rights may not be applied for or fail to proceed
to grant.
6.2 The Licensee hereby acknowledges and agrees that subject to the terms
hereof and the New Cross Licence it shall not acquire or hold any rights
in respect of the IPRs nor in respect of any NXT Improvements. All such
rights shall belong to and shall vest in NXT and/or NXT's licensors. For
the avoidance of doubt, any rights granted hereunder in relation to any
IPRs licensed by a third party to NXT shall automatically terminate on the
termination of such third party licence to NXT.
6.3 The Licensee shall not do, procure or omit to do anything that might
diminish the validity or subsistence of the IPRs nor NXT's or NXT
licensors' ownership of such rights. However, neither this sub-clause nor
anything in the Agreement shall prevent the Licensee from challenging or
assisting others to challenge the ownership, validity or subsistence of
the IPRs or any part of it.
6.4 At the request of NXT, the Licensee shall use its commercially reasonable
endeavours to provide all reasonable information and assistance to enable
any of the IPRs to be registered with any appropriate body anywhere in the
world including, without limitation, by the giving of written and oral
evidence by the relevant employees and officers of the Licensee. NXT shall
reimburse the Licensee in respect of its reasonable out-of-pocket expense
reasonably incurred in the provision of such information and assistance.
7 Warranties
7.1 NXT hereby represents and warrants that:
7.1.1 it is the owner or licensee of the IPRs;
7.1.2 it has the right and power to grant the licence in the
Agreement;
7.1.3 so far as NXT is aware, there is no claim on its title; and
7.1.4 it will use its commercially reasonable endeavours to maintain
the IPRs.
7.2 Subject to the above, NXT does not represent and excludes any warranty:
7.2.1 that what is licensed hereunder is useful, of merchantable or
satisfactory quality or fit for any purpose or is in good
commercial form;
7.2.2 that in exercising its rights hereunder no third party might
bring a claim or action against the Licensee for infringement of
any intellectual property right;
<PAGE>
7.2.3 as to the accuracy of the technical information and the Know
How; or
7.2.4 that the IPRs are valid and enforceable.
7.3 Nothing in sub-clause 7.2 shall exclude, restrict or modify any condition
or product warranty implied in the Agreement by law where to do so would
render sub-clause 7.2 void.
7.4 The Licensee hereby represents and warrants that it has the willingness,
ability and resources to manufacture, assemble, distribute, market and
sell commercially the Licensed Products.
8 Product liability
8.1 NXT shall have no liability whatsoever to the Licensee for any injury,
loss or damage of any kind sustained or incurred by the Licensee or any
other person arising from or in connection with the manufacture, assembly,
distribution, marketing, sale, supply or use of the Licensed Products.
Nothing in this sub-clause shall exclude, restrict or modify any condition
or warranty implied by law where to do so would render this sub-clause
void.
8.2 The Licensee shall fully and promptly protect, hold harmless and indemnify
NXT against all liabilities, claims, damages, losses, expenses and costs
(including reasonable legal fees and expenses) arising out of the
manufacture, assembly, distribution, marketing, sale, supply and use of
the Licensed Products by the Licensee or its customers or arising out of
the use of the IPRs by the Licensee.
9 Third party infringement and legal proceedings
9.1 The Licensee shall immediately report to NXT any infringement or
threatened infringement or unauthorised disclosure or use of the IPRs
which comes to its attention, giving full particulars of all information
available to the Licensee in respect of such infringement, disclosure or
use.
9.2 At NXT's request, the Licensee shall promptly provide all reasonable
information and assistance in respect of potential or actual proceedings
concerning the IPRs including, without limitation, the giving of written
and oral evidence by the relevant employees and officers of the Licensee.
9.3 Subject to the New Cross Licence Agreement the Licensee shall have no
right to bring any proceedings or counterclaims against third parties in
respect of the IPRs without the prior written consent of NXT.
10 NXT Improvements
10.1 The Licensee shall keep confidential any NXT Improvements save to the
extent that any such NXT Improvement is published or otherwise in the
public domain (other than by any unauthorised disclosure by the Licensee).
The Licensee shall forthwith communicate full particulars of such NXT
Improvement to NXT together with all information available to the Licensee
concerning the mode of working and using the same. The Licensee shall
execute all documents and do all such things necessary to enable NXT to
obtain, defend or enforce its rights in and to NXT Improvements.
11 Trade Marks
11.1 The Licensee shall use the Marks and only in relation to the Licensed
Products.
11.2 The Licensee shall use the Marks as agreed with NXT from time to time and
shall not manufacture, assemble, distribute, market or sell (or offer to
distribute, market or sell) Licensed Products in respect of which the
Marks are not used or are used in a manner other than agreed with NXT. It
is hereby agreed in principle that the Licensee shall use the Marks
wherever it uses its own trade marks, but with less prominence in a
similar manner as the use of the "Dolby" mark and logo on document hifi
equipment.
11.3 The Licensee shall not use any mark or name so resembling the Marks as to
be likely to cause confusion or deception in respect of any goods or
services and shall use its best endeavours when using the Marks to
preserve and maintain their distinctiveness and reputation.
11.4 The Licensee shall not and shall procure that any Associated Company of
the Licensee does not
11.4.1 use or register any name, word or device identical or similar
to the Marks as part of a corporate, business or trading name;
or
11.4.2 apply to register anywhere in the world any mark or name
identical to or similar to the Marks in respect of the Licensed
Products or any other goods or services;
11.5 The Licensee shall make such applications as NXT may reasonably consider
necessary or desirable to record the Licensee as a licensee of all or any
of the Marks. The Licensee hereby agrees that such entry may be cancelled
by NXT on termination of the Agreement and the Licensee hereby irrevocably
authorises NXT to do such acts or things and will assist NXT so far as may
be necessary to achieve such cancellation including executing any
necessary documents.
11.6 The Licensee acknowledges that any and all goodwill and any and all rights
resulting from the licensed use of each Mark shall accrue to the benefit
of NXT. At the request of NXT, the Licensee shall promptly execute any
confirmatory assignment to NXT of such rights.
11.7 Without prejudice to the other terms of the Agreement, the Licensee
undertakes not to do or authorise to be done any act which impairs any
registration of the Marks, diminishes the rights of NXT in the Marks,
debases the Marks, or reduces the value of the Marks to NXT.
12 Quality control and marking
12.1 The License shall manufacture and/or assemble the Licensed Products in
accordance with the reasonable quality standards as required by NXT from
time to time and the Licensee shall not distribute, market or sell (or
offer to distribute, market or sell) Licensed Products which do not comply
with such quality standards.
12.2 The Licensee shall ensure that each Licensed Product shall comply at all
times with all applicable laws, and regulations of governmental or other
competent authorities in each relevant country and with any established
industry standards in both the country of origin and the country of
destination.
12.3 The Licensee shall comply fully with NXT's instructions for marking the
Licensed Products and/or their packaging materials and/or their
promotional materials with such notices relating to the IPRs as are
required by applicable laws or are desirable in the opinion of NXT.
12.4 The Licensee shall comply fully with NXT's instructions for placing
identifying marks on the Licensed Products or on their packaging in an
inconspicuous manner so that NXT can readily identify the source of such
Licensed Products.
13 Confidentiality
13.1 The parties hereto shall treat "Confidential Information" (as defined in
the New Cross Licence) in accordance with the terms of clause 8 of the New
Cross License. Without prejudice to the generality of the foregoing, the
term Confidential Information shall include Know How.
13.2 The provisions of sub-clauses 13.1 shall survive termination of the
Agreement.
14 Initial Licensing Fee and Annual Licensing Fee
14.1 In addition to any other sums that may be payable by the Licensee under
any other provisions of the Agreement, the Licensee shall pay to NXT:
14.1.1 the non-reimbursable Initial Licensing Fee within thirty days of
the Commencement Date in respect of the technology transferred pursuant to
the Agreement; and
14.1.2for as long as the Agreement remains in force, the Annual Licensing
Fee within thirty days of each anniversary of the Commencement Date.
<PAGE>
15 Royalty
15.1 The Licensee shall pay running royalties to NXT calculated on the basis of
the Royalty Rate set out in the accompanying Licence Agreement.
15.2 Each royalty payment shall be reduced by 33% after the expiry (whether by
effluxion of time or revocation) of the last of the Patents.
15.3 The royalty shall be calculated on the first day of January, April, July
and October of each year and shall account for sales covered by the
Agreement but not included in any previous royalty calculation.
15.4 The Licensee shall account to and pay NXT the royalty due within one month
of the above quarter days, together with a statement of:
15.4.1 the number of Licensed Products sold according to transducer
type and the number of transducers per panel; and
15.4.2 particulars of the calculation of the royalties payable.
16 Index-Linking, Payments and Taxation
16.1 Royalty payments and Annual Licensing Fee payments due on or after the
first day of April 1998 shall be adjusted annually by the increase (if
any) in the US Consumer Price Index over the immediately preceding
calendar year.
16.2 The Licensee shall pay all sums due under the Agreement in United States
dollars in immediately available funds to such account as NXT shall
nominate.
16.3 The Licensee shall pay to NXT interest on all sums due and payable for so
long as they are due and payable but unpaid, at the rate of 5% per annum
over the base rate of Barclays Bank plce.
16.4 All sums payable under the Agreement are exclusive of Value Added Tax,
consumption tax or other sales tax which shall where applicable be payable
by the Licensee in addition.
16.5 All sums payable by the Licensee hereunder shall be paid in full without
any set off or counterclaim and without deduction or withholding on any
ground whatsoever, save only as may be required by law. If any such
deduction or withholding is required by law in respect of any sum payable,
the Licensee shall be obliged to pay to NXT such additional amount as
would ensure that after any such deductions or withholdings have been made
NXT would have received a sum equal to the amount that it would otherwise
have received in the absence of any such deductions or withholdings. If it
shall appear that any such sum as aforesaid is or is likely to be or
become subject to any such deduction or withholding as aforesaid the
parties shall consider together to what extent, if at all, it may lawfully
be possible to mitigate the amount of such deduction or withholding or of
the amount required to be paid as aforesaid.
16.6 If the Licensee makes an additional payment under sub-clause 16.5 for the
account of NXT and NXT receives or is granted a credit against or relief
or remission for, or repayment of, any tax paid or payable by the Licensee
in respect of or calculated with reference to the deduction or withholding
giving rise to such payment, NXT shall, to the extent that it can do so
without prejudice to the retention of the amount of such credit, relief,
remission or repayment, pay to the Licensee as the case may be, such
amount of the deduction or withholding which will leave NXT (after such
payment) in no better or worse position than it would have been in if the
Licensee had not been required to make such deduction or withholding.
17 Books and inspection
17.1 The Licensee shall keep detailed, true and accurate books of account with
regard to all sales of Licensed Products.
17.2 NXT or its appointed representatives may inspect on five days' notice such
of the Licensee's records as may be necessary to verify the accuracy of
the books of accounts, the sub-clause 15.4 statements and the payments
made under the Agreement. In any event, NXT shall pay the fees of its
appointed representatives in performing such verification. If the
verification reveals an under or over payment, a correcting payment shall
be made in thirty days of notification thereof.
18 Termination
18.1 NXT may terminate the Agreement forthwith at any time by giving seven days
written notice where:
18.1.1 the Licensee breaches any of the terms of the Agreement which
cannot be remedied or, if capable of remedy, such breach is not
remedied within a period of thirty days after notification
thereof;
18.1.2 the Licensee 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 Licensee or if the Licensee
ceases or threatens to cease or makes any material change in
its business.
18.1.3 the Licensee challenges or assists others to challenge the
validity, subsistence or scope of the IPRs or NXT's ownership of
or entitlement to use such rights;
18.1.4 the Agreement or any part thereof is held invalid or
unenforceable by any court of competent jurisdiction or competent
governmental body and the Licensee and NXT fail to reach
agreement as to amendment of the Agreement under clause 21.
19 Rights after termination
19.1 The termination of the Agreement howsoever arising shall not relieve
either of the parties of any obligation to the other arising prior to
termination.
19.2 All moneys due under the Agreement shall be paid forthwith.
19.3 The Licensee shall not be entitled to a pro-rata or any refund of the
Annual Licensing Fee for the year of termination.
19.4 The licence granted under sub-clause 3.1 shall terminate forthwith.
19.5 The Licensee shall promptly arrange for the destruction or, at the option
of NXT, the return or surrender to NXT of all copies of:
(i) the Supporting Documentation; and
(ii) other documents or media on which the Know How is contained,
incorporated or stored; which are within its custody, power,
possession or control.
19.6 Notwithstanding termination of the licence granted in sub-clause 3.1 for a
period of six months following the termination and subject to all the
terms of the Agreement, the Licensee may:
19.6.1 manufacture Licensed Products and apply the Marks to the Licensed
Products where this is to fulfil an order received prior to
termination of the Agreement;
19.6.2 effect sales of Licensed Products held in stock at the time of
termination or manufactured thereafter in accordance with the
above provisions.
20 Assignment
20.1 The Licensee shall not and shall not attempt to assign, transfer,
mortgage, charge or otherwise howsoever part with its rights,
duties and obligations under the Agreement without the previous
written consent of NXT.
20.2 NXT may assign the benefit and burden of the Agreement
together with its rights in and to the IPRs.
21 Invalidity
If any provision of the Agreement is determined to be illegal or
unenforceable by any court of law or any competent governmental or other
authority, the remaining provisions shall be severable and enforceable in
accordance with their terms so long as the Agreement without such terms or
provisions does not fail in its essential purpose. The parties shall
negotiate in good faith to replace any such illegal or unenforceable
provisions with suitable substitute provisions which will maintain as far
as possible the purposes and the effect of the Agreement.
22 Force Majeure
22.1 If either party is prevented or delayed in the performance of any of its
obligations under the Agreement by force majeure and if such party gives
written notice thereof to the other party specifying the matters
constituting force majeure together with such evidence as it reasonably
can give and specifying the period for which it is estimated that such
prevention or delay will continue, then the party so prevented or delayed
shall be excused the performance or the punctual performance as the case
may be as from the date of such notice for so long as such cause of
prevention or delay shall continue.
22.2 For the purpose of the Agreement, the term "force majeure" shall be deemed
to include any cause affecting the performance of the Agreement arising
from or attributable to acts, events, non-happenings, omissions or
accidents any of which are beyond the reasonable control of the party
obliged to perform.
23 Modification
No modification, waiver, alteration or amendment to or of the Agreement
shall be valid unless set out in writing and executed by or on behalf of
NXT and the Licensee.
24 Waiver
Any failure by either party at any time or from time to time to enforce or
require the other party strictly to observe and perform any of the terms
and conditions of the Agreement shall not constitute a waiver of such
terms or conditions or in any way affect the right of either party at any
time to avail itself of such remedies as it may have under the Agreement
or otherwise for any breach or breaches of such terms and conditions.
25 Entire agreement
The Agreement and the New Cross Licence constitute the entire agreement of
the parties as to its subject matter and supersedes and cancels all prior
agreements, understandings and negotiations in connection with it. Each of
the parties confirms and acknowledges that it has not agreed to enter into
the Agreement in reliance upon any statements or representations (whether
of fact or otherwise) made by the other which are not set out in the
Agreement.
26 Relationship
Nothing in the Agreement shall constitute or be deemed to constitute a
partnership between the parties or constitute NXT as agent for the
Licensee or vice versa for any purpose and neither party shall have the
right or authority to and shall not do any act, enter into any contract,
make any representation, give any warranty, incur any liability, assume
any obligation, whether express or implied, of any kind on behalf of the
other or binding to the other in any way.
27 Notices
27.1 Any notice given under the Agreement shall be given in writing and shall
be served by sending the same by pre-paid first class post (or by airmail
if being served outside the United Kingdom) or facsimile or by delivering
the same by hand to the address of the party set out above (or such other
address as either party has specified by notice to the other).
27.2 Any notice served in accordance with sub-clause 27.1 shall be deemed to
have been served when delivered by hand at the time of such delivery and
when sent through the post five calendar days after the date of despatch
and when sent by facsimile on the date of transmission. In the case of
service by facsimile a confirmatory copy of the same shall be sent by
pre-paid first class post (or by airmail if being served outside the
United Kingdom) on the same day as transmission otherwise such notice
shall be invalid.
28 Dispute resolution
28.1 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 require a decision including all differences, disputes or
disagreements which may arise out of or in connection with the 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 the Licensee, who shall meet within five days of being
requested to do so and shall in good faith attempt to resolve the matter
or dispute.
28.2 The parties agree to refer any matter or dispute which is not able to be
resolved pursuant to sub-clause 28.1 to the Centre for Dispute Resolution
("CEDR") in London, England in an attempt to settle the same in good faith
by Alternative Dispute Resolution ("ADR").
28.3 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 sub-clauses 28.1 and 28.2 are
being pursued.
28.4 In the event that the matter remains unresolved by such ADR procedure
within thirty days of the commencement of such procedure, then the parties
shall be at liberty to take such other Proceedings (as defined below) as
they think fit.
29 Governing law and jurisdiction
29.1 The Agreement shall be governed by and construed in accordance with
English law.
29.2 Except as provided for in sub-clauses 28.1, 28.2 and 28.3 in relation to
any legal action or proceedings to enforce the Agreement (including the
licence granted therein) or arising out of or in connection with the
Agreement ("Proceedings"), the Licensee 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 sub-clause
operates for the benefit of NXT which shall retain the right to take
Proceedings in any other jurisdiction.
<PAGE>
SCHEDULE 1
Marks
"NXT" Electronic and electrical apparatus and instruments; loudspeakers;
loudspeaker drive units; public address
Class 9 systems; display panels for advertising, information and publicity
purposes, with integrated or incorporated loudspeakers; display
apparatus, having electrical or electronic components; sound
reproduction apparatus; sound generation apparatus; acoustic
apparatus for reproducing sound; loudspeakers integral to ceiling
tiles; loudspeakers incorporated into ceiling tiles; sound
reverberation units; noise cancellation apparatus; noise suppression
apparatus; audio and video recording and reproducing equipment;
amplifiers, tuners, turntables, compact disc players, cassette
players, microphones, headphones; digital to analogue converters;
magnetic and optical media for or bearing sound recordings; cables
and connectors; televisions and video recorders; control units;
computers; computer peripheral devices; parts and fittings for all
the aforesaid goods.
Country Application no. Date
European Union* 11.07.1996
Australia 712934 17.07.1996
Canada 817786 12.07.1996
China 960091234 08.08.1996
Hong Kong 8610/96 16.07.1996
Japan 13.08.1996
Korea (South) 02.08.1996
Korea (North) 16.07.1996
Malaysia 96/10150 28.08.1996
Mexico 268964 22.07.1996
New Zealand 264569 15.07.1996
Singapore 8587/1996 16.08.1996
Taiwan 85035652 18.07.1996
United Kingdom 2107906 17.08.1996
United States of America 17.08.1996
* Austria, Belgium, Denmark, Finland, France, Germany, Greece, Netherlands,
Ireland, Italy, Luxembourg, Portugal, Spain, Sweden, United Kingdom.
<PAGE>
SCHEDULE 2
The rights granted to the Licensee in relation to the "Field of Use" shall
exclude any rights in relation to the following fields of use for flat panel
transducer and audio speaker products which rights are governed by the New Cross
License:
(A) 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.
(B) Headsets, headphones, earplugs, earbuds, earmuffs, and all forms of
"on the ear" and "in the ear" sound generating devices (for the
avoidance of doubt, this field shall not include communications
handsets such as 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).
(C) Hearing aids, hearing assistance devices and other devices to assist
impaired hearing.
(D) All devices and systems where the sole purpose is reducing,
isolating, controlling or attenuating noise or vibration.
<PAGE>
SCHEDULE 3
To [name of Licensee]
[date]
[address]
Dear Sirs
NXT Licence
We refer to the agreement between ourselves dated [date] ("the Agreement"), a
copy of which is enclosed for reference.
You have requested that the benefit of the Agreement be extended to [name of the
Licensee's Associated Company] (the "Company") under the terms of sub-clause 3.3
of the Agreement. We agree to this request in consideration for the following:
1. payment by the Company of US$1 (receipt and sufficiency of which are
hereby acknowledged);
2. a joint and several warranty from you and the Company that the Company is
an Associated Company;
3. agreement by the Company to perform and be bound by all the terms of the
Agreement as from the Effective Date (as defined below) other than the
obligation to pay the Initial and Annual Licensing Fees; and
4. acknowledgement by the Company that the rights granted to the Company by
this letter may be terminated under the terms of the Agreement or upon
the Company ceasing to be an Associated Company.
The term "Effective Date" means the date when NXT is in receipt of a signed copy
of this letter duly executed by you and the Company.
Unless defined differently in this letter, defined words and expressions shall
have the meanings given in the Agreement.
The law which governs this letter and the Courts which shall have jurisdiction
over any matter arising out of this letter shall be as described in clause 29 of
the Agreement.
<PAGE>
Please indicate your acceptance and agreement to these terms by signing, dating
and returning the enclosed copy of this letter. A copy of this letter is also
being sent to the Company, and signature of that copy by the Company shall be
evidence of the Company's acceptance and agreement to these terms.
Yours faithfully We, [name of the Licensee], hereby confirm and
accept the terms of this letter
For and on behalf of
New Transducers Limited
We, [name of the Company], hereby confirm and
accept
the terms of this letter
---------------------------
<PAGE>
EXHIBIT NO. 10(c)
NOISE CANCELLATION TECHNOLOGIES, INC.
Verity Group PLC
Stonehill
Huntingdon PE18 6ED
27 September 1997
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 favour of
Verity dated 15 April, 1997 as executed by letter agreements dated respectively
15 April 1997 and 17 April 1997 (the "NCTI Option") and the Registration Rights
Agreement between Verity and NCTI dated as at 15 April 1997 (the "RR
Agreement"). 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 date on which the period from the
exercise of purchase rights begins is amended from "the first
anniversary of the date hereof" to the date hereof namely 27 September
1997.
Except as provided in this Paragraph 1, all of the terms and conditions
of the NCTI Option (other than the said date) are hereby ratified and
confirmed and remain in full force and effect.
2. Amendment of RR Agreement
Effective the date hereof, the references in the RR Agreement to the
Option shall be deemed to refer to the NCTI Option as amended by this
letter.
<PAGE>
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.
Yours faithfully
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, Director
<PAGE>
EXHIBIT No. 10(d)
LICENSE AGREEMENT
License Agreement made this 4h day of September, 1997 by and between NCT Audio
Products, Inc., a Delaware corporation with offices at 1025 West Nursery Road,
Linthicum, Maryland 21090, USA, hereinafter referred to as ("Licensee") and
Noise Cancellation Technologies, Inc., a Delaware corporation with offices at
1025 West Nursery Road, Linthicum, Maryland 21090, USA, ("NCT").
WHEREAS Licensee is engaged in the design, development, manufacture and
marketing of flat panel transducer based speaker products for various markets
around the world; and
WHEREAS NCT is engaged in the development of active wave management and related
technologies that have been applied to various fields and industries, and is the
owner of certain United States and foreign patents covering various aspects of
such technologies, which both parties believe can be applied to flat panel
transducer based speaker products; and
WHEREAS Licensee is desirous of obtaining an exclusive license from NCT to
develop, make, use, and sell speaker products incorporating NCT technology;
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:
ARTICLE 1. DEFINITIONS
As used herein, the terms described below have the following meanings.
"Affiliate" shall mean any legal entity which directly or indirectly, is
controlled by, is in control of, or under common control with the legal
entity with reference to which the term "Affiliate" is used.
1.2 "Confidential Information" shall mean the information described in Article
5 below and shall include any and all samples, models, prototypes,
drawings, specifications, formulas, algorithms, software, operating
techniques, processes, data, technical and other information, including
any information relating to the status of research or other investigations
being conducted, whether given in writing, orally, or in magnetic or other
electronic processing form to the extent that such information is not in
the public domain through other than a breach of this Agreement.
1.3 "Improvement" shall mean any improvement, further invention, enhancement,
derivative product, technology, software, firmware, mask work, trade
secret, know-how, patent, patent application or other intellectual
property making use of, extending, based upon or relating to: (a) the
Licensed Patents or other NCT patents, the Licensed Technology or other
NCT technology or any combination thereof (hereinafter "NCT Improvements")
or (b) Licensee Technology (hereinafter "Licensee Improvements") provided
however, that no Sponsor Technology shall be deemed an Improvement.
1.4 The uncapitalized term "know-how", in general, shall have its usual and
accepted meaning, that is, inter alia, all factual knowledge and
information not capable of precise, separate description but which, in an
accumulated form, after being acquired as the result of trial and error,
gives to the one acquiring it an ability to produce and market something
which one otherwise would not have known how to produce and market with
the same accuracy or precision necessary for commercial success.
1.5 "Licensed Patents" shall mean all those patents and patent applications
owned by or licensed to NCT described in Exhibit A hereto and licensed to
Licensee under Article 2 below including any continuations,
continuations-in-part, divisions, extensions, reissues, re-examinations or
renewals of any of the foregoing.
1.6 "Licensed Product" shall mean a specific flat panel transducer based
speaker product embodying, employing, based on or derived from all or part
of the Licensed Patents and/or the Licensed Technology.
1.7 "Licensed Technology" shall mean that unpatented technology owned by or
licensed to NCT described in Exhibit B hereto and licensed to Licensee
under Article 2 below.
1.8 "Licensee Technology" shall mean any and all existing and future
technology, now or hereinafter owned or licensed by or to Licensee and/or
its Affiliates (other than Licensed Patents and Licensed Technology),
including without limitation all know-how, trade secrets, methods,
operating techniques, processes, software, materials, technical data,
engineering information, formulas, specifications, drawings, machinery and
apparatus, patents, patent applications, copyrights and other intellectual
property relating thereto.
1.9 "Market" shall mean the worldwide market for flat paned transducer based
speaker products but excluding: (a) all markets licensed to or reserved by
Verity Group, plc and New Transducers Limited under their several
agreements with NCT, (b) all markets licensed to OnActive Technologies LLC
by NCT under a certain license agreement dated May 31, 1996, (c) all
markets for hearing aids and other hearing enhancing or assisting devices,
and (d) all markets for headsets and headphones and other products
performing functions substantially the same as the foregoing.
1.10 "NCT Technology License" shall mean the license to the Licensed Patents
and the Licensed Technology granted by NCT to Licensee under Article 2 of
this Agreement.
1.11 "Net Revenues" means the actual revenues received by Licensee from its
sale, lease or distribution of Licensed Products minus allowances for
commissions and trade discounts.
1.12 "Sponsor Technology" shall mean with respect to a party hereto (i) all
existing and future technology owned or licensed by or to a party and/or
its Affiliates which, by virtue of contract restrictions binding on such
party, cannot be disclosed or transferred to the other party hereto on the
same terms and conditions as Licensed Technology or Licensee Technology,
as the case may be; and (ii) all existing and future technology which
results from the combination of a party's technology and a third party's
technology, and which by virtue of contract restrictions binding on the
party in question, cannot be disclosed or transferred to the other party
hereto on the same terms and conditions as Licensed Technology or Licensee
Technology, as the case may be.
1.13 "Technical Information" shall mean technical, design, engineering, and
manufacturing information and data pertaining to the design, manufacture,
commercial production and distribution of Licensed Products and components
and parts thereof in the form of designs, prints, plans, material lists,
drawings, specifications, instructions, reports, records, manuals, other
written materials, computer programs and software and other forms or media
relating thereto.
The uncapitalized term "technology", in general, shall have its usual and
accepted meaning and shall include without limitation all know-how, trade
secrets, methods, operating techniques, processes, software, materials,
technical data, engineering information, formulas, specifications,
drawings, machinery and apparatus, patents, patent applications,
copyrights and other intellectual property relating thereto.
1.15 "Third Party Rights" shall mean rights in, to or under the Licensed
Patents and the Licensed Technology heretofore granted by NCT to third
parties including, but not limited to, OnActive Technologies, L.L.C.,
Verity Group plc and New Transducers Ltd. and the rights thereto of their
respective permitted sublicensees, assigns and successors.
ARTICLE 2. THE NCT TECHNOLOGY LICENSE
2.1 License to NCT Patents and NCT Technology. Subject to the terms and
conditions of this Agreement, NCT hereby grants to Licensee a license to
make, have made, use, sell and/or have sold Licensed Products which
incorporate or embody, or are covered or claimed by, or are based on one
or more of the Licensed Patents and/or Licensed Technology.
2.2 Limitations. The NCT Technology License shall be exclusive as against all
others for the manufacture, use and sale of Licensed Products in the
Market throughout the World subject to the Third Party Rights. Said
License is limited to: (a) the manufacture, use and sale of Licensed
Products and (b) the Market and NCT retains the unrestricted right to
manufacture, use and sell Licensed Products and to license others to do so
provided, that neither NCT nor any such licensee shall have any right to
sell Licensed Products in the Market. NCT also retains the right to
manufacture, use and sell products other than Licensed Products in the
Market and to license others to do so.
2.3 Sublicensing. The rights and licenses granted hereunder may be
sublicensed, by Licensee to any third party provided any such sublicense
prohibits further sublicensing without NCT's prior written consent in each
instance. Licensee also shall have the right to have Licensed Products
manufactured for it by others but only under nondisclosure agreements
implemented in accordance with the provisions of Articles 4 and 5 hereof.
2.4 Acceptance. Licensee hereby (i) accepts the rights under the NCT
Technology License granted to it by NCT under this Article 2, and (ii)
acknowledges that the rights that NCT has granted to Licensee hereunder
are limited to the manufacture, use and sale of Licensed Products in the
Market and are subject to the further limitations that may be described
elsewhere in this Agreement.
2.5 Patent and Copyright Notices. Licensee shall mark each Licensed Product
sold, leased, distributed or otherwise transferred and shall cause all
licenses, contracts and agreements with other parties for the sale, lease,
distribution, use or other disposition of Licensed Products to contain a
provision requiring, if feasible, such other parties to mark each Licensed
Product with a suitable legend identifying the Licensed Patents and
Licensed Technology with the appropriate patent or copyright notice, as
the case may be. If the Licensed Product is too small to have a legend
placed on it, Licensee will use all reasonable efforts to have a legend
placed on the software and/or packaging.
2.6 Product Marking. Licensee shall prominently mark each Licensed Product
sold, leased, distributed or otherwise transferred and shall cause all
licenses, contracts and agreements with other parties for the sale, lease,
distribution, use or other disposition of Licensed Products to contain a
provision requiring, if feasible, such other parties to prominently mark
each Licensed Product with a suitable legend identifying the Licensed
Product as being a product which incorporates NCT's flat panel transducer
technology and including such words and logos as NCT may reasonably
request. If the Licensed Product is too small to have such a legend placed
on it, Licensee will use all reasonable efforts to have such a legend
placed on the software and/or packaging.
ARTICLE 3. LICENSE FEE AND ROYALTIES
3.1 License Fee. Upon the execution of this Agreement, Licensee shall pay
NCT $3,000,000 as a non-refundable license fee in partial consideration
of the rights granted hereunder.
3.2 Unit Royalties. Licensee shall pay NCT the royalties listed on
Schedule C with respect to Licensee's sale, lease, distribution or
other transfer of Licensed Products.
3.3 Sublicensing Royalties. Licensee shall pay NCT the royalties listed on
Schedule C with respect to sublicenses granted by Licensee for the
manufacture, use, sale, lease or other disposition or distribution of
Licensed Products.
3.4 Payment. Royalties payable under Sections 3.2 and 3.3 above shall be paid
to NCT within forty-five (45) days from the end of the quarter of each
calendar year as provided in Article 7. Licensee agrees that NCT may
inspect its royalty/revenue records once a year upon thirty (30) days
notice, at NCT's own expense.
ARTICLE 4. DISCLOSURE OF INFORMATION, DATA AND KNOW-HOW
4.1 Disclosure. The parties shall disclose to each other such appropriate
Technical Information as may be reasonably required to accomplish the
purposes of this Agreement. It is agreed, however, that neither party
shall be obligated to disclose information, the disclosure of which has
been restricted by a third party, provided, however, if such information
is required in order to achieve the purposes of this Agreement, the party
which holds such information shall inform the other and use its best
efforts to obtain permission, which may consist of a license, from the
applicable third party to use such information for such purposes.
4.2 Treatment. All disclosed Technical Information which is Confidential
Information (as defined in Article 5 below) shall be kept confidential by
the receiving party in accordance with the further provisions of Article 5
below and will remain the property of the disclosing party.
ARTICLE 5. CONFIDENTIALITY
5.1 Definitions. Each party possesses and will continue to possess
confidential information relating to its business and technology which it
believes has substantial commercial and scientific value in the business
in which it is engaged ("Confidential Information"). Subject to Section
5.4, Confidential Information includes, but is not limited to, Technical
Information, trade secrets, processes, formulas, data, know-how,
discoveries, developments, designs, improvements, inventions, techniques,
marketing plans, strategies, forecasts, new products, software
documentation, unpublished financial statements, budgets, projections,
licenses, prices, costs, customer lists, supplier lists and any other
material regarded by the party possessing it to be confidential,
proprietary or a trade secret. In order to be afforded protection under
this Article 5 tangible forms of Confidential Information must be
identified as such at the time of disclosure and marked "Confidential
Information", "Proprietary Information" or in some other reasonable manner
to indicate it is confidential. 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 confirmed in a written summary appropriately marked as
herein provided within ten (10) days after such oral or visual disclosure.
5.2 Treatment. Each party shall during the term of this Agreement and for a
period of five (5) years thereafter, hold in confidence and not disclose
to third parties except as specifically permitted under this Section 5.2
and Section 5.4 below any and all Confidential Information of the other
party disclosed directly or indirectly to it by the other party.
Each party shall take the following minimum safeguards with respect to the
Confidential Information of the other party:
(a) only those of its employees who need to receive the other party's
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 employee to properly perform his or her
functions;
(b) all documents, drawings, writings and other embodiments which
contain Confidential Information of the other party 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;
(c) all documents, drawings, writings and other embodiments of
information the security or safekeeping of which are subject to
governmental regulations shall be kept in accordance with those
regulations;
(d) in no event shall a party receiving Confidential Information of the
other party disassemble, reverse engineer, re-engineer, redesign,
modify or alter any Confidential Information which it has received
from the other party or attempt any of the foregoing without first
obtaining the written consent of such other party in each instance.
(e) all employees and contractors who shall have access to
Confidential Information of the other party shall be under
written obligation to it; (i) to hold in confidence and not
disclose all Confidential Information made available to them in
the course of their employment in a manner equivalent to that set
forth herein; (ii) to use such Confidential Information only in
the course of performing their employment duties; and (iii) to
assign to their employer or the party retaining them all
inventions or improvements relating to their employer's business
and conceived while in their employer's employ unless such
assignment is prohibited by applicable law.
Notwithstanding the foregoing, a party receiving Confidential Information
of the other party may disclose to its subcontractors and material and
component suppliers so much of such Confidential Information as is
necessary to enable such party to perform its duties and obligations
related to the accomplishment of the purposes of this Agreement provided
that such subcontractors and suppliers are obligated to such party in
writing; (i) to hold in confidence and not disclose such information in a
manner equivalent to that set forth herein; and (ii) not to use such
information except as authorized by such party.
In no event shall the party receiving Confidential Information of the
other party disassemble, reverse engineer, re-engineer, redesign, decrypt,
decipher, reconstruct, re-orient, modify or alter any Confidential
Information of the disclosing party or any circuit design, algorithm,
logic or program code in any of the disclosing party's products, models or
prototypes which contain Confidential Information or attempt any of the
foregoing without first obtaining written consent of the disclosing party
in each instance.
5.3 Return. All documents, drawings, writings and other embodiments of a
party's Confidential Information, as well as those produced, created or
derived from the disclosing party's Confidential Information which
incorporate the disclosing party's Confidential Information and all copies
thereof shall be returned promptly to it by the other party upon the
termination of this Agreement provided that the parties shall continue to
be bound by the provisions of Section 5.2 above.
<PAGE>
5.4 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 other party under a
continuing obligation of confidence of which the party receiving it
was aware;
(e) required by law or the rules of any relevant securities exchange to
be disclosed, but only to the extent of such required disclosure;
provided, that a party required to so disclose Confidential
Information shall use best efforts to notify the other 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; or
(f) was developed independently by the receiving party and without the
use of any Confidential Information received from the disclosing
party under this Agreement.
(g) is Confidential Information of the disclosing party which the
disclosing party has disclosed to third parties without restrictions
on use and disclosure comparable to those contained in this Article
5.
ARTICLE 6. IMPROVEMENTS
6.1 NCT Improvements. In the event that Licensee individually or together with
NCT discovers, develops or creates any NCT Improvements during the term of
this Agreement, Licensee promptly shall grant and assign, on a quitclaim
basis, all of its rights of ownership in such NCT Improvements to NCT,
whether such NCT Improvements are patentable or non-patentable under the
laws of any country, subject to any governmental approvals that may be
required for such grant back and assignment, it being understood that any
such NCT Improvements that are not made the subject of a patent shall
constitute part of the Licensed Technology licensed to Licensee hereunder
and that any such NCT Improvements that are made the subject of a patent
shall constitute one of the Licensed Patents licensed to Licensee
hereunder.
In the event that NCT individually discovers, develops or creates any NCT
Improvements during the term of this Agreement which make use of, extend,
are based upon or relate to the Licensed Patents or the Licensed
Technology, then any such NCT Improvement that is not made subject of a
patent shall constitute part of the Licensed Technology licensed hereunder
and any such NCT Improvement that is made the subject of a patent shall
constitute a Licensed Patent licensed hereunder.
6.2 Licensee Improvements. In the event that NCT individually or together with
Licensee discovers, develops or creates any Licensee Improvements during
the term of this Agreement, NCT promptly shall grant and assign, on a
quitclaim basis, all of its rights of ownership in such Licensee
Improvements to Licensee, whether such Licensee Improvements are
patentable or non-patentable under the laws of any country, subject to any
governmental approvals that may be required for such grant back and
assignment.
6.3 Joint Discoveries. In the event that Licensee and NCT jointly discover,
develop or create any intellectual property whether patentable or
non-patentable that is not an Improvement or is an Improvement not covered
by either Section 6.1 or 6.2 above, all rights and interest in and to such
intellectual property shall be owned equally by Licensee and NCT and each
party hereby grants to the other a royalty free, perpetual, irrevocable
license to use and exploit any such intellectual property.
6.4 Dual Improvements. In the event Licensee and NCT jointly discover, develop
or create any intellectual property whether patentable or non-patentable
that is or could be an Improvement under both Sections 6.1 and 6.2 above,
all rights and interest in and to such intellectual property shall be
owned equally by Licensee and NCT and each party hereby grants to the
other a royalty free, perpetual, irrevocable license to use and exploit
any such intellectual property.
6.4 Individual Discoveries. In the event that either Licensee or NCT
individually discover, develop or create any intellectual property whether
patentable or non-patentable, that is not an Improvement or is an
Improvement not covered by either Section 6.1 or 6.2 above, all rights and
interest in and to such intellectual property shall be owned by the party
discovering, developing or creating the same.
6.5 Further Assurances. The parties shall take all action legally permitted
that may be necessary or appropriate to assure full compliance with the
provisions of this Article 6 notwithstanding the fact that intellectual
property covered by this Article 6 may be discovered, developed or created
by an employee of one of the parties hereto.
ARTICLE 7. PAYMENTS, REPORTS AND RECORDS
Royalties 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 NCT, Licensee shall direct its independent
certified public accountants at Licensee's expense to provide NCT with a
certified written royalty report (the "Royalty Report") for each calendar year
of this Agreement within sixty (60) days of the end of each calendar year of
this Agreement. Such 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 Royalty Report shall be rendered and
royalty payment shall be made within sixty (60) days after termination of this
Agreement.
ARTICLE 8. TERM
The term of this Agreement shall begin on the date hereof and, unless extended
or earlier terminated by the written agreement of the parties or the provisions
of Article 9 below, shall expire immediately upon either: (i) with respect to
rights granted under any patent hereunder, the expiration of that patent under
applicable law; or (ii) with respect to the other rights granted hereunder, upon
the expiration of the last to expire of the patents licensed hereunder.
ARTICLE 9. TERMINATION
9.1 General. This Agreement may be terminated prior to the end of the term
provided in Article 8 above under any of the following provisions of this
Article.
9.2 Breach. In the event of a material breach of this Agreement, if the
defaulting party fails to cure the breach within thirty (30) days, in the
case of a breach involving non-payment of amounts to be paid hereunder, or
sixty (60) days, in the case of any other kind of breach following its
receipt of written notice from the non-defaulting party specifying the
nature of the breach and the corrective action to be taken, then the
non-defaulting party may terminate this Agreement forthwith by delivering
its written declaration to the defaulting party that this Agreement is
terminated; provided any payment default 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 N.A.
9.3 Insolvency. If one of the parties becomes bankrupt or insolvent, or files
a petition therefor, or makes a general assignment for the benefit of
creditors, or otherwise seeks protection under any bankruptcy or
insolvency law, or upon the appointment of a receiver of the assets of a
party ("defaulting party") then the other party shall have the right to
immediately terminate this Agreement upon written notice to the defaulting
party provided, in any such instance, that said right of termination shall
be postponed for as long as the defaulting party continues to conduct its
business in the ordinary course.
9.4 Survival. Notwithstanding the termination of this Agreement under any of
the provisions of this Article 9, the terms and conditions of Articles 4
and 5, and those pertaining to the ownership of rights acquired under
Article 6 shall survive termination of this Agreement and shall continue
to be applicable and govern the parties with respect to the subject matter
thereof.
9.5 Document Return. Each party shall return to the other party within thirty
(30) days of the date of termination under either Article 8 or this
Article 9 all of the Technical Information and other Confidential
Information, received pursuant to this Agreement together with all other
tangible property received for the implementation of this Agreement.
<PAGE>
ARTICLE 10. FORCE MAJEURE
In the event of enforced delay in the performance by either 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 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 other party in writing of the causes and requested an extension for
the period of the enforced delay and shall use all reasonable endeavors to
minimize the effects of any Event of Force Majeure.
ARTICLE 11. APPLICABLE LAW
The terms and conditions of this Agreement and the performance thereof shall be
interpreted in accordance with and governed by the laws of the State of Delaware
and the United States of America.
ARTICLE 12. DISPUTE RESOLUTION
The parties agree to attempt in good faith to resolve any dispute arising out of
or in connection with the performance, operation or interpretation of this
Agreement promptly by negotiation between the authorized contacts of the
parties.
If a dispute should arise, the authorized contacts will meet at least once and
will attempt to resolve the matter. Either authorized contact may request the
other to meet within fourteen (14) days, at a mutually agreed time and place. If
the matter has not been resolved within thirty (30) days of a request being made
for such a meeting, the authorized contacts shall refer the matter to the
representatives of the parties who are responsible for matters at the policy or
strategic level who shall meet within fourteen (14) days of the end of the
thirty (30) day period referred to above, at a mutually agreed time and place.
If the matter has not been resolved within thirty (30) days of a request being
made for this meeting, the parties shall proceed as follows:
(a) Any action, suit or proceeding where the amount in controversy as
to at least one party, exclusive of the interest and costs,
exceeds one million dollars (a "Summary Proceeding"), arising out
of or relating to this Agreement or the breach, termination or
validity thereof, shall be litigated exclusively in the Superior
Court of the State of Delaware (the "Delaware Superior Court") as
a summary proceeding pursuant to Rules 124-131 of the Delaware
Superior Court, or any successor rules (the "Summary Proceeding
Rules"). Each of the parties hereto hereby irrevocably and
unconditionally (i) submits to the jurisdiction of the Delaware
Superior Court for any Summary Proceeding, (ii) agrees not to
commence any Summary Proceeding except in the Delaware Superior
Court, (iii) waives, and agrees not to plead or to make, any
objection to the venue of any Summary Proceeding in the Delaware
Superior Court, (iv) waives, and agrees not to plead or to make,
any claim that any Summary Proceeding brought in the Delaware
Superior Court has been brought in an improper or otherwise
inconvenient forum, (v) waives, and agrees not to plead or to
make, any claim that the Delaware Superior Court lacks personal
jurisdiction over it, (vi) waives its right to remove any Summary
Proceeding to the federal courts except where such courts are
vested with sole and exclusive jurisdiction by statute and (vii)
understands and agrees that it shall not seek a jury trial or
punitive damages in any Summary Proceeding based upon or arising
out of or otherwise related to this Agreement and waives any and
all rights to any such jury trial or to seek punitive damages.
(b) In the event any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of interest and
costs, does not exceed One Million Dollars (a "Proceeding"),
arising out of or relating to this Agreement or the breach,
termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior
Court to proceed under the Summary Proceeding Rules. Until such
time as such application is rejected, such Proceeding shall be
treated as a Summary Proceeding and all of the foregoing
provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
(c) In the event a Summary Proceeding is not available to resolve any
dispute hereunder, the controversy or claim shall be settled by
arbitration conducted on a confidential basis, under the U.S.
Arbitration Act, if applicable, and the then current Commercial
Arbitration Rules of the American Arbitration Association
("Association") strictly in accordance with the terms of this
Agreement and the substantive law of the State of Delaware. The
arbitration shall be conducted at the Association's regional
office located closest to Licensee's principal place of business
by three arbitrators, at least one of whom shall be knowledgeable
in Active Technology and one of whom shall be an attorney.
Judgment upon the arbitrators' award may be entered and enforced
in any court of competent jurisdiction. Neither party shall
institute a proceeding hereunder unless at least sixty (60) days
prior thereto such party shall have given written notice to the
other party of its intent to do so. Neither party shall be
precluded hereby from securing equitable remedies in courts of
any jurisdiction, including, but not limited to, temporary
restraining orders and preliminary injunctions to protect its
rights and interests but such shall not be sought as a means to
avoid or stay arbitration.
(d) Licensee hereby designates and appoints The Corporation Trust
Company with offices on the date hereof at 1209 Orange Street,
Wilmington, DE 19801, as its agent to receive service of process
in any Proceeding or Summary Proceeding. NCT hereby designates
and appoints Corporation Service Company with offices on the date
hereof at 1013 Centre Road, Wilmington, DE 19805, as its agent to
receive such service. Each of the parties hereto further
covenants and agrees that, so long as this Agreement shall be in
effect, each such party shall maintain a duly appointed agent for
the service of summonses and other legal processes in the State
of Delaware and will notify the other parties hereto of the name
and address of such agent if it is no longer the entity
identified in this article.
ARTICLE 13. ANNOUNCEMENTS AND PUBLICITY; INDEPENDENT CONTRACTORS Except for any
disclosure which may be required by law, including appropriate filings with the
Securities Exchange Commission, 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.
Each party to this Agreement is an independent contractor and neither shall be
considered the partner, employer, agent or representative of the other.
ARTICLE 14. SEVERABILITY
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.
ARTICLE 15. RIGHTS OF ASSIGNMENT; SUCCESSORS AND ASSIGNS Neither NCT nor
Licensee shall have any right to assign this Agreement or any of their
respective rights or obligations under this Agreement to any third party except
by operation of law or with the prior written consent of the other party. In the
event Licensee wishes to assign any of its rights or obligations under this
Agreement to an Affiliate of Licensee, NCT's consent will not be unreasonably
withheld. In the event NCT wishes to assign any of its rights or obligations
under this Agreement to an Affiliate of NCT, Licensee's consent will not be
unreasonably withheld. The provisions of this Agreement shall inure to the
benefit of, or be binding upon, the successors and assigns of each party hereto.
ARTICLE 16. NOTICES
Any notices under this Agreement shall be in writing and shall be deemed
delivered if delivered by personal service, or sent by telecopy 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 Section by the other party, any notice or communication
hereunder shall be addressed to NCT as follows:
Noise Cancellation Technologies, Inc.
1025 West Nursery Road
Linthicum, Maryland 21090
Attention: President
Telecopy No: (410) 636-5989
to Licensee as follows:
NCT Audio Products, Inc.
1025 West Nursery Road
Linthicum, Maryland 21090
========================
Telecopy no. (410) 636-5989
ARTICLE 17. TAXES
Licensee shall be solely 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 Licensee of Licensed Products or the
Licenses granted hereunder. Any other taxes, including income taxes based on
royalties and other payments to NCT, shall be the responsibility of NCT.
ARTICLE 18. INDEMNIFICATION
Each of NCT and Licensee agrees to indemnify, defend, and hold harmless the
other party and each of its officers, directors, employees, agents, successors
and assigns (hereinafter referred to in the aggregate in this section as "the
Indemnified Party") against any and all losses, claims, damages, liabilities,
costs and expenses (including without limitation, reasonable attorneys' fees and
other costs of defense of every kind whatsoever and the aggregate amount of
reasonable settlement of any suit, claim or proceeding) which the Indemnified
Party may incur or for which the Indemnified Party may become liable on account
of any suit, claim or proceeding purporting to be based upon a failure to
perform obligations under this Agreement to be performed by the other party
(hereafter the "Indemnifying Party") and its employees or agents. The
Indemnified Party shall promptly advise the Indemnifying Party of any such suit,
claim or proceeding and shall cooperate with the Indemnifying Party in the
defense or settlement of such suit, claim or proceedings providing no settlement
shall be made without the consent of the Indemnified Party, which consent shall
not be unreasonably withheld. In any event, the Indemnified Party shall furnish
to the Indemnifying Party such information relating to such suit, claim or
proceeding as the Indemnifying Party shall reasonably request for use in
defending the same.
ARTICLE 19. MAINTENANCE AND DEFENSE OF LICENSED PATENTS Throughout the term of
this Agreement, NCT shall maintain in force the
Licensed
Patents. In this connection, NCT shall promptly pay all costs of any and all
continuations, continuations-in-part, divisions, extensions, reissues,
re-examinations, or renewals of the Licensed 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. In addition, NCT
shall actively protect the Licensed Patents and shall institute all such suits,
actions or proceedings for infringement of any of the Licensed Patents as may be
necessary in this regard and shall defend and save harmless Licensee against any
suit, damage claim or demand, and any loss, cost or expense suffered as a result
thereof (including reasonable attorneys fees), based on actual or alleged
infringement of any patent or trademark or any unfair trade practice resulting
from the exercise or use of any right or license granted under this Agreement.
Unless NCT shall have received the advice of counsel that success on the merits
is reasonably certain, NCT shall be excused from its duty to commence and/or may
withdraw from any enforcement action under the Licensed Patents and Licensee
shall then be free to pursue enforcement of the Licensed Patents in its own name
and at its sole expense and risk, but only to the extent such infringement
occurs in the Market. In the event NCT fails to protect the Licensed Patents as
aforesaid after notice of possible infringement from Licensee, Licensee shall be
entitled by itself to take proceedings in the name of and with the cooperation
of NCT to restrain any such infringement at Licensee's expense and for
Licensee's benefit. In the event NCT fails to defend and save harmless Licensee
as herein provided, Licensee shall be entitled by itself to take all action
necessary or advisable for its defense and shall be entitled to deduct all costs
and expenses incurred in such defense from the amount of any royalties payable
under this Agreement to the extent the same have not been covered by any amounts
awarded to Licensee under a settlement of or judgment rendered in such
proceeding. NCT shall take all such action as may be reasonably requested by
Licensee to assist Licensee in the proper prosecution of its defense. Where
Licensee proceeds alone and achieves an award from the official enforcement
forum in such an action brought by it, Licensee shall be entitled to retain such
award. However, any compromise of such enforcement action or concession of
invalidity or priority of invention of any patent whether in connection with an
enforcement action or any other proceeding shall require NCT's participation and
express prior written approval. If NCT has elected to participate in and share
in the expense of any such enforcement action, any award shall be shared equally
by NCT and Licensee.
Notwithstanding the foregoing, NCT shall have no liability to defend or pay
damages or costs to Licensee with respect to any claim of infringement which is
based on an implementation not designed by NCT or that is modified by others, or
used or combined in a manner not contemplated by the transfer of NCT Technology.
ARTICLE 20. WARRANTIES
NCT represents and warrants that it has the right, power and authority to enter
into this Agreement and to grant the licenses and other rights contained herein
to Licensee as herein provided and that none of the same will breach or be in
violation of any agreement, license, or grant made with or to any other party by
NCT and that to the best of NCT's knowledge and belief the Licensed Patents are
valid and do not infringe any other patent issued prior to the date hereof.
ARTICLE 21. DISCLAIMER
EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, NCT HEREBY DISCLAIMS ANY
EXPRESS OR IMPLIED WARRANTY OF THE ACCURACY, RELIABILITY, TITLE, TECHNOLOGICAL
OR COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE LICENSED
PATENTS, THE LICENSED TECHNOLOGY, OR THE LICENSED PRODUCTS, OR THEIR SUITABILITY
OR FITNESS FOR ANY PURPOSE WHATSOEVER. NCT DISCLAIMS ALL OTHER WARRANTIES OR
WHATEVER NATURE, EXPRESS OR IMPLIED. NCT DISCLAIMS ALL LIABILITY FOR ANY LOSS OR
DAMAGE RESULTING, DIRECTLY OR INDIRECTLY, FROM THE USE OF THE LICENSED PATENTS,
THE LICENSED TECHNOLOGY, OR THE LICENSED PRODUCTS, OTHER THAN THOSE ARISING FROM
CLAIMS OF INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES; 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, AND INJURY TO OR DEATH OF ANY PERSONS.
<PAGE>
ARTICLE 22. SCOPE OF THE AGREEMENT
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. 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.
IN WITNESS THEREOF, Licensee and NCT have executed this Agreement effective as
of the date first written above.
NCT AUDIO PRODUCTS, INC.
By: /s/ CY E. HAMMOND
Cy E. Hammond
Title: Treasurer
Date: September 15, 1997
NOISE CANCELLATION TECHNOLOGIES, INC.
By: /s/ MICHAEL J. PARRELLA
Michael J. Parrella
Title: President
Date: September 15, 1997
<PAGE>
Exhibit A
NCT Patents
Licensed from 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 NCT'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>
Exhibit A
NCT PATENTS
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
US 5,638,456 Issued June 10, 1997, entitled "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.3
<PAGE>
Exhibit A
NCT PATENTS
PIEZO TECHNOLOGY
Patents pending
(253) Multimedia Personal Computer with Active Noise Reduction and
Piezo Speakers: 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.4
(260) Piezo Speaker for Improved Passenger Cabin Audio Systems: 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.5
(269) Piezoelectric Transducers: Filed November 6, 1995. An extension
of (260). Improved transducer coupling systems that
significantly improves piezo performance.6
(339) Loudspeaker Assembly: Filed April 1997. A novel speaker system
which uses a piezoelectric element to drive a diaphragm
that is significantly larger than the driving element.
<PAGE>
Exhibit A
NCT PATENTS
FLAT PANEL TRANSDUCERS
Patents Pending
(277) Vehicular Loudspeaker System: 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.7
(340) Vehicular Loudspeaker System: Filed April 1997. An extension of
(277). An improved loudspeaker system for passenger
vehicles installed in the door of the vehicle or other
interior trim components.
(402) A Flat Panel Loudspeaker Arrangement and Hands Free Telephone
System Using the Same: Filed October 6, 1997. 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.8
(405) Electroacoustic Transducers: Filed December 20, 1996. An
improved electroacoustic transducer comprising multiple
parallel panel members with an actuator arrangement for
driving the panel members in phase. Also means of isolating
acoustic vibrations generated by the front and rear faces of a
panel so that they do not interfere.
<PAGE>
Exhibit A
NCT PATENTS
LOUDSPEAKER TECHNOLOGY
Patents Pending
(121) 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>
Exhibit B
Licensed Technology
Technology covered by the Cross License Agreement between Verity
Group, plc and Noise Cancellation Technologies, Inc. dated April 15,
1997, as amended.
Unpatented technology and know-how relating to or based on the Licensed
Patents and/or Licensed Technology.
<PAGE>
Exhibit C
Royalties
Unit Royalties (Article 3.2) shall be at the rate of 6.0%.
Sublicensing Royalties (Article 3.3) shall be at the rate of 50%.
<PAGE>
Exhibit 11
NOISE CANCELLATION TECHNOLOGIES, INC. AND SUBSIDIARIES
Computation of Net Profit (Loss) Per Share
(In thousands, except
per share amounts)
Nine months ended
September 30,
-------------------------
PRIMARY 1996 1997
------------ ------------
Net (loss) ($7,523) ($5,178)
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) ($7,523) ($5,178)
============ ============
Weighted average number of shares outstanding. 98,060 121,490
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 1,168 917
Shares issuable upon conversion
of Series B preferred shares - -
------------ ------------
SHARES USED FOR COMPUTATION 99,228 122,407
============ ============
PRIMARY NET (LOSS) PER SHARE ($0.08) ($0.04)
============ ============
FULLY DILUTED
Net(loss) ($7,523) ($5,178)
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) ($7,523) ($5,178)
============ ============
Weighted average number of shares outstanding. 98,060 121,490
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 1,168 2,186
Shares issuable upon conversion
of Series B preferred shares - -
------------ ------------
SHARES USED FOR COMPUTATION 99,228 123,676
============ ============
FULLY DILUTED NET (LOSS) PER SHARE ($0.08) ($0.04)
============ ============
The above per share data are not reported on the statement of operations because
such data is anti-dilutive.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
THIS SCHEDULE CONTAINS CUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AND NOTES TO THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996, AS AMENDED, FILED 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> 1,038
<SECURITIES> 0
<RECEIVABLES> 620
<ALLOWANCES> 124
<INVENTORY> 1,350
<CURRENT-ASSETS> 3,167
<PP&E> 5,416
<DEPRECIATION> 3,950
<TOTAL-ASSETS> 6,254
<CURRENT-LIABILITIES> 3,878
<BONDS> 0
0
0
<COMMON> 1,312
<OTHER-SE> 1,064
<TOTAL-LIABILITY-AND-EQUITY> 6,254
<SALES> 1,069
<TOTAL-REVENUES> 4,840
<CGS> 1,401
<TOTAL-COSTS> 1,696
<OTHER-EXPENSES> 8,312
<LOSS-PROVISION> 148
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> (5,178)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,178)
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<EPS-PRIMARY> (.04)
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