SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Noise Cancellation Technologies, Inc.
(Name of Registrant as Specified in Its Charter)
---------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
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/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
NOISE CANCELLATION TECHNOLOGIES, INC.
1025 West Nursery Road Suite 120
Linthicum, Maryland 21090
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 10, 1998
---------------
To the Stockholders of NOISE CANCELLATION TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Noise Cancellation Technologies, Inc., a Delaware corporation (the
"Company"), will be held at the Stamford Marriott Hotel, The Stamford Forum,
Stamford, Connecticut 06901 on Thursday, September 10, 1998, at 2:00 P.M., for
the following purposes:
1.To elect six directors for the year following the Meeting or until their
successors are elected.
2.To approve the amendment of the Company's Restated Certificate of
Incorporation to change the name of the Company to "NCT Group, Inc."
3.To approve the amendment of the Company's Restated Certificate of
Incorporation to increase the number of shares of common stock authorized
thereunder from 185,000,000 shares to 255,000,000 shares.
4.To approve the adoption of an amendment of the Noise Cancellation
Technologies, Inc. Stock Incentive Plan (the "1992 Plan").
5.To approve a plan granting options to purchase common stock of the Company
to two non-employee directors.
6.To ratify the appointment of Richard A. Eisner & Company, LLP as the
Company's independent auditors for the fiscal year ending December 31,
1998.
7. To transact such other business as may properly come before the Meeting.
Only stockholders of record at the close of business on July 14, 1998, are
entitled to notice of and to vote at the Meeting or at any adjournment thereof.
JOHN B. HORTON
Secretary
Linthicum, Maryland
August ___, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY SIGN THE ACCOMPANYING PROXY, WHICH
IS SOLICITED BY THE COMPANY'S BOARD OF DIRECTORS, AND MAIL IT IN THE ENCLOSED
POSTAGE PAID ENVELOPE. ANY STOCKHOLDER MAY REVOKE HIS OR HER PROXY AT ANY TIME
BEFORE THE MEETING BY WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A
SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE>
NOISE CANCELLATION TECHNOLOGIES, INC.
1025 West Nursery Road Suite 120
Linthicum, Maryland 21090
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PROXY STATEMENT
---------------
SOLICITATION OF PROXY, REVOCABILITY AND VOTING
Solicitation
This Proxy Statement and form of Proxy are being mailed on or about August ___,
1998, to all stockholders of record at the close of business on July 14, 1998,
in connection with the solicitation by the Board of Directors of Proxies for the
Annual Meeting of Stockholders (the "Meeting") to be held on September 10, 1998.
Proxies will be solicited by mail, and all expenses of preparing and soliciting
such proxies will be paid by the Company. All proxies duly executed and received
by the persons designated as proxy thereon will be voted on all matters
presented at the Meeting in accordance with the instructions given thereon by
the person executing such Proxy or, in the absence of specific instructions,
will be voted in favor of each of the proposals indicated on such Proxy.
Management does not know of any other matter that may be brought before the
Meeting, but, in the event that any other matter should properly come before the
Meeting, or any nominee should not be available for election, the persons named
as proxy will have authority to vote all proxies not marked to the contrary in
their discretion as they deem advisable.
Revocability
Any stockholder may revoke his or her Proxy at any time before the Meeting by
written notice to such effect received by the Company at the address shown
above, attention: Corporate Secretary, by delivery of a subsequently dated
Proxy, or by attending the Meeting and voting in person.
Voting
The total number of shares of common stock of the Company outstanding as of July
14, 1998, was 151,852,495. The common stock is the only class of securities of
the Company entitled to vote, each share being entitled to one noncumulative
vote. Only stockholders of record as of the close of business on July 14, 1998,
will be entitled to vote. A majority of the shares outstanding and entitled to
vote, or 75,926,248 shares, must be present at the Meeting in person or by proxy
in order to constitute a quorum for the transaction of business. The affirmative
vote of a majority of all of the outstanding shares of common stock of the
Company is required to approve each of the two amendments of the Company's
Restated Certificate of Incorporation. The affirmative vote of a plurality of
the shares of common stock present and voting in person or by proxy at the
Meeting is required to elect directors and the affirmative vote of a majority of
the shares of common stock present and voting in person or by proxy at the
Meeting is required to approve the adoption of the amendment of the 1992 Plan,
to approve the plan granting options to purchase common stock of the Company to
two non-employee directors, to ratify the appointment of the Company's
independent auditors for the year ending December 31, 1998, and to transact such
other business as may properly come before the Meeting. With respect to
abstentions, shares are considered present at the Meeting for a particular
proposal, but as they are not affirmative votes for the proposal, they will have
the same effect as votes against the proposal. With respect to broker non-votes,
shares are not considered present at the Meeting for the particular proposal for
which the broker withheld authority and, accordingly, will have no effect on the
proposals.
A list of stockholders entitled to vote at the Meeting will be available at the
Company's offices, 1025 West Nursery Road Suite 120 Linthicum, Maryland 21090,
for a period of ten (10) days prior to the Meeting for examination by
any stockholder, and at the Meeting itself.
<PAGE>
Election of Directors
Six directors are to be elected at the Annual Meeting of Stockholders to serve
until the next Annual Meeting of Stockholders of the Company and until their
successors are elected and qualified. Proxies not marked to the contrary will be
voted in favor of the election of each named nominee.
Information Concerning Nominees
The following table sets forth the positions and offices presently held with the
Company by each nominee, his age, and the year from which such nominee's service
on the Company's Board of Directors dates:
Positions and Offices Director
Name Age Presently Held with the Company Since
---- --- ------------------------------- --------
Jay M. Haft 62 Chairman of the Board and Director 1990
Michael J. Parrella 51 President, Chief Executive Officer 1986
and Director
John J. McCloy II 60 Director 1986
Sam Oolie 61 Director 1986
Stephan Carlquist 42 Director 1997
Morton Salkind 65 Director 1997
Jay M. Haft currently serves as Chairman of the Board of Directors of the
Company. He served as President of the Company from November 1994 to July 1995.
He is also a Director of the Company's subsidiary, NCT Audio Products, Inc.
("NCT Audio"), a position which he has held since August 25, 1997. Mr. Haft is a
strategic and financial consultant for growth stage companies. He is active in
international corporate finance, mergers and acquisitions, as well as in the
representation of emerging growth companies. He has actively participated in
strategic planning and fund raising for many high-tech companies, leading edge
medical technology companies and technical product, service and marketing
companies. He is a Managing General Partner of Gen Am "1" Venture Fund, an
international venture capital fund. Mr. Haft is also a Director of numerous
other public and private corporations, including Robotic Vision Systems, Inc.
(OTC), Extech, Inc. (OTC), Encore Medical Corporation (OTC), Viragen, Inc.
(OTC), PC Service Source, Inc. (OTC), DUSA Pharmaceuticals, Inc. (OTC), Oryx
Technology Corp. (OTC), Thrift Management, Inc. (OTC) and Conserver Corporation
of America (OTC). He serves as Chairman of the Board of Extech, Inc. He is
currently of counsel to Parker Duryee Rosoff & Haft, in New York. He was
previously a senior corporate partner of such firm (1989-1994), and prior to
that a founding partner of Wofsey, Certilman, Haft et al (1966-1988). He is a
member of the Florida Commission for Government Accountability to the People, a
National Vice-President of the Miami Ballet and a Director of the Concert
Association of Florida.
Michael J. Parrella currently serves as President and Chief Executive Officer
and as a Director of the Company. He was elected President and Chief Operating
Officer of the Company in February 1988 and served in that capacity until
November 1994. From November 1994 to July 1995 Mr. Parrella served as Executive
Vice President of the Company. He initially became a director in 1986 after
evaluating the application potential of the Company's noise cancellation
technology. At that time, he formed an investment group to acquire control of
the Board and to raise new capital to restructure the Company and its research
and development efforts. Mr. Parrella also serves as President and a Director of
NCT Audio, positions to which he was elected on September 4, 1997, and August
25, 1998, respectively. He was also Chairman of the Board of Environmental
Research Information, Inc., an environmental consulting firm, from December 1987
to March 1991.
John J. McCloy II currently serves as a Director of the Company. He served as
Chief Executive Officer of the Company from September 1987 to November 1994 and
as its Chairman of the Board from September 1986 to November 1994. Additionally,
he served as Chief Financial Officer from November 1990 to February 1993 and as
its Secretary-Treasurer from October 1986 to September 1987. Mr. McCloy was
appointed a Director of NCT Audio, on November 14, 1997, and currently serves as
a Director of that company. Since 1981, he has also been a private investor
concentrating on venture capital and early stage investment projects in a
variety of industries. Mr. McCloy is also a director of American University in
Cairo, the Sound Shore Fund, Inc., and the Atlantic Council.
<PAGE>
Sam Oolie currently serves as a Director of the Company. Mr. Oolie also serves
as a Director of NCT Audio, a position to which he was appointed on September 4,
1997. He is Chairman and Chief Executive Officer of NoFire Technologies, Inc., a
manufacturer of high performance fire retardant products, and has held that
position since August 1995. He is also Chairman of Oolie Enterprises, an
investment company, and has held that position since July 1985. Mr. Oolie
currently serves as a director of Avesis, Inc. and Comverse Technology, Inc. He
has also been a director of CFC Associates, a venture capital partnership, since
January 1984.
Stephan Carlquist was elected as a Director of the Company on July 14, 1997, and
currently serves as a Director of the Company. Mr. Carlquist also serves as a
Director of NCT Audio, a position to which he was appointed on November 14,
1997. He is President of ABB Financial Services, Inc. (USA), one of four
business segments in the ABB Group and has held that position since May 1993.
Mr. Carlquist is also President of ABB Treasury Center (USA), Inc. and has held
that position since June, 1990. From April, 1988 to 1990, he was the Executive
Vice President of ABB World Treasury Center, Zurich, and from April, 1986 to
April, 1988 he was the President of the Geneva branch of Asea Capital
Corporation. Mr. Carlquist joined Asea AB in September, 1983, as Manager,
International Cash Management and served in that capacity until April, 1986.
From February, 1981, to April, 1983, he was employed as a Foreign Exchange/Cash
Manager at Atlas Copco AB. Mr. Carlquist serves as a member of the following
Boards: ABB Financial Services, Inc., ABB Treasury Center USA, Inc., ABB
Treasury Center (Canada), ABB Treasury Center (Brazil), ABB Project & Trade
Finance, Inc., ABB Investment Management Corporation, ABB Credit, Inc., Sirius
Americas Corporation, ABB Industrial Systems, Inc., SUSA, Inc., and
Swedish-American Chamber of Commerce, New York.
Morton Salkind currently serves as a Director of the Company. Mr. Salkind was
elected as a Director of NCT Audio on September 4, 1997, and currently also
serves as a Director of that subsidiary. Formerly he served as a New Jersey
State Lottery Commissioner for five years. This followed previous elective
and appointive offices at the state, county and municipal levels. Mr.
Salkind is currently retired.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's officers and directors, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10% stockholders are required
by regulations of the Securities and Exchange Commission to furnish the Company
with copies of all such reports. Based solely on its review of the copies of
such reports received by it, or written representations from certain reporting
persons that no reports were required for those persons, the Company believes
that, during the period from January 1, 1997, to December 31, 1997, all filing
requirements applicable to its officers, directors, and greater than 10%
stockholders were complied with, except that Morton Salkind and Stephan
Carlquist each filed a Form 3 late and Sam Oolie and Jay Haft each filed a Form
5 late.
Information Concerning the Board
The Board of Directors of the Company held thirteen meetings (not including six
actions by unanimous written consent) during the fiscal year ended December 31,
1997. Other than Messrs. McCloy, Carlquist and Salkind, no incumbent director
during such time was in attendance at fewer than 75% of the aggregate of: (i)
the total number of meetings of the Board of Directors held during the period of
his incumbency in such fiscal year; and (ii) the total number of meetings held
by all committees of the Board of Directors on which he served during such
period.
The Company has an Executive Committee, a Compensation Committee and an Audit
Committee. The Executive Committee was appointed by the Board of Directors on
July 17, 1996, and reappointed on June 19, 1997, and is composed of Messrs. Haft
and Parrella. The Executive Committee has the authority and responsibility of
acting in the place and stead and on behalf of a Chief Executive Officer of the
Company and of exercising all the powers of that office. During the fiscal year
ended December 31, 1997, the Executive Committee acted in the place and stead
and on behalf of a Chief Executive Officer until June 19, 1997, when Mr.
Parrella was elected Chief Executive Officer of the Company. During the fiscal
year ended December 31, 1997, the members of the Executive Committee conferred
with each other not less frequently than once each week.
The Compensation Committee, which was appointed by the Board of Directors on
April 10, 1997, reviews and determines the compensation policies, programs and
procedures of the Company as they relate to the Company's senior management and
is composed of Messrs. Haft, McCloy, and Oolie. During the period between
January 1, 1997, and April 10, 1997, the authority and responsibilities of the
Compensation Committee resided in the Board of Directors. Matters relating to
the grant or issuance of warrants or options to acquire shares of the Company's
common stock and other securities of the Company or rights to acquire other
derivative securities of the Company and in this regard to establish and provide
for the administration of plans under which any of the same may be granted or
issued are determined by the Board of Directors. During the period of its
existence in the fiscal year ended December 31, 1997, the Compensation Committee
held no meetings.
<PAGE>
The Audit Committee, which reviews the activities of the Company's independent
auditors and which is composed of Messrs. McCloy and Oolie held two meetings
during the fiscal year ended December 31, 1997.
The Company does not have a nominating committee. The functions of recommending
potential nominees for Board positions are performed by the Board as a whole.
The Board will consider stockholder recommendations for Board positions which
are made in writing to the Company's Chairman of the Board of Directors.
Directors' Fees, Restricted Stock and Stock Options
None of the Company's directors received any fees for his services as a director
during 1997, except as follows. Under the 1992 Plan, each non-employee director
of the Company is granted 5,000 restricted shares of the Company's common stock
each year for service as a director of the Company. Such restricted shares are
granted to each non-employee director upon his or her initial election to the
Board and upon each subsequent election. All of such restricted shares are made
subject to a restrictive period of three (3) years from the date of grant during
which such shares may not be transferred or encumbered. On July 19, 1997, 5,000
restricted shares were granted to each of Messrs. McCloy, and Oolie, pursuant to
the 1992 Plan. All new non-employee directors are granted stock options for
75,000 shares of the Company's common stock as an inducement to become members
of the Board of Directors. Such grants will be made upon a new director's
initial election to the Board of Directors at an exercise price equal to the
market value of the Company's common stock on the date of grant. Such options
will vest as to 25,000 shares on the date of initial election to the Board of
Directors and 25,000 shares on each of the first and second anniversaries of
such election. Upon their appointment to the Board of Directors on July 14,
1997, Messrs. Carlquist and Salkind were each granted such an option to purchase
75,000 shares of common stock together with 5,000 of such restricted shares of
common stock pursuant to the 1992 Plan. In addition, Messrs. McCloy and Oolie
were each granted options, subject to stockholder approval, to purchase 50,000
shares of common stock on May 2, 1997, pursuant to an informal plan included
within resolutions adopted by the Board of Directors. Stockholder approval of
such grants to Messrs. McCloy and Oolie will be sought at the Meeting as further
described below.
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
The Board of Directors has approved and declared advisable an amendment to the
Company's Restated Certificate of Incorporation to change the name of the
Company to "NCT Group, Inc." The Board believes such action to be in the best
interests of the Company in light of the Company's increased involvement with
technologies and products in fields other than active noise cancellation. The
Board also believes this change is consistent with the Company's organizational
structure comprised of four strategic business units, each of which is focused
on commercialization of certain of the Company's technologies within particular
fields of use and industries.
The affirmative vote of the holders of a majority of all the outstanding shares
of Common Stock of the Company is required for approval of this proposal. The
Board of Directors recommends a vote FOR such proposal.
<PAGE>
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED CAPITALIZATION
The Board of Directors has approved and declared advisable an amendment to the
Company's Restated Certificate of Incorporation to increase the number of shares
of common stock, par value $.01 per share, which the Company shall be authorized
to issue, from 185,000,000 to 255,000,000. As of the record date, the Company
had outstanding 151,852,495 shares of common stock and had reserved an
additional 24,982,983 shares of common stock for issuance upon the conversion of
the Company's Series C Convertible Preferred Stock and the exercise of options
and warrants. The Board believes such action to be in the best interest of the
Company so as to make additional shares of common stock available for the
increase in the number of shares of common stock covered by the 1992 Plan
pursuant to the amendment of the 1992 Plan described below and for acquisitions,
public or private financings involving common stock or preferred stock or other
securities convertible into common stock, stock splits and dividends, present
and future employee benefit programs and other corporate purposes. Other than as
described below, the Company does not have any plans, arrangements or
understandings for the issuance of any of such additional shares.
The Company plans to reserve 1,250,000 shares of such additional shares for
issuance upon the exercise of certain options previously granted under the 1992
Plan whose shares of common stock reserved for issuance upon their exercise were
unreserved by the Company to make shares of common stock available for issuance
in a private placement as part of the consideration payable for the acquisition
by the Company of rights to certain intellectual property owned by another
company.
If the stockholders approve the amendment to the Company's Restated Certificate
of Incorporation (the "Amendment") increasing the authorized common stock from
185,000,000 shares of such stock to 255,000,000 shares, upon the requisite
filing of the Amendment with the Secretary of State of the State of Delaware
(the "Filing"), the Company will reserve 20,000,000 of such newly authorized
shares for issuance upon the grant of awards of restricted shares of common
stock and upon the exercise of options to purchase common stock granted under
the 1992 Plan.
The Company recently raised $6,000,000 by means of a private placement of 6,000
shares of a new series of convertible preferred stock of the Company (the "New
Preferred Stock"). The New Preferred Stock was issued at a discount of 5% of its
stated value and, if the stockholders approve the Amendment, will be convertible
into shares of the Company's common stock after the earliest of: (i) ninety (90)
days after issuance, (ii) five (5) days after the date on which a registration
statement covering such common stock achieves a "no-review" status from the
Securities and Exchange commission, or (iii) the date on which such registration
statement is declared effective by the Commission. The number of shares of the
Company's common stock to be issued upon conversion of the New Preferred Stock
will be based upon the length of time the New Preferred Stock is held prior to
conversion as well as the greater of 80% of (i) $0.625 or (ii) the five (5) day
average closing bid price of the Company's common stock immediately prior to the
conversion date. It is anticipated that the number of shares of common stock
issuable upon conversion of such 6,000 shares of the New Preferred Stock will
not exceed 12,500,000 shares of the Company's common stock. The proceeds from
the private placement of the New Preferred Stock will be used in connection with
the re-purchase by the Company of up to 10,000,000 shares of the Company's
issued and outstanding common stock and, to the extent not so used, for other
corporate purposes.
In partial consideration for services rendered by the placement agent for the
New Preferred Stock offering described in the preceding paragraph, the Company
agreed to grant such agent a warrant to purchase up to 300,000 shares of the
Company's common stock exercisable for a period of five (5) years from the date
the stockholders approve the Amendment at a price equal to the closing bid price
of the Company's common stock on the date of grant.
<PAGE>
The Company's subsidiary, NCT Audio recently raised $6,000,000 by means of a
private placement of a series of convertible preferred stock (the "NCT Audio
Preferred Stock") the proceeds of which are to be used in connection with
acquisitions which NCT Audio intends to make. In the event the common stock of
NCT Audio into which the NCT Audio Preferred Stock is convertible is not
publicly traded by December 31, 1998, the holders of the NCT Audio Preferred
Stock will be given the right to exchange the NCT Audio Preferred Stock for an
equivalent stated value of the Company's New Preferred Stock. Under the terms of
the New Preferred Stock referred to above and provided the stockholders approve
the Amendment, up to 12,500,000 additional shares of the Company's common stock
will be issuable upon the conversion of the New Preferred Stock received in
exchange for the NCT Audio Preferred Stock.
The additional shares of common stock to be authorized pursuant to the Amendment
may be issued from time to time as the Board of Directors my determine without
further action of the stockholders of the Company.
Stockholders of the Company do not currently possess, nor upon the adoption of
the Amendment will they acquire, preemptive rights which would entitle such
persons, as a matter of right, to subscribe for the purchase of any securities
of the Company.
The affirmative vote of the holders of a majority of all the outstanding shares
of Common Stock of the Company is required for approval of this proposal. The
Board of Directors recommends a vote FOR such proposal.
ADOPTION OF AN AMENDMENT TO THE 1992 PLAN
On October 6, 1992, the Company adopted, subject to stockholder approval, the
1992 Plan, under which options to purchase shares of the Company's common stock
were granted to officers, employees and certain directors of the Company in
consideration and recognition of the rights those persons forfeited as a result
of the cancellation of the Company's stock appreciation rights program and the
forfeiture of stock options by certain officers and employees agreed to by such
persons in the furtherance of the Company's efforts to conclude a private
placement of shares of the Company's common stock with various institutional and
other qualified investors by the end of August 1992. On April 14, 1993, the
Option Committee of the Board of Directors amended the 1992 Plan, subject to
stockholder approval, to provide ongoing benefits to officers, employees and
non-employee directors of the Company in a manner which would enhance the
Company's ability to attract and retain the services of qualified executives,
employees and directors while providing an incentive for such persons to make a
maximum contribution to the Company's success and aligning their interests with
those of the Company's stockholders. On May 27, 1993, the stockholders approved
the 1992 Plan as adopted on October 6, 1992, and amended on April 14, 1993.
On November 8, 1995, the Option Committee amended the 1992 Plan, subject to
stockholder approval, to increase the aggregate number of shares of the
Company's common stock reserved for awards of restricted stock and for issuance
upon the exercise of stock options granted under the 1992 Plan from 6,000,000 to
10,000,000 shares and to add to those persons who are eligible to participate
under the 1992 Plan, active consultants to the Company. The purpose of the
amendment was to enable the Company to continue in the future to provide
benefits to officers, employees, non-employee directors and active consultants
of the Company in a manner that would enhance the Company's ability to attract
and retain the services of qualified executives, employees, directors and
consultants while providing an incentive for such persons to make a maximum
contribution to the Company's success and aligning their interests with those of
the Company's stockholders.
<PAGE>
On January 15, 1998, the Board of Directors amended the 1992 Plan, subject to
stockholder approval, to (i) increase the aggregate number of shares of the
Company's common stock reserved for awards of restricted stock and for issuance
upon exercise of stock options granted under the 1992 Plan from 10,000,000
shares to 30,000,000 shares, (ii) provide that the 1992 Plan be administered by
the Board of Directors or a committee appointed by the Board of Directors
consisting of at least two (2) non-employee directors and designated as either
the Compensation Committee or the Option Committee of the Board of Directors,
(iii) provide that non-employee directors of the Company be eligible to be
participants under the 1992 Plan together with employees and active consultants
of the Company, (iv) provide that the provisions under the 1992 Plan providing
for grants of awards of restricted common stock and options to purchase common
stock to non-employee directors according to an automatic formula be deleted
from the 1992 Plan, and (v) provide for such other technical and administrative
amendments as may be deemed necessary or advisable by the Chief Financial
Officer or by the General Counsel of the Company. In order to effect the
increase in the aggregate number of shares of common stock reserved for issuance
under the 1992 Plan as described in clause (i) of the preceding sentence the
stockholders must have approved the amendment to the Company's Restated
Certificate of Incorporation described above. The purpose of the amendment to
the 1992 Plan was to enable the Company to continue in the future to provide
benefits to officers, employees, directors and active consultants of the Company
in a manner that would enhance the Company's ability to attract and retain the
services of qualified executives, employees, directors and consultants while
providing an incentive for such persons to make the maximum contribution towards
the Company's success and aligning their interests with those of the Company's
stockholders and to effect certain administrative and procedural changes deemed
appropriate in light of recent changes to Rule 16b-3 under the Exchange Act
eliminating the need for stock-based plans to provide grants to non-employee
directors only in accordance with a predetermined automatic formula set forth in
the plan.
The material ongoing features of the 1992 Plan, as amended, include the
following:
o The aggregate number of shares of the Company's common stock reserved for
grants of restricted stock and grants of options to purchase shares of the
Company's common stock is 30,000,000 shares. The amendment for which
stockholder approval is being sought increased the number of shares so
reserved from 10,000,000 shares to 30,000,000 shares.
o The 1992 Plan is administered by the Board of Directors or by a committee
approved by the Board of Directors consisting of at least two (2)
non-employee directors and designated as either the Compensation Committee or
the Option Committee (the "Administrator"). The amendment for which
stockholder approval is being sought added the requirement that the directors
appointed to such committee be non-employee directors.
o The 1992 Plan authorizes the granting of options which may be either
non-statutory options or "incentive stock options" (as defined in the
Internal Revenue Code of 1986, as amended) and restricted stock awards.
o The shares of common stock covered by the 1992 Plan may be either treasury
shares or authorized but unissued shares. If any option granted under the
1992 Plan expires or terminates without having been exercised in full or any
restricted stock award is forfeited, the shares covered by the unexercised
portion of the option or by the forfeited restricted stock award may be used
again for new grants under the 1992 Plan.
o There is no maximum number of shares that can be allowed to one participant
in any grant of non-statutory options or restricted stock awards, but the
aggregate fair market value of the shares, at the time of grant, with respect
to which options intended to be incentive stock options are exercisable for
the first time by a participant in any calendar year may not exceed one
hundred thousand ($100,000.00) dollars.
o The persons who are eligible to participate under the 1992 Plan
("Participants") include executive officers (currently 7 persons),
non-employee directors (currently 4 persons), non-executive officer
employees (currently 83 persons) and persons retained by the Company for
consulting services (currently 5 persons). The amendment for which
stockholder approval is being sought added non-employee directors as
persons who are eligible to participate under the 1992 Plan and eliminated
provisions mandating that non-employee directors were only eligible to
receive options and restricted stock awards in accordance with the
formulas set forth in the 1992 Plan.
o The exercise price for all of the options to be granted under the 1992 Plan
is to be not less than the market value of a share of the Company's common
stock on the date of the grant of the option.
o Any grant of an option or restricted stock award under the 1992 Plan must be
made no later than May 27, 2003, ten (10) years from the date the 1992 Plan
originally was approved by the stockholders.
o The 1992 Plan provides for adjustments in the number of shares subject to the
1992 Plan and other relevant provisions in the event of a stock split, merger
or similar occurrence.
<PAGE>
o The Administrator, in its discretion, may determine the provisions of the
options granted under the 1992 Plan, including installment exercise terms
for an option under which the option may be exercised in a series of
cumulative installments; the form of consideration, including cash, shares
of common stock or any combination thereof, which may be accepted in
payment of the purchase price of shares purchased pursuant to the exercise
of an option; special rules regarding exercise in the case of retirement,
death, disability or other termination of employment; and other provisions
consistent with the terms of the 1992 Plan and applicable law.
o The Administrator may determine the term of each option granted but no option
may be exercised after the expiration of ten (10) years from the date it is
granted.
o Options may be granted under the 1992 Plan on such terms and conditions as
the Administrator considers appropriate which may differ from those
provided in the 1992 Plan where such options (substitute options) are
granted in substitution for stock options held by employees of other
companies who concurrently become employees of the Company or a subsidiary
of the Company as the result of a merger or consolidation of the other
company with, or the acquisition of the property or stock of the other
company by, the Company or a subsidiary of the Company.
o All new non-employee directors are granted stock options for 75,000 shares
of the Company's common stock upon a new director's initial election to
the Board of Directors at an exercise price equal to the market value of
the Company's common stock on the date of grant, such option to vest as to
25,000 shares on the date of initial election to the Board of Directors
and 25,000 shares on each of the first and second anniversaries of such
election. The amendment for which stockholder approval is being sought
eliminates this automatic grant to non-employee directors.
o Each non-employee director of the Company is granted 5,000 restricted
shares of the Company's common stock each year for service as a director
of the Company, such grants to be made upon a director's initial election
to the Board and upon each subsequent election with all such restricted
shares subject to a restrictive period of three (3) years from the date of
grant during which such shares may not be transferred or encumbered. The
amendment for which stockholder approval is being sought eliminates this
automatic grant to non-employee directors.
o The Administrator may grant restricted stock awards of shares of the
Company's common stock to any other Participant under the 1992 Plan. The
Administrator in its discretion may determine the provisions of grants of
restricted stock awards including the time at which such awards become
non-forfeitable and fully transferable, the terms of forfeiture, the
entitlement of grantees to vote the shares and receive dividends paid
thereon and any other provisions consistent with the terms of the 1992
Plan and applicable law.
o The Administrator may at any time or times amend the 1992 Plan provided
that, except as required by adjustments in the case of changes in
capitalization, no such amendment shall without the approval of the
stockholders of the Company: (i) increase the maximum number of shares of
common stock for which options or restricted stock awards may be granted
under the 1992 Plan; (ii) reduce the price at which options may be granted
below the price described above; (iii) reduce the exercise price of
outstanding options; (iv) extend the period during which options or
restricted stock awards may be granted; (v) extend the period during which
an outstanding option may be exercised beyond the maximum period provided
for under the 1992 Plan; (iv) materially increase in any other way the
benefits accruing to Participants; (vii) change the class of persons
eligible to be Participants, or (viii) disqualify an optionee or grantee
under the 1992 Plan that is a member of the Option Committee from being a
"disinterested administrator" (as defined for the purposes of Rule 16b-3
(or any successor rule) under the Exchange Act) of the 1992 Plan or of any
other stock-based employee benefit plan of the Company. The 1992 Plan
provides that the formula setting the amount of options and restricted
stock awards to which a non-employee director may be entitled may not be
amended more than once every six (6) months. The amendment for which
stockholder approval is being sought will eliminate the limitations
described in the preceding sentence and in clause (viii) because recent
amendments to Rule 16b-3 under the Exchange Act made them no longer
necessary. The following table sets forth certain additional details
concerning the 1992 Plan:
<PAGE>
New Plan Benefits
As Added by Amendment for Which Approval is Sought
Added by
Amendment Adopted
January 15, 1998 (1)
----------------------
Number of
Name Position (2) $ Value (3) Units
---- ------------ ----------- ---------
Michael J. Parrella (4) President, Chief Executive $7,406,250 7,500,000
Officer and a Director
Jay M. Haft (4) Chairman of the Board of 635,960 700,000
Directors
Irene Lebovics Senior Vice President and 1,031,300 1,000,000
President, NCT Headset
Division
Stephen J. Fogarty (5) Senior Vice President and
Chief Financial Officer
Cy E. Hammond (5) Senior Vice President and 309,388 325,000
Chief Financial Officer
John B. Horton Senior Vice President, General 154,693 175,000
Counsel and Secretary
Executive Group (6) 9,795,416 9,950,000
Non-Executive Director 637,500 600,000
Group (7)
Non-Executive Officer 1,103,491 1,070,000
Employee Group (8)
Active Consultant Group (9) 525,963 510,000
(1) The table includes grants under the 1992 Plan on October 6, 1997, January
15, 1998, and February 14, 1998, which become exercisable in the event the
adoption of the amendment of the 1992 Plan is approved by the stockholders
at the Meeting. Options granted to participants other than non-executive
directors are subject to incremental limitations on vesting and
exercisability for periods of up to five years from the date of grant.
(2) Named executive officers are those for the 1997 fiscal year.
(3) The value per unit in the case of options equals the exercise price of the
options, the fair market value on the date of grant. The fair market value
of the Company's common stock was $0.6875 on October 6, 1997, $1.0625 on
January 15, 1998, and $1.0313 on February 14, 1998.
(4) Mr. Haft was elected Chairman of the Board and relinquished the title of
Chief Executive Officer on July 17, 1996. Prior thereto, and from November
15, 1994, Mr. Haft served as Co-Chairman of the Board and Chief Executive
Officer. From July 17, 1996 to June 19, 1997, the authority and
responsibility of the Chief Executive Officer were delegated by the Board of
Directors to the Executive Committee consisting of Messrs. Haft and Parrella
with Mr. Haft serving as the Committee's Chairman. Mr Parrella was elected
Chief Executive Officer on June 19, 1997.
(5) Mr. Fogarty resigned as Senior Vice President and Chief Financial Officer on
April 24, 1997, and Mr. Hammond was elected to those offices on September 4,
1997.
(6) 7 persons on February 14, 1998.
(7) 4 persons on February 14, 1998.
(8) 72 persons on February 14, 1998.
(9) 5 persons on February 14, 1998.
<PAGE>
Nonstatutory stock options without ascertainable fair market value at grant for
federal income tax purposes are not taxed to the participant until exercised or
otherwise disposed of. If the option is exercised, the participant realizes
compensation income equal to the fair market value of the stock at the time it
is transferred to him or her less the amount paid for it (the option or exercise
price). If the Company satisfies its tax withholding obligations arising from
the exercise of the options, it would receive a business expense deduction for
the amount that the participant must include in gross income as compensation
because of the exercise of a nonstatutory stock option. This deduction is taken
for the same year in which or within which that income is taxable to the
participant. If the participant later sells the stock, any further gain would be
capital gain.
With respect to incentive stock options, in general, no income to a participant
will result for federal tax purposes upon either the granting or the exercise of
an option under the 1992 Plan. If the participant later sells the acquired stock
at least two years after the date the option is granted and at least one year
after the transfer of the acquired stock to the participant, the participant
would realize capital gain equal to the difference between the option price and
the proceeds of the sale. If the participant's gain is taxed as capital gain,
the Company would not be allowed a business expense deduction. If the
participant disposes of the acquired stock before the end of the required
holding periods, the participant would realize ordinary income in the year of
disposition equal to the lesser of : (i) the difference between the option price
and the fair market value of the stock on the exercise date, or (ii) if the
disposition is a taxable sale or exchange, the amount of gain realized; the
Company would receive an equivalent deduction. If the participant later sells
the stock, any further gain would be capital gain.
With respect to restricted stock awards, the participant would generally realize
ordinary income in the year the shares of common stock covered by the award
become non-forfeitable or fully transferable, in an amount equal to the fair
market value of the shares on the date they become non-forfeitable or fully
transferable. The Company would be entitled to an equivalent deduction. If the
participant later sells the stock, any further gain would be capital gain.
Further, the participant may elect to treat the award as ordinary income in the
year of grant within thirty (30) days of the date of grant. If the participant
makes such an election, the Company would be entitled to an equivalent
deduction.
The Board of Directors recommends a vote FOR approval of the adoption of the
amendment of the 1992 Plan described above.
<PAGE>
GRANT OF OPTIONS TO
NON-EMPLOYEE DIRECTORS
On May 2, 1997, the Board of Directors adopted resolutions implementing an
informal plan granting, subject to the approval of the stockholders of the
Company, each of the Company's two (2) non-employee directors an option to
purchase 50,000 shares of the common stock of the Company at $0.2656 per share,
the fair value of the Company's common stock on the date of grant, in
recognition of the efforts of those directors in connection with past services
to the Company including its successful conclusion of a recently completed
cross-license agreement. Certain members of the Company's senior management and
the Chairman of the Board of Directors had been granted options for similar
reasons under the 1992 Plan which, by its terms, prohibited the grant of options
to non-employee directors except under the specific formula set forth in the
Plan upon a new director's first election to the Board of Directors.
The material features of the foregoing plan include the following:
o The aggregate number of shares of the Company's common stock reserved for
grants of options to purchase shares of the Company's common stock is 100,000
shares.
o The plan is administered by the Board of Directors.
o The persons who are eligible to participate under the plan are limited to the
Company's then two (2) non-employee directors, Messrs. McCloy and Oolie.
o The exercise price of the options granted under the plan is the market value
of the shares of the Company's common stock on the date of grant of the
option.
o In order to comply with the rules of The Nasdaq Stock Market, Inc., the grant
of the options under the plan is subject to the approval of the Company's
stockholders.
The following table sets forth certain additional details concerning the Plan.
New Plan Benefits
Implemented by
Resolution
Adopted
May 2, 1997 (1)
-----------------------
Number
Name (2) Position $ Value (3) of Units
-------- -------- ----------- --------
Michael J. Parrella (4) President, Chief Executive - -
Officer and a Director
Jay M. Haft (4) Chairman of the Board of - -
Directors
Irene Lebovics Senior Vice President and - -
President, NCT Headset
Division
Stephen J. Fogarty (5) Senior Vice President and - -
Chief Financial Officer
Cy E. Hammond (5) Senior Vice President and - -
Chief Financial Officer
John B. Horton Senior Vice President, - -
General Counsel and
Secretary
Executive Group (6) - -
Non-Executive Director 26,560 100,000
Group (7)
Non-Executive Officer
Employee Group (8) - -
Active Consultant Group (9) - -
<PAGE>
(1) The table includes grants under the informal plan implemented by resolution
adopted by the Board of Directors on May 2, 1997, which grants were subject
to the approval of the stockholders at the Meeting.
(2) Named executive officers are those for the 1997 fiscal year.
(3) The value per unit equals the exercise price of the options, the fair value
on the date of grant. The fair market value of the Company's common stock
was $0.2656, on May 2, 1997, the date of grant.
(4) Mr. Haft was elected Chairman of the Board and relinquished the title of
Chief Executive Officer on July 17, 1996. Prior thereto, and from November
15, 1994, Mr. Haft served as Co-Chairman of the Board and Chief Executive
Officer. From July 17, 1996 to June 19, 1997, the authority and
responsibility of the Chief Executive Officer were delegated by the Board of
Directors to the Executive Committee consisting of Messrs. Haft and Parrella
with Mr. Haft serving as the Committee's Chairman. Mr Parrella was elected
Chief Executive Officer on June 19, 1997.
(5) Mr. Fogarty resigned as Senior Vice President and Chief Financial Officer on
April 24, 1997, and Mr. Hammond was elected to those offices on September 4,
1997.
(6) 0 persons on May 2, 1997.
(7) 2 persons on May 2, 1997.
(8) 0 persons on May 2, 1997.
(9) 0 persons on May 2, 1997.
The Federal Income Tax aspects of the options granted under the plan are as set
forth above under "Adoption of an Amendment to the 1992 Plan".
The Board of Directors recommends a vote FOR approval of the grant of the
options to Messrs. McCloy and Oolie described above.
INDEPENDENT AUDITORS
Independent Accountants for 1998
The Board of Directors, upon the recommendation of its Audit Committee, has
selected Richard A. Eisner & Company, LLP to audit the accounts of the Company
for the fiscal year ending December 31, 1998. Such firm has reported to the
Company that none of its members has any direct financial interest or material
indirect financial interest in the Company. The Company's Audit Committee is
composed of Messrs. McCloy and Oolie and has responsibility for recommending the
selection of auditors.
Richard A. Eisner & Company, LLP was appointed by the Board of Directors to
audit the accounts of the Company for the fiscal year ended December 31, 1997.
Representatives of Richard A. Eisner & Company, LLP are expected to be present
at the Annual Meeting of Stockholders. Such persons will have an opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.
The Board of Directors recommends a vote FOR the ratification of the appointment
of Richard A. Eisner & Company, LLP as independent auditors.
<PAGE>
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
As previously reported, at the conclusion of the Annual Meeting of Stockholders
on July 17, 1996, Mr. Haft resigned as Chief Executive Officer of the Company
and was appointed Chairman of the Board of Directors. The Board of Directors
designated an Executive Committee comprised of Messrs. Haft and Parrella with
Mr. Haft acting as the Chairman of the Committee. The Board of Directors granted
the Executive Committee the power and authority to act in the place of the Chief
Executive Officer during the existence of a vacancy in that office. At the
conclusion of the Annual Meeting of Stockholders on June 19, 1997, Mr. Parrella
was re-elected President and was elected Chief Executive Officer of the Company.
Mr. Parrella's salary for 1997 was continued at the rate of $120,000 per year.
As reported in last year's Compensation Committee Report, on May 8, 1995, the
Compensation Committee, in recognition of the efforts of Mr. Parrella under the
difficult conditions the Company was then facing and in recognition of the
importance of his continued services to the ongoing restructuring program,
awarded Mr. Parrella a cash bonus of 1% of the cash to be received by the
Company upon the establishment of certain significant business relationships.
Any such percentage bonus was made contingent upon the execution of relevant
documentation or other form of closing with regard to these relationships.
Effective January 1, 1996, the above noted percentage bonus arrangement was
extended indefinitely until modified or terminated by the Board of Directors.
Mr. Parrella was paid a bonus of $243,058 under this percentage bonus
arrangement during 1997. On January 22, 1997, the Board of Directors, subject to
the approval of the stockholders, extended the expiration dates of warrants held
by Mr. Parrella to purchase 862,500 shares of the Company's common stock , in
the aggregate, at the price of $.75 per share from December 31, 1997 to December
31, 1999 and extended the expiration dates of options to purchase 250,000 shares
of common stock at the price of $.50 per share from February 26, 1997 to
February 26, 1999. In conjunction with this action by the Board of Directors
(the "1/22/97 Extension Resolutions") the expiration dates of similar warrants
and options held by other officers and directors and non-officer employees of
the Company were also extended for two years. The fair value of the Company's
Common Stock on January 22, 1997 was $.50 per share. The Company's stockholders
approved the extension of such expiration dates at the Annual Meeting of
Stockholders held on June 19, 1997. On May 2, 1997, in recognition of Mr.
Parrella's efforts related to the cross licensing transaction with Verity Group,
plc and the Company's success in completing a profitable first quarter, the
Company granted Mr. Parrella under the Noise Cancellation Technologies, Inc.
Stock Incentive Plan (the "1992 Plan") an option to purchase 450,000 shares of
common stock at an exercise price of $0.2656 per share, the fair value of the
Company's common stock on the date of grant. On October 6, 1997, in recognition
of Mr. Parrella's efforts related to raising $4.0 million in equity capital for
the Company's subsidiary, NCT Audio Products, Inc., ("NCT Audio"), the Company
granted Mr. Parrella a bonus under the 1992 Plan consisting of an option to
purchase 1,500,000 shares of the Company's common stock at the price of $0.6875
per share, the fair value of the Company's Common Stock on the date of grant,
such option to expire on December 31, 1997 if a private placement of the
remaining $3.0 million of such $4.0 million of NCT Audio's common stock was not
completed by that date. Such private placement was completed prior to December
31, 1997. In addition, this option does not become exercisable until the date on
which the Company's stockholders approve an increase in the number of shares of
the Company's common stock covered by the 1992 Plan by an amount sufficient to
provide, within the 1992 Plan, shares of common stock to be issued upon the
exercise of such option. In addition, in 1997, Mr. Parrella received a $15,348
annual automobile allowance and the Company paid the $5,218.00 annual premium
for a $2.0 million personal life insurance policy on his behalf.
Mr. Haft's salary as Chairman of the Board of Directors was at the annual rate
of $52,638 for 1997. In addition, the expiration dates of options to purchase
218,500 shares of the Company's common stock at an exercise price of $.75 per
share were extended from December 31, 1997 to December 31, 1999 under the
1/22/97 Extension Resolutions described above. Mr. Haft was also granted an
option to purchase 75,000 shares of the Company's common stock at an exercise
price of $0.2656 per share in connection with the May 2, 1997 option grants
described above and was granted a further option to purchase 250,000 shares of
the Company's common stock at an exercise price of $0.6875 per share in
connection with the October 6, 1997 option grants also described above.
<PAGE>
The base salary of Mr. Hammond who was promoted from the office of Vice
President, Finance to Senior Vice President, Chief Financial Officer on
September 4, 1997, was established at $94,000 which was the same as his salary
for 1996. In addition, in recognition of Mr. Hammond's increased
responsibilities, and his efforts in connection with the Company's private
placement of $13.25 million of convertible preferred stock, Mr. Hammond was
awarded a cash bonus of $65,939. In addition, the expiration dates of options to
purchase 25,000 shares of the Company's common stock held by Mr. Hammond were
extended from December 31, 1997 to December 31, 1999 under the 1/22/97 Extension
Resolutions. Mr. Hammond was granted an option to purchase 50,000 shares of the
Company's common stock at an exercise price of $0.2656 per share in connection
with the May 2, 1997 option grants described above and a further option to
purchase 75,000 shares of the Company's common stock at an exercise price of
$0.6875 per share in connection with the October 6, 1997 option grants, also
described above.
The base salary of Mr. Horton, as Senior Vice President, General Counsel and
Secretary of the Company was established at $105,000 in 1997, which was the same
as his salary rate for 1996. In addition, Mr. Horton was paid a bonus of $50,000
in recognition of his efforts relating to the convertible preferred stock
financing. The expiration dates of options to purchase 200,000 shares of the
Company's common stock held by Mr. Horton were extended from December 31, 1997
to December 31, 1999 under the 1/22/97 Extension Resolutions. Mr. Horton was
granted an option to purchase 50,000 shares of the Company's Common Stock at an
exercise price of $0.2656 per share in connection with the May 2, 1997 option
grants described above and a further option to purchase 75,000 shares of the
Company's Common Stock at an exercise price of $0.6875 per share in connection
with the October 6, 1997 option grants also described above.
The base salary of Ms. Lebovics, as Senior Vice President and President of NCT
Hearing Products, a division of the Company, was established at $105,000 for
1997, which was the same as her salary for 1996. In addition, the expiration
dates of options to purchase 201,250 shares of the Company's Common Stock held
by Ms. Lebovics were extended from December 31, 1997 to December 31, 1999 under
the 1/22/97 Extension Resolutions. Ms. Lebovics was granted an option to
purchase 100,000 shares of the Company's common stock at an exercise price of
$0.2656 per share in connection with the May 2, 1997 option grant described
above.
The base salary of Mr. Fogarty, as Senior Vice President the Chief Financial
Officer of the Company during 1997 until his resignation on April 24, 1997 was
established at the rate of $105,000 per year for 1997, which was substantially
the same as his rate of salary for 1996. Upon his resignation as Senior Vice
President and Chief Financial Officer of the Company, Mr. Fogarty was retained
as a consultant to the Company and paid a consulting fee for the remainder of
1997 at the same annual rate as his former salary. In addition, Mr. Fogarty was
paid a cash bonus of $16,653 and received other cash compensation of $15,986 for
a car allowance for 1996 and 1997. Mr. Fogarty was granted an option to purchase
30,000 shares of the Company's common stock at an exercise price of $0.2656 in
connection with the May 2, 1997 option grant described above.
Because of the Company's uncertain business prospects and limited cash
resources, in determining the appropriate levels of compensation for the Chief
Executive Officer and the Named Executive Officers (as defined below), the
Compensation Committee did not deem it relevant, useful or even feasible to
consider the compensation practices of other companies having more certain
prospects and greater cash resources. Rather, the Compensation Committee took
into consideration the contribution being made to the Company's development
efforts by these officers, the extent to which they had received previous
reductions in overall level of compensation in November of 1994 in connection
with the Company's restructuring, the absence, in many instances, of any
material increase in salary or other cash compensation for any of the past
several years, the importance of the Company continuing to receive their
services and the benefit of their knowledge of the Company's technologies, an
the Company's ability to provide them with adequate levels of remuneration
either in cash or in securities. Accordingly, it is the opinion of the Committee
that the above-described rates of compensation are reasonable in light of these
factors and the financial condition of the Company.
THE COMPENSATION COMMITTEE
By: Jay M. Haft, Chairman
John J. McCloy, II
Sam Oolie
<PAGE>
Compensation
Set forth below is certain information for the three fiscal years ended December
31, 1997, 1996 and 1995 relating to compensation received by the Company's Chief
Executive Officer and all executive officers of the Company other than the Chief
Executive Officer (collectively the "Named Executive Officers") whose total
annual salary and bonus for the fiscal year ended December 31, 1997, exceeded
$100,000 for services rendered in all capacities.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Securities
Underlying
Name and Principal Other Annual Options/Warrants All Other
Position Year Salary($) Bonus($) Compensation($) SARs(#) Compensation
- ------------------- ---- --------- -------- --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Parrella 1997 $120,000 $243,058 $15,348 3,062,500 (2) $5,218 (3)
President and 1996 120,000 106,885 15,348 475,000 5,218 (3)
Chief Executive 1995 90,833 47,168 6,395 1,622,000 (4), (12) -
Officer (1)
Jay M. Haft 1997 52,638 - - 543,500 (2) -
Chairman (1) 1996 64,000 - - 200,000 -
1995 110,000 - - 937,000 (5), (12) -
Cy E. Hammond 1997 94,000 65,939 - 150,000 (2) -
Sr. Vice 1996 94,000 - - - -
President, Chief 1995 92,500 - - 439,436 (7), (12) -
Financial Officer (6)
John B. Horton 1997 105,000 50,000 - 325,000 (2) -
Sr. Vice President 1996 116,932 (8) - - - -
General Counsel 1995 93,101 (8) - - 903,834 (9), (12) -
and Secretary
Irene Lebovics 1997 105,000 - - 301,250 (2) -
Sr. Vice President and 1996 105,000 - - - -
President of NCT Hearing 1995 88,000 - - 658,850 (10), (12) -
Products, a div. of
the Company
Stephen J.Fogarty 1997 105,000 16,653 15,986 30,000 -
Sr. Vice President, 1996 105,833 - - - -
Chief Financial 1995 104,434 10,083 - 391,400 (11), (12) -
Officer (6)
</TABLE>
<PAGE>
(1) Mr. Haft was elected Chairman of the Board and relinquished the title
of Chief Executive Officer on July 17,1996. Prior thereto, and from
November 15, 1994, Mr. Haft served as Co-Chairman of the Board and Chief
Executive Officer. From July 17, 1996 to June 19, 1997, the
authority and responsibility of the Chief Executive Officer were
delegated by the Board of Directors to the Executive Committee
consisting of Messrs. Haft and Parrella with Mr. Haft serving as the
Committee's Chairman. Mr. Parrella was elected Chief Executive Officer
on June 19, 1997.
(2) Refer to "Options and Warrants Granted in 1997" table and the footnotes
thereto.
(3) Consists of annual premiums for $2.0 million personal life insurance
policy paid by the Co mpany on behalf of Mr. Parrella.
(4) Excludes options and warrants to purchase 1,385,000 shares of the
Company's common stock forfeited under the "Exchange Program" described in
footnote (12) below, for a net new grant under the Exchange Program and
the "1992 Plan", described in footnote (12) below, of 237,000 options and
warrants all of which were exercisable at December 31, 1997.
(5) Excludes options and warrants to purchase 585,000 shares of the Company's
common stock forfeited under the "Exchange Program" described in footnote
(12) below, for a net new grant under the Exchange Program and the
"Directors Plan", described in footnote (12) below, of 402,000 options and
warrants all of which were exercisable at December 31, 1997.
(6) Mr. Fogarty resigned as Senior Vice President and Chief Financial Officer
on April 24, 1997, and Mr. Hammond was elected to those offices on
September 4, 1997. Services were rendered by Mr. Fogarty as a consultant
to the Company for the period July 1, 1997 through December 31, 1997.
(7) Excludes options to purchase 389,436 shares of the Company's common stock
forfeited under the "Exchange Program" described in footnote (12) below,
for a net new grant under the Exchange Program and the "1992 Plan"
described in footnote (12) below of 50,000 options all of which were
exercisable at December 31, 1997..
(8) Mr. Horton was elected Senior Vice President, General Counsel and
Secretary of the Company on May 6, 1996. Services were rendered by Mr.
Horton as a consultant to the Company for the period January, 1995 through
April, 1996.
(9) Excludes options to purchase 828,834 shares of the Company's common stock
forfeited under the "Exchange Program" described in footnote (12) below,
for a net new grant under the Exchange Program and the "1992 Plan"
described in footnote (12) below of 75,000 options all of which were
exercisable at December 31, 1997.
(10) Excludes options to purchase 507,600 shares of the Company's common stock
forfeited under the "Exchange Program" described in footnote (12) below,
for a net new grant under the Exchange Program and the "1992 Plan",
described in footnote (12) below, of 151,250 options all of which were
exercisable at December 31, 1997.
(11) Excludes options to purchase 316,400 shares of the Company's common stock
forfeited under the "Exchange Program" described in footnote (12) below,
for a net new grant under the Exchange Program and the "1992 Plan",
described in footnote (12) below, of 75,000 options all of which were
exercisable at December 31, 1997.
<PAGE>
(12) On November 8, 1995, the Company received an offer from a Canadian
institutional investor to purchase 4,800,000 shares of the Company's
common stock at a price of $0.75 per share, the fair market value of such
shares on that date. At that time virtually all of the Company's
authorized capital of 100,000,000 shares of common stock was issued and
outstanding or reserved for issuance upon the exercise of outstanding
warrants and options to purchase common stock of the Company. Therefore,
in order to make sufficient shares available to effect the sale of
4,800,000 shares of common stock to such investor, the Company adopted a
program (the "Exchange Program"), to be partially implemented through the
Noise Cancellation Technologies, Inc. Stock Incentive Plan (the "1992
Plan") and the Company's Option Plan for Certain Directors (the "Directors
Plan") and partially outside such plans, under which all directors,
officers, certain active consultants (all of whom were former directors or
officers of the Company) and all current employees were given the right to
exchange presently owned warrants and options that had shares of common
stock reserved for issuance upon their exercise (respectively, "Old
Warrants" and "Old Options") for new warrants and options which initially,
and until the requisite corporate action was taken to increase the
authorized capital of the Company and reserve the required number of
shares of common stock for issuance upon their exercise, would not have
any shares of common stock reserved for issuance upon their exercise
(respectively, "New Warrants" and "New Options"). The exercise price of
the New Warrants and New Options was established at $0.75 per share, the
fair market value of the Company's common stock on November 8, 1995, the
date the Exchange Program was adopted, and exchanges were to be effected
starting with the Old Warrants and Old Options having the highest exercise
prices and proceeding in descending order of exercise prices until
sufficient shares of common stock became available for the Company to
implement the sale of common stock to the Canadian investor. If possible,
no exchanges were to be made which would involve Old Warrants or Old
Options having an exercise price below $0.75 per share, and, in fact, no
such exchanges were required. The exercise prices of the Old Warrants and
Old Options exchanged for New Warrants and New Options ranged from a high
of $5.09 per share to $0.75 per share.
The New Warrants and New Options became fully vested upon the surrender
and forfeiture of Old Warrants and Old Options to purchase a corresponding
number of shares (as adjusted in accordance with the foregoing formula in
the case of those having a $0.75 per share exercise price). However, the
New Warrants and New Options would not become exercisable until: (i)
approval by the Company's stockholders of an amendment to the Certificate
of Incorporation increasing the authorized capital by an amount of
additional shares of common stock at least sufficient to provide the
number of shares needed to be reserved to permit the exercise of all New
Warrants and New Options, and (ii) the completion of such further
corporate action including amendments to the 1992 Plan and the Directors
Plan that may be necessary or appropriate in connection with the
implementation of the Exchange Program. Such stockholder approval and
further corporate action were obtained and completed on July 17, 1996, and
August 14, 1996, respectively. The expiration dates of the New Warrants
and New Options are the same as the expiration dates of the Old Warrants
and Old Options exchanged except that if such expiration date occurred
prior to the date on which the New Warrants or New Options become
exercisable, the expiration date for such New Warrants or New Options
would be ninety (90) days following the date on which such New Warrants
and New Options become exercisable. In all other respects, the terms and
conditions of the New Warrants and New Options are the same as the terms
and conditions of the Old Warrants and Old Options exchanged.
Under the Exchange Program, 4,800,249 shares of the Company's common stock
were made available for issuance to the Canadian institutional investor
and it was necessary in order to make the New Warrants and New Options
fully exercisable for the Company to take the appropriate corporate action
to reserve 5,055,499 shares of the Company's common stock for issuance
upon their exercise which action was completed following the above
described increase in the Company's authorized capital.
<PAGE>
Stock Options and Warrants
The following tables summarize the Named Executive Officers' stock option and
warrant activity during 1997.
<TABLE>
<CAPTION>
Options and Warrants Granted in 1997
Percent
of Total Potential Realized Value
Options and at Assumed Annual
Shares Warrants Rates of Stock Price
Underlying Granted Appreciation for Option
Options and to Exercise and Warrant Term (4)
Warrants Employees Price Expiration ------------------------
Name Granted in 1997 Per Share Date 5% 10%
- ---- ----------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Parrella 862,500 (1) 13.3% $0.7500 12/31/99 $99,814 $209,398
250,000 (1) 3.9% 0.5000 02/26/99 13,473 27,700
450,000 (2) 6.9% 0.2656 05/02/04 48,657 113,391
1,500,000 (3) 23.1% 0.6875 10/06/04 419,822 978,365
Jay M. Haft 218,500 (1) 3.4% 0.7500 12/31/99 25,286 53,047
75,000 (2) 1.2% 0.2656 05/02/04 8,109 18,898
250,000 (3) 3.9% 0.6875 10/06/04 69,970 163,061
Cy E. Hammond 25,000 (1) 0.4% 0.7500 12/31/99 2,893 6,070
50,000 (2) 0.8% 0.2656 05/02/04 5,406 12,599
75,000 (3) 1.2% 0.6875 10/06/04 20,991 48,918
John B. Horton 200,000 (1) 3.1% 0.7500 09/16/00 20,744 43,285
50,000 (2) 0.8% 0.2656 05/02/04 5,406 12,599
75,000 (3) 1.2% 0.6875 10/06/04 20,991 48,918
Irene Lebovics 201,250 (1) 3.1% 0.7500 12/31/99 23,290 48,860
100,000 (2) 1.5% 0.2656 05/02/04 10,813 25,198
Stephen J. Fogarty 30,000 (2) 0.5% 0.2656 05/02/04 3,244 7,559
</TABLE>
- -------------------------------------------------------------------------------
(1) Expiration dates of the warrants and options to purchase common stock of
the Company were extended for an additional two years from the original
date of expiration.
(2) Options to purchase these shares were granted pursuant to the 1992 Plan
and are currently exercisable.
(3) Options to purchase these shares were granted pursuant to the 1992 Plan
and are not exercisable until such time as the Company's stockholders
approve an increase in the number of shares of the Company's common stock
included in the 1992 Plan.
(4) The dollar amounts on these columns are the result of calculations at the
5% and 10% rates required by the SEC and, therefore, are not intended to
forecast possible future appreciation, if any, of the stock price.
<PAGE>
<TABLE>
<CAPTION>
1997 Aggregated Options and Warrant Exercises and
December 31, 1997 Option and Warrant Values
Number of Shares
Number Underlying Value of Unexercised
of Unexercised Options In-the-Money Options
Shares and Warrants at and Warrants at
Acquired December 31, 1997 December 31, 1997
on Value -------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Parrella 449,456 $389,035 2,737,000 1,500,000 $1,401,962 $656,250
Jay M. Haft - - 1,282,000 250,000 587,074 109,375
Cy E. Hammond - - 319,718 75,000 148,018 32,813
John B. Horton - - 539,417 75,000 233,528 32,813
Irene Lebovics - - 592,550 - 282,358 -
Stephen J. Fogarty 263,200 77,640 - - - -
</TABLE>
Compensation Arrangements with Certain Officers and Directors
On February 1, 1996, the Compensation Committee awarded Mr. Parrella an
incentive bonus equal to 1% of the cash received by the Company upon the
execution of the agreement or other documentation evidencing transactions with
unaffiliated parties (other than certain parties involved in transactions then
in negotiation) or otherwise received at the closing of said transactions which
occur subsequent to January 1, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1997, the following persons served as
members of the Compensation Committee of the Company's Board of Directors: Jay
M. Haft, John J. McCloy, II, and Sam Oolie. Mr. Haft, Chairman of the Committee,
during such fiscal year, was Chairman of the Board and an employee of the
Company, and was a manager of OnActive Technologies, LLC, a subsidiary of the
Company. Mr. Haft served as President of the Company from November, 1994, until
July, 1995, and served as its Chief Executive Officer from November, 1994, to
July 17, 1996. Mr. Haft has also served as a member of the Board of Directors of
the Company's subsidiary, NCT Audio, since August 25, 1997. Messrs. McCloy and
Oolie have also served as members of the Board of Directors of NCT Audio since
November 14, 1997, and September 4, 1997, respectively.
In October 1990, the Company's Board of Directors authorized the issuance of
warrants to acquire 420,000 shares of common stock to each of Messrs. McCloy,
Parrella and Oolie and Ms. Lebovics, exercisable through September 30, 1994, at
$.375 per share, being the market price of the Company's common stock on the
date of such authorization, based upon each such person's commitment to extend
his or her personal guarantee on a joint and several basis with the others in
support of the Company's attempt to secure bank or other institutional
financing, the amount of which to be covered by the guarantee would not exceed
$350,000. No firm commitment for any such financing has been secured by the
Company and at present no such financing is being sought. However, each of such
persons' commitment to furnish said guarantee continues in full force and
effect.
In 1989, the Company established a joint venture with Environmental Research
Information, Inc., ("ERI") to jointly develop, manufacture and sell (i) products
intended for use solely in the process of electric power generation,
transmission and distribution and which reduce noise and/or vibration resulting
from such process, (ii) personal quieting products sold directly to the electric
utility industry and (iii) products that reduce noise and/or vibration emanating
from fans and fan systems (collectively, "Power and Fan Products"). In 1991, in
connection with the termination of this joint venture, the Company agreed, among
other things, during the period ending February 1996, to make payments to ERI
equal to (i) 4.5% of the Company's sales of Power and Fan Products and (ii)
23.75% of fees derived by the Company from its license of Power and Fan Products
technology, subject to an overall maximum of $4,500,000. Michael J. Parrella,
President of the Company, was Chairman of ERI at the time of both the
establishment and termination of the joint venture and owns approximately 12% of
the outstanding capital of ERI. In addition, Jay M. Haft, Co-Chairman, and Chief
Executive Officer of the Company, shares investment control over an additional
24% of the outstanding capital of ERI. The Company believes that the respective
terms of both the establishment of the joint venture with ERI and its
termination were comparable to those that could have been negotiated with other
persons or entities. During the fiscal year ended December 31, 1997, the Company
was not required to make any such payments to ERI under these agreements.
In 1993, the Company entered into three Marketing Agreements with Quiet Power
Systems, Inc. ("QSI") (until March 2, 1994, "Active Acoustical Solutions,
Inc."), a company which is 33% owned by ERI and 2% owned by Mr. Haft. Under the
terms of one of these Marketing Agreements, QSI has undertaken to use its best
efforts to seek research and development funding for the Company from electric
and natural gas utilities for applications of the Company's technology to their
industries. In exchange for this undertaking, the Company has issued a warrant
to QSI to purchase 750,000 shares of Common Stock at $3.00 per share. The last
sale price for the Common Stock reported on the NASDAQ National Market System on
May 15, 1993, the date of the Marketing Agreement, was $2.9375. The warrant
becomes exercisable as to specific portions of the total 750,000 shares of
Common Stock upon the occurrence of defined events relating to QSI's efforts to
obtain such funding for the Company. When such defined events occur, the Company
will record a charge for the amount by which the market price of the Common
Stock on such date exceeds $3.00 per share, if any. The warrant remains
exercisable as to each such portion from the occurrence of the defined event
through October 13, 1998. As of December 31, 1994, contingencies had been
removed against 525,000 warrants resulting in a 1993 non-cash charge of
$120,250. This Marketing Agreement also grants to QSI a non-exclusive right to
market the Company's products that are or will be designed and sold for use in
or with equipment used by electric and/or natural gas utilities for non-retrofit
applications in North America. QSI is entitled to receive a sales commission on
any sales to a customer of such products for which QSI is a procuring cause in
obtaining the first order from such customer. In the case of sales to utility
company customers, the commission is 6% of the revenues received by the Company.
On sales to original equipment manufacturers for utilities, the commission is 6%
on the gross revenue NCT receives on such sales from the customer in the first
year, 4% in the second year, 2% in the third year and 1% in the fourth year, and
.5% in any future years after the fourth year. QSI is also entitled to receive a
5% commission on any research and development funding it obtains for NCT, and on
any license fees it obtains for the Company from the license of the Company's
technology. The initial term of this Agreement is three years renewable
automatically thereafter on a year-to-year basis unless a party elects not to
renew.
Under the terms of the second of the three Marketing Agreements, QSI is granted
a non-exclusive right to market the Company's products that are or will be
designed and sold for use in or with feeder bowls throughout the world,
excluding Scandinavia and Italy. Under this Marketing Agreement, QSI is entitled
to receive commissions similar to those payable to end user and original
equipment manufacturer customers described above. QSI is also entitled to
receive the same 5% commission described above on research and development
funding and technology licenses which it obtains for the Company in the feeder
bowl area. The initial term of this Marketing Agreement is three years with
subsequent automatic one-year renewals unless a party elects not to renew.
Under the terms of the third Marketing Agreement, QSI is granted an exclusive
right to market the Company's products that are or will be designed and sold for
use in or with equipment used by electric and/or natural gas utilities for
retrofit applications in North America. QSI is entitled to receive a sales
commission on any sales to a customer of such products equal to 129% of QSI's
marketing expenses attributable to the marketing of the products in question,
which expenses are to be deemed to be the lesser of QSI's actual expenses or 35%
of the revenues received by the Company from the sale of such products. QSI is
also entitled to receive a 5% commission on research and development funding
similar to that described above. QSI's exclusive rights continue for an
indefinite term provided it meets certain performance criteria relating to
marketing efforts during the first two years following product availability in
commercial quantity and minimum levels of product sales in subsequent years. In
the event QSI's rights become non-exclusive, depending on the circumstances
causing such change, the initial term then becomes either three or five years
from the date of this Marketing Agreement, with subsequent one-year automatic
renewals in each instance unless either party elects not to renew. During the
fiscal year ended December 31, 1997, the Company was not required to pay any
commissions to QSI under any of these Marketing Agreements.
The Company has also entered into a Teaming Agreement with QSI under which each
party agrees to be responsible for certain activities relating to transformer
quieting system development projects to be undertaken with utility companies.
Under this Teaming Agreement, QSI is entitled to receive 19% of the amounts to
be received from participating utilities and the Company is entitled to receive
81%. During the fiscal year ended December 31, 1997, the Company made no
payments to QSI for project management services.
In March 1995, the Company entered into a Master Agreement with QSI under which
QSI was granted an exclusive worldwide license under certain NCT patents and
technical information to market, sell and distribute transformer quieting
products, turbine quieting products and certain other products in the utility
industry. Under the Master Agreement, QSI is to fund development of the products
by the Company and the Company is to manufacture the products. However, QSI may
obtain the right to manufacture the products under certain circumstances include
NCT's failure to develop the products or the failure of the parties to agree on
certain development matters. In consideration of the rights granted under the
Master Agreement, QSI is to pay the Company a royalty of 6% of the gross
revenues received from the sale of the products and 50% of the gross revenues
received from sublicensing the rights granted to QSI under the Master Agreement
after QSI has recouped 150% of the costs incurred by QSI in the development of
the products in question. The Company is obligated to pay similar royalties to
QSI on its sale of the products and the licensing of rights covered under the
Master Agreement outside the utility industry and from sales and licensing
within the utility industry in the Far East. In addition to the foregoing
royalties, QSI is to pay an exclusivity fee to the Company of $750,000; $250,000
of which QSI paid to the Company in June 1994. The balance is payable in equal
monthly installments of $16,667 beginning in April 1995. QSI's exclusive rights
become non-exclusive with respect to all products if it fails to pay any
installment of the exclusivity fee when due and QSI loses such rights with
respect to any given product in the event it fails to make any development
funding payment applicable to that product. The Master Agreement supersedes all
other agreements relating to the products covered under the Master Agreement,
including those agreements between the Company and QSI described above.
Immediately following the execution to the Master Agreement, the Company and QSI
entered into a letter agreement providing for the termination of the Master
Agreement at the Company's election if QSI did not pay approximately $500,000 in
payables then owed to the Company by May 15, 1995.
In April 1995, the Company and QSI entered into another letter agreement under
which QSI agreed to forfeit and surrender the five year warrant to purchase
750,000 shares of the Company's common stock issued to QSI under the first
Marketing Agreement described above. In addition, the $500,000 balance of the
exclusivity fee provided for under the Master Agreement was reduced to $250,000
to be paid in 30 monthly installments of $8,333 each and the payment of the
indebtedness to be paid under the letter agreement described in the preceding
paragraph was revised to be the earlier of May 15, 1996, or the date of closing
of a financing of QSI in an amount exceeding $1.5 million, whichever first
occurs. Such indebtedness is to be evidenced by a promissory note, non payment
of which is to constitute an event of termination under the Master Agreement.
On May 21, 1996, the Company and QSI entered into another letter agreement
extending the time by which the payments from QSI to the Company under the April
1995 letter agreement described above were to be made. Under the letter the
payment of certain arrearages in the payment of the exclusivity fee was to be
made not later than June 15, 1996, with the balance continuing to be payable by
monthly payments of $8,333 and as provided in the May 1995 letter agreement. In
addition the payment of the other indebtedness owed by QSI to the Company was to
be paid by a payment of $25,000 at the time QSI obtained certain anticipated
financing with the balance paid by monthly payments of $15,000 each. Default in
QSI's timely payment of any of the amounts specified in the May 21, 1996 letter
agreement was to cause the immediate termination of the Master Agreement and all
rights granted to QSI thereunder.
On April 9, 1997, the Company and QSI entered into another letter agreement
revising the payment schedule set forth in the May 21, 1996 letter agreement
applicable to the payment of the indebtedness owed to the Company by QSI other
than the unpaid portion of the exclusivity fee. Under the revised schedule, the
full amount of such indebtedness is to be paid by an initial payment of $125,000
on or before April 21, 1997, and a second payment of $200,000 upon the closing
of a proposed financing in June 1997 or on January 1, 1998, whichever first
occurs. The Company is also entitled to receive 15% of any other financing
obtained by QSI in the interim as well as interest at the rate of 10% per annum
on the unpaid amount of such indebtedness from July 1, 1997. The letter
agreement also provides for the continuation of QSI's payment of the exclusivity
fee in accordance with the earlier letter agreements as well as the payment of
$11,108 by April 21, 1997, for headset products sold by the Company to QSI in
1996. In the event of a default in QSI's timely payment of any of the amounts
specified in the April 9, 1997 letter agreement, the Company has the right to
cause the termination of the Master Agreement and all rights granted by QSI
thereunder upon 10 days notice of termination to QSI.
As of June 30, 1998, QSI has paid all installments due and payable for the
exclusivity fee and owes the Company $150,000 which was due on January 1, 1998,
and is fully reserved. Other than as described above, QSI owes no other amounts
to the Company. The Company has been informed by QSI that QSI's failure to pay
such $150,000 is attributable to a shortage of cash and other liquid assets.
The Company believes that the terms of its agreements with QSI are comparable to
those that it could have negotiated with other persons or entities.
<PAGE>
PERFORMANCE GRAPH
Note: The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
<TABLE>
<CAPTION>
Noise Cancellation Technologies, Inc.
Stock Performance (1)
[GRAPHIC OMITTED]
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NCT $100 $ 78 $ 20 $ 17 $ 11 $ 30
NASDAQ Composite Index 100 115 112 159 196 240
NASDAQ Electronic Component 100 137 152 251 435 456
Stock Index (2)
</TABLE>
(1)Assumes an investment of $100.00 in the Company's common stock and in each
index on December 31, 1992.
(2)The Company has selected the NASDAQ Electronic Components Stock Index
composed of companies in the electronics components industry listed on the
NASDAQ National Market System. Because the Company knows of no other publicly
owned company whose business consists solely or primarily of the development,
production and sale of systems for the cancellation or control of noise and
vibration by electronic means and other applications of Active Wave
Management(TM) technology, it is unable to identify a peer group or an
appropriate published industry or line of business index other than the
NASDAQ Electronics Components Stock Index.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of July 14, 1998, information concerning the
shares of common stock beneficially owned by each person who, to the knowledge
of the Company, is the holder of 5% or more of the common stock of the Company,
each Director, and each Named Executive Officer, and all executive officers and
Directors of the Company as a group. Except as otherwise noted, each beneficial
owner has sole investment and voting power with respect to the listed shares.
Amount and Approximate
Nature of Percentage
Name of Beneficial Owner Beneficial of Class
Ownership (1) (1)
- ------------------------------------- ------------------ ------------
Michael J. Parrella 2,750,333 (2) 1.78%
John J. McCloy 3,661,591 (3) 2.38%
Jay M. Haft 1,282,000 (4) 0.84%
Sam Oolie 565,000 (5) 0.37%
Morton Salkind 85,000 (6) 0.06%
Stephan Carlquist 160,000 (7) 0.11%
Irene Lebovics 1,388,067 (8) 0.91%
Cy E. Hammond 319,718 (9) 0.21%
John B. Horton 559,417 (10) 0.37%
Stephen J. Fogarty - -
All Executive Officers and Directors 11,596,126 (11) 7.17%
as a Group (11 persons)
Carole Salkind 9,542,143 (12) 6.17%
Her Majesty The Queen, 11,250,000 (13) 7.41%
Province of Alberta, Canada
(1) Assumes the exercise of currently exercisable outstanding options or
warrants to purchase shares of common stock. The percent of class
ownership is calculated separately for each person based on the assumption
that the person listed on the table has exercised all options and warrants
shown for that person, but that no other holder of options or warrants has
exercised such options or warrants.
(2) Includes 862,500 shares issuable upon the exercise of currently
exercisable warrants and 1,874,500 shares issuable upon the exercise of
currently exercisable options. Does not include 7,500,000 shares issuable
upon the exercise of options which become exercisable upon stockholder
approval of an amendment to the 1992 Plan increasing the number of shares
of common stock covered by the 1992 Plan (the "1992 Plan Amendment"). The
options to purchase 4,000,000 of such shares are subject to further
limitations on vesting and exercisability which expire on January 15,
2001.
(3) Includes 862,500 shares issuable upon the exercise of currently
exercisable warrants and 900,000 shares issuable upon the exercise of
currently exercisable options. Does not include 150,000 shares issuable
upon the exercise of options which become exercisable upon stockholder
approval of the 1992 Plan Amendment.
(4) Includes 218,500 shares issuable upon the exercise of currently
exercisable warrants, 10,000 restricted shares and 1,053,500 shares
issuable upon the exercise of currently exercisable options. Does not
include 700,000 shares issuable upon the exercise of options which become
exercisable upon stockholder approval of the 1992 Plan Amendment. The
options to purchase 360,000 of such shares are subject to further
limitations on vesting and exercisability which expire sequentially as to
equal increments on each of the first four anniversaries of the date of
grant, February 14, 1998.
<PAGE>
(5) Includes 25,000 restricted shares and 290,000 shares issuable upon the
exercise of currently exercisable options. Does not include 150,000 shares
issuable upon the exercise of options which become exercisable upon
stockholder approval of the 1992 Plan Amendment.
(6) Includes 10,000 restricted shares and 25,000 shares issuable upon the
exercise of currently exercisable options and 50,000 shares issuable upon
the exercise of options which become exercisable as to 25,000 shares on
July 14, 1998 and as to 25,000 shares on July 14, 1999. Does not include
150,000 shares issuable upon the exercise of options which become
exercisable upon stockholder approval of the 1992 Plan Amendment.
(7) Includes 10,000 restricted shares and 150,000 shares issuable upon the
exercise of currently exercisable options. Does not include 150,000 shares
issuable upon the exercise of options which become exercisable upon
stockholder approval of the 1992 Plan Amendment.
(8) Includes 201,250 shares issuable upon the exercise of currently
exercisable warrants and 391,300 shares issuable upon the exercise of
currently exercisable options. Does not include 1,000,000 shares issuable
upon the exercise of options which become exercisable upon stockholder
approval of the 1992 Plan Amendment. The options to purchase 800,000 of
such shares are subject to further limitations on vesting and
exercisability which expire sequentially as to equal increments on each of
the first four anniversaries of the date of grant, February 14, 1998.
(9) Includes 25,000 shares issuable upon the exercise of currently
exercisable warrants and 294,718 shares issuable upon the exercise of
currently exercisable options. Does not include 325,000 shares issuable
upon the exercise of options which become exercisable upon stockholder
approval of the 1992 Plan Amendment. The options to purchase 200,000 of
such shares are subject to further limitations on vesting and
exercisability which expire sequentially as to equal increments on each
of the first four anniversaries of the date of grant, February 14,
1998.
(10) Includes 20,000 shares issuable upon the exercise of currently
exercisable warrants and 539,417 shares issuable upon the exercise of
currently exercisable options. Does not include 175,000 shares issuable
upon the exercise of options which become exercisable upon stockholder
approval of the 1992 Plan Amendment. The options to purchase 80,000 of
such shares are subject to further limitations on vesting and
exercisability which expire sequentially as to equal increments on each
of the first four anniversaries of the date of grant, February 14,
1998.
(11) Includes 2,189,750 shares issuable to 6 executive officers and directors
of the Company upon the exercise of currently exercisable warrants,
5,853,435 shares issuable to 11 executive officers and directors of the
Company upon the exercise of currently exercisable options, 45,000
restricted shares issued to 4 directors of the Company and 50,000 shares
issuable to 1 director of the Company, 25,000 shares on July 14 in each of
the years 1998 and 1999, respectively. Does not include 10,550,000 shares
issuable to 10 executive officers and directors of the Company upon the
exercise of options which become exercisable upon stockholder approval of
the 1992 Plan Amendment. See footnotes (2), (4), (8), (9) and (10) above.
Options to purchase an additional 200,000 of such shares are subject to
the same limitations described in footnote (4).
(12) Carole Salkind's address is 801 Harmon Cove Towers, Secaucus, New Jersey
07094.
(13) Her Majesty the Queen, Province of Alberta, Canada's address is Room 530,
Terrace Building, 9515 107th Street, Edmondton, Alberta T5K 2C3.
<PAGE>
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's 1999 Annual
Meeting of Stockholders must be received by the Company by December 31, 1998,
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
Linthicum, Maryland
August ___, 1998
<PAGE>
NOISE CANCELLATION TECHNOLOGIES, INC.
1025 West Nursery Road, Suite 120
Linthicum, Maryland 21090
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Jay M. Haft, Michael J. Parrella and John B.
Horton as Proxies, each with the power to appoint his substitute, and hereby
authorizes them, and each of them, to represent and vote, as designated below,
all the shares of Common Stock of Noise Cancellation Technologies, Inc. held of
record by the undersigned on July 14, 1998, at the Annual Meeting of
Stockholders to be held on September 10, 1998, or any adjournment thereof.
1. ELECTION OF DIRECTORS
FOR all nominees listed below except as marked to the contrary) / /
WITHHOLD AUTHORITY to vote for all nominees listed below / /
Jay M. Haft, Michael J. Parrella, John J. McCloy II, Sam Oolie,
Stephan Carlquist, Morton Salkind
(to withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
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2. To approve the amendment of the Company's Restated Certificate of
Incorporation to change the name of the Company to "NCT Group, Inc."
FOR / / AGAINST / / ABSTAIN / /
3. To approve the amendment of the Company's Restated Certificate of
Incorporation to increase the number of shares of Common Stock authorized
thereunder from 185,000,000 shares to 255,000,000 shares.
FOR / / AGAINST / / ABSTAIN / /
4. To approve the adoption of an amendment to the Noise Cancellation
Technologies, Inc. Stock Incentive Plan.
FOR / / AGAINST / / ABSTAIN / /
5. To approve a plan granting options to purchase common stock of the Company to
two non-employee directors.
FOR / / AGAINST / / ABSTAIN / /
6. To ratify the selection of Richard A. Eisner & Company, LLP as independent
auditors for the fiscal year ending December 31, 1998.
FOR / / AGAINST / / ABSTAIN / /
7. At their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
Proposals 1, 2, 3, 4, 5 and 6.
Dated: ___________________, 1998
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Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give title. If a corporation, please sign in full
corporate name by the president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
