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
NCT GROUP, INC.
(formerly 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:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calculated and state how it was
determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
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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>
NCT GROUP, INC.
1025 West Nursery Road Suite 120
Linthicum, Maryland 21090
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 24, 1999
---------------
To the Stockholders of NCT GROUP, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Meeting")
of NCT Group, Inc. (formerly Noise Cancellation Technologies, Inc.), a Delaware
corporation (the "Company"), will be held at the Sheraton Stamford Hotel, 2701
Summer Street, Stamford, Connecticut 06905 on Thursday, June 24, 1999 at 2:00
p.m., for the following purposes:
1. To elect five 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 increase the number of shares of common stock authorized
thereunder from 255,000,000 shares to 325,000,000 shares;
3. To approve a plan granting options to purchase common stock of the Company to
four non-employee directors;
4. To ratify the appointment of Richard A. Eisner & Company, LLP as the
Company's independent auditors for the fiscal year ending December 31,
1999; and
5. To transact such other business as may properly come before the Meeting.
These items are more fully described in the following pages, which are hereby
made a part of this Notice. Only stockholders of record at the close of
business on May 25, 1999 are entitled to notice of and to vote at the Meeting
or at any adjournment thereof.
IRENE LEBOVICS
Executive Vice President
and Secretary
Linthicum, Maryland
__________________, 1999
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>
NCT GROUP, INC.
1025 West Nursery Road Suite 120
Linthicum, Maryland 21090
---------------
PROXY STATEMENT
---------------
SOLICITATION OF PROXY, REVOCABILITY AND VOTING
Solicitation
This Proxy Statement and form of Proxy are being mailed on or about June 1,
1999, to all stockholders of record at the close of business on May 25, 1999, in
connection with the solicitation by the Board of Directors of Proxies for the
Meeting to be held at the Sheraton Stamford Hotel, 2701 Summer Street, Stamford,
Connecticut 06905 on June 24, 1999 at 2:00 p.m. 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.
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.
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 May
25, 1999, was ________________. 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 May 25, 1999,
will be entitled to vote. A majority of the shares outstanding and entitled to
vote, or ___________ shares, must be present at the Meeting in person or by
proxy in order to constitute a quorum for the transaction of business. The
affirmative vote of a majority of all of the outstanding shares of common stock
of the Company is required to approve the amendment of the Company's 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. Further, 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 plan granting options to purchase common stock of the
Company to four non-employee directors, to ratify the appointment of the
Company's independent auditors for the year ending December 31, 1999, 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.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
General Information
Five directors are to be elected at the Meeting to serve until the next Annual
Meeting of Stockholders of the Company or 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:
Director
Name Age Since Positions and Offices
Jay M. Haft 63 1990 Chairman of the Board of Directors
Michael J. Parrella 51 1986 President, Chief Executive
Officer and Director
John J. McCloy II 61 1986 Director
Samuel A. Oolie 62 1986 Director
Stephan Carlquist 43 1997 Director
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. In addition,
Mr. Haft is a Director of the Company's subsidiary, NCT Hearing Products, Inc.
("NCT Hearing"), a position to which he was appointed on July 15, 1998. 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), DCAP Group, Inc. (OTC), Encore Medical Corporation (OTC), Viragen, Inc.
(OTC), PC Service Source, Inc. (OTC), DUSA Pharmaceuticals, Inc. (OTC), Oryx
Technology Corp. (OTC) and Thrift Management, Inc. (OTC). 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 and Treasurer of the
Miami City Ballet.
Michael J. Parrella currently serves as President, Chief Executive Officer and
Director of the Company. He was elected President and Chief Operating Officer of
the Company in February 1988 and served in that capacity until November 1994.
From November 1994 to July 1995 Mr. Parrella served as Executive Vice President
of the Company. He initially became a Director in 1986 after evaluating the
application potential of the Company's noise cancellation technology. At that
time, he formed an investment group to acquire control of the Board and to raise
new capital to restructure the Company and its research and development efforts.
Mr. Parrella was appointed a Director on August 25, 1997, and serves as Chief
Executive Officer and Acting President of NCT Audio, a position to which he was
elected on September 4, 1997. In addition, Mr. Parrella is a Director of NCT
Hearing, a position to which he was appointed on July 15, 1998. Previously, Mr.
Parrella served as 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 the Company's subsidiary, NCT Audio, on November 14,
1997. Since 1981, he has 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 the Company's subsidiary, 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 served as a director of CFC Associates, a venture
capital partnership, from January 1984 to December 1998.
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 currently
serves as a Director of NCT Audio since his appointment on November 14, 1997. He
is President of Electrolux IT Solutions with worldwide responsibility for IT
Services within the Electrolux Group and has held this position since June 1998.
From 1993 to June 1998, Mr. Carlquist was President of ABB Financial Services,
Inc. (USA), one of four business segments in the ABB Group. From June 1990 to
June 1998, he also served as President of ABB Treasury Center (USA), Inc. From
April 1988 to 1990, he was 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 Manager/Cash Manager at Atlas Copco AB.
Information Concerning the Board
The Board of Directors of the Company held twelve meetings (not including four
actions by unanimous written consent) during the fiscal year ended December 31,
1998. Other than Messrs. McCloy and Carlquist, 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
October 20, 1998, 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, 1998,
the members of the Executive Committee conferred with each other at lease once
a week.
The Compensation Committee, which was appointed by the Board of Directors on
October 20, 1998, 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. Carlquist and Oolie. The Board of Directors determines,
and thereby establishes and provides for the administration of stock option
plans, 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. During the
period of its existence in the fiscal year ended December 31, 1998, the
Compensation Committee held no meetings.
The Audit Committee, which reviews the activities of the Company's independent
auditors and which is currently composed of Messrs. Carlquist and Oolie, held
one meeting during the fiscal year ended December 31, 1998.
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,
Attention: Jay M. Haft.
<PAGE>
Directors' Fees, Restricted Stock and Stock Options
None of the Company's directors received any fees for his services as a director
during 1998, except as follows. Messrs. McCloy, Carlquist, Salkind and Oolie
were each granted options, subject to stockholder approval, to purchase 150,000
shares of common stock on January 15, 1998, pursuant to an informal plan
included within resolutions adopted by the Board of Directors. Stockholder
approval of such grants to Messrs. McCloy, Carlquist, Salkind and Oolie will be
sought at the Meeting as further described below under "Grant of Options to
Non-Employee Directors".
Certain Relationships and Insider Participation
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, 1998, 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%
or 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, 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, 1998, 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, 1998, 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,
including 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 it incurred 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. QSI also 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 a second 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. The payment of the indebtedness
to be paid under the first agreement described in the preceding paragraph also
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, nonpayment of which
is to constitute an event of termination under the Master Agreement.
On May 21, 1996, the Company and QSI entered into a third 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 third letter
agreement, 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 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 a fourth 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 on January 1,
1998. The Company is also entitled to receive 15% of any other financing
obtained by QSI in the interim and interest at the rate of 10% per annum on the
unpaid amount of such indebtedness from July 1, 1997. The fourth 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 ten (10) days notice of termination to QSI.
As of December 31, 1998, QSI owes the Company $239,000, which is fully reserved,
for the exclusivity fee, rent and engineering services.
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.
On January 26, 1999, Carole Salkind, spouse of a former director and an
accredited investor (the "Holder"), subscribed and agreed to purchase secured
convertible notes of the Company in an aggregate principal amount of $4.0
million. A secured convertible note (the "Note"), for $1.0 million was signed on
January 26, 1999, and proceeds were received on January 28, 1999. The Note is to
mature on January 25, 2001 and earn interest at the prime rate, as published
from day to day in the Wall Street Journal, from the issue date until the Note
becomes due and payable. The Holder shall have the right at any time on or prior
to the day the Note is paid in full, to convert at any time, all or from time to
time, any part of the outstanding and unpaid amount of the Note, into fully paid
and non-assessable shares of common stock of the Company at the conversion
price. The conversion price shall be the lesser of (i) the average of the
closing bid prices for the common stock on the securities market on which the
common stock is being traded, for five (5) consecutive trading days prior to the
date of conversion, or (ii) the fixed conversion price of $0.237. In no event
will the conversion price be less than $0.15 per share. The Holder shall
purchase the remaining $3.0 million principal amount of the secured convertible
notes on or before June 30, 1999.
Section 16(a) Compliance
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, 1998, to December 31, 1998, all filing
requirements applicable to its officers, directors, and greater than 10%
stockholders were complied with.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of April 9, 1999, 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 (as defined below) and all
executive officers and Directors of the Company as a group. Except as otherwise
noted, each beneficial owner has sole investment and voting power with respect
to the listed shares.
Amount and
Nature of Approximate
Beneficial Percentage
Name of Beneficial Owner Ownership (1) Of Class (1)
------------------------------- ---------------- ------------
Michael J. Parrella 6,250,333 (2) 3.38%
John J. McCloy 3,653,635 (3) 2.02%
Jay M. Haft 1,632,000 (4) 0.91%
Sam Oolie 715,000 (5) 0.40%
Stephan Carlquist 350,000 (6) 0.20%
Paul D. Siomkos 225,000 (7) 0.13%
Cy E. Hammond 444,718 (8) 0.25%
Irving M. Lebovics 275,000 (9) 0.15%
John B. Horton 654,417 (10) 0.37%
Irene Lebovics 1,588,067 (11) 0.89%
All Executive Officers and 15,963,170 (12) 8.33%
Directors as a Group (11 persons)
Carole Salkind 10,119,043 (13) 5.67%
Her Majesty The Queen, 11,250,000 (14) 6.30%
Province of Alberta, Canada
<PAGE>
(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 5,374,500 shares issuable upon the exercise of
currently exercisable options.
(3) Includes 862,500 shares issuable upon the exercise of currently
exercisable warrants and 1,050,000 shares issuable upon the exercise of
currently exercisable options.
(4) Includes 218,500 shares issuable upon the exercise of currently
exercisable warrants, 10,000 restricted shares and 1,403,500 shares
issuable upon the exercise of currently exercisable options.
(5) Includes 25,000 restricted shares and 440,000 shares issuable upon the
exercise of currently exercisable options.
(6) Includes 350,000 shares issuable upon the exercise of currently
exercisable options and 25,000 options to purchase shares in 1999.
(7) Includes 100,000 restricted shares and 125,000 shares issuable upon the
exercise of currently exercisable options.
(8) Includes 25,000 shares issuable upon the exercise of currently exercisable
warrants and 419,718 shares issuable upon the exercise of currently
exercisable options.
(9) Includes 275,000 shares issuable upon the exercise of currently
exercisable options.
(10) Includes 20,000 shares issuable upon the exercise of currently exercisable
warrants and 634,417 shares issuable upon the exercise of currently
exercisable options.
(11) Includes 201,250 shares issuable upon the exercise of currently
exercisable warrants and 591,300 shares issuable upon the exercise of
currently exercisable options.
(12) Includes 2,189,750 shares issuable to 6 executive officers and directors
of the Company upon the exercise of currently exercisable warrants,
10,838,435 shares issuable to 11 executive officers and directors of the
Company upon the exercise of currently exercisable options, 135,000
restricted shares issued to 2 directors and one executive officer of the
Company and 25,000 shares issuable to 1 director of the Company which
become exercisable in 1999. Does not include 6,240,000 shares issuable to
8 executive officers of the Company which become exercisable over the
passage of time.
(13) Carole Salkind's address is 801 Harmon Cove Towers, Secaucus, New Jersey
07094.
(14) Her Majesty the Queen, Province of Alberta, Canada's address is Room 530,
Terrace Building, 9515 107th Street, Edmondton, Alberta T5K 2C3.
<PAGE>
Compensation
Set forth below is certain information for the three fiscal years ended December
31, 1998, 1997 and 1996 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, 1998 exceeded
$100,000 for services rendered in all capacities.
<TABLE>
<CAPTION>
Securities
Underlying All
Name and Principal Other Annual Options/Warrants Other
Position Year Salary ($) Bonus ($) Compensation ($) SARs (#) Compensation
- ------------------ ---- ---------- --------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Parrella 1998 $120,000 $205,889 $20,615 12,000,000 (2) $5,918 (4)
President and 1997 120,000 243,058 15,348 3,062,500 (3) 5,218 (4)
Chief Executive 1996 120,000 106,885 15,348 475,000 5,218 (4)
Officer (1)
Paul D. Siomkos 1998 105,192 78,125(5) 8,367 1,000,000 (2) -
Senior Vice 1997 - - - - -
President, 1996 - - - - -
Operations
Cy E. Hammond 1998 94,000 42,570 12,000 500,000 (2) -
Senior Vice 1997 94,000 65,939 - 150,000 (6) -
President, Chief 1996 94,000 - - - -
Financial Officer
Irving M. Lebovics 1998 89,583 (7) - 27,917 600,000 (2) -
Senior Vice 1997 - - - 100,000 (7) -
President, 1996 - - - 100,000 (7) -
Global Sales
John B. Horton 1998 105,000 - 12,000 200,000 (2) -
Senior Vice 1997 105,000 50,000 - 325,000 (10) -
President, 1996 116,932 (9) - - - -
General
Counsel and
Secretary (8)
Irene Lebovics 1998 105,000 - 12,000 2,000,000 (2) -
Executive Vice 1997 105,000 - - 301,250 (11) -
President, and 1996 105,000 - - - -
President of
NCT Hearing
Products, Inc.
</TABLE>
(1) Mr. Haft was elected Chairman of the Board and relinquished the title of
Chief Executive Officer on July 17, 1996. Prior thereto, and from November
15, 1994, Mr. Haft served as Co-Chairman of the Board and Chief Executive
Officer. 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 1998" table and the
footnotes thereto. On December 4, 1998, the following options were
cancelled: as to Mr. Parrella, 6,000,000 shares; as to Mr. Siomkos,
500,000 shares; as to Mr. Hammond, 250,000 shares; as to Mr. Lebovics,
300,000 shares; as to Mr. Horton, 100,000 shares; and as to Ms.
Lebovics, 1,000,000 shares.
(3) Includes a warrant to purchase 862,500 shares of the Company's common
stock and an option to purchase 250,000 shares of the Company's common
stock as new grants due to the extension of the expiration dates for an
additional two years.
(4) Consists of annual premiums for a $2.0 million personal life insurance
policy paid by the Company on behalf of Mr. Parrella.
(5) Represents the fair market value on the date of grant of 100,000 shares of
the Company's common stock issued in connection with his offer of
employment.
<PAGE>
(6) Includes a warrant to purchase 25,000 shares of the Company's common stock
as a new grant due to the extension of the expiration date for an
additional two years.
(7) From January 1, 1996 to February 12, 1998, services were rendered to the
Company by Enhanced Signal Processing ("ESP"), a firm in which Mr.
Lebovics was a principal. During that period, ESP received $0.5 million
from the Company, which included but was not limited to Mr. Lebovics'
services. While employed by ESP, ESP received options to purchase 400,000
shares of the Company's common stock of which options to purchase 200,000
shares were assigned to Mr. Lebovics.
(8) Mr. Horton resigned as Senior Vice President, General Counsel and Secretary
on February 19, 1999. Ms. Lebovics was elected Secretary of the Company on
April 13, 1999.
(9) 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.
(10) Includes an option to purchase 200,000 shares of the Company's common
stock as a new grant due to the extension of the expiration date for an
additional two years.
(11) Includes a warrant to purchase 201,250 shares of the Company's common
stock as a new grant due to the extension of the expiration date for an
additional two years.
<PAGE>
Stock Options and Warrants
The following table summarizes the Named Executive Officers' stock option and
warrant activity during 1998:
<TABLE>
<CAPTION>
Options and Warrants Granted in 1998
Percent
of Total Potential
Options Realized Value
Shares and at Assumed Annual
Underlying Warrants Rates of Stock Price
Options Granted Exercise Appreciation for Option
and to Price and Warrant Term (6)
Warrants Employees Per Expiration -----------------------------
Name Granted in 1998 Share Date 5% 10%
- --------------------- ------------- --------- -------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Parrella 6,000,000 (1) 27.3% $0.3125 01/14/08 $1,045,296 $2,563,715
6,000,000 (2) 27.3% 1.0625 - (2) - (2) - (2)
Paul D. Siomkos 500,000 (3) 2.3% 0.3125 04/19/08 87,108 213,643
500,000 (2) 2.3% 0.7813 - (2) - (2) - (2)
Cy E. Hammond 250,000 (4) 1.1% 0.3125 02/13/08 43,554 106,821
250,000 (2) 1.1% 1.0313 - (2) - (2) - (2)
Irving M. Lebovics 300,000 (5) 1.4% 0.3125 02/13/08 52,265 128,186
300,000 (2) 1.4% 1.0313 - (2) - (2) - (2)
John B. Horton 100,000 (4) 0.5% 0.3125 02/13/08 17,422 42,729
100,000 (2) 0.5% 1.0313 - (2) - (2) - (2)
Irene Lebovics 1,000,000 (4) 4.5% 0.3125 02/13/08 174,216 427,286
1,000,000 (2) 4.5% 1.0313 - (2) - (2) - (2)
</TABLE>
(1) Options to purchase these shares were granted pursuant to the 1992 Plan,
of which an option to purchase 2,000,000 shares is currently exercisable
and the remaining amount vest over the passage of time.
(2) Options to purchase these shares were cancelled on December 4, 1998.
(3) Options to purchase these shares were granted pursuant to the 1992 Plan
and in connection with an offer of employment and vest 25% immediately and
25% on the anniversary date each year following.
(4) Options to purchase these shares were granted pursuant to the 1992 Plan
and vested 20% on October 20, 1998 upon the Company's stockholders'
approval of the increase in the number of shares of the Company's common
stock included in the 1992 Plan. The remaining amount vest 20% on the
anniversary date of each grant.
(5) Options to purchase these shares were granted pursuant to the 1992 Plan
and vested 25% on October 20, 1998 upon the Company's stockholders'
approval of the increase in the number of shares of the Company's common
stock included in the 1992 Plan. The remaining amount vest 25% on the
anniversary date of each grant.
(6) 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>
1998 Aggregated Options and Warrant Exercises and
December 31, 1998 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, 1998 December 31, 1998
on Value ------------------------------- ------------------------ ------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- -------- -------- ------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Parrella - $ - 6,237,000 4,000,000 $ 7,043 $ -
Paul D. Siomkos - - 125,000 375,000 - -
Cy E. Hammond - - 444,718 200,000 783 -
Irving M. Lebovics - - 275,000 225,000 1,565 -
John B. Horton - - 654,417 80,000 783 -
Irene Lebovics - - 792,550 800,000 1,565 -
</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
During the fiscal year ended December 31, 1998, the following persons served as
members of the Compensation Committee of the Company's Board of Directors:
Stephan Carlquist, Morton Salkind and Sam Oolie. Mr. Carlquist was Chairman of
the Committee during such fiscal year. Messrs. Carlquist and Oolie have also
served as members of the Board of Directors of NCT Audio since November 14,
1997, and September 4, 1997, respectively. Mr. Salkind resigned as Director of
the Company and Director of NCT Audio on January 19, 1999.
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
$0.375 per share, such price being the market price of the Company's common
stock on the date of such authorization the Board of Directors took such action
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.
The Company and ERI entered into a joint venture in 1989, which was subsequently
terminated. During the fiscal year ended December 31, 1998, the Company was not
required to make any payments to ERI under the agreements. Please refer to
"Certain Relationships and Insider Participation" for further information.
The Company and QSI have entered into nine agreements from 1993 to 1997. As of
December 31, 1998, QSI owes the Company $239,000, which is fully reserved, for
the exclusivity fee, rent and engineering services. Please refer to "Certain
Relationships and Insider Participation" for further information.
On January 26, 1999, Carole Salkind, a spouse of a former director and an
accredited investor subscribed and agreed to purchase secured convertible notes
of the Company in an aggregate principal amount of $4.0 million. A secured
convertible Note for $1.0 million was signed on January 26, 1999, and proceeds
were received on January 28, 1999. Please refer to "Certain Relationships and
Insider Participation" for further information.
<PAGE>
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. On June 19,
1997, Mr. Parrella was re-elected President and was elected Chief Executive
Officer of the Company. At the conclusion of the Annual Meeting of Stockholders
on October 20, 1998, Mr. Parrella was re-elected President and Chief Executive
Officer of the Company.
Mr. Parrella's salary for 1998 was continued at the rate of $120,000 per year,
the same as his salary in 1997 and 1996. 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 $205,889 under this percentage
bonus arrangement during 1998. On January 15, 1998, the Board of Directors
granted Mr. Parrella an option to purchase 6,000,000 shares of the Company's
common stock. Vesting requirements were as follows: As to 2,000,000 shares, the
date on which the Company's stockholders approve an amendment to the 1992 Plan
increasing the number of shares covered by the 1992 Plan to 30,000,000 shares
and providing for the other matters set forth in the resolutions adopted by the
Board of Directors on January 15, 1998 (the "1/15/98 Amendment"); as to another
2,000,000 shares, the later to occur of (i) the date on which the Company's
stockholders approve the 1/15/98 Amendment, or (ii) the date on which the
Company's common stock has traded on The Nasdaq Stock Market, Inc.'s National
Market System, Small Cap Market or Electronic Bulletin Board or other national
or regional exchange or public trading facility as may then be applicable at a
price of $2.50 per share or more for the preceding 60 consecutive days or
January 15, 2001, whichever shall first occur; as to the remaining 2,000,000
shares, the later to occur of (i) the date described in clause (i) of the
preceding sentence, or (ii) the date on which the Company's common stock has
traded on the trading facilities in clause (ii) of the preceding sentence at a
price of $3.50 per share or more for the preceding 60 consecutive days or the
date set forth in clause (ii) of the preceding sentence, whichever shall first
occur. In addition, in 1998, Mr. Parrella received a $20,615 annual automobile
allowance and the Company paid the $5,918 annual premium for a $2.0 million
personal life insurance policy on his behalf.
The base salary of Mr. Siomkos, as Senior Vice President, Operations, was
established at $150,000. In addition to the salary, the Company granted him a
one-time bonus of 100,000 shares of the Company's common stock in connection
with hia employment offer. Mr. Siomkos was granted an option to purchase 500,000
shares of the Company's common stock at an exercise price of $0.7813 per share
on April 20, 1998, also in connection with his offer of employment. On December
4, 1998, the option was cancelled and reissued at $0.3125, the fair market value
on the date of grant. In addition, Mr. Siomkos received an $8,367 automobile
allowance.
The base salary of Mr. Hammond, as Senior Vice President, Chief Financial
Officer, was $94,000 for 1998, the same as his salary in 1997 and 1996. In
recognition of Mr. Hammond's efforts in connection with the Company's private
placements of $16.0 million of convertible preferred stock and other
accomplishments, Mr. Hammond was awarded a cash bonus of $42,570 in 1998. In
addition, the Company granted Mr. Hammond an option to purchase 250,000 shares
of the Company's common stock at an exercise price of $1.0313 per share on
February 14, 1998. On December 4, 1998, the option was cancelled and reissued at
$0.3125, the fair market value on the date of grant. In addition, in 1998, Mr.
Hammond received a $12,000 annual automobile allowance. On April 13, 1999, Mr.
Hammond was elected to the additional offices of Treasurer and Assistant
Secretary of the Company.
<PAGE>
Mr. Lebovics joined the Company in February 1998 as Vice President, Worldwide
Sales, at a base salary of $95,000. In addition to the salary, Mr. Lebovics
received a non-refundable draw of $25,000 per annum. On July 15, 1998, Mr.
Lebovics' base salary was increased to $120,000 and the non-refundable draw was
also increased to $30,000 per annum. Mr. Lebovics was promoted to Senior Vice
President, Global Sales, in January 1999. The Company granted Mr. Lebovics an
option to purchase 300,000 shares of the Company's common stock at an exercise
price of $1.0313 per share on February 14, 1998. On December 4, 1998, the option
was cancelled and reissued at $0.3125, the fair market value on the date of
grant. In addition, Mr. Lebovics received a $5,000 automobile allowance.
The base salary of Mr. Horton, as Senior Vice President, General Counsel and
Secretary of the Company was established at $105,000 in 1998, which was the same
as his salary rate for 1997. The Company granted Mr. Horton an option to
purchase 100,000 shares of the Company's common stock at an exercise price of
$1.0313 per share on February 14, 1998. On December 4, 1998, the option was
cancelled and reissued at $0.3125, the fair market value on the date of grant.
In addition, Mr. Horton received a $12,000 annual automobile allowance. Mr.
Horton resigned as Senior Vice President, General Counsel and Secretary on
February 19, 1999.
The base salary of Ms. Lebovics, as Executive Vice President and President of
NCT Hearing Products, Inc., was established at $105,000 for 1998, which was the
same as her salary for 1997 and 1996. The Company granted Ms. Lebovics an option
to purchase 1,000,000 shares of the Company's common stock at an exercise price
of $1.0313 per share on February 14, 1998. On December 4, 1998, the option was
cancelled and reissued at $0.3125, the fair market value on the date of grant.
In addition, Ms. Lebovics received a $12,000 annual automobile allowance. On
April 13, 1999, Ms. Lebovics was elected Secretary of the Company.
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, 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 levels 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, and the Company's ability to provide them with adequate
levels of remuneration either in cash or in securities. Accordingly, it is the
opinion of the Committee that the above-described rates of compensation are
reasonable in light of these factors and the financial condition of the Company.
THE COMPENSATION COMMITTEE
By: /s/ STEPHAN CARLQUIST, Chairman
/s/ SAM OOLIE
<PAGE>
Performance Graph
Note:The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
NCT Group, Inc.
Stock Performance (1)
[OBJECT OMITTED]
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NCT 100 26 63 14 38 10
NASDAQ Composite Index 100 98 138 170 209 294
NASDAQ Electronic 100 110 183 316 332 513
Component Stock
Index (2)
</TABLE>
(1) Assumes an investment of $100.00 in the Company's common stock and in each
index on December 31, 1993.
(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 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>
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 255,000,000 to 325,000,000. As of the record date, the Company
had outstanding __________________ shares of common stock and had reserved an
additional _________________ shares of common stock for issuance upon the
conversion of the Company's Series C Convertible Preferred Stock, Series D
Convertible Preferred Stock, Series E Convertible Preferred Stock, the secured
convertible Note, the exchange of NCT Audio Common 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
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. If approved by the stockholders, the issuance of such shares would be
dilutive to existing stockholders. The additional shares of common stock to be
authorized pursuant to the Amendment may be issued from time to time as the
Board of Directors may determine without further action of the stockholders of
the Company.
Stockholders of the Company do not currently possess, nor upon the adoption of
the Amendment will they acquire, preemptive rights which would entitle such
persons, as a matter of right, to subscribe for the purchase of any securities
of the Company.
The affirmative vote of the holders of a majority of all of 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.
GRANT OF OPTIONS TO
NON-EMPLOYEE DIRECTORS
On January 15, 1998, 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 four (4) non-employee directors an option to
purchase 150,000 shares of the common stock of the Company at $1.0625 per share,
the fair market 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. 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. On December 4, 1998, these options were cancelled and
reissued as a new grant at $0.3125 per share, the fair market value of the
Company's common stock on the date of grant. At the time of such stockholder
approval, the Company will incur a non-cash charge to earnings representing the
fair value of the options granted.
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
600,000 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 four (4) non-employee directors, Messrs. McCloy, Oolie,
Carlquist and Salkind.
o The exercise price of the options granted under the plan is the fair
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.
<PAGE>
The following table sets forth certain additional details concerning the Plan.
<TABLE>
<CAPTION>
New Plan Benefits
Implemented by Resolution
Adopted January 15, 1998 (1)
----------------------------
Number
Name (2) Position $ Value (3) of Units
-------- -------- ----------- --------
<S> <C> <C> <C>
Michael J. Parrella (4) President, Chief Executive Officer
and a Director - -
Paul D. Siomkos Senior Vice President, Operations - -
Cy E. Hammond Senior Vice President and
Chief Financial Officer - -
Irving M. Lebovics Senior Vice President, Global Sales - -
John B. Horton (5) Senior Vice President, General Counsel - -
and Secretary - -
Irene Lebovics (5) Executive Vice President and President,
NCT Hearing Products, Inc. - -
Executive Group (6) - -
Non-Executive
Director Group (7) 187,500 600,000
Non-Executive
Officer Employee
Group (8) - -
Active Consultant
Group (9) - -
</TABLE>
(1) The table includes grants under the informal plan implemented by
resolution adopted by the Board of Directors on January 15, 1998, which
grants were subject to the approval of the stockholders at the Meeting.
The options granted on January 15, 1998 were cancelled and reissued on
December 4, 1998.
(2) Named executive officers are those for the 1998 fiscal year.
(3) The value per unit 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 $0.3125, on December 4, 1998, 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. Horton resigned as Senior Vice President, General Counsel and
Secretary on February 19, 1999, and Ms. Lebovics was elected Secretary of
the Company on April 13, 1999.
(6) 0 persons on January 15, 1998.
(7) 4 persons on January 15, 1998.
(8) 0 persons on January 15, 1998.
(9) 0 persons on January 15, 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 grant of the
options to Messrs. McCloy, Oolie, Carlquist and Salkind described above.
INDEPENDENT AUDITORS
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, 1999. 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. Carlquist 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, 1998.
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.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's 2000 Annual
Meeting of Stockholders must be received by the Company by December 31, 1999,
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
Linthicum, Maryland
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<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 Irene
Lebovics 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 NCT Group, Inc. held of record by the
undersigned on May 25, 1999, at the Annual Meeting of Stockholders to be held on
June 24, 1999, 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
(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 increase the number of shares of Common Stock authorized
thereunder from 255,000,000 shares to 325,000,000 shares.
FOR / / AGAINST / / ABSTAIN / /
3. To approve a plan granting options to purchase common stock of the Company to
four non-employee directors.
FOR / / AGAINST / / ABSTAIN / /
4. To ratify the selection of Richard A. Eisner & Company, LLP as independent
auditors for the fiscal year ending December 31, 1999.
FOR / / AGAINST / / ABSTAIN / /
5. 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 and 5.
Dated: ________________________, 1999
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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
