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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
Commission file number 0-20734
NORRIS COMMUNICATIONS CORP.
(Name of small business issuer in its charter)
Yukon Territory, Canada None
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12725 Stowe Drive
Poway, California 92064
(619) 679-1504
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / /
State issuer's revenues for its most recent fiscal year. $1,328,502
The aggregate market value of the issuer's Common Stock held by non-affiliates
as of June 19, 1996 (assuming for this purpose that only directors and officers
of registrant are affiliates of registrant), based on the average of the closing
bid and asked prices on that date, was approximately $24,972,800.
As of June 19, 1996 there were 22,023,013 shares of Norris Communications Corp.
Common Stock, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders are incorporated by reference into Part III (Items 9-12) of this
Form 10-KSB.
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TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. Description of Business 3
ITEM 2. Description of Property 9
ITEM 3. Legal Proceedings 9
ITEM 4. Submission of Matters to a Vote of Security Holders 9
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters 9
ITEM 6. Management's Discussion and Analysis or Plan of Operation 10
ITEM 7. Financial Statements 14
ITEM 8. Changes in and Disagreement with Accountants on 14
Accounting and Financial Disclosure
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance With Section 16(a) of the Exchange Act 14
ITEM 10. Executive Compensation 15
ITEM 11. Security Ownership of Certain Beneficial Owners and Management 15
ITEM 12. Certain Relationships and Related Transactions 15
ITEM 13. Exhibits and Reports on Form 8-K 15
SIGNATURES
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Norris Communications Corp. (the "Company") is a holding company which, through
its wholly owned United States subsidiary Norris Communications, Inc. ("NCI"),
is engaged in a single industry segment: the development, manufacture and
marketing of electronic products. The Company was incorporated under the Company
Act (British Columbia), Canada on February 11, 1988 under the name 340520 B.C.
Ltd. The Company changed its name to Norris Communications Corp. on April 7,
1988 and on November 22, 1994 the Company continued its jurisdiction of
incorporation from British Columbia to the Yukon Territory. Through NCI the
Company is involved in (1) marketing its FLASHBACK(TM) technology, a proprietary
method for information storage and retrieval and (2) using its state-of-the-art
electronic manufacturing facility to manufacture its proprietary products and
provide contract manufacturing services for others. The Company also holds as an
investment 1,800,000 common shares (approximately 23.1%) of JABRA Corporation
("JABRA"). JABRA is a developer and manufacturer of communication products for
desktop, mobile and wireless applications.
The address of the Company's principal executive office is 12725 Stowe Drive,
Poway, California 92064 and its telephone number is (619) 679-1504. NCI's
primary operating facilities are located at that address. The Company presents
its consolidated financial statements in United States dollars.
HISTORY
The Company, through a predecessor corporation, was started in 1988 based on a
new technology that its founder Elwood Norris had developed while researching
and developing headset/microphone alternatives for NASA. The successful
combination of a speaker and microphone was developed into the EarPHONE(TM)
product line, now owned by JABRA.
In August 1989, the Company acquired American Surface Mounted Devices ("ASMD"),
subsequently merged into NCI. This acquisition enabled the Company to become a
regional full-service independent supplier of turnkey manufacturing of circuit
board assemblies, systems and subsystems, to original equipment manufacturers
("OEMs") in the computer, defense, telecommunications and medical industries.
Since acquiring ASMD, the Company has invested over $2.5 million in equipping a
new 31,000 square foot manufacturing and administrative facility. Prior to the
late fiscal 1995 launch of the first FLASHBACK technology product, a personal
digital recorder, ASMD's contract manufacturing services accounted for
substantially all of the Company's revenues. During the 1996 fiscal year, due to
the startup of the manufacturing of the FLASHBACK recorder, the Company scaled
back certain contract manufacturing services. As the Company develops and
expands its FLASHBACK technology product line and develops or acquires new
technologies, it is management's strategy to utilize its strong printed circuit
board assembly capability to produce components by combining added-value
technology with added-value manufacturing. The Company intends to aggressively
refocus on the outside contract manufacturing business.
On January 15, 1993, the Company sold 300,000 common shares of JABRA stock for
$750,000, and JABRA sold 500,000 newly issued common shares with warrants for
$1.25 million. The Company retained 2,300,000 common shares or 74.2% of JABRA
stock and the Company agreed to surrender operating control of JABRA pursuant to
the stock sale agreement. On July 15, 1993, the Company sold an additional
500,000 common shares for $1.625 million and JABRA sold 1,000,000 newly issued
common shares for $3.25 million. The Company's 1,800,000 common shares
represented 42.8% of the outstanding shares of JABRA and as a result of the lack
of operating control, the Company ceased consolidating JABRA's operations and
recorded its investment on the cost basis because it no longer had significant
influence over the operations of JABRA. At March 31, 1996, the Company had a
zero cost basis in its 1,800,000 JABRA common shares. During fiscal 1995 and
1996, JABRA reported to the Company the sale of 1,154,671 newly issued common
shares for proceeds of $4.0 million. As a result of these transactions, the
Company's ownership in JABRA at March 31, 1996, represented by 1,800,000 common
shares, is 23.1% (or 20.1% on a fully diluted basis). The Company has granted
an option to purchase 300,000 of the JABRA common shares to CVD Financial
Corporation ("CVD").
THE COMPANY'S FLASHBACK TECHNOLOGY
During 1993, the Company invented and commenced development of advanced digital
recording technology that does not involve mechanical moving parts. Although
various digital techniques have been adapted to sound recording and
reproduction, such as compact disc players and digital tape recorders, these
devices still utilize mechanical techniques for moving the storage media as well
as positioning the read/write head in the case of compact discs. The Company's
technology is designed to substitute all solid state electronic control for
traditional mechanical functions and magnetic media. The technology developed
integrates a sophisticated micro-processor based control system, digital signal
processing (DSP), sophisticated digital/analog and analog/digital conversion
along with advanced data compression and non-volatile storage media (Flash
memory) to produce a no-moving-parts recording scheme with advanced features and
capabilities.
Management believes the newly developed proprietary technology for information
storage lends itself to a broad array of product applications. Through a
technique of combining digital signal processing with state of the art
compression algorithms and a non-volatile storage array all managed by a
microcontroller, it is possible to store data without the need for magnetic
media such as is presently used in audio/video tape recording equipment as well
as computer hard drives and diskettes. Since there are no moving parts, there
are correspondingly no motors, belts, or other control devices required. All
functions associated with devices designed around this new technology can be
operated by existing microprocessor control devices. The
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prices of various forms of storage arrays, and specifically Flash memory chips,
continue to decline making more applications utilizing the Company's proprietary
technology cost effective.
In addition to improved voice recorders, the Company believes the technology may
have applications in a wide range of products including pagers, answering
machines, telephones, compact disc quality sound recordings and for the storage
of pictures and video images.
CURRENT PRODUCT
The Company's first digital recording technology product is the FLASHBACK
portable digital voice recorder. The FLASHBACK is a self contained miniature
hand held voice recording device with features unavailable in conventional tape
recorders. In addition to standard features such as playback, recording, fast
forward and reversing functions, the FLASHBACK recorder provides the ability to
electronically insert, delete, or edit the content of messages/recordings, to
randomly access recordings instantly and play back at high or low speed without
changing voice pitch.
The FLASHBACK personal digital recorder is approximately the size of a half deck
of playing cards, weighs less than 3 ounces and is ergonomically designed to fit
in the palm of a user's hand. FLASHBACK has two controls (from which all major
functions are controlled) plus a volume control and two LED's (Light Emitting
Diode) one serving as a power indicator and the other as a record indicator. The
FLASHBACK runs on two AAA batteries.
All the sound information on a FLASHBACK is stored on a removable,
interchangeable, playback/recording media (SOUNDCLIP(TM)) that functions similar
to a tape cassette in a conventional cassette recorder. SOUNDCLIPs are
solid-state non-volatile storage devices developed by the Company. SOUNDCLIPs
utilize state-of-the-art Flash memory chips as the storage medium and they
retain recorded information, even in the absence of applied power. This is a
major distinguishing feature of Flash memory versus traditional random access
memory (RAM) chips which require constant power to retain information. Flash
memory has been commercialized by Intel Corporation, from whom the Company is
purchasing Flash memory chips, although other suppliers are available. Unlike
recordings on tape media, information stored on a SOUNDCLIP is unaffected in the
presence of magnets and magnetic fields. SOUNDCLIPs are presently available in
18 and 36 minute capacities but longer capacity SOUNDCLIPs are both feasible and
planned for longer recording applications.
SOUNDCLIPs have been designed to be compatible with type II PCMCIA (Personal
Computer Memory Card International Association) card slots, common to portable
personal computers and Personal Digital Assistant (PDA) devices allowing the
future connection between voice recordings and computers.
ADDITIONAL FLASHBACK PRODUCTS SCHEDULED FOR MARKETING IN FISCAL 1997
SOUNDLINK - Is being developed by the Company as an accessory to the FLASHBACK
product, SOUNDLINK is a computer peripheral which plugs into the PC Card slot
common to personal computers and Personal Digital Assistant (PDA) devices,
incorporating a port for the SOUNDCLIP. SOUNDLINK allows 36 minutes of recorded
information to be downloaded to the hard drive in under 2 seconds. This
introduces the concept of the Voice Memo, which can be transmitted to other PCs
over existing networks including the Internet. Recipients hear the original
recording, including voice quality and inflection, through their computer's
sound card, and by sending Voice Memos, users save nine tenths of the time it
would take to type the same information. Management anticipates, in the future,
as standards are established, automatic `voice to text' transcription and
automatic language translation is expected to be possible which will enhance the
value of voice memos.
MOBILE OFFICE PACKAGE: A bundled package consisting of FLASHBACK, SOUNDCLIP,
SOUNDLINK and computer driver software on a floppy disk. Both PC (IBM
compatible) and Macintosh compatible versions are expected to be available.
NORRIS FLASH FILE SYSTEM(TM) (NFFS): A developmental tool that lends itself to
licensing for a broad range of technological applications. The system stores and
manipulates data using a file manager API (Application Program Interface), and
supports compressed voice, image or video as well as conventional file data.
Norris' proprietary methods compress sound or video into digital form and
structure the data specifically for Flash memory. Although Flash memory can be
difficult to integrate, it is preferred to other types of solid state memory
because of its large capacity, low power requirements, and internal stability.
The feature-rich system was created to painlessly overcome the intricacies of
dealing with Flash memory. Unlike other Flash File Systems, the Norris system
can support an unlimited number of files, directories, and / or subdirectories,
requiring no ATA (a hard disk standard) or portable computer (PC) Card support
hardware or software. The use of Flash memory is seen by the Company as the most
practical solution for storing data on removable and interchangeable modules,
given that other memory technologies either require battery back-up, draw too
much power, are physically too large, or are mechanically or magnetically
sensitive. The NFFS is particularly well suited for use with multimedia data in
a Flash memory environment, but can be adapted for use with other types of
memory if desired.
MULTI-CHIP MODULE (MCM): As part of the development of FLASHBACK, the Company
has developed a MCM which is expected to be marketed as a resource to system
developers. The MCM contains a microprocessor, digital signal processor,
firmware and software. The MCM recently became available and is offered
sub-assembled in a very compact format. The MCM integrates all the basic core
processing functions needed to implement a digital recording device.
PVP-2000(TM): The next generation of FLASHBACK recorder is currently under
development. Management anticipates, but there can be no assurance, that the
product will be ready to enter the market the first quarter of calendar 1997. In
addition to
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the digital recording features showcased in the FLASHBACK, the PVP-2000 will
incorporate a liquid crystal display (LCD) screen to display the number and
length of messages, a calendar/clock function to set alarms and reminders,
longer recording capacity, and a built-in pager. The PVP-2000 is also expected
to link with PCs and allow downloading of recorded and received material.
MARKETS FOR THE COMPANY'S PRODUCTS AND TECHNOLOGY
BIS Strategic Decisions estimates the United States retail market for the
Company's consumer products (FLASHBACK, SOUNDCLIP, SOUNDLINK, and PVP-2000)
includes approximately 32 million mobile professionals, owners, managers and
entrepreneurs. Of those, an estimated 71% are computer literate, 45% use
electronic mail (e-mail), 27% use cellular phones, and 28% use pagers. In
general, these professionals spend at least 20% of their time away from the
office. They see portable technology as critical to their success. They drive
the usage, purchase, and acceptance of mobile information technology among their
colleagues, peers and others.
The mobile professional, along with telecommuters and professionals conducting
business out of a small office or home office, are the main markets for Norris'
FLASHBACK recorder and the MOBILE OFFICE PACKAGE comprising a FLASHBACK,
SOUNDCLIP, and SOUNDLINK.
The OEM and Licensing market for the Company's products includes companies and
individuals preparing to use Flash memory in their systems and/or products.
These potential customers and partners span a number of industries including
mobile telecommunications, mobile computing, office products, consumer
electronics, etc. The MCM and the NFFS can be incorporated into numerous
products and systems including two-way voice pagers, digital recorders, cellular
in-phone answering machines or voice mail systems, set top boxes, flight data
recorders, conference phone recorders, surveillance devices, and digital
dictation systems,. The common factor in many of these products will be the need
to store data in compressed format, while keeping it accessible and safe.
Another common factor will be a standard form factor such as CompactFlash, being
promoted by a number of major corporations, including Norris, SanDisk, Polaroid,
Eastman Kodak, Apple, Canon, Seagate, Hewlett Packard, NEC Motorola, Matsushita
and Sony, who are members of the CompactFlash Association.
The Company intends to private label its consumer products and proprietary
technology to selected name-brand companies in the dictation, personal computer,
consumer electronics, telecommunications, paging, and other industries.
THE MARKET AND DISTRIBUTION CHANNELS
The Company's current and planned consumer products, FLASHBACK, SOUNDCLIP,
SOUNDLINK, the MOBILE OFFICE PACKAGE and PVP-2000 are sold by the Company's
internal sales and marketing staff through VARs, resellers and external
distributors specializing in serving the mobile computing and computer
peripheral markets. While existing VARs, resellers and distributors are
presently primarily in the United States, the Company has signed contracts for
Asian Pacific distribution, and is seeking international distribution partners.
The Company's core technology, embodied in the NFFS and MCM, is being sold
through OEM, partnership, private label and Licensing agreements prospected
internally by the Company's OEM sales division. The Company's contract
manufacturing services are sold by the Company's management and sales staff.
MANUFACTURING
The Company also provides contract manufacturing including component
procurement, ICT (In Circuit Testing) and ASIC (Application Specific Integrated
Circuit) testing, printed circuit board assembly using surface mount, custom
wire-bonding, pin-through-hole technology assembly, post assembly testing, and
final product packaging.
In fiscal 1995, the contract manufacturing services accounted for over 90% of
the Company's consolidated revenues. However in fiscal 1996, the Company
reconfigured its operations in light of the FLASHBACK developed products and
significantly downsized its contract manufacturing business which contributed
18% of total consolidated revenues for fiscal 1996. Maintaining its charter as a
revenue center for fiscal 1997, management is refocusing on additional outside
contract manufacturing business.
During fiscal 1996, the Company utilized its contract manufacturing experience
to manufacture the FLASHBACK for its own account, from parts and electronic
components purchased from regular distribution channels. The Company is reliant
on several sole source suppliers for several key electronic components, with
only one of them produced to the Company's specifications. Reliance on sole
source suppliers is not considered unusual in the electronic components
industry, but the unavailability of such components could have an adverse effect
on the Company's business. Although other suppliers of general components
exists, additional time would be required to modify components to meet the
Company's specifications. Any delays could have an adverse impact on the
Company's results of operations. Delays could also result from component
shortages, which are common to the electronic industry. The occurrence of any
such events could have a material adverse impact on the Company's operations.
The Company plans on completing a make versus buy analysis prior to the
production of each new proprietary developed product. The Company will review
alternatives for contracting with other manufacturing facilities to produce its
products and
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will select, when warranted, organizations who will provide a lower unit product
cost than internal manufacturing, a secondary source of supply, and/or
additional capacity.
MAJOR CUSTOMERS
During the fiscal year ended March 31, 1995, IVAC Corporation accounted for 31%
of total revenues. No other customer accounted for more than 10% of revenues in
fiscal 1995. For the fiscal year ended March 31, 1996, two customers The Sharper
Image and The Good Guys accounted for 10% each of total revenues. The Company
has not had enough FLASHBACK marketing history and experience to determine if it
will be reliant on a small number of customers.
COMPETITION
There is no known competition with regard to a handheld digital voice recorder
that offers the ability to download recorded sound and data information to a
computer in compressed format. However, without the SoundLink device, the
FLASHBACK is frequently compared to the `note taker' type of products which
offer limited recording capabilities and feature sets. The Mobile Office Package
will be competing with companies that sell traditional dictation/transcription
devices. The success of the products will depend greatly on how the end user
plans to utilize the product or technology. The Company maintains a clear
advantage in its solid state removable recording technology. If the product is
to be utilized for sending voice messages across the Internet, there is no
currently competitive product.
The Company further believes its existing know-how, issued contracts, present
pending patent applications, customized components, existing copyrights, trade
secrets and potential future patents and copyrights, will be significant in
enabling it to compete successfully.
Barriers to entry by new competitors are not significant and new competitors in
consumer electronics are continually commencing operations. The technology of
electronics and electronic components, features and capabilities is also rapidly
changing, in many cases causing rapid obsolescence of existing products and
technologies. Although the Company believes it has a technological advantage at
the present time, there can be no assurance that it can successfully exploit or
maintain this technological advantage in the future.
PATENTS, TRADENAMES AND COPYRIGHTS
The Company owns one patent protecting its products. The Company has applied for
additional multiple pending patent applications with multiple claims on
innovations in audio and other forms of recording. The Company's software is
subject to copyrights and pending patent applications. The patent position of
any item for which the Company has filed a patent application is uncertain and
may involve complex legal and factual issues. Although the Company is currently
prosecuting multiple patent and trademark applications with the U.S. Patent and
Trademark Office and also has filed certain international patent applications
corresponding to its U.S. patent applications, the Company does not know whether
any of its applications will result in the issuance of patents, or, for any
patents issued, whether they will provide significant proprietary protection or
will be circumvented or invalidated. Additionally, since an issued patent does
not guarantee the right to practice the claimed invention, there can be no
assurance others will not obtain patents that the Company would need to license
or design around in order to practice its patented technologies, or that
licenses that might be required would be available on reasonable terms. Further
there can be no assurance that any unpatented manufacture, use, or sale of the
Company's technology or products will not infringe on patents or proprietary
rights of others. The Company however has made reasonable efforts in the design
and development of its products not to infringe on other patents.
The Company also relies on trade secret laws for protection of its intellectual
property, but there can be no assurance others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can protect its rights to unpatented trade secrets.
The Company also has filed a number of trademark applications with the U.S.
Patent and Trademark Office. The Company has received notification of allowance
from the United States Patent Office for use of FLASHBACK as a registered
tradename. The Company believes the trademark on FLASHBACK to be significant to
its operations and the loss or infringement of the name could have an adverse
impact on operations.
The Company intends to make every reasonable effort to protect its proprietary
rights to make it difficult for competitors to market equivalent competing
products without being required to conduct the same lengthy testing and
development conducted by the Company and not use any of the Company's innovative
and novel solutions to the many technical obstacles involved in portable
recording using Flash memory.
EMPLOYEES
As of June 19, 1996, the Company, through its wholly owned subsidiary NCI,
employed approximately 49 full-time employees of which 26 were production, 10
were sales/customer service, 5 were research and development, 5 were
accounting/MIS and 3 were administrative officers. None of the Company's
employees are represented by a labor union, and the Company is not aware of any
current efforts to unionize the employees. Management of the Company considers
the relationship between the Company and its employees to be good.
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GOVERNMENT REGULATION
The Company's manufacturing operations are subject to certain federal, state and
local regulatory requirements relating to environmental, waste management,
health and safety matters and there can be no assurance that material costs and
liabilities will not be incurred or that past or future operations will not
result in exposure or injury or claims of injury by employees or the public.
Some risk of costs and liabilities related to these matters are inherent in the
Company's business, as with many similar businesses. Management believes its
business is operated in substantial compliance with applicable environmental,
waste management, health and safety regulations, the violation of which could
have a material adverse effect on the Company. In the event of violation, these
requirements provide for civil and criminal fines, injunctions and other
sanctions and, in certain instances, allow third parties to sue to enforce
compliance. In addition, new, modified or more stringent requirements or
enforcement policies could be adopted which could adversely affect the Company.
RESEARCH AND DEVELOPMENT COSTS
For the years ended March 31, 1996 and 1995, the Company spent $1,048,500 and
$1,897,000, respectively, on research and development. The Company anticipates
it will continue to devote substantial resources to research and development
activities.
INVESTMENT IN JABRA
The Company owns 1,800,000 common shares of JABRA representing 23.1% ownership
(20.1% on a fully diluted basis). The Company exercises no significant influence
over the operations of JABRA. The Company has granted an option to purchase
300,000 of the JABRA common shares to CVD Financial Corporation ("CVD").
JABRA is a private company engaged in developing, manufacturing and marketing
cellular, desktop, mobile and wireless communications products. JABRA's
principal technology is the patented "all-in-the-ear" EarPHONE technology
originally conceived and developed by the Company when JABRA was a wholly owned
subsidiary.
As a minority shareholder in JABRA, which has reported operating losses since
its inception, there can be no assurance as to when or if the Company's
remaining shares can produce any financial return to the Company. The Company's
investment in JABRA shares is carried on its balance sheet at a cost of nil.
MISCELLANEOUS
No material portion of the Company's business is subject, at the election of the
United States government, to renegotiation or termination of contracts or
subcontracts.
Compliance with federal, state and local provisions enacted or adopted
regulating the discharge of materials into the environment, or otherwise related
to the protection of the environment, has not had and is not expected to have
material effect on the Company's capital expenditures, earnings and competitive
position.
The Company does not have, and has not had in any of its last three fiscal
years, any significant export sales or operations outside the United States.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 31,000 square feet of office and manufacturing space, located
at 12725 Stowe Drive in Poway, California. This facility was occupied in late
December of 1992. The lease expires in 2002.
The Company also leases its former operating facility comprising approximately
10,800 square feet at 12800 Brookprinter Place, Poway, California. The lease
expires on January 1, 1998. The Company is subletting the facility on a month to
month basis to American Technology Corporation (a company 36% owned by Mr.
Norris). The Company believes that the sublease terms are no less favorable than
could be obtained from an independent and unaffiliated party.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth fiscal
quarter ended March 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) (symbol NORRF) since
April 6, 1993. The following table sets forth, for the periods indicated, the
high and low closing bid prices for the Common Stock, as reported by NASDAQ, for
the quarters presented. Bid prices represent inter-dealer quotations without
adjustment for markups, markdowns, and commissions.
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<TABLE>
<CAPTION>
(Stated in United States dollars per share)
High Low
<S> <C> <C>
Fiscal year ended March 31, 1995
First quarter 4 1/2 3 1/8
Second quarter 3 7/8 3
Third quarter 3 1/2 2 1/8
Fourth quarter 3 3/4 2 1/2
Fiscal year ended March 31, 1996
First quarter 3 5/8 1 9/16
Second quarter 2 3/8 1 1/4
Third quarter 2 3/32 7/8
Fourth quarter 1 15/16 1
</TABLE>
At June 19, 1996, there were 22,023,013 shares of Common Stock outstanding,
which were held by approximately 319 shareholders of record.
The Company has never paid any dividends to its common stock shareholders.
Future cash dividends or special payments of cash, stock or other distributions,
if any, will be dependent upon the Company's earnings, financial condition and
other relevant factors. The Board of Directors does not intend to pay or declare
any dividends in the foreseeable future, but instead intends to have the Company
retain all earnings, if any, for use in the Company's business.
There are currently no governmental laws, decrees or regulations that restrict
the export or import of capital out of or into Canada, nor are there foreign
exchange controls or other governmental laws, decrees or regulations affecting
or restricting the remittance of dividends or other payments to non-resident
holders of the common shares.
Any dividends paid by the Company on the common shares owned by residents of the
United States would be subject to a Canadian withholding tax at a rate equal to
a maximum of 15% of the dividend paid.
Generally, the disposition by a non-resident shareholder of capital stock in a
Canadian public corporation is not subject to Canadian income tax. Where,
however, a non-resident shareholder, or persons whom the non-resident
shareholder does not deal at arm's length with, or the non-resident shareholder
and persons whom he does not deal at arm's length with, owned at any time during
a 5 year period immediately preceding the disposition, not less than 25% of the
issued shares of any class of the capital stock of the Company, the shares so
disposed of will constitute taxable Canadian property. In general, a disposition
of shares that constitute taxable Canadian property will be subject to the rules
relating to the disposition of a common share for residents of Canada. The
existing tax treaty between the United States and Canada essentially calls for
taxation of stockholders by the stockholder's country of residence. In those
instances in which a tax may be assessed by the other country, a corresponding
credit against the tax owed in the country of residence is normally available.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
Prior to the introduction of the FLASHBACK recorder in December 1994, the
revenues of the Company were generated by contract manufacturing. Contract
manufacturing accounted for over 90% of total revenues in fiscal 1995 compared
to 18% of total revenues in fiscal 1996. As a result of the reduction of outside
contract manufacturing services, the reconfiguration of manufacturing to
accommodate the production of FLASHBACK proprietary products, i.e. FLASHBACK and
accessories, the sale of FLASHBACK products accounted for the majority of
revenues for the fiscal year ended March 31, 1996. As a result of the
significant change in the source of revenue, comparisons to prior results is
less meaningful and prior results are not necessarily indicative of future
results.
The Company has incurred operating losses in seven of its past eight years and
these losses have been material. The Company incurred an operating loss of $8.3
million in fiscal 1996. This resulted from the development and launch of the
FLASHBACK and losses incurred in reducing contract manufacturing operations in
preparation of FLASHBACK production. Since future results are primarily
dependent on proprietary product (FLASHBACK and new products scheduled for
introduction) results, the Company's losses are expected to continue until such
time as the Company is able to manufacture and sell quantities of proprietary
products at sufficient margins to cover fixed costs of operations. Should the
Company be unable to accomplish the foregoing and operate profitably, the
Company may be forced to reduce or curtail operations. The Company continues to
be subject to the risks normally associated with any new business activity,
including unforeseeable expenses, delays and complications. Accordingly, there
is no assurance the Company can or will report operating profits in the future.
Since the Company utilizes its own facility and equipment for the manufacture of
proprietary products, gross margins are especially dependent upon sales volumes
as a result of a substantial fixed manufacturing overhead. The Company estimates
that its monthly fixed cash operating costs approximate $400,000 per month. At
low sales volumes it is unlikely that positive gross margins from proprietary
products can be achieved, however at higher volumes the allocation of fixed
costs over more sales can result in increasing gross margins. Accordingly, the
Company anticipates variances in gross margins from quarter to quarter in future
quarters as production is still in the early stages and product sales volumes
can vary as the various
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<PAGE> 9
distribution channels are launched and as a result of seasonal and other factors
associated with the sale of consumer electronic products.
Sales of and demand for the Company's FLASHBACK recorder have not met
management's expectations due to a variety of factors including competitive
pressure in the portable recording industry and insufficient financial resources
to differentiate the product from competitors. The Company has responded by
changing distribution channel emphasis to the high end business markets, by less
reliance on outside sales representatives (through the hiring of a director of
sales and marketing) and by educating retailers and customers on the differences
between FLASHBACK and less expensive memo recorders. The scheduled introduction
of the Company's SOUNDLINK computer peripheral in the second fiscal 1997 quarter
is expected to open new channels of distribution and further differentiate the
Company's product offerings. Sales are expected to be subject to significant
month to month variability resulting from the limited market penetration
achieved to date, the impact of new product introductions and the seasonal
nature of demand for consumer electronic products. The markets for consumer
electronic products are subject to rapidly changing customer tastes and a high
level of competition. Demand for the Company's products is expected to be
influenced by marketing and advertising expenditures, product positioning in
retail outlets, technological developments and general economic conditions.
Because these factors can change rapidly, customer demand can also shift
quickly. The Company may not be able to respond to changes in customer demand
because of the time required to change or introduce products, production
limitations and limited financial resources.
On November 10, 1995, the Company announced an original equipment manufacturer
(OEM) sales division had been created to meet the demand for the FLASHBACK
technology. The three goals are to (1) license the microprocessor and software,
(2) design and manufacture custom products, and (3) offer private label branding
of current Company products. Also, the Company announced the availability of the
NFFS as a development tool for individuals and companies preparing to use Flash
memory in their systems and/or products. The Company anticipates, but there can
be no assurance, that OEM revenues will become a significant component of future
revenues of the Company.
Results of Operations
For the fiscal year ended March 31, 1996, the Company reported revenues of $1.3
million, 76% less than revenues of $5.6 million for fiscal 1995. The decrease in
revenues is due to FLASHBACK sales not meeting expectations and not achieving
sales levels comparable to prior contract manufacturing revenues. Fiscal 1996
revenues are primarily from sales of FLASHBACK. Fiscal 1995 revenues were
primarily from the operations of the contract manufacturing business. A
substantial portion of the Company's FLASHBACK revenues have been derived from a
limited number of customers. The loss of certain large customers or a decline in
the economic prospects of such customers would have a further adverse effect on
the Company.
For fiscal 1996, the Company reported a gross loss of $3.1 million or 232% of
revenues, as compared to a gross loss of $1.1 million or 20% for fiscal 1995.
The decrease in gross profit in fiscal 1996 was due to the Company's reduction
of contract manufacturing and minimal sales of the FLASHBACK while fixed
manufacturing overhead related to cost of sales plus the cost of product
exceeded the revenues generated by sales of FLASHBACK. Also in the first quarter
of fiscal 1996 cost of sales included $980,000 representing the cost of 7,000
discontinued FLASHBACK units sold to Active Media Services, Inc., an independent
media trading firm. These units were sold in exchange for $1,172,500 of media
trade credits and 50% of the cash proceeds realized on the ultimate sale of the
units. The Company recognized no prepaid asset nor any revenue in connection
with the trade credits since their use requires certain matching cash payments
and the Company's ability to continue as a going concern is in substantial
doubt. In addition, the amount of cash to be received on the ultimate sale of
the units can not be reasonable estimated. Accordingly, the Company intends to
recognize future revenue from the trade credits only when ascertainable economic
value is realized from their use or cash proceeds are received from the ultimate
sale of the units.
During fiscal 1995, the contract manufacturing operation experienced high
manufacturing costs due to FLASHBACK startup costs, low margin turnkey and
consignment orders and an increased mix of through-hole printed circuit boards
which required more hand placement of components (which increased labor costs
with no corresponding increase in revenues). In fiscal 1996, the Company
reconfigured its operations in light of the FLASHBACK developed products and
significantly downsized its contract manufacturing business. The Company expects
to report gross losses until product sales and/or margins improve sufficiently
to cover manufacturing overhead. The Company's strategies to produce positive
margins includes increasing volume of existing products and adding new products,
improving pricing, reducing manufacturing costs, obtaining additional contract
manufacturing business, and obtaining new revenues from the OEM division. There
can be no assurance the Company can achieve positive gross margins.
Total operating expenses (including research and related expenditures, selling
and administrative and interest expense less interest income) were $4.9 million
for the fiscal year ended March 31, 1996 as compared to $5.9 million for fiscal
1995. Operating expenses for the fiscal year 1996 decreased by $1.0 million
primarily due to a concerted effort to reduce expenses, while manufacturing and
selling the FLASHBACK. The material changes and reasons for the changes from
fiscal 1996 compared to fiscal 1995 were: a decrease in legal fees and
settlements of $263,000 (the decrease was due to a reduction of settlements and
legal fees being paid in the current fiscal year), a decrease in salaries of
$100,000 (the Company reduced staffing due to financial constraints), a decrease
in finders fees of $130,000 (a large line of credit was established in the prior
year where a finders fee was paid), a decrease in public relations of $60,000
(the Company has reduced outside public relations internally assuming many of
these duties), and a reduction of other advertising, promotions and trade show
expenses of $80,000 (associated with the prior year new product launch), offset
by an increase associated with a $120,000 refinancing
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<PAGE> 10
fee on the convertible note. Research and development costs (associated with new
product development) were $1 million for fiscal 1996, as compared to $1.9
million for fiscal 1995 which included intensive FLASHBACK development costs.
The research and development associated with new products, although subject to
quarterly variations, are expected to continue at current levels.
In August 1989, the Company acquired ASMD which provided the contract
manufacturing operations. In light of the Company's decision to significantly
downsize manufacturing operations during fiscal 1996, the impairment of the
remaining goodwill associated with the purchase of ASMD was determined by the
Company to be in question and the Company subsequently wrote off the unamortized
balance of $0.2 million in March 1996.
The Company reported an operating loss of $8.3 million for fiscal 1996, as
compared to an operating loss of $7.1 million for fiscal 1995.
Liquidity and Capital Resources
At March 31, 1996, the Company had working capital of $1.1 million, compared to
working capital of $1.7 million at March 31, 1995. The Company had approximately
$3.2 million of working capital invested in inventories at March 31, 1996,
compared to approximately $2.7 million at March 31, 1995 with the increase due
to FLASHBACK components. The decrease in working capital is a result of the
Company's continuing losses which consumed working capital during the period.
The Company exhausted its available credit under its credit line which was
converted to a fixed note, as discussed below. Approximately $6 million in cash
was used in operating activities by the Company for the year ended March 31,
1996. The Company's current cash position is insufficient to enable the Company
to meet either its obligations to creditors or its on-going expenses beyond
approximately three months.
On October 17, 1995, the Company executed a Loan Modification Agreement with CVD
Financial Corporation ("CVD"), regarding a line of credit. The Loan Modification
Agreement, which had an effective date of August 1, 1995, provided for (i) the
extension of the maturity date of the loan (the "Loan") to January 31, 1996,
(ii) a reduction in the interest rate charged by CVD from prime rate plus seven
percent (7%) to prime rate plus two percent (2%), (iii) the waiver by CVD of
certain events of default which had occurred, (iv) the issuance of 75,000 shares
of the Company's common stock, to CVD, (v) the issuance of a new warrant to CVD
to purchase 200,000 shares of Common Stock at $2.00 per share, (vi) the
repricing of existing warrants to purchase 450,000 shares of Common Stock to
$1.75 per share, (vii) the issuance of an option to acquire up to 300,000 shares
of JABRA Corporation ("JABRA") common stock at a price of $1.50 per share,
(viii) the grant of certain conversion rights to CVD to enable CVD to convert at
anytime prior to repayment all or any portion of the outstanding principal
balance of the Loan (including accrued but unpaid interest) into shares of
Common Stock at the lesser of (a) $1.50 per share or (b) following the
occurrence of an event of default, the higher of $1.00 per share and the average
closing price for the 20 days preceding the date of notice of an event of
default, and (ix) in the event CVD becomes the holder of not less than 1,000,000
shares of Common Stock, to nominate and appoint one director to the Company's
board of directors. Substantially all of the assets of the Company and its
subsidiary (including JABRA shares) are pledged to CVD as collateral for the
amounts loaned and the Company is prohibited from incurring additional
indebtedness without CVD's prior consent. In addition, as a result of the Loan
Modification Agreement, the loan is now non-revolving (i.e. no additional funds
may be borrowed prior to maturity) and 50% of the net proceeds from any equity
financing must be used to pre-pay the loan.
On October 17, 1995, the Company paid CVD $429,000, reducing the outstanding
principal balance of the note to $2,703,646. On January 8, 1996, the Company
made an additional $518,100 principal payment on the note. On February 1, 1996
the Company obtained an extension of the convertible note to April 30, 1996 in
consideration of an extension fee of $33,155 which was added to the principal
balance of the note. On April 10, 1996 the Company made another principal
payment of $766,667 on the note reducing the balance to $1,418,879 and obtained
an additional extension of the convertible note to October 31, 1996.
In March 1996, the Company obtained $3 million from a convertible debt
financing, and used the proceeds to make an additional principal payment to the
CVD convertible note as well as provide short-term working capital. In June
1996, the Company obtained $2.4 million in funds from a private placement of
securities and used the proceeds for a $1.1 million principal payment on the CVD
convertible note (reducing the outstanding balance to approximately $0.3
million) with the balance allocated for working capital.
The Company will require additional capital (and a replacement or refinancing of
the balance of the CVD note) within the next three months to meet its debts as
they become due and to continue as a going concern. The Company will also
require additional working capital to finance production and sales of its
proprietary products. Successful commercialization of proprietary products and
the introduction of the SOUNDLINK will require additional working capital. The
Company estimates that at current expenditure levels and projected working
capital requirements it will require a minimum of an additional $3.5 million (in
addition to the $1.4 million required to refinance the CVD note) to continue
operating for the next twelve months without any contribution from operations.
The existing business may be able to generate some of the additional $3.5
million required depending on proprietary product results, success in obtaining
contract manufacturing business and the ability of the OEM division to generate
revenues, however there can be no assurance thereof. The Company is currently
pursuing various alternatives to meet its needs for additional capital and
refinancing of existing debt. There can be no assurance the Company will be
successful and any such financing may be dilutive to current shareholders. The
failure to
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<PAGE> 11
refinance existing debt or raise additional funds could have a material adverse
effect on the Company and could force the Company to reduce or curtail
operations.
The Company may, from time to time, seek additional funds through additional
lines of credit, public or private debt or equity financing. The Company might
require additional capital to finance future developments, new products,
production, marketing, acquisitions or extraordinary expansion of facilities in
accordance with its business strategy. There can be no assurances that
additional capital will be available when needed.
Changes in Cash
For the fiscal year ended March 31, 1996, net cash decreased $0.4 million. Cash
used in operating activities was $6.0 million. Major components using cash were
a net loss of $8.3 million, and an increase in inventory of $0.6 million. The
increase in inventory resulted from a build-up of finished goods and raw
materials. Major components providing cash were an increase in accounts payable
of $1.3 million, depreciation and amortization (including the write-off the
unamortized balance of goodwill) of $0.8 million and the reduction of trade
payables, other liabilities and loans of $0.4 million through issuance of stock.
The major components of cash provided by financing activities were proceeds from
issuance of shares of $3.5 million and proceeds of $3.0 million from issuance of
convertible notes payable.
Future Commitments and Financial Resources
The Company's future commitments are related to its capital and operating leases
(see footnote 12 to the consolidated financial statements). These commitments
are included in the cash requirements. The Company is currently in arrears and
in breach of payment obligations totaling $.5 million for a capital lease. The
Company, however, has not received notice of default from the lessor and is
discussing with the lessor various financing alternatives.
The Company is committed to purchase orders providing for the future delivery of
components in accordance with production schedules. Generally, these orders may
be canceled or extended should production schedules change, however, purchase
orders for customized components often involve vendors less willing to cancel
purchase orders although generally open to extensions or modifications which are
common to the industry. Since the Company's production schedules have been
extended, should production be further curtailed or cease, then the Company
could become liable for outstanding purchase orders and the liability could be
material.
If in the future, operations of the Company increase significantly, the Company
may require additional funds. The Company might also require additional capital
to finance future developments, acquisitions or extraordinary expansion of
facilities. The Company currently has no plans, arrangements or understanding
regarding any acquisitions.
Possible Inability to Continue as a Going Concern
The Company has suffered recurring losses from operations. This factor, in
combination with (i) the Company's exhaustion of its credit line which was
converted to a note, (ii) the Company's prior reliance upon debt to fund the
continuing, increasing losses from operations and cash flow deficits, (iii)
substantial inventory buildup during fiscal 1995 and fiscal 1996 consisting of
raw materials, components and finished product to be utilized in the manufacture
and sale of its FLASHBACK product and material decline in inventory turnover,
(iv) materially increased net losses and cash flow deficits from operations
during fiscal 1995 and fiscal 1996 and (v) the likelihood that the Company may
be unable to meet its debts as they come due, raise substantial doubt about the
Company's ability to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its ability to obtain adequate
financing and achieve a level of revenues adequate to support the Company's
capital requirements, as to which no assurance can be given. In the event the
Company is unable to continue as a going concern, it may elect or be required to
seek protection from its creditors by filing a voluntary petition in bankruptcy
or may be subject to an involuntary petition in bankruptcy. To date, management
has not considered this alternative, nor does management view it as a likely
occurrence.
INFLATION
Inflation has not had any significant impact on the Company's business.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company required to be included in
this Item 7 are set forth in a separate section of this report and commence on
Page F-1 immediately following page 16.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this Item is incorporated herein by reference from
the definitive proxy statement which will be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended, within 120 days of the close of
the fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from
the definitive proxy statement which will be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended, within 120 days of the close of
the fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference from
the definitive proxy statement which will be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended, within 120 days of the close of
the fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference from
the definitive proxy statement which will be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended, within 120 days of the close of
the fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Each exhibit marked with an asterisk is filed with this Annual Report on Form
10-KSB. Each exhibit not marked with an asterisk is incorporated by reference to
the exhibit of the same number (unless otherwise indicated) previously filed by
the Company as indicated below.
Exhibit
Number Description of Exhibit
- - ------ ----------------------
3.1 Articles and Certificate of Continuance of Norris Communications Corp.
(Yukon) filed as Exhibit 3.1 to the Company's 1995 Form 10-KSB.
3.2 Bylaws of Norris Communications Corp. (Yukon) filed as Exhibit 3.1 to
the Company's 1995 Form 10-KSB.
4.1 Exhibit 3.1 is incorporated by reference.
4.2 Exhibit 3.2 is incorporated by reference.
4.3 Stock Purchase Warrant for 33,750 Common Shares between the Company and
Cruttenden & Co., Inc. dated July 15, 1994 and filed as Exhibit 4.3 to
the Company's 1995 Form 10-KSB.
4.4 Stock Purchase Warrant for 300,000 Common Shares between the Company
and CVD Financial Corporation dated July 15, 1994 and filed as Exhibit
4.4 to the Company's 1995 Form 10-KSB.
4.4.1 First Amendment to Stock Purchase Warrant for 300,000 Common Shares
between the Company and CVD Financial Corporation dated November 14,
1994 and filed as Exhibit 4.4.1 to the Company's' 1995 Form 10-KSB.
4.5 Stock Purchase Warrant for 150,000 Common Shares between the Company
and CVD Financial Corporation dated July 15, 1994 and filed as Exhibit
4.5 to the Company's 1995 Form 10-KSB.
4.5.1 First Amendment to Stock Purchase Warrant for 150,000 Common Shares
between the Company and CVD Financial Corporation dated November 14,
1994 and filed as Exhibit 4.5.1 to the Company's 1995 Form 10-KSB.
4.6 Warrant Agreement for 82,100 Common Shares between the Company and
Comdisco, Inc. dated as of August 15, 1994 and filed as Exhibit 4.6 to
the Company's 1995 Form 10-KSB.
4.7 Warrant Agreement No. 1 for 106,986 Common Shares between the Company
and Pennsylvania Merchant Group Ltd. dated March 1, 1995 and filed as
Exhibit 4.7 to the Company's 1995 Form 10-KSB.
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4.7.1 Warrant Agreement No. 2 for 87,300 Common Shares between the Company
and Pennsylvania Merchant Group Ltd. dated March 17, 1995 and filed as
Exhibit 4.7.1 to the Company's 1995 Form 10-KSB.
4.7.2 Warrant Agreement No. 3 for 714 Common Shares between the Company and
Pennsylvania Merchant Group Ltd. dated March 20, 1995 and filed as
Exhibit 4.7.2 to the Company's 1995 Form 10-KSB.
4.8 Warrant Agreement for 115,000 Common Shares between the Company and
Cruttenden & Co., Inc. dated February 10, 1994 and filed as Exhibit 4.8
to the Company's 1995 Form 10-KSB.
4.9 Form of 7% Convertible Note dated March 25, 1996 and due March 25, 1999
for an aggregate of $3,000,000 issued to a total of six investors and
filed as Exhibit 4.9 to the Company's Form 8-K dated April 5, 1996.
4.10 Warrant Agreement for 129,230 Common Shares between the Company and
First Bermuda Securities Ltd. dated March 25, 1996 and filed as Exhibit
4.10 to the Company's Form 8-K dated April 5, 1996.
*4.11 Form of Warrant Agreement dated June 7, 1996 for an aggregate off
$805,900 issued to a total of five investors.
10.1 Share Exchange Agreement among the Company, Norcom Communications
Corporation, and American Technology Corporation, dated for reference
March 23, 1988, and filed as Exhibit 2.1 to the Company's 1992 Form 10
10.1.1 Amendment of Agreement among the Company, Norcom Communications
Corporation, and American Technology Corporation, dated for reference
March 23, 1988 and filed as Exhibit 2.1.1 to the Company's 1992 Form
10.
10.2 Plan and Agreement of Reorganization among the Company, American
Surface Mounted Devices, Inc. and ASMD, Inc., dated August 11, 1989 and
filed as Exhibit 2.2 to the Company's 1992 Form 10.
10.3 Plan and Agreement of Reorganization among the Company, Sage
Microsystems, Inc. and Sage Micro, Inc. dated November 7, 1991 and
filed as Exhibit 2.3 to the Company's 1992 Form 10.
10.4 Plan and Agreement of Reorganization among the Company, C.A.D. Co.
Engineering, Inc. and CADCO Design Group, Inc., dated June 1, 1992 and
filed as Exhibit 2.4 to the Company's 1992 Form 10.
10.5 Loan Agreement between CVD Financial Corporation and the Company and
its Subsidiaries dated July 15, 1994 and filed as Exhibit 10.5 to the
Company's 1995 Form 10-KSB.
10.5.1 Loan Modification Agreement between CVD Financial Corporation and the
Company and its Subsidiaries dated November 14, 1994 and filed as
Exhibit 10.5.1 to the Company's 1995 Form 10-KSB.
10.5.2 Loan Modification Agreement, dated as of August 1, 1995 and filed as
Exhibit 10.5.2 to the Company's 1995 Form 8-K.
10.5.3 Amended and Restated Promissory Note, dated August 1, 1995 and filed as
Exhibit 10.5.3 to the Company's Form 8-K dated October 27, 1995.
10.5.4 Second Amendment to Stock Purchase Warrant (for 150,000 shares), dated
August 1, 1995 and filed as Exhibit 10.5.4 to the Company's Form 8-K
dated October 27, 1995.
10.5.5 Second Amendment to Stock Purchase Warrant (for 300,000 shares), dated
August 1, 1995 and filed as Exhibit 10.5.5 to the Company's Form 8-K
dated October 27, 1995.
10.5.6 Stock Purchase Warrant (for 200,000 shares) dated August 1, 1995 and
filed as Exhibit 10.5.6 to the Company's Form 8-K dated October 27,
1995.
10.5.7 Amended and Restated Stock Pledge and Option Agreement (for 300,000
shares of JABRA), dated August 1, 1995 and filed as Exhibit 10.5.7 to
the Company's 8-K dated October 27, 1995.
10.5.8 Loan Modification Agreement between the Company and CVD Financial
Corporation dated February 1, 1996 and filed as Exhibit 10.5.8 to the
Company's 1995 Form 10-QSB.
10.5.9 Amended and Restated Promissory Note between the Company and CVD
Financial Corporation dated February 1, 1996 and filed as Exhibit
10.5.9 to the Company's 1995 Form 10-QSB.
10.5.10 Loan Modification Agreement between CVD Financial Corporation and the
Company and its subsidiary dated as of April 1, 1996 and filed as
Exhibit 10.5.10 to the Company's Form 8-K dated April 11, 1996.
10.6 Technology Transfer Agreement among the Company, American Technology
Corporation, Elwood G. Norris and Norcom Electronics Corporation dated
January 25, 1988 and filed as Exhibit 10.8 to the Company's 1992 Form
10.
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<PAGE> 14
10.6.1 Assignment Agreement among American Technology Corporation, Norcom
Electronics Corporation, Norcom Communications Corporation and Elwood
G. Norris dated March 22, 1988 and filed as Exhibit 10.8.1 to the
Company's 1992 Form 10.
10.7 Master Lease Agreement between Comdisco, Inc. and American Surface
Mounted Devices, Inc. dated as of August 15, 1994 and filed as Exhibit
10.7 to the Company's 1995 Form 10-KSB.
10.8 Agreement and Plan of Reorganization by and among the Company, Norcom
Communications Corporation and JABRA Corporation dated January 15, 1993
and filed as Exhibit 10.8 to the Company's 1993 Form 10-K.
10.8.2 Amendment No. 1 to Agreement and Plan of Reorganization by and among
the Company, Norcom Communications Corporation and JABRA Corporation
dated May 28, 1993 and filed as Exhibit 10.8.2 to the Company's 1993
Form 10-K.
10.9 Stock Option Plan adopted by the Company on August 21, 1992 ("1992
Plan") filed as Exhibit 10.10 to the Company's 1992 Form 10.
10.10 Stock Option Plan adopted by the Company on September 29, 1994 ("1994
Plan") and filed as Exhibit 10.10 to the Company's 1995 Form 10-KSB.
10.11 Plan and Agreement of Reorganization by merger of American Surface
Mounted Devices, Inc. with and into Comp General Corporation under the
name of Norris Communications, Inc. dated April 1, 1995 and filed as
Exhibit 10.11 to the Company's 1995 10-KSB.
10.12 Lease Agreement between the Company and Pomerado Properties dated
August 17, 1989 and filed as Exhibit 10.12 to the Company's Form 10.
10.13 Lease Agreement between the Company and Pomerado Properties dated July
2, 1992 and filed as Exhibit 10.13 to the Company's Form 10.
10.14 Letter Agreement between the Company and Homer H. Lesihau, dated
February 3, 1993 and filed as Exhibit 10.17 to the Company's 1993 Form
10-K.
10.14.1 Amending Agreement to Letter Agreement Dated February 3, 1993 between
the Company and Homer H. Lesihau, dated April 29, 1993 and filed as
Exhibit 10.17.1 to the Company's 1993 Form 10-K.
10.16 Financial Advisory Agreement dated August 21, 1995 between Auerbach,
Pollack & Richardson, Inc. and the Company and filed as Exhibit 10.16
to the Company's Form 8-K dated November 13, 1995.
10.17 Norris Communications Corp. and Auerback, Pollack & Richardson, Inc.
Placement Agent's Warrant Agreement filed as Exhibit 10.17 to the
Company's Form 8-K dated November 13, 1995.
10.18 Warrant Certificate Issued to Auerbach, Pollak & Richardson, Inc. and
filed as Exhibit 10.18 to the Company's Form 8-K dated November 13,
1995.
*10.18.1 Release and Termination of Right of First Refusal and Amendment to
Warrant between the Company and Auerbach, Pollak & Richardson, Inc.
dated May 13, 1996.
10.19 Registration Rights Agreement between Auerbach, Pollak & Richardson,
Inc. and the Company, filed as Exhibit 10.19 to the Company's Form 8-K
dated November 13, 1995.
*10.20 Employment Agreement dated September 12, 1995 between the Company and
Elwood G. Norris.
*10.21 Employment Agreement dated September 8, 1995 between the Company and
Robert Putnam.
*10.22 Employment Agreement dated August 1, 1995 between the Company and R.
Gorden. Root.
*10.23 Employment Agreement dated January 11, 1996 between the Company and
Peter W. Gorrie.
*10.24 Placement Agreement dated April 16, 1996 between the Company and
Iacocca Capital Partners, L.P. and the Company.
*10.25 Form of Registration Rights Agreement effective June 7, 1996 between
11 Investors and the Company aggregating $1,694,100.
*11.1 Statement re computation of per share earnings.
*21.1 List of subsidiaries.
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*23.1 Consent of Ernst & Young, Independent Accountants.
*27.1 Financial Data Schedule.
* Filed concurrently herewith.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the last quarter of the fiscal
year ended March 31, 1996.
15
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INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF THE COMPANY PAGE
Auditors' Report F-1
Comments by Auditors for U.S. Readers on Canada-U.S.
Reporting Conflict F-1
Consolidated Balance Sheets as of March 31, 1996 F-2
and 1995
Consolidated Statements of Operations for the years F-3
ended March 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity (Deficiency) for F-4
the years ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years F-5
ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements F-6
16
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AUDITORS' REPORT
To the Shareholders of
NORRIS COMMUNICATIONS CORP.
We have audited the consolidated balance sheets of NORRIS COMMUNICATIONS CORP.
as at March 31, 1996 and 1995 and the consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for the years then ended.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at March 31, 1996
and 1995 and the results of its operations and the changes in its financial
position for the years then ended in accordance with accounting principles
generally accepted in the United States.
Vancouver, Canada,
May 24, 1996 (except as to /s/ ERNST & YOUNG
Note 16[b] which is as of June 7, 1996). Chartered Accountants
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA - U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by a significant uncertainty such as that referred to
in the attached consolidated balance sheets as at March 31, 1996 and 1995 and
as described in Note 1 to the consolidated financial statements. Our report to
the shareholders dated May 24, 1996 (except as to Note 16[b] which is as of June
7, 1996) is expressed in accordance with Canadian reporting standards which do
not permit a reference to such an uncertainty in the auditors' report when the
uncertainty is adequately disclosed in the consolidated financial statements.
Vancouver, Canada,
May 24, 1996 (except as to /s/ ERNST & YOUNG
Note 16[b] which is as of June 7, 1996). Chartered Accountants
F-1
<PAGE> 18
NORRIS COMMUNICATIONS CORP.
Continued under the laws of the Yukon Territory, Canada
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CATION>
As at March 31
1996 1995
$ $
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS [note 9]
CURRENT
Cash and temporary cash investments 2,843,540 3,291,203
Accounts receivable, less allowance for doubtful
accounts of $11,647 and $210,000, respectively 94,619 152,673
Inventory [note 6] 3,243,245 2,663,403
Prepaid expenses and other 226,436 396,644
- - ----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 6,407,840 6,503,923
- - ----------------------------------------------------------------------------------------------
Property and equipment [note 7] 1,359,791 1,742,796
Purchased goodwill, net of accumulated amortization of
$427,965 and $309,646, respectively -- 354,955
Other intangible assets, net of accumulated amortization
of $24,846 and $17,451, respectively 49,513 56,958
- - ----------------------------------------------------------------------------------------------
7,817,144 8,658,632
==============================================================================================
LIABILITY AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Demand loan payable [note 9] 2,185,546 3,000,000
Accounts payable, trade 2,554,209 1,234,574
Other accounts payable and accrued liabilities 443,225 410,539
Current portion of capital lease obligations [note 12] 168,831 193,229
- - ----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,351,811 4,838,342
- - ----------------------------------------------------------------------------------------------
Convertible notes payable [note 13] 3,000,000 --
- - ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 8,351,811 4,838,342
- - ----------------------------------------------------------------------------------------------
Commitments and contingencies [notes 1 and 12]
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, no par value, authorized 30,000,000 and
20,000,000 shares, respectively; 15,103,703 and 11,616,814
shares outstanding, respectively [notes 11, 13 and 16] 21,762,337 17,849,751
Contributed surplus 1,592,316 1,592,316
Accumulated deficit (23,889,320) (15,621,777)
- - ----------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (534,667) 3,820,290
- - ----------------------------------------------------------------------------------------------
7,817,144 8,658,632
==============================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
F-2
<PAGE> 19
NORRIS COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
Year ended March 31
<TABLE>
<CATION>
As at March 31
1996 1995
$ $
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES [note 14] 1,328,502 5,593,081
Cost of sales [note 14] 4,413,814 6,729,320
- - ---------------------------------------------------------------------------------------------
Gross profit (loss) (3,085,312) (1,136,239)
- - ---------------------------------------------------------------------------------------------
OPERATING EXPENSE (INCOME)
Selling and administrative 3,574,597 3,737,704
Research and related expenditures 1,048,540 1,896,809
Interest expense 356,429 320,257
Interest income (33,971) (17,203)
Write-down of purchased goodwill 236,636 --
Write-down of intangible assets [note 15] -- 68,550
- - ---------------------------------------------------------------------------------------------
5,182,231 6,006,117
- - ---------------------------------------------------------------------------------------------
Operating loss (8,267,543) (7,142,356)
Provision for income taxes [note 10] -- --
- - ---------------------------------------------------------------------------------------------
LOSS FOR THE YEAR (8,267,543) (7,142,356)
=============================================================================================
LOSS PER SHARE (.63) (.88)
=============================================================================================
</TABLE>
See accompanying notes
F-3
<PAGE> 20
NORRIS COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIENCY)
(EXPRESSED IN U.S. DOLLARS)
Year ended March 31
<TABLE>
<CAPTION>
Common stock
------------------------------- Contributed Accumulated
Shares Amount surplus deficit
# $ $ $
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994 7,696,814 10,781,155 1,592,316 (8,479,421)
Stock issued under stock option plan 20,000 40,900 -- --
Issuance of common stock 3,900,000 7,027,696 -- --
Loss for the year -- -- -- (7,142,356)
- - ----------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 11,616,814 17,849,751 1,592,316 (15,621,777)
Stock issued as compensation expense 13,333 20,000 -- --
Stock issued under stock option plan 15,000 30,303 -- --
Stock issued as payment for refinancing fee (note 9) 75,000 101,250 -- --
Stock issued as payment for professional services
rendered 215,842 319,498 -- --
Issuance of common stock 3,167,714 3,441,535 -- --
Loss for the year -- -- -- (8,267,543)
- - ----------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 15,103,703 21,762,337 1,592,316 (23,889,320)
============================================================================================================================
</TABLE>
See accompanying notes
F-4
<PAGE> 21
NORRIS COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
Year ended March 31
<TABLE>
<CAPTION>
1996 1995
$ $
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the year (8,267,543) (7,142,356)
Adjustments to reconcile loss to net cash used by operating activities:
Depreciation and amortization 524,399 596,327
Loss on disposal of property and equipment 38,550 126,032
Write-down of intangible assets -- 68,550
Write-down of purchased goodwill 236,636 --
Professional services paid by issuance of common stock 319,498 --
Refinancing fee paid by issuance of common stock 101,250 --
Compensation paid by issuance of common stock 20,000 --
Changes in assets and liabilities:
Accounts receivable 58,054 431,895
Inventory (579,842) (2,077,320)
Prepaid expenses and other 170,208 (328,579)
Accounts payable, trade 1,319,635 338,931
Other accounts payable and accrued liabilities 32,686 194,038
- - ----------------------------------------------------------------------------------------------------------------------------
CASH (USED IN) OPERATING ACTIVITIES (6,026,469) (7,792,482)
- - ----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (84,932) (247,888)
Proceeds on disposal of property and equipment 30,752 180,645
- - ----------------------------------------------------------------------------------------------------------------------------
CASH (USED IN) INVESTING ACTIVITIES (54,180) (67,243)
- - ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Advances (repayments) under demand loan payable (814,454) 2,720,000
Principal payments on capital lease obligations (24,398) (65,944)
Issuance of convertible notes payable 3,000,000 --
Repayment of note payable -- (31,250)
Proceeds from issuance of shares 3,471,838 7,068,596
- - ----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 5,632,986 9,691,402
- - ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS DURING THE YEAR (447,663) 1,831,677
Cash and temporary cash investments, beginning of year 3,291,203 1,459,526
- - ----------------------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS, END OF YEAR 2,843,540 3,291,203
============================================================================================================================
</TABLE>
See accompanying notes
F-5
<PAGE> 22
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Norris Communications Corp. (the "Company") was incorporated in the Province of
British Columbia, Canada on February 11, 1988 and is engaged, through its
wholly-owned U.S. subsidiary, in the development, manufacture and marketing of
electronic products. On November 22, 1994, the Company continued its
jurisdiction to the Yukon Territory, Canada.
The consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States
on a going concern basis, which contemplates the realization of assets and the
discharge of liabilities in the normal course of business for the foreseeable
future.
The Company has incurred significant losses and negative cash flow from
operations in each of the last three years and has an accumulated deficit of
$23,889,320 at March 31, 1996 [1995 - $15,621,777]. The Company's operational
plan for fiscal year 1997 contemplates developing markets for its proprietary
products and continued investment in research and related expenditures. The
Company's ability to continue as a going concern is in substantial doubt and is
dependent upon achieving a profitable level of operations and, if necessary,
obtaining additional financing.
These consolidated financial statements do not give effect to any adjustments
which would be necessary should the Company be unable to continue as a going
concern and therefore be required to realize its assets and discharge its
liabilities in other than the normal course of business and at amounts
different from those reflected in the accompanying consolidated financial
statements.
2. SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Differences between accounting principles generally accepted in the United
States and Canada are summarized below.
Under accounting principles generally accepted in Canada, costs relating to
debt financing are deferred and amortized over the term of the related debt.
Accounting principles generally accepted in the United States provide that
costs relating to debt financing may be treated as a charge to operations in
the period incurred.
F-6
<PAGE> 23
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Under accounting principles generally accepted in Canada, the release of escrow
shares by the Vancouver Stock Exchange is not considered compensatory. To
conform to accounting principles generally accepted in the United States,
compensation expense of $3,445,750 related to the release of escrow shares was
recorded in 1993. Compensation expense was determined based on the difference
between the fair value of the shares at the time they were placed in escrow and
their fair value, determined to be the average share price in the year the
criteria were met, at the time the criteria triggering the release were met.
The final release of 1,350,000 shares on December 8, 1992 was valued at
$3,445,750 as a non-cash compensation expense transaction.
Under accounting principles generally accepted in Canada, the sale of shares of
a subsidiary, and the issuance of shares by the subsidiary, to parties outside
the consolidated group, results in a credit (charge) to operations equal to the
difference between proceeds and the change in the parent company's interest in
the underlying equity of the shares of the subsidiary. Accounting principles
generally accepted in the United States require such amounts to be treated as
contributed surplus where there is not reasonable assurance of realization of
the gain.
Under accounting principles generally accepted in Canada, common share issue
costs are presented as a charge to accumulated deficit. Accounting principles
generally accepted in the United States require that common share issue costs
be deducted from the proceeds of issue.
Loss for the year and basic loss per share under accounting principles
generally accepted in Canada would be:
<TABLE>
<CAPTION>
1996 1995
$ $
- - ------------------------------------------------------------------------------
<S> <C> <C>
Loss for the year, as reported (8,267,543) (7,142,356)
Adjustments:
Costs of debt financing 321,629 61,110
- - ------------------------------------------------------------------------------
Loss for the year, as adjusted (7,945,914) (7,081,246)
==============================================================================
Weighted average number of common shares outstanding 13,065,095 8,097,624
==============================================================================
Basic loss per share .61 .87
==============================================================================
</TABLE>
F-7
<PAGE> 24
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Consolidated balance sheet items under accounting principles generally accepted
in Canada would be:
<TABLE>
<CAPTION>
1996 1995
---- ----
$ $
- - -------------------------------------------------------------------------------
<S> <C> <C>
Common stock 19,005,688 14,905,737
Contributed surplus -- --
Accumulated deficit (19,157,616) (11,024,337)
===============================================================================
</TABLE>
Other differences between accounting principles generally accepted in the
United States and Canada relate to presentation of certain financial
information. In addition, for all years presented, non-cash investing and
financing activities would be presented in the consolidated statements of cash
flows [see Note 5].
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company and
its wholly-owned U.S. subsidiaries, Norris Communications, Inc. in 1996 and
American Surface Mounted Devices, Inc. ("ASMD") and Comp General Corporation
("CGC") in 1995, all based in San Diego County, California. On April 1, 1995,
ASMD was merged into CGC, which changed its name to Norris Communications,
Inc., under the laws of the State of California. All significant intercompany
accounts and transactions have been eliminated.
RECLASSIFICATIONS
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
TEMPORARY CASH INVESTMENTS
Temporary cash investments, consisting of commercial paper with maturities of
less than 90 days, certificates of deposit and money market funds, are recorded
at cost, which approximates market value.
F-8
<PAGE> 25
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
TRANSLATION OF FOREIGN CURRENCIES
These consolidated financial statements are presented in United States dollars.
The Canadian parent is considered to have the United States dollar as the
functional currency. Monetary assets and liabilities are translated at the rate
in effect at the balance sheet date. Other balance sheet items and revenues and
expenses are translated at the rates prevailing on the respective transaction
dates. Gains and losses on foreign currency transactions, which have not been
material, are reflected in the consolidated statements of operations.
EARNINGS PER SHARE
Primary and fully diluted earnings per share amounts are based on the weighted
average number of common shares and common stock equivalents outstanding for
each year.
INVESTMENT
The Company's 1,800,000 shares or 23.1% investment in JABRA Corporation
("JABRA") is accounted for using the cost method [see Note 8].
REVENUE RECOGNITION
Revenue is recognized on the basis of shipment of products or delivery of
services.
RESEARCH AND RELATED EXPENDITURES
Research and related expenditures are charged to operations as incurred.
INVENTORY
Inventory of raw materials is recorded at the lower of cost and replacement
cost. Inventory of work in process and finished goods is recorded at the lower
of cost and net realizable value. Cost is determined on a first-in, first-out
basis.
F-9
<PAGE> 26
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization are
provided on the straight-line method over the estimated useful lives of the
related assets, ranging from 3 to 7 years or, in the case of leasehold
improvements, over the lesser of the useful life of the related asset or the
lease term. When assets are sold or retired, the cost and accumulated
depreciation are removed from the respective accounts and any gain or loss on
the disposition is credited or charged to income. Maintenance and repair costs
are charged to operations when incurred.
GOODWILL
Purchased goodwill was created upon acquisition of subsidiaries. The goodwill
pursuant to the acquisition of subsidiaries is amortized over a four year
period. Goodwill is written down to fair value when declines in value are
considered to be other than temporary based upon undiscounted cash flows of the
respective subsidiary.
OTHER INTANGIBLE ASSETS
Other intangible assets include government bidding rights and rights to
technology, which are amortized over a 10 year period, and costs relating to
obtaining patents, which are deferred when management is reasonably certain
the patent will be granted. Upon granting of the patent, such costs will be
amortized to operations over the life of the patent. If management determines
that development of products to which patent costs relate is not reasonably
certain, or that deferred patent costs exceed net recoverable value, such
costs are charged to operations.
LEASES
Leases entered into are classified as either capital or operating leases.
Leases which substantially transfer all benefits and risks of ownership of
property to the Company are accounted for as capital leases. At the time a
capital lease is entered into, an asset is recorded together with its related
long-term obligation to reflect the purchase and financing.
Rental payments under operating leases are expensed as incurred.
F-10
<PAGE> 27
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
3. CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and trade receivables. The Company
has $2.2 million in a money market fund at Merrill Lynch, Pierce, Fenner &
Smith Inc.
Concentration of credit risk with respect to trade receivables exists at year
end as approximately $27,000 or 26% of the outstanding accounts receivable
related to three customers. The Company performs ongoing credit evaluations of
its customers and maintains allowances for potential credit losses which, when
realized, have been within the range of management's expectations.
4. MAJOR CUSTOMERS
The Company operates in one major line of business, the development, manufacture
and marketing of electronic products. Sales to three major customers comprise
10%, 10% and 9%, respectively, of revenues in 1996. Sales to two major
customers comprise 31% and 9%, respectively, of revenues in 1995.
5. STATEMENT OF CASH FLOWS
The Company had non-cash operating and financing activities and made cash
payments as follows:
<TABLE>
<CAPTION>
1996 1995
$ $
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Non-cash financing activities
Professional services paid by issuance of common stock 319,498 --
Refinancing fee paid by issuance of common stock 101,250 --
Compensation paid by issuance of common stock 20,000 --
Cash payments for interest and income taxes were as follows:
Interest 356,429 320,257
Income taxes -- --
====================================================================================
</TABLE>
F-11
<PAGE> 28
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
6. INVENTORY
<TABLE>
<CAPTION>
1996 1995
$ $
- - ---------------------------------------------------------------
<S> <C> <C>
Raw materials 1,569,812 1,312,935
Work in process 194,437 462,602
Finished goods 1,478,996 887,866
- - ---------------------------------------------------------------
3,243,245 2,663,403
===============================================================
</TABLE>
During 1995, the Company introduced a new electronic product for sale in the
retail market. The amount of revenues to date from the sale of the electronic
product have not been significant. In addition, the Company's experience with
sales returns and warranty provisions has been limited. At March 31, 1996,
inventory of the Company is substantially all comprised of four successive
models of the electronic product.
Management of the Company has established, in the normal course of business,
provisions for sales returns, warranty and obsolescence in respect of sales to
March 31, 1996 and inventory as at March 31, 1996. In addition, management of
the Company has developed programs for the sale of earlier models of the
electronic product which are expected to result in the sale of this inventory
in the near term. No estimate can be made of the range of amounts of loss that
are reasonably possible should actual experience exceed estimates for sales
returns or warranty or should the programs to sell inventory not be successful.
F-12
<PAGE> 29
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
7. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ACCUMULATED
DEPRECIATION AND NET BOOK
COST AMORTIZATION VALUE
$ $ $
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Computer hardware and software 402,794 231,196 171,598
Furniture and equipment 131,755 93,643 38,112
Leasehold improvements 589,979 203,203 386,776
Machinery and equipment 1,308,116 675,904 632,212
Machinery and equipment under
capital leases 452,960 321,867 131,093
- - -----------------------------------------------------------------------------------------------
2,885,604 1,525,813 1,359,791
===============================================================================================
1995
Computer hardware and software 362,986 157,539 205,447
Furniture and equipment 130,902 71,800 59,102
Leasehold improvements 584,550 141,374 443,176
Machinery and equipment 1,277,378 501,303 776,075
Machinery and equipment under
capital leases 636,008 377,012 258,996
- - -----------------------------------------------------------------------------------------------
2,991,824 1,249,028 1,742,796
===============================================================================================
</TABLE>
8. INVESTMENT IN JABRA
The Company owns 1,800,000 common shares of JABRA or 23.1% of JABRA's common
shares with a carrying value of $Nil on the Company's consolidated balance
sheet. The Company has granted an option to the lender, expiring July 31, 1997,
to purchase 300,000 of JABRA's common shares at a price of $1.50 per share
pursuant to the Company's demand loan payable [see Note 9]. Due to the fact
that the Company has no direct involvement in the operations of JABRA, is not
active at the Board of Directors level and owns, on a fully diluted basis,
approximately 20.1% of JABRA with additional dilution possible and beyond its
control, management is of the opinion that the Company does not exert
significant influence over the operations of JABRA, and therefore accounts for
its investments in JABRA under the cost method effective July 15, 1993.
F-13
<PAGE> 30
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
9. DEMAND LOAN PAYABLE
During 1995, the Company negotiated a demand loan payable, as amended, of $3.5
million, bearing interest at prime plus 2%, repayable on demand and expiring on
July 31, 1995. In connection with the demand loan payable, as amended, share
warrants providing the right to acquire 450,000 common shares of the Company on
or before June 20, 1999 at a price of $4.00 per share were issued. During 1996
and in the period subsequent thereto, the demand loan payable was amended on
August 1, 1995, February 1, 1996 and April 1, 1996. Pursuant to the various
amendments; the expiry date was extended to October 31, 1996; the company
granted an additional share warrant providing the right to acquire 200,000
common shares of the Company on or before September 1, 1998 at a price of $2.00
per share; the existing share warrants providing the right to acquire 450,000
common shares of the Company on or before June 20, 1999 were repriced to $1.75
per share from $4.00 per share; 75,000 common shares of the Company were issued
at an agreed price of $1.35 per share; the Company granted an option to acquire
up to 300,000 common shares of JABRA on or before July 31, 1997 at a price of
$1.50 per share; 33%, 50% subsequent to April 1, 1996, of the net proceeds from
any equity financing must be used to pre-pay the demand loan payable; and the
lender may convert at any time prior to repayment all or any portion of the
outstanding principal balance of the demand loan payable, including accrued
interest thereon, into common shares of the Company at the lesser of $1.50 per
share or following the occurrence of an event of default, the higher of $1.00
per share and the average closing price for the 20 days preceding the date of
notice of an event of default.
The demand loan payable is collateralized by a first security interest covering
accounts recoverable, inventory, property and equipment, and other assets, and
a specific pledge of the Company's shares in NCI and JABRA.
F-14
<PAGE> 31
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
10. INCOME TAXES
The Company accounts for income taxes under the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes". Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. For financial statement purposes, a
change in valuation allowance of $2,632,000 has been recognized to offset
certain deferred tax assets for which realization is uncertain. Significant
components of the Company's deferred tax liabilities and assets as of March 31
are as follows:
<TABLE>
<CAPTION>
1996 1995
$ $
- - ------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Tax over book depreciation 85,000 39,000
- - ------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES 85,000 39,000
- - ------------------------------------------------------------------------------
DEFERRED TAX ASSETS
Bad debt reserve 5,000 86,000
Inventory capitalization 108,000 92,000
Inventory reserve 20,000 103,000
Net operating loss carryforwards 5,912,000 3,047,000
Warranty reserve 8,000 78,000
Other 83,000 52,000
- - ------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS 6,136,000 3,458,000
Valuation allowance for deferred tax assets (6,051,000) (3,419,000)
- - ------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS 85,000 39,000
- - ------------------------------------------------------------------------------
NET DEFERRED TAX -- --
==============================================================================
</TABLE>
The net provision for income taxes in 1996 and 1995 is $Nil as the Company
incurred losses in those years. Pre-tax income (loss) from Canadian operations
was approximately $1,035,000 in 1996 and $1,424,000 in 1995.
F-15
<PAGE> 32
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
10. INCOME TAXES (CONT'D.)
A reconciliation between federal statutory income tax rates and the effective
tax rate of the Company at March 31 is as follows:
<TABLE>
<CAPTION>
Liability Method
---------------------
1996 1995
% %
---- ----
<S> <C> <C>
U.S. federal statutory rate 35.0 35.0
U.S. federal net operating loss rate (35.0) (35.0)
U.S. state tax rate -- --
Canadian statutory rate 44.1 45.1
Canadian non-capital loss rate (44.1) (45.1)
----- -----
Effective rate on operating loss -- --
===== =====
</TABLE>
The Company has U.S. net operating loss carryforwards available at March 31,
1996 of approximately $9,462,000 and $4,991,000 for federal and state tax
purposes, respectively, to offset income in future years. These carryforwards
will begin to expire in the years 2005 and 1998, respectively, unless
previously utilized.
The tax attributes of the Company identified above may be subject to limitation
arising from changes of ownership over the three year statutory testing period.
The Company has non-capital losses available for Canadian income tax purposes
aggregating approximately $2,081,500. The non-capital losses expire as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1998 9,300
2002 1,102,900
2003 969,300
---------
2,081,500
=========
</TABLE>
No provision has been made in the accounts for the future tax benefits that
may result from the utilization of these losses as their realization is not
certain.
F-16
<PAGE> 33
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
11. SHARE CAPITAL
STOCK OPTIONS
The Company maintains two stock option plans. The 1992 Stock Option Plan is a
non-qualified stock option plan which entitles certain directors and key
employees to purchase common shares of the Company. A maximum of 10% of
outstanding common shares are authorized for grant under the Plan. Options are
granted at a price not less than fair market value at the date of grant, and
are subject to approval of the Board of Directors. The 1994 Stock Option Plan
was approved by the shareholders on September 29, 1994 and entitles certain
directors, key employees and consultants of the Company to purchase common
shares of the Company. The 1994 Plan covers a maximum aggregate of 500,000
shares. The 1994 Plan provides for the granting of options which either qualify
for treatment as incentive stock options or non-statutory stock options.
Options granted during 1996 were under the 1994 and 1992 Stock Option Plan.
Options granted during 1995 were under the 1992 Stock Option Plan.
The following table summarizes stock option transactions:
<TABLE>
<CAPTION>
1996 1995
- - ------------------------------------------------------------------
<S> <C> <C>
Outstanding, beginning of year 694,658 564,318
Granted 843,000 185,840
Exercised (15,000) (20,000)
Expired (23,000) --
Cancelled (6,000) (35,500)
- - ------------------------------------------------------------------
Outstanding, end of year 1,493,658 694,658
==================================================================
</TABLE>
Options covering 843,000 common shares were granted in 1996 at a per share
price ranging from US $1.50 to US $3.375. Options covering 185,840 common
shares were granted in 1995 at a per share price of US $3.65.
All outstanding options were exercisable at March 31, 1996, except for 292,000
options which vest over varying periods of up to two years. The options are
exercisable at prices ranging from US $2.09 to US $3.65 and expire over the
period to April 2000.
Options covering 15,000 common shares were exercised in 1996 at a per share
price of $2.02 ($2.84 Cdn.). Options covering 20,000 common shares were
exercised in 1995 at a per share price of $2.05 ($2.84 Cdn.).
F-17
<PAGE> 34
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
11. SHARE CAPITAL (CONT'D.)
SHARE WARRANTS
The Company has outstanding share warrants as of March 31, 1996, in connection
with private placements, convertible debentures, equipment leasing and
establishing and amending the demand loan payable, entitling the holders to
purchase one common share for each warrant held as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
WARRANTS $ EXPIRATION DATE
- - --------------------------------------------------------------------------------
<S> <C> <C>
200,000 2.00 September 1998
33,750 4.00 June 1999
450,000 1.75* July 1999
82,100 4.00 August 1999
106,986 2.01** February 2000
88,014 2.01** March 2000
128,067 1.25** October 2005
- - --------------------------------------------------------------------------------
1,088,917
================================================================================
</TABLE>
* Repriced to $1.75 per share from $4.00 per share pursuant to amendments to
demand loan payable [see Note 9].
** These warrants contain provisions for adjustment for dilutive events. The
exercise prices and where applicable, the number of warrants, have been
adjusted to reflect any such events or agreements through March 31, 1996.
All warrants are denominated in U.S. dollars.
F-18
<PAGE> 35
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
12. COMMITMENTS
The Company has two leases for office space in Poway, California which are
subject to annual increases based on the CPI index. The leases expire in 1998
and 2002. The minimum operating lease commitments include future rent payments
for the office lease which expires in 1998, a portion of which has been sublet
on a month-to-month basis to a related company at cost. Office rent expense for
the years ended March 31, 1996 and 1995 was $271,620 and $307,735, respectively.
In addition, the Company leases certain equipment under capital leases. The
cost of the assets under capital lease is recorded with machinery and
equipment. All assets under capital lease are subject to lien by the lessor.
The capital lease bears interest at 18% per annum.
Subsequent to the transfer of one of its lease obligations to the Federal
Deposit Insurance Corporation, the Company has had difficulty in making
payments to the appropriate party. As such, the Company is not current on its
lease payments and, in accordance with the terms of the lease, has classified
the entire remaining obligation as a current liability.
Minimum commitments are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
$ $
- - ------------------------------------------------------------------------------
<S> <C> <C>
YEAR ENDING MARCH 31
1997 809,000 166,621
1998 593,000 2,954
1999 318,000 1,231
2000 221,000 --
2001 221,000 --
Thereafter 166,000 --
--------------------------------------------------------------------------
Total minimum lease payments 2,238,000 170,806
===========================================================
Less amounts representing interest 1,975
--------------------------------------------------------------------------
Obligations under capital leases 168,831
Less current portion 168,831
--------------------------------------------------------------------------
--
==============================================================================
</TABLE>
F-19
<PAGE> 36
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
13. CONVERTIBLE NOTES PAYABLE
<TABLE>
<CAPTION>
1996 1995
$ $
- - ------------------------------------------------------------------------------
<S> <C> <C>
7% convertible notes payable, due March 1999 3,000,000 --
==============================================================================
</TABLE>
The convertible notes payable are convertible at the option of the holder into
common shares of the Company at any time after May 4, 1996. The convertible
notes payable are convertible at the lesser of: $1.765 for each common share;
or a 30% discount to the 5 day moving average price of the common shares on the
day prior to conversion.
During the period May 13, 1996 to May 24, 1996, the holders of the convertible
notes payable exercised their options and converted all of the convertible
notes payable, together with accrued interest thereon, into 4,336,167 common
shares of the Company at conversion prices per share ranging from US $.981 to
US $1.269.
14. BARTER TRANSACTION
During 1996, the Company sold 7,000 units of product to an independent media
trading firm in exchange for $1,172,500 of media trade credits and 50% of the
cash proceeds realized on the ultimate sale of the units. The costs of the
7,000 units, amounting to $980,000, has been charged to cost of sales. The
Company recognized no prepaid asset or any revenue in connection with the trade
credits since their use requires matching cash payments and the Company's
ability to continue as a going concern is in substantial doubt. In addition,
the amount of cash to be received on the ultimate sale of the units cannot be
reasonably estimated. Accordingly, the Company intends to recognize future
revenue from the trade credits only when ascertainable economic value is
realized from their use or cash proceeds are received from the ultimate sale of
the units.
During 1996, the Company recorded revenue on the utilization of approximately
$37,000 of trade credits.
F-20
<PAGE> 37
NORRIS COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
March 31, 1996 and 1995
15. WRITE-DOWN OF INTANGIBLE ASSETS
During 1994, the Company acquired certain proprietary electronic data
compression technology for an aggregate purchase price of $101,743, consisting
of $30,000 and 27,000 shares of common stock of the Company with an assigned
value of $71,743. Although the acquisition contemplated payment of
consideration for additional technology, none has been delivered by the
inventor and accordingly the Company is not obligated to make any purchases or
pay any additional consideration. The acquired technology is unproven and is
not used in the Company's proprietary products and the Company has no present
plans to attempt to develop this technology. Accordingly, during 1995, the
unamortized balance of the acquired technology was written down to a nominal
value.
16. SUBSEQUENT EVENTS
[a] On April 23, 1996, the Company issued 85,000 common shares at an assigned
value of $1.50 per share in settlement of accounts payable and accrued
liabilities of $127,500 and 48,000 common shares at an assigned value of
$1.50 per share for marketing services of $72,000.
[b] On June 7, 1996, the Company completed a private placement of $2,500,000
consisting of 2,420,143 common shares of the Company issued at a price of
$0.70 per share and warrants with a face value of $805,900. The warrants are
exercisable into common shares of the Company at the lesser of: $0.70 per
common share or a 30% discount to the 5 day moving average price of the
common shares on the day prior to exercise. The exercise price of the
warrants will be further discounted by 7% per year until the warrants are
exercised. The Company is committed to filing a Registration Statement with
the Securities and Exchange Commission by July 7, 1996 in connection with
the private placement. In the event the Company is unable to file a
Registration Statement prior to July 7, 1996 and/or the Registration
Statement is not declared effective before September 5, 1996, the Company
agrees to issue 3% more common shares and warrants for each successive 30
day period for the first four months and 1% more common shares and warrants
for each successive 30 day period thereafter, until the Registration
Statement is filed and/or declared effective.
F-21
<PAGE> 38
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORRIS COMMUNICATIONS CORP.
Date: June 28, 1996 By: /s/ R. GORDON ROOT
-----------------------
R. Gordon Root
President and CEO
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Date: June 28, 1996 By: /s/ ELWOOD G. NORRIS
--------------------------------
Elwood G. Norris
Chairman of the Board
Date: June 28, 1996 By: /s/ R. GORDON ROOT
--------------------------------
R. Gordon Root
President and CEO
(Principal executive officer)
Date: June 28, 1996 By: /s/ ROBERT PUTNAM
--------------------------------
Robert Putnam
Director and Secretary
Date: June 28, 1996 By: /s/ KATHLEEN E. TERRY
--------------------------------
Kathleen E. Terry
Chief Financial Officer
(Principal financial and accounting officer)
Date: June 28, 1996 By: /s/ JAMES D. MILLER
--------------------------------
James D. Miller
Director
<PAGE> 39
-------------------------------
-------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
Commission file number 0-20734
NORRIS COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
<PAGE> 40
EXHIBIT INDEX
Each exhibit marked with an asterisk is filed with this Annual Report on Form
10-KSB. Each exhibit not marked with an asterisk is incorporated by reference to
the exhibit of the same number (unless otherwise indicated) previously filed by
the Company as indicated below.
Exhibit
Number Description of Exhibit
- - ------ ----------------------
3.1 Articles and Certificate of Continuance of Norris Communications Corp.
(Yukon) filed as Exhibit 3.1 to the Company's 1995 Form 10-KSB.
3.2 Bylaws of Norris Communications Corp. (Yukon) filed as Exhibit 3.1 to
the Company's 1995 Form 10-KSB.
4.1 Exhibit 3.1 is incorporated by reference.
4.2 Exhibit 3.2 is incorporated by reference.
4.3 Stock Purchase Warrant for 33,750 Common Shares between the Company and
Cruttenden & Co., Inc. dated July 15, 1994 and filed as Exhibit 4.3 to
the Company's 1995 Form 10-KSB.
4.4 Stock Purchase Warrant for 300,000 Common Shares between the Company
and CVD Financial Corporation dated July 15, 1994 and filed as Exhibit
4.4 to the Company's 1995 Form 10-KSB.
4.4.1 First Amendment to Stock Purchase Warrant for 300,000 Common Shares
between the Company and CVD Financial Corporation dated November 14,
1994 and filed as Exhibit 4.4.1 to the Company's' 1995 Form 10-KSB.
4.5 Stock Purchase Warrant for 150,000 Common Shares between the Company
and CVD Financial Corporation dated July 15, 1994 and filed as Exhibit
4.5 to the Company's 1995 Form 10-KSB.
4.5.1 First Amendment to Stock Purchase Warrant for 150,000 Common Shares
between the Company and CVD Financial Corporation dated November 14,
1994 and filed as Exhibit 4.5.1 to the Company's 1995 Form 10-KSB.
4.6 Warrant Agreement for 82,100 Common Shares between the Company and
Comdisco, Inc. dated as of August 15, 1994 and filed as Exhibit 4.6 to
the Company's 1995 Form 10-KSB.
4.7 Warrant Agreement No. 1 for 106,986 Common Shares between the Company
and Pennsylvania Merchant Group Ltd. dated March 1, 1995 and filed as
Exhibit 4.7 to the Company's 1995 Form 10-KSB.
4.7.1 Warrant Agreement No. 2 for 87,300 Common Shares between the Company
and Pennsylvania Merchant Group Ltd. dated March 17, 1995 and filed as
Exhibit 4.7.1 to the Company's 1995 Form 10-KSB.
4.7.2 Warrant Agreement No. 3 for 714 Common Shares between the Company and
Pennsylvania Merchant Group Ltd. dated March 20, 1995 and filed as
Exhibit 4.7.2 to the Company's 1995 Form 10-KSB.
4.8 Warrant Agreement for 115,000 Common Shares between the Company and
Cruttenden & Co., Inc. dated February 10, 1994 and filed as Exhibit 4.8
to the Company's 1995 Form 10-KSB.
4.9 Form of 7% Convertible Note dated March 25, 1996 and due March 25, 1999
for an aggregate of $3,000,000 issued to a total of six investors and
filed as Exhibit 4.9 to the Company's Form 8-K dated April 5, 1996.
4.10 Warrant Agreement for 129,230 Common Shares between the Company and
First Bermuda Securities Ltd. dated March 25, 1996 and filed as Exhibit
4.10 to the Company's Form 8-K dated April 5, 1996.
*4.11 Form of Warrant Agreement dated June 7, 1996 for an aggregate off
$805,900 issued to a total of five investors.
10.1 Share Exchange Agreement among the Company, Norcom Communications
Corporation, and American Technology Corporation, dated for reference
March 23, 1988, and filed as Exhibit 2.1 to the Company's 1992 Form 10
10.1.1 Amendment of Agreement among the Company, Norcom Communications
Corporation, and American Technology Corporation, dated for reference
March 23, 1988 and filed as Exhibit 2.1.1 to the Company's 1992 Form
10.
10.2 Plan and Agreement of Reorganization among the Company, American
Surface Mounted Devices, Inc. and ASMD, Inc., dated August 11, 1989 and
filed as Exhibit 2.2 to the Company's 1992 Form 10.
10.3 Plan and Agreement of Reorganization among the Company, Sage
Microsystems, Inc. and Sage Micro, Inc. dated November 7, 1991 and
filed as Exhibit 2.3 to the Company's 1992 Form 10.
<PAGE> 41
10.4 Plan and Agreement of Reorganization among the Company, C.A.D. Co.
Engineering, Inc. and CADCO Design Group, Inc., dated June 1, 1992 and
filed as Exhibit 2.4 to the Company's 1992 Form 10.
10.5 Loan Agreement between CVD Financial Corporation and the Company and
its Subsidiaries dated July 15, 1994 and filed as Exhibit 10.5 to the
Company's 1995 Form 10-KSB.
10.5.1 Loan Modification Agreement between CVD Financial Corporation and the
Company and its Subsidiaries dated November 14, 1994 and filed as
Exhibit 10.5.1 to the Company's 1995 Form 10-KSB.
10.5.2 Loan Modification Agreement, dated as of August 1, 1995 and filed as
Exhibit 10.5.2 to the Company's 1995 Form 8-K.
10.5.3 Amended and Restated Promissory Note, dated August 1, 1995 and filed as
Exhibit 10.5.3 to the Company's Form 8-K dated October 27, 1995.
10.5.4 Second Amendment to Stock Purchase Warrant (for 150,000 shares), dated
August 1, 1995 and filed as Exhibit 10.5.4 to the Company's Form 8-K
dated October 27, 1995.
10.5.5 Second Amendment to Stock Purchase Warrant (for 300,000 shares), dated
August 1, 1995 and filed as Exhibit 10.5.5 to the Company's Form 8-K
dated October 27, 1995.
10.5.6 Stock Purchase Warrant (for 200,000 shares) dated August 1, 1995 and
filed as Exhibit 10.5.6 to the Company's Form 8-K dated October 27,
1995.
10.5.7 Amended and Restated Stock Pledge and Option Agreement (for 300,000
shares of JABRA), dated August 1, 1995 and filed as Exhibit 10.5.7 to
the Company's 8-K dated October 27, 1995.
10.5.8 Loan Modification Agreement between the Company and CVD Financial
Corporation dated February 1, 1996 and filed as Exhibit 10.5.8 to the
Company's 1995 Form 10-QSB.
10.5.9 Amended and Restated Promissory Note between the Company and CVD
Financial Corporation dated February 1, 1996 and filed as Exhibit
10.5.9 to the Company's 1995 Form 10-QSB.
10.5.10 Loan Modification Agreement between CVD Financial Corporation and the
Company and its subsidiary dated as of April 1, 1996 and filed as
Exhibit 10.5.10 to the Company's Form 8-K dated April 11, 1996.
10.6 Technology Transfer Agreement among the Company, American Technology
Corporation, Elwood G. Norris and Norcom Electronics Corporation dated
January 25, 1988 and filed as Exhibit 10.8 to the Company's 1992 Form
10.
10.6.1 Assignment Agreement among American Technology Corporation, Norcom
Electronics Corporation, Norcom Communications Corporation and Elwood
G. Norris dated March 22, 1988 and filed as Exhibit 10.8.1 to the
Company's 1992 Form 10.
10.7 Master Lease Agreement between Comdisco, Inc. and American Surface
Mounted Devices, Inc. dated as of August 15, 1994 and filed as Exhibit
10.7 to the Company's 1995 Form 10-KSB.
10.8 Agreement and Plan of Reorganization by and among the Company, Norcom
Communications Corporation and JABRA Corporation dated January 15, 1993
and filed as Exhibit 10.8 to the Company's 1993 Form 10-K.
10.8.2 Amendment No. 1 to Agreement and Plan of Reorganization by and among
the Company, Norcom Communications Corporation and JABRA Corporation
dated May 28, 1993 and filed as Exhibit 10.8.2 to the Company's 1993
Form 10-K.
10.9 Stock Option Plan adopted by the Company on August 21, 1992 ("1992
Plan") filed as Exhibit 10.10 to the Company's 1992 Form 10.
10.10 Stock Option Plan adopted by the Company on September 29, 1994 ("1994
Plan") and filed as Exhibit 10.10 to the Company's 1995 Form 10-KSB.
10.11 Plan and Agreement of Reorganization by merger of American Surface
Mounted Devices, Inc. with and into Comp General Corporation under the
name of Norris Communications, Inc. dated April 1, 1995 and filed as
Exhibit 10.11 to the Company's 1995 10-KSB.
10.12 Lease Agreement between the Company and Pomerado Properties dated
August 17, 1989 and filed as Exhibit 10.12 to the Company's Form 10.
10.13 Lease Agreement between the Company and Pomerado Properties dated July
2, 1992 and filed as Exhibit 10.13 to the Company's Form 10.
<PAGE> 42
10.14 Letter Agreement between the Company and Homer H. Lesihau, dated
February 3, 1993 and filed as Exhibit 10.17 to the Company's 1993 Form
10-K.
10.14.1 Amending Agreement to Letter Agreement Dated February 3, 1993 between
the Company and Homer H. Lesihau, dated April 29, 1993 and filed as
Exhibit 10.17.1 to the Company's 1993 Form 10-K.
10.16 Financial Advisory Agreement dated August 21, 1995 between Auerbach,
Pollack & Richardson, Inc. and the Company and filed as Exhibit 10.16
to the Company's Form 8-K dated November 13, 1995.
10.17 Norris Communications Corp. and Auerback, Pollack & Richardson, Inc.
Placement Agent's Warrant Agreement filed as Exhibit 10.17 to the
Company's Form 8-K dated November 13, 1995.
10.18 Warrant Certificate Issued to Auerbach, Pollak & Richardson, Inc. and
filed as Exhibit 10.18 to the Company's Form 8-K dated November 13,
1995.
*10.18.1 Release and Termination of Right of First Refusal and Amendment to
Warrant between the Company and Auerbach, Pollak & Richardson, Inc.
dated May 13, 1996.
10.19 Registration Rights Agreement between Auerbach, Pollak & Richardson,
Inc. and the Company, filed as Exhibit 10.19 to the Company's Form 8-K
dated November 13, 1995.
*10.20 Employment Agreement dated September 12, 1995 between the Company and
Elwood G. Norris.
*10.21 Employment Agreement dated September 8, 1995 between the Company and
Robert Putnam.
*10.22 Employment Agreement dated August 1, 1995 between the Company and R.
Gorden. Root.
*10.23 Employment Agreement dated January 11, 1996 between the Company and
Peter W. Gorrie.
*10.24 Placement Agreement dated April 16, 1996 between the Company and
Iacocca Capital Partners, L.P. and the Company.
*10.25 Form of Registration Rights Agreement effective June 7, 1996 between
11 Investors and the Company aggregating $1,694,100.
*11.1 Statement re computation of per share earnings.
*21.1 List of subsidiaries.
*23.1 Consent of Ernst & Young, Independent Accountants.
*27,1 Financial Data Schedule.
* Filed concurrently herewith.
<PAGE> 1
NORRIS COMMUNICATIONS CORP.
EXHIBIT 4.11
ALL WARRANTS FOR 5 INVESTORS AGGREGATING $805,900 WERE
IDENTICAL EXCEPT FOR AMOUNTS AND DATES
THIS WARRANT AND THE SHARES OF COMMON STOCK OF NORRIS COMMUNICATIONS
CORP. ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE AND
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT NOR
ANY INTEREST IN THIS WARRANT NOR ANY INTEREST IN THE SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER AND UNDER
APPLICABLE STATE LAW, THE AVAILABILITY OF WHICH MUST BE ESTABLISHED TO THE
SATISFACTION OF THE ISSUER.
IN ADDITION, THIS WARRANT IS SUBJECT TO RESTRICTIONS ON SALE, ASSIGNMENT,
CONVEYANCE, PLEDGE, HYPOTHECATION, GRANT OF SECURITY INTEREST, ENCUMBRANCE,
GIFT OR ANY OTHER MANNER OF DISPOSITION OR TRANSFER WHETHER VOLUNTARILY OR BY
OPERATION OF LAW, AS SET FORTH IN THE INVESTOR UNIT PURCHASE AGREEMENT, DATED,
AS OF MAY ___, 1996, BY AND BETWEEN AND NORRIS COMMUNICATIONS CORP., A COPY OF
WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF NORRIS COMMUNICATIONS CORP.
COMMON STOCK WARRANT
to Purchase Shares
of
Common Stock (no par value)
of
NORRIS COMMUNICATIONS CORP.
This certifies that, for value received, $ __________ (the "Face
Amount"), ____________ and any subsequent transferee pursuant to the terms of
this Warrant (each, a "Holder") is entitled to purchase, subject to the
provisions of this Warrant, from Norris Communications Corp., a corporation
organized under the laws of the Yukon Territory, Canada (the "Issuer"), at any
time or from time to time on or after the date hereof and on or before May __,
1999, or as may be extended pursuant to Section 3(b) hereof (the "Expiration
Date"), that number of fully paid, validly issued and nonassessable shares of
the Issuer's common stock, no par value (the "Common Stock") as calculated
pursuant to Section 2 hereof and as otherwise may be adjusted pursuant hereto
(such shares of Common Stock and other securities issued and issuable upon
exercise of this Warrant are hereinafter referred to as the "Warrant Shares").
Section 1. Definitions. Except as otherwise specified herein,
capitalized, terms used herein shall have the meanings assigned to them in the
Investor Unit Purchase Agreement dated as of May ___, 1996 between the Holder
and the Issuer (the "Investor Unit Purchase Agreement").
Section 2. Exercise of Warrant.
(a) Subject to the provisions hereof, this Warrant may be
exercised, in whole or in part, but not as to a fractional share, at any time
or from time to time on or after the date hereof and on or before the
Expiration Date, as may be extended pursuant to Section 3(b), by presentation
and surrender hereof to the Issuer at the address which, in accordance with the
provisions of Section 11 hereof, is then effective for notices to the Issuer,
together with the Election to Purchase Form, attached hereto as Schedule One,
duly executed and indicating the amount (up to the Face Amount) to be used to
purchase the Warrant Shares. At any given time, the number of Warrant Shares to
which the Holder shall be entitled shall be determined by dividing the Face
Amount, reduced appropriately for any partial exercise hereof, by the Exercise
Price (hereinafter defined). As a result, the number of shares which the Holder
will receive at any given time will fluctuate depending on the Exercise Price
at the time of such exercise. If this Warrant should be exercised in part only,
the Issuer shall, upon surrender of this Warrant for cancellation, execute and
deliver a new warrant evidencing the rights of the Holder hereof to use the
balance of the Face Amount to purchase Warrant Shares purchasable hereunder.
The Issuer shall maintain at its principal place of business a register for the
registration of this Warrant and registration of transfer for this Warrant.
<PAGE> 2
(b) Prior to the delivery of any Warrant Shares, the Issuer
shall comply with all Federal and state laws and regulations thereunder,
including but limited to Regulation D requiring the registration of such
securities with, or any approval of or consent to the delivery thereof by, any
governmental authority; provided, however, the Issuer shall have no obligation
to register the Warrant Shares beyond its obligation set forth in that certain
Registration Rights Agreement dated as of May ___, 1996 between the Holder and
the Issuer.
(c) All Warrant Shares, when issued upon exercise of this
Warrant or any new warrant issued in replacement hereof, shall be duly
authorized, validly issued, fully paid and nonassessable, and the Holder will
have full legal and equitable title thereto, free and clear of all liens,
encumbrances claims and rights of others created by or through the Issuer.
(d) Unless the Warrant Shares have been registered under the
Act, upon any exercise of all or any part of this Warrant, all certificates
representing Warrant Shares shall bear on the face thereof substantially the
following legend:
The shares of common stock represented hereby have not been
registered under the Securities Act of 1933, as amended (the
"Act") or the securities laws of any state, and neither the
shares represented hereby nor any interest in the shares
represented hereby may be sold, offered for sale, pledged or
otherwise disposed of except pursuant to an effective
registration statement under the Act, or pursuant to an
exemption from registration thereunder and under applicable
state law, the availability of which must be established to
the satisfaction of the Issuer.
(e) This Warrant may not be exercised to any extent by anyone
after the Expiration Date as adjusted pursuant to Section 3(b) hereof.
Section 3. Reservation of Shares; Preservation of Rights of Holder.
(a) The Issuer acknowledges and agrees that currently it does
not have sufficient authorized but unissued shares of Common Stock to assure an
adequate reserve of shares of Common Stock to enable the exercise of all
Warrants or other instruments exercisable, convertible or exchangeable into
shares of Common Stock ("Other Convertible Instruments") (including the
$3,000,000 aggregate principal amount of seven percent (7%) Convertible Notes
due March 25, 1999), which were granted or purchased but have not yet been
exercised, converted or exchanged to be exercised, converted or exchanged at
every conceivable Exercise Price Following the Initial Closing, the Issuer
shall use its best efforts to promptly notice and hold a stockholders' meeting
and agrees that in no event shall such meeting take place after July 31, 1996
to obtain stockholder approval (i) to increase the number of authorized but
unissued shares of Common Stock from 30,000,000 shares to at least 60,000,000
shares and (ii) for such other matters as set forth in the Issuer's 1996 Proxy
Statement as previously delivered to the Holder (the "Draft Proxy") with no
material changes requiring a vote of the stockholders of the Issuer.
Notwithstanding the foregoing, any change in the presentation of the 1996 Proxy
Statement whereby separate votes of stockholders are required with respect to
matters already included with other matters presented for stockholder vote in
the Draft Proxy shall not be deemed a material change. The Issuer agrees to
execute and deliver such documents or instruments to the stockholders of the
Issuer as the Holder or Placement Agent reasonably shall request to effect the
provisions of this Section 3.
(b) After the Final Closing, the Issuer shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock such number of shares of Common Stock as shall from time to time be
sufficient so that the Maximum Coverage Price (hereinafter defined) shall be
equal to or less than the Final Coverage Price (hereinafter defined). If at any
time after the Final Closing, the number of authorized but unissued shares of
Common Stock shall not be sufficient to allow all Warrants and Other
Convertible Instruments which were purchased or granted but not exercised,
converted or exchanged to be exercised, converted or exchanged, or if at any
time the Maximum Coverage Price shall be greater than the Final Coverage Price
(the "Final Coverage Test.), the Issuer immediately shall notify all holders of
Warrants and immediately take such corporate action as may be necessary or
appropriate to increase its authorized but unissued shares of Common Stock to
such number of shares of Common Stock as shall be sufficient for such purpose,
including without limitation, engaging in best efforts to obtain requisite
stockholder approval. If the Issuer is unable to obtain the requisite
stockholder approval to increase its authorized but unissued shares of Common
Stock, then so long thereafter as there are not sufficient authorized but
unissued shares of Common Stock to allow this Warrant to be exercised, (1) the
Holder of any such Warrant shall be deemed to have suspended his, her or its
exercise notice with respect to any shares of Common Stock which cannot legally
be issued and the Issuer's obligation to convert the remaining Warrants shall
not be deemed to have been satisfied and (2) the Expiration Date of any and all
such Warrants shall be extended by the period of time during which such
issuances are prohibited.
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As soon as sufficient authorized, but unissued shares become available for
issuance to allow this Warrant to be exercised, the Issuer promptly shall
notify each Holder and, at that time, the Holder may elect whether or not to
renew the exercise notice. If the Holder elects to renew the exercise notice,
the Exercise Price shall be the lower of the Exercise Price which would have
been applicable had the Holder been able to exercise his, her or its Warrants
on the date the notice of exercise originally was delivered or the then
currently applicable Exercise Price.
(c) (1) The term "Maximum Coverage Price" as of a
particular date shall mean the price of a Share of Common Stock which is
required so that if all outstanding securities exercisable, convertible or
exchangeable for Shares of Common Stock were exercised, converted or exchanged
for shares of Common Stock (including but not limited to securities issued on
the date in question and the $3,000,000 aggregate principal amount of
Convertible Notes due March 25, 1999), the number of Shares of Common Stock
into which securities would be exercisable, convertible or exchangeable would
equal the total authorized but unissued shares of Common Stock and (2) The term
"Final Coverage Price" at a particular time shall mean the lower of $0.657 or
one-third of the average Closing Bid Price for the publicly traded shares of
Common Stock for the five (5) preceding trading days.
(d) The Warrant surrendered upon exercise shall be canceled by
the Issuer. After the Expiration Date, no shares of Common Stock shall be
subject to reservation in respect of this Warrant. The Issuer further agrees
(i) that it will not, by amendment of its Articles of Continuance or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observation or performance of
any of the covenants, stipulations or conditions to be observed or performed
hereunder by the Issuer, (ii) promptly to take all action as may from time to
time be required in order to permit the Holder to exercise this Warrant and the
Issuer duly and effectively to issue the Warrant Shares or other securities as
provided herein upon the exercise hereof and (iii) promptly to take all action
required or provided for herein to protect the rights of the Holder granted
hereunder against dilution. Without limiting the generality of the foregoing,
should the Warrant Shares at any time consist in whole or in part of shares of
capital stock having a pat value, the Issuer agrees that before taking any
action which would cause an adjustment of the Exercise Price so that the same
would be less than the then par value of such Warrant Shares, the Issuer shall
take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Issuer may validly and legally issue fully paid and
nonassessable shares of such Common Stock at the Exercise Price as so adjusted.
The Issuer further agrees that it will not establish a par value for its Common
Stock while this Warrant is outstanding in an amount greater than the Exercise
Price.
Section 4. Exercise Price; Additional Discount.
(a) The number of Warrant Shares to which the Holder shall be
entitled to receive pursuant to this Warrant at any given time shall be
determined by dividing the Face Amount of the Warrant, reduced appropriately
for any partial exercise thereof, by the Exercise Price (hereinafter defined).
With respect to the purchase of Warrants pursuant to the Initial Closing (as
defined in the Investor Unit Purchase Agreement), if the Escrow Agent receives
the Subscription Package on or before May 31, 1996, the Exercise Price for such
Warrants shall be the least of (i) $1.00, (ii) the average Closing Bid Price
(hereinafter defined) for the publicly traded shares of Common Stock during the
five (5) trading days immediately preceding the Initial Closing and (iii)
thirty percent (30%) less than the average Closing Bid Price for the publicly
traded shares of Common Stock during the five (5) trading days immediately
preceding the day such Warrant is exercised. With respect to the purchase of
Warrants pursuant to the Initial Closing, if the Escrow Agent receives the
subscription Package after May 31, 1996, the Exercise Price for such Warrants
shall be the lesser of (ii) and (iii) as described in this Section 4(a).
(b) With respect to the purchase of Warrants pursuant to a
subsequent Closing, if the Escrow Agent receives the Subscription Package on or
before May 31, 1996, the Exercise Price shall be the least of (i) $1.00, (ii)
the average Closing Bid Price for the publicly traded shares of Common Stock
during the five (5) trading days immediately preceding the Initial Closing,
(iii) the average Closing Bid Price for the publicly traded shares of Common
Stock during the five (5) trading days immediately preceding such subsequent
Closing and (iv) thirty percent (30%) less than the average Closing Bid Price
for the publicly traded shares of Common Stock during the five (5) trading days
immediately preceding the day of exercise. With respect to the purchase of
Warrants pursuant to a subsequent Closing, if the Escrow Agent receives the
Subscription Package after May 31, 1996, the Exercise Price for the Warrants
shall be the least of (iii) and (iv) as described above in this Section 4(b).
(c) In addition, so long as the Holder retains any exercise
rights pursuant to this Warrant or any warrant issued in replacement hereof,
the applicable Exercise Price shall be discounted an additional amount equal to
seven percent (7%) per annum (prorated for other periods), annualized from the
date hereof until the date of exercise of the Warrant. No fractional shares
shall be issued and the number of shares issuable shall be rounded to the
nearest whole share.
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(d) For purposes of this Warrant, the closing bid price of the
Common Stock on any given day (the "Closing Bid Price") shall be either (i) the
reported Closing Price (last sale price) of the Common Stock on the principal
stock exchange on which the Common Stock is listed, (ii) if the Common Stock is
not listed on a stock exchange, the reported Closing Price of the Common Stock
on the principal automated securities price quotation system on which sale
prices of the Common Stock are reported, or (iii) if the Common Stock is not
listed on a stock exchange and sale prices of the Common Stock are not reported
on an automated quotation system, the mean of the final bid and asked prices
for the Common Stock as reported by the National Quotation Bureau Incorporated
if at least two securities dealers have inserted bid quotations for the Common
Stock on at least five of the ten preceding trading days. If none of the
foregoing provisions are applicable, the Closing Bid Price of the Common Stock
on any given day shall be the fair market value of the Common Stock on that day
as determined by a member of the New York Stock Exchange, Inc., selected by the
Board of Directors of the Issuer and approved by Placement Agent. The term
"trading day" means (i) if the Common Stock is listed on at least one stock
exchange, a day on which there is trading on the principal stock exchange on
which the Common Stock is listed, (ii) if the Common Stock is not listed on a
stock exchange but sale prices of the Common Stock are reported on an automated
quotation system, a day on which trading is reported on the principal automated
quotation system on which sales of the Common Stock are reported or (iii) if
the foregoing provisions are inapplicable, a day on which quotations are
reported by the National Quotation Bureau Incorporated.
(e) In the event that during any period of consecutive trading
days provided for above, the Issuer shall declare or pay any dividend on the
Common Stock payable in Common Stock or in rights to acquire Common Stock, or
shall effect a stock split or reverse stock split, or a combination,
consolidation or reclassification of the Common Stock, then the Exercise Price
shall be decreased or increased proportionately, as appropriate, to give effect
to such event.
Section 5. Exchange, Transfer, Assignment or Loss of Warrant.
(a) Any attempted transfer of this Warrant or any new warrant
not in accordance with this Section shall be null and void, and the Issuer
shall not in any way be required to give effect to such transfer. No transfer
of this Warrant shall be effective for any purpose hereunder until (i) written
notice of such transfer and of the name and address of the transferee has been
received by the Issuer, (ii) the transferee shall first agree in a writing
deposited with the Secretary of the Issuer to be bound by all the provisions of
this Warrant and (iii) in the opinion of the Issuer's counsel (such counsel's
fees to be paid by the Issuer), all requirements of applicable state securities
laws and any requirement to register such transfer under the-Act have been
complied with. Upon surrender of this Warrant to the Issuer by any transferee
authorized under the provisions of this Section 5, and subject to the terms and
conditions of the Act, the Issuer shall, without charge, execute and deliver a
new warrant registered in the name of such transferee at the address specified
by such transferee, and this Warrant promptly shall be canceled. The Issuer may
deem and treat the registered holder of any warrant as the absolute owner
thereof for all purposes, and the Issuer shall not be affected by any notice to
the contrary. Any Warrant, if presented by an authorized transferee, may be
exercised by such transferee without prior delivery of a new warrant issued in
the name of the transferee.
(b) Upon receipt by the Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Issuer shall execute and deliver a new warrant of
like tenor and date. Any such new warrant executed and delivered shall
constitute a separate contractual obligation on the part of the Issuer, whether
or not the Warrant so lost, stolen, destroyed or mutilated shall be at any time
enforceable by anyone.
Section 6. Rights of the Holder. Neither a Holder nor his transferee
by devise or the laws of descent and distribution or otherwise shall be, or
have any rights or privileges of, a shareholder of the Issuer with respect to
any Warrant Shares, unless and until certificates representing such Warrant
Shares shall have been issued and delivered thereto.
Section 7. Adjustments in Exercise Price and Warrant Shares. The
Exercise Price and the amount of Warrant Shares exercisable hereunder shall be
subject to further adjustment from time to time as provided in this Section 7.
(a) If the Issuer is recapitalized through the subdivision or
combination of its outstanding shares of Common Stock into a larger or smaller
number of shares, the number of shares of Common Stock for which this Warrant
may be exercised shall be increased or reduced, as of the record date for such
recapitalization, in the same proportion as the increase or decrease in the
outstanding shares of Common Stock, and the Exercise Price shall be adjusted so
that the aggregate amount payable for the purchase of all Warrant Shares
issuable hereunder immediately after the record date for such recapitalization
shall equal the aggregate amount so payable immediately before such record
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date.
(b) If the Issuer declares a dividend on Common Stock, or
makes a distribution to holders of Common Stock, and such dividend or
distribution is payable or made in Common Stock or securities convertible into
or exchangeable for Common Stock, or rights to purchase Common Stock or
securities convertible into or exchangeable for Common Stock, the number of
shares of Common Stock for which this Warrant may be exercised shall be
increased, as of the record date for determining which holders of Common Stock
shall be entitled to receive such dividend or distribution, in proportion to
the increase in the number of outstanding shares (and shares of Common Stock
issuable upon conversion of all such securities convertible into Common Stock)
of Common Stock as a result of such dividend or distribution, and the Exercise
Price shall be adjusted so that the aggregate amount payable for the purchase
of all the Warrant Shares issuable hereunder immediately after the record date
for such dividend or distribution shall equal the aggregate amount so payable
immediately before such record date.
(c) If the Issuer declares a dividend on Common Stock (other
than a dividend described in subsection (b) above) or distributes to holders of
its Common Stock, other than as part of a dissolution or liquidation or the
winding up of its affairs, any shares of its stock, any evidence of
indebtedness or any cash or other of its assets (other than Common Stock or
securities convertible into or exchangeable for Common Stock), the Holder shall
receive notice of such event as set forth in Section 9 below.
(d) In case of any consolidation of the Issuer with, or merger
of the Issuer into, any other corporation (other than a consolidation or merger
in which the Issuer is the continuing corporation and in which no change occurs
in its outstanding Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Issuer, or in the case of any statutory
exchange of securities with another corporation (including any exchange
effected in connection with a merger of a third corporation into the Issuer,
except where the Issuer is the surviving entity and no change occurs in its
outstanding Common Stock), the corporation formed by such consolidation or the
corporation resulting from such merger or the corporation which shall have
acquired such assets or securities of the Issuer, as the case may be, shall
execute and deliver to the Holder simultaneously therewith a new warrant on the
same terms and conditions as this Warrant, including but not limited to the
determination of the Exercise Price as set forth in Section 4 hereof and in all
other respects satisfactory in form and substance to the Holder, together with
such other documents as the Holder may reasonably request, entitling the Holder
thereof to receive upon exercise of such warrant the kind and amount of shares
of stock and other securities and proper receivable upon such consolidation,
merger, sale, transfer or exchange of securities, or upon the dissolution
following such sale or other transfer, by a holder of the number of shares of
Common Stock purchasable upon exercise of this Warrant immediately prior to
such consolidation, merger, sale, transfer, or exchange, provided that if the
kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance is not the same
for each share of Common Stock in respect of which rights of election shall not
have been exercised ("non-electing share"), then for the purpose of this
paragraph (d) the kind and amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance for each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares. Such
new warrant shall contain the same terms and conditions as this Warrant and
shall provide for adjustments which, for events subsequent to the effective
date of such written instrument, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7. The above
provisions of this paragraph (d) shall similarly apply to successive
consolidations, mergers, exchanges, sales or other transfers covered hereby.
(e) If the Issuer shall, at any time before the expiration of
this Warrant, dissolve, liquidate or wind up its affairs, the Holder shall,
upon exercise of this Warrant have the right to receive, in lieu of the shares
of Common Stock that the Holder otherwise would have been entitled to receive,
the same kind and amount of assets as would have been issued, distributed or
paid to the Holder upon any such dissolution, liquidation or winding up with
respect to such shares of Common Stock had the Holder been the holder of record
of such shares of Common Stock receivable upon exercise of this Warrant on the
date for determining those entitled to receive any such distribution. If any
such dissolution, liquidation or winding up results in any cash distribution in
excess of the Exercise Price provided by this Warrant for the shares of Common
Stock receivable upon exercise of this Warrant, the Holder may, at the Holder's
option, exercise this Warrant without making payment of the Exercise Price and,
in such case, the Issuer shall, upon distribution to the Holder, consider the
Exercise Price to have been paid in full and, in making settlement to the
Holder, shall obtain receipt of the Exercise Price by deducting an amount equal
to the Exercise Price for the shares of Common Stock receivable upon exercise
of this Warrant from the amount payable to the Holder. For purposes of this
paragraph, the sale of all or substantially all of the assets of the Issuer and
distribution of the proceeds thereof to the Issuer's shareholders shall be
deemed a liquidation.
(f) If an event occurs which is similar in nature to the
events described in this Section 7, but is not expressly covered hereby, the
Board of Directors of the Issuer shall make or arrange for a equitable
adjustment to the
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number of Warrant Shares and the Exercise Price.
(g) The term "Common Stock" shall mean the Common Stock, no
par value, of the Issuer as the same exists on the date hereof or as such stock
may be constituted from time to time, except that for the purpose of this
Section 7, the term "Common Stock" shall include any stock of any class of the
Issuer which has no preference in respect of dividends or of amounts payable in
the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Issuer and which is not subject to redemption by the Issuer.
(h) The Issuer shall retain a firm of independent public
accountants of recognized standing (who may be any such firm regularly employed
by the Issuer) to make any computation required under this Section. 7, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section 7.
(i) Whenever the number of Warrant Shares or the Exercise
Price shall be adjusted as required by the provisions of this Section 7, the
Issuer forthwith shall file in the custody of its secretary or an assistant
secretary, at its principal office, and furnish to each Holder hereof, a
certificate prepared in accordance with paragraph (h) above, showing the
adjusted number of Warrant Shares and the Exercise Price and setting forth in
reasonable detail the circumstances requiring the adjustment.
(j) Notwithstanding any other provision, this Warrant shall be
binding upon and inure to the benefit of any successor or successors of the
Issuer.
(k) No adjustment in the Exercise Price in accordance with the
provisions of this Section 7 need be made if such adjustment would amount to a
change in such Exercise Price of less than $.01; provided, however, that the
amount by which any adjustment is not made by reason of the provisions of this
paragraph (k) shall be carried forward and taken into account at the time of
any subsequent adjustment in the Exercise Price and/or in connection with the
exercise of this Warrant.
(l) If an adjustment is made pursuant to this Section 7 and
the event to which the adjustment relates does not occur, then any adjustments
made in accordance with this Section 7 shall be readjusted such that the
Exercise Price and the number of Warrant Shares which would be in effect had
the earlier adjustment not been made.
Section 8. Taxes on Issue or Transfer of Common Stock and
Warrant. The Issuer shall pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of the Warrant
Shares or other securities issuable upon the exercise of this Warrant. The
Issuer shall not be required to pay any tax which may be payable in respect of
any transfer of this Warrant or in respect of any transfers Involved in the
issue or delivery of shares or the exercise of this Warrant in a name other
than that of the Holder and the person requesting such transfer, issue or
delivery shall be responsible for the payment of any such tax (and the Issuer
shall not be required to issue or deliver said shares until such tax has been
paid or provided for).
Section 9. Notice of Adjustment. So long as this Warrant shall
be outstanding, (a) if the Issuer shall propose to pay any dividends or make
any d-distribution upon the Common Stock, (b) if the Issuer shall offer
generally to the holders of Common Stock the right to subscribe to or purchase
any shares of any class of Common Stock or securities convertible into Common
Stock or any other similar rights or (c) if there shall be any proposed capital
reorganization of the Issuer in which the Issuer is not the surviving entity,
recapitalization of the capital stock of the Issuer, consolidation or merger of
the Issuer with or into another corporation, sale, lease or other transfer of
all or substantially all of the property and assets of the Issuer, or voluntary
or involuntary dissolution, liquidation or winding up of the Issuer, or (d) if
the Issuer shall give to its stockholders any notice, report or other
communication respecting any significant or special action or event, then in
such event, the Issuer shall give to the Holder, at least thirty days prior to
the relevant date described below (or such shorter period as is reasonably
possible if thirty days is not reasonably possible), a notice containing a
description of the proposed action or event and stating the date on which a
record of the Issuer's stockholders is to be taken for any of the foregoing
purposes, and the date or expected date on which any such dividend,
distribution, subscription, reclassification, reorganization, consolidation,
combination, merger, conveyance, sale, lease or transfer, dissolution,
liquidation or winding up is to take place and the date or expected date, if
any, is to be fixed, as of which the holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such event.
Section 10. Registration of Rights. This Agreement is subject
to, and the terms and conditions of that certain Registration Rights Agreement
dated May ___, 1996, between the Holder and the Issuer such terms and
conditions are incorporated herein as if fully set forth herein.
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Section 11. Notices. All notices or communications required or
permitted hereunder shall be in writing, and shall be deemed effectively given
upon personal delivery, on the first business day following mail by overnight
courier or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company and the
Holder at the addresses set forth below:
[Name and Notice Information of Holder]
Norris Communications Corporation
12725 Stowe Drive
Poway, California 92064
Attention: R. Gordon Root
Telephone: (619) 679-1504
Telecopy: (619) 48~3922
or at such other address as the Holder or the Issuer shall have specified to
the other in writing.
Section 12. Governing Law. This Warrant shall be governed by, and
interpreted in accordance with, the laws of the State of California.
Section 13. Survival. This Warrant and the rights and obligations of the Issuer
and the Holder hereunder shall not be terminated by any of the following
events; (a) merger, reorganization or consolidation of the Issuer, (b) transfer
of all or substantially all of the assets of the Issuer or (c) the voluntary or
involuntary dissolution of the Issuer. In the event of any such merger,
reorganization, consolidation or transfer of assets, the surviving or resulting
corporation or transferee of the assets shall be bound by and shall have the
benefit of, the provisions of this Warrant, and the Issuer shall take all
actions necessary to ensure that such corporation or transferee is bound by the
provisions of this Warrant, including but not limited to ensuring that the
corporation or transferee expressly shall assume, by supplemental agreement
satisfactory in substance to the Holder and executed and delivered to the
Issuer, the due and punctual performance and observance of each and every
covenant and condition of this Warrant to be performed or observed by the
Issuer.
Dated: May ___, 1996
NORRIS COMMUNICATION CORP.
BY:
NAME:
TITLE:
ATTEST:
Secretary
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NORRIS COMMUNICATIONS CORP.
EXHIBIT 10.18.1
RELEASE AND TERMINATION
OF
RIGHT OF FIRST REFUSAL
THIS RELEASE AND TERMINATION OF RIGHT OF FIRST REFUSAL (the "Release")
is made by and between AUERBACH, POLLAK & RICHARDSON, INC., a Delaware
corporation ("Auerbach") and NORRIS COMMUNICATIONS CORP., a Yukon corporation
("Norris").
A. Auerbach and Norris have entered into that certain Letter Agreement
dated August 21, 1995 (the "Agreement"), a copy of which is attached hereto as
Exhibit A.
B. Norris has granted Auerbach a Right of First Refusal (the "Right of
First Refusal") pursuant to Section 4 of the Agreement.
C. The parties hereto desire to release each other from their
respective obligations under the above-referenced section of the Agreement and
to terminate the Right of First Refusal.
NOW, THEREFORE, in consideration of the terms of this Release and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows;
1. Termination of Right of First Refusal. The parties do hereby
acknowledge that upon the execution hereof, the rights, duties and obligations
of each of the parties under Section 4 of the Agreement shall cease, and the
Right of First Refusal contained therein shall terminate. Auerbach expressly
acknowledges that by executing this Release, it is foregoing any right which it
may have as a result of the Right of First Refusal to receive (i) sales
commissions, (ii) reimbursement for selling expenses, (iii) warrants for the
purchase of Norris common stock and/or (iv) finder's fees.
Notwithstanding the foregoing, Norris shall reduce the
exercise price of Auerbach's existing warrants to $1.25 per share by immediately
issuing a revised warrant for 128,067 warrants carrying standard anti-dilution
rights relating to price and percentage, with Auerbach's existing warrants being
returned to Norris for cancellation.
2. Mutual Release. Each party hereby releases the other party from and
against any and all claims, demands, duties, damages, expenses, debts, causes of
action and remedies therefor, choices in action, rights of indemnity or
liability of any kind or nature whatsoever, whether known or unknown
(collectively, "Claims"), by reason of, arising out of or based upon Section 4
of the Agreement and of the Right of First Refusal.
3. Waiver of Unknown Claims. Each party hereby expressly acknowledges
that it understands the meaning of significance of Section 1542 of the
California Civil Code, and having such understanding, hereby waives any and all
rights it may have under Section 1542 which provides:
"A general release does not extend to claims which the creditor does not know or
expect to enter in his favor at the time of executing the release, which if
known by him must have materially affected the settlement of the debtor."
4. Indemnification. Norris hereby agrees to indemnify and hold harmless
Auerbach, its affiliated companies, and each of Auerbach's and such affiliated
companies respective officers, directors, agents, employees and controlling
persons (collectively, the "Indemnified Parties") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including reasonable fees and disbursements of counsel), actions (including
shareholder derivative actions), proceedings or investigations (whether formal
or informal), or threats thereof (collectively, "Damages"), based upon, relating
to or arising out of the equity financing conducted by Norris pursuant to the
terms of the Agreement (the "Financing") or any other similar debt or equity
financing conducted, or to be conducted, by Norris subsequent to the Financing,
other than Damages attributable to the negligence, bad faith or willful
misconduct of any Indemnified Party.
5. Advice of Counsel. Each party acknowledges and represents to the
other that it has had the advice of counsel of its own choosing in connection
with the negotiation and execution of this Release.
6. Binding Effect. The provisions of this Release shall inure to the
benefit and shall be binding upon the parties, and their respective successors
and assigns.
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7. Counterparts. This Release may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8. Entire Agreement. This Release shall constitute the entire agreement
between the parties with respect to the matters covered hereby and shall
supersede all previous written, oral or implied understandings between them
including, without limitation, the Agreement, with respect to such matters.
9. Governing Law. This Release shall be construed and interpreted
according to the laws of the State of Delaware.
EXECUTED as of this 13th day of May, 1996.
Auerbach, Pollak & Richardson, Inc. a Delaware corporation
By: /s/ HUGH REGAN
-----------------------
Hugh Regan
President and Chief Executive Officer
Norris Communications, Inc. a Yukon corporation
By: /s/ ROBERT PUTNAM
-----------------------
Robert Putnam
Corporate Secretary
2
<PAGE> 1
NORRIS COMMUNICATIONS CORP.
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of October 1, 1994,
between NORRIS COMMUNICATIONS CORP. a Canadian publicly traded company, its
wholly-owned subsidiary company NORRIS COMMUNICATIONS, INC., a California
corporation (collectively the "Company"), and Elwood G. Norris ("Employee").
Employee, in consideration of the covenants and agreements hereinafter
contained, agrees as follows with respect to the employment of the Company of
Employee and Employees future business activities.
1. Employment: Term of Employment. The Company hereby employs Employee
and Employee hereby accepts such employment upon the terms and conditions
hereinafter set forth. Subject to the provisions for termination as hereinafter
provided, Employee's term of employment by the Company shall be from October 1,
1994 until September 30, 1999, and said employment shall continue after such
date until either party shall deliver written notice to the other party hereto
to the effect that the employment hereunder shall terminate sixty (60) days from
the giving of such notice.
2. Services to be Rendered by Employee. Employee shall be subject to
the direction of the Board of Directors, or a duly authorized committee thereof
and his duties shall be those generally vested in the office of President and
CEO until such time as new person shall be hired and at such time his duties
shall become those of Chief Technology Officer for the corporation and he shall
have such other powers and duties as may be reasonably prescribed by the Board
of Directors, or a duly authorized committee thereof, and shall perform such
duties as from time to time may be decided upon by the Board of Directors, or a
duly authorized committee thereof, of the Company, including but not limited to,
speaking for and promoting the sale of the Company's Flashback product line as
public spokesman both in print and television ads. Employee shall devote a
sufficient amount of his productive time, energy and ability during the term of
this Agreement to the proper and efficient conduct of the Company's business
during the term of this Agreement.
Employee has other outside employment duties and accordingly may from
time to time work for other persons or entities in any capacity, including but
not limited to an officer, director, employee or consultant, and conduct other
business activities so long as such work or activities do not significantly or
adversely impact on his duties and obligations to the Company.
Employee hereby represents that the services to be performed by him
under the terms of this Agreement are of a special, unique unusual,
extraordinary, and intellectual character which gives them a peculiar value, the
loss of which cannot be reasonably or adequately compensated in damages or in an
action at law. Employee therefore expressly agrees that the Company, in addition
to any other right or remedies which the Company may possess, shall be entitled
to injunctive and other equitable relief to prevent a breach of this Agreement
by Employee.
3. Compensation.
(a) For the services to be rendered by Employee during his employment
by the Company, the Company shall pay Employee a yearly original Base Salary of
One Hundred Fifteen Thousand Dollars ($115,000) until October 31, 1997; and
thereafter the yearly Base Salary shall increase by ten percent (10%) on each
October 1st from the yearly Base Salary for the immediately preceding fiscal
period. The Base Salary shall be payable in equal installments at such times as
other employees are paid but in any case at least in monthly installments. The
Base Salary shall be subject to other upward adjustment by and under the
direction of the Board of Directors in its sole discretion.
(b) Employee shall be eligible to participate in any bonus pool formed
during each year of this Agreement at the determination by the board of
directors or the appropriate committee.
(c) Employee shall be entitled to participate in the health insurance
plan the Company may have in effect from time to time for its employees and
executives with salaries and responsibilities compatible to Employee, in
accordance with any policies adopted by the Board of Directors of the Company
with regard thereto. It is understood that the Company, by reason of this
Agreement, has not obligated itself to make any benefits available to its
employees. During the term of this Agreement, the Employee shall be entitled to
four weeks vacation per annum.
(d) The Company shall pay or reimburse Employee for a11 expenses normal
reimbursed by the Company and reasonably incurred by him in furtherance of his
duties hereunder and authorized by the Company, including without limitation,
expenses for entertainment, traveling, meals, hotel accommodations and the like
upon submission by him of vouches or an itemized list thereof as the Board of
Directors; say from time to time adopt and authorize, and as say be required in
order to permit such payments as proper deductions to the Company under the
Internal Revenue Code of 1986 and the rules and regulations adopted pursuant
thereto now or hereafter in effect. The Company shall provide Employee an
automobile to be used in the performance of his duties hereunder, including all
maintenance, fuel and insurance therefor, and a cellular telephone.
4. Competition. While employed by the Company and for one (1) year
thereafter, Employee will neither permit his name to be used by, nor engage in
or carry on, directly or indirectly, either for himself or as a member of a
partnership, or as a stockholder (except as a stockholder of less than five
percent (5%) of the issued and outstanding stock of a publicly held
corporation), investor, officer or director of a corporation or as an Employee,
agent, associate or consultant of any person, partnership or corporation in any
business in direct competition with any business carried on by the Company or a
parent, subsidiary, affiliate or successor of the Company.
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However, the Company acknowledges that Employee is a shareholder and
director of Patriot Scientific Corporation and American Technology Corporation
but does not currently and may not in the future control the activities of these
companies and therefore cannot assure that their activities (in which Employee
holds more than a five percent interest) will not be in some way competitive
with those of the Company, although no current technology or products are
presently directly compentitive with the Company's digital voice technology.
Employee's activities are covered by section 8 of this Agreement.
5. Termination of Employment.
(a) The Company shall have the right at its option to terminate the
employment of Employee hereunder by giving sixty day (60) written notice thereof
to the Employee in the event of any of the following:
(1) If the Board of Directors of the Company, or a duly authorized
committee thereof, acting in good faith and upon reasonable grounds, determines
that the Employee has materially breached any provision of this Agreement or has
committed dishonesty, fraud or embezzlement, or engaged in material misconduct
or similar conduct in connection with his duties under this Agreement.
(2) If the Employee dies (in which case except as otherwise provided
herein, this Agreement shall automatically terminate).
(3) If the Employee is unable for any reason to carry out or to perform
the duties required of him hereunder and does not resume his duties prior to the
termination date specified in the Company's written notice of termination.
However, if the Employee shall fail to carry out or to perform the
duties required of him because of mental or physical disability for a six
consecutive month period during the term hereof and following such period he is
unable to perform his duties hereunder because of mental or physical disability
(as determined by the Board of Directors of the Company, or a duly authorized
committee thereof, acting in good faith and upon reasonable grounds), or if this
Agreement is terminated because of the Employee's death; then he or his estate
shall be entitle to receive his then Base Salary he would otherwise be entitled
to hereunder during the term of this Agreement pursuant to Paragraph 3 hereof
for a period of not longer than twelve (12) months after the termination of his
employment.
(B) Except as specifically provided for in this Section 5, Employee
shall not be entitled to any severance compensation upon termination of this
Agreement and termination of employment with the company.
6. Soliciting Customers. The Employee agrees that he will not for a
period of one (1) year immediately following the termination of his employment
with the Company, either directly or indirectly make known to any competing
person, firm, or corporation the names or addresses of any of the customers of
the Company or any other information pertaining to them.
7. Trade Secrets of the Company. The Employee prior to and during the
term of employment under this Agreement has had and will have access to and
become acquainted with various trade secrets, consisting of devices, secret
inventions, processes, and compilations of information, records, and
specifications which are owned by the Company, and which are regularly used or
to be used in the operation of the business of the Company. The Employee shall
not disclose any of the aforesaid trade secrets, directly or indirectly, or use
them in any way, either during the term of this agreement or at any time
thereafter, except as required in the course of his employment. All files,
records, documents, drawings, specifications, equipment, and similar items
relating to the business of the Company, whether prepared by the Employee or
otherwise coming into his possession, shall remain the exclusive property of the
Company and shall not be removed under any circumstances from the premises of
the Company where the work is being carried on without prior written consent of
the Company or consistent with the Company's normal business practices.
8. Inventions and Patents. The Employee agrees that as to any
intentions made by him during the term of his employment, solely or jointly with
others, which are made with equipment, supplies, facilities or trade secret
information of the Company or which relate at the time of the conception or
reduction-to-practice of an invention to the business of the Company (which
shall for this purpose be limited to digital voice technology products) or the
Company's actual or demonstrably anticipated research or development, or which
result from any work performed by the Employee for the Company, shall belong to
the Company and the Employee promises to assign such inventions to the Company.
The Employee also agrees that the Company shall have the right to keep such
inventions as trade secrets, if the Company chooses. The Employee agrees to
assign to the Company the Employee's rights in any other inventions where the
Company is required to grant those rights to the United States government or any
agency thereof.
This Agreement does not apply to any inventions which are the subject
of Section 2870 of the California Labor Code.
In order to permit the Company to claim rights to which it may be
entitled, the Employee agrees to disclose to the Company in confidence all
inventions which the Employee makes arising out of the Employee's employment and
all patent applications filed by the Employee within a year after termination of
his employment.
The Employee shall assist the Company in obtaining patents on all
inventions, designs, improvements, and discoveries deemed patentable by the
Company in the United States and in a11 foreign countries, and shall execute all
documents and do a11 things necessary to obtain letters patent, to vest the
Company with full and extensive title thereto, and to protect the same against
infringement by others.
The Company acknowledges that Employee is an inventor and has created
and is expected to create new inventions and the Company shall have no claim
thereon nor any rights thereto except as provided by this section 8.
9. Severability. Each paragraph and subparagraph of this Agreement
shall be construed and considered separate and severable from the validity and
enforceability of any other provision contained in this Agreement.
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<PAGE> 3
10. Assignment. The rights of the Company (but not its obligations)
under this Agreement may, without the consent of the Employee, be assigned by
the Company to any parent, subsidiary, or successor of the Company; provided
that such parent, subsidiary or successor acknowledges in writing that it is
also bound by the terms and obligations of this Agreement. Except as provided in
the preceding sentence, the Company say not assign a11 or any of its rights,
duties or obligations hereunder without prior written consent of Employee. The
Employee may not assign all or any of his rights, duties or obligations
hereunder without the prior written consent of the Company.
11. Notices. All notices, requests, demands and other communications
shall be in writing and shall be defined to have been duly given if delivered or
if mailed by registered mail, postage prepaid:
(a) If to Employee, addressed to him at the address set forth below his
name:
(b) If to the Company, addressed to:
Norris Communications, Inc. 12725 stowe Drive, Poway, California 92064
Attention: Robert Putnam, VP or to such other address as any party
hereto way request by notice given as aforesaid to the other parties hereto.
12, Title and Headings. Titles and headings to paragraphs hereof are
for purposes of references only and shall in no way limit, define or otherwise
affect the provisions hereof.
13. Governing Law. This Agreement is being executed and delivered and
is intended to be performed in the State of California, and shall be governed by
and construed in accordance with the laws of the State of California.
14. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but a11 of
which together shall constitute one and the same instrument. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one original counterpart.
15. Cumulative Rights. Each and a11 of the various rights, powers and
remedies of the Company in this Agreement shall be considered as cumulative,
with and in addition to any other rights, powers or remedies of the Company and
no one of them as exclusive of the others or as exclusive of any other rights,
powers and remedies allowed by law. The exercise or partial exercise of any
right, power or remedy shall neither constitute the election thereof nor the
waiver of any other right, power or remedy. Sections 4, 6, 7 and 8 hereof shall
continue in full force and effect notwithstanding the Employee's termination of
employment and the termination of this Agreement.
16. Entire Agreement. This Agreement contains the entire agreement of
the parties hereto and may be modified or amended only by a written instrument
executed by parties hereto. Effective on the date hereof, any prior employment
agreements between the Company and the Employee shall terminate.
17. Good Faith. Each of the parties hereto agrees that he or it shall
act in good faith in all actions taken under this Agreement.
18. Board Approval. This agreement was approved by the Board of
Directors on September 8, 1995.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
/s/ ROBERT PUTNAM SEPTEMBER 12, 1995
---------------------------- ------------------
Robert Putnam, Secretary Date
/s/ELWOOD G. NORRIS SEPTEMBER 12, 1995
---------------------------- ------------------
Elwood G. Norris, Employee Date
13824 San Sebastion Way
Poway, CA 92064
3
<PAGE> 1
NORRIS COMMUNICATIONS CORP.
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
Employment Agreement this 8th day of September, 1995 by and between
Norris Communications Corp. and/or its wholly-owned subsidiary Norris
Communications, Inc. (collectively "Employer") and Robert Putnam ("Employee").
Employer employs the Employee and the Employee accepts employment, upon
the terms conditions and covenants as follows:
1. The term of employment shall be from September 1, 1995 to August 31, 1997 and
automatically renewed for one year periods thereafter unless thirty days written
notice of termination is sent prior to the annual renewal date.
2. Employee shall receive, for all services rendered, a salary of $2,500 per
month, payable commensurate with other employees of Employer. Salary payments
shall be subject to withholding and other applicable deductions. Employee shall
have the opportunity to participate in all benefit plans commensurate with other
senior officers unless such plans restrict participation to all similar
part-time employees.
3. The duties of Employee shall be commensurate with those duties heretofore
provided to Employer by Employee which include serving as Vice President and
Secretary of Parent. The Employee shall be only required to devote part time and
attention to the Employer's business as heretofore provided but in any event not
to exceed 10 hours per week unless otherwise agreed by the parties.
4. Employee shall have an office, facilities and services that are suitable to
the position and appropriate for the performance of Employee's duties and as
heretofore provided.
5. Employer shall reimburse Employee for all reasonable expenses incurred in the
performance of Employee's business, e.g. entertainment, travel, etc. Employee
will be reimbursed upon submission of an itemized account of such expenditures
with receipts where practicable.
6. Employee shall be entitled to four weeks of paid vacation each year.
7. If Employee is unable to perform Employee's duties by reason of illness or
incapacity for a consecutive period of more than two months, the compensation
payable after the aforesaid period shall be $1,000 per month. Upon return to
part time employment, full compensation shall be reinstated.
8. Notwithstanding any provision in this Employment Agreement to the contrary,
if Employee is unable to perform or is absent from employment for a period of
more than six months, Employer may terminate this Employment Agreement, without
further cause, and all obligations of Employer hereunder shall terminate except
those provided in paragraph ten below.
9. This Employment Agreement may be terminated, at will, at any time and without
cause, by either party upon thirty days' written notice to the other. If
Employer elects to terminate, Employer shall pay to Employee on the last day of
employment severance pay of twelve months salary (at the then current rate),
subject to withholding and deductions. If Employee elects to terminate, Employee
shall receive salary up to the last day of employment but no severance pay.
10. The stock option agreements between the Company and Employee aggregating
exercise into 169,658 common shares that are presently in force shall remain in
full force and effect in accordance with their respective terms and without any
further change or modification during the term of this agreement and for two
years after any termination by the Employer (such period to be an advisory
period) during which period the options will still remain exercisable. In
addition the Company agrees that if it should cause the registration of any
stock options of any other senior officers that it will include the shares of
Employee, not previously the subject of a current registration statement, with
any such registration on a prorata basis at no cost to Employee. Further, in the
event of any corporate event affecting stock options, the options of Employee
will be treated equivalently with those of any senior officers of the Company.
11. In the event Employee dies during the term of Employment, Employer shall pay
to Employee's estate the salary that would otherwise be payable to the end of
the month in which the Employee died and as a death benefit a sum equal to six
months salary.
12. Any controversy or claim arising out of, or relating to this Employment
Agreement, or the breach thereof, shall be settled by arbitration in the City of
San Diego, State of California, in accordance with the then governing rules of
the American Arbitration Association. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court of competent jurisdiction.
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<PAGE> 2
13. Any notice required to be given shall be either: (i) personally delivered,
or (ii) sent by U.S. Postal Service, postage pre-paid, Certified Mail, Return
Receipt Requested to the Employer at the place of employment and to the Employee
at the last residence address given to and on file with the Employer.
14. A waiver of a breach of any provision of this Employment Agreement shall not
operate or be construed as a waiver of any subsequent breach.
15. The services of Employee are personal and unique and therefore Employee may
not assign this Employment Agreement nor delegate the duties and obligations
hereunder except in the normal course of business.
16. This Employment Agreement contains the entire understanding of the parties,
except as may be set forth in writing signed by the party against whom
enforcement may be sought, simultaneously with or subsequent to the execution of
this Employment Agreement.
INTENDING TO BE LEGALLY BOUND, the parties have executed this
Employment Agreement as of the date first above written.
NORRIS COMMUNICATIONS CORP. and
NORRIS COMMUNICATIONS, INC.
By: /s/ ELWOOD G. NORRIS
---------------------------------
Elwood G. Norris, President & CEO
/s/ ROBERT PUTNAM
---------------------------------
ROBERT PUTNAM, Employee
2
<PAGE> 1
NORRIS COMMUNICATIONS CORP.
EXHIBIT 10.22
PERSONAL & CONFIDENTIAL
August 1, 1995
Mr. R. Gordon Root
371 Elan Village Lane #226
San Jose, CA 95134
Dear Bob:
On behalf of Norris Communications Corporation, I am pleased to extend to you
the position of President and Chief Executive Officer. Following our earlier
meetings and discussions over the recent weeks, we feel strongly that you are
the right person to lead and direct the major operating activities of Norris
Communications and are enthusiastic about you joining the company. Terms and
conditions of this offer are as follows:
1. POSITION AND TITLE:
President and Chief Executive Officer
Will report to the Board of Directors, and assume a close working
relationship with me (Elwood Norris) as Chairman of the Board.
Will be responsible for all day-to-day activities of the business and
will assume management responsibility for all functions and
individuals who are part of the company's operations.
You will be a member of the Board of Directors for the company and
will participate in all board-related activities.
2. COMPENSATION AND BONUS:
Initial base compensation of $180,000 per year. Future increases will
be at the determination of the Board of Directors, based on
performance.
You will receive a sign-on bonus equivalent to $20,000. This bonus
will be paid in the form of a stock grant valued at 85 percent of
the trading price on the day of acceptance.* The bonus will be
payable within 90 days of starting employment.
You will be entitled to an annual incentive bonus
equal to 50 percent of your base compensation.
Payment of the bonus will be dependent on achieving
specific and mutually agreed upon objectives and
levels of performance.
The bonus will be payable quarterly and will be in
two forms: a maximum of $10,000 per quarter in cash
payments; the balance payable in the form of stock
grants. During the first year, the cash payments of
this bonus will be guaranteed.
Your bonus payments will be open-ended, which means
that if you exceed agreed upon objectives by a given
percentage, your bonus will increase proportionately.
3. INITIAL STOCK OPTION:
Based on accepting and beginning employment, you will
receive a stock option of 150,000 shares. The price
will be 85 percent of the market price on the day the
position is accepted. Receiving the option will be
based on beginning employment. In the event you leave
the company voluntarily before the first anniversary
of your employment, you will forfeit this option.
This stock option will vest over a three-year period
in equal amounts on the
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<PAGE> 2
anniversary dates of employment. However, in the
event that the price of the stock increases four-fold
over the issue price, and you have reached your first
anniversary, 50 percent of the total option will be
considered fully vested.
4. LONG-TERM INCENTIVE:
At the discretion of the board, you will be awarded
additional stock options based on performance and
results. It is anticipated that the initial option
following one year of employment and subsequent
awards will be approximately 75,000 shares based on
meeting agreed upon objectives.
Pricing, vesting and other conditions will be similar
to those terms outlined in #3 shown above.
5. TERMINATION AND CHANGE OF CONTROL:
In the event termination occurs for reasons other
than: (1) cause or (2) your voluntary termination,
six months' severance will be provided: including
base compensation; 50 percent of the earned bonus
payment during the severance period; health and
medical benefits; and outplacement services.
For purposes of this agreement, "cause" will be
defined as contemplated by Section 2924 of the
California Labor Code (copy of which in effect as of
the date hereof is attached to this letter and made a
part of this agreement).
Your severance payments, as described above, will be
based on a continuation of employment. If you become
employed during the severance period, your severance
payments will cease.
In the event there is a change of control during your
employment, a new owner controls more than 50 percent
of the company's common stock and your employment is
terminated within 12 months of that event (for
reasons other than cause) you will be eligible for a
termination payment equal to the then current annual
compensation plus earned short-term bonus payments.
All stock options will become immediately vested.
6. OTHER BENEFITS:
You will receive insurance, medical, disability
insurance, and health benefits currently available to
other senior executives as per existing policies.
You will be entitled to take four weeks of vacation
annually.
The company will provide an automobile allowance of
$1,500 per month to cover such items as the cost of
an automobile, insurance, maintenance and gasoline.
To the extent currently available, you will receive
other such benefits equal to those of other senior
executives within the company, specifically including
directors and officers insurance.
7. STARTING DATE:
It is anticipated that your employment will commence
on or before October 9, 1995.
It is further understood that to the extent available
and as soon as practical, you will begin to make the
transition into this position by reviewing business
plans, operating data and other company results;
where practical assist in the development of business
relationships; and generally assist the Chairman and
the company in other areas such as business strategy
and overall operations.
In the event that your employment does not commence
during the month of
2
<PAGE> 3
October 1995, this offer will become null and void.
8. ARBITRATION AGREEMENT:
Any claim or controversy arising out of or related to
this letter agreement, the employment relationship or
the subject matter hereof shall be settled by binding
arbitration before one arbitrator in Los Angeles,
California in accordance with the commercial
arbitration rules of the American Arbitration
Association; and judgment upon any award rendered by
the arbitrator(s) may be entered as a judgment in any
court having competent jurisdiction. The party shall
have rights to discovery as provided in Section
1283.05 of the California Code of Civil Procedure.
The prevailing party in any such dispute shall
recover all of its costs and expenses, including
reasonable attorney fees.
* * * * *
Bob, this offer and the terms and conditions included represent a formal offer
of employment. We look forward to working with you at Norris Communications.
Personal regards,
/s/ ELWOOD G. NORRIS
- - --------------------
Elwood G. Norris
Chairman of the Board of Directors
cc: Gary B. Walburger, Korn/Ferry International
Attachment
* The granting of stock awards and/or options at 85 percent of the market
price assumes the company is not in conflict with any statutory or SEC
regulation. Further, any tax consequence attributed to you as a result
of these stock grants or options will be your responsibility and not
the company's.
Please acknowledge your acceptance of the terms and conditions of this offer by
signing and returning one copy of this letter.
BY /s/ R. GORDON ROOT
------------------
3
<PAGE> 1
NORRIS COMMUNICATIONS CORP.
EXHIBIT 10.23
PERSONAL & CONFIDENTIAL
January 11, 1996
Mr. Peter W. Gorrie
4461 Huggins Street
San Diego, California 92122
Dear Pete:
On behalf of Norris Communications Corporation, I am pleased to extend to you
the position of Chief Operating Officer. Following our earlier meetings and
discussions over the recent weeks, we feel strongly that you are the right
person to lead and direct the major operating activities of Norris
Communications and are enthusiastic about you joining the company. Terms and
conditions of this offer are as follows:
1. POSITION AND TITLE
Chief Operating Officer
Will report to the Mr. R. Gordon Root, Chief Executive Officer, and
assume a close working relationship with me.
Will be responsible for the management of all day-to-day activities of
the business.
2. COMPENSATION AND BONUS:
Initial base compensation of $120,000 per year. Future increases will
be at the determination of myself and the Board of Directors,
based on performance.
- You will be entitled to an annual incentive bonus equal to 50
percent of your base compensation. Payment of the bonus will
be dependent on achieving specific and mutually agreed upon
objectives and levels of performance, including but not
limited to achieving breakeven status by December 31, 1996.
- The bonus will be payable quarterly and will be in two forms:
a maximum of $6,500 per quarter in cash payments; the balance
payable in the form of stock grants. During the first year,
the cash payments of this bonus will be guaranteed.
- Your bonus payments will be open-ended, which means that if
you exceed agreed upon objectives by a given percentage, your
bonus will increase proportionately.
3. INITIAL STOCK OPTION:
- Based on accepting and beginning employment, you will receive
a stock option of 100,000 shares. The price will be 100
percent of the market price on the day the position is
accepted. Receiving the option will be based on beginning
employment. In the event you leave the company voluntarily
before the first anniversary of your employment, you will
forfeit this option.
- This stock option will vest over a three-year period in equal
amounts on the anniversary dates of employment. However, in
the event that the price of the stock increases four-fold over
the issue price, and you have reached your first anniversary,
50 percent of the total option will be considered fully
vested.
4. LONG-TERM INCENTIVE:
- At the discretion of the board, you will be awarded additional
stock options based on performance and results. It is
anticipated that the initial option following one year of
employment and subsequent awards will be approximately 33,333
shares annually based on meeting agreed upon objectives.
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<PAGE> 2
5. TERMINATION AND CHANGE OF CONTROL:
- In the event termination occurs for reasons other than: (1)
cause or (2) your voluntary termination, six months' severance
will be provided: including base compensation; 50 percent of
the earned bonus payment during the severance period; health
and medical benefits; and outplacement services.
- For purposes of this agreement, "cause" will be defined as
contemplated by Section 2924 of the California Labor Code
(copy of which in effect as of the date hereof is attached to
this letter and made a part of this agreement).
- Your severance payments, as described above, will be based on
a continuation of employment. If you become employed during
the severance period, your severance payments will cease.
- In the event there is a change of control during your
employment, a new owner controls more than 50 percent of the
company's common stock and your employment is terminated
within 12 months of that event (for reasons other than cause)
you will be eligible for a termination payment equal to the
then current annual compensation plus earned short-term bonus
payments. All stock options will become immediately vested.
6. OTHER BENEFITS:
- You will receive insurance, medical, disability insurance, and
health benefits currently available to other senior executives
as per existing policies.
- You will be entitled to take three weeks of vacation annually.
- To the extent currently available, you will receive other such
benefits equal to those of other senior executives within the
company, specifically including directors and officers
insurance.
7. STARTING DATE:
- It is anticipated that your employment will commence on or
before January 15, 1996.
8. ARBITRATION AGREEMENT:
- Any claim or controversy arising out of or related to this
letter agreement, the employment relationship or the subject
matter hereof shall be settled by binding arbitration before
one arbitrator in Los Angeles, California in accordance with
the commercial arbitration rules of the American Arbitration
Association; and judgment upon any award rendered by the
arbitrator(s) may be entered as a judgment in any court having
competent jurisdiction. The party shall have rights to
discovery as provided in Section 1283.05 of the California
Code of Civil Procedure. The prevailing party in any such
dispute shall recover all of its costs and expenses, including
reasonable attorney fees.
* * * * *
Pete, this offer and the terms and conditions included represent a formal offer
of employment. We look forward to working with you at Norris Communications.
Personal regards,
/s/ R. GORDON ROOT
- - ------------------
R. Gordon Root
Attachment
* The granting of stock awards and/or options at 85 percent of the market
price assumes the company is not in conflict with any statutory or SEC
regulation. Further, any tax consequence attributed to you as a result of these
stock grants or options will be your responsibility and not the company's.
Please acknowledge your acceptance of the terms and conditions of this offer by
signing and returning one copy of this letter.
BY: /s/ PETER W. GORRIE
-------------------
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NORRIS COMMUNICATIONS CORP.
EXHIBIT 10.24
PLACEMENT AGREEMENT
THIS PLACEMENT AGREEMENT, dated as of April 16, 1996 (this
"Agreement"), is entered into between Iacocca Capital Partners, L.P., a
Delaware limited partnership ("Placement Agent") and Norris Communications
Corp., a corporation organized under the laws of the Yukon Territory, Canada
(the Company").
RECITALS
A. The Company is offering a private placement of securities through the sale
of common stock and convertible notes convertible into shares of common stock
of the Company to Accredited Investors (as defined by Rule 501(a) promulgated
under the Securities Act of 1933 (the "Securities Act")). As set forth in
Section 1 below, Placement Agent's obligation to use its best efforts in
connection with this offering shall be limited to attempting to raise up to
five million dollars ($5,000,000) through the sale of Investor Units. An
"Investor Unit" shall, at the option of the investor, consist of either (1)
shares of common stock of the Company, no par value per share (individually,
a "Share" and collectively the "Shares") or (2) a seven percent (7%)
Convertible Note due April __ , 1999, convertible into common stock of the
Company (each a "Convertible Note" and collectively, the "Convertible Notes")
in the form of Exhibit A attached hereto.
B. The price of the Shares shall be either (i) $1.1375 per share if
the Closing (hereinafter defined) occurs within thirty (30) days from the date
hereof or (ii) thirty percent (30%) less than the average closing bid price for
the publicly traded shares of common stock of the Company during the five (5)
trading days immediately preceding the Closing if the Closing takes place after
such thirty (30) day period. Each Convertible Note shall be sold for its face
amount.
C. With respect to the Convertible Notes, the conversion price for
each Share based on the principal amount of each Convertible Note shall be the
lesser of (i) $1.625 per Share if the Closing occurs within thirty (30) days
from the date hereof or the average closing bid price for the publicly traded
Shares of common stock of the Company during the five (5) trading days
immediately preceding the Closing if the Closing occurs after thirty (30) days
from the date hereof, and (ii) thirty percent (30%) less than the average
closing bid price for the publicly traded Shares of common stock of the Company
for the five (5) trading days preceding the day prior to and not including the
day of conversion. For purposes of this document, the closing bid puce of the
common stock shall be the closing bid price as reported by the National
Association of Securities Dealers, Inc. ("NASDAQ") or the closing bid price in
the Over-the-counter market, or, in the event the common stock is listed on a
stock exchange, the closing sale price on such exchange as reported in The Wall
Street Journal. The Company shall pay interest on the outstanding principal
amount of each Convertible Note semi-annually on October __ and April __ at the
rate of seven percent (7%) per annum, accruing from the date of issuance of the
Convertible Note to the date of conversion. The semi-annual interest payments
shall be paid in Shares, the number of which shall be determined by using the
average closing bid price for the publicly traded Shares of common stock of the
Company for the five (5) trading days preceding the day prior to and not
including the day the interest payment is due, and shall constitute payment in
full of any such interest. No fractional Shares shall be issued and the number
of Shares issuable shall be rounded to the nearest whole Share. [NOTE: If
counsel for Placement Agent determines, in its sole and absolute discretion,
that violation of the California usury provisions as set forth in Article XX,
section 22 of the California Constitution may prohibit the enforcement of the
rights of the Investors pursuant to the terms of the Convertible Notes, the
Company shall agree to issue common stock, warrants or other securities under
substantially the same economic terms and conditions as the Convertible Notes.]
D. The Company grants the investors the registration rights in the
Registration Rights Agreement attached hereto as Exhibit B.
E. The Company wishes to engage Placement Agent to act as agent for
the Company in connection with the offering, issuance and sale of the Investor
Units in a private placement offering in accordance with Regulation D of the
Securities Act (the "Financing") and, in connection therewith, to perform such
activities and duties as are specified herein. Placement Agent, upon the terms
and subject to the conditions contained herein, is willing so to act and to
perform such activities and duties.
In consideration of the above recitals and the terms, conditions,
covenants, representations and warranties set forth below, the Placement Agent
and Company agree as follows:
1. APPOINTMENT AND RESPONSIBILITIES OF PLACEMENT AGENT. In reliance on
the representations, warranties and agreements contained herein, but subject to
the terms and conditions set forth herein, the Company hereby appoints
Placement Agent, and Placement Agent hereby agrees to act, as agent for the
Company in
<PAGE> 2
connection with the Financing. Placement Agent further agrees to use its best
efforts to solicit purchases of the Investor Units by Accredited Investors.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby represents and warrants to, and agrees with, Placement Agent, as
follows:
(a) Each of the Company, any subsidiaries and any affiliates (i) has
been duly organized under the general corporate law of the jurisdiction of its
incorporation, is current in the payment of any fees due to the Secretary of
State or other governmental body of such jurisdiction, and its status is
active, (ii) has qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is required,
except where the failure to so qualify would not have a material adverse effect
on the Company's condition, financial or otherwise, or its earnings, business
affairs or business prospects and (iii) has full power, authority and legal
right to own its property, to carry on its business as presently conducted, and
to enter into and perform its obligations under this Agreement and the other
agreements, instruments, certificates and documents to be executed and
delivered by the Company, any subsidiaries and any affiliates in connection
with the Financing (collectively, the "Financing Documents"), to which it is a
party.
(b) Each of this Agreement and the Financing Documents to which the
Company, any subsidiaries or any affiliates is a party has been duly
authorized, executed and delivered by such parties and constitutes a legal,
valid and binding instrument enforceable against any of the Company, any
subsidiaries or its affiliates in accordance with its terms, subject to
bankruptcy, insolvency and other similar laws relating to the enforcement of
creditors' rights generally. As of the date of the consummation of the
Financing (the "Closing Date"), the terms of Financing Documents will conform
in all material respects to the descriptions thereof contained in the Term
Sheet delivered to all prospective investors.
(c) As of the Closing Date, the Investor Units will conform in all
material respects to the descriptions thereof contained in the Evaluation
Materials (defined below) and will be duly authorized by the Company, and, when
issued, will be fully paid and non-assessable.
(d) The Term Sheet provided in connection with the offering as of its
date and at the Closing Date, and any amendment thereof or supplement thereto,
all other private information regarding the business and financial condition of
the Company, any subsidiaries and any affiliates delivered by the Company or
its directors, officers, employees and agents in connection with the Financing
to Placement Agent as of their respective dates, and all publicly available
documents and material (collectively, the "Evaluation Materials") did not and
will not, as of such dates and as of the Closing Date, include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(e) Neither the sale of the Investor Units, nor the execution,
delivery or performance of this Agreement or the Financing Documents to which
the Company, any subsidiaries and any affiliates, or any of them, is a party,
will result in the breach of any term or provision of the charter or bylaws of
any of them, or conflict with, result in a breach, violation or acceleration
of, or constitute a default under, the terms of (i) any indenture or other
agreement or instrument to which the Company, any subsidiaries or any
affiliates is a party or by which any of them or their respective properties is
bound or may be affected, that would materially and adversely affect any of
their ability to perform their respective obligations under this Agreement or
any of the Financing Documents to which any of them is a party, or any of their
ability to conduct their respective businesses as currently conducted and as
proposed to be conducted, or (ii) any statute, order or regulation of any
court, regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over any of them, that would materially and adversely
affect any of their ability to perform their respective obligations under this
Agreement or any of the Financing Documents to which any of them is a party, or
any of their ability to conduct their respective businesses as currently
conducted and as proposed to be conducted.
(f) Except as set forth on Exhibit C, there are no actions, suits or
proceedings before or by any court, regulatory body, administrative agency,
governmental body or arbitrator now pending or, to the knowledge of the
Company, threatened against the Company, any subsidiaries or any affiliates
that separately or in the aggregate could have a material adverse effect on the
ability of the Company, any subsidiaries or any affiliates to perform their
respective obligations under this Agreement or any of the Financing Documents
to which any of them is a party or any of their ability to conduct their
respective businesses as currently conducted and as proposed to be conducted.
(g) No federal, state or local tax, including intangibles tax or
documentary stamp tax, the nonpayment of which would result in the imposition
of a lien on the Investor Units or in liability on Placement Agent in
connection with the Financing of the Investor Units shall be imposed with
respect to the sale and conveyance of the Investor Units or in connection with
the issuance of the Investor Units by the Company, or in connection with
2
<PAGE> 3
any of the other transactions contemplated by this Agreement, and the Financing
Documents.
(h) As of the Closing Date, the representations and warranties of the
Company in the Financing Documents and in the Evaluation Material, with regard
to itself, any subsidiaries and any affiliates and the Investor Units, shall be
true and correct.
(i) Neither the Company, any subsidiaries or any affiliates, nor
anyone acting on behalf of any of them has offered, transferred, pledged, sold
or otherwise disposed of any Share, any interest in any Share or any other
security of the Company, any subsidiaries or any affiliates, or of any other
entity organized or originated by the Company, any subsidiaries or any
affiliates to, or solicited any offer to buy or accept a transfer, pledge or
other disposition of any Share, any interest in any Share or any such other
security with, any person in any manner, or made any general solicitation by
means of general advertising or in any other manner, or taken any other action,
(A) in violation of the federal, state or other securities laws or any other
applicable law or (B) that would constitute a distribution of the Shares under
the Securities Act, or that would render the placement of any Shares by
Placement Agent in accordance herewith a violation of Section 5 of the
Securities Act of 1933 or any state securities law, or require registration or
qualification pursuant thereto, nor will the Company, any subsidiaries or any
affiliates, act, nor has any of them authorized or will it authorize Placement
Agent or any other person to act, in such manner with respect to any Shares.
(j) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Company, any subsidiaries and any affiliates of this
Agreement and the Financing Documents to which any of them is a party or the
consummation of the transactions contemplated hereby or thereby.
(k) Since December 31, 1995, there has been no material adverse
change, actual or prospective, in the business or financial condition of the
Company, any subsidiaries and any affiliates.
(l) Commencing on the date hereof and continuing for one (1) year from
the Closing Date, the Company, any subsidiaries and any affiliates shall, and
shall cause their respective directors, officers, employees and agents to,
cooperate with Placement Agent and furnish Placement Agent and its counsel,
upon request, with all Evaluation Material and Financing Documents as well as
concurrent access to all information disseminated to or by the Company's Board
of Directors. The Company also agrees to provide Placement Agent with
reasonable access to its Board of Directors, senior management, operating
personnel, independent accountants and counsel.
(m) The Company recognizes and confirms that Placement Agent (i) will
use and rely primarily on the Evaluation Materials and on information available
from generally recognized public sources in performing the services
contemplated by this Agreement without having independently verified the
accuracy or completeness of the same, (n) is authorized to transmit to
prospective Accredited Investors without the prior consent of the Company a
copy or copies of the Evaluation Materials and any other legal documentation
supplied to Placement Agent in connection with the Financing, (c) does not
assume responsibility for the accuracy or completeness of any of the Evaluation
Material or the Financing Documents, (d) will not make an appraisal of any
assets of the Company and (e) retains the right to continue to perform due
diligence during the course of the engagement.
(n) If Placement Agent so requests, the Company agrees that it shall
nominate and support one (1) member of the Board of Directors of the Company as
directed by Placement Agent at the Board of Directors next regularly scheduled
election occurring after the Closing.
(o) The Company agrees that for a period of two (2) years after the
Closing, to the extent the Company solicits or engages the services of an
investment banker or similar professional, Placement Agent shall have the right
of first refusal to perform such services. The fees for such services shall be
negotiated at the time of the engagement consistent with industry standards.
3. REPRESENTATIONS AND WARRANTIES OF PLACEMENT AGENT.
(a) Placement Agent hereby represents and warrants to the Company
that: (i) it is a limited partnership duly formed and validly existing under
the laws of the State of Delaware, with full power and authority to enter into
this Agreement and perform its obligations hereunder, (ii) all partnership
action of Placement Agent necessary to be taken with respect to the entering
into of this Agreement and the performance of its obligations hereunder has
been taken, (iii) when fully executed by all parties, this Agreement will
constitute a legal, valid and binding instrument enforceable against Placement
Agent in accordance with its terms, subject to bankruptcy, insolvency and other
similar laws relating to the enforcement of creditors" rights generally.
(c) Neither the sale of the Investor Units, nor the execution,
delivery or performance of this Agreement will result a breach, violation or
acceleration of, or constitute a default under, the terms of any indenture or
other
3
<PAGE> 4
agreement or instrument to which Placement Agent is a party or by which it or
its properties is bound or may be affected, that would materially and adversely
affect its ability to perform its obligations under this Agreement, or its
ability to conduct its business as currently conducted.
(d) Any information provided in connection with the offering and any
amendment thereof or supplement thereto, delivered by Placement Agent or its
directors, officers, employees and agents in connection with the Financing to
the Company, as of their respective dates and as of the Closing Date, did not
and will not, include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
4. USE OF DOCUMENTS; ADDITIONAL COVENANTS OF THE COMPANY.
(a) The Company hereby authorizes the use by Placement Agent of the
Financing Documents and the Evaluation Material, including any supplements or
amendments thereto, and the information contained therein in connection with
the private placement of the Investor Units. The Company ratifies and confirms
Placement Agent's use of the Evaluation materials in connection with the
Financing prior to the date hereof.
(b) The Company covenants and agrees:
(i) To cause to be made available to Placement Agent such
reasonable quantities of the Evaluation Material and the Financing Documents as
Placement Agent may request for use in connection with the Financing; and
(ii) To furnish to Placement Agent (A) immediately, a
description of any change involving the Company which may materially adversely
affect the Investor Units and (B) as soon as practicable, any additional
information as Placement Agent may reasonably request.
5. CONFIDENTIALITY.
(a) Except with respect to prospective investors in the Financing
after the execution hereof, each party agrees that, without the prior written
consent of the other party hereto, it and its officers, employees and agents
will not disclose to any other person that the Evaluation Material or the
Financing Documents have been made available hereunder or that discussions or
negotiations are taking place concerning a transaction between the parties
unless such disclosure is required by law, in which case the disclosing party
or its representatives shall give the other prior reasonable notice of such
disclosure. The term "Person" as used in this Agreement shall be broadly
interpreted to include, without limitation, any corporation, company,
partnership, individual or other entity.
(b) All written or other information of any kind or type, disclosed,
supplied or revealed by or received from the Company to or by Placement Agent
relating to the products, business plans, financial condition or business
relationships shall be considered the Company's proprietary information (the
"Proprietary Information"), except to the extent that such information is
within the public domain at the time of the Company's disclosure to Placement
Agent or subsequently becomes in the public domain through no action or fault
of Placement Agent.
(c) Placement Agent covenants and agrees that it shall not, at any
time during the Term of this Agreement and thereafter; (i) make any use
whatsoever of any of the Proprietary Information except as may be necessary to
perform this Agreement, (ii) reproduce any of Proprietary Information in any
manner except as may be necessary to perform this Agreement, or (iii) disclose
any of the Proprietary Information except as may be necessary to perform this
Agreement to any person or entity, all except as permitted by the Company in
writing
6. USE OF NAME. Each party agrees to obtain the consent of the other
party prior to the dissemination of any press release, communication, or other
written material which contains the name and/or logo of any such party. If the
Agreement is terminated pursuant to Section 10 prior to the dissemination of
any such press release, communication or other written material, no reference
shall be made therein to Placement Agent.
7. USE OF ADVICE. No advice rendered by Placement Agent in connection
with the services, performed by Placement Agent pursuant to this Agreement will
be quoted by the Company, any subsidiaries or any affiliates, nor will any such
advice be referred to, in any report, document, release or other communication,
whether written or oral, prepared, issued or transmitted by the Company, any
subsidiaries or any affiliates or any person or corporation controlling,
controlled by or under common control with the Company, any subsidiaries or any
affiliates or any director, officer, employee agent or representative of the
Company, any subsidiaries or any affiliates, without the prior written
authorization of Placement Agent, except to the extent required by law (in
which case the Company, any subsidiaries or any affiliates shall so advise
Placement Agent in writing prior to such use and shall consult with Placement
Agent with respect to the form and timing of disclosure), provided that the
foregoing shall not
4
<PAGE> 5
prohibit appropriate internal communication within the Company, any
subsidiaries or any affiliates.
8. CLOSING CONDITIONS. The obligation of Placement Agent to continue
to solicit purchases of the Investor Units in connection with the Financing,
unless waived in the sole discretion of Placement Agent, shall be subject to
the continued accuracy of the respective certifications and statements of the
officers of the Company made pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder and to the following
additional conditions precedent:
(a) The representations and warranties of the Company contained herein,
in the Evaluation Material and in the Financing Documents shall be true,
complete and correct on the date when made and will continue to be true,
complete and correct on and as of the Closing Date, as if made on the Closing
Date.
(b) As of the Closing Date, this Agreement, the Financing Documents and
the Evaluation Material, as applicable, shall be in full force and effect and
shall not have been amended, modified or supplemented except as may have been
agreed to by Placement Agent, and all actions in connection with the issuance of
the Investor Units and with the transactions contemplated hereby and thereby as,
in the reasonable opinion of Placement Agent, are necessary and appropriate
shall have been taken;
(c) From the date hereof and continuing through the Closing Date, there
shall not have occurred any change or any development, including but not limited
to a prospective change, in the condition, financial or otherwise, or in the
earnings or operations or stock price of the Company, from that set forth in the
Evaluation Materials that, in the reasonable judgment of Placement Agent, is
material and adverse and that makes it, in the reasonable judgment of Placement
Agent, impracticable to place the Investor Units on the terms and in the manner
contemplated in this Agreement.
(d) On or prior to the Closing Date, Placement Agent shall have
received each of the following documents:
(i) An opinion of Counsel to the Company dated the Closing
Date, substantially in the form attached as Exhibit D hereto;
(ii) A certificate of the Company, dated the Closing Date and
signed by the President of the Company, in form and substance satisfactory to
Placement Agent, in which such officer states:
(A) The representations and warranties of the Company referred to in
this Agreement, the Financing Documents and the Evaluation Material are true and
correct as of the Closing Date, and the Company has complied with all covenants
and satisfied all conditions and terms of the Financing Documents and this
Agreement on its part to be performed or satisfied at or prior to the Closing
Date.
(B) The Evaluation Materials, as of the Closing Date, are accurate in
all material respects, and do not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(C) Except as disclosed in the Evaluation Materials, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company before or by any court,
administrative agency, arbitrator or governmental body with respect to any of
the transactions contemplated by, or the enforceability of, any of the
Financing Documents, this Agreement, or any related agreement or instrument to
which the Company is a party or by which it is bound.
(iii) A certified copy of the Board Resolution, together with a
certificate dated the Closing Date, stating that all corporate action on the
part of the Company required to be taken to authorize the transactions
contemplated by this Agreement and the Financing Documents to which the Company
is a party has been duly taken and has not been modified, amended, rescinded or
revoked, and is in full force and effect, on the Closing Date.
(iv) A comfort/confidence letter from the Company's auditors,
if requested by Placement Agent, in form and substance reasonably satisfactory
to Placement Agent.
(v) An executed original escrow agreement in form and substance
satisfactory to Placement Agent and in compliance with NASD rules, regulations
and policies (the "Escrow Agreement") addressed to an escrow agent ("Escrow
Agent") and governing an escrow account to be opened by Placement Agent into
which all proceeds received by Placement Agent from the sale of Investor Units
shall be deposited (the "Escrow Account") and disbursed by such Escrow Agent in
accordance with the instructions contained in the Escrow Agreement.
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<PAGE> 6
(vi) Such additional opinions, certificates, letters, instruments and
other documents as Placement Agent may reasonably have requested in connection
with the transactions contemplated by this Agreement and the Financing
Documents.
All of the opinions, certificates, letters, instruments and other documents
mentioned above or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof if, but only if, they are in form and
substance reasonably satisfactory to Placement Agent. The Company will furnish
Placement Agent with such conformed copies of all such opinions, certificates,
letters, instruments and other documents as Placement Agent reasonably shall
request.
9. CLOSING. The consummation of the sale of the Investor Units (the "Closing")
shall be held at the offices of Katten Muchin Zavis & Weitzman, 1999 Avenue of
the Stars, Suite 1400, Los Angeles, California 90067, on the Closing Date.
Payment of the purchase price for the Investor Units shall be made on the
Closing Date by check or wire transfer of federal or other immediately
available funds to an account to be designated by Company in writing not less
than two (2) business days prior to the Closing Date. The denominations of the
Investor Units to be delivered to Placement Agent and the name or names in
which such Investor Units are to be registered shall be designated by Placement
Agent by notice in writing delivered to the Company as soon as practicable, but
in any event no later than on the Closing Date.
10. TERMINATION. If any of the conditions specified in Section 8 of this
Agreement shall not have been fulfilled or the Closing has not taken place
within ninety (90) days of the date hereof, then this Agreement and all
obligations of Placement Agent and the Company may be terminated by either
party upon 30 days prior written notice to the other party.
11. FEES AND EXPENSES.
(a) The Company agrees to pay to Placement Agent a placement agency fee
consisting of:
(i) an amount of cash at Closing equal to seven percent (7.00%) of the
aggregate principal amount of the funds raised from the sale of any Investor
Units or other securities in a private transaction from April 4, 1996, through
and including ninety (90) days from the Closing, whether facilitated by
Placement Agent or not. With respect to those Investor Units or other
securities sold by Placement Agent, such placement agency fee shall be deducted
and wire transferred to Placement Agent in accordance with the Escrow
Instructions from the gross proceeds received by the Escrow Agent in the Escrow
Account from the sale of the Investor Units. With respect to the Investor Units
or other securities sold by a person other than Placement Agent, the Company
shall pay such amount to Placement Agent on the Closing Date by wire transfer
in accordance with the wiring instructions attached hereto as Exhibit E.
(ii) a warrant, delivered at Closing, for the purchase of the number of Shares
which is equal to seven percent (7.00%) of the aggregate principal amount of
the funds raised from the sale of any Investor Units or other securities in a
private transaction from April 4, 1996, through and including ninety (90) days
from the Closing (excluding certain securities issued by the Company in
satisfaction of certain preexisting debt), divided by the exercise price of
$1.625 per share, the form of which is attached hereto as Exhibit F. The
warrant shall be fully vested, non-callable and without any forced conversion
provisions and may be exercised at the price of $1.625 per share for a period
of five (5) years from the date of the issuance of the warrant. In addition,
Placement Agent will be granted (i) customary anti-dilution protection for,
among other things, stock splits, but specifically excluding employee stock
options, shares issued in a public offering or merger, (ii) customary
piggy-back registration rights and one demand registration right after
twenty-four (24) months with respect to the registration of the Shares
underlying the warrant, as set forth in the Registration Rights Agreement
attached hereto as Exhibit G.
(b) The Company also shall pay Placement Agent from legally available funds all
expenses incident to the performance of its obligations under this Agreement
and the furfillment of the conditions imposed hereunder, including without
limitation, all out-of-pocket expenses reasonably incurred by Placement Agent
in connection with its performance hereunder, but not to exceed $ 30,000
without the written consent of the Company. In the event Placement Agent
determines in its reasonable business judgment that in connection with the
Financing it is necessary to expend funds in excess of $30,000 and the Company
refuses to provide its consent, Placement Agent shall have the right, but not
the obligation to terminate this Agreement immediately at such time. Such
expenses shall include, without limitation, (A) travel, contract due diligence
services, entertainment, printing, postage, express mail and similar charges
and (B) fees and expenses of counsel to Placement Agent and of any independent
accountants retained by Placement Agent in connection with the Financing.
Placement Agent shall provide the Company with customary documentation and
receipts of all such expenses. Concurrent with the execution of this agreement,
the Company shall provide Placement Agent with an advance of $15,000 as an
advance against such expenses. With respect to such expenses billed as of the
Closing, Placement Agent shall instruct the Escrow Agent (taking into account
the advance for expenses) to deduct and wire transfer such amount to Placement
Agent from
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<PAGE> 7
the gross proceeds deposited by Placement Agent into the Escrow Account. With
respect to fees and expenses not yet billed as of the Closing and not
previously covered by the advance, the Company shall wire transfer such
amounts, as soon as practicable after presentation by Placement Agent, in
accordance with wire transfer instructions attached hereto as Exhibit E.
(c) If, through the written agreement of the parties hereto, the scope of
Placement Agent's engagement is expanded to include advice or services not
described in this Agreement, Placement Agent shall be entitled to compensation
with respect to such services in an amount customary for transactions of such
type.
12. INDEMNIFICATION. The Indemnification Agreement dated of even date herewith
and attached hereto as Exhibit H, by and between Placement Agent and the
Company (the "Indemnification Agreement"), and by this reference hereby is
incorporated into this Agreement and made a part hereof as if fully set forth
herein.
13. REGISTRATION RIGHTS. The Registration Rights Agreements between the Company
and each Investor (collectively, the "Investor Registration Rights
Agreements"), the form of which is attached hereto as Exhibit B and the
Registration Rights Agreement between the Company and Placement Agent (the
"Placement Agent Registration Rights Agreement"), the form of which is attached
hereto as Exhibit G by this reference hereby are incorporated into this
Agreement and made a part hereof as if fully set forth herein. With respect to
the registration of the Shares and Convertible Notes purchased by the
Investors, if the Company fails to file an appropriate registration statement
within 30 days from the date of Closing and/or such Registration Statement is
not declared effective within 90 days after the Closing, then the Company
agrees (I) to issue each Investor three percent (3%) more shares and/or (ii)
issue three percent (3%) more shares upon conversion of the Convertible Note
than otherwise set forth herein as applicable, for each 30 day period in which
a registration statement is not filed and/or such registration statement is not
declared effective as compensation for the delay. Such three percent (3%)
adjustment shall be prorated to the extent any period in which an adjustment as
set forth in this Paragraph 13 is to be made is fewer than 30 days.
14. TERM. Except as otherwise set forth herein, including but not limited to
Paragraphs 2(l), 2(o), 7, 11(c), and 11(b) which shall survive termination of
this Agreement, the term ("Term") of this Agreement commences on the date
hereof and will terminate on the Closing Date unless terminated sooner pursuant
to the terms of Section 10.
15. NOTICES. All notices, requests and demands of any kind which either party
may be required or desires to serve upon the other with respect to this
Agreement shall be in writing, and shall be deemed to have been given to any
party when delivered either by (I) personal delivery, including delivery by
commercial delivery or overnight service or (ii) five (5) days after being
mailed by first class mail, postage prepaid and return receipt requested, in
each case to the addresses set forth below or such other addresses as such
party has designated by proper notice to each other party:
TO COMPANY:
Norris Communications Corporation
Attn: Mr. Peter W. Gorrie
Chief Operating Officer and Chief Financial Officer
12725 Stowe Drive
Poway, California 92064
Telephone. (619) 679-1504
Facsimile: (619) 486-3922
With a copy to (which shall not constitute notice to the Company):
Day Campbell & McGill
Attention: Curt C. Barwick, Esq.
3070 Bristol Street, Suite 650
Costa Mesa, California 92626
Telephone: (714) 556-7716
Facsimile: (714) 556-7923
TO PLACEMENT AGENT:
Iacocca Capitol Partners, L.P.
Attention: Mr. William S. Elkus, Managing Director
11100 Santa Monica Boulevard, Suite 970
Los Angeles, California 90067
Telephone: (310) 444-5600
Facsimile: (310) 444-5601
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With a copy to (which shall not constitute notice to Placement Agent):
Katten Muchin Zavis & Weitzman
Attention: James K. Baer, Esq.
1999 Avenue of the Stars, Suite 1400
Los Angeles, California 90067
Telephone: (310) 788-4492
Facsimile: (310) 788-4471
Any party may, by notice given hereunder, designate any further or
different addresses to which subsequent notices shall be sent.
16. PARTIES IN INTEREST; SURVIVAL. This Agreement, including the
Exhibits attached hereto and the Indemnification Agreement constitute the
entire agreement between the Company and Placement Agent and supersede any and
all prior oral and/or written agreements between the parties with respect to
the subject matter hereof. Such agreements are made solely for the benefit of
the Company and Placement Agent (including successors or assigns of Placement
Agent) and no other person shall acquire or have any right hereunder or there
under by virtue hereof or thereof. This Agreement may not be assigned by the
Company without Placement Agent's prior written consent and may not be assigned
by Placement Agent without the Company's prior written consent. All of the
Company's and Placement Agent's representations, warranties and agreements
contained in this Agreement, including without limitation pursuant to Sections
2, 3, 11 and 12, and the Indemnity shall remain operative and in full force and
effect, regardless of (I) any investigations made by or on behalf of the
Company or Placement Agents; (ii) delivery of payment for the Investor Units
pursuant to this Agreement; (iii) any termination of this Agreement by any
means or (iv) consummation of the Financing.
17. CHOICE OF LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to its
conflicts of law principles.
18. SEVERABILITY. If any provisions of this Agreement shall be held
or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as
applied in any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions because of conflicts with any provisions of any statute, rule of
public policy or any other reason, such circumstances shall not have the effect
of rendering the provision in question invalid, inoperative or unenforceable in
any other case or circumstance, or of rendering any other provision or
provisions of this Agreement invalid, inoperative or unenforceable to any
extent whatever.
19. SECTION HEADINGS. Section headings have been inserted in this
Agreement as a matter of convenience of reference only, and it is agreed that
such section headings are not part of this Agreement and will not be used in
the interpretation of any provisions of this Agreement.
20. AMENDMENT. This Agreement may not be modified or amended except in
writing duly executed by parties hereto.
21. COUNTERPARTS. This Agreement may be executed in multiple
counterparts each of which shall be regarded as an original (with the same
effect as if the signatures thereto and hereto were upon the same document) and
all of which shall constitute one ands the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Placement Agreement
as of the day and year first written above.
IACOCCA CAPITAL PARTNERS, L.P., a Delaware
limited partnership
By: Iacocca Capital Group, Inc., a Michigan
corporation, its general partner
By: /s/ WILLIAM S. ELKUS
Name: William S. Elkus
Its: President
NORRIS COMMUNICATIONS CORP., a
corporation organized under the laws of the
Yukon Territory, Canada
By: /s/ R. GORDON ROOT
Name: R. Gordon Root
Its: CEO
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<PAGE> 1
NORRIS COMMUNICATIONS CORP.
EXHIBIT 10.25
ALL 11 AGREEMENTS RELATING TO AN INVESTMENT OF $1,694,100 WERE IDENTICAL
EXCEPT FOR THE IDENTITY OF THE INVESTOR, DATES AND SIGNATORS
INVESTOR REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement) is made and entered into
this day __ of May, 1996, by and between Norris Communications Corp., a
corporation organized under the laws of the Yukon Territory, Canada (the
"Company") and ____________________ (each "an Investor" and collectively with
each other Investor participating in this Offering, the "Investors"). Unless
otherwise indicated, capitalized terms used herein are used herein as defined
in Section 1.
RECITALS
WHEREAS, pursuant to an Investor Unit Purchase Agreement dated May
___, 1996, by and between the Company and the Investor (the "Purchase
Agreement.), the Company is offering a private placement of securities (the
"Offering") to raise up to $5,000,000 through the sale of shares of common
stock of the Company, no par value (the "Shares") and/or warrants to purchase
Shares of common stock of the Company (individually, a "Warrant" and
collectively with each other Investor participating in this Offering, the
"Warrants"):
WHEREAS, pursuant to the terms of the Purchase Agreement and in
partial consideration for the Investor's agreement to enter into the Purchase
Agreement, the Company has agreed to provide the Investor with certain rights
with respect to the registration of the Shares and the Shares issuable upon the
exercise of the Warrants (the "Warrant Shares"); and
WHEREAS, the Company and the Investor desire to set forth herein the
rights of the Investor and the obligations of the Company with respect to
registering such Shares and Warrant Shares with the Securities and Exchange
Commission.
NOW, THEREFORE, in consideration of the above recitals and the terms,
conditions, covenants, representations, warranties and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS AND USAGE.
1.1 DEFINITIONS. As used in this Agreement
CLOSING BID PRICE. "Closing Bid Price" shall mean on any given day the
reported Closing Price last sale price) of the Common Stock on the principal
stock exchange on which the Common Stock is listed, (ii) if the Common Stock is
not listed on a stock exchange, the reported Closing Price of the Common Stock
of the Company on the principal automated securities price quotation system on
which sale prices of the Common Stock of the Company are reported, or (iii) if
the Common Stock of the Company is not listed on a stock exchange and sale
prices of the Common Stock of the Company are not reported on an automated
quotation system, the mean of the final bid and asked prices for the Common
Stock of the Company as reported by the National Quotation Bureau Incorporated
if at least two securities dealers have inserted both bid and asked quotations
for the Common Stock of the Company on at least five of the ten preceding
trading days. If none of the foregoing provisions are applicable, the Closing
Bid Price of the Common Stock of the Company on any given day shall be the fair
market value of the Common Stock of the Company on that day as determined by a
member of the New York Stock Exchange, Inc., selected by the Board of Directors
of the Company and approved by Iacocca Capital Partners, L.P. The term "trading
day" means (i) if the Common Stock of the Company is listed on at least one
stock exchange, a day on which there is trading on the principal stock exchange
on which the Common Stock of the Company is listed, (ii) if the Common Stock of
the Company is not listed on a stock exchange but sale prices of the Common
Stock of the Company are reported on an automated quotation system, a day on
which trading is reported on the principal automated quotation system on which
sales of the Common Stock of the Company are reported or (iii) if the foregoing
provisions are inapplicable, a day on which quotations are reported by the
National Quotation Bureau Incorporated.
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
COMMISSION. "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
CONTINUOUSLY EFFECTIVE. "Continuously Effective" with respect to a specified
registration statement, shall mean that such registration statement shall not
cease to be effective and available for Transfers of Registrable Shares
thereunder for longer than either (i) any ten (10) consecutive business days,
or (ii) an aggregate of fifteen (15) business days during the period specified
in the relevant provision of this Agreement.
<PAGE> 2
ESCROW INSTRUCTIONS. "Escrow Instructions" shall mean the escrow instructions
entered among the Company, Placement Agent and City National Bank in connection
with the Offering.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of 1934,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the relevant time.
PERSON. "Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
PURCHASE AGREEMENT. "Purchase Agreement" shall mean the Investor Unit Purchase
Agreement executed by each Investor in connection with this Offering.
REGISTER, REGISTERED AND REGISTRATION. "Register", "registered", and
"registration" shall refer to a registration of securities effected by
preparing and filing a registration statement or similar document in compliance
with the Securities Act, and applicable rules and regulations thereunder, and
the declaration or ordering by the Commission of the effectiveness of such
registration statement or document.
REGISTRABLE SHARES. "Registrable Shares" shall mean: (i) the Shares purchased
by each Investor (including shares for which the purchase price is in Escrow
pursuant to the Escrow Instructions) and/or the Shares issuable upon exercise
of the Warrants (including the Shares issuable upon exercise of the Warrants
whose purchase price is in Escrow pursuant to the Escrow Instructions)
purchased by each Investor, (ii) any Shares or other securities issued as (or
issuable upon the conversion, exercise or exchange of any warrant, right or
other security which is issued as) a dividend or other distribution with
respect to, or in exchange by the Company generally for, or in replacement by
the Company generally of, such Shares; (iii) any securities issued in exchange
for such Shares in any merger or reorganization of the Company; (iv) any Shares
issued pursuant to Section 3 hereof; and (v) any Shares and/or Shares issuable
upon exercise of the Warrants purchased by all other Investors in this
Offering.
REGISTRATION EXPENSES. "Registration Expenses" shall have the meaning set forth
in Section 5.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same may be in effect at the relevant time.
SHARES. "Shares" shall have the meaning set forth in the Recitals to this
Agreement.
TRANSFER. "Transfer" shall mean and include the act of selling, giving,
transferring, creating a trust (voting or otherwise), assigning or otherwise
disposing of (other than pledging, hypothecating or otherwise transferring as
security) (and correlative words shall have correlative meanings); provided
however, that any transfer or other disposition upon foreclosure or other
exercise of remedies of a secured creditor after an event of default under or
with respect to a pledge, hypothecation or other transfer as security shall
constitute a "Transfer".
UNDERWRITERS' REPRESENTATIVE. "Underwriters' Representative" shall mean the
managing underwriter, or, in the case of a co-managed underwriting, the
managing underwriter designated as the Underwriters' Representative by the
co-managers.
VIOLATION. "Violation" shall have the meaning set forth in Section 6.1.
WARRANT. "Warrant" shall mean the warrant to purchase Shares of Common Stock of
the Company, if any, purchased by the Investor.
WARRANT SHARES. "Warrant Shares. shall have the meaning set forth in the
Recitals to this Agreement.
1.2 USAGE.
(i) References to a Person are also references to its assigns and successors in
interest (by means of merger, consolidation or sale of all or substantially all
the assets of such Person or otherwise, as the case may be).
(ii) References to a document are to such document as amended, restated and
otherwise modified from time to time and references to a statute or other
governmental rule are to such statute or other governmental rule as amended and
otherwise modified from time to time (and references to any provision thereof
shall include references to any successor provision).
(iii) References to Sections or to Schedules or Exhibits are to sections hereof
or schedules or exhibits hereto, unless the context otherwise requires.
(iv) The definitions set forth herein are equally applicable both to the
singular and plural forms and the feminine, masculine and neuter forms of the
terms defined.
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<PAGE> 3
(v) The term "including" and correlative terms shall be deemed to be followed
by "but not limited to" whether or not followed by such words or words of like
import.
(vi) The term "hereof" and similar terms refer to this Agreement as a whole.
SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS REGARDING REGISTRATION.
2.1 As expeditiously as possible, but no later than thirty (30) days from the
date of the initial consummation of the sale of any of the Shares and/or
Warrants to the Investors pursuant to the Purchase Agreement and the release of
funds to the Company from escrow pursuant to the Escrow Instructions (the
"Initial Closing") and as expeditiously as possible, but no later than thirty
(30) days after any subsequent closing of the sale of Shares and/or Warrants to
the Investors pursuant to the Purchase Agreement and the releases of funds to
the Company from Escrow pursuant to the Escrow Instructions (each, a
"Closing"), the Company shall file with the Commission a registration statement
in accordance with the Securities Act for an offering on a delayed or continued
basis pursuant to Rule 415 of the Securities" Act (a "Shelf Registration")
which Shelf Registration shall remain Continuously Effective for a minimum of
twelve (12) months, and, the Company shall include therein all of the
Registrable Shares. In the event the average Closing Bid Price for the Shares
falls, causing the number of Warrant Shares to increase or additional Shares
are otherwise issued in accordance with the terms of the Purchase Agreement,
the Company shall file a new registration statement, or if the registration
statement has not yet been declared effective, amend the registration
statement, and any other documents as necessary such that all Registrable
Shares shall be registered. In the event such registration is not so declared
effective or does not include all the Registrable Shares, upon the vote of the
Investors collectively holding fifty-one percent (51%) or more of the
Registrable Shares, such Investors shall have the right to require by notice in
writing that the Company register all of the Registrable Shares and the Company
shall thereupon effect an additional registration in accordance with this
Agreement as soon as possible. If a registration statement or registration
statements, as necessary, is declared effective and remains Continuously
Effective for a minimum of twelve (12) months with respect to all the
Registrable Shares and the Company otherwise is in compliance with its
obligations pursuant to this Agreement, the demand registration rights shall
cease. If a registration statement or registration statements, as necessary, is
not declared effective with respect to all the Registrable Shares and/or if a
registration statement does not remain Continuously Effective for a minimum of
twelve (12) months with respect to all the Registrable Shares, the demand
registration rights described herein shall remain in effect until all
Registrable Shares have been registered under the Act and a registration
statement with respect to all the Registrable Shares remains Continuously
Effective for a minimum of twelve (12) months. The Company covenants and agrees
that it shall not participate in the Shelf Registration.
2.2 The Company shall not include in any registration, statement or any other
documents filed with the SEC any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
2.3 In connection with the Registrable Shares, subject to SECTION 3, the
Company shall:
(i) Prepare and file a registration statement with the Commission in accordance
with SECTION 2.4 hereof including all the Registrable Shares and shall use its
best efforts to cause such registration to be declared effective under the
Securities Act as soon as reasonably practicable, giving due regard to the need
to prepare current financial statements, conduct due diligence and complete
other actions that are reasonably necessary to effect a registered public
offering, but in no event later than ninety (90) days from the Initial Closing.
(ii) Prepare and file another registration statement or an amendment to a
previously filed registration statement with the Commission in accordance with
SECTION 2.4 hereof, as necessary pursuant to SECTION 2.1, including any
Registrable Shares from any Closing to the extent such Registrable Shares were
not included with the Registrable Shares from the Initial Closing or which
otherwise were not included in the registration statement described SECTION 2
3(I) and shall use its best efforts to cause such registration to be declared
effective under the Securities Act as soon as reasonably practicable, giving
due regard to the need to prepare current financial statements, conduct due
diligence and complete other actions that are reasonably necessary to effect a
registered public offering, but in no event later than nine" (90) days after
any such subsequent Closing.
(iii) Keep the registration of the Registrable Shares Continuously Effective
for a minimum of 12 months or until such earlier date as of which all the
Registrable Shares shall have been sold.
(iv) Prepare and file with the Commission such amendments and supplements to
any registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act and rules thereunder with respect to the disposition of all
securities covered by such registration statement and notify the Investors of
the filing and effectiveness of such registration statement and any amendments
or supplements thereto. If the registration is for an underwritten offering,
the Company shall amend the registration statement or supplement the prospectus
whenever required by the terms of the underwriting agreement. In the event that
any Registrable Shares included in a registration statement subject to, or
required by, this Agreement remain unsold at the end of the period during which
the Company is obligated to use reasonable efforts to maintain the
effectiveness of such registration statement, the Company may file a
post-effective amendment to the registration statement for the purpose of
removing such Registrable Shares from registered status.
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<PAGE> 4
(v) Furnish to the Investor, without charge, such numbers of copies of the
registration statement, any pre-effective or post-effective amendments thereto,
the prospectus, including each preliminary prospectus and any amendments or
supplements thereto and any documents incorporated by reference therein, in
each case in conformity with the requirements of the Securities Act and the
rules thereunder, and such other related documents as the Investor may
reasonably request in order to facilitate the disposition of Registrable
Shares.
(vi) Use reasonable efforts (a) to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such states where an exemption from registration is not available as the
Investor reasonably may request and (b) to obtain the withdrawal of any order
suspending the effectiveness of a registration statement or the lifting of any
suspension of the qualification (or exemption from qualification) of the offer
and transfer of any of the Registrable Shares in any state, at the earliest
possible moment; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business in any
state.
(vii) In the event of any underwritten offering, use reasonable efforts to
enter into and perform its obligations under an underwriting agreement
(including indemnification and contribution obligations of underwriters), in
usual and customary form, with the Underwriters' Representative or underwriters
of such offering. The Company also shall cooperate with the Investor, and the
Underwriters' Representative for such offering in the marketing of the
Registrable Shares, including making available the officers, accountants,
counsel, premises, books and records of the Company for such purpose, but the
Company shall not be required to incur any material out-of-pocket expense by
reason of this sentence.
(viii) Promptly notify the Investor of any stop order issued or threatened to
be issued by the Commission in connection with any registration statement and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(ix) Use reasonable efforts to cause the Registrable Shares covered by such
registration statement (i) if the Shares are then listed on a securities
exchange or included for quotation in a recognized trading market, to continue
to be so listed or included for a reasonable period of time after the offering,
and (ii) to be registered with or approved by such other United States or state
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the Investor to consummate the
disposition of such Registrable Shares.
(x) Take such other actions as are reasonably required in order to expedite or
facilitate the disposition of Registrable Shares included in each such
registration.
(xi) Notify each Investor immediately of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein, or necessary to make the
statements therein not misleading in light of circumstances then existing and
shall use its best efforts to promptly update and/or correct such prospectus.
2.4 A registration pursuant to this Section 2 shall be on such appropriate
registration form of the Commission as shall be selected by the Company and
shall permit the disposition of the Registrable Shares without restriction into
the public market.
Section 3. Failure to Register; Suspension of Registration.
3.1 With respect to the registration of the Registrable Shares if (a) the
Company fails to file a registration statement registering the Registrable
Shares in accordance with Section 2 hereof within thirty (30) days from the
date of the Initial Closing and any subsequent Closing and/or (b) a
Registration Statement registering the Registrable Shares is not declared
effective within ninety (90) days after the Initial Closing and any subsequent
Closing, the Company agrees to issue to each Investor purchasing Shares three
percent (3%) more Shares and/or to issue to each Investor purchasing Warrants
three percent (3%) more Warrant Shares upon exercise of the Warrants than the
Investor otherwise would receive according to the terms of the Purchase
Agreement for each 30 day period in which a registration statement is not filed
and/or such registration statement is not declared effective within such 90 day
period.
3.2 In addition, if (a) any such registration statement does not include all
the Registrable Shares as determined on the date of such filing and/or (b) the
effectiveness of any registration statement registering Registrable Shares is
suspended by the Securities and Exchange Commission for any period in excess of
30 days, the Company agrees to issue to each Investor purchasing Shares three
percent (3%) more Shares and/or to issue to each Investor purchasing Warrants
three percent (3%) more Warrant Shares upon exercise of the Warrants based on
the number of Registrable Shares not registered or suspended from registration,
as the case may be, for each 30 day period in which a registration statement
does not include all the Registrable Shares and/or its effectiveness is
suspended.
3.3 Notwithstanding the foregoing, any such three percent (3%) adjustment
described in Sections 3.1 and/or 3.2 shall be prorated to the extent any period
in which an adjustment as set forth in this Section 3 is to be made is fewer
than thirty (30) days and Shall accrue at a rate of (a) three percent (3%) per
month for each successive thirty (30) day period in which the events described
in Sections 3.1 and/or 3.2 continue to occur for the first four (4) months and
(b) one percent (1%) per month for each successive 30 day period in which the
events described in Sections 3.1 and/or 3.2 continue to occur thereafter. If
such Registration Statement does not include all the Registrable Shares, the
Investors shall be entitled to
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participate pro rata.
SECTION 4. INVESTOR'S OBLIGATIONS. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Shares of the Investor that the Investor shall
furnish to the Company such information regarding the Investor, the number of
the Registrable Shares owned by him, her or it, and the intended method of
disposition of such securities as shall be required to effect the registration
of Registrable Shares of the Investor, and to cooperate fully with the Company
in preparing such registration.
SECTION 5. EXPENSES OF REGISTRATION. The Company shall bear and pay all
reasonable expenses incurred in connection with any registration, filing, or
qualification of Registrable Shares, including all registration, filing and
National Association of Securities Dealers, Inc. fees, all fees and expenses of
complying with securities or blue sky laws in up to five (5) states, all
printing expenses, messenger and delivery expenses, the reasonable fees and
disbursements of counsel for the Company and of the independent public
accountants for the Company, including the expenses of "cold comfort" letters
required by or incident to such performance and compliance (the "Registration
Expenses"), but excluding underwriting discounts and commissions relating to
Registrable Shares and all fees and expenses of counsel for the Investor.
SECTION 6. INDEMNIFICATION; CONTRIBUTION. If any Registrable Shares are
included in a registration statement under this Agreement:
6.1 To the extent permitted by applicable law, the Company shall indemnify and
hold harmless the Investor, each Person, if any, who controls the Investor
within the meaning of the Securities Act, and each officer, director, partner
and employee of the Investor, as applicable, and such controlling Person, from
and against, and shall reimburse such indemnified party with respect to, any
and all losses, claims, damages, liabilities and expenses (joint or several),
including reasonable attorneys' fees and disbursements and reasonable expenses
of investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may otherwise become subject under the Securities Act, the Exchange Act
or other federal or state laws, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"):
(i) Any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein, or any amendments or supplements
thereto; or
(ii) The omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading; provided, however, that the indemnification required by this
Section 6.1 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or expense if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or expense to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with information
furnished to the Company by the indemnified party expressly for use in
connection with such registration.
6.2 To the extent permitted by applicable law, the Investor shall indemnify and
hold harmless the Company, each of the officers of the Company who shall have
signed the registration statement, each Person, if any, who controls the
Company within the meaning of the Securities Act, against any and all losses,
claims, damages, liabilities and expenses (joint and several), including
reasonable attorneys' fees and disbursements and reasonable expenses of
investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may otherwise become subject under the Securities Act, the Exchange Act
or other federal or state laws' but only insofar as such losses, claims,
damages, liabilities and expenses arise out of or are based upon any Violation,
in each case only to the extent that such Violation arises out of or is based
upon information furnished directly by the Investor expressly for use in
connection with such registration; provided, however, that the indemnification
required by this Section 6.2 shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or expense if such settlement is
effected without the consent of the Investor (which consent shall not be
unreasonably withheld).
6.3 Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action, suit, proceeding, investigation or
threat thereof made in writing for which such indemnified party may make a
claim under this Section 6, such indemnified party shall deliver to the
indemnifying party a written notice thereof; provided, however, the failure to
give such notice to the indemnifying party shall only relieve the indemnifying
party of its obligations pursuant to this Section 6 if and to the extent such
indemnifying party is actually prejudiced by any such failure and any such
failure shall in no even relieve the indemnifying party from any liability it
may have to an indemnifying party otherwise than pursuant to this Section 6.
The indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel
satisfactory to the indemnified party; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and
disbursements and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding. Any such indemnified party shall have the
right to employ separate counsel in any such action, claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be the expenses of such indemnified party unless (i) the indemnifying
party has agreed to pay such fees and expenses or (ii) the indemnifying party
shall have failed
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to promptly assume the defense of such action, claim or proceeding or (iii) the
named parties to any such action, claim or proceeding (including any impleaded
parties) include both such indemnified party and the indemnifying party, and
such indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or in addition
to those available to the indemnifying party and that the assertion of such
defenses would create a conflict of interest such that counsel employed by the
indemnifying party could not faithfully represent the indemnified party (in
which case, if such indemnified party notifies the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party the indemnifying party shall not have the right to assume
the defense of such action, claim or proceeding on behalf of such indemnified
party, it being understood, however, that the indemnifying party shall not, in
connection with any one such action, claim or proceeding or separate but
substantially similar or related actions, claims or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for all such
indemnified parties, unless in the reasonable judgment of such indemnified
party a conflict of interest may exist between such indemnified par" and any
other of such indemnified parties with respect to such action, claim or
proceeding, in which event the indemnifying party shall be obligated to pay the
fees and expenses of such additional counsel or counsels). Any fees and
expenses incurred by the indemnified party (including any fees and expenses
incurred in connection with investigating or preparing to defend such action or
proceeding) shall be paid to the indemnified party, as incurred, within thirty
(30) days of written notice thereof to the indemnifying party (regardless of
whether it is ultimately determined that an indemnified party is not entitled
to indemnification hereunder).
6.4 If the indemnification required by this Section 6 from the indemnifying
party is unavailable to an indemnified party hereunder in respect of any
losses, claims, damages, liabilities or expenses referred to in this Section 6:
(i) The indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among other
things, whether any Violation has been committed by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such Violation. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above shall
be deemed to include, subject to the limitations set forth in Section 6.1 and
Section 6.2, any legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in Section 6.4(i). No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
6.5 If indemnification is available under this Section 6, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
this Section 6 without regard to the relative fault of such indemnifying party
or indemnified party or any other equitable consideration referred to in
Section 6.4.
6.6 The obligations of the Company and the Investor under this Section 6 shall
survive the completion of any offering of Registrable Shares pursuant to a-
registration statement under this Agreement, and otherwise.
SECTION 7. AMENDMENT, MODIFICATION AND WAIVER: FURTHER ASSURANCES.
7.1 This Agreement only may be amended with the consent of the Company and the
Investor and the Company and the Investor may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company and the Investor shall have obtained the written consent of
the other to such amendment, action or omission to act.
7.2 No waiver of any terms or conditions of this Agreement shall operate as a
waiver of any other breach of such terms and conditions or any other term or
condition, nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof. No written waiver
hereunder, unless it by its own terms explicitly provides to the contrary,
shall be construed to effect a continuing waiver of the provisions being waived
and no such waiver in any instance shall constitute a waiver in any other
instance or for any other purpose or impair the right of the party against whom
such waiver is claimed in all other instances or for all other purposes to
require full compliance with such provision.
7.3 Each of the parties hereto shall execute all such further instruments and
documents and take all such further action as any other party hereto may
reasonably require in order to effectuate the terms and purposes of this
Agreement.
SECTION 8. ASSIGNMENT; BENEFIT. This Agreement and all of the provisions hereof
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, assigns, executors, administrators or successors;
provided, however, that neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned or delegated
6
<PAGE> 7
by the Company without he consent of the Investor (which consent shall not be
unreasonably withheld).
SECTION 9. MISCELLANEOUS.
9.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving regard to
the conflict of laws principles thereof.
9.2 Notices. All notices and requests given pursuant to this Agreement shall be
in accordance with the notice provisions of the Purchase Agreement.
9.3 Entire Agreement: Integration. This Agreement supersedes all prior
agreements between or among any of the parties hereto with respect to the
subject matter contained herein and therein, and this Agreement embodies the
entire understanding among the parties relating to the subject matter hereof.
9.4 Section Headings. Section headings are for convenience of reference only
and shall not affect the meaning of any provision of this Agreement.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
together constitute one and the same instrument. All signatures need not be on
the same counterpart
9.6 Severability. If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not affect the
validity and enforceability of the remaining provisions of this Agreement,
unless the result thereof would be unreasonable, in which case the parties
hereto shall negotiate in good faith as to appropriate amendments hereto.
9.7 Termination. This Agreement may be terminated at any time by a written
instrument signed by the Company and the Investor. Unless sooner terminated in
accordance with the preceding sentence, this Agreement (other than Section 6
hereof) shall terminate in its entirety on such date as there shall be (a) no
Registrable Shares outstanding, and (b) no securities outstanding which are
convertible or exchangeable into Registrable Shares; provided that any Shares
or Warrant Shares previously subject to this Agreement shall not be Registrable
Shares following the sale of any such shares in an offering registered pursuant
to this Agreement.
9.8 Other Registration Rights. The Company will not grant directly or
indirectly to any Persons the right to have the Company register any equity
securities of the Company, or any securities convertible or exchangeable into
or exercisable for such securities, without the prior written consent of the
Investor (which consent shall not be unreasonably withheld). The Company hereby
severally represents and warrants that the Company has not entered into any
agreement with respect to the Shares of its common stock granting any
registration rights to any Person other than those Persons set forth on Exhibit
A.
9.9 Submission to Jurisdiction. Each of the parties hereto and each of the
Holders irrevocably submits and consents to the jurisdiction of the United
States District Court for the Central District of California in connection with
any action or proceeding arising out of or relating to this Agreement, and
irrevocably waives any immunity from jurisdiction thereof and any claim of
improper venue, forum non conveniens or any similar basis to which it might
otherwise be entitled in any such action or proceeding.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
as of the date first written above.
[INVESTOR]
NORRIS COMMUNICATIONS CORP., A
CORPORATION ORGANIZED UNDER THE LAWS OF THE
YUKON TERRITORY, CANADA
By:.
Name:.
Its:.
7
<PAGE> 1
NORRIS COMMUNICATIONS CORP.
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the 12 Months Ended March 31, 1996 Primary Fully Diluted
- - -------------------------------------- ------- -------------
<S> <C> <C>
Number of weighted average shares outstanding 13,065,095 13,065,095
Common stock equivalents(1) - -
------------------------------
Total adjusted shares outstanding at March 31, 1996 13,065,095 13,065,095
------------------------------
Income before extraordinary item & discontinued
operations (8,267,543) (8,267,543)
Extraordinary item - -
Discontinued operations - -
------------------------------
Net income (8,267,543) (8,267,543)
------------------------------
EPS - Income before extraordinary item &
discontinued operations (0.63) (0.63)
EPS - Extraordinary item - -
EPS - Discontinued operations - -
-------------------------------
EPS - Net income (0.63) (0.63)
===============================
<CAPTION>
For the 12 Months Ended March 31, 1995 Primary Fully Diluted
- - -------------------------------------- ------- -------------
Number of weighted average shares outstanding 8,097,624 8,097,624
Common Stock equivalents(1) - -
-------------------------------
Total adjusted shares outstanding at
March 31, 1995 8,097,624 8,097,624
-------------------------------
Income before extraordinary item &
discontinued operations (7,142,356) (7,142,356)
Extraordinary item - -
Discontinued operations - -
------------------------------
Net income (7,142,356) (7,142,356)
------------------------------
EPS - Income before extraordinary item &
discontinued operations (0.88) (0.88)
EPS - Extraordinary - -
EPS - Discontinued operations - -
------------------------------
EPS - Net income (0.88) (0.88)
==============================
</TABLE>
(1) - Common Stock Equivalents (CSE) would have an antidilutive effect, thus
the CSE were excluded from the EPS computation.
<PAGE> 1
NORRIS COMMUNICATIONS CORP.
EXHIBIT 21.1
NORRIS COMMUNICATIONS CORP.
LIST OF SUBSIDIARIES
Norris Communications Inc.
12725 Stowe Drive
Poway, CA 92064
619.679.1504
(A California Corporation)
<PAGE> 1
NORRIS COMMUNICATIONS CORP.
EXHIBIT 23.1
CONSENT OF
INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-81212, Form S-3 No. 33-92032, Form S-3 No. 33-92978 and Form
S-3 No. 333-4880) of Norris Communications Corp. and in the related
Prospectuses of our Auditor's Report and Comments by Auditors for U.S. Readers
on Canada-U.S. Report Conflict dated May 24, 1996 (except as to Note 16[b]
which is as of June 7, 1996), with respect to the consolidated financial
statements of Norris Communications Corp. included in the Annual Report (Form
10-KSB) for the year ended March 31, 1996.
Vancouver, Canada,
June 27, 1996 /s/ ERNST & YOUNG
Chartered Accountants
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
MARCH 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 2,843,540
<SECURITIES> 0
<RECEIVABLES> 106,266
<ALLOWANCES> 11,647
<INVENTORY> 3,243,245
<CURRENT-ASSETS> 6,407,840
<PP&E> 2,885,604
<DEPRECIATION> 1,525,813
<TOTAL-ASSETS> 7,817,144
<CURRENT-LIABILITIES> 5,351,811
<BONDS> 3,000,000
0
0
<COMMON> 21,762,337
<OTHER-SE> 1,592,316
<TOTAL-LIABILITY-AND-EQUITY> 7,817,144
<SALES> 1,328,502
<TOTAL-REVENUES> 1,328,502
<CGS> 4,413,814
<TOTAL-COSTS> 4,623,137
<OTHER-EXPENSES> 236,636
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356,429
<INCOME-PRETAX> (8,267,543)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,267,543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,267,543)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
