<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
NORRIS COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[LOGO]
Norris Communications, Inc.
13114 Evening Creek Drive South
San Diego, CA 92128
December 11, 1998
Re: Message from the President
Dear Stockholder:
The purpose of this letter is to share with you some of this past year's
successes, and to emphasize the importance of the successful passage of the
proposals detailed in the attached Proxy Statement for our Annual Meeting of the
Stockholders of Norris Communications, Inc.
Since early 1997, the Company has been designing and developing a digital voice
recorder and computer docking station for Lanier Worldwide, Inc. As you may
know, Lanier successfully debuted the product, named Cquence MOBILE(TM), at the
American Healthcare Information Management Association (AHIMA) annual convention
in New Orleans in October. Lanier recently extended its development and
manufacturing agreement with the Company through December 2001. In September
1998, Norris received an initial order from Lanier for Cquence MOBILE"! totaling
$3 mil lion. Manufacturing of these products is currently scheduled to begin in
early 1999.
The Company is developing new strategic relationships with major OEMs centered
around its MicroOS(TM) and MicroOS(TM) Audio file management systems. In August,
Norris announced an important agreement to design and develop a digital voice
recorder for Intel Corporation. Norris also recently teamed with Lucent
Technologies to design and prototype a portable Internet music player. This
prototype was used in October 1998 by Lucent to demonstrate the transmission of
digital audio via the Internet. Norris is working with Lucent to adapt the
MicroOS Audio to the latest digital watermarking technologies designed to
protect artists' royalties for online-distributed music. With these two
relationships, Norris is positioned as a key player in several potentially
high-growth markets.
Norris' focus on OEM business leverages the Company's ability to develop new
products, while minimizing the risks associated with competing directly in the
consumer market. The Company's MicroOS file management system is the basis for
the Company's OEM business; it is capable of providing the intelligence for
portable voice, music, image, video, and data recording devices. In April and
July 1998, Norris was granted two U.S. patents protecting MicroOS. These patents
strengthen the Company's intellectual property position and reinforce its value
to the marketplace.
<PAGE> 3
During the last fiscal year the Company reduced losses from $9.6 million to $2.6
million. With the completion of the Company's restructuring all resources are
now focused on the Company's core OEM business. Our goal is to reduce operating
losses and achieve profitability from service revenues and royalties or
manufacturing margins. Based on existing contracts and active negotiations with
other prospective OEM customers, we believe that the Company has the potential
to become profitable during 1999.
In Proposal No. 2, the Board of Directors has proposed a name change to "Digital
Systems Development, Inc." We believe this action is beneficial to the Company
because the name "Norris Communications, Inc." does not accurately reflect the
nature of the Company's business as presently conducted, or its present
emphasis. The Board of Directors urges you to VOTE FOR Proposal No. 2 as
described in the Proxy Statement. Because the Company conducts business with a
limited number of customers and vendors, we believe the costs to inform
interested parties of the name change will be minimal.
The Company is emerging from a difficult restructuring, and its future plans
require the passage of Proposal No. 3 to increase the number of authorized
shares of common stock from 120 million to 200 million shares. At the current
time, the fully diluted number of shares issued is 116.1 million. With only 120
million shares authorized, the Company has few options for financing operations,
future research and development, strategic acquisitions, or to attract qualified
employees. To maintain a necessary degree of flexibility the Board of Directors
urges its Stockholders to VOTE FOR Proposal No.3. Failure of Proposal No.3 would
leave the Company with little flexibility for future business transactions and
could materially and adversely affect operations.
The Board of Directors urges you to VOTE FOR all proposals described in the
Proxy Statement. With respect to Proposal No.3, a NON-VOTE IS EQUIVALENT TO A
"NO" VOTE thereby reducing the chance of passage.
Unless you plan to attend the Annual Meeting in person, please review the
enclosed Proxy Statement carefully, complete and sign the enclosed Proxy to
indicate whether you approve or disapprove of the proposals therein. YOUR
RESPONSE SHOULD BE RECEIVED NO LATER THAN THE JANUARY 12, 1999 MEETING DEADLINE
IN ORDER THAT YOUR VOTE BE CONSIDERED. MOREOVER, WE REQUEST THAT YOU RESPOND
PROMPTLY TO ASSIST US IN TALLYING THE PROXIES.
We appreciate your continuing support. If you have any questions, please contact
our Corporate Secretary, Robert Putnam, or myself at 619-679-1504.
Sincerely,
/s/ Alfred H. Falk
Alfred H. Falk
President and Chief Executive Officer
<PAGE> 4
NORRIS COMMUNICATIONS, INC.
13114 EVENING CREEK DRIVE SOUTH, SAN DIEGO, CALIFORNIA 92128
TELEPHONE - (619) 679-1504
FACSIMILE - (619) 486-3922
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 12, 1999
TO THE STOCKHOLDERS OF
NORRIS COMMUNICATIONS, INC.
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of Norris Communications, Inc., a Delaware corporation (the
"Company"), will be held at the Rancho Bernardo Inn, located at 17550 Bernardo
Oaks Drive, San Diego, California 92128, on Tuesday, January 12, 1999, beginning
at 2:00 p.m. local time. The Annual Meeting will be held for the following
purpose:
1. To elect directors of the Company to serve as directors until
the annual meeting of stockholders to be held in 1999, until
such directors' successor has been duly elected and qualified or
until such directors have otherwise ceased to serve as
directors.
2. To approve an amendment to the Company's Certificate of
Incorporation to change the name of the Company to "e.Digital
Corporation".
3. To approve an amendment to the Company's Certificate of
Incorporation to increase the number of shares of common stock,
$.001 par value, that the Company is authorized to issue from
120,000,000 to 200,000,000.
4. To ratify the appointment of Ernst & Young as independent
accountants for the Company for the fiscal year ending March 31,
1999.
5. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
The Board of Directors has fixed December 11, 1998 as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting and any postponements or adjournments thereof, and only
stockholders of record at the close of business on that date are entitled to
such notice and to vote at the Annual Meeting. A list of stockholders entitled
to vote at the Annual Meeting will be available at the offices of the Company
for ten (10) days prior to the Annual Meeting.
We hope that you will use this opportunity to take an active part in the
affairs of the Company by voting on the business to come before the Annual
Meeting either by executing and returning the enclosed Proxy Card or by casting
your vote in person at the Annual Meeting.
Stockholders unable to attend the annual meeting in person are requested
to date and sign the enclosed proxy card as promptly as possible. A stamped
envelope is enclosed for your convenience. If a stockholder receives more than
one proxy card because he or she owns shares registered in different names or
addresses, each proxy card should be completed and returned.
By Order of the
Board of Directors
/s/ ALFRED H. FALK
Alfred H. Falk
President and Chief Executive Officer
San Diego, California
December 15, 1998
<PAGE> 5
NORRIS COMMUNICATIONS, INC.
13114 EVENING CREEK DRIVE SOUTH
SAN DIEGO, CALIFORNIA 92128
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 12, 1999
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Norris Communications, Inc., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at 2:00 p.m., local time, on January 12, 1999, and
any postponements or adjournments thereof for the purposes set forth in the
accompanying Notice of Annual Meeting. The telephone number of the Company is
(619) 679-1504 and its facsimile number is (619) 486-3922. This Proxy Statement
and the accompanying form of proxy were first mailed to stockholders on or about
December 11, 1998.
RECORD DATE AND VOTING
December 11, 1998 has been fixed as the record date (the "Record Date")
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting, and any postponements or adjournments thereof. As of December
11, 1998, there were 65,645,656 shares of the Company's common stock, $.001 par
value per share (the "Common Stock"), issued and outstanding. A total of 92,500
shares of the Company's preferred stock, $.001 par value per share (the
"Preferred Stock"), were outstanding as of that date with such shares entitled
to cast 114.28571 votes per preferred share or 10,571,428 votes in the
aggregate. A majority of the shares entitled to vote, present in person or
represented by proxy, will constitute a quorum at the meeting.
Each share of Common Stock issued and outstanding on the Record Date is
entitled to one vote on any matter presented for consideration and action by the
stockholders at the Annual Meeting. Each share of Preferred Stock is entitled to
cast a number of votes equal to the number of shares of Common Stock into which
the Preferred Stock is then convertible. With respect to all matters other then
the election of directors and the proposed amendment to the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
that the Company is authorized to issue from 120,000,000 to 200,000,000, the
affirmative vote of a majority of the voting shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
will be the act of the stockholders. Directors will be elected by a plurality of
the votes of the shares present in person or represented by proxy and entitled
to vote on the election of directors. The matter of the proposed amendment to
the Company's Certificate of Incorporation to increase the number of authorized
shares, requires the affirmative vote of a majority of the outstanding shares of
Common Stock on the record date, the Preferred Stock shall not vote on this
matter. Abstentions will be treated as the equivalent of a negative vote for the
purpose of determining whether a proposal has been adopted and will have no
effect for the purpose of determining whether a director has been elected.
Unless otherwise instructed, proxies solicited by the Company will be voted
"FOR" the nominees named herein for election as directors, "FOR" the approval of
an amendment to the Company's Certificate of Incorporation to change the name of
the Company, "FOR" the approval of an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock that the Company
is authorized to issue from 120,000,000 to 200,000,000, and "FOR" the
ratification of the selection of Ernst & Young to provide audit services to the
Company for the fiscal year ending March 31, 1999.
New York Stock Exchange Rules ("NYSE Rules") generally require that when
shares are registered in street or nominee name, its member brokers must receive
specific instructions from the beneficial owners in order to vote on certain
proposals. However, the NYSE Rules do not require specific instructions in order
for a broker to vote on the election of directors. If a member broker indicates
on the proxy that such broker does not have discretionary authority as to
certain shares to vote on any proposal that does require specific instructions,
those shares will not be considered as present and entitled to vote with respect
to that matter. Pursuant to Delaware law, a broker non-vote will not be treated
as present or voting in person or by proxy on the proposal. A broker non-vote
will have no effect for the purpose of determining whether a director has been
elected.
A stockholder giving a proxy has the power to revoke it at any time before
it is exercised by giving written notice of revocation to the Secretary of the
Company, by executing a subsequent proxy, or by attending the Annual Meeting
1
<PAGE> 6
and, having notified the Secretary in writing of revocation, voting in person.
Subject to any such revocation, all shares represented by properly executed
proxies will be voted in accordance with the specifications on the enclosed
proxy card.
ELECTION OF DIRECTORS
The Company's bylaws state that the Board of Directors shall consist of
not less than four nor more than seven members. The specific number of Board
members within this range is established by the Board of Directors and is
currently set at four. A vacancy was created on or about June 1997 with the
resignation of Michael Joe from the Board of Directors. Since the Company has
yet to recruit a suitable replacement for Mr. Joe, a Board of three directors
with one vacancy, will be elected at the Annual Meeting. Unless otherwise
instructed, proxy holders will vote the proxies received by them for the
Company's three nominees named below. In the event that any nominee of the
Company is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who shall be designated by
the present Board of Directors to fill the vacancy. In no event will proxies be
voted for a greater number of persons than the number of nominees named. It is
not expected that any nominee will be unable or will decline to serve as a
director. The term of office of each person elected as a director will continue
until the next annual meeting of stockholders and such time as his or her
successor is fully elected and qualified or until his or her earlier
resignation, removal or death. The nominees have supplied the following
background information to the Company:
<TABLE>
<CAPTION>
Name Age Principal Occupation Director Since
- ------ --- -------------------- --------------
<S> <C> <C> <C>
Elwood G. Norris 60 Chairman of the Board since 1988
and Chief Technology Officer of
the Company since 1995 1998
Alfred H. Falk 43 President since 1997 and
Chief Executive officer of
the Company since 1998 1997
Robert Putnam 40 Vice President and Secretary of the 1995
Company since 1988
</TABLE>
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE ABOVE NOMINEES.
MANAGEMENT
Set forth below is certain information with respect to each of the
nominees for the office of director, each director whose term of office will
continue after the Annual Meeting and each executive officer of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Elwood G. Norris 60 Chairman of the Board and Chief Technology Officer
Alfred H. Falk 43 President, Chief Executive Officer and Director
Robert Putnam 40 Vice President, Secretary and Director
Renee Warden 34 Controller
</TABLE>
Elwood G. Norris - Mr. Norris has been Chairman of the Board of Directors
of the Company since 1988. From 1988 to October 1995, he was President and Chief
Executive Officer. In October 1995 he was appointed Chief Technology Officer and
from January 1997 to July 1998 served again as Chief Executive Officer. Since
1980, Mr. Norris has also been a director of American Technology Corporation
("ATC") and served as its President and Chief Executive Officer until February
1994. He is currently Chief Technology Officer of ATC. ATC is a publicly held
consumer electronic products company, from which the Company acquired JABRA
Corporation ("JABRA"). Since August 1989, he has served as director of Patriot
Scientific Corporation ("Patriot") and served as Chairman and Chief Executive
Officer until June 1994. From June 1995 until June 1996 when he was reappointed
Chairman, Mr. Norris served as temporary President and Chief Executive Officer
of Patriot. Patriot is a public company engaged in the development of
microprocessor technology, digital modem products and radar and antenna
engineering. He invented the
2
<PAGE> 7
patented EarPHONE technology owned by JABRA and is the primary inventor of the
Company's digital recording technology. Mr. Norris devotes only part-time
services to the Company, approximately twenty hours per week.
Alfred H. Falk - Mr. Falk was appointed President and a director of the
Company in January 1997. On July 1, 1998 he was also appointed as Chief
Executive Officer. From March, 1995, prior to his appointment as President, he
served as Vice President, Business Development and Vice President of OEM and
International Sales of the Company. Before joining the Company, Mr. Falk was
with Resources Internationale where he served as Director of U.S. Sales from
1993 to 1995. From 1988 to 1993, Mr. Falk was the Manager of OEM Sales and
Technology Licensing for Personal Computer Products, Inc. in San Diego. From
1978 to 1988 Mr. Falk held several management positions at DH Technology and was
instrumental in its successful start up. Mr. Falk attended Palomar College in
San Marcos and Foothill College in Los Altos, California.
Robert Putnam - Mr. Putnam was appointed Secretary of the Company in March
1988, and Vice President in April 1993. He was appointed a director of the
Company in 1995. He served as a director of ATC from 1984 to September 1997 and
served as Secretary/Treasurer until February 1994, President and Chief Executive
Officer from February 1994 to September 1997 and currently serves as Vice
President, Treasurer and Assistant Secretary of ATC. He has also served as
Secretary/Treasurer and a director of Patriot since 1989. Mr. Putnam obtained a
B.A. degree in mass communications/advertising from Brigham Young University in
1983. Mr. Putnam devotes only part-time services to the Company, approximately
ten hours per week.
Renee Warden - Ms. Warden was appointed Controller of the Company in June
1997. From November 1991 to June 1997 she was Accounting Manager for the
Company. Since 1993 she has attended Palomar College and most recently the
accounting program at the University of Phoenix, San Diego.
For information concerning beneficial ownership of Common Stock by
directors and executive officers, see "Security Ownership of Certain Beneficial
Owners and Management" below. The Board of Directors met three times during
fiscal 1997, which meetings each director then in office attended. The Board of
Directors also took action on nine occasions by means of written consent in lieu
of a meeting after informal discussions, as permitted by law, each member of the
Board participated in those discussions, and the actions by written consent were
unanimous.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND
COMMITTEES OF THE BOARD OF DIRECTORS
COMMITTEES OF THE BOARD
As of the date of this Proxy Statement, the Board of Directors has no
formal standing Audit, Compensation or Nominating Committee. These functions
during fiscal 1998 were performed by the entire Board of Directors.
DIRECTOR COMPENSATION
Standard Compensation - The Company has no other arrangements to pay any
direct or indirect remuneration to any directors of the Company in their
capacity as directors other than in the form of reimbursement of expenses for
attending directors' or committee meetings.
Stock Options - Directors have received in the past and may receive in the
future stock options pursuant to the Company's stock option plans. No options
were issued to non-employee directors during the fiscal year ended March 31,
1998.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth for the years ended March 31, 1998, 1997
and 1996, the cash compensation of the Chief Executive Officer. No person who
served as an Executive Officer of the Company during the fiscal year ended March
31, 1998 received total salary and bonus in excess of $100,000.
3
<PAGE> 8
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Name and Fiscal Other Options All Other
Principal Position Year Salary Bonus Annual (# of Shares) Compensation
- ------------------ ---- ------ ----- ------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Elwood G. Norris, Chairman 1998 $ 68,666 -0- -0- 1,457,500(2) -0-
and Chief Executive 1997 $105,788 -0- -0- -0- $ 5,940(3)
Officer(1) 1996 $163,500 -0- -0- 400,000(4) -0-
</TABLE>
(1) In September 1995, the Company entered into an employment
agreement with Elwood G. Norris, the Company's Chief Executive
Officer. The employment agreement provides for payment of a base
salary of $115,000 per year until October 31, 1997, when the
base salary automatically increased 10% per year. The employment
agreement, which terminates on September 30, 1999, further
provides that Mr. Norris (or his estate) shall continue to
receive his base salary for a period of not longer than twelve
months in the event Mr. Norris is unable to fulfill his duties
due to mental or physical disabilities or death. Under terms of
the employment agreement, Mr. Norris also is entitled to
participate in the Company's bonus pool and health insurance
plan. From time to time, Mr. Norris has waived certain
compensation due him under this employment agreement. There are
no deferred amounts payable to Mr. Norris.
(2) A total of 250,000 of these options were voluntarily canceled
during fiscal 1998 to allow warrant exercise by holders of
certain Prepaid Warrants, as hereinafter defined.
(3) Represents bonus paid by issuance of 10,000 shares of Common
Stock valued at $5,940.
(4) These options were voluntarily canceled during fiscal 1998 to
allow warrant exercise by Prepaid Warrant holders. Mr. Norris
also canceled an additional 107,500 options granted in previous
years.
On July 1, 1998 Mr. Fred Falk was appointed as Chief Executive Officer.
OPTION GRANTS
Shown below is further information on grants of stock options to the
Named Executive Officers reflected in the Summary Compensation Table shown
above.
OPTION GRANTS FOR FISCAL YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Percent of Total
Number of Options Granted Exercise Expiration
Name Options Granted to Employees in Fiscal Year Price Date
---- --------------- --------------------------- ----- ----
<S> <C> <C> <C> <C>
Elwood G. Norris 700,000(1) 23% $0.0875 6/20/2002
757,500 25% $0.0875 3/18/2003
</TABLE>
(1) A total of 250,000 of these options were voluntarily canceled
during the 1998 fiscal year to allow warrant exercise by prepaid
warrant holders. On March 18, 1998 the balance of these options
for 450,000 shares, originally set at an exercise price of
$0.15625 per share were reset to $0.0875 per share. A total of
50% of these shares vest and become exercisable on June 20, 1998
and the balance on June 20, 1999.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
There were no options exercised by the Named Executive Officers during
the fiscal year ended March 31, 1998. The following table provides information
on unexercised options at March 31, 1998:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options At In-the-Money Options At
March 31, 1998 March 31, 1998
-------------- --------------
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Elwood G. Norris 757,500(1) 450,000(1) $-0- $-0-
</TABLE>
(1) The last sale price at March 31, 1998 was $0.084 per share.
4
<PAGE> 9
The Company has not awarded stock appreciation rights to any employee of
the Company and has no long-term incentive plans, as that term is defined in
Securities and Exchange Commission regulations. The Company has no defined
benefit or actuarial plans covering any person.
On March 18, 1998, the Board of Directors repriced an aggregate of
1,539,684 stock options previously granted to a total of 17 employees and others
on June 20, 1997 from an exercise price of $0.15625 per share to an exercise
price of $0.0875 per share. Included in this repricing were options on 450,000
shares granted to Mr. Norris as described above. The Board of Directors repriced
the options on the basis of the decline in market price and the need to provide
incentives to engineering and other personnel remaining with the Company during
its restructuring. The management and engineering team are critical to the
completion of the development agreements with Lanier Worldwide, Inc. ("Lanier")
and Intel Corporation ("Intel") and the pursuit of other business. The
California market in general and the San Diego County market in particular are
extremely competitive markets for technical and engineering personnel and in
lieu of large salary increases, the Board of Directors determined that a
repricing of the options was appropriate in the circumstances.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following security ownership information is set forth, as of
December 11, 1998, with respect to certain persons or groups known to the
Company to be beneficial owners of more than 5% of the Company's outstanding
Common Stock and with respect to each director of the Company, each of the
executive officers named in the Summary Compensation Table currently employed by
the Company, and all current directors, nominees and executive officers as a
group (four persons). Other than as set forth below, the Company is not aware of
any other person who may be deemed to be a beneficial owner of more than 5% of
the Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME SHARES OWNED OF CLASS
<S> <C> <C>
Elwood G. Norris 3,434,838 (1) 5.0%
Robert Putnam 965,000 (2) 1.4%
Alfred H. Falk 815,158 (3) 1.2%
Gross Foundation, Inc. 3,817,111 (4) 5.5%
Madison Trading, Inc. 4,291,629 (5) 6.2%
All officers and directors
as a group (4 persons) 5,229,496 (6) 7.5%
* Less than 1%
</TABLE>
(1) Includes 225,300 shares owned by ATC as a result of Mr. Norris'
28% beneficial ownership of ATC and options exercisable within
60 days to purchase 1,175,000 shares and warrants to purchase
1,500,000 shares. Excludes unvested options to purchase 225,000
shares.
(2) Includes options exercisable within 60 days to purchase 425,000
shares and warrants to purchase 500,000 shares. Excludes
unvested options to purchase 75,000 shares.
(3) Consists entirely of options exercisable within 60 days.
Excludes unvested options to purchase 184,842 shares.
(4) Consists of 3,772,877 shares issuable on exercise of Prepaid
Warrants at December 11, 1998 and 44,234 shares held of record
as reported by the Company's transfer agent. The Company has no
information regarding any other beneficial holdings of shares by
such holder.
(5) Consists of 3,951,629 shares issuable on exercise of Prepaid
Warrants at December 11, 1998 and 340,000 shares held of record
as reported by the Company's transfer agent. The Company has no
information regarding any other beneficial holdings of shares by
such holder.
(6) Includes options exercisable within 60 days to purchase
2,429,158 shares, warrants to purchase 2,000,000 shares and the
225,300 shares owned by ATC and attributable to Mr. Norris.
The above table does not include ownership of over 5% of the Company's
outstanding Common Stock that may beneficially exist by holders of Prepaid
Warrants, convertible debt or Preferred Stock exercisable into Common Stock. The
Company has no current information regarding the beneficial holdings of such
holders, other than described above,
5
<PAGE> 10
and has not been advised by any holders, other than the Gross Foundation, Inc.,
that they beneficially own more than 5% of the Company's Common Stock.
PREFERRED STOCK
The following security ownership information is set forth as of December
11, 1998, with respect to certain persons or groups known to the Company to be
beneficial owners of more than 5% of the Company's outstanding Series A
Redeemable Convertible Preferred Stock, the only class of Preferred Stock
outstanding. At the record date there were 92,500 shares of Series A Redeemable
Convertible Preferred Stock issued and outstanding. Other than as set forth
below, the Company is not aware of any other person who may be deemed to be a
beneficial owner of more than 5% of the Company's Preferred Stock.
<TABLE>
<CAPTION>
Amount and Votes
Nature of Entitled
Beneficial Percent of to Cast At
Name and address of Beneficial Owner Ownership (1) Class Meeting (2)
- ------------------------------------ ------------- ----- -----------
<S> <C> <C> <C>
CCL PACIFIC LTD 20,000 21.6% 2,285,714
David Chang, director (3)
1005A Lippo Tower
89 Queensway, Central, Hong Kong
TAISHIN COMPANY (HONG KONG) LTD 15,000 16.2% 1,714,286
Bunsei Ko, director (3)
Room 605 Central Building
No. 1 Pedder Street, Central, Hong Kong
CANUSA TRADING LTD 7,500 8.1% 857,143
W.A. Manuel, director (3)
37 Reid Street, 2nd Flr., Armoury Bldg.
Hamilton, Bermuda
NEO OPTICS LTD 7,500 8.1% 857,143
Douglas Tufts, director (3)
1600-555 Burrard Street
Vancouver, B.C. V7X1S6 Canada
PARIL HOLDING 6,500 7.0% 742,857
Josef Goldenberg, director (3)
137 Martastrasse
Zurich 8040 Switzerland
R. KIRK AVERY 5,000 5.4% 571,429
6121 Vista de la Mesa
La Jolla, California 92037
JERRY E. POLIS FAMILY TRUST 5,000 5.4% 571,429
Jerry E. Polis, Trustee (3)
3188 Bel Air Drive
Las Vegas, Nevada 89109
BARBARA C. ROEMER 5,000 5.4% 571,429
7175 Eads Avenue
La Jolla, California 92037
TIA LTD. 5,000 5.4% 571,429
David Roberts, director (3)
1600-555 Burrard Street
Vancouver, B.C. V7X1S6 Canada
ARCADIA MUTUAL FUND INC. 5,000 5.4% 571,429
Nancy Lake, President (3)
55 Frederick Street
Box CB 13029
Nassau, Bahamas
</TABLE>
6
<PAGE> 11
(1) Represents number of shares of Preferred Stock, $.001 par value, held as
of December 11, 1998. At such date an aggregate of 92,500 shares of
Preferred Stock were issued and outstanding entitled to cast 10,571,428
votes in the aggregate.
(2) Represents the number of votes the holder is entitled to cast at the
meeting with the common stockholders and preferred stockholders voting
as a single class. However with respect to the matter of the proposed
amendment to the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock only the common stockholders
shall be entitled to vote and the preferred stockholders shall not vote
on this matter.
(3) The Company believes that the representative named has the authority to
vote the shares on behalf of the preferred stockholder.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Act")
requires the Company's officers, directors and persons who own more than 10% of
a class of the Company's securities registered under Section 12(g) of the Act to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than 10% shareholders are
required by Securities and Exchange Commission regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on a review of copies of such reports furnished to the
Company and written representations that no other reports were required during
the fiscal year ended March 31, 1998, the Company believes that all persons
subject to the reporting requirements pursuant to Section 16(a) filed the
required reports on a timely basis with the SEC, except as follows: Form 4's,
each reporting one item, for a March 1998 transaction was filed late with the
April 1998 report by Robert Putnam, Alfred H. Falk and Elwood G. Norris.
CERTAIN TRANSACTIONS
Elwood Norris, Chairman and Chief Technology Officer of the Company, is
also a director of ATC. He is the beneficial owner of 2,934,634 shares of ATC
(representing approximately 28% of its issued and outstanding capital) and
Robert Putnam, the Vice President/Secretary and a director of the Company is
also Vice President, Treasurer and Assistant Secretary of ATC. He is the
beneficial owner of 420,000 shares of ATC (representing approximately 4% of its
issued and outstanding shares).
Commencing July 11, 1997 the Company jointly leased with ATC an
aggregate of 12,925 square feet of engineering office space at 13114 Evening
Creek Drive South, San Diego, California of which the Company occupies
approximately 5,500 square feet at a cost of $6,800 per month. From April 1,
1996 to July 1, 1997, the Company provided approximately 2,407 square feet of
space at the Company's 12725 Stowe Drive, Poway, California facility and certain
support services to ATC at the rate of $3,095 per month. As of September 30,
1997, the Stowe Drive lease was terminated. The Company believes that the terms
of these arrangements are no less favorable than could be obtained from an
independent and unaffiliated party.
Certain conflicts of interest now exist and will continue to exist
between the Company and its officers and directors due to the fact that they
have other employment or business interests to which they devote some attention
and they are expected to continue to do so. The Company has not established
policies or procedures for the resolution of current or potential conflicts of
interest between the Company and its management or management-affiliated
entities. There can be no assurance that members of management will resolve all
conflicts of interest in the Company's favor. The officers and directors are
accountable to the Company as fiduciaries, which means that they are legally
obligated to exercise good faith and integrity in handling the Company's
affairs. Failure by them to conduct the Company's business in its best interests
may result in liability to them.
Officer and director Robert Putnam also acts as Treasurer and Secretary
of Patriot where he ultimately reports to the Board of Directors of which Mr.
Norris is Chairman. Mr. Putnam is also Vice President, Treasurer and Assistant
Secretary of ATC, a company effectively controlled by Mr. Norris. The
possibility exists that these other relationships could affect Mr. Putnam's
independence as a director of the Company. The Company has not provided a method
of resolving this conflict and probably will not do so, partly due to inevitable
extra expenses and delay any measures would occasion. Mr. Norris and Mr. Putnam
are obligated to perform their duties in good faith and to act in the best
interest of the Company and its stockholders, and any failure on their part to
do so may constitute a breach of their fiduciary duties and expose them to
damages and other liability under applicable law. While the directors and
officers are excluded from
7
<PAGE> 12
liability for certain actions, there is no assurance that Mr. Norris or Mr.
Putnam would be excluded from liability or indemnified if they breached their
loyalty to the Company.
On June 12, 1998, the Company granted Mr. Norris a stock purchase
warrant to purchase 1,500,000 shares of Common Stock at $0.10 per share until
June 12, 2003 in consideration of Mr. Norris providing a limited personal
guarantee (consisting of up to 200,000 shares of ATC stock owned by Mr. Norris)
to facilitate the offering and sale by the Company of the 12% Convertible
Promissory Notes, as hereinafter defined. The Company also granted to Mr. Putnam
a stock purchase warrant to purchase 500,000 shares at $0.10 per share until
June 12, 2003 in consideration of Mr. Putnam providing purchasers of the Notes
an option to purchase up to 25,000 shares of ATC stock owned by him. The Company
believes the Company would have been unable to obtain the Note financing without
the inducement provided by Mr. Norris and Mr. Putnam.
APPROVAL OF AMENDMENT OF THE CERTIFICATE OF
INCORPORATION OF THE COMPANY TO CHANGE
THE NAME OF THE COMPANY
In November 1998, the Company's Board of Directors adopted a resolution
approving, subject to the approval of the stockholders, an amendment to the
Company's Certificate of Incorporation to change the name of the Company from
Norris Communications, Inc. to e.Digital Corporation. The Board of Directors
directed that the proposed amendment be submitted to a vote of stockholders at
the Annual Meeting. The Board of Directors believes this action is beneficial to
the Company because the name "Norris Communications, Inc." does not accurately
reflect the nature of the Company's business as presently conducted, or its
present emphasis.
The Board of Directors unanimously approved the following amendment to
the Certificate of Incorporation which would repeal the former Article FIRST and
substitute the new Article FIRST as follows:
"FIRST: The name of this corporation is e.Digital Corporation."
Because the Company primarily conducts its business through its
wholly-owned subsidiary, Norris Communications, Inc., a California corporation,
the Board of Directors intends, upon approval of this amendment, to effect a
comparable name change (e.Digital Corporation) for the California subsidiary.
Management believes that the Company will incur minimal costs to inform
interested parties of the name change for the Company and its operating
subsidiary, since the Company conducts its business with a limited number of
customers and vendors.
Under Delaware law, the consent of the holders of a majority of the
outstanding voting shares will be required to approve the amendment to the
Company's Certificate of Incorporation to effect the name change. The shares of
Preferred Stock will be entitled to vote with the shares of Common Stock on this
amendment.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT OF THE
COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO
"E.DIGITAL CORPORATION" AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS
PROPOSAL.
APPROVAL OF AMENDMENT OF THE CERTIFICATE OF
INCORPORATION OF THE COMPANY TO INCREASE
THE AUTHORIZED SHARES OF COMMON STOCK
In January 1998, the shareholders approved an increase in the number of
shares of Common Stock that the Company is authorized to issue from 60,000,000
to 120,000,000 shares. The Company's Certificate of Incorporation has been
amended to effect this change. Management believed at that time that increase
would be sufficient to meet its immediate future needs. However, due in part to
delays in the planned shipments of products under the OEM (Original Equipment
Manufacturer) and development agreement with Lanier, expansion of the business
in preparation for the Intel development agreement and continued operating
losses, the Company required additional financing which was completed in June
1998. (See 12% Convertible Promissory Notes described below). This financing
required the reservation of substantially all of the authorized but unissued
shares of Common Stock. As a result, in November 1998, the Board of Directors
authorized an amendment, subject to stockholder approval, to the Company's
Certificate of Incorporation; to
8
<PAGE> 13
increase the number of shares of Common Stock that the Company is authorized to
issue from 120,000,000 to 200,000,000.
The Board of Directors considers it both desirable and essential to have
additional shares of Common Stock available for issuance from time-to-time. The
Board also advises stockholders that failure to approve the amendment could have
a material adverse effect on the Company, its business and results of
operations.
OUTSTANDING SHARES; SHARES RESERVED FOR FUTURE ISSUANCE; AND SHARES TO BE
RESERVED OR ISSUABLE UPON THE INCREASE IN AUTHORIZED SHARES
As of December 11, 1998, the Company had 65,645,656 shares of Common Stock
outstanding. An additional 54,045,353 shares were reserved for future issuance
under the Company's stock option grants and pursuant to convertible securities,
options and warrants as summarized below:
<TABLE>
<CAPTION>
Authorized Common
Shares Reserved
For Future Issuance
<S> <C>
Outstanding Stock Option Grants 4,538,000
Stock Purchase Warrants 4,861,768
Prepaid Warrants 8,578,370
12% Convertible Secured Notes and related
warrants issuable on conversion 10,285,714
Series A Stock Preferred Stock 13,049,509
12% Convertible Promissory Notes 12,731,992
----------
Total Unissued but Reserved for Issuance 54,045,353
==========
</TABLE>
Accordingly, the Company has either outstanding or reserved an aggregate
of 119,691,009 of the 120,000,000 authorized shares of Common Stock. The
shareholders have authorized up to 10,000,000 shares to be granted under the
1994 Stock Option Plan, as amended, which requires 5,566,000 additional shares
be available for exercise of any future grants. The Company does not presently
have sufficient authorized shares to grant any significant new stock options or
for any other corporate purpose.
The actual shares issuable for the outstanding securities listed above
could be more or less depending upon a variety of factors. For example the
shares issuable for certain securities increase over time. Accordingly early
exercise, prior to maturity, would reduce the shares issued from the amounts
specified above. Also a number of stock purchase warrants are exercisable at
prices significantly in excess of current market prices, making future exercise
unlikely unless there is a dramatic increase in the market price of the
Company's shares of Common Stock.
The Company cannot issue any significant additional shares of Common
Stock at this time other than through the exercise of shares reserved for
options and other warrants. The Company is limited in its options to raise
additional money, make acquisitions or take any other action requiring the
issuance of its Common Stock unless the authorized number of shares of Common
Stock is increased. Management anticipates the need for additional financing due
to continued operating losses.
More information on the individual securities comprising shares reserved
for future issuance are summarized as follows:
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 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 10,000,000 shares, as amended and approved
by shareholders on July 25, 1996 and January 5, 1998. The 1994
Plan provides for the granting of options which either qualify
for treatment as incentive stock options or non-statutory stock
options.
9
<PAGE> 14
At December 11, 1998 the Company had options on 104,000 shares of
Common Stock outstanding under the 1992 Stock Option Plan and
options on 4,434,000 shares of Common Stock outstanding under the
1994 Stock Option Plan, as amended. The Board of Directors has
not and does not intend, at the present time, to reserve shares
for issuance under the 1992 Stock Option Plan. The Board of
Directors has been unable to reserve the balance of 5,566,000
shares of Common Stock available and approved by the stockholders
for grant under the 1994 Stock Option Plan due to insufficient
authorized shares. This limits the ability of the Company to
grant options to compensate existing or hire new technical,
management or other employees or advisors.
Stock Purchase Warrants - At December 11, 1998 the Company had
stock purchase warrants outstanding exercisable into 4,861,768
shares, which have been reserved by the Board of Directors. See
the discussion on 12% Secured Notes for details on additional
warrants issuable upon exercise of the Notes.
<TABLE>
<CAPTION>
Number of Exercise Price
Shares U.S.$ Expiration Date
------ ---- ---------------
<S> <C> <C> <C>
33,750 4.00 June 1999
450,000 1.75 July 1999
82,100 4.00 August 1999
20,570 0.25 February 2000
25,000 0.25 March 2000
27,500 0.25 March 2001
571,429 0.0875 June 2001
571,428 0.0875 July 2001
401,924 0.25 July 2001
400,000 0.25 August 2001
150,000 0.15625 October 2001
2,000,000 0.10 June 2003
128,067 0.25 October 2005
----------
4,861,768
==========
</TABLE>
Prepaid Warrants - In June-August 1996, the Company sold warrants
("Prepaid Warrants") with a face value of $3,805,900. Through
December 11, 1998, Prepaid Warrant holders exercised Prepaid
Warrants with a face value of $3,267,792 into 38,029,341 shares
of Common Stock (inclusive of penalties and discounts).
The balance of the remaining three Prepaid Warrants outstanding
at December 11, 1998 was $538,108 (face value). These Prepaid
Warrants are exercisable, without further cash payment, into
shares of the Common Stock of the Company at $0.0875 per share
subject to certain adjustments. In determining the number of
shares of Common Stock to be issued upon exercise, the Company
adjusts the face value of the Prepaid Warrants upward to reflect
penalties and the 7% annual discount. The adjusted value of the
Prepaid Warrants was approximately $710,000 at December 11, 1998
and exercise at that date would have required the issuance of
8,110,833 shares of Common Stock. The Prepaid Warrants expire in
January 2000, at which time they convert to shares of Common
Stock if not previously converted. Assuming the Prepaid Warrant
holders hold to term, the Company will be required to issue
8,578,370 shares of Common Stock at that time. This represents
the shares reserved by the Board of Directors for issuance
pursuant to the Prepaid Warrants.
The fixed exercise price of $0.0875 per share may be adjusted
down (i) to 80% of the market price following certain changes in
the Company's Common Stock including a reverse stock split, and
(ii) to the price at which new securities are issued if at a
price below $0.0875 per share.
Secured Promissory Notes with Warrants on Conversion - In June
1997, the Company issued $500,000 of 12% secured promissory notes
("Secured Notes") for cash with the proceeds used to assist the
Company to complete its financial restructuring. Interest is
payable quarterly in cash and the Secured Notes are due on
September 30, 1999. The Secured Notes are collateralized by the
10
<PAGE> 15
Company's issued and pending patents and the FlashBack(R)
technology. The Secured Notes are convertible at the lowest
conversion price of the Prepaid Warrants, which is currently
fixed at $0.0875 per share. Upon a distribution in shares,
subdivision, split-up, combination, reclassification or other
change in the Common Stock the conversion price of the Secured
Notes is the lesser of $0.0875 (or lower amount effective at the
time) or 70% of the average closing bid price of the Common Stock
for the 20 trading days after each such event.
The $450,000 of Secured Notes are currently convertible into
5,142,857 shares of Common Stock. The Company may force
conversion of the Secured Notes if the closing bid price of the
Company's Common Stock is greater than $0.75 per share for ten
(10) consecutive days and certain other conditions are met. Upon
conversion, the Company is obligated to issue to each holder a
warrant exercisable into the number of shares so converted at the
conversion price, such warrants exercisable for a period of three
years from issuance. Accordingly, the Company has reserved
5,142,857 additional shares for issuance of the shares underlying
these warrants for an aggregate of 10,285,714 shares reserved for
the Secured Promissory Notes and related warrants.
Series A Redeemable Convertible Preferred Stock - In September
1997, the Company filed a Certificate of Designation of
Preferences, Rights and Limitations of Series A Redeemable
Convertible Preferred Stock with the Delaware Secretary of State,
designating 100,000 shares of its Preferred Stock ("Series A
Stock"). A total of 99,500 shares of Series A Stock were sold for
cash at $10.00 per share for gross proceeds of $995,000.
The Series A Stock has voting rights equal to the number of
shares of Common Stock into which the Series A Stock is
convertible. Dividends of 8% per annum are cumulative and may be
payable in cash or shares of Common Stock, at the Company's
election. The Series A Stock has a liquidation preference of
$10.00 per share, plus accrued and unpaid dividends, with no
participation after the preference is paid.
The Series A Stock is convertible into shares of Common Stock
computed by dividing $10.00 plus accrued and unpaid dividends by
the lesser of (i) $0.0875 or (ii) 80% of the average closing bid
price for the Common Stock for the ten (10) trading days
immediately following any and each distribution in shares,
subdivision, split up, combination, reclassification, or other
change in Common Stock.
The Company is required to redeem the Series A Stock on September
1, 2000 ("Mandatory Redemption Date") and upon the occurrence of
certain other events. The Company may redeem the Series A Stock
earlier at its option. The redemption price is $10.00 per share
plus accrued and unpaid dividends.
Based on the 92,500 shares of Series A Stock outstanding, at
December 11, 1998 the Series A Stock was convertible into
11,589,794 shares of Common Stock. Assuming the Series A Stock is
held to term (September 1, 2000) the number of shares issuable,
based on the conversion terms currently in effect, is 13,049,509.
This represents the shares reserved by the Board of Directors for
issuance pursuant to the Series A Stock.
12% Convertible Promissory Notes - In May and June of 1998, the
Company completed the sale of $1,000,000 of 12% Convertible
Promissory Notes with Limited Guaranty ("Notes") due May 15,
1999. The Notes and interest are currently convertible into
shares of Common Stock at $0.0875 per share. At December 11, 1998
the Notes and interest was convertible into 12,149,606 shares of
Common Stock. Assuming the Notes are held to maturity and the
Notes and interest are converted into the maximum shares
issuable, a total of 12,731,992 shares of Common Stock would be
issued. This represents the shares reserved by the Board of
Directors for issuance pursuant to the 12% Convertible Promissory
Notes.
Upon a distribution in shares, subdivision, split-up,
combination, reclassification or other change in the Common Stock
the conversion price of the Convertible Promissory Notes is the
lesser of
11
<PAGE> 16
$0.0875 (or lower amount effective at the time) or 80% of the
average closing bid price of the Common Stock for the 20 trading
days after each such event.
The actual shares issuable for outstanding securities could be more or
less depending upon a variety of factors. (see paragraphs below for additional
discussion of the consequences of failure to authorize such shares).
Accordingly, upon approval of the proposed amendment, and assuming no other
changes other than the reservation of 5,566,000 shares for ungranted stock
options under the 1994 Stock Option Plan, the Company would have 65,645,656
shares of Common Stock outstanding with a total of 59,611,353 shares reserved
for future issuance. This would leave a balance of 74,742,991 authorized,
unreserved shares available for future issuance at the discretion of the Board
of Directors. Other than as set forth above, the Company has no contractual
commitments to issue securities to existing stockholders or others.
REASONS FOR THE INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
In addition to meeting the requirements of having sufficient shares of
Common Stock for the Company's 1994 Stock Option Plan as described in the
preceding paragraphs, the Board of Directors believes there are also a number of
important business reasons for increasing the number of shares of Common Stock
available.
The authorized number of shares of Common Stock are not sufficient to
enable to the Company to negotiate new financing without special consideration
for the lack of authorized shares available. For example, an equity based
financing would have to provide for limitations on conversion based on the
availability of sufficient shares of Common Stock. This factor places the
Company at a distinct disadvantage in negotiating any future transactions by
negatively impacting pricing and marketability of securities sold, as a result
this could increase the effective dilution to existing stockholders.
The authorized number of shares of Common Stock currently available is
not sufficient to enable the Company to respond to potential business
opportunities and to pursue important objectives that may be anticipated.
Accordingly, the Board of Directors believes that it is in the Company's best
interests to increase the number of authorized shares of Common Stock. The Board
of Directors also believes that the availability of such shares will provide the
Company with the flexibility to issue Common Stock for proper corporate purposes
that may be identified by the Board of Directors from time to time, such as
stock dividends (including stock splits in the form of stock dividends),
financings, acquisitions, or strategic business relationships.
Further, the Board of Directors believes the availability of additional
shares of Common Stock will help enable the Company to attract and retain
talented employees through the grant of stock options and other stock-based
incentives. An important component of the Company's business strategy is to
develop and market new products and technologies. These efforts will require
recruitment of additional technical personnel which are in high demand and short
supply in the San Diego area. The availability of stock-based incentives is a
critical element in attracting, motivating and retaining technical and executive
talent.
The Company does not, as of the date of this Proxy Statement, have any
agreements with respect to future acquisitions that would require the issuance
of shares of the Company's Common Stock.
The Board of Directors believes the availability of authorized but
unissued Common Stock can be of considerable value. Because of the Company's
existing contractual requirements and its current financial condition, the
unavailability of authorized but unissued Common Stock could have a material
adverse impact on the Company and its business.
CONSEQUENCES OF FAILURE TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK
The Board of Directors believes that the Company could be at a
disadvantage in negotiating the terms of any required fundings due to the lack
of sufficient shares of Common Stock. The Board of Directors also believes it
may be unable to retain existing technical personnel or attract new technical
personnel without an increase in the authorized shares. The uncertainty
regarding the availability of shares of Common Stock, the Company's losses and
lack of collateral makes the prospects of future financings unlikely without
additional authorized Common Stock.
EFFECT OF AMENDMENT ON EXISTING STOCKHOLDERS
The increase of authorized shares of Common Stock will not alter the par
value of the Common Stock or the rights of stockholders.
12
<PAGE> 17
Authorized but unissued shares may be issued at such time or times, to
such person or persons and for such consideration as the Board of Directors
determines to be in the best interests of the Company, without further
authorization from the Company except as may be required by the rules of any
stock exchange or national securities association trading system on which the
Common Stock may be listed or traded. Upon issuance, such shares will have the
same rights as the outstanding shares of Common Stock. The authorization of
additional shares of Common Stock will not, by itself, have any effect on the
rights of holders of existing shares. Depending on the circumstances, issuance
of additional shares of Common Stock could result in substantial dilution of the
existing stockholders' ownership interests in the Company. The Board of
Directors does not intend to issue any shares of Common Stock except to meet its
obligations and on terms which the Board deems to be in the best interests of
the Company and its then existing stockholders. The stockholders do not have
pre-emptive rights to purchase additional shares of Common Stock nor will they
have any such rights as a result of this proposal.
VOTE REQUIRED; BOARD RECOMMENDATION
The approval of the Amendment to the Certificate of Incorporation
requires the affirmative vote of a majority of the outstanding shares of Common
Stock on the record date. THEREFORE, FAILURE TO VOTE HAS THE SAME EFFECT AS A
NEGATIVE VOTE. The shares of Preferred Stock shall not be entitled to vote on
this matter.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK
AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
INDEPENDENT PUBLIC ACCOUNTANTS
For the 1998 fiscal year, Ernst & Young provided audit services which
included examination of the Company's annual financial statements, timely review
of unaudited quarterly financial information and assistance and consultation in
connection with the Company's registration statements on Form S-3 filed with the
Securities and Exchange Commission. Audit services were provided with the
approval of the Board of Directors which, among other things, considered the
independence of the public accountants. Arrangements for non-audit services, if
any, are made by management with the knowledge of the Board of Directors. Upon
the recommendations of the Audit Committee, the Board has selected Ernst & Young
to provide audit services to the Company for the fiscal year ending March 31,
1999. The stockholders are being requested to ratify such selection at the
Annual Meeting.
FINANCIAL AND OTHER INFORMATION
The Company's Annual Report on Form 10-KSB for the year ended March 31,
1998, including the annual statements, as filed with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, constitutes the annual
report to shareholders and is being mailed with this Proxy Statement. Also
accompanying this Proxy Statement is the Company's quarterly report on Form
10-QSB for the second fiscal quarter ended September 30, 1998.
UPON REQUEST AND PAYMENT OF A REASONABLE FEE TO COVER THE COMPANY'S
EXPENSES, THE COMPANY WILL FURNISH ANY PERSON WHO WAS A STOCKHOLDER OF THE
COMPANY AS OF THE RECORD DATE, A COPY OF ANY EXHIBIT TO THE FORM 10-KSB FOR THE
FISCAL YEAR ENDED MARCH 31, 1998. ANY SUCH WRITTEN REQUEST MAY BE ADDRESSED TO
ROBERT PUTNAM, SECRETARY, NORRIS COMMUNICATIONS, INC., 13114 EVENING CREEK DRIVE
SOUTH, SAN DIEGO, CALIFORNIA 92128. THE WRITTEN REQUEST MUST CONTAIN A GOOD
FAITH REPRESENTATION THAT, AS OF THE RECORD DATE, THE PERSON MAKING THE REQUEST
WAS THE BENEFICIAL OWNER OF COMMON STOCK OF THE COMPANY.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR
1999 ANNUAL MEETING
Any proposal relating to a proper subject which an eligible stockholder
may intend to present for action at the Company's 1999 Annual Meeting of
Stockholders and which such stockholder may wish to have included in the proxy
material for such meeting in accordance with the provisions of Rule 14a-8
promulgated under the Exchange Act must be received as far in advance of the
meeting as possible in proper form by the Secretary of the Company at 13114
Evening Creek Drive South, San Diego, California 92128 and in any event not
later than July 31, 1999. It is suggested that any such proposal be submitted by
certified mail, return receipt requested.
13
<PAGE> 18
OTHER BUSINESS OF THE ANNUAL MEETING
Management is not aware of any matters to come before the Annual Meeting
or any postponement or adjournment thereof other than the election of directors,
amending the Company's Certificate of Incorporation to increase the authorized
shares of Common Stock and to change the name of the Company and the
ratification of accountants. However, inasmuch as matters of which Management is
not now aware may come before the meeting or any postponement or adjournment
thereof, the proxies confer discretionary authority with respect to acting
thereon, and the persons named in such proxies intend to vote, act and consent
in accordance with their best judgment with respect thereto, provided that, to
the extent the Company becomes aware a reasonable time before the Annual Meeting
of any matter to come before such meeting, the Company will provide an
opportunity to vote by proxy directly on such matter and, further provided that,
only proxies voting for approval of the amendments to the Plan and Certificate
of Incorporation may be voted to adjourn the meeting. Upon receipt of such
proxies in time for voting, the shares represented thereby will be voted as
indicated thereon and as described in this Proxy Statement.
MISCELLANEOUS
The solicitation of proxies is made on behalf of the Company and all the
expenses of soliciting proxies from stockholders will be borne by the Company.
In addition to the solicitation of proxies by use of the mails, officers and
regular employees may communicate with stockholders personally or by mail,
telephone, telegram, or otherwise for the purpose of soliciting such proxies,
but in such event no additional compensation will be paid to any such persons
for such solicitation. The Company may also elect to engage a proxy solicitation
firm to assist in the solicitation of proxies and such firm may be compensated
for their efforts on behalf of the Company. The Company anticipates that a proxy
solicitation firm can be retained on a fixed fee basis for an amount not to
exceed $10,000. The Company will reimburse banks, brokers and other nominees for
their reasonable out-of-pocket expenses in forwarding soliciting material to
beneficial owners of shares held of record by such persons.
By Order of the Board of Directors
/s/ ALFRED H. FALK
Alfred H. Falk
San Diego, California President and Chief Executive Officer
December 15, 1998
14
<PAGE> 19
NORRIS COMMUNICATIONS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 12, 1999
The undersigned stockholder of Norris Communications, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated December 11, 1998, and hereby
appoints Elwood G. Norris, Alfred H. Falk and Robert Putnam, and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
1998 Annual Meeting of Stockholders of Norris Communications, Inc., to be held
on January 12, 1999, at 2:00 p.m., local time, at the Rancho Bernardo Inn,
located at 17550 Bernardo Oaks Drive, San Diego, California 92128, and at any
adjournment thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below:
1. ELECTION OF DIRECTORS:
_____ FOR all nominees listed below ____ WITHHOLD AUTHORITY to vote
(except as indicated) for all nominees listed below
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the following list:
ELWOOD G. NORRIS, ALFRED H. FALK AND ROBERT PUTNAM.
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO "e.DIGITAL
CORPORATION".
___ FOR ___ AGAINST ___ ABSTAIN
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK, $.001
PAR VALUE, THAT THE COMPANY IS AUTHORIZED TO ISSUE FROM 120,000,000 TO
200,000,000.
___ FOR ___ AGAINST ___ ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG, AS THE INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING MARCH 31, 1999:
___ FOR ___ AGAINST ___ ABSTAIN
and, in their discretion, upon such other matter or matters that may properly
come before the meeting or any adjournment thereof.
(Continued on reverse side)
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This proxy will be voted as directed or, if no contrary direction and no
abstention is indicated, will be voted "FOR" the nominees named herein for
election as directors, "FOR" the approval of an amendment to the Company's
Certificate of Incorporation to change the name of the Company, "FOR" the
approval of an amendment to the Company's Certificate of Incorporation to
increase the number of shares of Common Stock that the Company is authorized to
issue from 120,000,000 to 200,000,000, "FOR" the ratification of the selection
of Ernst & Young to provide audit services to the Company for the fiscal year
ending March 31, 1999, and as said proxies deem advisable on such other matters
as may properly come before the meeting. The telephone number of the company is
(619) 679-1504 and its facsimile number is (619) 486-3922.
DATED: , 19___
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Signature
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Signature
(This Proxy should be marked, dated and
signed by the stockholder(s) exactly as
his or her name appears hereon, and
returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity
should so indicate. If shares are held by
joint tenants or as community property, both
should sign).
NORRIS COMMUNICATIONS, INC.
13114 EVENING CREEK DRIVE SOUTH, SAN DIEGO, CALIFORNIA 92128
TELEPHONE - (619) 679-1504
FACSIMILE - (619) 486-3922
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