-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UdhFPx7NYnI0X9EiwmWY1uc4xjnG3ltOsN6CBNrz4sURrFpBCCu3AhaolIfpgFMB e8FtD7Jbq6eMeNDwOVbgLg== 0000936392-96-000392.txt : 19960724 0000936392-96-000392.hdr.sgml : 19960724 ACCESSION NUMBER: 0000936392-96-000392 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960628 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORRIS COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000886328 STANDARD INDUSTRIAL CLASSIFICATION: 3679 IRS NUMBER: 330591385 STATE OF INCORPORATION: A0 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20734 FILM NUMBER: 96588787 BUSINESS ADDRESS: STREET 1: 12725 STOWE DRIVE CITY: POWAY STATE: CA ZIP: 92064 BUSINESS PHONE: 6196791504 10KSB 1 FORM 10-KSB DATED MARCH 31, 1996 1 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. 2 TABLE OF CONTENTS PAGE ---- 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 3 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 3 4 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 4 5 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 5 6 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. 6 7 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. 7 8
(Stated in United States dollars per share) High Low 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
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 8 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 9 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 10 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. 11 12 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. 12 13 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. 13 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. 14 15 *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 16 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 17 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 18 NORRIS COMMUNICATIONS CORP. Continued under the laws of the Yukon Territory, Canada CONSOLIDATED BALANCE SHEETS (EXPRESSED IN U.S. DOLLARS) As at March 31 1996 1995 $ $ - - --------------------------------------------------------------------------------------------- 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 ==============================================================================================
See accompanying notes On behalf of the Board: Director Director F-2 19 NORRIS COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (EXPRESSED IN U.S. DOLLARS) Year ended March 31 As at March 31 1996 1995 $ $ - - --------------------------------------------------------------------------------------------- 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) =============================================================================================
See accompanying notes F-3 20 NORRIS COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (EXPRESSED IN U.S. DOLLARS) Year ended March 31
Common stock ------------------------------- Contributed Accumulated Shares Amount surplus deficit # $ $ $ - - ---------------------------------------------------------------------------------------------------------------------------- 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) ============================================================================================================================
See accompanying notes F-4 21 NORRIS COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (EXPRESSED IN U.S. DOLLARS) Year ended March 31
1996 1995 $ $ - - ---------------------------------------------------------------------------------------------------------------------------- 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 ============================================================================================================================
See accompanying notes F-5 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 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:
1996 1995 $ $ - - ------------------------------------------------------------------------------ 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 ==============================================================================
F-7 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:
1996 1995 ---- ---- $ $ - - ------------------------------------------------------------------------------- Common stock 19,005,688 14,905,737 Contributed surplus -- -- Accumulated deficit (19,157,616) (11,024,337) ===============================================================================
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 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 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 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:
1996 1995 $ $ - - ------------------------------------------------------------------------------------ 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 -- -- ====================================================================================
F-11 28 NORRIS COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN U.S. DOLLARS) March 31, 1996 and 1995 6. INVENTORY
1996 1995 $ $ - - --------------------------------------------------------------- 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 ===============================================================
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 29 NORRIS COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN U.S. DOLLARS) March 31, 1996 and 1995 7. PROPERTY AND EQUIPMENT
ACCUMULATED DEPRECIATION AND NET BOOK COST AMORTIZATION VALUE $ $ $ - - ----------------------------------------------------------------------------------------------- 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 ===============================================================================================
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 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 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:
1996 1995 $ $ - - ------------------------------------------------------------------------------ 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 -- -- ==============================================================================
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 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:
Liability Method --------------------- 1996 1995 % % ---- ---- 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 -- -- ===== =====
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:
$ --------- 1998 9,300 2002 1,102,900 2003 969,300 --------- 2,081,500 =========
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 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:
1996 1995 - - ------------------------------------------------------------------ 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 ==================================================================
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 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:
NUMBER OF EXERCISE PRICE WARRANTS $ EXPIRATION DATE - - -------------------------------------------------------------------------------- 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 ================================================================================
* 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 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:
OPERATING CAPITAL LEASES LEASES $ $ - - ------------------------------------------------------------------------------ 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 -------------------------------------------------------------------------- -- ==============================================================================
F-19 36 NORRIS COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN U.S. DOLLARS) March 31, 1996 and 1995 13. CONVERTIBLE NOTES PAYABLE
1996 1995 $ $ - - ------------------------------------------------------------------------------ 7% convertible notes payable, due March 1999 3,000,000 -- ==============================================================================
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 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 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 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) 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. 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. 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. EX-4.11 2 FORM OF WARRANT AGREEMENT 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. 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. 2 3 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. 3 4 (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 4 5 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 5 6 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. 6 7 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 7 EX-10.18.1 3 RELEASE AND TERMINATION OF RIGHT OF FIRST REFUSAL 1 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. 1 2 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 EX-10.20 4 EMPLOYMENT AGREEMENT DATED SEPTEMBER 12, 1995 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. 1 2 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. 2 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 EX-10.21 5 EMPLOYMENT AGREEMENT 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. 1 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 EX-10.22 6 EMPLOYMENT AGREEMENT DATED AUGUST 1, 1995 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 1 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 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 EX-10.23 7 EMPLOYMENT AGREEMENT DATED JANUARY 11, 1996 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. 1 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 ------------------- 2 EX-10.24 8 PLACEMENT AGREEMENT DATED APRIL 16, 1996 1 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 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 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 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 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. 5 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 6 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 7 8 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 8 EX-10.25 9 FORM OF REGISTRATION RIGHTS AGREEMENT 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. 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. 2 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. 3 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 4 5 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 5 6 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 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 EX-11.1 10 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 NORRIS COMMUNICATIONS CORP. EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the 12 Months Ended March 31, 1996 Primary Fully Diluted - - -------------------------------------- ------- ------------- 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) =============================== 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) ==============================
(1) - Common Stock Equivalents (CSE) would have an antidilutive effect, thus the CSE were excluded from the EPS computation. EX-21.1 11 LIST OF SUBSIDIARIES 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) EX-23.1 12 CONSENT OF ERNST & YOUNG, INDEPENDENT ACCOUNTANTS 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 EX-27.1 13 FINANCIAL DATA SCHEDULE
5 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. YEAR MAR-31-1996 APR-01-1995 MAR-31-1996 2,843,540 0 106,266 11,647 3,243,245 6,407,840 2,885,604 1,525,813 7,817,144 5,351,811 3,000,000 0 0 21,762,337 1,592,316 7,817,144 1,328,502 1,328,502 4,413,814 4,623,137 236,636 0 356,429 (8,267,543) 0 (8,267,543) 0 0 0 (8,267,543) (0.63) (0.63)
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