Exhibit 10(ey)
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of July 23, 2004,
by and among NCT Group, Inc., a Delaware corporation (the "Company"), and each
of the subscribers identified on the signature pages hereto (each a "Subscriber"
and collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase $900,000 (the "Purchase Price") of principal amount of 8% secured
promissory notes of the Company ("Note" or "Notes") convertible into shares of
the Company's common stock, $.01 par value (the "Common Stock") at a per share
conversion price equal to the lesser of $0.0232 or eighty percent (80%) of the
average of the closing bid prices of the Common Stock as reported by Bloomberg
L.P. for the OTC Bulletin Board ("Bulletin Board") for the five trading days
preceding but not including the Conversion Date, as defined in Section 7.1(b) of
this Agreement ("Conversion Price"); and share purchase warrants (the
"Warrants") to purchase shares of Common Stock (the "Warrant Shares"). The
Conversion Price is subject to adjustment as described in the Note and this
Agreement. The Notes, shares of Common Stock issuable upon conversion of the
Notes (the "Shares"), the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1. Closing. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the Closing Date, each Subscriber shall
purchase and the Company shall sell to each Subscriber a Note in the principal
amount designated on the signature page hereto. The aggregate amount of the
Notes to be purchased by the Subscribers on the Closing Date shall, in the
aggregate, be equal to the Purchase Price. The "Closing Date" shall be the date
that Subscriber funds representing the net amount due the Company from the
Purchase Price of the Offering is transmitted by wire transfer or otherwise to
or for the benefit of the Company.
2. Escrow Arrangements; Form of Payment. Upon execution hereof by the
parties and pursuant to the terms of the Escrow Agreement, each Subscriber
agrees to make the deliveries required of such Subscriber as set forth in the
form of Escrow Agreement annexed hereto as Exhibit A and the Company agrees to
make the deliveries required of the Company as set forth in the Escrow
Agreement.
3. Warrants. On the Closing Date, the Company will issue Warrants to the
Subscribers in the form of Exhibit B hereto. 13.88888889 Warrants will be issued
for each one dollar ($1.00) of Purchase Price paid on the Closing Date
("Warrants"). The per Warrant Share exercise price to
acquire a Warrant Share upon exercise of a Warrant shall be$0.0232. The Warrants
will be exercisable for five (5) years after the Closing Date.
4. Subscriber's Representations and Warranties. Each Subscriber hereby
represents and warrants to and agrees with the Company as to such Subscriber
that:
(a) Information on Company. The Subscriber and its advisors have been
furnished with or have obtained from the XXXXX website of the Commission
the Company's Form 10-K for the year ended December 31, 2003 as filed with
the Commission, together with all subsequently filed Forms 10-Q, 8-K, and
all other filings made with the Commission available at the XXXXX website
including filings under the 1933 Act (hereinafter referred to collectively
as the "Reports"). In addition, the Subscriber has received in writing from
the Company such other information concerning its operations, financial
condition and other matters as the Subscriber has requested in writing,
including by email (such other information is collectively, the "Other
Written Information"), and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities.
(b) Information on Subscriber. The Subscriber is, and will be at the
time of the conversion of the Notes and exercise of any of the Warrants, an
"accredited investor", as such term is defined in Regulation D promulgated
by the Commission under the 1933 Act, is experienced in investments and
business matters, has made investments of a speculative nature and has
purchased securities of United States publicly-owned companies in private
placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable
the Subscriber to utilize the information made available by the Company to
evaluate the merits and risks of and to make an informed investment
decision with respect to the proposed purchase, which represents a
speculative and high risk investment. The Subscriber has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Notes
and Warrants. The Subscriber has the authority and is duly and legally
qualified to purchase and own the Securities. The Subscriber is able to
bear the risk of such investment for an indefinite period and to afford a
complete loss thereof. The Subscriber has adequate means of providing for
its current needs and foreseeable financial contingencies. The information
set forth on the signature page hereto regarding the Subscriber is
accurate.
(c) Purchase of Notes and Warrants. On Closing Date, the Subscriber
will purchase the Notes and Warrants as principal for its own account and
not with a view to any distribution thereof.
(d) Compliance with the 1933 Act. The Subscriber understands and
agrees that the Securities have not been registered under the 1933 Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in
part on the accuracy of the representations and warranties of Subscriber
contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration.
(e) Shares Legend. The Shares and the Warrant Shares shall bear the
following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND MAY NOT BE SOLD,
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OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO NCT GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT."
(f) Warrants Legend. The Warrants shall bear the following
or similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT OR ANY APPLICABLE STATE SECURITIES
LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO NCT
GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT."
(g) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES
ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO NCT GROUP,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER SAID ACT."
(h) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated offer.
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(i) Authority; Enforceability. This Agreement, the Escrow Agreement
and other agreements delivered together with this Agreement or in
connection herewith have been duly authorized, executed and delivered by
the Subscriber and are valid and binding agreements enforceable in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity; and Subscriber has full corporate or company
power and authority necessary to enter into and deliver this Agreement and
such other agreements and to perform its obligations hereunder and under
all other agreements entered into by the Subscriber relating hereto.
(j) No Governmental Review. The Subscriber understands that no United
States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities, or the fairness or suitability of the investment in the
Securities, nor have such authorities passed upon or endorsed the merits of
the offering of the Securities.
(k) No Broker Commissions or Finder Fees. To the best of its
knowledge, the Subscriber has taken no action which would give rise to any
claim by any person for brokerage commissions, finders' fees or the like
relating to this Agreement or the transactions contemplated hereby except
as described in Section 8 hereof.
(l) Conflicts. To the best knowledge of Subscriber, the execution,
delivery and performance of this Agreement by the Subscriber and the
consummation by the Subscriber of the transactions contemplated hereby will
not (i) conflict with or violate its organizational charters or by-laws, or
(ii) conflict with or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Subscriber is a party.
(m) Correctness of Representations. Each Subscriber represents as to
such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and will be true and correct as of the
Closing Date.
(n) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of two years.
5. Company Representations and Warranties. The Company represents and
warrants to and agrees with each Subscriber that:
(a) Due Incorporation. Each of the Company and Artera Group, Inc. is a
corporation duly organized, validly existing and in good standing under the
laws of the respective jurisdictions of their incorporation and have the
requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and Artera Group, Inc.
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by each of them makes such qualification necessary, other
than those jurisdictions in which the failure to so qualify would not have
a material adverse effect on the business, operations or financial
condition of the Company or Artera Group, Inc.
(b) Outstanding Stock. All issued and outstanding shares of capital
stock of the Company and Artera Group, Inc. have been duly authorized and
validly issued and are fully paid and non-assessable.
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(c) Authority; Enforceability. This Agreement, the Notes, the
Warrants, the Escrow Agreement and any other agreements delivered together
with this Agreement or in connection herewith (collectively "Transaction
Documents") have been duly authorized, executed and delivered by the
Company and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general
principles of equity. The Company has full corporate power and authority
necessary to enter into and deliver the Transaction Documents and to
perform its obligations thereunder.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of
the Company or other equity interest in any of the subsidiaries of the
Company except as described on Schedule 5(d).
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates, the American Stock Exchange, the
National Association of Securities Dealers, Inc., Nasdaq, SmallCap Market,
Bulletin Board nor the Company's shareholders is required for the execution
by the Company of the Transaction Documents and compliance and performance
by the Company of its obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the Securities,
except for approval of the Company's shareholders to increase the
authorized common stock of the Company.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither
the issuance and sale of the Securities nor the performance of the
Company's obligations under this Agreement and all other agreements entered
into by the Company relating hereto will:
(i) violate, conflict with, result in a breach of, or constitute
a default (or an event which with the giving of notice or the lapse of
time or both would be reasonably likely to constitute a default) under
(A) the articles or certificate of incorporation, charter or bylaws of
the Company, (B) to the Company's knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to
the Company of any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or any of its subsidiaries or
over the properties or assets of the Company or any of its affiliates,
(C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which
the Company or any of its affiliates or subsidiaries is a party, by
which the Company or any of its affiliates or subsidiaries is bound,
or to which any of the properties of the Company or any of its
affiliates or subsidiaries is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its affiliates or
subsidiaries is a party except the violation, conflict, breach, or
default of any of the foregoing, which would not have a material
adverse effect on the Company; or
(ii) result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company,
its subsidiaries or any of its affiliates; or
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(iii) result in the activation of any anti-dilution rights or a
reset or repricing of any debt or security instrument of any other
creditor or equity holder of the Company, nor result in the
acceleration of the due date of any obligation of the Company; or
(iv) result in the activation of any piggy-back registration
rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The Securities. The Securities:
(i) upon issuance are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to
restrictions upon transfer under the 1933 Act and any applicable state
securities laws;
(ii) as of the Availability Date set forth in Section 9(f) of
this Agreement, will be duly and validly authorized and on the date of
conversion of the Notes, and upon exercise of the Warrants, the Shares
and Warrant Shares, will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and if
resold pursuant to an effective registration statement will be free
trading and unrestricted, provided that each Subscriber complies with
the prospectus delivery requirements of the 1933 Act and other
applicable state law requirements);
(iii) upon issuance, will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of
any securities of the Company; and
(iv) upon issuance, will not subject the holders thereof to
personal liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over
the Company, or any of its affiliates, that would affect the execution by
the Company of or the performance by the Company of its obligations under
this Agreement, and all other agreements entered into by the Company
relating hereto. Except as disclosed in the Reports, or Schedule 5(h)
hereto, there is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates, which litigation if adversely determined
could have a material adverse effect on the Company.
(i) Reporting Company. The Company is a publicly-held company subject
to reporting obligations pursuant to Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and has a
class of common shares registered pursuant to Section 12(g) of the 1934
Act. Pursuant to the provisions of the 1934 Act, the Company has timely
filed all reports and other materials required to be filed thereunder with
the Commission during the preceding twelve months.
(j) No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation
of the price of the common stock of the Company to (A) facilitate the sale
or resale of the Securities, or (B) affect the price at which the
Securities may be issued or resold.
(k) Information Concerning Company. The Reports contain all material
information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements included
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in the Reports, and except as modified in the Other Written Information, in
this Agreement or in the Schedules hereto, there has been no material
adverse change in the Company's business, financial condition or affairs
not disclosed in the Reports. The Reports do not contain any untrue
statement of a 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 when made.
(l) Stop Transfer. The Securities, when issued, may be restricted
securities. The Company will not issue any stop transfer order or other
order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities
laws and unless contemporaneous notice of such instruction is given to the
Subscriber.
(m) Defaults. The Company is not in violation of its Certificate of
Incorporation or ByLaws. Except as disclosed in the Reports and on Schedule
5(m), the Company is (i) not in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or
any of its properties are bound or affected, which default or violation
would have a material adverse effect on the Company, (ii) not in default
with respect to any order of any court, arbitrator or governmental body or
subject to or party to any order of any court or governmental authority
arising out of any action, suit or proceeding under any statute or other
law respecting antitrust, monopoly, restraint of trade, unfair competition
or similar matters, or (iii) to its knowledge not in violation of any
statute, rule or regulation of any governmental authority which violation
would have a material adverse effect on the Company.
(n) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers
to buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the 1933 Act or any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of the Bulletin Board. Nor will the Company or any of its
affiliates or subsidiaries take any action or steps that would cause the
offer of the Securities to be integrated with other offerings. The Company
will not conduct any offering other than the transactions contemplated
hereby that will be integrated with the offer or issuance of the
Securities.
(o) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 0000 Xxx) in connection with
the offer or sale of the Securities.
(p) Listing. The Company's common stock is quoted on the Bulletin
Board. The Company has not received any oral or written notice that its
common stock is not eligible nor will become ineligible for quotation on
the Bulletin Board nor that its common stock does not meet all requirements
for the continuation of such quotation and the Company satisfies and as of
the Closing Date, the Company will satisfy all the requirements for the
continued quotation of its common stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are
not disclosed in this Agreement, the Reports and Other Written Information,
other than those incurred in the ordinary course of the Company's
businesses since December 31, 2003 and which, individually or in the
aggregate, would reasonably be expected to have a material adverse effect
on the Company's financial condition, other than as set forth in Schedule
5(q).
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(r) No Undisclosed Events or Circumstances. Since December 31, 2003,
no event or circumstance has occurred or exists with respect to the Company
or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been
so publicly announced or disclosed in the Reports.
(s) Capitalization. The authorized and outstanding capital stock of
the Company as of the date of this Agreement and the Closing Date are set
forth on Schedule 5(s). Except as set forth on Schedule 5(d), there are no
options, warrants, or rights to subscribe to securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. All of the
outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and nonassessable.
(t) Dilution. The Company's executive officers and directors have
studied and fully understand the nature of the Securities being sold hereby
and recognize that they have a potential dilutive effect on the equity
holdings of other holders of the Company's equity or rights to receive
equity of the Company. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance of the Securities
is in the best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Shares upon conversion of the
Note and exercise of the Warrants is binding upon the Company and
enforceable, except as otherwise described in this Subscription Agreement
or the Note or Warrant, regardless of the dilution such issuance may have
on the ownership interests of other shareholders of the Company or parties
entitled to receive equity of the Company.
(u) Investment Company. The Company is not, and is not an Affiliate
(as defined in Rule 405 under the 0000 Xxx) of an "investment company" as
defined in Section 3(a)(1) of the Investment Company Act of 1940, as
amended.
(v) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the
date hereof and will be true and correct as of the Closing Date.
(w) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of two years.
6. Regulation D Offering. The offer and issuance of the Securities to the
Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the Closing Date,
the Company will provide an opinion reasonably acceptable to Subscriber from the
Company's legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscribers substantially
in the form annexed hereto as Exhibit C. The Company will provide, at the
Company's expense, subject to the other provision of this Agreement pertaining
to legal opinion in specified circumstances, such other legal opinions in the
future as are reasonably necessary for the resale of the Common Stock and
exercise of the Warrants and resale of the Warrant Shares.
7.1. Conversion of Note.
(a) Upon the "Conversion" of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action, including
obtaining and delivering, an opinion of
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counsel to assure that the Company's transfer agent shall issue stock
certificates in the name of Subscriber (or its nominee) or such other
persons as designated by Subscriber and in such denominations to be
specified at conversion representing the number of shares of Common Stock
issuable upon such conversion. The Company warrants that no instructions
other than these instructions have been or will be given to the transfer
agent of the Company's Common Stock and that, unless waived by the
Subscriber, the Shares will be free-trading, and freely transferable, and
will not contain a legend restricting the resale or transferability of the
Shares provided the Shares are being sold pursuant to an effective
registration statement covering the Shares or are otherwise exempt from
registration.
(b) Subscriber will give notice of its decision to exercise its right
to convert the Note or part thereof by telecopying an executed and
completed Notice of Conversion (a form of which is annexed as Exhibit A to
the Note) to the Company pursuant to Section 12(a) of this Agreement. The
Subscriber will not be required to surrender the Note until the Note has
been fully converted or satisfied. Each date on which a Notice of
Conversion is telecopied to the Company in accordance with the provisions
hereof shall be deemed a "Conversion Date". The Company will itself or
cause the Company's transfer agent to transmit the Company's Common Stock
certificates representing the Shares issuable upon conversion of the Note
to the Subscriber via courier for receipt by such Subscriber within five
(5) business days after receipt by the Company of the Notice of Conversion
(the "Delivery Date"). In the event the Shares are electronically
transferable, then delivery of the Shares must be made by electronic
transfer provided request for such electronic transfer has been made by the
Subscriber. A Note representing the balance of the Note not so converted
will be provided by the Company to the Subscriber if requested by
Subscriber, provided the Subscriber delivers an original Note to the
Company. To the extent that a Subscriber elects not to surrender a Note for
reissuance upon partial payment or conversion, the Subscriber hereby
indemnifies the Company against any and all loss or damage attributable to
a third-party claim in an amount in excess of the actual amount then due
under the Note.
(c) The Company understands that a delay in the delivery of the Shares
in the form required pursuant to Section 7 hereof, or the Mandatory
Redemption Amount described in Section 7.2 hereof, beyond the Delivery Date
or Mandatory Redemption Payment Date (as hereinafter defined) could result
in economic loss to the Subscriber. As compensation to the Subscriber for
such loss, the Company agrees to pay to the Subscriber for late issuance of
Shares in the form required pursuant to Section 7 hereof upon Conversion of
the Note the amount of $100 per business day after the Delivery Date for
each $10,000 of Note principal amount being converted, of the corresponding
Shares which are not timely delivered. The Company shall pay any payments
incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to
the Subscriber, in the event that the Company fails for any reason to
effect delivery of the Shares by the Delivery Date or make payment by the
Mandatory Redemption Payment Date, the Subscriber will be entitled to
revoke all or part of the relevant Notice of Conversion or rescind all or
part of the notice of Mandatory Redemption by delivery of a notice to such
effect to the Company whereupon the Company and the Subscriber shall each
be restored to their respective positions immediately prior to the delivery
of such notice, except that late payment charges described above shall be
payable through the date notice of revocation or rescission is given to the
Company.
(d) Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require
the payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus
refunded to the Company.
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(e) In the event the Shares issuable upon Conversion of a Note or part
thereof are not included for resale in an effective registration statement
at any time when such Shares are required to be so included pursuant to the
terms of this Agreement, then the Subscriber may elect, at the Subscriber's
sole discretion, to receive an amount of restricted Shares equal to the
amount of Shares otherwise receivable upon Conversion in lieu of the Shares
otherwise receivable pursuant to the relevant Notice of Conversion.
7.2. Mandatory Redemption at Subscriber's Election. In the event the
Company is prohibited from issuing Shares, or fails to timely deliver Shares on
a Delivery Date, or upon the occurrence of any other Event of Default (as
defined in the Note or in this Agreement) or for any reason other than pursuant
to the limitations set forth in Section 7.3 hereof, then at the Subscriber's
election, the Company must pay to the Subscriber ten (10) business days after
request by the Subscriber, at the Subscriber's election, a sum of money
determined by (i) multiplying up to the outstanding principal amount of the Note
designated by the Subscriber by one hundred and twenty percent (120%), or (ii)
multiplying the number of Shares otherwise deliverable upon conversion of an
amount of Note principal and/or interest designated by the Subscriber (with the
date of giving of such designation being a Deemed Conversion Date) at the then
Conversion Price that would be in effect on the Deemed Conversion Date by the
highest closing price of the Common Stock on the Principal Market (as defined in
Section 9(b) below) for the period commencing on the Deemed Conversion Date
until the day prior to the receipt of the Mandatory Redemption Payment,
whichever is greater, together with accrued but unpaid interest thereon
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding.
7.3. Maximum Conversion. The Subscriber shall not be entitled to convert on
a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of common stock beneficially owned by the Subscriber and its affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
provision is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its affiliates of more than 9.99% of the
outstanding shares of common stock of the Company on such Conversion Date. For
the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to
the foregoing, the Subscriber shall not be limited to aggregate conversions of
only 9.99% and aggregate conversions by the Subscriber may exceed 9.99%. The
Subscriber shall have the authority and obligation to determine whether the
restriction contained in this Section 9.3 will limit any conversion hereunder
and to the extent that the Subscriber determines that the limitation contained
in this Section applies, the determination of which portion of the Notes are
convertible shall be the responsibility and obligation of the Subscriber. The
Subscriber may void the conversion limitation described in this Section 7.3 upon
and effective after 61 days prior written notice to the Company. The Subscriber
may allocate which of the equity of the Company deemed beneficially owned by the
Subscriber shall be included in the 9.99% amount described above and which shall
be allocated to the excess above 9.99%.
7.4. Injunction - Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof or exercise the Warrant in whole or in part, the
Company may not refuse conversion or exercise based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been
engaged in any violation of law, or for any other reason, unless an injunction
from a court, on notice, restraining and/or enjoining conversion of all or part
of said Note or exercise of all or part of said
10
Warrant shall have been sought and obtained and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 130% of the amount of
the Note, or aggregate purchase price of the Warrant Shares which are subject to
the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment.
7.5. Buy-In. In addition to any other rights available to the Subscriber,
if the Company fails to deliver to the Subscriber such shares issuable upon
conversion of a Note by the Delivery Date and if ten (10) days after the
Delivery Date the Subscriber purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Subscriber of the Common Stock which the Subscriber was entitled to receive upon
such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
7.6 Adjustments. The Conversion Price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants shall be adjusted to offset
the effect of stock splits, stock dividends, pro rata distributions of property
or equity interests to the Company's shareholders.
7.7. Redemption. The Company may not call or redeem a Note without the
consent of the holder of a Note.
8. Legal Fee/Escrow Agent and Finder's Fee.
(a) Legal Fee/Escrow Agent. The Company shall pay to Grushko &
Xxxxxxx, P.C., a fee of $15,000 ("Legal Fees") as reimbursement for
services rendered in connection with this Agreement and the purchase and
sale of the Notes and the Warrants (the "Offering") and acting as Escrow
Agent for the Offering. The Legal Fees will be payable out of funds held
pursuant to the Escrow Agreement.
(b) Finder's Fee. The Company on the one hand, and each Subscriber
(for himself only) on the other hand, agree to indemnify the other against
and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees other than Libra Finance,
S.A. and Bi-Coastal Consulting Corp. (each a "Finder") on account of
services purported to have been rendered on behalf of the indemnifying
party in connection with this Agreement or the transactions contemplated
hereby and arising out of such party's actions. The Company agrees that it
will pay the Finders a fee equal to 10% of the Purchase Price ("Finder's
Fees"). The Company represents that there are no other parties entitled to
receive finder's fees, commissions, or similar payments in connection with
the Offering except the Finders. The Finder's Fees will be allocated
between the finders as set forth on Schedule 8 hereto.
(c) The Finder's Fees payable to the Finders in connection with the
Purchase Price shall be payable by delivery on the Closing Date of Notes
identical in form to the Notes issuable to
11
the Subscribers. The Notes deliverable in payment of Finder's Fees is
referred to as "Finder's Notes." All the representations, covenants,
warranties, undertakings, remedies, liquidated damages, indemnification,
and other rights including but not limited to registration rights made or
granted to or for the benefit of the Company and Subscribers are hereby
also made and granted respectively to the Company and Finders in respect of
the Finder's Notes and Shares issuable upon conversion of the Finder's
Notes. References to Note or Notes herein shall include the Finder's Notes
and references to Shares shall include Shares issuable upon conversion of
the Finder's Notes. Notwithstanding the foregoing, the Finder's Notes shall
be unsecured notes.
9. Covenants of the Company. The Company covenants and agrees with the
Subscribers as follows:
(a) Stop Orders. The Company will advise the Subscribers, promptly
after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order
or of any order preventing or suspending any offering of any securities of
the Company, or of the suspension of the qualification of the Common Stock
of the Company for offering or sale in any jurisdiction, or the initiation
of any proceeding for any such purpose.
(b) Listing. The Company will maintain the listing of its Common Stock
on the American Stock Exchange, Nasdaq SmallCap Market, Nasdaq National
Market System, Bulletin Board, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the
Common Stock (the "Principal Market")), and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws
or rules of the Principal Market, as applicable. The Company shall promptly
upon the issuance thereof secure the listing of the Shares and Warrant
Shares on the Principal Market. The Company will provide the Subscribers
copies of all notices it receives notifying the Company of the threatened
and actual delisting of the Common Stock from any Principal Market. As of
the date of this Agreement and the Closing Date, the Bulletin Board is and
will be the Principal Market.
(c) Market Regulations. The Company shall notify the Commission, the
Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall
take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to Subscribers.
(d) Reporting Requirements. From the date of this Agreement and until
the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to a registration statement or pursuant to Rule 144
under the 1933 Act ("Rule 144"), without regard to volume limitation, the
Company will (w) cause its Common Stock to continue to be registered under
Section 12(b) or 12(g) of the 1934 Act, (x) comply in all respects with its
reporting and filing obligations under the 1934 Act, (y) comply with all
reporting requirements that are applicable to an issuer with a class of
shares registered pursuant to Section 12(b) or 12(g) of the 1934 Act, as
applicable, and (z) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will
use its best efforts not to take any action or file any document (whether
or not permitted by the 1933 Act or the 1934 Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said acts until two (2) years after
the Closing Date. Until the earlier of the resale of the Shares and the
Warrant Shares by each Subscriber or at least two (2) years after the
Warrants have been exercised, the Company will use its best efforts to
continue the listing or quotation of the Common Stock on the Principal
Market (or other market subject to the reasonable consent of Subscribers
holding a majority of the Shares
12
and Warrant Shares), and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market. The Company agrees to file a Form D with respect to the
Securities if required under Regulation D and to provide a copy thereof to
each Subscriber promptly after such filing.
(e) Use of Proceeds. The Company undertakes to use the proceeds of the
Subscribers' funds for working capital.
(f) Reservation of Common Stock. Beginning as of the earliest of (i)
the Company has authorized but unissued shares of Common Stock available,
(ii) three months after the Company's current S-1 registration statement
under review by the Commission with file number 333-60574 (the "Current
Registration Statement") becomes effective or is abandoned, or (iii) August
30, 2004 (such earliest date being the "Availability Date"), the Company
undertakes to reserve, pro rata on behalf of each holder of a Note, from
its authorized but unissued Common Stock, at all times that Notes remain
outstanding, a number of Common Shares equal to not less than 130% of the
amount of Common Shares necessary to allow each such holder to be able to
convert all such outstanding Notes, at the then applicable Conversion Price
(as defined in the Note), and, at all times that Warrants remain
outstanding, one share of Common Stock for each Warrant Share. Failure to
have sufficient shares reserved pursuant to this Section 9(f) for three
consecutive business days or ten days in the aggregate shall be an Event of
Default under the Note.
(g) Taxes. From the date of this Agreement and until the sooner of (i)
two (2) years after the Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without
regard to volume limitations, the Company will promptly pay and discharge,
or cause to be paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any
such tax, assessment, charge or levy need not be paid if the validity
thereof shall be contested in good faith by appropriate proceedings and if
the Company shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that the Company will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor.
(h) Insurance. From the date of this Agreement and until the sooner of
(i) two (2) years after the Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without
regard to volume limitations, the Company will keep its assets which are of
an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company's line of business, in amounts
sufficient to prevent the Company from becoming a co-insurer and not in any
event less than one hundred percent (100%) of the insurable value of the
property insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability
to persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated and to the extent
available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep true records
and books of account in which
13
full, true and correct entries will be made of all dealings or transactions
in relation to its business and affairs in accordance with generally
accepted accounting principles applied on a consistent basis.
(j) Governmental Authorities. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company shall duly observe
and conform in all material respects to all valid requirements of
governmental authorities relating to the conduct of its business or to its
properties or assets.
(k) Intellectual Property. From the date of this Agreement and until
the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall maintain in full
force and effect its corporate existence, rights and franchises and all
licenses and other rights to use intellectual property owned or possessed
by it and reasonably deemed to be necessary to the conduct of its business.
(l) Properties. From the date of this Agreement and until the sooner
of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without
regard to volume limitation, the Company will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted, and
from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at
all times comply with each provision of all leases to which it is a party
or under which it occupies property if the breach of such provision could
reasonably be expected to have a material adverse effect.
(m) Confidentiality/Public Announcement. From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date,
or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement
or pursuant to Rule 144, without regard to volume limitations, except as
may be required in connection with a registration statement filed on behalf
of the Subscribers pursuant to Section 11 of this Agreement or on Form 8-K
or another form filed with the Commission, the Company agrees that it will
not disclose publicly or privately the identity of the Subscribers or
Finders unless expressly agreed to in writing by such Subscriber or Finder
or if required by law as determined by Company's attorneys. In any event
and subject to the foregoing, the Company undertakes to file a Form 8-K,
file an amendment to the Current Registration Statement or make a public
announcement describing the Offering not later than five (5) business days
after the Closing Date, if required by law. In the Form 8-K or public
announcement, if any, the Company will specifically disclose the amount of
common stock outstanding immediately after the Closing. In lieu of making a
public announcement, filing an amendment to the Current Registration
Statement or filing a Form 8-K, the Company may deliver to the Subscribers
a statement from its counsel that knowledge of the occurrence of the
closing of the Offering does not constitute "material non-public
information" as that term is employed in Regulation FD.
(n) Non-Public Information. The Company covenants and agrees that
neither it nor any other person acting on its behalf will provide any
Subscriber or anyone the Company knows to be the Subscriber's agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Subscriber shall have
agreed in writing to receive such information. The Company understands and
confirms that each Subscriber shall be relying on the foregoing covenant in
effecting transactions in securities of the Company.
14
10. Covenants of the Company and Subscriber Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' officers, directors, agents,
affiliates, control persons, and principal shareholders against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable
legal fees) of any nature, incurred by or imposed upon the Subscriber or
any such person which results, arises out of or is based upon (i) any
material misrepresentation by the Company or breach of any warranty by the
Company in this Agreement or in any Exhibits or Schedules attached hereto,
or other agreement delivered pursuant hereto; or (ii) after any applicable
notice and/or cure periods, any breach or default in performance by the
Company of any covenant or undertaking to be performed by the Company
hereunder, or any other agreement entered into by the Company and the
applicable Subscriber relating hereto.
(b) Each Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company's officers, directors, agents,
affiliates, control persons, and principal shareholders against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable
legal fees) of any nature, incurred by or imposed upon the Company or any
such person which results, arises out of or is based upon (i) any material
misrepresentation by such Subscriber in this Agreement or in any Exhibits
or Schedules attached hereto, or other agreement delivered pursuant hereto;
or (ii) after any applicable notice and/or cure periods, any breach or
default in performance by such Subscriber of any covenant or undertaking to
be performed by such Subscriber hereunder, or any other agreement entered
into by the Company and the applicable Subscriber relating hereto.
(c) In no event shall the liability of any Subscriber or permitted
successor hereunder or under any other agreement delivered in connection
herewith be greater in amount than the dollar amount Purchase Price paid by
such Subscriber.
(d) The procedures set forth in Section 11.6 shall apply to the
indemnifications set forth in Sections 10(a) and 10(b) above.
11. Registration Rights.
11.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing December 1, 2004,
but not later than three years after the Closing Date ("Request
Date"), the Company, upon a written request therefor from any record
holder or holders of more than 50% of the Shares issued and issuable
upon conversion of the Notes, Finder's Notes, and actually issued
Warrant Shares, shall prepare and file with the Commission a
registration statement under the 1933 Act covering the Shares, the
Shares issuable upon conversion of the Finder's Notes and Warrant
Shares (collectively "Registrable Securities") which are the subject
of such request. For purposes of Sections 11.1(i) and 11.1(ii),
Registrable Securities shall not include Securities which are
registered for resale in an effective registration statement or
included for registration in a pending registration statement, or
which have been issued without further transfer restrictions after a
sale or transfer pursuant to Rule 144. In addition, upon the receipt
of such request, the Company shall promptly give written notice to all
other record holders of the Registrable Securities that such
registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has
received written requests within 10 days after the Company gives such
written notice. Such other requesting record holders shall be deemed
to have exercised their demand registration right under this Section
11.1(i).
15
(ii) Except for the Current Registration Statement and a
registration statement relating to a private credit agreement between
the Company and Xxxxxxx Road LLC described on Schedule 11.1 hereto
(the "Xxxxxxx Road Equity Line Registration Statement"), if the
Company at any time proposes to register any of its securities under
the 1933 Act for sale to the public, whether for its own account or
for the account of other security holders or both, except with respect
to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the
public, provided the Registrable Securities are not otherwise
registered for resale by the Subscribers or holder pursuant to an
effective registration statement, each such time it will give at least
15 days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the
holder, received by the Company within 10 days after the giving of any
such notice by the Company, to register any of the Registrable
Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the
extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "Seller"). In the event that any registration pursuant
to this Section 11.1(ii) shall be, in whole or in part, an
underwritten public offering of Common Stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the
extent that the Company and the underwriter shall reasonably be of the
opinion that such inclusion would adversely affect the marketing of
the securities to be sold by the Company therein; provided, however,
that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any
registration statement referred to in this Section 11.1(ii) without
thereby incurring any liability to the Seller. Anything to the
contrary herein notwithstanding, the Company will not file with the
Commission a new registration statement on any form available to the
Company (except for the Xxxxxxx Road Equity Line Registration
Statement or Forms S-4 and S-8 or another form not available for
registering the Registrable Securities for sale to the public) nor
amend any such pending registration statement to increase the amount
of securities included therein unless all of the Registrable
Securities are included for registration in such other registration
statement. The Subscribers are hereby deemed to have exercised their
rights under this Section 11.1(ii) in connection with any registration
statement proposed to be filed by the Company until the Company has
complied with its obligations under Section 11.1(iv) of this
Agreement.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 11.1(i), the Company has
determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the
proposed offer and sale for cash of any of its securities for the
Company's own account and the Company actually does file such other
registration statement, such written request shall be deemed to have
been given pursuant to Section 11.1(ii) rather than Section 11.1(i),
and the rights of the holders of Registrable Securities covered by
such written request shall be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission a Form S-1
registration statement (the "Registration Statement") (or such other
form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 1933 Act, and cause
to be declared effective such Registration Statement not later than
November 30, 2004 (the "Effective Date"). The Company will register
not less than a number of shares of common stock in the aforedescribed
registration statement that is equal to 140% of the Shares issuable
upon conversion of the Notes and Finder's Notes, all the Warrant
Shares issuable upon exercise of the Warrants. Subject to Section 9(f)
hereof, the Registrable Securities shall be reserved and set aside
exclusively for the benefit of the holders of the Registrable
Securities, and not issued, employed or reserved for anyone other than
the holders of the Registrable Securities. Such Registration Statement
will immediately be amended or additional registration statements will
be
16
immediately filed by the Company as necessary to register additional
shares of Common Stock to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No
securities of the Company other than the Registrable Securities may be
included in the registration statement described in this Section
11.1(iv) except as disclosed on Schedule 11.1, without the written
consent of Subscriber. It shall be deemed a Non-Registration Event if
at any time after the Effective Date the Company has registered for
unrestricted resale on behalf of the Subscriber fewer than 120% of the
amount of shares of Common Stock issuable upon full conversion and
exercise of all sums due under the Notes, Finder's Notes and Warrants.
(v) As a condition precedent to the inclusion of Registrable
Securities in a registration statement, the holder thereof shall
provide the Company with such information as the Company reasonably
requests.
11.2. Registration Procedures. If and whenever the Company is required by
the provisions of Section 11.1(i), 11.1(ii), or 11.1(iv) to effect the
registration of any shares of Registrable Securities under the 1933 Act, the
Company will, as expeditiously as possible:
(a) subject to the timelines provided in this Agreement, prepare and
file with the Commission a registration statement required by Section 11,
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and
promptly provide to the holders of Registrable Securities copies of all
filings and Commission letters of comment including a notification by
confirmed telecopier of the declaration of effectiveness of any
Registration Statement within twenty-four (24) hours of such effectiveness;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until such registration statement has been effective
for a period of two (2) years, and comply with the provisions of the 1933
Act with respect to the disposition of all of the Registrable Securities
covered by such registration statement in accordance with the Seller's
intended method of disposition set forth in such registration statement for
such period;
(c) furnish to the Seller, at the Company's expense, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller,
provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;
(e) if applicable, list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify the Seller when a prospectus relating thereto
is required to be delivered under the 1933 Act, of the happening of any
event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
17
includes an untrue statement of a 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 the circumstances then
existing; and
(g) provided same would not be in violation of the provision of
Regulation FD under the 1934 Act, make available for inspection by the
Seller, and any attorney, accountant or other agent retained by the Seller
or underwriter, all publicly available, non-confidential financial and
other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
publicly available, non-confidential information reasonably requested by
the seller, attorney, accountant or agent in connection with such
registration statement.
11.3. Provision of Documents. In connection with each registration
described in this Section 11, the Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
11.4. Non-Registration Events. The Company and the Subscribers agree that
the Seller will suffer damages if any registration statement required under
Section 11.1(iv) above is not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(i) or
11.1(ii) is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (i) the registration statement on Form S-1 or such other form
described in Section 11.1(iv) is not declared effective on or before the sooner
of the Effective Date, or within five (5) business days of receipt by the
Company of a written or oral communication from the Commission that the
registration statement will not be reviewed or that the Commission has no
further comments, (ii) if the registration statement described in Sections
11.1(i) or 11.1(ii) is not filed within 60 days after such written request, or
is not declared effective within 120 days after such written request, or (iii)
any registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
is filed and declared effective but shall thereafter cease to be effective
(without being succeeded immediately by an additional registration statement
filed and declared effective) for a period of time which shall exceed 30 days in
the aggregate per year or more than 20 consecutive days (defined as a period of
365 days commencing on the date the registration statement is declared
effective) (each such event referred to in clauses (i), (ii) and (iii) of this
Section 11.4 is referred to herein as a "Non-Registration Event"), then the
Company shall deliver to such holder of Registrable Securities, as "Liquidated
Damages", an amount equal to one percent (1%) for each thirty days on a pro
rated basis, of the Purchase Price of the Notes remaining unconverted and
"Conversion Price" (as defined in the Note) of Shares issued upon conversion of
the Notes and actually paid Exercise Price (as defined in the Warrants) of
Warrant Shares for the Registrable Securities owned of record by such holder as
of and during the pendency of such Non-Registration Event which are subject to
such Non-Registration Event. Payments to be made pursuant to this Section 11.4
shall be payable at the Company's option in cash or by the delivery of
additional Notes identical to the Notes and having the same maturity date as the
Notes, and deliverable within ten (10) business days after the end of each
thirty (30) day period or part thereof. In the event a Mandatory Redemption
Payment is demanded by the Subscriber pursuant to Section 9.2 of this
Subscription Agreement, then the Liquidated Damages described in this Section
11.4 shall no longer accrue on the portion of the Purchase Price underlying the
Mandatory Redemption Payment, from and after the date the Subscriber receives
the Mandatory Redemption Payment.
11.5. Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the
18
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance are called "Registration
Expenses". All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities are called "Selling Expenses". The Company will
pay all Registration Expenses in connection with the registration statement
under Section 11. Selling Expenses in connection with each registration
statement under Section 11 shall be borne by the Seller and may be apportioned
among the Sellers in proportion to the number of shares sold by the Seller
relative to the number of shares sold under such registration statement or as
all Sellers thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities under
the 1933 Act pursuant to Section 11, the Company will, to the extent
permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such
Registrable Securities thereunder and each other person, if any, who
controls such Seller or underwriter within the meaning of the 1933 Act,
against any losses, claims, damages or liabilities, joint or several, to
which the Seller, or such underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable
Securities were registered under the 1933 Act pursuant to Section 11, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon 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 in light of the circumstances when made, and will subject to the
provisions of Section 11.6(c) reimburse the Seller, each such underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such
damages arise out of or are based upon an untrue statement or omission made
in any preliminary prospectus (i) if the Seller failed to send or deliver a
copy of the final prospectus delivered by the Company to the Seller with or
prior to the delivery of written confirmation of the sale by the Seller to
the person asserting the claim from which such damages arise, (ii) if the
final prospectus would have corrected such untrue statement or alleged
untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any
such Seller, or any such underwriter or controlling person in writing
specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller severally
but not jointly will, to the extent permitted by law, indemnify and hold
harmless the Company, and each person, if any, who controls the Company
within the meaning of the 1933 Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter
and each person who controls any underwriter within the meaning of the 1933
Act, against all losses, claims, damages or liabilities, joint or several,
to which the Company or such officer, director, underwriter or controlling
person may become subject under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of
or are based upon 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, and will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other
19
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided,
however, that the Seller will be liable hereunder in any such case if and
only to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
information pertaining to such Seller furnished in writing to the Company
by such Seller specifically for use in such registration statement or
prospectus, and provided, further, however, that the liability of the
Seller hereunder shall be limited to the gross proceeds received by the
Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to
notify the indemnifying party shall not relieve it from any liability which
it may have to such indemnified party other than under this Section 11.6(c)
and shall only relieve it from any liability which it may have to such
indemnified party under this Section 11.6(c), except and only if and to the
extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish,
to assume and undertake the defense thereof with counsel satisfactory to
such indemnified party, and, after notice from the indemnifying party to
such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, provided, however, that, if the defendants in any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties, as a group, shall have
the right to select one separate counsel and to assume such legal defenses
and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the 1933 Act in any case in which either (i)
a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 11.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced
in such case notwithstanding the fact that this Section 11.6 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may
be required on the part of the Seller or controlling person of the Seller
in circumstances for which indemnification is not provided under this
Section 11.6; then, and in each such case, the Company and the Seller will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that the Seller is responsible only for the portion represented by the
percentage that the public offering price of its securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, provided, however, that, in any
such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
0000 Xxx) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
20
11.7. Delivery of Unlegended Shares.
(a) Within five (5) business days (such fifth business day, the
"Unlegended Shares Delivery Date") after the business day on which the
Company has received (i) a notice that Registrable Securities have been
sold either pursuant to the Registration Statement or Rule 144, (ii) a
representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable, are being satisfied, and other
reasonably requested written representations, if any, from the Subscriber
and the selling broker, if any, (iii) the original share certificates
representing the shares of Common Stock that have been sold, and (iv) a
copy of Form 144 as filed or to be filed by the Subscriber, the Company at
its expense, (y) shall deliver, and shall cause legal counsel selected by
the Company to deliver, to its transfer agent (with copies to Subscriber)
an appropriate instruction and opinion of such counsel, for the delivery of
shares of Common Stock without any legends including the legends set forth
in Section 4(e) above, issuable pursuant to any effective and current
registration statement described in Section 11 of this Agreement or
pursuant to Rule 144 (the "Unlegended Shares"); and (z) cause the
transmission of the certificates representing the Unlegended Shares
together with a legended certificate representing the balance of the unsold
shares of Common Stock, if any, to the Subscriber at the address specified
in the notice of sale, via express courier, by electronic transfer or
otherwise on or before the Unlegended Shares Delivery Date.
(b) In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, upon request of a Subscriber, so long as the certificates
therefore do not bear a legend and the Subscriber is not obligated to
return such certificate for the placement of a legend thereon, the Company
shall cause its transfer agent to electronically transmit the Unlegended
Shares by crediting the account of Subscriber's prime broker with DTC
through its Deposit Withdrawal Agent Commission system. Such transmission
must be made on or before the Unlegended Shares Delivery Date.
(c) The Company understands that a delay in the delivery of the
Unlegended Shares pursuant to Section 11 hereof beyond the Unlegended
Shares Delivery Date could result in economic loss to a Subscriber. As
compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber
for late delivery of Unlegended Shares in the amount of $100 per business
day after the Unlegended Shares Delivery Date for each $10,000 of purchase
price of the Unlegended Shares subject to the delivery default. If during
any 360 day period, the Company fails to deliver Unlegended Shares as
required by this Section 11.7 for an aggregate of thirty (30) days, then
each Subscriber or assignee holding Securities subject to such default may,
at its option, require the Company to purchase all or any portion of the
Shares and Warrant Shares subject to such default at a price per share
equal to 130% of the Purchase Price of such Shares and Warrant Shares. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand.
(d) In addition to any other rights available to a Subscriber, if the
Company fails to deliver to a Subscriber Unlegended Shares within ten (10)
calendar days after the Unlegended Shares Delivery Date and the Subscriber
purchases (in an open market transaction or otherwise) shares of common
stock to deliver in satisfaction of a sale by such Subscriber of the shares
of Common Stock which the Subscriber was entitled to receive from the
Company (a "Buy-In"), then the Company shall pay in cash to the Subscriber
(in addition to any remedies available to or elected by the Subscriber) the
amount by which (A) the Subscriber's total purchase price (including
brokerage commissions, if any) for the shares of common stock so purchased
exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, together with
interest thereon at a rate of 15% per annum, accruing until such amount and
any accrued interest thereon is paid in full (which amount
21
shall be paid as liquidated damages and not as a penalty). For example, if
a Subscriber purchases shares of Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to $10,000 of purchase price of
shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company written
notice indicating the amounts payable to the Subscriber in respect of the
Buy-In.
12. Security Interest. The Subscribers will be granted a subordinate
security interest in all the assets of the Company to be memorialized in a
Security Agreement. The Company will execute such other agreements, documents
and financing statements to be filed at the Company's expense with such
jurisdictions, states and counties designated by the Subscribers. The Company
will also execute all such documents reasonably necessary in the opinion of
Subscriber to memorialize and further protect the security interest described
herein. A form of Security Agreement is annexed hereto as Exhibit D. The
Subscribers will appoint a Collateral Agent to represent them collectively in
connection with the security interest to be granted in the Company's assets. The
appointment will be pursuant to a Collateral Agent Agreement, a form of which is
annexed hereto as Exhibit E.
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable courier service
with charges prepaid, or (iv) transmitted by hand delivery, or facsimile,
addressed as set forth below or to such other address as such party shall
have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business
day during normal business hours where such notice is to be received) or
(b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: NCT Group, Inc.,
00 Xxxxxxx Xxxxxx, Xxxxxxxx, XX 00000, attn: Chief Financial Officer,
telecopier number: (000) 000-0000, with a copy by telecopier only to:
General Counsel, (ii) if to the Subscriber, to: the address and telecopier
number indicated on the signature page hereto, with a copy by telecopier
only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx,
Xxx Xxxx 00000, telecopier number: (000) 000-0000, and (iii) if to the
Finders, to: the addresses and telecopier numbers indicated on Schedule 8
hereto.
(b) Closing. The consummation of the transactions contemplated herein
("Closing") shall take place at the offices of Grushko & Xxxxxxx, P.C., 000
Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction
of all conditions to Closing set forth in this Agreement.
(c) Entire Agreement; Assignment. This Agreement and other documents
delivered in connection herewith represent the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by both parties. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to
in this Agreement and the documents delivered herewith. No right or
obligation of either party shall be assigned by that party without prior
notice to and the written consent of the other party.
22
(d) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the
original thereof.
(e) Law Governing this Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. The parties and the
individuals executing this Agreement and other agreements referred to
herein or delivered in connection herewith on behalf of the Company agree
to submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of
this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
and to enforce specifically the terms and provisions hereof or thereof,
this being in addition to any other remedy to which any of them may be
entitled by law or equity. Subject to Section 13(e) hereof, each of the
Company and Subscriber hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Nothing in this Section shall affect or limit any
right to serve process in any other manner permitted by law.
(g) Independent Nature of Subscribers. The Company acknowledges that
the obligations of each Subscriber under the Transaction Documents are
several and not joint with the obligations of any other Subscriber, and no
Subscriber shall be responsible in any way for the performance of the
obligations of any other Subscriber under the Transaction Documents. The
Company acknowledges that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to
any Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges
that nothing contained in any Transaction Document, and no action taken by
any Subscriber pursuant hereto or thereto (including, but not limited to,
the (i) inclusion of a Subscriber in any registration statement and (ii)
review by, and consent to, such registration statement by a Subscriber)
shall be deemed to constitute the Subscribers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Subscribers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by
the Transaction Documents. The Company acknowledges that each
23
Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the
Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose by virtue of it being a fellow Subscriber. The Company acknowledges
that it has elected to provide all Subscribers with the same terms and
Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents
in no way creates a presumption that the Subscribers are in any way acting
in concert or as a group with respect to the Transaction Documents or the
transactions contemplated thereby.
[THIS SPACE INTENTIONALLY LEFT BLANK]
24
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
NCT GROUP, INC.
A Delaware Corporation
By: Xxxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Chairman & Chief Executive Officer
Dated: July 23, 2004
-------------------------------------- ------------------- -----------------
SUBSCRIBER PURCHASE PRICE WARRANTS
ISSUABLE ON
CLOSING DATE
-------------------------------------- ------------------- -----------------
$400,000.00 5,555,556
/s/ Xxxxxx Xxxxxxxx
--------------------------------------
(Signature)
ALPHA CAPITAL AKTIENGESELLSCHAFT
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Lichtenstein
Fax: 000-00-00000000
-------------------------------------- -------------------- -----------------
25
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
--------------------------------------------
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
NCT GROUP, INC.
A Delaware Corporation
By: Xxxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Chairman & Chief Executive Officer
Dated: July 23, 2004
-------------------------------------- -------------------- -----------------
SUBSCRIBER PURCHASE PRICE WARRANTS
ISSUABLE ON
CLOSING DATE
-------------------------------------- -------------------- -----------------
$500,000.00 6,944,445
/s/ S. Xxxxxxx Xxxxxxx
--------------------------------------
(Signature) LONGVIEW FUND LP
000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: S. Xxxxxxx Xxxxxxx
Fax: (000) 000-0000
-------------------------------------- -------------------- -----------------
26
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibit A Form of Escrow Agreement
Exhibit B Form of Warrant
Exhibit C Form of Legal Opinion
Exhibit D Form of Security Agreement
Exhibit E Form of Collateral Agent Agreement
Schedule 5(d) Additional Issuances
Schedule 5(h) Litigation
Schedule 5(m) Defaults
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Schedule 8 Finders
Schedule 11.1 Other Securities to be Registered
27
