Exhibit 10(ap)
PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
NCT GROUP, INC.
AND
XXXXXXX ROAD LLC
Dated as of September 27, 2000
PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 27th day of
September, 2000 (this "AGREEMENT"), by and between XXXXXXX ROAD LLC, an entity
organized and existing under the laws of The Cayman Islands ("INVESTOR"), and
NCT GROUP, INC., a corporation organized and existing under the laws of the
State of Delaware (the "COMPANY").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor, from
time to time as provided herein, and Investor shall purchase, up to Fifty
Million Dollars ($50,000,000) of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("SECTION 4(2)") of the Securities Act of 1933 and the rules and
regulations promulgated thereunder (the "SECURITIES ACT"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings specified or indicated (such meanings to be
equally applicable to both the singular and plural forms of the terms defined)
"ADJUSTMENT PERIOD" shall have the meaning specified in Section 2.4(b).
"ADJUSTMENT PERIOD NOTICE" shall have the meaning specified in Section
2.4(a).
"AGREEMENT" shall have the meaning specified in the preamble hereof.
"BID PRICE" shall mean the closing bid price of the Common Stock on the
Principal Market.
"BLACKOUT NOTICE" shall have the meaning specified in the Registration
Rights Agreement.
"BLACKOUT SHARES" shall have the meaning specified in Section 2.6
"BY-LAWS" shall have the meaning specified in Section 4.8.
"CERTIFICATE" shall have the meaning specified in Section4.8.
"CLAIM NOTICE" shall have the meaning specified in Section9.3(a).
"CLOSING" shall mean one of the closings of a purchase and sale of shares
of Common Stock pursuant to Section 2.1.
"CLOSING DATE" shall mean, with respect to a Closing, the eleventh (11th)
Day following the Put Date related to such Closing, or such earlier date as the
Company and Investor shall agree, provided all conditions to such Closing have
been satisfied on or before such Closing.
"COMMITMENT PERIOD" shall mean the period commencing on the earlier to
occur of (a) the Effective Date or (b) such earlier date as the Company and
Investor shall agree, and expiring on the earlier to occur of (i)the date on
which Investor shall have purchased Put Shares pursuant to this Agreement for an
aggregate Purchase Price of the Maximum Commitment Amount, (ii)the date this
Agreement is terminated pursuant to Section 2.5, or (iii) the date occurring
eighteen (18) months from the date of commencement of the Commitment Period.
"COMMON STOCK" shall mean the Company's common stock, par value $.01 per
share, and any shares of any other class of common stock whether now or
hereafter authorized, having the right to participate in the distribution of
dividends (as and when declared) and assets (upon liquidation of the Company).
"COMMON STOCK EQUIVALENTS" shall mean any securities that are convertible
into or exchangeable for Common Stock or any warrants, options or other rights
to subscribe for or purchase Common Stock or any such convertible or
exchangeable securities.
"COMPANY" shall have the meaning specified in the preamble to this
Agreement.
"CONDITION SATISFACTION DATE" shall have the meaning specified in Section
7.2.
"DAMAGES" shall mean any loss, claim, damage, liability, costs and expenses
(including, without limitation, reasonable attorneys' fees and disbursements and
costs and expenses of expert witnesses and investigation) but excluding lost
profits, opportunity costs, punitive damages, penalties or fines.
"DRAW DOWN PRICING PERIOD" shall mean the ten (10) trading day period
immediately following the Put Date.
"DISPUTE PERIOD" shall have the meaning specified in Section 9.3(a).
"DTC" shall the meaning specified in Section 2.3.
"DWAC" shall the meaning specified in Section 2.3.
"EFFECTIVE DATE" shall mean the date on which the SEC first declares
effective a Registration Statement registering resale of the Registrable
Securities as set forth in Section 7.2(a).
"ESCROW AGENT" shall mean Xxxxxxx & Xxxxxx, LLP.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder.
"FAST" shall the meaning specified in Section 2.3.
"INDEMNIFIED PARTY" shall have the meaning specified in Section 9.3(a).
"INDEMNIFYING PARTY" shall have the meaning specified in Section 9.3(a).
"INDEMNITY NOTICE" shall have the meaning specified in Section 9.3(b).
"INITIAL DISCOUNT" shall mean twelve and one-half percent (12 1/2%).
"INITIAL PURCHASE PRICE" shall mean, with respect to a Put, when,
aggregated with all other Puts, concern the acquisition by Investor of Common
Stock having an aggregate Investment Amount of Twenty Million Dollars
($20,000,000),the Market Price on the applicable Put Date (or such other date on
which the Purchase Price is calculated in accordance with the terms and
conditions of this Agreement) less the product of the Initial Discount and the
Market Price.
"INITIAL REGISTRABLE SECURITIES" shall have the meaning specified in the
Registration Rights Agreement.
"INITIAL REGISTRATION STATEMENT" shall have the meaning specified in the
Registration Rights Agreement.
"INVESTMENT AMOUNT" shall mean the dollar amount (within the range
specified in Section 2.2) to be invested by Investor to purchase Put Shares with
respect to any Put Date as notified by the Company to Investor in accordance
with Section 2.2.
"INVESTOR" shall have the meaning specified in the preamble to this
Agreement.
"LEGEND" shall have the meaning specified in Section 8.1.
"MARKET PRICE" on any given date shall mean the average of the Bid Prices
(not necessarily consecutive) for any three (3) Trading Days during the ten (10)
trading days period immediately following the Put Date.
"MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, prospects or financial condition of the Company that is
material and adverse to the Company or to the Company and such other entities
controlling or controlled by the Company, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company to enter into and perform
its obligations under any of (a) this Agreement and (b) the Registration Rights
Agreement.
"MAXIMUM COMMITMENT AMOUNT" shall mean Fifty Million Dollars ($50,000,000),
subject to increase as agreed to by the Company and Investor.
"MAXIMUM PUT AMOUNT" shall mean, with respect to any Put, the lesser of (a)
Two Million Dollars ($2,000,000), or (b) one hundred fifty (150%) percent of the
Weighted Average Volume for the twenty (20) trading days immediately preceding
the Put Date and the Closing Date, subject to adjustment as agreed by the
Company and the Investor.
"MINIMUM COMMITMENT AMOUNT" shall mean Twenty Million Dollars
($20,000,000).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"NEW BID PRICE" shall have the meaning specified in Section2.6. "OLD BID
PRICE" shall have the meaning specified in Section2.6.
"OTHER CONSIDERATION" shall have the meaning and valuation specified in
Schedule 1 hereto.
"OUTSTANDING" shall mean, with respect to the Common Stock, at any date as
of which the number of shares of Common Stock is to be determined, all issued
and outstanding shares of Common Stock, including all shares of Common Stock
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock; provided, however, that
Outstanding shall not include any shares of Common Stock then directly or
indirectly owned or held by or for the account of the Company.
"PERSON" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"PRINCIPAL MARKET" shall mean the market or exchange whichever is at the
time the principal trading exchange or market for the Common Stock.
"PUT" shall mean each occasion that the Investor elects to exercise its
right to call a Put Notice requiring the Company to issue shares of Common
Stock, and/or each occasion that the Company issues a Put Notice to Investor
requiring Investor to buy Common Stock subject to the terms and conditions of
this Agreement.
"PUT DATE" shall mean the Trading Day during the Commitment Period that a
Put Notice is deemed delivered pursuant to Section 2.2(b). "PUT NOTICE" shall
mean a written notice, substantially in the form of Exhibit B hereto, to Company
or the Investor, as may be applicable, setting forth the Investment Amount
pursuant to the terms of this Agreement, and specifying in the Investor's sole
discretion, the consideration to be delivered in connection therewith.
"PUT SHARES" shall mean all shares of Common Stock issued or issuable
pursuant to a Put that has been exercised or may be exercised in accordance with
the terms and conditions of this Agreement.
"REGISTRABLE SECURITIES" shall mean the (a) Put Shares, (b)the Blackout
Shares and (c) any securities issued or issuable with respect to any of the
foregoing by way of exchange, stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (i) a
Registration Statement has been declared effective by the SEC and such
Registrable Securities have been disposed of pursuant to a Registration
Statement, (ii) such Registrable Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 are met, (iii) such
time as such Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to Investor, such
Registrable Securities may be sold without registration under the Securities
Actor the need for an exemption from any such registration requirements and
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act. "REGISTRATION RIGHTS
AGREEMENT" shall mean the registration rights agreement in the form of Exhibit A
hereto.
"REGISTRATION STATEMENT" shall mean a registration statement on Form S-3
(if use of such form is then available to the Company pursuant to the rules of
the SEC and, if not, on such other form promulgated by the SEC for which the
Company then qualifies and which counsel for the Company shall deem appropriate
and which form shall be available for the resale of the Registrable Securities
to be registered thereunder in accordance with the provisions of this Agreement
and the Registration Rights Agreement and in accordance with the intended method
of distribution of such securities), for the registration of the resale by
Investor of the Registrable Securities under the Securities Act.
"REMAINING PUT SHARES" shall have the meaning specified in Section 2.6.
"RULE 144" shall mean Rule 144 under the Securities Act or any similar
provision then in force under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"SECTION 4(2)" shall have the meaning specified in the recitals of this
Agreement.
"SECURITIES ACT" shall have the meaning specified in the recitals of this
Agreement.
"SEC DOCUMENTS" shall mean, as of a particular date, all reports and other
documents file by the Company pursuant to Section 13(a) or 15(d) of the Exchange
Act since the beginning of the Company's then most recently completed fiscal
year as of the time in question (provided that if the date in question is within
ninety days of the beginning of the Company's fiscal year, the term shall
include all documents filed since the beginning of the second preceding fiscal
year).
"SUBSCRIPTION DATE" shall mean the date on which this Agreement is executed
and delivered by the Company and Investor.
"SUBSEQUENT DISCOUNT" shall mean ten percent (10%).
"SUBSEQUENT PURCHASE PRICE" shall mean, with respect to a Put, when,
aggregated with all other Puts, concern the acquisition by Investor of Common
Stock at any time after Investor shall have previously acquired Common Stock
having an aggregate Investment Amount of at least Twenty Million Dollars
($20,000,000), the Market Price on the applicable Put Date (or such other date
on which the Purchase Price is calculated in accordance with the terms and
conditions of this Agreement) less the product of the Subsequent Discount and
the Market Price.
"THIRD PARTY CLAIM" shall have the meaning specified in Section 9.3(a).
"TRADING CUSHION" shall mean a minimum of ten (10)Trading Days between Put
Dates, unless a shorter period is agreed to by the Company and Investor.
"TRADING DAY" shall mean any day during which the Principal Market shall be
open for business.
"TRANSACTION DOCUMENTS" means this Private Equity Credit Agreement, the
Registration Rights Agreement, the Warrant, Closing Certificate, and the
Transfer Agent Instructions.
"TRANSFER AGENT" shall mean the transfer agent for the Common Stock (and to
any substitute or replacement transfer agent for the Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent).
"UNDERWRITER" shall mean any underwriter participating in any disposition
of the Registrable Securities on behalf of Investor pursuant to a Registration
Statement.
"VALUATION EVENT" shall mean an event in which the Company at any time
during a Valuation Period takes any of the following actions: (a) subdivides or
combines the Common Stock;
(b) pays a dividend in shares of Common Stock or makes any other
distribution of shares of Common Stock, except for dividends paid with
respect to the Preferred Stock;
(c) issues any warrants, options or other rights to subscribe for or
purchase shares of Common Stock and the price per share for which
shares of Common Stock may at any time thereafter be issuable pursuant
to such warrants, options or other rights shall be less than the Bid
Price in effect immediately prior to such issuance
(d) issues any securities convertible into or exchangeable for shares of
Common Stock and the consideration per share for which shares of
Common Stock may at any time thereafter be issuable pursuant to the
terms of such convertible or exchangeable securities shall be less
than the Bid Price in effect immediately prior to such issuance;
(e) issue shares of Common Stock otherwise than as provided in the
foregoing subsections (a) through (d), at a price per share less, or
for other consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without consideration;
(f) makes a distribution of its assets or evidences of indebtedness to the
holders of Common Stock as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings
or surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or
substantially all of the Company's assets (other than under the
circumstances provided for in the foregoing subsections (a) through
(e); or (g) takes any action affecting the number of Outstanding
Common Stock, other than an action described in any of the foregoing
subsections (a) through (f) hereof, inclusive, which in the opinion of
the Company's Board of Directors, determined in good faith, would have
a materially adverse effect upon the rights of Investor at the time of
a Put.
"VALUATION PERIOD" shall mean the period of ten (10) Trading Days
immediately following the date on which the applicable Put Notice is deemed to
be delivered and during which the Purchase Price of the Common Stock is valued;
provided, however, that if a Valuation Event occurs during any Valuation Period,
a new Valuation Period shall begin on the Trading Day immediately after the
occurrence of such Valuation Event and end on the ten (10th) Trading Day
thereafter.
"WEIGHTED AVERAGE VOLUME" shall mean the average of the product of (a) the
Bid Price times (b) the volume on the Principal Market for the relevant days.
"WEIGHTED VOLUME" shall mean the product of (a) the Bid Price times (b) the
volume on the Principal Market.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 INVESTMENTS.
(a) PUTS. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII), on any Put Date
during the Commitment Period the Investor or the Company may call a
Put by the delivery of a Put Notice. The number of Put Shares that
Investor shall receive pursuant to such Put shall be determined by
dividing the Investment Amount specified in the Put Notice by the
Initial Purchase Price or Subsequent Purchase Price, as applicable
with respect to such Put Date. During the Commitment Period, Investor
shall call for Put Notices from the Company when, together with Put
Notices issued by the Company independent of any such call, have an
aggregate Investment Amount of no less than the Minimum Commitment
Amount.
(a) MINIMUM AMOUNT OF PUTS. The Company shall, in accordance with Section
2.2(a), deliver to Investor during the Commitment Period, Put Shares
with an aggregate Investment Amount at least equal to the Minimum
Commitment Amount. If the Company for any reason, other than
notwithstanding Section 6.2 hereof, fails to have sufficient
authorized shares of Common Stock which are neither outstanding nor
reserved for issuance upon the exercise of outstanding options and
warrants, fails to issue and deliver such Put Shares during the
Commitment Period, on the first Trading Day after the expiration of
the Commitment Period, the Company shall wire to Investor a sum in
immediately available funds equal to the product of (i) the Minimum
Commitment Amount minus the aggregate Investment Amounts of the Put
Notices delivered to Investor hereunder and (ii) the Discount.
(b) MAXIMUM AMOUNT OF PUTS. Unless the Company obtains the requisite
approval of its shareholders in accordance with the corporate laws of
the State of Delaware and the applicable rules of the Principal Market
(if required), no more than 64,163,770 shares of Common Stock
(representing approximately 19.9% of the Outstanding Common Stock on
the date hereof) may be issued and sold to Investor pursuant to this
Agreement and the Warrants.
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time during the Commitment Period, the Investor or
the Company may deliver a Put Notice to the other, subject to the
conditions set forth in Section 7.2; provided, however, the Investment
Amount for each Put (including the form of consideration) in the
applicable Put Notice shall be stated in increments of no less than
$100,000, nor more than the Maximum Put Amount.
(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed delivered
on (i) the Trading Day it is received by facsimile or otherwise by
Investor if such notice is received on or prior to 12:00 noon New York
time, or (ii) the immediately succeeding Trading Day if it is received
by facsimile or otherwise after 12:00 noon New York time on a Trading
Day or at anytime on a day which is not a Trading Day.
Section 2.3 CLOSINGS.
On or prior to each Closing Date for a Put, (a) the Company shall deliver
to Escrow Agent one or more certificates, at Investor's option, representing the
Put Shares to be purchased by Investor pursuant to Section 2.1 herein,
registered in the name of Investor and (b) Investor shall deliver to the Escrow
Agent the Investment Amount or other consideration specified in the Put Notice
by wire transfer of immediately available funds to an account designated by the
Escrow Agent on or before the Closing Date. In lieu of delivering physical
certificates representing the Common Stock issuable in accordance with clause
(a) of this Section 2.3, and provided that the Transfer Agent then is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST")program, upon request of Investor, the Company shall use its
commercially reasonable efforts to cause the Transfer Agent to electronically
transmit, prior to the Closing Date, the Put Shares by crediting the account of
the holder's prime broker with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system, and provide proof satisfactory to the Escrow Agent
of such delivery. In addition, on or prior to such Closing Date, each of the
Company and Investor shall deliver to the Escrow Agent all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. On the Closing Date and provided all
conditions to Closing have been satisfied by the Company, the Escrow agent shall
wire transfer to the Company, the Investment Amount, less any applicable fees
and expenses.
Section 2.4 WARRANTS.
The Company agrees to issue to Investor transferable divisible warrants
(the "Warrants"), (i)upon execution hereof, to purchase 250,000 shares of Common
Stock at an exercise price per share of the average Bid Price for the five
Trading Days immediately prior to the date of this Agreement, and, (ii) to
purchase 1,000 shares of Common Stock for each $100,000 in Put Notices submitted
at an exercise price per share of the average Bid Price for the Five Trading
Days immediately prior to the Closing Date for the relevant Put Notice. Such
Warrants (substantially in the form of Exhibit F), shall be exercisable
immediately upon issuance, and for a period of five (5) years thereafter,
together with cashless exercise and registration rights under the Registration
Rights Agreement.
Section 2.5 TERMINATION OF INVESTMENT OBLIGATION.
The obligation of Investor to purchase shares of Common Stock shall
terminate permanently (including with respect to a Closing Date that has not yet
occurred)in the event that (a) there shall occur any stop order or suspension of
the effectiveness of any Registration Statement for an aggregate of thirty
(30)Trading Days during the Commitment Period, for any reason other than
deferrals or suspension during a Blackout Period in accordance with the
Registration Rights Agreement, as a result of corporate developments subsequent
to the Subscription Date that would require such Registration Statement to be
amended to reflect such event in order to maintain its compliance with the
disclosure requirements of the Securities Act or (b) the Company shall at any
time fail to comply with the requirements of Section 6.3, 6.4, or 6.6 and such
failure shall continue for more than thirty (30) days.
Section 2.6 BLACKOUT SHARES.
Subject to Section 6.2 herein, in the event that, (a) within fifteen (15)
Trading Days following any Closing Date, the Company gives a Blackout Notice to
Investor of a Blackout Period in accordance with the Registration Rights
Agreement, and (b) the Bid Price on the Trading Day immediately preceding such
Blackout Period ("OLD BID PRICE") is greater than the Bid Price on the first
Trading Day following such Blackout Period that Investor may sell its
Registrable Securities pursuant to an effective Registration Statement ("NEW BID
PRICE"), then the Company shall issue to Investor the number of additional
shares of Registrable Securities (the "BLACKOUT SHARES") equal to the difference
between (i) the product of the number of Put Shares held by Investor immediately
prior to the Blackout Period that were issued on the most recent Closing
Date(the "REMAINING PUT SHARES") multiplied by the Old Bid Price, divided by the
New Bid Price, and (ii) the Remaining Put Shares.
Section 2.7 MINIMUM COMMITMENT.
Subject to Section 6.2 herein, if the Company for any reason fails to issue
and deliver such Put Shares equal to or exceeding the Minimum Commitment Amount
during the commitment period, then on the first business day after the
expiration of the commitment period, the Company shall issue to the investor
warrants to purchase a number of shares equal to the minimum commitment amount
divided by the bid price. Such warrants shall be for the period of four (4) four
years, shall have cashless exercise provisions, and shall be deemed shares under
the Registration Rights Agreement annexed hereto, and shall be exercisable at a
price equal to sixty (60%) percent of the Bid Price.
Section 2.8 LIQUIDATED DAMAGES.
Subject to Section 6.2 herein, each of the Company and Investor acknowledge
and agree that the sum payable under Section 2.7 and the requirement to issue
Blackout Shares under Section 2.6 shall give rise to liquidated damages and not
penalties. Each of the Company and Investor further acknowledge that (a) the
amount of loss or damages likely to be incurred is incapable or is difficult to
precisely estimate, (b) the amounts specified in such Sections bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by Investor in connection with the failure by the Company
to make Puts with aggregate Purchase Prices totaling at least the Minimum
Commitment Amount or in connection with a Blackout Period under the Registration
Rights Agreement, and (c) each of the Company and Investor are sophisticated
business parties and have been represented by sophisticated and able legal and
financial counsel and negotiated this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 INTENT.
Investor is entering into this Agreement for its own account and Investor
has no present arrangement (whether or not legally binding) at any time to sell
the Common Stock to or through any person or entity; provided, however, that by
making the representations herein, Investor does not agree to hold the Common
Stock for any minimum or other specific term and reserves the right to dispose
of the Common Stock at any time in accordance with federal and state securities
laws applicable to such disposition.
Section 3.2 SOPHISTICATED INVESTOR.
Investor is a sophisticated investor (as described in Rule 506(b)(2)(ii) of
Regulation D) and an accredited investor (as defined in Rule 501 of Regulation
D), and Investor has such experience in business and financial matters that it
is capable of evaluating the merits and risks of an investment in Common Stock.
Investor acknowledges that an investment in the Common Stock is speculative and
involves a high degree of risk.
Section 3.3 AUTHORITY.
(a) Investor has the requisite power and authority to enter into and
perform its obligations under this Agreement and the transactions contemplated
hereby in accordance with its terms; (b) the execution and delivery of this
Agreement and the Registration Rights Agreement, and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary action and no further consent or authorization of Investor or its
partners is required; and (c) this Agreement has been duly authorized and
validly executed and delivered by Investor and is a valid and binding agreement
of Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 3.4 NOT AN AFFILIATE.
Investor is not an officer, director or "affiliate" (as that term is
defined in Rule 405 of the Securities Act) of the Company.
Section 3.5 ORGANIZATION AND STANDING.
Investor is a limited liability company duly organized, validly existing
and in good standing under the laws of the Cayman Islands, and has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Investor is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a material adverse effect on Investor.
Section 3.6 ABSENCE OF CONFLICTS.
The execution and delivery of this Agreement and any other document or
instrument contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof, will not (a) violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on Investor, (b) violate any provision of
Investor's Memorandum of Association or Articles of Association or other
applicable charter document, any indenture, instrument or agreement to which
Investor is a party or is subject, or by which Investor or any of its assets is
bound, or conflict with or constitute a material default thereunder, (c) result
in the creation or imposition of any lien pursuant to the terms of any such
indenture, instrument or agreement, or constitute a breach of any fiduciary duty
owed by Investor to any third party, or (d) require the approval of any
third-party (that has not been obtained) pursuant to any material contract,
instrument, agreement, relationship or legal obligation to which Investor is
subject or to which any of its assets, operations or management may be subject.
Section 3.7 DISCLOSURE; ACCESS TO INFORMATION.
Investor has received all documents, records, books and other information
pertaining to Investor's investment in the Company that have been requested by
Investor. Investor has reviewed or received copies of the SEC Documents.
Section 3.8 MANNER OF SALE.
At no time was Investor presented with or solicited by or through any
leaflet, public promotional meeting, television advertisement or any other form
of general solicitation or advertising.
Section 3.9 FINANCIAL CAPABILITY.
Investor presently has the financial capacity and the necessary capital to
perform its obligations hereunder and shall and has provided to the Company such
financial and other information that the Company has requested to demonstrate
such capacity.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor that:
Section 4.1 ORGANIZATION OF THE COMPANY.
The Company is a corporation duly organized and validly existing and in
good standing under the laws of the State of Delaware and has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 4.2 AUTHORITY.
(a) The Company has the requisite corporate power and authority to enter
into and perform its obligations under this Agreement and the Registration
Rights Agreement and to issue the Put Shares and the Blackout Shares, if any;
(b) the execution and delivery of this Agreement and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required; and (c) each of this Agreement
and the Registration Rights Agreement has been duly executed and delivered by
the Company and constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
Section 4.3 CAPITALIZATION.
As of September 13, 2000, the authorized capital stock of the Company
consisted of 450,000,000 shares of Common Stock, of which 328,509,531 shares
were issued and outstanding, and 10,000,000 shares of Preferred stock, of which
924 shares designated as Series G Preferred Stock were issued and outstanding.
Except for (a) options to purchase 45,338,775 shares of Common Stock; (b)
warrants and exchange rights to purchase 92,336,296 shares of Common Stock; (c)
924 shares of Series G Convertible Preferred Stock, there were 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 non assessable.
Section 4.4 COMMON STOCK.
The Company has registered the Common Stock pursuant to Section 12(b) or
12(g) of the Exchange Act and is in full compliance with all reporting
requirements of the Exchange Act, and the Company has maintained all
requirements for the continued listing or quotation of the Common Stock, and
such Common Stock is currently listed or quoted on the Principal Market. As of
the date of this Agreement, the Principal Market is the Nasdaq Bulletin Board.
The Company meets the registration requirements for filing of Form S-3 in
connection with a primary offering.
Section 4.5 SEC DOCUMENTS.
The Company has delivered or made available to Investor true and complete
copies of the SEC Documents (including, without limitation, proxy information
and solicitation materials). The Company has not provided to Investor any
information that, according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company, but which has
not been so disclosed. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and other federal, state and local laws, rules
and regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form and substance in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (a) as may be otherwise indicated in such financial statements or the
notes thereto or (b) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
Section 4.6 EXEMPTION FROM REGISTRATION; VALID ISSUANCES.
The sale and issuance of the Put Shares and the Blackout Shares, if any in
accordance with the terms and on the bases of the representations and warranties
set forth in this Agreement, may and shall be properly issued by the Company to
Investor pursuant to Section 4(2), Regulation D and/or any applicable state law.
When issued and paid for as herein provided, the Put Shares, and the Blackout
Shares, if any, shall be duly and validly issued, fully paid, and non
assessable. Neither the sales of the Put Shares or the Blackout Shares, if any,
pursuant to, nor the Company's performance of its obligations under, this
Agreement or the Registration Rights Agreement shall (a) result in the creation
or imposition of any liens, charges, claims or other encumbrances upon the Put
Shares or the Blackout Shares, if any, or any of the assets of the Company, or
(b) entitle the holders of Outstanding Common Stock to preemptive or other
rights to subscribe to or acquire the Common Stock or other securities of the
Company. The Put Shares and the Blackout Shares, if any, shall not subject
Investor to personal liability by reason of the ownership thereof. Section 4.7
NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS TRANSACTION. Neither
the Company nor any of its affiliates nor any person acting on its or their
behalf (a) has conducted or will conduct any general solicitation (as that term
is used in Rule 502(c) of Regulation D) or general advertising with respect to
any of the Put Shares or the Blackout Shares, if any, or (b) made any offers or
sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Common Stock under the
Securities Act. Section 4.8 CORPORATE DOCUMENTS. The Company has furnished or
made available to Investor true and correct copies of the Company's Certificate
of Incorporation, as amended and in effect on the date hereof
(the"CERTIFICATE"), and the Company's By-Laws, as amended and in effect on the
date hereof (the "BY-LAWS").
Section 4.9 NO CONFLICTS.
The execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby,
including without limitation the issuance of the Put Shares and the Blackout
Shares, if any, do not and will not(a) result in a violation of the Certificate
or By-Laws or (b) conflict with, or constitute a material default (or an event
that with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any "lock-up"
or similar provision of any underwriting or similar agreement to which the
Company is a party, or (c) result in a violation of any federal, state, local or
foreign law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations)applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect) nor is the Company otherwise in violation of, conflict with or
in default under any of the foregoing; provided, however, that for purposes of
the Company's representations and warranties as to violations of foreign law,
rule or regulation referenced in clause (c), such representations and warranties
are made only to the best of the Company's knowledge insofar as the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby are or may be affected by
the status of Investor under or pursuant to any such foreign law, rule or
regulation. The business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms
hereof(other than any SEC, NASD or state securities filings that may be required
to be made by the Company subsequent to any Closing, any registration statement
that may be filed pursuant hereto, and any shareholder approval required by the
rules applicable to companies whose common stock trades on the Nasdaq National
Market); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of Investor herein.
Section 4.10 NO MATERIAL ADVERSE CHANGE.
Since July 1, 1999, no event has occurred that would have a Material
Adverse Effect on the Company, except as disclosed in the SEC Documents.
Section 4.11 NO UNDISCLOSED LIABILITIES.
The Company has no liabilities or obligations that are material,
individually or in the aggregate, and that are not disclosed in the SEC
Documents or otherwise publicly announced, other than those incurred in the
ordinary course of the Company's businesses since July 1, 1999 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company.
Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES.
Since July 1, 1999, no event or circumstance has occurred or exists with
respect to the or its businesses, properties, prospects, 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 SEC Documents. Section 4.13
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,
other than pursuant to this Agreement, under circumstances that would require
registration of the Common Stock under the Securities Act.
Section 4.14 LITIGATION AND OTHER PROCEEDINGS.
Except as may beset forth in the SEC Documents, there are no lawsuits or
proceedings pending or to the best knowledge of the Company threatened, against
the Company, nor has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which would have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
have a Material Adverse Effect.
Section 4.15 NO MISLEADING OR UNTRUE COMMUNICATION.
The Company, any Person representing the Company, and, to the knowledge of
the Company, any other Person selling or offering to sell the Put Shares or the
Blackout Shares, if any, in connection with the transactions contemplated by
this Agreement, have not made, at any time, any oral communication in connection
with the offer or sale of the same which contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
Section 4.16 MATERIAL NON-PUBLIC INFORMATION.
The Company is not in possession of, nor has the Company or its agents
disclosed to Investor, any material non-public information that (a) if
disclosed, would reasonably be expected to have a materially adverse effect on
the price of the Common Stock or(b) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW.
Investor's trading activities with respect to shares of the Common Stock
will be in compliance with all applicable state and federal securities laws,
rules and regulations and the rules and regulations of the NASD and the
Principal Market on which the Common stock is listed.
Section 5.2 LIMITATIONS ON SHORT SALES.
The Investor has the right to sell shares of the Company's Common Stock
during the Draw Down Pricing Period equal in number to the number of Shares
reasonably expected to be purchased pursuant to a Put Notice. The Investor
covenants, however, that except during a Draw Down Pricing Period, neither the
Investor nor any of its affiliates nor any entity managed by the Investor will
ever be in a net short position solely with respect to shares of the Common
Stock of the Company issuable under this Agreement in any account directly or
indirectly managed by the Investor or any affiliate of the Investor or any
entity managed by the Investor.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS.
The Company shall cause the Registration Rights Agreement to remain in full
force and effect and the Company shall comply in all respects with the terms
thereof.
Section 6.2 RESERVATION OF COMMON STOCK.
As of the date hereof, the Company has available and the Company shall
reserve and keep available at all times, free of preemptive rights, 25,000,000
shares of Common Stock for the purpose of enabling the Company to satisfy any
obligation to issue the Put Shares and the Blackout Shares, if any, and to issue
shares of Common Stock in connection with the exercise of the Warrants. If at
any time the Investor calls for a Put Notice and the Company does not have a
sufficient number of authorized but unissued and unreserved shares to deliver
the requisite number of Put Shares in connection with such Put Notice, the
Investor may withdraw its call for such Put Notice or require the Company
deliver to it such number of Put Shares that the Company has authorized but
unissued and reserved in connection with such Put Notice. If at any time the
Company is obligated to deliver Blackout Shares to Investor under Section 2.6
and the Company does not have a sufficient number of authorized but unissued and
unreserved shares to deliver the requisite number of Blackout Shares, the
Company shall deliver to Investor such number of Blackout Shares that the
Company has authorized but unissued and unreserved. In either case, the Company
shall, at its expense, promptly seek and use its best efforts to obtain
shareholder approval as required under the Delaware General Corporation Law to
increase the number of shares of Common Stock it is authorized to issue, in
order to meet all of its obligations to issue Put Shares and Blackout Shares (if
any) under this Agreement, such that the Company shall have reserved for
issuance under this Agreement at least 200% of the shares required for issuance
under the Minimum Commitment Amount, based upon the then applicable Market Price
as if a Put Date occurred within five days prior to the date of the proxy
statement prepared by the Company in connection with such authorization, less
twice the number of Put Shares that may have been issued under this Agreement.
In no circumstances shall the Company issue a Put Notice requiring Investor to
purchase more shares of Common Stock than the Company has authority to issue
based upon the then number of shares of Common Stock outstanding or reserved for
issuance. So long as the Company promptly and in good faith uses its best
efforts to obtain shareholder approval for an increase in the authorized number
of shares of Common Stock as required hereby, and if the Company either (a)
obtains such authority and issues to Investor such number of Put Shares and
Blackout Shares to Investor as required by this Agreement, or (b) fails, after
good faith attempt, to obtain such authority from its shareholders, the Company
shall not owe any payments or other obligations to Investor in respect of
Sections 2.1(a), 2.6 or 2.7 hereof. The number of shares so reserved from time
to time, as theretofore increased or reduced as hereinafter provided, may be
reduced by the number of shares actually delivered hereunder.
Section 6.3 LISTING OF COMMON STOCK.
The Company shall maintain the listing of the Common Stock on a Principal
Market, and will cause the Put Shares and the Blackout Shares, if any, to be
listed on the Principal Market. The Company further shall, if the Company
applies to have the Common Stock traded on any other Principal Market, include
in such application the Put Shares and the Blackout Shares, if any, and shall
take such other action as is necessary or desirable in the reasonable opinion of
Investor to cause the Common Stock to be listed on such other Principal Market
as promptly as possible. The Company shall use its commercially reasonable
efforts to continue the listing and trading of the Common Stock on the Principal
Market (including, without limitation, maintaining sufficient net tangible
assets) and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the NASD and the Principal
Market.
Section 6.4 EXCHANGE ACT REGISTRATION.
The Company shall take all commercially reasonable steps to cause the
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will use its commercially reasonable efforts to comply in all
material respects with its reporting and filing obligations under said Act, and
will not take any action or file any document (whether or not permitted by said
Act or the rules thereunder)to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under said Act.
Section 6.5 LEGENDS.
The certificates evidencing the Put Shares and the Blackout Shares, if any,
shall be free of legends, except as provided for in Article VIII.
Section 6.6 CORPORATE EXISTENCE.
The Company shall take all commercially reasonable steps necessary to
preserve and continue the corporate existence of the Company. Section 6.7
ADDITIONAL SEC DOCUMENTS. The Company shall deliver to Investor, promptly after
the originals thereof are submitted to the SEC for filing, copies of all SEC
Documents so furnished or submitted to the SEC.
Section 6.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF
RIGHT TO MAKE A PUT.
The Company shall promptly notify Investor upon the occurrence of any of
the following events in respect of a registration statement or related
prospectus in respect of an offering of Registrable Securities: (a) receipt of
any request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the registration
statement for amendments or supplements to the registration statement or related
prospectus; (b) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose;
(c) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (e) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
Section 6.9 CONSOLIDATION; MERGER.
The Company shall not, at any time after the date hereof, effect any merger
or consolidation of the Company with or into, or a transfer of all or
substantially all of the assets of the Company to, another entity unless the
resulting successor or acquiring entity (if not the Company) assumes by written
instrument the obligation to deliver to Investor such shares of stock and/or
securities as Investor is entitled to receive pursuant to this Agreement.
Section 6.10 ISSUANCE OF PUT SHARES AND BLACKOUT SHARES.
The sale of the Put Shares, the issuance of the Blackout Shares, if any,
shall be made in accordance with the provisions and requirements of Regulation D
and any applicable state law.
Section 6.11 REIMBURSEMENT.
If (i) Investor, other than by reason of its gross negligence or willful
misconduct, becomes involved in any capacity in any action, proceeding or
investigation brought by any shareholder of the Company, in connection with or
as a result of the consummation of the transactions contemplated by the
Transaction Documents, or if Investor is impleaded in any such action,
proceeding or investigation by any person, or (ii) Investor, other than by
reason of its gross negligence or willful misconduct or by reason of its trading
of the Common Stock in a manner that is illegal under the federal securities
laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations of the
Company under this section shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliates of Investor that are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, Investor and any such affiliate and
any such person.
Section 6.12 DILUTION.
The number of shares of Common Stock issuable as Put Shares may increase
substantially in certain circumstances, including, but not necessarily limited
to, the circumstance wherein the trading price of the Common Stock declines
during the period between the Effective Date and the end of the Commitment
Period. The Company's executive officers and directors have studied and fully
understand the nature of the transactions contemplated by this Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Put Shares is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company
Section 6.13 USE OF PROCEEDS.
The Company will use the proceeds received hereunder (excluding amounts
paid by the Company for legal fees, finder's fees and escrow fees in connection
with the sale of the Common Stock) for working capital purposes. Unless
specifically consented to in advance in each instance by the Investor, the
Company shall not, directly or indirectly, use such proceeds for the repayment
of any outstanding loan by the Company to any other party.
Section 6.14 CERTAIN AGREEMENTS
(i) The Company covenants and agrees that it will not, without the prior
written consent of the Investor, enter into any subsequent or further offer or
sale of Common Stock or Common Stock Equivalents (collectively, "New Common
Stock") with any third party pursuant to a transaction which in any manner
permits the sale of the New Common Stock on any date which is prior or
subsequent to thirty (30) days prior to or following each Closing Date .
(ii) In the event the Company breaches the provisions of this Section , the
Discount (as defined in shall be amended to be equal to (x)110% of the Discount
set forth herein and the Investor may terminate his obligations under this
Agreement and demand such amounts as may be owing under Section 2.1.
Section 6.15 RIGHT OF FIRST REFUSAL, SPECIAL DILUTION PROTECTION.
(i) The Company covenants and agrees that if during the period from the
date hereof through and including the date which is thirty (30) days after the
Effective Date, the Company offers to enter into any transaction (a _New
Transaction_) for the sale of Common Stock (other than in connection with an
acquisition, merger or other business combination), the Company shall notify the
Investor in writing of all of the terms of such offer (a _New Transaction
Offer_). The Investor shall have the right (the _Right of First Refusal_),
exercisable by written notice given to the Company by the close of business on
the fifth business day after the Investor_s receipt of the New Transaction Offer
(the _Right of First Refusal Expiration Date_), to participate in all or any
part of the New Transaction Offer on the terms so specified.
(ii) If, and only if, the Investor does not exercise the Right of First
Refusal in full, the Company may consummate the remaining portion of the New
Transaction with any New Investor on the terms specified in the New Transaction
Offer within ninety (90) days of the Right of First Refusal Expiration Date.
(iii) If the terms of the New Transaction to be consummated with such other
party differ from the terms specified in the New Transaction Offer so that the
terms are more beneficial in any respect to the New Investor, the Company shall
give the Investor a New Transaction Offer relating to the terms of the New
Transaction, as so changed, and the Investor_s Right of First Refusal and the
preceding terms of this paragraph (l) shall apply with respect to such changed
terms.
(iv) If there is more than one Investor signatory to this Agreement, the
preceding provisions of this paragraph (l) shall apply pro rata among them
(based on their relative Investor_s Allocable Shares), except that, to the
extent any such Investor does not exercise its Right of First Refusal in full (a
_Declining Investor_), the remaining Investor or Investors who or which have
exercised their own Right of First Refusal in full, shall have the right (pro
rata among them based on their relative Investor_s Allocable Shares, if more
than one) to exercise all or a portion of such Declining Investor_s unexercised
Right of Refusal. Nothing in this paragraph (l) shall be deemed to permit a
transaction not otherwise permitted by subparagraph (g)(i), as modified by the
provisions of subparagraph (g)(ii).
(v) In the event the New Transaction is consummated with such other third
party on terms providing for (x) either a sale price equal to or computed based
on, or a determination of a conversion price based on, a lower percentage of the
then current market price (howsoever defined or computed) or a lower market
price (howsoever defined or computed) and/or (y) the issuance of warrants at an
exercise price lower than that provided in the Warrants, or any unissued or
unexercised Warrants shall be modified to reduce the relevant Conversion Rate,
Base Price or Warrant exercise price to be equal to that provided in the New
Transaction as so consummated.
Section 6.17 RELEASE.
Effective upon the mutual execution hereof, the Company, for itself and on
behalf of all affiliated persons and entities, representatives, and all
predecessors in interest, successors and assigns (collectively, the "Releasing
Parties"), hereby releases and forever discharges each of Investor, and
Investor's direct and indirect partners, officers, directors, employees,
affiliates, representatives, agents, trustees, beneficiaries, predecessors in
interest, successors in interest and nominees of and from any and all claims,
demands, actions and causes of action, whether known or unknown, fixed or
contingent, arising prior to the date of execution of this Agreement, that the
Company may have had, may now have or may hereafter acquire with respect to any
matters whatsoever under, relating to or arising from any prior Purchase
Agreement, Registration Statement, and the agreements entered into in connection
therewith (sometimes collectively referred to as the "Prior Agreements"). The
Company also fully waives any offsets it may have with respect to the amounts
owed under the Prior Agreements. Additionally, the Company represents, warrants
and covenants that it has not, and at the time this release becomes effective
will not have, sold, assigned, transferred, or otherwise conveyed to any other
person or entity all or any portion of its rights, claims, demands, actions, or
causes of action herein released.
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE
AND SELL COMMON STOCK.
The obligation hereunder of the Company to issue and sell the Put Shares to
Investor incident to each Closing is subject to the satisfaction, at or before
each such Closing, of each of the conditions set forth below.
(a) ACCURACY OF INVESTOR'S REPRESENTATION AND WARRANTIES. The
representations and warranties of Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time, except for changes which have not
had a Material Adverse Effect.
(b) PERFORMANCE BY INVESTOR. Investor shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by Investor at or
prior to such Closing.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER A
PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES.
The right of the Company to deliver a Put Notice and the obligation of
Investor hereunder to acquire and pay for the Put Shares incident to a Closing
is subject to the satisfaction, on (a) the date of delivery of such Put Notice
and (b) the applicable Closing Date (each a "CONDITION SATISFACTION DATE"), of
each of the following conditions:
(a) REGISTRATION OF REGISTRABLE SECURITIES WITH THE SEC. As set forth in
the Registration Rights Agreement, the Company shall have filed with the SEC the
Initial Registration Statement with respect to the resale of the Initial
Registrable Securities by Investor, and the Company shall use its best efforts
to cause such Registration Statement to be declared effective by the SEC prior
to the first Put Date, (and in any event no later than ninety (90) days after
filing of the Initial Registration Statement). For the purposes of any Put
Notice with respect to the Registrable Securities other than the Initial
Registrable Securities, the Company shall have filed with the SEC a Registration
Statement with respect to the resale of such Registrable Securities by Investor
which shall have been declared effective by the SEC prior to the Put Date
therefor.
(b) EFFECTIVE REGISTRATION STATEMENT. As set forth in the Registration
Rights Agreement, a Registration Statement shall have previously become
effective for the resale by Investor of the Registrable Securities subject to
such Put Notice and such Registration Statement shall remain effective on each
Condition Satisfaction Date and (i) neither the Company nor Investor shall have
received notice that the SEC has issued or intends to issue a stop order with
respect to such Registration Statement or that the SEC otherwise has suspended
or withdrawn the effectiveness of such Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and Investor is reasonably satisfied that the
SEC no longer is considering or intends to take such action),and (ii) no other
suspension of the use or withdrawal of the effectiveness of such Registration
Statement or related prospectus shall exist.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or Investor.
(d) PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement and the Registration Rights Agreement to
be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or adopted by
any court or governmental authority of competent jurisdiction that prohibits or
directly and materially adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or materially adversely affecting any of the transactions
contemplated by this Agreement.
(f) ADVERSE CHANGES. Since the date of filing of the Company's most recent
SEC Document, no event that had or is reasonably likely to have a Material
Adverse Effect has occurred.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The trading
of the Common Stock shall not have been suspended by the SEC, the Principal
Market or the NASD and the Common Stock shall have been approved for listing or
quotation on and shall not have been delisted from the Principal Market.
(h) LEGAL OPINION. The Company shall have caused to be delivered to
Investor, within five (5) Trading Days of the effective date of the Initial
Registration Statement and each subsequent Registration Statement, an opinion of
the Company's legal counsel in the form of Exhibit C hereto, addressed to
Investor.
(i) DUE DILIGENCE. No dispute between the Company and Investor shall exist
pursuant to Section 7.3 as to the adequacy of the disclosure contained in any
Registration Statement.
(j) TEN PERCENT LIMITATION. On each Closing Date, the number of Put Shares
then to be purchased by Investor shall not exceed the number of such shares
that, when aggregated with all other shares of Registrable Securities then owned
by Investor beneficially or deemed beneficially owned by Investor, would result
in Investor owning no more than 9.9% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Section 16 of
the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section 7.2(j), in the event that the amount of Common Stock outstanding as
determined in accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon which
the Put Notice associated with such Closing Date is given, the amount of Common
Stock outstanding on such Closing Date shall govern for purposes of determining
whether Investor, when aggregating all purchases of Common Stock made pursuant
to this Agreement and Blackout Shares, if any, would own more than 9.9% of the
Common Stock following such Closing Date.
(k) MINIMUM BID PRICE AND WEIGHTED AVERAGE VOLUME. The average of the Bid
Prices and the Weighted Average Volume, for the ten (10) Trading Days
immediately preceding each of the Put Notice and the Closing Date, shall have
equaled or exceeded $.025 and $5,000 respectively (as adjusted for stock splits,
stock dividends, reverse stock splits, and similar events).
(l) NO KNOWLEDGE. The Company shall have no knowledge of any event more
likely than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to occur
within the fifteen Trading Days following the Trading Day on which such Notice
is deemed delivered).
(m) OTHER CONSIDERATION. The Investor shall have delivered in executed
form, all necessary documentation to vest title in the Other Consideration in
the Company.
(n) TRADING CUSHION. The Trading Cushion shall have elapsed since the
immediately preceding Put Date.
(o) SHAREHOLDER VOTE. The issuance of shares of Common Stock with respect
to the applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market.
(p) NO VALUATION EVENT. No Valuation Event shall have occurred since the
Put Date.
(q) OTHER. On each Condition Satisfaction Date, Investor shall have
received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by Investor in order for
Investor to confirm the Company's satisfaction of the conditions set forth in
this Section 7.2., including, without limitation, a certificate in substantially
the form and substance of Exhibit D hereto, executed by an executive officer of
the Company and to the effect that all the conditions to such Closing shall have
been satisfied as at the date of each such certificate.
Section 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall make available for inspection and review by Investor,
advisors to and representatives of Investor (who may or may not be affiliated
with Investor and who are reasonably acceptable to the Company), any
Underwriter, any Registration Statement or amendment or supplement thereto or
any blue sky, NASD or other filing, all financial and other records, all SEC
Documents and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such information reasonably requested by Investor or any such representative,
advisor or Underwriter in connection with such Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of such Registration Statement for the sole
purpose of enabling Investor and such representatives, advisors and Underwriters
and their respective accountants and attorneys to conduct initial and ongoing
due diligence with respect to the Company and the accuracy of such Registration
Statement.
(b) Each of the Company, its officers, directors, employees and agents
shall in no event disclose non-public information to Investor, advisors to or
representatives of Investor (including, without limitation, in connection with
the giving of the Adjustment Period Notice pursuant to Section 2.4) unless prior
to disclosure of such information the Company identifies such information as
being non-public information and provides Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require Investor's advisors and
representatives to enter into a confidentiality agreement in form and substance
reasonably satisfactory to the Company and Investor.
(c) Nothing herein shall require the Company to disclose non-public
information to Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts; provided, however, that notwithstanding anything herein to
the contrary, the Company shall, as hereinabove provided, immediately notify the
advisors and representatives of Investor and any Underwriters of any event or
the existence of any circumstance(without any obligation to disclose the
specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in a Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.3 shall be construed to mean that such
persons or entities other than Investor (without the written consent of Investor
prior to disclosure of such information) may not obtain non-public information
in the course of conducting due diligence in accordance with the terms and
conditions of this Agreement and nothing herein shall prevent any such persons
or entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, any Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in such Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE VIII
LEGENDS
Section 8.1 LEGENDS.
Unless otherwise provided below, each certificate representing Registrable
Securities will bear the following legend(the "LEGEND"):
The securities represented by this certificate have not been registered under
the Securities Act of 1933 (the "Securities Act") or qualified under applicable
state securities laws. These securities may not be offered, sold, pledged,
hypothecated, transferred or otherwise disposed of except pursuant to (I) an
effective registration statement and qualification in effect with respect
thereto under the Securities Act and under any applicable state securities law,
(ii) to the extent applicable, Rule 144 under the Securities Act, or (iii) an
opinion of counsel reasonably acceptable to the Company that such registration
and qualification is not required under applicable federal and state securities
laws."
As soon as practicable after the execution and delivery hereof, the Company
shall issue to the Transfer Agent Instructions in substantially the form of
Exhibit E hereto. Such instructions shall be irrevocable by the Company from and
after the date thereof or from and after the issuance thereof except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
Transfer Agent to issue to Investor certificates evidencing shares of Common
Stock incident to a Closing (free of the Legend, without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the Transfer Agent by or from
the Company or its counsel or Investor; provided that (a) a Registration
Statement shall then be effective, (b) Investor confirms to the Transfer Agent
and the Company that it has or intends to sell such Common Stock to a third
party which is not an affiliate of Investor or the Company and Investor agrees
to redeliver the certificate representing such shares of Common Stock to the
Transfer Agent to add the Legend in the event the Common Stock is not sold, and
(c) if reasonably requested by the transfer agent or the Company, Investor
confirms to the transfer agent and the Company that Investor has complied with
the prospectus delivery requirement under the Securities Act. At any time after
the Effective Date, upon surrender of one or more certificates evidencing Common
Stock that bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those surrendered).
Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS.
No legend other than the one specified in Section 8.1 has been or shall be
placed on the share certificates representing the Common Stock and no
instructions or"stop transfers orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article VIII.
Section 8.3 INVESTOR'S COMPLIANCE.
Nothing in this Article VIII shall affect in any way Investor's obligations
under any agreement to comply with all applicable securities laws upon resale of
the Common Stock.
Section 8.4 COVER.
If the Company fails for any reason to deliver the Put Shares on such
Closing Date and the holder of the Put Shares (a "Investor") purchases, in an
open market transaction or otherwise, shares of Common Stock (the "Covering
Shares") in order to make delivery in satisfaction of a sale of Common Stock by
such Investor (the "Sold Shares"), which delivery such Investor anticipated to
make using the Put Shares (a "Buy-In"), then the Company shall pay to such
Investor, in addition to all other amounts contemplated in other provisions of
the Transaction Documents, and not in lieu thereof, the Buy-In Adjustment Amount
(as defined below). The "Buy-In Adjustment Amount" is the amount equal to the
excess, if any, of (x) such Investor"s total purchase price (including brokerage
commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by such Investor from the sale of the
Sold Shares. The Company shall pay the Buy-In Adjustment Amount to such Investor
in immediately available funds immediately upon demand by such Investor. By way
of illustration and not in limitation of the foregoing, if such Investor
purchases Covering Shares having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock
that it sold for net proceeds of $10,000, the Buy-In Adjustment Amount that the
Company will be required to pay to such Investor will be $1,000.
Section 8.5 DELAY.
The Company understands that a delay in the issuance of the Put Shares
beyond the Closing Date could result in economic loss to Investor. On and after
the Effective Date as compensation to Investor for such loss, the Company agrees
to pay late payments to Investor for late issuance of Put Shares in accordance
with the following schedule (where "No. of Days Late" is defined as the number
of days beyond the Closing Date):
Late Payment For Each
No. of Days Late $10,000 of Common Stock
---------------- -----------------------
1 $ 100
2 $ 200
3 $ 300
4 $ 400
5 $ 500
6 $ 600
7 $ 700
8 $ 800
9 $ 900
10 $1,000
>10 $1,000 +$200 for each Business Day Late
beyond 10 days
The Company shall pay any payments incurred under this Section 8.5 in
immediately available funds upon demand. Nothing herein shall limit Investor's
right to pursue actual damages for the Company's failure to issue and deliver
the Put Shares to Investor, except to the extent that such late payments shall
constitute payment for and offset any such actual damages alleged by Investor,
and any Buy In Adjustment Amount (as defined below).
ARTICLE IX
NOTICES; INDEMNIFICATION
Section 9.1 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 (a) personally served,(b) deposited in the
mail, registered or certified, return receipt requested, postage prepaid, (c)
delivered by reputable air courier service with charges prepaid, or (d)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice given in accordance herewith. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (i) 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 (ii) on the second business day
following the date of mailing by express courier service or on the fifth
business day after deposited in the mail, in each case, fully prepaid, addressed
to such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to the Company:
NCT Group, Inc.
00 Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Chief Financial Officer
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxx & Xxxxxx LLP
0000 Xxxxxxxxxxxx Xxx. X.X.
Xxxxxxxxxx, X.X. 00000-0000
Attn: Xxxxxxx X. X'Xxxxx
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
if to Investor:
Xxxxxxx Road LLC
Corporate Center
West Bay Road
Grand Cayman
Telephone No.:
Telecopier No.: (000) 000-0000
with a copy to (which shall not constitute notice:
Xxxxxxx & Prager, LLP
Xxxxx 0000
00 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 9.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9.2 INDEMNIFICATION.
The Company agrees to indemnify and hold harmless Investor and its
officers, directors, employees, and agents, and each Person or entity, if any,
who controls Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the Controlling Persons (as
defined in the Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which Investor, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from Investor's failure to perform any
covenant or agreement contained in this Agreement or Investor's or its officers,
directors, employees, agents or Controlling Persons negligence, recklessness or
bad faith in performing its obligations under this Agreement.
Section 9.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS.
All claims for indemnification by any Indemnified Party (as defined below)
under Section 9.2 shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 9.2 (an"INDEMNIFIED
PARTY") might seek indemnity under Section 9.2 is asserted against or sought to
be collected from such Indemnified Party by a person other than a party hereto
or an affiliate thereof (a "THIRD PARTY CLAIM"), the Indemnified Party shall
deliver a written notification, enclosing a copy of all papers served, if any,
and specifying the nature of and basis for such Third Party Claim and for the
Indemnified Party's claim for indemnification that is being asserted under any
provision of Section 9.2 against any person (the"INDEMNIFYING PARTY"), together
with the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such Third Party Claim (a "CLAIM NOTICE") with
reasonable promptness to the Indemnifying Party. If the Indemnified Party fails
to provide the Claim Notice with reasonable promptness after the Indemnified
Party receives notice of such Third Party Claim, the Indemnifying Party shall
not be obligated to indemnify the Indemnified Party with respect to such Third
Party Claim to the extent that the Indemnifying Party's ability to defend has
been prejudiced by such failure of the Indemnified Party. The Indemnifying Party
shall notify the Indemnified Party as soon as practicable within the period
ending thirty (30) calendar days following receipt by the Indemnifying Party of
either a Claim Notice or an Indemnity Notice (as defined below) (the "DISPUTE
PERIOD") whether the Indemnifying Party disputes its liability or the amount of
its liability to the Indemnified Party under Section 9.2 and whether the
Indemnifying Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Third Party Claim.(i)If the Indemnifying Party
notifies the Indemnified Party within the Dispute Period that the Indemnifying
Party desires to defend the Indemnified Party with respect to the Third Party
Claim pursuant to this Section 9.3(a), then the Indemnifying Party shall have
the right to defend, with counsel reasonably satisfactory to the Indemnified
Party, at the sole cost and expense of the Indemnifying Party, such Third Party
Claim by all appropriate proceedings, which proceedings shall be vigorously and
diligently prosecuted by the Indemnifying Party to a final conclusion or will be
settled at the discretion of the Indemnifying Party (but only with the consent
of the Indemnified Party in the case of any settlement that provides for any
relief other than the payment of monetary damages or that provides for the
payment of monetary damages as to which the Indemnified Party shall not be
indemnified in full pursuant to Section 9.2). The Indemnifying Party shall have
full control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that the Indemnified Party may, at the
sole cost and expense of the Indemnified Party, at any time prior to the
Indemnifying Party's delivery of the notice referred to in the first sentence of
this clause (i), file any motion, answer or other pleadings or take any other
action that the Indemnified Party reasonably believes to be necessary or
appropriate protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole cost and expense
of the Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any defense
or settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and except as provided in the preceding sentence,
the Indemnified Party shall bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may takeover
the control of the defense or settlement of a Third Party Claim at any time if
it irrevocably waives its right to indemnity under Section 9.2 with respect to
such Third Party Claim. (ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying Party desires
to defend the Third Party Claim pursuant to Section 9.3(a), or if the
Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying Party fails
to give any notice whatsoever within the Dispute Period, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted by the Indemnified Party in a reasonable manner
and in good faith or will be settled at the discretion of the Indemnified
Party(with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this clause (ii), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such dispute is
resolved in favor of the Indemnifying Party in the manner provided in
clause(iii) below, the Indemnifying Party will not be required to bear the costs
and expenses of the Indemnified Party's defense pursuant to this clause (ii) or
of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this clause (ii), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation. (iii) If the Indemnifying
Party notifies the Indemnified Party that it does not dispute its liability or
the amount of its liability to the Indemnified Party with respect to the Third
Party Claim under Section 9.2 or fails to notify the Indemnified Party within
the Dispute Period whether the Indemnifying Party disputes its liability or the
amount of its liability to the Indemnified Party with respect to such Third
Party Claim, the amount of Damages specified in the Claim Notice shall be
conclusively deemed a liability of the Indemnifying Party under Section 9.2 and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute; provided, however, that it the dispute is not resolved within
thirty (30) days after the Claim Notice, the Indemnifying Party shall be
enlisted to institute such legal action as it deems appropriate.
(b) In the event any Indemnified Party should have a claim under Section
9.2 against the Indemnifying Party that does not involve a Third Party Claim,
the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 9.2 specifying the nature of and basis for such claim,
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (an "INDEMNITY NOTICE") with
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the amount of
Damages specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that it the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be enlisted to institute
such legal action as it deems appropriate.
(c) The indemnity Agreements contained herein shall be in addition to (i)
any cause of action or similar rights of the indemnified party against the
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to.
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York without regard to the principles of conflicts of
law. Each of the Company and Investor hereby submit to the exclusive
jurisdiction of the United States Federal and state courts located in New York
with respect to any dispute arising under this Agreement, the agreements entered
into in connection herewith or the transactions contemplated hereby or thereby.
Section 10.2 SPECIFIC ENFORCEMENT.
The Company and the Investor acknowledge and agree that irreparable damage
would occur to the Investor 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 Investor 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. Section 10.3 ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Company and Investor and their
respective successors and permitted assigns. Neither this Agreement nor any
rights of Investor or the Company hereunder may be assigned by either party to
any other person. Notwithstanding the foregoing, the provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any affiliate of
Investor which is a transferee of any of the Common Stock purchased or acquired
by Investor hereunder with respect to the Common Stock held by such person.
Section 10.4 THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the Company and Investor and
their respective successors and permitted assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other person.
Section 10.5 TERMINATION.
This Agreement shall terminate at the termination of the Commitment Period
(unless extended by the agreement of the Company and Investor); provided,
however, that the provisions of Article VI, VIII, and Sections [10.1, 10.2, and
10.4] shall survive the termination of this Agreement.
Section 10.6 ENTIRE AGREEMENT, AMENDMENT; NO WAIVER.
This Agreement and the instruments referenced herein contain the entire
understanding of the Company and Investor with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party to
be charged with enforcement.
Section 10.7 FEES AND EXPENSES.
Each of the Company and Investor agrees to pay its own expenses in
connection with the preparation of this Agreement and performance of its
obligations hereunder, except that the Company shall pay Xxxxxxx & Xxxxxx, LLP
the fee of $25,000 at the Initial Closing and $2,750 at each subsequent Closing
at which the Company receives cash and not solely Other Consideration, plus
$6,500 at the first such Subsequent Closing the Company receives cash; provided
that at any Subsequent Closing where the Company receives cash it shall also pay
such counsel $2,750 in arrears for any Subsequent Closing at which the Company
received solely Other Consideration and no cash. In addition, the Company shall
pay all reasonable fees and expenses incurred by the Investor in connection with
any amendments, modifications or waivers of this Agreement or the Registration
Rights Agreement or incurred in connection with the enforcement of this
Agreement and the Registration Rights Agreement, including, without limitation,
all reasonable attorneys fees and expenses. The Company shall pay all stamp or
other similar taxes and duties levied in connection with issuance of the Shares
pursuant hereto.
Section 10.8 NO BROKERS.
Each of the Company and Investor represents that it has had no dealings in
connection with this transaction with any finder or broker who will demand
payment of any fee or commission from the other party. The Company on the one
hand, and Investor, 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 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. Section 10.9 COUNTERPARTS.
This Agreement may be executed in multiple counterparts, each of which may be
executed by less than all of the Company and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing
such counterparts and all of which together shall constitute one and the same
instrument. This Agreement, once executed by a party, may be delivered to the
other parties hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the parties so delivering this Agreement.
Section 10.10 SURVIVAL; SEVERABILITY.
The representations, warranties, covenants and agreements of the Company
hereto shall survive each Closing hereunder for a period of one (1) year
thereafter. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 10.11 FURTHER ASSURANCES.
Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
Section 10.12 NO STRICT CONSTRUCTION.
The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
Section 10.13 EQUITABLE RELIEF.
The Company recognizes that in the event that it fails to perform, observe,
or discharge any or all of its obligations under this Agreement, any remedy at
law may prove to be inadequate relief to Investor. The Company therefore agrees
that Investor shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages.
Section 10.14 TITLE AND SUBTITLES.
The titles and subtitles used in this Agreement are used for the
convenience of reference and are not to be considered in construing or
interpreting this Agreement.
Section 10.15 REPORTING ENTITY FOR THE COMMON STOCK.
The reporting entity relied upon for the determination of the Bid Price and
the trading volume of the Common Stock on any given Trading Day for the purposes
of this Agreement shall be Bloomberg L.P. or any successor thereto. The written
mutual consent of Investor and the Company shall be required to employ any other
reporting entity.
Section 10.16 PUBLICITY.
The Company and Investor shall consult with each other in issuing any press
releases or otherwise making public statements with respect to the transactions
contemplated hereby and no party shall issue any such press release or otherwise
make any such public statement without the prior written consent of the other
parties, which consent shall not be unreasonably withheld or delayed, except
that no prior consent shall be required if such disclosure is required by law,
in which such case the disclosing party shall provide the other parties with
prior notice of such public statement. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of Investor without the prior
written consent of such Investor, except to the extent required by law. Investor
acknowledges that this Agreement and all or part of the Transaction Documents
may be deemed to be "material contracts" as that term is defined by Item
601(b)(10) of Regulation S-K, and that the Company may therefore be required to
file such documents as exhibits to reports or registration statements filed
under the Securities Act or the Exchange Act. Investor further agrees that the
status of such documents and materials as material contracts shall be determined
solely by the Company, in consultation with its counsel.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
NCT GROUP, INC.
By: /s/XX X. XXXXXXX
Name: Xx X. Xxxxxxx
Title: Chief Financial Officer
XXXXXXX ROAD LLC
By: /s/ XXXXXXXX XXXXXXXXX
Name: Xxxxxxxx Xxxxxxxxx
Title: Director
Navigatore Management Ltc.
By: /s/ XXXXXX XXXXXXXX
Name: Xxxxxxx Xxxxxxxx
Title: Director
Navigatore Management Ltc.
EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Put Notice
EXHIBIT C Opinion
EXHIBIT D Closing Certificate
EXHIBIT E Transfer Agent Instructions
EXHIBIT F Warrant
EXHIBIT A TO PRIVATE
EQUITY CREDIT AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of September 27,
2000, is made by and between NCT GROUP, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Company"), and XXXXXXX
ROAD LLC, a Cayman Islands LLC (the "Subscriber").
Recitals
WHEREAS, upon the terms and subject to the conditions of the Common Stock
Purchase Agreement ("Purchase Agreement"), between the Subscriber and the
Company, the Company has agreed to issue and sell to the Subscriber up to Fifty
Million Dollars ($50,000,000) of the common stock of the Company ("Subscribed
Shares") par value $.01 per share (the "Common Stock"), and
WHEREAS, pursuant to the terms of the Purchase Agreement the Company will
issue to the Subscriber warrants: (i) upon the effectiveness of the Registration
Statement required to be filed pursuant to Section 2 hereof, and (ii) to
purchase shares of Common Stock ("Warrants") on a pro rata basis in conjunction
with the draw downs, as set forth in the Purchase Agreement, exercisable at 100%
of the closing bid price, at the date of each draw down.
WHEREAS, to induce the Subscriber to execute and deliver the Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, "Securities Act"),
and applicable state securities laws with respect to the Subscribed Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Subscriber
hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the following
meanings:
(i) "Potential Material Event" means any of the following: (a) the
possession by the Company of material information not ripe for
disclosure in a Registration Statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company
that disclosure of such information in the Registration Statement
would be detrimental to the business and affairs of the Company, or
(b) any material engagement or activity by the Company which would, in
the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a Registration Statement at
such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the
Registration Statement would be materially misleading absent the
inclusion of such information.
(ii) "Subscription Date" means the date of this Agreement.
(iii)"Subscriber", has the meaning set forth in the preamble to this
Agreement.
(iv) "Register", "registered" and "registration" refer to a
registration effected by preparing and filing a Registration Statement
or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for
offering securities on a delayed or continuous basis ("Rule 415"), and
the declaration or ordering of effectiveness of such Registration
Statement by the United States Securities and Exchange Commission (the
"SEC").
(v) "Registrable Securities" means the Subscribed Shares and the
Warrant Shares.
(vi) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(vii) "Warrant" means the Initial Warrant, Registration Warrant, and
any Further Warrants.
(b) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Purchase Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, no later than fifteen (15) business days after the Subscription Date, a
Registration Statement on Form S-3 (if use of such other form is then available
to the Company pursuant to the rules of the SEC and, if not, on such other form
promulgated by the SEC for which the Company then qualifies and which counsel
for the Company shall deem appropriate for the offering of the Registrable
Securities), or on Form S01 in connection with a secondary resale of the
Company's Common Stock ("Registration Statement"), registering for distribution
by the Subscriber no less than 25,000,000 shares of Common Stock (the "Initial
Registrable Securities"). Such Registration Statement shall state that, in
accordance with Rules 416 and 457 under the Securities Act, it also covers such
indeterminate number of additional shares of Common Stock as may become issuable
to prevent dilution resulting from stock splits, or stock dividends. If at any
time (i) the number of Subscribed Shares and (ii) the number of shares of Common
Stock issuable upon exercise of the Warrants exceeds the aggregate number of
shares of Common Stock then registered, the Company shall, within thirty (30)
business days after receipt of written notice from the Subscriber, file with the
SEC an additional Registration Statement on Form S-3 or any other applicable
registration statement, to register (i) Subscribed Shares and (ii) the shares of
Common Stock issuable upon exercise of the Warrants that exceed the aggregate
number of shares of Common Stock already registered.
(b) Payment by the Company. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not declared effective within one hundred and fifty (150) days
from the Subscription Date, then the commitment contained in the Common Stock
Purchase Agreement and in this Agreement (the "Commitment") shall terminate and
the Subscriber shall be entitled to the sums set forth in Section 2.1(b) of the
Private Equity Credit Agreement.
(c) Failure to Maintain Effectiveness Of A Registration Statement. In the
event the Company fails to have the Registration Statement declared effective
within one hundred fifty (150) days from the Subscription Date, or to maintain
the effectiveness of any Registration Statement (or the underlying prospectus),
including the payment of all necessary fees, until the earlier of the time that
Investor either sells the Put Shares or eighteen (18) months from the last day
of the calendar month in which the Put Notice pursuant to which Shares were
issued was given (the "Registration Period"), other than temporary suspensions
permitted by Section 3(h), and the Investor holds any Put Shares or Warrant
Shares included in the Registration Statement at any time during such period,
the Company shall at the Investor's option, redeem the Put Shares at the
Investment Amount or pay to the Investor liquidated damages in immediately
available funds into an account designated by the Investor an amount equal to
three percent (3%) of the aggregate Purchase Price of Put Shares, resulting from
any Put Notice, if any, then held by the Investor for each thirty (30) calendar
day period (prorated for partial periods).
3. Obligation of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC within thirty (30) days of the
Subscription Date, a Registration Statement with respect to not less than the
number of Registrable Securities provided in Section 2(a) above, and,
thereafter, use all diligent efforts to cause the Registration Statement
relating to the Registrable Securities to become effective the earlier of (a)
five (5) business days after notice from the Securities and Exchange Commission
that the Registration Statement may be declared effective, or (b) one hundred
fifty (150) days after the Subscription Date, and keep the Registration
Statement effective at all times until the earliest of (i) the date that is [one
year] after the completion of the last Closing Date under the Purchase
Agreement, (ii) the date when the Subscriber may sell all Registrable Securities
under Rule 144 without volume limitations, or (iii) the date the Subscriber no
longer owns any of the Registrable Securities (collectively, the "Registration
Period"), which Registration Statement (including any amendments or supplements,
thereto and prospectuses contained therein) shall 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, in the light of the
circumstances under which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration Statement effective at all times during the Registration
Period, and, during the Registration Period, and to comply with the provisions
of the Securities Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement until the
expiration of the Registration Period.
(c) Permit a single firm of counsel designated by Subscriber to review the
Registration Statement and all amendments and supplements thereto a reasonable
period of time (but not less than three (3) Business Days) prior to their filing
with the SEC, and not file any document in a form to which such counsel
reasonably objects.
(d) Notify Subscriber and Subscriber's legal counsel identified to the
Company (which, until further notice, shall be deemed to be Xxxxxxx & Xxxxxx,
LLP, ATTN: Xxxxxx Xxxxxxx, Esq.; "Subscriber's Counsel") (and, in the case of
(i)(A) below, not less than one (1) Business Day prior to such filing) and (if
requested by any such person) confirm such notice in writing no later than one
(1) Business Day following the day (i): (A) when a prospectus or any prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) whenever the SEC notifies the Company whether there will be a
"review" of such Registration Statement; and (C) with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective; [(ii) of any request by the SEC or any other Federal or state
governmental authority for amendments or supplements to the Registration
Statement or the prospectus or for additional information;] (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any proceedings for that purpose; (iv) if at any time any of the
representations or warranties of the Company contained in any agreement
(including any securities purchase agreement) contemplated hereby ceases to be
true and correct in all material respects; (v) of the receipt by the Company of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any proceeding for such
purpose; and (vi) of the occurrence of any event that to the knowledge of the
Company makes any statement made in the Registration Statement or the prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, the prospectus or other documents so that, in the case
of the Registration Statement or the prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(e) Furnish to Subscriber, (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company, one (1)
copy of the Registration Statement, each preliminary prospectus and the
prospectus, and each amendment or supplement thereto, and (ii) such number of
copies of a prospectus, [including a preliminary prospectus], and all amendments
and supplements thereto and such other documents, as the Subscriber may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by the Subscriber;
(f) Use all diligent efforts to (i) register and/or qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Subscriber may reasonably request and
in which significant volumes of shares of Common Stock are traded, (ii) prepare
and file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualification in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions:
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(f), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to the
Company or (E) make any change in its charter or by-laws or any then existing
contracts, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders;
(g) As promptly as practicable after becoming aware of such event, notify
the Subscriber of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes any 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, in the light of the circumstances under which they were
made, not misleading ("Registration Default"), and use its best efforts to
promptly prepare a supplement or amendment to the Registration Statement or
other appropriate filing with the SEC to correct such untrue statement or
omission, and any other necessary steps to cure the Registration Default, and
deliver a number of copies of such supplement or amendment to the Subscriber as
the Subscriber may reasonably request. [Failure to cure the Registration Default
within fifteen (15) business days shall result in the Company incurring a
liquidated damage penalty of $1,000 per day for so long as more than 10,000
shares of Common Stock are held by the Subscriber;
(h) As promptly as practicable after becoming aware of such event, notify
the Subscriber (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the SEC of any notice of effectiveness or any
stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(i) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies Subscriber in writing of the existence of a Potential Material Event
("Blackout Notice"), Subscriber shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until Subscriber receives written notice from the
Company that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event; provided, however,
that (a) the Company may not so suspend the right of the Subscriber to sell the
Registrable Securities for more than two fifteen (15) day periods in the
aggregate during any 12-month period ("Blackout Period") with at least a ten
(10) Business Day interval between such periods, during the periods the
Registration Statement is required to be in effect.
(j) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("Nasdaq) "Small Capitalization" within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on the Nasdaq Small Cap
Market; or if, despite the Company's commercially reasonable efforts to satisfy
the preceding clause (i) or (ii), the Company is unsuccessful in doing so, to
secure NASD authorization and quotation for such Registrable Securities on the
over-the-counter bulletin board and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities; provided, however, that the Subscriber
acknowledges that the Company does not currently meet the requirements for
listing on a national securities exchange or the Nasdaq Small Cap Market
pursuant to (i) or (ii) and that nothing in this section shall be construed to
require the Company to pursue such qualification until such time as the Company
satisfies such requirements for a period of not less than forty-five (45) days;
(k) Provide a transfer agent for the Registrable Securities not later than
the Effective Date of the Registration Statement;
(l) Cooperate with the Subscriber to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be offered pursuant
to the Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Subscriber may reasonably request and registration in such names as the
Subscriber may reasonably request; and, within five (5) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Subscriber) an appropriate instruction and
opinion of such counsel, if so required by the Company's transfer agent; and
(m) Take all other reasonable actions necessary to expedite and facilitate
distribution to the Subscriber of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Subscriber. In connection with the registration of
the Registrable Securities, the Subscriber shall have the following obligations;
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of the Subscriber that the Subscriber shall timely
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall timely execute such
documents in connection with such registration as the Company may reasonably
request.
(b) The Subscriber by such Subscriber's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder; and
(c) The Subscriber agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(g) or 3(h)
above, the Subscriber will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until the Subscriber receives the copies of the supplemented or
amended prospectus contemplated by Section 3(g) or 3(h) and, if so directed by
the Company, the Subscriber shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in the Subscriber's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. (a) All reasonable expenses (other than
underwriting discounts and commissions to the Subscriber) incurred in connection
with Registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all Registration, listing, and qualifications fees, printers
and accounting fees, the fees and disbursements of counsel for the Company and a
fee for a single counsel for Investor of $4,500 for the initial Registration
Statement and $2,000 for each Additional Registration Statement covering the
Registrable Securities shall be borne by the Company; and
(b) Except as otherwise provided for in Schedule 5(b) attached hereto, the
Company nor any of its subsidiaries has, as of the date hereof, and the Company
shall not on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to
Investor in this Agreement or otherwise conflicts with the provisions hereof.
Except as otherwise provided for in Schedule 5(b), the Company has not
previously entered into any agreement granting any registration rights with
respect to any of its securities to any person. Except as otherwise provided for
in this Section 5, and without limiting the generality of the foregoing, without
the written consent of Investor, the Company shall not grant to any person the
right to request the Company to Register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to the
prior rights in full of Investor set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement and the other
Transaction Documents.
6. Indemnification. After Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless, the Subscriber, the directors, if any, of such Subscriber, the
officers, if any, of such Subscriber, each person, if any, who controls the
Subscriber within the meaning of the Securities Act or the Exchange Act (each,
an "Indemnified Person"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereof or 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, (ii) any
untrue statement or alleged untrue statement of a material fact contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in the light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being
collectively referred to as "Violations"). The Company shall reimburse the
Subscriber, promptly as such expenses are incurred and are due and payable, for
any reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (i) apply to any Claims arising out of
or based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (ii) be available to the extent such Claim is based on a failure of
the Subscriber to deliver or cause to be delivered the prospectus made available
by the Company; or (iii) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. The Subscriber will indemnify
the Company, its officers, directors and agents (including legal counsel) (each
an "Indemnified Person") against any claims arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of such Subscriber,
expressly for use in connection with the preparation of the Registration
Statement, subject to such limitations and conditions set forth in this Section
6. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person or Indemnified
Party, and shall survive the offering of the Registrable Securities by the
Subscriber.
(b) Promptly after receipt by an Indemnified Person under this Section 6 of
notice of the commencement of any action (including any governmental action),
such Indemnified Person shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Person, as the case may be; provided,
however, that an Indemnified Person shall have the right to retain its own
counsel with the reasonable fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person and the
indemnifying party would be inappropriate due to actual or potential differing
interests between such Indemnified Person and any other party represented by
such counsel in such proceeding. [In such event, the Company shall pay for only
one separate legal counsel for the Subscriber selected by the Subscriber.] The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person under this Section 6, except to
the extent that the indemnifying party is prejudiced in its ability to defend
such action. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as such expense, loss, damage or liability is incurred and is due
and payable.
7. Contribution. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Subscriber the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Subscriber to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Exchange Act; and
(c) furnish to the Subscriber so long as the Subscriber owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Subscribers to sell such securities pursuant to Rule 144 without registration.
9. Miscellaneous.
(a) Registered Owners. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Rights Cumulative; Waivers. The rights of each of the parties under
this Agreement are cumulative. The rights of each of the parties hereunder shall
not be capable of being waived or varied other than by an express waiver or
variation in writing. Any failure to exercise or any delay in exercising any of
such rights shall not operate as a waiver or variation of that or any other such
right. Any defective or partial exercise of any of such rights shall not
preclude any other or further exercise of that or any other such right. No act
or course of conduct or negotiation on the part of any party shall in any way
preclude such party from exercising any such right or constitute a suspension or
any variation of any such right.
(c) Benefit; Successors Bound. This Agreement and the terms, covenants,
conditions, provisions, obligations, undertakings, rights, and benefits hereof,
shall be binding upon, and shall inure to the benefit of, the undersigned
parties and their heirs, executors, administrators, representatives, successors,
and permitted assigns.
(d) Entire Agreement. This Agreement contains the entire agreement between
the parties with respect to the subject matter hereof. There are no promises,
agreements, conditions, undertakings, understandings, warranties, covenants or
representations, oral or written, express or implied, between them with respect
to this Agreement or the matters described in this Agreement, except as set
forth in this Agreement and in the other documentation relating to the
transactions contemplated by this Agreement. Any such negotiations, promises, or
understandings shall not be used to interpret or constitute this Agreement.
(e) Assignment. The rights to have the Company register Registrable
Securities pursuant to this Agreement may be assigned by the Subscribers to any
transferee, only if: (a) the assignment relates to not less than one million
dollars ($1,000,000) of Registrable Securities and the Transferee is an
Institutional Accredited Investor under Regulation D; (b) the Company receives a
legal opinion in form and substance satisfactory to the Company that the
proposed transfer complies with federal and state securities laws and does not
adversely effect the validity of the transactions executed (or to be executed)
under this Agreement and the Purchase Agreement under federal and state
securities laws; (c) the assignment requires that the Transferee be bound by all
of the provisions contained in this Agreement, and Subscriber, the Company and
the transferee or assignee (the "Transferee") enter into a written agreement,
which shall be enforceable by the Company against the Transferee and by the
Transferee against the Company, to assign such rights; and (d) immediately
following such transfer or assignment the further disposition of such securities
by the transferee or assignee is restricted under the Securities Act and
applicable state securities laws. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay.
(f) Amendment. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and Subscriber. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon the Company and any subsequent Transferees.
(g) Severability. Each part of this Agreement is intended to be severable.
In the event that any provision of this Agreement is found by any court or other
authority of competent jurisdiction to be illegal or unenforceable, such
provision shall be severed or modified to the extent necessary to render it
enforceable and as so severed or modified, this Agreement shall continue in full
force and effect.
(h) Notices. Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, at its executive office and (ii) if to the Subscriber, at the address
set forth under its name in the Purchase Agreement, with a copy to its
designated attorney, or at such other address as each such party furnishes by
notice given in accordance with this Section 9(a), and shall be effective, when
personally delivered, upon receipt and, when so sent by certified mail, five (5)
business days after deposit with the United States Postal Service.
(i) Governing Law. This Agreement shall be governed by the interpreted in
accordance with the laws of the State of New York without reference to its
conflicts of laws rules or principles. Each of the parties consents to the
exclusive jurisdiction of the federal courts of the State of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions.
(j) Consents. The person signing this Agreement on behalf of each party
hereby represents and warrants that he has the necessary power, consent and
authority to execute and deliver this Agreement on behalf of that party.
(k) Further Assurances. In addition to the instruments and documents to be
made, executed and delivered pursuant to this Agreement, the parties hereto
agree to make, execute and deliver or cause to be made, executed and delivered,
to the requesting party such other instruments and to take such other actions as
the requesting party may reasonably require to carry out the terms of this
Agreement and the transactions contemplated hereby.
(l) Section Headings. The Section headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(m) Construction. Unless the context otherwise requires, when used herein,
the singular shall be deemed to include the plural, the plural shall be deemed
to include each of the singular, and pronouns of one or no gender shall be
deemed to include the equivalent pronoun of the other or no gender.
(n) Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement. A facsimile transmission of this signed Agreement
shall be legal and binding on all parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
NCT GROUP, INC.
By: /s/XX X. XXXXXXX
Name: Xx X. Xxxxxxx
Title: Chief Financial Officer
XXXXXXX ROAD LLC
By: /s/ XXXXXXXX XXXXXXXXX
Name: Xxxxxxxx Xxxxxxxxx
Title: Director
Navigatore Management Ltc.
By: /s/ XXXXXX XXXXXXXX
Name: Xxxxxxx Xxxxxxxx
Title: Director
Navigatore Management Ltc.
