Exhibit 10 (bq)
PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
NCT GROUP, INC.
AND
XXXXXXX ROAD LLC
Dated as of July 25, 2002
THIS PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 25th day of
July 2002 (this "AGREEMENT"), by and between XXXXXXX ROAD LLC, an entity
organized and existing under the laws of 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) of the
Company; 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):
"ADDITIONAL CLOSING DATE" shall mean the twelfth (12th) Trading Day
following the Put Date related to a 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.
"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 PERIOD" shall have the meaning specified in the Registration
Rights Agreement.
"BLACKOUT SHARES" shall have the meaning specified in Section 2.6.
"BUY-IN" shall have the meaning specified in Section 8.4.
"BUY-IN ADJUSTMENT AMOUNT" shall have the meaning specified in Section 8.4.
"BY-LAWS" shall have the meaning specified in Section 4.8.
"CERTIFICATE" shall have the meaning specified in Section 4.8.
"CLAIM NOTICE" shall have the meaning specified in Section 9.3(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 fifth (5th)
Trading Day following the Put Date related to such Closing, 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 the
Investment Obligation of Investor is terminated pursuant to or as contemplated
by Section 2.5, or (iii) the date which is twenty-four (24) 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 a 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 mean each of (a) the date of delivery
of the relevant Put Notice and (b) the applicable Closing Date for such Put
Notice.
"CONTROL PERSON" shall mean each director, executive officer, promoter, and
such other Persons as may be deemed in control of the Company pursuant to
Section 15 under the Securities Act or Section 20 of the Exchange Act.
"COVERING SHARES" shall have the meaning specified in Section 8.4.
"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.
"DISCOUNT" shall mean ten percent(10%).
"DISPUTE PERIOD" shall have the meaning specified in Section 9.3(a).
"DTC" shall have the meaning specified in Section 2.3(c).
"DWAC" shall have the meaning specified in Section 2.3(c).
"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.
"ESCROW AGREEMENT" shall mean the Joint Escrow Instructions in the form
annexed hereto as Exhibit G.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder.
"FAST" shall have the meaning specified in Section 2.3(c).
"HOLDER" shall have the meaning specified in Section 8.4.
"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).
"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.
"INVESTMENT OBLIGATION" shall mean the obligation of Investor to purchase
Common Stock pursuant to, and subject to, the terms of this Agreement.
"INVESTOR" shall have the meaning specified in the preamble to this
Agreement.
"LAST AUDIT DATE" shall mean December 31, 2001.
"MARKET PRICE" on any given date shall mean the average of the lowest Bid
Prices (not necessarily consecutive) for any three (3) Trading Days during the
ten (10) Trading Days immediately following the Put Date.
"MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, prospects, properties, 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 either of (a) this Agreement or (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)
One Million Dollars ($1,000,000), or (b) one hundred fifty (150%) percent of the
Weighted Average Volume for the twenty (20) Trading Days immediately preceding
the Put Date.
"MINIMUM COMMITMENT AMOUNT" shall mean Five Million ($5,000,000) Dollars.
"MINIMUM PUT AMOUNT" shall mean Fifty Thousand Dollars ($50,000).
"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 Section 2.6.
"NEW INVESTOR" shall have the meaning specified in Section 6.15(a).
"NEW TRANSACTION" shall have the meaning specified in Section 6.15(a).
"NEW TRANSACTION OFFER" shall have the meaning specified in Section
6.15(a).
"OLD BID PRICE" shall have the meaning specified in Section 2.6.
"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.
"PERMITTED SUSPENSION PERIOD" shall have the meaning specified in the
Registration Rights Agreement.
"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 which is at the time
the principal trading market or exchange for the Common Stock.
"PRIOR AGREEMENTS" shall have the meaning specified in Section 6.17.
"PURCHASE PRICE" shall mean 90% of the Market Price with respect to a Put.
"PUT" shall mean 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 the Investor, as may be applicable, setting forth the
Investment Amount pursuant to the terms of this Agreement, and specifying 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 (a) the Put Shares, (b) the Blackout
Shares, (c) the Warrant Shares, and (d) 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 for the Company, such Registrable Securities may
be sold without registration under the Securities Act or 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-1
(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.
"REGULATION D" shall mean Rules 501 et seq. under the Securities Act.
"RELEASING PARTIES" shall have the meaning specified in Section 6.17.
"REMAINING PUT SHARES" shall have the meaning specified in Section 2.6.
"RIGHT OF FIRST REFUSAL" shall have the meaning specified in Section
6.15(a).
"RIGHT OF FIRST REFUSAL EXPIRATION DATE" shall have the meaning specified
in Section 6.15(a).
"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 preamble to this
Agreement.
"SECURITIES ACT" shall have the meaning specified in the preamble to this
Agreement.
"SEC DOCUMENTS" shall mean, as of a particular date, all reports and other
documents filed by the Company pursuant to the Securities Act or 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 (90) 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).
"SOLD SHARES" shall have the meaning specified in Section 8.4.
"SUBSCRIPTION DATE" shall mean the date on which this Agreement is executed
and delivered by the Company and Investor.
"THIRD PARTY CLAIM" shall have the meaning specified in Section 9.3(a).
"TRADING CUSHION" shall mean a minimum of ten (10) Trading Days after the
Additional Closing Date, 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 Agreement, the Registration Rights
Agreement, and all Exhibits specifically referred to herein (the Warrant,
Closing Certificate, and the Transfer Agent instructions described in Section
8.1.)
"TRANSFER AGENT" shall mean the transfer agent for the Common Stock (and
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;
(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
(other than such shares issued pursuant to and in accordance with
the terms of a stock option plan in effect prior to March 1,
2002);
(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) issues 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 shares 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, 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 tenth (10th) Trading Day after
such occurrence (and, in such event, the Put Date for the most recently issued
Put Notice shall be automatically revised to be the date of the occurrence of
such Valuation Event for all purposes of this Agreement).
"WARRANT" shall have the meaning specified in Section 2.4.
"WARRANT SHARES" shall mean the shares of Common Stock issuable on exercise
of the Warrant.
"WEIGHTED AVERAGE VOLUME" shall mean the average of the respective products
of (a) the Bid Price for each relevant Trading Day, multiplied by (b) the volume
on the Principal Market for that Trading Day.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 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 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 Purchase Price as applicable with respect to such Put Date.
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time during the Commitment Period, the Company may
deliver a Put Notice to the Investor, subject to the conditions set forth in
Section 7.2; provided, however, the Investment Amount for each Put in the
applicable Put Notice shall be not less than the Minimum Put Amount, nor more
than the Maximum Put Amount. No Put Notice may be issued prior to the expiration
of the Trading Cushion.
(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.
(a) On or prior to each Closing Date for a Put, (x) the Company shall
deliver to Escrow Agent one or more certificates representing the Put Shares to
be purchased by Investor pursuant to Section 2.1 herein based on the Bid Price
for the first three Trading Days after delivery of the Put Notice, registered in
the name of Investor and (y) Investor shall deliver seventy-five percent (75%)
of the Investment Amount to the Escrow Agent by wire transfer of immediately
available funds to an account designated by the Escrow Agent on or before the
Closing Date. (b) On or prior to each Additional Closing Date, (x) the Company
shall deliver to Escrow Agent one or more certificates, at Investor's option,
representing the balance of Put Shares purchased by Investor pursuant to Section
2.1 herein, less the Put Shares delivered under Section 2.3(a), registered in
the name of Investor and (y) Investor shall deliver the balance of the
Investment Amount to the Escrow Agent.
Immediately after each Closing, Escrow Agent shall promptly wire the
appropriate funds to an account designated by the Company.
(c) In lieu of delivering physical certificates representing the Common
Stock issuable in accordance with clauses (a) and (b) 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.
(d) In addition, on or prior to such Closing Date and Additional Closing
Date, each of the Company and Investor shall deliver to the Escrow Agent all
documents, opinions, 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. Subject to the terms
of the Escrow Agreement, 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 WARRANT. The Company agrees to issue to Investor upon execution
hereof, a transferable, divisible warrant to purchase 1,000,000 shares of Common
Stock (the "Warrant"), which shall be substantially in the form of Exhibit F,
shall (a) have an exercise price per share equal to one hundred twenty-five
(125%) percent of the Bid Price for the Trading Day immediately prior to the
date of this Agreement, (b) be exercisable commencing after the date of issuance
and expiring on the date which is the fifth anniversary of the date of issuance,
(c) have cashless exercise rights, and (d) have registration rights under the
Registration Rights Agreement and piggy-back registration rights thereafter.
Section 2.5 TERMINATION OF INVESTMENT OBLIGATION. The Investment Obligation
of Investor shall, at the Investor's option, 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
Permitted Suspension Period in accordance with and subject to the terms of the
Registration Rights Agreement, as a result of corporate developments subsequent
to or made public 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 Sections 6.3,
6.4, or 6.6 and such failure shall continue for more than thirty (30) days. The
Investment Obligation of Investor shall also expire as provided in Section 2(b)
of the Registration Rights Agreement.
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. 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 pay to the Investor, in
immediately available funds, the product of (x) the balance of the Minimum
Commitment Amount for which Put Notices have not been issued and (y) the
Discount.
Section 2.8 LIQUIDATED DAMAGES. Each of the Company and Investor
acknowledge and agree that 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 acknowledges that (a) the amount of loss or damages
likely to be incurred is incapable or is difficult to precisely estimate, (b)
the amount specified in such Section 2.6 bears a reasonable proportion and is
not plainly or grossly disproportionate to the probable loss likely to be
incurred by Investor 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 Investor 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 jurisdiction identified next to its name in the preamble to this Agreement,
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 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,
Articles of Association, Certificate of Incorporation 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 as
relates in any manner to this Agreement.
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
identified next to its name in the preamble to this Agreement 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 constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its 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 the date of this Agreement, the
authorized capital stock of the Company consists of 645,000,000 shares of Common
Stock, par value $.01 per share, of which as of June 30, 2002, 435,218,842
shares were issued and outstanding, and 10,000,000 shares of preferred stock,
par value $.10 per share of which 1,800 Series H shares are outstanding as of
the date hereof. Except for options to purchase 94,755,330 shares of Common
Stock, warrants to purchase 65,866,808 shares of Common Stock, and conversion
rights and exchange rights to purchase 651,411,024 shares of Common Stock, and
any rights to purchase shares of Common Stock existing under the April 12, 2001
Private Equity Credit Agreement between the Company and Investor; there were, as
of June 30, 2002, 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 authorized and
validly 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
NASD/Over-the-Counter Bulletin Board Market.
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 authorized 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, except as may
be provided in applicable law.
Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor any person
authorized to act 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) has 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 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
Principal 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 the Last Audit Date, 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 business since the Last
Audit Date and which, individually or in the aggregate, do not or would not have
a Material Adverse Effect.
Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since the Last Audit
Date, no event or circumstance has occurred or exists with respect to the
Company 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 or otherwise.
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 be set 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, nor any
Person representing the Company 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.
Section 4.17 ABSENCE OF CERTAIN CONTROL PERSON ACTIONS OR EVENTS. None of
the following has occurred during the past ten (10) years with respect to the
Company (or any subsidiary or predecessor entity) or any Control Person:
(1) A petition under the federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or
similar officer was appointed by a court for the business or property
of such Control Person, or any partnership in which he was a general
partner at or within two years before the time of such filing, or any
corporation or business association of which he was an executive
officer at or within two years before the time of such filing;
(2) Such Control Person was convicted in a criminal proceeding or is a
named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) Such Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any court
of competent jurisdiction, permanently or temporarily enjoining him
from, or otherwise limiting, the following activities:
(i) acting, as an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, as a futures commission
merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, any other Person regulated
by the Commodity Futures Trading Commission ("CFTC") or engaging
in or continuing any conduct or practice in connection with such
activity; (ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal
commodities laws;
(4) Such Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any
federal or state authority barring, suspending or otherwise limiting
for more than 60 days the right of such Control Person to engage in
any activity described in paragraph (3) of this item, or to be
associated with Persons engaged in any such activity; or (5) Such
Control Person was found by a court of competent jurisdiction in a
civil action or by the CFTC or SEC to have violated any federal or
state securities law, and the judgment in such civil action or finding
by the CFTC or SEC has not been subsequently reversed, suspended, or
vacated.
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. The Company specifically acknowledges
that, except to the extent specifically provided herein or in any of the other
Transaction Documents (but limited in each instance to the extent so specified),
the Investor retains the right (but is not otherwise obligated) to buy, sell, or
otherwise trade in the securities of the Company, including, but not necessarily
limited to, the Common Stock, at any time before, contemporaneous with or after
the execution of this Agreement or from time to time and in any manner
whatsoever permitted by applicable federal and state securities laws.
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 of the
effectiveness of the Registration Statement, the Company shall reserve and keep
available at all times, free of preemptive rights, 125% of the number of shares
of Common Stock necessary, from time to time, to enable the Company to satisfy
any obligation to issue the Put Shares for the Minimum Commitment Amount (based
upon the then applicable Market Price as if a Put Date occurred twelve Trading
Days before the last Trading Day of the most recent fiscal quarter of the
Company) and the Blackout Shares, if any, and to issue shares of Common Stock in
connection with the exercise of the Warrant. 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 125% 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
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. 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 use its best efforts to
remain in compliance 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 the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under the Exchange 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 or make
available to Investor, promptly after the originals thereof are submitted to the
SEC for filing, copies of all SEC Documents.
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 or for amendments or supplements to the registration
statement or related prospectus; (b) the issuance by the SEC, any other federal
or state governmental authority or the Principal Market of any stop order
suspending the effectiveness of any Registration Statement or the initiation of
any proceedings for that purpose, or of its qualification and listing on such
Principal Market; (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, in the light of the circumstances
under which they were made, 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 and 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
breach of this Agreement, 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 breach of this Agreement,
gross negligence or willful misconduct or by reason of its trading of the Common
Stock in a manner that is illegal under applicable law, 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 6.11 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 Control 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, except that
officers and/or directors of the Company shall have no personal liability for
the Company's obligations under this Section.
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 or during any Valuation 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, if any, paid by the Company for legal fees and
escrow fees in connection with the sale of the Common Stock) for general
corporate purposes, and the Company shall not materially vary such purpose
without the prior written consent of the Investor in each instance. 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 or obligation or advance by the Company to any affiliate
or Control Person.
Section 6.14 CERTAIN AGREEMENTS. (a) The Company covenants and agrees that
during the period from the date hereof through the end of the Commitment Period,
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 below
the Market Price (as defined herein) on any date which is prior or subsequent to
thirty (30) days prior to or following each Closing Date.
(b) In the event the Company breaches the provisions of this Section 6.14,
the Discount shall be amended to be equal to (x) 110% of the Discount in effect
immediately prior to such event for all Put Shares held of record by the
Investor, and (y) the Investor may terminate his obligations under this
Agreement.
Section 6.15 RIGHT OF FIRST REFUSAL.
(a) In addition to, and not in limitation of the provisions of Section
6.14, the Company covenants and agrees that if during the period from the date
hereof through twenty-four (24) months from delivery of the first Put Notice 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 not involving cash consideration) to a third party (other
than the Investor; each such third party, a "New Investor"), 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.
(b) 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.
(c) 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 Section 6.15 shall apply with respect to such changed
terms.
Section 6.16 [RESERVED]
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 each 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
Registration Statement with respect to the resale of the Registrable Securities
by Investor.
(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 earlier of (i) the prior Put Notice, or (ii)
the 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 (i) the initial
Put Notice, an opinion of the Company's legal counsel in the form of Exhibit C-1
hereto, addressed to Investor, and (ii) each subsequent Put Notice, an opinion
of the Company's legal counsel in the form of Exhibit C-2 hereto, addressed to
the Transfer Agent, with a copy to the 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) 9.9 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 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) WEIGHTED AVERAGE VOLUME. The Weighted Average Volume for the ten (10)
Trading Days immediately preceding the Put Notice shall have equaled or exceeded
$25,000 (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 either (i) a Material Adverse Effect, or (b) the effect
of causing the Registration Statement covering the applicable Put Shares to be
suspended or otherwise ineffective (which event is more likely than not to occur
within the fifteen [15] Trading Days following the Trading Day on which such
Notice is deemed delivered).
(m) TRADING CUSHION. The Trading Cushion shall have elapsed since the
immediately preceding Put Date.
(n) SHAREHOLDER VOTE. The issuance of shares of Common Stock with respect
to the applicable Closing, if any, shall not violate any shareholder approval
requirements of the Principal Market.
(o) NO VALUATION EVENT. No Valuation Event shall have occurred since the
Put Date.
(p) AUTHORIZED SHARES. A proposal to increase the number of authorized
shares of Common Stock from 645,000,000 to 995,000,000 shall have been approved
and adopted by the Company shareholders, and necessary filings have been made in
the State of Delaware with respect thereof.
(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), or 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, at the
Investor's expense (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, 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. 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 a 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 a 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.
Section 8.2 NO LEGEND OR STOCK TRANSFER RESTRICTIONS. Other than as
specified in Section 8.1 no legend 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 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 "HOLDER")
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 Holder (the "SOLD SHARES"), which delivery such Holder
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. 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 Sum of (i) $1,000 + (ii) $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.
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. Ext. 3522
Telecopier No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
NCT Group, Inc.
00 Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: General Counsel
Telephone No.: (000) 000-0000. Ext. 3572
Telecopier No.: (000) 000-0000
if to Investor:
XX Xxx 000
Xxxxxx XxxxXxxxxxxx Xxxxxx Building
Xxxxxxx Road Grand
Cayman, Cayman Islands British West, Indies
Cayman Islands
Telephone No. (000) 000-0000
Telecopier No. (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxx & Xxxxxx, LLP
Suite 1440
00 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (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.
(a) The Company agrees to indemnify and hold harmless Investor and its
officers, directors, employees, and agents, and each Control Person within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
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 Control 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 Control Persons'
negligence, recklessness or bad faith in performing its obligations under this
Agreement.
(b) If (i) the Investor becomes involved in any capacity in any action,
proceeding or investigation brought by any stockholder of the Company, in
connection with or as a result of the consummation of the transactions
contemplated by this Agreement, or if such Investor is impleaded in any such
action, proceeding or investigation by any Person, or (ii) the Investor becomes
involved in any capacity in any action, proceeding or investigation brought by
the Securities and Exchange Commission, any self-regulatory organization or
other body having jurisdiction, against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by this Agreement, or if the Investor is impleaded in any such
action, proceeding or investigation by any Person, then in any such case, the
Company hereby agrees to indemnify, defend and hold harmless the Investor from
and against and in respect of all losses, claims, liabilities, damages or
expenses (collectively "Losses") resulting from, imposed upon or incurred by the
Investor, directly or indirectly, and reimburse such 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;
provided, however, that this sentence shall not apply to the extent that such
Losses are caused by, result from or arise out of any breach of this Agreement
by the Investor or any intentionally wrongful or grossly negligent conduct by
the Investor. The indemnification and reimbursement obligations of the Company
under this Article 9 shall be in addition to any liability which the Company may
otherwise have (other than matters specifically addressed in the Registration
Rights Agreement, which shall be governed solely by that agreement), shall
extend upon the same terms and conditions to any Affiliates of the Investor who
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 the 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, the Investor, any such Affiliate and any such Person. The Company
also agrees that neither the Investor nor any such Affiliate, partner, director,
agent, employee or controlling person shall have any liability to the Company or
any Person asserting claims on behalf of or in right of the Company in
connection with or as a result of the consummation of this Agreement, except as
provided in or contemplated by 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 to 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 take over 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 if the
dispute is not resolved within thirty (30) days after the Claim Notice, the
Indemnifying Party shall be entitled 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 if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled 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 for
contracts to be wholly performed in such state and without giving effect to the
principles thereof regarding the conflict of laws. Each of the parties consents
to the exclusive jurisdiction of the federal courts whose districts encompass
the County of New York or the state courts of the State of New York sitting in
the County of New York in connection with any dispute arising under this
Agreement, any of the other Transaction Documents or the Prior Agreements and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
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, 10.4 and 10.7 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 $10,000, and the sum of $2,500 for each Put
Notice thereafter. 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 Put Shares, Warrant
Shares or Blackout Shares pursuant hereto or the other Transaction Documents.
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. The Company and
Investor each agree to indemnify the other against and hold the other harmless
from any and all liabilities to any other persons claiming brokerage commissions
or finder's fees on account of services purported to have been rendered 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 [INTENTIONALLY OMITTED]
Section 10.14 HEADINGS AND TITLES. The headings, titles and subtitles, if
any, 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.
Section 10.17 JURY TRIAL WAIVER. The Company and the Investor hereby waive
a trial by jury in any action, proceeding or counterclaim brought by either of
the parties hereto against the other in respect of any matter arising out of or
in connection with the Transaction Documents.
[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.
Dated: July 25, 2002
-----------------
By:/s/ Xxxxxxx X. Xxxxxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Chairman & CEO
XXXXXXX ROAD LLC
Dated:
-----------------
By:/s/ Xxxxx Xxxx
-----------------------------
Name: Navigator Managemant Ltd.
Title: Director
EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Put Notice
EXHIBITS C-1 AND C-2 Opinions
EXHIBIT D Closing Certificate
EXHIBIT E Transfer Agent Instructions
EXHIBIT F Warrant
EXHIBIT G Joint Escrow Instructions
Exhibit A
REGISTRATION RIGHTS AGREEMENT
RELATING TO THE
PRIVATE EQUITY CREDIT AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of July 25,
2002, 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, an entity organized and existing under the laws of the Cayman Islands
(the "Investor").
Recitals
WHEREAS, upon the terms and subject to the conditions of the Private Equity
Credit Agreement of even date (the "Equity Credit Agreement"), between the
Investor and the Company, the Company has agreed to issue and sell to the
Investor up to Fifty Million Dollars ($50,000,000) of shares ("Subscribed
Shares") of the common stock of the Company, par value $.01 per share (the
"Common Stock"), and
WHEREAS, to induce the Investor to execute and deliver the Equity Credit
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 Investor
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 is 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) "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").
(iii) "NASD" means the National Association of Securities Dealers, Inc.
(iv) "Prospectus" or "prospectus" means the prospectus included in the
Registration Statement (including, without limitation, a prospectus that
includes any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
(b) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Equity Credit Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, no later than thirty (30) business days after the effectiveness of the
registration statement for the Exchange Agreement dated as of June 21, 2002,
between the Company and Investor ("Filing Date"), a Registration Statement
registering for distribution by the Investor pursuant to Rule 457(o) of the
Securities Act, no less than (a) 112% of the Maximum Commitment Amount under the
Equity Credit Agreement (the "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 the number of Registrable Securities
exceeds the aggregate number of shares of Common Stock then registered, the
Company shall file with the SEC an additional Registration Statement to register
the Subscribed Shares that exceed the aggregate number of shares of Common Stock
already registered.
(b) Termination. 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 twenty (120) days from the Filing
Date, or any Blackout Period exceeds thirty (30) days, then the Investor may, at
the Investor's option, by twenty (20) days prior written notice (with
opportunity to cure), terminate its Investment Obligation under the Equity
Credit Agreement (the "Commitment"), and the Investor shall be entitled to the
sums, if any, set forth in Section 2.7 of the Equity Credit Agreement.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) The Company shall prepare and file with the SEC by the Filing 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 SEC that the Registration Statement may be declared effective,
or (b) the Effective Date, and keep the Registration Statement effective at all
times until the earliest of (i) the date that is eighteen (18) months after the
last Closing Date under the Equity Credit Agreement, (ii) the date when the
Investor may sell all Registrable Securities under Rule 144(k) without volume
limitations, or (iii) the date the Investor no longer owns any of the
Registrable Securities (collectively, the "Registration Period"). The
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) The Company shall 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, it shall
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) The Company shall permit a single firm of counsel designated by the
Investor 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; it being understood that such review and
objections shall relate exclusively to matters in the Registration Statement or
omitted therefrom affecting any or all of the Equity Credit Agreement, Investor
and the Registrable Securities or compliance with the terms of this Agreement or
the other Transaction Documents.
(d) The Company shall notify Investor and Investor's legal counsel
identified to the Company (which, until further notice, shall be deemed to be
Xxxxxxx & Prager, LLP, ATTN: Xxxxxx Xxxxxxx, Esq.; "Investor's Counsel") (and,
in the case of (i)(A) below, not less than five (5) business days 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
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) The Company shall furnish to Investor and Investor's Counsel, (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, each amendment or supplement
thereto, all correspondence to, with, or from the SEC, 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 Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by the Investor.
(f) The Company shall 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 Investor 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.
(g) The Company shall, as promptly as practicable after becoming aware of
such event, notify the Investor 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
Investor as the Investor may reasonably request.
(h) The Company shall, as promptly as practicable after becoming aware of
such event, notify the Investor (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.
(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 Investor in writing of the existence of a Potential Material Event
("Blackout Notice"), Investor 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 Investor receives written notice (the "Blackout
End Notice") from the Company that such Potential Material Event either has been
disclosed to the public or no longer constitutes a Potential Material Event (the
period from the Investor's receipt of the Blackout Notice until the Blackout End
Notice, "Blackout Period"); provided, however, that the Company may not so
suspend or delay the right of the Investor to sell the Registrable Securities
other than during a Permitted Suspension Period. The term "Permitted Suspension
Period" means up to two Blackout Periods during any consecutive 12-month period,
each of which Blackout Period shall not either (i) be for more than five (5)
days or (ii) begin less than ten (10) Trading Days after the last day of the
preceding suspension (whether or not such last day was during or after a
Permitted Suspension Period); and provided further that the Company shall, if
lawful to do so, provide the Investor with at least two (2) business days'
notice of the existence (but not the substance) of a Potential Material Event.
(j) The Company shall 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 NASD as such with respect to such Registrable Securities.
(k) The Company shall provide a transfer agent for the Registrable
Securities not later than the Effective Date.
(l) The Company shall cooperate with the Investor 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 Investor may reasonably request and registration in such names as
the Investor 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 Investor) an appropriate instruction and opinion
of such counsel, if so required by the Company's transfer agent.
(m) The Company shall comply with all applicable rules and regulations of
the Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts underwritten offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the Effective Date,
which statement shall cover said 12-month period, or any shorter period as is
consistent with the requirements of Rule 158.
(n) The Company shall take all other reasonable actions necessary to
expedite and facilitate distribution to the Investor of the Registrable
Securities pursuant to the Registration Statement.
4. Obligations of the Investor. In connection with the registration of the
Registrable Securities, the Investor 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 Investor that the Investor 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. If the
Registration Statement refers to the Investor by name or otherwise as the holder
of any securities of the Company, then such Investor shall have the right to
require (i) the inclusion therein of language, in form and substance reasonably
satisfactory to the Investor, to the effect that the ownership by the Investor
of such securities is not to be construed as a recommendation by the Investor of
the investment quality of the Company's securities covered thereby and that such
ownership does not imply that the Investor will assist in meeting any future
financial requirements of the Company, or (ii) if such reference to the Investor
by name or otherwise is not required by the Securities Act or any similar
Federal statute then in force, the deletion of the reference to the Investor in
any amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
(b) The Investor, by such Investor'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.
(c) Each Investor 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 (except for an SEC notice of effectiveness), such Investor will
immediately, if required, discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(g) or 3(h).
5. Expenses of Registration. (a) All reasonable expenses (other than
underwriting discounts and commissions to the Investor) 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.
(b) Except as otherwise provided for in Schedule 5(b) attached hereto, the
Company nor any of its subsidiaries has, as of June 30, 2002, and the Company
shall not on or after such date , have entered or 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, on or
prior to June 30, 2002, 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, after
June 30, 2002, have granted or grant to any person any new 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. In the event any 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 each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an _Indemnified Party_), 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 any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
Prospectus included therein: (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 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, "Violations"). Subject
to clause (b) of this Section 6, the Company shall reimburse the Investor,
promptly as such expenses are incurred and are due and payable, for any 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 a Claim 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 Party
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(c)
hereof; (II) be available to the extent such Claim is based on a failure of the
Investor to deliver or cause to be delivered the Prospectus made available by
the Company; (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 or (IV) apply to the extent that such
Claims are caused by, result from or arise out of any breach of this Agreement
by the Investor or any intentionally wrongful or grossly negligent conduct by
the Investor. Each Investor will indemnify the Company and its officers,
directors and agents (each, an _Indemnified Party_) 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
Investor, expressly for use in connection with the preparation of the
Registration Statement, or arising out of or based upon a failure of the
Investor to deliver or cause to be delivered the Prospectus made available by
the Company, subject to such limitations and conditions as are applicable to the
indemnification provided by the Company to this Section 6. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Party and shall survive the offering and transfer of
the Registrable Securities by the Investor pursuant to Section 9(f).
(b) Promptly after receipt by an Indemnified Party under this Section 6 of
notice of the commencement of any action (including any governmental action),
such Indemnified Party 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 Party. In case any such action is
brought against any Indemnified Party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such Indemnified
Party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such Indemnified Party under this Section 6 for any legal
or other reasonable out-of-pocket expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The Indemnified Party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and reasonable out-of-pocket expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the Indemnified Party. 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 Party 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; and (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.
8. Reports under Exchange Act. With a view to making available to the
Investor 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
Investor 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;
(c) furnish to the Investor so long as the Investor 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
solely if unavailable by Xxxxx, and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities pursuant to
Rule 144 without registration; and
(d) at the request of any Investor, give its Transfer Agent instructions
(supported by an opinion of Company counsel, if required or requested by the
Transfer Agent) to the effect that, upon the Transfer Agent's receipt from such
Investor of:
(i) a certificate (a "Rule 144 Certificate") certifying (A) that such
Investor has held the shares of Registrable Securities which the Investor
proposes to sell (the "Securities Being Sold") for a period of not less
than (1) year and (B) as to such other matters as may be appropriate in
accordance with Rule 144 under the Securities Act, and
(ii) an opinion of Investor's counsel, acceptable to the Company, that
based on the Rule 144 Certificate, the Securities Being Sold may be sold
pursuant to the provisions of Rule 144, even in the absence of an effective
Registration Statement,
the Transfer Agent is to effect the transfer of the Securities Being Sold and
issue to the buyer(s) or transferee(s) thereof one or more stock certificates
representing the transferred Securities Being Sold without any restrictive
legend and without recording any restrictions on the transferability of such
shares on the Transfer Agent's books and records (except to the extent any such
legend or restriction results from facts other than the identity of the
Investor, as the seller or transferor thereof, or the status, including any
relevant legends or restrictions, of the shares of the Securities Being Sold
while held by the Investor). If the Transfer Agent requires any additional
documentation at the time of the transfer, the Company shall deliver or cause to
be delivered all such reasonable additional documentation as may be necessary to
effectuate the issuance of an unlegended certificate.
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, who shall provide a bond or other form of satisfactory
protection to the Company so as to cover contingent liability against any other
claimants.
(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) Liability. The Company acknowledges that any failure by the Company to
perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(d) 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.
(e) 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 solely as the same are referred to
herein. Any such promises, agreements, condition, undertakings, understandings,
warranties, covenants or representations, shall not be used to interpret or
constitute this Agreement.
(f) Assignment. The rights to have the Company register Registrable
Securities pursuant to this Agreement may be assigned by the Investors to any
transferee, only if: (a) the assignment requires that the Transferee be bound by
all of the provisions contained in this Agreement, and Investor 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 (b) 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.
(g) 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 Investor. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon the Company and any subsequent Transferees.
(h) 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.
(i) Notices. Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be given as provided in the Equity Credit
Agreement.
(j) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass the County of New York or the
state courts of the State of New York sitting in the County 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.
(k) Jury Trial Waiver. The Company and the Investor hereby waive a trial by
jury in any action, proceeding or counterclaim brought by either of the parties
hereto against the other in respect of any matter arising out of or in
connection with the Transaction Documents.
(l) 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.
(m) 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.
(n) 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.
(o) 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.
(p) 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:_________________________________
Name: ______________________________
Title:______________________________
XXXXXXX ROAD LLC
By:_________________________________
Name:_______________________________
Title:______________________________
SCHEDULE 5(b)
EXHIBIT B TO PRIVATE EQUITY CREDIT AGREEMENT
PUT NOTICE
TO:
We refer to the Private Equity Credit Agreement dated July ___, 2002 (the
"Agreement") made between ourselves as the issuer and you as the Investor.
Expressions defined or to which a meaning is assigned in the Agreement shall,
unless the context otherwise requires, bear the same meaning when used herein.
We hereby:
1. give you notice that we require you to subscribe for $__________ in
Common Stock of NCT Group, Inc. (the "Investment Amount"); and
2. certify that the conditions stipulated in Section 7.2 of the Agreement
have been fulfilled and satisfied.
A calculation as to the Maximum Put Amount is annexed hereto as Exhibit 1.
NCT GROUP, INC.
Date_____________, 200__
By: __________________
Name:
Title:
Note:
The date of Closing must fall as determined under Section 2.2(b) of the
Agreement.
============================================================================
[TO BE DELIVERED BY INVESTOR ON CONCLUSION OF PRICING PERIOD]
TO: FAX NO.
We refer to your notice dated __________, 200__. The number of shares to be
delivered at each Closing is set forth on Exhibit 2 hereto. .However, in
compliance with the provisions of Section 7.2 (j) of the Agreement, the
number of shares to be purchased can not exceed ______ Shares of Common
Stock.
XXXXXXX ROAD LLC
Date___________, 200__ By____________________
Name:
Title:
RECEIPT ACKNOWLEDGED:
NCT GROUP, INC.
By_______________________
Name:
Title:
Exhibit 2
INITIAL CLOSING ADDITIONAL CLOSING
---------------------------------------------------------------------------
Investment Amount: $__(A)______ Investment Amount: $__(A)______
Market Price: Market Price:
Date_______ $_______ Date_______ $_______
Date_______ $_______ Date_______ $_______
Date_______ $_______ Date_______ $_______
Average $ ___(B)____________ Average $ ___(B)____________
Purchase Price: 90% of (B) = $_(C)_____ Purchase Price: 90% of (B) = $_(C)_____
Number of Shares: (A) / (C) Number of Shares: (A) / (C)
Less Number of Shares delivered at
Initial Closing ______________
Due at Additional Closing ______________
EXHIBIT C-1 TO PRIVATE EQUITY CREDIT AGREEMENT
FORM OF OPINION OF THE COMPANY'S COUNSEL WITHIN 5 TRADING DAYS
FOLLOWING EFFECTIVE DATE OF INITIAL PUT NOTICE
_______________, 20___
TO: [Investor]
I am Vice President, General Counsel & Secretary of NCT Group, Inc., a
Delaware corporation (the "Company"), and have represented the Company in
connection with (i) the Private Equity Credit Agreement between the Company and
you, dated as of July 25, 2002 (the "Equity Credit Agreement"), pursuant to
which the Company will issue to you from time to time shares of Common Stock,
$.01 par value (the "Put Shares"), (ii) the Registration Rights Agreement
between you and the Company, dated July 25, 2002 (the "Registration Rights
Agreement") and (iii) the Warrant from the Company to you, dated as of July 25,
2002 (the "Warrant," and together with the Equity Credit Agreement and the
Registration Rights Agreement, the "Agreements"). This opinion is rendered to
you pursuant to Section 7.2(h) of the Equity Credit Agreement. Capitalized terms
used without definition in this opinion have the meanings given to them in the
Equity Credit Agreement.
In connection with this opinion, I have assumed the authenticity of all
records, documents, and instruments submitted to me as originals, the
genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all records, documents, and instruments submitted
to me as copies. I have also assumed that there are no facts or circumstances
relating to you that might prevent you from enforcing any of the rights to which
my opinion relates. I have based my opinion upon my review of the following
records, documents and instruments:
(a) The Certificate of Incorporation of the Company, as amended to date (as
so amended, the "Certificate");
(b) The Bylaws of the Company, as amended to date (as so amended, the
"Bylaws");
(c) Records of proceedings and actions of the Board of Directors of the
Company relating to the transactions contemplated by the Agreements;
(d) The Agreements;
(e) A certificate related to the good standing of the Company issued by the
Secretary of State of the State of Delaware dated June 18, 2002; and
(f) The SEC Documents.
With your consent, I have based my opinions expressed in paragraph 1 below
as to the good standing of the Company solely upon the documents referenced
above and on such certificates, if any, of officers of the Company as I deemed
appropriate.
Where my opinion relates to my "knowledge," such knowledge is based upon my
examination of the records, document, instruments and certificates enumerated or
described above and on my current actual knowledge, although I disclaim any
obligation to perform any independent investigation to determine the accuracy of
any such statement, and no inference that I have any knowledge of any matters
pertaining to such statement should be drawn from my position with the Company.
With your consent, I have not examined any records of any court, administrative
tribunal or other similar entity in connection with my opinion expressed in
paragraph 2 below. I have assumed for purposes of my opinion that the Put Shares
are fully paid and that the consideration for such Put Shares will be received
by the Company in accordance with the Equity Credit Agreement.
I express no opinion as to any anti-fraud provisions of applicable federal
or state securities laws, any tax, anti-trust, land use, export, safety,
environmental or hazardous materials laws, rules or regulations.
This opinion is limited to the effect on the subject transactions of the
federal laws of the United States of America, the internal laws of the State of
New York and the General Corporation Law of the State of Delaware. I disclaim
any opinion as to the laws of any other jurisdiction and further disclaim any
opinion as to any statute, rule, regulation, ordinance, order or other
promulgation of any regional, municipal or local governmental body. My opinions
set forth below are based upon my consideration of those statutes, rules and
regulations that, in my experience, are normally applicable to transactions such
as those contemplated by the Transaction Documents.
Based upon the foregoing and my examination of such questions of law as I
have deemed necessary or appropriate for the purpose of this opinion, and
subject to the limitations and qualifications expressed below, it is my opinion
that:
1. The Company has been duly incorporated as is validly existing and in
good standing under the laws of the State of Delaware.
2. To my knowledge, except as described in the SEC Documents and except as
would not have Material Adverse Effect, there are no claims, actions, suits
proceedings or investigations that are pending against the Company or its
properties, or to my knowledge, any officer or director of the Company in his or
her capacity as such, nor to my knowledge has the Company received any written
threat of any such claims, actions, suits, proceedings or investigations.
3. To my knowledge, except as described in the Company's representations
warranties contained in Article IV of the Equity Credit Agreement, in the SEC
Documents and in Schedule 3, if any, annexed to this opinion letter, there are
no outstanding options, warrants, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any right to subscribe for or acquire, any shares of
Common Stock, or contracts, commitments, understandings or arrangements by which
the Company is or may become bound to issued additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common Stock.
4. Subject to the accuracy of your representations in Article III of the
Equity Credit Agreement on the date hereof and on the date of issuance of any
Put Shares, Blackout Shares and Warrant Shares, and assuming that the Company
has not offered or sold, and will not offer or sell, any Put Shares, Blackout
Shares or Warrant Shares by means of advertising or public solicitation, the
issuance of the Put Shares, the issuance of the Blackout Shares and the issuance
of the Warrant Shares in conformity with the terms of the Equity Credit
Agreement and Warrant constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended (the
"Securities Act"). The Put Shares, the Blackout Shares and the Warrant Shares,
when issued in compliance with the Equity Credit Agreement and Warrant, will be
duly authorized, validly issued, fully paid, non-assessable and free of any
preemptive rights set forth in the Certificate, Bylaws and any agreement filed
as an exhibit to the SEC Documents; provided, however, that the Put Shares and
the Warrant Shares may be subject to the restrictions on transfer under state
and federal securities laws, but only to the extent set forth in the Equity
Credit Agreement and Warrant.
5. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Agreements and to issue the Put
Shares. Each of the Agreements has been duly authorized, executed and delivered
by the Company and the consummation by it of the transactions contemplated
thereby has been duly authorized by all necessary corporate action and no
further consent or authorization of the Company's board of directors or
shareholders is required. Each of the Agreements is a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
6. To the best of my knowledge, after due inquiry, the execution, delivery
and performance of the Agreements by the Company and the performance of its
obligations thereunder do not and will not constitute a breach or violation of
any of the terms or provisions of, or constitute a default under or conflict
with or violate any provision of, (i) the Certificate or Bylaws, (ii) any
indenture, mortgage, deed of trust, agreement or other instrument to which the
Company is a party or by which it or any of its property is bound, (iii) any
applicable statute or regulation or (iv) any judgment, decree or order of any
court or governmental body having jurisdiction over the Company or any of its
property.
7. The holders of the Common Stock will not be subject to the provisions of
any Delaware or Connecticut anti-takeover statutes.
8. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the Company has timely filed all the material required to be filed pursuant
to Sections 13(a) or 15(d) of the Exchange Act for a period of at least twelve
months preceding the date hereof.
My opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
A. The effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affection the relief of debtors or the rights
and remedies of creditors generally, including without limitation the effect of
statutory or other law regarding fraudulent conveyances and preferential
transfers.
B. Limitations imposed by state law, federal law or general equitable
principles upon the specific enforceability of any of the remedies, covenants or
other provisions of any applicable agreement and upon the availability of
injunctive relief or other equitable remedies, regardless of whether enforcement
of any such agreement is considered in a proceeding in equity or at law.
C. The unenforceability of any provision requiring the payment of
attorney's fees, except to the extent that a court determines such fees to be
reasonable.
D. The unenforceability under certain circumstances under law or court
decisions of provisions providing for the indemnification of or contribution to
a party with respect to a liability where such indemnification or contribution
is contrary to public policy.
E. The enforceability of provisions to the extent that terms may not be
waived or modified except in writing may be limited under certain circumstances.
F. The enforceability or provisions relating to delay or omission of
enforcement of remedies.
G. The enforceability of provisions relating to choice of applicable law,
waiver of jury trial or submission to any jurisdiction. Without limiting the
foregoing, no opinion is expressed with respect to the legality, validity or
enforceability of Section 10.1 of the Equity Credit Agreement or Section 9(j) of
the Registration Rights Agreement.
H. This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, including the
General Qualifications and the Equitable Principles Limitations, and this
opinion letter should be read in conjunction therewith.
To the extent that the obligations of the Company may be dependent upon
such matters, I assume for purposes of this opinion that: (i) all parties to the
Transaction Documents other than the Company are duly incorporated or organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation or organization; (ii) all parties to the
Transaction Documents other than the Company have the requisite power and
authority to execute and deliver the Transaction Documents and to perform their
respective obligations under the Transaction Documents to which they are a
party; and (iii) the Transaction Documents to which such parties are a party
have been duly authorized, executed and delivered by such parties and constitute
their legally valid and binding obligations, enforceable against them (other
than the Company) in accordance with their terms. I express no opinion as to
compliance by any parties to the Transaction Documents with any state or federal
laws or regulations applicable to the subject transactions because of the nature
of their business.
This opinion is rendered as the date first written above, is solely for
your benefit in connection with the Agreements and may not be relied upon, used,
circulated, quoted or referred to by, nor may any copies hereof be delivered to,
any other person without my prior written consent. I disclaim any obligation to
update this opinion letter or to advise you of facts, circumstances, changes in
the law, events or developments that hereafter may be brought to my attention
and that may alter, affect or modify the opinions expressed herein.
Very truly yours,
EXHIBIT C-2 TO PRIVATE EQUITY CREDIT AGREEMENT
[FORM OF COUNSEL OPINION OF THE COMPANY'S COUNSEL WITHIN 5
TRADING DAYS FOLLOWING EFFECTIVE DATE OF SUBSEQUENT PUT NOTICE]
__________________, 20____
TO: [Transfer Agent]
I am Vice President, General Counsel & Secretary of NCT Group, Inc. (the
"Company").
Reference is made to that certain Private Equity Credit Agreement (the
"Equity Credit Agreement"), dated as of July 25, 2002, between NCT Group, Inc.,
a Delaware corporation, and Xxxxxxx Road LLC (the "Holder") pursuant to which
the Company is issuing from time to time to the Holder, shares of the Company's
common stock, $.01 par value (the "Common Stock").
The Company has agreed with the Holder that it will issue the Common Stock
free of all restrictive and other legends when there is an effective
registration statement covering the resale of the Common Stock.
The Registration Statement on Form ___ (File No. 333-____________) of the
Company (the "Registration Statement") was declared effective at ___________
__.M. Eastern Time on _______________, 2002.
This letter shall serve as my standing opinion to you that the shares of
Common Stock issuable from time to time under the Equity Credit Agreement are
freely transferable by the Holder pursuant to the Registration Statement, and
accordingly, you may issue the shares of Common Stock free of all restrictive
and other legends.
You need not require further letters from me to effect any future
legend-free issuance of shares of Common Stock to the Holder as contemplated by
this letter and this letter shall serve as my standing opinion with regard to
this matter.
Very truly yours,
cc: [Investor]
EXHIBIT D TO PRIVATE EQUITY CREDIT AGREEMENT
CLOSING CERTIFICATE
----------------------------------
The undersigned, _______________, hereby certifies, with respect to the
shares of Common Stock of NCT Group, Inc. (the "Company") issuable in connection
with the Put Notice, dated ______________, 20___ (the "Notice"), delivered to
Xxxxxxx Road LLC (the "Investor") pursuant to Article II of the Private Equity
Credit Agreement, dated July 25, 2002, by and between the Company and the
Investor (the "Agreement"), as follows:
1. The undersigned is the duly elected ______________________________ of
the Company.
2. Except for the provisions of Section 4.3 of the Agreement, the
representations and warranties of the Company set forth in the Agreement are
true and correct in all material respects as though made on and as of the date
hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The number of shares of Common Stock remaining registered in an
effective registration statement on behalf of the Investor as of this date
equals or exceeds the number of shares of Common Stock issuable in connection
with the Notice.
The undersigned has executed this Certificate this ____ day of ___________,
200__.
NCT GROUP, INC.
By:_____________________________________
Name:
Title:
EXHIBIT E TO PRIVATE EQUITY CREDIT AGREEMENT
_____________, 20___
American Stock Transfer & Trust Company
00 Xxxxxx Xxxx
Xxx Xxxx, Xxx Xxxx 00000
Gentlemen:
Reference is made to that certain Private Equity Credit Agreement (the
"Equity Credit Agreement") dated as of July 25, 2002, between NCT Group, Inc., a
Delaware corporation (the "Company"), and Xxxxxxx Road LLC (the "Holder")
pursuant to which the Company is issuing from time to time to the Holder, shares
of the Company's common stock, $.01 par value (the "Common Stock").
The Company has agreed with the Holder that it will issue the Common Stock
free of all restrictive and other legends when there is an effective
registration statement covering the resale of the Common Stock.
In furtherance of this instruction, upon the effectiveness of the
Registration Statement (as defined in the Equity Credit Agreement), we have
instructed our counsel to deliver to you an opinion letter in substantially the
form attached hereto as Exhibit 1 to the effect that the Registration Statement
has been declared effective by the Securities and Exchange Commission and that
the shares of Common Stock issuable from time to time under the Equity Credit
Agreement are freely transferable by the Holder, and accordingly, may be issued
and delivered to the Holder free of all restrictive and other legends.
You need not require further letters from us or our counsel to effect our
future legend-free issuance of shares of Common Stock to the Holder as
contemplated by this letter and this letter shall serve as our standing opinion
and instructions with regard to this matter.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions.
Very truly yours,
NCT GROUP, INC.
By: ________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: ______________________________
Name:
Title:
EXHIBIT 1
_________________, 20___
American Stock Transfer & Trust Company
00 Xxxxxx Xxxx
Xxx Xxxx, Xxx Xxxx 00000
Gentlemen:
I am Vice President, General Counsel & Secretary of NCT Group, Inc. (the
"Company").
Reference is made to that certain Private Equity Credit Agreement (the
"Equity Credit Agreement"), dated as of July 25, 2002, between NCT Group, Inc.,
a Delaware corporation, and Xxxxxxx Road LLC (the "Holder") pursuant to which
the Company is issuing from time to time to the Holder, shares of the Company's
common stock, $.01 par value (the "Common Stock").
The Company has agreed with the Holder that it will issue the Common Stock
free of all restrictive and other legends when there is an effective
registration statement covering the resale of the Common Stock.
The Registration Statement on Form ___ (File No. 333-____________) of the
Company (the "Registration Statement") was declared effective at ___________
__.M. Eastern Time on _______________, 2002.
This letter shall serve as my standing opinion to you that the shares of
Common Stock issuable from time to time under the Equity Credit Agreement are
freely transferable by the Holder pursuant to the Registration Statement, and
accordingly, you may issue the shares of Common Stock free of all restrictive
and other legends.
You need not require further letters from me to effect any future
legend-free issuance of shares of Common Stock to the Holder as contemplated by
this letter and this letter shall serve as my standing opinion with regard to
this matter.
Very truly yours,
EXHIBIT F TO
PRIVATE EQUITY CREDIT AGREEMENT
FORM OF WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
NCT GROUP, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions. In consideration of good and valuable
consideration, the receipt of which is hereby acknowledged by NCT GROUP, INC., a
Delaware corporation (the "Company"), XXXXXXX ROAD LLC, a Cayman Islands entity,
or registered assigns (the "Holder") is hereby granted the right to purchase at
any time until 5:00 P.M., New York City time, on July 25, 2007 the "Expiration
Date"), One Million (1,000,000) fully paid and nonassessable shares of the
Company's Common Stock, $.01 par value per share (the "Common Stock"), at an
initial exercise price per share (the "Exercise Price") of $0.07375 per share,
subject to further adjustment as set forth herein. This Warrant is being issued
pursuant to the terms of that certain Private Equity Credit Agreement, dated as
of July 25, 2002 (the "Agreement"), to which the Company and Holder are parties.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Agreement.
2. Exercise of Warrants.
2.1 General.
(a) This Warrant is exercisable in whole or in part at any time and
from time to time. Such exercise shall be effectuated by submitting to the
Company (either by delivery to the Company or by facsimile transmission as
provided in Section 8 hereof) a completed and duly executed Notice of
Exercise (substantially in the form attached to this Warrant Certificate)
as provided in this paragraph. The date such Notice of Exercise is faxed to
the Company shall be the "Exercise Date," provided that the Holder of this
Warrant tenders this Warrant Certificate to the Company within five (5)
business days thereafter. The Notice of Exercise shall be executed by the
Holder of this Warrant and shall indicate the number of shares then being
purchased pursuant to such exercise. Upon surrender of this Warrant
Certificate, together with appropriate payment of the Exercise Price for
the shares of Common Stock purchased, the Holder shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased.
(b) If the Notice of Exercise elects a "cashless" exercise, the Holder
shall thereby be entitled to receive a number of shares of Common Stock
equal to (x) the excess of the Current Market Value (as defined below) over
the total cash exercise price of the portion of the Warrant then being
exercised, divided by (y) the Market Price of the Common Stock as of the
trading day immediately prior to the Exercise Date. For the purposes of
this Warrant, the terms (Q) "Current Market Value" shall be an amount equal
to the Market Price of the Common Stock as of the trading day immediately
prior to the Exercise Date, multiplied by the number of shares of Common
Stock specified in such Notice of Exercise, and (R) "Market Price of the
Common Stock" shall be the closing price of the Common Stock as reported by
the Reporting Entity as described in Section 10.15 of the Private Equity
Credit Agreement for the relevant date.
(c) If the Notice of Exercise form elects a "cash" exercise, the
Exercise Price per share of Common Stock for the shares then being
exercised shall be payable in cash or by certified or official bank check.
(d) The Holder shall be deemed to be the holder of the shares issuable
to it in accordance with the provisions of this Section 2.1 on the Exercise
Date.
2.2 Limitation on Exercise. Notwithstanding the provisions of this
Warrant, the Agreement or of the other Transaction Agreements, in no event
(except (i) as specifically provided in this Warrant as an exception to
this provision, (ii) while there is outstanding a tender offer for any or
all of the shares of the Company's Common Stock, or (iii) at the Holder's
option, on at least sixty-five (65) days' advance written notice from the
Holder) shall the Holder be entitled to exercise this Warrant, or shall the
Company have the obligation to issue shares upon such exercise of all or
any portion of this Warrant to the extent that, after such exercise, the
sum of (1) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unexercised portion
of the Warrants, and (2) the number of shares of Common Stock issuable upon
the exercise of the Warrants with respect to which the determination of
this proviso is being made, would result in beneficial ownership by the
Holder and its affiliates of more than 9.99% of the outstanding shares of
Common Stock (after taking into account the shares to be issued to the
Holder upon such exercise). For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), except as otherwise provided in clause (1) of such sentence.
The Holder, by its acceptance of this Warrant, further agrees that if the
Holder transfers or assigns any of the Warrants to a party who or which
would not be considered such an affiliate, such assignment shall be made
subject to the transferee's or assignee's specific agreement to be bound by
the provisions of this Section 2.2 as if such transferee or assignee were
the original Holder hereof.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution and Other Adjustments.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i)
the total number of shares of Common Stock Holder is entitled to purchase
pursuant to this Warrant, multiplied by (ii) the adjusted Exercise Price
per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock Holder is entitled to purchase before adjustment multiplied
by the total Exercise Price before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the provisions of this Section 6
shall be applied as if such capital adjustment event had occurred
immediately prior to the date of this Warrant and the original Exercise
Price had been fairly allocated to the stock resulting from such capital
adjustment; and in other respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so as to give effect, as
nearly as may be, to the purposes hereof. A rights offering to stockholders
shall be deemed a stock dividend to the extent of the bargain purchase
element of the rights.
6.3 Adjustment for Spin Off. If, for any reason, prior to the exercise
of this Warrant in full, the Company spins off or otherwise divests itself
of a part of its business or operations or disposes all or of a part of its
assets in a transaction (the "Spin Off") in which the Company does not
receive compensation for such business, operations or assets, but causes
securities of another entity (the "Spin Off Securities") to be issued to
security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to
the Holder had all of the Holder's unexercised Warrants outstanding on
the record date (the "Record Date") for determining the amount and
number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Warrants") been exercised as of the close of
business on the Trading Day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on
the exercise of all or any of the Outstanding Warrants, such amount of
the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount
of the Outstanding Warrants then being exercised, and (II) the
denominator is the amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be
adjusted immediately after consummation of the Spin Off by multiplying
the Exercise Price by a fraction (if, but only if, such fraction is
less than 1.0), the numerator of which is the average Bid Price of the
Common Stock for the five (5) Trading Days immediately following the
fifth Trading Day after the Record Date, and the denominator of which
is the average Bid Price of the Common Stock on the five (5) Trading
Days immediately preceding the Record Date; and such adjusted Exercise
Price shall be deemed to be the Exercise Price with respect to the
Outstanding Warrants after the Record Date.
7. Transfer to Comply with the Securities Act; Registration Rights.
7.1 Transfer. This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been issued to the
Holder for investment and not with a view to the distribution of either the
Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant
Shares or any other security issued or issuable upon exercise of this
Warrant may be sold, transferred, pledged or hypothecated in the absence of
an effective registration statement under the Act relating to such security
or an opinion of counsel satisfactory to the Company that registration is
not required under the Act. Each certificate for the Warrant, the Warrant
Shares and any other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form and substance
satisfactory to counsel for the Company, setting forth the restrictions on
transfer contained in this Section.
7.2 Registration Rights. (a) Reference is made to the Registration
Rights Agreement. The Company's obligations under the Registration Rights
Agreement and the other terms and conditions thereof with respect to the
Warrant Shares, including, but not necessarily limited to, the Company's
commitment to file a registration statement including the Warrant Shares,
to have the registration of the Warrant Shares completed and effective, and
to maintain such registration, are incorporated herein by reference.
(b) In addition to the registration rights referred to in the
preceding provisions of Section 7.2(a), effective after the expiration
of the effectiveness of the Registration Statement as contemplated by
the Registration Rights Agreement, the Holder shall have piggy-back
registration rights with respect to the Warrant Shares then held by
the Holder or then subject to issuance upon exercise of this Warrant
(collectively, the "Remaining Warrant Shares"), subject to the
conditions set forth below. If, at any time after the Registration
Statement has ceased to be effective, the Company participates
(whether voluntarily or by reason of an obligation to a third party)
in the registration of any shares of the Company's Common Stock (other
than a registration on Form S-8 or on Form S-4), the Company shall
give written notice thereof to the Holder and the Holder shall have
the right, exercisable within ten (10) business days after receipt of
such notice, to demand inclusion of all or a portion of the Holder's
Remaining Warrant Shares in such registration statement. If the Holder
exercises such election, the Remaining Warrant Shares so designated
shall be included in the registration statement at no cost or expense
to the Holder (other than any costs or commissions which would be
borne by the Holder under the terms of the Registration Rights
Agreement); provided, however, that if there is a managing underwriter
of the offering of shares referred to in the registration statement
and such managing underwriter advises the Company in writing that the
number of shares proposed to be included in the offering will have an
adverse effect on its ability to successfully conclude the offering
and, as a result, the number of shares to be included in the offering
is to be reduced, the number of Remaining Warrant Shares of the Holder
which were to be included in the registration (before such reduction)
will be reduced pro rata with the number of shares included for all
other parties whose shares are being registered. The Holder's rights
under this Section 7 shall expire at such time as the Holder can sell
all of the Remaining Warrant Shares under Rule 144 without volume or
other restrictions or limit.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, or by
recognized commercial courier service, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express mail, postage pre-paid.
Any such notice shall be deemed given when so delivered personally, or by
recognized commercial courier service, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
NCT Group, Inc.
00 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
ATT: Chief Financial Officer
Telephone No.: (203) 226-4447 ext. 3522
Telephone No.: (000) 000-0000
with a copy to:
NCT Group, Inc.
00 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
ATT: General Counsel
Telephone No.: (203) 226-4447 ext. 3572
Telephone No.: (000) 000-0000
(ii) if to the Holder, to:
Xxxxxxx Road LLC
XX Xxx 000, Xxxxxx XxxxXxxxxxxx Xxxxxx
BuildingShedden RoadGrand Cayman, Cayman
IslandsBritish West, IndiesCayman Islands
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be amended
or supplemented only by an instrument in writing signed by the parties hereto.
This Warrant contains the full understanding of the parties hereto with respect
to the subject matter hereof and there are no representations, warranties,
agreements or understandings other than expressly contained herein.
10. Governing Law. This Warrant shall be deemed to be a contract made under
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Warrant and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Holder for any
reasonable legal fees and disbursements incurred by the Holder in enforcement of
or protection of any of its rights under this Warrant.
11. Jury Trial Waiver. The Company and the Holder hereby waive a trial by
jury in any action, proceeding or counterclaim brought by either of the Parties
hereto against the other in respect of any matter arising out or in connection
with this Warrant.
12. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
13. Descriptive Headings. Descriptive headings of the several Sections of
this Warrant are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
_____ day of __________________, 2002.
NCT GROUP, INC.
By: _________________________________________
(Print Name) _________________________________
(Title) ______________________________________
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant dated as of , , to purchase shares of the Common
Stock, $.01 par value, of NCT GROUP, INC. and tenders herewith payment in
accordance with Section 1 of said Warrant.
__ CASH: $ __________________________________________________________
= (Exercise Price x Exercise Shares)
Payment is being made by:
__ enclosed check
__ wire transfer
__ other
__ CASHLESS EXERCISE:
Net number of Warrant Shares to be issued to Holder : _________*
* based on: Current Market Value - (Exercise Price x Exercise Shares)
--------------------------------------------------------
Market Price of the Common Stock
where:
Market Price of the Common Stock ["MP"] = $_______________
Current Market Value [MP x Exercise Shares] = $______________
It is the intention of the Holder to comply with the provisions of Section
2.2 of the Warrant regarding certain limits on the Holder's right to exercise
thereunder. Based on the analysis on the attached Worksheet Schedule, the Holder
believe this exercise complies with the provisions of said Section 2.2.
Nonetheless, to the extent that, pursuant to the exercise effected hereby, the
Holder would have more shares than permitted under said Section, this notice
should be amended and revised, ab initio, to refer to the exercise which would
result in the issuance of shares consistent with such provision. Any exercise
above such amount is hereby deemed void and revoked.
Please deliver the stock certificate to:
Dated:
------------------------------------------
-------------------------------------------------
[Name of Holder]
By:
----------------------------------------------
Name: ___________________________
Title: __________________________
NOTICE OF EXERCISE OF WARRANT
WORKSHEET SCHEDULE
1. Current Common Stock holdings of Holder and affiliates _____________
2. Shares to be issued on current exercise _____________
3. Other shares eligible to be acquired without restriction _____________
4. Total [sum of Lines 1 through 3] _____________
5. Outstanding shares of Common Stock _____________
6. Adjustments to Outstanding
a. Shares from Line 1 not included in Line 5 ____________
b. Shares to be issued per Line 2 ____________
c. Total Adjustments [Lines 6a and 6b] _____________
7. Total Adjusted Outstanding [Lines 5 plus 6c] _____________
8. Holder's Percentage [Line 4 divided by Line 7] _____________%
[Note: Line 8 not to be above 9.99%]
EXHIBIT G TO
PRIVATE EQUITY CREDIT AGREEMENT
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the
Private Equity Credit Agreement to
Which These Joint Escrow
Instructions Are Attached
Xxxxxxx & Xxxxxx, LLP.
Xxxxx 0000
00 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Dear Xx. Xxxxxxx:
As escrow agent for both NCT GROUP, INC., a Delaware corporation (the
"Company"), and Xxxxxxx Road LLC, a Cayman Islands entity ("Investor"), in
connection with Puts relating to of shares of Common Stock of the Company, who
is named in the Private Equity Credit Agreement between the Company and the
Investor (the "Agreement") to which a copy of these Joint Escrow Instructions is
attached as Exhibit G (capitalized terms used herein and not otherwise defined
herein shall have the respective meanings provided in the Agreement), you (the
"Escrow Agent") are hereby authorized and directed to hold the documents and
funds (together with any interest thereon, the "Escrow Funds") delivered to the
Escrow Agent pursuant to the terms of the Agreement in accordance with the
following instructions:
1. The parties shall forward to the Escrow Agent any Put Notice or other
notice under the Agreement and related documentation simultaneously with
delivery to any other party.
2. The Escrow Agent shall, as promptly as feasible, notify the Company
orally or in writing of receipt of the Purchase Price for the Common Stock from
or on behalf of the Investor, and notify the Investor (or such agent as the
Investor may designate in writing) orally or in writing of receipt of the
certificates for Common Stock ("Certificates") free of restrictive legends. As
promptly as feasible upon receipt of notice (whether oral or in written form)
from the Company and the Investor that the respective conditions precedent to a
closing have been satisfied (which notice shall not be unreasonably withheld),
the Escrow Agent shall, after reduction by the amounts referred to in the next
succeeding sentences of this paragraph, release the Escrow Funds to or upon the
order of the Company, and shall release the Certificates to the Investor. After
receipt of such notice, legal and escrow fees to the Escrow Agent of $2,500, and
all accrued and unpaid fees and expenses ("the Escrow Agent Fees") shall be
released to or upon the order of the Escrow Agent, and the balance shall be
remitted to the Company. If the Certificates are not deposited with the Escrow
Agent (or the Escrow Agent's designee) within fifteen (15) days after delivery
of a Put Notice, the Escrow Agent shall notify the Investor and the Investor
shall be entitled to cancel the purchase and demand repayment of the funds. If
the Purchase Price funds are not deposited with the Escrow Agent within twelve
(12) days after delivery of a Put Notice, the Escrow Agent shall notify the
Company and the Company shall be entitled to cancel the purchase and demand
return of such Certificates. If the Company or the Investor notifies the Escrow
Agent that on the Closing Date the conditions precedent to the obligations of
the Company or the Investor, as the case may be, under the Agreement with
respect to the purchase and sale of Common Stock to be effected that date were
not satisfied or waived, then the Escrow Agent shall return the Escrow Funds to
the Investor and shall return the Certificates to the Company. Prior to return
of any Escrow Funds to the Investor, the Investor shall furnish such tax
reporting or other information as shall be appropriate for the Escrow Agent to
comply with applicable United States laws. The Escrow Agent shall deposit all
funds received hereunder in the Escrow Agent's attorney escrow account at The
Bank of New York.
3. The Escrow Agent's duties hereunder may be altered, amended, modified or
revoked only by a writing signed by the Company, the Investor and the Escrow
Agent.
4. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while
acting in good faith, and any act done or omitted by the Escrow Agent pursuant
to the advice of the Escrow Agent's attorneys-at-law shall be conclusive
evidence of such good faith.
5. The Escrow Agent is hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
6. The Escrow Agent shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder, or in respect of any calculation or date
related to a Put Notice supplied by any party and relied upon in good faith by
the Escrow Agent.
7. The Escrow Agent has acted as legal counsel for the Investor and may
continue to act as legal counsel for such party, from time to time,
notwithstanding its duties as the Escrow Agent hereunder. The Company consents
to the Escrow Agent acting in such capacity as legal counsel for the Investor
and waives any claim that such representation represents a conflict of interest
on the part of the Escrow Agent. The Company understands that the Investor and
the Escrow Agent are relying explicitly on the foregoing provision in entering
into these Joint Escrow Instructions.
8. The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Investor. In the event of any such resignation, the Investor and the Company
shall appoint a successor Escrow Agent.
9. If the Escrow Agent reasonably requires other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
10. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the documents or the
Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed in the Escrow Agent's sole discretion (1) to retain in the Escrow
Agent's possession without liability to anyone all or any part of said documents
or the Escrow Funds until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (2) to deliver
the Escrow Funds and any other property and documents held by the Escrow Agent
hereunder to a state or federal court having competent subject matter
jurisdiction and located in the State and City of New York in accordance with
the applicable procedure therefor.
11. The Company and the Investor agree jointly and severally to indemnify
and hold harmless the Escrow Agent from any and all claims, liabilities, costs
or expenses in any way arising from or relating to the duties or performance of
the Escrow Agent hereunder other than any such claim, liability, cost or expense
to the extent the same shall (a) have been tax obligations in connection with
Escrow Agent's fee hereunder, or (b) have resulted from the gross negligence or
willful misconduct of the Escrow Agent, or (c) be a liability, or arise from
liability, to either the Company or the Investor.
12. Any notice required or permitted hereunder shall be given in manner
provided in the Section headed "NOTICES" in the Agreement, the terms of which
are incorporated herein by reference. Notice to the Escrow Agent shall be as
follows:
Xxxxxxx & Xxxxxx, LLP
00 Xxxxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
13. By signing these Joint Escrow Instructions, the Escrow Agent becomes a
party hereto only for the purpose of these Joint Escrow Instructions; the Escrow
Agent does not become a party to the Agreement. The Company and the Investor
have become parties hereto by their execution and delivery of the Agreement, as
provided therein.
14. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns and shall
be governed by the laws of the State of New York without giving effect to
principles governing the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and binding on all
parties hereto.
15. The rights and obligations of any party hereto are not assignable
without the written consent of the other parties hereto. These Joint Escrow
Instructions constitute the entire agreement amongst the parties with respect to
the subject matter hereof.
ACCEPTED BY ESCROW AGENT:
XXXXXXX & PRAGER LLP
By: __________________________
Name: __________________________
Date: __________________________
