Exhibit 10(bm)(1)
EXHIBIT B
TO
EXCHANGE AGREEMENT
REGISTRATION RIGHTS AGREEMENT RELATING TO
EXCHANGE AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of June 21, 2002 (this
"Agreement"), is made by and between NCT GROUP, INC., a Delaware corporation,
with headquarters located at 00 Xxxxxxx Xxxxxx, Xxxxxxxx, XX 00000 (the
"Company"), and XXXXXXX ROAD LLC, a Cayman Islands limited liability company,
with headquarters at Bay Road, Grand Cayman (the "Initial Investor")
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Exchange
Agreement, dated as of June 21, 2002, between the Initial Investor and the
Company (the "Exchange Agreement;" capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Exchange Agreement), the
Company has agreed to issue and sell to the Initial Investor the Preferred
Stock; and
WHEREAS, the Series H Preferred Stock is convertible into shares of Common
Stock (the "Shares"); which term, for purposes of this Agreement, shall include
shares of Common Stock of the Company issuable in lieu of accrued dividends on
the Preferred Stock upon the terms and subject to the conditions contained in
the Certificate of Designation and the Exchange Agreement; and
WHEREAS, to induce the Initial Investor to execute and deliver the Exchange
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, the "Securities
Act"), with respect to the 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 Initial
Investor hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Effective Date" means the date the SEC declares a Registration
Statement covering Registrable Securities and otherwise meeting the conditions
set forth herein to be effective.
(b) "Held Shares Value" means, for Registrable Securities acquired by the
Investor upon a conversion of Preferred Stock within the thirty (30) days
preceding the Restricted Sale Date, but not yet sold by the Investor, the
product of (a) the Shares issued and (b) the Closing Price of the Company"s
Common Stock on the day prior to each Computation Date provided, however, that
if the Investor effected more than one such conversion during such thirty (30)
day period and sold less than all of such shares, the sold shares shall be
deemed to be derived first from the conversions in the sequence of such
conversions (that is, for example, until the number of shares from the first of
such conversions have been sold, all shares shall be deemed to be from the first
conversion; thereafter, from the second conversion until all such shares are
sold).
(c) "Investor" means the Initial Investor and any permitted transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof and who holds Preferred Stock or Registrable
Securities.
(d) "Periodic Amount Shares" means shares of Common Stock issuable in
payment of any Periodic Amount due, asdefined Section 2(b) below.
(e) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by a determination 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 (ii) 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; in each case where such 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.
(f) "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 continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the Securities and Exchange Commission (the "SEC").
(g) "Registrable Securities" means the Shares.
(h) "Registration Statement" means a registration statement of the Company
under the Securities Act covering Registrable Securities on Form S-3, if the
Company is then eligible to file using such form, and if not eligible, on Form
S-1 or other appropriate form, and any prospectus included therein (a "
Prospectus").
(i) "Required Effective Date" means the relevant Initial Required Effective
Date or Increased Required Effective Date (as those terms are defined below).
(j) "Restricted Sale Date" means the first date, other than a date during a
Permitted Suspension Period (as defined below), on which the Investor is
restricted from making sales of Registrable Securities covered by any previously
effective Registration Statement.
(k) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Exchange Agreement.
2. Registration.
(a) Mandatory Registration.
(i) The Company shall prepare and file with the SEC, as soon as possible
after the Closing Date but no later than fifteen (15) days after the effective
date of the Registration Statement filed under File No. 333-60574 (the "Required
Filing Date"), either a Registration Statement or an amendment to an existing
Registration Statement, in either event registering for resale by the Investor a
sufficient number of shares of Common Stock for the Initial Investor to sell the
Registrable Securities, but in no event less than the number of shares equal to
one hundred and fifty percent (150%) of the number of Shares into which the
Preferred Stock and all accrued dividends thereon for three (3) years from the
issue date would be convertible at the time of filing of such Registration
Statement (assuming for such purposes that all Preferred Stock had been issued,
had been eligible to be converted, and had been converted, into Shares and that
all dividends thereon had accrued for 3 years, in each case in accordance with
the terms of the Exchange Agreement and of the Certificate of Designation of the
Preferred Stock, whether or not such issuance, eligibility, accrual of dividends
or conversion had in fact occurred as of such date). The Registration Statement
(W) shall include only the Registrable Securities, the Securities listed on
Schedule 5 (b), and with the prior written consent of the Investor, which shall
not be unreasonably withheld, up to 10,000,000 additional shares of Common
Stock, and (X) shall also state that, in accordance with Rule 416 and 457 under
the Securities Act, it also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Preferred
Stock, or upon the issuance of shares in payment of accrued dividends, to
prevent dilution resulting from stock splits, or stock dividends. The Company
will use its reasonable best efforts to cause such Registration Statement to be
declared effective on a date (the "Initial Required Effective Date") which is no
later than the earlier of (X) five (5) days after oral or written notice by the
SEC that it may be declared effective,(Y) sixty (60) days after the Required
Filing Date or (Z) 150 days after the date hereof.
(ii) If at any time (an "Increased Registered Shares Date"), the number of
shares of Common Stock represented by the Registrable Shares, issued or required
to be issued as contemplated by the Transaction Documents, exceeds the aggregate
number of shares of Common Stock then registered, the Company shall either
(X) amend the relevant Registration Statement filed by the Company pursuant
to the preceding provisions of this Section 2, if such Registration
Statement has not been declared effective by the SEC at that time, to
register, in the aggregate, at least the number of shares (the "Increased
Shares Amount") equal to (A) the number of shares theretofore issued on
conversion of the Preferred Stock (including any dividends paid on
conversion by the issuance of Shares), plus (B)one hundred and fifty
percent (150%) of the number of shares into which the unconverted Preferred
Stock and all dividends thereon through the third anniversary of their
respective issuances would be convertible at the date of such filing
(assuming for such purposes that all such Preferred Stock had been issued,
had been eligible to be converted, and had been converted, into Shares in
accordance with their terms, whether or not such issuance, eligibility,
accrual of dividend, or conversion had in fact occurred as of such date),
or
(Y) if such Registration Statement has been declared effective by the SEC
at that time, file with the SEC an additional Registration Statement (an
"Additional Registration Statement") to register the number of shares equal
to the excess of the Increased Shares Amount over the aggregate number of
shares of Common Stock already registered.
The Company will use its reasonable best efforts to cause such Registration
Statement to be declared effective on a date (each, an "Increased Required
Effective Date") which is no later than (Q) with respect to a Registration
Statement under clause (X) of this subparagraph (ii), the Initial Required
Effective Date and (R) with respect to an Additional Registration Statement, the
earlier of (I) five (5) days after notice by the SEC that it may be declared
effective or (II) thirty (30) days after the Increased Registered Shares Date.
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable Securities is
not filed in proper form with the SEC by the Required Filing Date, the Company
will make payment to the Initial Investor in such amounts and at such times as
shall be determined pursuant to this Section 2(b).
(ii) If the Registration Statement covering the Registrable Securities is
not effective by the relevant Required Effective Date or if there is a
Restricted Sale Date, then the Company will make payments to the Initial
Investor in such amounts and at such times as shall be determined pursuant to
this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the Company to the
Initial Investor shall be determined as of each Computation Date (as defined
below) and such amount shall be equal to the Periodic Amount Percentage (as
defined below) of the stated value of Preferred Stock for the period from the
date following the relevant Required Filing Date or the Required Effective Date
or a Restricted Sale Date, as the case may be, to the first relevant Computation
Date, and thereafter to each subsequent Computation Date. The "Periodic Amount
Percentage" means two percent (2%) of the stated value of all Preferred Stock
for each Computation Date after the relevant Required Filing Date, Required
Effective Date or Restricted Sale Date, as the case may be (prorated on a daily
basis if such period is less than thirty (30) days). Anything in the preceding
provisions of this paragraph (iii) to the contrary notwithstanding, after the
relevant Effective Date, the stated value shall be deemed to refer to the sum of
(X) the stated value of all Preferred Stock not yet converted and (Y) the Held
Shares Value. By way of illustration and not in limitation of the foregoing, if
the Registration Statement is filed on or before the Required Filing Date, but
is not declared effective until seventy-five (75) days after the Initial
Required Registration Date, the Periodic Amount will aggregate five percent (5%)
of the stated value of the Preferred Stock (2% for days 1-30, plus 2% for days
31-60, plus 1% for days 61-75).
(iv) Each Periodic Amount will be payable by the Company, except as
provided in the other provisions of this subparagraph (iv), in cash or other
immediately available funds to the Investor (1) on the day after the Required
Filing Date, the Required Effective Date or a Restricted Sale Date, as the case
may be, and (2) on the earlier of (A) each thirtieth day thereafter, (B) the
third business day after the date the Registration Statement is filed or is
declared effective, or (C) the third business day after the Registration
Statement has its restrictions removed after the relevant Effective Date, in
each case without requiring demand therefor by the Investor. Notwithstanding the
provisions of the first sentence of this subparagraph (iv), at the option of the
Company, if, but only if the Registration Statement is then currently effective,
the Company will have the option until 90 days after the Required Effective
Date, to pay all or any portion of the Periodic Amount by the issuance of
additional shares of Common Stock to the Investor ("Periodic Amount Shares") in
an amount equal to the Periodic Amount being paid thereby divided by the then
applicable Conversion Price.
(v) The parties acknowledge that the damages which may be incurred by the
Investor if the Registration Statement is not filed by the Required Filing Date
or the Registration Statement has not been declared effective by a Required
Effective Date, including if the right to sell Registrable Securities under a
previously effective Registration Statement is suspended or the shares of the
Company's stock are not listed on the Principal Market, may be difficult to
ascertain. The parties agree that the Periodic Amounts represent a reasonable
estimate on the part of the parties, as of the date of this Agreement, of the
amount of such damages.
(vi) "Computation Date" means (A) the date which is the earlier of (1)
thirty (30) days after the Required Filing Date, any relevant Required Effective
Date or a Restricted Sale Date, as the case may be, or (2) the date after the
Required Filing Date, such Required Effective Date or Restricted Sale Date on
which the Registration Statement is filed (with respect to payments due as
contemplated by Section 2(b)(i) hereof) or is declared effective or has its
restrictions removed or the shares of the Company's stock are listed on the
Principal Market (with respect to payments due as contemplated by Section
2(b)(ii) hereof), as the case may be, and (B) each date which is the earlier of
(1) thirty (30) days after the previous Computation Date or (2) the date after
the previous Computation Date on which the Registration Statement is filed (with
respect to payments due as contemplated by Section 2(b)(i) hereof) or is
declared effective or has its restrictions removed or the shares of the
Company's stock are listed on the Principal Market (with respect to payments due
as contemplated by Section 2(b)(ii) hereof), as the case may be.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare and file with the SEC by the Required 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 its reasonable
best efforts to cause such Registration Statement relating to Registrable
Securities to become effective by the Required Effective Date and keep the
Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earlier of (i) the date when the
Investor may sell all Registrable Securities under Rule 144(k) without volume or
other restrictions or limits, or (ii) the date the Investor no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and Prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the Prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration Statement effective at all times during the Registration
Period, and, during the Registration Period, 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 such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement;
(c) Permit a single firm of counsel designated by the Initial 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 the Exchange Agreement, Initial Investor and the
Registrable Securities or compliance with the terms of this Agreement or the
other Transaction Documents.
(d) Notify each Investor, and such Investor's legal counsel identified to
the Company (which, until further notice, shall be deemed to be Xxxxxxx &
Xxxxxx, Attn: Xxxxxx Xxxxxxx, Esq.; "Investor's Counsel") (and, in the case of
(i)(A) below, not less than five (5) 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; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC respect of a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Investor); and (D) 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 Prospectus or for
additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any proceedings for that
purpose; (iv) if at any time any of the representations or warranties of the
Company contained in any agreement (including any underwriting 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
best knowledge of the Company makes any statement made in the Registration
Statement or 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, 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 light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investor with
copies of all intended written responses to the comments contemplated in clause
(C) of Section 3(d)(i) hereof not later than one (1) business day in advance of
the filing of such responses with the SEC so that the Investor shall have the
opportunity to comment thereon.
(e) 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) 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 the State of New York, if required (ii) prepare and file in
such jurisdiction 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) As promptly as practicable after becoming aware thereof, notify each
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 an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(h) As promptly as practicable after becoming aware thereof, notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(i) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investor in writing of the existence of a Potential Material Event,
the 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 such Investor receives written notice from the Company that such Potential
Material Event either has been disclosed to the public or no longer constitutes
a Potential Material Event; provided, however, that the Company may not so
suspend the right to such holders of Registrable Securities for more than two,
five (5) day periods in the aggregate during any 12-month period ("Permitted
Suspension Period") with at least a ten (10) business day interval between such
periods, during the periods the Registration Statement is required to be in
effect, 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) Use its reasonable efforts to secure and maintain the listing of all
the Registrable Securities covered by the Registration Statement on the OTC
Bulletin Board.
(k) Provide a transfer agent for the Registrable Securities (the "Transfer
Agent") not later than the effective date of the Registration Statement;
(l) 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, 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
for the Company to deliver, to the Transfer Agent for the Registrable Securities
(with copies to the Investor whose Registrable Securities are included in such
Registration Statement), if required or requested by the Transfer Agent, an
appropriate instruction and opinion of such counsel; and
(m) 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 of the Registration
Statement, which statement shall cover said 12-month period, or any shorter
period as is consistent with the requirements of Rule 158.
(n) Take all other reasonable actions necessary to expedite and facilitate
disposition by 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 a particular Investor that such Investor shall 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 execute such documents in connection with such
Registration as the Company may reasonably request. At least ten (10) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least five (5) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company need not file the Registration
Statement until receiving the response of such Non-Responsive Investor;
(b) Each 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, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(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, 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 of the Investor) incurred in connection
with Registrations, filings or qualifications pursuant to Section 3, but
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 the Investor equal to $3,500 for
each Registration Statement covering the Registrable Securities, shall be borne
by the Company.
(b) Except as otherwise provided for in Schedule 5(b) hereto, the Company
has not, as of the date hereof, nor shall the Company, on or after the date of
this Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Investor in this Agreement or
otherwise conflicts with the provisions hereof. Except as otherwise provided for
in Schedule 5(b), and except for securities previously included in a
registration statement filed with the SEC by the Company, neither the Company
nor any of its subsidiaries has previously entered into any agreement granting
any registration rights with respect to any of its securities to any Person.
Except as otherwise provided for in this Section 5, and without limiting the
generality of the foregoing, without the written consent of the Investors
holding a majority of the Registrable Securities, the Company shall not grant to
any person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject in all
respects to the prior rights in full of the 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
Securities Exchange Act of 1934 (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
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. 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.
(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
indemnifying party would not have been liable for indemnification under the
fault standards set forth in Section 6; (b) no seller of Registrable Securities
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from indemnifying party
who was not guilty of such fraudulent misrepresentation; and (c) contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
8. Reports under Exchange Act. With a view to making available to the
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; and
(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 Investor to sell such securities pursuant to
Rule 144 without registration.
(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
(B) 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. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investor to any transferee of the Registrable
Securities (or any unconverted Preferred Stock) only if: (a) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (b) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is,
subject to the terms of this Agreement and the other Transaction Documents,
restricted under the Securities Act and applicable state securities laws, and
(c) at or before the time the Company received the written notice contemplated
by clause (a) of this sentence, the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein. 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, or the payments set forth in Section 2(b) hereof
arising from such delay.
10. Amendment of Registration Rights. 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 Investors who hold eighty (80%) percent of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be given in
the manner contemplated by the Exchange Agreement, (i) if to the Company or to
the Initial Investor, to their respective address contemplated by the Exchange
Agreement, and (ii) if to any other Investor, at such address as such Investor
shall have provided in writing to the Company, or at such other address as each
such party furnishes by notice given in accordance with this Section 11(b).
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) 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 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 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.
(e) 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
this Agreement or any of the other Transaction Documents.
(f) If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(g) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(h) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(i) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(j) This Agreement may be executed in one 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.
(k) The Company acknowledges that any failure by the Company to perform its
obligations under Section 2(a) hereof, or any delay in such performance, could
result in loss to the Investor, 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.
(l) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the registration of the Common Stock issuable
upon conversion of the Series H Preferred Stock.
[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. COMPANY: NCT GROUP, INC.
By: /s/ XX X. XXXXXXX
---------------------------------
Name: Xx X. Xxxxxxx
Title: Senior Vice President
Chief Financial Officer
XXXXXXX ROAD LLC
By: /s/ Xxxxxx XxXxxxxx & Xxxxx Xxxxxx
---------------------------------
Name: Navigator Management Ltd.
Title: Director
SCHEDULE 5(b)
NCT Group, Inc.
Common Stock Registration Obligations
As of June 30, 2002
No. Shares
----------
Issued and Outstanding Shares 4,991,041
Secured Convertible Notes (Xxxxxxx) 112,261,346
Xxxxxxx Interest 4,747,211
Xxxxxxx Default Penalty 14,150,867
Xxxxxxx Warrants 25,554,310
Other Warrants 59,200,141
Options 48,880,923
Theatre Radio Network 7,207,785
Midcore Look Back Shares 14,655,337
8% Convertible Note 3/14/01 346,123
Interest thereon 46,125
8% Convertible Notes 4/12/01 173,062
Interest thereon 20,587
NCT Group Promissory Note 3/11/02 8,038,647
Interest thereon 195,570
NCT Preferred Stock Series H 455,696,203
Preferred stock accretion 41,012,658
Pro Tech Preferred Stock Series A 909,810
Pro Tech Preferred accretion 63,712
Pro Tech Preferred Stock Series B 9,493,671
Pro Tech Preferred accretion 348,535
Artera Group Promissory Notes 1/9/01 33,364,557
Interest thereon 4,831,919
Artera Group Promissory Notes 4/4/01 15,506,329
Interest thereon 1,595,665
Artera Group Promissory Notes 5/25/01 1,439,873
Interest thereon 98,937
Artera Group Promissory Notes 6/29/01 20,569,620
Interest thereon 1,227,415
Artera Group Series A Preferred Stock 70,364,557
Artera Group Preferred accretion 3,763,058
Artera Group Promissory Note 1/10/02 11,313,291
Interest thereon 424,016
-------------
Total 972,492,902
=============
Notes:
------
- Excludes registration obligations under the Private Equity Credit Agreement
to which this Registration Rights Agreement relates.
- Excludes shares covered on the NCT Group, Inc. registration statement
currently pending before the Securities and Exchange Commission
(Registration No. 333-60574).
- Excludes registration obligations under the April 12, 2001 Private Equity
Credit Agreement between NCT Group, Inc. and Xxxxxxx Road LLC.
- Calculated based upon Friday, June 28, 2002 closing bid price of $0.079 in
accordance with respective agreements (where applicable).
