Exhibit 10(ez)
SECURITY AGREEMENT
1. Identification.
This Security Agreement (the "Agreement"), dated as of July 23, 2004, is
entered into by and between NCT Group, Inc., a Delaware corporation ("NCT" or
"Debtor"), and Xxxxxxx Xxxxxxx, as collateral agent acting in the manner and to
the extent described in the Collateral Agent Agreement defined below (the
"Collateral Agent"), for the benefit of the parties identified on Schedule A
hereto (collectively, the "Lenders").
2. Recitals.
2.1 The Lenders have made or are making loans to NCT (the "Loans"). It is
beneficial to NCT that the Loans were made, are being made and will be made.
2.2 The Loans are evidenced by certain 8% convertible promissory notes
(each a "Convertible Note") issued by NCT on or about the date of this Agreement
pursuant to subscription agreements ("Subscription Agreement"). The Notes are
further identified on Schedule A hereto and were and will be executed by NCT as
"Borrower" or "Debtor" for the benefit of each Lender as the "Holder" or
"Lender" thereof.
2.3 In consideration of the Loans made by Lenders to NCT and for other good
and valuable consideration, and as security for the performance by NCT of its
obligations under the Notes and as security for the repayment of the Loans and
all other sums due from Debtor to Lenders arising under the Notes and
Subscription Agreements (collectively, the "Obligations"), NCT, for good and
valuable consideration, receipt of which is acknowledged, has agreed to grant to
the Collateral Agent, for the benefit of the Lenders, a security interest in the
Collateral (as such term is hereinafter defined), on the terms and conditions
hereinafter set forth. Obligations includes all future advances by Lenders to
NCT.
2.4 The Lenders have appointed Xxxxxxx Xxxxxxx as Collateral Agent pursuant
to that certain Collateral Agent Agreement dated July 23, 2004 ("Collateral
Agent Agreement"), among the Lenders and Collateral Agent.
2.5 The following defined terms which are defined in the Uniform Commercial
Code in effect in the State of New York on the date hereof are used herein as so
defined: Accounts, Chattel Paper, Documents, Equipment, General Intangibles,
Instruments, Inventory and Proceeds.
3. Grant of General Security Interest in Collateral.
3.1 As security for the Obligations of Debtor, NCT hereby grants the
Collateral Agent, for the benefit of the Lenders, a security interest in the
Collateral.
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3.2 "Collateral" shall mean all of the following property of NCT:
All now owned and hereafter acquired right, title and interest of NCT in,
to and in respect of all accounts, goods, real or personal property, all present
and future books and records relating to the foregoing and all products and
proceeds of the foregoing, as each is set forth below:
(i) Accounts: All now owned and hereafter acquired right, title and
interest of NCT in, to and in respect of all: Accounts, interests in goods
represented by Accounts, returned, reclaimed or repossessed goods with
respect thereto and rights as an unpaid vendor; contract rights; Chattel
Paper; investment property; General Intangibles (including but not limited
to, tax and duty claims and refunds, registered and unregistered patents,
trademarks, service marks, certificates, copyrights trade names,
applications for the foregoing, trade secrets, goodwill, processes,
drawings, blueprints, customer lists, licenses, whether as licensor or
licensee, choses in action and other claims, and existing and future
leasehold interests in equipment, real estate and fixtures); Documents;
Instruments; letters of credit, bankers' acceptances or guaranties; cash
moneys, deposits; securities, bank accounts, deposit accounts, credits and
other property now or hereafter owned or held in any capacity by NCT, as
well as its affiliates, agreements or property securing or relating to any
of the items referred to above;
(ii) Goods: All now owned and hereafter acquired right, title and
interest of NCT in, to and in respect of goods, including, but not limited
to:
(A) All Inventory, wherever located, whether now owned or
hereafter acquired, of whatever kind, nature or description, including
all raw materials, work-in-process, finished goods, and materials to
be used or consumed in NCT' business; and all names or marks affixed
to or to be affixed thereto for purposes of selling same by the
seller, manufacturer, lessor or licensor thereof and all Inventory
which may be returned to NCT by its customers or repossessed by NCT
and all of NCT' right, title and interest in and to the foregoing
(including all of NCT' rights as a seller of goods);
(B) All Equipment and fixtures, wherever located, whether now
owned or hereafter acquired, including, without limitation, all
machinery, motor vehicles, furniture and fixtures, and any and all
additions, substitutions, replacements (including spare parts), and
accessions thereof and thereto (including, but not limited to NCT'
rights to acquire any of the foregoing, whether by exercise of a
purchase option or otherwise);
(iii) Property: All now owned and hereafter acquired right, title and
interests of NCT in, to and in respect of any real or other personal
property in or upon which NCT has or may hereafter have a security
interest, lien or right of setoff;
(iv) Books and Records: All present and future books and records
relating to any of the above including, without limitation, all computer
programs, printed output and computer readable data in the possession or
control of the NCT, any computer service bureau or other third party; and
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(v) Products and Proceeds: All products and Proceeds of the foregoing
in whatever form and wherever located, including, without limitation, all
insurance proceeds and all claims against third parties for loss or
destruction of or damage to any of the foregoing.
3.3 The Collateral Agent is hereby specifically authorized, after an Event
of Default (as defined herein) and the expiration of any applicable cure period,
to transfer any Collateral into the name of the Collateral Agent and to take any
and all action deemed advisable to the Collateral Agent to remove any transfer
restrictions affecting the Collateral.
4. Perfection of Security Interest.
NCT shall execute and deliver to the Collateral Agent UCC-1 Financing
Statements. The Collateral Agent is instructed to file the Financing Statements
in such jurisdictions deemed advisable to the Collateral Agent, including but
not limited to Delaware and New York. These Financing Statements are deemed to
have been filed for the benefit of the Collateral Agent and Lenders identified
on Schedule A hereto.
5. Distribution on Liquidation.
5.1 If any sum is paid as a liquidating distribution on or with
respect to the Collateral, NCT shall deliver same to the Collateral Agent
to be applied to the Obligations, then due, in accordance with the terms of
the Notes.
5.2 Prior to any Event of Default, NCT shall be entitled to exercise
all voting power pertaining to any of the Collateral, provided such
exercise is not contrary to the interests of the Lenders and does not
impair the Collateral.
6. Further Action By NCT; Covenants and Warranties.
6.1 Collateral Agent at all times shall have a perfected security
interest in the Collateral, subject only to any security interests and
liens of Xxxxxx Xxxxxxx and other validly filed and superior liens existing
as of the date hereof. Additionally, all collateral rights in intellectual
property are subordinated to NCT's current licenses and future licenses
provided, that with respect to future licenses, the consent of the Lender
must be obtained, but such consent will not be unreasonably withheld. The
patents and intellectual property which are licensed under the cross
license agreement dated September 27, 1997, among NXT plc, New Transducers
Limited, being related companies, NCT and NCT Audio Products, Inc. (or any
successor agreements) are specifically excluded from the Collateral. There
are approximately 20 pieces of intellectual property in which, under the
cross license agreement, NCT may not, and hence does not herein, grant a
security interest. In addition, all agreements between NCT Audio Products,
Inc. and NCT that relate to such agreement, and the stock of NCT Audio
Products, Inc. owned by NCT, shall similarly be excluded from the security
interest granted in this Security Agreement. Subject to the security
interests described herein, NCT has and will continue to have full title to
the Collateral free from any liens, leases, encumbrances, judgments or
other claims. Collateral Agent's security interest in the Collateral
constitutes
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and will continue to constitute a first, prior and indefeasible security
interest in favor of Collateral Agent, except as set forth herein. NCT will
do all acts and things, and will execute and file all instruments
(including, but not limited to, security agreements, financing statements,
continuation statements, etc.) reasonably requested by Collateral Agent to
establish, maintain and continue the perfected security interest of
Collateral Agent in the Collateral, and will promptly on demand, pay all
costs and expenses of filing and recording, including the costs of any
searches reasonably deemed necessary by Collateral Agent from time to time
to establish and determine the validity and the continuing priority of the
security interest of Collateral Agent, and also pay all other claims and
charges that, in the opinion of Collateral Agent, exercised in good faith,
are reasonably likely to materially prejudice, imperil or otherwise affect
the Collateral or their security interests therein.
6.2 Other than in the ordinary course of business, and except for
Collateral which is substituted by assets of identical or greater value or
which has become obsolete or is of inconsequential in value, NCT will not
sell, transfer, assign or pledge those items of Collateral (or allow any
such items to be sold, transferred, assigned or pledged), without the prior
written consent of Collateral Agent. Although Proceeds of Collateral are
covered by this Agreement, this shall not be construed to mean that
Collateral Agent consents to any sale of the Collateral, except as provided
herein. Sales of Collateral in the ordinary course of business shall be
free of the security interest of Lenders and Collateral Agent and Lenders
and Collateral Agent shall promptly execute such documents (including
without limitation releases and termination statements) as may be required
by Debtor to evidence or effectuate the same.
6.3 NCT will, at all reasonable times and upon reasonable notice,
allow Collateral Agent or its representatives free and complete access to
the Collateral and all of NCT's records which in any way relate to the
Collateral, for such inspection and examination as Collateral Agent
reasonably deems necessary.
6.4 NCT, at its sole cost and expense, will protect and defend this
Security Agreement, all of the rights of Collateral Agent hereunder, and
the Collateral against the claims and demands of all other parties, except
those of holders of senior or permitted liens.
6.5 NCT will promptly notify Collateral Agent of any levy, distraint
or other seizure by legal process or otherwise of any part of the
Collateral, and of any threatened or filed claims or proceedings that are
reasonably likely to affect or impair any of the rights of Collateral Agent
under this Security Agreement in any material respect.
6.6 NCT, at its own expense, will obtain and maintain in force
insurance policies covering losses or damage to those items of Collateral
which constitute physical personal property. The insurance policies to be
obtained by NCT shall be in form and amounts reasonably acceptable to
Collateral Agent. NCT shall make the Collateral Agent a loss payee thereon
to the extent of its interest. Collateral Agent is hereby irrevocably
(until the Obligations are paid in full) appointed NCT' attorney-in-fact to
endorse any check or draft that may be payable to NCT so that Collateral
Agent may collect the proceeds payable for any loss under such insurance.
The proceeds of such insurance (subject to the rights of senior secured
parties), less any costs and expenses incurred or paid by Collateral Agent
in the collection thereof, shall be applied either toward the cost of the
repair or replacement of the items damaged or destroyed, or on
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account of any sums secured hereby, whether or not then due or payable.
Insurance will not be required for Collateral that is securities.
6.7 Collateral Agent may, at its option, and without any obligation to
do so, pay, perform and discharge any and all amounts, costs, expenses and
liabilities herein agreed to be paid or performed by NCT, upon NCT' failure
to do so, and all amounts expended by Collateral Agent in so doing shall
become part of the Obligations secured hereby, and shall be immediately due
and payable by NCT to Collateral Agent upon demand and shall bear interest
at the lesser of 14% per annum or the highest legal amount from the dates
of such expenditures until paid.
6.8 Upon the request of Collateral Agent, NCT will furnish within five
(5) business days thereafter to Collateral Agent, or to any proposed
assignee of this Security Agreement, a written statement in form reasonably
satisfactory to Collateral Agent, duly acknowledged, certifying the amount
of the principal and interest then owing under the Obligations, whether to
its knowledge any claims, offsets or defenses exist against the Obligations
or against this Security Agreement, or any of the terms and provisions of
any other agreement of NCT securing the Obligations. In connection with any
assignment by Collateral Agent of this Security Agreement, NCT hereby
agrees to cause the insurance policies required hereby to be carried by
NCT, if any, to be endorsed in form satisfactory to Collateral Agent or to
such assignee, with loss payable clauses in favor of such assignee, and to
cause such endorsements to be delivered to Collateral Agent within ten (10)
calendar days after request therefor by Collateral Agent.
6.9 NCT will, at its own expense, make, execute, endorse, acknowledge,
file and/or deliver to the Collateral Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances,
financing statements, transfer endorsements, powers of attorney,
certificates, reports and other reasonable assurances or instruments and
take further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, as the Collateral Agent
may reasonably require to perfect its security interest hereunder.
6.10 NCT represents and warrants that as of the date hereof it is the
true and lawful exclusive owner of the Collateral, free and clear of any
liens and encumbrances except for any in favor of Xxxxxx Xxxxxxx or as
described herein.
6.11 NCT hereby agrees not to divest itself of any right under the
Collateral except as permitted herein absent prior written approval of the
Collateral Agent.
7. Power of Attorney.
After the occurrence and during the uncured continuation of an Event
of Default thereunder, NCT hereby irrevocably constitutes and appoints the
Collateral Agent as the true and lawful attorney of NCT, with full power of
substitution, in the place and stead of NCT and in the name of NCT or
otherwise, at any time or times, in the discretion of the Collateral Agent,
to take any action and to execute any instrument or document which the
Collateral Agent may deem necessary or advisable to accomplish the purposes
of this
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Agreement. This power of attorney is coupled with an interest and is
irrevocable until the Obligations are satisfied.
8. Performance By The Collateral Agent.
If NCT fails to perform any material covenant, agreement, duty or
obligation of NCT under this Agreement, the Collateral Agent may, after any
applicable cure period, at any time or times in its discretion, take action
to effect performance of such obligation. All reasonable expenses of the
Collateral Agent incurred in connection with the foregoing authorization
shall be payable by NCT as provided in Paragraph 12.1 hereof. No
discretionary right, remedy or power granted to the Collateral Agent under
any part of this Agreement shall be deemed to impose any obligation
whatsoever on the Collateral Agent with respect thereto, such rights,
remedies and powers being solely for the protection of the Collateral
Agent.
9. Event of Default.
An event of default ("Event of Default") shall be deemed to have
occurred hereunder upon the occurrence of any event of default as defined
in the Notes and Subscription Agreement. Upon and after any Event of
Default, after the applicable cure period, if any, any or all of the
Obligations shall become immediately due and payable at the option of the
Collateral Agent, for the benefit of the Lenders, and the Collateral Agent
may dispose of Collateral as provided below. A default by NCT of any of its
material obligations pursuant to this Agreement shall be an Event of
Default hereunder and an event of default as defined in the Notes and
Subscription Agreement.
10. Disposition of Collateral and Collateral Shares.
Upon and after any Event of Default which is then continuing,
10.1 The Collateral Agent may exercise its rights with respect to each
and every component of the Collateral, without regard to the existence of
any other security or source of payment for the Obligations. In addition to
other rights and remedies provided for herein or otherwise available to it,
the Collateral Agent shall have all of the rights and remedies of a lender
on default under the Uniform Commercial Code then in effect in the State of
New York.
10.2 If any notice to NCT of the sale or other disposition of
Collateral is required by then applicable law, five business (5) days prior
written notice (which NCT agrees is reasonable notice) or, if longer, the
shortest period of time permitted by then applicable law to NCT of the time
and place of any sale of Collateral which NCT hereby agrees may be by
private sale. The rights granted in this Section are in addition to any and
all rights available to Collateral Agent under the Uniform Commercial Code.
10.3 The Collateral Agent is authorized, at any such sale, if the
Collateral Agent deems it advisable to do so, in order to comply with any
applicable securities laws, to restrict the prospective bidders or
purchasers to persons who will represent and agree, among other things,
that they are purchasing the Collateral for their own account for
investment, and not with a view to the distribution or resale
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thereof, or otherwise to restrict such sale in such other manner as the
Collateral Agent deems advisable to ensure such compliance. Sales made
subject to such restrictions shall be deemed to have been made in a
commercially reasonable manner.
10.4 All proceeds received by the Collateral Agent for the benefit of
the Lenders in respect of any sale, collection or other enforcement or
disposition of Collateral, shall be applied (after deduction of any amounts
payable to the Collateral Agent pursuant to Paragraph 12.1 hereof) against
the Obligations pro rata among the Lenders in proportion to their interests
in the Obligations. Upon payment in full of all Obligations, NCT shall be
entitled to the return of all Collateral, including cash, which has not
been used or applied toward the payment of Obligations or used or applied
to any and all costs or expenses of the Collateral Agent incurred in
connection with the liquidation of the Collateral (unless another person is
legally entitled thereto). Any assignment of Collateral by the Collateral
Agent to NCT shall be without representation or warranty of any nature
whatsoever and wholly without recourse. To the extent allowed by law, each
Lender may purchase the Collateral and pay for such purchase by offsetting
any sums owed to such Lender by NCT arising under the Obligations or any
other source.
11. Intentionally Left Blank.
12. Miscellaneous.
12.1 Expenses. NCT shall pay to the Collateral Agent, on demand, the
amount of any and all reasonable expenses, including, without limitation,
attorneys' fees, legal expenses and brokers' fees, which the Collateral
Agent may incur in connection with (a) sale, collection or other
enforcement or disposition of Collateral; (b) exercise or enforcement of
any the rights, remedies or powers of the Collateral Agent hereunder or
with respect to any or all of the Obligations; or (c) failure by NCT to
perform and observe any agreements of NCT contained herein which are
performed by the Collateral Agent.
12.2 Waivers, Amendment and Remedies. No course of dealing by the
Collateral Agent and no failure by the Collateral Agent to exercise, or
delay by the Collateral Agent in exercising, any right, remedy or power
hereunder shall operate as a waiver thereof, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or
the exercise of any other right, remedy or power of the Collateral Agent.
No amendment, modification or waiver of any provision of this Agreement and
no consent to any departure by NCT therefrom, shall, in any event, be
effective unless contained in a writing signed by the Collateral Agent, and
then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. The rights, remedies
and powers of the Collateral Agent, not only hereunder, but also under any
instruments and agreements evidencing or securing the Obligations and under
applicable law are cumulative, and may be exercised by the Collateral Agent
from time to time in such order as the Collateral Agent may elect.
12.3 Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being faxed (provided that a copy is
delivered by first class mail) to the party to receive the same at its
address set forth below or
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to such other address as either party shall hereafter give to the other by
notice duly made under this Section:
To NCT: NCT Group, Inc.
00 Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Chief Financial Officer
Fax: (000) 000-0000
With a copy to: General Counsel
To Lenders: To the addresses and telecopier numbers set
forth on Schedule A
To the Collateral Agent: Xxxxxxx X. Xxxxxxx
Grushko & Xxxxxxx, P.C.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Any party may change its address by written notice in accordance with this
paragraph.
12.4 Term; Binding Effect. This Agreement shall (a) remain in full
force and effect until payment and satisfaction in full of all of the
Obligations; (b) be binding upon NCT, and its successors and permitted
assigns; and (c) inure to the benefit of the Collateral Agent, for the
benefit of the Lenders and their respective successors and assigns. All the
rights and benefits granted by Debtor to the Collateral Agent and Lenders
in the Loan Documents are deemed granted to both the Collateral Agent and
Lenders.
12.5 Captions. The captions of Paragraphs, Articles and Sections in
this Agreement have been included for convenience of reference only, and
shall not define or limit the provisions hereof and have no legal or other
significance whatsoever.
12.6 Governing Law; Venue; Severability. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York without regard to principles of conflicts or choice of law, except to
the extent that the perfection of the security interest granted hereby in
respect of any item of Collateral may be governed by the law of another
jurisdiction. Any legal action or proceeding against NCT with respect to
this Agreement may be brought in the courts of the State of New York or of
the United States for the Southern District of New York, and, by execution
and delivery of this Agreement, NCT hereby irrevocably accepts for itself
and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. NCT hereby irrevocably waives any
objection which they may now or hereafter have to the laying of venue of
any of the aforesaid actions or proceedings arising out of or in
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connection with this Agreement brought in the aforesaid courts and hereby
further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum. If any provision of this Agreement, or
the application thereof to any person or circumstance, is held invalid,
such invalidity shall not affect any other provisions which can be given
effect without the invalid provision or application, and to this end the
provisions hereof shall be severable and the remaining, valid provisions
shall remain of full force and effect.
12.7 Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original,
but all such counterparts shall constitute but one and the same instrument.
This Agreement may be executed by facsimile signature and delivered by
facsimile transmission.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed and delivered this
Security Agreement, as of the date first written above.
"DEBTOR" "THE COLLATERAL AGENT"
NCT GROUP, INC. XXXXXXX X. XXXXXXX
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxxxx /s/ Xxxxxxx X. Xxxxxxx
---------------------------- ------------------------------
Xxxxxxx Xxxxxxxx
Its: Chairman & C.E.O.
APPROVED BY "LENDERS":
/s/ Xxxxxx Xxxxxxxx /s/ S. Xxxxxxx Xxxxxxx
--------------------------------- ------------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT LONGVIEW FUND LP
This Security Agreement may be signed by facsimile signature and
delivered by confirmed facsimile transmission.
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SCHEDULE A TO SECURITY AGREEMENT
--------------------------------------------- ------------------------------
LENDER PRINCIPAL AMOUNT OF NOTE
--------------------------------------------- ------------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT $400,000.00
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Xxxxxxxxxxxx
Fax: 000-00-00000000
--------------------------------------------- ------------------------------
LONGVIEW FUND LP $500,000.00
000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: S. Xxxxxxx Xxxxxxx
Fax: (000) 000-0000
--------------------------------------------- ------------------------------
TOTALS $900,000.00
--------------------------------------------- ------------------------------
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