Exhibit 10(ay)
SETTLEMENT AGREEMENT
WHEREAS, Plaintiffs Alpha Capital Aktiengesellschaft ("Alpha"), Austost Anstalt
Xxxxxx ("Austost"), Balmore, S. A., f/k/a Balmore Funds, S.A. ("Balmore"), and
Libra Finance, S.A. ("Libra") (collectively the "Investors"), by their
attorneys, Grushko & Xxxxxxx, P.C., have filed their Complaint against
Defendants NCT Group, Inc. ("NCT"), and Artera Group, Inc., f/k/a NCT Networks,
Inc. ("Artera"), in the Supreme Court of the State of New York, New York County,
Index Number 604540/02 (the "Action", the causes of actions and allegations
contained in the Complaint in said Action are referred to as the "Claims"); and
WHEREAS, NCT and Artera seek to resolve the claims made against them in the
Action for, among other things, liquidated damages for stock registration
failures and principal and interest payments under various convertible and
exchangeable notes (collectively the "Notes") as alleged in the aforementioned
Complaint, and the Investors are willing to resolve such claims as described
herein;
NOW, THEREFORE, in exchange for good and valuable consideration including the
mutual recitations and provisions contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
(collectively the "Parties") agree as follows:
1. Recitals.
The above recitals are true and correct and incorporated herein by
reference.
2. Court Approval and Issuance of Shares.
A. This Settlement Agreement must be approved by the Supreme Court of
the State of New York, New York County (the "Court"), after a hearing that
the Parties will seek to schedule as soon as practicable (the "Hearing").
If the Court fails or refuses to approve this Settlement Agreement within
120 days of the date recorded below, then it shall be of no force or effect
on any Party.
B. Immediately upon the occurrence of the last of both (i) Court
approval of this Settlement Agreement and (ii) the Investors' receipt of
the Shares, as defined below, NCT, Artera and the Investors will promptly
take all steps necessary to dismiss the Action with prejudice and will
direct their respective attorneys to execute and file a stipulation and
order of dismissal with prejudice in the form attached as Exhibit A. Each
party will bear its own costs and expenses, including attorneys' fees, in
connection with the negotiation, execution and performance of this
Settlement Agreement, except that NCT and Artera, jointly and severally,
shall reimburse the Investors for $10,000.00 of their legal fees in
connection with the Action.
C. Within ten business days after Court approval of this Settlement
Agreement, NCT shall issue to the Investors that number of shares of NCT
Common Stock, par value $.01 per share (the "Shares"), having the aggregate
value of $4,000,000.00 based upon a price per share which shall be the
average of the closing price on the NASD Over-the-Counter
Electronic Bulletin Board for each of the ten trading days immediately
preceding the date of the Hearing (the date of issuance of said Shares
being the "Issue Date"). The closing of the issuance of the Shares by NCT
to the Investors on the Issue Date as contemplated herein shall take place
at NCT's office in Westport, Connecticut. The aggregate value of the Shares
shall be distributed among the Investors as follows: Alpha $913,614.92,
Austost $1,351,250.16, Balmore $1,364,687.95 and Libra $370,446.97.
D. In no event shall any Investor receive that number of Shares which
would be in excess of the sum of (i) the number of shares of common stock
beneficially owned by the Investor and its affiliates on the Issue Date,
and (ii) the number of Shares issuable to the Investor on the Issue Date,
which would result in beneficial ownership by the Investor and its
affiliates of more than 9.99% of the outstanding shares of common stock of
NCT on the Issue Date. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13d-3 thereunder. Subject to the foregoing, each Investor shall
not be limited to aggregate issuance of only 9.99% and aggregate issuance
to the Investor may exceed 9.99%. The Investor may void the issuance
limitation described in this paragraph upon 75 days prior written notice to
the Company. The Investor may allocate which of the equity of NCT deemed
beneficially owned by the Investor shall be included in the 9.99% amount
described above and which shall be allocated to the excess above 9.99%. The
remainder of the Shares due each Investor under this Settlement Agreement
shall be issued by NCT to the respective Investors on further issue dates,
sixty-one days after the immediately preceding issue date, subject to the
limitations of this paragraph, until all the Shares due under this
Settlement Agreement have been issued to the Investors.
E. The Investors understand and acknowledge that the offer and sale of
the Shares by NCT to the Investors as contemplated hereunder will not be
registered with or reviewed by any state securities authority, pursuant to
applicable exemption(s) from such requirements. The Parties hereby
acknowledge that the Shares will be issued hereunder in exchange for one or
more bona fide outstanding securities, claims or property interests of the
Investors, within the meaning of Section 36b-3(15)(G)(iv) of Chapter 672a
of Title 36b of the Connecticut Securities Law and Business Opportunity
Investment Act, as amended.
F. It is the intent of the Parties that, upon delivery of the Shares
to the Investors, resale of the Shares in the United States by the
Investors shall be exempt from registration under the Securities Act of
1933, as amended (as so amended, the "Securities Act"), by virtue of
Section 3(a)(10) of the Securities Act. As such, the Shares to be issued
hereunder will be issued to the Investors in exchange for one or more bona
fide outstanding securities, claims or property interests of the Investors,
within the meaning of such Section 3(a)(10) of the Securities Act. In
further connection with the requirements of said Section, the Parties
intend that the Court approval referred to in Section 2(A) of this
Settlement Agreement be after a hearing upon the fairness to the Investors
of the terms and conditions of the Settlement Agreement, at which hearing
the Investors shall have the right to appear.
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G. All Shares issued pursuant to this Section 2 of this Settlement
Agreement shall not bear any restrictive legend.
H. Each of the Investors recognizes that NCT has a limited financial
and operating history and that an investment in any of the Shares involves
a high degree of risk. Each Investor acknowledges receipt from NCT of
information satisfactory to such Investor regarding NCT and the Shares to
be issued hereunder. Each Investor has had an opportunity to review the
publicly available information about NCT that is on file with the
Securities and Exchange Commission (the "SEC") and, has had an opportunity
to ask questions of and receive answers from officers of NCT concerning
NCT's publicly available SEC filings and the Shares to be issued hereunder,
and is satisfied with all of such answers. Nothing in this Settlement
Agreement shall affect any obligation a holder of Shares issued hereunder
may have to comply with all applicable Federal and State securities laws
upon any resale of Shares.
I. The Complaint in the Action is deemed amended to add a Tenth Cause
of Action by which Alpha claims $98,154 in liquidated damages for NCT's
failure to register NCT common stock issuable to Alpha pursuant to a May
25, 2001, Artera 6% Convertible Note, the attendant Subscription Agreement
between Artera and Alpha, the Exchange Rights Agreement between NCT and
Alpha and Registration Rights Agreement between NCT and Alpha (said
documents referred to collectively as the "5/25/01 Note and related
agreements").
3. Releases.
A. Upon receipt of all of the Shares for and in consideration of the
terms and conditions of this Agreement, and except for the obligations and
representations arising or made hereunder, NCT and Artera, on the one hand,
and the Investors, on the other hand, hereby release, acquit and forever
discharge the other and each, every and all of their current and past
officers, directors, shareholders, affiliated corporations, subsidiaries,
agents, employees, representatives, attorneys, predecessors, successors and
assigns (the "Released Parties"), of and from any and all claims, damages,
causes of action, suits and costs, of whatever nature, character or
description, whether known or unknown, anticipated or unanticipated, which
the parties may now have or claim to have against each other with respect
to (a) the Claims, (b) the following agreements as defined in the
Complaint: the 1/9/01 Notes and related agreements; the Series A Preferred
Stock and related agreements; the 3/14/01 Note and related agreements; the
4/4/01 Note and related agreements; 4/12/01 Note and related agreements;
the 5/25/01 Note and related agreements; the 6/29/01 Note and related
agreements; the 1/10/02 Note and related agreements; the 3/11/02 Note and
related agreements; the Series B Preferred Stock (collectively, the
"Instruments"). Nothing contained herein shall be deemed to negate or
affect the Investors' right and title to any securities heretofore issued
to it by NCT or any subsidiary of NCT.
B. Notwithstanding anything in this Settlement Agreement to the
contrary, the Investors do not release NCT or its affiliates as to
currently outstanding principal on the Instruments and interest that
accrues on that outstanding principal from the date of this
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Settlement Agreement. Notwithstanding anything in this Settlement Agreement
to the contrary, the Investors further do not release NCT or its affiliates
as to any dividends or accretion due at any time under the Instruments.
Notwithstanding anything in this Settlement Agreement to the contrary, the
Investors further do not release NCT or its affiliates as to any security
provided to the Investors by NCT or its affiliates in the Security
Agreement dated January 10, 2002.
C. Notwithstanding anything in this Settlement Agreement to the
contrary, the Investors do not release NCT from its obligations under the
Instruments with respect to the registration of its common stock in the
manner set forth in the Instruments, except that, whereas the Instruments
require said registration by dates certain in default of which Liquidated
Damages (as defined in the Instruments as payable in connection with
Registration Defaults, as defined in the Instruments) accrue, hereinafter
NCT, with respect to the registration of its common stock under the
Instruments, covenants only to (a) file registration statement(s) (the
"Investor Registration Statement(s)") with the SEC within 45 days of the
latest of the effectiveness of or abandonment of or failure to pursue with
commercially reasonable diligence the declaration of effectiveness of the
following three registration statements: (i) Registration Statement No.
333-60574, (ii) a registration statement to be filed to register shares of
common stock of NCT into which shares of Series H preferred stock of NCT
are convertible (including any associated required additional reserve) in
connection with the Registration Rights Agreement dated as of June 21,
2002, between NCT and Xxxxxxx Road, LLC, and (iii) a registration statement
to be filed to register shares of common stock registered in connection
with the Registration Rights Agreement, dated as of July 25, 2002, between
NCT and Xxxxxxx Road LLC (collectively the "Other Registration
Statements"), and (b) exert the level of effort required by the respective
Instruments to cause the Investor Registration Statement(s) to become
effective, and Liquidated Damages will not accrue for a failure to satisfy
clause (a) or (b) herein. The Investors do not waive any piggy-back
registration rights they may have under the Instruments, except as to the
Other Registration Statements. With respect to the Other Registration
Statement described in clause (a)(ii) above, if Xxxxxxx Road LLC (and any
assignees or successors-in-interest thereof) consents specifically to the
inclusion therein of the shares of common stock of NCT issuable to the
Investors under the Instruments, then such shares shall be included in such
Other Registration Statement. The Investors do not release NCT with respect
to, or waive any right to enforce, their registration rights as described
in the Instruments other than the waiver of Liquidated Damages as described
herein and the waiver of other contract damages (based on the Instruments
as amended or affected by this Settlement Agreement) arising from such
registration rights that have accrued up to and including the date of this
Settlement Agreement.
4. Other Terms.
A. No Admission of Liability. By execution of this Settlement
Agreement, NCT and Artera do not admit that they are liable to the
Investors and specifically deny any such liability. The Parties have
entered into this Settlement Agreement in order to avoid the uncertainty
and expense of maintaining and defending the Action.
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B. Binding Effect. This Settlement Agreement shall be binding upon the
respective heirs, executors, administrators, legal representatives,
successors and assigns of the Parties and all of those holding title under
them.
C. Effective Date. The effective date of this Settlement Agreement is
the date written below, subject to the conditions stated herein.
D. Modifications in Writing. This Settlement Agreement may not be
changed orally, but only by an agreement in writing signed by the Party
against whom enforcement of any waiver, change, modification or discharge
is sought.
E. Time. Time is of the essence in this Settlement Agreement.
F. Notices. Any and all notices, elections, demands, payments or
requests permitted or required to be made under this Settlement Agreement
shall be in writing, signed by, or on behalf of, the party giving such
notice, election, demand, payment or request and shall be delivered
personally or via recognized commercial courier, or sent by registered or
certified United States mail or by fax, to the Parties as follows:
If intended for the Investors:
Alpha Capital Aktiengesellschaft
Xxxxxxxxx 0, 0000 Xxxxxxxxxxx
Vaduz, Lichtenstein
Facsimile: 000-000-000-0000
Austost Anstalt Schaan
7440 Fuerstentum
Xxxxxxxxxxxx, Xxxxxxxxxxx 000
Facsimile: 000-000-000000000
Balmore, S. A.
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Facsimile: 000-000-000-0000
Libra Finance, S. A.
P.O. Box 4603
Zurich, Switzerland
Facsimile: 000-000-000-0000
With a copy by facsimile only to:
Grushko & Xxxxxxx, P.C.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
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Attn: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
If intended for NCT or Artera:
NCT Group, Inc.
Artera Group, Inc.
00 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attn: General Counsel
Facsimile: (000) 000-0000
G . Governing Law. This Settlement Agreement shall be deemed
performable by all parties in New York County, New York. The construction
of this Settlement Agreement shall be governed by New York law without
regard to its conflict of law rules. All parties irrevocably consent to the
exclusive jurisdiction of the state and federal courts located in New York
County, New York.
H. Counterparts. This Settlement Agreement may be executed in multiple
counterparts, whether all signatories appear on each counterpart, and each
counterpart shall be deemed an original for all purposes. Delivery may be
made by either Party by facsimile or otherwise.
I. No Filing. Except as required by law or as ordered by a court or
other governmental or quasi-governmental agency or tribunal of competent
jurisdiction, or to obtain approval by the Court as specifically required
by this Settlement Agreement, or to enforce the terms hereof, this
Settlement Agreement shall not be filed with any court, governmental or
quasi-governmental agency or tribunal.
J. Confidentiality. The Company agrees that it will not disclose
publicly or privately the identity of the Investors unless expressly agreed
to in writing by the Investors or only to the extent required by law, or
necessary or appropriate in a filing with the Security and Exchange
Commission or other regulatory agencies.
K. Attorneys' Fees. In the event of litigation to obtain enforcement
of this Settlement Agreement or to recover damages for breach hereof, the
prevailing Party shall be entitled to recover its costs, including
reasonable attorneys' fees incurred in both the trial and appellate courts
from the non-prevailing Party.
L. Headings. The headings contained herein are solely for the
convenience of reference, are not part of this Settlement Agreement and
shall not be used in construing this Settlement Agreement or in any way
affect the meaning or interpretation hereof.
M. No Strict Construction. Both Parties have participated jointly and
equally in the negotiation and drafting of this Settlement Agreement and it
shall not be construed more favorably or disfavorably toward either Party.
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N. Authority. Each of the Parties represents to the other that no
interest in any Claims released by it herein has been assigned to or is
held by any third party, including but not limited to any of the Released
Parties.
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O. Entire Agreement. Each Party represents that no statement, promise,
agreement or representation that is not herein expressed has been made to
it in executing this Settlement Agreement, and that except as expressly set
forth herein, neither Party is relying upon any statement, promise,
agreement or representation of the other Party hereto.
Executed as of the
7th day of April, 2003. NCT GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------
Its: Chairman & C.E.O.
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ARTERA GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------
Its: Chariman & President
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ALPHA CAPITAL AKTIENGESELLSCHAFT
By: /s/ Xxxxxx Xxxxxxxxx
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Its: Director
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AUSTOST ANSTALT XXXXXX
By: /s/ Xxxxxx Xxxxx
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Its: Director
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BALMORE, S. A.
By: /s/ Francois Morax
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Its: Director
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LIBRA FINANCE, S. A.
By: /s/ Xxxxxxx Xxxxx
-------------------------------
Its: Director
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