SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 28, 1999
NCT Group, Inc.
(formerly Noise Cancellation Technologies, Inc.)
(Exact name of Registrant as specified in Charter)
Delaware 0-18267 59-2501025
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification
Number)
1025 West Nursery Road, Linthicum, Maryland 21090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (410) 636-8700
None
(Former name or former address, if changes since last report)
<PAGE>
Item 5. Other Events.
NCT Group, Inc. (the "Company") has recently executed an equity transaction with
three parties, two of which were parties to a previously reported transaction in
early October 1999.
As previously reported, the Company executed a Securities Exchange Agreement,
dated as of October 9, 1999 (the "Exchange Agreement"), among the Company,
Austost Anstalt Schaan ("Austost") and Balmore Funds S.A. ("Balmore"). Pursuant
to the Exchange Agreement, on October 26, 1999 the Company issued a total of
17,333,334 shares to Austost and Balmore (the "Exchange Shares") in exchange for
532 shares of common stock of NCT Audio Products, Inc., a subsidiary of the
Company ("NCT Audio"), held by Austost and Balmore. The effective per share
price of the Exchange Shares received by Austost and Balmore was $0.06 per share
(representing the total purchase price originally paid by Austost and Balmore
for the NCT Audio Shares of $1.0 million divided by 17,333,334). This effective
per share price was $0.115, or 65.7%, less than the closing bid price of the
Company's common stock on the over-the-counter market as reported by the OTC
Bulletin Board on October 25, 1999. This effective per share price may be
subject to increase upon the application of an exchange ratio adjustment
provision contained in the Exchange Agreement on February 15, 2000 (or an
earlier date agreed to by all the parties) and may be subject to decrease upon
the application of a reset provision contained in the Exchange Agreement on
April 24, 2000 and on July 24, 2000, both as described below.
Under the exchange ratio adjustment provision, the Company has the right to
re-determine the price of the Exchange Shares issued to each of Austost and
Balmore on February 15, 2000 (or another date not later than February 15, 2000
that is mutually agreed upon by the Company, Austost and Balmore). If the
aggregate value of the Exchange Shares issued to Austost and Balmore is greater
than $2,600,000 based upon the closing bid price of the Company's common stock
as reported on the OTC Bulletin Board on such date, Austost and Balmore are
required to return to the Company any such Exchange Shares representing the
excess amount. Under the reset provision contained in the Exchange Agreement, on
April 24, 2000, and again on July 24, 2000, the Company may be required to issue
additional shares to either Austost or Balmore or both if the sum of certain
items on those dates is less than $2,600,000. Those items are: (i) the aggregate
market value of the Exchange Shares held by Austost and Balmore (based on the
per share closing bid price on those dates); (ii) the market value of any
Exchange Shares transferred by Austost and Balmore as permitted under the
Exchange Agreement (based on the per share closing bid price on the date of
transfer); and (iii) any amounts realized by Austost and Balmore from sales of
any such shares prior to April 24, 2000 or July 24, 2000, as the case may be.
The number of additional shares of common stock that the Company would be
obligated to issue in such case would be a number of shares having an aggregate
market value (based on the per share closing bid price on such date) that, when
added to the sum of items (i), (ii) and (iii) set forth above, would equal
$2,600,000.
In addition to the above transaction, the Company executed a Securities Purchase
Agreement, dated as of December 27, 1999 (the "Purchase Agreement"), among the
Company, Austost, Balmore and Nesher, Inc. ("Nesher"). Based on an offer as of
November 9, 1999, the Company, Austost, Balmore and Nesher entered into the
Purchase Agreement whereby the Company, on December 28, 1999, issued a total of
3,846,155 shares (the "SPA Shares") to Austost, Balmore and Nesher for a total
purchase price of $500,000. The price of the SPA Shares was $0.13 per share,
which was $0.03, or 19%, less than the closing bid price of the Company's common
stock as reported by the OTC Bulletin Board on November 8, 1999, and $0.015, or
10%, less than the closing bid price of the Company's common stock as reported
by the OTC Bulletin Board on December 27, 1999. This per share price may be
subject to decrease upon the application of a reset provision contained in the
Purchase Agreement on June 26, 2000 and on September 25, 2000 as described
below.
Under the reset provision contained in the Purchase Agreement, on June 26, 2000,
and again on September 25, 2000, the Company may be required to issue additional
shares to one or more of Austost, Balmore or Nesher if the sum of certain items
on those dates is less than 120% of the total purchase price paid by Austost,
Balmore and Nesher for the SPA Shares. Those items are: (i) the aggregate market
value of the SPA Shares held by Austost, Balmore and Nesher (based on the per
share closing bid price on those dates); (ii) the market value of any SPA Shares
transferred by Austost, Balmore and Nesher as permitted under the Purchase
Agreement (based on the per share closing bid price on the date of transfer);
and (iii) any amounts realized by Austost, Balmore and Nesher from sales of any
such shares prior to June 26, 2000 or September 25, 2000, as the case may be.
The number of additional shares of common stock that the Company would be
obligated to issue in such case would be a number of shares having an aggregate
market value (based on the per share closing bid price on such date) that, when
added to the sum of items (i), (ii) and (iii) set forth above, would equal 120%
of the total purchase price paid by Austost, Balmore and Nesher for the SPA
Shares.
<PAGE>
Item 7. Financial Statements and Exhibits.
Exhibit
Number Description of Exhibit
10(a) Securities Exchange Agreement, dated as of October 9, 1999, among
the Company, Austost Anstalt Schaan and Balmore Funds S.A.
10(b) Registration Rights Agreement, dated as of October 9, 1999, among
the Company, Austost Anstalt Schaan and Balmore Funds S.A.
10(c) Securities Purchase Agreement, dated as of December 27, 1999, among
the Company, Austost Anstalt Schaan, Balmore Funds S.A. and Nesher,
Inc.
10(d) Registration Rights Agreement, dated as of December 27, 1999, among
the Company, Austost Anstalt Schaan, Balmore Funds S.A., Nesher,
Inc. and Libra Finance S.A.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NCT GROUP, INC.
By /s/ CY E. HAMMOND
-----------------
Cy E. Hammond
Senior Vice President,
Chief Financial Officer
Dated: January 12, 2000
Exhibit 10(a)
SECURITIES PURCHASE AGREEMENT
Among
NCT GROUP, INC.,
NESHER, INC.,
AUSTOST ANSTALT SCHAAN
and
BALMORE FUNDS S.A.
Dated as of December 27, 1999
TABLE OF CONTENTS
ARTICLE I. PURCHASE AND SALE OF SHARES OF COMMON STOCK..................5
1.1. Purchase and Sale............................................5
1.2 [Intentionally omitted.].....................................5
1.3 The Closing; Additional Shares; Purchase Price...............6
ARTICLE II. REPRESENTATIONS AND WARRANTIES...............................6
2.1 Representations, Warranties and Agreements of the Company....7
(a) Organization and Qualification; Subsidiaries.........7
(b) Authorization; Enforcement...........................7
(c) Capitalization; Rights to Acquire Capital Stock......8
(d) Issuance of Shares...................................9
(e) No Conflicts.........................................9
(f) Consents and Approvals..............................10
(g) Litigation; Proceedings.............................10
(h) No Default or Violation.............................10
(i) Schedules...........................................11
(j) Private Offering....................................11
(k) SEC Documents; Financial Statements;
No Adverse Change...................................11
(l) Investment Company..................................12
(m) Certain Fees........................................12
(n) Solicitation Materials..............................12
(o) Employment Matters..................................13
(p) Patents and Trademarks..............................13
(q) Registration Rights; Rights of Participation........13
(r) Title...............................................14
(s) Regulatory Permits..................................14
(t) Insurance...........................................14
(u) Taxes...............................................14
(v) No Integrated Offering..............................15
(w) Year 2000 Compliance................................15
(x) Full Disclosure.....................................15
2.2 Representations and Warranties of the Purchaser.............15
(a) Investment Intent...................................16
(b) Purchaser Status....................................16
(c) Ability of Purchaser to Bear Risk of Investment.....16
(d) Reliance............................................16
ARTICLE III. OTHER AGREEMENTS OF THE PARTIES.............................17
3.1 Transfer Restrictions.......................................17
3.2 Stop Transfer Orders; Suspension of Qualification...........18
3.3 Furnishing of Information...................................18
3.4 Blue Sky Laws...............................................18
3.5 Integration.................................................19
3.6 Certain Agreements..........................................19
3.7 Compliance with Law.........................................19
3.8 Notice of Breaches..........................................20
3.9 Use of Proceeds.............................................20
3.10 Indemnification.............................................20
3.11 Additional Shares...........................................22
3.12 Placement Agent Shares......................................25
<PAGE>
ARTICLE IV. CONDITIONS..................................................26
4.1 Conditions Precedent to Sale of the Shares..................26
(a) Conditions Precedent to the Obligation of the
Company to Sell the Shares..........................26
(i) Accuracy of the Purchaser's Representations
and Warranties................................26
(ii) Performance by the Purchaser..................26
(iii) No Injunction.................................26
(b) Conditions Precedent to the Obligation of the
Purchaser to Purchase the Shares....................26
(i) Accuracy of the Company's Representations
and Warranties................................27
(ii) Performance by the Company....................27
(iii) No Injunction.................................27
(iv) Adverse Changes...............................27
(v) No Suspensions of Trading in Common Stock.....27
(vi) Legal Opinion.................................27
(vii) Required Approvals............................28
(viii)Delivery of Stock Certificates................28
(ix) Registration Rights Agreement.................28
ARTICLE V. MISCELLANEOUS................................................28
5.1. Fees and Expenses............................................28
5.2 Entire Agreement; Amendments.................................28
5.3 Notices......................................................28
5.4 Amendments; Waivers..........................................29
5.5 Headings.....................................................29
5.6 Successors and Assigns.......................................29
5.7 No Third Party Beneficiaries.................................29
5.8 GOVERNING LAW................................................30
5.9 Survival.....................................................30
5.10 Execution....................................................30
5.11 Publicity....................................................30
5.12 Consent to Jurisdiction; Attorneys' Fees.....................30
5.13 Waiver of Jury Trial.........................................31
5.14 Severability.................................................32
5.15 Remedies.....................................................32
Schedules and Exhibits
Schedule 1 - Purchasers
Schedule 2.1(c) - Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(f) - Consents and Approvals
Schedule 2.1(q) - Registration Rights; Rights of Participation
Schedule 2.1(r) - Title
Schedule 2.1(w) - Year 2000 Compliance
Schedule 5.3 - Notices
Exhibit A - Registration Rights Agreement
Exhibit B - Legal Opinion of Crowell & Moring LLP
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
December 27, 1999, between NCT Group, Inc., a Delaware corporation (the
"Company"), Nesher, Inc. ("Nesher"), a corporation organized under the laws of
the Isle of Man, United Kingdom, Austost Anstalt Schaan ("Austost"), a
corporation organized under the laws of Lichtenstein, and Balmore Funds S.A.
("Balmore"), a corporation organized under the laws of the British Virgin
Islands. Nesher, Austost and Balmore are each referred to herein as a
"Purchaser" and collectively referred to herein as the "Purchasers".
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to an offer and acceptance among the parties hereto based
on the Per Share Market Value of the Company's common stock, par value $.01 per
share (the "Common Stock"), on November 9, 1999, the Company desires to issue
and sell to the Purchasers, and the Purchasers desire to acquire from the
Company, shares of the Company's common stock, par value $.01 per share (the
"Common Stock"); and
WHEREAS, contemporaneously with the execution and delivery hereof, the
Company, the Purchasers and Libra Finance S.A. (the "Placement Agent") have
entered into that certain Registration Rights Agreement dated the date hereof in
substantially the form of Exhibit A annexed hereto (the "Registration Rights
Agreement;" the Registration Rights Agreement and this Agreement are
collectively referred to herein as the "Transaction Documents");
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES OF COMMON STOCK
1.1 Purchase and Sale Subject to the terms and conditions set forth
herein, the Company shall issue and sell to the Purchasers, and the Purchasers,
severally and not jointly, shall purchase from the Company, 3,846,153 shares
(the "Shares") of Common Stock at the Closing and, subject to the provisions of
Section 3.11 hereof, the Additional Shares, if any.
1.2 [Intentionally omitted.]
1.3 The Closing; Additional Shares; Purchase Price.
(i) The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the offices of Stroock & Stroock &
Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982,
immediately following the execution hereof or such later date or
different location as the parties shall agree in writing, but not
prior to the date that the conditions set forth in Section 4.1 have
been satisfied or waived by the appropriate party. The date of the
Closing is hereinafter referred to as the "Closing Date." At the
Closing, the Company shall sell and issue to the Purchasers, and the
Purchasers shall, severally and not jointly, purchase from the
Company, the Shares. In addition, if required by the provisions of
this Agreement, the Company shall sell and issue to the Purchasers,
and the Purchasers shall, severally and not jointly, purchase from
the Company, the Additional Shares in accordance with the provisions
of Section 3.11 hereof. The purchase price for the Shares and any
Additional Shares shall equal in the aggregate $500,000 (the
"Purchase Price"), which Purchase Price shall be paid by the
Purchasers at the Closing in accordance with Section 1.3(ii) below.
(ii) At the Closing (a) the Company shall deliver to each
Purchaser: (1) one or more certificates representing the Shares
purchased by such Purchaser as set forth next to such Purchaser's
name on Schedule 1 attached hereto, each registered in the name of
such Purchaser and (2) all other documents, instruments and writings
required to have been delivered at or prior to the Closing by the
Company pursuant to this Agreement and the Registration Rights
Agreement, and (b) each Purchaser shall deliver to the Company the
portion of the Purchase Price set forth next to its name on Schedule
1, in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for such
purpose, and all documents, instruments and writings required to
have been delivered at or prior to the Closing by such Purchaser
pursuant to this Agreement and the Registration Rights Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. Unless
otherwise specified, the Company hereby makes the following representations and
warranties to the Purchasers as of the date hereof and as of the Closing Date if
the Closing does not occur on the date hereof:
(a) Organization and Qualification; Subsidiaries. The Company is a
corporation, duly organized, validly existing and in good standing under
the laws of the State of Delaware, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no material subsidiaries
other than as set forth in the Company's most recently filed Annual Report
on Form 10-K (collectively, the "Subsidiaries"). Each of the Subsidiaries
is a corporation, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the full corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Each of the Company and the Subsidiaries is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure
to be so qualified or in good standing, as the case may be, would not,
individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Transaction Documents, (y) have or
result in a material adverse effect on the results of operations, assets,
prospects (insofar as they may reasonably be foreseen) or financial
condition of the Company and the Subsidiaries, taken as a whole or (z)
adversely impair the Company's ability to perform fully on a timely basis
its obligations under any Transaction Document (any of (x), (y) or (z),
being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents, and otherwise to
carry out its obligations hereunder and thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company. Each of the
Transaction Documents has been duly executed by the Company and when
delivered in accordance with the terms hereof will constitute the legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application. Neither the Company nor any Subsidiary
is in violation of any of the provisions of its respective certificate of
incorporation, bylaws or other organizational documents.
(c) Capitalization; Rights to Acquire Capital Stock. The authorized,
issued and outstanding capital stock of the Company is set forth in
Schedule 2.1(c). All issued and outstanding shares of capital stock of the
Company and each Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable. No shares of the capital stock of
the Company are entitled to preemptive or similar rights, nor is any
holder of the capital stock of the Company entitled to preemptive or
similar rights arising out of any agreement or understanding with the
Company by virtue of any of the Transaction Documents. Except as disclosed
in Schedule 2.1(c), there are no outstanding options, warrants, script
rights to subscribe to, calls, written commitments or, to the knowledge of
the Company, oral commitments relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings, written arrangements or, to the
knowledge of the Company, oral arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. Except as set forth on Schedule 2.1(c), and, to the best
knowledge of the Company, no Person or group of related Persons
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or
has the right to acquire by agreement with or by obligation binding upon
the Company beneficial ownership of in excess of 5% of the Common Stock. A
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind. The Common Stock is
quoted for trading on the OTC Bulletin Board. The Company has received no
notice, either oral or written, with respect to the continued eligibility
of the Common Stock for such quotation, and the Company has maintained all
requirements for the continuation of such quotation.
(d) Issuance of Shares. The Shares are duly authorized, and when
issued and paid for in accordance with the terms hereof, shall be validly
issued, fully paid and nonassessable, free and clear of all liens,
encumbrances, security interests, charges and rights of first refusal of
any kind (collectively, "Liens"). The Shares, upon issuance, will not
subject the holders thereof to personal liability by reason of being such
holders.
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby do not and will not (i) conflict with or violate any provision of
its or any Subsidiary's certificate of incorporation, bylaws or other
organizational documents (each as amended through the date hereof) or (ii)
subject to obtaining the consents referred to in Section 2.1(f), conflict
with, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument (evidencing a Company debt or otherwise) to which
the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to
which the Company or any Subsidiary is subject (including Federal and
state securities laws and regulations), or by which any property or assets
of the Company or any Subsidiary is bound or affected, or (iv) result in
the creation or imposition of a Lien upon any of the Shares or any of the
property or assets of the Company or any Subsidiary, or any of its
"Affiliates" (as such term is defined under Rule 405 promulgated under the
Securities Act), except in the case of each of clauses (ii) and (iii),
such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have or result in a Material Adverse Effect. The businesses of
the Company and the Subsidiaries are not being conducted in violation of
any law, ordinance or regulation of any governmental authority except for
any such violation as would not, individually or in the aggregate, have or
result in a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents other than (i) the approval of the Company's Board
of Directors, (ii) the filings with the Securities and Exchange Commission
(the "Commission") contemplated by and in the time periods set forth in
the Registration Rights Agreement, and (iii) any filings, notices or
registrations under applicable federal and state securities laws (together
with the consents, waivers, authorizations, orders, notices and filings
referred to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as disclosed in the Company's
registration statement on Form S-1 (Registration No. 333-87757) originally
filed with the Commission on September 24, 1999, as amended by
Pre-effective Amendment No. 1 filed with the Commission on October 28,
1999, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of the Subsidiaries or any of
their respective properties before or by any court, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Shares or (ii) would reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound which would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect, (ii) is in violation of any order of any court, arbitrator or
governmental body applicable to it, or (iii) is in violation of any
statute, rule or regulation of any governmental authority to which it is
subject, which violation would reasonably be expected to, individually or
in the aggregate, have a Material Adverse Effect.
(i) Schedules. The Schedules to this Agreement furnished by or on
behalf of the Company do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein not misleading.
(j) Private Offering. The Company and all Persons acting on its
behalf have not made, and will not make, offers or sales of the Common
Stock, and any securities that might be integrated with offers and sales
of the Common Stock, except to "accredited investors" (as defined in
Regulation D ("Regulation D") under the Securities Act of 1933, as amended
(the "Securities Act")) without any general solicitation or advertising
and otherwise in compliance with the conditions of Regulation D. The offer
and sale by the Company to the Purchasers of the Shares is exempt from the
registration requirements of the Securities Act.
(k) SEC Documents; Financial Statements; No Adverse Change. The
Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the three years preceding the date hereof (the foregoing materials being
collectively referred to herein as the "SEC Documents") on a timely basis
or has received a valid extension of such time of filing and has filed any
such SEC Documents prior to the expiration of any such extension. As of
their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading. All
material agreements to which the Company or any Subsidiary is a party or
to which the property or assets of the Company or any Subsidiary are
subject have been filed as exhibits to the SEC Documents as required;
neither the Company nor any of the Subsidiaries is in breach of any
agreement where such breach would reasonably be expected to, individually
or in the aggregate, have a Material Adverse Effect. The consolidated
financial statements of the Company and the Subsidiaries included in the
SEC Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have
been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material
respects the consolidated financial position of the Company and the
Subsidiaries as of and for the dates thereof and the results of operations
and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal year-end audit adjustments. Since the date
of the financial statements included in the Company's last filed Quarterly
Report on Form 10-Q for the period ended September 30, 1999, there has
been no event, occurrence or development that has had, or would reasonably
be expected to have, a Material Adverse Effect which has not been
specifically disclosed to the Purchasers by the Company. The Company last
filed audited financial statements with the Commission on May 3, 1999, and
has not received any comments from the Commission in respect thereof.
(l) Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(m) Certain Fees. Except for a certain commission payable to the
Placement Agent in connection with the transactions contemplated by this
Agreement, no fees or commissions will be payable by the Company to any
broker, financial advisor, finder, investment banker, or bank with respect
to the transactions contemplated by this Agreement. The Purchasers shall
have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in
this Section 2.1(m) that may be due in connection with the transactions
contemplated by the Transaction Documents. The Company shall indemnify and
hold harmless each of the Purchasers, its employees, officers, directors,
agents, and partners, and their respective Affiliates, from and against
all claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses suffered in respect of any such claimed or
existing fees arising from the action or inaction of the Company.
(n) Solicitation Materials. The Company has not distributed any
offering materials in connection with the offering and sale of the Shares
which are the subject of this Agreement. The Company confirms that it has
not provided the Purchasers or their agents or counsel with any
information that constitutes or might constitute material non-public
information. The Company understands and confirms that the Purchasers
shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
(o) Employment Matters. Each of the Company and each Subsidiary is
in compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company or any Subsidiary would have any liability; neither the
Company nor any Subsidiary has incurred and expects to incur liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal
from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which
the Company or any Subsidiary would have any liability that is intended to
be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(p) Patents and Trademarks. The Company and each Subsidiary has, or
has rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights
(collectively, the "Intellectual Property Rights") which are necessary for
use in connection with its business, as currently conducted and as
described in the SEC Documents, and which the failure to so have would
have a Material Adverse Effect.
(q) Registration Rights; Rights of Participation. (A) Except as
disclosed in Schedule 2.1(q), the Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been
satisfied and (B) no Person, including, but not limited to, current or
former stockholders of the Company, underwriters, brokers or agents, has
any right of first refusal, preemptive right, right of participation, or
any similar right to participate in the transactions contemplated by this
Agreement or the Registration Rights Agreement.
(r) Title. Except as disclosed in Schedule 2.1(r), the Company and
the Subsidiaries have good and marketable title to, or the right to use,
all personal property owned or leased by them which is material to the
businesses of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries. Neither the
Company nor any of its Subsidiaries owns any real property. Any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company and the Subsidiaries.
(s) Regulatory Permits. The Company and the Subsidiaries possess all
franchises, certificates, licenses, authorizations and permits or similar
authority issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses as described
in the SEC Documents except where the failure to possess such permits
would not, individually or in the aggregate, have a Material Adverse
Effect ("Material Permits"), and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(t) Insurance. The Company and each Subsidiary maintains property
and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with
financially sound and reputable insurers that is adequate, consistent with
industry standards. Neither the Company nor any Subsidiary has received
notice from, and has any knowledge of any threat by, any insurer (that has
issued any insurance policy to the Company or any Subsidiary) that such
insurer intends to deny coverage under or cancel, discontinue or not renew
any insurance policy presently in force.
(u) Taxes. All applicable tax returns required to be filed by the
Company and each of the Subsidiaries have been filed, or if not yet filed
have been granted extensions of the filing dates which extensions have not
expired, and all taxes, assessments, fees and other governmental charges
upon the Company, the Subsidiaries, or upon any of their respective
properties, income or franchises, shown in such returns and on assessments
received by the Company or the Subsidiaries to be due and payable have
been paid, or adequate reserves therefor have been set up if any of such
taxes are being contested in good faith; or if any of such tax returns
have not been filed or if any such taxes have not been paid or so reserved
for, the failure to so file or to pay would not in the aggregate or
individually have a Material Adverse Effect.
(v) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any
offers to buy any securities under circumstances that would require
registration of any such securities under the Securities Act or cause the
offering of the Shares pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable stockholder approval provisions.
(w) Year 2000 Compliance. The Company has initiated a review and
assessment of all areas within its and each Subsidiary's business and
operations that could be adversely affected by the "Year 2000 Problem"
(that is, the risk that computer applications used by the Company or any
of the Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date
after December 31, 1999). Based on the foregoing, except as set forth on
Schedule 2.1(w), the Company believes that the computer applications that
are currently material to its or any Subsidiary's business and operations
are reasonably expected to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000, except to the
extent that a failure to do so would not reasonably be expected to have a
Material Adverse Effect.
(x) Full Disclosure. The representations and warranties of the
Company set forth in each of the Transaction Documents do not contain any
untrue statement of a material fact or omit any material fact necessary to
make the statements contained herein, in the light of the circumstances
under which they were made, not misleading.
2.2 Representations and Warranties of the Purchaser. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
(a) Investment Intent. Such Purchaser is acquiring the Shares for
its own account for investment purposes only and not with a view to or for
distributing or reselling the Shares or any part thereof or interest
therein, without prejudice, however, to such Purchaser's right, subject to
the provisions of this Agreement and the Registration Rights Agreement, at
all times to sell or otherwise dispose of all or any part of the Shares
pursuant to an effective registration statement under the Securities Act
and in compliance with applicable state securities laws or under an
exemption from such registration.
(b) Purchaser Status. At the time such Purchaser was offered the
Shares, and at the Closing Date, (i) it was and will be, an "accredited
investor" (as defined in Regulation D), or (ii) such Purchaser either
alone or together with its representatives, had and will have such
knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective
investment in the Shares, and had and will have so evaluated the merits
and risks of such investment. Such Purchaser has the authority and is duly
and legally qualified to purchase and own the Shares.
(c) Ability of Purchaser to Bear Risk of Investment. Such Purchaser
is able to bear the economic risk of an investment in the Shares and, at
the present time, is able to afford a complete loss of such investment.
(d) Reliance. Such Purchaser understands and acknowledges that (i)
the Shares are being offered and sold to the Purchaser without
registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act under
Section 4(2) of the Securities Act or Regulation D promulgated thereunder
and (ii) the availability of such exemption, depends in part on, and the
Company will rely upon the accuracy and truthfulness of, the foregoing
representations and such Purchaser hereby consents to such reliance.
<PAGE>
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If any Purchaser should decide to dispose of any Shares held by
it, each Purchaser understands and agrees that it may dispose of the
Shares only pursuant to an effective registration statement under the
Securities Act and the applicable state blue-sky laws, to the Company or
pursuant to an available exemption from the registration requirements of
the Securities Act and the applicable state blue-sky laws. In connection
with any transfer of any of the Shares other than pursuant to an effective
registration statement or to the Company, the Company may require the
transferor thereof to provide to the Company a written opinion of counsel,
the form and substance of which opinion shall be reasonably satisfactory
to the Company, to the effect that such transfer does not require
registration of such transferred securities under the Securities Act and
the applicable state blue-sky laws. Notwithstanding the foregoing, the
Company hereby consents to and agrees to register (i) any transfer of
Shares by one Purchaser to another Purchaser, and agrees that no
documentation other than the executed transfer documents shall be required
for any such transfer, and (ii) any transfer by any Purchaser to an
Affiliate of such Purchaser or to an Affiliate of another Purchaser, or
any transfer among such Affiliates, provided that transferee certifies in
writing to the Company that it is an "accredited investor" (as defined in
Regulation D). Any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights under this Agreement
and the Registration Rights Agreement of the Purchaser from which it
received the transferred shares.
(b) Each Purchaser agrees to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
3.2 Stop Transfer Orders; Suspension of Qualification. The Company may
not make any notation on its records or give instructions to any transfer agent
of the Company which enlarge the restrictions of transfer set forth in Section
3.1. The Company will advise the Purchasers, promptly after it receives notice
of issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
the use of any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
3.3 Furnishing of Information. As long as a Purchaser owns Shares, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act and to promptly furnish such Purchaser with true and complete copies of all
such filings. As long as a Purchaser owns Shares, if the Company is not required
to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to such Purchaser and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby, in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any holder of Shares may reasonably request, all to the extent
required from time to time to enable such Person to sell Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act.
3.4 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Shares under the securities or Blue Sky laws of
such jurisdictions as the Purchasers may request and shall continue such
qualification at all times through the third anniversary of the Closing Date
unless an exemption from registration applies.
3.5 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Shares in a manner that would require the registration under the
Securities Act of the sale of any or all of such securities to any Purchaser.
3.6 Certain Agreements. As long as any Purchaser owns Shares, the Company
shall not and shall cause the Subsidiaries not to, without the consent of the
holders of all of the Shares then outstanding, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of any Purchaser; (ii) declare, authorize, set aside or pay any dividend
or other distribution with respect to the Common Stock except as would not
adversely affect the rights of any Purchaser hereunder; (iii) repay, repurchase
or offer to repay, repurchase or otherwise acquire shares of its Common Stock in
any manner; (iv) issue any series of preferred stock or other securities with
rights senior (in respect of liquidations, dividends, preferences and similar
rights) to those of the Shares; or (v) enter into any agreement with respect to
any of the foregoing.
3.7 Compliance with Law.
(a) The Company shall take all steps necessary to cause the Shares
to be approved for quotation on the OTC Bulletin Board, and the Company
shall maintain the quotation of its Common Stock on such market, as long
as the rules governing such quotation on the OTC Bulletin Board do not
change.
(b) Until at least two (2) years after the date on which the last
Registration Statement filed pursuant to the Registration Rights Agreement
is declared effective, (i) the Company will cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations
under such Exchange Act, will comply with all requirements related to any
registration statement filed pursuant to this Agreement or the
Registration Rights Agreement and will not take any action or file any
document (whether or not permitted by the Securities Act or the Exchange
Act or the rules and regulations thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing
obligations under the Securities Act and Exchange Act, except as permitted
herein and (ii) the Company will take all action within its power to
continue the trading of its Common Stock on the OTC Bulletin Board (or the
New York Stock Exchange, the American Stock Exchange, the Nasdaq National
Market or the Nasdaq-Small-Cap Market) and will comply in all respects
with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the OTC Bulletin Board (or the New York
Stock Exchange, the American Stock Exchange, the Nasdaq National Market or
the Nasdaq-Small-Cap Market).
3.8 Notice of Breaches.
(a) Each of the Company and the Purchasers shall give prompt written
notice to the other of any breach of any representation, warranty or other
agreement contained in this Agreement or the Registration Rights
Agreement, as well as any events or occurrences arising after the date
hereof and prior to the Closing Date, which would reasonably be likely to
cause any representation or warranty or other agreement of such party, as
the case may be, contained herein to be incorrect or breached as of the
Closing Date. However, no disclosure by any party pursuant to this Section
3.8 shall be deemed to cure any breach of any representation, warranty or
other agreement contained herein or in the Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.8(a), the Company
shall promptly notify the Purchasers of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that
the consummation of the transactions contemplated by the Transaction
Documents violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall promptly
furnish by facsimile to the Purchaser a copy of any written statement in
support of or relating to such claim or notice.
3.9 Use of Proceeds. The Company shall use the proceeds from the sale of
the Shares for general corporate purposes; provided, however, none of such
proceeds shall be used to satisfy any portion of any obligation or liability
relating to indebtedness for borrowed money owed by the Company to any
shareholder, officer or director of the Company.
3.10 Indemnification. The Company also will indemnify and hold the
Purchasers harmless against any and all losses, claims, damages or liabilities
to any such Person (including, without limitation, in connection with any
action, proceeding or investigation brought by or against any such Person,
including by stockholders of the Company) in connection with or as a result of
any matter referred to in the Transaction Documents, including, without
limitation, for any misrepresentation by the Company, for breaches of
representations and warranties contained in any of the Transaction Documents,
and for any breach, non-compliance or nonfulfillment by the Company of any
covenant, agreement or undertaking to be complied with or performed by it
contained in or pursuant to the Transaction Documents, except to the extent that
it is finally judicially determined that such losses, claims, damages or
liabilities resulted solely from the gross negligence or bad faith of the
Purchasers. If for any reason the foregoing indemnification is unavailable to
the Purchasers or is insufficient to hold each Purchaser harmless, then the
Company shall contribute to the amount paid or payable by each Purchaser as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative economic interests of the Company and its
shareholders on the one hand and such Purchaser on the other hand in the matters
contemplated by the Transaction Documents as well as the relative fault of the
Company and each Purchaser with respect to such loss, claim, damage or liability
and any other relevant equitable considerations. The reimbursement, indemnity
and contribution obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliate of the Purchasers and the
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers, any such Affiliate and any such
Person. The Company also agrees that neither the Purchasers nor any of such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of any matter referred
to in the Transaction Documents except to the extent that it is finally
judicially determined that any losses, claims, damages, liabilities or expenses
incurred by the Company result solely from the gross negligence or bad faith of,
or knowing breach of this Agreement by, the Purchasers. Promptly after receipt
by the Purchasers or any Affiliate, partners, directors, agents, employees or
controlling persons, as the case may be, of notice of any claim or other
commencement of any action in respect of which indemnity may be sought, such
party will notify the Company in writing of the receipt or commencement thereof
and the Company shall have the right to assume the defense of such claim or
action (including the employment of counsel reasonably satisfactory to the
indemnified parties and the payment of fees and expenses of such counsel). The
indemnified party shall cooperate with the Company and the Company's counsel in
the defense of such claim or action. The Purchasers understand that the Company
shall not in connection with any one such claim or action or separate but
substantially similar related claims or actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
of the indemnified parties unless the defense of one indemnified party is unique
or separate from that of another indemnified party or one or more legal defenses
are available to an indemnified party but not to other indemnified parties
subject to the same claim or action. In the event the Company does not promptly
assume the defense of a claim or action, the indemnified parties shall have the
right to employ counsel reasonably satisfactory to the Company, at the Company's
expense, to defend such claim or action. The indemnified party shall not admit
any liability with respect to the claim or action or settle, compromise, pay or
discharge the same without the prior written consent of the Company so long as
the Company is reasonably contesting or defending the same in good faith. The
Company shall not compromise, settle or discharge any claim or action without
the Purchasers' consent, as applicable, which consent will not be unreasonably
withheld, unless there is no finding or admission of any violation of any law
against the indemnified party and the sole relief is monetary damages paid in
full by the Company. The provisions of this Section 3.10 shall survive any
termination or completion of the Transaction Documents.
3.11 Additional Shares.
(a) With respect to a Purchaser, if on the 180th day following
the Closing Date (the period ending on such date, the "First Look-Back
Period") (i) such Purchaser continues to own Shares and (ii) such
Shares have an aggregate value (based on Per Share Market Value, as
defined below) that, when added to the aggregate value of any Shares
transferred (other than by sale) by such Purchaser (based upon Per
Share Market Value on the date(s) of such transfer(s)) and the amounts
realized (the "First Realized Amount") by such Purchaser in connection
with any sale or sales of the Shares during the First Look-Back Period
(without giving effect to any commission to any broker or other person
or any legal fees and disbursements or other costs or expenses paid or
payable by such Purchaser in connection with such sale or sales),
would be less than 120% of the portion of the Purchase Price paid by
such Purchaser on the Closing Date, the Company shall issue to such
Purchaser at such Purchaser's request on the first day after the First
Look-Back Period (or such later date as soon thereafter as is mutually
acceptable to the parties), a number of additional shares of Common
Stock (the "First Additional Shares") having an aggregate value (based
upon Per Share Market Value on such date) that, when added to the sum
of such First Realized Amount and the aggregate value (based upon Per
Share Market Value) of the Shares held by such Purchaser on the last
day of the First Look-Back Period and the aggregate value of any
shares transferred (other than by sale) by such Purchaser (based upon
Per Share Market Value on the date(s) of such transfer(s)), would
equal at least 120% of the portion of the Purchase Price paid by such
Purchaser on the Closing Date. With respect to a Purchaser, if on the
270th day following the Closing Date (the period ending on such date,
the "Second Look-Back Period") (x) such Purchaser continues to own
Shares or any First Additional Shares and (y) such Shares and First
Additional Shares have an aggregate value (based on Per Share Market
Value) that, when added to the aggregate value of any Shares or any
First Additional Shares transferred (other than by sale) by such
Purchaser (based upon Per Share Market Value on the date(s) of such
transfer(s)) and the amounts realized (the "Second Realized Amount")
by such Purchaser in connection with any sale or sales of the Shares
and First Additional Shares, as applicable, during the Second
Look-Back Period (without giving effect to any commission to any
broker or other person or any legal fees and disbursements or other
costs or expenses paid or payable by such Purchaser in connection with
such sale or sales), would be less than 120% of the portion of the
Purchase Price paid by such Purchaser on the Closing Date, the Company
shall issue to such Purchaser at its request on the first day after
the Second Look-Back Period (or such later date as soon thereafter as
is mutually acceptable to the parties), a number of additional shares
of Common Stock (the "Second Additional Shares", and together with the
First Additional Shares collectively, the "Additional Shares") having
an aggregate value (based upon Per Share Market Value on such date)
that, when added to the sum of the Second Realized Amount and the
aggregate value (based upon Per Share Market Value) of the Shares and
First Additional Shares held by such Purchaser on the last day of the
Second Look-Back Period and the aggregate value of any shares
transferred (other than by sale) by such Purchaser (based upon Per
Share Market Value on the date(s) of such transfer(s)), would equal at
least 120% of the portion of the Purchase Price paid by such Purchaser
on the Closing Date. Notwithstanding the foregoing, however, with
respect to any period of 20 consecutive Trading Days after the Closing
Date (each such period a "Test Period"), if (A) the average daily
trading volume of the Company's Common Stock during such Test Period
is equal to or greater than 400,000 shares and (B) with respect to any
Purchaser, on each Trading Day of such Test Period, the sum of the
aggregate value of all Shares and Additional Shares, if any, that are
subject to an effective registration statement during each day of such
Test Period and held by such Purchaser (based on Per Share Market
Value) and the amounts realized by such Purchaser in connection with
any sale or sales of Shares and Additional Shares (without giving
effect to any commission to any broker or other person or any legal
fees and disbursements or other costs or expenses paid or payable by
such Purchaser in connection with such sale or sales) and the
aggregate value of any Shares and Additional Shares, if any,
transferred (other than by sale) by such Purchaser (based upon Per
Share Market Value on the date(s) of such transfer(s)) would equal at
least 125% of the Purchase Price, then notwithstanding any other
provision of this Agreement the Company shall be under no obligation
to issue any Additional Shares to such Purchaser at any time
thereafter. Upon the issuance of First Additional Shares, if any, and
again upon the issuance of Second Additional Shares, if any, to any
Purchaser, the Company shall cause to be delivered to such Purchaser
an opinion of counsel stating that the relevant Additional Shares
being issued by the Company are duly authorized, validly issued, fully
paid and nonassessable.
(b) For purposes of this Agreement, "Per Share Market Value" shall
mean on any particular date (i) the closing bid price per share of the
Common Stock on such date on The Nasdaq Small Cap Market, the Nasdaq
National Market or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date,
then the closing bid price on such exchange or quotation system on the
date nearest preceding such date, or (ii) if the Common Stock is not
listed then on The Nasdaq Small Cap Market, the Nasdaq National Market or
any registered national stock exchange, the closing bid price for a share
of Common Stock in the over-the-counter market, as reported by NASDAQ or
the National Quotation Bureau Incorporated or a similar organization or
agency succeeding to its functions of reporting prices) at the close of
business on such date, or (iii) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or
agency succeeding to its functions of reporting prices), then the average
of the "Pink Sheet" quotes for the relevant period, as determined in good
faith by the holder, or (iv) if the Common Stock is not then publicly
traded the fair market value of a share of Common Stock as determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may
be the firm that regularly examines the financial statements of the
Company) that is regularly engaged in the business of appraising the
capital stock or assets of corporations or other entities as going
concerns, and which is not affiliated with either the Company or the
Purchasers (an "Independent Appraiser") selected in good faith by the
holders of a majority in interest of the shares of Common Stock; provided,
however, that the Company, after receipt of the determination by such
Independent Appraiser, shall have the right to select an additional
Independent Appraiser, in which case, the fair market value shall be equal
to the average of the determinations by each such Independent Appraiser;
and provided, further that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock
splits or other similar transactions during such period. The determination
of fair market value by an Independent Appraiser shall be based upon the
fair market value of the Company determined on a going concern basis as
between a willing buyer and a willing seller and taking into account all
relevant factors determinative of value, and shall be final and binding on
all parties. In determining the fair market value of any shares of Common
Stock, no consideration shall be given to any restrictions on transfer of
the Common Stock imposed by agreement or by federal or state securities
laws, or to the existence or absence of, or any limitations on, voting
rights.
(c) For purposes of this Agreement, "Trading Day" shall mean (i) a
day on which the Common Stock is traded on The Nasdaq Small Cap Market,
the Nasdaq National Market or other registered national stock exchange on
which the Common Stock has been listed, or (ii) if the Common Stock is not
listed on The Nasdaq Small Cap Market, the Nasdaq National Market or any
registered national stock exchange, a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin
Board.
(d) In addition, the Company shall use its best efforts to register
such Additional Shares under the same terms and conditions as the Shares
are being registered. Upon each issuance of Additional Shares, (i) the
Company shall deliver to the Purchasers an officer's certificate
certifying that the representations and warranties of the Company set
forth herein were true and correct in all material respects as of the date
when made and as of the date of the issuance of the Additional Shares
(except as may be disclosed in a schedule to such certificate that is
subject to review by the Purchasers), as though made on and as of such
date and with representations and warranties with respect to the Shares
being made as to the Additional Shares and (ii) this Agreement shall be
deemed amended such that the covenants and agreements of the Company
herein with respect to the Shares shall apply equally to the Additional
Shares. If, on the 180th day following the Closing Date, the Company is
required under the terms hereof to issue any Additional Shares and an
insufficient number of shares of the Company's Common Stock are authorized
for such issuance, then the Company shall promptly seek a vote of its
shareholders, which vote shall take place no later than the 240th day
following the Closing Date (or, if such day is not a Business Day, as such
term is defined in the Registration Rights Agreement, then on the next
succeeding day that is a Business Day), in order to obtain such approvals
and authorizations from its shareholders as are required under Delaware
law and the Company's organizational documents to allow the Company to
issue such Additional Shares (and any Second Additional Shares as the
Company in its sole discretion may anticipate will be required) to the
Purchasers.
3.12 Placement Agent Shares. At the Closing, as payment for services
rendered by the Placement Agent, in its capacity as placement agent in
connection with the issuance and sale of Common Stock to Nesher, the Company
shall issue to the Placement Agent 288,461 shares of Common Stock (the
"Placement Agent Shares"). The Company shall use its best efforts to register
the Placement Agent Shares under the same terms and conditions as the Shares are
being registered. Upon the issuance of Placement Agent Shares, (i) the Company
shall be deemed to have made for the benefit of the Placement Agent the
representations and warranties of the Company set forth herein, as if such
representations and warranties had been made for the benefit of the Placement
Agent with respect to the Placement Agent Shares and (ii) this Agreement shall
be deemed amended such that the covenants and agreements of the Company herein
with respect to the Shares shall apply equally to the Placement Agent Shares.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to Sale of the Shares.
(a) Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation of the Company to sell the Shares hereunder is
subject to the satisfaction or waiver by the Company, at or before the
Closing, of each of the following conditions:
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of each Purchaser
shall be true and correct in all material respects as of the date
when made and as of the Closing Date, as though made on and as of
such date;
(ii) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to
be performed, satisfied or complied with by such Purchaser at or
prior to the Closing; and
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation
of any of the transactions contemplated by the Transaction
Documents.
(b) Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares. The obligation of each Purchaser hereunder to acquire
and pay for the Shares is subject to the satisfaction or waiver by such
Purchaser, at or before the Closing, of each of the following conditions:
(i) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company set forth in the
Transaction Documents shall be true and correct in all material
respects as of the date when made and as of the Closing Date as
though made on and as of such date;
(ii) Performance by the Company. The Company shall have
performed, satisfied and complied with in all material respects all
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing;
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation
of any of the transactions contemplated by this Agreement or the
Registration Rights Agreement;
(iv) Adverse Changes. Since the date of the financial
statements included in the Company's Quarterly Report on Form 10-Q
last filed prior to the date of this Agreement, no event which had a
Material Adverse Effect and no material adverse change in the
financial condition of the Company shall have occurred;
(v) No Suspensions of Trading in Common Stock. The trading in
the Common Stock shall not have been suspended by the Commission or
on the OTC Bulletin Board, which suspension remains in effect;
(vi) Legal Opinion. The Company shall have delivered to the
Purchasers the opinion of Crowell & Moring LLP, outside counsel to
the Company, in substantially the forms annexed hereto as Exhibit B;
(vii) Required Approvals. All Required Approvals shall
have been obtained;
(viii) Delivery of Stock Certificates. The Company shall have
arranged for the delivery to each Purchaser or such Purchaser's
designee of the stock certificate(s) representing the Shares,
registered in the name of such Purchaser, each in form satisfactory
to such Purchaser; and
(ix) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. The Company shall pay the reasonable legal fees and
expenses of Stroock & Stroock & Lavan LLP, counsel for the Purchasers, incident
to the negotiation, preparation, execution, delivery and performance of the
Transaction Documents to a maximum amount of $17,000. The Company shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by it incident to the negotiation,
preparation, execution, delivery and performance of the Transaction Documents.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of its securities pursuant to the Transaction Documents.
5.2 Entire Agreement; Amendments. The Transaction Documents, together with
the exhibits and schedules hereto and thereto, contain the entire understanding
of the parties hereto with respect to the subject matter hereof and supersede
all prior agreements and understandings, oral or written, with respect to such
matters.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each party at its address set forth under its name on Schedule
5.3 attached hereto or to such other address or addresses or facsimile number or
numbers as any such party may most recently have designated in writing to the
other parties hereto by such notice.
5.4 Amendments; Waivers. No provision of this Agreement may be amended
except in a written instrument signed by each of the parties hereto and no
provision of this Agreement may be waived except in a written instrument signed
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof or thereof, nor shall any
delay or omission of any party to exercise any right hereunder or thereunder in
any manner impair the exercise of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement, as the case may be, and shall not be deemed
to limit or affect any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their successors and permitted assigns.
The Company may not assign this Agreement, or any rights or obligations
hereunder without the prior written consent of the Purchasers. Each Purchaser
may assign this Agreement, or any rights or obligations hereunder (i) to its
Affiliates or to another Purchaser without the prior written consent of the
Company and (ii) to any other Person with the prior written consent of the
Company, such consent not to be unreasonably withheld. This provision shall not
limit the Purchaser's right to transfer securities or transfer or assign rights
under any Registration Rights Agreement to which it is a party.
5.7 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
5.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
5.9 Survival. The agreements, covenants and provisions contained in this
Agreement shall survive until the second anniversary of the Closing Date and the
representations and warranties contained herein shall survive until the first
anniversary of the Closing Date.
5.10 Execution. This Agreement may be executed in two or more
counterparts. All of the signature pages of this Agreement when taken together
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that all parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
5.11 Publicity. The parties hereto shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and no party hereto shall issue any such
press release or otherwise make any such public statement without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other parties with prior notice of such public statement. The
Company shall not publicly or otherwise disclose the name of any of the
Purchasers without such Purchaser's prior written consent unless otherwise
required by law, in which case the Company shall inform such Purchaser of such
disclosure in writing prior to making such disclosure.
5.12 Consent to Jurisdiction; Attorneys' Fees.
(a) The Company (including, but not limited to, its Affiliates,
subsidiaries, officers, directors and controlling persons) hereby (i)
irrevocably submits to the exclusive jurisdiction of any New York State
court or Federal court sitting in the Borough of Manhattan, The City of
New York in any action related to, connected with or arising out of, in
whole or in part, the Transaction Documents, (ii) agrees that all claims
in such action shall be decided in such court, (iii) waives, to the
fullest extent it may effectively do so, the defense of inconvenient forum
and (iv) consents to the service of process by certified mail, return
receipt requested. Nothing herein shall affect the right of any party to
serve legal process in any manner permitted by law or affect its right to
bring any action in any other court.
(b) In connection with any dispute between the Company and any
Purchaser related to, connected with or arising out of, in whole or in
part, the Transaction Documents, the prevailing party shall be awarded all
reasonable attorneys' fees and expenses incurred by it. In that connection
fees and expenses actually paid by a party in connection with the
litigation of any dispute shall be deemed presumably reasonable.
(c) In the event that any Purchaser becomes involved in any capacity
in any action, proceeding or investigation brought by or against any
Person, including shareholders of the Company, in connection with or as a
result of any matter referred to in the Transaction Documents, the Company
will reimburse such Purchaser for its legal fees and expenses and other
expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as those fees and expenses are incurred;
provided, however, that if at the conclusion of such action, proceeding or
investigation it shall be finally judicially determined by a court of
competent jurisdiction that indemnity for such fees and expenses is
contrary to law, or that such Purchaser is not the prevailing party, then
in that event, such party and/or any other Person having received such
advances of fees and expenses shall reimburse the Company in full for the
sums advanced.
(d) The provisions of this Section 5.12 shall survive any
termination or completion of the Transaction Documents.
5.13 Waiver of Jury Trial.
(a) The parties hereto each waive their respective rights to a trial
by jury of any claim or cause of action based upon or arising out of or
related to the Transaction Documents, or the transactions contemplated by
the Transaction Documents, in any action, proceeding or other litigation
of any type brought by either of the parties against the other, whether
with respect to contract claims, tort claims, or otherwise. The parties
hereto each agree that any such claim or cause of action shall be tried by
a court trial without a jury. Without limiting the foregoing, the parties
further agree that their respective right to a trial by jury is waived by
operation of this Section 5.13 as to any action, counterclaim or other
proceeding which seeks, in whole or in part, to challenge the validity or
enforceability of any of the Transaction Documents or any provision hereof
or thereof. The waiver shall apply to any subsequent amendments, renewals,
supplements or modifications to any of the Transaction Documents.
(b) The provisions of this Section 5.13 shall survive any
termination or completion of the Transaction Documents.
5.14 Severability. If any term, provision, covenant or restriction of this
Agreement is held to be invalid, illegal, void or unenforceable in any respect,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents and injunctive relief. Each of the parties hereto
(severally and not jointly) agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation or injunctive relief the defense
that a remedy at law would be adequate.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
NCT GROUP, INC.
By: /s/ CY E. HAMMOND
-----------------
Name: Cy E. Hammond
Title: Senior Vice President,
Chief Financial Officer
NESHER INC.
By: /s/ DAVID GRIN
----------------
Name: David Grin
Title: Investment Manager
AUSTOST ANSTALT SCHAAN
By: /s/ THOMAS HACKL
----------------
Name: Thomas Hackl
Title: Representative
BALMORE FUNDS S.A.
By: /s/ FRANCOIS MORAX
------------------
Name: Francois Morax
Title: Director
<PAGE>
EXHIBIT A
Registration Rights Agreement
See Exhibit 10(b) in this Item 7.
Exhibit 10(b)
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of December 27, 1999, among NCT Group, Inc., a Delaware corporation (the
"Company"), Nesher Inc. ("Nesher"), Austost Anstalt Schaan ("Austost"), Balmore
Funds S.A. ("Balmore") and Libra Finance S.A. (the "Placement Agent"). Nesher,
Austost and Balmore are collectively referred to herein as the "Purchasers."
WHEREAS, this Agreement is being entered into pursuant to that
certain Securities Purchase Agreement dated as of the date hereof (the "Purchase
Agreement") by and between the Company and the Purchasers.
The parties hereto hereby agree as follows:
1. Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Registration Statements" shall have the meaning set
forth in Section 2 hereof.
"Additional Shares" shall have the meaning assigned to it in the
Purchase Agreement.
"Advice" shall have meaning set forth in Section 3(l) hereof.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Board" shall have meaning set forth in Section 3(m) hereof.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning assigned to it in Section
1.3(i) of the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $.01 per
share.
"Effectiveness Date" means with respect to the Registration
Statement the 90th day following the Closing Date.
"Effectiveness Period" means, (i) with respect to any Registration
Statement, the period ending on the earlier of (x) the date when all Registrable
Securities covered by such Registration Statement have been sold or (y) the date
on which the Registrable Securities may be sold without any restriction pursuant
to Rule 144 as determined by the counsel to the Company pursuant to a written
opinion letter, addressed to the Company's transfer agent to such effect, and
(ii) with respect to any Additional Registration Statement, the period ending on
the earlier of (x) the date when all Additional Shares covered by such
Additional Registration Statement have been sold or (y) the date on which the
Additional Shares may be sold without any restriction pursuant to Rule 144 as
determined by the counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent to such effect.
"Event" shall have the meaning set forth in Section 7(c) hereof.
"Event Date" shall have the meaning set forth in Section 7(c)
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 20th Business Day following the Closing
Date.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities or Additional Shares.
"Indemnified Party" shall have the meaning set forth in Section 5(c)
hereof.
"Indemnifying Party" shall have the meaning set forth in Section
5(c) hereof.
"Losses" shall have the meaning set forth in Section 5(a) hereof.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Placement Agent Shares" means shares of Common Stock issued to the
Placement Agent pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities and Additional Shares, if any, covered by the Registration Statement,
and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference in such
Prospectus.
"Purchaser Shares" means shares of Common Stock purchased by the
Purchasers, severally and not jointly, pursuant to the Purchase Agreement on the
Closing Date.
"Registrable Securities" means (i) the Purchaser Shares and (ii)
the Placement Agent Shares.
"Registration Statement" means the Shelf Registration Statement and
any Additional Registration Statements, including (in each case) the related
Prospectus, amendments and supplements to any registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in any such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" shall have the meaning set forth in
Section 2 hereof.
"Special Counsel" means any special counsel to the Holders, for
which the Holders will be reimbursed by the Company pursuant to, and subject to
the limitations of, Section 4 hereof.
2. Shelf Registration Statement; Additional Registration Statements.
On or prior to the Filing Date the Company shall prepare and file
with the Commission a "shelf" registration statement (the "Shelf Registration
Statement") covering all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The Shelf Registration Statement shall be
on Form S-1. If the Company shall have been required to issue Additional Shares
pursuant to Section 3.11 of the Purchase Agreement and the Shelf Registration
Statement shall not yet have been declared effective, the Company shall file a
pre-effective amendment to the Shelf Registation Statement to include such
Additional Shares. The Company shall use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
Effectiveness Date, and to keep such Shelf Registration Statement continuously
effective under the Securities Act for the applicable Effectiveness Period. If
one or more additional registration statements (the "Additional Registration
Statements") are required to be filed because the Company shall have been
required to issue Additional Shares pursuant to Section 3.11 of the Purchase
Agreement, the Company shall have twenty (20) Business Days to file such
Additional Registration Statement or Additional Registration Statements, and the
Company shall use its best efforts to cause such Additional Registration
Statement or Additional Registration Statements to be declared effective by the
Commission as soon as possible, but in no event later than 90 days after filing,
and to keep such Additional Registration Statements continuously effective under
the Securities Act for the applicable Effectiveness Period.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to any Registration Statement as may be
necessary to keep such Registration Statement continuously effective as to the
applicable Registrable Securities and Additional Shares, if any, for the
applicable Effectiveness Period and prepare and file with the Commission such
Registration Statements in order to register for resale under the Securities Act
all of the Additional Shares that may be issued; (ii) cause any Prospectus
related to such Registration Statement to be amended or supplemented by any
required Prospectus supplement, and as so supplemented or amended to be filed
pursuant to Rule 424 (or any similar provisions then in force) promulgated under
the Securities Act; (iii) respond as promptly as possible to any comments
received from the Commission with respect to any Registration Statement or any
amendment thereto; and (iv) comply in all material respects with the provisions
of the Securities Act and the Exchange Act with respect to the disposition of
all Registrable Securities and Additional Shares, if any, covered by any
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the related
Registration Statement as so amended or in such Prospectus as so supplemented.
(b) Notify the Holders of Registrable Securities and Additional
Shares, if any, to be sold and any Special Counsel as promptly as possible (i)
of the issuance by the Commission of any stop order suspending the effectiveness
of a Registration Statement covering any or all of the Registrable Securities
and Additional Shares, if any, or the initiation of any Proceedings for that
purpose; (ii) 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 or Additional Shares, if any, for sale in any
jurisdiction; and (iii) of the occurrence of any event that makes any statement
made in a Registration Statement or a Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to such Registration Statement, Prospectus or other
documents so that, in the case of such Registration Statement or such
Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(c) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of, (i) any order suspending the effectiveness of any
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities and Additional Shares,
if any, for sale in any jurisdiction, at the earliest practicable moment.
(d) If requested by the Holders of a majority in interest of the
Registrable Securities and the Additional Shares, if any, taken together, (i)
promptly incorporate in a Prospectus supplement or post-effective amendment to a
Registration Statement such information as the Company reasonably agrees should
be included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment.
(e) Furnish to each Holder and any Special Counsel, without charge,
at least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference to the extent
requested by such Person, and all exhibits to the extent requested by such
Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(f) Promptly deliver to each Holder and any Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
and Additional Shares, if any, covered by such Prospectus and any amendment or
supplement thereto.
(g) Prior to any public offering of Registrable Securities and
Additional Shares, if any, use its best efforts to register or qualify or
cooperate with the selling Holders and any Special Counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities and Additional Shares, if any, for
offer and sale under the securities or Blue Sky laws of such jurisdictions
within the United States as any Holder requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective during the
applicable Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities and Additional Shares, if any, covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(h) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities and Additional
Shares, if any, to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities and Additional Shares, if any, to be in such
denominations and registered in such names as any Holder may request at least
three (3) Business Days after any sale of Registrable Securities and Additional
Shares, if any.
(i) Upon the occurrence of any event contemplated by Section
3(b)(iii), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to a Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither such Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(j) Use its best efforts to cause all Registrable Securities and
Additional Shares, if any, relating to a Registration Statement to be quoted on
the OTC Bulletin Board and any other securities exchange, quotation system,
market or over-the-counter bulletin board, if any, on which similar securities
issued by the Company are then listed as and when required pursuant to the
Purchase Agreement.
(k) Comply in all material respects 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) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Shelf Registration Statement, which
statements shall conform to the requirements of Rule 158.
(l) The Company may require each selling Holder to furnish to the
Company information regarding such Holder and the distribution of such
Registrable Securities and Additional Shares, if any, as is required by law to
be disclosed in a Registration Statement, and the Company may exclude from such
registration the Registrable Securities and Additional Shares, if any, of any
such Holder who unreasonably fails to furnish such information within seven (7)
Business Days after receiving such request.
If a Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to such Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities or Additional Shares, if any, under a Registration
Statement until it has obtained copies of the related Prospectus as then amended
or supplemented as contemplated in Section 3(f) and (ii) it and its officers,
directors or Affiliates, if any, will comply with the prospectus delivery
requirements of the Securities Act as applicable to them in connection with
sales of Registrable Securities or Additional Shares, if any, pursuant to such
Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities and Additional Shares, if any, that, upon receipt of a notice from
the Company of the occurrence of any event of the kind described in Section
3(b)(i), 3(b)(ii) or 3(b)(iii), such Holder will forthwith discontinue
disposition of such Registrable Securities and Additional Shares, if any, under
the Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(i), or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(m) If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(m) for more than 45 days in the aggregate during
any 12 month period; provided, however, that no such postponement or suspension
shall be permitted for consecutive 20 day periods, arising out of the same set
of facts, circumstances or transactions.
4. Registration Expenses.
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company (provided that
the aggregate amount of fees and disbursements of a Special Counsel payable by
the Company hereunder shall be limited to a maximum amount of $10,000) whether
or not the Registration Statement is filed or becomes effective and whether or
not any Registrable Securities or Additional Shares, if any, are sold pursuant
to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with the OTC Bulletin Board and each securities
exchange or market, if any, on which Registrable Securities and Additional
Shares, if any, are required hereunder to be quoted or listed, (B) with respect
to filings required to be made with the National Association of Securities
Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky
qualifications of the Registrable Securities and Additional Shares, if any, and
determination of the eligibility of the Registrable Securities and Additional
Shares, if any, for investment under the laws of such jurisdictions as the
Holders of a majority of Registrable Securities and Additional Shares, if any,
taken together may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and
Additional Shares, if any, and of printing prospectuses (which may be
camera-ready copies of such prospectuses)), (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Company and
one Special Counsel for the Holders, in the case of such Special Counsel, to a
maximum amount of $10,000, (v) Securities Act liability insurance, if the
Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
Company's independent public accountants (including the expenses of any comfort
letters or costs associated with the delivery by independent public accountants
of a comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities and Additional Shares, if any, on any securities exchange as required
hereunder.
5. Indemnification.
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities or Additional Shares, if any, as principal
as a result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, or arising out of or relating to any violation by the
Company or its agents of the Securities Act or any rule or regulation
promulgated under the Securities Act applicable to the Company or its agents and
relating to action or inaction required of the Company in connection with a
registration of Registrable Securities or Additional Shares, if any, pursuant to
this Agreement, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
which information was reasonably relied on by the Company for use therein or to
the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities or Additional Shares,
if any, and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto. The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, such Prospectus, or any
form of Prospectus, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of Prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and Additional Shares, if any, and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying Party
or Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Rule 144.
As long as any Holder owns Registrable Securities or Additional
Shares, if any, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Holders with true
and complete copies of all such filings or notify the Holders that such filings
are publicly available. As long as any Holder owns Registrable Securities or
Additional Shares, if any, if the Company is not required to file reports
pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and
furnish to the Holders and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act, as well as any other information required thereby, in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable such Person to sell Registrable Securities or Additional
Shares, if any, without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act.
7. Miscellaneous.
(a) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof entered into any agreement currently in
effect, nor shall the Company or any of its subsidiaries, 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 Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in Schedule
2.1(q) to the Purchase Agreement, neither the Company nor any of its
subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities and Additional Shares, if any, taken together, 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 Holders set forth herein, and
are not otherwise in conflict with the provisions of this Agreement.
(b) Piggy-Back Registrations. If at any time when there is not an
effective Registration Statement covering all the Registrable Securities or, if
required to be issued, the Additional Shares, the Company shall determine to
prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans, the Company shall send to each Holder of
Registrable Securities or, if issued, Additional Shares, written notice of such
determination and, if within thirty (30) days after receipt of such notice, any
such Holder shall so request in writing, (which request shall specify the
Registrable Securities or, if issued, Additional Shares intended to be disposed
of by the Holders), the Company will cause the registration under the Securities
Act of all Registrable Securities or, if issued, Additional Shares which the
Company has been so requested to register by the Holder, to the extent requisite
to permit the disposition of the Registrable Securities or, if issued,
Additional Shares so to be registered, provided that if at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities or, if issued, Additional Shares in
connection with such registration (but not from its obligation to pay expenses
in accordance with Section 4 hereof), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities or, if issued, Additional Shares being registered pursuant to this
Section 7(b) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities or, if issued, Additional Shares such Holder
requests to be registered; provided, however, that the Company shall not be
required to register any Registrable Securities or, if issued, Additional Shares
pursuant to this Section 7(b) that are eligible for sale pursuant to Rule 144(k)
of the Securities Act. In the case of an underwritten public offering, if the
managing underwriter(s) or underwriter(s) should reasonably object to the
inclusion of the Registrable Securities or, if issued, Additional Shares in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities or, if issued, Additional Shares, would materially adversely affect
the offering contemplated in such registration statement, and based on such
determination recommends inclusion in such registration statement of fewer or
none of the Registrable Securities or, if issued, Additional Shares of the
Holders, then (x) the number of Registrable Securities or, if issued, Additional
Shares of the Holders included in such registration statement shall be reduced
pro-rata among such Holders (based upon the number of Registrable Securities
and, if issued, Additional Shares requested to be included in the registration),
if the Company after consultation with the underwriter(s) recommends the
inclusion of fewer Registrable Securities and, if issued, Additional Shares, or
(y) none of the Registrable Securities and, if issued, Additional Shares of the
Holders shall be included in such registration statement, if the Company after
consultation with the underwriter(s) recommends the inclusion of none of such
Registrable Securities and, if issued, Additional Shares; provided, however,
that if Common Stock is being offered for the account of other persons or
entities as well as the Company, such reduction shall not represent a greater
fraction of the number of Registrable Securities and, if issued, Additional
Shares intended to be offered by the Holders than the fraction of similar
reductions imposed on such other persons or entities (other than the Company).
(c) Failure to File Registration Statement and Other Events. The
Company and the Holders agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the times set forth in
Section 2 and maintained in the manner contemplated herein during the applicable
Effectiveness Period or if certain other events occur. The Company and the
Holders further agree that it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, if (A) the Shelf Registration
Statement is not filed on or prior to the Filing Date or is not declared
effective by the Commission on or prior to the time periods set forth in Section
2 (or in the event an Additional Registration Statement, filed because the
Company shall have been required to issue Additional Shares pursuant to Section
3.11 of the Purchase Agreement, is not filed and declared effective with the
time periods set forth in Section 2), or (B) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act within five (5) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or not subject
to further review, or (C) the Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities and Additional Shares, if any, at any time prior to the
expiration of the applicable Effectiveness Period, without being succeeded
immediately by a subsequent Registration Statement filed with and declared
effective by the Commission, or (D) trading in the Common Stock shall be
suspended or if the Common Stock is delisted from the OTC Bulletin Board or the
market or exchange on which the Common Stock is then quoted or listed for any
reason for more than three (3) Business Days in the aggregate, (E) the Company
breaches in a material respect any covenant or other material term or condition
to this Agreement, the Purchase Agreement (other than a representation or
warranty contained therein) or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
hereby and thereby, and such breach continues for a period of thirty (30) days
after written notice thereof to the Company, or (F) the Company has breached
Section 3(m) (any such failure or breach being referred to as an "Event," and
for purposes of clauses (A) and (F) the date on which such Event occurs, or for
purposes of clause (B) the date on which such five day period is exceeded, or
for purposes of clause (C) after more than fifteen (15) Business Days, or for
purposes of clause (D) the date on which such three Business Day period is
exceeded, or for clause (E) the date on which such thirty day period is
exceeded, being referred to as "Event Date"), the Company shall pay in cash as
liquidated damages to each Holder an amount equal to 1.5% per calendar month or
portion thereof of the market value of the outstanding Registrable Securities
and Additional Shares, if any, held by such Holder that have not been sold from
the Event Date until the applicable Event is cured. Payments to be made pursuant
to this Section 7(c) shall be due and payable immediately upon demand in
immediately available funds.
(d) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities and Additional Shares, if any, in accordance with the
terms of this Agreement, shall be automatically assignable by each Holder to any
Affiliate of such Holder or any other Holder or Affiliate of any other Holder of
all or a portion of the Registrable Securities or Additional Shares, if any, if:
(i) the Holder agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. In
addition, each Holder shall have the right to assign its rights hereunder to any
other Person with the prior written consent of the Company, which consent shall
not be unreasonably withheld. The rights to assignment shall apply to the
Holders' successors and assigns.
(e) Trading of Common Stock. The Company will take all action
within its power to continue the trading of its Common Stock on the OTC Bulletin
Board (or the New York Stock Exchange, the American Stock Exchange, the Nasdaq
National Market or The Nasdaq Small-Cap Market) and will comply in all respects
with the Company's reporting, filing and other obligations under the by-laws or
rules of the NASD and the OTC Bulletin Board (or the New York Stock Exchange,
the American Stock Exchange, the Nasdaq National Market or The Nasdaq Small-Cap
Market).
(f) Shares Held by the Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities and Additional Shares, if any, taken together is required hereunder,
Registrable Securities and Additional Shares, if any, held by the Company or its
Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities and Additional Shares, if any) shall not
be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(g) Fees and Expenses. The Company shall pay the reasonable legal
fees and expenses of Stroock & Stroock & Lavan LLP, counsel for the Purchasers,
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement and the Purchase Agreement to a maximum amount of $17,000. The
Company shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by it incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of its securities pursuant to this Agreement.
(h) Entire Agreement; Amendments. This Agreement and the Purchase
Agreement, together with the exhibits and schedules hereto and thereto, contain
the entire understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters.
(i) Notices. Any and all notices other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each party at its address set forth under its name on Schedule
5.3 to the Purchase Agreement or to such other address or addresses or facsimile
number or numbers as any such party may most recently have designated in writing
to the other parties hereto by such notice.
(j) Amendments; Waivers. No provision of this Agreement may be
amended except in a written instrument signed by each of the parties hereto and
no provision of this Agreement may be waived except in a written instrument
signed by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof or thereof, nor
shall any delay or omission of any party to exercise any right hereunder or
thereunder in any manner impair the exercise of any such right accruing to it
thereafter.
(k) Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement, as the case may be, and shall not be deemed
to limit or affect any of the provisions hereof.
(l) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns and shall inure to the benefit of each Holder and its successors and
assigns. The Company may not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of each Holder. Each
Purchaser may assign its rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.
(m) No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(n) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
(o) Survival. The agreements, covenants and provisions contained in
this Agreement shall survive until the second anniversary of the Closing Date
and the representations and warranties contained herein shall survive until the
first anniversary of the Closing Date.
(p) Execution. This Agreement may be executed in two or more
counterparts. All of the signature pages of this Agreement when taken together
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that all parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
(q) Publicity. The parties hereto shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and none of the parties shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which case the disclosing party shall provide
the other parties with prior notice of such public statement. The Company shall
not publicly or otherwise disclose the name of any Holder without its prior
written consent unless otherwise required by law, in which case the Company
shall inform such Holder of such disclosure in writing prior to making such
disclosure.
(r) Consent to Jurisdiction; Attorneys' Fees.
(i) The Company (including, but not limited to, its
Affiliates, subsidiaries, officers, directors and controlling persons) hereby
(A) irrevocably submits to the exclusive jurisdiction of any New York State
court or Federal court sitting in the Borough of Manhattan, The City of New York
in any action related to, connected with or arising out of, in whole or in part,
this Agreement (B) agrees that all claims in such action shall be decided in
such courts, (C) waives, to the fullest extent it may effectively do so, the
defense of inconvenient forum, and (D) consents to the service of process by
certified mail, return receipt requested. Nothing herein shall affect the right
of either party to serve legal process in any manner permitted by law or affects
its right to bring any action in any other court.
(ii) In connection with any dispute between the Company and a
Holder, related to, connected with or arising out of, in whole or in part, this
Agreement, the prevailing party shall be awarded all reasonable attorney's fees
and expenses incurred by it. In that connection fees and expenses actually paid
by a party in connection with the litigation of any dispute shall be deemed
presumably reasonable.
(iii) In the event that any Holder, becomes involved in any
capacity in any action, proceeding or investigation brought by or against any
Person, including shareholders of the Company, in connection with or as a result
of any matter referred to in this Agreement, the Company will reimburse such
Holder for its legal fees and expenses and other expenses (including the cost of
any investigation and preparation) incurred in connection therewith, as those
fees and expenses are incurred; provided, however, that if at the conclusion of
such action, proceeding or investigation it shall be finally judicially
determined by a court of competent jurisdiction that indemnity for such fees and
expenses is contrary to law, or that such Holder is not the prevailing party,
then in that event, such party and/or any other Person having received such
advances of fees and expenses shall reimburse the Company in full for the sums
advanced.
(iv) The provisions of this Section 7(r) shall survive any
termination or completion of this Agreement.
(s) Waiver of Jury Trial.
(i) The parties hereto each waive their respective rights to a
trial by jury of any claim or cause of action based upon or arising out of or
related to this Agreement, or the transactions contemplated by this Agreement,
in any action, proceeding or other litigation of any type brought by any of the
parties against any other party, whether with respect to contract claims, tort
claims, or otherwise. The parties hereto each agree that any such claim or cause
of action shall be tried by a court trial without a jury. Without limiting the
foregoing, the parties further agree that their respective right to a trial by
jury is waived by operation of this Section 7(s) as to any action, counterclaim
or other proceeding which seeks, in whole or in part, to challenge the validity
or enforceability of this Agreement or any provision hereof. The waiver shall
apply to any subsequent amendments, renewals, supplements or modifications to
this Agreement.
(ii) The provisions of this Section 7(s) shall survive any
termination or completion of this Agreement.
(t) Severability. If any term, provision, covenant or restriction
of this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(u) Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Holders
will be entitled to specific performance of the obligations of the Company under
this Agreement and injunctive relief. Each of the parties hereto (severally and
not jointly) agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of any breach of its obligations described in the
foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation or injunctive relief the defense that a
remedy at law would be adequate.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
NCT GROUP, INC.
By: /s/ CY E. HAMMOND
-----------------
Name: Cy E. Hammond
Title: Senior Vice President,
Chief Financial Officer
NESHER INC.
By: /s/ DAVID GRIN
--------------
Name: David Grin
Title: Investment Manager
AUSTOST ANSTALT SCHAAN
By: /s/ THOMAS HACKL
----------------
Name: Thomas Hackl
Title: Representative
BALMORE FUNDS S.A.
By: /s/ FRANCOIS MORAX
------------------
Name: Francois Morax
Title: Director
LIBRA FINANCE S.A.
By: /s/ SEYMOUR BRAUN
-----------------
Name: Seymour Braun
Title: Director
Exhibit 10(c)
SECURITIES EXCHANGE AGREEMENT
Among
NCT GROUP, INC.,
AUSTOST ANSTALT SCHAAN
and
BALMORE FUNDS S.A.
Dated as of October 9, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I
EXCHANGE OF SHARES
1.1 Exchange..........................................................4
1.2 The Closing.......................................................6
1.3 Lock-up; Exchange Ratio Adjustment................................6
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company.........8
2.2 Representations and Warranties of the Exchange Holders...........16
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions............................................17
3.2 Stop Transfer Orders; Suspension of Qualification................18
3.3 Furnishing of Information........................................18
3.4 Blue Sky Laws....................................................19
3.5 Integration......................................................19
3.6 Certain Agreements...............................................19
3.7 Compliance with Law..............................................20
3.8 Notice of Breaches...............................................20
3.9 [Intentionally Omitted]..........................................21
3.10 Indemnification.................................................21
3.11 Additional Investor Shares......................................23
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to Exchange of Audio Shares.................26
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses................................................28
5.2 Entire Agreement; Amendments.....................................28
5.3 Notices..........................................................28
5.4 Amendments; Waivers..............................................29
5.5 Headings.........................................................29
5.6 Successors and Assigns...........................................29
5.7 No Third Party Beneficiaries.....................................29
5.8 GOVERNING LAW....................................................29
5.9 Survival.........................................................29
5.10 Execution.......................................................30
5.11 Publicity.......................................................30
5.12 Consent to Jurisdiction; Attorneys' Fees........................30
5.13 Waiver of Jury Trial............................................31
5.14 Severability....................................................32
5.15 Remedies........................................................32
Schedules and Exhibits
Schedule 1 - Exchange Holders
Schedule 2.1(c) - Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(f) - Consents and Approvals
Schedule 2.1(q) - Registration Rights; Rights of Participation
Schedule 2.1(r) - Title
Schedule 2.1(w) - Year 2000 Compliance
Exhibit A - Registration Rights Agreement
<PAGE>
SECURITIES EXCHANGE AGREEMENT (this "Agreement"), dated as of October 9,
1999, between NCT Group, Inc., a Delaware corporation (the "Company"), and
Austost Anstalt Schaan ("Austost") and Balmore Funds S.A. ("Balmore"). Austost
and Balmore are referred to herein as the "Exchange Holders."
WHEREAS, each of the Exchange Holders owns the number of shares (the "Audio
Shares") of NCT Audio Products, Inc. ("Audio") set forth next to such Exchange
Holder's name on Schedule 1 attached hereto;
WHEREAS, subject to the terms and conditions set forth herein, each of the
Exchange Holders desires to exchange the Audio Shares for the number of shares
of common stock, par value $.01 per share, of the Company (the "Common Stock")
set forth next to such Exchange Holder's name on Schedule 1 attached hereto,
subject to the adjustment provisions of Section 1.3 hereof (the shares to be
issued to both Exchange Holders collectively referred to herein as the "Investor
Shares");
WHEREAS, subject to the terms and conditions set forth herein, the Company
desires to issue shares of Common Stock to the Exchange Holders in exchange for
the Audio Shares; and
WHEREAS, contemporaneously with the execution and delivery hereof, the
Company and the Exchange Holders have entered into that certain Registration
Rights Agreement dated the date hereof in substantially the form of Exhibit A
annexed hereto (the "Registration Rights Agreement;" the Registration Rights
Agreement and this Agreement are collectively referred to herein as the
"Transaction Documents");
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Company and the Exchange Holders agree as follows:
ARTICLE VI
EXCHANGE OF SHARES
6.1 Exchange. Subject to the terms and conditions set forth herein,
including, without limitation, the exchange ratio adjustment provisions of
Section 1.3 hereof, each of the Exchange Holders agrees to surrender the Audio
Shares held by it to the Company, and the Company agrees to issue to each of the
Exchange Holders the number of shares of Common Stock set forth next to such
Exchange Holder's name on Schedule 1 attached hereto having a value of
$1,300,000 (which number is based on the Per Share Market Value (as defined in
Section 3.11 hereof) of such shares on the Closing Date (as defined in Section
1.2 hereof)), and, subject to the provisions herein, the Additional Investor
Shares (as defined in Section 3.11 hereof), if any, in exchange for such
Exchange Holder's Audio Shares. The exchanges of Audio Shares for Investor
Shares and Additional Investor Shares, if any, as contemplated by this Agreement
shall be referred to herein as the "Exchange."
<PAGE>
6.2 The Closing.
(i) The closing of the Exchange (the "Closing") shall take
place at the offices of Stroock & Stroock & Lavan LLP, 180 Maiden
Lane, New York, New York, 10038-4982, immediately following the
execution hereof or such later date or different location as the
parties shall agree in writing, but not prior to the date that the
conditions set forth in Section 4.1 have been satisfied or waived by
the appropriate party. The date of the Closing is hereinafter
referred to as the "Closing Date." At the Closing, the Exchange
Holders shall surrender the Audio Shares to the Company, and in
exchange therefor the Company shall issue to each of the Exchange
Holders the number of Investor Shares set forth next to such
Exchange Holder's name on Schedule 1 attached hereto. In addition,
if required by the provisions of this Agreement, the Company shall
issue to each of the Exchange Holders, and each Exchange Holder
shall receive from the Company, Additional Investor Shares in
accordance with the provisions of Section 3.11 hereof.
(ii) At the Closing (a) the Company shall deliver to each
Exchange Holder: (1) one or more certificates representing the
number of Investor Shares set forth next to such Exchange Holder's
name on Schedule 1 attached hereto (the "Closing Number"), each
registered in the name of such Exchange Holder and (2) all other
documents, instruments and writings required to have been delivered
at or prior to the Closing by the Company pursuant to the
Transaction Documents, and (b) each Exchange Holder shall deliver to
the Company one or more certificates representing the portion of the
Audio Shares set forth next to its name on Schedule 1, and all
documents, instruments and writings required to have been delivered
at or prior to the Closing by such Exchange Holder pursuant to the
Transaction Documents.
6.3 Lock-up; Exchange Ratio Adjustment. Each of the Exchange Holders
covenants and agrees that it will not sell, transfer, assign, pledge,
hypothecate, otherwise dispose of or encumber clear title to any of its Investor
Shares until after February 15, 2000. On the Adjustment Date (as defined below),
the Company shall calculate the number of shares of Common Stock of the Company
having a value of $1,300,000 based on the Per Share Market Value of such shares
on such Adjustment Date (the "Adjusted Number"). With respect to each Exchange
Holder, if the Closing Number is greater than the Adjusted Number, such Exchange
Holder shall deliver to the Company a number of shares of Common Stock of the
Company equal to the Closing Number minus the Adjusted Number. The "Adjustment
Date" shall be February 15, 2000 or such other day not later than February 15,
2000 that is mutually agreed upon by the Company and the Exchange Holders.
<PAGE>
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 Representations, Warranties and Agreements of the Company. Unless
otherwise specified, the Company hereby makes the following representations and
warranties to the Exchange Holders as of the date hereof and as of the Closing
Date if the Closing does not occur on the date hereof:
(a) Organization and Qualification; Subsidiaries. The Company is a
corporation, duly organized, validly existing and in good standing under
the laws of the State of Delaware, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no material subsidiaries
other than as set forth in the Company's most recently filed Annual Report
on Form 10-K (collectively, the "Subsidiaries"). Each of the Subsidiaries
is a corporation, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the full corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Each of the Company and the Subsidiaries is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure
to be so qualified or in good standing, as the case may be, would not,
individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Transaction Documents, (y) have or
result in a material adverse effect on the results of operations, assets,
prospects (insofar as they may reasonably be foreseen) or financial
condition of the Company and the Subsidiaries, taken as a whole or (z)
adversely impair the Company's ability to perform fully on a timely basis
its obligations under any Transaction Document (any of (x), (y) or (z),
being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents, and otherwise to
carry out its obligations hereunder and thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company. Each of the
Transaction Documents has been duly executed by the Company and when
delivered in accordance with the terms hereof will constitute the legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application. Neither the Company nor any Subsidiary
is in violation of any of the provisions of its respective certificate of
incorporation, bylaws or other organizational documents.
(c) Capitalization; Rights to Acquire Capital Stock. The authorized,
issued and outstanding capital stock of the Company is set forth in
Schedule 2.1(c). All issued and outstanding shares of capital stock of the
Company and each Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable. No shares of the capital stock of
the Company are entitled to preemptive or similar rights, nor is any
holder of the capital stock of the Company entitled to preemptive or
similar rights arising out of any agreement or understanding with the
Company by virtue of any of the Transaction Documents. Except as disclosed
in Schedule 2.1(c), there are no outstanding options, warrants, script
rights to subscribe to, calls, written commitments or, to the knowledge of
the Company, oral commitments relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings, written arrangements or, to the
knowledge of the Company, oral arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. Except as set forth on Schedule 2.1(c), and, to the best
knowledge of the Company, no Person or group of related Persons
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or
has the right to acquire by agreement with or by obligation binding upon
the Company beneficial ownership of in excess of 5% of the Common Stock. A
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind. The Common Stock is
quoted for trading on the OTC Bulletin Board. The Company has received no
notice, either oral or written, with respect to the continued eligibility
of the Common Stock for such quotation, and the Company has maintained all
requirements for the continuation of such quotation.
(d) Issuance of Investor Shares. The Investor Shares are duly
authorized, and when issued pursuant to the Exchange and in accordance
with the terms hereof, shall be validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances, security
interests, charges and rights of first refusal of any kind (collectively,
"Liens"). The Investor Shares, upon issuance, will not subject the holders
thereof to personal liability by reason of being such holders.
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby do not and will not (i) conflict with or violate any provision of
its or any Subsidiary's certificate of incorporation, bylaws or other
organizational documents (each as amended through the date hereof) or (ii)
subject to obtaining the consents referred to in Section 2.1(f), conflict
with, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument (evidencing a Company debt or otherwise) to which
the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to
which the Company or any Subsidiary is subject (including Federal and
state securities laws and regulations), or by which any property or assets
of the Company or any Subsidiary is bound or affected, or (iv) result in
the creation or imposition of a Lien upon any of the Investor Shares or
any of the property or assets of the Company or any Subsidiary, or any of
its "Affiliates" (as such term is defined under Rule 405 promulgated under
the Securities Act), except in the case of each of clauses (ii) and (iii),
such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have or result in a Material Adverse Effect. The businesses of
the Company and the Subsidiaries are not being conducted in violation of
any law, ordinance or regulation of any governmental authority except for
any such violation as would not, individually or in the aggregate, have or
result in a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the approval of the Company's Board
of Directors, (ii) the filings with the Securities and Exchange Commission
(the "Commission") contemplated by and in the time periods set forth in
the Registration Rights Agreement, and (iii) any filings, notices or
registrations under applicable federal and state securities laws (together
with the consents, waivers, authorizations, orders, notices and filings
referred to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as disclosed in the Company's
registration statement on Form S-1 (Registration No. 333-87757) originally
filed with the Commission on September 24, 1999, there is no action, suit,
notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company or
any of the Subsidiaries or any of their respective properties before or by
any court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the
Transaction Documents or the Investor Shares or (ii) would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound which would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect, (ii) is in violation of any order of any court, arbitrator or
governmental body applicable to it, or (iii) is in violation of any
statute, rule or regulation of any governmental authority to which it is
subject, which violation would reasonably be expected to, individually or
in the aggregate, have a Material Adverse Effect.
(i) Schedules. The Schedules to this Agreement furnished by or on
behalf of the Company do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein not misleading.
(j) Private Offering. The Company and all Persons acting on its
behalf have not made, and will not make, offers or sales of the Common
Stock, and any securities that might be integrated with offers and sales
of the Common Stock, except to "accredited investors" (as defined in
Regulation D ("Regulation D") under the Securities Act of 1933, as amended
(the "Securities Act")) without any general solicitation or advertising
and otherwise in compliance with the conditions of Regulation D. The
Exchange is exempt from the registration requirements of the Securities
Act.
(k) SEC Documents; Financial Statements; No Adverse Change. The
Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the three years preceding the date hereof (the foregoing materials being
collectively referred to herein as the "SEC Documents") on a timely basis
or has received a valid extension of such time of filing and has filed any
such SEC Documents prior to the expiration of any such extension. As of
their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading. All
material agreements to which the Company or any Subsidiary is a party or
to which the property or assets of the Company or any Subsidiary are
subject have been filed as exhibits to the SEC Documents as required;
neither the Company nor any of the Subsidiaries is in breach of any
agreement where such breach would reasonably be expected to, individually
or in the aggregate, have a Material Adverse Effect. The consolidated
financial statements of the Company and the Subsidiaries included in the
SEC Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have
been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material
respects the consolidated financial position of the Company and the
Subsidiaries as of and for the dates thereof and the results of operations
and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal year-end audit adjustments. Since the date
of the financial statements included in the Company's last filed Quarterly
Report on Form 10-Q for the period ended June 30, 1999, there has been no
event, occurrence or development that has had, or would reasonably be
expected to have, a Material Adverse Effect which has not been
specifically disclosed to the Exchange Holders by the Company. The Company
last filed audited financial statements with the Commission on May 3,
1999, and has not received any comments from the Commission in respect
thereof.
(l) Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(m) Certain Fees. No fees or commissions will be payable by the
Company to any broker, financial advisor, finder, investment banker, or
bank with respect to the transactions contemplated by this Agreement. The
Exchange Holders shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section 2.1(m) that may be due in connection
with the transactions contemplated by the Transaction Documents. The
Company shall indemnify and hold harmless the Exchange Holders, its
employees, officers, directors, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages, costs (including
the costs of preparation and attorney's fees) and expenses suffered in
respect of any such claimed or existing fees arising from the action or
inaction of the Company.
(n) Solicitation Materials. The Company has not distributed any
offering materials in connection with the Exchange. The Company confirms
that it has not provided the Exchange Holders or their agents or counsel
with any information that constitutes or might constitute material
non-public information. The Company understands and confirms that the
Exchange Holders shall be relying on the foregoing representations in
effecting transactions in securities of the Company.
(o) Employment Matters. Each of the Company and each Subsidiary is
in compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company or any Subsidiary would have any liability; neither the
Company nor any Subsidiary has incurred and expects to incur liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal
from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which
the Company or any Subsidiary would have any liability that is intended to
be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(p) Patents and Trademarks. The Company and each Subsidiary has, or
has rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights
(collectively, the "Intellectual Property Rights") which are necessary for
use in connection with its business, as currently conducted and as
described in the SEC Documents, and which the failure to so have would
have a Material Adverse Effect.
(q) Registration Rights; Rights of Participation. (A) Except as
disclosed in Schedule 2.1(q), the Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been
satisfied and (B) no Person, including, but not limited to, current or
former stockholders of the Company, underwriters, brokers or agents, has
any right of first refusal, preemptive right, right of participation, or
any similar right to participate in the transactions contemplated by this
Agreement or the Registration Rights Agreement.
(r) Title. Except as disclosed in Schedule 2.1(r), the Company and
the Subsidiaries have good and marketable title to, or the right to use,
all personal property owned or leased by them which is material to the
businesses of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries. Neither the
Company nor any of its Subsidiaries owns any real property. Any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company and the Subsidiaries.
(s) Regulatory Permits. The Company and the Subsidiaries possess all
franchises, certificates, licenses, authorizations and permits or similar
authority issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses as described
in the SEC Documents except where the failure to possess such permits
would not, individually or in the aggregate, have a Material Adverse
Effect ("Material Permits"), and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(t) Insurance. The Company and each Subsidiary maintains property
and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with
financially sound and reputable insurers that is adequate, consistent with
industry standards. Neither the Company nor any Subsidiary has received
notice from, and has any knowledge of any threat by, any insurer (that has
issued any insurance policy to the Company or any Subsidiary) that such
insurer intends to deny coverage under or cancel, discontinue or not renew
any insurance policy presently in force.
(u) Taxes. All applicable tax returns required to be filed by the
Company and each of the Subsidiaries have been filed, or if not yet filed
have been granted extensions of the filing dates which extensions have not
expired, and all taxes, assessments, fees and other governmental charges
upon the Company, the Subsidiaries, or upon any of their respective
properties, income or franchises, shown in such returns and on assessments
received by the Company or the Subsidiaries to be due and payable have
been paid, or adequate reserves therefor have been set up if any of such
taxes are being contested in good faith; or if any of such tax returns
have not been filed or if any such taxes have not been paid or so reserved
for, the failure to so file or to pay would not in the aggregate or
individually have a Material Adverse Effect.
(v) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any
offers to buy any securities under circumstances that would require
registration of any such securities under the Securities Act or cause the
offering of the Investor Shares pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable stockholder approval provisions.
(w) Year 2000 Compliance. The Company has initiated a review and
assessment of all areas within its and each Subsidiary's business and
operations that could be adversely affected by the "Year 2000 Problem"
(that is, the risk that computer applications used by the Company or any
of the Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date
after December 31, 1999). Based on the foregoing, except as set forth on
Schedule 2.1(w), the Company believes that the computer applications that
are currently material to its or any Subsidiary's business and operations
are reasonably expected to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000, except to the
extent that a failure to do so would not reasonably be expected to have a
Material Adverse Effect.
(x) Full Disclosure. The representations and warranties of the
Company set forth in each of the Transaction Documents do not contain any
untrue statement of a material fact or omit any material fact necessary to
make the statements contained herein, in the light of the circumstances
under which they were made, not misleading.
7.2 Representations and Warranties of the Exchange Holders. Each of the
Exchange Holders, severally and not jointly, hereby represents and warrants to
the Company as follows:
(a) Investment Intent. Such Exchange Holder is acquiring the
Investor Shares for its own account for investment purposes only and not
with a view to or for distributing or reselling the Investor Shares or any
part thereof or interest therein, without prejudice, however, to such
Exchange Holder's right, subject to the provisions of this Agreement and
the Registration Rights Agreement, at all times to sell or otherwise
dispose of all or any part of the Investor Shares pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable state securities laws or under an exemption from such
registration.
(b) Exchange Holder Status. At the time such Exchange Holder was
offered the Investor Shares, and at the Closing Date, (i) it was and will
be, an "accredited investor" (as defined in Regulation D), or (ii) such
Exchange Holder either alone or together with its representatives, had and
will have such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks
of the prospective investment in the Investor Shares, and had and will
have so evaluated the merits and risks of such investment. Such Exchange
Holder has the authority and is duly and legally qualified to purchase and
own the Investor Shares.
(c) Ability of Exchange Holder to Bear Risk of Investment. Such
Exchange Holder is able to bear the economic risk of an investment in the
Investor Shares and, at the present time, is able to afford a complete
loss of such investment.
(d) Reliance. Such Exchange Holder understands and acknowledges that
(i) the Investor Shares are being offered and issued to such Exchange
Holder without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the
Securities Act under Section 4(2) of the Securities Act or Regulation D
promulgated thereunder and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and such Exchange Holder
hereby consents to such reliance.
(e) Title to Audio Shares. Such Exchange Holder is the beneficial
and record owner of the Audio Shares set forth next to such Exchange
Holder's name on Schedule 1 hereto and has valid and marketable title to
such Audio Shares, free and clear of any Lien, pledge and encumbrance or
any claim of any third party.
ARTICLE VIII
OTHER AGREEMENTS OF THE PARTIES
8.1 Transfer Restrictions.
(a) If any Exchange Holder should decide to dispose of any Investor
Shares held by it, each Exchange Holder understands and agrees that it may
dispose of such Investor Shares only pursuant to an effective registration
statement under the Securities Act and the applicable state blue-sky laws,
to the Company or pursuant to an available exemption from the registration
requirements of the Securities Act and the applicable state blue-sky laws.
In connection with any transfer of any of the Investor Shares other than
pursuant to an effective registration statement or to the Company, the
Company may require the transferor thereof to provide to the Company a
written opinion of counsel, the form and substance of which opinion shall
be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities
under the Securities Act and the applicable state blue-sky laws.
Notwithstanding the foregoing, the Company hereby consents to and agrees
to register (i) any transfer of Investor Shares by one Exchange Holder to
another Exchange Holder, and agrees that no documentation other than
executed transfer documents shall be required for any such transfer, and
(ii) any transfer by any Exchange Holder to an Affiliate of such Exchange
Holder or to an Affiliate of another Exchange Holder, or any transfer
among such Affiliates, provided that transferee certifies in writing to
the Company that it is an "accredited investor" (as defined in Regulation
D). Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights under this Agreement and the
Registration Rights Agreement of the Exchange Holder from which it has
received the transferred shares.
(b) The Exchange Holders agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Investor
Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
8.2 Stop Transfer Orders; Suspension of Qualification. The Company may
not make any notation on its records or give instructions to any transfer agent
of the Company which enlarge the restrictions of transfer set forth in Section
3.1. The Company will advise the Exchange Holders, promptly after it receives
notice of issuance by the Commission, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending the use of any offering of any securities of the Company, or of the
suspension of the qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
8.3 Furnishing of Information. As long as an Exchange Holder owns
Investor Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish such Exchange Holder
with true and complete copies of all such filings. As long as an Exchange Holder
owns the Investor Shares, if the Company is not required to file reports
pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and
furnish to such Exchange Holder and make publicly available in accordance with
Rule 144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act, as well as any other information required thereby, in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as any holder of Investor Shares may reasonably request, all to the
extent required from time to time to enable such Person to sell Investor Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act.
8.4 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Investor Shares under the securities or Blue Sky
laws of such jurisdictions as the Exchange Holders may request and shall
continue such qualification at all times through the third anniversary of the
Closing Date unless an exemption from registration applies.
8.5 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the Exchange in a
manner that would require the registration under the Securities Act of the sale
of any or all of such securities to any Exchange Holder.
8.6 Certain Agreements. As long as any Exchange Holder owns Investor
Shares, the Company shall not and shall cause the Subsidiaries not to, without
the consent of the holders of all of the Investor Shares then outstanding, (i)
amend its certificate of incorporation, bylaws or other charter documents so as
to adversely affect any rights of any Exchange Holder; (ii) declare, authorize,
set aside or pay any dividend or other distribution with respect to the Common
Stock except as would not adversely affect the rights of any Exchange Holder
hereunder; (iii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock in any manner; (iv) issue any series of
preferred stock or other securities with rights senior (in respect of
liquidations, dividends, preferences and similar rights) to those of the
Investor Shares; or (v) enter into any agreement with respect to any of the
foregoing.
8.7 Compliance with Law.
(a) The Company shall take all steps necessary to cause the Shares
to be approved for quotation on the OTC Bulletin Board as soon as possible
thereafter and the Company shall maintain the quotation of its Common
Stock on such market, as long the rules governing such quotation on the
OTC Bulletin Board do not change.
(b) Until at least two (2) years after the date on which the last
Registration Statement filed pursuant to the Registration Rights Agreement
is declared effective, (i) the Company will cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations
under such Exchange Act, will comply with all requirements related to any
registration statement filed pursuant to this Agreement or the
Registration Rights Agreement and will not take any action or file any
document (whether or not permitted by the Securities Act or the Exchange
Act or the rules and regulations thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing
obligations under the Securities Act and Exchange Act, except as permitted
herein and (ii) the Company will take all action within its power to
continue the trading of its Common Stock on the OTC Bulletin Board (or the
New York Stock Exchange, the American Stock Exchange, the Nasdaq National
Market or the Nasdaq-Small-Cap Market) and will comply in all respects
with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the OTC Bulletin Board (or the New York
Stock Exchange, the American Stock Exchange, the Nasdaq National Market or
the Nasdaq-Small-Cap Market).
8.8 Notice of Breaches.
(a) Each of the Company and the Exchange Holders shall give prompt
written notice to the other of any breach of any representation, warranty
or other agreement contained in this Agreement or the Registration Rights
Agreement, as well as any events or occurrences arising after the date
hereof and prior to the Closing Date, which would reasonably be likely to
cause any representation or warranty or other agreement of such party, as
the case may be, contained herein to be incorrect or breached as of the
Closing Date. However, no disclosure by any party pursuant to this Section
3.8 shall be deemed to cure any breach of any representation, warranty or
other agreement contained herein or in the Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.8(a), the Company
shall promptly notify the Exchange Holders of any notice or claim (written
or oral) that it receives from any lender of the Company to the effect
that the consummation of the transactions contemplated by the Transaction
Documents violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall promptly
furnish by facsimile to the Exchange Holders a copy of any written
statement in support of or relating to such claim or notice.
8.9 [Intentionally Omitted]
8.10 Indemnification. The Company also will indemnify and hold the
Exchange Holders harmless against any and all losses, claims, damages or
liabilities to any such Person (including, without limitation, in connection
with any action, proceeding or investigation brought by or against any such
Person, including by stockholders of the Company) in connection with or as a
result of any matter referred to in the Transaction Documents, including,
without limitation, for any misrepresentation by the Company, for breaches of
representations and warranties contained in any of the Transaction Documents,
and for any breach, non-compliance or nonfulfillment by the Company of any
covenant, agreement or undertaking to be complied with or performed by it
contained in or pursuant to the Transaction Documents, except to the extent that
it is finally judicially determined that such losses, claims, damages or
liabilities resulted solely from the gross negligence or bad faith of either of
the Exchange Holders. If for any reason the foregoing indemnification is
unavailable to such Exchange Holder or is insufficient to hold such Exchange
Holder harmless, then the Company shall contribute to the amount paid or payable
by such Exchange Holder as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative economic interests of
the Company and its shareholders on the one hand and the Exchange Holders on the
other hand in the matters contemplated by the Transaction Documents as well as
the relative fault of the Company and the Exchange Holders with respect to such
loss, claim, damage or liability and any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any Affiliate of the Exchange Holders and the partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the Exchange
Holders and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Exchange Holders, any such Affiliate and any such Person. The
Company also agrees that neither the Exchange Holders nor any of such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of any matter referred
to in the Transaction Documents except to the extent that it is finally
judicially determined that any losses, claims, damages, liabilities or expenses
incurred by the Company result solely from the gross negligence or bad faith of,
or knowing breach of this Agreement by, either of the Exchange Holders. Promptly
after receipt by the Exchange Holders or any Affiliate, partners, directors,
agents, employees or controlling persons, as the case may be, of notice of any
claim or other commencement of any action in respect of which indemnity may be
sought, such party will notify the Company in writing of the receipt or
commencement thereof and the Company shall have the right to assume the defense
of such claim or action (including the employment of counsel reasonably
satisfactory to the indemnified parties and the payment of fees and expenses of
such counsel). The indemnified party shall cooperate with the Company and the
Company's counsel in the defense of such claim or action. The Exchange Holders
understand that the Company shall not in connection with any one such claim or
action or separate but substantially similar related claims or actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all of the indemnified parties unless the defense of one
indemnified party is unique or separate from that of another indemnified party
or one or more legal defenses are available to an indemnified party but not to
other indemnified parties subject to the same claim or action. In the event the
Company does not promptly assume the defense of a claim or action, the
indemnified parties shall have the right to employ counsel reasonably
satisfactory to the Company, at the Company's expense, to defend such claim or
action. The indemnified party shall not admit any liability with respect to the
claim or action or settle, compromise, pay or discharge the same without the
prior written consent of the Company so long as the Company is reasonably
contesting or defending the same in good faith. The Company shall not
compromise, settle or discharge any claim or action without the Exchange
Holders' consent, as applicable, which consent will not be unreasonably
withheld, unless there is no finding or admission of any violation of any law
against the indemnified party and the sole relief is monetary damages paid in
full by the Company. The provisions of this Section 3.10 shall survive any
termination or completion of the Transaction Documents.
8.11 Additional Investor Shares.
(a) With respect to an Exchange Holder, if on the 180th day following
the Closing Date (the period ending on such date, the "First Look-Back
Period"), (i) such Exchange Holder continues to own Investor Shares and
(ii) such Investor Shares have an aggregate value (based upon Per Share
Market Value (as defined below) on the last day of the First Look-Back
Period) that, when added to the aggregate value of any Shares transferred
(other than by sale) by such Exchange Holder (based upon Per Share Market
Value on the date(s) of such transfer(s)) and the amounts realized (the
"First Realized Amount") by such Exchange Holder in connection with any
sale or sales of Investor Shares during the First Look-Back Period (without
giving effect to any commission to any broker or other person or any legal
fees and disbursements or other costs or expenses paid or payable by such
Exchange Holder in connection with such sale or sales), would be less than
$1,300,000, the Company shall issue to such Exchange Holder at the Exchange
Holder's request on the first day after the First Look Back Period (or such
later date as soon thereafter is mutually acceptable to the parties), a
number of shares of Common Stock (the "First Additional Investor Shares")
having an aggregate value (based upon Per Share Market Value on such date)
that, when added to the sum of such First Realized Amount and the aggregate
value (based upon Per Share Market Value) of the Investor Shares held by
such Exchange Holder on the last day of the First Look-Back Period and the
aggregate value of any shares transferred (other than by sale) by such
Exchange Holder (based upon Per Share Market Value on the date(s) of such
transfer(s)), would equal at least $1,300,000. With respect to an Exchange
Holder, if on the 270th day following the Closing Date (the period ending
on such date, the "Second Look-Back Period") (x) such Exchange Holder
continues to own Investor Shares or any First Additional Investor Shares,
and (y) such Investor Shares and First Additional Investor Shares have an
aggregate value (based on Per Share Market Value on the last day of the
Second Look-Back Period) that, when added to the aggregate value of any
Investor Shares or any First Additional Investor Shares transferred (other
than by sale) by such Exchange Holder (based upon Per Share Market Value on
the date(s) of such transfer(s)) and the amounts realized (the "Second
Realized Amount") by such Exchange Holder in connection with any sale or
sales of the Investor Shares and First Additional Investor Shares, as
applicable, during the Second Look-Back Period (without giving effect to
any commission to any broker or other person or any legal fees and
disbursements or other costs or expenses paid or payable by such Exchange
Holder in connection with such sale or sales), would be less than
$1,300,000, the Company shall issue to such Exchange Holder at its request
on the first day after the Second Look-Back Period (or such later date as
soon thereafter as is mutually acceptable to the parties), a number of
additional shares of Common Stock (the "Second Additional Investor Shares",
and together with the First Additional Investor Shares collectively, the
"Additional Investor Shares") having an aggregate value (based upon Per
Share Market Value on such date) that, when added to the sum of such Second
Realized Amount and the aggregate value (based upon Per Share Market Value)
of the Investor Shares and First Additional Investor Shares held by such
Exchange Holder on the last day of the Second Look-Back Period and the
aggregate value of any shares transferred (other than by sale) by such
Exchange Holder (based upon Per Share Market Value on the date(s) of such
transfer(s)), would equal at least $1,300,000. Notwithstanding the
foregoing, however, with respect to any period of 20 consecutive Trading
Days after the Adjustment Date (each such period a "Test Period"), if (A)
the average daily trading volume of the Company's Common Stock during such
Test Period is equal to or greater than 400,000 shares and (B) with respect
to an Exchange Holder, on each Trading Day of such Test Period, the sum of
the aggregate value of all Investor Shares and Additional Investor Shares,
if any, that are subject to an effective registration statement during each
day of such Test Period and held by such Exchange Holder (based on Per
Share Market Value) and the amounts realized by such Exchange Holder in
connection with any sale or sales of Investor Shares and Additional
Investor Shares (without giving effect to any commission to any broker or
other person or any legal fees and disbursements or other costs or expenses
paid or payable by such Exchange Holder in connection with such sale or
sales) and the aggregate value of any Shares and Additional Shares, if any,
transferred (other than by sale) by such Exchange Holder (based upon Per
Share Market Value on the date(s) of such transfer(s)) would equal at least
$1,300,000, then notwithstanding any other provision of this Agreement, the
Company shall be under no obligation to issue any Additional Investor
Shares to such Exchange Holder at any time thereafter. Upon the issuance of
First Additional Investor Shares, if any, and again upon the issuance of
Second Additional Investor Shares, if any, to any Exchange Holder, the
Company shall cause to be delivered to such Exchange Holder an opinion of
counsel stating that the relevant Additional Shares being issued by the
Company are duly authorized, validly issued, fully paid and nonassessable.
(b) For purposes of this Agreement, "Per Share Market Value" shall
mean on any particular date (i) the closing bid price per share of the
Common Stock on such date on The Nasdaq Small Cap Market, the Nasdaq
National Market or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date,
then the closing bid price on such exchange or quotation system on the
date nearest preceding such date, or (ii) if the Common Stock is not
listed then on The Nasdaq Small Cap Market, the Nasdaq National Market or
any registered national stock exchange, the closing bid price for a share
of Common Stock in the over-the-counter market, as reported by NASDAQ or
the National Quotation Bureau Incorporated or a similar organization or
agency succeeding to its functions of reporting prices) at the close of
business on such date, or (iii) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or
agency succeeding to its functions of reporting prices), then the average
of the "Pink Sheet" quotes for the relevant period, as determined in good
faith by the holder, or (iv) if the Common Stock is not then publicly
traded the fair market value of a share of Common Stock as determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may
be the firm that regularly examines the financial statements of the
Company) that is regularly engaged in the business of appraising the
capital stock or assets of corporations or other entities as going
concerns, and which is not affiliated with either the Company or the
Exchange Holders (an "Independent Appraiser") selected in good faith by
the holders of a majority in interest of the shares of Common Stock;
provided, however, that the Company, after receipt of the determination by
such Independent Appraiser, shall have the right to select an additional
Independent Appraiser, in which case, the fair market value shall be equal
to the average of the determinations by each such Independent Appraiser;
and provided, further that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock
splits or other similar transactions during such period. The determination
of fair market value by an Independent Appraiser shall be based upon the
fair market value of the Company determined on a going concern basis as
between a willing buyer and a willing seller and taking into account all
relevant factors determinative of value, and shall be final and binding on
all parties. In determining the fair market value of any shares of Common
Stock, no consideration shall be given to any restrictions on transfer of
the Common Stock imposed by agreement or by federal or state securities
laws, or to the existence or absence of, or any limitations on, voting
rights.
(c) For purposes of this Agreement, "Trading Day" shall mean (i) a
day on which the Common Stock is traded on The Nasdaq Small Cap Market,
the Nasdaq National Market or other registered national stock exchange on
which the Common Stock has been listed, or (ii) if the Common Stock is not
listed on The Nasdaq Small Cap Market, the Nasdaq National Market or any
registered national stock exchange, a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin
Board.
(d) In addition, the Company shall use its best efforts to register
such Additional Investor Shares under the same terms and conditions as the
Investor Shares are being registered. Upon each issuance of Additional
Investor Shares, (i) the Company shall deliver to the Exchange Holders an
officer's certificate certifying that the representations and warranties
of the Company set forth herein were true and correct in all material
respects as of the date when made and as of the date of the issuance of
the Additional Investor Shares (except as may be disclosed in a schedule
to such certificate that is subject to review by the Exchange Holders), as
though made on and as of such date and with representations and warranties
with respect to the Investor Shares being made as to the Additional
Investor Shares and (ii) this Agreement shall be deemed amended such that
the covenants and agreements of the Company herein with respect to the
Investor Shares shall apply equally to the Additional Investor Shares. If
the Company is required under the terms hereof to issue any Additional
Investor Shares and an insufficient number of shares of the Company's
Common Stock are authorized for such issuance, then the Company shall
promptly seek such approvals and authorizations from its shareholders as
are required under Delaware law and the Company's organizational documents
to allow the Company to issue such Additional Investor Shares to the
Exchange Holders.
ARTICLE IX
CONDITIONS
9.1 Conditions Precedent to Exchange of Audio Shares.
(a) Conditions Precedent to the Obligation of the Company to Issue
the Investor Shares. The obligation of the Company to issue the Investor
Shares hereunder is subject to the satisfaction or waiver by the Company,
at or before the Closing, of each of the following conditions:
(i) Accuracy of the Exchange Holders' Representations and
Warranties. The representations and warranties of each Exchange
Holder shall be true and correct in all material respects as of the
date when made and as of the Closing Date, as though made on and as
of such date;
(ii) Performance by the Exchange Holders. Each Exchange Holder
shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by such
Exchange Holder at or prior to the Closing; and
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation
of any of the transactions contemplated by the Transaction
Documents.
(b) Conditions Precedent to the Obligation of the Exchange Holders
to Accept the Investor Shares. The obligation of each Exchange Holder
hereunder to accept the Investor Shares in exchange for the Audio Shares
is subject to the satisfaction or waiver by such Exchange Holder, at or
before the Closing, of each of the following conditions:
(i) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company set forth in the
Transaction Documents shall be true and correct in all material
respects as of the date when made and as of the Closing Date as
though made on and as of such date;
(ii) Performance by the Company. The Company shall have
performed, satisfied and complied with in all material respects all
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing;
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation
of any of the transactions contemplated by the Transaction
Documents;
(iv) Adverse Changes. Since the date of the financial
statements included in the Company's Quarterly Report on Form 10-Q
last filed prior to the date of this Agreement, no event which had a
Material Adverse Effect and no material adverse change in the
financial condition of the Company shall have occurred;
(v) No Suspensions of Trading in Common Stock. The trading in
the Common Stock shall not have been suspended by the Commission or
on the OTC Bulletin Board, which suspension remains in effect;
(vi) Required Approvals. All Required Approvals shall have
been obtained;
(vii) Delivery of Stock Certificates. The Company shall have
arranged for delivery to each Exchange Holder or such Exchange
Holder's designee, the stock certificate(s) representing the
Investor Shares, registered in the name of such Exchange Holder,
each in form satisfactory to such Exchange Holder; and
(viii) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Fees and Expenses. The Company shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by it incident to the negotiation, preparation, execution, delivery and
performance of the Transaction Documents. The Company shall have no obligation
to pay any fees or expenses of either Exchange Holder or any other Person
(including, without limitation, fees or disbursements of its counsel) incident
to the negotiation, preparation, execution, delivery and performance of the
Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of its securities pursuant to the
Transaction Documents.
10.2 Entire Agreement; Amendments. The Transaction Documents, together
with the exhibits and schedules hereto and thereto, contain the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
10.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each party at its address set forth under its name on Schedule
5.3 attached hereto or to such other address or addresses or facsimile number or
numbers as any such party may most recently have designated in writing to the
other parties hereto by such notice.
10.4 Amendments; Waivers. No provision of this Agreement may be amended
except in a written instrument signed by each of the parties hereto and no
provision of this Agreement may be waived except in a written instrument signed
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof or thereof, nor shall any
delay or omission of any party to exercise any right hereunder or thereunder in
any manner impair the exercise of any such right accruing to it thereafter.
10.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement, as the case may be, and shall not be deemed
to limit or affect any of the provisions hereof.
10.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and permitted
assigns. The Company may not assign this Agreement, or any rights or obligations
hereunder without the prior written consent of the Exchange Holders. Each
Exchange Holder may assign this Agreement, or any rights or obligations
hereunder (i) to its Affiliates or to another Exchange Holder without the prior
written consent of the Company and (ii) to any other Person with the prior
written consent of the Company, such consent not to be unreasonably withheld.
This provision shall not limit an Exchange Holder's right to transfer securities
or transfer or assign rights under any Registration Rights Agreement to which it
is a party.
10.7 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
10.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
10.9 Survival. The agreements, covenants and provisions contained in this
Agreement shall survive until the second anniversary of the Closing Date and the
representations and warranties contained herein shall survive until the first
anniversary of the Closing Date.
10.10 Execution. This Agreement may be executed in two or more
counterparts. All of the signature pages of this Agreement when taken together
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that all parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
10.11 Publicity. The Company and each Exchange Holder shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party hereto shall
issue any such press release or otherwise make any such public statement without
the prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which case the disclosing party shall
provide the other parties with prior notice of such public statement. The
Company shall not publicly or otherwise disclose the name of either of the
Exchange Holders without such Exchange Holder's prior written consent unless
otherwise required by law, in which case the Company shall inform such Exchange
Holder of such disclosure in writing prior to making such disclosure.
10.12 Consent to Jurisdiction; Attorneys' Fees.
(a) The Company (including, but not limited to, its Affiliates,
subsidiaries, officers, directors and controlling persons) and each
Exchange Holder hereby (i) irrevocably submits to the exclusive
jurisdiction of any New York State court or Federal court sitting in the
Borough of Manhattan, The City of New York in any action related to,
connected with or arising out of, in whole or in part, the Transaction
Documents, (ii) agrees that all claims in such action shall be decided in
such court, (iii) waives, to the fullest extent it may effectively do so,
the defense of inconvenient forum and (iv) consents to the service of
process by certified mail, return receipt requested. Nothing herein shall
affect the right of any party to serve legal process in any manner
permitted by law or affect its right to bring any action in any other
court.
(b) In connection with any dispute between the Company and any
Exchange Holder, related to, connected with or arising out of, in whole or
in part, the Transaction Documents, the prevailing party shall be awarded
all reasonable attorneys' fees and expenses incurred by it. In that
connection fees and expenses actually paid by a party in connection with
the litigation of any dispute shall be deemed presumably reasonable.
(c) In the event that any Exchange Holder becomes involved in any
capacity in any action, proceeding or investigation brought by or against
any Person, including shareholders of the Company, in connection with or
as a result of any matter referred to in the Transaction Documents, the
Company will reimburse such Exchange Holder for its legal fees and
expenses and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as those fees and expenses
are incurred; provided, however, that if at the conclusion of such action,
proceeding or investigation it shall be finally judicially determined by a
court of competent jurisdiction that indemnity for such fees and expenses
is contrary to law, or that such Exchange Holder is not the prevailing
party, then in that event, such Exchange Holder and/or any other Person
having received such advances of fees and expenses shall reimburse the
Company in full for the sums advanced.
(d) The provisions of this Section 5.12 shall survive any
termination or completion of the Transaction Documents.
10.13 Waiver of Jury Trial.
(a) The parties hereto each waive their respective rights to a trial
by jury of any claim or cause of action based upon or arising out of or
related to the Transaction Documents, or the transactions contemplated by
the Transaction Documents, in any action, proceeding or other litigation
of any type brought by either of the parties against the other, whether
with respect to contract claims, tort claims, or otherwise. The parties
hereto each agree that any such claim or cause of action shall be tried by
a court trial without a jury. Without limiting the foregoing, the parties
further agree that their respective right to a trial by jury is waived by
operation of this Section 5.13 as to any action, counterclaim or other
proceeding which seeks, in whole or in part, to challenge the validity or
enforceability of any of the Transaction Documents or any provision hereof
or thereof. The waiver shall apply to any subsequent amendments, renewals,
supplements or modifications to any of the Transaction Documents.
(b) The provisions of this Section 5.13 shall survive any
termination or completion of the Transaction Documents.
10.14 Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
10.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Exchange
Holders will be entitled to specific performance of the obligations of the
Company under the Transaction Documents and injunctive relief. Each of the
parties hereto (severally and not jointly) agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of any breach of
its obligations described in the foregoing sentence and hereby agrees to waive
in any action for specific performance of any such obligation or injunctive
relief the defense that a remedy at law would be adequate.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Exchange Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
NCT GROUP, INC.
By: /s/ CY E. HAMMOND
-----------------
Name: Cy E. Hammond
Title: Senior Vice President,
Chief Financial Officer
AUSTOST ANSTALT SCHAAN
By: /s/ THOMAS HACKL
----------------
Name: Thomas Hackl
Title: Representative
BALMORE FUNDS S.A.
By: /s/ FRANCOIS MORAX
------------------
Name: Francois Morax
Title: Director
<PAGE>
EXHIBIT A
Registration Rights Agreement
See Exhibit 10(d) in this Item 7.
Exhibit 10(d)
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of October 9, 1999, among NCT Group, Inc., a Delaware corporation (the
"Company"), Austost Anstalt Schaan ("Austost") and Balmore Funds S.A.
("Balmore"). Austost and Balmore are collectively referred to herein as the
"Exchange Holders."
WHEREAS, this Agreement is being entered into pursuant to that certain
Securities Exchange Agreement dated as of the date hereof (the "Exchange
Agreement") by and between the Company and the Exchange Holders.
The parties hereto hereby agree as follows:
1. Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Investor Shares" shall have the meaning assigned to it
in Section 3.11 of the Exchange Agreement.
"Additional Registration Statements" shall have the meaning set
forth in Section 2 hereof.
"Advice" shall have meaning set forth in Section 3(l) hereof.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Board" shall have meaning set forth in Section 3(m) hereof.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning assigned to it in Section
1.2(i) of the Exchange Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $.01 per
share.
"Effectiveness Date" means with respect to the Registration
Statement the 90th day following the Closing Date.
"Effectiveness Period" means, (i) with respect to any Registration
Statement, the period ending on the earlier of (x) the date when all Registrable
Securities covered by such Registration Statement have been sold or (y) the date
on which the Registrable Securities may be sold without any restriction pursuant
to Rule 144 as determined by the counsel to the Company pursuant to a written
opinion letter, addressed to the Company's transfer agent to such effect, and
(ii) with respect to any Additional Registration Statement, the period ending on
the earlier of (x) the date when all Additional Investor Shares covered by such
Additional Registration Statement have been sold or (y) the date on which the
Additional Investor Shares may be sold without any restriction pursuant to Rule
144 as determined by the counsel to the Company pursuant to a written opinion
letter, addressed to the Company's transfer agent to such effect.
"Event" shall have the meaning set forth in Section 7(c) hereof.
"Event Date" shall have the meaning set forth in Section 7(c)
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 20th Business Day following the Closing
Date.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities or Additional Investor Shares.
"Indemnified Party" shall have the meaning set forth in Section 5(c)
hereof.
"Indemnifying Party" shall have the meaning set forth in Section
5(c) hereof.
"Investor Shares" shall have the meaning assigned to it in the
second "Whereas" clause of the Exchange Agreement.
"Losses" shall have the meaning set forth in Section 5(a) hereof.
"NCTI Registration Statement" means the Company's Registration
Statement on Form S-1 (Registration No. 333-87757) originally filed with the
Commission on September 24, 1999.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities and Additional Investment Shares, if any, covered by the Registration
Statement, and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference in such
Prospectus.
"Registrable Securities" means the Investor Shares.
"Registration Statement" means the NCTI Registration Statement and
any Additional Registration Statements, including (in each case) the related
Prospectus, amendments and supplements to any registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in any such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders, for
which the Holders will be reimbursed by the Company pursuant to Section 4
hereof.
2. NCTI Registration Statement; Additional Registration Statements.
On or prior to the Filing Date, the Company shall prepare and file
with the Commission a pre-effective amendment to the NCTI Registration Statement
covering all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Company shall use its best efforts to cause the
NCTI Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
Effectiveness Date, and to keep such NCTI Registration Statement continuously
effective under the Securities Act for the applicable Effectiveness Period. If
one or more additional registration statements (the "Additional Registration
Statements") are required to be filed because the Company shall have been
required to issue Additional Investor Shares pursuant to Section 3.11 of the
Exchange Agreement, the Company shall have twenty (20) Business Days to file
such Additional Registration Statement or Additional Registration Statements,
and the Company shall use its best efforts to cause such Additional Registration
Statement or Additional Registration Statements to be declared effective by the
Commission as soon as possible, but in no event later than 90 days after filing,
and to keep such Additional Registration Statements continuously effective under
the Securities Act for the applicable Effectiveness Period.
2. Registration Procedures.
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to any Registration Statement as may be
necessary to keep such Registration Statement continuously effective as to the
applicable Registrable Securities and Additional Investor Shares, if any, for
the applicable Effectiveness Period and prepare and file with the Commission
such Registration Statements in order to register for resale under the
Securities Act all of the Additional Investor Shares that may be issued; (ii)
cause any Prospectus related to such Registration Statement to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond as promptly as
possible to any comments received from the Commission with respect to any
Registration Statement or any amendment thereto; and (iv) comply in all material
respects with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all Registrable Securities and Additional Investor
Shares, if any, covered by any Registration Statement during the applicable
period in accordance with the intended methods of disposition by the Holders
thereof set forth in the related Registration Statement as so amended or in such
Prospectus as so supplemented.
(b) Notify the Holders of Registrable Securities and Additional
Investor Shares, if any, to be sold and any Special Counsel as promptly as
possible (i) of the issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the Registrable
Securities and Additional Investor Shares, if any, or the initiation of any
Proceedings for that purpose; (ii) 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 or Additional Investor
Shares, if any, for sale in any jurisdiction; and (iii) of the occurrence of any
event that makes any statement made in a Registration Statement or a Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or such Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(c) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of, (i) any order suspending the effectiveness of any
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities and Additional Investor
Shares, if any, for sale in any jurisdiction, at the earliest practicable
moment.
(d) If requested by the Holders of a majority in interest of the
Registrable Securities, and Additional Investor Shares, if any, taken together,
(i) promptly incorporate in a Prospectus supplement or post-effective amendment
to a Registration Statement such information as the Company reasonably agrees
should be included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment.
(e) Furnish to each Holder and any Special Counsel, without charge,
at least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference to the extent
requested by such Person, and all exhibits to the extent requested by such
Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(f) Promptly deliver to each Holder and any Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
and Additional Investor Shares, if any, covered by such Prospectus and any
amendment or supplement thereto.
(g) Prior to any public offering of Registrable Securities and
Additional Investor Shares, if any, use its best efforts to register or qualify
or cooperate with the selling Holders and any Special Counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities and Additional Investor Shares, if
any, for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the applicable Effectiveness Period and to do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities and Additional Investor Shares, if any, covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(h) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities and Additional
Investor Shares, if any, to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities and Additional Investor Shares, if any, to be in such
denominations and registered in such names as any Holder may request at least
three (3) Business Days after any sale of Registrable Securities and Additional
Investor Shares, if any.
(i) Upon the occurrence of any event contemplated by Section
3(b)(iii), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to a Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither such Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(j) Use its best efforts to cause all Registrable Securities and
Additional Investor Shares, if any, relating to a Registration Statement to be
quoted on the OTC Bulletin Board and any other securities exchange, quotation
system, market or over-the-counter bulletin board, if any, on which similar
securities issued by the Company are then listed as and when required pursuant
to the Exchange Agreement.
(k) Comply in all material respects 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) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the NCTI Registration Statement, which
statements shall conform to the requirements of Rule 158.
(l) The Company may require each selling Holder to furnish to the
Company information regarding such Holder and the distribution of such
Registrable Securities and Additional Investor Shares, if any, as is required by
law to be disclosed in a Registration Statement, and the Company may exclude
from such registration the Registrable Securities and Additional Investor
Shares, if any, of any such Holder who unreasonably fails to furnish such
information within seven (7) Business Days after receiving such request.
If a Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to such Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities or Additional Investor Shares, if any, under a
Registration Statement until it has obtained copies of the related Prospectus as
then amended or supplemented as contemplated in Section 3(f) and (ii) it and its
officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in connection
with sales of Registrable Securities or Additional Investor Shares, if any,
pursuant to such Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities and Additional Investor Shares, if any, that, upon receipt of a
notice from the Company of the occurrence of any event of the kind described in
Section 3(b)(i), 3(b)(ii) or 3(b)(iii), such Holder will forthwith discontinue
disposition of such Registrable Securities and Additional Investor Shares, if
any, under the Registration Statement until such Holder's receipt of the copies
of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(i), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(m) If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(m) for more than 45 days in the aggregate during
any 12 month period; provided, however, that no such postponement or suspension
shall be permitted for consecutive 20 day periods, arising out of the same set
of facts, circumstances or transactions.
3. Registration Expenses.
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company (provided that
the aggregate amount of fees and disbursements of a Special Counsel payable by
the Company hereunder shall be limited to a maximum amount of $10,000) whether
or not the Registration Statement is filed or becomes effective and whether or
not any Registrable Securities or Additional Investor Shares, if any, are sold
pursuant to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with the OTC Bulletin Board and each securities
exchange or market, if any, on which Registrable Securities and Additional
Investor Shares, if any, are required hereunder to be quoted or listed, (B) with
respect to filings required to be made with the National Association of
Securities Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance
with state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky
qualifications of the Registrable Securities and Additional Investor Shares, if
any, and determination of the eligibility of the Registrable Securities and
Additional Investor Shares, if any, for investment under the laws of such
jurisdictions as the Holders of a majority of Registrable Securities and
Additional Investor Shares, if any, taken together may designate)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and Additional Investor Shares, if any,
and of printing prospectuses (which may be camera-ready copies of such
prospectuses)), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders, in
the case of the Special Counsel, to a maximum amount of $10,000, (v) Securities
Act liability insurance, if the Company so desires such insurance, and (vi) fees
and expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the Company's independent public accountants (including the
expenses of any comfort letters or costs associated with the delivery by
independent public accountants of a comfort letter or comfort letters). In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities and Additional Investor Shares, if any, on any
securities exchange as required hereunder.
4. Indemnification.
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities or Additional Investor Shares, if any, as
principal as a result of a pledge or any failure to perform under a margin call
of Common Stock), investment advisors and employees of each of them, each Person
who controls any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, or arising out of or relating to any violation by the
Company or its agents of the Securities Act or any rule or regulation
promulgated under the Securities Act applicable to the Company or its agents and
relating to action or inaction required of the Company in connection with a
registration of Registrable Securities or Additional Investor Shares, if any,
pursuant to this Agreement, except to the extent, but only to the extent, that
such untrue statements or omissions are based solely upon information regarding
such Holder furnished in writing to the Company by such Holder expressly for use
therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities or Additional
Investor Shares, if any, and was reviewed and expressly approved in writing by
such Holder expressly for use in the Registration Statement, such Prospectus or
such form of Prospectus or in any amendment or supplement thereto. The Company
shall notify the Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, such Prospectus, or any
form of Prospectus, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of Prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and Additional Investor Shares, if any, and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying Party
or Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
5. Rule 144.
As long as any Holder owns Registrable Securities or Additional
Investor Shares, if any, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
Section 13(a) or 15(d) of the Exchange Act and to promptly furnish the Holders
with true and complete copies of all such filings or notify the Holders that
such filings are publicly available. As long as any Holder owns Registrable
Securities or Additional Investor Shares, if any, if the Company is not required
to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to the Holders and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby, in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Person to sell Registrable Securities or
Additional Investor Shares, if any, without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144 promulgated
under the Securities Act.
6. Miscellaneous.
(a) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof entered into any agreement currently in
effect, nor shall the Company or any of its subsidiaries, 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 Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in Schedule
2.1(q) to the Exchange Agreement, neither the Company nor any of its
subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities and Additional Investor Shares, if any, taken together, 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 Holders set forth
herein, and are not otherwise in conflict with the provisions of this Agreement.
(b) Piggy-Back Registrations. If at any time when there is not an
effective Registration Statement covering all the Registrable Securities, or, if
required to be issued, the Additional Investor Shares, the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Holder of Registrable Securities or, if issued, Additional Investor
Shares, written notice of such determination and, if within thirty (30) days
after receipt of such notice, any such Holder shall so request in writing,
(which request shall specify the Registrable Securities or, if issued,
Additional Investor Shares, intended to be disposed of by the Holders), the
Company will cause the registration under the Securities Act of all Registrable
Securities or, if issued, Additional Investor Shares, which the Company has been
so requested to register by the Holder, to the extent requisite to permit the
disposition of the Registrable Securities or, if issued, Additional Investor
Shares, so to be registered, provided that if at any time after giving written
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give written
notice of such determination to such Holder and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities or, if issued, Additional Investor Shares, in
connection with such registration (but not from its obligation to pay expenses
in accordance with Section 4 hereof), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities or, if issued, Additional Investor Shares, being registered pursuant
to this Section 7(b) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities or, if issued, Additional Investor Shares,
such Holder requests to be registered; provided, however, that the Company shall
not be required to register any Registrable Securities or, if issued, Additional
Investor Shares, pursuant to this Section 7(b) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities or, if issued,
Additional Investor Shares, in such registration statement, then if the Company
after consultation with the managing underwriter should reasonably determine
that the inclusion of such Registrable Securities or, if issued, Additional
Investor Shares, would materially adversely affect the offering contemplated in
such registration statement, and based on such determination recommends
inclusion in such registration statement of fewer or none of the Registrable
Securities or, if issued, Additional Investor Shares, of the Holders, then (x)
the number of Registrable Securities or, if issued, Additional Investor Shares,
of the Holders included in such registration statement shall be reduced pro-rata
among such Holders (based upon the number of Registrable Securities and, if
issued, Additional Investor Shares, requested to be included in the
registration), if the Company after consultation with the underwriter(s)
recommends the inclusion of fewer Registrable Securities and, if issued,
Additional Investor Shares, or (y) none of the Registrable Securities and, if
issued, Additional Investor Shares of the Holders shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities
and, if issued, Additional Investor Shares; provided, however, that if Common
Stock is being offered for the account of other persons or entities as well as
the Company, such reduction shall not represent a greater fraction of the number
of Registrable Securities and, if issued, Additional Investor Shares intended to
be offered by the Holders than the fraction of similar reductions imposed on
such other persons or entities (other than the Company).
(c) Failure to File Registration Statement and Other Events. The
Company and the Holders agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the times set forth in
Section 2 and maintained in the manner contemplated herein during the applicable
Effectiveness Period or if certain other events occur. The Company and the
Holders further agree that it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, if (A) the NCTI Registration Statement
is not filed on or prior to the Filing Date, or is not declared effective by the
Commission on or prior to the time periods set forth in Section 2 (or in the
event an Additional Registration Statement, filed because the Company shall have
been required to issue Additional Investor Shares pursuant to Section 3.11 of
the Exchange Agreement, is not filed and declared effective within the time
periods set forth in Section 2), or (B) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act within five (5) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or not subject
to further review, or (C) the Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities and Additional Investor Shares, if any, at any time prior
to the expiration of the applicable Effectiveness Period, without being
succeeded immediately by a subsequent Registration Statement filed with and
declared effective by the Commission, or (D) trading in the Common Stock shall
be suspended or if the Common Stock is delisted from the OTC Bulletin Board or
the market or exchange on which the Common Stock is then quoted or listed for
any reason for more than three (3) Business Days in the aggregate, or (E) the
Company breaches in a material respect any covenant or other material term or
condition to this Agreement, the Exchange Agreement (other than a representation
or warranty contained therein) or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
hereby and thereby, and such breach continues for a period of thirty (30) days
after written notice thereof to the Company, or (F) the Company has breached
Section 3(m) (any such failure or breach being referred to as an "Event", and
for purposes of clauses (A) and (F) the date on which such Event occurs, or for
purposes of clause (B) the date on which such five day period is exceeded, or
for purposes of clause (C) after more than fifteen (15) Business Days, or for
purposes of clause (D) the date on which such three Business Day period is
exceeded, or for clause (E) the date on which such thirty day period is
exceeded, being referred to as "Event Date"), the Company shall pay in cash as
liquidated damages to each Holder an amount equal to 1.5% per calendar month or
portion thereof of the market value of the outstanding Registrable Securities
and Additional Investor Shares, if any, held by such Holder that have not been
sold from the Event Date until the applicable Event is cured. Payments to be
made pursuant to this Section 7(c) shall be due and payable immediately upon
demand in immediately available funds.
(d) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities and Additional Investor Shares, if any, in accordance
with the terms of this Agreement, shall be automatically assignable by each
Holder to any Affiliate of such Holder or any other Holder or Affiliate of any
other Holder of all or a portion of the Registrable Securities or Additional
Investor Shares, if any, if: (i) the Holder agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned, (iii) following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, (iv)
at or before the time the Company receives the written notice contemplated by
clause (ii) of this Section, the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions of this Agreement, and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Exchange Agreement. In addition, each Holder shall have the right to assign
its rights hereunder to any other Person with the prior written consent of the
Company, which consent shall not be unreasonably withheld. The rights to
assignment shall apply to the Holders' successors and assigns.
(e) Trading of Common Stock. The Company will take all action
within its power to continue the trading of its Common Stock on the OTC Bulletin
Board (or the New York Stock Exchange, the American Stock Exchange, the Nasdaq
National Market or The Nasdaq Small Cap Market) and will comply in all respects
with the Company's reporting, filing and other obligations under the by-laws or
rules of the NASD and the OTC Bulletin Board (or the New York Stock Exchange,
the American Stock Exchange, the Nasdaq National Market or The Nasdaq Small Cap
Market).
(f) Shares Held by the Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities and Additional Investor Shares, if any, taken together is required
hereunder, Registrable Securities and Additional Investor Shares, if any, held
by the Company or its Affiliates (other than any Holder or transferees or
successors or assigns thereof if such Holder is deemed to be an Affiliate solely
by reason of its holdings of such Registrable Securities and Additional Investor
Shares, if any,) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(g) Fees and Expenses. The Company shall pay the fees and expenses
of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by it incident to the negotiation, preparation, execution,
delivery and performance of this Agreement and the Exchange Agreement. Subject
to Section 4 hereof, the Company shall have no obligation to pay any fees or
expenses of any Holder or any other Person (including, without limitation, fees
or disbursements of its counsel) incident to the negotiation, preparation,
execution, delivery and performance of this Agreement or the Exchange Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of its securities pursuant to this Agreement.
(h) Entire Agreement; Amendments. This Agreement and the Exchange
Agreement, together with the exhibits and schedules hereto and thereto, contain
the entire understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters.
(i) Notices. Any and all notices other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each party at its address set forth under its name on Schedule
5.3 to the Exchange Agreement or to such other address or addresses or facsimile
number or numbers as any such party may most recently have designated in writing
to the other parties hereto by such notice.
(j) Amendments; Waivers. No provision of this Agreement may be
amended except in a written instrument signed by each of the parties hereto and
no provision of this Agreement may be waived except in a written instrument
signed by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof or thereof, nor
shall any delay or omission of any party to exercise any right hereunder or
thereunder in any manner impair the exercise of any such right accruing to it
thereafter.
(k) Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement, as the case may be, and shall not be deemed
to limit or affect any of the provisions hereof.
(l) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns and shall inure to the benefit of each Holder and its successors and
assigns. The Company may not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of each Holder. Each
Exchange Holder may assign its rights hereunder in the manner and to the Persons
as permitted under the Exchange Agreement.
(m) No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(n) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
(o) Survival. The agreements, covenants and provisions contained in
this Agreement shall survive until the second anniversary of the Closing Date
and the representations and warranties contained herein shall survive until the
first anniversary of the Closing Date.
(p) Execution. This Agreement may be executed in two or more
counterparts. All of the signature pages of this Agreement when taken together
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that all parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
(q) Publicity. The parties hereto shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and neither of the parties shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other party, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other parties with prior notice of such public statement. The
Company shall not publicly or otherwise disclose the name of any Holder without
its prior written consent unless otherwise required by law, in which case the
Company shall inform such Holder of such disclosure in writing prior to making
such disclosure.
(r) Consent to Jurisdiction; Attorneys' Fees.
(i) The Company (including, but not limited to, its
Affiliates, subsidiaries, officers, directors and controlling persons) hereby
(A) irrevocably submits to the exclusive jurisdiction of any New York State
court or Federal court sitting in the Borough of Manhattan, The City of New York
in any action related to, connected with or arising out of, in whole or in part,
this Agreement (B) agrees that all claims in such action shall be decided in
such courts, (C) waives, to the fullest extent it may effectively do so, the
defense of inconvenient forum, and (D) consents to the service of process by
certified mail, return receipt requested. Nothing herein shall affect the right
of either party to serve legal process in any manner permitted by law or affects
its right to bring any action in any other court.
(ii) In connection with any dispute between the Company and a
Holder, related to, connected with or arising out of, in whole or in part, this
Agreement, the prevailing party shall be awarded all reasonable attorney's fees
and expenses incurred by it. In that connection fees and expenses actually paid
by a party in connection with the litigation of any dispute shall be deemed
presumably reasonable.
(iii) In the event that any Holder becomes involved in any
capacity in any action, proceeding or investigation brought by or against any
Person, including shareholders of the Company, in connection with or as a result
of any matter referred to in this Agreement, the Company will reimburse such
Holder for its legal fees and expenses and other expenses (including the cost of
any investigation and preparation) incurred in connection therewith, as those
fees and expenses are incurred; provided, however, that if at the conclusion of
such action, proceeding or investigation it shall be finally judicially
determined by a court of competent jurisdiction that indemnity for such fees and
expenses is contrary to law, or that such Holder is not the prevailing party,
then in that event, such party and/or any other Person having received such
advances of fees and expenses shall reimburse the Company in full for the sums
advanced.
(iv) The provisions of this Section 7(r) shall survive any
termination or completion of this Agreement.
(s) Waiver of Jury Trial.
(i) The parties hereto each waive their respective rights to a
trial by jury of any claim or cause of action based upon or arising out of or
related to this Agreement, or the transactions contemplated by this Agreement,
in any action, proceeding or other litigation of any type brought by either of
the parties against any one another, whether with respect to contract claims,
tort claims, or otherwise. The parties hereto each agree that any such claim or
cause of action shall be tried by a court trial without a jury. Without limiting
the foregoing, the parties further agree that their respective right to a trial
by jury is waived by operation of this Section 7(s) as to any action,
counterclaim or other proceeding which seeks, in whole or in part, to challenge
the validity or enforceability of this Agreement or any provision hereof. The
waiver shall apply to any subsequent amendments, renewals, supplements or
modifications to this Agreement.
(ii) The provisions of this Section 7(s) shall survive any
termination or completion of this Agreement.
(t) Severability. If any term, provision, covenant or restriction
of this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(u) Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Holders
will be entitled to specific performance of the obligations of the Company under
this Agreement and injunctive relief. Each of the parties hereto (severally and
not jointly) agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of any breach of its obligations described in the
foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation or injunctive relief the defense that a
remedy at law would be adequate.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
NCT GROUP, INC.
By: /s/ CY E. HAMMOND
-----------------
Name: Cy E. Hammond
Title: Senior Vice President,
Chief Financial Officer
AUSTOST ANSTALT SCHAAN
By: /s/ THOMAS HACKL
----------------
Name: Thomas Hackl
Title: Representative
BALMORE FUNDS S.A.
By: /s/ FRANCOIS MORAX
------------------
Name: Francois Morax
Title: Director
