Exhibit 10(u)
SUBSCRIPTION AGREEMENT
Dated as of April 22, 2003
Dear Subscriber:
The subscriber identified on the signature page hereto ("Subscriber")
hereby agrees to purchase, and NCT Group, Inc., a Delaware corporation (the
"Company") hereby agrees to issue and to sell to the Subscriber, 8% Convertible
Notes ("Note") convertible in accordance with the terms thereof into shares of
$.01 par value common stock of the Company (the "Common Stock") for the
consideration as set forth on the signature page hereof ("Purchase Price"). The
form of Note is annexed hereto as Exhibit A. (The Common Stock included in the
Securities (as hereinafter defined) is sometimes referred to herein as the
"Shares", "Common Shares" or "Common Stock".) (The Notes and the Shares are
collectively referred to herein as, the "Securities".) Upon acceptance of this
Agreement by the Subscriber, the Company shall issue and deliver the Note
against payment, by federal funds wire transfer of the Purchase Price.
Now, therefore, for good and valuable consideration, receipt of which is
acknowledged, and the mutual promises herein described, it is agreed:
1. Subscriber's Representations and Warranties. The Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) Investment Purpose. The Subscriber is acquiring the Notes, and
upon conversion of the Notes, will acquire the Shares then issuable, for
its own account for investment purposes only and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the Securities Act of
1933, as amended (the "1933 Act"); provided, however, that by making the
representations herein, the Subscriber does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to an
effective registration statement under the 1933 Act and in compliance with
applicable state securities laws or an exemption from such registration.
(b) Information on Company. The Subscriber, and its advisors, if any,
have been furnished with written information relating to the business of
the Company and such other information concerning their operations,
financial condition and other matters as the Subscriber has requested. The
Subscriber and its advisors, if any, have been afforded the opportunity to
ask questions of the Company. Neither such inquiries nor any other due
diligence investigations conducted by the Subscriber or its advisors, if
any, or their representatives shall modify, amend or affect the
Subscriber's right to rely on the Company's representations and warranties
contained in Section 2 below. The Subscriber understands that its
investment in the Notes and the Shares involves a high degree of risk. The
Subscriber has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect
to its acquisition of
the Notes and the Shares. The Subscriber has considered all factors the
Subscriber deems material in deciding on the advisability of investing in
the Securities (such information in writing is collectively, the "Other
Written Information").
(c) Information on Subscriber; Accredited Investor Status. The
Subscriber is an "accredited investor", as such term is defined in
Regulation D promulgated by the Securities and Exchange Commission (the
"Commission") under the 1933 Act, is experienced in investments and
business matters, has made investments of a speculative nature and has
purchased securities of United States publicly-owned companies in private
placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable
the Subscriber to utilize the information made available by the Company to
evaluate the merits and risks of and to make an informed investment
decision with respect to the proposed purchase, which represents a
speculative investment. The Subscriber has the authority and is duly and
legally qualified to purchase and own the Securities. The Subscriber is
able to bear the risk of such investment for an indefinite period and to
afford a complete loss thereof.
(d) Compliance with 1933 Act. The Subscriber understands and agrees
that the Securities are being offered and sold to it in a private placement
in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and the Subscriber's
compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Subscriber set forth herein in
order to determine the availability of such exemptions and the eligibility
of such Subscriber to acquire such securities.
(e) No Governmental Review. The Subscriber understands that no United
States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities, or the fairness or suitability of the investment in the
Securities, nor have such authorities passed upon or endorsed the merits of
the offering of the Securities.
(f) No Broker Commissions or Finder Fees. To the best of its
knowledge, the Subscriber has taken no action which would give rise to any
claim by any person for brokerage commissions, finders' fees or the like
relating to this Agreement or the transactions contemplated hereby except
as described in Section 7 hereof.
(g) Buyer Liquidity. The Subscriber has adequate means of providing
for its current needs and foreseeable financial contingencies.
(h) Transfer or Resale of Securities. The Subscriber understands that
except as provided herein (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned, transferred or otherwise disposed
of by the Subscriber unless (a) subsequently registered under the 1933 Act
and state securities laws, if applicable, (b) the Subscriber shall have
delivered to the Company an opinion of counsel, in form and substance
reasonably satisfactory to the Company in connection with the Notes, to the
effect that such Securities to be sold, assigned, transferred or otherwise
disposed of may
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be sold, assigned, transferred or otherwise disposed of
pursuant to an exemption from such registration, or (c) the Subscriber
provides the Company in connection with the Shares with written customary
assurance that such Securities can be sold, assigned, transferred or
otherwise disposed of pursuant to Rule 144 promulgated under the 1933 Act
(or a successor rule thereto) ("Rule 144"); and (ii) any sale of such
securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any
resale of such securities under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the ▇▇▇▇ ▇▇▇) may require compliance with some
other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder.
(i) Company Shares Legend. The Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO NCT GROUP, INC., THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT. "
(j) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO NCT GROUP, INC., THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."
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(k) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber. At no time was the Subscriber
presented with or solicited by any leaflet, newspaper or magazine article,
radio or television advertisement, or any other form of general advertising
or solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.
(l) Powers; Authorization; Enforceability. The Subscriber has all
corporate or company power and authority to enter into and perform this
Agreement. This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Subscriber and is a valid and binding
agreement of the Subscriber enforceable in accordance with its terms,
except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally the enforcement
of, applicable creditors' rights and remedies.
(m) Conflicts. To the best knowledge of Subscriber, the execution,
delivery and performance of this Agreement by the Subscriber and the
consummation by the Subscriber of the transactions contemplated hereby will
not (i) conflict with or violate its organizational charters or by-laws, or
(ii) 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 to which the Subscriber is a party.
(n) Correctness of Representations. The Subscriber represents that the
foregoing representations and warranties are true and correct as of the
date hereof and, unless the Subscriber otherwise notifies the Company prior
to the Closing Date (as hereinafter defined), shall be true and correct as
of the Closing Date. The foregoing representations and warranties shall
survive the Closing Date.
2. Company Representations and Warranties. The Company represents and
warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify
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would not have a material adverse effect on the business, operations or
financial condition of the Company.
(b) Outstanding Stock. All issued and outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are
fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights generally and to general principles of equity; and the Company has
full corporate power and authority necessary to enter into this Agreement
and to perform its obligations hereunder and all other agreements entered
into by the Company relating hereto. To the best knowledge of the officers
and directors of the Company, there are no circumstances known to them that
would impair the Company's ability to perform its obligations described in
this Agreement or in the other agreements delivered in connection with this
Agreement, including but not limited to the Company's compliance with the
registration requirements set forth in Section 10 of this Agreement.
(d) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates, the National Association of
Securities Dealers, Inc. ("NASD"), National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") or the Company's
shareholders is required for execution of this Agreement, and all other
agreements entered into by the Company relating thereto, including, without
limitation issuance and sale of the Securities, and the performance of the
Company's obligations hereunder.
(e) No Violation or Conflict. Assuming the representations and
warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance by the Company of
its obligations under this Agreement and all other agreements entered into
by the Company relating hereto will:
(i) violate, conflict with, result in a breach of, or constitute
a default (or an event which with the giving of notice or the lapse of
time or both would be reasonably likely to constitute a default) under
(A) the certificate of incorporation, charter or bylaws of the
Company, (B) to the Company's knowledge, any decree, judgment, order,
law, treaty, rule, regulation or determination applicable to the
Company of any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or any of its affiliates or over
the properties or assets of the Company or any of its affiliates, (C)
the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which
the Company or any of its affiliates is a party, by which the Company
or any of its affiliates is bound, or to which any of the properties
of the Company or any of its affiliates is subject, or (D) the terms
of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its affiliates is a party
except the violation, conflict, breach, or default of which would not
have a material adverse effect on the Company; or
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(ii) result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company,
or any of its affiliates.
(f) The Note. The Note, upon issuance:
(i) is, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and State laws;
(ii) has been, or will be, duly and validly authorized and
issued;
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of
the Company; and
(iv) will not subject the holders thereof to personal liability
by reason of being such holders.
(g) Litigation. Except as disclosed in the Reports (as defined in
Paragraph 2(t) hereof), the Other Filings (as defined in Paragraph 2(n)
hereof) or the Other Written Information, there is no pending or, to the
best knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates or
subsidiaries that would affect the execution by the Company or the
performance by the Company of its obligations under this Agreement, and all
other agreements entered into by the Company relating hereto. Except as
disclosed in the Reports or Other Written Information, there is no pending
or, to the best knowledge of the Company, threatened action, suit,
proceeding or investigation before any court, governmental agency or body,
or arbitrator having jurisdiction over the Company, or any of its
affiliates or subsidiaries, which litigation, if adversely determined could
have a material adverse effect on the Company.
(h) Information Concerning Company. The Reports contain all material
information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements included in
the Reports, and except as modified in the Other Written Information, or in
a Schedule hereto, there has been no material adverse change in the
Company's business, financial condition or affairs not disclosed in the
Reports. The Reports and Other Written Information do not contain any
untrue statement of a material fact or omit to state a material fact in
light of the circumstances when made required to be stated therein or
necessary to make the statements therein not misleading.
(i) Defaults. Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or ByLaws. Except as
disclosed in the Reports, the Other Filings or the Other Written
Information, neither the Company nor any of its subsidiaries is (i) in
default under or in violation of any other material agreement or instrument
to which it is a party or by which it or any of its properties are bound or
affected, which default or violation would have a material adverse effect
on the Company, (ii) in default with respect to any order of any court,
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arbitrator or governmental body or subject to or party to any order of any
court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to its
knowledge in violation of any statute, rule or regulation of any
governmental authority which violation would have a material adverse effect
on the Company.
(j) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers
to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement to be integrated with prior
offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the
rules and regulations of NASD OTC Bulletin Board (the "Bulletin Board") nor
will the Company or any of its affiliates or subsidiaries take any action
or steps that would cause the offering of the Securities to be integrated
with other offerings. The Company has not conducted and will not conduct
any offering other than the transactions contemplated hereby that will be
integrated with the offer and issuance of the Securities.
(k) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the ▇▇▇▇ ▇▇▇) in connection with
the offer or sale of the Securities.
(l) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports, the Other Filings or the Other Written
Information, other than those incurred in the ordinary course of the
Company's businesses since April 18, 2003 and which, individually or in the
aggregate, would not reasonably be expected to have a material adverse
effect on the Company's financial condition.
(m)No Undisclosed Events or Circumstances. Since April 18, 2003, no
event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been
so publicly announced or disclosed in the Reports or the Other Filings.
(n) Additional Issuances. Except as described in the Reports, in the
other publicly available filings made by the Company with the Commission
(the "Other Filings"), in the Other Written Information or as set forth on
Schedule 2(n), there are no outstanding agreements or preemptive or similar
rights affecting the Company's common stock or equity and no outstanding
rights, warrants or options to acquire, or instruments convertible into or
exchangeable for, or agreements or understandings with respect to the sale
or issuance of any shares of common stock or equity of the Company.
(o) The Company Shares. The Shares upon issuance:
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(i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly authorized and on
the date of issuance and on the Closing Date, as hereinafter defined,
and the date the Note is converted, the Shares will be duly and
validly issued, fully paid and nonassessable (and if registered
pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted, provided
that the Subscriber complies with the Prospectus delivery
requirements);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of
the Company; and
(iv) will not subject the holders thereof to personal liability
by reason of being such holders.
(p) No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation
of the price of the common stock of the Company to facilitate the sale or
resale of the Securities or affect the price at which the Securities may be
issued.
(q) Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of the Securities, except as
may be required by federal securities laws.
(r) Listing. The Company's common stock is quoted, and listed for
trading, on the Bulletin Board. As of the date of this Agreement and the
Closing Date, the Bulletin Board is the Principal Market as defined in
Section 7.1(b) of this Agreement. Except as disclosed in the Other Written
Information, the Company has not received any oral or written notice that
its Common Stock will be delisted from the Bulletin Board or that the
Common Stock does not meet all requirements for the continuation of such
listing.
(s) Capitalization. The authorized and outstanding capital stock of
the Company as of the date of this Agreement and the Closing Date are set
forth on Schedule 2(s) hereto. Except as set forth in the Reports and Other
Written Information and Schedule 2(s), there are no options, warrants, or
rights to subscribe to, securities, rights or obligations convertible into
or exchangeable for or giving any right to subscribe for any shares of
capital stock of the Company. All of the outstanding shares of capital
stock of the Company have been duly and validly authorized and issued and
are fully paid and nonassessable.
(t) Reporting Company. The Company is a publicly-held company subject
to reporting obligations pursuant to Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and has a
class of common shares registered pursuant to Section 12(g) of the 1934
Act. The Company's common stock is trading on the Bulletin Board. Pursuant
to the provisions of the 1934 Act, the Company has filed all reports and
other materials required to be
8
filed thereunder with the Commission during the twelve months preceding the
date of this Agreement ("Reports").
(u) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the
date hereof in all material respects, and will be true and correct as of
the Closing Date in all material respects. The foregoing representations
and warranties shall survive the Closing Date.
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3. Regulation D Offering. This Offering is being made pursuant to the
exemption from the registration provisions of the 1933 Act afforded by Rule 506
of Regulation D promulgated thereunder. On the Closing Date, the Company will
provide an opinion reasonably acceptable to Subscriber from the Company's legal
counsel opining, among others, on the availability of the Regulation D exemption
as it relates to the offer and issuance of the Securities. A form of the legal
opinion is annexed hereto as Exhibit B. The Company will provide, at the
Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and issuance of the Shares.
4. Reissuance of Securities. The Company agrees to reissue certificates
representing the Shares without the legend set forth in Section 1(i) above at
such time as (a) the holder thereof is permitted to and disposes of the Shares
pursuant to Rule 144(d) and/or Rule 144(k) under the 1933 Act in the opinion of
counsel reasonably satisfactory to the Company, or (b) upon resale subject to an
effective registration statement after the Shares are registered under the 1933
Act. The Company agrees to cooperate with the Subscriber in connection with all
resales of Shares pursuant to Rule 144(d) and Rule 144(k) and provide legal
opinions necessary to allow such resales provided the Company and its counsel
receive all reasonably requested written representations from the Subscriber and
selling broker, if any. Provided the Subscriber provides required certifications
and representation letters, if any, if the Company fails to remove any legend as
required by this Section 4 (a "Legend Removal Failure"), then beginning on the
tenth (10th) day following the date that the Subscriber has lawfully requested
the removal of the legend and delivered all items reasonably required by the
Company to be delivered by the Subscriber, the Company continues to fail to
remove such legend, the Company shall pay to Subscriber or assignee holding
shares subject to a Legend Removal Failure an amount equal to one percent (1%)
of the Purchase Price of the shares subject to a Legend Removal Failure per day
that such failure continues. If during any twelve (12) month period, the Company
fails to remove any legend as required by this Section 4 for an aggregate of
thirty (30) days, each Subscriber or assignee holding Shares subject to a Legend
Removal Failure may, at its option, require the Company to purchase all or any
portion of the Shares subject to a Legend Removal Failure held by such
Subscriber or assignee at a price per share equal to 130% of the applicable
Purchase Price.
5. Intentionally Omitted.
6. Fees.
(a) The Company shall pay to counsel to the Subscriber its fees of
$15,000 for services rendered to Subscriber in connection with this
Agreement for the Subscription amount of $235,000 of principal amount of
Notes (the "Initial Offering") and acting as escrow agent for the Initial
Offering. The Company will pay to Libra Finance, S.A. ("Finder") a cash
Finder's fee of $20,000 ("Finder's Fee"). The legal fees and Finder's Fee
will be payable out of funds held pursuant to a Funds Escrow Agreement to
be entered into by the Company, Subscriber and Escrow Agent.
(b) The Company on the one hand, and the Subscriber on the other hand,
agree to indemnify the other against and hold the other harmless from any
and all liabilities to any
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persons claiming brokerage commissions or finder's fees other than Libra
Finance, S.A. on account of services purported to have been rendered on
behalf of the indemnifying party in connection with this Agreement or the
transactions contemplated hereby and arising out of such party's actions.
The Company and Subscriber represent that there are no other parties
entitled to receive fees, commissions, or similar payments in connection
with the offering described in this Subscription Agreement.
7. Covenants of the Company. The Company covenants and agrees with the
Subscriber as follows: a) Stop Orders. The Company will advise the Subscriber,
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 any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) Listing. The Company shall promptly secure the listing of the
Shares upon each national securities exchange, or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject
to official notice of issuance) and shall maintain such listing so long as
any Notes are outstanding. The Company will maintain the listing of its
Common Stock on the NASDAQ SmallCap Market, NASDAQ National Market System,
New York Stock Exchange, Bulletin Board or American Stock Exchange
(whichever of the foregoing is at the time the principal trading exchange
or market for the Common Stock, the "Principal 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 such other exchanges or markets,
as applicable. The Company will provide the Subscriber copies of all
notices it receives notifying the Company of the threatened or actual
delisting of the Common Stock from any Principal Market provided the
provisions of such information to the Subscriber would not violate the
provisions of Regulation FD under the 1933 Act.
(c) Market Regulations. The Company shall notify the SEC, NASD, the
Principal Market and applicable state authorities, in accordance with their
requirements, if any, of the transactions contemplated by this Agreement,
and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Securities to the Subscriber and promptly
provide copies thereof to Subscriber.
(d) Reporting Requirements. From the Closing Date and until at least
two (2) years after the effectiveness of the registration statement on Form
S-1 or such other registration statement described in Section 10.1 hereof
and covering the Registrable Securities (as defined in Paragraph 10.1(a)
hereof), the Company will (i) cause its Common Stock to continue to be
registered under Sections 12(b) or 12(g) of the 1934 Act, (ii) comply in
all respects with its reporting and filing obligations under the 1934 Act,
(iii) comply with all reporting requirements that is applicable to an
issuer with a class of Shares registered pursuant to Section 12(g) of the
1934 Act, and (iv) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will use its best
efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Acts until the
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later of two (2) years after the actual effective date of the registration
statement on Form S-1 or such other registration statement described in
Section 10.1 hereof and covering the Registrable Securities.
(e) Reservation of Common Stock. Beginning as of such time as the
Company has authorized but unissued shares of Common Stock available
therefor (but in no event later than the earlier of (i) three months after
the Company's current S-1 registration statement under review by the
Commission with file number 333-60574 (the "Current Registration
Statement") becomes effective or is abandoned or (ii) April 10, 2004), the
Company undertakes to reserve, pro rata on behalf of each holder of a Note,
from its authorized but unissued Common Stock, at all times that Notes
remain outstanding, a number of Common Shares equal to not less than 130%
of the amount of Common Shares necessary to allow each such holder to be
able to convert all such outstanding Notes, at the then applicable
Conversion Price.
(f) Taxes. The Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments
and governmental charges or levies imposed upon the income, profits,
property or business of the Company; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor.
(g) Insurance. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company's line of business, in amounts
sufficient to prevent the Company from becoming a co-insurer and not in any
event less than 100% of the insurable value of the property insured; and
the Company will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and
property to the extent and in the manner customary for companies in similar
businesses similarly situated and to the extent available on commercially
reasonable terms.
(h) Books and Records. The Company will keep true records and books of
account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a
consistent basis.
(i) Governmental Authorities. The Company shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its properties or
assets.
(j) Intellectual Property. The Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses
and other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
12
(k) Properties. The Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and the Company will at all times
comply with each provision of all leases to which it is a party and under
which it occupies property if the breach of such provision could reasonably
be expected to have a material adverse effect.
(l) Confidentiality. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of any Subscriber,
unless expressly agreed to by such Subscriber or unless and until such
disclosure is required by law or applicable regulation, and then only to
the extent of such requirement.
(m) Use of Proceeds. The Company undertakes to use the proceeds of the
Subscriber's funds for working capital. The Purchase Price may not and will
not be used on behalf of the Company for accrued officer and director
salaries, payment of financing related debt (except for debt of the Company
or its affiliates to Subscriber or its affiliates or to Finder or its
affiliates), redemption of outstanding redeemable notes or equity
instruments of the Company nor non-trade obligations outstanding on the
Closing Date.
8. Covenants of the Company and Subscriber Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend Subscriber, Subscriber's officers, directors,
agents, affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon Subscriber or
any such person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered by the Company pursuant hereto; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by the Company of any
covenant or undertaking to be performed by the Company hereunder, or any other
agreement entered into by the Company and Subscriber relating hereto.
8.2 Subscriber Indemnification. Subscriber agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company or any such person which
results, arises out of or is based upon (i) any material misrepresentation by
Subscriber in this Agreement or in any Exhibits or Schedules attached hereto, or
other agreement delivered by Subscriber pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
Subscriber of any covenant or undertaking to be performed by Subscriber
hereunder, or any other agreement entered into by the Company and Subscriber
relating hereto.
8.3 Procedures. The procedures and limitations set forth in Section 10.6
shall apply to the indemnifications set forth in Sections 8.1 and 8.2 above.
9.1. Conversion of Note.
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(a) Upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber (or
its nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of
shares of common stock issuable upon such conversion. The Company warrants
that no instructions other than these instructions have been or will be
given to the transfer agent of the Company's Common Stock and that the
Shares will be unlegended, free-trading, and freely transferable, and will
not contain a legend restricting the resale or transferability of the
Company Shares provided the Shares are being sold pursuant to an effective
registration statement covering the Shares to be sold or are otherwise
exempt from registration when sold as stated in an opinion of counsel from
counsel reasonably satisfactory to the Company and Subscriber complies with
prospectus delivery requirements.
(b) Subscriber will give notice of its decision to exercise its right
to convert the Note or part thereof by telecopying an executed and
completed Notice of Conversion (as defined in the Note) to the Company via
confirmed telecopier transmission. The Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied.
Each date on which a Notice of Conversion is telecopied to the Company in
accordance with the provisions hereof shall be a Conversion Date. The
Company will or cause the transfer agent to transmit the Company's Common
Stock certificates representing the Shares issuable upon conversion of the
Note to the Subscriber via express courier for receipt by such Subscriber
within five (5) business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date"). A Note representing the balance of the
Note not so converted will be provided to the Subscriber, if requested by
Subscriber provided an original Note is delivered to the Company. To the
extent that a Subscriber elects not to surrender a Note for reissuance upon
partial payment or conversion, the Subscriber hereby indemnifies the
Company against any and all loss or damage attributable to a third-party
claim in an amount in excess of the actual amount then due under the Note.
(c) The Company understands that a delay in the delivery of the Shares
in the form required pursuant to Section 9 hereof, or the Mandatory
Redemption Amount described in Section 9.2 hereof, beyond the Delivery Date
or Mandatory Redemption Payment Date (as hereinafter defined) could result
in economic loss to the Subscriber. As compensation to the Subscriber for
such loss, the Company agrees to pay late payments to the Subscriber for
late issuance of Shares in the form required pursuant to Section 9 hereof
upon Conversion of the Note or late payment of the Mandatory Redemption
Amount, in the amount of $100 per business day after the Delivery Date or
Mandatory Redemption Payment Date, as the case may be, for each $10,000 of
Note principal amount being converted or redeemed. The Company shall pay
any payments incurred under this Section in immediately available funds
upon demand. Furthermore, in addition to any other remedies which may be
available to the Subscriber, in the event that the Company fails for any
reason to effect delivery of the Shares by the Delivery Date or make
payment by the Mandatory Redemption Payment Date, the Subscriber will be
entitled to revoke all or part of the relevant Notice of Conversion or
rescind all or part of the notice of Mandatory Redemption by delivery of a
notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that late payment
14
charges described above shall be payable through the date notice of
revocation or rescission is given to the Company.
(d) Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require
the payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus
refunded to the Company.
(e) In the event the Shares issuable upon Conversion of a Note or part
thereof are not included for resale in an effective registration statement
at any time when such Shares are required to be so included pursuant to the
terms of this Agreement, then the Subscriber may elect, at the Subscriber's
sole discretion, to receive an amount of restricted Shares equal to the
amount of Shares otherwise receivable upon Conversion in lieu of the Shares
otherwise receivable pursuant to the relevant Notice of Conversion.
9.2. Mandatory Redemption at Subscriber's Election. In the event the
Company is prohibited from issuing Shares, or fails to timely deliver Shares on
a Delivery Date, or upon the occurrence of any other Event of Default (as
defined in the Note) or for any reason other than pursuant to the limitations
set forth in Section 9.3 hereof, then at the Subscriber's election, the Company
must pay to the Subscriber ten (10) business days after request by the
Subscriber or on the Delivery Date (if requested by the Subscriber) a sum of
money determined by (i) multiplying up to the outstanding principal amount of
the Note designated by the Subscriber by 120%, or (ii) multiplying the number of
Shares otherwise deliverable upon conversion of an amount of Note principal
designated by the Subscriber (with the date of giving of such designation being
a Deemed Conversion Date) at the then Conversion Price that would be in effect
on the Deemed Conversion Date by the highest closing price of the Common Stock
on the principal market from the Deemed Conversion Date until the day prior to
the receipt by the Subscriber of the Mandatory Redemption Payment, whichever is
greater, together with accrued but unpaid interest thereon ("Mandatory
Redemption Payment"). The Mandatory Redemption Payment must be received by the
Subscriber on the same date as the Shares otherwise deliverable or within ten
(10) business days after request, whichever is sooner ("Mandatory Redemption
Payment Date"). Upon receipt of the Mandatory Redemption Payment, the
corresponding Note principal and interest will be deemed paid and no longer
outstanding.
9.3. Maximum Conversion. The Subscriber shall not be entitled to convert on
a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Subscriber and its affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
provision is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its affiliates of more than 9.99% of the
outstanding shares of Common Stock of the Company on such Conversion Date. For
the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the 1934 Act
and Regulation 13d-3 thereunder. Subject to the foregoing, the Subscriber shall
not be limited to aggregate conversions of only 9.99% and aggregate conversion
by
15
the Subscriber may exceed 9.99%. The Subscriber shall have the authority and
obligation to determine whether the restriction contained in this Section 9.3
will limit any conversion hereunder and to the extent that the Subscriber
determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Subscriber. The Subscriber may void the
conversion limitation described in this Section 9.3 upon 75 days prior written
notice to the Company. The Subscriber may allocate which of the equity of the
Company deemed beneficially owned by the Subscriber shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof, the Company may not refuse conversion based on
any claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, or for any other reason,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of said Note shall have been sought and obtained and
the Company posts a surety bond for the benefit of such Subscriber in the amount
of 130% of the amount of the Note, which is subject to the injunction, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such Subscriber to the
extent Subscriber obtains judgment.
9.5. Buy-In. In addition to any other rights available to the Subscriber,
if the Company fails to deliver the Shares to the Subscriber by the Delivery
Date and if ten (10) days after the Delivery Date the Subscriber or a broker on
behalf of the Subscriber, purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Subscriber
of the Shares which the Subscriber anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall pay in cash to the Subscriber (in addition to
any remedies available to or elected by the Subscriber) the amount by which (A)
the Subscriber's total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.
9.6 Adjustments. The Conversion Price and amount of Shares issuable upon
Conversion of the Notes shall be adjusted to offset the effect of stock splits,
stock dividends and pro rata distributions of property or equity interests to
the Company's shareholders.
9.7 Redemption. The Company may redeem or call the Note without the consent
of the holder of the Note.
10. Registration Rights.
16
10.1. Registration Rights Granted. The Company hereby grants the following
registration rights to holders of the Securities.
(a) On one occasion, for a period commencing on the Filing Date (as
defined in Paragraph 10(c) hereof), but not later than three years after
the Closing Date, the Company, upon a written request therefor from any
record holder or holders of more than 50% of the aggregate of the Company's
Shares actually issued and issuable upon Conversion of the Notes issued in
the Initial Offering (the Common Stock issued or issuable upon conversion
of the Notes or issuable by virtue of ownership of the Notes, being the
"Registrable Securities"), shall prepare and file with the SEC a
registration statement under the 1933 Act covering the Registrable
Securities which are the subject of such request, unless such Registrable
Securities are the subject of an effective registration statement or
included for registration in a pending registration statement. In addition,
upon the receipt of such request, the Company shall promptly give written
notice to all other record holders of the Registrable Securities that such
registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received
written requests within 10 days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have
exercised their demand registration right under this Section 10.1(a). As a
condition precedent to the inclusion of Registrable Securities, the holder
thereof shall provide the Company with such information as the Company
reasonably requests. The obligation of the Company under this Section
10.1(a) shall be limited to one registration statement.
(b) If the Company at any time proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms ▇-▇, ▇-▇ or another form not
available for registering the Registrable Securities for sale to the
public, provided the Registrable Securities are not otherwise registered
for resale by the Subscriber or holder pursuant to an effective
registration statement and provided the registration statement triggering
Subscriber's rights under this Paragraph 10.1(b) is not (i) the Current
Registration Statement, (ii) a registration statement to be filed to
register shares of Common Stock of the Company into which shares of Series
H preferred stock of the Company are convertible (including any associated
required additional reserve) in connection with the Registration Rights
Agreement dated as of June 21, 2002, between the Company and ▇▇▇▇▇▇▇ Road
LLC ("▇▇▇▇▇▇▇") or (iii) a registration statement to be filed to register
shares of Common Stock of the Company registered in connection with the
Registration Rights Agreement, dated as of July 25, 2002, between the
Company and ▇▇▇▇▇▇▇ (such three registration statements collectively, the
"Other Registration Statements"), each such time it will give at least 25
days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the
holder, received by the Company within 15 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration
shall have been so requested to be included with the securities to be
covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "Seller"). In the event that any registration pursuant to
this Section 10.1(b) shall be, in whole or in part, an underwritten public
offering of common stock of the Company, the number of shares of
Registrable Securities to be included in such an underwriting may be
reduced by the managing underwriter if and to the extent that the Company
and the underwriter shall reasonably be of the opinion that such inclusion
would adversely affect the marketing of the securities to be sold by the
Company therein; provided,
17
however, that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the foregoing provisions, or Section 10.4
hereof, the Company may withdraw or delay or suffer a delay of any
registration statement referred to in this Section 10.1(b) without thereby
incurring any liability to the Seller.
(c) The Company shall file with the Commission not later than
forty-five (45) days after the latest of the effectiveness of or
abandonment of or failure to pursue with commercially reasonable diligence
the declaration of effectiveness of the Other Registration Statements (as
applicable, the "Filing Date"), and use its reasonable commercial efforts
to cause to be declared effective a Form S-1 registration statement (or
such other form that it is eligible to use) in order to register the
Registrable Securities for resale and distribution under the 1933 Act. The
registration statement described in this Paragraph 10.1(c) and covering the
Registrable Securities must be declared effective by the Commission one
hundred and fifty days (150) after the Filing Date ("Effective Date"). The
Company will register not less than a number of shares of Common Stock in
the aforedescribed registration statement that is equal to 140% of the
Shares issuable at the Conversion Price that would be in effect on the
Closing Date or the date of filing of such registration statement
(employing the Conversion Price which would result in the greater number of
Shares), assuming the conversion of 100% of the Notes. Subject to Paragraph
7(e) hereof, the Registrable Securities shall be reserved and set aside
exclusively for the benefit of the Subscriber, and not issued, employed or
reserved for anyone other than the Subscriber. Such registration statement
will immediately be amended or additional registration statements will be
immediately filed by the Company as necessary to register additional Shares
to allow the public resale of all Common Stock included in and issuable by
virtue of the Registrable Securities.
10.2. Registration Procedures. If and whenever the Company is required by
the provisions hereof to effect the registration of any shares of Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and
promptly provide to the holders of Registrable Securities ("Sellers")
copies of all filings and Commission letters of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until the latest of: (i) twenty-four months after the
latest Maturity Date of a Note; (ii) until twelve months after all the
Shares are eligible for resale pursuant to Rule 144(k) of the 1933 Act; or
(iii) until such registration statement has been effective for a period of
not less than 365 days, and comply with the provisions of the 1933 Act with
respect to the disposition of all of the Registrable Securities covered by
such registration statement in accordance with the Seller's intended method
of disposition set forth in such registration statement for such period;
18
(c) furnish to the Seller, such number of copies of the registration
statement and the prospectus included therein (including each preliminary
prospectus) as such persons reasonably may request in order to facilitate
the public sale or their disposition of the securities covered by such
registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller,
provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the
Company is then listed;
(f) immediately notify the Seller when a prospectus relating thereto
is required to be delivered under the 1933 Act, of the happening of any
event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(g) make available for inspection by the Seller, and any attorney,
accountant or other agent retained by the Seller or underwriter, all
publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, attorney,
accountant or agent in connection with such registration statement.
10.3. Provision of Documents. At the request of the Seller, provided a
demand for registration has been made pursuant to Section 10.1(a) or a request
for registration has been made pursuant to Section 10.1(b), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10. In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws. In connection with each registration pursuant to Section
10.1(a) or 10.1(b) covering an underwritten public offering, the Company and the
Seller agree to enter into a written agreement with the managing underwriter in
such form and containing such provisions as are customary in the securities
business for such an arrangement between such underwriter and companies of the
Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber agree that
the Seller will suffer damages if any registration statement covering the
Registrable Securities and required under Section 10.1(a) or 10.1(b) above is
not filed within 30 days after written request by the Seller and not declared
effective by the Commission within 90 days after such request (or the Filing
Date and Effective Date, respectively, in reference to the Registration
Statement on Form S-1 or such other form described in Section 10.1(c)), and
maintained in the manner and within the time periods contemplated by Section 10
hereof, and it would not be feasible to ascertain the extent of
19
such damages with precision. Accordingly, if (i) the Registration Statement
described in Section 10.1(a) or 10.1(b) and covering the Registrable Securities
is not filed within 30 days of such written request, or is not declared
effective by the Commission on or prior to the date that is 90 days after such
request, or (ii) the registration statement on Form S-1 or such other form
described in Section 10.1(c) and covering the Registrable Securities is not
filed on or before the Filing Date or not declared effective on or before the
sooner of the Effective Date, or within ten business days of receipt by the
Company of a written or oral communication from the Commission that the
registration statement described in Section 10.1(c) will not be reviewed, or
(iii) any registration statement described in Section 10.1(a), 10.1(b) or
10.1(c) and covering the Registrable Securities is filed and declared effective
but shall thereafter cease to be effective (without being succeeded immediately
by an additional registration statement filed and declared effective) for a
period of time which shall exceed 30 days in the aggregate per year but not more
than 20 consecutive calendar days ("year" being defined as a period of 365 days
commencing on the date the Registration Statement is declared effective) (each
such event referred to in clauses (i), (ii) and (iii) of this Section 10.4 is
referred to herein as a "Non-Registration Event"), then, for so long as such
Non-Registration Event shall continue, the Company shall pay, at the
Subscriber's option, in cash or stock at the applicable Conversion Price, as
Liquidated Damages to each holder of any Registrable Securities an amount equal
to two (2%) percent per month or pro rata part thereof for each month or part
thereof thereafter during the pendency of such Non-Registration Event, of the
principal of the Notes issued in the Initial Offering and principal and interest
of the Notes converted into Shares, then owned of record by such holder or
issuable as of or subsequent to the occurrence of such Non-Registration Event.
Payments to be made pursuant to this Section 10.4 shall be due and payable
within ten (10) business days after demand in immediately available funds. In
the event a Mandatory Redemption Payment is demanded by the Subscriber pursuant
to Section 9.2 of this Subscription Agreement, then the Liquidated Damages
described in this Section 10.4 shall no longer accrue on the portion of the
Purchase Price underlying the Mandatory Redemption Payment, from and after the
date the Subscriber receives the Mandatory Redemption Payment. It shall also be
deemed a Non-Registration Event if at any time a Note is outstanding, there is
less than 120% of the amount of Common Shares necessary to allow full conversion
of such Note at the then applicable Conversion Price registered for unrestricted
resale in an effective registration statement.
10.5. Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars,
and costs of insurance are called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities, including any fees and disbursements of any special counsel to the
Seller, are called "Selling Expenses". The Seller shall pay the fees of its own
additional counsel, if any. The Company will pay all Registration Expenses in
connection with the registration statement under Section 10. All Selling
Expenses in connection with each registration statement under Section 10 shall
be borne by the Seller and may be apportioned among the Sellers in proportion to
the number of shares sold by the Seller relative to the number of shares sold
under such registration statement or as all Sellers thereunder may agree.
20
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities under
the 1933 Act pursuant to Section 10, the Company will indemnify and hold
harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the
meaning of the 1933 Act, against any losses, claims, damages or
liabilities, joint or several, to which the Seller, or such underwriter or
controlling person may become subject under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities was registered under the
1933 Act pursuant to Section 10, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances when
made, and will subject to the provisions of Section 10.6(c) reimburse the
Seller, each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable to the
Seller to the extent that any such damages arise out of or are based upon
an untrue statement or omission made in any preliminary prospectus if (i)
the Seller failed to send or deliver a copy of the final prospectus
delivered by the Company to the Seller with or prior to the delivery of
written confirmation of the sale by the Seller to the person asserting the
claim from which such damages arise, (ii) the final prospectus would have
corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by any such Seller, or any
such controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who
controls the Company within the meaning of the 1933 Act, each officer of
the Company who signs the registration statement, each director of the
Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registrable
Securities were registered under the 1933 Act pursuant to Section 10, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, provided, however, that
the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue
21
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished
in writing to the Company by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however, that
the liability of the Seller hereunder shall be limited to the gross
proceeds received by the Seller from the sale of Registrable Securities
covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to
notify the indemnifying party shall not relieve it from any liability which
it may have to such indemnified party other than under this Section 10.6(c)
and shall only relieve it from any liability which it may have to such
indemnified party under this Section 10.6(c), except and only if and to the
extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish,
to assume and undertake the defense thereof with counsel satisfactory to
such indemnified party, and, after notice from the indemnifying party to
such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 10.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, provided, however, that, if the defendants in any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise
to participate in the defense of such action, with the reasonable expenses
and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the 1933 Act in any case in which either (i)
the Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced
in such case notwithstanding the fact that this Section 10.6 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may
be required on the part of the Seller or controlling person of the Seller
in circumstances for which indemnification is provided under this Section
10.6; then, and in each such case, the Company and the Seller will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that the Seller is responsible only for the portion represented by the
percentage that the public offering price of its securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, provided, however, that, in any
such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement;
22
and (z) no person or entity guilty of fraudulent misrepresentation will be
entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
11. Miscellaneous.
(a) Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a
copy is delivered by first class mail) to the party to receive the same at
its address set forth below or to such other address as either party shall
hereafter give to the other by notice duly made under this Section: (i) if
to the Company, at: ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, attn: Chief
Financial Officer, telecopier number: (▇▇▇) ▇▇▇-▇▇▇▇, with a copy by
telecopier only to: General Counsel, and (ii) if to the Subscriber, to the
name, address and telecopy number set forth on the signature page hereto,
with a copy by telecopier only to Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, telecopier number: (212)
697-3575. Any notice that may be given pursuant to this Agreement, or any
document delivered in connection with the foregoing may be given by the
Subscriber on the first business day after the observance dates in the
United States of America by Orthodox Jewry of Rosh Hashanah, Yom Kippur,
the first two days of the Feast of Tabernacles, Shemini Atzeret, Simchat
Torah, the first two and final two days of Passover and Pentecost, with
such notice to be deemed given and effective, at the election of the
Subscriber on a holiday date that precedes such notice, however the
Company's time to respond to such notice shall commence from the actual
date such notice is given. Any notice received by the Subscriber on any of
the aforedescribed holidays may be deemed by the Subscriber to be received
and effective as if such notice had been received on the first business day
after the holiday.
(b) Closing. The consummation of the transactions contemplated herein
shall take place at the offices of Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, upon the satisfaction of all
conditions to Closing set forth in this Agreement. The closing date shall
respectively be the dates that subscriber funds representing the net amount
due the Company from the Purchase Price of the Initial Offering are
transmitted by wire transfer to the Company (the "Closing Date").
(c) Entire Agreement; Assignment. This Agreement represents the entire
agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. No
right or obligation of either party shall be assigned by that party without
prior notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed and delivered by
facsimile transmission, and in counterparts, each of which will be deemed
an original.
(e) Law Governing this Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by any party
against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. The parties and the
individuals executing this Agreement and other agreements on behalf of such
parties agree to submit to the jurisdiction of such courts and waive trial
by jury. The prevailing party shall be entitled to recover from the other
party
23
or parties to the applicable dispute such party's reasonable attorney's
fees and costs. In the event that any provision of this Agreement or any
other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule
of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other
provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
and to enforce specifically the terms and provisions hereof or thereof,
this being in addition to any other remedy to which any of them may be
entitled by law or equity. Subject to Section 11(e) hereof, each of the
Company and Subscriber hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Nothing in this Section shall affect or limit any
right to serve process in any other manner permitted by law.
(g) Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing
shall not have occurred by the tenth (10th) business day following the date
this Agreement is accepted by the Subscriber.
This Agreement is made by and between the Company and Subscriber as of the
date first written above.
NCT GROUP, INC.
A Delaware Corporation
By: /s/ ▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇ ▇. ▇▇▇▇▇▇▇
Title: Senior Vice President &
Chief Financial Officer
Purchase Price and Note Principal: $235,000.00
ALPHA CAPITAL AKTIENGESELLSCHAFT - Subscriber
A Lichtenstein corporation
▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, Lichtenstein
Fax: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
24
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Director
25
LIST OF SCHEDULES AND EXHIBITS
Exhibit A Form of Note (Please refer to Exhibit 10(cy) 2)
Exhibit B Form of Legal Opinion
Schedule 2(n) Additional Issuances
Schedule 2(s) Capitalization
26
Exhibit B
▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
V.P., General Counsel & Secretary
Telephone ▇▇▇-▇▇▇-▇▇▇▇, ext. 3572
E-mail ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
May 14, 2003
Alpha Capital Aktiengesellschaft
A Lichtenstein corporation
▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Vaduz, Lichtenstein
Fax: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
Re: $235,000 Financing
------------------
Gentlemen:
I serve as Vice President, General Counsel & Secretary of the NCT Group,
Inc., a Delaware corporation ("NCT"). In that capacity I have been responsible
for the legal affairs of NCT in connection with the offer and sale by NCT of a
$235,000 principal amount 8% Convertible Note, dated as of April 22, 2003 (the
"Note"), to you (the "Purchaser"). Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Subscription
Agreement, dated as of April 22, 2003 (the "Agreement"), between NCT and the
Purchaser. The Agreement and the other agreements and documents listed in items
(a)-(f) below are sometimes hereinafter referred to collectively as the
"Documents."
In connection with the opinions expressed herein, I have made such
examination of law as I considered appropriate or advisable for purposes hereof.
As to matters of fact material to the opinions expressed herein, I have relied,
with your permission, upon the representations and warranties as to factual
matters contained in and made by NCT and the Purchaser pursuant to the Documents
and upon certificates and statements of certain government officials as
described below. I have also examined originals or copies of certain corporate
documents or records of NCT, as follows:
(a) Agreement;
(b) Note;
(c) Funds Escrow Agreement, dated as of April 22, 2003 (the "Escrow
Agreement"), among NCT, the Purchaser and Grushko & ▇▇▇▇▇▇▇, P.C. as
escrow agent;
(d) Certificate of Incorporation of NCT (as amended);
(e) Bylaws of NCT; and
(f) Unanimous Written Consent of the Board of Directors of NCT, dated as of
April 21, 2003, approving the Documents listed in items (a)-(c) above.
In rendering this opinion, I have, with your permission, assumed (a) the
authenticity of all documents submitted to me as originals; (b) the conformity
to the originals of all documents submitted to me as copies; (c) the genuineness
of all signatures; (d) the legal capacity of natural
27
persons; (e) the truth, accuracy and completeness of the information, factual
matters, representations and warranties contained in all of such documents; (f)
the due authorization, execution and delivery of all such documents by the
Purchaser, and the legal, valid and binding effect thereof on the Purchaser; and
(g) that NCT and the Purchaser will act in accordance with their respective
representations and warranties as set forth in the Documents.
I am a member of the bar of the State of New York. I express no opinion as
to the laws of any jurisdictions other than the internal laws of the State of
New York, the General Corporation Law of the State of Delaware and the federal
laws of the United States of America. I express no opinion with respect to the
effect or application of any other laws. Special rulings of authorities
administering any of such laws or opinions of other counsel have not been sought
or obtained by me in connection with rendering the opinions expressed herein.
1. NCT is duly incorporated, validly existing and in good standing in the
state of its incorporation; has qualified to do business in each state where
required unless the failure to do so would not have a material impact on its
operations; and has the requisite corporate power and authority to conduct its
businesses, and to own, lease and operate its properties.
2. NCT has the requisite corporate power and authority to execute, deliver
and perform its obligations under the Documents. Documents (a)-(c) above, the
issuance of the Note and the reservation and issuance of common stock, par value
$.01 per share, of NCT ("Common Stock") issuable upon conversion of the Note
have been duly approved by the Board of Directors of NCT. The Common Stock, when
issued upon conversion of the Note and upon delivery, shall be validly issued
and outstanding, fully paid and non-assessable.
3. The execution, delivery and performance of the Documents by NCT, and the
consummation of the transactions contemplated thereby, will not, with or without
the giving of notice or the passage of time, (a) violate the provisions of the
Certificate of Incorporation or Bylaws of NCT; (b) to the best of my knowledge,
violate any judgment, decree, order or award of any court binding upon NCT; or
(c) to the best of my knowledge, constitute a material breach of any agreement
to which NCT is a party.
4. The Documents constitute the valid and legally binding obligations of
NCT and are enforceable against NCT in accordance with their respective terms.
5. The Note and the Common Stock issuable upon conversion of the Note have
not been registered under the Securities Act of 1933, as amended, or under the
laws of any state or other jurisdiction and, assuming the Purchaser's
representations and warranties contained in the Documents are true as of the
date made and as of the applicable date(s) of Common Stock issuance, are or will
be issued pursuant to a valid exemption from registration.
6. The holders of the Common Stock issuable upon conversion of the Note
will not be subject to the provisions of the anti-takeover statutes of Delaware
and New York.
My opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
28
A. The effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the relief of debtors or the rights
and remedies of creditors generally, including without limitation the effect of
statutory or other law regarding fraudulent conveyances and preferential
transfers.
B. The unenforceability of any provision requiring the payment of
attorney's fees, except to the extent that a court determines such fees to be
reasonable.
C. The unenforceability under certain circumstances under law or court
decisions of provisions providing for the indemnification or contribution to a
party with respect to a liability where such indemnification or contribution is
contrary to public policy.
D. The enforceability of provisions to the extent that terms may not be
waived or modified except in writing may be limited under certain circumstances.
E. The enforceability of provisions (i) relating to choice of applicable
law, waiver of jury trial or submission to any jurisdiction or (ii) providing
for the validity or enforceability of any Document, in whole or in part, if any
provision thereof is determined to be invalid or unenforceable in any
jurisdiction or providing for the validity or enforceability of such invalid or
unenforceable provision in any other jurisdiction.
F. Limitations imposed by state law, federal law or general equitable
principles upon the specific enforceability of any of the remedies, covenants or
other provisions of any applicable agreement and upon the availability of
injunctive relief or other equitable remedies, regardless of whether enforcement
of any such agreement is considered in a proceeding in equity or at law.
G. This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, including the
General Qualifications and the Equitable Principles Limitation, and this opinion
letter should be read in conjunction therewith.
This opinion is rendered as of the date first written above, is solely for
your benefit in connection with the Agreement and may not be relied upon or used
by, circulated, quoted, or referred to nor may any copies hereof be delivered to
any other person without my prior written consent. I disclaim any obligation to
update this opinion letter or to advise you of facts, circumstances, events or
developments which hereafter may be brought to my attention and which may alter,
affect or modify the opinions expressed herein.
Very truly yours,
▇▇▇▇ ▇▇▇▇▇▇▇
29
Schedule 2(n)
ADDITIONAL ISSUANCES
1. As of April 3, 2003, NCT Group, Inc. (the "Company") issued to Avant
Interactive, Inc. ("Avant") a five-year option to purchase 2,000,000 shares
of common stock, par value $.01 per share, of the Company ("Shares") at an
exercise price of $.029 per Share. (The documentation of this transaction
is not yet completed but is expected to be completed soon and, assuming it
is, the transaction will be effective as of April 3, 2003.)
2. As of April 7, 2003, the Company entered into a Settlement Agreement with
Alpha Capital Aktiengesellschaft ("Alpha"), Austost Anstalt ▇▇▇▇▇▇
("Austost"), Balmore Funds, S.A. ("Balmore") and Libra Finance S.A.
("Libra") which, if approved by the court in the litigation to which such
Settlement Agreement relates, requires the Company to issue Shares as
follows: $913,614.92 worth of Shares to Alpha, $1,351,250.16 worth of
Shares to Austost, $1,364,687.95 worth of Shares to Balmore and $370,446.97
worth of Shares to Libra, with all of such Shares being priced at the
average closing price of the Shares on the public market for the ten
trading days preceding the date of the court hearing referred to above.
3. As of April 7, 2003, the Company entered into a letter agreement with Alpha
amending the vesting provisions of a December 6, 2002 15,000,000-Share
warrant of the Company to Alpha.
4. As of April 10, 2003, the Company entered into an Exchange Rights and
Release Agreement with Austost, Balmore and Libra under which the Company
granted to such entities the right to convert preferred stock of Artera
Group, Inc. held by them (1,077 such shares held by Austost, 1,077 such
shares held by Balmore and 1,000 such shares held by Libra), and accretion
thereon, into shares of preferred stock of the Company, par value $.10 per
share, of like stated value and identical or substantially identical other
terms and conditions.
5. As of April 11, 2003, the Company issued to Avant a five-year option to
purchase 2,000,000 Shares at an exercise price of $.031 per Share. (The
documentation of this transaction is not yet completed but is expected to
be completed soon and, assuming it is, the transaction will be effective as
of April 11, 2003.)
6. As of April 11, 2003, the Company issued to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇") a
Secured Convertible Note in the principal amount of $450,000.00, which Note
may, at ▇▇▇▇▇▇▇'▇ election, (a) be converted into Shares at a conversion
price of $.029 per share; (b) if Artera Group International Limited
("Artera International") makes an initial public offering of its common
stock, par value(pound)1.00 per share, be exchanged for shares of common
stock of Artera International at an exchange price equal to the initial
public offering price of such common stock; (c) if Distributed Media
Corporation International Limited ("DMC International") makes an initial
public offering of its common stock, par value(pound)1.00 per share, be
exchanged for shares of common stock of DMC International at an exchange
price
30
equal to the initial public offering price of such common stock; or (d) if
any other subsidiary of the Company makes an initial public offering of its
common stock, be exchanged for shares of common stock of such other
subsidiary at an exchange price equal to the initial public offering price
of such common stock.
7. As of April 17, 2003, the Company issued to Turbo Networks, Inc. a
five-year option to purchase 2,000,000 Shares at an exercise price of $.037
per Share. (The documentation of this transaction is not yet completed but
is expected to be completed soon and, assuming it is, the transaction will
be effective as of April 17, 2003.)
8. As of April 21, 2003, the Company issued to ▇▇▇▇▇▇▇ a Secured Convertible
Note in the principal amount of $450,000.00, which Note may, at ▇▇▇▇▇▇▇'▇
election, (a) be converted into Shares at a conversion price of $.037 per
share; (b) if Artera Group International Limited ("Artera International")
makes an initial public offering of its common stock, par value(pound)1.00
per share, be exchanged for shares of common stock of Artera International
at an exchange price equal to the initial public offering price of such
common stock; (c) if Distributed Media Corporation International Limited
("DMC International") makes an initial public offering of its common stock,
par value(pound)1.00 per share, be exchanged for shares of common stock of
DMC International at an exchange price equal to the initial public offering
price of such common stock; or (d) if any other subsidiary of the Company
makes an initial public offering of its common stock, be exchanged for
shares of common stock of such other subsidiary at an exchange price equal
to the initial public offering price of such common stock.
31
Schedule 2(s)
NCT GROUP, INC.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
AS OF APRIL 22, 2003
Issued and
Capital Stock Authorized Outstanding
------------- ---------- -----------
Preferred Stock 10,000,000 1,800
Common Stock 645,000,000 494,401,255
32