Exhibit 10(bm)
EXCHANGE AGREEMENT
Between
NCT GROUP, INC.
and
▇▇▇▇▇▇▇ ROAD LLC
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June 21, 2002
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EXCHANGE AGREEMENT, dated as of June 21, 2002 (this "Agreement"), between
NCT GROUP, INC., a Delaware corporation (the "Company"), and ▇▇▇▇▇▇▇ ROAD LLC,
an entity organized and existing under the laws of The Cayman Islands (
"Investor").
RECITALS
A. The Investor owns in the aggregate, 12,000 shares of the common stock,
par value $.01 per share (the "DMC-NY Shares"), of DMC New York, Inc., a
Delaware corporation ("DMC-NY").
B. The Investor desires to exchange, the DMC-NY Shares for shares of the
Company's newly issued Series H 4% Convertible Preferred Stock, $.10 par value
per share ("Preferred Stock"), according to the terms and conditions set forth
below.
AGREEMENT
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
Section 1. Certain Definitions. As used in this Agreement, unless the context
requires a different meaning, the following terms have the meanings indicated in
this Section 1.1:
"Affiliate" means, with respect to any Person, any Person that, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with") shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Agreement" shall have the meaning set forth in the preamble hereto.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a U.S. federal legal holiday or a day on which banking institutions in
the State of Delaware are authorized or required by law or other government
actions to close.
"Certificate of Designation" shall have the meaning set forth in Section
2.1(a).
"Closing" shall have the meaning set forth in Section 2.1(b).
"Closing Date" shall have the meaning set forth in Section 2.1(b).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value $.01 per share.
"Company" shall have the meaning set forth in the preamble hereto.
"Conversion Price" shall have the meaning set forth in the Certificate of
Designation.
"Conversion Rate" shall have the meaning set forth in the Certificate of
Designation.
"Disclosure Materials" means, collectively, the SEC Documents and the
Schedules to this Agreement and all other information furnished by or on behalf
of the Company, relating to or concerning the Company, to the Investor or its
agents and counsel in connection with the transactions contemplated by this
Agreement.
"DMC-NY" shall have the meaning set forth in the recitals hereto.
"DMC-NY Shares" shall have the meaning set forth in the recitals hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
including the rules promulgated thereunder.
"Initial Reserve" shall have the meaning set forth in Section 3.1(d).
"Intellectual Property Rights" shall have the meaning set forth in Section
3.1(n).
"Investor" shall have the meaning set forth in the recitals hereto.
"Legal Opinion" means the legal opinion letter of ▇▇▇▇ ▇▇▇▇▇▇▇, Esq., Vice
President, General Counsel and Secretary of the Company, or outside counsel to
the Company, addressed to the Investor, dated the Closing Date and in form and
substance acceptable to the Investor.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, right
of first refusal, charge, security interest or encumbrance of any kind in or on
such asset or the revenues or income thereon or therefrom.
"Material Adverse Effect" shall have the meaning set forth in Section
3.1(a).
"Original Issue Date" shall mean the first issuance of any Shares by the
Company, regardless of the number of transfers of any particular Share and
regardless of the number of certificates which may be issued to evidence any
particular Share.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" shall have the meaning set forth in the recitals hereto.
"Registration Rights Agreement" means the registration rights agreement,
dated as of the date hereof, between the Company and the Investor, in the form
of Exhibit B, as the same may be amended, supplemented or otherwise modified in
accordance with its terms.
"Registration Statement" means a registration statement under the
Securities Act prepared by the Company and filed with the Commission in
accordance with the Registration Rights Agreement, covering the resale of the
Underlying Shares and naming the holder or holders of such Underlying Shares as
"selling stockholders" thereunder.
"Required Approvals" shall have the meaning set forth in Section 3.1(f).
"SEC Documents" means the Company's reports, schedules, forms and proxy
statements filed with the Commission under the Securities Act and the Exchange
Act.
"Securities" means, collectively, the Shares and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended, including
the rules promulgated thereunder.
"Shares" means the shares of Preferred Stock to be issued pursuant to this
Agreement.
"Stated Value" means the face amount of $10,000 per Share.
"Subsidiaries" shall have the meaning set forth in Section 3.1(a).
"Trading Day" shall have the meaning set forth in the Certificate of
Designation.
"Transaction Documents" means collectively, this Agreement, the Certificate
of Designation, and the Registration Rights Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock, and as payment of dividends thereon (assuming
such dividends are to be paid in Common Stock).
ARTICLE 2.
PURCHASE OF SHARES
Section 2.1 Exchange of Shares; Closing.
(a) Subject to the terms and conditions set forth in this Agreement, the
Company shall issue to the Investor, 1,800 shares of Preferred Stock, provided
that the Investor shall deliver to the Company 12,000 DMC-NY Shares and $120,000
in cash to be exchanged therefor. The Shares issued pursuant to this Agreement
shall have the respective rights, preferences and privileges set forth in
Exhibit A (the "Certificate of Designation").
(b) The closing of the purchase and sale of the Shares (the "Closing")
shall take place at 10:00 A.M., local time, on or prior to June 28, 2002, at the
offices of ▇▇▇▇▇▇▇ & Prager, LLP, ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at
such other time or place as the Investor and the Company may agree in writing.
The date of the Closing is hereinafter referred to as the "Closing Date."
(c) At the Closing, (i) the Company shall deliver or cause to be delivered
to the Investor (A) certificates representing one thousand eight hundred (1,800)
Shares, (B) an executed Registration Rights Agreement, and (C) the Legal
Opinion; (ii) the Investor shall deliver or cause to be delivered to the Company
(x) certificates representing twelve thousand (12,000) DMC-NY Shares, properly
endorsed for transfer, and (y) $120,000 in cash; and (iii) each party hereto
shall deliver or cause to be delivered all other executed instruments,
agreements and certificates as are required to be delivered by or on its behalf
at the Closing.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor as follows:
(a) Organization and Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the state
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no active subsidiaries other than as set forth in the SEC Documents
(collectively, the "Subsidiaries"). Each of the Subsidiaries is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted, except where the failure to have such power and
authority would not, individually or in the aggregate, (x) adversely affect the
legality, validity or enforceability of the Shares or any Transaction Document,
(y) have a material adverse effect on the results of operations, assets,
prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any Transaction Document
(a "Material Adverse Effect"). Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, would not, individually or
in the aggregate, have or result in a Material Adverse Effect.
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and to otherwise carry out its
obligations thereunder. The execution and delivery of each Transaction Document
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of the
Company. Each Transaction Document has been duly executed by the Company and,
when delivered in accordance with the terms hereof, each Transaction Document
shall constitute the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company nor any
Subsidiary is in violation of any provision of its respective certificate or
articles of incorporation, bylaws or other charter documents.
(c) Capitalization. The authorized, issued and outstanding capital stock of
the Company is set forth in Schedule 3.1(c). No shares of Common Stock are
entitled to preemptive or similar rights. Except as specifically disclosed in
Schedule 3.1(c), there are no outstanding options, warrants, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or, except as
a result of the purchase and sale of the Shares, securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
securities or rights convertible or exchangeable into shares of Common Stock. To
the knowledge of the Company, except as specifically disclosed in the SEC
Documents or Schedule 3.1(c), no Person or group of Persons beneficially owns
(as determined pursuant to Rule 13d-3 promulgated under the Exchange Act) or has
the right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of 5% of the Common Stock.
(d) Issuance of Securities. The Shares are duly authorized and, when issued
in accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable, free and clear of all Liens. The Company shall have, and at all
times after its shareholders meet and approve a sufficient increase in the
number of authorized shares of Common Stock, but not later than October 31, 2002
(the preliminary proxy statement for which meeting the Company shall file with
the Commission by June 30, 2002), and thereafter while any Shares are
outstanding shall use its best efforts to maintain, an adequate reserve of duly
authorized shares of Common Stock to enable it to perform its conversion,
exercise and other obligations under this Agreement, or the Certificate of
Designation, which reserve, subject to Section 4.7, shall be no less than the
sum of (i) 150% of the number of shares of Common Stock as would be issuable
upon conversion in full of the Shares, were such conversion effected on the
Original Issue Date or the Filing Date (as defined in the Registration Rights
Agreement), whichever yields a lower Conversion Price, and (ii) the number of
shares of Common Stock as are issuable as payment of dividends on the Shares
(assuming such dividends are to be paid in Common Stock) (such sum, the "Initial
Reserve"). Until the filing of such increase in the authorized number of shares
of Common Stock, the Corporation shall reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series H Preferred Shares, 100,000,000 shares of Common Stock
to effect the conversion of the Series H Preferred Shares then issued and
outstanding and lodge an instruction to that effect with its transfer agent. If
at any time the sum of the number of shares of Common Stock issuable (a) upon
conversion in full of the then outstanding Shares, and (b) as the payment of
dividends for the next thirty-six (36) months on the Shares (assuming all such
dividends are to be paid in Common Stock) exceeds 85% of the Initial Reserve,
then the Company shall use its best efforts to duly reserve 150% of the number
of shares of Common Stock equal to such excess to fulfill such obligations. This
obligation shall similarly apply to successive excesses. When issued in
accordance with the Certificate of Designation, the Underlying Shares will be
duly authorized, validly issued, fully paid and nonassessable, and free and
clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof), (ii) subject to
obtaining the Required Approvals referred to in Section 3.1(f), conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected; except in the case of each of clauses (ii) and (iii), as would not,
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually and in the aggregate, would not have or result in a Material
Adverse Effect.
(f) Consents and Approvals. Neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, or make any
filing or registration with, any court or other federal, state, local, foreign
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (i) the filing of the Certificate of Designation with the Secretary
of State of Delaware, (ii) the filing of one or more Registration Statements
with the Commission and the making of applicable blue-sky filings under state
securities laws with respect to the Securities and the transactions contemplated
hereby, each as contemplated hereby and by the Registration Rights Agreement,
(iii) the application for the listing of the Underlying Shares on the OTC
Bulletin Board (and on each other national securities exchange, market or
trading facility on which the Common Stock is then listed), and (iv) other than,
in all other cases, where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing, would not,
individually or in the aggregate, have or result in a Material Adverse Effect
(the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed in the
Disclosure Materials, there is no action, suit, notice of violation, proceeding
or investigation pending or, to the best knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or any of their
respective properties before or by any court, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign) which
(i) adversely affects or challenges the legality, validity or enforceability of
any Transaction Document or the Securities or (ii) would, individually or in the
aggregate, have or result in a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (or has received notice of a claim that it
is in default under or that it is in violation of) any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound, (ii) is in violation of any order of
any court, arbitrator or governmental body, or (iii) is in violation of any
statute, rule or regulation of any governmental authority, except as would not,
individually or in the aggregate, have or result in a Material Adverse Effect
or, except in the case of clause (i) above, as has not been waived pursuant to
an effective waiver, or disclosed in the SEC Documents or described in Schedule
3.1(h).
(i) Private Offering. Assuming the accuracy of the representations and
warranties of the Investor contained in Sections 3.2(a)-3.2(f), the offering,
issuance or sale of the Securities as contemplated hereunder are exempt from the
registration requirements of the Securities Act.
(j) Certain Fees. No fees or commissions will be payable by the Company to
any broker, financial advisor, finder, investment banker, placement agent, or
bank with respect to the transactions contemplated hereby. The Investor shall
have no obligation with respect to such fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this Section
3.1(j) that may be due in connection with the transactions contemplated hereby.
The Company shall indemnify and hold harmless Investor, their respective
employees, officers, directors, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages, costs (including
attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as and when incurred.
(k) SEC Documents; Financial Statements; No Adverse Change. Except for its
Quarterly Report on Form 10-Q for the period ending September 30, 2000 and its
Annual Report on Form 10-K for the period ending December 31, 2001, the Company
has filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the three years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Documents prior to the
expiration of any such extension. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and the
results of operations, retained earnings and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since the date of the financial statements included in the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 2002, as
amended to the date hereof, (a) there has been no event, occurrence or
development that has had or that could have or result in a Material Adverse
Effect, (b) there has been no material change in the Company's accounting
principles, practices or methods and (c) the Company has conducted its business
only in the ordinary course of such business. The Company last filed audited
financial statements with the Commission on April 30, 2002, and has not received
any comments from the Commission in respect thereof.
(l) Seniority. No equity securities of the Company outstanding as of the
date hereof, are senior to the Shares in right of payment, whether with respect
to dividends or upon liquidation, dissolution or otherwise.
(m) Listing and Maintenance Requirements Compliance. Other than as
specifically disclosed in writing to the Investor, the Company has not in the
two years prior to the date hereof received written notice from any stock
exchange, market or trading facility on which the Common Stock is or has been
listed (or on which it is or has been quoted) to the effect that the Company is
not in compliance with the listing or maintenance requirements of such exchange,
market or trading facility. The Company has provided to the Investor true and
complete copies of all such notices contemplated by this Section. To the
Company's knowledge, it presently meets, and will continue to meet for the
foreseeable future (assuming no changes in the applicable listing requirements),
the currently applicable listing requirements of the NASD relative to its
continued listing on the OTC Bulletin Board.
(n) Patents and Trademarks. The Company has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses, trade secrets and other intellectual property
rights which are necessary for use in connection with its business or which the
failure to so have would have a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). To the best knowledge of the Company, none of
the Intellectual Property Rights infringe on any rights of any other Person, and
the Company either owns or has duly licensed or otherwise acquired all necessary
rights with respect to the Intellectual Property Rights. Except as disclosed in
the SEC Documents, the Company has not received any notice from any third party
of any claim of infringement by the Company of any of the Intellectual Property
Rights, and has no reason to believe there is any basis for any such claim.
Except as disclosed in the SEC Documents, to the best knowledge of the Company,
there is no existing infringement by another Person on any of the Intellectual
Property Rights.
(o) Disclosure. All information relating to or concerning the Company set
forth in the Transaction Documents or the Disclosure Materials (other than the
SEC Documents) is true and correct in all material respects and does not fail to
state any material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. The Company confirms that it has not provided to the Investor or any
of its representatives, agents or counsel any information that constitutes
material non-public information. The Company is not in possession of, nor has
the Company or its agents disclosed to Investor, any material non-public
information that (a) if disclosed, would reasonably be expected to have a
materially adverse effect on the price of the Common Stock or (b) according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company prior to the date hereof but which has not been so disclosed. Each of
the Company, its officers, directors, employees and agents shall in no event
disclose non-public information to Investor, advisors to or representatives of
Investor, unless prior to disclosure of such information, the Company identifies
such information as being non-public information and provides Investor, such
advisors and representatives with the opportunity in writing to accept or refuse
to accept such non-public information for review and the Investor in writing
agrees to accept such non-public information. The Company may, as a condition to
disclosing any non-public information hereunder, require Investor's advisors and
representatives to enter into a confidentiality agreement in form and substance
reasonably satisfactory to the Company and Investor.
(p) Control Persons. None of the following has occurred during the past ten
(10) years with respect to the Company (or any subsidiary or predecessor entity)
or control person of the Company (a "Control Person"):
(1) A petition under the federal bankruptcy laws or any state insolvency
law was filed by or against, or a receiver, fiscal agent or similar officer
was appointed by a court for the business or property of such Person, or
any partnership in which he was a general partner at or within two years
before the time of such filing, or any corporation or business association
of which he was an executive officer at or within two years before the time
of such filing;
(2) Such Control Person was convicted in a criminal proceeding or is a
named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) Such Control Person was the subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or otherwise
limiting, the following activities:
(i) Acting, as an investment advisor, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance
company, as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, any
other person regulated by the Commodity Futures Trading Commission
("CFTC") or engaging in or continuing any conduct or practice in
connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the purchase or sale
of any security or commodity or in connection with any violation of
federal or state securities laws or federal commodities laws;
(4) Such person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state
authority barring, suspending or otherwise limiting for more than 60 days
the right of such person to engage in any activity described in paragraph
(3) of this item, or to be associated with persons engaged in any such
activity;
(5) Such person was found by a court of competent jurisdiction in a civil
action or by the CFTC or Commission to have violated any federal or state
securities law, and the judgment in such civil action or finding by the
CFTC or Commission has not been subsequently reversed, suspended, or
vacated.
The Investor acknowledges and agrees that Company makes no representations
or warranties with respect to transactions contemplated hereby other than those
specifically set forth in this Section 3.1.
Section 3.2 Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company as follows:
(a) Organization; Authority. Such Investor is an entity organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and to
carry out its obligations thereunder. The acquisition of the Securities to be
acquired hereunder and the exchange and delivery of the DMC-NY Shares by such
Investor have been duly authorized by all necessary action on the part of such
Investor. Each of this Agreement and the Registration Rights Agreement has been
duly executed by such Investor and, when delivered by such Investor in
accordance with the terms hereof, shall constitute the valid and legally binding
obligation of such Investor, enforceable against it 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.
(b) Investment Intent. Such Investor is acquiring the Securities to be
acquired hereunder for its own account for investment purposes only and not with
a view to or for distributing or reselling such Securities or any part thereof
or interest therein, without prejudice, however, to such Investor's right,
subject to the provisions of this Agreement and the Registration Rights
Agreement, at all times to sell or otherwise dispose of all or any part of such
Securities pursuant to an effective registration statement under the Securities
Act and in compliance with applicable state securities laws or under an
exemption from such registration.
(c) Investor Status. At the time such Investor was offered the Securities
to be acquired hereunder by such Investor, it was, and at the date hereof, it
is, and at the Closing Date, it will be, an "accredited investor" as defined in
Rule 501(a) under the Securities Act.
(d) Experience of Investor. Such Investor, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.
(e) Ability of Investor to Bear Risk of Investment. Such Investor
acknowledges that an investment in the Securities is speculative and involves a
high degree of risk. Such Investor is able to bear the economic risk of an
investment in the Securities to be acquired hereunder by such Investor, and, at
the present time, is able to afford a complete loss of such investment.
(f) Reliance. Such Investor understands and acknowledges that (i) the
Securities to be acquired by it hereunder are being offered and sold to it
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and such
Investor hereby consents to such reliance.
(g) Information. Investor has received all documents, records, books and
other information pertaining to Investor's investment in the Company that have
been requested by Investor.
(h) No General Solicitation . At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
(i) No Encumbrances .The DMC-NY Shares are free and clear of any
encumbrances of every nature whatsoever. Investor is the sole owner of the
DMC-NY Shares, and such shares are duly authorized, validly issued, fully paid
and non-assessable.
(j) No Other Representations .Except as specifically set forth herein,
Investor makes no representations or warranties with respect to DMC-NY, its
financial status, earnings, assets, liabilities, corporate status, or any other
matters.
(k) The Company acknowledges and agrees that Investor makes no
representations or warranties with respect to transactions contemplated hereby
other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
Section 4.1 Transfer Restrictions. (a) The Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, or
pursuant to an available exemption from, or in a transaction not subject to, the
registration requirements thereof. In connection with any transfer of any
Securities other than pursuant to an effective registration statement or to the
Company, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to (i) any transfer
of Securities by the Investor to an Affiliate of the Investor, or any transfers
among any such Affiliates, and (ii) any transfer by the Investor to any
investment entity under common management with the Investor, provided in each
case of clauses (i) and (ii) the transferee certifies to the Company that it is
an "accredited investor" as defined in Rule 501(a) under the Securities Act. Any
such transferee shall have the rights of the Investor under this Agreement and
the Registration Rights Agreement.
(b) The Investor agrees to the imprinting, so long as is required by this
Section 4.1(b), of the following legend (or such substantially similar legend as
is acceptable to the Investor and their counsel, the parties agreeing that any
unacceptable legended Securities shall be replaced promptly by and at the
Company's cost) on the Securities:
[FOR SHARES] NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE, IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[ONLY FOR UNDERLYING SHARES TO THE EXTENT THE RESALE THEREOF IS NOT COVERED
BY AN EFFECTIVE REGISTRATION STATEMENT AT THE TIME OF CONVERSION, ISSUANCE
OR EXERCISE] THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above or any other
restrictive legend if all of the following conditions are satisfied: (i) there
is an effective Registration Statement at such time, (ii) the Investor has
delivered a certificate to the Company to the effect that the Investor will
comply with all applicable prospectus delivery requirements under the Securities
Act in any sale or transfer of the Underlying Shares by the Investor, and (iii)
the Investor has delivered to the Company an opinion of counsel (acceptable to
the Company) that such legend is not required under applicable requirements of
the Securities Act (including judicial interpretations and pronouncements issued
by the staff of the Commission). The Company agrees that it will provide the
Investor, upon request, with a certificate or certificates representing
Underlying Shares, free from such legend at such time as such legend is no
longer required hereunder. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section 4.1(b).
Section 4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Shares and as payment
of dividends thereon may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligation to issue Underlying Shares in
accordance with the Certificate of Designation is unconditional and absolute
regardless of the effect of any such dilution.
Section 4.3 Furnishing of Information. As long as the Investor owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which the Investor may resell
all of its Underlying Shares without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as determined by counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company's transfer agent for the benefit of and enforceable by the Investor)
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Investor and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act in the time period that such filings would have been
required to have been made under the Exchange Act. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including the legal opinion referenced above in this Section
4.3. Upon the request of any such Person, the Company shall deliver to such
Person a written certification of a duly authorized officer as to whether it has
complied with such requirements.
Section 4.4 Blue Sky Laws. The Company shall qualify the Underlying Shares under
the securities or Blue Sky laws of such jurisdictions in accordance with the
Registration Rights Agreement.
Section 4.5 Integration. The Company shall not and shall use its best efforts to
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issuance, offer or sale of the Securities to the Investor.
Section 4.6 [INTENTIONALLY OMITTED]
Section 4.7 Right of First Refusal.
(a) Except pursuant to a Private Equity Credit Agreement between the
Company and the Investor, the Company shall not, directly or indirectly, without
the prior written consent of the Investor, offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition) any of its or its Affiliates' equity or
equity-equivalent securities or any instrument that permits the holder thereof
to acquire shares of Common Stock at any time over the life of the security or
investment at a price that is less than the market price of the Common Stock at
the time of issuance of such security or instrument (a "Subsequent Placement")
for a period of one hundred eighty (180) days after the Effectiveness Date (as
defined in the Registration Rights Agreement), except (i) the granting of
options or warrants to employees, officers and directors, and the issuance of
shares upon exercise of options granted, under any stock option plan heretofore
or hereinafter duly adopted by the Company, (ii) shares issued upon exercise of
any currently outstanding warrants or options in each case disclosed in Schedule
3.1(c),(iii) shares of Common Stock issued in connection with the capitalization
or creation of a joint venture with a strategic partner (a Person whose business
is primarily that of investing and selling of securities shall not be deemed a
strategic partner), (iv) shares of Common Stock issued to pay part or all of the
purchase price for the acquisition by the Company of a Person (which, for
purposes of this clause (iv), shall not include an individual or group of
individuals) and (v) shares of Common Stock issued in a bona fide public
offering by the Company of its (and not of any of its stockholders') securities,
unless (A) the Company delivers to each Preferred Stock Investor a written
notice (the "Subsequent Placement Notice") of its intention effect such
Subsequent Placement, which Subsequent Placement Notice shall describe in
reasonable detail the proposed terms of such Subsequent Placement, the amount of
proceeds intended to be raised thereunder, the Person with whom such Subsequent
Placement shall be effected (if known to the Company), and attached to which
shall be a term sheet or similar document relating thereto and (B) no Investor
shall have notified the Company by 5:00 p.m. (New York City time) on the third
(3rd) Trading Day after its receipt of the Subsequent Placement Notice of its
willingness to provide (or to cause its sole designee to provide), subject to
completion of mutually acceptable documentation, financing to the Company on
substantially the terms set forth in the Subsequent Placement Notice. If no
Investor shall notify the Company of its intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Placement substantially upon the terms and to the Persons (or Affiliates of such
Persons) set forth in the Subsequent Placement Notice (if such Persons are set
forth in the Subsequent Placement Notice); provided, that the Company shall
provide each Preferred Stock Investor with a second Subsequent Placement Notice,
and the Investors shall again have the right of first refusal set forth above in
this Section, if the Subsequent Placement subject to the initial Subsequent
Placement Notice shall not have been consummated for any reason on the terms set
forth in such Subsequent Placement Notice within sixty (60) Trading Days after
the date of the initial Subsequent Placement Notice with the Person (or an
Affiliate of such Person) (if any) identified in the Subsequent Placement
Notice. If the Investor shall indicate a willingness to provide financing in
excess of the amount set forth in the Subsequent Placement Notice, then each
Preferred Stock Investor shall be entitled to provide financing pursuant to such
Subsequent Placement Notice up to an amount equal to such Investor's pro rata
portion of the total number of the shares of Preferred Stock purchased under
this Agreement, but the Company shall not be required to accept financing from
the Investors in an amount in excess of the amount set forth in the Subsequent
Placement Notice.
(b) Except for Underlying Shares, and other "Registrable Securities" (as
such term is defined in the Registration Rights Agreement) to be registered in
accordance with the Registration Rights Agreement (and except as set forth on
Schedule 5 (b) to the Registration Rights Agreement), the Company shall not, for
at least ninety (90) Trading Days after the date that the Registration Statement
is declared effective by the Commission, without the prior written consent of
the Investor, (i) issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities pursuant to Regulation S under the Securities Act
of 1933, or (ii) register for resale any securities of the Company. Any days
that a Preferred Stock Investor is not permitted to sell Underlying Shares under
the Registration Statement shall be added to such 90 Trading Day period for the
purposes of (i) and (ii) above.
(c) For purposes of this Section, "Preferred Stock Investor" shall mean the
holder of any then issued and outstanding shares of Series H Preferred Stock or
Shares.
Section 4.8 Listing of Underlying Shares. The Company shall (a) not later than
the time prescribed by the rules and regulations of the NASD , prepare and file
with the OTC Bulletin Board (as well as any other national securities exchange,
market or trading facility on which the Common Stock is then listed), if
necessary for listing, an additional shares listing application covering at
least one hundred fifty percent (150%) of the Underlying Shares as would be
issuable upon a conversion in full of (and as payment of dividends in respect
of) the Preferred Stock, assuming such conversion occurred on the date of such
application, (b) take all steps necessary to cause such Underlying Shares to be
approved for listing on the OTC Bulletin Board (as well as on any other national
securities exchange, market or trading facility on which the Common Stock is
then listed) as soon as possible thereafter, and (c) provide to the Investor
evidence of such listing, and the Company shall maintain the listing of its
Common Stock on such exchange or market. In addition, if at any time the number
of shares of Common Stock issuable on conversion of all then outstanding
Preferred Stock, including accrued and unpaid dividends thereon, is greater than
the number of shares of Common Stock theretofore listed with the OTC Bulletin
Board (and any such other national securities exchange, market or trading
facility), the Company shall, if necessary for listing, promptly take such
action (including the actions described in the preceding sentence) to file an
additional shares listing application with the NASD (and any such other national
securities exchange, market or trading facility) covering at least a number of
shares equal to the sum of one hundred fifty percent (150%) of (A) the number of
Underlying Shares as would then be issuable upon a conversion in full of the
Preferred Stock, and (B) the number of Underlying Shares as would be issuable as
payment of dividends on the Preferred Stock.
Section 4.9 Notice of Breaches. Each of the Company and the Investor shall give
prompt written notice to the other of any breach by it of any representation,
warranty or other agreement contained in any Transaction Document, as well as
any events or occurrences arising after the date hereof, which would reasonably
be likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained in the Transaction Documents to be
incorrect or breached as of such Closing Date. However, no disclosure by either
party pursuant to this Section 4.9 shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document. Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Investor of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by the Transaction Documents violates or would
violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the Investor a
copy of any written statement in support of, allegedly in support of, or
relating to such claim or notice.
Section 4.10 Conversion Procedures. If the Company changes its transfer agent at
any time prior to the conversion of all of the Shares held by the Investor, the
Company shall deliver any transfer agent instructions to such replacement
transfer agent and cause such transfer agent to comply therewith.
Section 4.11 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Shares and shall deliver Underlying Shares upon
such conversions and exercises in accordance with the respective terms and
conditions and time periods set forth in the Certificate of Designation.
Section 4.12 Transfer of Intellectual Property Rights. Except for (i) exclusive
licenses granted to Affiliates, (ii) in the ordinary course of the Company's
business consistent with past practice, (iii) in connection with the sale of all
or substantially all of the assets of the Company, (iv) upon payment of fair
consideration,or (v) as security for financing being provided by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
members of her immediate family, and Affiliates of her and such family members,
neither the Company nor any subsidiary shall transfer, sell or otherwise dispose
of, any Intellectual Property Rights, or allow the Intellectual Property Rights
to become subject to any Liens, or fail to renew such Intellectual Property
Rights (if renewable and would otherwise expire).
Section 4.13 Registration Rights. The Company's obligations under the
Registration Rights Agreement and the other terms and conditions thereof with
respect to the Underlying Shares, including, but not necessarily limited to, the
Company's commitment to file a registration statement including the Underlying
Shares, to have the registration of the Underlying Shares completed and
effective, and to maintain such registration, are incorporated herein by
reference.
Section 4.14 Release. Effective upon the mutual execution hereof, the Company,
for itself and on behalf of all Affiliates, representatives, and all
predecessors in interest, successors and assigns (collectively, the "Releasing
Parties"), hereby releases and forever discharges each of Investor, and
Investor's direct and indirect partners, officers, directors, employees,
Affiliates, representatives, agents, trustees, beneficiaries, predecessors in
interest, successors in interest and nominees of and from any and all claims,
demands, actions and causes of action, whether known or unknown, fixed or
contingent, arising prior to the date of execution of this Agreement, that the
Company may have had, may now have or may hereafter acquire with respect to any
matters whatsoever under, relating to or arising from any prior Exchange
Agreement, Registration Statement, and the agreements entered into by the
Company and Investors in connection therewith (sometimes collectively referred
to as the "Prior Agreements"). The Company also fully waives any offsets it may
have with respect to the amounts owed under the Prior Agreements. Additionally,
the Company represents, warrants and covenants that it has not, and at the time
this release becomes effective will not have, sold, assigned, transferred, or
otherwise conveyed to any other person or entity all or any portion of its
rights, claims, demands, actions, or causes of action herein released.
Section 4.15 Indemnification. If (i) the Investor becomes involved in any
capacity in any action, proceeding or investigation brought by any stockholder
of the Company, in connection with or as a result of the consummation of the
transactions contemplated by this Agreement, or if such Investor is impleaded in
any such action, proceeding or investigation by any Person, or (ii) the Investor
becomes involved in any capacity in any action, proceeding or investigation
brought by the Securities and Exchange Commission, any self-regulatory
organization or other body having jurisdiction, against or involving the Company
or in connection with or as a result of the consummation of the transactions
contemplated by this Agreement, or if the Investor is impleaded in any such
action, proceeding or investigation by any Person, then in any such case, the
Company hereby agrees to indemnify, defend and hold harmless the Investor from
and against and in respect of all losses, claims, liabilities, damages or
expenses (collectively "Losses") resulting from, imposed upon or incurred by the
Investor, directly or indirectly, and reimburse such Investor for its reasonable
legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred ;
provided, however, that this sentence shall not apply to the extent that such
Losses are caused by, result from or arise out of any breach of this Agreement
by the Investor or any intentionally wrongful or grossly negligent conduct by
the Investor. The indemnification and reimbursement obligations of the Company
under this Section 4.15 shall be in addition to any liability which the Company
may otherwise have (other than matters specifically addressed in the
Registration Rights Agreement, which shall be governed solely by that
agreement), shall extend upon the same terms and conditions to any Affiliates of
the Investor who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Investor and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Investor, any such Affiliate and any such
Person. The Company also agrees that neither the Investor nor any such
Affiliate, partner, director, agent, employee or controlling person shall have
any liability to the Company or any Person asserting claims on behalf of or in
right of the Company in connection with or as a result of the consummation of
this Agreement, except as provided in or contemplated by this Agreement.
Section 4.16 Amendment of Certificate. The Company shall secure the approval of
its Board of Directors for the filing of a proxy statement with Commission for
shareholder approval to increase its authorized shares to not less than
995,000,000 shares of Common Stock , shall file a preliminary proxy statement
with the Commission on or before June 30, 2002 and shall use its reasonable best
efforts to cause such proxy statement to be promptly approved for distribution,
hold such annual or special meeting of shareholders on the earliest practicable
date but not later than October 31, 2002, take all steps necessary or prudent
(including the retention of proxy solicitors at the Company's expense) to secure
any necessary shareholder approval, and thereafter promptly file any necessary
certificates with the appropriate governmental office in the State of Delaware.
Section 4.17 Change in Control . Without the prior written consent of the
Investor, which consent shall not be unreasonably withheld, the Company shall
not enter into any agreement or understanding which may, directly or indirectly,
cause or effect the sale of or substantially all of its assets or a change in
"control" which would necessitate a filing by the Company on Form 8-K; provided,
however, that this Section 4.17 shall not apply during any period in which the
Investor holds twenty percent (20%) or fewer of the Shares originally issued to
it under this Agreement (adjusted for any stock splits or similar transactions).
ARTICLE V.
CONDITIONS; TERMINATION
Section 5.1 Conditions Precedent.
(a) Conditions Precedent to the Obligation of the Company to Sell the
Shares. The obligation of the Company to sell the Shares hereunder to the
Investor is subject to the satisfaction or waiver by the Company, at or before
the Closing, of each of the following conditions: (i) Accuracy of the Investor's
Representations and Warranties . The representations and warranties of the
Investor shall be true and correct in all material respects as of the date when
made and as of the Closing Date, as though made on and as of such date;
(ii) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by it at or prior to the Closing, and
(iii) No Prohibitions. The purchase of and payment for the Shares to
be purchased by the Investor (and upon conversion thereof, the Underlying
Shares) hereunder shall not be prohibited or enjoined (temporarily or
permanently) by any applicable law or governmental regulation.
(b) Conditions Precedent to the Obligation of the Investor to Purchase the
Shares. The obligation of the Investor to acquire and pay for the Shares to be
acquired by it hereunder is subject to the satisfaction or waiver by the
Investor, at or before the Closing, of each of the following conditions:
(i) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company set forth herein shall be
true and correct in all material respects as of the date when made and as
of the Closing Date as though made on and as of such date;
(ii) Performance by the Company. The Company shall have performed,
satisfied andcomplied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Closing;
(iii) No Prohibitions. The purchase of and payment for the Shares to
be purchased by the Investor (and upon conversion thereof, the Underlying
Shares) hereunder shall not be prohibited or enjoined (temporarily or
permanently) by any applicable law or governmental regulation;
(iv) Adverse Changes Error! Reference source not found.. No event or
series of the aggregate, would have or result in a Material Adverse Effect
shall have occurred between the date hereof and the Closing;
(v) No Suspensions of Trading in Common Stock . Trading in the Common
Stock shall not have been suspended from trading on the NASD OTC Bulletin
Board at any time between the date hereof and the Closing;
(d) (vi) Listing of Common Stock. The Common Stock shall have at all times
between the date hereof and the Closing Date been listed for trading on the OTC
Bulletin Board;
(vii) Required Approvals. All Required Approvals shall have been
obtained;
(viii) Certificate of Designation. The Certificate of Designation
shall have been duly filed with the Secretary of State of Delaware, and the
Company shall have delivered a copy thereof to the Investor certified as
filed by the office of the Secretary of State of Delaware.
Section 5.2 Termination.
(a) Termination by Mutual Consent. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to Closing by the mutual
consent of the Company and the Investor.
(b) Termination by the Company or the Investor. This Agreement and the
transactions contemplated hereby may be terminated prior to Closing by either
the Company or the Investor, by giving written notice of such termination to the
other party, if:
(i) there shall be in effect any statute, rule, law or regulation that
prohibits the consummation of the Closing or the transactions contemplated
by the Transaction Documents or if the consummation of the Transaction
Documents would violate any non-appealable final judgment, order, decree,
ruling or injunction of any court of or governmental authority having
competent jurisdiction; or
(ii) there shall have been an amendment to Regulation D promulgated
under the Securities Act or an interpretive release promulgated or issued
thereunder, which, in the reasonable judgment of the terminating party, is
likely to have or result in a Material Adverse Effect.
(c) Termination by the Company. This Agreement and the transactions
contemplated hereby may be terminated prior to Closing by the Company, by giving
written notice of such termination to the Investor, if (i) the Investor has
breached in any material respect any representation, warranty, covenant or
agreement contained in any Transaction Document and such breach is not cured
within one (1) Business Day following receipt by the Investor of notice of such
breach; or (ii) the Closing has not occurred by July 1, 2002 (other than through
the fault of the Company).
(d) Termination by the Investor. This Agreement and the transactions
contemplated hereby may be terminated prior to Closing by the Investor, by
giving written notice of such termination to the Company, if:
(i) the Company has breached in any material respects any
representation, warranty, covenant or agreement contained in any
Transaction Document and such breach is not cured within one (1) Business
Day following receipt by the Company of notice of such breach;
(ii) there has occurred an event or series of events which,
individually or in the aggregate, is likely to have or result in a Material
Adverse Effect which is not disclosed in the Disclosure Materials;
(iii) trading in the Common Stock has been suspended on the NASD OTC
Bulletin Board; or
(iv) the Closing has not occurred by July 1, 2002 (other than through
the fault of the Investor).
ARTICLE V.
MISCELLANEOUS
Section 6.1 Fees and Expenses. The Company shall pay $10,000 of the fees and
expenses of the Investor's counsel, incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of the
Shares pursuant hereto. The Investor shall be responsible for its own tax
liability that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement.
Section 6.2 Entire Agreement; Amendments, Exhibits and Schedules. This
Agreement, together with the Exhibits and Schedules hereto, the Certificate of
Designations, and the Registration Rights Agreement contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof, and supersede all prior agreements and understandings with regard to
the issuance of the Series H Preferred Stock. The Exhibits and Schedules to this
Agreement are hereby incorporated herein and made a part hereof for all purposes
as if fully set forth herein.
Section 6.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 5:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section 6.3 later than 5:00 p.m. (New York
City time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the Business Day scheduled for delivery, if sent by nationally
recognized overnight or other courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: NCT Group, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇, ext. 3522
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: NCT Group, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: General Counsel
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇, ext. 3572
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Investor: ▇▇▇▇▇▇▇ Road LLC
Corporate Center
West Bay Road
Grand Cayman
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇▇▇ & Prager, LLP
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (212) ▇▇▇- ▇▇▇▇
Attn. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
Section 6.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Investor, or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
Section 6.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 6.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns,
including any Persons to whom the Investor transfers Shares.
Section 6.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and, other than with respect to permitted assignees under Section 6.6,
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person.
Section 6.8 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass the County of New
York or the state courts of the State of New York sitting in the County of New
York in connection with any dispute arising under this Agreement, any of the
other Transaction Documents or the Prior Agreements and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
Section 6.9 Jury Trial Waiver. The Company and Investor hereby waive a trial by
jury in any action, proceeding or counterclaim brought by either of the parties
hereto against the other in respect of any matter arising out of or in
connection with the Transaction Documents
Section 6.10 Survival. The representations, warranties, agreements and covenants
contained in this Agreement shall survive the Closing and the conversion of the
Shares.
Section 6.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement, and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
Section 6.12 Publicity. The Company and the Investor shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other party, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other party with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Investor without the prior written consent of the Investor, except to the
extent required by law, in which case the Company shall provide the Investor
with written notice of such public disclosure prior thereto, or promptly
thereafter.
Section 6.13 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
Section 6.14 Remedies. Each of the parties to this Agreement acknowledges and
agrees that the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the parties hereto agrees
that the other party shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce specifically
this Agreement and the terms and provisions of this Agreement in any action
instituted in any court of the United States of America or any state thereof
having jurisdiction over the parties to this Agreement and the matter, in
addition to any other remedy to which they may be entitled, at law or in equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this
Exchange Agreement to be duly executed as of the date first indicated above.
NCT GROUP, INC.
Dated: June 24, 2002
By: /s/ ▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇ ▇. ▇▇▇▇▇▇▇
Title: Senior Vice President
Chief Financial Officer
▇▇▇▇▇▇▇ ROAD LLC
Dated: June 26, 2002
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇▇▇
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Name: Navigator Management Ltd
Title: Director