EXCHANGE RIGHTS AGREEMENT
(Notes)
This Agreement is dated as of the 29th day of June, 2001 among NCT Group,
Inc., a Delaware corporation (the "Company"), and the Holders identified on
Schedule A hereto (individually a "Holder", collectively the "Holders").
WHEREAS, Artera Group, Inc., a Delaware corporation, is a wholly owned
subsidiary of the Company ("Subsidiary"); and
WHEREAS, the Holders are purchasing pursuant to that certain Subscription
Agreement dated at or about June 29, 2001 between the Holder and the Subsidiary
(the "Subscription Agreement") convertible notes of the Subsidiary (the
"Notes"), the terms of which are set forth in the Notes and the Subscription
Agreement, (the principal amounts of the Notes issued to the Holders are set
forth on Schedule A hereto); and
WHEREAS it is in the best interests of the Company for the Holders to
purchase the Notes and as an inducement therefore and for other good and
valuable consideration, the receipt of which is hereby acknowledged by the
Company, the Company hereby grants the exchange rights described herein to the
Holders.
NOW THEREFORE, the parties agree as follows:
1. Exchange into the Company's Common Stock.
(a) The Holder shall have the right (such a right an "Exchange Right") from
November 30, 2001, and at any time thereafter that Notes are outstanding, to
exchange any outstanding Note principal and interest for fully paid and
nonassessable shares of the Company's common stock, par value $.01 per share, as
such stock exists on the date of issuance of the Notes, or any shares of capital
stock of Company into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the exchange price as defined in Section
1(b) hereof (the "Exchange Price"), determined as provided herein. The number of
shares of Common Stock to be issued upon each exchange of the Notes shall be
determined by dividing the principal of that portion of the Notes to be
exchanged, by the Exchange Price.
(b) Subject to adjustment as provided in Section 4 hereof, the exchange
price per share (the "Exchange Price") shall be one hundred percent (100%) of
the average of the closing bid prices for the Common Stock on the OTC Pink
Sheets, NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market
System, American Stock Exchange, or New York Stock Exchange, as applicable, or
if not then trading on any of the foregoing, such other principal market or
exchange where the Common Stock is listed or traded (whichever of the foregoing
is at the time the principal trading exchange or market for the Common Stock,
the "Principal Market"), for the five (5) trading days prior to but not
including the Exchange Date.
2. (a) Exchange Procedure. The Holder of Notes desiring to exchange any
principal or interest portion of such Notes may give written notice of its
decision to exchange the Notes for Common Stock by delivering or telecopying an
executed and completed notice of exchange in the form annexed hereto (such
notice a "Notice of Exchange") to the Company (any date of giving such a Notice
of Exchange, an "Exchange Date") and delivering within three business days
thereafter, the original Note to the Company. The Company will transmit the
certificates representing the shares of Common Stock issuable upon exchange of
Notes (together with a Note representing the Note principal and interest not
exchanged) to the Holder via express courier, by electronic transfer or
otherwise for receipt by the Holder, within five (5) business days after receipt
by the Company of the original or telecopied Notice of Exchange and thereafter,
the Note to be exchanged (the "Delivery Date"). The Holder of the Note so
surrendered for exchange shall be entitled to receive on or before the Delivery
Date a certificate or certificates which shall be fully paid and non-assessable
for the number of shares of Common Stock to which such Holder shall be entitled
upon such exchange, registered in the name of such Holder. In the case of any
Note which is exchanged only in part, the Holder of a Note shall upon delivery
of the certificate or certificates representing Common Stock also receive a new
Note representing the unexchanged portion of the Note.
(b) The Company shall not be required, in connection with any exchange of
Notes, to issue a fraction of a share of its Common Stock and shall instead
deliver a stock certificate representing the next whole number.
3. Exchange Limitations. The Holder may not exchange that amount of the
Note on an Exchange Date into amounts of Common Stock which would be in excess
of the sum of (i) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates on such Exchange Date, and (ii) the number of shares
of Common Stock issuable upon the exchange of the Note with respect to which the
determination of this proviso is being made on such Exchange Date, which would
result in beneficial ownership by the Holder and its affiliates of more than
9.99% of the outstanding shares of Common Stock of the Company. For the purposes
of the proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 13d-3 promulgated thereunder.
The Holder may revoke the exchange limitation described in this Paragraph 3 upon
75 days prior notice to the Company. The Holder may allocate which of the equity
of the Company deemed beneficially owned by the Holder shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.
4. Merger/Sale of Assets/Dividends.
(a) In case of any merger of the Company with or into any other Company
(other than a merger in which the Company is the surviving or continuing Company
and which does not result in any reclassification, exchange, or change of the
outstanding shares of Common Stock) then unless the right to exchange Notes
shall have terminated, as part of such merger provision shall be made so that
Holders of Notes shall thereafter have the right to exchange Notes held by such
Holder into the kind and amount of shares of stock and/or other securities or
property receivable upon such merger by a holder of the number of shares of
Common Stock into which such Notes might have been exchanged immediately prior
to such consolidation or merger. The foregoing provisions of this Paragraph 4
shall similarly apply to successive mergers.
(b) In case of any sale or conveyance to another person or entity of the
property of the Company as an entirety, or substantially as an entirety, in
connection with which shares or other securities or cash or other property shall
be issuable, distributable, payable, or deliverable for outstanding shares of
Common Stock, then, unless the right to exchange the Notes shall have
terminated, lawful provision shall be made so that the Holders of Notes shall
thereafter have the right to exchange the Notes into the kind and amount of
shares of stock or other securities or property that shall be issuable,
distributable, payable, or deliverable upon such sale or conveyance with respect
to each share of Common Stock immediately prior to such conveyance.
(c) If the shares of Common Stock are subdivided or combined into a greater
or smaller number of shares of Common Stock, or if a dividend is paid on the
Common Stock in shares of Common Stock, the Exchange Price shall be
proportionately reduced in case of subdivision of shares or stock dividend or
proportionately increased in the case of combination of shares, in each such
case by the ratio which the total number of shares of Common Stock outstanding
immediately after such event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
(d) In case at any time the Company shall propose:
(i) to pay any dividend or distribution payable in shares upon its Common
Stock or make any distribution (other than cash dividends) to the holders of its
Common Stock; or
(ii) to offer for subscription to the holders of its Common Stock any
additional shares of any class or any other rights; or
(iii) any capital reorganization or reclassification of its shares or the
merger of the Company with another Company (other than a merger in which the
Company is the surviving or continuing Company and which does not result in any
reclassification, exchange, or change of the outstanding shares of Common
Stock); or
(iv) the voluntary dissolution, liquidation or winding-up of the Company;
then, and in any one or more of said cases, the Company shall cause at least
fifteen (15) days prior notice of the date on which (A) the books of the Company
shall close or a record be taken for such stock dividend, distribution, or
subscription rights, or (B) such capital reorganization, reclassification,
merger, dissolution, liquidation or winding-up shall take place, as the case may
be, to be mailed to the Holders of Notes.
(e) The Company shall pay the amount of any and all issue taxes (but not
income taxes) which may be imposed in respect of any issue or delivery of stock
upon the exchange of a Note, but all transfer taxes and income taxes that may be
payable in respect of any change of ownership of a Note or any rights
represented thereby or of stock receivable upon exchange thereof shall be paid
by the person or persons surrendering such stock for exchange.
(f) Whenever the number of shares to be issued upon exchange of the Notes
is required to be adjusted as provided in this Paragraph 4, the Company shall
forthwith compute the adjusted number of shares to be so issued and the adjusted
Exchange Price and prepare a certificate setting forth such adjusted exchange
amount and the facts upon which such adjustment is based, and such certificate
shall forthwith be delivered to each Holder of Notes.
5. Liquidated Damages.
(a) In the event a Holder shall elect to exchange a Note as provided
herein, the Company may not refuse exchange based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, or for breach of this Agreement or any of the agreement
between the Company and its affiliates and the Holders, unless, an injunction
from a court, on notice, restraining and or enjoining exchange of all or part of
said Note shall have been issued and the Company posts a surety bond for the
benefit of such Holder in the amount of 125% of the principal of the Note and
accrued interest sought to be exchanged, 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 Holder in the
event it obtains judgment.
(b) Intentionally Omitted.
(c) Intentionally Omitted.
(d) In the event (i) the Company is prohibited from issuing Common Stock;
(ii) fails to timely deliver Common Stock within five business days after a
Delivery Date; (iii) if the Approval (as defined in Section 6 hereof) is not
obtained on or before July 10, 2001; or (iv) if the Required Reserve (as defined
in Section 6 hereof) is not set aside and reserved on behalf of the holder of
the Note on or before July 10, 2001, then at the Holder's election, the Company
must pay to the Holder five (5) business days after request by the Holder or on
the Delivery Date (if requested by the Holder) a sum of money equal to the Note
principal designated by the Holder together with accrued but unpaid interest
thereon ("Mandatory Redemption Payment"). The Mandatory Redemption Payment must
be received by the Holder on the same date as the Common Stock otherwise
deliverable or within five (5) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal will be deemed paid and no longer
outstanding.
(e) In the event the Common Stock issuable upon exchange of a Note or part
thereof is not included for resale in an effective registration statement at any
time when such Common Stock is required to be so included pursuant to the terms
of this Agreement, and the Registration Rights Agreement referred to in
Paragraph 7 below, then the Holder may elect, at the Holder's sole discretion,
to receive an amount of restricted Common Stock equal to the amount of Common
Stock otherwise receivable upon exchange in lieu of the Common Stock otherwise
receivable pursuant to the relevant Notice of Exchange.
(f) 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 Holder and thus refunded to the Company.
6. Undertaking/Share Reservation. So long as any Notes shall remain
outstanding and the Holders thereof shall have the right to exchange same, the
Company shall at all times reserve from the authorized and unissued shares of
its Common Stock a sufficient number of shares to provide for such exchanges
subject to the following: The Company will reserve the number of shares of
Common Stock on behalf of each Holder of a Note equal at all times to not less
than 130% of the amount of Common Stock necessary to allow exchange of the
entire Note principal and accrued interest. To the extent that the Company does
not have sufficient authorized and unissued shares of Common Stock available for
full exchange of the Note, the Company shall seek shareholder approval to
increase the number of authorized shares of Common Stock to provide for the
reservation of the number of shares of Common Stock equal to not less than 130%
of the number of shares of Common Stock that would be issuable upon exchange of
the Note employing the lowest Exchange Price in effect at any time from the date
of this Agreement and until the date immediately preceding the date of the
meeting of the Company's shareholders at which such approval is sought (such
amount being the "Required Reserve" and the shareholder's approval being the
"Approval"). The Company undertakes to obtain the Approval no later than July
10, 2001 and reserve the Required Reserve.
7. Registration Rights. The Holder has been granted certain registration
rights by the Company in connection with the Common Stock. These registration
rights are set forth in a Registration Rights Agreement entered into by the
Company and Holder at or about the date of this Agreement.
8. Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and defend
Holder, Holder'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 Holder or any such person which results, arises out of or is based
upon (i) any 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 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 Holders relating hereto.
(b) Holder agrees to indemnify, hold harmless, reimburse and defend the
Company and the Company's officers and directors 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 misrepresentation by Holder or
breach by Holder of any warranty in this Agreement or in any Exhibits or
Schedules attached hereto or other agreement delivered pursuant hereto; or (ii)
after any applicable notice and/or cure periods, any breach or default in
performance by Holder of any covenant or undertaking to be performed by Holder
hereunder, or any other agreement entered into by the Company and Holders
relating hereto.
9. 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 on Schedule A hereto: (i) if
to the Company, to NCT Group, Inc., 20 Ketchum Street, Westport, CT 06880,
telecopier number: (203) 226-4338, with a copy by telecopier only to: Latham &
Watkins, 555 Eleventh Avenue, N.W., Washington, D.C. 20004, Attn: William P.
O'Neill, Esq., telecopier number: (202) 637-2201 and (ii) if to the Holder, to
the name, address and telecopy number set forth on Schedule A hereto. Any notice
that may be given pursuant to this Agreement, or any document delivered in
connection with the foregoing may be given by the Holder 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 Holder on a holiday date that precedes such notice. Any notice received by
the Holder on any of the aforedescribed holidays may be deemed by the Holder to
be received and effective as if such notice had been received on the first
business day after the holiday. Notice of change of address for purposes of this
section shall be made pursuant to the provisions of this section.
(b) 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 reasonable consent of the other party.
(c) Execution. This Agreement may be executed by facsimile transmission,
and in counterparts, each of which will be deemed an original.
(d) 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 either 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 the Company 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 its 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.
(e) Specific Enforcement, Consent to Jurisdiction. The Company and Holder
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
9(d) hereof, each of the Company and Holder 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.
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Rights
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
NCT GROUP, INC.
By:____________________________________
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ALPHA CAPITAL AKTIENGESELLSCHAFT
- Holder
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AMRO INTERNATIONAL, S.A. - Holder
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THE GROSS FOUNDATION, INC. - Holder
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LEVAL TRADING, INC. - Holder
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NESHER LTD. - Holder
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TALBIYA B. INVESTMENTS LTD. - Holder
Artera Group, Inc. acknowledges the foregoing Exchange Rights Agreement and
agrees to cooperate with all parties thereto to effectuate the timely compliance
with the terms thereof by NCT Group, Inc. and the Holders.
ARTERA GROUP, INC.
By:___________________________________
SCHEDULE A TO EXCHANGE RIGHTS AGREEMENT
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HOLDER NOTE PRINCIPAL PROPORTIONATE SHARE
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ALPHA CAPITAL AKTIENGESELLSCHAFT $830,375.00 66.43%
A Lichtenstein corporation
Pradafant 7, 9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-42-32323196
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AMRO INTERNATIONAL, S.A. $169,127.50 13.5302%
C/o Ultra Finanz
Grossmuenster Platz 6
Zurich, Switzerland CH8022
Fax: 011-411-262-5512
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THE GROSS FOUNDATION, INC. $26,945.00 2.1556%
1660 49th Street
Brooklyn, New York
Fax: 718-851-3511
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LEVAL TRADING, INC. $129,451.25 10.3561%
C/o Thierry Ulmann
14 rue du Conseil-General
CH-1205, Geneva, Switzerland
Fax: 011-4122-321-0807
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NESHER LTD. $47,050.62 3.764%
Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom Fax:
011-44-1624-661594
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TALBIYA B. INVESTMENTS LTD. $47,050.63 3.764%
Ragnall House, 18 Peel Road Douglas, Isle of Man 1M1 4L2, United Kingdom Fax:
011-44-1624-661594
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TOTAL $1,250,000.00 100%
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NOTICE OF EXCHANGE
(To be executed by the Registered Holder in order to exchange the Note)
The undersigned hereby elects to exchange $_________ of the principal and
$_________ of the interest due on the Note issued by Artera Group, Inc. on June
29, 2001 into Shares of Common Stock of NCT Group, Inc. (the "Company")
according to the conditions set forth in such Note, as of the date written
below.
Date of Exchange:______________________________________________________________
Exchange Price:_________________________________________________________________
Shares To Be Delivered:________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
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