Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES I CONVERTIBLE PREFERRED STOCK
OF
NCT GROUP, INC.
NCT Group, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY,
That, pursuant to authority conferred upon the Board of Directors of the
Corporation by the Second Restated Certificate of Incorporation of the
Corporation, as amended, and pursuant to the provisions of Section 151 of Title
8 of the Delaware Code of 1953, as amended, such Board of Directors, via
unanimous written consent dated as of March 1, 2005, adopted a resolution
providing for the issuance of a total of One Thousand (1,000) shares of Series I
Convertible Preferred Stock, and providing for the powers, designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, which resolution is as
follows:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of
Article IV of the Second Restated Certificate of Incorporation of the
Corporation, this Board of Directors hereby creates a series of the
Preferred Stock of the Corporation with par value of $.10 per share (the
"Preferred Stock") to consist of One Thousand (1,000) shares of the Ten
Million (10,000,000) authorized shares of Preferred Stock that the
Corporation now has authority to issue, and this Board of Directors hereby
fixes the powers, designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions thereof of the shares of such series (in addition to the
powers, designations, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions
thereof, set forth in Article IV of the Second Restated Certificate of
Incorporation not inconsistent with the terms of this resolution and that
are applicable to the Preferred Stock) as follows:
(1) Designation. The designation of said series of Preferred Stock
created by this Resolution shall be Series I Convertible Preferred Stock.
Shares of said Series I Convertible Preferred Stock are herein collectively
referred to as "Series I Preferred Shares" and individually as "Series I
Preferred Share."
(2) Par Value and Stated Value. Each Series I Preferred Share shall
have a par value of $.10 (the "Par Value"), and a stated value (face
amount) of One Thousand Dollars ($1,000.00) (the "Stated Value").
(3) Dividends. No dividends shall be payable on the Series I Preferred
Shares.
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(4) Holder's Right of Conversion. A holder of a Series I Preferred
Share (a "Holder") shall have the right, at its option, to convert its
Series I Preferred Shares into shares of common stock, par value $.01 per
share (the "Common Stock") of the Corporation (such Holder thereby being a
"Converting Holder") on the following terms and conditions:
(a) Conversion Right. At any time or times on or after twenty
days following the Stockholder Approval Date (as defined in Section 6
below), any Holder thereof shall be entitled to convert any such
Series I Preferred Shares into fully paid and nonassessable shares of
Common Stock (rounded to the nearest whole share of Common Stock in
accordance with Section 4(f) hereof) at the Conversion Rate (as
defined below).
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each of the Series I Preferred Shares
pursuant to Section 4(a) hereof shall be determined according to the
following formula (the "Conversion Rate"):
Stated Value = Number of Shares
Conversion Price of Common Stock
For purposes of this Certificate of Designations, "Conversion Price"
means $0.0210.
(c) Adjustment to Conversion Price - Dilution and Other Events.
In order to prevent dilution of the rights granted under this
Certificate of Designations, the Conversion Price will be subject to
adjustment from time to time as provided in this Section 4(c).
(i) Reorganization, Reclassification, Consolidation, Merger,
or Sale. Any recapitalization, reorganization reclassification,
consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person (as defined below) or
other similar transaction, which is effected in such a way that
holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock, is referred to herein
as an "Organic Change." Prior to the consummation of any Organic
Change, the Corporation will make appropriate provision (in form
and substance reasonably satisfactory to the holders of a
majority of the Series I Preferred Shares then outstanding) to
insure that each of the Holders will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may
be) the shares of Common Stock immediately theretofore acquirable
and receivable upon the conversion of such Holder's Series I
Preferred Shares, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore
acquirable
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and receivable upon the conversion of such Holder's Series I
Preferred Shares had such Organic Change not taken place on such
date. In any such case, the Corporation will make appropriate
provision (in form and substance reasonably satisfactory to the
holders of a majority of the Series I Preferred Shares then
outstanding) with respect to such Holder's rights and interests
to insure that the provisions of this Section 4(c) and Section
4(d) hereof will thereafter be applicable to the Series I
Preferred Shares. The Corporation will not effect any such
consolidation, merger or sale unless, prior to the consummation
thereof, the successor entity (if other than the Corporation)
resulting from such consolidation or merger assumes, or the
entity purchasing such assets assumes, by written instrument (in
form and substance reasonably satisfactory to the holders of a
majority of the Series I Preferred Shares then outstanding), the
obligation to deliver to each Holder such shares of stock,
securities or assets as, in accordance with the foregoing
provisions, such Holder may be entitled to acquire. For purposes
of this Agreement, a "Person" shall mean an individual, a limited
liability company, a partnership, a joint venture, a corporation,
a trust, an unincorporated organization and a government or any
department or agency thereof.
(ii) Spin-off. If, at any time prior to a Conversion Date
(as defined in Section 4(e)(i) hereof), the Corporation
consummates a spin-off or otherwise divests itself of all or a
part of its business or operations or disposes of all or of a
part of its assets in a transaction (a "Spin-off") in which the
Corporation does not receive fair consideration for such
business, operations or assets, but causes securities of another
entity (the "Spin-off Securities") to be issued to security
holders of the Corporation, the Corporation shall (A) reserve
Spin-off Securities equal to the number thereof that would have
been issued to the Holder had all of such Holder's Series I
Preferred Shares outstanding on the record date for determining
the amount and number of Spin-off Securities to be issued to
security holders of the Corporation been converted as of the
close of business on the Trading Day immediately preceding such
record date (the "Reserved Spin-off Shares"); and (B) issue to
the Holders, on the conversion of all or any of the Series I
Preferred Shares, a number of Reserved Spin-off Shares equal to
the product of (I) the number of Reserved Spin-off Shares, times
(II) a fraction, of which the numerator is the aggregate Stated
Value of the Series I Preferred Shares then being converted and
the denominator is the aggregate Stated Value of all of the
outstanding Series I Preferred Shares.
(iii) Stock Split, Etc. If, at any time while any Series I
Preferred Shares remain outstanding, the Corporation effectuates
a stock split or reverse stock split of its Common Stock or
issues a dividend on its Common Stock consisting of shares of
Common Stock (each of the foregoing, a "Split Event"), the
Conversion Price shall be equitably adjusted to reflect such
action. By way of illustration and not in limitation
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of the foregoing, (A) if the Corporation effectuates a 2:1 split
of its Common Stock, the Conversion Price shall be deemed to be
one-half of what it had been immediately prior to such Split
Event; (B) if the Corporation effectuates a 1:10 reverse split of
its Common Stock, the Conversion Price shall be deemed to be ten
times what it had been immediately prior to such Split Event; and
(C) if the Corporation declares a stock dividend of one share of
Common Stock for every ten shares of Common Stock outstanding,
the Conversion Price shall be deemed to be the amount it had been
immediately prior to such Split Event multiplied by a fraction,
of which (I) the numerator is the number of shares (ten, in this
example) for which a dividend share will be issued and (II) the
denominator is such number of shares plus the number of dividend
share(s) issuable thereon (11, in this example).
(iv) Notices.
(A) Immediately upon any adjustment of the Conversion
Price described above in this Section 4(c), the Corporation
will give written notice thereof to each Holder, setting
forth in reasonable detail and certifying the calculation of
such adjustment.
(B) The Corporation will give written notice to each
Holder at least ten days prior to the date on which the
Corporation closes its books or takes a record (I) with
respect to any dividend or distribution upon the Common
Stock or (II) for determining rights for Holders to vote.
(C) The Corporation will give written notice to each
Holder at least ten days prior to the date on which any
Organic Change, Spin-off, Split Event, dissolution or
liquidation will take place.
(d) Purchase Rights. If at any time the Corporation grants,
issues or sells any options, convertible securities or rights to
purchase stock, warrants, securities or other property pro rata to all
the record holders of any class of Common Stock (the "Purchase
Rights"), then the Holders will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights
which such Holder could have acquired if such Holder had held the
number of shares of Common Stock acquirable upon complete conversion
of the Series I Preferred Shares immediately before the date on which
a record is taken for the grant issuance or sale of such Purchase
Rights or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
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(e) Mechanics of Conversion.
(i) Holder's Delivery Requirements. To convert Series I
Preferred Shares into full shares of Common Stock on any date on
which such right exists under this Agreement (the "Conversion
Date"), the Holder shall (A) deliver or transmit by hand delivery
or facsimile, for receipt on or prior to 11:59 p.m. Eastern time
on such date, a copy of a fully executed notice of conversion in
the form attached hereto as Exhibit A (the "Conversion Notice")
to the Corporation (NCT Group, Inc., 20 Ketchum Street, Westport,
CT 06880, Attn: General Counsel, facsimile number 203-226-4338);
and (B) deliver to the Corporation, as soon as practicable
following such notice, the original certificates ("Series I
Preferred Certificates") representing the Series I Preferred
Shares being converted (or an indemnification undertaking with
respect to such certificates in the case of their loss, theft or
destruction).
(ii) Corporation's Response. Upon receipt by the Corporation
of a Conversion Notice, the Corporation shall immediately send,
via hand delivery or facsimile, a confirmation of receipt of such
Conversion Notice to such Holder. Upon receipt by the Corporation
of the Series I Preferred Certificates (the "Date of Receipt") to
be converted pursuant to a Conversion Notice, the Corporation
shall, within five business days following the Date of Receipt
(the "Delivery Date"), issue and deliver to the address as
specified in the Conversion Notice, (A) a Conversion Certificate,
registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be
entitled; and (B) if the Holder's conversion is for fewer than
all of the Series I Preferred Shares represented by a Series I
Preferred Certificate surrendered, a replacement Series I
Preferred Certificate as described in Section 5 hereof.
(iii) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of
Series I Preferred Shares shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on
the Conversion Date.
(f) Fractional Shares. The Corporation shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one Series I Preferred Share by a Holder thereof shall be
aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. If,
after the aforementioned aggregation, the issuance would result in the
issuance of a fraction of a share of Common Stock, the Corporation
shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
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(g) Taxes. The Corporation shall pay any and all transfer, stamp
duty or other taxes of similar import which may be imposed upon it
with respect to the issuance and delivery of Common Stock upon the
conversion of the Series I Preferred Shares. The Corporation shall in
no event be responsible for taxes on income or gain realized by or
imputed to any Holder.
(h) Conversion Disputes. In the case of any dispute with respect
to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with Section
4(e)(ii) hereof. If such dispute involves the calculation of the
Conversion Price, the Corporation shall first discuss such discrepancy
with the Converting Holder. If the Corporation and the Converting
Holder are unable to agree upon the Conversion Price calculation, the
Corporation shall promptly submit the disputed calculation to an
independent auditor of its choice. The auditor, at the expense of the
party in error (as determined by the auditor), shall audit the
calculation and notify the Corporation and the Converting Holder of
the results promptly after it receives the disputed calculations. The
auditor's calculation shall be deemed conclusive, absent manifest
error. The Corporation shall then issue the appropriate number of
shares of Common Stock in accordance with Section 4(e)(ii) hereof.
(i) Conversion in Bankruptcy. A Holder shall be entitled to
exercise its conversion right with respect to the Series I Preferred
Shares notwithstanding the commencement of any case under 11 U.S.C.
ss.101 et seq. (the "Bankruptcy Code"). In the event the Corporation
is a debtor under the Bankruptcy Code, the Corporation hereby waives,
to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of such Holder's right to convert
the Series I Preferred Shares. The Corporation agrees, without cost or
expense to such Holder, to take or to consent to any and all actions
necessary to effectuate relief for the Holder under 11 U.S.C. ss.362.
(5) Reissuance of Certificates. In the event of a conversion pursuant
to this Certificate of Designations of fewer than all of the Series I
Preferred Shares represented by a particular Series I Preferred
Certificate, the Corporation shall promptly issued and deliver to the
Holder of such Series I Preferred Shares a Series I Preferred Certificate
representing the remaining Series I Preferred Shares that have not been so
converted or redeemed.
(6) Reservation of Shares. As of twenty days after the date, after the
date hereof, that the stockholders of the Corporation approve an amendment
of the Certificate of Incorporation of the Corporation to increase the
number of shares of Common Stock that the Corporation is authorized to
issue (such day of approval, the "Stockholder Approval Date"), the
Corporation shall, so long as any of the Series I Preferred Shares are
outstanding, reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Series I Preferred Shares, the number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of the Series I
Preferred Shares then issued and outstanding.
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(7) Voting Rights. Holders shall have no voting rights, except as
required by law and except as may be expressly provided in this Certificate
of Designations. To the extent that, under the Delaware General Corporation
Law, the vote of the Holders, voting separately as a series (or as part of
a class of preferred stock, as applicable) is required to authorize a given
action of the Corporation, the affirmative vote or consent of the holders
of a majority of the then outstanding Series I Preferred Shares represented
at a duly held meeting at which a quorum of a majority of the total then
outstanding Series I Preferred Shares is present (or a majority of the then
outstanding shares of preferred stock represented at a duly held meeting at
which a quorum of a majority of the total then outstanding shares of
preferred stock is present, as applicable) or by written consent of the
holders of a majority of the then outstanding Series I Preferred Shares (or
a majority of the then outstanding shares of preferred stock, as
applicable), in each case except as otherwise may be required under the
Delaware General Corporation Law, shall constitute the approval of such
action by the series (or class, as applicable). In furtherance of the
foregoing and not in limitation thereof, to the extent that, under the
Delaware General Corporation Law, Holders are entitled to vote on a matter
with holders of Common Stock, voting together as one class, then, in each
such event, each Series I Preferred Share shall be entitled to a number of
votes equal to the number of shares of Common Stock into which such Series
I Preferred Share is then convertible.
(8) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation, Holders shall be entitled to receive in cash out of the assets
of the Corporation, whether from capital or from earnings available for
distribution to its stockholders (the "Preferred Funds"), after all amounts
payable to any holders of the Corporation's Series G Convertible Preferred
Stock, the Corporation's Series H Convertible Preferred Stock and of any
other capital stock of the Corporation of any class senior in rank to the
Series I Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation, dissolution and winding up
of the Corporation, and before any amount shall be paid to the holders of
any of the capital stock of the Corporation of any class junior in rank to
the Series I Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation, dissolution and winding up
of the Corporation, an amount per Series I Preferred Share equal to the
Stated Value (the "Liquidation Value"); provided that, if the Preferred
Funds are insufficient to pay the full amount due to the Holders and
holders of other classes or series of preferred stock of the Corporation
that are of equal rank with the Series I Preferred Shares as to payments of
Preferred Funds (the "Pari Passu Shares"), then each holder of Series I
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Preferred Funds equal to the full amount of Preferred Funds payable to such
holder as a liquidation preference, in accordance with their respective
Certificate of Designations, Preferences and Rights, as a percentage of the
full amount of Preferred Funds payable to all holders of Series I Preferred
Shares and Pari Passu Shares. The purchase or redemption by the Corporation
of stock of any class in any manner permitted by law shall not, for the
purposes hereof, be regarded as a liquidation, dissolution or winding up of
the Corporation. Neither the consolidation or merger of the Corporation
with or into any other Person, nor the sale or transfer by the
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Corporation of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up
of the Corporation. No Holder shall be entitled to receive any amounts with
respect thereto upon any liquidation, dissolution or winding up of the
Corporation other than the amounts provided for herein.
(9) Preferred Rank. The Series I Preferred Shares shall be of a rank
senior to all shares of Common Stock, and all shares of Common Stock shall
be of a rank junior to all Series I Preferred Shares, in respect to the
preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Corporation. The rights of the shares of
Common Stock shall be subject to the preferences and relative rights of the
Series I Preferred Shares. The Series I Preferred Shares shall be of
greater rank than any class or series of common stock hereinafter issued by
the Corporation. The Series I Preferred Shares shall be of a rank junior to
all shares of the Corporation's Series G Convertible Preferred Stock and of
the Corporation's Series H Preferred Stock, and the Corporation's Series G
Convertible Preferred Stock and the Corporation's Series H Preferred shall
be of a rank senior to all Series I Preferred Shares, in respect to the
preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Corporation. The Series I Preferred
Shares may be of greater, equal or lesser rank than any class or series of
preferred stock hereinafter issued by the Corporation. In the event of the
merger or consolidation of the Corporation with or into another
corporation, the Series I Preferred Shares shall maintain their relative
powers, designations and preferences provided for herein and no merger
shall create a result inconsistent therewith.
(10) Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of any Series I Preferred Certificates and, in the case of loss,
theft or destruction, of any indemnification undertaking by the Holder to
the Corporation and, in the case of mutilation, upon surrender and
cancellation of the Series I Preferred Certificates, the Corporation shall
execute and deliver new Series I Preferred Certificates of like tenor and
date; provided, however, that the Corporation shall not be obligated to
reissue Series I Preferred Certificates if the Holder contemporaneously
requests the Corporation to convert the Series I Preferred Shares
represented by such Series I Preferred Certificates into Common Stock.
(11) Withholding Tax Obligations. Notwithstanding anything herein to
the contrary, to the extent that the Corporation receives advice in writing
from its counsel that there is a reasonable basis to believe that the
Corporation is required by applicable Federal laws or regulations (and
delivers a copy of such written advice to the Holders so affected), the
Corporation may reasonably condition the making of any distribution (as
such term is defined under applicable federal tax law and regulations) in
respect of any Series I Preferred Shares on the Holder of such Series I
Preferred Shares depositing with the Corporation an amount of cash
sufficient to enable the Corporation to satisfy its withholding tax
obligations (the "Withholding Tax") with respect to such distribution.
Notwithstanding the foregoing or anything to the contrary, if any Holder so
affected receives advice in writing from its counsel, reasonably acceptable
to the Corporation, that
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there is a reasonable basis to believe that the Corporation is not so
required by applicable federal laws or regulations (and delivers a copy of
such written advice to the Corporation), the Corporation shall not be
permitted to condition the making of any such distribution in respect of
any Series I Preferred Shares on the Holder of such Series I Preferred
Shares depositing with the Corporation any Withholding Tax with respect to
such distribution; provided, however, that the Corporation may reasonably
condition the making of any such distribution in respect of any Series I
Preferred Shares on the Holder of such Series I Preferred Shares executing
and delivering to the Corporation, at the election of the Holder, either
(a) if applicable, a properly completed Internal Revenue Service Form 4224
or (b) an indemnification agreement, in a form reasonably acceptable to the
Corporation, with respect to any federal tax liability, penalties and
interest that may be imposed upon the Corporation by the Internal Revenue
Service as a result of the Corporation's failure to withhold in connection
with such distribution to such Holder.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by Mark Melnick, its Senior Vice President, General
Counsel and Secretary, as of March 7, 2005.
NCT GROUP, INC.
By: /s/ Mark melnick
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Mark Melnick
Senior Vice President, General Counsel and
Secretary
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EXHIBIT A
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NCT GROUP, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights of Series I Convertible Preferred Stock of NCT Group, Inc. (the
"Certificate of Designations"). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the number
of shares of Series I Convertible Preferred Stock, par value $.10 per share (the
"Series I Preferred Shares"), of NCT Group, Inc., a Delaware corporation (the
"Corporation"), indicated below into shares of Common Stock, par value $.01 per
share (the "Common Stock"), of the Corporation, by tendering the stock
certificate(s) representing the share(s) of Series I Preferred Shares specified
below as of the date specified below.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series I Preferred
Shares shall be made only pursuant to (i) a registration statement effective
under the Securities Act of 1933, as amended (the "Act"), or (ii) an opinion of
counsel in form and content reasonably satisfactory to the Corporation that such
sale is exempt from registration required by Section 5 of the Act.
Date of Conversion:
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Number of Series I
Preferred Shares to be converted:
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Stock certificate no(s). of Series I
Preferred Shares to be converted:
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Please confirm the following information:
Conversion Price:
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Number of shares of Common Stock to be issued:
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10
Please issue the Common Stock into which the Series I Preferred Shares are being
converted in the following name and to the following address:
1
Issue to:
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Facsimile Number:
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Authorization Signature:
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By:
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Name:
---------------------------------
Title:
---------------------------------
Date:
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ACKNOWLEDGED AND AGREED:
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NCT GROUP, INC.
By:
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Name:
---------------------------------
Title:
---------------------------------
Date:
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1
If other than to the record holder of the Series I Preferred Shares, any
applicable transfer tax must be paid by the undersigned.
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