Exhibit 10(ar)
EXCHANGE RIGHTS AGREEMENT
This Agreement is dated as of the 9th day of January, 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, NCT Networks, 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 January 9, 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 and after four months after the date of this Agreement as to
one-fifth (1/5) of the Purchase Price (as defined in the Subscription Agreement)
which in the aggregate is $5,040,000 for all Holders set forth on Schedule A
hereto, and each sixty (60) days thereafter cumulatively as to an additional
one-fifth (1/5) of the Purchase Price, and at any time thereafter as the 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
$0.01 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(a)
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. (a) Merger/Sale of Assets/Dividends. 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) 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.
(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.
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 is not obtained on or before July 10,
2001; or (iv) if the Required Reserve 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 has reserved and will continue to reserve
the number of shares of Common Stock on behalf of each Holder of a Note in the
amounts designated on Schedule A hereto ("Reserved Shares"). 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 120% 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., 00 Xxxxxxx Xxxxxx, Xxxxxxxx,
XX 00000, telecopier number: (000) 000-0000, with a copy by telecopier only to:
Xxxxxx & Xxxxxxx, 0000 Xxxxxxxxxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000, Attn:
Xxxxxxx X. X'Xxxxx, Esq., telecopier number: (000) 000-0000 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: /s/ XX X. XXXXXXX
----------------------------------------
Xx X. Xxxxxxx
------------------------------------
AUSTOST ANSTALT XXXXXX - Xxxxxx
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BALMORE, S.A. - Holder
------------------------------------
AMRO INTERNATIONAL, S.A. - Holder
------------------------------------
NESHER LTD. - Holder
------------------------------------
TALBIYA B. INVESTMENTS LTD. - Holder
------------------------------------
THE GROSS FOUNDATION, INC. - Holder
NCT Network, 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.
NCT NETWORKS, INC.
By: /s/ XXXXXXX X. XXXXXXXX
------------------------------------
Xxxxxxx X. Xxxxxxxx
SCHEDULE A TO EXCHANGE RIGHTS AGREEMENT
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HOLDER PRINCIPAL AMOUNT OF NOTE RESERVED SHARES
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AUSTOST ANSTALT XXXXXX $1,786,668.00 7,090,000
7440 Fuerstentum
Xxxxxxxxxxx, Xxxxxxxxxxx 000
Fax: 000-000-000000000
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BALMORE, S.A. $1,786,666.00 7,090,000
X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxx
Fax: 000-000-000-0000
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AMRO INTERNATIONAL, S.A. $550,000.00 2,182,000
X/x Xxxxx Xxxxxx
Xxxxxxxxxxxxx Xxxxx 00
Xxxxxx, Xxxxxxxxxxx CH8022
Fax: 000-000-000-0000
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--------------------------------------------------------------------------------
NESHER LTD. $375,000.00 1,488,000
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-00-0000-000000
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--------------------------------------------------------------------------------
TALBIYA B. INVESTMENTS LTD. $375,000.00 1,488,000
Ragnall House, 00 Xxxx Xxxx
Xxxxxxx, Xxxx xx Xxx
0X0 0X0, Xxxxxx Xxxxxxx
Fax: 000-00-0000-000000
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--------------------------------------------------------------------------------
THE GROSS FOUNDATION, INC. $166,666.00 662,000
0000 00xx Xxxxxx
Xxxxxxxx, Xxx Xxxx
Fax: 000-000-0000
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TOTAL $5,040,000.00 20,000,000
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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 NCT Networks, Inc. on
December ____, 2000 into Shares of Common Stock of NCT Networks, 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:_______________________________________________________________________
