Exhibit 10(c)
SECURITIES EXCHANGE AGREEMENT
Among
NCT GROUP, INC.,
AUSTOST ANSTALT ▇▇▇▇▇▇
and
BALMORE FUNDS S.A.
Dated as of October 9, 1999
TABLE OF CONTENTS
ARTICLE I
EXCHANGE OF SHARES
1.1 Exchange..........................................................4
1.2 The Closing.......................................................6
1.3 Lock-up; Exchange Ratio Adjustment................................6
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company.........8
2.2 Representations and Warranties of the Exchange Holders...........16
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions............................................17
3.2 Stop Transfer Orders; Suspension of Qualification................18
3.3 Furnishing of Information........................................18
3.4 Blue Sky Laws....................................................19
3.5 Integration......................................................19
3.6 Certain Agreements...............................................19
3.7 Compliance with Law..............................................20
3.8 Notice of Breaches...............................................20
3.9 [Intentionally Omitted]..........................................21
3.10 Indemnification.................................................21
3.11 Additional Investor Shares......................................23
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to Exchange of Audio Shares.................26
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses................................................28
5.2 Entire Agreement; Amendments.....................................28
5.3 Notices..........................................................28
5.4 Amendments; Waivers..............................................29
5.5 Headings.........................................................29
5.6 Successors and Assigns...........................................29
5.7 No Third Party Beneficiaries.....................................29
5.8 GOVERNING LAW....................................................29
5.9 Survival.........................................................29
5.10 Execution.......................................................30
5.11 Publicity.......................................................30
5.12 Consent to Jurisdiction; Attorneys' Fees........................30
5.13 Waiver of Jury Trial............................................31
5.14 Severability....................................................32
5.15 Remedies........................................................32
Schedules and Exhibits
Schedule 1 - Exchange Holders
Schedule 2.1(c) - Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(f) - Consents and Approvals
Schedule 2.1(q) - Registration Rights; Rights of Participation
Schedule 2.1(r) - Title
Schedule 2.1(w) - Year 2000 Compliance
Exhibit A - Registration Rights Agreement
SECURITIES EXCHANGE AGREEMENT (this "Agreement"), dated as of October 9,
1999, between NCT Group, Inc., a Delaware corporation (the "Company"), and
Austost Anstalt ▇▇▇▇▇▇ ("Austost") and Balmore Funds S.A. ("Balmore"). Austost
and Balmore are referred to herein as the "Exchange Holders."
WHEREAS, each of the Exchange Holders owns the number of shares (the "Audio
Shares") of NCT Audio Products, Inc. ("Audio") set forth next to such Exchange
Holder's name on Schedule 1 attached hereto;
WHEREAS, subject to the terms and conditions set forth herein, each of the
Exchange Holders desires to exchange the Audio Shares for the number of shares
of common stock, par value $.01 per share, of the Company (the "Common Stock")
set forth next to such Exchange Holder's name on Schedule 1 attached hereto,
subject to the adjustment provisions of Section 1.3 hereof (the shares to be
issued to both Exchange Holders collectively referred to herein as the "Investor
Shares");
WHEREAS, subject to the terms and conditions set forth herein, the Company
desires to issue shares of Common Stock to the Exchange Holders in exchange for
the Audio Shares; and
WHEREAS, contemporaneously with the execution and delivery hereof, the
Company and the Exchange Holders have entered into that certain Registration
Rights Agreement dated the date hereof in substantially the form of Exhibit A
annexed hereto (the "Registration Rights Agreement;" the Registration Rights
Agreement and this Agreement are collectively referred to herein as the
"Transaction Documents");
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Company and the Exchange Holders agree as follows:
ARTICLE VI
EXCHANGE OF SHARES
6.1 Exchange. Subject to the terms and conditions set forth herein,
including, without limitation, the exchange ratio adjustment provisions of
Section 1.3 hereof, each of the Exchange Holders agrees to surrender the Audio
Shares held by it to the Company, and the Company agrees to issue to each of the
Exchange Holders the number of shares of Common Stock set forth next to such
Exchange Holder's name on Schedule 1 attached hereto having a value of
$1,300,000 (which number is based on the Per Share Market Value (as defined in
Section 3.11 hereof) of such shares on the Closing Date (as defined in Section
1.2 hereof)), and, subject to the provisions herein, the Additional Investor
Shares (as defined in Section 3.11 hereof), if any, in exchange for such
Exchange Holder's Audio Shares. The exchanges of Audio Shares for Investor
Shares and Additional Investor Shares, if any, as contemplated by this Agreement
shall be referred to herein as the "Exchange."
6.2 The Closing.
(i) The closing of the Exchange (the "Closing") shall take
place at the offices of Stroock & Stroock & ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇-▇▇▇▇, immediately following the
execution hereof or such later date or different location as the
parties shall agree in writing, but not prior to the date that the
conditions set forth in Section 4.1 have been satisfied or waived by
the appropriate party. The date of the Closing is hereinafter
referred to as the "Closing Date." At the Closing, the Exchange
Holders shall surrender the Audio Shares to the Company, and in
exchange therefor the Company shall issue to each of the Exchange
Holders the number of Investor Shares set forth next to such
Exchange Holder's name on Schedule 1 attached hereto. In addition,
if required by the provisions of this Agreement, the Company shall
issue to each of the Exchange Holders, and each Exchange Holder
shall receive from the Company, Additional Investor Shares in
accordance with the provisions of Section 3.11 hereof.
(ii) At the Closing (a) the Company shall deliver to each
Exchange Holder: (1) one or more certificates representing the
number of Investor Shares set forth next to such Exchange Holder's
name on Schedule 1 attached hereto (the "Closing Number"), each
registered in the name of such Exchange Holder and (2) all other
documents, instruments and writings required to have been delivered
at or prior to the Closing by the Company pursuant to the
Transaction Documents, and (b) each Exchange Holder shall deliver to
the Company one or more certificates representing the portion of the
Audio Shares set forth next to its name on Schedule 1, and all
documents, instruments and writings required to have been delivered
at or prior to the Closing by such Exchange Holder pursuant to the
Transaction Documents.
6.3 Lock-up; Exchange Ratio Adjustment. Each of the Exchange Holders
covenants and agrees that it will not sell, transfer, assign, pledge,
hypothecate, otherwise dispose of or encumber clear title to any of its Investor
Shares until after February 15, 2000. On the Adjustment Date (as defined below),
the Company shall calculate the number of shares of Common Stock of the Company
having a value of $1,300,000 based on the Per Share Market Value of such shares
on such Adjustment Date (the "Adjusted Number"). With respect to each Exchange
Holder, if the Closing Number is greater than the Adjusted Number, such Exchange
Holder shall deliver to the Company a number of shares of Common Stock of the
Company equal to the Closing Number minus the Adjusted Number. The "Adjustment
Date" shall be February 15, 2000 or such other day not later than February 15,
2000 that is mutually agreed upon by the Company and the Exchange Holders.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 Representations, Warranties and Agreements of the Company. Unless
otherwise specified, the Company hereby makes the following representations and
warranties to the Exchange Holders as of the date hereof and as of the Closing
Date if the Closing does not occur on the date hereof:
(a) Organization and Qualification; Subsidiaries. The Company is a
corporation, duly organized, 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 material subsidiaries
other than as set forth in the Company's most recently filed Annual Report
on Form 10-K (collectively, the "Subsidiaries"). Each of the Subsidiaries
is a corporation, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the full corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. 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, (x) adversely affect the legality,
validity or enforceability of the Transaction Documents, (y) have or
result in a material adverse effect on the results of operations, assets,
prospects (insofar as they may reasonably be foreseen) or financial
condition 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 (any of (x), (y) or (z),
being 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 otherwise to
carry out its obligations hereunder and thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company. Each of the
Transaction Documents has been duly executed by the Company and when
delivered in accordance with the terms hereof will 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, 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 of the provisions of its respective certificate of
incorporation, bylaws or other organizational documents.
(c) Capitalization; Rights to Acquire Capital Stock. The authorized,
issued and outstanding capital stock of the Company is set forth in
Schedule 2.1(c). All issued and outstanding shares of capital stock of the
Company and each Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable. No shares of the capital stock of
the Company are entitled to preemptive or similar rights, nor is any
holder of the capital stock of the Company entitled to preemptive or
similar rights arising out of any agreement or understanding with the
Company by virtue of any of the Transaction Documents. Except as disclosed
in Schedule 2.1(c), there are no outstanding options, warrants, script
rights to subscribe to, calls, written commitments or, to the knowledge of
the Company, oral commitments relating to, or 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, written arrangements or, to the
knowledge of the Company, oral 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. Except as set forth on Schedule 2.1(c), and, to the best
knowledge of the Company, no Person or group of related Persons
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended (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. A
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind. The Common Stock is
quoted for trading on the OTC Bulletin Board. The Company has received no
notice, either oral or written, with respect to the continued eligibility
of the Common Stock for such quotation, and the Company has maintained all
requirements for the continuation of such quotation.
(d) Issuance of Investor Shares. The Investor Shares are duly
authorized, and when issued pursuant to the Exchange and in accordance
with the terms hereof, shall be validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances, security
interests, charges and rights of first refusal of any kind (collectively,
"Liens"). The Investor Shares, upon issuance, will not subject the holders
thereof to personal liability by reason of being such holders.
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby do not and will not (i) conflict with or violate any provision of
its or any Subsidiary's certificate of incorporation, bylaws or other
organizational documents (each as amended through the date hereof) or (ii)
subject to obtaining the consents referred to in Section 2.1(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 or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, (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 or any Subsidiary is subject (including Federal and
state securities laws and regulations), or by which any property or assets
of the Company or any Subsidiary is bound or affected, or (iv) result in
the creation or imposition of a Lien upon any of the Investor Shares or
any of the property or assets of the Company or any Subsidiary, or any of
its "Affiliates" (as such term is defined under Rule 405 promulgated under
the Securities Act), except in the case of each of clauses (ii) and (iii),
such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have or result in a Material Adverse Effect. The businesses of
the Company and the Subsidiaries are not being conducted in violation of
any law, ordinance or regulation of any governmental authority except for
any such violation as would not, individually or in the aggregate, have or
result in a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal,
state, local 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 approval of the Company's Board
of Directors, (ii) the filings with the Securities and Exchange Commission
(the "Commission") contemplated by and in the time periods set forth in
the Registration Rights Agreement, and (iii) any filings, notices or
registrations under applicable federal and state securities laws (together
with the consents, waivers, authorizations, orders, notices and filings
referred to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as disclosed in the Company's
registration statement on Form S-1 (Registration No. 333-87757) originally
filed with the Commission on September 24, 1999, there is no action, suit,
notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company or
any of the 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 of the
Transaction Documents or the Investor Shares or (ii) would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or 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 which would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect, (ii) is in violation of any order of any court, arbitrator or
governmental body applicable to it, or (iii) is in violation of any
statute, rule or regulation of any governmental authority to which it is
subject, which violation would reasonably be expected to, individually or
in the aggregate, have a Material Adverse Effect.
(i) Schedules. The Schedules to this Agreement furnished by or on
behalf of the Company do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein not misleading.
(j) Private Offering. The Company and all Persons acting on its
behalf have not made, and will not make, offers or sales of the Common
Stock, and any securities that might be integrated with offers and sales
of the Common Stock, except to "accredited investors" (as defined in
Regulation D ("Regulation D") under the Securities Act of 1933, as amended
(the "Securities Act")) without any general solicitation or advertising
and otherwise in compliance with the conditions of Regulation D. The
Exchange is exempt from the registration requirements of the Securities
Act.
(k) SEC Documents; Financial Statements; No Adverse Change. 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 (the foregoing materials being
collectively referred to herein as the "SEC Documents") 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 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 not misleading. All
material agreements to which the Company or any Subsidiary is a party or
to which the property or assets of the Company or any Subsidiary are
subject have been filed as exhibits to the SEC Documents as required;
neither the Company nor any of the Subsidiaries is in breach of any
agreement where such breach would reasonably be expected to, individually
or in the aggregate, have a Material Adverse Effect. The consolidated
financial statements of the Company and the Subsidiaries 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 as in effect at the time of filing. Such financial statements have
been prepared in accordance with United States 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 consolidated financial position of the Company and the
Subsidiaries as of and for the dates thereof and the results of operations
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 last filed Quarterly
Report on Form 10-Q for the period ended June 30, 1999, there has been no
event, occurrence or development that has had, or would reasonably be
expected to have, a Material Adverse Effect which has not been
specifically disclosed to the Exchange Holders by the Company. The Company
last filed audited financial statements with the Commission on May 3,
1999, and has not received any comments from the Commission in respect
thereof.
(l) Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(m) Certain Fees. No fees or commissions will be payable by the
Company to any broker, financial advisor, finder, investment banker, or
bank with respect to the transactions contemplated by this Agreement. The
Exchange Holders shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section 2.1(m) that may be due in connection
with the transactions contemplated by the Transaction Documents. The
Company shall indemnify and hold harmless the Exchange Holders, its
employees, officers, directors, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages, costs (including
the costs of preparation and attorney's fees) and expenses suffered in
respect of any such claimed or existing fees arising from the action or
inaction of the Company.
(n) Solicitation Materials. The Company has not distributed any
offering materials in connection with the Exchange. The Company confirms
that it has not provided the Exchange Holders or their agents or counsel
with any information that constitutes or might constitute material
non-public information. The Company understands and confirms that the
Exchange Holders shall be relying on the foregoing representations in
effecting transactions in securities of the Company.
(o) Employment Matters. Each of the Company and each Subsidiary is
in compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company or any Subsidiary would have any liability; neither the
Company nor any Subsidiary has incurred and expects to incur liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal
from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which
the Company or any Subsidiary would have any liability that is intended to
be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(p) Patents and Trademarks. The Company and each Subsidiary has, or
has rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights
(collectively, the "Intellectual Property Rights") which are necessary for
use in connection with its business, as currently conducted and as
described in the SEC Documents, and which the failure to so have would
have a Material Adverse Effect.
(q) Registration Rights; Rights of Participation. (A) Except as
disclosed in Schedule 2.1(q), the Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been
satisfied and (B) no Person, including, but not limited to, current or
former stockholders of the Company, underwriters, brokers or agents, has
any right of first refusal, preemptive right, right of participation, or
any similar right to participate in the transactions contemplated by this
Agreement or the Registration Rights Agreement.
(r) Title. Except as disclosed in Schedule 2.1(r), the Company and
the Subsidiaries have good and marketable title to, or the right to use,
all personal property owned or leased by them which is material to the
businesses of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries. Neither the
Company nor any of its Subsidiaries owns any real property. Any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company and the Subsidiaries.
(s) Regulatory Permits. The Company and the Subsidiaries possess all
franchises, certificates, licenses, authorizations and permits or similar
authority issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses as described
in the SEC Documents except where the failure to possess such permits
would not, individually or in the aggregate, have a Material Adverse
Effect ("Material Permits"), and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(t) Insurance. The Company and each Subsidiary maintains property
and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with
financially sound and reputable insurers that is adequate, consistent with
industry standards. Neither the Company nor any Subsidiary has received
notice from, and has any knowledge of any threat by, any insurer (that has
issued any insurance policy to the Company or any Subsidiary) that such
insurer intends to deny coverage under or cancel, discontinue or not renew
any insurance policy presently in force.
(u) Taxes. All applicable tax returns required to be filed by the
Company and each of the Subsidiaries have been filed, or if not yet filed
have been granted extensions of the filing dates which extensions have not
expired, and all taxes, assessments, fees and other governmental charges
upon the Company, the Subsidiaries, or upon any of their respective
properties, income or franchises, shown in such returns and on assessments
received by the Company or the Subsidiaries to be due and payable have
been paid, or adequate reserves therefor have been set up if any of such
taxes are being contested in good faith; or if any of such tax returns
have not been filed or if any such taxes have not been paid or so reserved
for, the failure to so file or to pay would not in the aggregate or
individually have a Material Adverse Effect.
(v) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any
offers to buy any securities under circumstances that would require
registration of any such securities under the Securities Act or cause the
offering of the Investor Shares pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable stockholder approval provisions.
(w) Year 2000 Compliance. The Company has initiated a review and
assessment of all areas within its and each Subsidiary's business and
operations that could be adversely affected by the "Year 2000 Problem"
(that is, the risk that computer applications used by the Company or any
of the Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date
after December 31, 1999). Based on the foregoing, except as set forth on
Schedule 2.1(w), the Company believes that the computer applications that
are currently material to its or any Subsidiary's business and operations
are reasonably expected to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000, except to the
extent that a failure to do so would not reasonably be expected to have a
Material Adverse Effect.
(x) Full Disclosure. The representations and warranties of the
Company set forth in each of the Transaction Documents do not contain any
untrue statement of a material fact or omit any material fact necessary to
make the statements contained herein, in the light of the circumstances
under which they were made, not misleading.
7.2 Representations and Warranties of the Exchange Holders. Each of the
Exchange Holders, severally and not jointly, hereby represents and warrants to
the Company as follows:
(a) Investment Intent. Such Exchange Holder is acquiring the
Investor Shares for its own account for investment purposes only and not
with a view to or for distributing or reselling the Investor Shares or any
part thereof or interest therein, without prejudice, however, to such
Exchange Holder'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 the Investor Shares 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.
(b) Exchange Holder Status. At the time such Exchange Holder was
offered the Investor Shares, and at the Closing Date, (i) it was and will
be, an "accredited investor" (as defined in Regulation D), or (ii) such
Exchange Holder either alone or together with its representatives, had and
will have 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 Investor Shares, and had and will
have so evaluated the merits and risks of such investment. Such Exchange
Holder has the authority and is duly and legally qualified to purchase and
own the Investor Shares.
(c) Ability of Exchange Holder to Bear Risk of Investment. Such
Exchange Holder is able to bear the economic risk of an investment in the
Investor Shares and, at the present time, is able to afford a complete
loss of such investment.
(d) Reliance. Such Exchange Holder understands and acknowledges that
(i) the Investor Shares are being offered and issued to such Exchange
Holder without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the
Securities Act under Section 4(2) of the Securities Act or Regulation D
promulgated thereunder 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 Exchange Holder
hereby consents to such reliance.
(e) Title to Audio Shares. Such Exchange Holder is the beneficial
and record owner of the Audio Shares set forth next to such Exchange
Holder's name on Schedule 1 hereto and has valid and marketable title to
such Audio Shares, free and clear of any Lien, pledge and encumbrance or
any claim of any third party.
ARTICLE VIII
OTHER AGREEMENTS OF THE PARTIES
8.1 Transfer Restrictions.
(a) If any Exchange Holder should decide to dispose of any Investor
Shares held by it, each Exchange Holder understands and agrees that it may
dispose of such Investor Shares only pursuant to an effective registration
statement under the Securities Act and the applicable state blue-sky laws,
to the Company or pursuant to an available exemption from the registration
requirements of the Securities Act and the applicable state blue-sky laws.
In connection with any transfer of any of the Investor Shares other than
pursuant to an effective registration statement or to the Company, the
Company may require the transferor thereof to provide to the Company a
written opinion of counsel, the form and substance of which opinion shall
be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities
under the Securities Act and the applicable state blue-sky laws.
Notwithstanding the foregoing, the Company hereby consents to and agrees
to register (i) any transfer of Investor Shares by one Exchange Holder to
another Exchange Holder, and agrees that no documentation other than
executed transfer documents shall be required for any such transfer, and
(ii) any transfer by any Exchange Holder to an Affiliate of such Exchange
Holder or to an Affiliate of another Exchange Holder, or any transfer
among such Affiliates, provided that transferee certifies in writing to
the Company that it is an "accredited investor" (as defined in Regulation
D). Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights under this Agreement and the
Registration Rights Agreement of the Exchange Holder from which it has
received the transferred shares.
(b) The Exchange Holders agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Investor
Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION 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.
8.2 Stop Transfer Orders; Suspension of Qualification. 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 Section
3.1. The Company will advise the Exchange Holders, promptly after it receives
notice of issuance by the Commission, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending the use of any offering of any securities of the Company, or of the
suspension of the qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
8.3 Furnishing of Information. As long as an Exchange Holder owns
Investor Shares, 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 and to promptly furnish such Exchange Holder
with true and complete copies of all such filings. As long as an Exchange Holder
owns the Investor Shares, if the Company is not required to file reports
pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and
furnish to such Exchange Holder 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, as well as any other information required thereby, 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 Investor Shares may reasonably request, all to the
extent required from time to time to enable such Person to sell Investor Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act.
8.4 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Investor Shares under the securities or Blue Sky
laws of such jurisdictions as the Exchange Holders may request and shall
continue such qualification at all times through the third anniversary of the
Closing Date unless an exemption from registration applies.
8.5 Integration. The Company shall not 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 Exchange in a
manner that would require the registration under the Securities Act of the sale
of any or all of such securities to any Exchange Holder.
8.6 Certain Agreements. As long as any Exchange Holder owns Investor
Shares, the Company shall not and shall cause the Subsidiaries not to, without
the consent of the holders of all of the Investor Shares then outstanding, (i)
amend its certificate of incorporation, bylaws or other charter documents so as
to adversely affect any rights of any Exchange Holder; (ii) declare, authorize,
set aside or pay any dividend or other distribution with respect to the Common
Stock except as would not adversely affect the rights of any Exchange Holder
hereunder; (iii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock in any manner; (iv) issue any series of
preferred stock or other securities with rights senior (in respect of
liquidations, dividends, preferences and similar rights) to those of the
Investor Shares; or (v) enter into any agreement with respect to any of the
foregoing.
8.7 Compliance with Law.
(a) The Company shall take all steps necessary to cause the Shares
to be approved for quotation on the OTC Bulletin Board as soon as possible
thereafter and the Company shall maintain the quotation of its Common
Stock on such market, as long the rules governing such quotation on the
OTC Bulletin Board do not change.
(b) Until at least two (2) years after the date on which the last
Registration Statement filed pursuant to the Registration Rights Agreement
is declared effective, (i) the Company will cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations
under such Exchange Act, will comply with all requirements related to any
registration statement filed pursuant to this Agreement or the
Registration Rights Agreement and will not take any action or file any
document (whether or not permitted by the Securities Act or the Exchange
Act or the rules and regulations thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing
obligations under the Securities Act and Exchange Act, except as permitted
herein and (ii) the Company will take all action within its power to
continue the trading of its Common Stock on the OTC Bulletin Board (or the
New York Stock Exchange, the American Stock Exchange, the Nasdaq National
Market or the Nasdaq-Small-Cap Market) and will comply in all respects
with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the OTC Bulletin Board (or the New York
Stock Exchange, the American Stock Exchange, the Nasdaq National Market or
the Nasdaq-Small-Cap Market).
8.8 Notice of Breaches.
(a) Each of the Company and the Exchange Holders shall give prompt
written notice to the other of any breach of any representation, warranty
or other agreement contained in this Agreement or the Registration Rights
Agreement, as well as any events or occurrences arising after the date
hereof and prior to the Closing Date, which would reasonably be likely to
cause any representation or warranty or other agreement of such party, as
the case may be, contained herein to be incorrect or breached as of the
Closing Date. However, no disclosure by any party pursuant to this Section
3.8 shall be deemed to cure any breach of any representation, warranty or
other agreement contained herein or in the Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.8(a), the Company
shall promptly notify the Exchange Holders 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 Exchange Holders a copy of any written
statement in support of or relating to such claim or notice.
8.9 [Intentionally Omitted]
8.10 Indemnification. The Company also will indemnify and hold the
Exchange Holders harmless against any and all losses, claims, damages or
liabilities to any such Person (including, without limitation, in connection
with any action, proceeding or investigation brought by or against any such
Person, including by stockholders of the Company) in connection with or as a
result of any matter referred to in the Transaction Documents, including,
without limitation, for any misrepresentation by the Company, for breaches of
representations and warranties contained in any of the Transaction Documents,
and for any breach, non-compliance or nonfulfillment by the Company of any
covenant, agreement or undertaking to be complied with or performed by it
contained in or pursuant to the Transaction Documents, except to the extent that
it is finally judicially determined that such losses, claims, damages or
liabilities resulted solely from the gross negligence or bad faith of either of
the Exchange Holders. If for any reason the foregoing indemnification is
unavailable to such Exchange Holder or is insufficient to hold such Exchange
Holder harmless, then the Company shall contribute to the amount paid or payable
by such Exchange Holder as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative economic interests of
the Company and its shareholders on the one hand and the Exchange Holders on the
other hand in the matters contemplated by the Transaction Documents as well as
the relative fault of the Company and the Exchange Holders with respect to such
loss, claim, damage or liability and any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any Affiliate of the Exchange Holders and the partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the Exchange
Holders 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 Exchange Holders, any such Affiliate and any such Person. The
Company also agrees that neither the Exchange Holders nor any of such
Affiliates, partners, directors, agents, employees or controlling persons 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 any matter referred
to in the Transaction Documents except to the extent that it is finally
judicially determined that any losses, claims, damages, liabilities or expenses
incurred by the Company result solely from the gross negligence or bad faith of,
or knowing breach of this Agreement by, either of the Exchange Holders. Promptly
after receipt by the Exchange Holders or any Affiliate, partners, directors,
agents, employees or controlling persons, as the case may be, of notice of any
claim or other commencement of any action in respect of which indemnity may be
sought, such party will notify the Company in writing of the receipt or
commencement thereof and the Company shall have the right to assume the defense
of such claim or action (including the employment of counsel reasonably
satisfactory to the indemnified parties and the payment of fees and expenses of
such counsel). The indemnified party shall cooperate with the Company and the
Company's counsel in the defense of such claim or action. The Exchange Holders
understand that the Company shall not in connection with any one such claim or
action or separate but substantially similar related claims or actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all of the indemnified parties unless the defense of one
indemnified party is unique or separate from that of another indemnified party
or one or more legal defenses are available to an indemnified party but not to
other indemnified parties subject to the same claim or action. In the event the
Company does not promptly assume the defense of a claim or action, the
indemnified parties shall have the right to employ counsel reasonably
satisfactory to the Company, at the Company's expense, to defend such claim or
action. The indemnified party shall not admit any liability with respect to the
claim or action or settle, compromise, pay or discharge the same without the
prior written consent of the Company so long as the Company is reasonably
contesting or defending the same in good faith. The Company shall not
compromise, settle or discharge any claim or action without the Exchange
Holders' consent, as applicable, which consent will not be unreasonably
withheld, unless there is no finding or admission of any violation of any law
against the indemnified party and the sole relief is monetary damages paid in
full by the Company. The provisions of this Section 3.10 shall survive any
termination or completion of the Transaction Documents.
8.11 Additional Investor Shares.
(a) With respect to an Exchange Holder, if on the 180th day following
the Closing Date (the period ending on such date, the "First Look-Back
Period"), (i) such Exchange Holder continues to own Investor Shares and
(ii) such Investor Shares have an aggregate value (based upon Per Share
Market Value (as defined below) on the last day of the First Look-Back
Period) that, when added to the aggregate value of any Shares transferred
(other than by sale) by such Exchange Holder (based upon Per Share Market
Value on the date(s) of such transfer(s)) and the amounts realized (the
"First Realized Amount") by such Exchange Holder in connection with any
sale or sales of Investor Shares during the First Look-Back Period (without
giving effect to any commission to any broker or other person or any legal
fees and disbursements or other costs or expenses paid or payable by such
Exchange Holder in connection with such sale or sales), would be less than
$1,300,000, the Company shall issue to such Exchange Holder at the Exchange
Holder's request on the first day after the First Look Back Period (or such
later date as soon thereafter is mutually acceptable to the parties), a
number of shares of Common Stock (the "First Additional Investor Shares")
having an aggregate value (based upon Per Share Market Value on such date)
that, when added to the sum of such First Realized Amount and the aggregate
value (based upon Per Share Market Value) of the Investor Shares held by
such Exchange Holder on the last day of the First Look-Back Period and the
aggregate value of any shares transferred (other than by sale) by such
Exchange Holder (based upon Per Share Market Value on the date(s) of such
transfer(s)), would equal at least $1,300,000. With respect to an Exchange
Holder, if on the 270th day following the Closing Date (the period ending
on such date, the "Second Look-Back Period") (x) such Exchange Holder
continues to own Investor Shares or any First Additional Investor Shares,
and (y) such Investor Shares and First Additional Investor Shares have an
aggregate value (based on Per Share Market Value on the last day of the
Second Look-Back Period) that, when added to the aggregate value of any
Investor Shares or any First Additional Investor Shares transferred (other
than by sale) by such Exchange Holder (based upon Per Share Market Value on
the date(s) of such transfer(s)) and the amounts realized (the "Second
Realized Amount") by such Exchange Holder in connection with any sale or
sales of the Investor Shares and First Additional Investor Shares, as
applicable, during the Second Look-Back Period (without giving effect to
any commission to any broker or other person or any legal fees and
disbursements or other costs or expenses paid or payable by such Exchange
Holder in connection with such sale or sales), would be less than
$1,300,000, the Company shall issue to such Exchange Holder at its request
on the first day after the Second Look-Back Period (or such later date as
soon thereafter as is mutually acceptable to the parties), a number of
additional shares of Common Stock (the "Second Additional Investor Shares",
and together with the First Additional Investor Shares collectively, the
"Additional Investor Shares") having an aggregate value (based upon Per
Share Market Value on such date) that, when added to the sum of such Second
Realized Amount and the aggregate value (based upon Per Share Market Value)
of the Investor Shares and First Additional Investor Shares held by such
Exchange Holder on the last day of the Second Look-Back Period and the
aggregate value of any shares transferred (other than by sale) by such
Exchange Holder (based upon Per Share Market Value on the date(s) of such
transfer(s)), would equal at least $1,300,000. Notwithstanding the
foregoing, however, with respect to any period of 20 consecutive Trading
Days after the Adjustment Date (each such period a "Test Period"), if (A)
the average daily trading volume of the Company's Common Stock during such
Test Period is equal to or greater than 400,000 shares and (B) with respect
to an Exchange Holder, on each Trading Day of such Test Period, the sum of
the aggregate value of all Investor Shares and Additional Investor Shares,
if any, that are subject to an effective registration statement during each
day of such Test Period and held by such Exchange Holder (based on Per
Share Market Value) and the amounts realized by such Exchange Holder in
connection with any sale or sales of Investor Shares and Additional
Investor Shares (without giving effect to any commission to any broker or
other person or any legal fees and disbursements or other costs or expenses
paid or payable by such Exchange Holder in connection with such sale or
sales) and the aggregate value of any Shares and Additional Shares, if any,
transferred (other than by sale) by such Exchange Holder (based upon Per
Share Market Value on the date(s) of such transfer(s)) would equal at least
$1,300,000, then notwithstanding any other provision of this Agreement, the
Company shall be under no obligation to issue any Additional Investor
Shares to such Exchange Holder at any time thereafter. Upon the issuance of
First Additional Investor Shares, if any, and again upon the issuance of
Second Additional Investor Shares, if any, to any Exchange Holder, the
Company shall cause to be delivered to such Exchange Holder an opinion of
counsel stating that the relevant Additional Shares being issued by the
Company are duly authorized, validly issued, fully paid and nonassessable.
(b) For purposes of this Agreement, "Per Share Market Value" shall
mean on any particular date (i) the closing bid price per share of the
Common Stock on such date on The Nasdaq Small Cap Market, the Nasdaq
National Market or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date,
then the closing bid price on such exchange or quotation system on the
date nearest preceding such date, or (ii) if the Common Stock is not
listed then on The Nasdaq Small Cap Market, the Nasdaq National Market or
any registered national stock exchange, the closing bid price for a share
of Common Stock in the over-the-counter market, as reported by NASDAQ or
the National Quotation Bureau Incorporated or a similar organization or
agency succeeding to its functions of reporting prices) at the close of
business on such date, or (iii) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or
agency succeeding to its functions of reporting prices), then the average
of the "Pink Sheet" quotes for the relevant period, as determined in good
faith by the holder, or (iv) if the Common Stock is not then publicly
traded the fair market value of a share of Common Stock as determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may
be the firm that regularly examines the financial statements of the
Company) that is regularly engaged in the business of appraising the
capital stock or assets of corporations or other entities as going
concerns, and which is not affiliated with either the Company or the
Exchange Holders (an "Independent Appraiser") selected in good faith by
the holders of a majority in interest of the shares of Common Stock;
provided, however, that the Company, after receipt of the determination by
such Independent Appraiser, shall have the right to select an additional
Independent Appraiser, in which case, the fair market value shall be equal
to the average of the determinations by each such Independent Appraiser;
and provided, further that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock
splits or other similar transactions during such period. The determination
of fair market value by an Independent Appraiser shall be based upon the
fair market value of the Company determined on a going concern basis as
between a willing buyer and a willing seller and taking into account all
relevant factors determinative of value, and shall be final and binding on
all parties. In determining the fair market value of any shares of Common
Stock, no consideration shall be given to any restrictions on transfer of
the Common Stock imposed by agreement or by federal or state securities
laws, or to the existence or absence of, or any limitations on, voting
rights.
(c) For purposes of this Agreement, "Trading Day" shall mean (i) a
day on which the Common Stock is traded on The Nasdaq Small Cap Market,
the Nasdaq National Market or other registered national stock exchange on
which the Common Stock has been listed, or (ii) if the Common Stock is not
listed on The Nasdaq Small Cap Market, the Nasdaq National Market or any
registered national stock exchange, a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin
Board.
(d) In addition, the Company shall use its best efforts to register
such Additional Investor Shares under the same terms and conditions as the
Investor Shares are being registered. Upon each issuance of Additional
Investor Shares, (i) the Company shall deliver to the Exchange Holders an
officer's certificate certifying that the representations and warranties
of the Company set forth herein were true and correct in all material
respects as of the date when made and as of the date of the issuance of
the Additional Investor Shares (except as may be disclosed in a schedule
to such certificate that is subject to review by the Exchange Holders), as
though made on and as of such date and with representations and warranties
with respect to the Investor Shares being made as to the Additional
Investor Shares and (ii) this Agreement shall be deemed amended such that
the covenants and agreements of the Company herein with respect to the
Investor Shares shall apply equally to the Additional Investor Shares. If
the Company is required under the terms hereof to issue any Additional
Investor Shares and an insufficient number of shares of the Company's
Common Stock are authorized for such issuance, then the Company shall
promptly seek such approvals and authorizations from its shareholders as
are required under Delaware law and the Company's organizational documents
to allow the Company to issue such Additional Investor Shares to the
Exchange Holders.
ARTICLE IX
CONDITIONS
9.1 Conditions Precedent to Exchange of Audio Shares.
(a) Conditions Precedent to the Obligation of the Company to Issue
the Investor Shares. The obligation of the Company to issue the Investor
Shares hereunder 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 Exchange Holders' Representations and
Warranties. The representations and warranties of each Exchange
Holder 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 Exchange Holders. Each Exchange Holder
shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by such
Exchange Holder at or prior to the Closing; and
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation
of any of the transactions contemplated by the Transaction
Documents.
(b) Conditions Precedent to the Obligation of the Exchange Holders
to Accept the Investor Shares. The obligation of each Exchange Holder
hereunder to accept the Investor Shares in exchange for the Audio Shares
is subject to the satisfaction or waiver by such Exchange Holder, 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 in the
Transaction Documents 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 and complied with in all material respects 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 Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation
of any of the transactions contemplated by the Transaction
Documents;
(iv) Adverse Changes. Since the date of the financial
statements included in the Company's Quarterly Report on Form 10-Q
last filed prior to the date of this Agreement, no event which had a
Material Adverse Effect and no material adverse change in the
financial condition of the Company shall have occurred;
(v) No Suspensions of Trading in Common Stock. The trading in
the Common Stock shall not have been suspended by the Commission or
on the OTC Bulletin Board, which suspension remains in effect;
(vi) Required Approvals. All Required Approvals shall have
been obtained;
(vii) Delivery of Stock Certificates. The Company shall have
arranged for delivery to each Exchange Holder or such Exchange
Holder's designee, the stock certificate(s) representing the
Investor Shares, registered in the name of such Exchange Holder,
each in form satisfactory to such Exchange Holder; and
(viii) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Fees and Expenses. The Company shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by it incident to the negotiation, preparation, execution, delivery and
performance of the Transaction Documents. The Company shall have no obligation
to pay any fees or expenses of either Exchange Holder or any other Person
(including, without limitation, fees or disbursements of its counsel) incident
to the negotiation, preparation, execution, delivery and performance of the
Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of its securities pursuant to the
Transaction Documents.
10.2 Entire Agreement; Amendments. The Transaction Documents, together
with the exhibits and schedules hereto and thereto, contain the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
10.3 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 earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice 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 for notice 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 following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each party at its address set forth under its name on Schedule
5.3 attached hereto or to such other address or addresses or facsimile number or
numbers as any such party may most recently have designated in writing to the
other parties hereto by such notice.
10.4 Amendments; Waivers. No provision of this Agreement may be amended
except in a written instrument signed by each of the parties hereto and no
provision of this Agreement may be waived except in a written instrument signed
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 or thereof, nor shall any
delay or omission of any party to exercise any right hereunder or thereunder in
any manner impair the exercise of any such right accruing to it thereafter.
10.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement, as the case may be, and shall not be deemed
to limit or affect any of the provisions hereof.
10.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and permitted
assigns. The Company may not assign this Agreement, or any rights or obligations
hereunder without the prior written consent of the Exchange Holders. Each
Exchange Holder may assign this Agreement, or any rights or obligations
hereunder (i) to its Affiliates or to another Exchange Holder without the prior
written consent of the Company and (ii) to any other Person with the prior
written consent of the Company, such consent not to be unreasonably withheld.
This provision shall not limit an Exchange Holder's right to transfer securities
or transfer or assign rights under any Registration Rights Agreement to which it
is a party.
10.7 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
10.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
10.9 Survival. The agreements, covenants and provisions contained in this
Agreement shall survive until the second anniversary of the Closing Date and the
representations and warranties contained herein shall survive until the first
anniversary of the Closing Date.
10.10 Execution. This Agreement may be executed in two or more
counterparts. All of the signature pages of this Agreement 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 all 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.
10.11 Publicity. The Company and each Exchange Holder 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 hereto shall
issue any such press release or otherwise make any such public statement without
the prior written consent of the other parties, 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 case the disclosing party shall
provide the other parties with prior notice of such public statement. The
Company shall not publicly or otherwise disclose the name of either of the
Exchange Holders without such Exchange Holder's prior written consent unless
otherwise required by law, in which case the Company shall inform such Exchange
Holder of such disclosure in writing prior to making such disclosure.
10.12 Consent to Jurisdiction; Attorneys' Fees.
(a) The Company (including, but not limited to, its Affiliates,
subsidiaries, officers, directors and controlling persons) and each
Exchange Holder hereby (i) irrevocably submits to the exclusive
jurisdiction of any New York State court or Federal court sitting in the
Borough of Manhattan, The City of New York in any action related to,
connected with or arising out of, in whole or in part, the Transaction
Documents, (ii) agrees that all claims in such action shall be decided in
such court, (iii) waives, to the fullest extent it may effectively do so,
the defense of inconvenient forum and (iv) consents to the service of
process by certified mail, return receipt requested. Nothing herein shall
affect the right of any party to serve legal process in any manner
permitted by law or affect its right to bring any action in any other
court.
(b) In connection with any dispute between the Company and any
Exchange Holder, related to, connected with or arising out of, in whole or
in part, the Transaction Documents, the prevailing party shall be awarded
all reasonable attorneys' fees and expenses incurred by it. In that
connection fees and expenses actually paid by a party in connection with
the litigation of any dispute shall be deemed presumably reasonable.
(c) In the event that any Exchange Holder becomes involved in any
capacity in any action, proceeding or investigation brought by or against
any Person, including shareholders of the Company, in connection with or
as a result of any matter referred to in the Transaction Documents, the
Company will reimburse such Exchange Holder for its legal fees and
expenses and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as those fees and expenses
are incurred; provided, however, that if at the conclusion of such action,
proceeding or investigation it shall be finally judicially determined by a
court of competent jurisdiction that indemnity for such fees and expenses
is contrary to law, or that such Exchange Holder is not the prevailing
party, then in that event, such Exchange Holder and/or any other Person
having received such advances of fees and expenses shall reimburse the
Company in full for the sums advanced.
(d) The provisions of this Section 5.12 shall survive any
termination or completion of the Transaction Documents.
10.13 Waiver of Jury Trial.
(a) The parties hereto each waive their respective rights to a trial
by jury of any claim or cause of action based upon or arising out of or
related to the Transaction Documents, or the transactions contemplated by
the Transaction Documents, in any action, proceeding or other litigation
of any type brought by either of the parties against the other, whether
with respect to contract claims, tort claims, or otherwise. The parties
hereto each agree that any such claim or cause of action shall be tried by
a court trial without a jury. Without limiting the foregoing, the parties
further agree that their respective right to a trial by jury is waived by
operation of this Section 5.13 as to any action, counterclaim or other
proceeding which seeks, in whole or in part, to challenge the validity or
enforceability of any of the Transaction Documents or any provision hereof
or thereof. The waiver shall apply to any subsequent amendments, renewals,
supplements or modifications to any of the Transaction Documents.
(b) The provisions of this Section 5.13 shall survive any
termination or completion of the Transaction Documents.
10.14 Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
10.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Exchange
Holders will be entitled to specific performance of the obligations of the
Company under the Transaction Documents and injunctive relief. Each of the
parties hereto (severally and not jointly) agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of any breach of
its obligations described in the foregoing sentence and hereby agrees to waive
in any action for specific performance of any such obligation or injunctive
relief the defense that a remedy at law would be adequate.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Exchange Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
NCT GROUP, INC.
By: /s/ ▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇ ▇. ▇▇▇▇▇▇▇
Title: Senior Vice President,
Chief Financial Officer
AUSTOST ANSTALT ▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
----------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Title: Representative
BALMORE FUNDS S.A.
By: /s/ FRANCOIS MORAX
------------------
Name: Francois Morax
Title: Director
EXHIBIT A
Registration Rights Agreement
See Exhibit 10(d) in this Item 7.
