Document:

Exhibit 10.1 Amen. No. 3 to Loan and Sec Agreemt.

 

AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT

 

 

AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT, dated as of October 1, 2004, by and among ICO Polymers North America, Inc., a New Jersey corporation ("Polymers North America"), and Bayshore Industrial, L.P. (formerly known as Bayshore Industrial, Inc.), a Texas limited partnership ("Bayshore L.P.", and together with Polymers North America, each individually a "Borrower" and collectively, "Borrowers"), ICO, Inc., a Texas corporation ("Parent"), ICO Polymers, Inc., a Delaware corporation ("Polymers"), Wedco Technology, Inc., a New Jersey corporation ("Wedco Tech"), Wedco Petrochemical, Inc., a Delaware corporation ("Wedco Petro") and ICO Technology, Inc., a Delaware corporation ("ICO Tech", and together with Parent, Polymers, Wedco Tech and Wedco Petro each individually an "Existing Guarantor" and collectively, "Existing Guarantors"), Bayshore Industrial GP, L.L.C., a Delaware limited liability company ("Bayshore GP LLC") and Bayshore Industrial LP, L.L.C. ("Bayshore LP LLC", and together with Bayshore GP LLC, each individually a "New Guarantor" and collectively, "New Guarantors") and ICO P&O, Inc., a Delaware corporation ("P&O"), and ICO Global Services, Inc., a Delaware corporation ("Global"), and Congress Financial Corporation (Southwest), a Texas corporation ("Lender").

 

 

W I T N E S S E T H :

 

 

WHEREAS, Lender and Borrowers have entered into financing arrangements pursuant to which Lender may make loans and advances and provide other financial accommodations to Borrowers as set forth in the Loan and Security Agreement, dated as of April 9, 2002, among Lender, Borrowers, Existing Guarantors, P&O and Global, Amendment No. 1 to Loan and Security Agreement, dated as of September 6, 2002, by and among Lender, Borrowers, Existing Guarantors, P&O and Global and Amendment No. 2 to Loan and Security Agreement, dated as of August 26, 2004, by and among Lender, Borrowers, Existing Guarantors, P&O and Global (as amended hereby and as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the "Loan Agreement", and together with all agreements, documents and instruments at any time executed and/or delivered in connection therewith or related thereto, as from time to time amended and supplemented, collectively, the "Financing Agreements");

 

WHEREAS, Borrowers and Guarantors have requested that Lender agrees to certain amendments to the Loan Agreement and Lender is willing to so agree, subject to the terms and conditions contained herein; and

 

 

WHEREAS, by this Amendment No. 3, Lender, Borrowers, Guarantors and New Guarantors desire and intend to evidence such amendments.

 

 

NOW THEREFORE, in consideration of the foregoing, the mutual agreements and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.  Definitions.

 

(a)  Additional Definitions. As used herein, the following terms shall have the meanings given to them below, and the Loan Agreement and the other Financing Agreements are hereby amended to include, in addition to and not in limitation of, the following definitions:

 

(i)  "Agreement of Limited Partnership" shall mean the Agreement of Limited Partnership of Bayshore Industrial, L.P., dated September 27, 2004, between Bayshore Industrial GP, L.L.C., as general partner, and Bayshore Industrial LP, L.L.C., as limited partner.

 

(ii)  "Amendment No. 3" shall mean this Amendment No. 3 to Loan and Security Agreement by and among Lender, Borrowers, Guarantors, P&O and Global, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

 

(iii)  "Bayshore Conversion Documents" shall mean, collectively, the following (as the same may hereafter exist or be amended, modified, supplemented, extended, renewed, restated or replaced): (A) Agreement of Limited Partnership, (B) Plan of Conversion, (C) Certificate of Limited Partnership, and (D) all other agreements, documents and instruments relating to any of the foregoing.

 

(iv)  "Bayshore Inc." shall mean Bayshore Industrial, Inc., a Texas corporation, and its successors and assigns.

 

(v)  "Bayshore GP LLC" shall mean Bayshore Industrial GP, L.L.C., a Delaware limited liability company, and its successors and assigns.

 

(vi)  "Bayshore LP LLC" shall mean Bayshore Industrial LP, L.L.C., a Delaware limited liability company, and its successors and assigns.

 

(vii)  "Bayshore L.P." shall mean Bayshore Industrial, L.P., a Texas limited partnership, and its successors and assigns.

 

(viii)  "Certificate of Limited Partnership" shall mean the Certificate of Limited Partnership of Bayshore L.P.

 

(ix)  "Plan of Conversion" shall mean the Plan of Conversion of Bayshore Inc. into Bayshore L.P. pursuant to Section 2.15 of the Texas Revised Limited Partnership Act.

 

(b)  Amendments to Definitions. All references to the term "Guarantor" or "Guarantors" in the Loan Agreement or any of the other Financing Agreements and each such reference is hereby amended to include, in addition and not in limitation, each New Guarantor.

 

(c)  Interpretation. For purposes of this Amendment No. 3, unless otherwise defined herein, all terms used herein, including, but not limited to, those terms used and/or defined in the recitals above, shall have the respective meanings assigned to such terms in the Loan Agreement.

 

2.  Consent to Conversion. Subject to the terms and conditions set forth herein and notwithstanding the provisions of Sections 9.1 of the Loan Agreement, Lender hereby consents to the conversion of Bayshore Inc. into Bayshore L.P. pursuant to the Certificate of Limited Partnership and the other applicable Bayshore Conversion Documents as in effect on the date hereof (the "Bayshore Conversion"). 

 

3.  Name Change. All references in the Loan Agreement and the other Financing Agreements to the term "Bayshore Industrial, Inc." are hereby deleted and replaced with the following: "Bayshore Industrial, L.P.". 

 

4.  Assumption of Obligations and Financing Agreements. Bayshore L.P. hereby expressly:

 

(a)  assumes and agrees to be directly liable to Lender for all Obligations under, contained in, or arising pursuant to the Loan Agreement or any of the other Financing Agreements applicable to Bayshore Inc. and as applied to Bayshore L.P. as a Borrower;

 

(b)  agrees to perform, comply with and be bound by all terms, conditions and covenants of the Loan Agreement and the other Financing Agreements applicable to Bayshore Inc. and as applied to Bayshore Inc., with the same force and effect as if Bayshore L.P. had originally executed and been an original Borrower party signatory to the Loan Agreement and the other Financing Agreements; 

 

(c)  is deemed to make as of the date hereof, and is, in all respects, bound by all representations and warranties made by the other Borrowers to Lender set forth in the Loan Agreement or in any of the other Financing Agreements; and 

 

(d)  agrees that Lender shall have all rights, remedies and interests, including security interests in and to the Collateral granted pursuant to the Loan Agreement and the other Financing Agreements, with respect to Bayshore L.P. and its properties and assets with the same force and effect as Lender has with respect to the other Borrowers and their assets and properties, as if Bayshore L.P. had originally executed and had been an original Borrower party signatory to the Loan Agreement and the other Financing Agreements.

 

5.  Acknowledgment: Each Borrower and Existing Guarantor hereby acknowledges, confirms and agrees that on the date hereof and after the consummation of the Bayshore Conversion, the security interests in and liens upon the assets and properties of each Borrower and Existing Guarantor in favor of Lender shall continue to be, and the security interests in and liens upon the assets and properties of any New Guarantor in favor of Lender shall be, valid and perfected first priority liens and security interests.

 

6.  Representations, Warranties and Covenants. Borrowers and Guarantors (including New Guarantors), P&O and Global, jointly and severally, represent, warrant and covenant with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, and the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a continuing condition of the making of Loans by Lender to Borrowers:

 

(a)  This Amendment No. 3 has been duly executed and delivered by each Borrower, Guarantor and New Guarantor and is in full force and effect as of the date hereof and the agreements and obligations of each Borrower, Guarantor and New Guarantor contained herein constitute legal, valid and binding obligations of each Borrower, Guarantor and New Guarantor enforceable against each of them in accordance with their respective terms.

 

(b)  No action of, or filing with, or consent or any governmental or public body or authority, other than the filing of UCC financing statements or a certificate of limited partnership, and no approval or consent of any other party, is or will be required to authorize, or is or will be otherwise required in connection with, the execution, delivery and performance of this Amendment No. 3.

 

(c)  None of the transactions contemplated by this Amendment No. 3 violate or will violate any applicable law or regulation, or do or will give rise to a default or breach under any agreement to which any Borrower, Guarantor or New Guarantor is a party or by which any property of any Borrower, Guarantor or New Guarantor is bound.

 

(d)  The Bayshore Conversion is valid and effective in accordance with the terms of the Bayshore Conversion Documents and the Texas Revised Limited Partnership Act and Bayshore L.P. is the new limited partnership pursuant to the Bayshore Conversion. Effective as of the date hereof, Bayshore L.P. has changed its name from "Bayshore Industrial, Inc." to "Bayshore Industrial, L.P.".

 

(e)  All actions and proceedings required by the Bayshore Conversion Documents and applicable law and regulation have been taken and the transactions required thereunder have been duly and validly taken and consummated. 

 

(f)  No court of competent jurisdiction has issued any injunction, restraining order or other order which prohibits consummation of the transactions described in the Bayshore Conversion Documents and no governmental action or proceeding has been threatened or commenced seeking any injunction, restraining order or other order which seeks to void or otherwise modify the transactions described in the Bayshore Conversion Documents. 

 

(g)  Borrowers, Guarantors and New Guarantors shall take such steps and execute and deliver, and cause to be executed and delivered, to Lender, such additional UCC financing statements, and other and further agreements, documents and instruments as Lender may require in order to more fully evidence, perfect and protect Lender's first priority security interest in the Collateral (including the Collateral of New Guarantors).

 

(h)  Borrowers have delivered, or caused to be delivered, to Lender, true, correct and complete copies of the Bayshore Conversion Documents. 

 

7.  Additional Items to be Delivered. Borrowers, Guarantors and New Guarantors hereby agree that, in addition to all other terms, conditions and provisions set forth in the other Financing Agreements, Borrowers, Guarantors and New Guarantors shall deliver or cause to be delivered to Lender, true, correct and complete copies of the following items, each in form and substance satisfactory to Lender, as duly authorized executed and delivered by the parties thereto, by the date referred to below with respect to each such item:

 

(a)  within two (2) Business Days of the effective date of the Bayshore Conversion, (i) the Bayshore Conversion Documents, (ii) a Certificate of Limited Partners' Resolutions evidencing the adoption and subsistence of partners' resolutions approving the execution, delivery and performance by Bayshore L.P. of the agreements, documents and instruments described herein and (iii) such other further agreements, documents and instruments as Lender may reasonably request.

 

(b)  within three (3) Business Days of the effective date of this Amendment No. 3, a Pledge and Security Agreement by Bayshore GP LLC and Bayshore LP LLC in favor of Lender with respect to all of the partnership interests of Bayshore Industrial, L.P.

 

(c)  within three (3) Business Days Lender shall have received (i) a Guarantee by the New Guarantors in favor of Lender with respect to the Obligations of Polymers North America to Lender (the "Polymers North America Guarantee") and (ii) a Guarantee by the New Guarantors in favor of Lender with respect to the Obligations of Bayshore L.P. to Lender (the "Bayshore L.P. Guarantee", and together with the Polymers North America Guarantee, collectively, the "New Guarantees").

 

8.  Conditions Precedent. The effectiveness of the amendments contained herein shall be subject to the satisfaction of each of the following, in a manner satisfactory to Lender and its counsel:

 

(a)  Lender shall have received no later than October 1, 2004, this Amendment No. 3 duly authorized, executed and delivered by the parties hereto; 

 

(b)  Lender shall have received UCC, Federal and State tax lien and judgment searches with respect to New Guarantors in all relevant jurisdictions, as determined by Lender;

 

(c)  Lender shall have received, in form and substance reasonably satisfactory to Lender, the New Guarantees, duly authorized, executed and delivered by each of the New Guarantors;

 

(d)  New Guarantors shall have authorized Lender to prepare and file such UCC financing statements and other documents and instruments which Lender has determined are necessary to perfect or continue perfecting the security interests of Lender in all of the assets now or hereafter owned by New Guarantors;

 

(e)  Lender shall have received a copy of the Certificate of Formation (or comparable document), and all amendments thereto, for each New Guarantor certified by the Secretary of State of its jurisdiction of formation;

 

(f)  no Event of Default, or event, act or condition which with notice or passage of time or both would constitute an Event of Default, shall exist or have occurred.

 

9.  Effect of this Amendment. Except as expressly set forth herein, no other amendments, consents, changes or modifications to the Financing Agreements are intended or implied, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof and Borrowers, Guarantors and New Guarantors shall not be entitled to any other or further amendment or consent by virtue of the provisions of this Amendment No. 3 or with respect to the subject matter of this Amendment No. 3. To the extent of conflict between the terms of this Amendment No. 3 and the other Financing Agreements, the terms of this Amendment No. 3 shall control. The Loan Agreement and this Amendment No. 3 shall be read and construed as one agreement. 

 

10.  Further Assurances. The parties hereto shall execute and deliver such additional documents and take such additional action as may be necessary or desirable to effectuate the provisions and purposes of this Amendment No. 3. Without limiting any of the terms of the Loan Agreement or any of the other Financing Agreements, Lender may, at Borrowers' and Guarantors' expense, arrange for the filing of a Uniform Commercial Code ("UCC") financing statement amendment to change the name of the debtor to Bayshore Industrial, L.P., as set forth above and its corporate form from a corporation to a limited partnership. Borrowers hereby confirm that Lender is authorized to file such UCC Financing Statement Amendment or such other UCC filings in connection therewith as Lender may determine.

 

11.  Governing Law. The validity, interpretation and enforcement of this Amendment No. 3 and the other Financing Agreements and any dispute arising out of the relationship between the parties hereto whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of Texas but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the laws of the State of Texas.

 

12.  Binding Effect. This Amendment No. 3 shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns.

 

13.  Headings. The headings listed herein are for convenience only and do not constitute matters to be construed in interpreting this Amendment No. 3.

 

14.  Counterparts. This Amendment No. 3 may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment No. 3, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. Delivery of an executed counterpart of this Amendment No. 3 by telefacsimile shall have the same force and effect as delivery of an original executed counterpart of this Amendment No. 3. Any party delivering an executed counterpart of this Amendment No. 3 by telefacsimile also shall deliver an original executed counterpart of this Amendment No. 3, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment No. 3 as to such party or any other party.

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to be duly executed and delivered by their authorized officers as of the day and year first above written.

 

 

	 	
CONGRESS FINANCIAL CORPORATION 

  (SOUTHWEST)

	
By:

 
	
/s/ Mark Galovic

	
Name:   

Title:

 
	
Mark Galovic

First Vice President

	 	 
	 	
ICO POLYMERS NORTH AMERICA, INC

	
By:

 
	
/s/ Jon C. Biro

	
Name:

Title:

 
	
Jon C. Biro

Chief Financial Officer

	 	 
	 	
BAYSHORE INDUSTRIAL, L.P.

	
 

 

By:
	
   By:  Bayshore Industrial GP, L.L.C., as General Partner

 

/s/ Steve Barkmann

	
Name: 

Title:

 
	
Steve Barkmann

Sole Manager

	 	 
	 	
WEDCO TECHNOLOGY, INC.

	
By:

 
	
/s/ Jon C. Biro 

	
Name:   

Title:

 
	
Jon C. Biro

Chief Financial Officer

 

	 	 
	 	
WEDCO PETROCHEMICAL, INC.

	
By:

 
	
/s/ Jon C. Biro

	
Name:

Title:

 
	
Jon C. Biro

Chief Financial Officer

 

[SIGNATURES CONTINUED ON NEXT PAGE]

	 
	 	 	 
	

	 

[SIGNATURES  CONTINUED FROM PREVIOUS PAGE]

 

 

AGREED: 

 

	 	
ICO P&O, INC.

	
By:

 
	
/s/ Jon C. Biro

	
Name:    

Title:
	
Jon C. Biro

Chief Financial Officer

	 	 
	 	
ICO GLOBAL SERVICES, INC.

	
By:

 
	
/s/ Eric Parsons

	
Name:

Title:

 
	
Eric Parsons

PresidentExhibit 4(eh)

THIS  WARRANT  HAS NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS
AMENDED,  OR APPLICABLE  STATE  SECURITIES  LAWS, NOR THE SECURITIES LAWS OF ANY
OTHER  JURISDICTION.  THIS WARRANT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THOSE SECURITIES LAWS OR AN OPINION
OF COUNSEL, IN FORM AND SUBSTANCE  SATISFACTORY TO THE COMPANY, THAT THE SALE OR
TRANSFER IS PURSUANT TO AN EXEMPTION TO THE  REGISTRATION  REQUIREMENTS OF THOSE
SECURITIES LAWS.

                                -----------------

No. CS-90                                             Dated as of August 2, 2004
---------

           Void after 5:00 p.m., New York City time, on August 2, 2009

                                     WARRANT

             for the Purchase of 223,750,000 Shares of Common Stock

     FOR  VALUE  RECEIVED,   NCT  GROUP,   INC.  (the  "Company"),   a  Delaware
corporation, on this day of August 2, 2004 (the "Grant Date") hereby issues this
warrant (the  "Warrant")  and certifies  that Carole  Salkind (the  "Holder") is
granted the right,  subject to the  provisions of the Warrant,  to purchase from
the Company,  at any time, or from time to time during the period  commencing at
9:00 a.m.  New York City  local  time on August 2, 2004,  and  expiring,  unless
earlier  terminated as  hereinafter  provided,  at 5:00 p.m. New York City local
time on August 2, 2009 up to Two  Hundred  Twenty-Three  Million  Seven  Hundred
Fifty  Thousand  (223,750,000)  fully  paid and  nonassessable  shares of Common
Stock,  $.01 par  value,  of the  Company  at a price per share  (the  "Exercise
Price") equal to $0.027.

     The term "Common  Stock" means the shares of Common Stock,  $.01 par value,
of the Company constituted on the Grant Date of this Warrant,  together with any
other equity securities that may be issued by the Company in addition thereto or
in  substitution  therefor.  The number of shares of Common Stock to be received
upon  the  exercise  of  this  Warrant  may be  adjusted  from  time  to time as
hereinafter  set  forth.  The  shares  of  Common  Stock  deliverable  upon such
exercise,  and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Stock".

     Upon receipt by the Company of evidence  reasonably  satisfactory  to it of
the loss, theft,  destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender  and  cancellation  of this Warrant,  if mutilated,  the Company shall
execute and  deliver a new Warrant of like tenor and date.  Any such new Warrant
executed and delivered shall constitute an additional  contractual obligation on
the part of the Company,  whether or not this Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.

     The Holder agrees with the Company that this Warrant is issued, and all the
rights  hereunder shall be held,  subject to all of the conditions,  limitations
and provisions set forth herein.

           1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time, or from time to time, during the period commencing at 9:00
a.m., New York City local time, on August 2, 2004, and expiring at 5:00 p.m.,
New York City local time, on August 2, 2009, or, if

<PAGE>

such  day is a day on  which  banking  institutions  in the City of New York are
authorized by law to close,  then on the next  succeeding  day that shall not be
such a day.

     Subject to the restrictions  and limitations set forth above,  this Warrant
may be  exercised by  presentation  and  surrender  hereof to the Company at its
principal  office with the Warrant  Exercise Form attached  hereto duly executed
and  accompanied  by payment  (either in cash or by certified  or official  bank
check, payable to the order of the Company) of the Exercise Price for the number
of shares  specified in such Form and  instruments of transfer,  if appropriate,
duly executed by the Holder.  If this Warrant  should be exercised in part only,
the Company shall, upon surrender of this Warrant for cancellation,  execute and
deliver a new Warrant  evidencing  the rights of the Holder  thereof to purchase
the balance of the shares purchasable hereunder.  Upon receipt by the Company of
this Warrant, together with the Warrant Exercise Form and the Exercise Price, at
its office,  in proper form for  exercise,  the Holder shall be deemed to be the
holder of record of the  shares of Common  Stock  issuable  upon such  exercise,
notwithstanding  that the stock  transfer  books of the  Company  shall  then be
closed or that  certificates  representing such shares of Common Stock shall not
then be  actually  delivered  to the Holder.  The Company  shall pay any and all
documentary  stamp or similar issue or transfer  taxes payable in respect of the
issue or delivery of shares of Common Stock on exercise of this Warrant.

     2.  Reservation  of  Shares.  The  Company  will at all times  reserve  for
issuance and delivery  upon  exercise of this Warrant all shares of Common Stock
of the Company from time to time receivable  upon exercise of this Warrant.  All
such shares shall be duly authorized and, when issued upon such exercise,  shall
be validly  issued,  fully  paid and  nonassessable  and free of all  preemptive
rights.

     3. Warrant Stock  Transfer to Comply with the  Securities  Act of 1933. The
Warrant  Stock  may not be sold  or  otherwise  disposed  of  unless  registered
pursuant to the  provisions of the Securities Act of 1933, as amended (the "1933
Act"), or an opinion of counsel in form and content  satisfactory to the Company
is obtained  stating that such sale or other  disposition  is made in compliance
with  an  available  exemption  from  such  registration.   Any  sale  or  other
disposition  of the Warrant  Stock must also comply  with all  applicable  state
securities laws and regulations.

     4. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant,  but the Company shall
issue one  additional  share of its Common  Stock in lieu of each  fraction of a
share otherwise called for upon any exercise of this Warrant.

     5. Exchange,  Transfer,  Assignment of Loss of Warrant. This Warrant is not
registered  under the 1933 Act nor under any applicable  state securities law or
regulation.  This Warrant cannot be sold,  exchanged,  transferred,  assigned or
otherwise  disposed of unless registered  pursuant to the provisions of the 1933
Act or an opinion of counsel in form and content  satisfactory to the Company is
obtained  stating  that such  disposition  is in  compliance  with an  available
exemption  from  registration.  Any  such  disposition  must  also  comply  with
applicable state securities laws and regulations.

                                       2
<PAGE>

     6.  Rights of the  Holder.  The Holder  shall  not,  by virtue  hereof,  be
entitled  to any rights of a  stockholder  of the  Company,  either at law or in
equity,  and the  rights of the Holder are  limited to those  expressed  in this
Warrant.

     7. Redemption. This Warrant is not redeemable by the Company.

     8. Anti-Dilution Provisions.

          8.1  Adjustment  for Dividends in Other  Securities,  Property,  Etc.:
Reclassification,  Etc. In case at any time or from time to time after the Grant
Date the holders of Common Stock (or any other securities at the time receivable
upon the  exercise  of this  Warrant)  shall have  received,  or on or after the
record date fixed for the  determination  of eligible  stockholders,  shall have
become  entitled to receive without  payment  therefor:  (a) other or additional
securities or property  (other than cash) by way of dividend,  (b) any cash paid
or  payable  except out of earned  surplus  of the  Company at the Grant Date as
increased  (decreased)  by  subsequent  credits  (charges)  thereto  (other than
credits  in respect of any  capital or paid-in  surplus or surplus  created as a
result  of a  revaluation  of  property)  or (c) other or  additional  (or less)
securities  or  property  (including  cash)  by  way of  stock-split,  spin-off,
split-up,   reclassification,   combination  of  shares  or  similar   corporate
rearrangement, then, and in each such case, the Holder of this Warrant, upon the
exercise thereof as provided in Section 1, shall be entitled to receive, subject
to the limitations and  restrictions  set forth above,  the amount of securities
and  property  (including  cash in the cases  referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise if on the Grant
Date it had been the  holder of record of the  number of shares of Common  Stock
(as constituted on the Grant Date) subscribed for upon such exercise as provided
in Section 1 and had  thereafter,  during the period  from the Grant Date to and
including  the date of such  exercise,  retained  such  shares  and/or all other
additional  (or  less)  securities  and  property  (including  cash in the cases
referred to in clauses (b) and (c) above)  receivable by it as aforesaid  during
such period,  giving effect to all adjustments  called for during such period by
Section 8.2.

          8.2 Adjustment for Reorganization, Consolidation, Merger, Etc. In case
of any reorganization of the Company (or any other  corporation,  the securities
of which are at the time  receivable on the exercise of this Warrant)  after the
Grant  Date  or in  case  after  such  date  the  Company  (or  any  such  other
corporation) shall consolidate with or merge into another  corporation or convey
all or substantially all of its assets to another corporation, then, and in each
such case,  the Holder of this Warrant upon the exercise  thereof as provided in
Section  1  at  any  time  after  the   consummation  of  such   reorganization,
consolidation,  merger or conveyance,  shall be entitled to receive,  in lieu of
the securities and property  receivable  upon the exercise of this Warrant prior
to such consummation, the securities or property to which such Holder would have
been entitled upon such  consummation  if such Holder had exercised this Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
Section 8.1; in each such case, the terms of this Warrant shall be applicable to
the  securities or property  receivable  upon the exercise of this Warrant after
such consummation.

          8.3  Certificate as to  Adjustments.  In each case of an adjustment in
the  number  of  shares  of Common  Stock  (or  other  securities  or  property)
receivable  on the  exercise of the  Warrant,  the  Company at its expense  will
promptly compute such adjustment in accordance with the

                                       3
<PAGE>

terms of the Warrant and prepare a certificate setting forth such adjustment and
showing in detail the facts upon which such  adjustment  is based,  including  a
statement of (a) the consideration received or to be received by the Company for
any  additional  shares  of Common  Stock  issued or sold or deemed to have been
issued or sold,  (b) the number of shares of Common Stock  outstanding or deemed
to be  outstanding,  and (c) the pro forma adjusted  Exercise.  The Company will
forthwith mail a copy of each such certificate to the holder of this Warrant.

          8.4  Notices of Record Date, Etc.

               In case:

               (a) the Company  shall take a record of the holders of its Common
Stock (or other  securities  at the time  receivable  upon the  exercise  of the
Warrant) for the purpose of entitling them to receive any dividend (other than a
cash dividend) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other  securities,  or
to receive any other right; or

               (b) of any capital  reorganization  of the Company  (other than a
stock split or reverse stock split), any  reclassification  of the capital stock
of the Company,  any consolidation or merger of the Company with or into another
corporation  (other  than a merger for  purposes of change of  domicile)  or any
conveyance of all or  substantially  all of the assets of the Company to another
corporation; or

               (c) of any voluntary or involuntary  dissolution,  liquidation or
winding-up of the Company,  then,  and in each such case, the Company shall mail
or cause to be mailed to each  holder of the Warrant at the time  outstanding  a
notice  specifying,  as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend,  distribution or right,  and stating the
amount and character of such dividend,  distribution  or right, or (ii) the date
on  which  such   reorganization,   reclassification,   consolidation,   merger,
conveyance,  dissolution,  liquidation  or winding-up is to take place,  and the
time, if any, is to be fixed,  as to which the holders of record of Common Stock
(or such  other  securities  at the time  receivable  upon the  exercise  of the
Warrant)  shall be entitled to exchange  their  shares of Common  Stock (or such
other  securities)  for  securities  or other  property  deliverable  upon  such
reorganization,    reclassification,    consolidation,    merger,    conveyance,
dissolution,  liquidation  or  winding-up.  Such notice shall be mailed at least
twenty  (20) days prior to the date  therein  specified  and the  Warrant may be
exercised  prior to said date  during the term of the Warrant no later than five
(5) days prior to said date.

     9. Legend. In the event of the exercise of this Warrant and the issuance of
any of the Warrant Stock hereunder, all certificates  representing Warrant Stock
shall bear on the face thereof  substantially the following legends,  insofar as
is consistent with Delaware law:

      "The shares of common stock  represented by this certificate have
      not been registered under the Securities Act of 1933, as amended,
      or the Securities  laws of any state or other  jurisdiction,  and
      may not be sold,  offered  for  sale,  assigned,  transferred  or
      otherwise   disposed  of,  unless  registered   pursuant  to  the
      provisions of that Act and of such  Securities laws or an opinion
      of counsel acceptable to the Corporation is

                                       4
<PAGE>

      obtained  stating that such  disposition is in compliance with an
      available exemption from such registration."

     10. Governing Law and  Jurisdiction.  This Warrant shall be governed by the
internal  laws of the State of  Delaware,  without  regard to  conflicts of laws
principles.  The parties hereto hereby submit to the exclusive  jurisdiction  of
the United States Federal Courts located in the state of New Jersey with respect
to any dispute arising under this Warrant.

     11. Notices.  Notices,  demands and other  communications  given under this
Agreement  shall be in  writing  and shall be deemed  to have  been  given  when
delivered  (if  personally  delivered),  on the  scheduled  date of delivery (if
delivered  via  commercial  courier),  three  days  after  mailed  (if mailed by
certified  or  registered  mail,  return  receipt  requested)  or  when  sent by
facsimile  (if  sent by  facsimile  with  evidence  of  successful  transmission
retained by the  sender);  provided,  however,  that  failure to give proper and
timely  notice as set forth in the "with a copy to"  provisions  below shall not
invalidate a notice  properly and timely given to the associated  party.  Unless
another  address or  facsimile  number is  specified  by notice  hereunder,  all
notices shall be sent as follows:

If to the Holder:                              with a copy to:
----------------                               --------------

--------------------------------------------------------------------------------
Ms. Carole Salkind                             Peter Rosen, Esq.
P.O. Box 1292                                  Rosen & Avigliano
Clifton, NJ  07012                             431 Route 10 East
                                               Randolph, NJ  07689
--------------------------------------------------------------------------------
Facsimile:  973-643-6500                       Facsimile:  973-361-1644
--------------------------------------------------------------------------------

If to the Company:                             with a copy to:
-----------------                              --------------

--------------------------------------------------------------------------------
NCT Group, Inc.                                NCT Group, Inc.
20 Ketchum Street                              20 Ketchum Street
Westport, CT  06880                            Westport, CT  06880
Attention:  Chief Financial Officer            Attention:  General Counsel
--------------------------------------------------------------------------------
Facsimile:  203-226-4338                       Facsimile:  203-226-4338
--------------------------------------------------------------------------------

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf, in its corporate name, by its duly authorized officer, as of the
date first written above.

                                         NCT GROUP, INC.

                                         By:  /s/  Michael J. Parrella
                                              ----------------------------------
                                              Michael J. Parrella
                                              Chairman & Chief Executive Officer

                                       5
<PAGE>

                              WARRANT EXERCISE FORM
                              ---------------------

         (To be executed by the Holder in order to Exercise the Warrant)

               TO:     NCT Group, Inc.
                       20 Ketchum Street
                       Westport, CT  06880
                       Attention:  Chief Financial Officer

     The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing _________ shares of Common Stock of NCT Group, Inc. and
hereby  makes  payment at the rate of  $______  per share,  or an  aggregate  of
$________, in payment therefor.

     The  undersigned  represents,  warrants and  certifies  that all offers and
sales  of the  Warrant  Stock  shall  be  made:  (i)  pursuant  to an  effective
registration  statement  under the 1933 Act or pursuant to an exemption from, or
in a transaction not subject to, the registration  requirements of the 1993 Act;
and (ii) in compliance  with applicable  state  securities laws and those of any
other applicable jurisdiction.

Dated:
        -------------------

                                                  ------------------------------
                                                  Name of Warrant Holder

                                                  ------------------------------
                                                  Signature

                ------------------------------------------------

                       INSTRUCTIONS FOR ISSUANCE OF STOCK

         (if other than to the registered holder of the within Warrant)

Name:
       --------------------------------------------------------------------
        (Please type or print in block letters)

Address:
         ------------------------------------------------------------------

Social Security or Taxpayer Identification Number:
                                                   ------------------------

                                       6

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