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Exhibit 10.01
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE
SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS
AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR AN OPINION
OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO
THE BORROWER
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD
PURSUANT TO RULE
144 UNDER SAID ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST
ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
SECURED CONVERTIBLE NOTE
(No. CTS-05-10)
March 29, 2005 $390,000.00
FOR VALUE RECEIVED, NCT GROUP, INC., a Delaware corporation
(hereinafter called
the "Borrower") hereby promises to pay to the order of Carole
Salkind or
registered assigns (the "Holder") the sum of Three Hundred
Ninety Thousand
Dollars and No Cents ($390,000.00) on September 29, 2005, and to
pay interest on
the unpaid principal balance hereof at eight percent (8%) per
annum (the
"Ordinary Interest Rate") from the date hereof (the "Issue
Date") until the same
becomes due and payable, whether at maturity or upon
acceleration or otherwise.
Any amount of principal of or interest on this Note which is not
paid when due
shall bear interest at the rate of five percent (5%) above the
Ordinary Interest
Rate (the "Default Interest Rate") from the due date thereof
until the same is
paid. Interest shall commence accruing on the Issue Date and, to
the extent not
converted in accordance with the provisions of Article II below,
shall be
payable in arrears on the date the principal amount in respect
of which it has
accrued is paid, whether at maturity or upon acceleration or by
prepayment or
otherwise. All payments of principal and interest (to the extent
not converted
in accordance with the terms hereof) shall be made in lawful
money of the United
States of America. All payments shall be made at such address as
the Holder
shall hereafter give to the Borrower by written notice made in
accordance with
the provisions of this Note.
The following terms shall apply to this Note:
ARTICLE I
NO PREPAYMENT
1.1 PREPAYMENT. This Note is not subject to prepayment. This
Note is
subject to optional conversion in accordance with Section 2.7
below.
ARTICLE II
CONVERSION AND PURCHASE RIGHTS; PAYMENT OF EXERCISE PRICE
2.1 CONVERSION RIGHT. The Holder shall have the right (the
"Conversion
Right") at any time on or prior to the day this Note is paid in
full, to convert
at any time all or from time to time any part of the outstanding
and unpaid
principal amount of this Note of at least $50,000, or such
lesser amount as
shall remain unpaid at the time of the conversion, into, at
Holder's election,
(i) fully paid and non-assessable shares of common stock, par
value $.01 per
share, of the Borrower ("Common Stock"), at the
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conversion price determined by Section 2.2(a) hereof; (ii) if
Artera (UK)
Limited ("Artera") has made an initial public offering of its
common stock, par
value (pound)1.00 per share, fully paid and non-assessable
shares of such stock
owned by the Borrower, at a conversion price equal to the
initial public
offering price of such stock; (iii) if Distributed Media
Corporation
International Limited ("DMCI") has made a public offering of its
common stock,
par value (pound)1.00 per share, fully paid and non-assessable
shares of such
stock owned by the Borrower, at a conversion price equal to the
initial public
offering price of such stock; and (iv) if any other subsidiary
of the Borrower
(other than Pro Tech Communications, Inc.) has made a public
offering of its
common stock, fully paid and non-assessable shares of such stock
owned by the
Borrower, at a conversion price equal to the initial public
offering price of
such stock. Upon the surrender of this Note, accompanied by a
Notice of
Conversion of Secured Convertible Note in the form attached
hereto as Exhibit 1,
properly completed and duly executed by the Holder (a
"Conversion Notice"), the
Borrower shall issue and, within five (5) business days after
such surrender of
this Note with the Conversion Notice, deliver to or upon the
order of the Holder
(x) that number of shares of common stock for the portion of the
Note converted
as shall be determined in accordance herewith and (y) a new Note
in the form
hereof for the balance of the principal amount hereof, if
any.
The number of shares of common stock to be issued upon each
conversion of
this Note shall be determined by dividing (i) the sum of (A)
that portion of the
principal amount of the Note to be converted plus (B) the
"Conversion Date
Interest" (as defined below), by (ii) the Conversion Price (as
defined below) in
effect on the date the Conversion Notice is delivered to the
Borrower by the
Holder. Conversion Date Interest means the product of (i) the
principal amount
of the Note to be converted, multiplied by (ii) a fraction (A)
the numerator of
which is the number of days elapsed since the date of issuance
of this Note and
(B) the denominator of which is 365, multiplied by the Ordinary
Interest Rate
(iii) or, a fraction (A) the numerator of which is the number of
days in the
period of time after the occurrence of an Event of Default and
(B) the
denominator of which is 365, multiplied by the Default Interest
Rate.
2.2 CONVERSION PRICE.
(a) The per share "Conversion Price" for conversion of this Note
into
the Borrower's Common Stock shall be equal to the closing sale
price of the
Common Stock on the Trading Day (as defined below) immediately
preceding
the date of this Note; provided, however, that if, on the date
of this Note
and the three Trading Days thereafter (the "Window"), neither
the Holder
nor any Related Party (as defined below) sells or, whether in
writing or
otherwise, agrees to sell any shares of Common Stock or any
option,
warrant, instrument or right to convert into, exchange for or
acquire
Common Stock, then such price shall be reduced to a price equal
to the
lowest closing sale price, if lower than the price specified
above in this
sentence, of the Common Stock during the Window on the principal
securities
exchange or market on which the Common Stock is then traded as
reported on
Bloomberg Financial Markets. If any closing sale price of the
Common Stock
during the Window is lower than the price specified at the
beginning of
this Section 2.2(a), the Holder shall give the Borrower prompt
written
notice of any sale of or agreement to sell any Common Stock or
option,
warrant, instrument or right to convert into, exchange for or
acquire
Common Stock made by the Holder or a Related Party during the
Window.
"Trading Day" shall mean any day on which the Common Stock is
traded for
any period on the NASDAQ National Market, or on the principal
securities
exchange or other securities market on which the Common Stock is
then being
traded. "Related Party" shall mean a member of the Holder's
immediate
family, including spouse (even if separated or not residing with
the
Holder) and adult children (even if not residing with the
Holder), or an
entity (other than the Borrower) of which the Holder or any such
immediate
family member is an officer, director or beneficial shareholder
(determined
under Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the
"1934 Act")). The Conversion Price shall also be subject to
equitable
adjustments for stock splits, stock dividends, combinations,
recapitalization,
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reclassifications and similar events. The Artera and DMCI
"Conversion
Price" shall be equal to the initial public offering price of
such stock
and shall be subject to adjustment as provided in Section 2.2(b)
hereof.
(b) The Conversion Price for NCT, Artera and DMCI shall also
be
subject to equitable adjustments for stock splits, stock
dividends,
combinations, reclassifications and similar events.
(c) Borrower shall promptly notify each Holder of any adjustment
(and
event that requires adjustment) to the Conversion Price of NCT,
Artera and
DMCI pursuant to this Section 2.2.
2.3 AUTHORIZED SHARES. The Borrower covenants that during the
period the
Conversion Right exists, the Borrower will use its best efforts
to reserve from
its authorized and unissued Common Stock a sufficient number of
shares to
provide for the issuance of Common Stock upon the full
conversion of this Note.
The Borrower represents that upon issuance, such shares will be
duly and validly
issued, fully paid and non-assessable. The Borrower (i)
acknowledges that it
will irrevocably instruct its transfer agent as soon as
practicable to issue
certificates for the Common Stock issuable upon conversion of
this Note and (ii)
agrees that its issuance of this Note shall constitute full
authority to its
officers and agents, who are charged with the duty of executing
stock
certificates, to execute and issue the necessary certificates
for shares of
Common Stock upon the conversion of this Note. In the event that
a sufficient
number of shares cannot be reserved, Borrower agrees to use its
best efforts to
call an annual meeting of the Borrower's shareholders and seek
approval for an
increase in the authorized shares of the Borrower's Common Stock
to a number of
shares sufficient to provide for the full conversion of this
Note.
2.4 METHOD OF CONVERSION. Except as otherwise provided in this
Note or
agreed to by the Holder, this Note may be converted by the
Holder in whole at
any time or in part (provided such partial conversion is at
least $50,000) from
time to time by (i) submitting to the Borrower a Conversion
Notice (by facsimile
dispatched on the Conversion Date and confirmed by U.S. mail or
overnight mail
service sent within two Trading Days thereafter) and (ii)
surrendering this Note
with the mailed confirmation of the Conversion Notice at the
principal office of
the Borrower. Upon partial exercise of the conversion rights
provided hereby, a
new Note containing the same date and provisions as this Note
shall be issued by
the Borrower to the Holder for the principal balance of this
Note which shall
not have been converted. This Note has been issued by the
Borrower pursuant to
the exemption from registration provided either by Section 4.2
or Regulation D
under the Securities Act of 1933, as amended (the "Act").
2.5 RESTRICTIONS ON SHARES. The shares of common stock issuable
upon
conversion of this Note may not be sold or transferred unless
(i) they first
shall have been registered under the Act and applicable state
securities laws,
(ii) the Borrower shall have been furnished with an opinion of
legal counsel (in
form, substance and scope reasonably acceptable to Borrower) to
the effect that
such sale or transfer is exempt from the registration
requirements of the Act or
(iii) they are sold pursuant to Rule 144 under the Act. Each
certificate for
shares of common stock issuable upon conversion of this Note
that have not been
so registered and that have not been sold pursuant to an
exemption that permits
removal of the legend, shall bear a legend substantially in the
following form,
as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE
BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
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ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY
WITH APPLICABLE STATE SECURITIES LAWS.
Upon the request of a holder of a certificate representing any
shares of
common stock issuable upon conversion of this Note, the Borrower
shall remove
the foregoing legend from the certificate or issue to such
holder a new
certificate therefor free of any transfer legend, if (i) with
such request, the
Borrower shall have received either an
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