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Exhibit 10.02
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-05-08)
March 11, 2005 $457,201.55
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 Four Hundred
Fifty-Seven Thousand
Two Hundred One Dollars and Fifty-Five Cents ($457,201.55) on
September 11,
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 conversion price
determined by
Section 2.2(a) hereof; (ii) if Artera (UK) Limited ("Artera")
has made an
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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 $0.018. The Conversion Price
shall be subject
to equitable adjustments for stock splits, stock dividends,
combinations,
recapitalization, reclassifications and similar events. The
Artera and DMCI
"Conversion Price" shall be equal to the initial public offering
price of such
stock and also be subject to equitable adjustments for stock
splits, stock
dividends, combinations, reclassifications and similar
events.
(b) Borrower shall promptly notify each Holder of any adjustment
(and event
that requires adjustment) to the Conversion Price of Borrower,
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.
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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 business 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
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 opinion of counsel,
reasonably
satisfactory to the Borrower in form, substance and scope, to
the effect that
any such legend may be removed from such certificate, or (ii) a
registration
statement under the Act covering such securities is in effect.
Nothing in this
Note shall affect in any way the Holder's obligations to comply
with applicable
securities laws upon the resale of the securities referred to
herein.
Borrower agrees to use its best efforts to register with the
Securities and
Exchange Commission, no later than the end of the term of this
Note (unless
legally prohibited from doing so), a number of shares of Common
Stock equal to
the principal amount of this Note outstanding at the time of
registration
divided by the Conversion Price with respect to Borrower. Such
Common Stock
shall not be used, without permission from the Holder, for any
other purposes.
2.6 EFFECT OF MERGER, CONSOLIDATION, ETC. If at any time when
this Note is
issued and outstanding, there shall be any merger,
consolidation, exchange of
shares, recapitalization, reorganization, or other similar
event, as a result of
which shares of Common Stock of the Borrower shall be changed
into the same or a
different number of shares of ano
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