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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-05-07)
March 8, 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 8, 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 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, 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.
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(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
ACT.
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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,
reasona
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