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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<PAGE>
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,
substan
