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-05-09)
March 23, 2005
$2,001,439.22
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 Two Million One
Thousand Four
Hundred Thirty-Nine Dollars and Twenty-Two Cents
($2,001,439.22) on
September
23, 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 $0.0183.
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.
2
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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 another class
or c
