Exhibit 10.1(a)
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-____)
[Date]
$
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
___________________________________________
(________) on
___________,
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
greater of: (i) 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; and (ii)
the par value of the Common Stock on the
date the Conversion Notice is delivered
to the Borrower by the Holder.
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
2
<PAGE>
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
3
<PAGE>
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
