Exhibit
10.11a
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 twelve percent
(12%) 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
