Exhibit 10(t)
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE
AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO NCT GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, NCT GROUP, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to ALPHA CAPITAL AKTIENGESELLSCHAFT,
Pradafant 7, 9490 Furstentums, Vaduz, Lichtenstein, Fax: 000-00-00000000 (the
"Holder") or order, without demand, the sum of Two Hundred Thirty-Five Thousand
Dollars ($235,000.00), with simple interest accruing at the annual rate of 8%,
on April 22, 2005 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE 1
PAYMENT RELATED PROVISIONS
1.1. Payment Grace Period. The Borrower shall have a ten (10) day grace period
to pay any monetary amounts due under this Note, after which grace period a
default interest rate of eighteen percent (18%) per annum shall apply to
the amounts owed hereunder.
1.2. Conversion Rights. The Conversion Rights set forth in Article 2 shall
remain in full force and effect commencing from the date hereof and until
the Note is paid in full.
1.3. Interest Rate. Subject to the Holder's right to convert, interest payable
on this Note shall accrue at the annual rate of eight percent (8%) and be
payable January 1, 2004 and annually thereafter, and on the Maturity Date,
accelerated or otherwise, when the principal and remaining accrued but
unpaid interest shall be due and payable, or sooner as described below.
ARTICLE 2
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the issuance of this
Note and then at any time until this Note is fully paid, to convert
any outstanding and unpaid principal portion of this Note, and/or at
the Holder's election, the interest accrued on the Note (the date of
giving of such notice of conversion being a "Conversion Date") into
fully paid and nonassessable shares of common stock of Borrower as
such stock exists on the date of issuance of this Note, or any shares
of capital stock of Borrower into which such stock
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shall hereafter be changed or reclassified (the "Common Stock") at the
conversion price, as defined in Section 2.1(b) hereof (the "Conversion
Price"), determined as provided herein. Upon delivery to the Borrower
of a Notice of Conversion, attached hereto as Exhibit A, as described
in the subscription agreement entered into between the Borrower and
Holder relating to this Note (the "Subscription Agreement"), all the
terms of which are incorporated herein by this reference, of the
Holder's written request for conversion, Borrower shall issue and
deliver to the Holder within five (5) business days from the
Conversion Date that number of shares of Common Stock for the portion
of the Note converted in accordance with the foregoing. At the
election of the Holder, the Borrower will deliver accrued but unpaid
interest on the Note through the Conversion Date directly to the
Holder on or before the Delivery Date (as defined in the Subscription
Agreement). The number of shares of Common Stock to be issued upon
each conversion of this Note shall be determined by dividing that
portion of the principal (and interest, at the election of the Holder)
of the Note to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be Four Cents ($.04).
(c) The Conversion Price and number and kind of shares or other securities
to be issued upon conversion shall be subject to adjustment from time
to time upon the happening of certain events while this conversion
right remains outstanding, as follows:
(i) Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note,
as to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the right to
purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with
respect to the securities subject to the conversion or purchase
right immediately prior to such consolidation, merger, sale or
conveyance. The foregoing provision shall similarly apply to
successive transactions of a similar nature by any such successor
or purchaser. Without limiting the generality of the foregoing,
the anti-dilution provisions of this Section shall apply to such
securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
(ii) Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the
same or a different number of securities of any class or classes,
this Note, as to the unpaid principal portion thereof and accrued
interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of securities as would
have been issuable as the result of such change with respect to
the Common Stock immediately prior to such reclassification or
other change.
(iii)Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the
Common Stock in shares of Common Stock, the Conversion Base Price
shall be proportionately reduced in case of subdivision of shares
or stock dividend or proportionately increased in the case of
combination of shares, in each such case by the ratio which the
total number of shares of Common Stock outstanding immediately
after such event bears to the
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total number of shares of Common Stock outstanding immediately
prior to such event.
(d) Beginning as of such time as Borrower has authorized but unissued
shares of Common Stock available therefor (but in no event later than
the earlier of (i) three months after Borrower's current S-1
registration statement under review by the Commission with file number
333-60574 (the "Current Registration Statement") becomes effective or
is abandoned or (ii) April 10, 2004), and for the remaining period
during which the conversion right under this Note exists, Borrower
will 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. Borrower represents that
upon issuance, such shares will be duly and validly issued, fully paid
and non-assessable. Xxxxxxxx agrees that its issuance of this Note
shall constitute full authority to its officers, agents and transfer
agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for
shares of Common Stock upon the conversion of this Note.
2.2. Method of Conversion. This Note may be converted by the Holder in whole or
in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, if requested by the
Holder, a new Note containing the same date and provisions of this Note
shall be issued by the Borrower to the Holder for the remaining principal
balance of this Note and interest which shall not have been converted or
paid.
2.3. Maximum Conversion. The Holder shall not be entitled to convert on a
Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates on a Conversion Date, and (ii) the number of shares of Common
Stock issuable upon the conversion of the Note with respect to which the
determination of this provision is being made on a Conversion Date, which
would result in beneficial ownership by the Holder and its affiliates of
more than 9.99% of the outstanding shares of Common Stock of the Borrower
on such Conversion Date. For the purposes of the provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Holder shall not be limited to aggregate conversions of only 9.99% and
aggregate conversion by the Holder may exceed 9.99%. The Holder shall have
the authority and obligation to determine whether the restriction contained
in this Section 2.3 will limit any conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the Notes are convertible
shall be the responsibility and obligation of the Holder. The Holder may
void the conversion limitation described in this Section 2.3 upon 75 days
prior written notice to the Borrower. The Holder may allocate which of the
equity of the Borrower deemed beneficially owned by the Holder shall be
included in the 9.99% amount described above and which shall be allocated
to the excess above 9.99%.
ARTICLE 3
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
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3.1. Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after the due date. The ten (10)
day period described in this Section 3.1 is the same ten (10) day period
described in Section 1.1 hereof.
3.2. Breach of Covenant. The Borrower breaches any material covenant or other
term or condition of this Note in any material respect and such breach, if
subject to cure, continues for a period of seven (7) days after written
notice to the Borrower from the Holder.
3.3. Breach of Representations and Warranties. Any material representation or
warranty of the Borrower made herein, in the Subscription Agreement entered
into by the Holder and Borrower in connection with this Note, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection therewith shall be false or misleading in any material respect.
3.4. Receiver or Trustee. The Borrower shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or
such a receiver or trustee shall otherwise be appointed.
3.5. Judgments. Any money judgment, writ or similar final process shall be
entered or filed against Borrower or any of its property or other assets
for more than $50,000, and shall remain unpaid, unvacated, unbonded or
unstayed for a period of sixty (60) days.
3.6. Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against the
Borrower and if instituted against Borrower are not dismissed within
seventy-five (75) days of initiation.
3.7. Default. A default by the Borrower, after applicable notice and cure
periods, under any one or more obligations in an aggregate monetary amount
in excess of $100,000.
3.8. Stop Trade. A Securities and Exchange Commission stop trade order or
Principal Market (as defined below) trading suspension with respect to the
Common Stock that lasts for five (5) or more consecutive trading days. For
purposes hereof, "Principal Market" with respect to the Borrower's Common
Stock shall mean the NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, American Stock Exchange or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock).
3.9. Failure to Deliver Common Stock or Replacement Note. Xxxxxxxx's failure to
timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Subscription Agreement, or if
required, a replacement Note.
3.10.Non-Registration Event. The occurrence of a Non-Registration Event as
described in Section 10.4 of the Subscription Agreement.
3.11.Cross Default. A default by Borrower of a material term, covenant,
warranty or undertaking of any other agreement to which Borrower and
Subscriber are parties, or the occurrence of a material event of default
under any such other agreement.
3.12.Delisting. Delisting of the Common Stock from the OTC Bulletin Board or
such other principal exchange on which the Common stock is listed for
trading; failure to comply with the
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requirements for continued listing on the OTC Bulletin Board for a period
of three (3) consecutive trading days; or notification from the OTC
Bulletin Board or any Principal Market that the Borrower is not in
compliance with the conditions for such continued listing on the OTC
Bulletin Board or other Principal Market and the Common Stock does not at
the time of such notification comply with the continued listing
requirements of the OTC Bulletin Board.
ARTICLE 4
MISCELLANEOUS
4.1. Failure or Indulgence Not Waiver. No failure or delay on the part of Holder
hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise
thereof or of any other right, power or privilege. All rights and remedies
existing hereunder are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
4.2. Notices. Any notice herein required or permitted to be given shall be in
writing and may be personally served or sent by fax transmission (with copy
sent by regular, certified or registered mail or by overnight courier). For
the purposes hereof, the address and fax number of the Holder is as set
forth on the first page hereof. A Conversion Notice shall be deemed
delivered on (i) the business day it is received by facsimile or otherwise
by the Borrower if such notice is received prior to 11:00 A.M. New York
time, or (ii) the immediately succeeding business day if it is received by
facsimile or otherwise after 11:00 A.M. New York time on a business day or
at any time on a day which is not a business day. The address and fax
number of the Borrower shall be NCT Group, Inc., 00 Xxxxxxx Xxxxxx,
Xxxxxxxx, XX 00000, attn: Chief Financial Officer, telecopier number: (203)
226-4338, with a copy by telecopier only to: General Counsel. Both Xxxxxx
and Borrower may change the address and fax number for service by service
of notice to the other as herein provided. Notice of Conversion shall be
deemed given when made to the Borrower pursuant to the Subscription
Agreement.
4.3. Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4. Assignability. This Note shall be binding upon the Borrower and its
successors and permitted assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder.
4.5. Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
4.6. Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York. Any action brought by either party
against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in New York County in the State of New York. Both
parties and the individual signing this Agreement on behalf of the Borrower
agree to submit to the jurisdiction of such courts. The prevailing party
shall be entitled to recover from the other party its reasonable attorneys'
fees and costs.
4.7. Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed
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the maximum permitted by such law, any payments in excess of such maximum
shall be credited against amounts owed by the Borrower to the Holder and
thus refunded to the Borrower.
4.8. Prepayment. This Note may not be paid prior to the Maturity Date or after
the occurrence of an Event of Default without the consent of the Holder.
IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in its name
by its duly authorized officer as of the 22nd day of April, 2003.
NCT GROUP, INC.
By: /s/ Xx X. Xxxxxxx
---------------------------------
Name: Xx X. Xxxxxxx
Title: Senior Vice President &
Chief Financial Officer
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EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by NCT GROUP, INC. on April
22, 2003 into Shares of Common Stock of NCT GROUP, INC. according to the
conditions set forth in such Note, as of the date written below.
Date of Conversion:
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Conversion Price:
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Shares To Be Delivered:
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Signature:
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Print Name:
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Address:
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