Exhibit 10(fa)
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.
SECURED 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 Four Hundred Thousand Dollars
($400,000.00), with simple interest accruing at the annual rate of 8%, on July
23, 2006 (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 on the Maturity Date, accelerated or otherwise, when the principal
and 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 Availability Date
(as defined in the Subscription Agreement) 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 shall hereafter be changed or
reclassified (the "Common Stock") at the
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conversion price, as described 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 shall be the lesser of (i) $0.0232 ("Maximum Base
Price"), and (ii) 80% of the average of the closing bid prices of the
Common Stock as reported by Bloomberg L.P. for the OTC Bulletin Board
for the five trading days preceding the Conversion Date.
(c) The Maximum Base 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 total number of
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shares of Common Stock outstanding immediately prior to such
event.
(iv) The Conversion Price and the amount of shares of Common Stock
issuable upon conversion of this Note are subject to adjustment
as described in the Subscription Agreement.
2.2 Whenever the Conversion Price is adjusted pursuant to Section 2.1(c)
above, the Borrower shall promptly provide notice to the Holder setting forth
the Conversion Price after such adjustment and the amount of shares of Common
Stock issuable and setting forth a brief statement of the facts requiring such
adjustment.
2.3 Beginning from and after the Availability Date, 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.
2.4 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.
2.5 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 61 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%.
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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:
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 in the Subscription Agreement) trading
suspension with respect to the Common Stock that lasts for five (5) or more
consecutive trading days.
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.
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3.11.Cross Default. A default by Borrower of a material term, covenant,
warranty or undertaking of any other agreement to which Borrower and Holder
are parties as of the date hereof, 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
other Principal Market; failure to comply with the 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.
0.00.Xxxxxxxx Agreement. An "Event of Default" as defined in the Security
Agreement dated at or about the date of this Note delivered by Borrower to
Holder (the "Security Agreement").
ARTICLE 4
SECURITY INTEREST
4. Security Interest/Waiver of Automatic Stay. This Note is secured by a
security interest granted to the Collateral Agent for the benefit of the
Holder pursuant to the Security Agreement, as delivered by Borrower to
Holder.
ARTICLE 5
MISCELLANEOUS
5.1 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.
5.2 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 5:00 P.M. New York
time, or (ii) the immediately succeeding business day if it is received by
facsimile or otherwise after 5:00 P.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.
5.3 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.
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5.4 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.
5.5 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.
5.6 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.
5.7 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 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.
5.8 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 23rd day of July, 2004.
NCT GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
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Name: Xxxxxxx X. Xxxxxxxx
Title: Chairman & Chief Executive 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 July 23,
2004 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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