THIS NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THIS NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ARTERA GROUP, INC. THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, ARTERA GROUP, INC., a Delaware corporation (hereinafter
called "Borrower"), hereby promises to pay to_____________________, Fax:
____________ (the "Holder") or order, without demand, the sum of ___________
($_________), with simple interest accruing at the annual rate of 6%, on May 25,
2002 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE I
PAYMENT 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 18% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in Article
II shall remain in full force and effect immediately 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 six percent (6%) and be
payable 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 II
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) Right of Conversion. 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 shall hereafter be changed or reclassified (the "Common Stock")
at the Conversion Price (as defined in Section 2.1(b) hereof), determined as
provided herein. Upon delivery or transmission by facsimile to the Company of a
copy of a fully executed notice of conversion in the form attached hereto as
Exhibit "A"(a "Notice of Conversion") (the date of receipt of such Notice of
Conversion being a "Delivery Date"), Borrower shall issue and deliver to the
Holder within five (5) business days from the Delivery 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 Company will deliver accrued
but unpaid interest on the Note through the Conversion Date directly to the
Holder on or before the Delivery Date.
(b) Conversion Rate. 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 (as defined herein). Subject to adjustment as
provided in Section 2.1(c) hereof, the conversion price per share (the
"Conversion Price") shall be one hundred percent (100%) of the average of the
three lowest closing bid prices for the Common Stock on the OTC Pink Sheets,
NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System,
American Stock Exchange, New York Stock Exchange or the Alternative Investment
Market of the London Stock Exchange ("AIM"), as applicable, or if not then
trading on any of the foregoing, such other principal market or exchange where
the Common Stock is listed or traded (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock, the "Principal
Market") for the ten (10) trading days prior to but not including the Conversion
Date. For purposes of the AIM, closing bid price shall mean the last trading
price on the London Stock Exchange's SEATS PLUS system (the "SEATS PLUS") as
reported by Bloomberg Financial. For purposes of the NASD OTC Bulletin Board,
closing bid price shall mean the last closing bid price on the NASDAQ National
Market System as reported by Bloomberg Financial.
(c) Adjustments of Conversion Price. The Conversion Price shall be subject
to adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
A. 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.
B. 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.
C. 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 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 shares of Common Stock outstanding immediately prior to such event.
D. Share Issuance. Subject to the provisions of this Section, if the
Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; or (ii)
pursuant to options, warrants, or other obligations to issue shares, outstanding
on the date hereof as described in the Written Information, as such terms are
defined in the Subscription Agreement between the Company and the Holder, dated
at or about April 5, 2001 (the "Subscription Agreement", which Subscription
Agreement is incorporated herein by this reference) ((i) and (ii) above, are
hereinafter referred to as the "Existing Option Obligations") for a
consideration less than the Conversion Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced as follows: (i) the number of shares of Common
Stock outstanding immediately prior to such issue shall be multiplied by the
Conversion Price in effect at the time of such issue and the product shall be
added to the aggregate consideration, if any, received by the Borrower upon such
issue of additional shares of Common Stock; and (ii) the sum so obtained shall
be divided by the number of shares of Common Stock outstanding immediately after
such issue. The resulting quotient shall be the adjusted Conversion Price.
Except for the Existing Option Obligations, for purposes of this adjustment, the
issuance of any security of the Borrower carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price upon
the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights.
(d) During the period the conversion right exists, Borrower will reserve
from its authorized and unissued Common Stock the number of shares of Common
Stock described in Section 7(f) of the Subscription Agreement to provide for the
issuance of Common Stock upon conversion of this Note. Borrower represents that
upon issuance, such shares will be duly and validly issued, fully paid and
non-assessable. Borrower 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, a new Note containing the same date and
provisions of this Note shall be issued by the Borrower to the Holder for the
principal balance of this Note and interest which shall not have been converted
or paid.
ARTICLE III
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 of this Note.
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 unvacated, unbonded or unstayed for a period
of forty-five (45) 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 45 days of initiation.
3.7 Delisting. After becoming included for listing or quotation on a
Principal Market: (i) delisting of the Common Stock from the Principal Market or
such other principal exchange on which the Common Stock is listed for trading;
(ii) Borrower's failure to comply with the conditions for listing; or (iii)
notification that the Borrower is not in compliance with the conditions for such
continued listing.
3.8 Concession. A concession by the Borrower, after applicable notice and
cure periods, under any one or more obligations in an aggregate monetary amount
in excess of $50,000.
3.9 Stop Trade. An SEC stop trade order or trading suspension on any
Principal Market.
3.10 Failure to Deliver Common Stock or Replacement Note. Borrower'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.
3.11 Listing Default. Failure of the Borrower to obtain trading of the
Common Stock issuable upon conversion of the Note on the AIM prior to September
15, 2001.
3.12 Cross Default. A default by the Borrower of a material term, covenant,
warranty or undertaking of any other agreement to which the Borrower and Holder
are parties, or the occurrence of a material event of default under any such
other agreement.
3.13 NCT Group, Inc. Default. A default by NCT Group, Inc. (a Delaware
corporation) of a material term, covenant, warranty or undertaking of an
Exchange Rights Agreement and Registration Rights Agreement both dated at or
about May 25, 2001 to which NCT Group, Inc. and Holder are parties, or the
occurrence of a material event of default under such other agreements.
ARTICLE IV
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. The address and fax number of the Borrower shall be Artera
Group, Inc., 20 Ketchum Street, Westport, CT 06880, telecopier number: (203)
226-4338. Both Holder 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 Company 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 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 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 attorney's 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 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/Redemption. This Note may not be paid prior to the Maturity
Date or redeemed without the consent of the Holder.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its Treasurer on this 25th day of May, 2001.
ARTERA GROUP, INC.
By:________________________________
WITNESS:
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EXHIBIT A
FORM OF 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 ARTERA GROUP, INC. on May
25, 2001 into Shares of Common Stock of ARTERA GROUP, INC. (the "Company")
according to the conditions set forth in such Note, as of the date written
below.
Date of Conversion:_____________________________________________________________
Conversion Price:_______________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:______________________________________________________________________
Print
Name:__________________________________________________________________________
Address:________________________________________________________________________
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