Exhibit 10(h)
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: 011-42-32323196 (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 March
11, 2004 (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, 2003 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 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 Company of a
Notice of Conversion, attached hereto as Exhibit A, as described in
the subscription agreement entered into between the Company 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
Company 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 seventy-five percent (75%) of the
average of the closing bid prices of the Common Stock for the twenty
(20) trading days commencing February 8, 2002 and ending March 8,
2002, as reported by the Principal Market. "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, the "Principal Market"), or if not then trading on a
Principal Market, such other principal market or exchange where the
Common Stock is listed or traded. If the Principal Market does not
report bid prices, then the closing price shall be substituted for the
bid price referred to in this Section 2.1(b) when determining the
Conversion Price.
(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:
(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 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 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; and (ii) warrants, options and convertible notes
presently outstanding and described in the Reports and Other
Written Information (as defined in the Subscription Agreement)
("Excepted Issuances") 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
Excepted Issuances, 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 Base Price upon the issuance of
shares of Common Stock upon exercise of such conversion or
purchase rights.
(d) From and after the issuance date of this Note and for the remaining
period during which the conversion right 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.
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, 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 Company 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 Company. 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:
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 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. 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.
3.10.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 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., 20 Ketchum Street,
Westport, CT 06880, attn: Chief Financial Officer, telecopier number: (203)
226-4338, with a copy by telecopier only to: General Counsel. 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 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 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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its duly authorized officer as of the 11th day of March, 2002.
NCT GROUP, INC.
By:________________________________
Name:
Title:
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 March
___, 2002 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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