Exhibit 10.2
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-05-30)
October 14, 2005 $1,001,329.96
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 One Million One Thousand Three
Hundred Twenty-Nine Dollars and Ninety-Nine Cents ($1,001,329.96) on April 14,
2006, and to pay interest on the unpaid principal balance hereof at eight
percent (8%) 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 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 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. 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,
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reclassifications and similar events. The Artera and DMCI "Conversion 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
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 (i) with such request, the
Borrower shall have received either an opinion of counsel, reasonably
satisfactory to the Borrower in form, substance and scope, to the effect that
any such legend may be removed from such certificate, or (ii) a registration
statement under the Act covering such securities is in effect. Nothing in this
Note shall affect in any way the Holder's obligations to comply with applicable
securities laws upon the resale of the securities referred to herein.
Borrower agrees to use its best efforts to register with the Securities and
Exchange Commission, no later than the end of the term of this Note (unless
legally prohibited from doing so), a number of shares of Common Stock equal to
the principal amount of this Note outstanding at the time of registration
divided by the Conversion Price with respect to Borrower. Such Common Stock
shall not be used, without permission from the Holder, for any other purposes.
2.6 EFFECT OF MERGER, CONSOLIDATION, ETC. If at any time when this Note is
issued and outstanding, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Note shall
thereafter have the right to receive upon conversion of this Note, upon the
bases and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock then issuable upon conversion of this Note (assuming the
occurrence of the Amendments whether or not that has then occurred), such stock,
securities or assets which the Holder would have been entitled to receive in
such transaction had this Note been converted immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holder of this Note to the end that
the provisions hereof (including, without limitation, provisions for adjustment
of the Conversion Price and of the number of shares issuable upon conversion of
this Note) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the exercise
hereof. The Borrower shall not effect any transaction described in this Section
2.6 unless the resulting successor or acquiring entity (if not the Borrower)
assumes by written instrument the obligations of this Section 2.6. The Holder
will have the right if a merger or consolidation occurs to force the payment in
full of this Note.
2.7 CONVERSION AFTER EVENT OF DEFAULT. The Holder's right to convert this
Note into stock as described above shall apply even if an Event of Default (as
defined in Article III below) shall have occurred.
ARTICLE III
EVENTS OF DEFAULT
If of any of the following events of default (each, an "Event of Default")
shall occur:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails (i) to pay the
principal hereof when due, whether at maturity or upon acceleration or otherwise
or (ii) to pay any
4
installment of interest hereon when due and, in the case of this clause (ii)
only, such failure continues for a period of five (5) days after the due date
thereof;
3.2 CONVERSION. The Borrower fails to issue shares of common stock to the
Holder upon exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Note, and any such failure shall continue
uncured for five (5) business days after the Borrower shall have been notified
thereof in writing by the Holder;
3.3 BREACH OF COVENANT. The Borrower breaches any material covenant or
other material term or condition of this Note (other than as specifically
provided in Sections 3.1 and 3.2 hereof), and such breach continues for a period
of ten (10) business days after written notice thereof to the Borrower from the
Holder;
3.4 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith shall be
false or misleading in any material respect when made and the breach of which
would have a material adverse effect on the Borrower or the prospects of the
Borrower or a material adverse effect on the Holder or the rights of the Holder
with respect to this Note or the shares of common stock issuable upon conversion
of this Note;
3.5 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of 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;
3.6 JUDGMENTS. Any money judgment, writ or similar process shall be entered
or filed against the Borrower or any subsidiary of the Borrower or any of its
property or other assets for more than $250,000, and shall remain unvacated,
unbonded or unstayed for a period of twenty (20) days unless otherwise consented
to by the Holder;
3.7 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower;
3.8 MATERIAL LOSS OR THEFT. Material loss or theft, substantial damage or
destruction or unauthorized sale or encumbrance of any material portion of the
Collateral (as defined in Article IV hereof) in excess of reasonably expected
recoveries under insurance policies, or the making of any levy on, or seizure or
attachment of or entry of a judgment against a material portion of the
Collateral; or
3.9 REPORTS. A material omission or misstatement in any of the Borrower's
previously or hereafter filed reports pursuant to the requirements of the 1934
Act or the rules and regulations promulgated thereunder.
Then, upon the occurrence and during the continuation of any Event of
Default specified in Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.8 or 3.9 hereof, at the
option of the Holder hereof, and upon the occurrence of any event of default
specified in Sections 3.5 or 3.7 hereof, the Borrower shall pay to the Holder,
in satisfaction of its obligation to pay the outstanding principal amount of
this Note and accrued and unpaid interest thereon, an amount equal to the sum of
(i) the product of (x) the then outstanding principal amount of this Note
multiplied by (y) 110% plus (ii) accrued and unpaid interest on the unpaid
principal amount of this Note to the date of payment (the "Default Amount") and
such Default Amount, together with all other ancillary amounts payable hereunder
shall immediately become due and payable,
5
all without demand, presentment or notice, all of which hereby are expressly
waived, together with all costs, including, without limitation, legal fees and
expenses of collection, and the Holder shall be entitled to exercise all other
rights and remedies available at law or in equity.
If the Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default, to
require the Borrower, upon written notice, to immediately issue (in accordance
with the terms of Article II hereof), in lieu of the Default Amount, the number
of shares of Common Stock of the Borrower equal to the Default Amount divided by
the Conversion Price then in effect.
ARTICLE IV
COLLATERAL
Borrower hereby grants to Holder a security interest in all inventory,
machinery, equipment, stocks, bonds, notes, accounts receivable, any rights or
claims that they may have against any other person, firm, or corporation for
monies, choses in action, any bank accounts, checking accounts, certificates of
deposit or any financial instrument, patents and intellectual property rights or
any other assets owned by Borrower as of the date of this agreement, or
hereafter acquired.
Borrower hereby represents that none of the collateral encumbered hereunder
has been sold or assigned since the original promissory note of Borrower to
Holder of January 26, 1999 and that the lien of the holder of this note is
uninterrupted from January 26, 1999 and shall continue until this note is paid
or otherwise disposed of in accordance with its terms and conditions.
All collateral rights in intellectual property is subordinated to the
Borrower's current licenses and future licenses provided, that with respect to
future licenses, the consent of the Holder must be obtained, but such consent
will not be unreasonably withheld. The patents and intellectual property which
are licensed under the cross license agreement dated September 27, 1997, among
NXT plc, New Transducers Limited, being related companies, the Borrower and NCT
Audio Products, Inc. (or any successor agreements) are specifically excluded
from the collateral. There are approximately 20 pieces of intellectual property
in which, under the cross license agreement, Borrower may not, and hence does
not herein, grant a security interest. In addition, all agreements between NCT
Audio Products, Inc. and the Borrower that relate to such agreement, and the
stock of NCT Audio Products, Inc. owned by the Borrower, shall similarly be
excluded from the security interest granted in this Note.
If Borrower does not pay the debt or other obligations under this Note when
due, the collateral may be sold in order to pay such debt and obligations, or
same may be transferred to the name of the Holder, as Holder in her discretion
decides. Holder may inspect the collateral at all reasonable times. Borrower
further agrees that it will do anything reasonably requested by Holder in order
to make Holder's security interest in the collateral legally effective including
the execution of a UCC-1.
ARTICLE V
MISCELLANEOUS
5.1 FAILURE OR INDULGENCY NOT WAIVER. No failure or delay on the part of the
Holder 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
6
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. Notices, demands and other communications given under this Note
shall be in writing and shall be deemed to have been given when delivered (if
personally delivered), on the scheduled date of delivery (if delivered via
commercial courier), three days after mailed (if mailed by certified or
registered mail, return receipt requested) or when sent by facsimile (if sent by
facsimile with evidence of successful transmission retained by the sender);
provided, however, that failure to give proper and timely notice as set forth in
the "with a copy to" provisions below shall not invalidate a notice properly and
timely given to the associated party. Unless another address or facsimile number
is specified by notice hereunder, all notices shall be sent as follows:
If to the Holder: with a copy to:
- ---------------- --------------
- --------------------------------------------------------------------------------
Ms. Carole Salkind Peter Rosen, Esq.
18911 Collins Ave., Apt. 2403 Rosen & Avigliano
Sunny Isles Beach, FL 33160 431 Route 10 East
Randolph, NJ 07689
- --------------------------------------------------------------------------------
Facsimile: 305-932-2425 Facsimile: 973-361-1644
- --------------------------------------------------------------------------------
If to the Borrower: with a copy to:
- ------------------ --------------
- --------------------------------------------------------------------------------
NCT Group, Inc. NCT Group, Inc.
20 Ketchum Street 20 Ketchum Street
Westport, CT 06880 Westport, CT 06880
Attention: Chief Financial Officer Attention: General Counsel
- --------------------------------------------------------------------------------
Facsimile: 203-226-4338 Facsimile: 203-226-4338
- --------------------------------------------------------------------------------
..
5.3 AMENDMENT PROVISION. This Note and any provision hereof may only be
amended by an instrument in writing signed by the Borrower and the Holder. The
term "Note" and all references 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.
5.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its
successors and assigns and shall inure to be the benefit of the Holder and its
successors and assigns; PROVIDED, HOWEVER, that so long as no Event of Default
has occurred, this Note shall only be transferable in whole or in increments of
$100,000 to "Accredited Investors" (as defined in Rule 501(a) under the Act).
5.5 COST OF COLLECTION. If default is made in the payment of this Note, the
Borrower shall pay the Holder hereof costs of collection, including reasonable
attorneys' fees.
5.6 GOVERNING LAW AND JURISDICTION. This Note shall be governed by the
internal laws of the State of Delaware, without regard to conflicts of laws
principles. The parties hereto hereby submit to the exclusive jurisdiction of
the United States Federal Courts located in the state of New Jersey with respect
to any dispute arising under this Note.
5.7 DAMAGES SHARES. The shares of Common Stock that may be issuable to the
Holder pursuant to Article III hereof ("Damages Shares") shall be treated as
Common Stock issuable upon conversion of this Note for all purposes hereof and
shall be subject to all of the limitations and afforded all of the rights of the
other shares of Common Stock issuable hereunder. For purposes of calculating
7
interest payable on the outstanding principal amount hereof, amounts convertible
into Damages Shares ("Damages Amounts") shall not bear interest but must be
converted prior to the conversion of any outstanding principal amount hereof,
until the outstanding Damages Amount is zero. Damaged Shares can only be issued
after Borrower has received the written notice that the Holder wishes to receive
such shares.
5.8 DENOMINATIONS. At the request of the Holder, upon surrender of this
Note, the Borrower shall promptly issue new Notes in the aggregate outstanding
principal amount hereof, in the form hereof, in such denominations of at least
$50,000 as the Holder shall request.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its duly authorized officer as of the date first written above.
NCT GROUP, INC.
By: /s/ Michael J. Parrella
----------------------------------
Michael J. Parrella
Chairman & Chief Executive Officer
8
EXHIBIT 1
---------
NOTICE OF CONVERSION OF SECURED CONVERTIBLE NOTE
TO: NCT Group, Inc.
(1) Pursuant to the terms of the attached Secured Convertible Note (the
"Note"), the undersigned hereby elects to convert $________ principal amount of
the Note into shares of common stock of:
_____ NCT Group, Inc., a Delaware corporation
_____ Distributed Media Corporation International Limited, a UK corporation
_____ Artera (UK) Limited, a UK corporation
_____ Other public subsidiary (identify: ______________________________)(1)
Capitalized terms used herein and not otherwise defined herein have the
respective meanings provided in the Note.
(2) Please issue a certificate or certificates for the number of shares of
common stock into which such principal amount of the Note is convertible in the
name(s) specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name: Carole Salkind Name:
--------------------- ----------------
Address: Address:
--------------------- ----------------
SS or Tax ID Number: SS or Tax ID Number:
--------------------- ----------------
(3) In the event of partial exercise, please reissue an appropriate Note
for the principal balance which shall not have been converted.
(4) If the shares of common stock issuable upon conversion of the Note have
not been registered under the Securities Act of 1933, as amended (the "Act"),
the undersigned represents and warrants that (i) such shares of common stock are
being acquired for the account of the undersigned for investment, and not with a
present view to, or for resale in connection with, the distribution thereof, and
that the undersigned has no present intention of distributing or reselling such
securities, in each case, other than pursuant to a registration statement under
the Act and (ii) the undersigned is an "Accredited Investor" as defined in
Regulation D under the Act. The undersigned further agrees that (A) such
securities shall not be sold or transferred unless either (i) they first shall
have been registered under the Act and applicable state securities laws or (ii)
the Borrower first shall have been furnished with either (x) an opinion of legal
counsel (in form, substance and scope reasonably satisfactory to Borrower) to
the effect that such sale or transfer is exempt from the registration
requirements of the Act or (y) satisfactory representations from the undersigned
that the undersigned may immediately sell all of such securities (to the extent
such securities are deemed to have been acquired on the same date) pursuant to
Rule 144 under the Act (or a successor thereto) and (B) the Borrower may place a
legend on the certificate(s) for such securities to that effect and place a stop
transfer restriction in its records relating to such securities.
Date ___________________________ ---------------------------------------
Signature of Registered Holder (must be
signed exactly as name appears in the
Note. The signature must be guaranteed
by a member firm of the New York Stock
Exchange or the National Association of
Securities Dealers or by a commercial
bankor trust having an office in the
United States)
- --------
(1) May not be Pro Tech Communications, Inc.
9