Exhibit 3(g)

                   CERTIFICATE OF DESIGNATIONS, PREFERENCES
                                  AND RIGHTS
                                      OF
                     SERIES E CONVERTIBLE PREFERRED STOCK
                                      OF
                               NCT GROUP, INC.


      NCT Group,  Inc., a corporation  organized and existing  under the General
Corporation Law of the State of Delaware (the "Corporation"),

      DOES HEREBY CERTIFY

      That,  pursuant to authority  conferred upon the Board of Directors of the
Corporation by the Restated Certificate of Incorporation of the Corporation, and
pursuant to the  provisions  of Section 151 of Title 8 of the  Delaware  Code of
1953, as amended,  said Board of Directors at a meeting duly held on December 4,
1998, adopted a resolution providing for the issuance of a total of ten thousand
five hundred eighty (10,580) shares of Series E Convertible Preferred Stock, and
providing for the powers, designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof, which resolution is as follows:

            RESOLVED,  that pursuant to the authority  expressly  granted to and
      vested in the Board of Directors of the  Corporation  by the provisions of
      Article  IV  of  the  Restated   Certificate  of   Incorporation   of  the
      Corporation,  this  Board of  Directors  hereby  creates  a series  of the
      Preferred Stock of the Corporation  with par value of $0.10 per share (the
      "Preferred Stock") to consist of ten thousand five hundred eighty (10,580)
      shares of the 10,000,000  authorized shares of Preferred Stock,  which the
      Corporation now has authority to issue, and this Board of Directors hereby
      fixes the powers, designations,  preferences and relative,  participating,
      optional  or other  special  rights  and  qualifications,  limitations  or
      restrictions  thereof of the shares of such  series  (in  addition  to the
      powers, designations, preferences and relative, participating, optional or
      other  special  rights and  qualifications,  limitations  or  restrictions
      thereof,  set forth in Article IV of the Certificate of Incorporation  not
      inconsistent with the terms of this resolution and which are applicable to
      the Preferred Stock) as follows:

            (1)  Designation.  The designation of said series of Preferred Stock
      created by this Resolution shall be Series E Convertible  Preferred Stock.
      Shares of said Series E Convertible Preferred Stock are herein referred to
      as "Series E Preferred Shares."

            (2) Par Value, Stated Value and Accretion Rate. Each Share of Series
      E  Convertible  Preferred  Stock  shall  have a par value of $0.10,  and a
      stated  value  (face  amount) of One  Thousand  Dollars  ($1,000.00)  (the
      "Stated Value"),  with an accretion rate of four percent (4%) per annum on
      the Stated Value for the purposes and on the terms set forth herein.
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            (3)   Dividends.  The Series E Preferred  Shares  shall not bear any
                  dividends.

            (4) Holder's  Conversion of Series E Preferred  Shares.  A holder of
Series E Preferred  Shares shall have the right,  at such  holder's  option,  to
convert the Series E Preferred  Shares into shares of the  Corporation's  common
stock, $.01 par value per share (the "Common Stock"), on the following terms and
conditions:

                  (a)  Conversion  Right.  Subject to the provisions of Sections
            4(g) and 5(a) below, at any time or times on or after the earlier of
            (i) 90 days after the Issuance Date (as defined herein), (ii) 5 days
            after  receiving a "no-review"  status from the U.S.  Securities and
            Exchange  Commission in  connection  with a  registration  statement
            ("Registration  Statement")  covering  the  resale of  Common  Stock
            issued upon conversion of the Series E Preferred Shares and required
            to be filed by the Corporation  pursuant to the Registration  Rights
            Agreement  between the Corporation and its initial holders of Series
            E Preferred Shares (the "Registration Rights Agreement"),  (iii) the
            date that the  Registration  Statement  is declared  effective  (the
            "Registration  Statement Effective Date") by the U.S. Securities and
            Exchange  Commission  (the  "SEC") any holder of Series E  Preferred
            Shares  shall be entitled  to convert any Series E Preferred  Shares
            into fully paid and  nonassessable  shares  (rounded  to the nearest
            whole share in accordance  with Section 4(h) below) of Common Stock,
            at the Conversion Rate (as defined below);  provided,  however, that
            in no event  other  than upon a  Mandatory  Conversion  pursuant  to
            Section 4(g) hereof,  or upon a Triggering Event pursuant to Section
            6(e)  hereof,  shall any  holder be  entitled  to  convert  Series E
            Preferred  Shares  in excess  of that  number of Series E  Preferred
            Shares which, upon giving effect to such conversion, would cause the
            aggregate number of shares of Common Stock beneficially owned by the
            holder and its affiliates to exceed 4.9% of the  outstanding  shares
            of the Common Stock following such  conversion.  For purposes of the
            foregoing  proviso,  the aggregate  number of shares of Common Stock
            beneficially  owned by the holder and its  affiliates  shall include
            the number of shares of Common Stock issuable upon conversion of the
            Series E Preferred Shares with respect to which the determination of
            such proviso is being made,  but shall  exclude the number of shares
            of Common Stock which would be issuable  upon (i)  conversion of the
            remaining, nonconverted Series E Preferred Shares beneficially owned
            by the holder and its  affiliates  beneficially  owned by the holder
            and its affiliates.  Except as set forth in the preceding  sentence,
            for  purposes  of this  paragraph,  beneficial  ownership  shall  be
            calculated  in  accordance  with  Section  13(d)  of the  Securities
            Exchange Act of 1934, as amended.

                  (b)  Conversion  Rate.  The  number of shares of Common  Stock
            issuable upon  conversion  of each of the Series E Preferred  Shares
            pursuant  to  Section  4(a)  shall be  determined  according  to the
            following formula
                             (the "Conversion Rate")


                          (.04)(N/365)(1,000) +1,000
                               Conversion Price

            ;provided that the  Corporation  shall have the option to pay the 4%
            accretion  accruing on each Series E Preferred  Share in either cash
            or  Common  Stock  of  the  Corporation.   Notwithstanding  anything
            contained  herein  to the  contrary,  the  Corporation  shall not be
            required  to issue in excess of  30,000,000  Shares of Common  Stock
            upon  conversion of Series E Preferred  Shares or such lesser amount
            as determined on a pro-rata  basis based upon the number of Series E
            Preferred Shares issued (the "Maximum Share Issuance Amounts").

            For purposes of this  Certificate  of  Designations,  the  following
            terms shall have the following meanings:

                        (i)  "Conversion   Price"  means,  as  of  any  date  of
                  determination,   the  amount   obtained  by  multiplying   the
                  Conversion Percentage in effect as of such date by the Average
                  Market Price for the Common Stock for the five (5) consecutive
                  trading days immediately preceding such date;

                        (ii)  "Conversion  Percentage"  means  80% and  shall be
                  reduced by an additional 2% for every 30 days  (pro-rated  for
                  partial months) beyond 60 days from the Issuance Date that the
                  Registration Statement is not filed by the Corporation (in the
                  case that the Corporation files such Registration Statement on
                  Form SB-2 or Form S-3) (the "Scheduled  S-3/SB-2 Filing Date")
                  or (ii)  ninety  (90)  days  from the  Issuance  Date that the
                  Registration Statement is not filed by the Corporation (in the
                  case that the Corporation files such Registration Statement on
                  Form S-1) (the "Scheduled S-2 Filing Date");

                        (iii) "Average Market Price" means,  with respect to any
                  security for any period, that price which shall be computed as
                  the  arithmetic  average of the Closing Bid Prices (as defined
                  below) for such security for each trading day in such period;

                         (iv) "Closing Bid Price" means,  for any security as of
                  any date,  the last  closing bid price on the Nasdaq  National
                  Market  System (the  "Nasdaq-NM")  as  reported  by  Bloomberg
                  Financial Markets  ("Bloomberg"),  or, if the Nasdaq-NM is not
                  the  principal  trading  market  for such  security,  the last
                  closing bid price of such security on the principal securities
                  exchange or trading  market  where such  security is listed or
                  traded as reported by  Bloomberg,  or if the  foregoing do not
                  apply,  the last  closing  bid price of such  security  in the
                  over-the-counter  market on the pink sheets or bulletin  board
                  for such security as reported by Bloomberg,  or, if no closing
                  bid price is reported for such security by Bloomberg, the last
                  closing trade price of such security as reported by Bloomberg.
                  If the  Closing  Bid  Price  cannot  be  calculated  for  such
                  security  on such  date  on any of the  foregoing  bases,  the
                  Closing  Bid Price of such  security on such date shall be the
                  fair market value as  reasonably  determined  in good faith by
                  the Board of Directors  of the Company  (all as  appropriately
                  adjusted for any stock dividend,  stock split or other similar
                  transaction during such period);


<PAGE>

                        (v) "N" means the  number of days from,  but  excluding,
                  the Issuance Date through and including  the  Conversion  Date
                  for the  Series E  Preferred  Shares for which  conversion  is
                  being elected;

                        (vi)  "Issuance  Date"  means  the date of  issuance  of
                  Series E Preferred  Shares having an aggregate stated value of
                  $7,438,000; and

                  (c) Adjustment to Conversion  Price - Registration  Statement.
            If the Registration  Statement is not declared  effective by the SEC
            on or before the one hundred  twentieth  (120th) day  following  the
            S-3/SB-2  Scheduled Filing Date or the S-1 Scheduled Filing Date, as
            the case may be, (the "Scheduled  Effective  Date"), or if after the
            Registration Statement has been declared effective by the SEC, sales
            cannot  be made  pursuant  to the  Registration  Statement  (whether
            because of a failure to keep the registration  Statement  effective,
            to disclose  such  information  as is necessary for sales to be made
            pursuant  to the  Registration  Statement,  to  register  sufficient
            shares of Common Stock or  otherwise),  then, as partial  relief for
            the  damages  to any  holder  by  reason  of any  such  delay  in or
            reduction  of its  ability to sell the  underlying  shares of Common
            Stock (which remedy shall not be exclusive of any other  remedies at
            law or in equity),  the Conversion  Percentage  shall be adjusted as
            follows:
                         (i) Conversion Percentage. The Conversion Percentage in
                  effect,  during the period that sales cannot be made  pursuant
                  to the Registration Statement, shall be reduced by a number of
                  percentage  points equal to the product of (A) two (2) and (B)
                  the sum of (I) the  number of  months  (prorated  for  partial
                  months)  after the Scheduled  Effective  Date and prior to the
                  date that the  relevant  Registration  Statement  is  declared
                  effective  by the SEC and (II) the number of months  (prorated
                  for partial  months) that sales cannot be made pursuant to the
                  Registration  Statement after the  Registration  Statement has
                  been declared  effective.  (For example,  if the  Registration
                  Statement  becomes  effective  one and one-half (1 1/2) months
                  after the Scheduled Effective Date, the Conversion  Percentage
                  with respect to the Series E Preferred  Shares would  decrease
                  by  three  percent  (3.0%  to  77.0%)  until  any   subsequent
                  adjustment;  if thereafter sales could not be made pursuant to
                  the Registration  Statement for a period of two (2) additional
                  months, the Conversion Percentage with respect to the Series E
                  Preferred  Shares would decrease by an additional four percent
                  (4%),  for an  aggregate  decrease of seven  percent  (7.0% to
                  73.0%).

                  (d)  Adjustment  to  Conversion  Price -  Dilution  and  Other
            Events.  In order to prevent  dilution of the rights  granted  under
            this  Certificate  of  Designations,  the  Conversion  Price will be
            subject to adjustment  from time to time as provided in this Section
            4(d).

                        (i)  Reorganization,  Reclassification,   Consolidation,
                  Merger,   or  Sale.   Any   recapitalization,   reorganization
                  reclassification,   consolidation.  merger,  sale  of  all  or
                  substantially  all  of the  Corporation's  assets  to  another
                  Person (as defined below) or other similar  transaction  which
                  is  effected  in such a way that  holders of Common  Stock are
                  entitled  to  receive  (either  directly  or  upon  subsequent
                  liquidation) stock, securities or assets with respect to or in
                  exchange for Common Stock is referred to herein as an "Organic
                  Change." Prior to the consummation of any Organic Change,  the
                  Corporation  will  make  appropriate  provision  (in  form and
                  substance reasonably satisfactory to the holders of a majority
                  of the Series E Preferred  Shares then  outstanding) to insure
                  that each of the holders of the Series E Preferred Shares will
                  thereafter have the right to acquire and receive in lieu of or
                  in addition to (as the case may be) the shares of Common Stock
                  immediately  theretofore  acquirable and  receivable  upon the
                  conversion of such holder's  Series E Preferred  Shares,  such
                  shares  of  stock,  securities  or  assets as may be issued or
                  payable  with  respect  to or in  exchange  for the  number of
                  shares of Common Stock immediately  theretofore acquirable and
                  receivable  upon  the  conversion  of such  holder's  Series E
                  Preferred  Shares had such Organic Change not taken place.  In
                  any such case, the Corporation will make appropriate provision
                  (in form and substance reasonably  satisfactory to the holders
                  of  a  majority  of  the  Series  E   Preferred   Shares  then
                  outstanding)   with  respect  to  such  holders'   rights  and
                  interests to insure that the  provisions  of this Section 4(d)
                  and Section 4(e) below will  thereafter  be  applicable to the
                  Series E Preferred Shares. The Corporation will not effect any
                  such  consolidation,  merger  or  sale,  unless  prior  to the
                  consummation  thereof the successor  entity (if other than the
                  Corporation)  resulting  from  consolidation  or merger or the
                  entity purchasing such assets assumes,  by written  instrument
                  (in form and substance reasonably  satisfactory to the holders
                  of  a  majority  of  the  Series  E   Preferred   Shares  then
                  outstanding),  the  obligation  to deliver  to each  holder of
                  Series E Preferred Shares such shares of stock,  securities or
                  assets as, in accordance with the foregoing  provisions,  such
                  holder  may be  entitled  to  acquire.  For  purposes  of this
                  Agreement,  "Person"  shall  mean  an  individual,  a  limited
                  liability   company,   a  partnership,   a  joint  venture,  a
                  corporation,  a trust, an  unincorporated  organization  and a
                  government or any department or agency thereof.

                        (ii)  Notices.

                              (A)   Immediately   upon  any  adjustment  of  the
                        Conversion  Price,  the  Corporation  will give  written
                        notice  thereof  to each  holder of  Series E  Preferred
                        Shares,   setting   forth  in   reasonable   detail  and
                        certifying the calculation of such adjustment.

                              (B) The  Corporation  will give written  notice to
                        each holder of Series E Preferred Shares at least twenty
                        (20)  days  prior to the date on which  the  Corporation
                        closes its books or takes a record  (I) with  respect to
                        any dividend or distribution upon the Common Stock, (II)
                        with  respect  to any pro  rata  subscription  offer  to
                        holders of Common Stock or (III) for determining  rights
                        to vote with respect to any Organic Change,  dissolution
                        or liquidation.

                              (C) The Corporation  will also give written notice
                        to each  holder  of Series E  Preferred  Shares at least
                        twenty  (20) days prior to the date on which any Organic
                        Change,    Major   Transaction   (as   defined   below),
                        dissolution or liquidation will take place.

                  (e) Purchase  Rights.  If at any time the Corporation  grants,
            issues or sells any  Options,  Convertible  Securities  or rights to
            purchase stock,  warrants,  securities or other property pro rata to
            all the record  holders of any class of Common Stock (the  "Purchase
            Rights"),  then the  holders of Series E  Preferred  Shares  will be
            entitled  to acquire,  upon the terms  applicable  to such  Purchase
            Rights,  the aggregate  Purchase Rights which such holder could have
            acquired  if such  holder  had held the  number  of shares of Common
            Stock acquirable upon complete  conversion of the Series E Preferred
            Shares  immediately  before  the date on which a record is taken for
            the grant issuance or sale of such Purchase  Rights,  or, if no such
            record is taken,  the date as of which the record  holders of Common
            Stock  are to be  determined  for the  grant,  issue or sale of such
            Purchase Rights.

                  (f)  Mechanics  of  Conversion.  Subject to the  Corporation's
            inability to fully satisfy its obligations under a Conversion Notice
            (as defined below) as provided for in Section 7 below:



<PAGE>


                        (i) Holder's Delivery Requirements.  To convert Series E
                  Preferred  Shares into full shares of Common Stock on any date
                  (the "Conversion  Date"), the holder thereof shall (A) deliver
                  or  transmit  by  facsimile,  for receipt on or prior to 11:59
                  p.m.,  Eastern  Standard Time, on such date, a copy of a fully
                  executed  notice of conversion in the form attached  hereto as
                  Exhibit I (the "Conversion  Notice") to the Corporation or its
                  designated  transfer  agent (the  "Transfer  Agent"),  and (B)
                  surrender to a common carrier for delivery to the  Corporation
                  or the Transfer  Agent as soon as  practicable  following such
                  certificates,   the  original  certificates  representing  the
                  Series   E   Preferred   Shares   being   converted   (or   an
                  indemnification  undertaking with respect to such certificates
                  in  the  case  of  their  loss,  theft  or  destruction)  (the
                  "Preferred Stock  Certificates")  and the originally  executed
                  Conversion Notice.

                        (ii)  Corporation's   Response.   Upon  receipt  by  the
                  Corporation  of a facsimile copy of a Conversion  Notice,  the
                  Corporation   shall   immediately   send,  via  facsimile,   a
                  confirmation  of  receipt  of such  Conversion  Notice to such
                  holder.  Upon receipt by the Corporation or the Transfer Agent
                  of the Preferred Stock  Certificates to be converted  pursuant
                  to a Conversion Notice,  together with the originally executed
                  Conversion  Notice,  the Corporation or the Transfer Agent (as
                  applicable) shall, within five (5) business days following the
                  date of receipt,  issue and surrender to a common  carrier for
                  overnight   delivery  to  the  address  as  specified  in  the
                  Conversion  Notice,  a certificate,  registered in the name of
                  the holder or its designee, for the number of shares of Common
                  Stock to which the holder shall be entitled.

                        (iii) Dispute Resolution. In the case of a dispute as to
                  the   determination   of  the  Average  Market  Price  or  the
                  arithmetic calculation of the Conversion Rate, the Corporation
                  shall  promptly  issue to the  holder  the number of shares of
                  Common  Stock  that  is not  disputed  and  shall  submit  the
                  disputed  determinations  or  arithmetic  calculations  to the
                  holder via facsimile within three (3) business days of receipt
                  of such  holder's  Conversion  Notice.  If such holder and the
                  Corporation are unable to agree upon the  determination of the
                  Average   Market  Price  or  arithmetic   calculation  of  the
                  Conversion  Rate within two (2) business days of such disputed
                  determination or arithmetic calculation being submitted to the
                  holder, then the Corporation shall within one (1) business day
                  submit via  facsimile  (A) the disputed  determination  of the
                  Average Market Price to an independent,  reputable  investment
                  bank  or  (B)  the  disputed  arithmetic  calculation  of  the
                  Conversion Rate to its independent,  outside  accountant.  The
                  Corporation shall cause the investment bank or the accountant,
                  as  the  case  may  be,  to  perform  the   determinations  or
                  calculations  and notify the Corporation and the holder of the
                  results no later than  forty-eight (48) hours from the time it
                  receives the disputed  determinations  or  calculations.  Such
                  investment    bank's   or   accountant's    determination   or
                  calculation,  as the case may be,  shall be  binding  upon all
                  parties absent manifest error.



<PAGE>


                        (iv) Record  Holder.  The person or persons  entitled to
                  receive the shares of Common Stock  issuable upon a conversion
                  of Series E Preferred Shares shall be treated for all purposes
                  as the record holder or holders of such shares of Common Stock
                  on the Conversion Date.

                        (v)  Corporation's  Failure  to Timely  Convert.  If the
                  Corporation  shall fail to issue to a holder  within seven (7)
                  business days following the date of receipt by the Corporation
                  or the Transfer Agent of the Preferred  Stock  Certificates to
                  be converted  pursuant to a Conversion  Notice,  a certificate
                  for the number of shares of Common  Stock to which such holder
                  is  entitled  upon  such  holder's   conversion  of  Series  E
                  Preferred Shares, in addition to all other available  remedies
                  which  such  holder  may  pursue   hereunder   and  under  the
                  Securities  Purchase Agreement between the Corporation and the
                  initial  holders  of  the  Series  E  Preferred   Shares  (the
                  "Securities  Purchase Agreement")  (including  indemnification
                  pursuant  to Section 8  thereof),  the  Corporation  shall pay
                  additional  damages  to such  holder  on each  day  after  the
                  seventh  (7th)  business day  following the date of receipt by
                  the  Corporation or the Transfer Agent of the Preferred  Stock
                  Certificates  to  be  converted  pursuant  to  the  Conversion
                  Notice,  for which such conversion is not timely effected,  an
                  amount  equal  to 1.0% of the  product  of (A) the  number  of
                  shares of Common  Stock not  issued to the holder and to which
                  such holder is  entitled  and (B) the Closing Bid Price of the
                  Common Stock on the business day following the date of receipt
                  by the  Corporation  or the  Transfer  Agent of the  Preferred
                  Stock  Certificates to be converted pursuant to the Conversion
                  Notice.

                  (g)  Mandatory  Conversion.  If any Series E Preferred  Shares
            remain  outstanding  on December  30,  2000,  then all such Series E
            Preferred  Shares shall be  converted as of such date in  accordance
            with this  Section 4 as if the  holders of such  Series E  Preferred
            Shares had given the Conversion Notice on December 30, 2000, and the
            Conversion  Date had been fixed as of  December  30,  2000,  for all
            purposes  of this  Section 4, and all  holders of Series E Preferred
            Shares shall  thereupon  and with two (2) business  days  thereafter
            surrender  all  Preferred  Stock  Certificates,  duly  endorsed  for
            cancellation,  to the  Corporation or the Transfer  Agent. No person
            shall  thereafter  have any rights in respect of Series E  Preferred
            Shares,  except  the right to  receive  shares  of  Common  Stock on
            conversion thereof as provided in this Section 4.



<PAGE>


                  (h) Fractional  Shares.  The  Corporation  shall not issue any
            fraction of a share of Common Stock upon any conversion.  All shares
            of  Common  Stock  (including   fractions   thereof)  issuable  upon
            conversion  of more than one share of the Series E Preferred  Shares
            by a holder  thereof shall be aggregated for purposes of determining
            whether the conversion would result in the issuance of a fraction of
            a share of Common Stock. lf, after the  aforementioned  aggregation,
            the  issuance  would result in the issuance of a fraction of a share
            of Common  Stock,  the  Corporation  shall round such  fraction of a
            share of Common Stock up or down to the nearest whole share.

                  (i) Taxes.  The Corporation  shall pay any and all taxes which
            may be imposed  upon it with respect to the issuance and delivery of
            Common Stock upon the conversion of the Series E Preferred Shares.

                  (j) Conversion  Restriction.  The right of a holder of Serie E
            Preferred  Shares to convert  Serie E Preferred  Shares  pursuant to
            this Section 4 shall be subject to the following  limitations (which
            shall be applied independently):

                        (i) Prior to the  earlier of (i) the 90th day  following
                  the Issuance Date or (ii) the Registration Statement Effective
                  Date (such earlier period shall be hereinafter  referred to as
                  the "Initial Conversion Date"),  holders of Series E Preferred
                  Shares shall not be entitled to convert any Series E Preferred
                  Shares;

                        (ii)  During  the  period   beginning   on  the  Initial
                  Conversion  Date and  ending  on the 30th  day  following  the
                  Initial   Conversion   Date,  each  Buyer  and  all  of  their
                  respective  successors  shall be  entitled  to convert no more
                  than 25% of the number of Series E Preferred  Shares purchased
                  by such Buyer;

                        (iii)  During  the  period   beginning  on  the  Initial
                  Conversion  Date and  ending  on the 60th  day  following  the
                  Initial   Conversion   Date,  each  Buyer  and  all  of  their
                  respective  successors  shall be  entitled  to convert no more
                  than 50% of the number of Series E Preferred  Shares purchased
                  by such Buyer;

                        (iv)  During  the  period   beginning   on  the  Initial
                  Conversion  Date and  ending  on the 90th  day  following  the
                  Initial   Conversion   Date,  each  Buyer  and  all  of  their
                  respective  successors  shall be  entitled  to convert no more
                  than 75% of the number of Series E Preferred  Shares purchased
                  by such Buyer;

                        (v) After the 90th day following the Initial  Conversion
                  Date,  each holder of the Series E Preferred  Shares  shall be
                  entitled  to  convert  any and all of the  Series E  Preferred
                  Shares then held by such person.



<PAGE>


            Provided  however,  notwithstanding  the  foregoing,  any  holder of
            Series E Preferred  Shares shall be immediately  entitled to convert
            all of such holder's Series E Preferred Shares into shares of Common
            Stock  pursuant  to this  Section 4 upon (i) the  occurrence  of any
            Triggering  Event,  (ii) any public  announcement by the Corporation
            stating  that  the  Corporation  intends  to  consummate,  or is the
            subject of, a Major  Transaction,  (iii)  execution  of a definitive
            agreement by the  Corporation  with respect to a Major  Transaction,
            (iv) the consummation of a Major Transaction,  or (v) if the Closing
            Price of the  Common  Stock as  reported  by  NASDAQ  or on  another
            securities  exchange  or market on which the Common  Stock is listed
            for the  previous  five (5) trading  days is greater  than $1.25.  A
            "Major  Transaction"  shall  be  deemed  to have  occurred  upon the
            occurrence of any of the following events:

                        (i)  the  consummation  of any  merger,  reorganization,
                  restructuring,  consolidation,  or similar  transaction  by or
                  involving the Corporation except (A) a merger or consolidation
                  where the  Corporation  is a  survivor  or (B)  pursuant  to a
                  migratory  merger  effected solely for the purpose of changing
                  the jurisdiction of incorporation of the Corporation;

                        (ii) the sale of all or substantially  all of the assets
                  of the Corporation or all of its material  subsidiaries or any
                  similar transaction or related  transactions which effectively
                  results in a sale of all or substantially all of the assets of
                  the Corporation and/or its subsidiaries; or

                        (iii)  the  occurrence,  after the date  hereof,  of the
                  acquisition,   by  any   person   (including   any  entity  or
                  association)  or persons (other than any existing  stockholder
                  of the Corporation or two or more existing stockholders of the
                  Corporation   acting  in  concert),   of   securities  of  the
                  Corporation   (or  the   power   to  vote   such   securities)
                  representing  50% or more of the  total  voting  power  of all
                  outstanding  Common  Stock or other voting  securities  of the
                  Corporation.

                  (k) Mandatory  Redemption by the Corporation in the Event that
            the Maximum Share Issuance is Reached.

                        (i) Notice of Maximum Share Issuance Event. In the event
                  that the  number  of  shares of  Common  Stock  issuable  upon
                  conversion  of the  Series  E  Preferred  Shares  exceeds  the
                  Maximum Share  Issuance  Amount (the "Maximum  Share  Issuance
                  Triggering  Event"),  the  Corporation  shall be  required  to
                  immediately  notify  all of  the  Holders  of  such  fact  via
                  facsimile and overnight  courier (the "Maximum  Share Issuance
                  Notice") and shall be obligated to redeem all of the remaining
                  Series E  Preferred  Shares  then  outstanding  at a price per
                  Series E  Preferred  Share  equal  to 125% of the  Liquidation
                  Value of such  share  plus the  unpaid 4% per annum  accretion
                  rate.



<PAGE>


                        (ii) Payment of Redemption  Price.  Following receipt of
                  such Maximum Share  Issuance  Notice,  each holder of Series E
                  Preferred Shares shall thereafter  promptly send such holder's
                  Series E Preferred  Share  certificates  to be redeemed to the
                  Corporation or its Transfer Agent.  The Corporation  shall pay
                  the applicable  redemption  price,  as calculated  pursuant to
                  Section  4(k)(i) above,  in cash to such holder within fifteen
                  (15) days after the Maximum share Issuance  Triggering  Event;
                  provided   that  a   holder's   Series  E   Preferred   Shares
                  certificates  shall have been so delivered to the  Corporation
                  or  its  Transfer  Agent;  provided,   further,  that  if  the
                  Corporation  is unable to redeem all of the Series E Preferred
                  Shares,  the  Corporation  shall  redeem an  amount  from each
                  holder of Series E  Preferred  Shares  equal to such  holder's
                  pro-rata  amount  (based on the  number of Series E  Preferred
                  Shares held by such holder  relative to the number of Series E
                  Preferred Shares outstanding) of all Series E Preferred Shares
                  being redeemed. If the Corporation shall fail to redeem all of
                  the Series E Preferred Shares submitted for redemption  (other
                  than  pursuant  to an  arithmetic  calculation  of the rate of
                  redemption),   the  applicable  redemption  price  payable  in
                  respect of such  unredeemed  Series E Preferred  Shares  shall
                  bear  interest  at the rate of 1% from the  first  month and a
                  rate  of 2.5%  per  month  thereafter  (prorated  for  partial
                  months) until paid in full.

            (5)   Corporation's Right to Redeem at its Election.

                  (a) At any time, as long as the Corporation has not received a
            notice of Conversion from the holder and has not breached any of the
            representations,  warranties,  and covenants  contained herein or in
            any related agreements, the Corporation shall have the right, in its
            sole discretion, to redeem ("Redemption at Corporation's Election"),
            from  time to time,  any or all of the  Series E  Preferred  Shares;
            provided (i) the  Corporation  shall first provide no more than five
            (5) days and no less than (1) day advance written notice as provided
            in  subparagraph  5(a)(ii)  below (which can be given any time on or
            after 80 days after the Issuance Date, and (ii) that the Corporation
            shall only be entitled to redeem Series E Preferred Shares having an
            aggregate  Stated Value (as defined  above) of at least Five Hundred
            Thousand  Dollars  ($500,000).  If the Corporation  elects to redeem
            some, but not all, of the Series E Preferred Shares, the Corporation
            shall  redeem a  pro-rata  amount  from each  Holder of the Series E
            Preferred Shares.

                        (i)  Redemption  Price At  Corporation's  Election.  The
                  "Redemption   Price  at   Corporation's   Election"  shall  be
                  calculated  as 125% of Stated  Value,  plus the  unpaid 4% per
                  annum  accretion  of  the  Series  E  Preferred  Shares  being
                  redeemed pursuant to this Section 5(a).



<PAGE>


                        (ii) Mechanics of Redemption at Corporation's  Election.
                  The Corporation shall effect each such redemption by giving no
                  more  than  five (5) days and no less  than one (1) day  prior
                  written  notice   ("Notice  of  Redemption  at   Corporation's
                  Election") to (A) the Holders of the Series E Preferred Shares
                  selected for redemption at the address and facsimile number of
                  such Holder appearing in the Corporation's  Series E Preferred
                  Stock  register  and (B) the Transfer  Agent,  which Notice of
                  Redemption At  Corporation's  Election shall be deemed to have
                  been delivered three (3) business days after the Corporation's
                  mailing (by  overnight or two (2) day courier,  with a copy by
                  facsimile)  of such  Notice  of  Redemption  at  Corporation's
                  Election.  Such Notice of Redemption At Corporation's Election
                  shall  indicate (i) the number of shares of Series E Preferred
                  Stock that have been  selected for  redemption,  (ii) the date
                  which such  redemption  is to become  effective  (the "Date of
                  Redemption   At   Corporation's   Election")   and  (iii)  the
                  applicable  Redemption  Price At  Corporation's  Election,  as
                  defined in subsection (a)(i) above. Notwithstanding the above,
                  Holder may convert  into Common  Stock,  prior to the close of
                  business on the Date of Redemption at Corporation's  Election,
                  any Series E Preferred  Shares which it is otherwise  entitled
                  to convert, including Series E Preferred Shares that have been
                  selected for redemption at Corporation's  election pursuant to
                  this subsection 5(a).

                  (b)  Corporation  Must  Have  Immediately  Available  Funds or
            Credit Facilities. The Corporation shall not be entitled to send any
            Redemption Notice and begin the redemption  procedure under Sections
            5(a) unless it has:

                        (i) the full  amount  of the  redemption  price in cash,
                  available in a demand or other  immediately  available account
                  in a bank or similar financial institution; or

                        (ii)  immediately  available credit  facilities,  in the
                  full  amount of the  redemption  price  with a bank or similar
                  financial institution, or

                        (iii) an agreement with a standby underwriter willing to
                  purchase from the Corporation a sufficient number of shares of
                  stock to provide  proceeds  necessary to redeem any stock that
                  is not converted prior to redemptions; or

                        (iv) a combination  of the items set forth in (i), (ii),
                  and (iii) above, aggregating the full amount of the redemption
                  price.

                  (c) Payment of Redemption Price. Each Holder submitting Series
            E Preferred  Shares being  redeemed  under this Section 5 shall send
            their Series E Preferred  Share  Certificates  to be redeemed to the
            Corporation or its Transfer Agent, and the Corporation shall pay the
            applicable  redemption price to that Holder within five (5) business
            days of the Date of Redemption at Corporation's Election.


<PAGE>

            (6)   Redemption at Option of Holders.

                  (a)   [LEFT INTENTIONALLY BLANK]

                  (b) Redemption  Option Upon  Triggering  Event. In addition to
            all  other  rights  of the  holders  of  Series E  Preferred  Shares
            contained herein,  after a Triggering Event (as defined below),  the
            holders  of  Series E  Preferred  Shares  shall  have  the  right in
            accordance  with  Section  6(g),  at the option of the holders of at
            least  two-thirds  (2/3)  of the  Series  E  Preferred  Shares  then
            outstanding,  to require the Corporation to redeem all of the Series
            E  Preferred  Shares  then  outstanding  at a  price  per  Series  E
            Preferred  Share equal to the greater of (i) 125% of the Liquidation
            Value of such Share and (ii) the price calculated in accordance with
            the  Redemption  Rate  as of the  date  immediately  preceding  such
            Triggering Event on which the exchange or market on which the Common
            Stock is traded is open.

                  (c) "Redemption  Rate." The "Redemption Rate" shall, as of any
            date of determination, be equal to (i) the Conversion Rate in effect
            as of such date as calculated pursuant to Section 4(b) multiplied by
            (ii) the Closing Bid Price of the Common Stock on such date.

                  (d)   [LEFT INTENTIONALLY BLANK]

                  (e) "Triggering  Event." A "Triggering  Event" shall be deemed
            to have occurred at such time as any of the following events:

                        (i)   [LEFT INTENTIONALLY BLANK]

                        (ii)  [LEFT INTENTIONALLY BLANK]

                        (iii) the Corporation's notice to any holder of Series E
                  Preferred Shares, including by way of public announcement,  at
                  any time,  of its  intention for any reason not to comply with
                  requests for  conversion of any Series E Preferred  Shares for
                  shares of Common Stock;



<PAGE>


                        (iv) if for any  reason  the  Corporation  breaches  any
                  material  representation  or fails to perform  or observe  any
                  covenant, agreement, or other provision contained herein or in
                  the Securities  Purchase Agreement or the Registration  Rights
                  Agreement,  and such failure is not cured within 30 days after
                  the  Corporation  receives  notice  thereof from holders of at
                  least 10% of the Series E Preferred  Shares  then  outstanding
                  ("Notice of Triggering Event"), of the occurrence thereof, and
                  such failure has had, or could reasonably be expected to have,
                  a  material  adverse  effect on (A) the  financial  condition,
                  operating results, business,  properties, or operations of the
                  Corporation and its subsidiaries  taken as a whole taking into
                  account any proceeds reasonably expected to be received by the
                  Corporation or its subsidiaries in the foreseeable future from
                  insurance  policies  or rights of  indemnification  or (B) the
                  Series E Preferred Shares;

                  (f)   [LEFT INTENTIONALLY BLANK]

                  (g)   Mechanics  of   Redemption  at  Option  of  Holder  Upon
            Triggering  Event.  Within one (1) day after  receipt of a Notice of
            Triggering  Event,  the  Corporation  shall deliver  written  notice
            thereof via facsimile and overnight courier to each holder of Series
            E  Preferred  Shares.  At any time  after  receipt  of a  Notice  of
            Triggering  Event,  the holders of at least  two-thirds (2/3) of the
            Series  E  Preferred   Shares  then   outstanding  may  require  the
            Corporation  to redeem all of the  Series E  Preferred  Shares  then
            outstanding  in accordance  with Section 6(b) by delivering  written
            notice  thereof via  facsimile  and  overnight  courier  ("Notice of
            Redemption  at  Option  of  Buyer  Upon  Triggering  Event")  to the
            Corporation,  which  Notice of  Redemption  at Option of Buyer  Upon
            Triggering Event shall indicate (i) the number of Series E Preferred
            Shares that such holders are voting in favor of redemption  and (ii)
            the applicable  redemption price, as calculated  pursuant to Section
            6(b) above.



<PAGE>


                  (h)  Payment  of  Redemption  Price.  Upon  the  Corporation's
            receipt  of a  Notice(s)  of  Redemption  at Option  of Holder  Upon
            Triggering  Event from the holders of at least  two-thirds  (2/3) of
            the Series E Preferred Share then outstanding, the Corporation shall
            immediately  notify each holder by  facsimile  of the  Corporation's
            receipt of such requisite  notices  necessary to affect a redemption
            and each  holder  of  Series E  Preferred  Shares  shall  thereafter
            promptly send such holder's Series E Preferred Share certificates to
            be  redeemed  to  the  Corporation  or  its  Transfer   Agent.   The
            Corporation shall pay the applicable redemption price, as calculated
            pursuant to Section 6(b) above, in cash to such holder within thirty
            (30) days after the  Corporation'  receipt of the requisite  notices
            required to affect a redemption;  provided that a holder's  Series E
            Preferred  Shares  certificates  shall have been so delivered to the
            Corporation  or its  Transfer  Agent;  provided  further that if the
            Corporation  is  unable  to  redeem  all of the  Series E  Preferred
            Shares,  the Corporation  shall redeem an amount from each holder of
            Series E Preferred  Shares equal to such  holder's  pro-rata  amount
            (based  on the  number  of Series E  Preferred  Shares  held by such
            holder  relative  to  the  number  of  Series  E  Preferred   Shares
            outstanding) of all Series E Preferred Shares being redeemed. If the
            Corporation  shall  fail to  redeem  all of the  Series E  Preferred
            Shares submitted for redemption (other than pursuant to a dispute as
            to the  determination  of the  Closing  Bid Price or the  arithmetic
            calculation of the Redemption Rate), the applicable redemption price
            payable in  respect of such  unredeemed  Series E  Preferred  Shares
            shall bear interest at the rate of 1% for the first month and a rate
            of 2.5% per month  thereafter  (prorated  for partial  months) until
            paid in full.  Until the  Corporation  pays such  unpaid  applicable
            redemption  price  in full  to  each  holder,  holders  of at  least
            two-thirds (2/3) of the Series E Preferred Shares then  outstanding,
            including   shares  of  Series  E  Preferred  Shares  submitted  for
            redemption  pursuant to this Section 6 and for which the  applicable
            redemption price has not been paid, shall have the option (the "Void
            Optional Redemption Option") to, in lieu of redemption,  require the
            Corporation  to  promptly  return to each holder all of the Series E
            Preferred  Shares that were  submitted for redemption by such holder
            under this Section 6 and for which the applicable  redemption  price
            has  not  been  paid,  by  sending  written  notice  thereof  to the
            Corporation via facsimile (the "Void Optional  Redemption  Notice").
            Upon the  Corporation's  receipt  of such Void  Optional  Redemption
            Notice(s)  and prior to  payment of the full  applicable  redemption
            price to each holder,  (i) the  Notice(s) of Redemption at Option of
            Holder Upon Triggering  Event shall be null and void with respect to
            those Series E Preferred  Shares  submitted for  redemption  and for
            which the applicable  redemption  price has not been paid,  (ii) the
            Corporation  shall  immediately  return any Series E Preferred Share
            certificates  submitted  to  the  Corporation  by  each  holder  for
            redemption  under  this  Section  6(h) and for which the  applicable
            redemption price had not been paid, (iii) the Conversion  Percentage
            in effect at such time and  thereafter  shall be reduced by a number
            of  percentage  points  equal to the product of (A) two and one-half
            (2.5) and (B) the number of months  (prorated for partial months) in
            the  period  beginning  on  the  date  on  which  the  Notice(s)  of
            Redemption at Option of Buyer Upon Triggering  Event is delivered to
            the  Corporation  and ending on the date on which the Void  Optional
            Redemption    Notice(s)   is    delivered   to   the    Corporation.
            Notwithstanding  the foregoing,  in the event of a dispute as to the
            determination of the Closing Bid Price or the arithmetic calculation
            of the Redemption  Rate, such dispute shall be resolved  pursuant to
            Section  4(f)(iii)  above with the term  "Closing  Bid Price"  being
            substituted  for the  term  "Average  Market  Price"  and  the  term
            "Redemption Rate" being substituted for the term "Conversion Rate."


<PAGE>

            (7)   Inability to Fully Convert.

                  (a) Holder's Option if Corporation Cannot Fully Convert. If at
            any time after the Registration  Statement  Effective Date, upon the
            Corporation's  receipt of a Conversion  Notice, the Corporation does
            not issue  shares of Common  Stock which are  registered  for resale
            under the  Registration  Statement  within five (5) business days of
            the time  required in accordance  with Section 4(f) hereof,  for any
            reason or for no reason, including, without limitation,  because the
            Corporation  (x) does not have a  sufficient  number  of  shares  of
            Common Stock authorized and available,  (y) is otherwise  prohibited
            by  applicable  law or by the  rules  or  regulations  of any  stock
            exchange,  interdealer  quotation  system  or other  self-regulatory
            organization   with   jurisdiction   over  the  Corporation  or  its
            Securities,  including  without  limitation The Nasdaq Stock Market,
            Inc. from issuing all of the Common Stock which is to be issued to a
            holder of Series E Preferred Shares pursuant to a Conversion  Notice
            or (z) fails to have a  sufficient  number of shares of Common Stock
            registered and eligible for resale under the Registration Statement,
            then the  Corporation  shall issue as many shares of Common Stock as
            it is able to issue in  accordance  with  such  holder's  Conversion
            Notice and pursuant to Section  4(f) above and,  with respect to the
            unconverted  Series E Preferred Shares,  the holder,  solely at such
            holder's option,  can, in addition to any other remedies such holder
            may  have  hereunder,   under  the  Securities   Purchase  Agreement
            (including  indemnification  under  Section  8  thereof),  under the
            Registration Rights Agreement, at law or in equity, elect to:

                        (i) require the  Corporation  to redeem from such holder
                  those Series E Preferred  Shares for which the  Corporation is
                  unable to issue Common Stock in accordance  with such holder's
                  Conversion  Notice  ("Mandatory  Redemption")  at a price  per
                  Series E Preferred  Share (the "Mandatory  Redemption  Price")
                  equal to the greater of (x) 125% of the  Liquidation  Value of
                  such share and (y) the Redemption  Rate as of such  Conversion
                  Date;

                        (ii) if the  Corporation's  inability  to fully  convert
                  Series E  Preferred  Shares is  pursuant  to  Section  7(a)(z)
                  above,  require the Corporation to issue restricted  shares of
                  Common  Stock in  accordance  with  such  holder's  Conversion
                  Notice and pursuant to Section 4(f) above; or

                        (iii)  void its  Conversion  Notice  and  retain or have
                  returned,  as the  case  may be,  the  nonconverted  Series  E
                  Preferred  Shares that were to be  converted  pursuant to such
                  holder's Conversion Notice.

                  (b) Mechanics of Fulfilling Holder's Election. The Corporation
            shall  immediately  send  via  facsimile  to a  holder  of  Series E
            Preferred  Shares,  upon receipt of a facsimile copy of a Conversion
            Notice from such holder which cannot be fully satisfied as described
            in Section 7(a) above,  a notice of the  Corporation's  inability to
            fully satisfy such  holder's  Conversion  Notice (the  "Inability to
            Fully Convert Notice"). Such Inability to Fully Convert Notice shall
            indicate  (i) the  reason  why the  Corporation  is  unable to fully
            satisfy such holder's Conversion Notice, (ii) the number of Series E
            Preferred  Shares which cannot be converted and (iii) the applicable
            Mandatory  Redemption  Price.  Such  holder  must  within  five  (5)
            business days of receipt of such  Inability to Fully Convert  Notice
            deliver written notice via facsimile to the Corporation  ("Notice in
            Response to  Inability  to  Convert")  of its  election  pursuant to
            Section 7(a) above.



<PAGE>


                  (c) Payment of Redemption Price. If such holder shall elect to
            have its  shares  redeemed  pursuant  to  Section  7(a)  above,  the
            Corporation shall pay the Mandatory Redemption Price in cash to such
            holder within thirty (30) days of the  Corporation's  receipt of the
            holder's  Notice  in  Response  to  Inability  to  Convert.  If  the
            Corporation  shall fail to pay the applicable  Mandatory  Redemption
            Price to such holder on a timely  basis as described in this Section
            7(c) (other than  pursuant to a dispute as to the  determination  of
            the  Closing  Bid  Price  or  the  arithmetic   calculation  of  the
            Redemption Rate), such unpaid amount shall bear interest at the rate
            of 1% for the first  month  and a rate of 2.5% per month  thereafter
            (prorated  for partial  months)  until paid in full.  Until the full
            Mandatory  Redemption  Price  is paid in full to such  holder,  such
            holder  may void the  Mandatory  Redemption  with  respect  to those
            Series E Preferred  Shares for which the full  Mandatory  Redemption
            Price has not been paid and  receive  back such  Series E  Preferred
            Shares.  Notwithstanding the foregoing,  if the Corporation fails to
            pay the  applicable  Mandatory  Redemption  Price within such thirty
            (30) days time  period due to a dispute as to the  determination  of
            the  Closing  Bid  Price  or  the  arithmetic   calculation  of  the
            Redemption Rate, such dispute shall be resolved  pursuant to Section
            4(f)(iii) above with the term "Closing Bid Price" being  substituted
            for the term "Average Market Price" and the term,  "Redemption Rate"
            being substituted for the term "Conversion Rate."

                  (d)  Pro-rata  Conversion  and  Redemption.  In the  event the
            Corporation  receives a Conversion  Notice from more than one holder
            of Series E Preferred Shares on the same day and the Corporation can
            convert  and redeem  some,  but not all,  of the Series E  Preferred
            Shares pursuant to this Section 7, the Corporation shall convert and
            redeem  from each holder of Series E  Preferred  Shares  electing to
            have Series E Preferred  Shares  converted and redeemed at such time
            an  amount  equal to such  holder's  pro-rata  amount  (based on the
            number of Series E Preferred  Shares held by such holder relative to
            the number of Series E Preferred Shares outstanding) of all Series E
            Preferred Shares being converted and redeemed at such time.

            (8)  Reissuance  of  Certificates.  In the event of a conversion  or
      redemption  pursuant to this  Certificate of Designations of less than all
      of the Series E Preferred  Shares  represented  by a  particular  Series E
      Preferred Share  certificate,  the Corporation  shall promptly cause to be
      issued and  delivered  to the holder of such Series E  Preferred  Shares a
      Series E Preferred Share  certificate  representing the remaining Series E
      Preferred Shares which have not been so converted or redeemed.

            (9) Reservation of Shares.  The Corporation shall, so long as any of
      the Series E Preferred Shares are outstanding,  reserve and keep available
      out of its authorized and unissued Common Stock, solely for the purpose of
      effecting the  conversion of the Series E Preferred  Shares,  100% of such
      number of shares of Common Stock as shall from time to time be  sufficient
      to affect the  conversion  of all of the Series E  Preferred  Shares  then
      outstanding.

            (10) Voting Rights.  Holders of Series E Preferred Shares shall have
      no voting rights,  except as required by law, including but not limited to
      the  General  Corporation  Law of the State of Delaware  and as  expressly
      provided in this Certificate of Designations.



<PAGE>


            (11)  Liquidation,  Dissolution,  Winding-Up.  In the  event  of any
      voluntary or involuntary  liquidation,  dissolution,  or winding up of the
      Corporation,  the  holders  of the  Series  E  Preferred  Shares  shall be
      entitled to receive in cash out of the assets of the Corporation,  whether
      from  capital  or  from  earnings   available  for   distribution  to  its
      stockholders  (the  "Preferred  Funds"),  after all amounts payable to the
      holders of the Corporation's Series C Convertible  Preferred Stock and the
      holders of the  Corporation's  Series D  Convertible  Preferred  Stock and
      before any amount shall be paid to the holders of any of the capital stock
      of the  Corporation  of any class junior in rank to the Series E Preferred
      Shares in respect of the preferences as to the  distributions and payments
      on the  liquidation,  dissolution  and winding up of the  Corporation,  an
      amount per  Series E  Preferred  Share  equal to the sum of (i) $1,000 and
      (ii) an amount equal to the product of (.04)  (N/365)  ($1,000)  (such sum
      being  referred to as the  "Liquidation  Value");  provided  that,  if the
      Preferred Funds are insufficient to pay the full amount due to the holders
      of Series E  Preferred  Shares and  holders of shares of other  classes or
      series of preferred stock of the  Corporation  that are of equal rank with
      the Series E Preferred Shares as to payments of Preferred Funds (the "Pari
      Passu  Shares"),  then each holder of Series E  Preferred  Shares and Pari
      Passu Shares shall receive a percentage  of the  Preferred  Funds equal to
      the full amount of Preferred Funds payable to such holder as a liquidation
      preference,   in  accordance   with  their   respective   Certificate   of
      Designations, Preferences and Rights as a percentage or the full amount of
      Preferred  Funds  payable to all holders of Series E Preferred  Shares and
      Pari Passu Shares.  The purchase or redemption by the Corporation of stock
      of any class in any manner  permitted  by law,  shall not for the purposes
      hereof,  be regarded as a  liquidation,  dissolution  or winding up of the
      Corporation.  Neither the  consolidation or merger of the Corporation with
      or into any other Person,  nor the sale or transfer by the  Corporation of
      less than substantially all of its assets, shall, for the purposes hereof,
      be  deemed  to  be  a  liquidation,  dissolution  or  winding  up  of  the
      Corporation.  No holder of Series E Preferred  Shares shall be entitled to
      receive any amounts with respect thereto upon any liquidation, dissolution
      or  winding up of the  Corporation  other than the  amounts  provided  for
      herein.



<PAGE>


            (12) Preferred  Rank.  All shares of Series C Convertible  Preferred
      Stock and all shares of Series D Convertible  Preferred  Stock shall be of
      senior rank and all shares of Common  Stock shall be of junior rank to all
      Series  E  Preferred   Shares  in  respect  to  the   preferences   as  to
      distributions and payments upon the liquidation,  dissolution, and winding
      up of the  Corporation.  The rights of the shares of Common Stock shall be
      subject to the  Preferences  and relative rights of the Series E Preferred
      Shares.  Except for the Corporation's Series C Convertible Preferred Stock
      and Series D Convertible  Preferred  Stock,  the Series E Preferred Shares
      shall be of  greater  rank than any  Series of Common or  Preferred  Stock
      hereinafter  issued by the Corporation.  Without the prior express written
      consent  of the  holders  of not less  than  two-thirds  (2/3) of the then
      outstanding Series E Preferred Shares, the Corporation shall not hereafter
      authorize or issue  additional or other capital stock that is of senior or
      equal rank to the Series E Preferred  Shares in respect of the preferences
      as to  distributions  and payments upon the  liquidation,  dissolution and
      winding up of the  Corporation.  Without the prior express written consent
      of the holders of not less than two-thirds  (2/3) of the then  outstanding
      Series E Preferred Shares,  the Corporation shall not hereafter  authorize
      or make any amendment to the Corporation's Certificate of Incorporation or
      bylaws, or file any resolution of the board of directors with the Delaware
      Secretary of State containing any provisions, which would adversely affect
      or otherwise impair the rights or relative  priority of the holders of the
      Series E Preferred  Shares  relative to the holders of the Common Stock or
      the  holders  of any  other  class  of  capital  stock in  respect  of the
      preferences  as  to  distributions  and  payments  upon  the  liquidation,
      dissolution and winding up of the Corporation.  In the event of the merger
      or consolidation of the Corporation with or into another corporation,  the
      Series  E  Preferred   Shares  shall  maintain   their  relative   powers,
      designations,  and  preferences  provided  for herein and no merger  shall
      result inconsistent therewith.

            (13) Restriction on Dividends.  If any Series E Preferred Shares are
      outstanding,  without the prior express  written consent of the holders of
      not less than two-thirds (2/3) of the then outstanding  Series E Preferred
      Shares, the Corporation shall not directly or indirectly  declare,  pay or
      make any  dividends  or other  distributions  upon any of the Common Stock
      unless  written  notice  thereof has been given to holders of the Series E
      Preferred Shares at least thirty (30) days prior to the earlier of (a) the
      record  date taken for or (b) the  payment of any such  dividend  or other
      distribution.  Notwithstanding  the  foregoing,  this Section 13 shall not
      prohibit the Corporation from declaring and paying a dividend in cash with
      respect  to the  Common  Stock  so  long  as  the  Corporation:  (i)  pays
      simultaneously  to each holder of Series E  Preferred  Shares an amount in
      cash equal to the amount such holder  would have  received had all of such
      holder's Series E Preferred Shares been converted to Common Stock pursuant
      to Section 4 hereof one business day prior to the record date for any such
      dividend,  and (ii) after giving effect to the payment of any dividend and
      any other  payments  required in  connection  therewith  including  to the
      holders of the Series E Preferred Shares under clause 13(a)(i) hereof, the
      Corporation  has in  cash or  cash  equivalents  an  amount  equal  to the
      aggregate  of: (A) all of its  liabilities  reflected on its most recently
      available  balance sheet, (B) the amount of any  indebtedness  incurred by
      the Corporation or any of its  subsidiaries  since its most recent balance
      sheet and (C) 125% of the amount  payable to all  holders of any shares of
      any class of preferred stock of the Corporation  assuming a liquidation of
      the  Corporation  as of the date of its most  recently  available  balance
      sheet.

            (14) Vote to Change  the Terms of  Series E  Preferred  Shares.  The
      affirmative  vote at a meeting duly called for such purpose or the written
      consent  without a meeting,  of the  holders  of not less than  two-thirds
      (2/3) of the then outstanding Series E Preferred Shares, shall be required
      for any change to this  Certificate of Designations  or the  Corporation's
      Certificate of Incorporation  which would amend,  alter,  change or repeal
      any of the powers,  designations,  preferences  and rights of the Series E
      Preferred Shares.



<PAGE>



            (15) Lost or Stolen Certificates. Upon receipt by the Corporation of
      evidence  satisfactory to the Corporation of the loss, theft,  destruction
      or  mutilation  of any  certificates  representing  the Series E Preferred
      Shares,  and,  in  the  case  of  loss,  theft  or  destruction,   of  any
      indemnification  undertaking by the holder to the Corporation  and, in the
      case of  mutilation,  upon  surrender  and  cancellation  of the  Series E
      Preferred Share certificate(s),  the Corporation shall execute and deliver
      new  Series E  Preferred  Share  certificate(s)  of like  tenor  and date;
      provided,  however,  the  Corporation  shall not be  obligated to re-issue
      Series E  Preferred  Share  certificates  if the holder  contemporaneously
      requests the  Corporation  to convert such Series E Preferred  Shares into
      Common Stock.

            (16) Withholding Tax Obligations. Notwithstanding anything herein to
      the  contrary,  to the  extent  that the  Corporation  receives  advice in
      writing from its counsel that there is a reasonable  basis to believe that
      the Corporation is required by applicable  federal laws or regulations and
      delivers  a copy of such  written  advice to the  holders  of the Series E
      Preferred Shares so effected, the Corporation may reasonably condition the
      making of any  distribution  (as such  term is  defined  under  applicable
      federal  tax law and  regulations)  in respect  of any Series E  Preferred
      Shares on the holder of such Series E Preferred Shares depositing with the
      Corporation  an amount of cash  sufficient  to enable the  Corporation  to
      satisfy its  withholding  tax  obligations  (the  "Withholding  Tax") with
      respect to such distribution. Notwithstanding the foregoing or anything to
      the contrary,  if any holder of the Series E Preferred  Shares so effected
      receives  advice in writing  from its counsel  that there is a  reasonable
      basis to believe  that the  Corporation  is not so required by  applicable
      federal laws or regulations  and delivers a copy of such written advice to
      the Corporation,  the Corporation  shall not be permitted to condition the
      making of any such  distribution  in  respect  of any  Series E  Preferred
      Shares on the holder of such Series E Preferred Shares depositing with the
      Corporation  any  Withholding  Tax  with  respect  to  such  distribution,
      provided,  however, the Corporation may reasonably condition the making of
      any such  distribution in respect of any Series E Preferred  Shares on the
      holder of such Series E Preferred  Shares  executing and delivering to the
      Corporation,  at the election of the holder, either: (i) if applicable,  a
      property   completed  Internal  Revenue  Service  Form  4224,  or  (a)  an
      indemnification  agreement in reasonably  acceptable form, with respect to
      any federal tax liability, penalties and interest that may be imposed upon
      the  Corporation  by the  Internal  Revenue  Service  as a  result  of the
      Corporation's  failure to withhold in connection with such distribution to
      such holder.  If the  conditions  in the preceding two sentences are fully
      satisfied,  the  Corporation  shall not be required to pay any  additional
      damages set forth in Section  2(f)(v) of this  Certificate of Designations
      if its failure to timely deliver any Conversion Shares results solely from
      the holder's  failure to deposit any  withholding tax hereunder or provide
      to the  Corporation  an  executed  indemnification  agreement  in the form
      reasonably satisfactory to the Corporation.


      IN WITNESS  WHEREOF,  the  Corporation  has  caused  this  Certificate  of
Designations  to be signed by  Michael  J.  Parrella,  its  President  and Chief
Executive Officer, as of the 23rd day of December, 1998.

                              NCT GROUP, INC.


                              By:   /s/ MICHAEL J. PARRELLA
                                    -----------------------
                                    Michael J. Parrella
                                    President and Chief Executive Officer



<PAGE>
                                  EXHIBIT I

                               NCT GROUP, INC.
                               CONVERSION NOTICE

      Reference is made to the  Certificate  of  Designations,  Preferences  and
Rights of NCT Group,  Inc. (the  "Certificate of  Designations").  In accordance
with and pursuant to the Certificate of  Designations,  the  undersigned  hereby
elects to convert the number of shares of Series E Convertible  Preferred Stock,
$.10 par value per share (the "Series E Preferred Shares"),  of NCT Group, Inc.,
a Delaware  corporation  (the  "Corporation"),  indicated  below into  shares of
Common Stock, $.01 par value per share (the "Common Stock"), of the Corporation,
by  tendering  the stock  certificate(s)  representing  the share(s) of Series E
Preferred Shares specified below as of the date specified below.

      The  undersigned  acknowledges  that any sales by the  undersigned  of the
securities issuable to the undersigned upon conversion of the Series E Preferred
Shares shall be made only  pursuant to (i) a  registration  statement  effective
under the Securities Act of 1933, as amended (the "Act"),  or (ii) an opinion of
counsel in form and content reasonably satisfactory to the Corporation that such
sale is exempt from registration required by Section 5 of the Act.

                               Date of Conversion:
                               ------------------------------------------

                               Number of Series E
                               Preferred Shares to be converted
                               ------------------------------------------

                               Stock certificate no(s). of Series E
                               Preferred Shares to be converted:
                               ------------------------------------------

Please confirm the following information:

                                Conversion Price:
                                ------------------------------------------

                                Number  of  shares  of  Common  Stock  to be
                                issued:
                                ------------------------------------------

please issue the Common Stock into which the Series E Preferred Shares are being
converted in the following name and to the following address:

                                    Issue to:1
                                    ==========================================

                                    Facsimile Number:
                                    ------------------------------------------

                                    Authorization:
                                    ------------------------------------------
                                    By:_______________________________________

                                    Title:____________________________________

                                    Dated:
                                    ------------------------------------------
ACKNOWLEDGED AND AGREED:

NCT GROUP, INC.

By: _____________________________
Name:___________________________
Title:____________________________

Date:____________________________