Document:

Exhibit 10(u)

                             SUBSCRIPTION AGREEMENT

                                                      Dated as of April 22, 2003

Dear Subscriber:

     The  subscriber  identified  on the  signature  page hereto  ("Subscriber")
hereby  agrees to purchase,  and NCT Group,  Inc., a Delaware  corporation  (the
"Company") hereby agrees to issue and to sell to the Subscriber,  8% Convertible
Notes ("Note")  convertible in accordance  with the terms thereof into shares of
$.01 par  value  common  stock  of the  Company  (the  "Common  Stock")  for the
consideration as set forth on the signature page hereof ("Purchase Price").  The
form of Note is annexed  hereto as Exhibit A. (The Common Stock  included in the
Securities  (as  hereinafter  defined)  is  sometimes  referred to herein as the
"Shares",  "Common  Shares"  or "Common  Stock".)  (The Notes and the Shares are
collectively  referred to herein as, the "Securities".)  Upon acceptance of this
Agreement  by the  Subscriber,  the  Company  shall  issue and  deliver the Note
against payment, by federal funds wire transfer of the Purchase Price.

     Now, therefore,  for good and valuable  consideration,  receipt of which is
acknowledged, and the mutual promises herein described, it is agreed:

     1.  Subscriber's  Representations  and  Warranties.  The Subscriber  hereby
represents and warrants to and agrees with the Company that:

          (a) Investment  Purpose.  The  Subscriber is acquiring the Notes,  and
     upon  conversion of the Notes,  will acquire the Shares then issuable,  for
     its own account for  investment  purposes only and not with a view towards,
     or for resale in connection with, the public sale or distribution  thereof,
     except pursuant to sales registered or exempted under the Securities Act of
     1933, as amended (the "1933 Act");  provided,  however,  that by making the
     representations   herein,  the  Subscriber  does  not  agree  to  hold  the
     Securities for any minimum or other specific term and reserves the right to
     dispose of the Securities at any time in accordance  with or pursuant to an
     effective  registration statement under the 1933 Act and in compliance with
     applicable state securities laws or an exemption from such registration.

          (b) Information on Company. The Subscriber,  and its advisors, if any,
     have been  furnished with written  information  relating to the business of
     the  Company  and  such  other  information  concerning  their  operations,
     financial condition and other matters as the Subscriber has requested.  The
     Subscriber and its advisors,  if any, have been afforded the opportunity to
     ask  questions of the Company.  Neither  such  inquiries  nor any other due
     diligence  investigations  conducted by the Subscriber or its advisors,  if
     any,  or  their   representatives   shall  modify,   amend  or  affect  the
     Subscriber's right to rely on the Company's  representations and warranties
     contained  in  Section  2  below.  The  Subscriber   understands  that  its
     investment in the Notes and the Shares  involves a high degree of risk. The
     Subscriber  has  sought  such  accounting,  legal and tax  advice as it has
     considered  necessary to make an informed  investment decision with respect
     to its  acquisition  of

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     the Notes and the Shares.  The  Subscriber  has  considered all factors the
     Subscriber  deems material in deciding on the  advisability of investing in
     the Securities  (such  information in writing is  collectively,  the "Other
     Written Information").

          (c)  Information  on  Subscriber;   Accredited  Investor  Status.  The
     Subscriber  is an  "accredited  investor",  as  such  term  is  defined  in
     Regulation D promulgated  by the Securities  and Exchange  Commission  (the
     "Commission")  under  the 1933  Act,  is  experienced  in  investments  and
     business  matters,  has made  investments  of a speculative  nature and has
     purchased securities of United States  publicly-owned  companies in private
     placements in the past and, with its  representatives,  has such  knowledge
     and experience in financial,  tax and other  business  matters as to enable
     the Subscriber to utilize the information  made available by the Company to
     evaluate  the  merits  and  risks  of and to  make an  informed  investment
     decision  with  respect  to  the  proposed  purchase,  which  represents  a
     speculative  investment.  The  Subscriber has the authority and is duly and
     legally  qualified to purchase and own the  Securities.  The  Subscriber is
     able to bear the risk of such  investment  for an indefinite  period and to
     afford a complete loss thereof.

          (d) Compliance  with 1933 Act. The Subscriber  understands  and agrees
     that the Securities are being offered and sold to it in a private placement
     in reliance on specific  exemptions from the  registration  requirements of
     United  States  federal and state  securities  laws and that the Company is
     relying  in part upon the  truth  and  accuracy  of,  and the  Subscriber's
     compliance    with,   the    representations,    warranties,    agreements,
     acknowledgments  and  understandings  of the Subscriber set forth herein in
     order to determine the  availability of such exemptions and the eligibility
     of such Subscriber to acquire such securities.

          (e) No Governmental Review. The Subscriber  understands that no United
     States  federal or state  agency or any other  government  or  governmental
     agency  has  passed on or made any  recommendation  or  endorsement  of the
     Securities,  or  the  fairness  or  suitability  of the  investment  in the
     Securities, nor have such authorities passed upon or endorsed the merits of
     the offering of the Securities.

          (f)  No  Broker  Commissions  or  Finder  Fees.  To  the  best  of its
     knowledge,  the Subscriber has taken no action which would give rise to any
     claim by any person for  brokerage  commissions,  finders' fees or the like
     relating to this Agreement or the transactions  contemplated  hereby except
     as described in Section 7 hereof.

          (g) Buyer  Liquidity.  The  Subscriber has adequate means of providing
     for its current needs and foreseeable financial contingencies.

          (h) Transfer or Resale of Securities.  The Subscriber understands that
     except as  provided  herein  (i) the  Securities  have not been and are not
     being  registered  under the 1933 Act or any state securities laws, and may
     not be offered for sale, sold, assigned,  transferred or otherwise disposed
     of by the Subscriber unless (a) subsequently  registered under the 1933 Act
     and state  securities  laws, if applicable,  (b) the Subscriber  shall have
     delivered  to the  Company  an opinion of  counsel,  in form and  substance
     reasonably satisfactory to the Company in connection with the Notes, to the
     effect that such Securities to be sold, assigned,  transferred or otherwise
     disposed of may

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 be sold,  assigned,  transferred  or otherwise  disposed of
     pursuant to an  exemption  from such  registration,  or (c) the  Subscriber
     provides the Company in connection  with the Shares with written  customary
     assurance  that  such  Securities  can be sold,  assigned,  transferred  or
     otherwise  disposed of pursuant to Rule 144 promulgated  under the 1933 Act
     (or a  successor  rule  thereto)  ("Rule  144");  and (ii) any sale of such
     securities made in reliance on Rule 144 may be made only in accordance with
     the  terms of Rule 144 and  further,  if Rule  144 is not  applicable,  any
     resale of such securities  under  circumstances in which the seller (or the
     person  through  whom the sale is made) may be deemed to be an  underwriter
     (as that term is defined in the 1933 Act) may require  compliance with some
     other  exemption under the 1933 Act or the rules and regulations of the SEC
     thereunder.

          (i) Company Shares Legend. The Shares shall bear the following legend:

                    "THE SHARES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN
                    REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR
                    APPLICABLE  STATE  SECURITIES  LAWS.  THE  SHARES  HAVE BEEN
                    ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE OFFERED
                    FOR SALE, SOLD, TRANSFERRED,  ASSIGNED OR OTHERWISE DISPOSED
                    OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
                    THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
                    AND  APPLICABLE  STATE  SECURITIES  LAWS,  OR AN  OPINION OF
                    COUNSEL,  REASONABLY  SATISFACTORY TO NCT GROUP,  INC., THAT
                    REGISTRATION  IS NOT REQUIRED  UNDER SAID ACT OR  APPLICABLE
                    STATE  SECURITIES  LAWS OR UNLESS SOLD  PURSUANT TO RULE 144
                    UNDER SAID ACT. "

                    (j) Note Legend. The Note shall bear the following legend:

                    "THIS NOTE AND THE SHARES  ISSUABLE UPON  CONVERSION OF THIS
                    NOTE HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES ACT OF
                    1933, AS AMENDED,  OR APPLICABLE STATE SECURITIES LAWS. THIS
                    NOTE AND THE SHARES  ISSUABLE  UPON  CONVERSION OF THIS NOTE
                    HAVE BEEN ACQUIRED FOR INVESTMENT  PURPOSES ONLY AND MAY NOT
                    BE  OFFERED  FOR  SALE,  SOLD,   TRANSFERRED,   ASSIGNED  OR
                    OTHERWISE  DISPOSED  OF  IN  THE  ABSENCE  OF  AN  EFFECTIVE
                    REGISTRATION   STATEMENT  FOR  THE   SECURITIES   UNDER  THE
                    SECURITIES  ACT OF 1933, AS AMENDED,  AND  APPLICABLE  STATE
                    SECURITIES  LAWS,  OR  AN  OPINION  OF  COUNSEL,  REASONABLY
                    SATISFACTORY TO NCT GROUP,  INC.,  THAT  REGISTRATION IS NOT
                    REQUIRED UNDER SAID ACT OR APPLICABLE  STATE SECURITIES LAWS
                    OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."

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          (k)  Communication  of  Offer.  The offer to sell the  Securities  was
     directly  communicated  to the  Subscriber.  At no time was the  Subscriber
     presented with or solicited by any leaflet,  newspaper or magazine article,
     radio or television advertisement, or any other form of general advertising
     or solicited or invited to attend a promotional  meeting  otherwise than in
     connection and concurrently with such communicated offer.

          (l) Powers;  Authorization;  Enforceability.  The  Subscriber  has all
     corporate  or company  power and  authority  to enter into and perform this
     Agreement.  This Agreement has been duly and validly  authorized,  executed
     and  delivered  on behalf  of the  Subscriber  and is a valid  and  binding
     agreement  of the  Subscriber  enforceable  in  accordance  with its terms,
     except as such  enforceability  may be  limited by  general  principles  of
     equity and bankruptcy, insolvency, reorganization,  moratorium, liquidation
     and other similar laws relating to, or affecting  generally the enforcement
     of, applicable creditors' rights and remedies.

          (m) Conflicts.  To the best  knowledge of  Subscriber,  the execution,
     delivery  and  performance  of this  Agreement  by the  Subscriber  and the
     consummation by the Subscriber of the transactions contemplated hereby will
     not (i) conflict with or violate its organizational charters or by-laws, or
     (ii)  conflict  with or constitute a default (or an event which with notice
     or lapse of time or both would become a default)  under,  or give to others
     any rights of termination,  amendment, acceleration or cancellation of, any
     agreement, indenture or instrument to which the Subscriber is a party.

          (n) Correctness of Representations. The Subscriber represents that the
     foregoing  representations  and  warranties  are true and correct as of the
     date hereof and, unless the Subscriber otherwise notifies the Company prior
     to the Closing Date (as hereinafter defined),  shall be true and correct as
     of the Closing Date. The foregoing  representations  and  warranties  shall
     survive the Closing Date.

     2. Company  Representations  and  Warranties.  The Company  represents  and
warrants to and agrees with the Subscriber that:

          (a) Due  Incorporation.  The Company is a corporation  duly organized,
     validly existing and in good standing under the laws of the jurisdiction of
     its  incorporation  and  has  the  requisite  corporate  power  to own  its
     properties and to carry on its business as now being conducted. The Company
     is duly  qualified as a foreign  corporation  to do business and is in good
     standing in each jurisdiction where the nature of the business conducted or
     property owned by it makes such qualification  necessary,  other than those
     jurisdictions  in which the failure to so qualify

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<PAGE>

     would not have a material  adverse  effect on the  business,  operations or
     financial condition of the Company.

          (b) Outstanding  Stock.  All issued and outstanding  shares of capital
     stock of the Company have been duly  authorized  and validly issued and are
     fully paid and non-assessable.

          (c)   Authority;   Enforceability.   This   Agreement  has  been  duly
     authorized,  executed  and  delivered  by the  Company  and is a valid  and
     binding  agreement  enforceable  in accordance  with its terms,  subject to
     bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
     similar laws of general  applicability  relating to or affecting creditors'
     rights generally and to general  principles of equity;  and the Company has
     full corporate  power and authority  necessary to enter into this Agreement
     and to perform its obligations  hereunder and all other agreements  entered
     into by the Company relating hereto.  To the best knowledge of the officers
     and directors of the Company, there are no circumstances known to them that
     would impair the Company's ability to perform its obligations  described in
     this Agreement or in the other agreements delivered in connection with this
     Agreement,  including but not limited to the Company's  compliance with the
     registration requirements set forth in Section 10 of this Agreement.

          (d)  Consents.  No consent,  approval,  authorization  or order of any
     court,  governmental  agency or body or arbitrator having jurisdiction over
     the  Company,  or  any of  its  affiliates,  the  National  Association  of
     Securities  Dealers,  Inc.  ("NASD"),  National  Association  of Securities
     Dealers,  Inc.  Automated  Quotation  System  ("NASDAQ")  or the  Company's
     shareholders  is required for  execution of this  Agreement,  and all other
     agreements entered into by the Company relating thereto, including, without
     limitation issuance and sale of the Securities,  and the performance of the
     Company's obligations hereunder.

          (e)  No  Violation  or  Conflict.  Assuming  the  representations  and
     warranties  of the  Subscriber  in Paragraph 1 are true and correct and the
     Subscriber complies with its obligations under this Agreement,  neither the
     issuance and sale of the Securities  nor the  performance by the Company of
     its obligations under this Agreement and all other agreements  entered into
     by the Company relating hereto will:

               (i) violate,  conflict with, result in a breach of, or constitute
          a default (or an event which with the giving of notice or the lapse of
          time or both would be reasonably likely to constitute a default) under
          (A)  the  certificate  of  incorporation,  charter  or  bylaws  of the
          Company, (B) to the Company's knowledge, any decree, judgment,  order,
          law,  treaty,  rule,  regulation  or  determination  applicable to the
          Company  of any  court,  governmental  agency or body,  or  arbitrator
          having  jurisdiction over the Company or any of its affiliates or over
          the properties or assets of the Company or any of its affiliates,  (C)
          the  terms of any  bond,  debenture,  note or any  other  evidence  of
          indebtedness,  or any  agreement,  stock option or other similar plan,
          indenture, lease, mortgage, deed of trust or other instrument to which
          the Company or any of its affiliates is a party,  by which the Company
          or any of its  affiliates is bound,  or to which any of the properties
          of the Company or any of its  affiliates is subject,  or (D) the terms
          of any "lock-up" or similar  provision of any  underwriting or similar
          agreement to which the Company,  or any of its  affiliates  is a party
          except the violation,  conflict, breach, or default of which would not
          have a material adverse effect on the Company; or

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<PAGE>

               (ii) result in the creation or imposition of any lien,  charge or
          encumbrance  upon the  Securities or any of the assets of the Company,
          or any of its affiliates.

          (f) The Note. The Note, upon issuance:

               (i) is,  or will be,  free and clear of any  security  interests,
          liens,  claims or other  encumbrances,  subject to  restrictions  upon
          transfer under the 1933 Act and State laws;

               (ii) has  been,  or will  be,  duly and  validly  authorized  and
          issued;

               (iii)  will not have  been  issued  or sold in  violation  of any
          preemptive or other similar rights of the holders of any securities of
          the Company; and

               (iv) will not subject the holders  thereof to personal  liability
          by reason of being such holders.

          (g)  Litigation.  Except as  disclosed  in the  Reports (as defined in
     Paragraph  2(t) hereof),  the Other  Filings (as defined in Paragraph  2(n)
     hereof) or the Other  Written  Information,  there is no pending or, to the
     best  knowledge of the Company,  threatened  action,  suit,  proceeding  or
     investigation before any court,  governmental agency or body, or arbitrator
     having  jurisdiction  over  the  Company,  or  any  of  its  affiliates  or
     subsidiaries  that  would  affect  the  execution  by  the  Company  or the
     performance by the Company of its obligations under this Agreement, and all
     other agreements  entered into by the Company  relating  hereto.  Except as
     disclosed in the Reports or Other Written Information,  there is no pending
     or,  to  the  best  knowledge  of the  Company,  threatened  action,  suit,
     proceeding or investigation before any court,  governmental agency or body,
     or  arbitrator  having  jurisdiction  over  the  Company,  or  any  of  its
     affiliates or subsidiaries, which litigation, if adversely determined could
     have a material adverse effect on the Company.

          (h) Information  Concerning Company.  The Reports contain all material
     information  relating  to the  Company  and its  operations  and  financial
     condition as of their respective dates which  information is required to be
     disclosed therein.  Since the date of the financial  statements included in
     the Reports, and except as modified in the Other Written Information, or in
     a  Schedule  hereto,  there  has been no  material  adverse  change  in the
     Company's  business,  financial  condition or affairs not  disclosed in the
     Reports.  The  Reports  and Other  Written  Information  do not contain any
     untrue  statement  of a material  fact or omit to state a material  fact in
     light of the  circumstances  when made  required  to be stated  therein  or
     necessary to make the statements therein not misleading.

          (i) Defaults.  Neither the Company nor any of its  subsidiaries  is in
     violation  of  its  Certificate  of  Incorporation  or  ByLaws.  Except  as
     disclosed  in  the  Reports,   the  Other  Filings  or  the  Other  Written
     Information,  neither  the Company  nor any of its  subsidiaries  is (i) in
     default under or in violation of any other material agreement or instrument
     to which it is a party or by which it or any of its properties are bound or
     affected,  which default or violation would have a material  adverse effect
     on the  Company,  (ii) in default  with  respect to any order of any court,

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     arbitrator or governmental  body or subject to or party to any order of any
     court  or  governmental  authority  arising  out of  any  action,  suit  or
     proceeding under any statute or other law respecting  antitrust,  monopoly,
     restraint of trade,  unfair competition or similar matters, or (iii) to its
     knowledge  in  violation  of  any  statute,   rule  or  regulation  of  any
     governmental authority which violation would have a material adverse effect
     on the Company.

          (j) No  Integrated  Offering.  Neither  the  Company,  nor  any of its
     affiliates,  nor any person acting on its or their behalf,  has directly or
     indirectly made any offers or sales of any security or solicited any offers
     to buy any security  under  circumstances  that would cause the offering of
     the  Securities  pursuant to this  Agreement  to be  integrated  with prior
     offerings  by the  Company for  purposes of the 1933 Act or any  applicable
     stockholder approval provisions,  including,  without limitation, under the
     rules and regulations of NASD OTC Bulletin Board (the "Bulletin Board") nor
     will the Company or any of its affiliates or  subsidiaries  take any action
     or steps that would cause the offering of the  Securities  to be integrated
     with other  offerings.  The Company has not  conducted and will not conduct
     any offering other than the transactions  contemplated  hereby that will be
     integrated with the offer and issuance of the Securities.

          (k) No  General  Solicitation.  Neither  the  Company,  nor any of its
     affiliates, nor to its knowledge, any person acting on its or their behalf,
     has  engaged in any form of  general  solicitation  or general  advertising
     (within the meaning of Regulation D under the 1933 Act) in connection  with
     the offer or sale of the Securities.

          (l) No  Undisclosed  Liabilities.  The Company has no  liabilities  or
     obligations which are material, individually or in the aggregate, which are
     not  disclosed  in the  Reports,  the Other  Filings  or the Other  Written
     Information,  other  than  those  incurred  in the  ordinary  course of the
     Company's businesses since April 18, 2003 and which, individually or in the
     aggregate,  would not  reasonably  be expected  to have a material  adverse
     effect on the Company's financial condition.

          (m)No Undisclosed  Events or  Circumstances.  Since April 18, 2003, no
     event or circumstance has occurred or exists with respect to the Company or
     its businesses,  properties, operations or financial condition, that, under
     applicable  law,  rule  or  regulation,   requires  public   disclosure  or
     announcement prior to the date hereof by the Company but which has not been
     so publicly announced or disclosed in the Reports or the Other Filings.

          (n) Additional  Issuances.  Except as described in the Reports, in the
     other  publicly  available  filings made by the Company with the Commission
     (the "Other Filings"),  in the Other Written Information or as set forth on
     Schedule 2(n), there are no outstanding agreements or preemptive or similar
     rights  affecting the Company's  common stock or equity and no  outstanding
     rights,  warrants or options to acquire, or instruments convertible into or
     exchangeable for, or agreements or understandings  with respect to the sale
     or issuance of any shares of common stock or equity of the Company.

          (o) The Company Shares. The Shares upon issuance:

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               (i) are,  or will be, free and clear of any  security  interests,
          liens,  claims or other  encumbrances,  subject to  restrictions  upon
          transfer under the 1933 Act and State laws;

               (ii) have been,  or will be, duly and validly  authorized  and on
          the date of issuance and on the Closing Date, as hereinafter  defined,
          and the  date  the  Note is  converted,  the  Shares  will be duly and
          validly  issued,  fully  paid  and  nonassessable  (and if  registered
          pursuant  to  the  1933  Act,  and  resold  pursuant  to an  effective
          registration statement will be free trading and unrestricted, provided
          that   the   Subscriber   complies   with  the   Prospectus   delivery
          requirements);

               (iii)  will not have  been  issued  or sold in  violation  of any
          preemptive or other similar rights of the holders of any securities of
          the Company; and

               (iv) will not subject the holders  thereof to personal  liability
          by reason of being such holders.

          (p) No Market  Manipulation.  The Company has not taken,  and will not
     take,  directly  or  indirectly,  any  action  designed  to, or that  might
     reasonably be expected to, cause or result in stabilization or manipulation
     of the price of the common stock of the Company to  facilitate  the sale or
     resale of the Securities or affect the price at which the Securities may be
     issued.

          (q) Stop Transfer.  The Securities are restricted securities as of the
     date of this Agreement.  The Company will not issue any stop transfer order
     or other order impeding the sale and delivery of the Securities,  except as
     may be required by federal securities laws.

          (r) Listing.  The  Company's  common  stock is quoted,  and listed for
     trading,  on the Bulletin  Board.  As of the date of this Agreement and the
     Closing  Date,  the Bulletin  Board is the  Principal  Market as defined in
     Section 7.1(b) of this Agreement.  Except as disclosed in the Other Written
     Information,  the Company has not received any oral or written  notice that
     its  Common  Stock will be  delisted  from the  Bulletin  Board or that the
     Common Stock does not meet all  requirements  for the  continuation of such
     listing.

          (s)  Capitalization.  The authorized and outstanding  capital stock of
     the Company as of the date of this  Agreement  and the Closing Date are set
     forth on Schedule 2(s) hereto. Except as set forth in the Reports and Other
     Written Information and Schedule 2(s), there are no options,  warrants,  or
     rights to subscribe to, securities,  rights or obligations convertible into
     or  exchangeable  for or giving  any right to  subscribe  for any shares of
     capital  stock of the  Company.  All of the  outstanding  shares of capital
     stock of the Company have been duly and validly  authorized  and issued and
     are fully paid and nonassessable.

          (t) Reporting Company. The Company is a publicly-held  company subject
     to  reporting  obligations  pursuant  to  Sections  15(d)  and  13  of  the
     Securities  Exchange  Act of 1934,  as amended  (the "1934  Act") and has a
     class of common  shares  registered  pursuant to Section  12(g) of the 1934
     Act. The Company's common stock is trading on the Bulletin Board.  Pursuant
     to the  provisions  of the 1934 Act,  the Company has filed all reports and
     other materials  required to be

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     filed thereunder with the Commission during the twelve months preceding the
     date of this Agreement ("Reports").

          (u) Correctness of  Representations.  The Company  represents that the
     foregoing  representations  and  warranties  are true and correct as of the
     date hereof in all  material  respects,  and will be true and correct as of
     the Closing Date in all material  respects.  The foregoing  representations
     and warranties shall survive the Closing Date.

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     3.  Regulation  D Offering.  This  Offering  is being made  pursuant to the
exemption from the registration  provisions of the 1933 Act afforded by Rule 506
of Regulation D promulgated  thereunder.  On the Closing Date,  the Company will
provide an opinion reasonably  acceptable to Subscriber from the Company's legal
counsel opining, among others, on the availability of the Regulation D exemption
as it relates to the offer and issuance of the  Securities.  A form of the legal
opinion  is  annexed  hereto as  Exhibit B. The  Company  will  provide,  at the
Company's  expense,  such other legal  opinions in the future as are  reasonably
necessary for the conversion of the Note and issuance of the Shares.

     4.  Reissuance of Securities.  The Company  agrees to reissue  certificates
representing  the Shares  without the legend set forth in Section  1(i) above at
such time as (a) the holder  thereof is  permitted to and disposes of the Shares
pursuant to Rule 144(d)  and/or Rule 144(k) under the 1933 Act in the opinion of
counsel reasonably satisfactory to the Company, or (b) upon resale subject to an
effective  registration statement after the Shares are registered under the 1933
Act. The Company agrees to cooperate with the Subscriber in connection  with all
resales of Shares  pursuant to Rule  144(d) and Rule  144(k) and  provide  legal
opinions  necessary to allow such  resales  provided the Company and its counsel
receive all reasonably requested written representations from the Subscriber and
selling broker, if any. Provided the Subscriber provides required certifications
and representation letters, if any, if the Company fails to remove any legend as
required by this Section 4 (a "Legend Removal  Failure"),  then beginning on the
tenth (10th) day following the date that the Subscriber  has lawfully  requested
the removal of the legend and  delivered  all items  reasonably  required by the
Company to be  delivered  by the  Subscriber,  the Company  continues to fail to
remove such legend,  the Company  shall pay to  Subscriber  or assignee  holding
shares subject to a Legend  Removal  Failure an amount equal to one percent (1%)
of the Purchase Price of the shares subject to a Legend Removal  Failure per day
that such failure continues. If during any twelve (12) month period, the Company
fails to remove any legend as required  by this  Section 4 for an  aggregate  of
thirty (30) days, each Subscriber or assignee holding Shares subject to a Legend
Removal  Failure may, at its option,  require the Company to purchase all or any
portion  of the  Shares  subject  to a  Legend  Removal  Failure  held  by  such
Subscriber  or  assignee  at a price per share  equal to 130% of the  applicable
Purchase Price.

     5. Intentionally Omitted.

     6. Fees.

          (a) The  Company  shall pay to counsel to the  Subscriber  its fees of
     $15,000  for  services  rendered  to  Subscriber  in  connection  with this
     Agreement for the  Subscription  amount of $235,000 of principal  amount of
     Notes (the "Initial  Offering")  and acting as escrow agent for the Initial
     Offering.  The Company will pay to Libra  Finance,  S.A.  ("Finder") a cash
     Finder's fee of $20,000  ("Finder's  Fee"). The legal fees and Finder's Fee
     will be payable out of funds held  pursuant to a Funds Escrow  Agreement to
     be entered into by the Company, Subscriber and Escrow Agent.

          (b) The Company on the one hand, and the Subscriber on the other hand,
     agree to indemnify the other  against and hold the other  harmless from any
     and all  liabilities  to any

                                       10
<PAGE>

     persons  claiming  brokerage  commissions or finder's fees other than Libra
     Finance,  S.A. on account of services  purported  to have been  rendered on
     behalf of the  indemnifying  party in connection with this Agreement or the
     transactions  contemplated  hereby and arising out of such party's actions.
     The  Company  and  Subscriber  represent  that  there are no other  parties
     entitled to receive fees,  commissions,  or similar  payments in connection
     with the offering described in this Subscription Agreement.

     7.  Covenants of the  Company.  The Company  covenants  and agrees with the
Subscriber as follows:  a) Stop Orders.  The Company will advise the Subscriber,
promptly  after it  receives  notice of issuance  by the  Commission,  any state
securities  commission or any other regulatory authority of any stop order or of
any order  preventing  or  suspending  any  offering  of any  securities  of the
Company,  or of the suspension of the  qualification  of the Common Stock of the
Company  for  offering or sale in any  jurisdiction,  or the  initiation  of any
proceeding for any such purpose.

          (b)  Listing.  The Company  shall  promptly  secure the listing of the
     Shares upon each  national  securities  exchange,  or  automated  quotation
     system,  if any, upon which shares of Common Stock are then listed (subject
     to official  notice of issuance) and shall maintain such listing so long as
     any Notes are  outstanding.  The Company  will  maintain the listing of its
     Common Stock on the NASDAQ SmallCap Market,  NASDAQ National Market System,
     New  York  Stock  Exchange,  Bulletin  Board  or  American  Stock  Exchange
     (whichever of the foregoing is at the time the principal  trading  exchange
     or market for the Common Stock, the "Principal Market"), and will comply in
     all respects with the  Company's  reporting,  filing and other  obligations
     under the bylaws or rules of the NASD and such other  exchanges or markets,
     as  applicable.  The  Company  will  provide the  Subscriber  copies of all
     notices it  receives  notifying  the  Company of the  threatened  or actual
     delisting  of the  Common  Stock from any  Principal  Market  provided  the
     provisions  of such  information  to the  Subscriber  would not violate the
     provisions of Regulation FD under the 1933 Act.

          (c) Market  Regulations.  The Company shall notify the SEC,  NASD, the
     Principal Market and applicable state authorities, in accordance with their
     requirements,  if any, of the transactions  contemplated by this Agreement,
     and  shall  take all  other  necessary  action  and  proceedings  as may be
     required and permitted by  applicable  law,  rule and  regulation,  for the
     legal and valid  issuance of the  Securities to the Subscriber and promptly
     provide copies thereof to Subscriber.

          (d) Reporting  Requirements.  From the Closing Date and until at least
     two (2) years after the effectiveness of the registration statement on Form
     S-1 or such other registration  statement  described in Section 10.1 hereof
     and covering the  Registrable  Securities (as defined in Paragraph  10.1(a)
     hereof),  the  Company  will (i) cause its Common  Stock to  continue to be
     registered  under  Sections  12(b) or 12(g) of the 1934 Act, (ii) comply in
     all respects with its reporting and filing  obligations under the 1934 Act,
     (iii)  comply with all  reporting  requirements  that is  applicable  to an
     issuer with a class of Shares  registered  pursuant to Section 12(g) of the
     1934 Act, and (iv) comply with all requirements related to any registration
     statement filed pursuant to this  Agreement.  The Company will use its best
     efforts  not to take  any  action  or file  any  document  (whether  or not
     permitted  by the  1933 Act or the 1934  Act or the  rules  thereunder)  to
     terminate  or suspend  such  registration  or to  terminate  or suspend its
     reporting and filing obligations under said Acts until the

                                       11
<PAGE>

     later of two (2) years after the actual  effective date of the registration
     statement  on Form S-1 or such other  registration  statement  described in
     Section 10.1 hereof and covering the Registrable Securities.

          (e)  Reservation  of Common  Stock.  Beginning  as of such time as the
     Company  has  authorized  but  unissued  shares of Common  Stock  available
     therefor  (but in no event later than the earlier of (i) three months after
     the  Company's  current  S-1  registration  statement  under  review by the
     Commission   with  file  number   333-60574   (the  "Current   Registration
     Statement")  becomes effective or is abandoned or (ii) April 10, 2004), the
     Company undertakes to reserve, pro rata on behalf of each holder of a Note,
     from its  authorized  but unissued  Common  Stock,  at all times that Notes
     remain  outstanding,  a number of Common Shares equal to not less than 130%
     of the amount of Common  Shares  necessary  to allow each such holder to be
     able  to  convert  all  such  outstanding  Notes,  at the  then  applicable
     Conversion Price.

          (f) Taxes. The Company will promptly pay and discharge, or cause to be
     paid and discharged,  when due and payable,  all lawful taxes,  assessments
     and  governmental  charges  or levies  imposed  upon the  income,  profits,
     property or business of the Company; provided,  however, that any such tax,
     assessment,  charge or levy need not be paid if the validity  thereof shall
     currently be contested in good faith by appropriate  proceedings and if the
     Company  shall have set aside on its books  adequate  reserves with respect
     thereto, and provided,  further,  that the Company will pay all such taxes,
     assessments,   charges  or  levies   forthwith  upon  the  commencement  of
     proceedings  to  foreclose  any lien which may have  attached  as  security
     therefor.

          (g)  Insurance.  The  Company  will  keep its  assets  which are of an
     insurable  character  insured by financially  sound and reputable  insurers
     against  loss or damage by fire,  explosion  and  other  risks  customarily
     insured against by companies in the Company's line of business,  in amounts
     sufficient to prevent the Company from becoming a co-insurer and not in any
     event less than 100% of the insurable  value of the property  insured;  and
     the Company will maintain,  with financially sound and reputable  insurers,
     insurance  against  other  hazards and risks and  liability  to persons and
     property to the extent and in the manner customary for companies in similar
     businesses  similarly  situated and to the extent available on commercially
     reasonable terms.

          (h) Books and Records. The Company will keep true records and books of
     account  in  which  full,  true  and  correct  entries  will be made of all
     dealings  or  transactions  in  relation  to its  business  and  affairs in
     accordance  with  generally  accepted  accounting  principles  applied on a
     consistent basis.

          (i)  Governmental  Authorities.  The  Company  shall duly  observe and
     conform in all material respects to all valid  requirements of governmental
     authorities relating to the conduct of its business or to its properties or
     assets.

          (j)  Intellectual  Property.  The Company shall maintain in full force
     and effect its corporate existence,  rights and franchises and all licenses
     and other rights to use intellectual  property owned or possessed by it and
     reasonably deemed to be necessary to the conduct of its business.

                                       12
<PAGE>

          (k)  Properties.  The Company will keep its properties in good repair,
     working order and condition,  reasonable  wear and tear excepted,  and from
     time to time make all needful and proper repairs,  renewals,  replacements,
     additions  and  improvements  thereto;  and the  Company  will at all times
     comply with each  provision  of all leases to which it is a party and under
     which it occupies property if the breach of such provision could reasonably
     be expected to have a material adverse effect.

          (l) Confidentiality. The Company agrees that it will not disclose, and
     will not include in any public  announcement,  the name of any  Subscriber,
     unless  expressly  agreed to by such  Subscriber  or unless  and until such
     disclosure  is required by law or applicable  regulation,  and then only to
     the extent of such requirement.

          (m) Use of Proceeds. The Company undertakes to use the proceeds of the
     Subscriber's funds for working capital. The Purchase Price may not and will
     not be used on behalf of the  Company  for  accrued  officer  and  director
     salaries, payment of financing related debt (except for debt of the Company
     or its  affiliates  to  Subscriber  or its  affiliates  or to Finder or its
     affiliates),   redemption  of  outstanding   redeemable   notes  or  equity
     instruments  of the Company nor non-trade  obligations  outstanding  on the
     Closing Date.

     8. Covenants of the Company and Subscriber Regarding Indemnification.

     8.1  Company  Indemnification.   The  Company  agrees  to  indemnify,  hold
harmless,  reimburse and defend Subscriber,  Subscriber's  officers,  directors,
agents,  affiliates,  control persons, and principal  shareholders,  against any
claim,  cost,  expense,   liability,   obligation,  loss  or  damage  (including
reasonable legal fees) of any nature,  incurred by or imposed upon Subscriber or
any such person which  results,  arises out of or is based upon (i) any material
misrepresentation  by  Company  or breach of any  warranty  by  Company  in this
Agreement or in any Exhibits or Schedules  attached  hereto,  or other agreement
delivered by the Company  pursuant hereto;  or (ii) after any applicable  notice
and/or cure periods,  any breach or default in performance by the Company of any
covenant or undertaking to be performed by the Company  hereunder,  or any other
agreement entered into by the Company and Subscriber relating hereto.

     8.2  Subscriber  Indemnification.  Subscriber  agrees  to  indemnify,  hold
harmless,  reimburse and defend the Company and each of the Company's  officers,
directors, agents, affiliates, control persons against any claim, cost, expense,
liability,  obligation,  loss or damage (including reasonable legal fees) of any
nature,  incurred  by or  imposed  upon the  Company  or any such  person  which
results,  arises out of or is based upon (i) any material  misrepresentation  by
Subscriber in this Agreement or in any Exhibits or Schedules attached hereto, or
other  agreement  delivered by  Subscriber  pursuant  hereto;  or (ii) after any
applicable  notice and/or cure periods,  any breach or default in performance by
Subscriber  of  any  covenant  or  undertaking  to be  performed  by  Subscriber
hereunder,  or any other  agreement  entered into by the Company and  Subscriber
relating hereto.

     8.3  Procedures.  The procedures and  limitations set forth in Section 10.6
shall apply to the indemnifications set forth in Sections 8.1 and 8.2 above.

     9.1. Conversion of Note.

                                       13
<PAGE>

          (a)  Upon the  conversion  of the Note or part  thereof,  the  Company
     shall, at its own cost and expense,  take all necessary  action  (including
     the  issuance  of an  opinion  of  counsel)  to assure  that the  Company's
     transfer agent shall issue stock certificates in the name of Subscriber (or
     its nominee) or such other persons as designated by Subscriber  and in such
     denominations  to be specified  at  conversion  representing  the number of
     shares of common stock issuable upon such conversion.  The Company warrants
     that no  instructions  other than these  instructions  have been or will be
     given to the  transfer  agent of the  Company's  Common  Stock and that the
     Shares will be unlegended,  free-trading, and freely transferable, and will
     not  contain a legend  restricting  the  resale or  transferability  of the
     Company Shares  provided the Shares are being sold pursuant to an effective
     registration  statement  covering  the  Shares to be sold or are  otherwise
     exempt from  registration when sold as stated in an opinion of counsel from
     counsel reasonably satisfactory to the Company and Subscriber complies with
     prospectus delivery requirements.

          (b) Subscriber  will give notice of its decision to exercise its right
     to  convert  the  Note or part  thereof  by  telecopying  an  executed  and
     completed  Notice of Conversion (as defined in the Note) to the Company via
     confirmed telecopier  transmission.  The Subscriber will not be required to
     surrender  the Note until the Note has been fully  converted or  satisfied.
     Each date on which a Notice of  Conversion  is telecopied to the Company in
     accordance  with the  provisions  hereof  shall be a Conversion  Date.  The
     Company will or cause the transfer  agent to transmit the Company's  Common
     Stock certificates  representing the Shares issuable upon conversion of the
     Note to the Subscriber via express  courier for receipt by such  Subscriber
     within five (5) business days after receipt by the Company of the Notice of
     Conversion (the "Delivery  Date").  A Note  representing the balance of the
     Note not so converted will be provided to the  Subscriber,  if requested by
     Subscriber  provided an original  Note is delivered to the Company.  To the
     extent that a Subscriber elects not to surrender a Note for reissuance upon
     partial  payment or  conversion,  the  Subscriber  hereby  indemnifies  the
     Company  against any and all loss or damage  attributable  to a third-party
     claim in an amount in excess of the actual amount then due under the Note.

          (c) The Company understands that a delay in the delivery of the Shares
     in the form  required  pursuant  to  Section  9  hereof,  or the  Mandatory
     Redemption Amount described in Section 9.2 hereof, beyond the Delivery Date
     or Mandatory  Redemption Payment Date (as hereinafter defined) could result
     in economic loss to the  Subscriber.  As compensation to the Subscriber for
     such loss,  the Company  agrees to pay late payments to the  Subscriber for
     late issuance of Shares in the form  required  pursuant to Section 9 hereof
     upon  Conversion  of the Note or late payment of the  Mandatory  Redemption
     Amount,  in the amount of $100 per business day after the Delivery  Date or
     Mandatory  Redemption Payment Date, as the case may be, for each $10,000 of
     Note principal  amount being  converted or redeemed.  The Company shall pay
     any payments  incurred  under this Section in immediately  available  funds
     upon demand.  Furthermore,  in addition to any other  remedies which may be
     available to the  Subscriber,  in the event that the Company  fails for any
     reason to  effect  delivery  of the  Shares  by the  Delivery  Date or make
     payment by the Mandatory  Redemption  Payment Date, the Subscriber  will be
     entitled  to revoke all or part of the  relevant  Notice of  Conversion  or
     rescind all or part of the notice of Mandatory  Redemption by delivery of a
     notice  to  such  effect  to the  Company  whereupon  the  Company  and the
     Subscriber shall each be restored to their respective positions immediately
     prior to the  delivery of such  notice,  except that late  payment

                                       14
<PAGE>

     charges  described  above  shall be  payable  through  the date  notice  of
     revocation or rescission is given to the Company.

          (d) Nothing  contained herein or in any document referred to herein or
     delivered in  connection  herewith  shall be deemed to establish or require
     the payment of a rate of interest or other charges in excess of the maximum
     permitted  by  applicable  law.  In the event that the rate of  interest or
     dividends required to be paid or other charges hereunder exceed the maximum
     permitted  by such law,  any  payments in excess of such  maximum  shall be
     credited  against  amounts owed by the Company to the  Subscriber  and thus
     refunded to the Company.

          (e) In the event the Shares issuable upon Conversion of a Note or part
     thereof are not included for resale in an effective  registration statement
     at any time when such Shares are required to be so included pursuant to the
     terms of this Agreement, then the Subscriber may elect, at the Subscriber's
     sole  discretion,  to receive an amount of  restricted  Shares equal to the
     amount of Shares otherwise receivable upon Conversion in lieu of the Shares
     otherwise receivable pursuant to the relevant Notice of Conversion.

     9.2.  Mandatory  Redemption  at  Subscriber's  Election.  In the  event the
Company is prohibited from issuing Shares,  or fails to timely deliver Shares on
a Delivery  Date,  or upon the  occurrence  of any other  Event of  Default  (as
defined in the Note) or for any reason  other than  pursuant to the  limitations
set forth in Section 9.3 hereof, then at the Subscriber's  election, the Company
must  pay  to the  Subscriber  ten  (10)  business  days  after  request  by the
Subscriber  or on the Delivery  Date (if  requested by the  Subscriber) a sum of
money  determined by (i) multiplying up to the outstanding  principal  amount of
the Note designated by the Subscriber by 120%, or (ii) multiplying the number of
Shares  otherwise  deliverable  upon  conversion of an amount of Note  principal
designated by the Subscriber (with the date of giving of such designation  being
a Deemed  Conversion  Date) at the then Conversion Price that would be in effect
on the Deemed  Conversion  Date by the highest closing price of the Common Stock
on the principal  market from the Deemed  Conversion Date until the day prior to
the receipt by the Subscriber of the Mandatory Redemption Payment,  whichever is
greater,   together  with  accrued  but  unpaid  interest  thereon   ("Mandatory
Redemption  Payment").  The Mandatory Redemption Payment must be received by the
Subscriber on the same date as the Shares  otherwise  deliverable  or within ten
(10) business days after  request,  whichever is sooner  ("Mandatory  Redemption
Payment  Date").  Upon  receipt  of  the  Mandatory   Redemption  Payment,   the
corresponding  Note  principal  and  interest  will be deemed paid and no longer
outstanding.

     9.3. Maximum Conversion. The Subscriber shall not be entitled to convert on
a  Conversion  Date that  amount of the Note in  connection  with that number of
shares of Common  Stock which would be in excess of the sum of (i) the number of
shares of Common Stock  beneficially  owned by the Subscriber and its affiliates
on a Conversion  Date,  and (ii) the number of shares of Common  Stock  issuable
upon the conversion of the Note with respect to which the  determination of this
provision is being made on a Conversion  Date,  which would result in beneficial
ownership  by the  Subscriber  and its  affiliates  of more  than  9.99%  of the
outstanding  shares of Common Stock of the Company on such Conversion  Date. For
the purposes of the provision to the immediately preceding sentence,  beneficial
ownership  shall be determined in accordance  with Section 13(d) of the 1934 Act
and Regulation 13d-3 thereunder.  Subject to the foregoing, the Subscriber shall
not be limited to aggregate  conversions of only 9.99% and aggregate  conversion
by

                                       15
<PAGE>

the  Subscriber may exceed 9.99%.  The  Subscriber  shall have the authority and
obligation to determine  whether the  restriction  contained in this Section 9.3
will  limit any  conversion  hereunder  and to the  extent  that the  Subscriber
determines  that  the  limitation   contained  in  this  Section  applies,   the
determination  of  which  portion  of the  Notes  are  convertible  shall be the
responsibility  and  obligation of the  Subscriber.  The Subscriber may void the
conversion  limitation  described in this Section 9.3 upon 75 days prior written
notice to the Company.  The  Subscriber  may allocate which of the equity of the
Company deemed  beneficially  owned by the  Subscriber  shall be included in the
9.99%  amount  described  above and which shall be allocated to the excess above
9.99%.

     9.4. Injunction - Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof,  the Company may not refuse  conversion based on
any claim that such  Subscriber or any one  associated  or affiliated  with such
Subscriber  has been engaged in any  violation of law, or for any other  reason,
unless,  an injunction  from a court,  on notice,  restraining  and or enjoining
conversion  of all or part of said Note shall have been sought and  obtained and
the Company posts a surety bond for the benefit of such Subscriber in the amount
of 130% of the amount of the Note,  which is subject  to the  injunction,  which
bond shall remain in effect until the  completion of  arbitration/litigation  of
the dispute and the proceeds of which shall be payable to such Subscriber to the
extent Subscriber obtains judgment.

     9.5.  Buy-In.  In addition to any other rights available to the Subscriber,
if the Company  fails to deliver the Shares to the  Subscriber  by the  Delivery
Date and if ten (10) days after the Delivery Date the  Subscriber or a broker on
behalf of the Subscriber, purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in  satisfaction  of a sale by such Subscriber
of the Shares which the Subscriber anticipated receiving upon such conversion (a
"Buy-In"),  then the Company shall pay in cash to the Subscriber (in addition to
any remedies  available to or elected by the Subscriber) the amount by which (A)
the Subscriber's total purchase price (including brokerage commissions,  if any)
for the shares of Common Stock so purchased exceeds (B) the aggregate  principal
and/or  interest  amount of the Note for which  such  conversion  was not timely
honored,  together  with interest  thereon at a rate of 15% per annum,  accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty).  For example,  if the
Subscriber  purchases  shares of Common Stock having a total  purchase  price of
$11,000 to cover a Buy-In with respect to an attempted  conversion of $10,000 of
note  principal  and/or  interest,  the  Company  shall be  required  to pay the
Subscriber  $1,000,  plus  interest.  The  Subscriber  shall provide the Company
written notice  indicating  the amounts  payable to the Subscriber in respect of
the Buy-In.

     9.6  Adjustments.  The Conversion  Price and amount of Shares issuable upon
Conversion  of the Notes shall be adjusted to offset the effect of stock splits,
stock dividends and pro rata  distributions  of property or equity  interests to
the Company's shareholders.

     9.7 Redemption. The Company may redeem or call the Note without the consent
of the holder of the Note.

     10. Registration Rights.

                                       16
<PAGE>

     10.1.  Registration Rights Granted. The Company hereby grants the following
registration rights to holders of the Securities.

          (a) On one  occasion,  for a period  commencing on the Filing Date (as
     defined in Paragraph  10(c)  hereof),  but not later than three years after
     the Closing Date,  the Company,  upon a written  request  therefor from any
     record holder or holders of more than 50% of the aggregate of the Company's
     Shares  actually issued and issuable upon Conversion of the Notes issued in
     the Initial  Offering (the Common Stock issued or issuable upon  conversion
     of the Notes or issuable  by virtue of  ownership  of the Notes,  being the
     "Registrable   Securities"),   shall  prepare  and  file  with  the  SEC  a
     registration   statement  under  the  1933  Act  covering  the  Registrable
     Securities  which are the subject of such request,  unless such Registrable
     Securities  are the  subject  of an  effective  registration  statement  or
     included for registration in a pending registration statement. In addition,
     upon the receipt of such request,  the Company shall  promptly give written
     notice to all other record holders of the Registrable  Securities that such
     registration   statement  is  to  be  filed  and  shall   include  in  such
     registration  statement  Registrable  Securities  for which it has received
     written  requests  within 10 days  after the  Company  gives  such  written
     notice.  Such  other  requesting  record  holders  shall be  deemed to have
     exercised their demand  registration right under this Section 10.1(a). As a
     condition precedent to the inclusion of Registrable Securities,  the holder
     thereof  shall  provide the Company  with such  information  as the Company
     reasonably  requests.  The  obligation  of the Company  under this  Section
     10.1(a) shall be limited to one registration statement.

          (b) If the  Company  at  any  time  proposes  to  register  any of its
     securities  under the 1933 Act for sale to the public,  whether for its own
     account or for the account of other security  holders or both,  except with
     respect to  registration  statements  on Forms S-4, S-8 or another form not
     available  for  registering  the  Registrable  Securities  for  sale to the
     public,  provided the Registrable  Securities are not otherwise  registered
     for  resale  by  the   Subscriber  or  holder   pursuant  to  an  effective
     registration  statement and provided the registration  statement triggering
     Subscriber's  rights  under this  Paragraph  10.1(b) is not (i) the Current
     Registration  Statement,  (ii) a  registration  statement  to be  filed  to
     register  shares of Common Stock of the Company into which shares of Series
     H preferred stock of the Company are convertible  (including any associated
     required  additional  reserve) in connection with the  Registration  Rights
     Agreement  dated as of June 21, 2002,  between the Company and Crammer Road
     LLC  ("Crammer") or (iii) a registration  statement to be filed to register
     shares of Common Stock of the Company  registered  in  connection  with the
     Registration  Rights  Agreement,  dated as of July 25,  2002,  between  the
     Company and Crammer (such three registration statements  collectively,  the
     "Other Registration  Statements"),  each such time it will give at least 25
     days'  prior  written  notice  to the  record  holder  of  the  Registrable
     Securities  of its  intention  so to do.  Upon the  written  request of the
     holder, received by the Company within 15 days after the giving of any such
     notice by the Company, to register any of the Registrable  Securities,  the
     Company will cause such  Registrable  Securities  as to which  registration
     shall have been so  requested  to be  included  with the  securities  to be
     covered by the registration  statement proposed to be filed by the Company,
     all to the extent  required to permit the sale or other  disposition of the
     Registrable  Securities  so  registered  by the holder of such  Registrable
     Securities (the "Seller").  In the event that any registration  pursuant to
     this Section 10.1(b) shall be, in whole or in part, an underwritten  public
     offering  of  common  stock  of  the  Company,  the  number  of  shares  of
     Registrable  Securities  to be  included  in  such an  underwriting  may be
     reduced by the managing  underwriter  if and to the extent that the Company
     and the underwriter  shall reasonably be of the opinion that such inclusion
     would  adversely  affect the marketing of the  securities to be sold by the
     Company  therein;  provided,

                                       17
<PAGE>

     however,  that the Company  shall  notify the Seller in writing of any such
     reduction.  Notwithstanding  the  foregoing  provisions,  or  Section  10.4
     hereof,  the  Company  may  withdraw  or  delay  or  suffer  a delay of any
     registration  statement referred to in this Section 10.1(b) without thereby
     incurring any liability to the Seller.

          (c) The  Company  shall  file  with  the  Commission  not  later  than
     forty-five  (45)  days  after  the  latest  of  the   effectiveness  of  or
     abandonment of or failure to pursue with commercially  reasonable diligence
     the declaration of effectiveness of the Other  Registration  Statements (as
     applicable,  the "Filing Date"), and use its reasonable  commercial efforts
     to cause to be declared  effective a Form S-1  registration  statement  (or
     such  other  form  that it is  eligible  to use) in order to  register  the
     Registrable  Securities for resale and distribution under the 1933 Act. The
     registration statement described in this Paragraph 10.1(c) and covering the
     Registrable  Securities  must be declared  effective by the  Commission one
     hundred and fifty days (150) after the Filing Date ("Effective  Date"). The
     Company  will  register not less than a number of shares of Common Stock in
     the  aforedescribed  registration  statement  that is  equal to 140% of the
     Shares  issuable  at the  Conversion  Price  that would be in effect on the
     Closing  Date  or  the  date  of  filing  of  such  registration  statement
     (employing the Conversion Price which would result in the greater number of
     Shares), assuming the conversion of 100% of the Notes. Subject to Paragraph
     7(e) hereof,  the  Registrable  Securities  shall be reserved and set aside
     exclusively for the benefit of the Subscriber,  and not issued, employed or
     reserved for anyone other than the Subscriber.  Such registration statement
     will immediately be amended or additional  registration  statements will be
     immediately filed by the Company as necessary to register additional Shares
     to allow the public resale of all Common Stock  included in and issuable by
     virtue of the Registrable Securities.

     10.2. Registration  Procedures.  If and whenever the Company is required by
the provisions  hereof to effect the  registration  of any shares of Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:

          (a) prepare and file with the Commission a registration statement with
     respect  to  such  securities  and use  its  best  efforts  to  cause  such
     registration statement to become and remain effective for the period of the
     distribution  contemplated  thereby  (determined as herein  provided),  and
     promptly  provide to the  holders  of  Registrable  Securities  ("Sellers")
     copies of all filings and Commission letters of comment;

          (b)  prepare  and  file  with  the  Commission   such  amendments  and
     supplements  to such  registration  statement  and the  prospectus  used in
     connection  therewith  as  may  be  necessary  to  keep  such  registration
     statement  effective until the latest of: (i) twenty-four  months after the
     latest  Maturity  Date of a Note;  (ii) until  twelve  months after all the
     Shares are eligible for resale  pursuant to Rule 144(k) of the 1933 Act; or
     (iii) until such registration  statement has been effective for a period of
     not less than 365 days, and comply with the provisions of the 1933 Act with
     respect to the disposition of all of the Registrable  Securities covered by
     such registration statement in accordance with the Seller's intended method
     of disposition set forth in such registration statement for such period;

                                       18
<PAGE>

          (c) furnish to the Seller,  such number of copies of the  registration
     statement and the prospectus  included therein  (including each preliminary
     prospectus)  as such persons  reasonably may request in order to facilitate
     the public  sale or their  disposition  of the  securities  covered by such
     registration statement;

          (d)  use  its  best  efforts  to  register  or  qualify  the  Seller's
     Registrable  Securities  covered by such  registration  statement under the
     securities  or  "blue  sky"  laws  of  such  jurisdictions  as the  Seller,
     provided,  however,  that the  Company  shall not for any such  purpose  be
     required to qualify generally to transact business as a foreign corporation
     in any  jurisdiction  where it is not so qualified or to consent to general
     service of process in any such jurisdiction;

          (e) list  the  Registrable  Securities  covered  by such  registration
     statement  with any  securities  exchange on which the Common  Stock of the
     Company is then listed;

          (f) immediately  notify the Seller when a prospectus  relating thereto
     is required to be  delivered  under the 1933 Act, of the  happening  of any
     event of  which  the  Company  has  knowledge  as a  result  of  which  the
     prospectus  contained in such  registration  statement,  as then in effect,
     includes  an  untrue  statement  of a  material  fact or  omits  to state a
     material  fact  required  to be stated  therein  or  necessary  to make the
     statements  therein  not  misleading  in  light of the  circumstances  then
     existing;

          (g) make  available for  inspection  by the Seller,  and any attorney,
     accountant  or other  agent  retained  by the  Seller or  underwriter,  all
     publicly available, non-confidential financial and other records, pertinent
     corporate documents and properties of the Company,  and cause the Company's
     officers,  directors  and  employees  to  supply  all  publicly  available,
     non-confidential  information reasonably requested by the seller, attorney,
     accountant or agent in connection with such registration statement.

     10.3.  Provision  of  Documents.  At the request of the Seller,  provided a
demand for  registration  has been made pursuant to Section 10.1(a) or a request
for  registration  has been made pursuant to Section  10.1(b),  the  Registrable
Securities  will be included in a registration  statement filed pursuant to this
Section 10. In  connection  with each  registration  hereunder,  the Seller will
furnish to the Company in writing such  information and  representation  letters
with respect to itself and the proposed  distribution by it as reasonably  shall
be necessary in order to assure  compliance  with federal and  applicable  state
securities  laws.  In  connection  with each  registration  pursuant  to Section
10.1(a) or 10.1(b) covering an underwritten public offering, the Company and the
Seller agree to enter into a written agreement with the managing  underwriter in
such form and  containing  such  provisions as are  customary in the  securities
business for such an arrangement  between such  underwriter and companies of the
Company's size and investment stature.

     10.4.  Non-Registration  Events.  The Company and the Subscriber agree that
the Seller  will  suffer  damages if any  registration  statement  covering  the
Registrable  Securities and required  under Section  10.1(a) or 10.1(b) above is
not filed  within 30 days after  written  request by the Seller and not declared
effective  by the  Commission  within 90 days after such  request (or the Filing
Date  and  Effective  Date,  respectively,  in  reference  to  the  Registration
Statement  on Form S-1 or such other form  described  in Section  10.1(c)),  and
maintained in the manner and within the time periods  contemplated by Section 10
hereof,  and it would not be feasible to  ascertain  the extent of

                                       19
<PAGE>

such damages with  precision.  Accordingly,  if (i) the  Registration  Statement
described in Section 10.1(a) or 10.1(b) and covering the Registrable  Securities
is not  filed  within  30 days  of  such  written  request,  or is not  declared
effective by the  Commission  on or prior to the date that is 90 days after such
request,  or (ii) the  registration  statement  on Form S-1 or such  other  form
described  in Section  10.1(c) and covering the  Registrable  Securities  is not
filed on or before the Filing Date or not  declared  effective  on or before the
sooner of the  Effective  Date,  or within ten  business  days of receipt by the
Company  of a  written  or oral  communication  from  the  Commission  that  the
registration  statement  described in Section  10.1(c) will not be reviewed,  or
(iii) any  registration  statement  described  in  Section  10.1(a),  10.1(b) or
10.1(c) and covering the Registrable  Securities is filed and declared effective
but shall thereafter cease to be effective (without being succeeded  immediately
by an additional  registration  statement  filed and declared  effective)  for a
period of time which shall exceed 30 days in the aggregate per year but not more
than 20 consecutive  calendar days ("year" being defined as a period of 365 days
commencing on the date the Registration  Statement is declared  effective) (each
such event  referred to in clauses  (i),  (ii) and (iii) of this Section 10.4 is
referred to herein as a  "Non-Registration  Event"),  then,  for so long as such
Non-Registration   Event  shall   continue,   the  Company  shall  pay,  at  the
Subscriber's  option,  in cash or stock at the applicable  Conversion  Price, as
Liquidated Damages to each holder of any Registrable  Securities an amount equal
to two (2%)  percent  per month or pro rata part  thereof for each month or part
thereof  thereafter during the pendency of such  Non-Registration  Event, of the
principal of the Notes issued in the Initial Offering and principal and interest
of the Notes  converted  into  Shares,  then  owned of record by such  holder or
issuable as of or subsequent to the occurrence of such  Non-Registration  Event.
Payments  to be made  pursuant  to this  Section  10.4 shall be due and  payable
within ten (10) business days after demand in immediately  available  funds.  In
the event a Mandatory  Redemption Payment is demanded by the Subscriber pursuant
to Section  9.2 of this  Subscription  Agreement,  then the  Liquidated  Damages
described  in this  Section  10.4 shall no longer  accrue on the  portion of the
Purchase Price underlying the Mandatory  Redemption Payment,  from and after the
date the Subscriber receives the Mandatory  Redemption Payment. It shall also be
deemed a Non-Registration  Event if at any time a Note is outstanding,  there is
less than 120% of the amount of Common Shares necessary to allow full conversion
of such Note at the then applicable Conversion Price registered for unrestricted
resale in an effective registration statement.

     10.5.  Expenses.  All expenses  incurred by the Company in  complying  with
Section 10,  including,  without  limitation,  all registration and filing fees,
printing  expenses,  fees and  disbursements  of counsel and independent  public
accountants for the Company,  fees and expenses  (including  reasonable  counsel
fees) incurred in connection with complying with state  securities or "blue sky"
laws, fees of the NASD,  transfer taxes, fees of transfer agents and registrars,
and costs of insurance  are called  "Registration  Expenses".  All  underwriting
discounts  and  selling  commissions  applicable  to  the  sale  of  Registrable
Securities,  including any fees and  disbursements of any special counsel to the
Seller, are called "Selling Expenses".  The Seller shall pay the fees of its own
additional  counsel,  if any. The Company will pay all Registration  Expenses in
connection  with the  registration  statement  under  Section  10.  All  Selling
Expenses in connection with each  registration  statement under Section 10 shall
be borne by the Seller and may be apportioned among the Sellers in proportion to
the number of shares  sold by the Seller  relative  to the number of shares sold
under such registration statement or as all Sellers thereunder may agree.

                                       20
<PAGE>

     10.6. Indemnification and Contribution.

          (a) In the event of a registration of any Registrable Securities under
     the 1933 Act  pursuant to Section 10, the Company will  indemnify  and hold
     harmless  the  Seller,  each  officer of the Seller,  each  director of the
     Seller, each underwriter of such Registrable Securities thereunder and each
     other person,  if any, who controls such Seller or  underwriter  within the
     meaning  of  the  1933  Act,  against  any  losses,   claims,   damages  or
     liabilities,  joint or several, to which the Seller, or such underwriter or
     controlling  person may  become  subject  under the 1933 Act or  otherwise,
     insofar as such  losses,  claims,  damages or  liabilities  (or  actions in
     respect  thereof)  arise out of or are based upon any untrue  statement  or
     alleged untrue statement of any material fact contained in any registration
     statement under which such Registrable  Securities was registered under the
     1933 Act  pursuant  to Section  10,  any  preliminary  prospectus  or final
     prospectus  contained therein,  or any amendment or supplement  thereof, or
     arise out of or are based upon the  omission  or alleged  omission to state
     therein a material fact required to be stated  therein or necessary to make
     the statements  therein not misleading in light of the  circumstances  when
     made, and will subject to the provisions of Section  10.6(c)  reimburse the
     Seller,  each such  underwriter  and each such  controlling  person for any
     legal or other  expenses  reasonably  incurred by them in  connection  with
     investigating  or  defending  any such loss,  claim,  damage,  liability or
     action;  provided,  however,  that the  Company  shall not be liable to the
     Seller to the extent that any such  damages  arise out of or are based upon
     an untrue  statement or omission made in any preliminary  prospectus if (i)
     the  Seller  failed  to send or  deliver  a copy  of the  final  prospectus
     delivered  by the  Company to the Seller  with or prior to the  delivery of
     written  confirmation of the sale by the Seller to the person asserting the
     claim from which such damages arise,  (ii) the final  prospectus would have
     corrected  such  untrue  statement  or  alleged  untrue  statement  or such
     omission  or alleged  omission,  or (iii) to the extent that any such loss,
     claim,  damage  or  liability  arises  out of or is  based  upon an  untrue
     statement or alleged  untrue  statement or omission or alleged  omission so
     made in conformity with  information  furnished by any such Seller,  or any
     such   controlling   person  in  writing   specifically  for  use  in  such
     registration statement or prospectus.

          (b)  In  the  event  of a  registration  of  any  of  the  Registrable
     Securities  under the 1933 Act  pursuant  to Section  10,  the Seller  will
     indemnify  and hold  harmless  the Company,  and each  person,  if any, who
     controls  the Company  within the meaning of the 1933 Act,  each officer of
     the  Company who signs the  registration  statement,  each  director of the
     Company,  each  underwriter  and each person who controls  any  underwriter
     within the meaning of the 1933 Act, against all losses,  claims, damages or
     liabilities,  joint or  several,  to which  the  Company  or such  officer,
     director,  underwriter or  controlling  person may become subject under the
     1933  Act  or  otherwise,  insofar  as  such  losses,  claims,  damages  or
     liabilities (or actions in respect  thereof) arise out of or are based upon
     any untrue  statement or alleged  untrue  statement  of any  material  fact
     contained  in the  registration  statement  under  which  such  Registrable
     Securities were  registered  under the 1933 Act pursuant to Section 10, any
     preliminary  prospectus  or  final  prospectus  contained  therein,  or any
     amendment  or  supplement  thereof,  or arise out of or are based  upon the
     omission or alleged  omission to state  therein a material fact required to
     be  stated  therein  or  necessary  to  make  the  statements  therein  not
     misleading, and will reimburse the Company and each such officer, director,
     underwriter  and  controlling  person  for  any  legal  or  other  expenses
     reasonably  incurred by them in connection with  investigating or defending
     any such loss, claim, damage, liability or action, provided,  however, that
     the  Seller  will be liable  hereunder  in any such case if and only to the
     extent that any such loss,  claim,  damage or liability arises out of or is
     based upon an untrue  statement or alleged untrue

                                       21
<PAGE>

     statement  or omission  or alleged  omission  made in reliance  upon and in
     conformity with information  pertaining to such Seller, as such,  furnished
     in  writing  to the  Company by such  Seller  specifically  for use in such
     registration statement or prospectus, and provided,  further, however, that
     the  liability  of the  Seller  hereunder  shall be  limited  to the  gross
     proceeds  received  by the Seller from the sale of  Registrable  Securities
     covered by such registration statement.

          (c) Promptly after receipt by an indemnified party hereunder of notice
     of the commencement of any action, such indemnified party shall, if a claim
     in respect thereof is to be made against the indemnifying  party hereunder,
     notify the indemnifying  party in writing  thereof,  but the omission so to
     notify the indemnifying party shall not relieve it from any liability which
     it may have to such indemnified party other than under this Section 10.6(c)
     and shall  only  relieve  it from any  liability  which it may have to such
     indemnified party under this Section 10.6(c), except and only if and to the
     extent the indemnifying  party is prejudiced by such omission.  In case any
     such action  shall be brought  against any  indemnified  party and it shall
     notify the indemnifying party of the commencement thereof, the indemnifying
     party shall be entitled to participate in and, to the extent it shall wish,
     to assume and undertake the defense  thereof with counsel  satisfactory  to
     such indemnified  party,  and, after notice from the indemnifying  party to
     such  indemnified  party of its  election  so to assume and  undertake  the
     defense  thereof,  the  indemnifying  party  shall  not be  liable  to such
     indemnified  party  under  this  Section  10.6(c)  for any  legal  expenses
     subsequently  incurred by such  indemnified  party in  connection  with the
     defense thereof other than reasonable costs of investigation and of liaison
     with counsel so selected, provided, however, that, if the defendants in any
     such action include both the indemnified  party and the indemnifying  party
     and the indemnified party shall have reasonably concluded that there may be
     reasonable  defenses available to it which are different from or additional
     to those  available to the  indemnifying  party or if the  interests of the
     indemnified  party  reasonably may be deemed to conflict with the interests
     of the indemnifying  party, the indemnified parties shall have the right to
     select one separate counsel and to assume such legal defenses and otherwise
     to participate in the defense of such action,  with the reasonable expenses
     and fees of such  separate  counsel  and  other  expenses  related  to such
     participation to be reimbursed by the indemnifying party as incurred.

          (d) In order to provide  for just and  equitable  contribution  in the
     event of joint liability under the 1933 Act in any case in which either (i)
     the Seller,  or any  controlling  person of the  Seller,  makes a claim for
     indemnification  pursuant  to  this  Section  10.6  but  it  is  judicially
     determined  (by the  entry  of a final  judgment  or  decree  by a court of
     competent  jurisdiction  and the expiration of time to appeal or the denial
     of the last right of appeal) that such  indemnification may not be enforced
     in such case  notwithstanding  the fact that this Section 10.6 provides for
     indemnification  in such case, or (ii) contribution  under the 1933 Act may
     be required on the part of the Seller or  controlling  person of the Seller
     in circumstances for which  indemnification  is provided under this Section
     10.6;  then,  and in each  such  case,  the  Company  and the  Seller  will
     contribute to the aggregate losses, claims, damages or liabilities to which
     they may be subject (after  contribution from others) in such proportion so
     that the Seller is  responsible  only for the  portion  represented  by the
     percentage that the public offering price of its securities  offered by the
     registration statement bears to the public offering price of all securities
     offered by such registration  statement,  provided,  however,  that, in any
     such case,  (y) the Seller will not be required to contribute any amount in
     excess of the public  offering price of all such  securities  offered by it
     pursuant to such registration statement;

                                       22
<PAGE>

     and (z) no person or entity guilty of fraudulent  misrepresentation will be
     entitled  to  contribution  from any person or entity who was not guilty of
     such fraudulent misrepresentation.

     11. Miscellaneous.

          (a)  Notices.  All  notices  or  other  communications  given  or made
     hereunder  shall be in writing and shall be personally  delivered or deemed
     delivered the first  business day after being  telecopied  (provided that a
     copy is  delivered by first class mail) to the party to receive the same at
     its address set forth below or to such other  address as either party shall
     hereafter give to the other by notice duly made under this Section:  (i) if
     to the Company,  at: 20 Ketchum Street,  Westport,  CT 06880,  attn:  Chief
     Financial  Officer,  telecopier  number:  (203)  226-4338,  with a copy  by
     telecopier only to: General Counsel, and (ii) if to the Subscriber,  to the
     name,  address and telecopy  number set forth on the signature page hereto,
     with a copy by  telecopier  only to  Grushko  &  Mittman,  P.C.,  551 Fifth
     Avenue,  Suite 1601, New York,  New York 10176,  telecopier  number:  (212)
     697-3575.  Any notice that may be given pursuant to this Agreement,  or any
     document  delivered in  connection  with the  foregoing may be given by the
     Subscriber  on the first  business  day after the  observance  dates in the
     United States of America by Orthodox  Jewry of Rosh  Hashanah,  Yom Kippur,
     the first two days of the Feast of Tabernacles,  Shemini  Atzeret,  Simchat
     Torah,  the first two and final two days of Passover  and  Pentecost,  with
     such  notice  to be deemed  given and  effective,  at the  election  of the
     Subscriber  on a holiday  date  that  precedes  such  notice,  however  the
     Company's  time to respond to such notice  shall  commence  from the actual
     date such notice is given.  Any notice received by the Subscriber on any of
     the aforedescribed  holidays may be deemed by the Subscriber to be received
     and effective as if such notice had been received on the first business day
     after the holiday.

          (b) Closing. The consummation of the transactions  contemplated herein
     shall take place at the  offices  of  Grushko &  Mittman,  P.C.,  551 Fifth
     Avenue,  Suite 1601, New York, New York 10176, upon the satisfaction of all
     conditions to Closing set forth in this  Agreement.  The closing date shall
     respectively be the dates that subscriber funds representing the net amount
     due the  Company  from the  Purchase  Price  of the  Initial  Offering  are
     transmitted by wire transfer to the Company (the "Closing Date").

          (c) Entire Agreement; Assignment. This Agreement represents the entire
     agreement  between the parties  hereto with  respect to the subject  matter
     hereof and may be amended only by a writing  executed by both  parties.  No
     right or obligation of either party shall be assigned by that party without
     prior notice to and the written consent of the other party.

          (d)  Execution.  This  Agreement  may be  executed  and  delivered  by
     facsimile transmission,  and in counterparts,  each of which will be deemed
     an original.

          (e) Law Governing this Agreement.  This Agreement shall be governed by
     and construed in accordance  with the laws of the State of New York without
     regard to principles of conflicts of laws.  Any action brought by any party
     against  the  other  concerning  the  transactions   contemplated  by  this
     Agreement  shall be brought  only in the state courts of New York or in the
     federal  courts  located  in the state of New  York.  The  parties  and the
     individuals executing this Agreement and other agreements on behalf of such
     parties agree to submit to the  jurisdiction of such courts and waive trial
     by jury. The  prevailing  party shall be entitled to recover from the other
     party

                                       23
<PAGE>

     or parties to the  applicable  dispute such party's  reasonable  attorney's
     fees and costs.  In the event that any  provision of this  Agreement or any
     other   agreement   delivered   in   connection   herewith  is  invalid  or
     unenforceable  under  any  applicable  statute  or rule of law,  then  such
     provision  shall be deemed  inoperative  to the extent that it may conflict
     therewith and shall be deemed modified to conform with such statute or rule
     of law. Any such provision which may prove invalid or  unenforceable  under
     any law  shall not  affect  the  validity  or  enforceability  of any other
     provision of any agreement.

          (f) Specific  Enforcement,  Consent to  Jurisdiction.  The Company and
     Subscriber acknowledge and agree that irreparable damage would occur in the
     event that any of the  provisions of this  Agreement  were not performed in
     accordance  with their  specific terms or were  otherwise  breached.  It is
     accordingly  agreed that the parties  shall be entitled to an injunction or
     injunctions to prevent or cure breaches of the provisions of this Agreement
     and to enforce  specifically  the terms and  provisions  hereof or thereof,
     this  being in  addition  to any  other  remedy to which any of them may be
     entitled by law or equity.  Subject to Section  11(e)  hereof,  each of the
     Company and Subscriber hereby waives,  and agrees not to assert in any such
     suit, action or proceeding,  any claim that it is not personally subject to
     the  jurisdiction  of such court,  that the suit,  action or  proceeding is
     brought in an inconvenient  forum or that the venue of the suit,  action or
     proceeding  is improper.  Nothing in this Section shall affect or limit any
     right to serve process in any other manner permitted by law.

          (g)  Automatic   Termination.   This  Agreement  shall   automatically
     terminate  without any further action of either party hereto if the Closing
     shall not have occurred by the tenth (10th) business day following the date
     this Agreement is accepted by the Subscriber.

     This  Agreement is made by and between the Company and Subscriber as of the
date first written above.

                                              NCT GROUP, INC.
                                              A Delaware Corporation

                                              By: /s/  Cy E. Hammond
                                              ----------------------------------
                                                Name:  Cy E. Hammond
                                                Title: Senior Vice President &
                                                       Chief Financial Officer

Purchase Price and Note Principal: $235,000.00

ALPHA CAPITAL AKTIENGESELLSCHAFT - Subscriber
A Lichtenstein corporation
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-423-232-3196

                                       24
<PAGE>

By: /s/ Konrad Ackermann
---------------------------
Name:   Konrad Ackermann
Title:  Director

                                       25
<PAGE>

                         LIST OF SCHEDULES AND EXHIBITS

      Exhibit A                Form of Note (Please refer to Exhibit 10(cy) 2)

      Exhibit B                Form of Legal Opinion

      Schedule 2(n)            Additional Issuances

      Schedule 2(s)            Capitalization

                                       26
<PAGE>

Exhibit B

                                               Mark Melnick, Esq.
                                               V.P., General Counsel & Secretary
                                               Telephone 203-226-4447, ext. 3572
                                               E-mail mmelnick@nctgroupinc.com

May 14, 2003

Alpha Capital Aktiengesellschaft
A Lichtenstein corporation
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Fax:  011-423-232-3196
                                                         Re:  $235,000 Financing
                                                              ------------------
Gentlemen:

     I serve as Vice  President,  General  Counsel & Secretary of the NCT Group,
Inc., a Delaware  corporation  ("NCT"). In that capacity I have been responsible
for the legal affairs of NCT in  connection  with the offer and sale by NCT of a
$235,000  principal amount 8% Convertible  Note, dated as of April 22, 2003 (the
"Note"),  to you  (the  "Purchaser").  Capitalized  terms  used  herein  and not
otherwise  defined shall have the meaning  assigned to them in the  Subscription
Agreement,  dated as of April 22,  2003 (the  "Agreement"),  between NCT and the
Purchaser.  The Agreement and the other agreements and documents listed in items
(a)-(f)  below  are  sometimes  hereinafter  referred  to  collectively  as  the
"Documents."

     In  connection  with  the  opinions  expressed  herein,  I have  made  such
examination of law as I considered appropriate or advisable for purposes hereof.
As to matters of fact material to the opinions  expressed herein, I have relied,
with your  permission,  upon the  representations  and  warranties as to factual
matters contained in and made by NCT and the Purchaser pursuant to the Documents
and  upon  certificates  and  statements  of  certain  government  officials  as
described below. I have also examined  originals or copies of certain  corporate
documents or records of NCT, as follows:

(a)      Agreement;
(b)      Note;
(c)      Funds Escrow Agreement, dated as of April 22, 2003 (the "Escrow
         Agreement"), among NCT, the Purchaser and Grushko & Mittman, P.C. as
         escrow agent;
(d)      Certificate of Incorporation of NCT (as amended);
(e)      Bylaws of NCT; and
(f)      Unanimous Written Consent of the Board of Directors of NCT, dated as of
         April 21, 2003, approving the Documents listed in items (a)-(c) above.

     In rendering this opinion,  I have, with your  permission,  assumed (a) the
authenticity of all documents  submitted to me as originals;  (b) the conformity
to the originals of all documents submitted to me as copies; (c) the genuineness
of all  signatures;  (d) the legal capacity of natural

                                       27
<PAGE>

persons;  (e) the truth,  accuracy and completeness of the information,  factual
matters,  representations and warranties contained in all of such documents; (f)
the due  authorization,  execution  and  delivery of all such  documents  by the
Purchaser, and the legal, valid and binding effect thereof on the Purchaser; and
(g) that NCT and the  Purchaser  will act in  accordance  with their  respective
representations and warranties as set forth in the Documents.

     I am a member of the bar of the State of New York.  I express no opinion as
to the laws of any  jurisdictions  other than the internal  laws of the State of
New York, the General  Corporation  Law of the State of Delaware and the federal
laws of the United  States of America.  I express no opinion with respect to the
effect  or  application  of any  other  laws.  Special  rulings  of  authorities
administering any of such laws or opinions of other counsel have not been sought
or obtained by me in connection with rendering the opinions expressed herein.

     1. NCT is duly  incorporated,  validly existing and in good standing in the
state of its  incorporation;  has  qualified  to do business in each state where
required  unless the  failure  to do so would not have a material  impact on its
operations;  and has the requisite  corporate power and authority to conduct its
businesses, and to own, lease and operate its properties.

     2. NCT has the requisite corporate power and authority to execute,  deliver
and perform its obligations  under the Documents.  Documents  (a)-(c) above, the
issuance of the Note and the reservation and issuance of common stock, par value
$.01 per share,  of NCT ("Common  Stock")  issuable upon  conversion of the Note
have been duly approved by the Board of Directors of NCT. The Common Stock, when
issued upon  conversion of the Note and upon  delivery,  shall be validly issued
and outstanding, fully paid and non-assessable.

     3. The execution, delivery and performance of the Documents by NCT, and the
consummation of the transactions contemplated thereby, will not, with or without
the giving of notice or the passage of time,  (a) violate the  provisions of the
Certificate of  Incorporation or Bylaws of NCT; (b) to the best of my knowledge,
violate any judgment,  decree,  order or award of any court binding upon NCT; or
(c) to the best of my knowledge,  constitute a material  breach of any agreement
to which NCT is a party.

     4. The Documents  constitute the valid and legally  binding  obligations of
NCT and are enforceable against NCT in accordance with their respective terms.

     5. The Note and the Common Stock issuable upon  conversion of the Note have
not been registered  under the Securities Act of 1933, as amended,  or under the
laws  of  any  state  or  other   jurisdiction  and,  assuming  the  Purchaser's
representations  and  warranties  contained in the  Documents are true as of the
date made and as of the applicable date(s) of Common Stock issuance, are or will
be issued pursuant to a valid exemption from registration.

     6. The holders of the Common Stock  issuable  upon  conversion  of the Note
will not be subject to the provisions of the anti-takeover  statutes of Delaware
and New York.

     My  opinions  expressed  above are  specifically  subject to the  following
limitations, exceptions, qualifications and assumptions:

                                       28
<PAGE>

     A. The effect of  bankruptcy,  insolvency,  reorganization,  moratorium and
other  similar laws relating to or affecting the relief of debtors or the rights
and remedies of creditors generally,  including without limitation the effect of
statutory  or  other  law  regarding  fraudulent  conveyances  and  preferential
transfers.

     B.  The   unenforceability  of  any  provision  requiring  the  payment  of
attorney's  fees,  except to the extent that a court  determines such fees to be
reasonable.

     C. The  unenforceability  under  certain  circumstances  under law or court
decisions of provisions  providing for the  indemnification or contribution to a
party with respect to a liability where such  indemnification or contribution is
contrary to public policy.

     D. The  enforceability  of  provisions  to the extent that terms may not be
waived or modified except in writing may be limited under certain circumstances.

     E. The  enforceability  of provisions  (i) relating to choice of applicable
law,  waiver of jury trial or submission to any  jurisdiction  or (ii) providing
for the validity or enforceability of any Document,  in whole or in part, if any
provision   thereof  is  determined  to  be  invalid  or  unenforceable  in  any
jurisdiction or providing for the validity or  enforceability of such invalid or
unenforceable provision in any other jurisdiction.

     F.  Limitations  imposed by state  law,  federal  law or general  equitable
principles upon the specific enforceability of any of the remedies, covenants or
other  provisions  of any  applicable  agreement  and upon the  availability  of
injunctive relief or other equitable remedies, regardless of whether enforcement
of any such agreement is considered in a proceeding in equity or at law.

     G. This  opinion  letter  is  governed  by,  and  shall be  interpreted  in
accordance  with,  the Legal Opinion Accord (the "Accord") of the ABA Section of
Business  Law  (1991).  As  a  consequence,   it  is  subject  to  a  number  of
qualifications,  exceptions,  definitions,  limitations  on  coverage  and other
limitations,  all as more  particularly  described in the Accord,  including the
General Qualifications and the Equitable Principles Limitation, and this opinion
letter should be read in conjunction therewith.

     This opinion is rendered as of the date first written above,  is solely for
your benefit in connection with the Agreement and may not be relied upon or used
by, circulated, quoted, or referred to nor may any copies hereof be delivered to
any other person without my prior written consent.  I disclaim any obligation to
update this opinion letter or to advise you of facts,  circumstances,  events or
developments which hereafter may be brought to my attention and which may alter,
affect or modify the opinions expressed herein.

                                              Very truly yours,

                                              Mark Melnick

                                       29
<PAGE>

Schedule 2(n)

                              ADDITIONAL ISSUANCES

1.   As of April 3,  2003,  NCT  Group,  Inc.  (the  "Company")  issued to Avant
     Interactive, Inc. ("Avant") a five-year option to purchase 2,000,000 shares
     of common stock, par value $.01 per share, of the Company  ("Shares") at an
     exercise price of $.029 per Share.  (The  documentation of this transaction
     is not yet completed but is expected to be completed soon and,  assuming it
     is, the transaction will be effective as of April 3, 2003.)

2.   As of April 7, 2003, the Company  entered into a Settlement  Agreement with
     Alpha  Capital   Aktiengesellschaft   ("Alpha"),   Austost  Anstalt  Schaan
     ("Austost"),  Balmore  Funds,  S.A.  ("Balmore")  and  Libra  Finance  S.A.
     ("Libra")  which,  if approved by the court in the litigation to which such
     Settlement  Agreement  relates,  requires  the  Company to issue  Shares as
     follows:  $913,614.92  worth of  Shares to  Alpha,  $1,351,250.16  worth of
     Shares to Austost, $1,364,687.95 worth of Shares to Balmore and $370,446.97
     worth of Shares  to  Libra,  with all of such  Shares  being  priced at the
     average  closing  price of the  Shares  on the  public  market  for the ten
     trading days preceding the date of the court hearing referred to above.

3.   As of April 7, 2003, the Company entered into a letter agreement with Alpha
     amending  the vesting  provisions  of a December  6, 2002  15,000,000-Share
     warrant of the Company to Alpha.

4.   As of April 10,  2003,  the Company  entered  into an  Exchange  Rights and
     Release  Agreement with Austost,  Balmore and Libra under which the Company
     granted to such  entities  the right to convert  preferred  stock of Artera
     Group,  Inc.  held by them (1,077  such shares held by Austost,  1,077 such
     shares held by Balmore and 1,000 such shares held by Libra),  and accretion
     thereon,  into shares of preferred stock of the Company, par value $.10 per
     share, of like stated value and identical or substantially  identical other
     terms and conditions.

5.   As of April 11,  2003,  the Company  issued to Avant a five-year  option to
     purchase  2,000,000  Shares at an exercise  price of $.031 per Share.  (The
     documentation  of this  transaction is not yet completed but is expected to
     be completed soon and, assuming it is, the transaction will be effective as
     of April 11, 2003.)

6.   As of April 11, 2003, the Company  issued to Carole  Salkind  ("Salkind") a
     Secured Convertible Note in the principal amount of $450,000.00, which Note
     may, at Salkind's  election,  (a) be converted  into Shares at a conversion
     price of  $.029  per  share;  (b) if  Artera  Group  International  Limited
     ("Artera  International")  makes an initial  public  offering of its common
     stock,  par  value(pound)1.00  per share, be exchanged for shares of common
     stock of Artera  International  at an  exchange  price equal to the initial
     public  offering  price of such  common  stock;  (c) if  Distributed  Media
     Corporation  International  Limited ("DMC  International") makes an initial
     public  offering of its common stock,  par  value(pound)1.00  per share, be
     exchanged  for shares of common stock of DMC  International  at an exchange
     price

                                       30
<PAGE>

     equal to the initial public  offering price of such common stock; or (d) if
     any other subsidiary of the Company makes an initial public offering of its
     common  stock,  be  exchanged  for  shares  of common  stock of such  other
     subsidiary at an exchange price equal to the initial public  offering price
     of such common stock.

7.   As of April  17,  2003,  the  Company  issued  to Turbo  Networks,  Inc.  a
     five-year option to purchase 2,000,000 Shares at an exercise price of $.037
     per Share. (The  documentation of this transaction is not yet completed but
     is expected to be completed soon and,  assuming it is, the transaction will
     be effective as of April 17, 2003.)

8.   As of April 21, 2003, the Company  issued to Salkind a Secured  Convertible
     Note in the principal  amount of $450,000.00,  which Note may, at Salkind's
     election,  (a) be converted into Shares at a conversion  price of $.037 per
     share; (b) if Artera Group International  Limited ("Artera  International")
     makes an initial public offering of its common stock, par  value(pound)1.00
     per share, be exchanged for shares of common stock of Artera  International
     at an exchange  price equal to the initial  public  offering  price of such
     common stock; (c) if Distributed  Media Corporation  International  Limited
     ("DMC International") makes an initial public offering of its common stock,
     par  value(pound)1.00 per share, be exchanged for shares of common stock of
     DMC International at an exchange price equal to the initial public offering
     price of such common stock;  or (d) if any other  subsidiary of the Company
     makes an initial  public  offering of its common  stock,  be exchanged  for
     shares of common stock of such other  subsidiary at an exchange price equal
     to the initial public offering price of such common stock.

                                       31
<PAGE>

Schedule 2(s)

                                NCT GROUP, INC.
                    AUTHORIZED AND OUTSTANDING CAPITAL STOCK
                              AS OF APRIL 22, 2003

                                                               Issued and
Capital Stock                      Authorized                 Outstanding
-------------                      ----------                 -----------

  Preferred Stock                  10,000,000                      1,800

  Common Stock                    645,000,000                494,401,255

                                       32Exhibit 10(v)

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-03-11)

May 15, 2003                                                         $450,000.00

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 Four Hundred Fifty Thousand Dollars
and No Cents  ($450,000.00)  on November  15,  2003,  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 Group International Limited

<PAGE>

("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, 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.

                                       2
<PAGE>

     (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 Borrowers  shareholders  and seek approval for an
increase in the authorized  shares of the Borrowers  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 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.

                                       3
<PAGE>

     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 anytime 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  OPTIONAL  CONVERSION.  So long as no Event of Default  (as  defined in
Article III below)  shall have  occurred  and be  continuing  the Holder has the
right to require the conversion of the note into stock.

                                   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 upon acceleration or otherwise or
(ii) to pay any

                                       4
<PAGE>

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; or

     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.

     3.9 REPORTS.  A material  omission or  misstatement  in any of the Debtor'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
<PAGE>

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
<PAGE>

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.
c/o Sills, Cummis, Radin, Tishman,               Rosen & Avigliano
     Epstein & Gross                             431 Route 10 East
One Riverfront Plaza                             Randolph, NJ  07689
Newark NJ  07102
Facsimile:  973-643-6500                         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

                                       7
<PAGE>

all of the rights of the other shares of Common Stock  issuable  hereunder.  For
purposes of calculating  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
<PAGE>

                                                                       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 Group International 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  bank or trust  having an  office  in the  United
                    States)

------------------------------------------
1 May not be Pro Tech Communications, Inc.

                                       9

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