Document:

Exhibit 10(ey)

                             SUBSCRIPTION AGREEMENT

     THIS SUBSCRIPTION AGREEMENT (this "Agreement"),  dated as of July 23, 2004,
by and among NCT Group, Inc., a Delaware  corporation (the "Company"),  and each
of the subscribers identified on the signature pages hereto (each a "Subscriber"
and collectively "Subscribers").

     WHEREAS,  the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the  provisions of Section 4(2),  Section 4(6) and/or  Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange  Commission (the
"Commission") under the Securities Act of 1933, as amended (the "1933 Act").

     WHEREAS,  the  parties  desire  that,  upon the  terms and  subject  to the
conditions   contained  herein,   the  Company  shall  issue  and  sell  to  the
Subscribers,  as provided herein, and the Subscribers,  in the aggregate,  shall
purchase  $900,000  (the  "Purchase  Price") of  principal  amount of 8% secured
promissory  notes of the Company ("Note" or "Notes")  convertible into shares of
the Company's  common stock,  $.01 par value (the "Common Stock") at a per share
conversion  price equal to the lesser of $0.0232 or eighty  percent (80%) of the
average of the closing bid prices of the Common  Stock as reported by  Bloomberg
L.P. for the OTC  Bulletin  Board  ("Bulletin  Board") for the five trading days
preceding but not including the Conversion Date, as defined in Section 7.1(b) of
this  Agreement   ("Conversion   Price");   and  share  purchase  warrants  (the
"Warrants")  to purchase  shares of Common  Stock (the  "Warrant  Shares").  The
Conversion  Price is subject to  adjustment  as  described  in the Note and this
Agreement.  The Notes,  shares of Common Stock  issuable upon  conversion of the
Notes (the  "Shares"),  the  Warrants  and the Warrant  Shares are  collectively
referred to herein as the "Securities"; and

     WHEREAS,  the aggregate  proceeds of the sale of the Notes and the Warrants
contemplated  hereby  shall be held in escrow  pursuant  to the terms of a Funds
Escrow Agreement to be executed by the parties (the "Escrow Agreement").

     NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  and  other
agreements  contained in this Agreement the Company and the  Subscribers  hereby
agree as follows:

     1.  Closing.  Subject  to the  satisfaction  or  waiver  of the  terms  and
conditions  of this  Agreement,  on the  Closing  Date,  each  Subscriber  shall
purchase and the Company  shall sell to each  Subscriber a Note in the principal
amount  designated on the  signature  page hereto.  The aggregate  amount of the
Notes to be  purchased  by the  Subscribers  on the Closing  Date shall,  in the
aggregate,  be equal to the Purchase Price. The "Closing Date" shall be the date
that  Subscriber  funds  representing  the net amount due the  Company  from the
Purchase  Price of the Offering is  transmitted by wire transfer or otherwise to
or for the benefit of the Company.

     2. Escrow  Arrangements;  Form of  Payment.  Upon  execution  hereof by the
parties  and  pursuant  to the terms of the Escrow  Agreement,  each  Subscriber
agrees to make the  deliveries  required of such  Subscriber as set forth in the
form of Escrow  Agreement  annexed hereto as Exhibit A and the Company agrees to
make  the  deliveries  required  of the  Company  as  set  forth  in the  Escrow
Agreement.

     3.  Warrants.  On the Closing Date,  the Company will issue Warrants to the
Subscribers in the form of Exhibit B hereto. 13.88888889 Warrants will be issued
for  each  one  dollar  ($1.00)  of  Purchase  Price  paid on the  Closing  Date
("Warrants").  The per Warrant Share  exercise  price to

<PAGE>

acquire a Warrant Share upon exercise of a Warrant shall be$0.0232. The Warrants
will be exercisable for five (5) years after the Closing Date.

     4.  Subscriber's  Representations  and Warranties.  Each Subscriber  hereby
represents  and  warrants to and agrees  with the Company as to such  Subscriber
that:

          (a) Information on Company.  The Subscriber and its advisors have been
     furnished  with or have obtained  from the EDGAR website of the  Commission
     the Company's  Form 10-K for the year ended December 31, 2003 as filed with
     the Commission,  together with all subsequently  filed Forms 10-Q, 8-K, and
     all other filings made with the  Commission  available at the EDGAR website
     including filings under the 1933 Act (hereinafter  referred to collectively
     as the "Reports"). In addition, the Subscriber has received in writing from
     the Company such other  information  concerning its  operations,  financial
     condition  and other  matters as the  Subscriber  has requested in writing,
     including  by email (such other  information  is  collectively,  the "Other
     Written  Information"),  and considered  all factors the  Subscriber  deems
     material in deciding on the advisability of investing in the Securities.

          (b)  Information on Subscriber.  The Subscriber is, and will be at the
     time of the conversion of the Notes and exercise of any of the Warrants, an
     "accredited investor",  as such term is defined in Regulation D promulgated
     by 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  and high risk  investment.  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 the Notes
     and  Warrants.  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.  The  Subscriber has adequate means of providing for
     its current needs and foreseeable financial contingencies.  The information
     set  forth  on the  signature  page  hereto  regarding  the  Subscriber  is
     accurate.

          (c) Purchase of Notes and Warrants.  On Closing Date,  the  Subscriber
     will  purchase the Notes and Warrants as principal  for its own account and
     not with a view to any distribution thereof.

          (d)  Compliance  with the 1933 Act.  The  Subscriber  understands  and
     agrees that the Securities have not been  registered  under the 1933 Act or
     any  applicable  state  securities  laws, by reason of their  issuance in a
     transaction that does not require registration under the 1933 Act (based in
     part on the accuracy of the  representations  and  warranties of Subscriber
     contained  herein),  and that  such  Securities  must be held  indefinitely
     unless a subsequent  disposition  is  registered  under the 1933 Act or any
     applicable state securities laws or is exempt from such registration.

          (e) Shares  Legend.  The Shares and the Warrant  Shares shall bear the
     following or similar legend:

           "THE SHARES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN
           REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED.
           THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
           AND MAY NOT BE SOLD,

                                       2
<PAGE>

           OFFERED FOR SALE,  PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
           AN EFFECTIVE  REGISTRATION  STATEMENT  UNDER SUCH SECURITIES
           ACT OR ANY APPLICABLE  STATE SECURITIES LAW OR AN OPINION OF
           COUNSEL REASONABLY SATISFACTORY TO NCT GROUP, INC. THAT SUCH
           REGISTRATION  IS NOT REQUIRED  UNDER SAID ACT OR  APPLICABLE
           STATE  SECURITIES  LAWS OR UNLESS SOLD  PURSUANT TO RULE 144
           UNDER SAID ACT."

          (f) Warrants Legend. The Warrants shall bear the following

or similar legend:

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

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

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

          (h)  Communication  of  Offer.  The offer to sell the  Securities  was
     directly  communicated to the Subscriber by the Company. 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.

                                       3
<PAGE>

          (i) Authority;  Enforceability.  This Agreement,  the Escrow Agreement
     and  other  agreements   delivered  together  with  this  Agreement  or  in
     connection  herewith have been duly  authorized,  executed and delivered by
     the  Subscriber  and  are  valid  and  binding  agreements  enforceable  in
     accordance with their 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 Subscriber has full corporate or company
     power and authority  necessary to enter into and deliver this Agreement and
     such other  agreements and to perform its  obligations  hereunder and under
     all other agreements entered into by the Subscriber relating hereto.

          (j) 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.

          (k)  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 8 hereof.

          (l) 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.

          (m) Correctness of Representations.  Each Subscriber  represents as to
     such Subscriber that the foregoing  representations and warranties are true
     and  correct as of the date  hereof and will be true and  correct as of the
     Closing Date.

          (n)  Survival.  The foregoing  representations  and  warranties  shall
     survive the Closing Date for a period of two years.

     5. Company  Representations  and  Warranties.  The Company  represents  and
warrants to and agrees with each Subscriber that:

          (a) Due Incorporation. Each of the Company and Artera Group, Inc. is a
     corporation duly organized, validly existing and in good standing under the
     laws of the respective  jurisdictions of their  incorporation  and have the
     requisite  corporate  power to own their  properties  and to carry on their
     business as now being conducted. Each of the Company and Artera Group, Inc.
     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 each of them makes such  qualification  necessary,  other
     than those  jurisdictions in which the failure to so qualify would not have
     a  material  adverse  effect  on  the  business,  operations  or  financial
     condition of the Company or Artera Group, Inc.

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

                                       4
<PAGE>

          (c)  Authority;   Enforceability.   This  Agreement,  the  Notes,  the
     Warrants,  the Escrow Agreement and any other agreements delivered together
     with this Agreement or in connection  herewith  (collectively  "Transaction
     Documents")  have been  duly  authorized,  executed  and  delivered  by the
     Company and are valid and binding agreements enforceable in accordance with
     their  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.  The Company has full  corporate  power and authority
     necessary  to enter  into and  deliver  the  Transaction  Documents  and to
     perform its obligations thereunder.

          (d)  Additional  Issuances.  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 or other  equity  interest in any of the  subsidiaries  of the
     Company except as described on Schedule 5(d).

          (e)  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 American Stock  Exchange,  the
     National Association of Securities Dealers, Inc., Nasdaq,  SmallCap Market,
     Bulletin Board nor the Company's shareholders is required for the execution
     by the Company of the Transaction  Documents and compliance and performance
     by  the  Company  of  its  obligations  under  the  Transaction  Documents,
     including,  without  limitation,  the issuance and sale of the  Securities,
     except  for  approval  of  the  Company's   shareholders  to  increase  the
     authorized common stock of the Company.

          (f)  No  Violation  or  Conflict.  Assuming  the  representations  and
     warranties of the  Subscribers  in Section 4 are true and correct,  neither
     the  issuance  and  sale  of the  Securities  nor  the  performance  of the
     Company's 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 articles or 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  subsidiaries  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 or  subsidiaries  is a party,  by
          which the Company or any of its affiliates or  subsidiaries  is bound,
          or to  which  any  of the  properties  of  the  Company  or any of its
          affiliates  or  subsidiaries  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  or
          subsidiaries  is a party except the violation,  conflict,  breach,  or
          default  of any of the  foregoing,  which  would  not have a  material
          adverse effect on the Company; or

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

                                       5
<PAGE>

               (iii) result in the activation of any  anti-dilution  rights or a
          reset or  repricing  of any debt or security  instrument  of any other
          creditor  or  equity  holder  of  the  Company,   nor  result  in  the
          acceleration of the due date of any obligation of the Company; or

               (iv)  result in the  activation  of any  piggy-back  registration
          rights of any person or entity  holding  securities  of the Company or
          having the right to receive securities of the Company.

          (g) The Securities. The Securities:

               (i) upon issuance 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 any applicable state
          securities laws;

               (ii) as of the  Availability  Date set forth in  Section  9(f) of
          this Agreement, will be duly and validly authorized and on the date of
          conversion of the Notes, and upon exercise of the Warrants, the Shares
          and Warrant Shares,  will be duly and validly  issued,  fully paid and
          nonassessable  (and if  registered  pursuant  to the 1933 Act,  and if
          resold  pursuant to an effective  registration  statement will be free
          trading and unrestricted,  provided that each Subscriber complies with
          the  prospectus  delivery  requirements  of the  1933  Act  and  other
          applicable state law requirements);

               (iii)  upon  issuance,  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) upon  issuance,  will not  subject  the  holders  thereof to
          personal liability by reason of being such holders.

          (h)  Litigation.  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,  that would affect the execution by
     the Company of 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 Schedule  5(h)
     hereto,  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, which litigation if adversely determined
     could have a material adverse effect on the Company.

          (i) 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.  Pursuant to the  provisions  of the 1934 Act,  the Company has timely
     filed all reports and other materials  required to be filed thereunder with
     the Commission during the preceding twelve months.

          (j) 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 (A)  facilitate the sale
     or  resale  of the  Securities,  or (B)  affect  the  price  at  which  the
     Securities may be issued or resold.

          (k) 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

                                       6
<PAGE>

     in the Reports, and except as modified in the Other Written Information, in
     this  Agreement  or in the  Schedules  hereto,  there has been no  material
     adverse change in the Company's  business,  financial  condition or affairs
     not  disclosed  in the  Reports.  The  Reports  do not  contain  any untrue
     statement of a material  fact or omit to state a material  fact required to
     be  stated  therein  or  necessary  to  make  the  statements  therein  not
     misleading in light of the circumstances when made.

          (l) Stop  Transfer.  The  Securities,  when issued,  may be restricted
     securities.  The Company  will not issue any stop  transfer  order or other
     order  impeding  the sale,  resale or  delivery  of any of the  Securities,
     except as may be required  by any  applicable  federal or state  securities
     laws and unless  contemporaneous notice of such instruction is given to the
     Subscriber.

          (m) Defaults.  The Company is not in violation of its  Certificate  of
     Incorporation or ByLaws. Except as disclosed in the Reports and on Schedule
     5(m),  the Company is (i) not 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) not in default
     with respect to any order of any court,  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  not in  violation  of any
     statute,  rule or regulation of any governmental  authority which violation
     would have a material adverse effect on the Company.

          (n) 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 offer 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 the  Bulletin  Board.  Nor will the  Company  or any of its
     affiliates  or  subsidiaries  take any action or steps that would cause the
     offer of the Securities to be integrated with other offerings.  The Company
     will not  conduct any  offering  other than the  transactions  contemplated
     hereby  that  will  be  integrated  with  the  offer  or  issuance  of  the
     Securities.

          (o) 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.

          (p)  Listing.  The  Company's  common  stock is quoted on the Bulletin
     Board.  The Company has not  received  any oral or written  notice that its
     common stock is not eligible nor will become  ineligible  for  quotation on
     the Bulletin Board nor that its common stock does not meet all requirements
     for the continuation of such quotation and the Company  satisfies and as of
     the Closing  Date,  the Company will satisfy all the  requirements  for the
     continued quotation of its common stock on the Bulletin Board.

          (q) No  Undisclosed  Liabilities.  The Company has no  liabilities  or
     obligations which are material, individually or in the aggregate, which are
     not disclosed in this Agreement, the Reports and Other Written Information,
     other  than  those  incurred  in  the  ordinary  course  of  the  Company's
     businesses  since  December  31,  2003 and  which,  individually  or in the
     aggregate,  would  reasonably be expected to have a material adverse effect
     on the Company's financial  condition,  other than as set forth in Schedule
     5(q).

                                       7
<PAGE>

          (r) No Undisclosed  Events or Circumstances.  Since December 31, 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.

          (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 5(s).  Except as set forth on Schedule 5(d), 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  Common  Stock of the  Company  have  been duly and
     validly authorized and issued and are fully paid and nonassessable.

          (t) Dilution.  The  Company's  executive  officers and directors  have
     studied and fully understand the nature of the Securities being sold hereby
     and  recognize  that they have a  potential  dilutive  effect on the equity
     holdings  of other  holders  of the  Company's  equity or rights to receive
     equity of the Company. The board of directors of the Company has concluded,
     in its good faith business  judgment,  that such issuance of the Securities
     is  in  the  best  interests  of  the  Company.  The  Company  specifically
     acknowledges that its obligation to issue the Shares upon conversion of the
     Note  and  exercise  of the  Warrants  is  binding  upon  the  Company  and
     enforceable,  except as otherwise described in this Subscription  Agreement
     or the Note or Warrant,  regardless  of the dilution such issuance may have
     on the ownership  interests of other shareholders of the Company or parties
     entitled to receive equity of the Company.

          (u)  Investment  Company.  The Company is not, and is not an Affiliate
     (as defined in Rule 405 under the 1933 Act) of an  "investment  company" as
     defined  in Section  3(a)(1)  of the  Investment  Company  Act of 1940,  as
     amended.

          (v) Correctness of  Representations.  The Company  represents that the
     foregoing  representations  and  warranties  are true and correct as of the
     date hereof and will be true and correct as of the Closing Date.

          (w)  Survival.  The foregoing  representations  and  warranties  shall
     survive the Closing Date for a period of two years.

     6.  Regulation D Offering.  The offer and issuance of the Securities to the
Subscribers  is being  made  pursuant  to the  exemption  from the  registration
provisions  of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or 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  on the  availability  of an  exemption  from
registration  under the 1933 Act as it relates to the offer and  issuance of the
Securities and other matters reasonably  requested by Subscribers  substantially
in the form  annexed  hereto as  Exhibit C. The  Company  will  provide,  at the
Company's expense,  subject to the other provision of this Agreement  pertaining
to legal opinion in specified  circumstances,  such other legal  opinions in the
future  as are  reasonably  necessary  for the  resale of the  Common  Stock and
exercise of the Warrants and resale of the Warrant Shares.

     7.1. Conversion of Note.

          (a) Upon the  "Conversion"  of the Note or part  thereof,  the Company
     shall, at its own cost and expense,  take all necessary  action,  including
     obtaining  and  delivering,  an  opinion  of

                                       8
<PAGE>

     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,  unless  waived  by the
     Subscriber, the Shares will be free-trading,  and freely transferable,  and
     will not contain a legend  restricting the resale or transferability of the
     Shares  provided  the  Shares  are  being  sold  pursuant  to an  effective
     registration  statement  covering the Shares or are  otherwise  exempt from
     registration.

          (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 (a form of which is annexed as Exhibit A to
     the Note) to the Company  pursuant to Section 12(a) of this Agreement.  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 deemed a  "Conversion  Date".  The Company  will itself or
     cause the Company's  transfer agent to transmit the Company's  Common Stock
     certificates  representing  the Shares issuable upon conversion of the Note
     to the  Subscriber via courier for receipt by such  Subscriber  within five
     (5) business  days after receipt by the Company of the Notice of Conversion
     (the  "Delivery  Date").  In  the  event  the  Shares  are   electronically
     transferable,  then  delivery  of the  Shares  must be  made by  electronic
     transfer provided request for such electronic transfer has been made by the
     Subscriber.  A Note  representing  the balance of the Note not so converted
     will  be  provided  by  the  Company  to the  Subscriber  if  requested  by
     Subscriber,  provided  the  Subscriber  delivers  an  original  Note 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  7  hereof,  or the  Mandatory
     Redemption Amount described in Section 7.2 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 to the Subscriber for late issuance of
     Shares in the form required pursuant to Section 7 hereof upon Conversion of
     the Note the amount of $100 per business  day after the  Delivery  Date for
     each $10,000 of Note principal amount being converted, of the corresponding
     Shares which are not timely  delivered.  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 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.

                                       9
<PAGE>

          (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.

     7.2.  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 in this  Agreement) or for any reason other than pursuant
to the  limitations  set forth in Section 7.3 hereof,  then at the  Subscriber's
election,  the Company must pay to the  Subscriber  ten (10) business days after
request  by  the  Subscriber,  at the  Subscriber's  election,  a sum  of  money
determined by (i) multiplying up to the outstanding principal amount of the Note
designated by the Subscriber by one hundred and twenty percent  (120%),  or (ii)
multiplying  the number of Shares  otherwise  deliverable  upon conversion of an
amount of Note principal and/or interest  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 (as defined in
Section  9(b) below) for the period  commencing  on the Deemed  Conversion  Date
until  the  day  prior  to the  receipt  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 Company  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.

     7.3. 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 Securities
Exchange Act of 1934, as amended,  and Regulation 13d-3  thereunder.  Subject to
the foregoing,  the Subscriber shall not be limited to aggregate  conversions of
only 9.99% and aggregate  conversions by 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 7.3 upon
and effective after 61 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%.

     7.4. Injunction - Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof or exercise the Warrant in whole or in part,  the
Company  may not  refuse  conversion  or  exercise  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 or exercise of all or part of said

                                       10
<PAGE>

Warrant  shall have been sought and obtained and the Company has posted a surety
bond for the benefit of such  Subscriber  in the amount of 130% of the amount of
the Note, or aggregate purchase price of the Warrant Shares which are 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.

     7.5.  Buy-In.  In addition to any other rights available to the Subscriber,
if the Company  fails to deliver to the  Subscriber  such shares  issuable  upon
conversion  of a Note by the  Delivery  Date  and if ten  (10)  days  after  the
Delivery  Date  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 Common Stock which the Subscriber was entitled to receive 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.

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

     7.7.  Redemption.  The  Company  may not call or redeem a Note  without the
consent of the holder of a Note.

     8. Legal Fee/Escrow Agent and Finder's Fee.

          (a)  Legal  Fee/Escrow  Agent.  The  Company  shall  pay to  Grushko &
     Mittman,  P.C.,  a fee of  $15,000  ("Legal  Fees")  as  reimbursement  for
     services  rendered in connection  with this  Agreement and the purchase and
     sale of the Notes and the Warrants  (the  "Offering")  and acting as Escrow
     Agent for the  Offering.  The Legal Fees will be payable  out of funds held
     pursuant to the Escrow Agreement.

          (b)  Finder's  Fee. The Company on the one hand,  and each  Subscriber
     (for himself only) on the other hand,  agree to indemnify the other against
     and hold the other  harmless  from any and all  liabilities  to any persons
     claiming  brokerage  commissions or finder's fees other than Libra Finance,
     S.A.  and  Bi-Coastal  Consulting  Corp.  (each a  "Finder")  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 agrees that it
     will pay the Finders a fee equal to 10% of the  Purchase  Price  ("Finder's
     Fees").  The Company represents that there are no other parties entitled to
     receive finder's fees, commissions,  or similar payments in connection with
     the  Offering  except the  Finders.  The  Finder's  Fees will be  allocated
     between the finders as set forth on Schedule 8 hereto.

          (c) The Finder's  Fees payable to the Finders in  connection  with the
     Purchase  Price shall be payable by  delivery on the Closing  Date of Notes
     identical in form to the Notes issuable to

                                       11
<PAGE>

     the  Subscribers.  The Notes  deliverable  in payment of  Finder's  Fees is
     referred  to as  "Finder's  Notes."  All  the  representations,  covenants,
     warranties,  undertakings,  remedies, liquidated damages,  indemnification,
     and other rights  including but not limited to registration  rights made or
     granted to or for the  benefit of the Company  and  Subscribers  are hereby
     also made and granted respectively to the Company and Finders in respect of
     the Finder's  Notes and Shares  issuable  upon  conversion  of the Finder's
     Notes.  References to Note or Notes herein shall include the Finder's Notes
     and references to Shares shall include Shares  issuable upon  conversion of
     the Finder's Notes. Notwithstanding the foregoing, the Finder's Notes shall
     be unsecured notes.

     9.  Covenants of the  Company.  The Company  covenants  and agrees with the
Subscribers as follows:

          (a) Stop  Orders.  The Company will advise the  Subscribers,  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 will maintain the listing of its Common Stock
     on the American Stock  Exchange,  Nasdaq SmallCap  Market,  Nasdaq National
     Market System, Bulletin Board, or New York Stock Exchange (whichever of the
     foregoing is at the time the principal  trading  exchange or market for the
     Common  Stock (the  "Principal  Market")),  and will comply in all respects
     with the Company's reporting, filing and other obligations under the bylaws
     or rules of the Principal Market, as applicable. The Company shall promptly
     upon the  issuance  thereof  secure the  listing of the Shares and  Warrant
     Shares on the Principal  Market.  The Company will provide the  Subscribers
     copies of all notices it receives  notifying the Company of the  threatened
     and actual delisting of the Common Stock from any Principal  Market.  As of
     the date of this  Agreement and the Closing Date, the Bulletin Board is and
     will be the Principal Market.

          (c) Market Regulations.  The Company shall notify the Commission,  the
     Principal Market and applicable state authorities, in accordance with their
     requirements, 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 Subscribers  and promptly  provide copies
     thereof to Subscribers.

          (d) Reporting Requirements.  From the date of this Agreement and until
     the sooner of (i) two (2) years after the Closing  Date,  or (ii) until all
     the Shares and Warrant  Shares have been resold or  transferred  by all the
     Subscribers  pursuant to a  registration  statement or pursuant to Rule 144
     under the 1933 Act ("Rule 144"),  without regard to volume limitation,  the
     Company will (w) cause its Common Stock to continue to be registered  under
     Section 12(b) or 12(g) of the 1934 Act, (x) comply in all respects with its
     reporting  and filing  obligations  under the 1934 Act, (y) comply with all
     reporting  requirements  that are  applicable  to an issuer with a class of
     shares  registered  pursuant to Section  12(b) or 12(g) of the 1934 Act, as
     applicable,   and  (z)  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 two (2) years after
     the  Closing  Date.  Until the  earlier of the resale of the Shares and the
     Warrant  Shares by each  Subscriber  or at least  two (2)  years  after the
     Warrants  have been  exercised,  the Company  will use its best  efforts to
     continue  the listing or  quotation  of the Common  Stock on the  Principal
     Market (or other market  subject to the  reasonable  consent of Subscribers
     holding a majority  of the Shares

                                       12
<PAGE>

     and Warrant  Shares),  and will comply in all respects  with the  Company's
     reporting,  filing and other  obligations  under the bylaws or rules of the
     Principal  Market.  The Company agrees to file a Form D with respect to the
     Securities if required under  Regulation D and to provide a copy thereof to
     each Subscriber promptly after such filing.

          (e) Use of Proceeds. The Company undertakes to use the proceeds of the
     Subscribers' funds for working capital.

          (f)  Reservation of Common Stock.  Beginning as of the earliest of (i)
     the Company has authorized but unissued  shares of Common Stock  available,
     (ii) 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 (iii) August
     30, 2004 (such earliest date being the  "Availability  Date"),  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
     (as  defined  in  the  Note),  and,  at  all  times  that  Warrants  remain
     outstanding,  one share of Common Stock for each Warrant Share.  Failure to
     have  sufficient  shares  reserved  pursuant to this Section 9(f) for three
     consecutive business days or ten days in the aggregate shall be an Event of
     Default under the Note.

          (g) Taxes. From the date of this Agreement and until the sooner of (i)
     two (2) years  after the  Closing  Date,  or (ii)  until all the Shares and
     Warrant  Shares  have been  resold or  transferred  by all the  Subscribers
     pursuant to the  Registration  Statement  or pursuant to Rule 144,  without
     regard to volume limitations,  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 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.

          (h) Insurance. From the date of this Agreement and until the sooner of
     (i) two (2) years after the Closing  Date, or (ii) until all the Shares and
     Warrant  Shares  have been  resold or  transferred  by all the  Subscribers
     pursuant to the  Registration  Statement  or pursuant to Rule 144,  without
     regard to volume limitations, 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 one hundred  percent  (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.

          (i) Books and Records.  From the date of this  Agreement and until the
     sooner of (i) two (2) years after the Closing  Date,  or (ii) until all the
     Shares  and  Warrant  Shares  have been  resold or  transferred  by all the
     Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
     without  regard to volume  limitations,  the Company will keep true records
     and books of account in which

                                       13
<PAGE>

     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.

          (j)  Governmental  Authorities.  From the date of this  Agreement  and
     until the sooner of (i) two (2) years after the Closing Date, or (ii) until
     all the Shares and Warrant  Shares have been resold or  transferred  by all
     the Subscribers pursuant to the Registration  Statement or pursuant to Rule
     144, without regard to volume  limitations,  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.

          (k) Intellectual  Property.  From the date of this Agreement and until
     the sooner of (i) two (2) years after the Closing  Date,  or (ii) until all
     the Shares and Warrant  Shares have been resold or  transferred  by all the
     Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
     without  regard to volume  limitations,  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.

          (l)  Properties.  From the date of this Agreement and until the sooner
     of (i) two (2) years after the Closing  Date,  or (ii) until all the Shares
     and Warrant Shares have been resold or  transferred by all the  Subscribers
     pursuant to the  Registration  Statement  or pursuant to Rule 144,  without
     regard to volume  limitation,  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  necessary  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
     or under which it occupies  property if the breach of such provision  could
     reasonably be expected to have a material adverse effect.

          (m)  Confidentiality/Public   Announcement.  From  the  date  of  this
     Agreement and until the sooner of (i) two (2) years after the Closing Date,
     or (ii)  until all the  Shares  and  Warrant  Shares  have  been  resold or
     transferred by all the Subscribers  pursuant to the Registration  Statement
     or pursuant to Rule 144,  without regard to volume  limitations,  except as
     may be required in connection with a registration statement filed on behalf
     of the Subscribers  pursuant to Section 11 of this Agreement or on Form 8-K
     or another form filed with the Commission,  the Company agrees that it will
     not disclose  publicly or  privately  the  identity of the  Subscribers  or
     Finders unless  expressly agreed to in writing by such Subscriber or Finder
     or if required by law as  determined by Company's  attorneys.  In any event
     and subject to the  foregoing,  the Company  undertakes to file a Form 8-K,
     file an  amendment to the Current  Registration  Statement or make a public
     announcement  describing the Offering not later than five (5) business days
     after the  Closing  Date,  if  required  by law.  In the Form 8-K or public
     announcement,  if any, the Company will specifically disclose the amount of
     common stock outstanding immediately after the Closing. In lieu of making a
     public  announcement,  filing  an  amendment  to the  Current  Registration
     Statement or filing a Form 8-K, the Company may deliver to the  Subscribers
     a statement  from its  counsel  that  knowledge  of the  occurrence  of the
     closing  of  the  Offering  does  not   constitute   "material   non-public
     information" as that term is employed in Regulation FD.

          (n)  Non-Public  Information.  The Company  covenants  and agrees that
     neither it nor any other  person  acting on its  behalf  will  provide  any
     Subscriber  or anyone the Company  knows to be the  Subscriber's  agents or
     counsel with any information that the Company believes constitutes material
     non-public  information,  unless prior thereto such  Subscriber  shall have
     agreed in writing to receive such information.  The Company understands and
     confirms that each Subscriber shall be relying on the foregoing covenant in
     effecting transactions in securities of the Company.

                                       14
<PAGE>

     10. Covenants of the Company and Subscriber Regarding Indemnification.

          (a) The Company  agrees to  indemnify,  hold  harmless,  reimburse and
     defend the  Subscribers,  the  Subscribers'  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 the  Subscriber  or
     any such  person  which  results,  arises  out of or is based  upon (i) any
     material  misrepresentation by the Company or breach of any warranty by the
     Company in this Agreement or in any Exhibits or Schedules  attached hereto,
     or other agreement  delivered 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 the
     applicable Subscriber relating hereto.

          (b) Each Subscriber agrees to indemnify, hold harmless,  reimburse and
     defend the Company and each of the Company'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 the Company or any
     such person which results,  arises out of or is based upon (i) any material
     misrepresentation  by such  Subscriber in this Agreement or in any Exhibits
     or Schedules attached hereto, or other agreement delivered pursuant hereto;
     or (ii) after any  applicable  notice  and/or cure  periods,  any breach or
     default in performance by such Subscriber of any covenant or undertaking to
     be performed by such Subscriber  hereunder,  or any other agreement entered
     into by the Company and the applicable Subscriber relating hereto.

          (c) In no event shall the  liability  of any  Subscriber  or permitted
     successor  hereunder or under any other  agreement  delivered in connection
     herewith be greater in amount than the dollar amount Purchase Price paid by
     such Subscriber.

          (d) The  procedures  set  forth in  Section  11.6  shall  apply to the
     indemnifications set forth in Sections 10(a) and 10(b) above.

     11. Registration Rights.

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

               (i) On one occasion,  for a period  commencing  December 1, 2004,
          but not later  than  three  years  after the  Closing  Date  ("Request
          Date"),  the Company,  upon a written request therefor from any record
          holder or holders of more than 50% of the Shares  issued and  issuable
          upon  conversion of the Notes,  Finder's  Notes,  and actually  issued
          Warrant  Shares,   shall  prepare  and  file  with  the  Commission  a
          registration  statement  under the 1933 Act covering  the Shares,  the
          Shares  issuable  upon  conversion  of the Finder's  Notes and Warrant
          Shares (collectively  "Registrable  Securities") which are the subject
          of such  request.  For  purposes  of Sections  11.1(i)  and  11.1(ii),
          Registrable   Securities  shall  not  include   Securities  which  are
          registered  for  resale  in an  effective  registration  statement  or
          included for  registration  in a pending  registration  statement,  or
          which have been issued without further transfer  restrictions  after a
          sale or transfer  pursuant to Rule 144. 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
          11.1(i).

                                       15
<PAGE>

               (ii)  Except  for  the  Current  Registration   Statement  and  a
          registration  statement relating to a private credit agreement between
          the Company and Crammer  Road LLC  described  on Schedule  11.1 hereto
          (the  "Crammer  Road  Equity  Line  Registration  Statement"),  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  Subscribers  or holder  pursuant  to an
          effective registration statement, each such time it will give at least
          15 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 10 days after the giving of any
          such  notice  by the  Company,  to  register  any  of the  Registrable
          Securities  not  previously  registered,  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   11.1(ii)  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,  however,
          that the  Company  shall  notify  the  Seller in  writing  of any such
          reduction.  Notwithstanding the foregoing provisions,  or Section 11.4
          hereof,  the  Company  may  withdraw or delay or suffer a delay of any
          registration  statement  referred to in this Section  11.1(ii) without
          thereby  incurring  any  liability  to  the  Seller.  Anything  to the
          contrary  herein  notwithstanding,  the Company will not file with the
          Commission a new  registration  statement on any form available to the
          Company  (except  for  the  Crammer  Road  Equity  Line   Registration
          Statement  or Forms  S-4 and S-8 or  another  form not  available  for
          registering  the  Registrable  Securities  for sale to the public) nor
          amend any such pending  registration  statement to increase the amount
          of  securities   included   therein  unless  all  of  the  Registrable
          Securities are included for  registration  in such other  registration
          statement.  The  Subscribers are hereby deemed to have exercised their
          rights under this Section 11.1(ii) in connection with any registration
          statement  proposed to be filed by the  Company  until the Company has
          complied  with  its  obligations   under  Section   11.1(iv)  of  this
          Agreement.

               (iii) If, at the time any  written  request for  registration  is
          received by the Company pursuant to Section  11.1(i),  the Company has
          determined  to  proceed  with the actual  preparation  and filing of a
          registration  statement  under  the  1933 Act in  connection  with the
          proposed  offer  and sale for  cash of any of its  securities  for the
          Company's  own account and the Company  actually  does file such other
          registration  statement,  such written request shall be deemed to have
          been given pursuant to Section  11.1(ii) rather than Section  11.1(i),
          and the rights of the  holders of  Registrable  Securities  covered by
          such written request shall be governed by Section 11.1(ii).

               (iv)  The  Company  shall  file  with the  Commission  a Form S-1
          registration  statement (the "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, and cause
          to be declared  effective such  Registration  Statement not later than
          November 30, 2004 (the  "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
          upon  conversion  of the Notes and  Finder's  Notes,  all the  Warrant
          Shares issuable upon exercise of the Warrants. Subject to Section 9(f)
          hereof,  the  Registrable  Securities  shall be reserved and set aside
          exclusively  for  the  benefit  of  the  holders  of  the  Registrable
          Securities, and not issued, employed or reserved for anyone other than
          the holders of the Registrable Securities. Such Registration Statement
          will immediately be amended or additional registration statements will
          be

                                       16
<PAGE>

          immediately  filed by the Company as necessary to register  additional
          shares of Common Stock to allow the public  resale of all Common Stock
          included in and issuable by virtue of the Registrable  Securities.  No
          securities of the Company other than the Registrable Securities may be
          included  in the  registration  statement  described  in this  Section
          11.1(iv)  except as  disclosed on Schedule  11.1,  without the written
          consent of Subscriber.  It shall be deemed a Non-Registration Event if
          at any time after the Effective  Date the Company has  registered  for
          unrestricted resale on behalf of the Subscriber fewer than 120% of the
          amount of shares of Common Stock  issuable  upon full  conversion  and
          exercise of all sums due under the Notes, Finder's Notes and Warrants.

               (v) As a condition  precedent  to the  inclusion  of  Registrable
          Securities  in a  registration  statement,  the holder  thereof  shall
          provide the Company with such  information  as the Company  reasonably
          requests.

     11.2. Registration  Procedures.  If and whenever the Company is required by
the  provisions  of  Section  11.1(i),  11.1(ii),  or  11.1(iv)  to  effect  the
registration  of any shares of  Registrable  Securities  under the 1933 Act, the
Company will, as expeditiously as possible:

          (a) subject to the timelines  provided in this Agreement,  prepare and
     file with the Commission a registration  statement  required by Section 11,
     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  copies of all
     filings  and  Commission  letters of comment  including a  notification  by
     confirmed   telecopier  of  the   declaration  of   effectiveness   of  any
     Registration Statement within twenty-four (24) hours of such effectiveness;

          (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 such  registration  statement has been effective
     for a period of two (2) years,  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;

          (c) furnish to the Seller,  at the Company's  expense,  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) if applicable,  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,

                                       17
<PAGE>

     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; and

          (g)  provided  same  would not be in  violation  of the  provision  of
     Regulation  FD under the 1934 Act,  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.

     11.3.  Provision  of  Documents.   In  connection  with  each  registration
described  in this Section 11, 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.

     11.4.  Non-Registration  Events. The Company and the Subscribers agree that
the Seller will suffer  damages if any  registration  statement  required  under
Section  11.1(iv)  above is not  declared  effective  by the  Commission  by the
Effective Date, and any registration statement required under Section 11.1(i) or
11.1(ii)  is not  filed  within  60 days  after  written  request  and  declared
effective by the Commission  within 120 days after such request,  and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly,  if (i) the  registration  statement on Form S-1 or such other form
described in Section 11.1(iv) is not declared  effective on or before the sooner
of the  Effective  Date,  or within  five (5)  business  days of  receipt by the
Company  of a  written  or oral  communication  from  the  Commission  that  the
registration  statement  will  not be  reviewed  or that the  Commission  has no
further  comments,  (ii) if the  registration  statement  described  in Sections
11.1(i) or 11.1(ii) is not filed within 60 days after such written  request,  or
is not declared  effective within 120 days after such written request,  or (iii)
any registration  statement described in Sections 11.1(i),  11.1(ii) or 11.1(iv)
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 or more than 20 consecutive  days (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  11.4 is referred  to herein as a  "Non-Registration  Event"),  then the
Company shall deliver to such holder of Registrable  Securities,  as "Liquidated
Damages",  an amount  equal to one  percent  (1%) for each  thirty days on a pro
rated  basis,  of the  Purchase  Price of the Notes  remaining  unconverted  and
"Conversion  Price" (as defined in the Note) of Shares issued upon conversion of
the Notes and  actually  paid  Exercise  Price (as defined in the  Warrants)  of
Warrant Shares for the Registrable  Securities owned of record by such holder as
of and during the pendency of such  Non-Registration  Event which are subject to
such  Non-Registration  Event. Payments to be made pursuant to this Section 11.4
shall  be  payable  at the  Company's  option  in  cash  or by the  delivery  of
additional Notes identical to the Notes and having the same maturity date as the
Notes,  and  deliverable  within  ten (10)  business  days after the end of each
thirty  (30) day period or part  thereof.  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
11.4 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.

     11.5.  Expenses.  All expenses  incurred by the Company in  complying  with
Section 11,  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

                                       18
<PAGE>

National  Association  of Securities  Dealers,  Inc.,  transfer  taxes,  fees of
transfer  agents and  registrars,  costs of insurance  are called  "Registration
Expenses".  All underwriting discounts and selling commissions applicable to the
sale of Registrable  Securities are called "Selling Expenses".  The Company will
pay all  Registration  Expenses in connection  with the  registration  statement
under  Section  11.  Selling  Expenses  in  connection  with  each  registration
statement  under Section 11 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.

     11.6. Indemnification and Contribution.

          (a) In the event of a registration of any Registrable Securities under
     the 1933 Act  pursuant  to Section  11,  the  Company  will,  to the extent
     permitted by law,  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 were  registered  under the 1933 Act pursuant to Section 11, 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 11.6(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 (i) if 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) if 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  underwriter  or  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 11, each Seller severally
     but not jointly  will, to the extent  permitted by law,  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 11, 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

                                       19
<PAGE>

     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 statement or
     omission or alleged  omission made in reliance upon and in conformity  with
     information  pertaining to such Seller  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 11.6(c)
     and shall  only  relieve  it from any  liability  which it may have to such
     indemnified party under this Section 11.6(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  11.6(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, as a group, 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)
     a  Seller,  or any  controlling  person  of a  Seller,  makes a  claim  for
     indemnification  pursuant  to  this  Section  11.6  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 11.6 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 not  provided  under this
     Section 11.6;  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; and (z) no person or entity guilty
     of fraudulent misrepresentation (within the meaning of Section 11(f) of the
     1933 Act) will be  entitled to  contribution  from any person or entity who
     was not guilty of such fraudulent misrepresentation.

                                       20
<PAGE>

     11.7. Delivery of Unlegended Shares.

          (a) Within  five (5)  business  days (such  fifth  business  day,  the
     "Unlegended  Shares  Delivery  Date")  after the  business day on which the
     Company has received  (i) a notice that  Registrable  Securities  have been
     sold either  pursuant to the  Registration  Statement  or Rule 144,  (ii) a
     representation   that  the  prospectus   delivery   requirements,   or  the
     requirements  of Rule 144, as applicable,  are being  satisfied,  and other
     reasonably requested written  representations,  if any, from the Subscriber
     and the selling  broker,  if any,  (iii) the  original  share  certificates
     representing  the shares of Common  Stock  that have been sold,  and (iv) a
     copy of Form 144 as filed or to be filed by the Subscriber,  the Company at
     its expense,  (y) shall deliver,  and shall cause legal counsel selected by
     the Company to deliver,  to its transfer  agent (with copies to Subscriber)
     an appropriate instruction and opinion of such counsel, for the delivery of
     shares of Common Stock without any legends  including the legends set forth
     in Section  4(e)  above,  issuable  pursuant to any  effective  and current
     registration  statement  described  in  Section  11 of  this  Agreement  or
     pursuant  to  Rule  144  (the  "Unlegended  Shares");  and  (z)  cause  the
     transmission  of  the  certificates   representing  the  Unlegended  Shares
     together with a legended certificate representing the balance of the unsold
     shares of Common Stock, if any, to the Subscriber at the address  specified
     in the notice of sale,  via  express  courier,  by  electronic  transfer or
     otherwise on or before the Unlegended Shares Delivery Date.

          (b) In lieu  of  delivering  physical  certificates  representing  the
     Unlegended  Shares, if the Company's transfer agent is participating in the
     Depository  Trust  Company  ("DTC")  Fast  Automated   Securities  Transfer
     program,  upon  request  of a  Subscriber,  so  long  as  the  certificates
     therefore  do not bear a legend  and the  Subscriber  is not  obligated  to
     return such certificate for the placement of a legend thereon,  the Company
     shall cause its transfer  agent to  electronically  transmit the Unlegended
     Shares by  crediting  the  account of  Subscriber's  prime  broker with DTC
     through its Deposit Withdrawal Agent Commission  system.  Such transmission
     must be made on or before the Unlegended Shares Delivery Date.

          (c) The  Company  understands  that a  delay  in the  delivery  of the
     Unlegended  Shares  pursuant  to  Section 11 hereof  beyond the  Unlegended
     Shares  Delivery  Date could result in economic  loss to a  Subscriber.  As
     compensation  to a Subscriber for such loss, the Company agrees to pay late
     payment fees (as liquidated damages and not as a penalty) to the Subscriber
     for late delivery of  Unlegended  Shares in the amount of $100 per business
     day after the Unlegended  Shares Delivery Date for each $10,000 of purchase
     price of the Unlegended Shares subject to the delivery  default.  If during
     any 360 day  period,  the  Company  fails to deliver  Unlegended  Shares as
     required by this Section  11.7 for an  aggregate of thirty (30) days,  then
     each Subscriber or assignee holding Securities subject to such default may,
     at its option,  require  the Company to purchase  all or any portion of the
     Shares and  Warrant  Shares  subject  to such  default at a price per share
     equal to 130% of the Purchase Price of such Shares and Warrant Shares.  The
     Company shall pay any payments  incurred  under this Section in immediately
     available funds upon demand.

          (d) In addition to any other rights available to a Subscriber,  if the
     Company fails to deliver to a Subscriber  Unlegended Shares within ten (10)
     calendar days after the Unlegended  Shares Delivery Date and 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
     of Common  Stock which the  Subscriber  was  entitled  to receive  from the
     Company (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  purchase  price of the shares of Common  Stock
     delivered to the Company for reissuance as Unlegended Shares, 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

                                       21
<PAGE>

     shall be paid as liquidated damages and not as a penalty).  For example, if
     a Subscriber purchases shares of Common Stock having a total purchase price
     of $11,000 to cover a Buy-In with  respect to $10,000 of purchase  price of
     shares  of  Common  Stock  delivered  to  the  Company  for  reissuance  as
     Unlegended  Shares,  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.

     12.  Security  Interest.  The  Subscribers  will be  granted a  subordinate
security  interest  in all the  assets of the  Company to be  memorialized  in a
Security  Agreement.  The Company will execute such other agreements,  documents
and  financing  statements  to be  filed  at the  Company's  expense  with  such
jurisdictions,  states and counties  designated by the Subscribers.  The Company
will also  execute all such  documents  reasonably  necessary  in the opinion of
Subscriber to memorialize  and further protect the security  interest  described
herein.  A form of  Security  Agreement  is  annexed  hereto as  Exhibit  D. The
Subscribers  will appoint a Collateral  Agent to represent them  collectively in
connection with the security interest to be granted in the Company's assets. The
appointment will be pursuant to a Collateral Agent Agreement, a form of which is
annexed hereto as Exhibit E.

     13. Miscellaneous.

          (a) Notices. All notices, demands, requests, consents,  approvals, and
     other  communications  required or permitted  hereunder shall be in writing
     and, unless otherwise  specified  herein,  shall be (i) personally  served,
     (ii)  deposited  in the  mail,  registered  or  certified,  return  receipt
     requested,  postage prepaid,  (iii) delivered by reputable  courier service
     with charges prepaid,  or (iv) transmitted by hand delivery,  or facsimile,
     addressed  as set forth below or to such other  address as such party shall
     have  specified  most  recently  by  written  notice.  Any  notice or other
     communication  required or permitted to be given  hereunder shall be deemed
     effective (a) upon hand  delivery or delivery by  facsimile,  with accurate
     confirmation  generated  by  the  transmitting  facsimile  machine,  at the
     address or number  designated  below (if delivered on a business day during
     normal  business  hours where such notice is to be received),  or the first
     business day following such delivery (if delivered other than on a business
     day during  normal  business  hours where such notice is to be received) or
     (b) on the second  business  day  following  the date of mailing by express
     courier service,  fully prepaid,  addressed to such address, or upon actual
     receipt of such  mailing,  whichever  shall first occur.  The addresses for
     such communications  shall be: (i) if to the Company,  to: NCT Group, Inc.,
     20 Ketchum Street,  Westport,  CT 06880,  attn:  Chief  Financial  Officer,
     telecopier  number:  (203)  226-4338,  with a copy by  telecopier  only to:
     General Counsel, (ii) if to the Subscriber,  to: the address and telecopier
     number  indicated 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,  and (iii) if to the
     Finders,  to: the addresses and telecopier  numbers indicated on Schedule 8
     hereto.

          (b) Closing. The consummation of the transactions  contemplated herein
     ("Closing") 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.

          (c) Entire Agreement;  Assignment.  This Agreement and other documents
     delivered in connection herewith represent 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.  Neither the Company nor the
     Subscribers have relied on any representations not contained or referred to
     in this  Agreement  and the  documents  delivered  herewith.  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.

                                       22
<PAGE>

          (d)  Counterparts.  This  Agreement  may be  executed in any number of
     counterparts,  each of which  when so  executed  shall be  deemed  to be an
     original and, all of which taken together shall constitute one and the same
     Agreement.  In the event  that any  signature  is  delivered  by  facsimile
     transmission, such signature shall create a valid binding obligation of the
     party  executing  (or on whose behalf such  signature is executed) the same
     with the same  force and  effect as if such  facsimile  signature  were the
     original thereof.

          (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 either
     party against the other  concerning the  transactions  contemplated by this
     Agreement  shall be brought  only in the state courts of New York or in the
     federal  courts  located  in the state of New  York.  The  parties  and the
     individuals  executing  this  Agreement  and other  agreements  referred to
     herein or delivered in  connection  herewith on behalf of the Company 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 its
     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  13(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) Independent Nature of Subscribers.  The Company  acknowledges that
     the  obligations of each  Subscriber  under the  Transaction  Documents are
     several and not joint with the obligations of any other Subscriber,  and no
     Subscriber  shall  be  responsible  in any way for the  performance  of the
     obligations of any other  Subscriber under the Transaction  Documents.  The
     Company  acknowledges  that the  decision  of each  Subscriber  to purchase
     Securities  has been  made by such  Subscriber  independently  of any other
     Subscriber and independently of any information,  materials,  statements or
     opinions  as to the  business,  affairs,  operations,  assets,  properties,
     liabilities,  results of operations,  condition (financial or otherwise) or
     prospects  of the  Company  which  may have been made or given by any other
     Subscriber  or by any agent or  employee  of any other  Subscriber,  and no
     Subscriber  or any of its agents or employees  shall have any  liability to
     any Subscriber  (or any other person)  relating to or arising from any such
     information,  materials,  statements or opinions.  The Company acknowledges
     that nothing contained in any Transaction Document,  and no action taken by
     any Subscriber pursuant hereto or thereto  (including,  but not limited to,
     the (i)  inclusion of a Subscriber in any  registration  statement and (ii)
     review by, and consent to, such  registration  statement  by a  Subscriber)
     shall  be  deemed  to  constitute  the  Subscribers  as a  partnership,  an
     association,  a joint  venture  or any other  kind of  entity,  or create a
     presumption  that the  Subscribers are in any way acting in concert or as a
     group with respect to such obligations or the transactions  contemplated by
     the Transaction  Documents.  The Company  acknowledges that each

                                       23
<PAGE>

     Subscriber  shall be  entitled  to  independently  protect  and enforce its
     rights,  including  without  limitation,  the  rights  arising  out  of the
     Transaction  Documents,  and  it  shall  not be  necessary  for  any  other
     Subscriber to be joined as an additional  party in any  proceeding for such
     purpose by virtue of it being a fellow Subscriber. The Company acknowledges
     that it has  elected to  provide  all  Subscribers  with the same terms and
     Transaction  Documents for the  convenience  of the Company and not because
     Company was required or requested to do so by the Subscribers.  The Company
     acknowledges that such procedure with respect to the Transaction  Documents
     in no way creates a presumption  that the Subscribers are in any way acting
     in concert or as a group with respect to the  Transaction  Documents or the
     transactions contemplated thereby.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       24
<PAGE>

                  SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
                  --------------------------------------------

     Please acknowledge your acceptance of the foregoing  Subscription Agreement
by signing and returning a copy to the  undersigned  whereupon it shall become a
binding agreement between us.

                                      NCT GROUP, INC.
                                      A Delaware Corporation

                                      By:     Michael J. Parrella
                                              ----------------------------------
                                      Name:   Michael J. Parrella
                                      Title:  Chairman & Chief Executive Officer

                                      Dated:  July 23, 2004

--------------------------------------   -------------------   -----------------
SUBSCRIBER                               PURCHASE PRICE        WARRANTS
                                                               ISSUABLE ON
                                                               CLOSING DATE
--------------------------------------   -------------------   -----------------
                                         $400,000.00           5,555,556

/s/  Konrad Ackerman
--------------------------------------
(Signature)
ALPHA CAPITAL AKTIENGESELLSCHAFT
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-42-32323196
--------------------------------------  --------------------   -----------------

                                       25
<PAGE>

                  SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
                  --------------------------------------------

     Please acknowledge your acceptance of the foregoing  Subscription Agreement
by signing and returning a copy to the  undersigned  whereupon it shall become a
binding agreement between us.

                                      NCT GROUP, INC.
                                      A Delaware Corporation

                                      By:     Michael J. Parrella
                                              ----------------------------------
                                      Name:   Michael J. Parrella
                                      Title:  Chairman & Chief Executive Officer

                                      Dated:  July 23, 2004

--------------------------------------  --------------------   -----------------
SUBSCRIBER                              PURCHASE PRICE         WARRANTS
                                                               ISSUABLE ON
                                                               CLOSING DATE
--------------------------------------  --------------------   -----------------
                                        $500,000.00            6,944,445

/s/  S. Michael Rudolph
--------------------------------------
(Signature) LONGVIEW FUND LP
600 Montgomery Street, 44th Floor
San Francisco, CA 94111
Attn:  S. Michael Rudolph
Fax:  (415) 981-5300
--------------------------------------  --------------------   -----------------

                                       26
<PAGE>

                         LIST OF EXHIBITS AND SCHEDULES
                         ------------------------------

         Exhibit A                  Form of Escrow Agreement

         Exhibit B                  Form of Warrant

         Exhibit C                  Form of Legal Opinion

         Exhibit D                  Form of Security Agreement

         Exhibit E                  Form of Collateral Agent Agreement

         Schedule 5(d)              Additional Issuances

         Schedule 5(h)              Litigation

         Schedule 5(m)              Defaults

         Schedule 5(q)              Undisclosed Liabilities

         Schedule 5(s)              Capitalization

         Schedule 8                 Finders

         Schedule 11.1              Other Securities to be Registered

                                       27Exhibit 10(ez)

                               SECURITY AGREEMENT

1.   Identification.

     This Security  Agreement (the  "Agreement"),  dated as of July 23, 2004, is
entered into by and between NCT Group,  Inc., a Delaware  corporation  ("NCT" or
"Debtor"),  and Barbara Mittman, as collateral agent acting in the manner and to
the extent  described  in the  Collateral  Agent  Agreement  defined  below (the
"Collateral  Agent"),  for the benefit of the parties  identified  on Schedule A
hereto (collectively, the "Lenders").

2.   Recitals.

     2.1 The Lenders have made or are making loans to NCT (the  "Loans").  It is
beneficial to NCT that the Loans were made, are being made and will be made.

     2.2 The Loans are  evidenced  by certain 8%  convertible  promissory  notes
(each a "Convertible Note") issued by NCT on or about the date of this Agreement
pursuant to subscription agreements  ("Subscription  Agreement").  The Notes are
further  identified on Schedule A hereto and were and will be executed by NCT as
"Borrower"  or  "Debtor"  for the  benefit  of each  Lender as the  "Holder"  or
"Lender" thereof.

     2.3 In consideration of the Loans made by Lenders to NCT and for other good
and valuable  consideration,  and as security for the  performance by NCT of its
obligations  under the Notes and as security for the  repayment of the Loans and
all  other  sums  due from  Debtor  to  Lenders  arising  under  the  Notes  and
Subscription  Agreements  (collectively,  the "Obligations"),  NCT, for good and
valuable consideration, receipt of which is acknowledged, has agreed to grant to
the Collateral Agent, for the benefit of the Lenders, a security interest in the
Collateral  (as such term is hereinafter  defined),  on the terms and conditions
hereinafter  set forth.  Obligations  includes all future advances by Lenders to
NCT.

     2.4 The Lenders have appointed Barbara Mittman as Collateral Agent pursuant
to that certain  Collateral  Agent  Agreement  dated July 23, 2004  ("Collateral
Agent Agreement"), among the Lenders and Collateral Agent.

     2.5 The following defined terms which are defined in the Uniform Commercial
Code in effect in the State of New York on the date hereof are used herein as so
defined:  Accounts,  Chattel Paper, Documents,  Equipment,  General Intangibles,
Instruments, Inventory and Proceeds.

3.   Grant of General Security Interest in Collateral.

     3.1 As  security  for the  Obligations  of Debtor,  NCT  hereby  grants the
Collateral  Agent,  for the benefit of the Lenders,  a security  interest in the
Collateral.

                                       1
<PAGE>

     3.2 "Collateral" shall mean all of the following property of NCT:

     All now owned and hereafter  acquired right,  title and interest of NCT in,
to and in respect of all accounts, goods, real or personal property, all present
and future  books and records  relating to the  foregoing  and all  products and
proceeds of the foregoing, as each is set forth below:

          (i) Accounts:  All now owned and hereafter  acquired right,  title and
     interest of NCT in, to and in respect of all: Accounts,  interests in goods
     represented  by Accounts,  returned,  reclaimed or  repossessed  goods with
     respect thereto and rights as an unpaid vendor;  contract  rights;  Chattel
     Paper; investment property;  General Intangibles (including but not limited
     to, tax and duty claims and refunds,  registered and unregistered  patents,
     trademarks,   service   marks,   certificates,   copyrights   trade  names,
     applications  for  the  foregoing,  trade  secrets,  goodwill,   processes,
     drawings,  blueprints,  customer  lists,  licenses,  whether as licensor or
     licensee,  choses in action  and other  claims,  and  existing  and  future
     leasehold  interests in equipment,  real estate and  fixtures);  Documents;
     Instruments;  letters of credit,  bankers' acceptances or guaranties;  cash
     moneys, deposits;  securities, bank accounts, deposit accounts, credits and
     other  property now or  hereafter  owned or held in any capacity by NCT, as
     well as its affiliates,  agreements or property securing or relating to any
     of the items referred to above;

          (ii) Goods:  All now owned and  hereafter  acquired  right,  title and
     interest of NCT in, to and in respect of goods, including,  but not limited
     to:

               (A)  All  Inventory,  wherever  located,  whether  now  owned  or
          hereafter acquired, of whatever kind, nature or description, including
          all raw materials,  work-in-process,  finished goods, and materials to
          be used or consumed in NCT'  business;  and all names or marks affixed
          to or to be  affixed  thereto  for  purposes  of  selling  same by the
          seller,  manufacturer,  lessor or licensor  thereof and all  Inventory
          which may be returned to NCT by its  customers or  repossessed  by NCT
          and all of NCT'  right,  title and  interest  in and to the  foregoing
          (including all of NCT' rights as a seller of goods);

               (B) All  Equipment and fixtures,  wherever  located,  whether now
          owned  or  hereafter  acquired,  including,  without  limitation,  all
          machinery,  motor  vehicles,  furniture and fixtures,  and any and all
          additions,  substitutions,  replacements  (including spare parts), and
          accessions  thereof  and thereto  (including,  but not limited to NCT'
          rights to  acquire  any of the  foregoing,  whether by  exercise  of a
          purchase option or otherwise);

          (iii) Property:  All now owned and hereafter acquired right, title and
     interests  of NCT in,  to and in  respect  of any  real or  other  personal
     property  in or  upon  which  NCT  has or  may  hereafter  have a  security
     interest, lien or right of setoff;

          (iv) Books and  Records:  All  present  and future  books and  records
     relating to any of the above including,  without  limitation,  all computer
     programs,  printed  output and computer  readable data in the possession or
     control of the NCT, any computer service bureau or other third party; and

                                       2
<PAGE>

          (v) Products and Proceeds:  All products and Proceeds of the foregoing
     in whatever form and wherever located,  including,  without limitation, all
     insurance  proceeds  and all  claims  against  third  parties  for  loss or
     destruction of or damage to any of the foregoing.

     3.3 The Collateral Agent is hereby specifically authorized,  after an Event
of Default (as defined herein) and the expiration of any applicable cure period,
to transfer any Collateral into the name of the Collateral Agent and to take any
and all action deemed  advisable to the Collateral  Agent to remove any transfer
restrictions affecting the Collateral.

4.   Perfection of Security Interest.

     NCT shall  execute and  deliver to the  Collateral  Agent  UCC-1  Financing
Statements.  The Collateral Agent is instructed to file the Financing Statements
in such  jurisdictions  deemed advisable to the Collateral Agent,  including but
not limited to Delaware and New York.  These Financing  Statements are deemed to
have been filed for the benefit of the Collateral  Agent and Lenders  identified
on Schedule A hereto.

5.   Distribution on Liquidation.

          5.1 If any  sum is  paid  as a  liquidating  distribution  on or  with
     respect to the Collateral,  NCT shall deliver same to the Collateral  Agent
     to be applied to the Obligations, then due, in accordance with the terms of
     the Notes.

          5.2 Prior to any Event of  Default,  NCT shall be entitled to exercise
     all  voting  power  pertaining  to  any of the  Collateral,  provided  such
     exercise  is not  contrary  to the  interests  of the  Lenders and does not
     impair the Collateral.

6.   Further Action By NCT; Covenants and Warranties.

          6.1  Collateral  Agent at all times  shall have a  perfected  security
     interest in the  Collateral,  subject  only to any security  interests  and
     liens of Carole Salkind and other validly filed and superior liens existing
     as of the date hereof. Additionally,  all collateral rights in intellectual
     property are  subordinated  to NCT's current  licenses and future  licenses
     provided,  that with respect to future licenses,  the consent of the Lender
     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,  NCT 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,  NCT may not, and hence does not herein,  grant a
     security interest. In addition,  all agreements between NCT Audio Products,
     Inc.  and NCT that  relate  to such  agreement,  and the stock of NCT Audio
     Products,  Inc. owned by NCT, shall similarly be excluded from the security
     interest  granted  in this  Security  Agreement.  Subject  to the  security
     interests described herein, NCT has and will continue to have full title to
     the  Collateral  free from any liens,  leases,  encumbrances,  judgments or
     other  claims.  Collateral  Agent's  security  interest  in the  Collateral
     constitutes

                                       3
<PAGE>

     and will continue to constitute a first,  prior and  indefeasible  security
     interest in favor of Collateral Agent, except as set forth herein. NCT will
     do all  acts  and  things,  and  will  execute  and  file  all  instruments
     (including, but not limited to, security agreements,  financing statements,
     continuation statements,  etc.) reasonably requested by Collateral Agent to
     establish,  maintain  and  continue  the  perfected  security  interest  of
     Collateral  Agent in the Collateral,  and will promptly on demand,  pay all
     costs and  expenses  of filing and  recording,  including  the costs of any
     searches  reasonably deemed necessary by Collateral Agent from time to time
     to establish and determine the validity and the continuing  priority of the
     security  interest of Collateral  Agent,  and also pay all other claims and
     charges that, in the opinion of Collateral Agent,  exercised in good faith,
     are reasonably likely to materially prejudice,  imperil or otherwise affect
     the Collateral or their security interests therein.

          6.2 Other  than in the  ordinary  course of  business,  and except for
     Collateral  which is substituted by assets of identical or greater value or
     which has become obsolete or is of  inconsequential  in value, NCT will not
     sell,  transfer,  assign or pledge those items of Collateral  (or allow any
     such items to be sold, transferred, assigned or pledged), without the prior
     written consent of Collateral  Agent.  Although  Proceeds of Collateral are
     covered  by this  Agreement,  this  shall  not be  construed  to mean  that
     Collateral Agent consents to any sale of the Collateral, except as provided
     herein.  Sales of  Collateral in the ordinary  course of business  shall be
     free of the security  interest of Lenders and Collateral  Agent and Lenders
     and  Collateral  Agent shall  promptly  execute such  documents  (including
     without limitation releases and termination  statements) as may be required
     by Debtor to evidence or effectuate the same.

          6.3 NCT will,  at all  reasonable  times and upon  reasonable  notice,
     allow Collateral Agent or its  representatives  free and complete access to
     the  Collateral  and all of NCT's  records  which in any way  relate to the
     Collateral,  for  such  inspection  and  examination  as  Collateral  Agent
     reasonably deems necessary.

          6.4 NCT, at its sole cost and  expense,  will  protect and defend this
     Security  Agreement,  all of the rights of Collateral Agent hereunder,  and
     the Collateral against the claims and demands of all other parties,  except
     those of holders of senior or permitted liens.

          6.5 NCT will promptly notify  Collateral Agent of any levy,  distraint
     or  other  seizure  by  legal  process  or  otherwise  of any  part  of the
     Collateral,  and of any threatened or filed claims or proceedings  that are
     reasonably likely to affect or impair any of the rights of Collateral Agent
     under this Security Agreement in any material respect.

          6.6  NCT,  at its own  expense,  will  obtain  and  maintain  in force
     insurance  policies  covering losses or damage to those items of Collateral
     which constitute  physical personal property.  The insurance policies to be
     obtained  by NCT  shall be in form and  amounts  reasonably  acceptable  to
     Collateral  Agent. NCT shall make the Collateral Agent a loss payee thereon
     to the  extent of its  interest.  Collateral  Agent is  hereby  irrevocably
     (until the Obligations are paid in full) appointed NCT' attorney-in-fact to
     endorse  any check or draft that may be  payable to NCT so that  Collateral
     Agent may collect the proceeds  payable for any loss under such  insurance.
     The  proceeds of such  insurance  (subject to the rights of senior  secured
     parties),  less any costs and expenses incurred or paid by Collateral Agent
     in the collection  thereof,  shall be applied either toward the cost of the
     repair or replacement  of the items damaged or destroyed,  or on

                                       4
<PAGE>

     account of any sums  secured  hereby,  whether or not then due or  payable.
     Insurance will not be required for Collateral that is securities.

          6.7 Collateral Agent may, at its option, and without any obligation to
     do so, pay, perform and discharge any and all amounts,  costs, expenses and
     liabilities herein agreed to be paid or performed by NCT, upon NCT' failure
     to do so, and all amounts  expended by  Collateral  Agent in so doing shall
     become part of the Obligations secured hereby, and shall be immediately due
     and payable by NCT to Collateral  Agent upon demand and shall bear interest
     at the lesser of 14% per annum or the highest  legal  amount from the dates
     of such expenditures until paid.

          6.8 Upon the request of Collateral Agent, NCT will furnish within five
     (5)  business  days  thereafter  to  Collateral  Agent,  or to any proposed
     assignee of this Security Agreement, a written statement in form reasonably
     satisfactory to Collateral Agent, duly acknowledged,  certifying the amount
     of the principal and interest then owing under the Obligations,  whether to
     its knowledge any claims, offsets or defenses exist against the Obligations
     or against this Security  Agreement,  or any of the terms and provisions of
     any other agreement of NCT securing the Obligations. In connection with any
     assignment  by  Collateral  Agent of this  Security  Agreement,  NCT hereby
     agrees to cause the  insurance  policies  required  hereby to be carried by
     NCT, if any, to be endorsed in form  satisfactory to Collateral Agent or to
     such assignee,  with loss payable clauses in favor of such assignee, and to
     cause such endorsements to be delivered to Collateral Agent within ten (10)
     calendar days after request therefor by Collateral Agent.

          6.9 NCT will, at its own expense, make, execute, endorse, acknowledge,
     file  and/or  deliver  to the  Collateral  Agent  from  time to  time  such
     vouchers,  invoices,  schedules,  confirmatory  assignments,   conveyances,
     financing   statements,   transfer   endorsements,   powers  of   attorney,
     certificates,  reports and other  reasonable  assurances or instruments and
     take further steps  relating to the Collateral and other property or rights
     covered by the security  interest hereby granted,  as the Collateral  Agent
     may reasonably require to perfect its security interest hereunder.

          6.10 NCT  represents and warrants that as of the date hereof it is the
     true and lawful  exclusive owner of the  Collateral,  free and clear of any
     liens and  encumbrances  except  for any in favor of Carole  Salkind  or as
     described herein.

          6.11 NCT  hereby  agrees not to divest  itself of any right  under the
     Collateral  except as permitted herein absent prior written approval of the
     Collateral Agent.

7.   Power of Attorney.

          After the occurrence and during the uncured  continuation  of an Event
     of Default thereunder,  NCT hereby irrevocably constitutes and appoints the
     Collateral Agent as the true and lawful attorney of NCT, with full power of
     substitution,  in the  place  and  stead  of NCT and in the  name of NCT or
     otherwise, at any time or times, in the discretion of the Collateral Agent,
     to take any action and to execute  any  instrument  or  document  which the
     Collateral Agent may deem necessary or advisable to accomplish the purposes
     of this

                                       5
<PAGE>

     Agreement.  This power of  attorney  is  coupled  with an  interest  and is
     irrevocable until the Obligations are satisfied.

8.   Performance By The Collateral Agent.

          If NCT fails to perform  any  material  covenant,  agreement,  duty or
     obligation of NCT under this Agreement, the Collateral Agent may, after any
     applicable cure period, at any time or times in its discretion, take action
     to effect  performance of such obligation.  All reasonable  expenses of the
     Collateral  Agent incurred in connection  with the foregoing  authorization
     shall  be  payable  by  NCT  as  provided  in  Paragraph  12.1  hereof.  No
     discretionary  right, remedy or power granted to the Collateral Agent under
     any part of this  Agreement  shall  be  deemed  to  impose  any  obligation
     whatsoever  on the  Collateral  Agent with  respect  thereto,  such rights,
     remedies  and powers  being  solely for the  protection  of the  Collateral
     Agent.

9.   Event of Default.

          An event of  default  ("Event  of  Default")  shall be  deemed to have
     occurred  hereunder  upon the occurrence of any event of default as defined
     in the  Notes  and  Subscription  Agreement.  Upon and  after  any Event of
     Default,  after  the  applicable  cure  period,  if any,  any or all of the
     Obligations  shall become  immediately due and payable at the option of the
     Collateral Agent, for the benefit of the Lenders,  and the Collateral Agent
     may dispose of Collateral as provided below. A default by NCT of any of its
     material  obligations  pursuant  to this  Agreement  shall  be an  Event of
     Default  hereunder  and an event of  default  as  defined  in the Notes and
     Subscription Agreement.

10.  Disposition of Collateral and Collateral Shares.

          Upon and after any Event of Default which is then continuing,

          10.1 The Collateral Agent may exercise its rights with respect to each
     and every component of the  Collateral,  without regard to the existence of
     any other security or source of payment for the Obligations. In addition to
     other rights and remedies provided for herein or otherwise available to it,
     the Collateral  Agent shall have all of the rights and remedies of a lender
     on default under the Uniform Commercial Code then in effect in the State of
     New York.

          10.2  If any  notice  to  NCT of the  sale  or  other  disposition  of
     Collateral is required by then applicable law, five business (5) days prior
     written notice (which NCT agrees is reasonable  notice) or, if longer,  the
     shortest period of time permitted by then applicable law to NCT of the time
     and place of any sale of  Collateral  which  NCT  hereby  agrees  may be by
     private sale. The rights granted in this Section are in addition to any and
     all rights available to Collateral Agent under the Uniform Commercial Code.

          10.3 The  Collateral  Agent is  authorized,  at any such sale,  if the
     Collateral  Agent deems it  advisable to do so, in order to comply with any
     applicable   securities  laws,  to  restrict  the  prospective  bidders  or
     purchasers  to persons who will  represent  and agree,  among other things,
     that  they  are  purchasing  the  Collateral  for  their  own  account  for
     investment,  and not with a view to the distribution or resale

                                       6
<PAGE>

     thereof,  or  otherwise  to restrict  such sale in such other manner as the
     Collateral  Agent deems  advisable  to ensure such  compliance.  Sales made
     subject  to such  restrictions  shall  be  deemed  to have  been  made in a
     commercially reasonable manner.

          10.4 All proceeds  received by the Collateral Agent for the benefit of
     the  Lenders in respect of any sale,  collection  or other  enforcement  or
     disposition of Collateral, shall be applied (after deduction of any amounts
     payable to the Collateral  Agent pursuant to Paragraph 12.1 hereof) against
     the Obligations pro rata among the Lenders in proportion to their interests
     in the Obligations.  Upon payment in full of all Obligations,  NCT shall be
     entitled to the return of all  Collateral,  including  cash,  which has not
     been used or applied  toward the payment of  Obligations or used or applied
     to any and all  costs or  expenses  of the  Collateral  Agent  incurred  in
     connection with the liquidation of the Collateral (unless another person is
     legally entitled  thereto).  Any assignment of Collateral by the Collateral
     Agent to NCT shall be  without  representation  or  warranty  of any nature
     whatsoever and wholly without recourse.  To the extent allowed by law, each
     Lender may purchase the  Collateral and pay for such purchase by offsetting
     any sums owed to such Lender by NCT arising  under the  Obligations  or any
     other source.

11.  Intentionally Left Blank.

12.  Miscellaneous.

          12.1 Expenses.  NCT shall pay to the Collateral Agent, on demand,  the
     amount of any and all reasonable expenses,  including,  without limitation,
     attorneys'  fees,  legal expenses and brokers'  fees,  which the Collateral
     Agent  may  incur  in  connection  with  (a)  sale,   collection  or  other
     enforcement or  disposition  of Collateral;  (b) exercise or enforcement of
     any the rights,  remedies or powers of the  Collateral  Agent  hereunder or
     with  respect to any or all of the  Obligations;  or (c)  failure by NCT to
     perform  and observe  any  agreements  of NCT  contained  herein  which are
     performed by the Collateral Agent.

          12.2  Waivers,  Amendment  and  Remedies.  No course of dealing by the
     Collateral  Agent and no failure by the  Collateral  Agent to exercise,  or
     delay by the  Collateral  Agent in exercising,  any right,  remedy or power
     hereunder  shall  operate  as a waiver  thereof,  and no single or  partial
     exercise  thereof shall preclude any other or further  exercise  thereof or
     the exercise of any other right,  remedy or power of the Collateral  Agent.
     No amendment, modification or waiver of any provision of this Agreement and
     no consent to any  departure  by NCT  therefrom,  shall,  in any event,  be
     effective unless contained in a writing signed by the Collateral Agent, and
     then  such  waiver  or  consent  shall be  effective  only in the  specific
     instance and for the specific purpose for which given. The rights, remedies
     and powers of the Collateral Agent, not only hereunder,  but also under any
     instruments and agreements evidencing or securing the Obligations and under
     applicable law are cumulative, and may be exercised by the Collateral Agent
     from time to time in such order as the Collateral Agent may elect.

          12.3  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 faxed (provided that a copy is
     delivered  by first  class  mail) to the party to  receive  the same at its
     address  set forth  below or

                                       7
<PAGE>

     to such other address as either party shall  hereafter give to the other by
     notice duly made under this Section:

     To NCT:                         NCT Group, Inc.
                                     20 Ketchum Street
                                     Westport, CT 06880
                                     Attn: Chief Financial Officer
                                     Fax: (203) 226-4338

     With a copy to:                 General Counsel

     To Lenders:                     To the addresses and telecopier numbers set
                                     forth on Schedule A

     To the Collateral Agent:        Barbara R. Mittman
                                     Grushko & Mittman, P.C.
                                     551 Fifth Avenue, Suite 1601
                                     New York, New York 10176
                                     Fax: (212) 697-3575

Any party may change  its  address by  written  notice in  accordance  with this
paragraph.

          12.4 Term;  Binding  Effect.  This Agreement  shall (a) remain in full
     force and  effect  until  payment  and  satisfaction  in full of all of the
     Obligations;  (b) be binding upon NCT,  and its  successors  and  permitted
     assigns;  and (c) inure to the  benefit of the  Collateral  Agent,  for the
     benefit of the Lenders and their respective successors and assigns. All the
     rights and benefits  granted by Debtor to the Collateral  Agent and Lenders
     in the Loan Documents are deemed  granted to both the Collateral  Agent and
     Lenders.

          12.5 Captions.  The captions of  Paragraphs,  Articles and Sections in
     this  Agreement have been included for  convenience of reference  only, and
     shall not define or limit the provisions  hereof and have no legal or other
     significance whatsoever.

          12.6  Governing Law;  Venue;  Severability.  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 or choice of law,  except to
     the extent that the perfection of the security  interest  granted hereby in
     respect of any item of  Collateral  may be  governed  by the law of another
     jurisdiction.  Any legal action or  proceeding  against NCT with respect to
     this  Agreement may be brought in the courts of the State of New York or of
     the United States for the Southern  District of New York, and, by execution
     and delivery of this Agreement,  NCT hereby irrevocably  accepts for itself
     and  in  respect  of  its  property,  generally  and  unconditionally,  the
     jurisdiction of the aforesaid  courts.  NCT hereby  irrevocably  waives any
     objection  which they may now or  hereafter  have to the laying of venue of
     any of the aforesaid actions or proceedings arising out of or in

                                       8
<PAGE>

     connection with this Agreement  brought in the aforesaid  courts and hereby
     further  irrevocably  waives  and  agrees not to plead or claim in any such
     court that any such action or proceeding brought in any such court has been
     brought in an inconvenient  forum.  If any provision of this Agreement,  or
     the  application  thereof to any person or  circumstance,  is held invalid,
     such invalidity  shall not affect any other  provisions  which can be given
     effect without the invalid  provision or  application,  and to this end the
     provisions  hereof shall be severable and the remaining,  valid  provisions
     shall remain of full force and effect.

          12.7  Counterparts/Execution.  This  Agreement  may be executed in any
     number of counterparts and by the different  signatories hereto on separate
     counterparts, each of which, when so executed, shall be deemed an original,
     but all such counterparts shall constitute but one and the same instrument.
     This  Agreement  may be executed by facsimile  signature  and  delivered by
     facsimile transmission.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       9
<PAGE>

          IN WITNESS  WHEREOF,  the undersigned have executed and delivered this
     Security Agreement, as of the date first written above.

"DEBTOR"                                         "THE COLLATERAL AGENT"
NCT GROUP, INC.                                   BARBARA R. MITTMAN
a Delaware corporation

By:  /s/  Michael J. Parrella                     /s/  Barbara R. Mittman
     ----------------------------                 ------------------------------

     Michael Parrella
Its: Chairman & C.E.O.

                             APPROVED BY "LENDERS":

/s/  Konrad Ackerman                              /s/  S. Michael Rudolph
---------------------------------                 ------------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT                  LONGVIEW FUND LP

        This Security Agreement may be signed by facsimile signature and
                 delivered by confirmed facsimile transmission.

                                       10
<PAGE>

                        SCHEDULE A TO SECURITY AGREEMENT

---------------------------------------------     ------------------------------
LENDER                                            PRINCIPAL AMOUNT OF NOTE
---------------------------------------------     ------------------------------
ALPHA CAPITAL AKTIENGESELLSCHAFT                  $400,000.00
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-42-32323196
---------------------------------------------     ------------------------------
LONGVIEW FUND LP                                  $500,000.00
600 Montgomery Street, 44th Floor
San Francisco, CA 94111
Attn:  S. Michael Rudolph
Fax:  (415) 981-5300
---------------------------------------------     ------------------------------
TOTALS                                            $900,000.00
---------------------------------------------     ------------------------------

                                       11

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00069-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00069-of-00352.parquet"}]]