Document:

Airt employment agreement with John Parry dated 10/06/06

    EXHIBIT
      10.1

     

    EMPLOYMENT
      AND NONCOMPETE AGREEMENT

    

    

    THIS
      EMPLOYMENT AND NONCOMPETE AGREEMENT
      (“Agreement”), made and entered into as of the 6th day of October, 2006, by and
      between JOHN
      PARRY,
      an
      individual resident of Idaho (“Employee”), and AIR
      T, INC.,
      a
      Delaware corporation (the “Company”).

     

     

    Background
      Statement

     

    The
      Company, through its subsidiaries, provides overnight air freight service to
      the
      express delivery industry, and manufactures, sells and services aircraft ground
      support and special purpose industrial equipment. Employee has agreed to join
      the Company initially as a Vice President and after a brief period as Chief
      Financial Officer and Vice President--Finance pursuant to the terms of this
      Agreement. Employee has or will be exposed to various information, data,
      methods, processes, software and systems of the Company, many of which are
      proprietary to the Company or which will represent a substantial investment
      in
      the training and/or development of Employee. 

     

    IN
      CONSIDERATION
      of the
      promises and the mutual covenants contained herein, the parties hereto agree
      as
      follows:

     

    1.  Employment.
      Subject
      to the terms and conditions stated herein, and in consideration of Employee’s
      obligations and covenants, including without limitation, those obligations
      and
      covenants set forth in Paragraphs 7, 8 and 9 hereof, the Company agrees to
      employ Employee on an active and full-time basis, and Employee accepts such
      employment, initially as a Vice President and after a brief period as Chief
      Financial Officer and Vice President--Finance of the Company, subject to the
      order, supervision and direction of the Company’s Board of Directors and its
      Chief Executive Officer.

     

    2.  Duties.
      Employee shall initially serve the Company as Vice President and after a brief
      transition period shall thereafter serve the Company as Chief Financial Officer
      and Vice President—Finance and in those capacities shall devote Employee’s full
      business time, skill and best efforts to the business of the Company and
      faithfully perform such executive and supervisory duties as may be prescribed
      by
      the Company’s Board of Directors and its Chief Executive Officer. Employee shall
      act at all times in compliance, in all material respects, with all policies,
      rules and decisions adopted from time to time by the Board of Directors of
      the
      Company, including the Company’s Code of Business Conduct and
      Ethics.

     

    3.  Term
      of Employment.
      The
      term of Employee’s employment by the Company hereunder shall commence as of the
      date hereof and shall continue for a period of three (3) years after such
      commencement date (the “Term of Employment”), unless sooner terminated as
      provided in paragraph 5 below.

     

    4.  Compensation.

     

    (a)  The
      base
      annual compensation rate to be paid to Employee for the services to be rendered
      hereunder (“Base Rate”) throughout the Term of Employment, except to the extent
      adjusted as provided below, shall be $125,000, payable in accordance with the
      Company’s normal payroll practices, subject to applicable federal and state
      income and social security tax withholding requirements. Employee’s Base Rate
      may be reviewed from time to time and may be adjusted upward as Employee’s
      performance, the performance of the Company and other pertinent factors
      warrant.

     

    (b)  Incentive
      Compensation.
      During
      the term of this Agreement, Employee will be entitled to receive, as incentive
      compensation, compensation equal to 1.5 % of the Company’s pre-tax net income
      included in the audited, consolidated net income statement of the Company.
      This
      incentive compensation will be paid on or about June 15 of each year, with
      respect to results achieved during the previous fiscal year. In the event
      Employee’s employment is terminated during the fiscal year, he shall be eligible
      to receive a pro-rata portion of the incentive compensation for that fiscal
      year, to be paid on or about June 15 following his termination of
      employment.

     

    (c)  Employee
      Benefit Plans.
      In
      addition to the Base Salary provided for above, the Company shall provide to
      Employee the opportunity to participate in all life insurance, medical,
      disability, and other employee benefit plans (collectively, “Employee Benefit
      Plans”) sponsored from time to time by the Company and covering its employees
      generally or a particular group of its employees of which Employee is a member
      (including participation by Employee’s spouse and dependents to the extent they
      are eligible under the terms of such plans), subject to the terms and conditions
      of such benefit plans. 

     

    (d)  Reimbursement
      of Expenses.
      The
      Company shall pay or reimburse Employee for all reasonable travel and other
      expenses incurred by Employee in performing Employee’s obligations under this
      Employment Agreement in accordance with the Company’s expense reimbursement
      policies as established and changed from time to time. In addition, the Company
      will reimburse Employee for up to$10,000 in moving expenses in connection with
      the relocation of his residence from Idaho to Maiden, North Carolina or any
      nearby area.

     

    (e)  Vacation.
      Employee shall be entitled to paid annual vacation of up to four weeks per
      year.

     

    (f)  Car
      Allowance.
      Employee shall be entitled to receive a car allowance of four hundred dollars
      ($400) per month plus reimbursement for fuel, repair expense and insurance
      for
      his primary automobile upon presentation of documentation in accordance with
      the
      Company’s expense reimbursement policies as established and changed from time to
      time.

     

    (g)  Stock
      Options.
      Employee shall be eligible to be considered for participation in any stock
      option plan approved by the stockholders of Air T, Inc., with the amount of
      options and vesting schedule to be determined by the Compensation Committee
      of
      the member company’s Board of Directors.

     

    5.  Termination.

     

    (a)  Termination
      Events.
      Employee’s employment hereunder will terminate upon the earlier of (i) the
      death of Employee or Employee’s becoming Permanently Disabled (as defined
      below), (ii) termination by the Company for Cause (as defined below),
      (iii) termination by the Company without Cause or (iv) the expiration of
      the Term of Employment.

     

    (b)  Termination
      Payments.
      From
      and after the termination of Employee’s employment for any reason set forth in
      Sections 5(a)(i), 5(a)(ii) or 5(a)(iv) the Company shall not be liable to
      Employee, Employee’s spouse or Employee’s personal representative for the
      payment of salary, benefits, or payments of any kind, except for amounts payable
      under this Employment Agreement that are attributable to services performed
      by
      Employee prior to the termination of Employee’s employment, or except as
      provided by the terms of any Company benefit, disability or retirement plan
      in
      which Employee may be a participant.

     

    (c)  Termination
      Without Cause.
      In the
      event Employee is terminated by Employer without cause, Employee shall be
      entitled solely to receive the payments set forth in paragraph 6 herein, subject
      to the conditions thereof.

     

    (d)  Definition
      of “Cause.”
“Cause”
      means (i) the failure of Employee to carry out and perform Employee’s
      duties hereunder; (ii) the refusal by or inability of Employee to follow
      the lawful directions of the member company’s Board of Directors; (iii) the
      commission of an act by Employee constituting financial dishonesty against
      the
      Company; (iv) the commission of an act by Employee involving a felony;
      (v) the commission of an act by Employee that brings the Company or any of
      its affiliates into public disrepute or disgrace or causes material harm to
      the
      customer relations, operations or business prospects of the Company or its
      subsidiaries; or (vi) violation by Employee of any provision of this
      Agreement.

     

    (e)  Definition
      of “Permanent Disability”.
      “Permanent Disability” means any physical or mental impairment that renders
      Employee unable to perform the essential functions of Employee’s job under the
      terms of this Employment Agreement, either with or without reasonable
      accommodation, for a period of six (6) months or more. 

     

    6.  Severance
      Payment.
      In the
      event of the termination of Employee’s employment without Cause, the Company
      shall continue to pay the base salary of Employee for a period of twelve (12)
      months from the date of termination, conditional upon Employee’s execution of a
      release of claims against the Company. This release shall be in a form
      satisfactory to the Company, and shall be a general release of all claims.
      These
      separation payments shall be payable at a time and in accord with the regular
      payroll practices of the Company, but shall not commence until the execution
      of
      such release by Employee and the satisfaction of all waiting and revocation
      periods required by law. All such amounts shall be subject to and reduced by
      any
      applicable federal and state withholding taxes.

     

    7.  Confidentiality.
      Employee acknowledges that during Employee’s employment with the Company
      Employee will acquire, be exposed to and have access to, material, data and
      information of the Company and/or its customers or clients that is confidential,
      proprietary, and/or a trade secret. At all times, both during and after the
      termination of employment, Employee shall keep and retain in confidence and
      shall not disclose, except as required in the course of Employee’s employment
      with the Company, to any person, firm or corporation, or use for his own
      purposes, any of this proprietary, confidential or trade secret information.
      For
      purposes of this paragraph, such information shall include, but shall not be
      limited to: sales methods, information concerning customers, advertising
      methods, financial affairs or methods of procurement, marketing and business
      plans, strategies, projections, business opportunities, client lists, sales
      and
      cost information and financial results and performance. Employee acknowledges
      that the obligations pertaining to the confidentiality and non-disclosure of
      information shall remain in effect for a period of five (5) years, or until
      the
      Company has released any such information into the public domain, in which
      case
      Employee’s obligation hereunder shall cease with respect only to such
      information so released.

     

    8.  Non-Competition
      Agreement.
      So long
      as Employee is employed by the Company and for a period of one (1) year
      following termination of Employee’s employment (such period not to include any
      period(s) of violation or period(s) of time required for litigation to enforce
      the covenants herein), whether such termination is voluntary or involuntary
      on
      the part of Employee and whether such termination is with or without Cause,
      Employee shall not:

     

    (f)  Become
      employed by (as an officer, director, employee, consultant or otherwise), or
      otherwise become commercially interested in or affiliated with (whether through
      direct, indirect, actual or beneficial ownership or through a financial
      interest), a COMPETITOR, unless Employee accepts employment with a COMPETITOR
      in
      an area of the COMPETITOR’S business which does not compete with the Company.
      For purposes of this Agreement, a COMPETITOR shall be defined as any person,
      firm, business or entity (including any sole proprietorship of Employee)
that
      provides
      overnight air freight service to any of the Company’s customers or manufactures,
      leases, sells or provides third-party maintenance services with respect to
      mobile deicing/decontamination equipment, catering/cabin service trucks,
      pedestal-mounted deicing systems or ground support equipment.

     

    (g)  Solicit
      or attempt to solicit, for competitive purposes, the business of any of the
      Company’s clients or customers or otherwise induce such customers or clients to
      reduce, terminate, or restrict or alter their business relationships with the
      Company in any fashion.

     

    (h)  Induce
      or
      attempt to induce any employee of the Company to leave the Company for the
      purpose of engaging in a business operation that is competitive with the
      Company’s business operations.

     

    (i)  In
      recognition of the broad geographic scope of the Company’s business, including
      that its customer base extends throughout the United States, and of the ease
      of
      competing with that business in any part of the United States, the restrictions
      on competition set forth herein are intended to cover the United States.
      Provided, however, that the Company shall have the right to limit, unilaterally,
      the scope of any provision of this Agreement to ensure the enforceability of
      Employee’s agreement not to compete with the Company.

     

    9.  Assignment
      of Inventions.
      Employee understands and agrees that Employee is performing work for hire for
      the Company and that any INVENTIONS developed or conceived by Employee during
      Employee’s employment with the Company are the sole property of the Company.
      INVENTIONS shall include any inventions, discoveries, programs, programming
      techniques, underlying program designs and/or concepts, machinery, products,
      processes, computer hardware, information systems, software (including without
      limitation source code, object code, documentation, diagrams and flow charts),
      as well as any other discoveries, concepts and ideas, whether patentable or
      not,
      relating to any present or prospective activities or business of the Company.
      Employee agrees to assign, and does hereby assign, to the Company or its
      nominees, all right, title and interest in and to INVENTIONS made by Employee.
      Employee will, with reasonable reimbursement for expenses, but at no other
      expense to the Company, at any time during or after Employee’s employment with
      the Company, sign and deliver all lawful papers and cooperate in such other
      lawful acts which may be reasonably necessary or desirable to protect or vest
      title in INVENTIONS in the Company or its nominees, including applying for,
      obtaining, maintaining, and enforcing copyrights and/or patents on INVENTIONS
      in
      all countries of the world. Provided, however, that nothing herein shall require
      the Company to accept or perfect any such assignment or other conveyance of
      any
      interest in any patent or INVENTIONS or require the Company to prosecute such
      patent or other application. This provision does not apply to any INVENTIONS
      for
      which Employee affirmatively proves that no equipment, supplies, facility,
      or
      trade secret information of the Company was used and which was developed
      entirely on Employee’s own time unless (a) the INVENTIONS relate
      (i) directly to the business of the Company, or (ii) to the Company’s
      actual or demonstrably anticipated research or development; or (b) the
      INVENTIONS result, either directly or indirectly, from any work performed by
      Employee for the Company. 

     

    10.  Company’s
      Right to Obtain an Injunction.
      Employee acknowledges that the Company will have no adequate means of protecting
      its rights under paragraphs 7, 8 and 9 of this Agreement other than by securing
      an injunction (a court order prohibiting Employee from violating the Agreement).
      Accordingly, Employee agrees that the Company is entitled to enforce this
      Agreement by obtaining a preliminary and permanent injunction and any other
      appropriate equitable relief. Nothing contained in this paragraph, however,
      shall prohibit the Company from pursuing any remedies in addition to injunctive
      relief, including recovery of damages. 

     

    11.  Condition
      to Seeking Subsequent Employment.
      Employee agrees to show a copy of this Agreement to any COMPETITOR with whom
      Employee interviews during Employee’s employment with the Company or with whom
      Employee interviews within one (1) years following the effective date of the
      termination of Employee’s employment with the Company.

     

    12.  General
      Provisions.

     

    (j)  Entire
      Agreement.
      This
      Employment Agreement contains the entire understanding between the parties
      hereto relating to the employment of Employee by the Company and supersedes
      any
      and all prior employment or compensation agreements between the Company and
      Employee.

     

    (k)  Severability.
      If any
      provision contained in this Employment Agreement shall for any reason be held
      invalid, illegal or unenforceable in any respect, such invalidity, illegality
      or
      unenforceability shall not affect any other provision of this Employment
      Agreement but this Employment Agreement shall be construed as if such invalid,
      illegal or unenforceable provision had never been contained herein.

     

    (l)  Assignment.
      Neither
      this Employment Agreement nor any right or interest hereunder shall be
      assignable by Employee, Employee’s beneficiaries or legal representatives,
      without the prior written consent of the Company; provided, however, that
      nothing shall preclude (i) Employee from designating a beneficiary to
      receive any benefit payable upon Employee’s death, or (ii) the executors,
      administrators or other legal representatives of Employee or Employee estate
      from assigning any rights hereunder to the person or persons entitled thereunto.
      The Company may transfer or assign its rights and interest in this Employment
      Agreement to any person, proprietorship, partnership, limited liability company
      or corporation that acquires or succeeds to at least a majority of the equity,
      assets, accounts or other business of the Company.

     

    (m)  Binding
      Agreement.
      This
      Employment Agreement shall be binding upon, and inure to the benefit of,
      Employee and the Company and their respective permitted successors and
      assigns.

     

    (n)  Amendment
      or Modification of Employment Agreement.
      This
      Employment Agreement may not be modified or amended except by an instrument
      in
      writing signed by the parties hereto.

     

    (o)  Waiver.
      No
      delay or omission by either party hereto in exercising any right, power or
      privilege hereunder shall impair such right, power or privilege, nor shall
      any
      single or partial exercise of any right, power or privilege preclude any further
      exercise thereof or the exercise of any other right, power or privilege. The
      provisions of this paragraph 12(f) cannot be waived except in writing signed
      by
      both parties.

     

    (p)  Governing
      Law and Forum Selection.
      This
      Agreement shall be construed in accordance with and governed by the substantive
      laws of the State of North Carolina, without regard to conflict of laws
      principles. Furthermore, in exchange for the consideration set forth herein,
      Employee agrees that any claim against the Company (i) for the breach or
      invalidity of any provision of this Agreement; (ii) arising out of or
      relating to the employment of Employee with the Company or
      (iii) encompassed within or related to any claim to be released as provided
      in paragraph 6 herein, shall be brought exclusively in the Superior Court of
      Lincoln County, North Carolina, or the United States District Court for the
      Western District of North Carolina, and in no other forum. Employee hereby
      consents to the personal and subject matter jurisdiction of these courts for
      the
      purpose of adjudicating any claims subject to this forum selection clause.
      Employee also agrees that any dispute of any kind arising out of or relating
      to
      this Agreement or to Employee’s employment with the Company shall at the
      Company’s sole election be submitted to arbitration before the American
      Arbitration Association in Mecklenburg County, North Carolina, which election
      may be made by the Company at any time prior to the last day to answer and/or
      respond to a summons and/or complaint or counterclaim, crossclaim or third-party
      claim made by Employee. The provisions of the North Carolina Uniform Arbitration
      Act, N.C. Gen. Stat. § 1-567.1 et seq. shall apply to the arbitration of
      disputes hereunder unless such provisions are preempted by the Federal
      Arbitration Act. 

     

    (q)  Notices.
      Any
      notice, offer, acceptance or other document required or permitted to be given
      pursuant to any provisions of this Agreement shall be in writing, signed by
      or
      on behalf of the person giving the same, and (as elected by the person giving
      such notice) delivered by hand or mailed to the parties at the following
      addresses by registered or certified mail, postage prepaid, return receipt
      requested, or by a third party company or governmental entity providing delivery
      services in the ordinary course of business, which guarantees delivery on a
      specified date:

     

    If
      to
      Employee: John
      Parry

    

    

     

    If
      to the
      Company: Air
      T,
      Inc. 

    PO
      Box
      488

    Denver,
      N.C., 28037 

    

     

    Attention:
      Walter Clark

     

    or
      to
      such other address as any party hereto may designate by complying with the
      provisions of this Section 12(h).

     

    Such
      notice shall be deemed given (i) as of the date of written acknowledgment
      by Employee or an officer of the Company if delivered by hand,
      (ii) seventy-two (72) hours after deposit in United States mail if sent by
      registered or certified mail or (iii) on the delivery date guaranteed by
      the third party delivery service if sent by such service.

     

    Rejection
      or other refusal to accept or inability to deliver because of changed address
      of
      which no notice has been received shall not affect the date upon which the
      notice is deemed to have been given pursuant hereto. Notwithstanding the
      foregoing, no notice of change of address shall be effective until the date
      of
      receipt hereof.

     

    13.  Consideration
      for Election to Board Of Directors.
      Employee
      shall be considered by the Nominating Committee of the Board of Directors for
      nomination for election as a director at the Company’s 2007 annual meeting of
      stockholders and at subsequent annual meetings of stockholders for so long
      as he
      continues to serve as the Company’s Chief Financial Officer.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      Employee has executed this Agreement and the Company has caused this Agreement
      to be executed in its name by its duly authorized officials as of the day and
      year first above written.

    

    

    EMPLOYEE:

    

    

    /s/
      John Parry     

    John
      Parry

    

    

    COMPANY:

    

    AIR
      T,
      INC.

    

    

    By: /s/
      Walter Clark   

    

    Title: Chief
      Executive OfficerExhibit 10.1

THIS AGREEMENT AND THE CONVERTIBLE  NOTES AND SHARES OF STOCK ISSUABLE  PURSUANT
HERETO  (1)  HAVE NOT BEEN  REGISTERED  UNDER  THE  SECURITIES  ACT OF 1933,  AS
AMENDED,  (2) ARE BEING ACQUIRED FOR INVESTMENT PURPOSES ONLY AND (3) MAY NOT BE
SOLD,  TRANSFERRED  OR  ASSIGNED  IN THE  ABSENCE OF AN  EFFECTIVE  REGISTRATION
STATEMENT  UNDER SAID ACT OR AN OPINION OF COUNSEL IN FORM,  SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO NCT GROUP, INC. THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR UNLESS  SOLD  PURSUANT  TO RULE 144 UNDER  SAID ACT.  ANY SUCH SALE,
TRANSFER OR ASSIGNMENT MUST ALSO COMPLY WITH APPLICABLE STATE SECURITIES LAWS.

                       CONVERTIBLE NOTE PURCHASE AGREEMENT

Convertible Note Purchase  Agreement,  dated as of October 3, 2006,  between NCT
Group, Inc., a Delaware  corporation with an office at 20 Ketchum St., Westport,
CT 06880 ("Issuer"),  and Carole Salkind, an individual with an address of 18911
Collins Avenue, Apt. 2403, Sunny Isles Beach, FL 33160 ("Purchaser").

Issuer and Purchaser hereby agree as follows:

1.   Sale and Purchase.  Subject to the terms and conditions of this  Agreement,
     Issuer hereby agrees to issue and sell to Purchaser,  and Purchaser  hereby
     agrees to purchase from Issuer:  (a) a 15% Secured  Convertible Note of the
     Issuer in the principal amount of $133,443,201.79  and substantially in the
     form  attached as Exhibit A hereto (the "15%  Note");  and (b) a 9% Secured
     Convertible  Note of the Issuer in the principal  amount of  $33,360,800.45
     and  substantially in the form attached as Exhibit B hereto (the "9% Note,"
     and together with the 15% Note,  the "New Notes").  The purchase  price for
     the New Notes (the "Purchase  Price") is set forth in Section 2 below.  The
     consummation of this sale and purchase (the "Closing") shall occur no later
     than seven days after the execution of this Agreement.

2.   Payment of Purchase  Price.  As payment of the  Purchase  Price,  Purchaser
     hereby cancels, discharges and releases Issuer and its officers, directors,
     employees,  agents, affiliates and successors-in-interest  from any and all
     liabilities  and  obligations,  whether now existing or hereafter  arising,
     under the Secured  Convertible  Notes  previously  issued to  Purchaser  by
     Issuer listed on Exhibit C hereto (collectively, the "Cancelled Notes").

3.   Purchaser  Representations.  Purchaser  hereby  represents  to Issuer  that
     Purchaser:  (a) has not assigned or transferred the Cancelled Notes, or any
     portion thereof or interest  therein,  to any third party;  (b) understands
     that the  investment in the New Notes is a speculative  investment;  (c) is
     aware of the  business  affairs and  financial  condition of Issuer and has
     acquired  sufficient  information  about  Issuer to reach an  informed  and
     knowledgeable  decision to acquire the New Notes; (d) is purchasing the New
     Notes for investment for  Purchaser's  own account only and not with a view
     to, or for resale in connection with, any "distribution" within the meaning
     of the  Securities  Act of 1933,  as amended  (the  "Securities  Act"),  or
     applicable  state  securities  laws; (e)  understands  that neither the New
     Notes nor any shares of the Issuer's  common stock issued or issuable  upon
     conversion of the New Notes (the "Conversion  Shares") have been registered
     under the Securities Act or applicable  state  securities laws by reason of
     specific  exemptions  therefrom,  which exemptions depend upon, among other
     things, the bona fide nature of Purchaser's  investment intent as expressed
     herein;  (f) acknowledges that the New Notes and any Conversion Shares must
     be held indefinitely  unless  subsequently  registered under the Securities
     Act  and  qualified  under  applicable  state  securities  laws  or  unless
     exemptions  from  such  registration  and  qualification  requirements  are
     available;   (g)  acknowledges  that  each  certificate   representing  any
     Conversion  Shares  will  be  endorsed  with a  legend  setting  forth  the
     restrictions on transfer of the Conversion  Shares; (h) has had, or has had
     the  opportunity  to have,  this  Agreement  reviewed prior to execution by
     Purchaser's legal counsel and Purchaser's financial or other advisors;  (i)
     is an  experienced  and  sophisticated  investor and has such knowledge and
     experience in financial  and business  matters as are necessary to evaluate
     the merits and risks of an investment  in the New Notes and any  Conversion
     Shares;  and (j) is an  "accredited  investor" as defined in Rule 501(a) of
     Regulation D promulgated under the Securities Act.

                                       1
<PAGE>

4.   Issuer  Representations.  Issuer hereby  represents to Purchaser  that: (a)
     upon  issuance,  any  Conversion  Shares will be duly  authorized,  validly
     issued, fully paid and non-assessable; (b) the Board of Directors of Issuer
     has approved  this  Agreement  and the  issuance of the New Notes  pursuant
     hereto;  (c) the New Notes provide for the grant to Purchaser of a security
     interest in all of the assets  owned by Issuer as more fully  described  in
     Article IV of each of the New Notes,  the liens of Purchaser  under the New
     Notes are intended to be  uninterrupted  from January 26, 1999 for purposes
     of the applicable provisions of the Uniform Commercial Code, and such liens
     shall  continue  until the New Notes are paid or  otherwise  disposed of in
     accordance  with  their  terms  and  conditions;  and (d)  Issuer  shall do
     anything  reasonably  requested by Purchaser in order to affirm or continue
     such liens, including the execution of any necessary documentation, such as
     UCC financing statements.

5.   Restrictive  Legend.  Each certificate for any Conversion  Shares that have
     not been  registered  and that have not been sold  pursuant to an exemption
     that  permits  removal  of  a  restrictive  legend,  shall  bear  a  legend
     substantially in the following form:

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE (1) HAVE NOT BEEN REGISTERED
     UNDER THE  SECURITIES  ACT OF 1933, AS AMENDED,  (2) HAVE BEEN ACQUIRED FOR
     INVESTMENT  PURPOSES ONLY AND (3) MAY NOT BE SOLD,  TRANSFERRED OR ASSIGNED
     IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT FOR THE  SECURITIES
     UNDER THE SECURITIES  ACT OF 1933, AS AMENDED,  OR AN OPINION OF COUNSEL IN
     FORM,  SUBSTANCE AND SCOPE  REASONABLY  ACCEPTABLE TO NCT GROUP,  INC. THAT
     REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
     144 UNDER SAID ACT. ANY SUCH SALE,  TRANSFER OR ASSIGNMENT MUST ALSO COMPLY
     WITH APPLICABLE STATE SECURITIES LAWS.

6.   Closing. At or prior to the Closing,  Issuer shall deliver to Purchaser the
     New Notes; and Purchaser shall deliver to Issuer the Cancelled Notes.

7.   Miscellaneous. Notices under this Agreement shall be given in writing or by
     fax to the party at the address indicated in the introductory  paragraph of
     this Agreement (fax numbers  203-226-4338  for Issuer and  973-361-1644 for
     Purchaser;  for fax and other  notices to  Issuer,  Attn:  Chief  Financial
     Officer).  This Agreement:  (a) represents the entire agreement between the
     parties with respect to the subject matter  hereof;  (b) may not be amended
     except  by  written  instrument  executed  by both  parties;  (c)  shall be
     governed by  Connecticut  law as it applies to agreements  entered into and
     wholly to be  performed  in such  State,  other than  matters  relating  to
     corporate law, which shall be governed by Delaware law; (d) may be executed
     in counterparts; and (e) may be delivered by fax.

IN WITNESS  WHEREOF,  Issuer and Purchaser  have duly executed this  Convertible
Note Purchase Agreement as of the date first referenced above.

NCT GROUP, INC.

By: /s/  Michael J. Parrella                   /s/  Carole Salkind
    ---------------------------------          ---------------------------------
      Michael J. Parrella                        Carole Salkind
      Chairman and Chief Executive Officer

                                       2
<PAGE>

                                                                       Exhibit A
                                                                       ---------

THE SECURITIES  REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
CONVERSION  HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  THE SECURITIES  HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED  OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT
FOR THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR AN OPINION
OF COUNSEL IN FORM,  SUBSTANCE AND SCOPE  REASONABLY  ACCEPTABLE TO THE BORROWER
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT. ANY SUCH SALE,  ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.

                            SECURED CONVERTIBLE NOTE
                                 (No. CTS-06-__)

________, 2006                                                     $____________

FOR VALUE RECEIVED, NCT GROUP, INC., a Delaware corporation  (hereinafter called
the  "Borrower")  hereby  promises  to pay to the  order of  Carole  Salkind  or
registered  assigns (the  "Holder") the sum of  ________________________________
Dollars and ____ Cents on ____________,  2011, and to pay interest on the unpaid
principal  balance  hereof at fifteen  percent  (15%) per annum  (the  "Ordinary
Interest  Rate") from the date hereof (the "Issue  Date") until the same becomes
due and payable,  whether at maturity or upon  acceleration  or  otherwise.  Any
amount of principal of or interest on this Note which is not paid when due shall
bear interest at the rate of five percent (5%) above the Ordinary  Interest Rate
(the "Default  Interest Rate") from the due date thereof until the same is paid.
Interest  shall  commence  accruing  on the Issue  Date and,  to the  extent not
converted in accordance  with the  provisions of Article II below,  shall be, at
the Borrower's  election,  (i) payable in annual installments in arrears on each
anniversary of the Issue Date, or (ii) added to the then  outstanding  principal
balance  of this Note on each  anniversary  of the  Issue  Date.  All  remaining
interest  shall be due and payable on the date this Note is fully paid,  whether
at maturity or upon acceleration or by prepayment or otherwise.  All payments of
principal and interest (to the extent not converted in accordance with the terms
hereof)  shall be made in lawful  money of the  United  States of  America.  All
payments shall be made at such address as the Holder shall hereafter give to the
Borrower by written notice made in accordance with the provisions of this Note.

The following terms shall apply to this Note:

                                    ARTICLE I

                                   PREPAYMENT

     1.1  PREPAYMENT.  This Note may be  prepaid  only  upon the  prior  written
consent of the Holder. This Note is subject to optional conversion in accordance
with Section 2.7 below.

                                   ARTICLE II

            CONVERSION AND PURCHASE RIGHTS; PAYMENT OF EXERCISE PRICE

     2.1  CONVERSION  RIGHT.  The Holder  shall have the right (the  "Conversion
Right") at any time on or prior to the day this Note is paid in full, to convert
at any time all or from  time to time any  part of the  outstanding  and  unpaid
principal  amount of this Note of at least  $50,000,  or such  lesser  amount as

                                       3
<PAGE>

shall remain unpaid at the time of the conversion,  into, at Holder's  election,
(i) fully paid and  non-assessable  shares of common  stock,  par value $.01 per
share, of the Borrower ("Common  Stock"),  at the conversion price determined by
Section  2.2(a)  hereof;  (ii) if Artera  (UK)  Limited  ("Artera")  has made an
initial public  offering of its common stock,  par value  (pound)1.00 per share,
fully paid and non-assessable  shares of such stock owned by the Borrower,  at a
conversion price equal to the initial public offering price of such stock; (iii)
if  Distributed  Media  Corporation  International  Limited  ("DMCI") has made a
public offering of its common stock, par value (pound)1.00 per share, fully paid
and non-assessable  shares of such stock owned by the Borrower,  at a conversion
price equal to the initial public offering price of such stock;  and (iv) if any
other subsidiary of the Borrower (other than Pro Tech Communications,  Inc.) has
made a public offering of its common stock, fully paid and non-assessable shares
of such stock owned by the Borrower,  at a conversion price equal to the initial
public  offering  price  of  such  stock.  Upon  the  surrender  of  this  Note,
accompanied  by a Notice of Conversion of Secured  Convertible  Note in the form
attached hereto as Exhibit 1, properly completed and duly executed by the Holder
(a "Conversion Notice"),  the Borrower shall issue and, within five (5) business
days after such surrender of this Note with the Conversion Notice, deliver to or
upon the order of the Holder (x) that  number of shares of common  stock for the
portion of the Note converted as shall be determined in accordance  herewith and
(y) a new  Note in the form  hereof  for the  balance  of the  principal  amount
hereof, if any.

     The number of shares of common stock to be issued upon each  conversion  of
this Note shall be determined by dividing (i) the sum of (A) that portion of the
principal  amount  of the Note to be  converted  plus (B) the  "Conversion  Date
Interest" (as defined below), by (ii) the Conversion Price (as defined below) in
effect on the date the  Conversion  Notice is  delivered  to the Borrower by the
Holder.  Conversion Date Interest means the product of (i) the principal  amount
of the Note to be converted,  multiplied by (ii) a fraction (A) the numerator of
which is the number of days elapsed  since the date of issuance of this Note and
(B) the  denominator of which is 365,  multiplied by the Ordinary  Interest Rate
(iii) or, a  fraction  (A) the  numerator  of which is the number of days in the
period  of  time  after  the  occurrence  of an  Event  of  Default  and (B) the
denominator of which is 365, multiplied by the Default Interest Rate.

     2.2 CONVERSION PRICE.

     (a)   The per share "Conversion Price" for conversion of this Note into the
Borrower's  Common  Stock shall be equal to the greater of: (i) the closing sale
price of the Common  Stock on the  Trading Day (as  defined  below)  immediately
preceding the date of this Note; provided, however, that if, on the date of this
Note and the three Trading Days thereafter  (the  "Window"),  neither the Holder
nor any  Related  Party (as  defined  below)  sells or,  whether  in  writing or
otherwise,  agrees to sell any shares of Common  Stock or any  option,  warrant,
instrument or right to convert into,  exchange for or acquire Common Stock, then
such price shall be reduced to a price equal to the lowest  closing  sale price,
if lower than the price  specified  above in this sentence,  of the Common Stock
during the Window on the  principal  securities  exchange or market on which the
Common Stock is then traded as reported on Bloomberg Financial Markets; and (ii)
the par value of the Common Stock on the date the Conversion Notice is delivered
to the  Borrower by the Holder.  If any closing  sale price of the Common  Stock
during the Window is lower than the price  specified  at the  beginning  of this
Section 2.2(a),  the Holder shall give the Borrower prompt written notice of any
sale of or agreement to sell any Common Stock or option, warrant,  instrument or
right to convert into,  exchange for or acquire  Common Stock made by the Holder
or a Related Party during the Window.  "Trading Day" shall mean any day on which
the Common Stock is traded for any period on the NASDAQ National  Market,  or on
the principal securities exchange or other securities market on which the Common
Stock is then being traded.  "Related Party" shall mean a member of the Holder's
immediate  family,  including spouse (even if separated or not residing with the
Holder) and adult children (even if not residing with the Holder),  or an entity
(other  than the  Borrower)  of which the  Holder or any such  immediate  family
member is an officer,  director or beneficial shareholder (determined under Rule
13d-3 under the  Securities  Exchange Act of 1934, as amended (the "1934 Act")).

                                       4
<PAGE>

The Conversion  Price shall also be subject to equitable  adjustments  for stock
splits, stock dividends, combinations,  recapitalization,  reclassifications and
similar  events.  The Artera and DMCI  "Conversion  Price" shall be equal to the
initial  public  offering price of such stock and shall be subject to adjustment
as provided in Section 2.2(b) hereof.

     (b)   The Conversion Price for NCT, Artera and  DMCI shall also  be subject
to equitable  adjustments  for  stock  splits,  stock  dividends,  combinations,
reclassifications and similar events.

     (c)   Borrower  shall  promptly notify  each Holder  of any adjustment (and
event that requires adjustment) to the Conversion Price of Borrower,  Artera and
DMCI pursuant to this Section 2.2.

     2.3 AUTHORIZED  SHARES.  The Borrower  covenants that during the period the
Conversion Right exists,  the Borrower will use its best efforts to reserve from
its  authorized  and  unissued  Common  Stock a  sufficient  number of shares to
provide for the issuance of Common Stock upon the full  conversion of this Note.
The Borrower represents that upon issuance, such shares will be duly and validly
issued,  fully paid and  non-assessable.  The Borrower (i) acknowledges  that it
will  irrevocably  instruct its transfer  agent as soon as  practicable to issue
certificates for the Common Stock issuable upon conversion of this Note and (ii)
agrees that its  issuance of this Note shall  constitute  full  authority to its
officers  and  agents,  who  are  charged  with  the  duty  of  executing  stock
certificates,  to execute  and issue the  necessary  certificates  for shares of
Common Stock upon the  conversion  of this Note.  In the event that a sufficient
number of shares cannot be reserved,  Borrower agrees to use its best efforts to
call an annual meeting of the Borrower's  shareholders  and seek approval for an
increase in the authorized  shares of the Borrower's Common Stock to a number of
shares sufficient to provide for the full conversion of this Note.

     2.4 METHOD OF  CONVERSION.  Except as  otherwise  provided  in this Note or
agreed to by the Holder,  this Note may be  converted  by the Holder in whole at
any time or in part (provided such partial  conversion is at least $50,000) from
time to time by (i) submitting to the Borrower a Conversion Notice (by facsimile
dispatched on the  Conversion  Date and confirmed by U.S. mail or overnight mail
service sent within two business days  thereafter)  and (ii)  surrendering  this
Note with the mailed  confirmation  of the  Conversion  Notice at the  principal
office of the Borrower.  Upon partial exercise of the conversion rights provided
hereby, a new Note containing the same date and provisions as this Note shall be
issued by the  Borrower  to the  Holder for the  principal  balance of this Note
which shall not have been  converted.  This Note has been issued by the Borrower
pursuant to the exemption from  registration  provided  either by Section 4.2 or
Regulation D under the Securities Act of 1933, as amended (the "Act").

     2.5  RESTRICTIONS  ON SHARES.  The  shares of common  stock  issuable  upon
conversion  of this Note may not be sold or  transferred  unless  (i) they first
shall have been registered  under the Act and applicable  state securities laws,
(ii) the Borrower shall have been furnished with an opinion of legal counsel (in
form, substance and scope reasonably  acceptable to Borrower) to the effect that
such sale or transfer is exempt from the registration requirements of the Act or
(iii) they are sold  pursuant to Rule 144 under the Act.  Each  certificate  for
shares of common stock issuable upon  conversion of this Note that have not been
so registered  and that have not been sold pursuant to an exemption that permits
removal of the legend,  shall bear a legend substantially in the following form,
as appropriate:

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
         SECURITIES  HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
         SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
         REGISTRATION   STATEMENT  FOR  THE   SECURITIES   UNDER  THE
         SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
         IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE

                                       5
<PAGE>

         BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
         UNLESS SOLD  PURSUANT  TO RULE 144 UNDER SAID ACT.  ANY SUCH
         SALE,   ASSIGNMENT   OR  TRANSFER   MUST  ALSO  COMPLY  WITH
         APPLICABLE STATE SECURITIES LAWS.

     Upon the request of a holder of a  certificate  representing  any shares of
common stock  issuable upon  conversion of this Note,  the Borrower shall remove
the  foregoing  legend  from  the  certificate  or  issue  to such  holder a new
certificate  therefor free of any transfer legend, if (i) with such request, the
Borrower  shall  have  received   either  an  opinion  of  counsel,   reasonably
satisfactory  to the Borrower in form,  substance and scope,  to the effect that
any such legend may be removed  from such  certificate,  or (ii) a  registration
statement under the Act covering such  securities is in effect.  Nothing in this
Note shall affect in any way the Holder's  obligations to comply with applicable
securities laws upon the resale of the securities referred to herein.

     Borrower agrees to use its best efforts to register with the Securities and
Exchange  Commission,  no later  than the end of the term of this  Note  (unless
legally  prohibited  from doing so), a number of shares of Common Stock equal to
the  principal  amount  of this  Note  outstanding  at the time of  registration
divided by the  Conversion  Price with  respect to  Borrower.  Such Common Stock
shall not be used, without permission from the Holder, for any other purposes.

     2.6 EFFECT OF MERGER, CONSOLIDATION,  ETC. If at any time when this Note is
issued and outstanding,  there shall be any merger,  consolidation,  exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another  entity,  or in case of any sale or conveyance of all or
substantially  all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Note shall
thereafter  have the right to receive  upon  conversion  of this Note,  upon the
bases and upon the  terms and  conditions  specified  herein  and in lieu of the
shares of Common Stock then issuable upon  conversion of this Note (assuming the
occurrence of the Amendments whether or not that has then occurred), such stock,
securities  or assets  which the Holder  would have been  entitled to receive in
such  transaction  had  this  Note  been  converted  immediately  prior  to such
transaction,  and in any such  case  appropriate  provisions  shall be made with
respect to the rights and  interests  of the Holder of this Note to the end that
the provisions hereof (including, without limitation,  provisions for adjustment
of the Conversion  Price and of the number of shares issuable upon conversion of
this Note) shall  thereafter be  applicable,  as nearly as may be practicable in
relation to any securities or assets  thereafter  deliverable  upon the exercise
hereof. The Borrower shall not effect any transaction  described in this Section
2.6 unless the  resulting  successor or acquiring  entity (if not the  Borrower)
assumes by written  instrument  the  obligations of this Section 2.6. The Holder
will have the right if a merger or consolidation  occurs to force the payment in
full of this Note.

     2.7 CONVERSION  AFTER EVENT OF DEFAULT.  The Holder's right to convert this
Note into stock as  described  above shall apply even if an Event of Default (as
defined in Article III below) shall have occurred.

                                   ARTICLE III

                                EVENTS OF DEFAULT

     If of any of the following  events of default (each, an "Event of Default")
shall occur:

     3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails (i) to pay the
principal hereof when due, whether at maturity or upon acceleration or otherwise
or (ii) to pay any

                                       6
<PAGE>

installment  of  interest  hereon  when due and, in the case of this clause (ii)
only,  such failure  continues  for a period of five (5) days after the due date
thereof;

     3.2  CONVERSION.  The Borrower fails to issue shares of common stock to the
Holder  upon  exercise by the Holder of the  conversion  rights of the Holder in
accordance  with the terms of this Note,  and any such  failure  shall  continue
uncured for five (5) business  days after the Borrower  shall have been notified
thereof in writing by the Holder;

     3.3 BREACH OF  COVENANT.  The Borrower  breaches  any material  covenant or
other  material  term or  condition  of this Note  (other  than as  specifically
provided in Sections 3.1 and 3.2 hereof), and such breach continues for a period
of ten (10) business days after written  notice thereof to the Borrower from the
Holder;

     3.4  BREACH  OF  REPRESENTATIONS  AND  WARRANTIES.  Any  representation  or
warranty  of  the  Borrower  made  herein  or in  any  agreement,  statement  or
certificate given in writing pursuant hereto or in connection  herewith shall be
false or  misleading  in any material  respect when made and the breach of which
would have a material  adverse  effect on the  Borrower or the  prospects of the
Borrower or a material  adverse effect on the Holder or the rights of the Holder
with respect to this Note or the shares of common stock issuable upon conversion
of this Note;

     3.5  RECEIVER OR TRUSTEE.  The Borrower or any  subsidiary  of the Borrower
shall make an assignment  for the benefit of creditors,  or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial  part of
its  property or  business;  or such a receiver or trustee  shall  otherwise  be
appointed;

     3.6 JUDGMENTS. Any money judgment, writ or similar process shall be entered
or filed  against the Borrower or any  subsidiary  of the Borrower or any of its
property or other assets for more than  $250,000,  and shall  remain  unvacated,
unbonded or unstayed for a period of twenty (20) days unless otherwise consented
to by the Holder;

     3.7  BANKRUPTCY.  Bankruptcy,  insolvency,  reorganization  or  liquidation
proceedings or other  proceedings for relief under any bankruptcy law or any law
for the relief of debtors  shall be instituted by or against the Borrower or any
subsidiary of the Borrower;

     3.8 MATERIAL LOSS OR THEFT.  Material loss or theft,  substantial damage or
destruction or unauthorized  sale or encumbrance of any material  portion of the
Collateral  (as defined in Article IV hereof) in excess of  reasonably  expected
recoveries under insurance policies, or the making of any levy on, or seizure or
attachment  of or  entry  of a  judgment  against  a  material  portion  of  the
Collateral; or

     3.9 REPORTS.  A material  omission or misstatement in any of the Borrower's
previously  or  hereafter  filed  reports  pursuant to the  requirements  of the
Securities  Exchange  Act of 1934,  as  amended,  or the rules  and  regulations
promulgated thereunder.

     Then,  upon the  occurrence  and  during the  continuation  of any Event of
Default specified in Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.8 or 3.9 hereof, at the
option of the Holder  hereof,  and upon the  occurrence  of any event of default
specified in Sections 3.5 or 3.7 hereof,  the Borrower  shall pay to the Holder,
in  satisfaction of its obligation to pay the  outstanding  principal  amount of
this Note and accrued and unpaid interest thereon, an amount equal to the sum of
(i) the  product  of (x) the then  outstanding  principal  amount  of this  Note
multiplied  by (y) 110% plus (ii)  accrued  and  unpaid  interest  on the unpaid
principal amount of this Note to the date of payment (the "Default  Amount") and
such Default Amount, together with all other ancillary amounts payable hereunder
shall  immediately  become due and payable,  all without demand,  presentment or
notice, all of which hereby are expressly waived, together with all

                                       7
<PAGE>

costs, including, without limitation, legal fees and expenses of collection, and
the Holder shall be entitled to exercise all other rights and remedies available
at law or in equity.

     If the Borrower  fails to pay the Default  Amount  within five (5) business
days of written  notice  that such  amount is due and  payable,  then the Holder
shall have the right at any time, so long as the Borrower remains in default, to
require the Borrower,  upon written notice,  to immediately issue (in accordance
with the terms of Article II hereof),  in lieu of the Default Amount, the number
of shares of Common Stock of the Borrower equal to the Default Amount divided by
the Conversion Price then in effect.

                                   ARTICLE IV

                                   COLLATERAL

     Borrower  hereby  grants to Holder a security  interest  in all  inventory,
machinery,  equipment,  stocks, bonds, notes, accounts receivable, any rights or
claims that they may have against any other  person,  firm, or  corporation  for
monies, choses in action, any bank accounts, checking accounts,  certificates of
deposit or any financial instrument, patents and intellectual property rights or
any  other  assets  owned  by  Borrower  as of the  date of this  agreement,  or
hereafter acquired.

     Borrower hereby represents that none of the collateral encumbered hereunder
has been sold or  assigned  since the  original  promissory  note of Borrower to
Holder  of  January  26,  1999 and that the lien of the  holder  of this note is
uninterrupted  from January 26, 1999 and shall  continue until this note is paid
or otherwise disposed of in accordance with its terms and conditions.

     All  collateral  rights in  intellectual  property is  subordinated  to the
Borrower's current licenses and future licenses  provided,  that with respect to
future  licenses,  the consent of the Holder must be obtained,  but such consent
will not be unreasonably  withheld.  The patents and intellectual property which
are licensed under the cross license  agreement dated September 27, 1997,  among
NXT plc, New Transducers Limited, being related companies,  the Borrower and NCT
Audio Products,  Inc. (or any successor  agreements) are  specifically  excluded
from the collateral.  There are approximately 20 pieces of intellectual property
in which,  under the cross license  agreement,  Borrower may not, and hence does
not herein, grant a security interest.  In addition,  all agreements between NCT
Audio  Products,  Inc. and the Borrower that relate to such  agreement,  and the
stock of NCT Audio  Products,  Inc.  owned by the Borrower,  shall  similarly be
excluded from the security interest granted in this Note.

     If Borrower does not pay the debt or other obligations under this Note when
due, the  collateral may be sold in order to pay such debt and  obligations,  or
same may be transferred  to the name of the Holder,  as Holder in her discretion
decides.  Holder may inspect the  collateral at all reasonable  times.  Borrower
further agrees that it will do anything reasonably  requested by Holder in order
to make Holder's security interest in the collateral legally effective including
the execution of a UCC-1.

                                    ARTICLE V

                                  MISCELLANEOUS

     5.1 FAILURE OR  INDULGENCY  NOT WAIVER.  No failure or delay on the part of
the Holder in the  exercise of any power,  right or  privilege  hereunder  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.  All rights and remedies existing hereunder
are  cumulative  to, and not  exclusive  of, any  rights or  remedies  otherwise
available.

                                       8
<PAGE>

     5.2 NOTICES.  Notices,  demands and other  communications  given under this
Note shall be in writing  and shall be deemed to have been given when  delivered
(if personally  delivered),  on the scheduled date of delivery (if delivered via
commercial  courier),  three  days  after  mailed  (if  mailed by  certified  or
registered mail, return receipt requested) or when sent by facsimile (if sent by
facsimile  with  evidence of  successful  transmission  retained by the sender);
provided, however, that failure to give proper and timely notice as set forth in
the "with a copy to" provisions below shall not invalidate a notice properly and
timely given to the associated party. Unless another address or facsimile number
is specified by notice hereunder, all notices shall be sent as follows:

If to the Holder:                            with a copy to:
----------------                             --------------

--------------------------------------------------------------------------------
Ms. Carole Salkind                           Peter Rosen, Esq.
18911 Collins Ave., Apt. 2403                Rosen & Avigliano
Sunny Isles Beach, FL 33160                  431 Route 10 East
                                             Randolph, NJ  07689
--------------------------------------------------------------------------------
Facsimile:  305-932-2425                     Facsimile:  973-361-1644
--------------------------------------------------------------------------------

If to the Borrower:                          with a copy to:
------------------                           --------------

--------------------------------------------------------------------------------
NCT Group, Inc.                              NCT Group, Inc.
20 Ketchum Street                            20 Ketchum Street
Westport, CT  06880                          Westport, CT  06880
Attention: Chief Financial Officer           Attention:  General Counsel
--------------------------------------------------------------------------------
Facsimile: 203-226-4338                      Facsimile:  203-226-4338
--------------------------------------------------------------------------------

     5.3 AMENDMENT  PROVISION.  This Note and any  provision  hereof may only be
amended by an instrument in writing  signed by the Borrower and the Holder.  The
term "Note" and all references  thereto,  as used  throughout  this  instrument,
shall  mean this  instrument  as  originally  executed,  or if later  amended or
supplemented, then as so amended or supplemented.

     5.4  ASSIGNABILITY.  This Note shall be binding  upon the  Borrower and its
successors  and  assigns and shall inure to be the benefit of the Holder and its
successors and assigns;  PROVIDED,  HOWEVER, that so long as no Event of Default
has occurred,  this Note shall only be transferable in whole or in increments of
$100,000 to "Accredited Investors" (as defined in Rule 501(a) under the Act).

     5.5 COST OF COLLECTION. If default is made in the payment of this Note, the
Borrower shall pay the Holder hereof costs of collection,  including  reasonable
attorneys' fees.

     5.6  GOVERNING  LAW AND  JURISDICTION.  This Note shall be  governed by the
internal  laws of the State of  Delaware,  without  regard to  conflicts of laws
principles.  The parties hereto hereby submit to the exclusive  jurisdiction  of
the United States Federal Courts located in the state of New Jersey with respect
to any dispute arising under this Note.

     5.7 DAMAGES SHARES.  The shares of Common Stock that may be issuable to the
Holder  pursuant to Article III hereof  ("Damages  Shares")  shall be treated as
Common Stock issuable upon  conversion of this Note for all purposes  hereof and
shall be subject to all of the limitations and afforded all of the rights of the
other shares of Common Stock  issuable  hereunder.  For purposes of  calculating
interest payable on the outstanding principal amount hereof, amounts convertible
into Damages  Shares  ("Damages  Amounts")  shall not bear  interest but must be
converted  prior to the conversion of any outstanding  principal  amount hereof,
until the outstanding  Damages Amount is zero. Damaged Shares can only be issued
after Borrower has received the written notice that the Holder wishes to receive
such shares.

                                       9
<PAGE>

     5.8  DENOMINATIONS.  At the request of the Holder,  upon  surrender of this
Note, the Borrower  shall promptly issue new Notes in the aggregate  outstanding
principal amount hereof, in the form hereof,  in such  denominations of at least
$50,000 as the Holder shall request.

     IN WITNESS WHEREOF,  Borrower has caused this Note to be signed in its name
by its duly authorized officer as of the date first written above.

                                       NCT GROUP, INC.

                                       By:
                                            ------------------------------------
                                            Michael J. Parrella
                                            Chairman and Chief Executive Officer

                                       10
<PAGE>

                                                                       EXHIBIT 1
                                                                       ---------

                NOTICE OF CONVERSION OF SECURED CONVERTIBLE NOTE

TO:  NCT Group, Inc.

     (1) Pursuant to the terms of the  attached  Secured  Convertible  Note (the
"Note"),  the undersigned hereby elects to convert $________ principal amount of
the Note into shares of common stock of:

    _____  NCT Group, Inc., a Delaware corporation

    _____  Distributed Media Corporation International Limited, a UK corporation

    _____  Artera (UK) Limited, a UK corporation

    _____  Other public subsidiary (identify: ______________________________)(1)

Capitalized  terms  used  herein  and not  otherwise  defined  herein  have  the
respective meanings provided in the Note.

     (2) Please issue a certificate or certificates  for the number of shares of
common stock into which such principal  amount of the Note is convertible in the
name(s) specified immediately below or, if additional space is necessary,  on an
attachment hereto:

Name:                 Carole Salkind       Name:
                      ---------------                            ---------------

Address:                                   Address:
                      ---------------                            ---------------

SS or Tax ID Number:                       SS or Tax ID Number:
                      ---------------                            ---------------

     (3) In the event of partial  exercise,  please reissue an appropriate  Note
for the principal balance which shall not have been converted.

     (4) If the shares of common stock issuable upon conversion of the Note have
not been  registered  under the  Securities Act of 1933, as amended (the "Act"),
the undersigned represents and warrants that (i) such shares of common stock are
being acquired for the account of the undersigned for investment, and not with a
present view to, or for resale in connection with, the distribution thereof, and
that the undersigned has no present  intention of distributing or reselling such
securities,  in each case, other than pursuant to a registration statement under
the Act and (ii) the  undersigned  is an  "Accredited  Investor"  as  defined in
Regulation  D under  the  Act.  The  undersigned  further  agrees  that (A) such
securities  shall not be sold or transferred  unless either (i) they first shall
have been registered  under the Act and applicable state securities laws or (ii)
the Borrower first shall have been furnished with either (x) an opinion of legal
counsel (in form,  substance and scope  reasonably  satisfactory to Borrower) to
the  effect  that  such  sale  or  transfer  is  exempt  from  the  registration
requirements of the Act or (y) satisfactory representations from the undersigned
that the undersigned may immediately  sell all of such securities (to the extent
such  securities  are deemed to have been acquired on the same date) pursuant to
Rule 144 under the Act (or a successor thereto) and (B) the Borrower may place a
legend on the certificate(s) for such securities to that effect and place a stop
transfer restriction in its records relating to such securities.

Date
      ---------------                   ----------------------------------------
                                         Signature of Registered  Holder
                                        (must be signed exactly as name appears
                                         in the Note.  The signature must be
                                         guaranteed by a member firm of the
                                         New York Stock Exchange or the National
                                         Association of Securities Dealers or by
                                         a commercial bank or trust having an
                                         office in the United States)

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

                                       11
<PAGE>

                                                                       Exhibit B
                                                                       ---------

THE SECURITIES  REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
CONVERSION  HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  THE SECURITIES  HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED  OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT
FOR THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR AN OPINION
OF COUNSEL IN FORM,  SUBSTANCE AND SCOPE  REASONABLY  ACCEPTABLE TO THE BORROWER
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT. ANY SUCH SALE,  ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.

                            SECURED CONVERTIBLE NOTE
                                 (No. CTS-06-__)

________, 2006                                                     $____________

FOR VALUE RECEIVED, NCT GROUP, INC., a Delaware corporation  (hereinafter called
the  "Borrower")  hereby  promises  to pay to the  order of  Carole  Salkind  or
registered  assigns (the  "Holder") the sum of  ________________________________
Dollars and ____ Cents on ____________,  2016, and to pay interest on the unpaid
principal balance hereof at nine percent (9%) per annum (the "Ordinary  Interest
Rate") from the date hereof (the "Issue  Date")  until the same  becomes due and
payable,  whether at maturity or upon  acceleration or otherwise.  Any amount of
principal  of or  interest  on this Note  which is not paid when due shall  bear
interest at the rate of five percent (5%) above the Ordinary  Interest Rate (the
"Default  Interest  Rate")  from the due date  thereof  until  the same is paid.
Interest  shall  commence  accruing  on the Issue  Date and,  to the  extent not
converted  in  accordance  with the  provisions  of Article  II below,  shall be
payable in arrears on the date the  principal  amount in respect of which it has
accrued is paid,  whether at maturity or upon  acceleration  or by prepayment or
otherwise. All remaining interest shall be due and payable on the date this Note
is fully paid,  whether at maturity or upon  acceleration  or by  prepayment  or
otherwise.  All payments of principal  and interest (to the extent not converted
in accordance with the terms hereof) shall be made in lawful money of the United
States of  America.  All  payments  shall be made at such  address as the Holder
shall  hereafter give to the Borrower by written notice made in accordance  with
the provisions of this Note.

The following terms shall apply to this Note:

                                    ARTICLE I
                                   PREPAYMENT

     1.1  PREPAYMENT.  This Note may be  prepaid  only  upon the  prior  written
consent of the Holder. This Note is subject to optional conversion in accordance
with Section 2.7 below.

                                   ARTICLE II

            CONVERSION AND PURCHASE RIGHTS; PAYMENT OF EXERCISE PRICE

     2.1  CONVERSION  RIGHT.  The Holder  shall have the right (the  "Conversion
Right") at any time on or prior to the day this Note is paid in full, to convert
at any time all or from  time to time any  part of the  outstanding  and  unpaid
principal  amount of this Note of at least  $50,000,  or such  lesser  amount as
shall remain unpaid at the time of the conversion,  into, at Holder's  election,
(i) fully paid and  non-assessable  shares of common  stock,  par value $.01 per
share, of the Borrower ("Common Stock"), at the

                                       12
<PAGE>

conversion  price  determined  by Section  2.2(a)  hereof;  (ii) if Artera  (UK)
Limited  ("Artera") has made an initial public offering of its common stock, par
value (pound)1.00 per share, fully paid and non-assessable  shares of such stock
owned  by the  Borrower,  at a  conversion  price  equal to the  initial  public
offering  price  of  such  stock;   (iii)  if  Distributed   Media   Corporation
International  Limited  ("DMCI") has made a public offering of its common stock,
par value (pound)1.00 per share,  fully paid and  non-assessable  shares of such
stock owned by the Borrower,  at a conversion  price equal to the initial public
offering price of such stock;  and (iv) if any other  subsidiary of the Borrower
(other  than Pro Tech  Communications,  Inc.) has made a public  offering of its
common stock,  fully paid and  non-assessable  shares of such stock owned by the
Borrower,  at a conversion  price equal to the initial public  offering price of
such  stock.  Upon the  surrender  of this  Note,  accompanied  by a  Notice  of
Conversion of Secured Convertible Note in the form attached hereto as Exhibit 1,
properly completed and duly executed by the Holder (a "Conversion Notice"),  the
Borrower shall issue and,  within five (5) business days after such surrender of
this Note with the Conversion Notice, deliver to or upon the order of the Holder
(x) that number of shares of common stock for the portion of the Note  converted
as shall be  determined  in  accordance  herewith and (y) a new Note in the form
hereof for the balance of the principal amount hereof, if any.

     The number of shares of common stock to be issued upon each  conversion  of
this Note shall be determined by dividing (i) the sum of (A) that portion of the
principal  amount  of the Note to be  converted  plus (B) the  "Conversion  Date
Interest" (as defined below), by (ii) the Conversion Price (as defined below) in
effect on the date the  Conversion  Notice is  delivered  to the Borrower by the
Holder.  Conversion Date Interest means the product of (i) the principal  amount
of the Note to be converted,  multiplied by (ii) a fraction (A) the numerator of
which is the number of days elapsed  since the date of issuance of this Note and
(B) the  denominator of which is 365,  multiplied by the Ordinary  Interest Rate
(iii) or, a  fraction  (A) the  numerator  of which is the number of days in the
period  of  time  after  the  occurrence  of an  Event  of  Default  and (B) the
denominator of which is 365, multiplied by the Default Interest Rate.

     2.2 CONVERSION PRICE.

     (a)   The per share "Conversion Price" for conversion of this Note into the
Borrower's  Common  Stock shall be equal to the greater of: (i) the closing sale
price of the Common  Stock on the  Trading Day (as  defined  below)  immediately
preceding the date of this Note; provided, however, that if, on the date of this
Note and the three Trading Days thereafter  (the  "Window"),  neither the Holder
nor any  Related  Party (as  defined  below)  sells or,  whether  in  writing or
otherwise,  agrees to sell any shares of Common  Stock or any  option,  warrant,
instrument or right to convert into,  exchange for or acquire Common Stock, then
such price shall be reduced to a price equal to the lowest  closing  sale price,
if lower than the price  specified  above in this sentence,  of the Common Stock
during the Window on the  principal  securities  exchange or market on which the
Common Stock is then traded as reported on Bloomberg Financial Markets; and (ii)
the par value of the Common Stock on the date the Conversion Notice is delivered
to the  Borrower by the Holder.  If any closing  sale price of the Common  Stock
during the Window is lower than the price  specified  at the  beginning  of this
Section 2.2(a),  the Holder shall give the Borrower prompt written notice of any
sale of or agreement to sell any Common Stock or option, warrant,  instrument or
right to convert into,  exchange for or acquire  Common Stock made by the Holder
or a Related Party during the Window.  "Trading Day" shall mean any day on which
the Common Stock is traded for any period on the NASDAQ National  Market,  or on
the principal securities exchange or other securities market on which the Common
Stock is then being traded.  "Related Party" shall mean a member of the Holder's
immediate  family,  including spouse (even if separated or not residing with the
Holder) and adult children (even if not residing with the Holder),  or an entity
(other  than the  Borrower)  of which the  Holder or any such  immediate  family
member is an officer,  director or beneficial shareholder (determined under Rule
13d-3 under the  Securities  Exchange Act of 1934, as amended (the "1934 Act")).
The Conversion  Price shall also be subject to equitable  adjustments  for stock
splits, stock dividends, combinations,  recapitalization,  reclassifications and
similar  events.  The Artera and DMCI  "Conversion

                                       13
<PAGE>

Price"  shall be equal to the initial  public  offering  price of such stock and
shall be subject to adjustment as provided in Section 2.2(b) hereof.

     (b)   The Conversion  Price for NCT, Artera and  DMCI shall also be subject
to equitable  adjustments  for  stock  splits,  stock  dividends,  combinations,
reclassifications and similar events.

     (c)   Borrower  shall  promptly  notify  each Holder of any adjustment (and
event that requires adjustment) to the Conversion Price of Borrower,  Artera and
DMCI pursuant to this Section 2.2.

     2.3 AUTHORIZED  SHARES.  The Borrower  covenants that during the period the
Conversion Right exists,  the Borrower will use its best efforts to reserve from
its  authorized  and  unissued  Common  Stock a  sufficient  number of shares to
provide for the issuance of Common Stock upon the full  conversion of this Note.
The Borrower represents that upon issuance, such shares will be duly and validly
issued,  fully paid and  non-assessable.  The Borrower (i) acknowledges  that it
will  irrevocably  instruct its transfer  agent as soon as  practicable to issue
certificates for the Common Stock issuable upon conversion of this Note and (ii)
agrees that its  issuance of this Note shall  constitute  full  authority to its
officers  and  agents,  who  are  charged  with  the  duty  of  executing  stock
certificates,  to execute  and issue the  necessary  certificates  for shares of
Common Stock upon the  conversion  of this Note.  In the event that a sufficient
number of shares cannot be reserved,  Borrower agrees to use its best efforts to
call an annual meeting of the Borrower's  shareholders  and seek approval for an
increase in the authorized  shares of the Borrower's Common Stock to a number of
shares sufficient to provide for the full conversion of this Note.

     2.4 METHOD OF  CONVERSION.  Except as  otherwise  provided  in this Note or
agreed to by the Holder,  this Note may be  converted  by the Holder in whole at
any time or in part (provided such partial  conversion is at least $50,000) from
time to time by (i) submitting to the Borrower a Conversion Notice (by facsimile
dispatched on the  Conversion  Date and confirmed by U.S. mail or overnight mail
service sent within two business days  thereafter)  and (ii)  surrendering  this
Note with the mailed  confirmation  of the  Conversion  Notice at the  principal
office of the Borrower.  Upon partial exercise of the conversion rights provided
hereby, a new Note containing the same date and provisions as this Note shall be
issued by the  Borrower  to the  Holder for the  principal  balance of this Note
which shall not have been  converted.  This Note has been issued by the Borrower
pursuant to the exemption from  registration  provided  either by Section 4.2 or
Regulation D under the Securities Act of 1933, as amended (the "Act").

     2.5  RESTRICTIONS  ON SHARES.  The  shares of common  stock  issuable  upon
conversion  of this Note may not be sold or  transferred  unless  (i) they first
shall have been registered  under the Act and applicable  state securities laws,
(ii) the Borrower shall have been furnished with an opinion of legal counsel (in
form, substance and scope reasonably  acceptable to Borrower) to the effect that
such sale or transfer is exempt from the registration requirements of the Act or
(iii) they are sold  pursuant to Rule 144 under the Act.  Each  certificate  for
shares of common stock issuable upon  conversion of this Note that have not been
so registered  and that have not been sold pursuant to an exemption that permits
removal of the legend,  shall bear a legend substantially in the following form,
as appropriate:

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
         SECURITIES  HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
         SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
         REGISTRATION   STATEMENT  FOR  THE   SECURITIES   UNDER  THE
         SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
         IN FORM,  SUBSTANCE AND SCOPE  REASONABLY  ACCEPTABLE TO THE
         BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
         UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

                                       14
<PAGE>

         ANY SUCH SALE,  ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
         APPLICABLE STATE SECURITIES LAWS.

     Upon the request of a holder of a  certificate  representing  any shares of
common stock  issuable upon  conversion of this Note,  the Borrower shall remove
the  foregoing  legend  from  the  certificate  or  issue  to such  holder a new
certificate  therefor free of any transfer legend, if (i) with such request, the
Borrower  shall  have  received   either  an  opinion  of  counsel,   reasonably
satisfactory  to the Borrower in form,  substance and scope,  to the effect that
any such legend may be removed  from such  certificate,  or (ii) a  registration
statement under the Act covering such  securities is in effect.  Nothing in this
Note shall affect in any way the Holder's  obligations to comply with applicable
securities laws upon the resale of the securities referred to herein.

     Borrower agrees to use its best efforts to register with the Securities and
Exchange  Commission,  no later  than the end of the term of this  Note  (unless
legally  prohibited  from doing so), a number of shares of Common Stock equal to
the  principal  amount  of this  Note  outstanding  at the time of  registration
divided by the  Conversion  Price with  respect to  Borrower.  Such Common Stock
shall not be used, without permission from the Holder, for any other purposes.

     2.6 EFFECT OF MERGER, CONSOLIDATION,  ETC. If at any time when this Note is
issued and outstanding,  there shall be any merger,  consolidation,  exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another  entity,  or in case of any sale or conveyance of all or
substantially  all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Note shall
thereafter  have the right to receive  upon  conversion  of this Note,  upon the
bases and upon the  terms and  conditions  specified  herein  and in lieu of the
shares of Common Stock then issuable upon  conversion of this Note (assuming the
occurrence of the Amendments whether or not that has then occurred), such stock,
securities  or assets  which the Holder  would have been  entitled to receive in
such  transaction  had  this  Note  been  converted  immediately  prior  to such
transaction,  and in any such  case  appropriate  provisions  shall be made with
respect to the rights and  interests  of the Holder of this Note to the end that
the provisions hereof (including, without limitation,  provisions for adjustment
of the Conversion  Price and of the number of shares issuable upon conversion of
this Note) shall  thereafter be  applicable,  as nearly as may be practicable in
relation to any securities or assets  thereafter  deliverable  upon the exercise
hereof. The Borrower shall not effect any transaction  described in this Section
2.6 unless the  resulting  successor or acquiring  entity (if not the  Borrower)
assumes by written  instrument  the  obligations of this Section 2.6. The Holder
will have the right if a merger or consolidation  occurs to force the payment in
full of this Note.

     2.7 CONVERSION  AFTER EVENT OF DEFAULT.  The Holder's right to convert this
Note into stock as  described  above shall apply even if an Event of Default (as
defined in Article III below) shall have occurred.

                                   ARTICLE III

                                EVENTS OF DEFAULT

     If of any of the following  events of default (each, an "Event of Default")
shall occur:

     3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails (i) to pay the
principal hereof when due, whether at maturity or upon acceleration or otherwise
or (ii) to pay any  installment of interest  hereon when due and, in the case of
this  clause (ii) only,  such  failure  continues  for a period of five (5) days
after the due date thereof;

                                       15
<PAGE>

     3.2  CONVERSION.  The Borrower fails to issue shares of common stock to the
Holder  upon  exercise by the Holder of the  conversion  rights of the Holder in
accordance  with the terms of this Note,  and any such  failure  shall  continue
uncured for five (5) business  days after the Borrower  shall have been notified
thereof in writing by the Holder;

     3.3 BREACH OF  COVENANT.  The Borrower  breaches  any material  covenant or
other  material  term or  condition  of this Note  (other  than as  specifically
provided in Sections 3.1 and 3.2 hereof), and such breach continues for a period
of ten (10) business days after written  notice thereof to the Borrower from the
Holder;

     3.4  BREACH  OF  REPRESENTATIONS  AND  WARRANTIES.  Any  representation  or
warranty  of  the  Borrower  made  herein  or in  any  agreement,  statement  or
certificate given in writing pursuant hereto or in connection  herewith shall be
false or  misleading  in any material  respect when made and the breach of which
would have a material  adverse  effect on the  Borrower or the  prospects of the
Borrower or a material  adverse effect on the Holder or the rights of the Holder
with respect to this Note or the shares of common stock issuable upon conversion
of this Note;

     3.5  RECEIVER OR TRUSTEE.  The Borrower or any  subsidiary  of the Borrower
shall make an assignment  for the benefit of creditors,  or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial  part of
its  property or  business;  or such a receiver or trustee  shall  otherwise  be
appointed;

     3.6 JUDGMENTS. Any money judgment, writ or similar process shall be entered
or filed  against the Borrower or any  subsidiary  of the Borrower or any of its
property or other assets for more than  $250,000,  and shall  remain  unvacated,
unbonded or unstayed for a period of twenty (20) days unless otherwise consented
to by the Holder;

     3.7  BANKRUPTCY.  Bankruptcy,  insolvency,  reorganization  or  liquidation
proceedings or other  proceedings for relief under any bankruptcy law or any law
for the relief of debtors  shall be instituted by or against the Borrower or any
subsidiary of the Borrower;

     3.8 MATERIAL LOSS OR THEFT.  Material loss or theft,  substantial damage or
destruction or unauthorized  sale or encumbrance of any material  portion of the
Collateral  (as defined in Article IV hereof) in excess of  reasonably  expected
recoveries under insurance policies, or the making of any levy on, or seizure or
attachment  of or  entry  of a  judgment  against  a  material  portion  of  the
Collateral; or

     3.9 REPORTS.  A material  omission or misstatement in any of the Borrower's
previously  or  hereafter  filed  reports  pursuant to the  requirements  of the
Securities  Exchange  Act of 1934,  as  amended,  or the rules  and  regulations
promulgated thereunder.

     Then,  upon the  occurrence  and  during the  continuation  of any Event of
Default specified in Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.8 or 3.9 hereof, at the
option of the Holder  hereof,  and upon the  occurrence  of any event of default
specified in Sections 3.5 or 3.7 hereof,  the Borrower  shall pay to the Holder,
in  satisfaction of its obligation to pay the  outstanding  principal  amount of
this Note and accrued and unpaid interest thereon, an amount equal to the sum of
(i) the  product  of (x) the then  outstanding  principal  amount  of this  Note
multiplied  by (y) 110% plus (ii)  accrued  and  unpaid  interest  on the unpaid
principal amount of this Note to the date of payment (the "Default  Amount") and
such Default Amount, together with all other ancillary amounts payable hereunder
shall  immediately  become due and payable,  all without demand,  presentment or
notice,  all of which  hereby are  expressly  waived,  together  with all costs,
including,  without limitation,  legal fees and expenses of collection,  and the
Holder shall be entitled to exercise all other rights and remedies  available at
law or in equity.

                                       16
<PAGE>

     If the Borrower  fails to pay the Default  Amount  within five (5) business
days of written  notice  that such  amount is due and  payable,  then the Holder
shall have the right at any time, so long as the Borrower remains in default, to
require the Borrower,  upon written notice,  to immediately issue (in accordance
with the terms of Article II hereof),  in lieu of the Default Amount, the number
of shares of Common Stock of the Borrower equal to the Default Amount divided by
the Conversion Price then in effect.

                                   ARTICLE IV

                                   COLLATERAL

     Borrower  hereby  grants to Holder a security  interest  in all  inventory,
machinery,  equipment,  stocks, bonds, notes, accounts receivable, any rights or
claims that they may have against any other  person,  firm, or  corporation  for
monies, choses in action, any bank accounts, checking accounts,  certificates of
deposit or any financial instrument, patents and intellectual property rights or
any  other  assets  owned  by  Borrower  as of the  date of this  agreement,  or
hereafter acquired.

     Borrower hereby represents that none of the collateral encumbered hereunder
has been sold or  assigned  since the  original  promissory  note of Borrower to
Holder  of  January  26,  1999 and that the lien of the  holder  of this note is
uninterrupted  from January 26, 1999 and shall  continue until this note is paid
or otherwise disposed of in accordance with its terms and conditions.

     All  collateral  rights in  intellectual  property is  subordinated  to the
Borrower's current licenses and future licenses  provided,  that with respect to
future  licenses,  the consent of the Holder must be obtained,  but such consent
will not be unreasonably  withheld.  The patents and intellectual property which
are licensed under the cross license  agreement dated September 27, 1997,  among
NXT plc, New Transducers Limited, being related companies,  the Borrower and NCT
Audio Products,  Inc. (or any successor  agreements) are  specifically  excluded
from the collateral.  There are approximately 20 pieces of intellectual property
in which,  under the cross license  agreement,  Borrower may not, and hence does
not herein, grant a security interest.  In addition,  all agreements between NCT
Audio  Products,  Inc. and the Borrower that relate to such  agreement,  and the
stock of NCT Audio  Products,  Inc.  owned by the Borrower,  shall  similarly be
excluded from the security interest granted in this Note.

     If Borrower does not pay the debt or other obligations under this Note when
due, the  collateral may be sold in order to pay such debt and  obligations,  or
same may be transferred  to the name of the Holder,  as Holder in her discretion
decides.  Holder may inspect the  collateral at all reasonable  times.  Borrower
further agrees that it will do anything reasonably  requested by Holder in order
to make Holder's security interest in the collateral legally effective including
the execution of a UCC-1.

                                    ARTICLE V

                                  MISCELLANEOUS

     5.1 FAILURE OR  INDULGENCY  NOT WAIVER.  No failure or delay on the part of
the Holder in the  exercise of any power,  right or  privilege  hereunder  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.  All rights and remedies existing hereunder
are  cumulative  to, and not  exclusive  of, any  rights or  remedies  otherwise
available.

     5.2 NOTICES.  Notices,  demands and other  communications  given under this
Note shall be in writing  and shall be deemed to have been given when  delivered
(if personally delivered), on the

                                       17
<PAGE>

scheduled  date of delivery (if delivered via  commercial  courier),  three days
after  mailed  (if  mailed by  certified  or  registered  mail,  return  receipt
requested)  or when sent by  facsimile  (if sent by facsimile  with  evidence of
successful transmission retained by the sender); provided, however, that failure
to give proper and timely notice as set forth in the "with a copy to" provisions
below shall not invalidate a notice  properly and timely given to the associated
party.  Unless  another  address  or  facsimile  number is  specified  by notice
hereunder, all notices shall be sent as follows:

If to the Holder:                            with a copy to:
----------------                             --------------

--------------------------------------------------------------------------------
Ms. Carole Salkind                           Peter Rosen, Esq.
18911 Collins Ave., Apt. 2403                Rosen & Avigliano
Sunny Isles Beach, FL 33160                  431 Route 10 East
                                             Randolph, NJ  07689
--------------------------------------------------------------------------------
Facsimile:  305-932-2425                     Facsimile:  973-361-1644
--------------------------------------------------------------------------------

If to the Borrower:                          with a copy to:
------------------                           --------------

--------------------------------------------------------------------------------
NCT Group, Inc.                              NCT Group, Inc.
20 Ketchum Street                            20 Ketchum Street
Westport, CT  06880                          Westport, CT  06880
Attention: Chief Financial Officer           Attention:  General Counsel
--------------------------------------------------------------------------------
Facsimile: 203-226-4338                      Facsimile:  203-226-4338
--------------------------------------------------------------------------------

     5.3 AMENDMENT  PROVISION.  This Note and any  provision  hereof may only be
amended by an instrument in writing  signed by the Borrower and the Holder.  The
term "Note" and all references  thereto,  as used  throughout  this  instrument,
shall  mean this  instrument  as  originally  executed,  or if later  amended or
supplemented, then as so amended or supplemented.

     5.4  ASSIGNABILITY.  This Note shall be binding  upon the  Borrower and its
successors  and  assigns and shall inure to be the benefit of the Holder and its
successors and assigns;  PROVIDED,  HOWEVER, that so long as no Event of Default
has occurred,  this Note shall only be transferable in whole or in increments of
$100,000 to "Accredited Investors" (as defined in Rule 501(a) under the Act).

     5.5 COST OF COLLECTION. If default is made in the payment of this Note, the
Borrower shall pay the Holder hereof costs of collection,  including  reasonable
attorneys' fees.

     5.6  GOVERNING  LAW AND  JURISDICTION.  This Note shall be  governed by the
internal  laws of the State of  Delaware,  without  regard to  conflicts of laws
principles.  The parties hereto hereby submit to the exclusive  jurisdiction  of
the United States Federal Courts located in the state of New Jersey with respect
to any dispute arising under this Note.

     5.7 DAMAGES SHARES.  The shares of Common Stock that may be issuable to the
Holder  pursuant to Article III hereof  ("Damages  Shares")  shall be treated as
Common Stock issuable upon  conversion of this Note for all purposes  hereof and
shall be subject to all of the limitations and afforded all of the rights of the
other shares of Common Stock  issuable  hereunder.  For purposes of  calculating
interest payable on the outstanding principal amount hereof, amounts convertible
into Damages  Shares  ("Damages  Amounts")  shall not bear  interest but must be
converted  prior to the conversion of any outstanding  principal  amount hereof,
until the outstanding  Damages Amount is zero. Damaged Shares can only be issued
after Borrower has received the written notice that the Holder wishes to receive
such shares.

     5.8  DENOMINATIONS.  At the request of the Holder,  upon  surrender of this
Note, the

                                       18
<PAGE>

Borrower shall promptly issue new Notes in the aggregate  outstanding  principal
amount hereof, in the form hereof, in such  denominations of at least $50,000 as
the Holder shall request.

     IN WITNESS WHEREOF,  Borrower has caused this Note to be signed in its name
by its duly authorized officer as of the date first written above.

                                                     NCT GROUP, INC.

                                       By:
                                            ------------------------------------
                                            Michael J. Parrella
                                            Chairman and Chief Executive Officer

                                       19
<PAGE>

                                                                       EXHIBIT 1
                                                                       ---------

                NOTICE OF CONVERSION OF SECURED CONVERTIBLE NOTE

TO:  NCT Group, Inc.

     (1) Pursuant to the terms of the  attached  Secured  Convertible  Note (the
"Note"),  the undersigned hereby elects to convert $________ principal amount of
the Note into shares of common stock of:

    _____  NCT Group, Inc., a Delaware corporation

    _____  Distributed Media Corporation International Limited, a UK corporation

    _____  Artera (UK) Limited, a UK corporation

    _____  Other public subsidiary (identify: ______________________________)(2)

Capitalized  terms  used  herein  and not  otherwise  defined  herein  have  the
respective meanings provided in the Note.

     (2) Please issue a certificate or certificates  for the number of shares of
common stock into which such principal  amount of the Note is convertible in the
name(s) specified immediately below or, if additional space is necessary,  on an
attachment hereto:

Name:                 Carole Salkind       Name:
                      ---------------                            ---------------

Address:                                   Address:
                      ---------------                            ---------------

SS or Tax ID Number:                       SS or Tax ID Number:
                      ---------------                            ---------------

     (3) In the event of partial  exercise,  please reissue an appropriate  Note
for the principal balance which shall not have been converted.

     (4) If the shares of common stock issuable upon conversion of the Note have
not been  registered  under the  Securities Act of 1933, as amended (the "Act"),
the undersigned represents and warrants that (i) such shares of common stock are
being acquired for the account of the undersigned for investment, and not with a
present view to, or for resale in connection with, the distribution thereof, and
that the undersigned has no present  intention of distributing or reselling such
securities,  in each case, other than pursuant to a registration statement under
the Act and (ii) the  undersigned  is an  "Accredited  Investor"  as  defined in
Regulation  D under  the  Act.  The  undersigned  further  agrees  that (A) such
securities  shall not be sold or transferred  unless either (i) they first shall
have been registered  under the Act and applicable state securities laws or (ii)
the Borrower first shall have been furnished with either (x) an opinion of legal
counsel (in form,  substance and scope  reasonably  satisfactory to Borrower) to
the  effect  that  such  sale  or  transfer  is  exempt  from  the  registration
requirements of the Act or (y) satisfactory representations from the undersigned
that the undersigned may immediately  sell all of such securities (to the extent
such  securities  are deemed to have been acquired on the same date) pursuant to
Rule 144 under the Act (or a successor thereto) and (B) the Borrower may place a
legend on the certificate(s) for such securities to that effect and place a stop
transfer restriction in its records relating to such securities.

Date
      ---------------                   ----------------------------------------
                                         Signature of Registered  Holder
                                        (must be signed exactly as name appears
                                         in the Note.  The signature must be
                                         guaranteed by a member firm of the
                                         New York Stock Exchange or the National
                                         Association of Securities Dealers or by
                                         a commercial bank or trust having an
                                         office in the United States)

------------------------
(2) May not be Pro Tech Communications, Inc.

                                       20
<PAGE>

                                                                       Exhibit C
                                                                       ---------

                                 CANCELLED NOTES

Secured  Convertible  Note,  dated December 22, 2004 in the principal  amount of
$5,000,000 (No. CTS-04-37)

Secured  Convertible  Note,  dated January 12, 2006 in the  principal  amount of
$31,637,249.49 (No. CTS-06-02)

Secured  Convertible  Note,  dated  February 7, 2006 in the principal  amount of
$15,653,600.49 (No. CTS-06-04)

Secured  Convertible  Note,  dated February 13, 2006 in the principal  amount of
$27,034,868.10 (No. CTS-06-05)

Secured  Convertible  Note,  dated  April 7,  2006 in the  principal  amount  of
$4,633,722.87 (No. CTS-06-12)

Secured  Convertible  Note,  dated  April 7,  2006 in the  principal  amount  of
$750,000 (No. CTS-06-13)

Secured  Convertible  Note,  dated  April 21,  2006 in the  principal  amount of
$1,164,838.10 (No. CTS-06-14)

Secured  Convertible  Note,  dated  April 21,  2006 in the  principal  amount of
$1,447,274.84 (No. CTS-06-15)

Secured  Convertible  Note,  dated  April 21,  2006 in the  principal  amount of
$649,392.23 (No. CTS-06-16)

Secured  Convertible  Note,  dated  April 21,  2006 in the  principal  amount of
$550,000 (No. CTS-06-17)

Secured  Convertible  Note,  dated  May 10,  2006  in the  principal  amount  of
$2,230,279.44 (No. CTS-06-18)

Secured Convertible Note, dated May 10, 2006 in the principal amount of $550,000
(No. CTS-06-19)

Secured  Convertible  Note,  dated  May 25,  2006  in the  principal  amount  of
$343,012.25 (No. CTS-06-20)

Secured Convertible Note, dated May 25, 2006 in the principal amount of $550,000
(No. CTS-06-21)

                                       21
<PAGE>

Secured  Convertible  Note,  dated  June 9,  2006  in the  principal  amount  of
$2,650,000 (No. CTS-06-22)

Secured Convertible Note, dated June 9, 2006 in the principal amount of $550,000
(No. CTS-06-23)

Secured  Convertible  Note,  dated  June 23,  2006 in the  principal  amount  of
$5,150,000 (No. CTS-06-24)

Secured  Convertible  Note,  dated  June 23,  2006 in the  principal  amount  of
$550,000 (No. CTS-06-25)

Secured  Convertible  Note,  dated  July 10,  2006 in the  principal  amount  of
$650,285.76 (No. CTS-06-26)

Secured  Convertible  Note,  dated  July 10,  2006 in the  principal  amount  of
$1,120,000 (No. CTS-06-27)

Secured  Convertible  Note,  dated  July 31,  2006 in the  principal  amount  of
$550,000 (No. CTS-06-28)

Secured  Convertible  Note,  dated  July 31,  2006 in the  principal  amount  of
$800,000 (No. CTS-06-29)

Secured  Convertible  Note,  dated  August  2, 2006 in the  principal  amount of
$800,000 (No. CTS-06-30)

Secured  Convertible  Note,  dated  August 16, 2006 in the  principal  amount of
$550,000 (No. CTS-06-31)

Secured  Convertible  Note,  dated  August 31, 2006 in the  principal  amount of
$550,000 (No. CTS-06-32)

Secured  Convertible  Note,  dated September 22, 2006 in the principal amount of
$550,000 (No. CTS-06-33)

Secured  Convertible  Note,  dated September 26, 2006 in the principal amount of
$1,450,000 (No. CTS-06-34)

Secured  Convertible  Note,  dated September 26, 2006 in the principal amount of
$8,000,000 (No. CTS-06-35)

                                       22

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