Document:

Exhibit 10.2 - Change of Control Agr.

Exhibit 10.2

 

AGREEMENT

 

This Agreement (the "Agreement") is made as of the _____ day of _____________, _____, between SEMCO ENERGY, INC., a Michigan corporation (hereinafter called the "Company") and ___________________________ (hereinafter called "Executive").

 

WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the exclusive dedication of the Executive, notwithstanding the possibility, threat or occurrence of the Company's receiving or being the subject of any proposal or initiative which might result in a Change in Control (as defined in Section 1 hereof) and the Board believes it imperative that the Company and the Board be able to rely upon Executive to continue in his position, and that in such event they be able to receive and rely upon Executive's advice, if they request it, all to the best interests of the Company and its shareholders, without concern that Executive might be distracted or the Employee's advice might be affected by the personal uncertainties and risks created by such a proposal or initiative;

 

NOW, THEREFORE, in order to accomplish these objectives, the Board had caused the Company to enter into this Agreement, to induce Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and Executive agree as follows:

	 
	 	 	 
	

	 

1.   Definitions.

   (i)   "Change in Control" shall mean the occurrence of any of the following events:

       (a)   a third "person", including a "group", becomes the "beneficial owner" (as these terms are defined in or for the purposes of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), as in effect on the date hereof) of a controlling portion of the Company's stock;

       (b)   the merger, reorganization, or consolidation or sale or other disposition of all or substantially all of the assets of the Company with or into any other corporation or entity or the merger or consolidation of any other corporation or entity into or with the Company unless: (i) in such merger, reorganization or consolidation those persons who are shareholders of the Company immediately prior to such merger or consolidation do not receive, as a result of such merger or consideration, more than 50% in voting power of the outstanding capital stock of the surviving corporation; (ii) no person (excluding any corporation resulting from such transaction beneficially owns, directly or indirectly, 30% or more of, the corporation resulting from such transaction or the combined voting power of the then outstanding voting securities of such corporation (except to the extent that such ownership existed prior to the transactions, and (iii) at least a majority of the members of the Board of Directors of the corporation resulting from such transaction were members of the incumbent Board of Directors of the Company at the time of the execution of the initial agreement, or of the action of the Board of Directors of the Company, providing for such transaction;

       (c)   any sale or transfer in a single transaction of more than 70% of the fair market value of the Company's assets or the sale of substantially all of the assets and business of the SEMCO Energy Gas Company Division of the Company (the Company's Michigan gas utility)

	 
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       (d)   Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company;

       (e)   The Board determines in its sole and absolute discretion that there has been a change in control of the Company.

Provided, however, there shall be excluded from the definition of Change in Control any transaction in which the management of the Company by themselves or with other persons acquires more than 50% of the outstanding Common Stock ("Management Acquisition").

   (ii)   "Company" shall mean SEMCO Energy, Inc. and any successor (whether such succession is direct or indirect, by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the business and/or assets of the Company.

   (iii)   "Good Reason," when used with reference to a voluntary termination by Executive of Executive's employment with the Company, shall mean:

       (a)   the assignment to Executive of any duties substantially inconsistent with, or the reduction of powers or functions associated with, Executive's positions, duties, responsibilities and status with the Company as they existed immediately prior to the Change in Control;

       (b)   a reduction by Company in Executive's base salary as in effect on the date hereof or as the same may be increased from time to time;

       (c)   a change in Executive's principal work location outside of the Farmington Hills/Port Huron, Michigan area, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to a Change in Control; 

	 
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       (d)   the failure by the Company to obtain an agreement to expressly assume this Agreement from any successor (whether such succession is direct or indirect by purchase, merger, consolidation, liquidation or otherwise) to substantially all of the business and/or assets of the Company or from a person or group (as these terms are defined in or for the purposes of Section 13(d) of the Exchange Act, as in effect on the date hereof) acquiring a controlling portion of the Company's stock; or

       (e)   any purported termination of Executive's employment by the Company during the Employment Period which is not effected pursuant to the requirements of this Agreement.

   (iv)   "Employment Period" shall mean the period commencing on the day a Change in Control takes place and continuing for two (2) years. 

   (v)   "Disability" shall mean a physical or mental incapacity of Executive which entitles Executive to benefits under the long term disability plan applicable to Executive and maintained by the Company as in effect immediately prior to the Change in Control. However, if the Company has no such plan at that time, "Disability" shall mean any physical or mental condition that renders Executive unable to substantially perform Executive's duties with the Company for a period exceeding six (6) consecutive months or for a period exceeding four (4) months if a physician selected by the Company or its insurers, and reasonably satisfactory to Executive, specializing in the area of the disability in question determines in good faith that Executive will be permanently unable to substantially perform Executive's duties with the Company.

	 
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   (vi)   "Cause," when used in connection with the termination of Executive's employment by the Company, shall mean (a) the willful and continued failure by Executive substantially to perform Executive's duties and obligations to the Company (other than any such failure resulting from Executive's Disability), (b) the willful engaging by Executive in misconduct which is materially injurious to the Company, monetarily or otherwise, or (c) a conviction for or plea of nolo contendere to a felony under the laws of any state within the United States or of the United States. For purposes of this definition, no act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that Executive's action or omission was in the best interests of the Company. 

   (vii)   "Without Cause," when used in connection with the termination of Executive's employment by the Company, shall mean any termination of employment of Executive by the Company which is not a termination of employment for Cause or for Disability.

   (viii)   "Termination Date" shall mean the effective date as provided herein of the termination of Executive's employment.

2.   Effectiveness and Application of this Agreement; Term of Agreement. 

   (i)   This Agreement shall be effective as of the date hereof and continue unless there shall have been an intervening Change in Control until the next Board meeting after the date hereof, held concurrently with the annual shareholders meeting, of the Company on the third Tuesday in April of each year and shall renew ("Renewal Date") each year thereafter and until such time as the Executive is no longer an officer of the Company and unless either there shall have been either an intervening Change in Control or the Company shall have given notice to the Executive that the Agreement shall not be so extended. In the event a Change in Control shall have occurred during the initial or a subsequent annual period of effectiveness of this Agreement as provided in this subsection, the effectiveness shall thereupon be extended through the end of the resulting Employment Period. Provided, however, if a Change of Control occurs and if the Executive's employment with the Company is terminated within six months prior to the date on which a Change of Control occurs, then for all purposes of this Agreement, this Agreement shall be deemed effective on the date immediately prior to the date of such termination of employment.

	 
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   (ii)   This Agreement shall apply with respect to any termination of employment of Executive which occurs after a Change in Control during the resulting Employment Period. Continuation of employment with a successor to the Company shall not alone constitute termination of Executive's employment. 

   (iii)   This Agreement shall terminate automatically upon termination of employment of Executive by reason of Executive's death. This Agreement shall also terminate upon the expiration of each annual period contemplated by subsection (i) unless it has either been renewed as provided in such subsection or the Employment Period has commenced as a result of a Change in Control, in which case this Agreement will terminate upon the expiration of the Employment Period. Any such termination shall not affect obligations incurred prior to the date of termination, including any obligation to provide benefits under Section 5.

3.   Termination of Employment of Executive By the Company During the Employment Period.

   (i)   During the Employment Period, the Company shall have the right to terminate Executive's employment hereunder for Cause, for Disability or Without Cause upon compliance with the procedures hereinafter specified.

	 
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   (ii)   Termination of Executive's employment for Disability shall become effective no sooner than thirty (30) days after a notice of intent to terminate Executive's employment, specifying Disability as the basis for such termination, is given to Executive by the Board or by a duly-authorized Committee of the Board.

   (iii)   Termination of Executive's employment for Cause shall not be deemed effective unless and until there shall have been delivered to Executive a copy of a notice of termination from the Chief Executive Officer or the Board of Directors of the Company, after reasonable notice to Executive and an opportunity for Executive, together with Executive's counsel, to be heard before the Board of Directors, finding that in the good faith opinion of the Board of Directors Cause existed and specifying the particulars thereof in detail. 

   (iv)   The Company shall have the absolute right to terminate Executive's employment Without Cause at any time by vote of a majority of the whole Board. Termination of Executive's employment Without Cause shall be effective five (5) business days after the date of the Company's giving to Executive a notice of termination, specifying that such termination is Without Cause.

   (v)   Upon a termination of Executive's employment because of death or for Cause or for Disability, Executive shall have no right to receive any compensation or benefits hereunder. Upon a termination of Executive's employment Without Cause, Executive shall be entitled to receive the benefits provided in Section 5 hereof.

	 
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4.   Termination of Employment By Executive During Employment Period. During the Employment Period, Executive shall be entitled to terminate employment with the Company for any reason and, if such termination is for Good Reason, to receive the benefits provided in Section 5 hereof. Executive shall give the Company notice of voluntary termination of employment, which notice need specify only Executive's desire to terminate employment and, if such termination is for Good Reason, also set forth in reasonable detail the facts and circumstances claimed by Executive to constitute Good Reason. Any notice by Executive pursuant to this Section shall be effective five (5) business days after the date it is given by Executive.

5.   Benefits Upon Termination in Certain Circumstances. Upon the termination of the employment of Executive by the Company Without Cause pursuant to Section 3(iv) or by Executive for Good Reason pursuant to Section 4 hereof, Executive shall be entitled to receive the following benefits:

   (i)   The Company shall pay to Executive, not later than the Termination Date, a lump sum cash amount equal to the sum of (a) the full base salary earned by Executive through the Termination Date and unpaid at the Termination Date, (b) the amount of any base salary attributable to vacation earned by Executive but not taken before the Termination Date, and (c) all other amounts earned by Executive and unpaid at the Termination Date including any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid.

   (ii)   The Company shall further pay to Executive a pro-rata amount of any bonus award earned by the Executive during the year of the Termination Date under the Company's Annual Incentive Plan. 

	 
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   (iii)   The Company shall pay to Executive a cash amount (hereinafter referred to as the "Severance Amount") equal to the product of (1) two and ninety-nine hundredths (2.99) and (2) the sum of (x) Executive's annual base salary and (y) Executive's Recent Average Bonus (defined as the average annualized bonus paid or payable to Executive under the Company's Short Term Incentive Plan with respect to the three fiscal years immediately preceding the fiscal year in which the Termination Date occurs); reduced, but not below zero, by the sum of all payments, benefits or amounts other than the Severance Amount which otherwise constitute "parachute payments" within the meaning of Code § 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code") if they were collectively in excess of the threshold provided in subsection (A)(ii) of such provision. It is the intention of the parties that no amount of any payment or the value of any benefit received or to be received by the Executive in connection with a Change in Control of the Company (including the Severance Amount to be paid pursuant to this subsection) shall constitute "parachute payments" within the meaning of Section 280(G)(b)(1) of the Code. To effect this intention, upon the occurrence of a termination with respect to which the Severance Amount and other benefits contemplated by this Section 5 shall be payable pursuant to this Agreement the following shall occur:

(A)   The Company's independent auditors shall make an initial determination of all amounts which would constitute compensation and a "parachute payment" for purposes of Code § 280G(b)(2) if the threshold of Code § 280G(b)(2)(A)(ii) were exceeded (including a determination of the value of any non-cash benefits, any deferred payment or benefit in accordance with the principles of sections 280G(d)(3) and (4) of the Code) and shall provide prompt written notice of such determination to the Company and the Executive together with a recommendation of whether and to what extent the Severance Amount should be reduced to effect the parties' intention. For purposes of the determinations to be made pursuant to this subsection (A),

	 
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(I)   There shall be taken into account all amounts received or to be received whether payable pursuant to the terms of this Agreement or any other plan, agreement or arrangement with the Company, its successors, any person whose actions result in a Change in Control of the Company, an Affiliate (any corporation affiliated with the Company within the meaning of Section 1504 of the Code determined without regard to section 1504(b) of the Code or a corporation which, as a result of the completion of the transaction causing a Change in Control of the Company will become an Affiliate); provided however,

(II)   There shall not be taken into account any amounts or benefits which the Executive shall have effectively waived in writing prior to the receipt or enjoyment of such payment or benefit. The Severance Amount shall be paid at the option of Executive either (x) in a lump sum, (y) in monthly installments over a period equal to the remaining Employment Period as of the Termination Date, or (z) in monthly installments pursuant to subsection (y) but with the unpaid balance payable as a lump sum payable upon request from Executive.

   (iv)   The Company shall also pay to Executive all legal fees and expenses incurred by Executive as a result of successfully enforcing any right or benefit provided to Executive by this Agreement.

	 
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   (v)   The Company shall maintain in full force and effect for Executive's continued benefit until the earlier of (a) three years after the Termination Date or (b) Executive's commencement of employment with a new employer, any medical insurance plans or medical insurance arrangements in which Executive and his dependents were entitled to participate upon the Termination Date, provided that Executive's continued participation is possible under the general terms and provisions of such plans or arrangements. In the event that Executive's participation in any such plans or arrangements is barred, the Company shall arrange to provide Executive and his dependents with benefits substantially similar to those which Executive is entitled to receive under such plans or arrangements. Should the medical insurance plans or arrangements provided by Executive's new employer not entitle Executive or Executive's dependents (a) to any coverage during an initial qualification period or (b) to coverage for any condition which is considered a pre-existing condition under the new employer's plan and which was covered under the Company's medical insurance plans or arrangements at the Termination Date, then notwithstanding Executive's employment, the Company shall continue to provide medical benefits as stated above in this Section 5(v) during such qualification period (if clause (a) of this sentence is applicable) and at least for such pre-existing condition (if clause (b) of this sentence is applicable).

(vi)   All conditions and/or contingencies to which any options (and any form of right to acquire any form of equity interest in the Company) which have been granted by the Company to Executive, including without limitation pursuant to the Company's 1997 Long-Term Incentive Plan and the Stock Option Plan of 2000 shall terminate or be deemed to have been satisfied as of the Termination Date, such that as of the Termination Date Executive shall be deemed to be fully vested in all such options or rights. 

(vii)   All unfulfilled period of service and any other vesting requirements under the Company's Supplemental Executive Retirement Plan or successor plan thereto shall be deemed to have been satisfied as of the Termination Date, such that as of the Termination Date Executive shall be deemed to be fully vested in all such rights, provided however, that the benefit level to be provided to such Executive shall be deemed to have been frozen at the level at which such benefit was then accrued with respect to Executive. 

	 
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6.   Excess Parachute Payment. In the event it should be determined, notwithstanding the parties' intentions and the reduction of the Severance Amount pursuant to Section 5(iii) of this Agreement, that the payments and benefits to Executive provided for in Section 5 or any part hereof constitute an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code, and would be subject to an excise tax pursuant to Code §  4999, Executive shall be entitled to receive additional payments from the Company in an amount equal to that gross amount which when all additional income or excise taxes payable by Executive by reason of the imposition of such excise tax pursuant to Code § 4999 are deducted therefrom is equal to the net amount which Executive was intended to receive pursuant to Section 5 of this Agreement. 

7.   Other Employment. Executive shall not be required to mitigate the amount of any payment or benefit provided for in Section 5 by seeking other employment or otherwise. The amount of any such payment or benefit shall not be reduced by any compensation earned or benefit received by Executive as the result of other employment. 

8.   Successors: Binding Agreement.

	 
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   (i)   The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the business and/or assets of the Company, or any person or group (as these terms are defined in or for the purposes of Section 13(d) of the Exchange Act, as in effect on the date hereof acquiring a controlling portion of the Company's stock, excluding a Management Acquisition, to agree to expressly assume the obligation of the Company to perform this Agreement upon or prior to such succession taking place. A copy of such assumption and agreement shall be delivered to Executive promptly after its execution by the successor or such person or group. Failure of the Company to obtain such agreement upon or prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to benefits as set forth above in Sections 4 and 5. Further, if the Company fails to obtain such agreement upon or prior to the effectiveness of any such succession, the Company shall place in trust or escrow, with an independent third party as trustee or escrow agent, for the benefit of Executive cash in an amount equal to the total of the following: the maximum amounts which are or may become payable to Executive by reason of Section 5(i), (ii) and (iii). This amount shall not be discounted to any present value. All or any portion of such amount held in trust or escrow shall be paid to Executive at the times required by Section 5 hereof, and any remaining balance shall be returned to the Company only after there are no obligations of the Company under Section 5 that may be required to be performed in the future.

   (ii)   This Agreement is personal to Executive and Executive may not assign or transfer any part of Executive's rights or duties hereunder, or any compensation due to Executive hereunder, to any other person, except that this Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees or beneficiaries.

9.   Modification: Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by Executive and by the Company. Waiver by any party of any breach of or failure to comply with any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of, or failure to comply with, any other provision of this Agreement.

	 
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10.   Arbitration of Disputes.

   (i)   Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation or validity hereof shall be settled exclusively and finally by arbitration. It is specifically understood and agreed that any disagreement, dispute or controversy which cannot be resolved between the parties, including without limitation any matter relating to the interpretation of this Agreement, may be submitted to arbitration irrespective of the magnitude thereof, the amount in controversy or whether such disagreement, dispute or controversy would otherwise be considered justiciable or ripe for resolution by a court or arbitral tribunal.

   (ii)   The arbitration shall be conducted in accordance with the Commercial Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA").

   (iii)   The arbitral tribunal shall consist of one arbitrator. The parties to the arbitration jointly shall directly appoint such arbitrator within 30 days of initiation of the arbitration. If the parties shall fail to appoint such arbitrator as provided above, such arbitrator shall be appointed by the AAA as provided in the Arbitration Rules and shall be a person who has had substantial experience in mergers and acquisitions. The Company shall pay all of the fees, if any, and expenses of such arbitrator.

   (iv)   The arbitration shall be conducted in the Detroit, Michigan area or in such other city in the United States of America as the parties to the dispute may designate by mutual written consent.

	 
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   (v)   At any oral hearing of evidence in connection with the arbitration, each party thereto or its legal counsel shall have the right to examine its witnesses and to cross-examine the witnesses of any opposing party. No evidence of any witness shall be presented in form unless the opposing party or parties shall have the opportunity to cross-examine such witness, except as the parties to the dispute otherwise agree in writing or except under extraordinary circumstances where the interests of justice require a different procedure.

   (vi)   Any decision or award of the arbitral tribunal shall be final and binding upon the parties to the arbitration proceeding. The parties hereto agree that the arbitral award may be enforced against the parties to the arbitration proceeding or their assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction.

   (vii)       Nothing herein contained shall be deemed to give the arbitral tribunal any authority, power, or right to alter, change, amend, modify, add to, or subtract from any of the provisions of this Agreement.

11.   Notice. All notices, requests, demands and other communications required or permitted to be given by either party to the other party by this Agreement (including, without limitation, any notice of termination of employment and any notice under the Arbitration Rules of an intention to arbitrate) shall be in writing and shall be deemed to have been duly given when delivered personally or received by certified or registered mail, return receipt requested, postage prepaid, at the address of the other party, as follows:

If to the Company, to:

 

   Chairman of the Board of Directors

   SEMCO Energy, Inc.

   28470 13 Mile Road

   Farmington Hills, Michigan 48334

	 
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If to Executive, to:

   

   

Either party hereto may change its address for purposes of this Section 11 by giving fifteen (15) days' prior notice to the other party hereto.

12.   Severability. If any term or provision of this Agreement or the application hereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

13.   Headings. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of this Agreement.

14.   Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original.

15.   Governing Law. This Agreement shall in all respects be governed by, and construed and enforced in accordance with, the laws of the State of Michigan, without regard to the conflicts of laws principles of such state.

16.   Payroll and Withholding Taxes. All payments to be made or benefits to be provided hereunder by the Company shall be subject to reduction for any applicable payroll-related or withholding taxes.

17.   Entire Agreement. This Agreement supersedes any and all other oral or written agreements heretofore made relating to the subject matter hereof and constitutes the entire agreement of the parties relating to the subject matter hereof.

	 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

	 	 	 	
 SEMCO ENERGY, INC.

 

		 	 	 
	

	 	 	

	(Executive Signature)
Typed Name:	 	 	Name
Title

DETROIT 15245-1 770155v04

	 
	 	 17Exhibit 4(dl)

THIS  WARRANT  HAS NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS
AMENDED,  OR APPLICABLE  STATE  SECURITIES  LAWS, NOR THE SECURITIES LAWS OF ANY
OTHER  JURISDICTION.  THIS WARRANT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THOSE SECURITIES LAWS OR AN OPINION
OF COUNSEL, IN FORM AND SUBSTANCE  SATISFACTORY TO THE COMPANY, THAT THE SALE OR
TRANSFER IS PURSUANT TO AN EXEMPTION TO THE  REGISTRATION  REQUIREMENTS OF THOSE
SECURITIES LAWS.

                                -----------------

No. CS-70                                              Dated as of March 5, 2004
---------

           Void after 5:00 p.m., New York City time, on March 5, 2009

                                     WARRANT

              for the Purchase of 6,750,000 Shares of Common Stock

     FOR  VALUE  RECEIVED,   NCT  GROUP,   INC.  (the  "Company"),   a  Delaware
corporation,  on this day of March 5, 2004 (the "Grant Date") hereby issues this
warrant (the  "Warrant")  and certifies  that Carole  Salkind (the  "Holder") is
granted the right,  subject to the  provisions of the Warrant,  to purchase from
the Company,  at any time, or from time to time during the period  commencing at
9:00 a.m.  New York City  local  time on March 5,  2004,  and  expiring,  unless
earlier  terminated as  hereinafter  provided,  at 5:00 p.m. New York City local
time on March 5, 2009 up to Six Million Seven Hundred Fifty Thousand (6,750,000)
fully paid and  nonassessable  shares of Common  Stock,  $.01 par value,  of the
Company at a price per share (the  "Exercise  Price")  equal to the closing sale
price of the Common  Stock (as  defined  below) on the  Trading  Day (as defined
below) immediately preceding the date of this Warrant;  provided,  however, that
if, on the date of this  Warrant  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 the Exercise Price shall be reduced to a price equal
to the lowest  closing sale price,  if lower than the price  specified  above in
this sentence, of the Common Stock during the Window on the principal securities
exchange  or market on which the  Common  Stock is then  traded as  reported  on
Bloomberg  Financial  Markets.  If any  closing  sale price of the Common  Stock
during the Window is lower than the price specified in the immediately preceding
sentence,  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
applicable  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
applicable  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 Company) 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).

<PAGE>

     The term "Common  Stock" means the shares of Common Stock,  $.01 par value,
of the Company constituted on the Grant Date of this Warrant,  together with any
other equity securities that may be issued by the Company in addition thereto or
in  substitution  therefor.  The number of shares of Common Stock to be received
upon  the  exercise  of  this  Warrant  may be  adjusted  from  time  to time as
hereinafter  set  forth.  The  shares  of  Common  Stock  deliverable  upon such
exercise,  and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Stock".

     Upon receipt by the Company of evidence  reasonably  satisfactory  to it of
the loss, theft,  destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender  and  cancellation  of this Warrant,  if mutilated,  the Company shall
execute and  deliver a new Warrant of like tenor and date.  Any such new Warrant
executed and delivered shall constitute an additional  contractual obligation on
the part of the Company,  whether or not this Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.

     The Holder agrees with the Company that this Warrant is issued, and all the
rights  hereunder shall be held,  subject to all of the conditions,  limitations
and provisions set forth herein.

     1.  Exercise of Warrant.  This Warrant may be exercised in whole or in part
at any time,  or from time to time,  during the period  commencing at 9:00 a.m.,
New York City local time, on March 5, 2004,  and expiring at 5:00 p.m., New York
City local  time,  on March 5, 2009,  or, if such day is a day on which  banking
institutions in the City of New York are authorized by law to close, then on the
next succeeding day that shall not be such a day.

     Subject to the restrictions  and limitations set forth above,  this Warrant
may be  exercised by  presentation  and  surrender  hereof to the Company at its
principal  office with the Warrant  Exercise Form attached  hereto duly executed
and  accompanied  by payment  (either in cash or by certified  or official  bank
check, payable to the order of the Company) of the Exercise Price for the number
of shares  specified in such Form and  instruments of transfer,  if appropriate,
duly executed by the Holder.  If this Warrant  should be exercised in part only,
the Company shall, upon surrender of this Warrant for cancellation,  execute and
deliver a new Warrant  evidencing  the rights of the Holder  thereof to purchase
the balance of the shares purchasable hereunder.  Upon receipt by the Company of
this Warrant, together with the Warrant Exercise Form and the Exercise Price, at
its office,  in proper form for  exercise,  the Holder shall be deemed to be the
holder of record of the  shares of Common  Stock  issuable  upon such  exercise,
notwithstanding  that the stock  transfer  books of the  Company  shall  then be
closed or that  certificates  representing such shares of Common Stock shall not
then be  actually  delivered  to the Holder.  The Company  shall pay any and all
documentary  stamp or similar issue or transfer  taxes payable in respect of the
issue or delivery of shares of Common Stock on exercise of this Warrant.

     2.  Reservation  of  Shares.  The  Company  will at all times  reserve  for
issuance and delivery  upon  exercise of this Warrant all shares of Common Stock
of the Company from time to

                                       2
<PAGE>

time  receivable  upon exercise of this  Warrant.  All such shares shall be duly
authorized and, when issued upon such exercise,  shall be validly issued,  fully
paid and nonassessable and free of all preemptive rights.

     3. Warrant Stock  Transfer to Comply with the  Securities  Act of 1933. The
Warrant  Stock  may not be sold  or  otherwise  disposed  of  unless  registered
pursuant to the  provisions of the Securities Act of 1933, as amended (the "1933
Act"), or an opinion of counsel in form and content  satisfactory to the Company
is obtained  stating that such sale or other  disposition  is made in compliance
with  an  available  exemption  from  such  registration.   Any  sale  or  other
disposition  of the Warrant  Stock must also comply  with all  applicable  state
securities laws and regulations.

     4. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant,  but the Company shall
issue one  additional  share of its Common  Stock in lieu of each  fraction of a
share otherwise called for upon any exercise of this Warrant.

     5. Exchange,  Transfer,  Assignment of Loss of Warrant. This Warrant is not
registered  under the 1933 Act nor under any applicable  state securities law or
regulation.  This Warrant cannot be sold,  exchanged,  transferred,  assigned or
otherwise  disposed of unless registered  pursuant to the provisions of the 1933
Act or an opinion of counsel in form and content  satisfactory to the Company is
obtained  stating  that such  disposition  is in  compliance  with an  available
exemption  from  registration.  Any  such  disposition  must  also  comply  with
applicable state securities laws and regulations.

     6.  Rights of the  Holder.  The Holder  shall  not,  by virtue  hereof,  be
entitled  to any rights of a  stockholder  of the  Company,  either at law or in
equity,  and the  rights of the Holder are  limited to those  expressed  in this
Warrant.

     7. Redemption. This Warrant is not redeemable by the Company.

     8. Anti-Dilution Provisions.

     8.1  Adjustment  for  Dividends  in  Other  Securities,   Property,   Etc.:
Reclassification,  Etc. In case at any time or from time to time after the Grant
Date the holders of Common Stock (or any other securities at the time receivable
upon the  exercise  of this  Warrant)  shall have  received,  or on or after the
record date fixed for the  determination  of eligible  stockholders,  shall have
become  entitled to receive without  payment  therefor:  (a) other or additional
securities or property  (other than cash) by way of dividend,  (b) any cash paid
or  payable  except out of earned  surplus  of the  Company at the Grant Date as
increased  (decreased)  by  subsequent  credits  (charges)  thereto  (other than
credits  in respect of any  capital or paid-in  surplus or surplus  created as a
result  of a  revaluation  of  property)  or (c) other or  additional  (or less)
securities  or  property  (including  cash)  by  way of  stock-split,  spin-off,
split-up,   reclassification,   combination  of  shares  or  similar   corporate
rearrangement, then, and in each such case, the Holder of this Warrant, upon the
exercise thereof as provided in Section 1, shall be

                                       3
<PAGE>

entitled to  receive,  subject to the  limitations  and  restrictions  set forth
above,  the  amount of  securities  and  property  (including  cash in the cases
referred  to in clauses (b) and (c) above)  which such Holder  would hold on the
date of such  exercise  if on the Grant Date it had been the holder of record of
the  number  of  shares  of Common  Stock  (as  constituted  on the Grant  Date)
subscribed  for upon such exercise as provided in Section 1 and had  thereafter,
during  the  period  from  the  Grant  Date to and  including  the  date of such
exercise,  retained such shares and/or all other additional (or less) securities
and  property  (including  cash in the cases  referred to in clauses (b) and (c)
above)  receivable by it as aforesaid  during such period,  giving effect to all
adjustments called for during such period by Section 8.2.

     8.2 Adjustment for Reorganization,  Consolidation,  Merger, Etc. In case of
any reorganization of the Company (or any other  corporation,  the securities of
which are at the time  receivable  on the  exercise of this  Warrant)  after the
Grant  Date  or in  case  after  such  date  the  Company  (or  any  such  other
corporation) shall consolidate with or merge into another  corporation or convey
all or substantially all of its assets to another corporation, then, and in each
such case,  the Holder of this Warrant upon the exercise  thereof as provided in
Section  1  at  any  time  after  the   consummation  of  such   reorganization,
consolidation,  merger or conveyance,  shall be entitled to receive,  in lieu of
the securities and property  receivable  upon the exercise of this Warrant prior
to such consummation, the securities or property to which such Holder would have
been entitled upon such  consummation  if such Holder had exercised this Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
Section 8.1; in each such case, the terms of this Warrant shall be applicable to
the  securities or property  receivable  upon the exercise of this Warrant after
such consummation.

     8.3  Certificate  as to  Adjustments.  In each case of an adjustment in the
number of shares of Common Stock (or other securities or property) receivable on
the exercise of the Warrant,  the Company at its expense will  promptly  compute
such  adjustment  in  accordance  with the terms of the  Warrant  and  prepare a
certificate  setting forth such  adjustment and showing in detail the facts upon
which such adjustment is based,  including a statement of (a) the  consideration
received or to be received  by the Company for any  additional  shares of Common
Stock  issued or sold or deemed to have been  issued or sold,  (b) the number of
shares of Common Stock outstanding or deemed to be outstanding,  and (c) the pro
forma  adjusted  Exercise.  The Company will  forthwith mail a copy of each such
certificate to the holder of this Warrant.

     8.4  Notices of Record Date, Etc.

          In case:

     (a) the Company  shall take a record of the holders of its Common Stock (or
other  securities at the time  receivable  upon the exercise of the Warrant) for
the  purpose  of  entitling  them to receive  any  dividend  (other  than a cash
dividend)  or other  distribution,  or any right to subscribe  for,  purchase or
otherwise acquire any shares of stock of any class or any other  securities,  or
to receive any other right; or

                                       4
<PAGE>

     (b) of any capital  reorganization of the Company (other than a stock split
or reverse  stock  split),  any  reclassification  of the  capital  stock of the
Company,  any  consolidation  or  merger  of the  Company  with or into  another
corporation  (other  than a merger for  purposes of change of  domicile)  or any
conveyance of all or  substantially  all of the assets of the Company to another
corporation; or

     (c) of any voluntary or involuntary dissolution,  liquidation or winding-up
of the Company,  then, and in each such case, the Company shall mail or cause to
be  mailed  to each  holder  of the  Warrant  at the time  outstanding  a notice
specifying,  as the case may be,  (i) the date on which a record  is to be taken
for the purpose of such dividend,  distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
such  reorganization,   reclassification,   consolidation,  merger,  conveyance,
dissolution,  liquidation or winding-up is to take place,  and the time, if any,
is to be fixed, as to which the holders of record of Common Stock (or such other
securities  at the time  receivable  upon the exercise of the Warrant)  shall be
entitled to exchange their shares of Common Stock (or such other securities) for
securities   or   other   property   deliverable   upon   such   reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up.  Such notice  shall be mailed at least twenty (20) days prior to the
date  therein  specified  and the  Warrant may be  exercised  prior to said date
during the term of the Warrant no later than five (5) days prior to said date.

     9. Legend. In the event of the exercise of this Warrant and the issuance of
any of the Warrant Stock hereunder, all certificates  representing Warrant Stock
shall bear on the face thereof  substantially the following legends,  insofar as
is consistent with Delaware law:

        "The shares of common stock  represented by this certificate have
        not been registered under the Securities Act of 1933, as amended,
        or the Securities  laws of any state or other  jurisdiction,  and
        may not be sold,  offered  for  sale,  assigned,  transferred  or
        otherwise   disposed  of,  unless  registered   pursuant  to  the
        provisions of that Act and of such  Securities laws or an opinion
        of counsel acceptable to the Corporation is obtained stating that
        such  disposition  is in compliance  with an available  exemption
        from such registration."

     10. Governing Law and  Jurisdiction.  This Warrant 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 Warrant.

     11. Notices.  Notices,  demands and other  communications  given under this
Agreement  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

                                       5
<PAGE>

associated  party.  Unless another  address or facsimile  number is specified by
notice hereunder, all notices shall be sent as follows:

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

--------------------------------------------------------------------------------
Ms. Carole Salkind                              Peter Rosen, Esq.
c/o Sills Cummis Epstein & Gross P.C.           Rosen & Avigliano
One Riverfront Plaza                            431 Route 10 East
Newark, NJ  07102                               Randolph, NJ
07689
--------------------------------------------------------------------------------
Facsimile:  973-643-6500                        Facsimile:  973-361-1644
--------------------------------------------------------------------------------

If to the Company:                              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
--------------------------------------------------------------------------------

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf,  in its corporate name, by its duly authorized  officer,  as of the date
first written above.

                                           NCT GROUP, INC.

                                           By:  /s/  Michael J. Parrella
                                              ----------------------------------
                                              Michael J. Parrella
                                              Chairman & Chief Executive Officer

                                       6
<PAGE>

                              WARRANT EXERCISE FORM
                              ---------------------

      (To be executed by the Holder in order to Exercise the Warrant)

    TO:    NCT Group, Inc.
           20 Ketchum Street
           Westport, CT  06880
           Attention:  Chief Financial Officer

     The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing _________ shares of Common Stock of NCT Group, Inc. and
hereby  makes  payment at the rate of  $______  per share,  or an  aggregate  of
$________, in payment therefor.

     The  undersigned  represents,  warrants and  certifies  that all offers and
sales  of the  Warrant  Stock  shall  be  made:  (i)  pursuant  to an  effective
registration  statement  under the 1933 Act or pursuant to an exemption from, or
in a transaction not subject to, the registration  requirements of the 1993 Act;
and (ii) in compliance  with applicable  state  securities laws and those of any
other applicable jurisdiction.

Dated:
       ----------------

                                              ----------------------------------
                                              Name of Warrant Holder

                                              ----------------------------------
                                              Signature

                ------------------------------------------------

                       INSTRUCTIONS FOR ISSUANCE OF STOCK
                       ----------------------------------

         (if other than to the registered holder of the within Warrant)

Name:        _____________________________________________________________
                       (Please type or print in block letters)

Address:  ________________________________________________________________

Social Security or Taxpayer Identification Number:  ______________________

                                       7

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