NCT GROUP INC
SETTLEMENT AGREEMENT
<DOCUMENT>
<TYPE>EX-10.AY
<SEQUENCE>24
<FILENAME>exh-10ay.txt
<DESCRIPTION>SETTLEMENT AGREEMENT
<TEXT>
Exhibit 10(ay)


                              SETTLEMENT AGREEMENT

WHEREAS, Plaintiffs Alpha Capital Aktiengesellschaft  ("Alpha"), Austost Anstalt
Schaan ("Austost"),  Balmore, S. A., f/k/a Balmore Funds, S.A. ("Balmore"),  and
Libra  Finance,  S.A.  ("Libra")   (collectively  the  "Investors"),   by  their
attorneys,   Grushko  &  Mittman,  P.C.,  have  filed  their  Complaint  against
Defendants NCT Group, Inc. ("NCT"),  and Artera Group, Inc., f/k/a NCT Networks,
Inc. ("Artera"), in the Supreme Court of the State of New York, New York County,
Index Number  604540/02  (the  "Action",  the causes of actions and  allegations
contained in the Complaint in said Action are referred to as the "Claims"); and

WHEREAS,  NCT and Artera  seek to resolve the claims  made  against  them in the
Action  for,  among other  things,  liquidated  damages  for stock  registration
failures and  principal and interest  payments  under  various  convertible  and
exchangeable  notes  (collectively the "Notes") as alleged in the aforementioned
Complaint,  and the  Investors  are willing to resolve  such claims as described
herein;

NOW, THEREFORE,  in exchange for good and valuable  consideration  including the
mutual recitations and provisions  contained herein, and other good and valuable
consideration,  the receipt of which is hereby acknowledged,  the parties hereto
(collectively the "Parties") agree as follows:

      1.  Recitals.

          The above  recitals  are true and correct and  incorporated  herein by
          reference.

      2.  Court Approval and Issuance of Shares.

     A.      This Settlement  Agreement must be approved by the Supreme Court of
     the State of New York, New York County (the "Court"),  after a hearing that
     the Parties will seek to schedule as soon as practicable  (the  "Hearing").
     If the Court fails or refuses to approve this Settlement  Agreement  within
     120 days of the date recorded below, then it shall be of no force or effect
     on any Party.

     B.      Immediately  upon the  occurrence  of the  last of both (i)  Court
     approval of this  Settlement  Agreement and (ii) the Investors'  receipt of
     the Shares,  as defined below,  NCT, Artera and the Investors will promptly
     take all steps  necessary  to dismiss  the Action with  prejudice  and will
     direct their  respective  attorneys to execute and file a  stipulation  and
     order of dismissal  with  prejudice in the form attached as Exhibit A. Each
     party will bear its own costs and expenses,  including  attorneys' fees, in
     connection  with  the  negotiation,   execution  and  performance  of  this
     Settlement  Agreement,  except that NCT and Artera,  jointly and severally,
     shall  reimburse  the  Investors  for  $10,000.00  of their  legal  fees in
     connection with the Action.

     C.      Within ten business  days after Court  approval of this  Settlement
     Agreement,  NCT shall issue to the  Investors  that number of shares of NCT
     Common Stock, par value $.01 per share (the "Shares"), having the aggregate
     value of  $4,000,000.00  based  upon a price per share  which  shall be the
     average  of the  closing  price  on the  NASD  Over-the-Counter

<PAGE>


     Electronic  Bulletin  Board for each of the ten  trading  days  immediately
     preceding  the date of the  Hearing  (the date of  issuance  of said Shares
     being the "Issue  Date").  The closing of the issuance of the Shares by NCT
     to the Investors on the Issue Date as contemplated  herein shall take place
     at NCT's office in Westport, Connecticut. The aggregate value of the Shares
     shall be  distributed  among the Investors as follows:  Alpha  $913,614.92,
     Austost $1,351,250.16, Balmore $1,364,687.95 and Libra $370,446.97.


     D.      In no event shall any Investor  receive that number of Shares which
     would be in excess of the sum of (i) the  number of shares of common  stock
     beneficially  owned by the Investor and its  affiliates  on the Issue Date,
     and (ii) the number of Shares  issuable to the  Investor on the Issue Date,
     which  would  result  in  beneficial  ownership  by the  Investor  and  its
     affiliates of more than 9.99% of the outstanding  shares of common stock of
     NCT on the  Issue  Date.  For the  purposes  of the  immediately  preceding
     sentence,  beneficial  ownership  shall be determined  in  accordance  with
     Section  13(d) of the  Securities  Exchange  Act of 1934,  as amended,  and
     Regulation 13d-3 thereunder.  Subject to the foregoing, each Investor shall
     not be limited to aggregate  issuance of only 9.99% and aggregate  issuance
     to the  Investor  may exceed  9.99%.  The  Investor  may void the  issuance
     limitation described in this paragraph upon 75 days prior written notice to
     the Company.  The  Investor may allocate  which of the equity of NCT deemed
     beneficially  owned by the  Investor  shall be included in the 9.99% amount
     described above and which shall be allocated to the excess above 9.99%. The
     remainder of the Shares due each Investor under this  Settlement  Agreement
     shall be issued by NCT to the respective  Investors on further issue dates,
     sixty-one days after the immediately  preceding issue date,  subject to the
     limitations  of  this  paragraph,  until  all the  Shares  due  under  this
     Settlement Agreement have been issued to the Investors.

     E.      The Investors understand and acknowledge that the offer and sale of
     the Shares by NCT to the Investors as  contemplated  hereunder  will not be
     registered with or reviewed by any state securities authority,  pursuant to
     applicable   exemption(s)  from  such  requirements.   The  Parties  hereby
     acknowledge that the Shares will be issued hereunder in exchange for one or
     more bona fide outstanding securities,  claims or property interests of the
     Investors,  within the meaning of Section  36b-3(15)(G)(iv) of Chapter 672a
     of Title 36b of the  Connecticut  Securities  Law and Business  Opportunity
     Investment Act, as amended.

     F.      It is the intent of the Parties  that,  upon delivery of the Shares
     to  the  Investors,  resale  of the  Shares  in the  United  States  by the
     Investors  shall be exempt from  registration  under the  Securities Act of
     1933,  as amended  (as so  amended,  the  "Securities  Act"),  by virtue of
     Section  3(a)(10) of the  Securities  Act. As such, the Shares to be issued
     hereunder  will be issued to the Investors in exchange for one or more bona
     fide outstanding securities, claims or property interests of the Investors,
     within the  meaning of such  Section  3(a)(10)  of the  Securities  Act. In
     further  connection  with the  requirements  of said  Section,  the Parties
     intend  that  the  Court  approval  referred  to in  Section  2(A)  of this
     Settlement  Agreement be after a hearing upon the fairness to the Investors
     of the terms and conditions of the Settlement  Agreement,  at which hearing
     the Investors shall have the right to appear.

                                       2
<PAGE>


     G.      All Shares  issued  pursuant to this  Section 2 of this  Settlement
     Agreement shall not bear any restrictive legend.

     H.      Each of the Investors  recognizes that NCT has a limited  financial
     and operating  history and that an investment in any of the Shares involves
     a high  degree of risk.  Each  Investor  acknowledges  receipt  from NCT of
     information  satisfactory to such Investor  regarding NCT and the Shares to
     be issued  hereunder.  Each Investor has had an  opportunity  to review the
     publicly  available  information  about  NCT  that  is  on  file  with  the
     Securities and Exchange  Commission (the "SEC") and, has had an opportunity
     to ask  questions of and receive  answers from  officers of NCT  concerning
     NCT's publicly available SEC filings and the Shares to be issued hereunder,
     and is  satisfied  with all of such  answers.  Nothing  in this  Settlement
     Agreement  shall affect any obligation a holder of Shares issued  hereunder
     may have to comply with all applicable  Federal and State  securities  laws
     upon any resale of Shares.

     I.   The Complaint in the Action is deemed  amended to add a Tenth Cause
     of Action by which Alpha  claims  $98,154 in  liquidated  damages for NCT's
     failure to register  NCT common stock  issuable to Alpha  pursuant to a May
     25, 2001, Artera 6% Convertible Note, the attendant  Subscription Agreement
     between Artera and Alpha,  the Exchange  Rights  Agreement  between NCT and
     Alpha  and  Registration  Rights  Agreement  between  NCT and  Alpha  (said
     documents  referred  to  collectively  as the  "5/25/01  Note  and  related
     agreements").

      3.  Releases.

     A.      Upon receipt of all of the Shares for and in  consideration  of the
     terms and conditions of this Agreement,  and except for the obligations and
     representations arising or made hereunder, NCT and Artera, on the one hand,
     and the Investors,  on the other hand,  hereby release,  acquit and forever
     discharge  the  other and each,  every  and all of their  current  and past
     officers, directors, shareholders,  affiliated corporations,  subsidiaries,
     agents, employees, representatives, attorneys, predecessors, successors and
     assigns (the "Released Parties"),  of and from any and all claims, damages,
     causes of  action,  suits and  costs,  of  whatever  nature,  character  or
     description, whether known or unknown, anticipated or unanticipated,  which
     the parties may now have or claim to have  against  each other with respect
     to  (a)  the  Claims,  (b)  the  following  agreements  as  defined  in the
     Complaint: the 1/9/01 Notes and related agreements;  the Series A Preferred
     Stock and related agreements;  the 3/14/01 Note and related agreements; the
     4/4/01 Note and related  agreements;  4/12/01 Note and related  agreements;
     the 5/25/01  Note and  related  agreements;  the  6/29/01  Note and related
     agreements;  the 1/10/02 Note and related agreements;  the 3/11/02 Note and
     related  agreements;  the  Series  B  Preferred  Stock  (collectively,  the
     "Instruments").  Nothing  contained  herein  shall be  deemed  to negate or
     affect the Investors' right and title to any securities  heretofore  issued
     to it by NCT or any subsidiary of NCT.

     B.       Notwithstanding  anything  in  this  Settlement  Agreement  to the
     contrary,  the  Investors  do  not  release  NCT or  its  affiliates  as to
     currently  outstanding  principal  on the  Instruments  and  interest  that
     accrues  on that  outstanding  principal  from the date of this

                                       3
<PAGE>


     Settlement Agreement. Notwithstanding anything in this Settlement Agreement
     to the contrary, the Investors further do not release NCT or its affiliates
     as to any  dividends  or accretion  due at any time under the  Instruments.
     Notwithstanding  anything in this Settlement Agreement to the contrary, the
     Investors  further do not release NCT or its  affiliates as to any security
     provided  to  the  Investors  by  NCT or  its  affiliates  in the  Security
     Agreement dated January 10, 2002.

     C.      Notwithstanding  anything  in  this  Settlement  Agreement  to the
     contrary,  the Investors do not release NCT from its obligations  under the
     Instruments  with  respect to the  registration  of its common stock in the
     manner set forth in the Instruments,  except that,  whereas the Instruments
     require said  registration by dates certain in default of which  Liquidated
     Damages  (as  defined in the  Instruments  as payable  in  connection  with
     Registration  Defaults, as defined in the Instruments) accrue,  hereinafter
     NCT,  with  respect  to the  registration  of its  common  stock  under the
     Instruments,  covenants  only to (a) file  registration  statement(s)  (the
     "Investor  Registration  Statement(s)")  with the SEC within 45 days of the
     latest of the  effectiveness of or abandonment of or failure to pursue with
     commercially  reasonable  diligence the declaration of effectiveness of the
     following three  registration  statements:  (i) Registration  Statement No.
     333-60574,  (ii) a registration statement to be filed to register shares of
     common  stock of NCT into which  shares of Series H preferred  stock of NCT
     are convertible  (including any associated  required additional reserve) in
     connection  with the  Registration  Rights  Agreement  dated as of June 21,
     2002, between NCT and Crammer Road, LLC, and (iii) a registration statement
     to be filed to register  shares of common stock  registered  in  connection
     with the Registration Rights Agreement,  dated as of July 25, 2002, between
     NCT  and   Crammer   Road  LLC   (collectively   the  "Other   Registration
     Statements"),  and (b) exert the level of effort required by the respective
     Instruments  to cause  the  Investor  Registration  Statement(s)  to become
     effective,  and Liquidated Damages will not accrue for a failure to satisfy
     clause  (a) or (b)  herein.  The  Investors  do not  waive  any  piggy-back
     registration  rights they may have under the Instruments,  except as to the
     Other  Registration  Statements.  With  respect  to the Other  Registration
     Statement  described in clause (a)(ii) above,  if Crammer Road LLC (and any
     assignees or  successors-in-interest  thereof) consents specifically to the
     inclusion  therein of the  shares of common  stock of NCT  issuable  to the
     Investors under the Instruments, then such shares shall be included in such
     Other Registration Statement. The Investors do not release NCT with respect
     to, or waive any right to enforce,  their registration  rights as described
     in the Instruments other than the waiver of Liquidated Damages as described
     herein and the waiver of other contract  damages (based on the  Instruments
     as amended or  affected by this  Settlement  Agreement)  arising  from such
     registration  rights that have accrued up to and including the date of this
     Settlement Agreement.

      4.  Other Terms.

     A.      No  Admission  of  Liability.  By  execution  of  this  Settlement
     Agreement,  NCT and  Artera  do not  admit  that  they  are  liable  to the
     Investors  and  specifically  deny any such  liability.  The  Parties  have
     entered into this  Settlement  Agreement in order to avoid the  uncertainty
     and expense of maintaining and defending the Action.

                                       4
<PAGE>


     B.      Binding Effect. This Settlement Agreement shall be binding upon the
     respective  heirs,   executors,   administrators,   legal  representatives,
     successors  and assigns of the Parties and all of those holding title under
     them.

     C.      Effective Date. The effective date of this Settlement  Agreement is
     the date written below, subject to the conditions stated herein.

     D.      Modifications  in Writing.  This  Settlement  Agreement may not be
     changed  orally,  but only by an agreement  in writing  signed by the Party
     against whom enforcement of any waiver,  change,  modification or discharge
     is sought.

     E.      Time. Time is of the essence in this Settlement Agreement.

     F.      Notices.  Any and all  notices,  elections,  demands,  payments  or
     requests  permitted or required to be made under this Settlement  Agreement
     shall be in  writing,  signed by, or on behalf of,  the party  giving  such
     notice,  election,  demand,  payment  or  request  and  shall be  delivered
     personally or via recognized  commercial  courier, or sent by registered or
     certified United States mail or by fax, to the Parties as follows:

              If intended for the Investors:

                                    Alpha Capital Aktiengesellschaft
                                    Pradafant 7, 9490 Furstentums
                                    Vaduz, Lichtenstein
                                    Facsimile: 011-423-232-3196

                                    Austost Anstalt Schaan
                                    7440 Fuerstentum
                                    Lichtenstein, Landstrasse 163
                                    Facsimile: 011-431-534532895

                                    Balmore, S. A.
                                    P.O. Box 4603
                                    Zurich, Switzerland
                                    Facsimile: 011-411-201-6262

                                    Libra Finance, S. A.
                                    P.O. Box 4603
                                    Zurich, Switzerland
                                    Facsimile: 011-411-201-6262

                  With a copy by facsimile only to:

                                    Grushko & Mittman, P.C.
                                    551 Fifth Avenue, Suite 1601
                                    New York, New York 10176

                                       5
<PAGE>


                                    Attn: Barbara R. Mittman
                                    Facsimile: (212) 697-3575

              If intended for NCT or Artera:

                                    NCT Group, Inc.
                                    Artera Group, Inc.
                                    20 Ketchum Street
                                    Westport, Connecticut 06880
                                    Attn: General Counsel
                                    Facsimile: (203) 226-4338

     G    .  Governing  Law.  This   Settlement   Agreement   shall  be  deemed
     performable by all parties in New York County,  New York. The  construction
     of this  Settlement  Agreement  shall be  governed  by New York law without
     regard to its conflict of law rules. All parties irrevocably consent to the
     exclusive  jurisdiction of the state and federal courts located in New York
     County, New York.

     H.      Counterparts. This Settlement Agreement may be executed in multiple
     counterparts,  whether all signatories appear on each counterpart, and each
     counterpart  shall be deemed an original for all purposes.  Delivery may be
     made by either Party by facsimile or otherwise.

     I.      No Filing.  Except as  required  by law or as ordered by a court or
     other  governmental or  quasi-governmental  agency or tribunal of competent
     jurisdiction,  or to obtain approval by the Court as specifically  required
     by  this  Settlement  Agreement,  or to  enforce  the  terms  hereof,  this
     Settlement  Agreement  shall not be filed with any court,  governmental  or
     quasi-governmental agency or tribunal.

     J.      Confidentiality.  The  Company  agrees  that it will not  disclose
     publicly or privately the identity of the Investors unless expressly agreed
     to in writing by the  Investors  or only to the extent  required by law, or
     necessary  or  appropriate  in a filing  with  the  Security  and  Exchange
     Commission or other regulatory agencies.

     K.      Attorneys'  Fees. In the event of litigation to obtain  enforcement
     of this Settlement  Agreement or to recover damages for breach hereof,  the
     prevailing  Party  shall  be  entitled  to  recover  its  costs,  including
     reasonable  attorneys' fees incurred in both the trial and appellate courts
     from the non-prevailing Party.

     L.      Headings.  The  headings  contained  herein  are  solely  for  the
     convenience  of reference,  are not part of this  Settlement  Agreement and
     shall not be used in  construing  this  Settlement  Agreement or in any way
     affect the meaning or interpretation hereof.

     M.      No Strict Construction.  Both Parties have participated jointly and
     equally in the negotiation and drafting of this Settlement Agreement and it
     shall not be construed more favorably or disfavorably toward either Party.

                                       6
<PAGE>


     N.      Authority.  Each of the  Parties  represents  to the other that no
     interest  in any Claims  released  by it herein has been  assigned to or is
     held by any third party,  including  but not limited to any of the Released
     Parties.

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                                       7
<PAGE>


     O.      Entire Agreement. Each Party represents that no statement, promise,
     agreement or  representation  that is not herein expressed has been made to
     it in executing this Settlement Agreement, and that except as expressly set
     forth  herein,  neither  Party  is  relying  upon any  statement,  promise,
     agreement or representation  of the other Party hereto.

     Executed as of the
     7th day of April, 2003. NCT GROUP, INC.


     By:  /s/  Michael J. Parrella
          -------------------------------
     Its:      Chairman & C.E.O.
          -------------------------------


      ARTERA GROUP, INC.

     By:  /s/  Michael J. Parrella
          -------------------------------
     Its:      Chariman & President
          -------------------------------


     ALPHA CAPITAL AKTIENGESELLSCHAFT

     By:  /s/  Konrad Ackermann
          -------------------------------
     Its:      Director
          -------------------------------


     AUSTOST ANSTALT SCHAAN


     By:  /s/  Thomas Hackl
          -------------------------------
     Its:      Director
          -------------------------------


     BALMORE, S. A.

     By:  /s/  Francois Morax
          -------------------------------
     Its:      Director
          -------------------------------


     LIBRA FINANCE, S. A.

     By:  /s/  Seymour Brown
          -------------------------------
     Its:      Director
          -------------------------------


                                       8

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</DOCUMENT>
