Document:

BioElectronics Corporation - Exhibit 10.9 - Prepared By TNT Filings Inc.

 

Exhibit 10.9 

PROMISSORY NOTE AGREEMENT 

AGREEMENT made as of the 30th
Day of June 2005 by and between MaxMed Technologies, Inc. ("Borrower"), a
Delaware corporation, with offices at 9265 Dowdy Drive, Suite 11, San Diego,
California 92126 and BioElectronics Corporation, a Maryland corporation, having
an office at 401 Rosemont Avenue, Frederick, Maryland 21701, ("Lender" or
"Holder"). 

WITNESSETH 

WHEREAS, Borrower desires
to borrow three hundred thousand dollars ($300,000) from the Lender to receive
the Appointment and to purchase 15,000 pre-finished inventory parts to be
stocked at Lender’s manufacturing facility; and 

WHEREAS, Lender is willing to
provide a $300,000 loan upon the terms and conditions hereinafter set forth;

NOW, THEREFORE, the parties hereto, in exchange for the mutual
covenants herein contained and intending to be legally bound hereby agree as
follows: 

RECITAL 

MaxMed Technologies, Inc. ("Borrower"), for value received,
hereby promises to pay to the order of BioElectronics Corporation, ("Holder"),
the principal amount of three hundred thousand dollars ($300,000) dollars, in
installments, as hereinafter defined, on or before July 1, 2007, and to pay
interest from the date hereof on the unpaid principal amount hereof at the rate
set forth below, all on the terms and conditions set forth herein. Payments for
all amounts due hereunder shall be made in lawful money of the United States of
America to Holder. 

TERMS OF NOTE 

The following is a statement of the rights of the Holder of
this Note and the conditions to which this Note is subject, and to which the
Holder and Borrower hereof, by the acceptance of this Note, agree: 

1. Definitions. As used in this Note, the term "Holder" or
"Lender" shall mean BioElectronics Corporation or any subsequent holder of this
Note. 

2. Interest. Interest shall accrue from the date of shipment
acceptance of the Initial Purchase Commitment as described in Section 4.1 of
this Distributor Agreement until all outstanding principal and interest on this
Note shall have been paid in full at the rate of five percent (5%) per annum on
the unpaid principal balance hereof and shall be payable on the Due Date. 

3. Events of Default. If any of the events specified in this
Section 3 shall occur (herein individually referred to as an "Event of
Default"): 

  (i) Default in payment of principal or interest under this
  Note when due; 

  (ii) A material default by the Borrower in any obligation,
  or breach by the Borrower of any representation, warranty, covenant or
  agreement, herein or in other documents signed by the Borrower in connection
  with the issuance of this Note, which is not cured or cannot be cured by the
  Borrower within ten (10) days after the Holder has given the Borrower written
  notice of such default; 

  (iii) The institution by the Borrower of proceedings to be
  adjudicated as bankrupt or insolvent, or the consent by it to the institution
  of bankruptcy of insolvency proceedings against it or the filing by it of a
  petition or answer or consent seeking reorganization or release under the
  federal Bankruptcy Code, or any other applicable federal or state law, or the
  consent by it to the filing of any such petition or the appointment of a
  receiver, liquidator, assignee, trustee or other similar official for all or
  any substantial part of its property, or the taking of any action by the
  Borrower in furtherance of any such action; 

  (iv) If, within sixty (60) days after the commencement of an
  action against the Borrower seeking any bankruptcy, insolvency,
  reorganization, liquidation or similar relief under any present or future
  statute, law or regulation, such action shall not have been resolved in favor
  of the Borrower or all orders or proceedings there under affecting the
  property of the Borrower stayed, or if the stay of any such order or
  proceeding shall thereafter be set aside, or if, within sixty (60) days after
  the appointment without the consent or acquiescence of the Borrower of any
  trustee or receiver for all or any substantial part of its property such
  appointment shall not have been vacated; 

Upon the occurrence of an Event of Default specified in
clauses (iii) or (iv) above, the principal amount of this Note, all interest
thereon and all other amounts payable hereunder shall thereupon and concurrently
therewith become due and payable and interest upon the principal shall accrue at
the rate of 10% per annum, all without any action by the Holder of this Note,
and without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by the Borrower, anything in this Note to the
contrary notwithstanding. 

4. Prepayment. The Borrower agrees to prepay
or reduce the principal sum due on this Note by paying for finished product
inventory according the prices on Schedule A and the terms and conditions set
forth in Section 4 of the Distributor Agreement, prior to the Due Date until the
principal sum, plus accrued interest is paid in full. The Borrower may also at
any time prepay in whole or part the principal sum, plus accrued interest on the
amount so prepaid to date of payment of this Note, without penalty or premium.

5. Representations. The Borrower represents and warrants to
the Holder that: (i) each of this Note and the Security Agreement is a legal,
valid and binding agreement of the Borrower, enforceable against the Borrower in
accordance with its terms; (ii) the execution and delivery by the Borrower of
this Note and the Security Agreement and the performance by the Borrower of the
transactions contemplated hereby and thereby do not and will not conflict with,
or result in a breach of, or constitute a default under the Certificate of
Incorporation or by-laws of the Borrower or any agreement to which the Borrower
is a party or to which the Borrower or its assets may be bound or affected;
(iii) the Borrower is not now, nor has been at any time, in default of any
Agreement with any lender or any creditor, nor has there been a claim against
the Borrower, or threat or notice of claim from any creditor or shareholder; and
(iv) the authorized 

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capital stock of the obligor is Eleven Million (11,000,000)
shares of Common Stock and One Million (1,000,000) shares of preferred stock, of
which 3,681,710 shares of Common Stock, 195,000 shares of Series A Preferred
Stock, 32,577 shares of Series B Preferred Stock, and 26,000 shares of Series C
Preferred Stock are issued and outstanding; and (v) the Obligor has reserved for
issuance under stock option plans 570,000 shares of Common Stock for issuance to
employees, directors and consultants of the Obligor. 

6. Payment in Stock. Upon any Event of Default under this Note
and the acceleration of the amounts due hereunder, then Obligor shall issue to
Holder such number of shares of common stock Obligor as shall pay in full all
mounts due under this Note, where each share of common stock of Obligor shall be
valued at the fair market value of such stock as of the date of the Event of
Default. If the Obligor and the Company are not able to agree on the fair market
value of the common stock of Obligor within thirty (30) days following the
Company’s demand for issuance of stock as provided herein, then the fair market
value of the Company’s common stock shall be determined in accordance with
Section 20 of the Distribution Agreement. 

7. Waiver of Presentation, Demand, Etc. All parties now or
hereafter liable with respect to this Note, whether the Borrower, Guarantor,
endorser or any other person hereby expressly waive presentment, demand of
payment, protest, notice for demand of payment, protest and notice of
non-payment, or any other notice of any kind with respect thereto. No delay or
failure on the part of the Holder in the exercise of any right or remedy
hereunder or under the Security Agreement or at law or in equity, shall operate
as a waiver thereof, and no single or partial exercise by the Holder or of any
right or remedy hereunder or there under shall preclude or stop another or
further exercise or any other right or remedy. 

8. Defenses, Set-Offs, Counterclaims. Borrower hereby agrees
not to raise or interpose any defense, set-off or counterclaim of any kind or
nature whatsoever which it may have against the Holder in any action brought
upon this Note, and Borrower acknowledges that it has no defense of any kind or
nature to the enforcement of this Note, or to the binding nature of the
obligations represented hereby or thereby. 

9. Amendments. No amendment, modification, alteration or
change of any of the provisions of this Note shall be effective unless in
writing signed by the Borrower and the Holder and only to the extent therein set
forth. 

10. Governing Law; Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of California
excluding the body of law relating to conflict laws. Obligor hereby consents to
the exclusive jurisdiction of the state and federal courts located in San Diego
County, California, in connection with any lawsuit, claim or other proceeding
relating to this Note or the transactions contemplated hereby or thereby. 

11. Consent to Service and Waiver of Jury Trial. The Borrower
hereby consents to service of any notice, process, motion or other document in
connection with any lawsuit or other proceeding arising out of or relating to
this Note or the Security Agreement by registered mail, return receipt
requested, to the address set forth below or such other address as the Borrower
shall provide Holder in writing and the Borrower hereby waives any right to
trial by jury in any such lawsuit or proceeding. 

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12. Severability. In the event that any term
or provision of this Note shall be finally determined to be superseded, invalid,
illegal or otherwise unenforceable pursuant to applicable law by any authority
having jurisdiction, such determination shall not impair or otherwise affect the
validity, legality or enforceability of the remaining terms and provisions of
this Note, which shall be enforced as if the unenforceable term or provision
were deleted. 

IN WITNESS WHEREOF, the undersigned
has caused this Note to be issued this 30th day of June 2005. 

  	MaxMed Technologies, Inc. ("Borrower")
	 	9265 Dowdy Drive, Suite 11
	 	San Diego, California 92126
	 	 
	 	 
	By:	/s/ Thomas Pichler
	 	Thomas Pichler, President
	 	 
	BioElectronics Corporation ("Holder")
	 	410 Rosemont Avenue
	 	Frederick, Maryland 21701
	 	 
	 	 
	By:	/s/ Thomas J. O’Connor
	 	Thomas J. O’Connor, Executive Vice
	 	President & COO

- 4 -BioElectronics Corporation - Exhibit 10.10 - Prepared By TNT Filings Inc.

 

Exhibit 10.10 

SUBSCRIPTION AGREEMENT 

THIS SUBSCRIPTION AGREEMENT (this "Agreement"),
dated as of December 8, 2005, is by and among BioElectronics Corporation, a
Maryland corporation (the "Company"), and the subscribers identified on
the signature page hereto (each a "Subscriber" and collectively "Subscribers").

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

WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to One Million Dollars ($1,000,000) (the "Purchase Price") of
principal amount of 8% promissory notes of the Company ("Note" or "Notes"),
a form of which is annexed hereto as Exhibit A, convertible into shares
of the Company's common stock, $0.001 par value (the "Common Stock"), at
a per share conversion price set forth in the Note ("Conversion Price");
and share purchase warrants (the "Warrants"), in the forms annexed hereto
as Exhibits B1 and B2, to purchase shares of Common Stock (the "Warrant
Shares"). The Notes, shares of Common Stock issuable upon conversion of the
Notes (the "Shares"), the Warrants and the Warrant Shares are
collectively referred to herein as the "Securities"; and 

WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
contemplated hereby shall be held pending the respective closing in escrow
pursuant to the terms of a Funds Escrow Agreement to be executed by the parties
substantially in the form attached hereto as Exhibit C (the "Escrow
Agreement"). 

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

1. Closings. 

  (a) Initial Closing. Subject to the satisfaction or waiver of the terms and
  conditions of this Agreement, on the Initial Closing Date, each Subscriber
  shall purchase and the Company shall sell to each Subscriber a Note in the
  principal amount designated on the signature page hereto ("Initial Closing
  Notes") and Warrants as described in Section 2 of this Agreement ("Initial
  Closing Warrants"). The aggregate amount of the Notes to be purchased by
  the Subscribers on the Initial Closing Date shall be equal to Seven Hundred
  and Fifty Thousand Dollars ($750,000) of the Purchase Price (the "Initial
  Closing Purchase Price"). The "Initial Closing Date" shall be the
  date that Subscribers deliver the Initial Closing Purchase Price by wire
  transfer or otherwise to or for the benefit of the Company. The consummation
  of the transactions contemplated herein for all closings shall take place at
  the offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New
  York, New York 10176, upon the satisfaction of all conditions to Closing set
  forth in this Agreement. Each of the Initial Closing Date and Second Closing
  Date (as defined in Section 1(b) below) is referred to herein as a "Closing
  Date". 

  (b) Second Closing. The closing date in relation to the
  remaining up to Two Hundred and Fifty Thousand Dollars ($250,000) of the
  Purchase Price (the "Second Closing Purchase Price") shall be the third
  (3rd) Business Day after the Actual Effective Date [as defined in
  Section 

1

11.1(iv)] (the "Second Closing Date"). Subject to the satisfaction or
waiver of the Company's conditions to closing on the Second Closing Date, each
Subscriber shall purchase and the Company shall sell to each Subscriber a Note
in the principal amount designated on the signature page hereto ("Second
Closing Notes") and Warrants as described in Section 2 of this Agreement ("Second
Closing Warrants"). The aggregate Purchase Price of the Second Closing Notes
for all Subscribers shall be equal to the Second Closing Purchase Price. The
Second Closing Notes shall be nearly identical to the Notes issuable on the
Initial Closing Date and have the same maturity date as the Initial Closing
Notes. The Conversion Price (defined in Section 2.1 (b) of the Note) of the
Second Closing Notes shall be the same as the Conversion Price of the Initial
Closing Notes. 

(c) Conditions to Second Closing. The occurrence of the Second Closing is
expressly contingent on (i) the truth and accuracy on the Second Closing Date of
the representations and warranties of the Company and Subscriber contained in
this Agreement, (ii) continued compliance with the covenants of the Company set
forth in this Agreement, and (iii) the non-occurrence of any Event of Default
(as defined in the Note). 

(d) Second Closing Deliveries. On the Second Closing Date, the Company will
deliver the Second Closing Notes and Second Closing Warrants to the Escrow Agent
and each Subscriber will deliver his portion of the Second Closing Purchase
Price to the Escrow Agent. On the Second Closing Date, the Company will deliver
a certificate ("Second Closing Certificate") signed by its chief
executive officer or chief financial officer (i) representing the truth and
accuracy of all the representations and warranties made by the Company contained
in this Agreement, as of the Initial Closing Date and the Second Closing Date,
as if such representations and warranties were made and given on all such dates,
except for changes that do not constitute a Material Adverse Event [as defined
in Section 5(a)], (ii) certifying that the information contained in the
schedules and exhibits hereto is substantially accurate as of the Second Closing
Date, except for changes that do not constitute Material Adverse Event, (iii)
adopting and renewing the covenants and representations set forth in Sections 5,
7, 8, 9, 10, 11, and 12 of this Agreement in relation to the Second Closing
Date, Second Closing Notes and Second Closing Warrants, (iv) representing the
timely compliance by the Company with the Company's registration requirements
set forth in Section 11 of this Agreement, and (v) certifying that an Event of
Default has not occurred. A legal opinion nearly identical to the legal opinion
referred to in Section 6 of this Agreement shall be delivered to each Subscriber
at the Second Closing in relation to the Company, Second Closing Notes, and
Second Closing Warrants ("Second Closing Legal Opinion"). The Second
Closing Legal Opinion must state that the Registration Statement has been
declared effective by the Commission and remains effective as of the Second
Closing Date. 

2. (a) Class A Warrants. On each Closing Date, the Company will issue and
deliver Class A Warrants to the Subscribers. One Class A Warrant will be issued
to each Subscriber for each Share which would be issued to such Subscriber on
any such Closing Date assuming the complete conversion of the Notes issued on
such Closing Date at the Conversion Price in effect on such Closing Date
assuming such Closing Date were a Conversion Date. The per Warrant Share
exercise price to acquire a Warrant Share upon exercise of a Class A Warrant
shall be equal to 120% of the closing bid price on the Initial Closing Date as
reported by Bloomberg L.P. for the Principal Market (as hereinafter defined) for
the last trading day preceding the Closing Date, subject to reduction as
described in the Class A Warrant. In no event shall the exercise price be
greater than $0.50. The Class A Warrants shall be exercisable until five (5)
years after each Closing Date. 

(b) Class B Warrants. On each Closing Date, the Company will
issue and deliver Class B Warrants to the Subscribers. An aggregate of 750,000
Class B Warrants will be issued to the Subscribers on the Initial Closing Date
and an aggregate of 250,000 Class B Warrants will be issued to the Subscribers
on the Second Closing Date. The per Warrant Share exercise price to acquire a
Warrant Share upon exercise of a Class B Warrant shall be equal to $0.55,
subject to reduction as defined in the Class B Warrant. The Class B Warrants
shall be exercisable until the Registration Statement [as 

2

defined in Section 11.1(iv)] has been effective for the public resale of the
Shares and Warrants for 180 days. 

3. Security Interest. The Subscribers will be granted a security interest in
certain assets of the Company and Subsidiaries, if any, as defined in Section
5(a) of this Agreement, including ownership of the Subsidiaries, to be
memorialized in a "Security Agreement", a form of which is annexed hereto
as Exhibit D. As of the Initial Closing Date, the Company does not have
any 

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

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

  (a) Organization and Standing of the Subscribers. If the Subscriber is an
  entity, such Subscriber is a corporation, partnership or other entity duly
  incorporated or organized, validly existing and in good standing under the
  laws of the jurisdiction of its incorporation or organization. 

  (b) Authorization and Power. Each Subscriber has the requisite power and
  authority to enter into and perform this Agreement and to purchase the Notes
  and Warrants being sold to it hereunder. The execution, delivery and
  performance of this Agreement by such Subscriber and the consummation by it of
  the transactions contemplated hereby and thereby have been duly authorized by
  all necessary corporate or partnership action, and no further consent or
  authorization of such Subscriber or its Board of Directors, stockholders,
  partners, members, as the case may be, is required. This Agreement has been
  duly authorized, executed and delivered by such Subscriber and constitutes, or
  shall constitute when executed and delivered, a valid and binding obligation
  of the Subscriber enforceable against the Subscriber in accordance with the
  terms thereof. 

  (c) No Conflicts. The execution, delivery and performance of this Agreement
  and the consummation by such Subscriber of the transactions contemplated
  hereby or relating hereto do not and will not (i) result in a violation of
  such Subscriber's charter documents or bylaws or other organizational
  documents or (ii) conflict with, or constitute a default (or an event which
  with notice or lapse of time or both would become a default) under, or give to
  others any rights of termination, amendment, acceleration or cancellation of
  any agreement, indenture or instrument or obligation to which such Subscriber
  is a party or by which its properties or assets are bound, or result in a
  violation of any law, rule, or regulation, or any order, judgment or decree of
  any court or governmental agency applicable to such Subscriber or its
  properties (except for such conflicts, defaults and violations as would not,
  individually or in the aggregate, have a material adverse effect on such
  Subscriber). Such Subscriber is not required to obtain any consent,
  authorization or order of, or make any filing or registration with, any court
  or governmental agency in order for it to execute, deliver or perform any of
  its obligations under this Agreement or to purchase the Notes or acquire the
  Warrants in accordance with the terms hereof, provided that for purposes of
  the representation made in this sentence, such Subscriber is assuming and
  relying upon the accuracy of the relevant representations and agreements of
  the Company herein. 

  (d) Information on Company. The Subscriber has been
  furnished with or has had access to the Company's unaudited financial
  statements for the year ended December 31, 2004 and for the nine months ended
  September 30, 2005 (hereinafter referred to as the "Reports"). In
  addition, the Subscriber has received in writing from the Company such other
  information concerning its operations, financial condition and other matters
  as the Subscriber has requested in writing (such other 

3

  information is collectively, the "Other Written Information"), and
  considered all factors the Subscriber deems material in deciding on the
  advisability of investing in the Securities. 

  (e) Information on Subscriber. The Subscriber is on the Initial Closing
  Date, and will be at the Second Closing Date and at the time of the conversion
  of the Notes and exercise of the Warrants, an "accredited investor", as such
  term is defined in Regulation D promulgated by the Commission under the 1933
  Act, is experienced in investments and business matters, has made investments
  of a speculative nature and has purchased securities of United States
  publicly-owned companies in private placements in the past and, with its
  representatives, has such knowledge and experience in financial, tax and other
  business matters as to enable the Subscriber to utilize the information made
  available by the Company to evaluate the merits and risks of and to make an
  informed investment decision with respect to the proposed purchase, which
  represents a speculative investment. The Subscriber has the authority and is
  duly and legally qualified to purchase and own the Securities. The Subscriber
  is able to bear the risk of such investment for an indefinite period and to
  afford a complete loss thereof. The information set forth on the signature
  page hereto regarding the Subscriber is accurate. 

  (f) Purchase of Notes and Warrants. On each Closing Date,
  the Subscriber will purchase the Notes and Warrants as principal for its own
  account for investment only and not with a view toward, or for resale in
  connection with, the public sale or any distribution thereof. 

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

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

  
    
      "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
      SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
      EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY
      APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO BIOELECTRONICS CORPORATION THAT SUCH REGISTRATION IS NOT
      REQUIRED." 

    

  

  (i) Warrants Legend. The Warrants shall bear the following or similar
  legend: 

  
    
      "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
      WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
      AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
      WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
      ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER
      SAID ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
      REASONABLY 

    

  

4

  
    
      SATISFACTORY TO BIOELECTRONICS CORPORATION THAT SUCH REGISTRATION IS
      NOT REQUIRED." 

    

  

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

  
    
      "THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
      HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
      THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY
      NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
      AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
      OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIOELECTRONICS CORPORATION
      THAT SUCH REGISTRATION IS NOT REQUIRED." 

    

  

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

  (l) Authority; Enforceability. This Agreement and other agreements
  delivered together with this Agreement or in connection herewith have been
  duly authorized, executed and delivered by the Subscriber and are valid and
  binding agreements enforceable in accordance with their terms, subject to
  bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
  similar laws of general applicability relating to or affecting creditors'
  rights generally and to general principles of equity; and Subscriber has full
  corporate power and authority necessary to enter into this Agreement and such
  other agreements and to perform its obligations hereunder and under all other
  agreements entered into by the Subscriber relating hereto. 

  (m) Restricted Securities. Subscriber understands that the Securities have
  not been registered under the 1933 Act and such Subscriber will not sell,
  offer to sell, assign, pledge, hypothecate or otherwise transfer any of the
  Securities unless pursuant to an effective registration statement under the
  1933 Act. Notwithstanding anything to the contrary contained in this
  Agreement, such Subscriber may transfer (without restriction and without the
  need for an opinion of counsel) the Securities to its Affiliates (as defined
  below) provided that each such Affiliate is an "accredited investor" under
  Regulation D and such Affiliate agrees to be bound by the terms and conditions
  of this Agreement. For the purposes of this Agreement, an "Affiliate"
  of any person or entity means any other person or entity directly or
  indirectly controlling, controlled by or under direct or indirect common
  control with such person or entity. Affiliate includes each subsidiary of the
  Company. For purposes of this definition, "control"
  means the power to direct the management and policies of such person or firm,
  directly or indirectly, whether through the ownership of voting securities, by
  contract or otherwise. 

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

  (o) Correctness of Representations. Each Subscriber represents as to such
  Subscriber that the foregoing representations and warranties are true and
  correct as of the date hereof and, unless a Subscriber otherwise notifies the
  Company prior to each Closing Date shall be true and correct as of each
  Closing Date. 

5

  (p) Survival. The foregoing representations and warranties shall survive
  the Second Closing Date until three years after the Second Closing Date. 

5. Company Representations and Warranties. The Company
represents and warrants to and agrees with each Subscriber that except as set
forth in the Reports and as otherwise qualified in the Transaction Documents:

  (a) Due Incorporation. The Company is a corporation duly organized, validly
  existing and in good standing under the laws of the jurisdiction of its
  incorporation and has the requisite corporate power to own its properties and
  to carry on its business as disclosed in the Reports. The Company is duly
  qualified as a foreign corporation to do business and is in good standing in
  each jurisdiction where the nature of the business conducted or property owned
  by it makes such qualification necessary, other than those jurisdictions in
  which the failure to so qualify would not have a Material Adverse Effect. For
  purpose of this Agreement, a "Material Adverse Effect" shall mean a
  material adverse effect on the financial condition, results of operations,
  properties or business of the Company taken as a whole. For purposes of this
  Agreement, "Subsidiary" means, with respect to any entity at any date,
  any corporation, limited or general partnership, limited liability company,
  trust, estate, association, joint venture or other business entity) of which
  more than 50% of (i) the outstanding capital stock having (in the absence of
  contingencies) ordinary voting power to elect a majority of the board of
  directors or other managing body of such entity, (ii) in the case of a
  partnership or limited liability company, the interest in the capital or
  profits of such partnership or limited liability company or (iii) in the case
  of a trust, estate, association, joint venture or other entity, the beneficial
  interest in such trust, estate, association or other business entity is, at
  the time of determination, owned or controlled directly or indirectly through
  one or more intermediaries, by such entity. As of the Initial Closing Date,
  the Company does not have any Subsidiaries. 

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

  (c) Authority; Enforceability. This Agreement, the Notes, the Warrants, the
  Escrow Agreement, Security Agreement, Guaranty, and Collateral Agent
  Agreement, and any other agreements delivered together with this Agreement or
  in connection herewith (collectively "Transaction Documents") have been
  duly authorized, executed and delivered by the Company and are valid and
  binding agreements enforceable in accordance with their terms, subject to
  bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
  similar laws of general applicability relating to or affecting creditors'
  rights generally and to general principles of equity. The Company has full
  corporate power and authority necessary to enter into and deliver the
  Transaction Documents and to perform its obligations thereunder. 

  (d) Additional Issuances. There are no outstanding agreements or preemptive
  or similar rights affecting the Company's common stock or equity and no
  outstanding rights, warrants or options to acquire, or instruments convertible
  into or exchangeable for, or agreements or understandings with respect to the
  sale or issuance of any shares of common stock or equity of the Company or
  other equity interest in any of the Subsidiaries of the Company except as
  described on Schedule 5(d). The Common Stock of the Company on a fully
  diluted basis outstanding as of the last trading day preceding the Initial
  Closing Date is set forth on Schedule 5(d). 

  (e) Consents. No consent, approval, authorization or order of any court,
  governmental agency or body or arbitrator having jurisdiction over the
  Company, or any of its Affiliates, any Principal Market (as defined in Section
  9(b) of this Agreement), nor the Company's shareholders is required for the
  execution by the Company of the Transaction Documents and compliance and 

6

  performance by the Company of its obligations under the Transaction
  Documents, including, without limitation, the issuance and sale of the
  Securities. 

  (f) No Violation or Conflict. Assuming the representations and warranties
  of the Subscribers in Section 4 are true and correct, neither the issuance and
  sale of the Securities nor the performance of the Company's obligations under
  this Agreement and all other agreements entered into by the Company relating
  thereto by the Company will: 

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

    (ii) result in the creation or imposition of any lien, charge or
    encumbrance upon the Securities or any of the assets of the Company or any
    of its Affiliates, except as contemplated in the Agreement; or 

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

    (iv) except as described on Schedule 5(f), result in the
    activation of any piggy-back registration rights of any person or entity
    holding securities or debt of the Company or having the right to receive
    securities of the Company. 

  

  (g) The Securities. The Securities upon issuance: 

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

    (ii) have been, or will be, duly and validly authorized and on the date
    of issuance of the Shares and upon exercise of the Warrants, the Shares and
    Warrant Shares will be duly and validly issued, fully paid and nonassessable
    or if registered pursuant to the 1933 Act, and resold pursuant to an
    effective registration statement will be free trading and unrestricted; 

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

    (iv) will not subject the holders thereof to personal liability by reason
    of being such holders provided Subscriber's representations herein are true
    and accurate and Subscribers take no actions or fail to take any actions
    required for their purchase of the Securities to be in compliance with all
    applicable laws and regulations; and 

    (v) will not result in a violation of Section 5 under the 1933 Act. 

  

7

  (h) Litigation. There is no pending or, to the best knowledge of the
  Company, threatened action, suit, proceeding or investigation before any
  court, governmental agency or body, or arbitrator having jurisdiction over the
  Company, or any of its Affiliates that would affect the execution by the
  Company or the performance by the Company of its obligations under the
  Transaction Documents. Except as disclosed on Schedule 5(h), there is
  no pending or, to the best knowledge of the Company, basis for or threatened
  action, suit, proceeding or investigation before any court, governmental
  agency or body, or arbitrator having jurisdiction over the Company, or any of
  its Affiliates which litigation if adversely determined would have a Material
  Adverse Effect. 

  (i) Reporting Company. The Company is currently not subject to reporting
  obligations pursuant to Section 13 of the Securities Exchange Act of 1934 (the
  "1934 Act"). 

  (j) No Market Manipulation. The Company and its Affiliates have not taken,
  and will not take, directly or indirectly, any action designed to, or that
  might reasonably be expected to, cause or result in stabilization or
  manipulation of the price of the Common Stock to facilitate the sale or resale
  of the Securities or affect the price at which the Securities may be issued or
  resold, provided, however, that this provision shall not prevent the Company
  from engaging in investor relations/public relations activities consistent
  with past practices. 

  (k) Information Concerning Company. The audited financial statements
  included in the Reports (including the notes thereto) present fairly the
  financial condition of the Company as of the dates, and the results of
  operations of the Company for the periods, referred to therein, are true,
  correct and complete (except that such financial statements have not been
  reviewed by independent auditors and do not include all of the information and
  footnotes required by generally accepted accounting principles for complete
  financial statements), and are consistent with the books and records of the
  Company (which books and records are true, correct and complete). 

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

  (m) Defaults. The Company is not in violation of its articles of
  incorporation or bylaws. The Company is (i) not in default under or in
  violation of any other material agreement or instrument to which it is a party
  or by which it or any of its properties are bound or affected, which default
  or violation would have a Material Adverse Effect, (ii) not in default with
  respect to any order of any court, arbitrator or governmental body or subject
  to or party to any order of any court or governmental authority arising out of
  any action, suit or proceeding under any statute or other law respecting
  antitrust, monopoly, restraint of trade, unfair competition or similar
  matters, or (iii) to the Company's knowledge not in violation of any statute,
  rule or regulation of any governmental authority which violation would have a
  Material Adverse Effect. 

  (n) Not an Integrated Offering. Neither the Company, nor any of its
  Affiliates, nor any person acting on its or their behalf, has directly or
  indirectly made any offers or sales of any security or solicited any offers to
  buy any security under circumstances that would cause the offer of the
  Securities pursuant to this Agreement to be integrated with prior offerings by
  the Company for purposes of the 1933 Act or any applicable stockholder
  approval provisions, including, without limitation, under the rules and
  regulations of the Pink Sheets, OTC Bulletin Board, or any Principal Market as
  defined in Section 9(b) which would impair the exemptions relied upon in this
  Offering as defined in Section 6 or the Company's ability to timely comply
  with its obligations hereunder. Nor will the Company or any of its Affiliates
  take any action or steps that would cause the offer or issuance of the
  Securities to be integrated with other offerings which would impair the
  exemptions referred to in Section 6 hereof, relied upon in this Offering or
  the Company's ability to timely comply with its obligations 

8

  hereunder. The Company will not conduct any offering other than the
  transactions contemplated hereby that will be integrated with the offer or
  issuance of the Securities, which would impair the exemptions referred to in
  Section 6 hereof, relied upon in this Offering or the Company's ability to
  timely comply with its obligations hereunder. 

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

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

  (q) No Undisclosed Liabilities. The Company has no liabilities or
  obligations which are material, individually or in the aggregate, which are
  not disclosed in the Reports and Other Written Information, other than those
  incurred in the ordinary course of the Company's businesses since the Latest
  Financial Date and which, individually or in the aggregate, would reasonably
  be expected to have a Material Adverse Effect, except as disclosed on 
  Schedule 5(q). 

  (r) No Undisclosed Events or Circumstances. Since the Latest Financial
  Date, to the Company's knowledge, no event or circumstance has occurred or
  exists with respect to the Company or its businesses, properties, operations
  or financial condition, that, under applicable law, rule or regulation,
  requires public disclosure or announcement prior to the date hereof by the
  Company but which has not been so publicly announced or disclosed in the
  Reports. 

  (s) Capitalization. The authorized and outstanding capital stock of the
  Company as of the date of this Agreement and the Closing Date (not including
  the Securities) are set forth on Schedule 5(d). Except as set forth on
  Schedule 5(d), there are no options, warrants, or rights to subscribe
  to, securities, rights or obligations convertible into or exchangeable for or
  giving any right to subscribe for any shares of capital stock of the Company
  or any of its Subsidiaries. All of the outstanding shares of Common Stock of
  the Company have been duly and validly authorized and issued and are fully
  paid and nonassessable. 

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

  (u) No Disagreements with Accountants and Lawyers. There are no
  disagreements of any kind presently existing, or reasonably anticipated by the
  Company to arise, between the Company and the accountants and lawyers formerly
  or presently employed by the Company, including but not limited to disputes or
  conflicts over payment owed to such accountants and lawyers. 

  (v) DTC Status. The Company's transfer agent is eligible to
  participate in, and the Common Stock is eligible for transfer pursuant to, the
  Depository Trust Company Automated Securities Transfer Program. The name,
  address, telephone number, fax number, contact person and email 

9

  of the Company's transfer agent is Holladay Stock Transfer, Inc., 2939
  North 67th Place, Scottsdale, Arizona 85251, fax: 480-481-3941,
  email: hstransfer1@qwest.net. 

  (w) Investment Company. Neither the Company nor any Affiliate is an
  "investment company" within the meaning of the Investment Company Act of 1940,
  as amended. 

  (x) Subsidiary Representations. The Company makes each of the
  representations contained in Sections 5(a), (b), (d), (e), (f), (h), (k), (m),
  (q), (r), (u) and (w) of this Agreement, as same relate to each Subsidiary of
  the Company. 

  (y) Company Predecessor. All representations made by or relating to the
  Company of a historical or prospective nature and all undertaking described in
  Sections 9(g) through 9(l) shall relate and refer to the Company, its
  predecessors, and the Subsidiaries. 

  (z) Correctness of Representations. The Company represents that the
  foregoing representations and warranties are true and correct as of the date
  hereof in all material respects, and, unless the Company otherwise notifies
  the Subscribers prior to each Closing Date, shall be true and correct in all
  material respects as of each Closing Date. 

  
    (AA) Survival. The foregoing representations and warranties shall survive
    the Second Closing Date until three years after the Second Closing Date. 

  

6. Regulation D Offering. The offer and issuance of the Securities to the
Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On each Closing
Date, the Company will provide an opinion reasonably acceptable to Subscriber
from the Company's legal counsel opining on the availability of an exemption
from registration under the 1933 Act as it relates to the offer and issuance of
the Securities and other matters reasonably requested by Subscribers. A form of
the legal opinion is annexed hereto as Exhibit F. The Company will
provide, at the Company's expense, such other legal opinions in the future as
are reasonably necessary for the issuance and resale of the Common Stock
issuable upon conversion of the Notes and exercise of the Warrants pursuant to
an effective registration statement. Subscriber agrees that any legal opinions
required hereunder or under any other Transaction Documents may be supplied by
the Company's in house General Counsel. 

7.1. Conversion of Note. 

  (a) Upon the conversion of a Note or part thereof, the Company shall, at
  its own cost and expense, take all necessary action, including obtaining and
  delivering, an opinion of counsel to assure that the Company's transfer agent
  shall issue stock certificates in the name of Subscriber (or its permitted
  nominee) or such other persons as designated by Subscriber and in such
  denominations to be specified at conversion representing the number of shares
  of Common Stock issuable upon such conversion. The Company warrants that no
  instructions other than these instructions have been or will be given to the
  transfer agent of the Company's Common Stock and that the certificates
  representing such shares shall contain no legend other than the usual 1933 Act
  restriction from transfer legend. If and when the Subscriber sells the shares,
  assuming (i) the Registration Statement (as defined below) is effective and
  the prospectus, as supplemented or amended, contained therein is current and
  (ii) the Subscriber confirms in writing to the transfer agent that the
  Subscriber has complied with the prospectus delivery requirements, the
  restrictive legend can be removed and the Shares will be free-trading, and
  freely transferable. In the event that the Shares are sold in a manner that
  complies with an exemption from registration, the Company will promptly
  instruct its counsel to issue to the transfer agent an opinion permitting
  removal of the legend (indefinitely, if pursuant to Rule 144(k) of the 1933
  Act, or for 90 days if pursuant to the other provisions of Rule 144 of the
  1933 Act). 

10

  (b) Subscriber will give notice of its decision to exercise its right to
  convert the Note, interest, any sum due to the Subscriber under the
  Transaction Documents including Liquidated Damages, or part thereof by
  telecopying an executed and completed Notice of Conversion (a form of
  which is annexed as Exhibit A to the Note) to the Company via confirmed
  telecopier transmission or otherwise pursuant to Section 14(a) of this
  Agreement. The Subscriber will not be required to surrender the Note until the
  Note has been fully converted or satisfied. Each date on which a Notice of
  Conversion is telecopied to the Company in accordance with the provisions
  hereof shall be deemed a Conversion Date. The Company will itself or
  cause the Company's transfer agent to transmit the Company's Common Stock
  certificates representing the Shares issuable upon conversion of the Note to
  the Subscriber via express courier for receipt by such Subscriber within three
  (3) business days after receipt by the Company of the Notice of Conversion
  (such third day being the "Delivery Date"). In the event the Shares are
  electronically transferable, then delivery of the Shares must be made by
  electronic transfer provided request for such electronic transfer has been
  made by the Subscriber and the Subscriber has complied with all applicable
  securities laws in connection with the sale of the Common Stock, including,
  without limitation, the prospectus delivery requirements. A Note representing
  the balance of the Note not so converted will be provided by the Company to
  the Subscriber if requested by Subscriber, provided the Subscriber delivers
  the original Note to the Company. In the event that a Subscriber elects not to
  surrender a Note for reissuance upon partial payment or conversion, the
  Subscriber hereby indemnifies the Company against any and all loss or damage
  attributable to a third-party claim in an amount in excess of the actual
  amount then due under the Note. "Business day" and "trading day"
  as employed in the Transaction Documents is a day that the New York Stock
  Exchange is open for trading for three or more hours. 

  (c) The Company understands that a delay in the delivery of the Shares in
  the form required pursuant to Section 7.1 hereof, or the Mandatory Redemption
  Amount described in Section 7.2 hereof, respectively after the Delivery Date
  or the Mandatory Redemption Payment Date (as hereinafter defined) could result
  in economic loss to the Subscriber. As compensation to the Subscriber for such
  loss, the Company agrees to pay (as liquidated damages and not as a penalty)
  to the Subscriber for late issuance of Shares in the form required pursuant to
  Section 7.1 hereof upon Conversion of the Note in the amount of $100 per
  business day after the Delivery Date for each $10,000 of Note principal amount
  being converted of the corresponding Shares which are not timely delivered.
  The Company shall pay any payments incurred under this Section in immediately
  available funds upon demand. Furthermore, in addition to any other remedies
  which may be available to the Subscriber, in the event that the Company fails
  for any reason to effect delivery of the Shares by the Delivery Date or make
  payment by the Mandatory Redemption Payment Date, the Subscriber may revoke
  all or part of the relevant Notice of Conversion or rescind all or part of the
  notice of Mandatory Redemption by delivery of a notice to such effect to the
  Company whereupon the Company and the Subscriber shall each be restored to
  their respective positions immediately prior to the delivery of such notice,
  except that the liquidated damages described above shall be payable through
  the date notice of revocation or rescission is given to the Company. 

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

  (e) Mandatory Conversion at Company's Election. The Company may require
  that the Holders of the Notes convert some or all of the remaining principal
  and unpaid interest on their Notes in accordance with the terms and conditions
  set forth in the Note. 

11

7.2. Mandatory Redemption at Subscriber's Election. In the event (i) the
occurrence of any Event of Default (as defined in the Note or in this Agreement)
that continues for more than twenty (20) business days, or (ii) of the
liquidation, dissolution or winding up of the Company (the foregoing referred to
as "Mandatory Redemption Events"), then at the Subscriber's election, the
Company must pay to the Subscriber ten (10) business days after receipt of a
written request by the Subscriber, at the Subscriber's election, a sum of money
determined by multiplying up to the outstanding principal amount of the Note
designated by the Subscriber by 115%, together with accrued but unpaid interest
thereon ("Mandatory Redemption Payment"). The Mandatory Redemption
Payment must be received by the Subscriber within fifteen (15) business days
after request ("Mandatory Redemption Payment Date"). Upon receipt of the
Mandatory Redemption Payment, the corresponding Note principal and interest will
be deemed paid and no longer outstanding. Liquidated damages calculated pursuant
to Section 11.7(d) hereof, that have been paid or accrued for the twenty day
period prior to the actual receipt of the Mandatory Redemption Payment by the
Subscriber shall be credited against the Mandatory Redemption Payment. For
purposes of this Section 7.2, "Change in Control" shall mean (i) the
Company no longer having a class of shares publicly traded or listed on a
Principal Market, (ii) the Company becoming a Subsidiary of another entity
(other than a corporation formed by the Company for purposes of reincorporation
in another U.S. jurisdiction), (iii) a majority of the board of directors of the
Company as of the Closing Date no longer serving as directors of the Company
except due to natural causes, and (iv) the sale, lease or transfer of
substantially all the assets of the Company or Subsidiaries. 

7.3. Maximum Conversion. The Subscriber shall not be entitled to convert on a
Conversion Date that amount of the Note in connection with that number of shares
of Common Stock which would be in excess of the sum of (i) the number of shares
of common stock beneficially owned by the Subscriber and its Affiliates on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Note with respect to which the determination of this provision
is being made on a Conversion Date, which would result in beneficial ownership
by the Subscriber and its Affiliates of more than 4.99% of the outstanding
shares of common stock of the Company on such Conversion Date. Beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to
the foregoing, the Subscriber shall not be limited to aggregate conversions of
only 4.99% and aggregate conversions by the Subscriber may exceed 4.99%. The
Subscriber may waive the conversion limitation described in this Section 7.3, in
whole or in part, upon and effective after 61 days prior written notice to the
Company. The Subscriber may decide whether to convert a Note or exercise
Warrants to achieve an actual 4.99% ownership position. 

7.4. Injunction Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof or exercise the Warrant in whole or in part, the
Company may not refuse conversion or exercise based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been
engaged in any violation of law, or for any other reason, unless, an injunction
from a court, on notice, restraining and or enjoining conversion of all or part
of such Note or exercise of all or part of such Warrant shall have been sought
and obtained by the Company and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 120% of the outstanding principal
and interest of the Note, or aggregate purchase price of the Warrant Shares
which are sought to be subject to the injunction, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment. Notwithstanding the foregoing, if the Company receives an
order restraining it from converting from a court or administration agency of
competent jurisdiction, it shall comply without a bond requirement. 

7.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if after seven (7)
business days after the Delivery Date the Subscriber purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such 

12

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

7.6. Adjustments. The Conversion Price, Warrant exercise price and amount of
Shares issuable upon conversion of the Notes and exercise of the Warrants shall
be adjusted as described in this Agreement, the Notes and Warrants. 

7.7. Redemption. The Note and Warrants shall not be redeemable or mandatorily
convertible except as described in the Note and Warrants. 

8. Broker/Legal Fees. 

  (a) Broker's Commission. The Company on the one hand, and each Subscriber
  (for himself only) on the other hand, agree to indemnify the other against and
  hold the other harmless from any and all liabilities to any persons claiming
  brokerage commissions other than the parties identified on Schedule 8
  hereto ("Broker") on account of services purported to have been
  rendered on behalf of the indemnifying party in connection with this Agreement
  or the transactions contemplated hereby and arising out of such party's
  actions. Anything in this Agreement to the contrary notwithstanding, each
  Subscriber is providing indemnification only for such Subscriber's own actions
  and not for any action of any other Subscriber. Each Subscriber's liability
  hereunder is several and not joint. The Company agrees that it will pay Broker
  a cash fee equal to 10% of the Purchase Price on the Closing Date directly out
  of the funds held pursuant to the Escrow Agreement ("Broker's Fees").
  The Company represents that there are no other parties entitled to receive
  fees, commissions, or similar payments in connection with the offering
  described in this Agreement except Broker. 

  (b) Legal Fees. The Company shall pay to Grushko & Mittman, P.C., a
  one-time cash fee of $20,000 ("Legal Fees") (of which $5,000 has been
  paid) as reimbursement for services rendered to the Subscribers in connection
  with this Agreement and the purchase and sale of the Notes and Warrants (the "Offering").
  The Legal Fees and reimbursement for estimated UCC searches and filing fees
  (less any amounts paid prior to a Closing Date) will be payable on the Initial
  Closing Date out of funds held pursuant to the Escrow Agreement. 

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

  (a) Stop Orders. The Company will advise the Subscribers within four hours
  after the Company receives notice of issuance by the Commission, any state
  securities commission or any other regulatory authority of any stop order or
  of any order preventing or suspending any offering of any securities of the
  Company, or of the suspension of the qualification of the Common Stock of the
  Company for offering or sale in any jurisdiction, or the initiation of any
  proceeding for any such purpose. 

  (b) Listing. The Company shall promptly secure the listing of the shares of
  Common Stock and the Warrant Shares upon each national securities exchange, or
  electronic or automated quotation system upon which they are or become
  eligible for listing and shall maintain such 

13

  listing so long as any Notes or Warrants are outstanding. The Company will
  maintain the listing of its Common Stock on the American Stock Exchange,
  Nasdaq SmallCap Market, Nasdaq National Market System, OTC Bulletin Board, or
  New York Stock Exchange (whichever of the foregoing is at the time the
  principal trading exchange or market for the Common Stock (the "Principal
  Market")), and will comply in all respects with the Company's reporting,
  filing and other obligations under the bylaws or rules of the Principal
  Market, as applicable. The Company will provide the Subscribers copies of all
  notices it receives notifying the Company of the threatened and actual
  delisting of the Common Stock from any Principal Market. As of the date of
  this Agreement, the Pink Sheets is the Principal Market. 

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

  (d) Filing Requirements. Not later than 100 days after the Closing Date and
  until the sooner of (i) two (2) years after the last Closing Date, or (ii)
  until all the Shares and Warrant Shares have been resold or transferred by all
  the Subscribers pursuant to the Registration Statement or pursuant to Rule
  144, without regard to volume limitations, the Company will (A) cause its
  Common Stock to continue to be registered under Section 12(b) or 12(g) of the
  1934 Act, (B) comply in all respects with its reporting and filing obligations
  under the 1934 Act, (C) comply with all reporting requirements that are
  applicable to an issuer with a class of shares registered pursuant to Section
  12(b) or 12(g) of the 1934 Act, as applicable, and (D) comply with all
  requirements related to any registration statement filed pursuant to this
  Agreement. The Company will use its best efforts not to take any action or
  file any document (whether or not permitted by the 1933 Act or the 1934 Act or
  the rules thereunder) to terminate or suspend such registration or to
  terminate or suspend its reporting and filing obligations under said acts
  until two (2) years after the last Closing Date. Until the earlier of the
  resale of the Common Stock and the Warrant Shares by each Subscriber or two
  (2) years after the Warrants have been exercised, the Company will use its
  reasonable best efforts to continue the listing or quotation of the Common
  Stock on a Principal Market and will comply in all respects with the Company's
  reporting, filing and other obligations under the bylaws or rules of the
  Principal Market. The Company agrees to timely file a Form D with respect to
  the Securities if required under Regulation D and to provide a copy thereof to
  each Subscriber promptly after such filing. 

  (e) Use of Proceeds. The proceeds of the Offering will be employed by the
  Company for the purposes generally set forth on Schedule 9(e) hereto.
  For so long as any Notes are outstanding, except as set forth on Schedule
  9(e), the Purchase Price may not and will not be used for accrued and
  unpaid officer and director salaries, payment of financing related debt,
  redemption of outstanding notes or equity instruments of the Company,
  litigation related expenses or settlements, brokerage fees, nor non-trade
  obligations outstanding on a Closing Date. 

  (f) Reservation. Prior to each Closing Date, the Company undertakes to
  reserve, pro rata, on behalf of the Subscribers from its authorized but
  unissued Common Stock, a number of common shares equal to 175% of the common
  shares issuable upon conversion of the Notes and one share of Common Stock for
  each Warrant Share issuable upon exercise of the Warrants. Failure to have
  sufficient shares reserved pursuant to this Section 9(f) and to allow
  conversion of all outstanding Note amounts of principal and interest and
  exercise of all outstanding Warrants for five (5) consecutive business days or
  fifteen (15) days in the aggregate shall be a material default of the
  Company's obligations under this Agreement and an Event of Default under the
  Note. 

  (g) Taxes. From the date of this Agreement and until the Conversion or
  satisfaction of the Note in its entirety the Company will promptly pay and
  discharge, or cause to be paid and discharged, when due and payable, all
  lawful taxes, assessments and governmental charges or levies 

14

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

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

  (i) Books and Records. From the date of this Agreement and until the
  Conversion or satisfaction of the Note in its entirety the Company will keep
  true records and books of account in which full, true and correct entries will
  be made of all dealings or transactions in relation to its business and
  affairs in accordance with generally accepted accounting principles applied on
  a consistent basis. 

  (j) Governmental Authorities. From the date of this Agreement and until the
  Conversion or satisfaction of the Note, in its entirety, the Company shall
  duly observe and conform in all material respects to all valid requirements of
  governmental authorities relating to the conduct of its business or to its
  properties or assets. 

  (k) Intellectual Property. From the date of this Agreement and until the
  Conversion or satisfaction of the Note, in its entirety, the Company shall
  maintain in full force and effect its corporate existence, rights and
  franchises and all licenses and other rights to use intellectual property
  owned or possessed by it and reasonably deemed to be necessary to the conduct
  of its business, unless it is sold for value. 

  (l) Properties. From the date of this Agreement and until the Conversion or
  satisfaction of the Note in its entirety the Company will keep its properties
  in good repair, working order and condition, reasonable wear and tear
  excepted, and from time to time make all necessary and proper repairs,
  renewals, replacements, additions and improvements thereto; and the Company
  will at all times comply with each provision of all leases to which it is a
  party or under which it occupies property if the breach of such provision
  could reasonably be expected to have a Material Adverse Effect. 

  (m) Confidentiality/Public Announcement. From the date of this Agreement
  and until the sooner of (i) two (2) years after the last Closing Date, or (ii)
  until all the Shares and Warrant Shares have been resold or transferred by all
  the Subscribers pursuant to the Registration Statement or pursuant to Rule
  144, without regard to volume limitations, the Company agrees that, except in
  connection with a Form 8-K or the Registration Statement or as otherwise
  required in any other Commission filing, it will not disclose publicly or
  privately the identity of the Subscribers unless expressly agreed to in
  writing by a Subscriber, only to the extent required by law and then only upon
  five days prior notice to Subscriber. In any event and subject to the
  foregoing, the Company shall file a Form 8-K or make a public announcement
  describing the Offering not later than the first business day after each
  Closing Date. In the Form 8-K or public announcement, the Company will
  specifically disclose the amount of common stock outstanding immediately after
  the Closing. A form of the proposed Form 8-K or public announcement to be
  employed in connection with the Closing is annexed hereto as Exhibit G.
  

15

  No Form 8-K shall be filed if or to the extent that such filing would
  jeopardize the exemption from registration relied upon for the transactions
  contemplated herein. 

  (n) Further Registration Statements. Except for a registration statement
  filed on behalf of the Subscribers pursuant to Section 11 of this Agreement,
  and as set forth on Schedule 11.1 hereto, the Company will not file any
  registration statements or amend any already filed registration statement to
  increase the amount of Common Stock registered therein, including but not
  limited to Forms S-8, with the Commission or with state regulatory authorities
  without the consent of the Subscribers until the sooner of (i) the
  Registration Statement shall have been current and available for use in
  connection with the resale of the Registrable Securities (as defined in
  Section 11.1(i)) for a period of 180 days, or (ii) until all the Shares and
  Warrant Shares have been resold or transferred by the Subscribers pursuant to
  the Registration Statement or Rule 144, without regard to volume limitations
  ("Exclusion Period"). The Exclusion Period will be tolled during the
  pendency of an Event of Default as defined in the Note. As used in the
  Agreement, "consent of the Subscribers" or similar verbiage means the consent
  of holders of not less than 70% of the issued Shares and Shares issuable upon
  conversion of outstanding Notes. 

  (o) Blackout. The Company undertakes and covenants that until the end of
  the Exclusion Period, the Company will not enter into any acquisition, merger,
  exchange or sale or other transaction that could have the effect of delaying
  the effectiveness of any pending registration statement or causing an already
  effective registration statement to no longer be effective or current for a
  period ten (10) or more consecutive days nor more than fifteen (15) days
  during any consecutive three hundred and sixty-five (365) day period. 

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

  (q) Limited Standstill. The Company will deliver to the Subscribers on or
  before the Closing Date and enforce the provisions of irrevocable lockup
  agreements ("Limited Standstill Agreements") in the forms annexed
  hereto as Exhibit H, with the parties identified on Schedule 9.1(q)
  hereto. 

  (r) Reporting Company Listing. Not later than 100 days after the Closing
  Date, the Company undertakes to be listed on either the OTC Bulletin Board,
  the Nasdaq SmallCap Market, Nasdaq National Market, or the American Stock
  Exchange. 

  (s) Negative Pledge. So long as any Notes or Warrants are outstanding, the
  Company shall not, and shall cause each of its Subsidiaries not to, create,
  incur, assume or suffer to exist any pledge, hypothecation, assignment,
  deposit arrangement, lien, charge, claim, security interest, security title,
  mortgage, security deed or deed of trust, easement or encumbrance, or
  preference, priority or other security agreement or preferential arrangement
  of any kind or nature whatsoever (including any lease or title retention
  agreement, any financing lease having substantially the same economic effect
  as any of the foregoing, and the filing of, or agreement to give, any
  financing statement perfecting a security interest under the Uniform
  Commercial Code or comparable law of any jurisdiction) (each, a "Lien")
  upon any of its property, whether now owned or hereafter acquired other than (i)
  for the Excepted Issuances (as defined in Section 12(a) hereof), and (ii) (a)
  Liens imposed by law for taxes that are not yet due or are being contested in
  good faith and for which adequate reserves have been established in accordance
  with generally accepted accounting principles; (b) carriers', warehousemen's,
  mechanics', materialmen's, repairmen's and other like Liens imposed by law,
  arising in the ordinary course of business and securing obligations that are
  not overdue by more than 30 days or that are being contested in 

16

  good faith and by appropriate proceedings; (c) pledges and
  deposits made in the ordinary course of business in compliance with workers'
  compensation, unemployment insurance and other social security laws or
  regulations; (d) deposits to secure the performance of bids, trade contracts,
  leases, statutory obligations, surety and appeal bonds, performance bonds and
  other obligations of a like nature, in each case in the ordinary course of
  business; (e) Liens created with respect to the financing of the purchase of
  new property in the ordinary course of the Company's business up to the amount
  of the purchase price of such property, (f) easements, zoning restrictions,
  rights-of-way and similar encumbrances on real property imposed by law or
  arising in the ordinary course of business that do not secure any monetary
  obligations and do not materially detract from the value of the affected
  property, or (g) security interests disclosed on Schedule B to the Security
  Agreement (each of (a) through (g), a "Permitted Lien"). 

10. Covenants of the Company and Subscriber Regarding
Indemnification. 

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

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

  (c) In no event shall the liability of any Subscriber or
  permitted successor hereunder or under any Transaction Document or other
  agreement delivered in connection herewith be greater in amount than the
  dollar amount of the net proceeds actually received by such Subscriber upon
  the sale of Registrable Securities (as defined herein). 

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

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

  (i) On one occasion, for a period commencing one hundred
  and sixteen (116) days after the Initial Closing Date, but not later than two
  (2) years after the last Closing Date, upon a written request therefor from
  the holders of more than 50% of the Shares issued and issuable upon conversion
  of the outstanding Notes and outstanding Warrant Shares, the Company shall
  prepare and file with the Commission a registration statement under the 1933
  Act registering the Registrable Securities, as defined in Section 11.1(iv)
  hereof, which are the subject of such request for unrestricted public resale
  by the holder thereof. For purposes of Sections 11.1(i) and 11.1(ii),
  Registrable Securities shall not include Securities which are (A) registered
  for resale in an effective registration statement, (B) included for
  registration in a pending registration statement, or (C) which have been
  issued without further transfer restrictions after a sale or transfer pursuant
  to Rule 144 under the 1933 Act. Upon the receipt of such 

17

  request, the Company shall promptly give written notice to all other record
  holders of the Registrable Securities that such registration statement is to
  be filed and shall include in such registration statement Registrable
  Securities for which it has received written requests within ten (10) days
  after the Company gives such written notice. Such other requesting record
  holders shall be deemed to have exercised their demand registration right
  under this Section 11.1(i). 

  (ii) If the Company at any time proposes to register any of its securities
  under the 1933 Act for sale to the public, whether for its own account or for
  the account of other security holders or both, except with respect to
  registration statements on Forms S-4, S-8 or another form not available for
  registering the Registrable Securities for sale to the public, provided the
  Registrable Securities are not otherwise registered for resale by the
  Subscribers or Holder pursuant to an effective registration statement, each
  such time it will give at least fifteen (15) days' prior written notice to the
  record holder of the Registrable Securities of its intention so to do. Upon
  the written request of the holder, received by the Company within ten (10)
  days after the giving of any such notice by the Company, to register any of
  the Registrable Securities not previously registered, the Company will cause
  such Registrable Securities as to which registration shall have been so
  requested to be included with the securities to be covered by the registration
  statement proposed to be filed by the Company, all to the extent required to
  permit the sale or other disposition of the Registrable Securities so
  registered by the holder of such Registrable Securities (the "Seller"
  or "Sellers"). In the event that any registration pursuant to this
  Section 11.1(ii) shall be, in whole or in part, an underwritten public
  offering of common stock of the Company, the number of shares of Registrable
  Securities to be included in such an underwriting may be reduced by the
  managing underwriter if and to the extent that the Company and the underwriter
  shall reasonably be of the opinion that such inclusion would adversely affect
  the marketing of the securities to be sold by the Company therein; provided,
  however, that the Company shall notify the Seller in writing of any such
  reduction. Notwithstanding the foregoing provisions, or Section 11.4 hereof,
  the Company may withdraw or delay or suffer a delay of any registration
  statement referred to in this Section 11.1(ii) without thereby incurring any
  liability to the Seller. 

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

  (iv) The Company shall file with the Commission a Form SB-2 registration
  statement or amend an already filed Form SB-2 registration statement (the "Registration
  Statement") and, with regard to the Registrable Securities, less the
  Second Closing Registrable Securities, both as defined below, the "Registration
  Statement") (or such other form that it is eligible to use) in order to
  register the Registrable Securities for resale and distribution under the 1933
  Act within forty-five (45) calendar days after the Initial Closing Date (the "Filing
  Date"), and cause such Registration Statement to be declared effective not
  later than seventy-five (75) calendar days after the Initial Closing Date or
  one hundred and fifteen (115) calendar days if there is a Commission review
  (the "Effective Date"). The Company will register for resale after
  conversion of the Notes and exercise of the Warrants and Finder's Warrants not
  less than a number of shares of common stock in the aforedescribed
  registration statement that is equal, in the aggregate, to 175% of the shares
  of Common Stock issuable upon conversion of the Notes and 100% of the Warrant
  Shares issuable upon exercise of the Warrants (collectively the "Registrable
  Securities"). The Registrable Securities shall be reserved and set aside
  exclusively for the benefit of each Subscriber and Warrant holder, pro rata,
  and not issued, employed or reserved for anyone other than each such
  Subscriber and Warrant holder. The Registration Statement will promptly be
  amended or additional registration statements will be promptly filed by the
  Company as necessary to register additional shares of Common Stock to allow
  the public resale of all Common Stock included in 

18

  and issuable by virtue of the Registrable Securities. Except with the
  written consent of the Subscribers, or as described on Schedule 11.1 hereto,
  no securities of the Company other than the Registrable Securities will be
  included in the Registration Statement. It shall be deemed a Non-Registration
  Event if at any time after the date the Registration Statement is declared
  effective by the Commission ("Actual Effective Date") the Company has
  registered for unrestricted resale on behalf of the Sellers fewer than 125% of
  the amount of Common Shares issuable upon full conversion of all sums due
  under the Notes and 100% of the Warrant Shares issuable upon exercise of the
  Warrants. 

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

  (a) subject to the timelines provided in this Agreement, prepare and file
  with the Commission a registration statement required by Section 11, with
  respect to such securities and use its commercially reasonable best efforts to
  cause such registration statement to become and remain effective for the
  period of the distribution contemplated thereby (determined as herein
  provided); promptly provide to the holders of the Registrable Securities
  copies of all filings and Commission letters of comment; notify Subscribers
  (by telecopier and/or by e-mail addresses provided by Subscribers) and Grushko
  & Mittman, P.C. (by telecopier and/or by email to Counslers@aol.com) on or
  before 6:00 PM EST on the first business day after the day that the Company
  receives notice that the Commission has no comments or no further comments on
  the Registration Statement; and notify the Subscribers and their counsel in
  the same manner not later than the first Business Day after the Business Day a
  Registration Statement has been declared effective (or sooner than the first
  Business Day upon disclosure of this information to any person who is not an
  officer or director or legal counsel of the Company). Failure to timely
  provide notice as required by this Section 11.2(a) shall be a material breach
  of the Company's obligation and an Event of Default as defined in the Notes
  and a Non-Registration Event as defined in Section 11.4 of this Agreement; 

  (b) prepare and file with the Commission such amendments and supplements to
  such registration statement and the prospectus used in connection therewith as
  may be necessary to keep such registration statement effective until such
  registration statement has been effective for a period of two (2) years, and
  comply with the provisions of the 1933 Act with respect to the disposition of
  all of the Registrable Securities covered by such registration statement in
  accordance with the Sellers' intended method of disposition set forth in such
  registration statement for such period; 

  (c) furnish to the Sellers, at the Company's expense, such number of copies
  of the registration statement and the prospectus included therein (including
  each preliminary prospectus) as such persons reasonably may request in order
  to facilitate the public sale or their disposition of the securities covered
  by such registration statement or make them electronically available; 

  (d) use its commercially reasonable best efforts to register or qualify the
  Registrable Securities covered by such registration statement under the
  securities or "blue sky" laws of New York and such jurisdictions as the
  Sellers shall request in writing, provided, however, that the Company shall
  not for any such purpose be required to: (i) qualify generally to transact
  business as a foreign corporation in any jurisdiction where it is not so
  qualified or to consent to general service of process in any such jurisdiction
  or (ii) qualify in any jurisdiction which would require the Company to meet
  any merit review criteria; 

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

  (f) notify the Subscribers within four hours of the
  Company's becoming aware that a prospectus relating thereto is required to be
  delivered under the 1933 Act, of the happening of any event of which the
  Company has knowledge as a result of which the prospectus contained in such
  

19

  registration statement, as then in effect, includes an untrue statement of
  a material fact or omits to state a material fact required to be stated
  therein or necessary to make the statements therein not misleading in light of
  the circumstances then existing or which becomes subject to a Commission,
  state or other governmental order suspending the effectiveness of the
  registration statement covering any of the Shares; and 

  (g) provided same would not be in violation of the provision of Regulation
  FD under the 1934 Act, make available for inspection by the Sellers, and any
  attorney, accountant or other agent retained by the Seller or underwriter, all
  publicly available, non-confidential financial and other records, pertinent
  corporate documents and properties of the Company, and cause the Company's
  officers, directors and employees to supply all publicly available,
  non-confidential information reasonably requested by the seller, attorney,
  accountant or agent in connection with such registration statement. 

11.3. Provision of Documents. In connection with each registration described
in this Section 11, each Seller will furnish to the Company in writing such
information and representation letters with respect to itself and the proposed
distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws. The Company shall
not be required to register the Registrable Securities of any Seller that fails
to furnish to the Company any such information within 15 business days of
written request therefore via certified mail or facsimile transmission. 

11.4. Non-Registration Events. The Company and the Subscribers agree that the
Sellers will suffer damages if the Registration Statement is not filed by the
Filing Date and not declared effective by the Commission by the Effective Date,
and any registration statement required under Section 11.1(i) or 11.1(ii) is not
filed within 60 days after Company receipt of written request and declared
effective by the Commission within 120 days after Company receipt of such
request, and maintained in the manner and within the time periods contemplated
by Section 11 hereof, and it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, if (A) the Registration Statement is
not filed on or before the Filing Date, (B) is not declared effective on or
before the Effective Date, (C) due to the action or inaction of the Company the
Registration Statement is not declared effective within three (3) business days
after receipt by the Company or its attorneys of a written or oral communication
from the Commission that the Registration Statement will not be reviewed or that
the Commission has no further comments, (D) if the registration statement
described in Sections 11.1(i) or 11.1(ii) is not filed within 60 days after such
written request, or is not declared effective within 120 days after such written
request, or (E) any registration statement described in Sections 11.1(i),
11.1(ii) or 11.1(iv) is filed and declared effective but shall thereafter cease
to be effective without being succeeded within fifteen (15) business days by an
effective replacement or amended registration statement or for a period of time
which shall exceed 20 business days in the aggregate per year (defined as a
period of 365 days commencing on the Actual Effective Date (each such event
referred to in clauses A through E of this Section 11.4 is referred to herein as
a "Non-Registration Event"), then the Company shall deliver to the holder
of Registrable Securities, as Liquidated Damages, an amount calculated on a
daily basis at a rate equivalent to two percent (2%) for each thirty (30) days
or part thereof of the Purchase Price of the Notes remaining unconverted and
purchase price of Shares issued upon conversion of the Notes owned of record by
such holder which are subject to such Non-Registration Event. The Company must
pay the Liquidated Damages in cash. The Liquidated Damages must be paid within
ten (10) days after the end of each thirty (30) day period or shorter part
thereof for which Liquidated Damages are payable. In the event a Registration
Statement is filed by the Filing Date but is withdrawn prior to being declared
effective by the Commission, then such Registration Statement will be deemed to
have not been filed. All oral or written comments received from the Commission
relating to the Registration Statement must be satisfactorily responded to
within ten (10) business days for non-accounting comments and within twenty (20)
business days for accounting comments after receipt of comments from the
Commission. Failure to timely respond to Commission comments is a
Non-Registration Event for which Liquidated Damages shall accrue and be payable
by the Company to the holders of Registrable Securities at the same rate set
forth above. Notwithstanding anything else in this Section 11.4, the Company
shall not be liable to the Subscriber 

20

under this Section 11.4 for any events or delays occurring as a consequence
of the acts or omissions of the Subscribers contrary to the obligations
undertaken by Subscribers in this Agreement. Liquidated Damages will not accrue
nor be payable pursuant to this Section 11.4 nor will a Non-Registration Event
be deemed to have occurred for times during which Registrable Securities are
transferable by the holder of Registrable Securities pursuant to Rule 144(k)
under the 1933 Act. 

11.5. Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses (if required), fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, and fees of transfer agents and registrars, are
called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities are called "Selling
Expenses." The Company will pay all Registration Expenses in connection with
the registration statement under Section 11. Selling Expenses in connection with
each registration statement under Section 11 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree. 

11.6. Indemnification and Contribution. 

  (a) In the event of a registration of any Registrable Securities under the
  1933 Act pursuant to Section 11, the Company will, to the extent permitted by
  law, indemnify and hold harmless the Seller, each officer of the Seller, each
  director of the Seller, each underwriter of such Registrable Securities
  thereunder and each other person, if any, who controls such Seller or
  underwriter within the meaning of the 1933 Act, against any losses, claims,
  damages or liabilities, joint or several, to which the Seller, or such
  underwriter or controlling person may become subject under the 1933 Act or
  otherwise, insofar as such losses, claims, damages or liabilities (or actions
  in respect thereof) arise out of or are based upon any untrue statement or
  alleged untrue statement of any material fact contained in any registration
  statement under which such Registrable Securities was registered under the
  1933 Act pursuant to Section 11, any preliminary prospectus or final
  prospectus contained therein, or any amendment or supplement thereof, or arise
  out of or are based upon the omission or alleged omission to state therein a
  material fact required to be stated therein or necessary to make the
  statements therein not misleading in light of the circumstances when made, and
  will subject to the provisions of Section 11.6(c) reimburse the Seller, each
  such underwriter and each such controlling person for any legal or other
  expenses reasonably incurred by them in connection with investigating or
  defending any such loss, claim, damage, liability or action; provided,
  however, that the Company shall not be liable to the Seller to the extent that
  any such damages arise out of or are based upon an untrue statement or
  omission made: (i) in any preliminary prospectus if the Seller failed to send
  or deliver a copy of the final prospectus delivered by the Company to the
  Seller with or prior to the delivery of written confirmation of the sale by
  the Seller to the person asserting the claim from which such damages arise and
  the final prospectus would have corrected such untrue statement or alleged
  untrue statement or such omission or alleged omission, or (ii) in any
  preliminary or final prospectus to the extent that any such loss, claim,
  damage or liability arises out of or is based upon an untrue statement or
  alleged untrue statement or omission or alleged omission so made in conformity
  with information furnished by any such Seller, or any such controlling person
  in writing specifically for use in such registration statement or prospectus.
  

  (b) In the event of a registration of any of the Registrable Securities
  under the 1933 Act pursuant to Section 11, each Seller severally but not
  jointly will, to the extent permitted by law, indemnify and hold harmless the
  Company, and each person, if any, who controls the Company within the meaning
  of the 1933 Act, each officer of the Company who signs the registration
  statement, each director of the Company, each underwriter and each person who
  controls any underwriter within the meaning of the 1933 Act, against all
  losses, claims, damages or liabilities, joint or several, to which the 

21

  Company or such officer, director, underwriter or controlling person may
  become subject under the 1933 Act or otherwise, insofar as such losses,
  claims, damages or liabilities (or actions in respect thereof) arise out of or
  are based upon any untrue statement or alleged untrue statement of any
  material fact contained in the registration statement under which such
  Registrable Securities were registered under the 1933 Act pursuant to Section
  11, any preliminary prospectus or final prospectus contained therein, or any
  amendment or supplement thereof, or arise out of or are based upon the
  omission or alleged omission to state therein a material fact required to be
  stated therein or necessary to make the statements therein not misleading, and
  will reimburse the Company and each such officer, director, underwriter and
  controlling person for any legal or other expenses reasonably incurred by them
  in connection with investigating or defending any such loss, claim, damage,
  liability or action, provided, however, that the Seller will be liable
  hereunder in any such case if and only to the extent that any such loss,
  claim, damage or liability arises out of or is based upon an untrue statement
  or alleged untrue statement or omission or alleged omission made in reliance
  upon and in conformity with information pertaining to such Seller, as such,
  furnished in writing to the Company by such Seller specifically for use in
  such registration statement or prospectus, and provided, further, however,
  that the liability of the Seller hereunder shall be limited to the net
  proceeds actually received by the Seller from the sale of Registrable
  Securities covered by such registration statement. 

  (c) Promptly after receipt by an indemnified party hereunder of notice of
  the commencement of any action, such indemnified party shall, if a claim in
  respect thereof is to be made against the indemnifying party hereunder, notify
  the indemnifying party in writing thereof, but the omission so to notify the
  indemnifying party shall not relieve it from any liability which it may have
  to such indemnified party, except and only if and to the extent the
  indemnifying party is prejudiced by such omission. In case any such action
  shall be brought against any indemnified party and it shall notify the
  indemnifying party of the commencement thereof, the indemnifying party shall
  be entitled to participate in and, to the extent it shall wish, to assume and
  undertake the defense thereof with counsel satisfactory to such indemnified
  party, and, after notice from the indemnifying party to such indemnified party
  of its election so to assume and undertake the defense thereof, the
  indemnifying party shall not be liable to such indemnified party under this
  Section 11.6(c) for any legal expenses subsequently incurred by such
  indemnified party in connection with the defense thereof other than reasonable
  costs of investigation and of liaison with counsel so selected, provided,
  however, that, if the defendants in any such action include both the
  indemnified party and the indemnifying party and the indemnified party shall
  have reasonably concluded that there may be reasonable defenses available to
  it which are different from or additional to those available to the
  indemnifying party or if the interests of the indemnified party reasonably may
  be deemed to conflict with the interests of the indemnifying party, the
  indemnified parties, as a group, shall have the right to select one separate
  counsel and to assume such legal defenses and otherwise to participate in the
  defense of such action, with the reasonable expenses and fees of such separate
  counsel and other expenses related to such participation to be reimbursed by
  the indemnifying party as incurred. 

  (d) In order to provide for just and equitable contribution in the event of
  joint liability under the 1933 Act in any case in which either (i) a Seller,
  or any controlling person of a Seller, makes a claim for indemnification
  pursuant to this Section 11.6 but it is judicially determined (by the entry of
  a final judgment or decree by a court of competent jurisdiction and the
  expiration of time to appeal or the denial of the last right of appeal) that
  such indemnification may not be enforced in such case notwithstanding the fact
  that this Section 11.6 provides for indemnification in such case, or (ii)
  contribution under the 1933 Act may be required on the part of the Seller or
  controlling person of the Seller in circumstances for which indemnification is
  not provided under this Section 11.6; then, and in each such case, the Company
  and the Seller will contribute to the aggregate losses, claims, damages or
  liabilities to which they may be subject (after contribution from others) in
  such proportion so that the Seller is responsible only for the portion
  represented by the percentage that the public offering price of its securities
  offered by the registration statement bears to the public offering price of
  all securities offered by such registration statement, provided, however,
  that, in any such case, (y) the Seller will not be required to contribute any
  amount in excess of the public offering price of all such securities sold by
  it 

22

  pursuant to such registration statement; and (z) no person
  or entity guilty of fraudulent misrepresentation (within the meaning of
  Section 11(f) of the 1933 Act) will be entitled to contribution from any
  person or entity who was not guilty of such fraudulent misrepresentation. 

11.7. Delivery of Unlegended Shares. 

  (a) Within three (3) business days (such third business day being the "Unlegended
  Shares Delivery Date") after the business day on which the Company has
  received (i) a notice that Shares or Warrant Shares or any other Common Stock
  held by a Subscriber have been sold pursuant to the Registration Statement or
  Rule 144 under the 1933 Act, (ii) a representation that the prospectus
  delivery requirements, or the requirements of Rule 144, as applicable and if
  required, have been satisfied, and (iii) delivery to the transfer agent of the
  original share certificates representing the shares of Common Stock that have
  been sold, and (iv) in the case of sales under Rule 144, customary
  representation letters of the Subscriber and/or Subscriber's broker regarding
  compliance with the requirements of Rule 144, the Company at its expense, (y)
  shall deliver, and shall cause legal counsel selected by the Company to
  deliver to its transfer agent (with copies to Subscriber) an appropriate
  instruction and opinion of such counsel, directing the delivery of shares of
  Common Stock without any legends including the legend set forth in Section
  4(h) above, reissuable pursuant to any effective and current Registration
  Statement described in Section 11 of this Agreement or pursuant to Rule 144
  under the 1933 Act (the "Unlegended Shares"); and (z) cause the
  transmission of the certificates representing the Unlegended Shares together
  with a legended certificate representing the balance of the submitted Shares
  certificate, if any, to the Subscriber at the address specified in the notice
  of sale, via express courier, by electronic transfer or otherwise on or before
  the Unlegended Shares Delivery Date. 

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

  (c) The Company understands that a delay in the delivery of the Unlegended
  Shares pursuant to Section 11 hereof later than two business days after the
  Unlegended Shares Delivery Date could result in economic loss to a Subscriber.
  As compensation to a Subscriber for such loss, the Company agrees to pay late
  payment fees (as liquidated damages and not as a penalty) to the Subscriber
  for late delivery of Unlegended Shares in the amount of $100 per business day
  after the Delivery Date for each $10,000 of purchase price of the Unlegended
  Shares subject to the delivery default. If during any 360 day period, the
  Company fails to deliver Unlegended Shares as required by this Section 11.7
  for an aggregate of thirty (30) days, then each Subscriber or assignee holding
  Securities subject to such default may, at its option, require the Company to
  redeem all or any portion of the Shares and Warrant Shares subject to such
  default at a price per share equal to 120% of the Purchase Price of such
  Common Stock and Warrant Shares ("Unlegended Redemption Amount"). The
  amount of the aforedescribed liquidated damages that have accrued or been paid
  for the twenty day period prior to the receipt by the Subscriber of the
  Unlegended Redemption Amount shall be credited against the Unlegended
  Redemption Amount. The Company shall pay any payments incurred under this
  Section in immediately available funds upon demand. 

  (d) In addition to any other rights available to a Subscriber, if the
  Company fails to deliver to a Subscriber Unlegended Shares as required
  pursuant to this Agreement, within seven (7) business days after the
  Unlegended Shares Delivery Date and the Subscriber purchases (in an open
  market transaction or otherwise) shares of Common Stock to deliver in
  satisfaction of a sale by such 

23

  Subscriber of the shares of Common Stock which the Subscriber was entitled
  to receive from the Company (a "Buy-In"), then the Company shall pay in
  cash to the Subscriber (in addition to any remedies available to or elected by
  the Subscriber) the amount by which (A) the Subscriber's total purchase price
  (including brokerage commissions, if any) for the shares of Common Stock so
  purchased exceeds (B) the aggregate purchase price of the shares of Common
  Stock delivered to the Company for reissuance as Unlegended Shares together
  with interest thereon at a rate of 15% per annum, accruing until such amount
  and any accrued interest thereon is paid in full (which amount shall be paid
  as liquidated damages and not as a penalty). For example, if a Subscriber
  purchases shares of Common Stock having a total purchase price of $11,000 to
  cover a Buy-In with respect to $10,000 of purchase price of shares of Common
  Stock delivered to the Company for reissuance as Unlegended Shares, the
  Company shall be required to pay the Subscriber $1,000, plus interest. The
  Subscriber shall provide the Company written notice indicating the amounts
  payable to the Subscriber in respect of the Buy-In. 

  (e) In the event a Subscriber shall request delivery of Unlegended Shares
  as described in Section 11.7 and the Company is required to deliver such
  Unlegended Shares pursuant to Section 11.7, the Company may not refuse to
  deliver Unlegended Shares based on any claim that such Subscriber or any one
  associated or affiliated with such Subscriber has been engaged in any
  violation of law, or for any other reason, unless, an injunction or temporary
  restraining order from a court, on notice, restraining and or enjoining
  delivery of such Unlegended Shares or exercise of all or part of said Warrant
  shall have been sought and obtained and the Company has posted a surety bond
  for the benefit of such Subscriber in the amount of 120% of the amount of the
  aggregate purchase price of the Common Stock and Warrant Shares which are
  subject to the injunction or temporary restraining order, which bond shall
  remain in effect until the completion of arbitration/litigation of the dispute
  and the proceeds of which shall be payable to such Subscriber to the extent
  Subscriber obtains judgment in Subscriber's favor. 

12. (a) Right of First Refusal. Until one year after the Actual Effective
Date, the Subscribers shall be given not less than seven (7) business days prior
written notice of any proposed sale by the Company of its common stock or other
securities or debt obligations, except in connection with (i) full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of a corporation or
other entity which holders of such securities or debt are not granted
registration rights and which has been disclosed to Subscribers' counsel, (ii)
the Company's issuance of securities in connection with strategic license
agreements and other partnering arrangements so long as such issuances are not
for the purpose of raising capital which holders of such securities or debt are
not granted registration rights and which has been disclosed to Subscribers'
counsel, (iii) the Company's issuance of Common Stock or the issuances or grants
of options to purchase Common Stock pursuant to stock option plans described on
Schedule 5(d) hereto, (iv) the Company's issuance of Common Stock or the
issuances or grants of options to purchase Common Stock pursuant to employee
stock purchase or compensation plans, provided such shares of Common stock are
not included in a registration statement for so long as any Notes are
outstanding, (v) as a result of the exercise of Warrants or conversion of Notes
which are granted or issued pursuant to this Agreement or warrants, options or
notes which are outstanding as of the date hereof and described in the Reports
or Other Written Information, all on the precise terms and conditions in effect
on the Closing Date, (vi) the payment of any interest on the Notes and
Liquidated Damages, (vii) as has been described in the Reports, Schedule 12(a)
hereto or Other Written Information filed with the Commission or delivered to
the Subscribers prior to the Closing Date, and (vii) as described on Schedule
11.1 (collectively the foregoing are "Excepted Issuances"). The
Subscribers who exercise their rights pursuant to this Section 12(a) shall have
the right during the seven (7) business days following receipt of the notice to
purchase not less than 50% of such offered common stock, debt or other
securities in accordance with the terms and conditions set forth in the notice
of sale in the same proportion to each other as their purchase of Notes in the
Offering. In the event such terms and conditions are modified during the notice
period, the Subscribers shall be given prompt notice of such modification and
shall have the right during the seven (7) business days following the notice of
modification to exercise such right. 

24

  (b) Offering Restrictions. Until the expiration of the Exclusion Period and
  during the pendency of an Event of Default, except for the Excepted Issuances,
  the Company will not enter into an agreement to nor issue any convertible debt
  or other securities convertible into common stock or equity of the Company nor
  modify any of the foregoing which may be outstanding at anytime, without the
  prior written consent of at least 50% of the Subscribers. For so long as the
  Notes are outstanding, the Company will not enter into any equity line of
  credit or similar agreement, nor issue nor agree to issue any floating or
  variable priced equity linked instruments nor any of the foregoing or equity
  with price reset rights.. 

  (c) Favored Nations Provision. Other than in connection with the Excepted
  Issuances, if at any time Notes or Warrants are outstanding the Company shall
  offer, issue or agree to issue any Common Stock or securities convertible into
  or exercisable for shares of Common Stock (or modify any of the foregoing
  which may be outstanding) to any person or entity at a price per share or
  conversion or exercise price per share which shall be less than the Conversion
  Price in respect of the Shares, or if less than the Warrant exercise price in
  respect of the Warrant Shares, without the consent of each Subscriber holding
  Notes, Shares, Warrants, or Warrant Shares, the Conversion Price and Warrant
  exercise price shall automatically be reduced to such lower price as provided
  in the Notes and the Warrants. For purposes of the adjustment described in
  this paragraph, the issuance of any security of the Company carrying the right
  to convert such security into shares of Common Stock or of any warrant, right
  or option to purchase Common Stock shall result in the adjustment described in
  this Paragraph upon the sooner of the written agreement to or actual issuance
  of such convertible security, warrant, right or option and again at any time
  upon any subsequent issuances of shares of Common Stock upon exercise of such
  conversion or purchase rights if such issuance is at a price lower than the
  Conversion Price or Warrant exercise price in effect upon such issuance. The
  rights of the Subscriber set forth in this Section 12 are in addition to any
  other rights the Subscriber has pursuant to this Agreement, the Note, any
  Transaction Document, and any other agreement referred to or entered into in
  connection herewith. 

  (d) Paid In Kind. The Subscriber may demand that some or all of the sums
  payable to the Subscriber pursuant to Sections 7.1(c), 7.2, 7.5, 11.4,
  11.7(c), 11.7(d) and 11.7(e) that are not paid within ten business days of the
  required payment date be paid in shares of Common Stock valued at the
  Conversion Price in effect at the time Subscriber makes such demand or, at the
  Subscriber's election, at such other valuation described in the Transaction
  Documents. In addition to any other rights granted to the Subscriber herein,
  the Subscriber is also granted the registration rights set forth in Section
  11.1(ii) hereof in relation to the aforedescribed shares of Common Stock. 

  (e) Maximum Exercise of Rights. In the event the exercise of the rights
  described in Sections 12(a), 12(b), 12(c) and 12(d) would result in the
  issuance of an amount of Common Stock of the Company that would exceed the
  maximum amount that may be issued to a Subscriber calculated in the manner
  described in Section 7.3 of this Agreement, then the issuance of such
  additional shares of Common Stock of the Company to such Subscriber will be
  deferred in whole or in part until such time as such Subscriber is able to
  beneficially own such Common Stock without exceeding the maximum amount set
  forth calculated in the manner described in Section 7.3 of this Agreement. The
  determination of when such Common Stock may be issued shall be made by each
  Subscriber as to only such Subscriber. 

13. Miscellaneous. 

  (a) Notices. All notices, demands, requests, consents, approvals, and other
  communications required or permitted hereunder shall be in writing and, unless
  otherwise specified herein, shall be (i) personally served, (ii) deposited in
  the mail, registered or certified, return receipt requested, postage prepaid,
  (iii) delivered by reputable air courier service with charges prepaid, or (iv)
  transmitted by hand delivery, telegram, facsimile or e-mail address (provided
  such party has provided his e-mail address), addressed as set forth below or
  to such other address as such party shall have specified 

25

  most recently by written notice. Any notice or other communication required
  or permitted to be given hereunder shall be deemed effective (a) upon hand
  delivery or delivery by facsimile, with accurate confirmation generated by the
  transmitting facsimile machine, or by e-mail (if permitted herein) at the
  address or number designated below (if delivered on a business day during
  normal business hours where such notice is to be received), or the first
  business day following such delivery (if delivered other than on a business
  day during normal business hours where such notice is to be received) or (b)
  on the second business day following the date of mailing by express courier
  service, fully prepaid, addressed to such address, or upon actual receipt of
  such mailing, whichever shall first occur or (c) three business days after
  deposited in the mail if delivered pursuant to subsection (ii) above. The
  addresses for such communications shall be: (i) if to the Company, to:
  BioElectronics Corporation, 401 Rosemont Avenue, Rosenstock Hall, Third Floor,
  Frederick, MD 21701, Attn: Andrew J. Whelan, President, telecopier: (301)
  874-0329, with a copy by telecopier only to: Pryor Cashman Sherman & Flynn,
  LLP, 410 Park Avenue, New York, NY 10022, Attn: Eric M. Hellige, Esq.,
  telecopier: (212) 326-0806, and (ii) if to the Subscriber, to: the one or more
  addresses and telecopier numbers indicated on the signature pages hereto, with
  an additional copy by telecopier only to: Grushko & Mittman, P.C., 551 Fifth
  Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
  697-3575, and (iii) if to the Broker, to: the address and telecopier number
  set forth on Schedule 8
  hereto. 

  (b) Entire Agreement; Assignment. This Agreement and other documents
  delivered in connection herewith represent the entire agreement between the
  parties hereto with respect to the subject matter hereof and may be amended
  only by a writing executed by both parties. Neither the Company nor the
  Subscribers have relied on any representations not contained or referred to in
  this Agreement and the documents delivered herewith. No right or obligation of
  the Company shall be assigned without prior notice to and the written consent
  of the Subscribers. 

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

  (d) Law Governing this Agreement. This Agreement shall be governed by and
  construed in accordance with the laws of the State of New York without regard
  to conflicts of laws principles that would result in the application of the
  substantive laws of another jurisdiction. Any action brought by either party
  against the other concerning the transactions contemplated by this Agreement
  shall be brought only in the civil or state courts of New York or in the
  federal courts located in New York County. 
  The parties and the individuals
  executing this Agreement and other agreements referred to herein or delivered
  in connection herewith on behalf of the Company agree to submit to the
  jurisdiction of such courts and waive trial by jury.
  The prevailing party shall be entitled to recover from the other party its
  reasonable attorney's fees and costs. In the event that any provision of this
  Agreement or any other agreement delivered in connection herewith is invalid
  or unenforceable under any applicable statute or rule of law, then such
  provision shall be deemed inoperative to the extent that it may conflict
  therewith and shall be deemed modified to conform with such statute or rule of
  law. Any such provision which may prove invalid or unenforceable under any law
  shall not affect the validity or enforceability of any other provision of any
  agreement. 

  (e) Specific Enforcement, Consent to Jurisdiction. The Company and
  Subscriber acknowledge and agree that irreparable damage would occur in the
  event that any of the provisions of this Agreement were not performed in
  accordance with their specific terms or were otherwise breached. It is
  accordingly agreed that the parties shall be entitled to one or more
  preliminary and final injunctions to prevent or cure breaches of the
  provisions of this Agreement and to enforce specifically the terms and
  provisions hereof, this being in addition to any other remedy to which any of
  them may be entitled by law or equity. Subject to Section 13(d) hereof, each
  of the Company, Subscriber 

26

  and any signator hereto in his personal capacity hereby waives, and agrees
  not to assert in any such suit, action or proceeding, any claim that it is not
  personally subject to the jurisdiction in New York of such court, that the
  suit, action or proceeding is brought in an inconvenient forum or that the
  venue of the suit, action or proceeding is improper. Nothing in this Section
  shall affect or limit any right to serve process in any other manner permitted
  by law. 

  (f) Damages. In the event the Subscriber is entitled to receive any
  liquidated damages pursuant to the Transactions Documents, the Subscriber may
  elect to receive the greater of actual damages or such liquidated damages. 

  (g) Independent Nature of Subscribers. The Company acknowledges that the
  obligations of each Subscriber under the Transaction Documents are several and
  not joint with the obligations of any other Subscriber, and no Subscriber
  shall be responsible in any way for the performance of the obligations of any
  other Subscriber under the Transaction Documents. The Company acknowledges
  that each Subscriber has represented that the decision of each Subscriber to
  purchase Securities has been made by such Subscriber independently of any
  other Subscriber and independently of any information, materials, statements
  or opinions as to the business, affairs, operations, assets, properties,
  liabilities, results of operations, condition (financial or otherwise) or
  prospects of the Company which may have been made or given by any other
  Subscriber or by any agent or employee of any other Subscriber, and no
  Subscriber or any of its agents or employees shall have any liability to any
  Subscriber (or any other person) relating to or arising from any such
  information, materials, statements or opinions. The Company acknowledges that
  nothing contained in any Transaction Document, and no action taken by any
  Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
  inclusion of a Subscriber in the Registration Statement and (ii) review by,
  and consent to, such Registration Statement by a Subscriber) shall be deemed
  to constitute the Subscribers as a partnership, an association, a joint
  venture or any other kind of entity, or create a presumption that the
  Subscribers are in any way acting in concert or as a group with respect to
  such obligations or the transactions contemplated by the Transaction
  Documents. The Company acknowledges that each Subscriber shall be entitled to
  independently protect and enforce its rights, including without limitation,
  the rights arising out of the Transaction Documents, and it shall not be
  necessary for any other Subscriber to be joined as an additional party in any
  proceeding for such purpose. The Company acknowledges that it has elected to
  provide all Subscribers with the same terms and Transaction Documents for the
  convenience of the Company and not because Company was required or requested
  to do so by the Subscribers. The Company acknowledges that such procedure with
  respect to the Transaction Documents in no way creates a presumption that the
  Subscribers are in any way acting in concert or as a group with respect to the
  Transaction Documents or the transactions contemplated thereby. 

27

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A) 

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

  	BIOELECTRONICS CORPORATION
	a Maryland corporation
	 
	By: /s/ Andrew J. Whelan
	Name: Andrew J. Whelan
	Title: President
	 
	Dated: December 8, 2005

 

	
    
    SUBSCRIBER
	
    
    INITIAL CLOSING
	
    
    SECOND CLOSING

	
     
	
    
    NOTE PRINCIPAL
	
    
    NOTE PRINCIPAL

	
    
    ALPHA CAPITAL AKTIENGESELLSCHAFT
	
    
    $400,000.00
	
    
    $133,334.00

	
    
    Pradafant 7
	
     
	
     

	
    
    9490 Furstentums
	
     
	
     

	
    
    Vaduz, Lichtenstein
	
     
	
     

	
    
    Fax: 011-42-32323196
	
     
	
     

	
     
	
     
	
     

	
     
	
     
	
     

	
     
	
     
	
     

	
     
	
     
	
     

	
    
    /s/ Konrad Ackerman
	
     
	
     

	
    
    (Signature)
	
     
	
     

	
    
    By: Konrad Ackerman
	 	 
	
     
	 	 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B) 

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

  	BIOELECTRONICS CORPORATION
	a Maryland corporation
	 
	By: /s/ Andrew J. Whelan
	Name: Andrew J. Whelan
	Title: President
	 
	Dated: December 8, 2005

	 	 	 
	
    
    SUBSCRIBER
	
    
    INITIAL CLOSING
	
    
    SECOND CLOSING

	
     
	
    
    NOTE PRINCIPAL
	
    
    NOTE PRINCIPAL

	
    
    WHALEHAVEN CAPITAL FUND LIMITED
	
    
    $250,000.00
	
    
    $83,333.00

	
    
    3rd Floor, 14 Par-Laville Road
	
     
	
     

	
    
    Hamilton, Bermuda HM08
	
     
	
     

	
    
    Fax: (441) 292-1373
	
     
	
     

	
     
	
     
	
     

	
     
	
     
	
     

	
     
	
     
	
     

	
     
	 	 
	
     
	 	 
	
    
    /s/ Evan Schemenauer
	 	 
	
    
    (Signature)
	 	 
	
    
    By: Evan Schemenauer, Director
	 	 
	
     
	 	 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C) 

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

  	BIOELECTRONICS CORPORATION
	a Maryland corporation
	 
	By: /s/ Andrew J. Whelan
	Name: Andrew J. Whelan
	Title: President
	 
	Dated: December 8, 2005

	
     
	
     
	
     

	
    
    SUBSCRIBER
	
    
    INITIAL CLOSING
	
    
    SECOND CLOSING

	
     
	
    
    NOTE PRINCIPAL
	
    
    NOTE PRINCIPAL

	
    
    HARBORVIEW MASTER FUND LP
	
    
    $100,000.00
	
    
    $33,333.00

	
    
    850 Third Avenue, Suite 1801
	
     
	
     

	
    
    New York, NY 10022
	
     
	
     

	
    
    Fax: (646) 218-1401
	
     
	
     

	
     
	
     
	
     

	
     
	
     
	
     

	
     
	
     
	
     

	
     
	 	 
	
     
	 	 
	
    
    /s/
	 	 
	
    
    (Signature)
	 	 
	
    
    By: Navigator Mangement Ltd.
	 	 
	
    
    Title: Authorized Signatory
	 	 
	
     
	 	 
	 	 	 

LIST OF EXHIBITS AND SCHEDULES 

	Exhibit A	Form of Note
	 	 
	Exhibit B1	Form of Class A
    Warrant
	 	 
	Exhibit B2	Form of Class B
    Warrant
	 	 
	Exhibit C	Escrow Agreement
	 	 
	Exhibit D	Form of Security
    Agreement
	 	 
	Exhibit E	Form of
    Collateral Agent Agreement
	 	 
	Exhibit F	Form of Legal
    Opinion
	 	 
	Exhibit G	Form of Form 8-K
    or Public Announcement
	 	 
	Exhibit H	Form of Limited
    Standstill Agreement
	 	 
	Schedule 5(d)	Additional
    Issuances / Capitalization
	 	 
	Schedule 5(f)	Piggy Back
    Registration Rights
	 	 
	Schedule 5(h)	Litigation
	 	 
	Schedule 5(q)	Undisclosed
    Liabilities
	 	 
	Schedule 8	Broker
	 	 
	Schedule 9(e)	Use of Proceeds
	 	 
	Schedule 9.1(q)	Limited
    Standstill Providers
	 	 
	 	 

EXHIBIT H 

LIMITED STANDSTILL AGREEMENT 

This AGREEMENT (the "Agreement") is made as of the ___ day of December, 2005,
by the signatories hereto (each a "Holder"), in connection with his ownership of
shares of BioElectronics Corporation, a Maryland corporation (the "Company").

NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which consideration are hereby acknowledged, Holder agrees as
follows: 

1. Background. 

  a. Holder is the beneficial owner of the amount of shares of the Common
  Stock, $0.001 par value, of the Company ("Common Stock") and rights to
  purchase Common Stock designated on the signature page hereto, some or all of
  which are owned by virtue of Holder's ownership of a note convertible into
  Common Stock. 

  b. Holder acknowledges that the Company has entered into or will enter into
  an agreement with each subscriber ("Subscription Agreement") to the Company's
  secured convertible promissory notes and warrants (the "Subscribers"), for the
  sale to the Subscribers of an aggregate of up to $1,000,000 of principal
  amount of secured convertible promissory notes and warrants (the "Offering").
  Holder understands that, as a condition to proceeding with the Offering, the
  Subscribers have required, and the Company has agreed to obtain an agreement
  from the Holder to refrain from selling any securities of the Company from the
  date of the Subscription Agreement until the end of the Exclusion Period as
  defined in the Subscription Agreement (the "Restriction Period"). 

2. Share Restriction. 

  a. Holder hereby agrees that during the Restriction Period, the Holder will
  not sell or otherwise dispose of any shares of Common Stock or any options,
  warrants or other rights to purchase shares of Common Stock or any other
  security of the Company which Holder owns or has a right to acquire as of the
  date hereof or acquires hereafter during the Restriction Period, other than in
  connection with an offer made to all shareholders of the Company in connection
  with any merger, consolidation or similar transaction involving the Company.
  Holder further agrees that the Company is authorized to and the Company agrees
  to place "stop orders" on its books to prevent any transfer of shares of
  Common Stock or other securities of the Company held by Holder in violation of
  this Agreement. 

  b. Any subsequent issuance to and/or acquisition of shares or the right to
  acquire shares by Holder will be subject to the provisions of this Agreement.
  

  c. The foregoing restrictions notwithstanding, the Holder may sell during
  the Restriction Period, shares of Common Stock actually owned by the Holder on
  the Initial Closing Date (as defined in the Subscription Agreement) if such
  sales are for more than $0.70 per share. In no event may more than one percent
  (1%) of the amount of shares of Common Stock actually owned by the Holder on
  the Initial Closing Date be sold during any thirty (30) day period. 

  d. Notwithstanding the foregoing restrictions on transfer, the Holder may,
  at any time and from time to time during the Restriction Period, transfer the
  Common Stock (i) as bona fide gifts or transfers by will or intestacy, (ii) to
  any trust for the direct or indirect benefit of the undersigned or the
  immediate family of the Holder, provided that any such transfer shall not
  involve a disposition for value, (iii) to a partnership which is the general
  partner of a partnership of which the Holder is a general partner, provided,
  that, in the case of any gift or transfer described in clauses (i), (ii) or
  (iii), each donee or transferee 

  agrees in writing to be bound by the terms and conditions contained herein
  in the same manner as such terms and conditions apply to the undersigned. For
  purposes hereof, "immediate family" means any relationship by blood, marriage
  or adoption, not more remote than first cousin. 

3. Miscellaneous. 

  a. At any time, and from time to time, after the signing of
  this Agreement Holder will execute such additional instruments and take such
  action as may be reasonably requested by the Subscribers to carry out the
  intent and purposes of this Agreement. 

  b. This Agreement shall be governed, construed and enforced in accordance
  with the laws of the State of New York without regard to conflicts of laws
  principles that would result in the application of the substantive laws of
  another jurisdiction, except to the extent that the securities laws of the
  state in which Holder resides and federal securities laws may apply. Any
  proceeding brought to enforce this Agreement may be brought exclusively in
  courts sitting in New York County, New York. 

  c. This Agreement contains the entire agreement of the Holder with respect
  to the subject matter hereof. 

  d. This Agreement shall be binding upon Holder, its legal representatives,
  successors and assigns. 

  e. This Agreement may be signed and delivered by facsimile and such
  facsimile signed and delivered shall be enforceable. 

  f. The Company agrees not to take any action or allow any act to be taken
  which would be inconsistent with this Agreement. 

IN WITNESS WHEREOF, and intending to be legally bound hereby, Holder has
executed this Agreement as of the day and year first above written. 

  	HOLDER:
	______________________________
	(Signature of Holder)
	 
	______________________________
	(Print Name of Holder)
	 
	______________________________
	Number of Shares of Common Stock
	Beneficially Owned
	______________________________
	Note Principal Owned on the date of
	This Agreement
	 
	COMPANY:
	 
	BIOELECTRONICS CORPORATION
	 
	By:______________________________

SCHEDULE 8 

BROKER'S FEES 

	
    
    BROKER
	
    
    BROKER'S FEE

	
    
    HUNTER WISE SECURITIES, LLC
	
    
    On each Closing Date, a fee of

	
     
	
    
    eight percent (8%) of the

	
     
	
    
    Purchase Price.

	
     
	
     

	
     
	
     

	
    
    LIBRA FINANCE, S.A.
	
    
    On each Closing Date, a fee of

	
    
    P.O. Box 4603
	
    
    two percent (2%) of the

	
    
    Zurich, Switzerland
	
    
    Purchase Price.

	
    
    Fax: 011-411-201-6262
	
     

	
     
	 

BROKER'S WARRANTS 

On each Closing Date, the Company will issue to Hunter Wise Securities, LLC,
ten (10) Warrants for each one hundred (100) Warrants issuable on each Closing
Date to the Subscribers ("Broker's
Warrants"). The per
Warrant Share exercise price to acquire a Warrant Share upon exercise of a
Broker's Warrant shall be at the Closing Price on the Principal Market in effect
on each Closing Date. The Broker's Warrants shall have a cashless exercise
provision and be exercisable until three (3) years after each Closing Date. All
the representations, covenants, warranties, undertakings, remedies, liquidated
damages, indemnification, and other rights including but not limited to
reservation requirements and registration rights made or granted to or for the
benefit of the Subscribers are hereby also made and granted to the Broker in
respect of the Broker's Warrants.

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