Document:

Exhibit 4.2

 Exhibit 4.2 
  
 CONSOLIDATED NATURAL GAS COMPANY 
 Issuer

  
 THE BANK OF NEW YORK 
 Trustee 
  

  
 Fifth Supplemental Indenture 
  
 Dated as of December 1, 2003 
  

  
 $200,000,000 
  
 2003 Series A 5.0% Senior Notes 
  
 Due March 1, 2014

  

 TABLE OF CONTENTS1 
  

	 ARTICLE I 2003 SERIES A 5.0% SENIOR NOTES
	  	1
			
	 SECTION 101.
	  	Establishment	  	1
	 SECTION 102.
	  	Definitions	  	2
	 SECTION 103.
	  	Payment of Principal and Interest	  	3
	 SECTION 104.
	  	Denominations	  	4
	 SECTION 105.
	  	Global Securities	  	5
	 SECTION 106.
	  	Optional Redemption	  	5
	 SECTION 107.
	  	Sinking Fund	  	6
	 SECTION 108.
	  	Additional Interest	  	6
	 SECTION 109.
	  	Paying Agent	  	6
		
	 ARTICLE II MISCELLANEOUS PROVISIONS
	  	6
			
	 SECTION 201.
	  	Recitals by Company	  	6
	 SECTION 202.
	  	Ratification and Incorporation of Original Indenture	  	6
	 SECTION 203.
	  	Executed in Counterparts	  	6
	 SECTION 204.
	  	Assignment	  	6

  

 1  This
Table of Contents does not constitute part of the Indenture or have any bearing upon the interpretation of any of its terms and provisions. 

 THIS FIFTH SUPPLEMENTAL INDENTURE is made as of the 1st day of December, 2003, by and between
CONSOLIDATED NATURAL GAS COMPANY, a Delaware corporation, having its principal office at 120 Tredegar Street, Richmond, Virginia 23219 (the “Company”), and THE BANK OF NEW YORK, as Trustee (herein called the “Trustee”).

  
 W I T N E S S E T H: 
  
 WHEREAS, the Company has heretofore entered into an Indenture, dated as of
April 1, 2001 (the “Original Indenture”), as heretofore supplemented and amended, with Bank One Trust Company, National Association (“Bank One”); 
  
 WHEREAS, Bank One has heretofore resigned as trustee under the Original Indenture, and the Company has appointed The Bank of
New York as Trustee under the Original Indenture; 
  
 WHEREAS, the
Original Indenture is incorporated herein by this reference and the Original Indenture, as heretofore supplemented and amended and as further supplemented by this Fifth Supplemental Indenture, is herein called the “Indenture”; 

 
 WHEREAS, under the Original Indenture, a new series of Securities may at
any time be established in accordance with the provisions of the Original Indenture and the terms of such series may be described by a supplemental indenture executed by the Company and the Trustee; 
  
 WHEREAS, the Company proposes to create under the Indenture a series of
Securities; 
  
 WHEREAS, additional Securities of other series
hereafter established, except as may be limited in the Original Indenture as at the time supplemented and modified, may be issued from time to time pursuant to the Indenture as at the time supplemented and modified; and 
  
 WHEREAS, all conditions necessary to authorize the execution and delivery of
this Fifth Supplemental Indenture and to make it a valid and binding obligation of the Company have been done or performed. 
  
 NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows: 
  
 ARTICLE I 
 2003 SERIES A 5.0% SENIOR NOTES 
  
 SECTION 101. Establishment. There is hereby established a new series
of Securities to be issued under the Indenture, to be designated as the Company’s 2003 Series A 5.0% Senior Notes Due March 1, 2014 (the “Series A Senior Notes”). 
  
 There are to be initially authenticated and delivered $200,000,000 principal amount of Series A Senior Notes, and such
principal amount of the Series A Senior Notes may be increased from time to time pursuant to Section 301 of the Original Indenture. All Series A Senior Notes 
  

 1 

 need not be issued at the same time, and such series may be reopened at any time, without the consent of any Holder, for
issuances of additional Series A Senior Notes. Any such additional Series A Senior Notes will have the same interest rate, maturity and other terms as those initially issued. Further Series A Senior Notes may be also authenticated and delivered as
provided by Sections 304, 305, 306, 905, 1107 or 1305 of the Original Indenture. 
  
 The Series A Senior Notes shall be issued in definitive fully registered form without coupons, in substantially the form set out in Exhibit A hereto. The entire initially issued principal amount of the Series A
Senior Notes shall initially be evidenced by one or more certificates issued to Cede & Co., as nominee for The Depository Trust Company. 
  
 The form of the Trustee’s Certificate of Authentication for the Series A Senior Notes shall be in substantially the form set forth in Exhibit
B hereto. 
  
 Each Series A Senior Note shall be dated the
date of authentication thereof and shall bear interest from the date of original issuance thereof or from the most recent Interest Payment Date to which interest has been paid or duly provided for. 
  
 SECTION 102. Definitions. The following defined terms used herein
shall, unless the context otherwise requires, have the meanings specified below. Capitalized terms used herein for which no definition is provided herein shall have the meanings set forth in the Original Indenture. 
  
 “Adjusted Treasury Rate” means, with respect to any Redemption
Date: (i) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated “H.15(519)” or any successor publication which is published
weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” for the
maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Remaining Life, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be
determined and the Adjusted Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month); or (ii) if such release (or any successor release) is not published during the week preceding
the calculation date or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of
its principal amount) equal to the Comparable Treasury Price for such Redemption Date. 
  
 “Business Day” means a day other than (i) a Saturday or a Sunday, (ii) a day on which banks in New York, New York are authorized or obligated by law or executive order to remain closed or (iii) a day on
which the Corporate Trust Office is closed for business. 
  
 “Comparable Treasury Issue” means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Series A Senior Notes to be redeemed that would be
utilized, at the time of selection and in 
  

 2 

 accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity
to the remaining term of such Series A Senior Notes. 
  
 “Comparable Treasury Price” means (i) the average of five Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (ii) if the Independent
Investment Banker obtains fewer than five such Reference Treasury Dealer Quotations, the average of all such quotations. 
  
 “Independent Investment Banker” means either Banc of America Securities LLC or J.P. Morgan Securities Inc. and their respective successors, as
selected by us, or if both of those firms are unwilling or unable to serve as such, an independent investment and banking institution of national standing appointed by the Company. 
  
 “Interest Payment Dates” means March 1 and September 1 of each year, commencing on March 1, 2004. 
  
 “Original Issue Date” means December 1, 2003. 
  
 “Reference Treasury Dealer” means: (i) each of Banc of America
Securities LLC and J.P. Morgan Securities Inc. and their successors; provided that, if either of the foregoing ceases to be a primary U.S. Government securities dealer in New York City (a “Primary Treasury Dealer”), the Company shall
substitute another Primary Treasury Dealer; and (ii) up to two other Primary Treasury Dealers selected by the Company. 
  
 “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined
by the Independent Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Independent Investment Banker at 5:00 p.m., New York City
time, on the third Business Day preceding such Redemption Date. 
  
 “Regular Record Date” means, with respect to each Interest Payment Date, the close of business on the Business Day preceding such Interest Payment Date; provided, that with respect to Series A Senior Notes that are not
represented by one or more Global Securities, the Regular Record Date shall be the close of business on the 15th calendar day (whether or not a Business Day) preceding such Interest Payment Date. 
  
 “Remaining Life” means the remaining term of the Series A Senior
Notes. 
  
 “Stated Maturity” means March 1, 2014.

  
 SECTION 103. Payment of Principal and Interest. The
principal of the Series A Senior Notes shall be due at the Stated Maturity (unless earlier redeemed). The unpaid principal amount of the Series A Senior Notes shall bear interest at the rate of 5.0% per annum until paid or duly provided for, such
interest to accrue from the Original Issue Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for. Interest shall be paid semi-annually in arrears on each Interest Payment Date to the Person in whose
name the Series A Senior Notes are registered on the Regular Record Date for such Interest Payment Date; provided 
  

 3 

 that interest payable at the Stated Maturity of principal as provided herein will be paid to the Person to whom principal
is payable. Any such interest that is not so punctually paid or duly provided for will forthwith cease to be payable to the Holders on such Regular Record Date and may either be paid to the Person or Persons in whose name the Series A Senior Notes
are registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee (in accordance with Section 307 of the Original Indenture), notice whereof shall be given to Holders of the Series
A Senior Notes not less than ten (10) days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange, if any, on which the Series A Senior Notes may be
listed, and upon such notice as may be required by any such exchange, all as more fully provided in the Original Indenture. 
  
 Payments of interest on the Series A Senior Notes will include interest accrued to but excluding the respective Interest Payment Dates. Interest payments
for the Series A Senior Notes shall be computed and paid on the basis of a 360-day year of twelve 30-day months. If any date on which interest is payable on the Series A Senior Notes is not a Business Day, then payment of the interest payable on
such date will be made on the next succeeding day that is a Business Day (and without any interest or payment in respect of any such delay), in each case with the same force and effect as if made on the date the payment was originally payable.

  
 Payment of the principal and interest on the Series A Senior
Notes shall be made at the office of the Paying Agent in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, with any such payment that is due at the Stated
Maturity of any Series A Senior Notes being made upon surrender of such Series A Senior Notes to the Paying Agent. Payments of interest (including interest on any Interest Payment Date) will be made, subject to such surrender where applicable, at
the option of the Company, (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) by wire transfer at such place and to such account at a banking institution in the United
States as may be designated in writing to the Trustee at least sixteen (16) days prior to the date for payment by the Person entitled thereto. If any date on which principal and interest is payable on the Series A Senior Notes is not a Business Day,
then payment of the principal and interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or payment in respect of any such delay), in each case with the same force and effect as if made
on the date the payment was originally payable. 
  
 SECTION 104.
Denominations. The Series A Senior Notes may be issued in denominations of $1,000, or any integral multiple thereof. 
  
 SECTION 105. Global Securities. The Series A Senior Notes will be issued initially in the form of one or more Global Securities registered in the
name of the Depositary (which shall be The Depository Trust Company) or its nominee. Except under the limited circumstances described below, Series A Senior Notes represented by such Global Securities will not be exchangeable for, and will not
otherwise be issuable as, Series A Senior Notes in definitive form. The Global Securities described above may not be transferred except by the 
  

 4 

 Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or to a successor Depositary or its nominee. 
  
 Owners
of beneficial interests in such a Global Security will not be considered the Holders thereof for any purpose under the Indenture, and no Global Security representing a Series A Senior Note shall be exchangeable, except for another Global Security of
like denomination and tenor to be registered in the name of the Depositary or its nominee or to a successor Depositary or its nominee or except as described below. The rights of Holders of such Global Security shall be exercised only through the
Depositary. 
  
 A Global Security shall be exchangeable for Series
A Senior Notes registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies the Company that it is unwilling or unable to continue as a Depositary for such Global Security and no successor
Depositary shall have been appointed by the Company within 90 days of receipt by the Company of such notification, or if at any time the Depositary ceases to be a clearing agency registered under the Exchange Act at a time when the Depositary is
required to be so registered to act as such Depositary and no successor Depositary shall have been appointed by the Company within 90 days after it becomes aware of such cessation, or (ii) the Company in its sole discretion determines that such
Global Security shall be so exchangeable. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Series A Senior Notes registered in such names as the Depositary shall direct. 
  
 SECTION 106. Optional Redemption. The Series A Senior Notes are
redeemable, in whole or in part, at any time, and at the option of the Company, at a Redemption Price equal to the greater of: 
  
 (i) 100% of the principal amount of Series A Senior Notes then Outstanding to be so redeemed, or 
  
 (ii) the sum of the present values of the remaining scheduled payments of
principal and interest thereon (not including any portion of such payments of interest accrued as of the Redemption Date) discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the
Adjusted Treasury Rate, plus 20 basis points, as calculated by an Independent Investment Banker, plus, in either of the above cases, accrued and unpaid interest thereon to the Redemption Date. 
  
 Unless the Company defaults in the payment of the Redemption Price, on and
after the Redemption Date, interest will cease to accrue on the Series A Senior Notes or portions thereof called for redemption. 
  
 The Adjusted Treasury Rate shall be calculated on the third Business Day preceding the Redemption Date. 
  

 5 

 In the event of the redemption of the Series A Senior Notes in part only, a new Series A Senior Note or
Notes for the unredeemed portion will be issued in the name or names of the Holders thereof upon surrender thereof. 
  
 Notice of redemption shall be given as provided in Section 1104 of the Original Indenture. 
  
 SECTION 107. Sinking Fund. The Series A Senior Notes shall not have a sinking fund. 
  
 SECTION 108. Additional Interest. Any principal of and installment of
interest on the Series A Senior Notes that is overdue shall bear interest at the rate of 5.0% (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available
for payment, and such interest shall be payable on demand. 
  
 SECTION 109. Paying Agent. The Trustee shall initially serve as Paying Agent with respect to the Series A Senior Notes, with the Place of Payment initially being the Corporate Trust Office of the Trustee. 
  
 ARTICLE II 
 MISCELLANEOUS PROVISIONS 
  
 SECTION 201. Recitals by Company. The recitals in this Fifth Supplemental Indenture are made by the Company only and not by the Trustee, and all of the provisions contained in the Original Indenture in respect
of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of the Series A Senior Notes and of this Fifth Supplemental Indenture as fully and with like effect as if set forth herein in full. 
  
 SECTION 202. Ratification and Incorporation of Original Indenture. As
supplemented hereby, the Original Indenture is in all respects ratified and confirmed, and the Original Indenture and this Fifth Supplemental Indenture shall be read, taken and construed as one and the same instrument. 
  
 SECTION 203. Executed in Counterparts. This Fifth Supplemental
Indenture may be executed in several counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. 
  
 SECTION 204. Assignment. The Company shall have the right at all times to assign any of its rights or obligations
under the Indenture with respect to the Series A Senior Notes to a direct or indirect wholly-owned subsidiary of the Company; provided that, in the event of any such assignment, the Company shall remain primarily liable for the performance of all
such obligations. The Indenture may also be assigned by the Company in connection with a transaction described in Article Eight of the Original Indenture. 
  

 6 

 IN WITNESS WHEREOF, each party hereto has caused this instrument to be signed in its name and behalf by
its duly authorized officer, all as of the day and year first above written. 
  
 CONSOLIDATED NATURAL GAS COMPANY 
  
  
 By:                                      
                                        
                                        
                   
  
 Name:                                     
                                        
                                        
              
  
 Title:                                     
                                        
                                        
                
  
  
 THE BANK OF NEW YORK 
 as Trustee 
  
  
 By:                                      
                                        
                                        
                   
  
 Name:                                     
                                        
                                        
              
  
 Title:                                     
                                        
                                        
                
  

 7 

 EXHIBIT A 
  

FORM OF 
 2003 SERIES A 5.0% SENIOR
NOTE 
 DUE MARCH 1, 2014 
  
 [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS
MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]** 
  
 [THIS SERIES A SENIOR NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SERIES A SENIOR NOTE MAY NOT BE
EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SERIES A SENIOR NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]** 
  
  

 CONSOLIDATED NATURAL 
 GAS COMPANY 

 $    ,000,000 
  
 2003 SERIES A 5.0% SENIOR NOTE 
 DUE MARCH 1,
2014 
  
 No. R-
                                        
                                        
                            CUSIP No. 209615 BZ 5 
  
 Consolidated Natural Gas Company, a corporation duly organized and existing
under the laws of Delaware (herein called the “Company”, which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to [Cede 

	**	Insert in Global Securities. 

 & Co.] **, or registered assigns (the “Holder”), the principal sum of                         
Dollars ($                        ) on March 1, 2014 and to pay interest thereon from December 1, 2003 or from the most
recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on March 1 and September 1 of each year, commencing on March 1, 2004, at the rate of 5.0% per annum, until the principal hereof is paid or
made available for payment, provided that any principal, and any such installment of interest, that is overdue shall bear interest at the rate of 5.0% per annum (to the extent that the payment of such interest shall be legally enforceable), from the
dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such
Indenture, be paid to the Person in whose name this Series A Senior Note (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the close of business on the
Business Day preceding such Interest Payment Date, provided, that with respect to Series A Senior Notes that are not represented by one or more Global Securities, the Regular Record Date shall be the close of business on the 15th calendar day
(whether or not a Business Day) next preceding such Interest Payment Date; and provided further, that interest payable at the Stated Maturity of principal will be paid to the Person to whom principal is payable. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Series A Senior Note (or one or more Predecessor Securities) is registered at
the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Series A Senior Notes not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Series A Senior Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in
said Indenture. 
  
 Payment of the principal of and any such
interest on this Series A Senior Note will be made at the office of the Paying Agent, in the Borough of Manhattan, City and State of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for
payment of public and private debts, with any such payment that is due at the Stated Maturity of any Series A Senior Note being made upon surrender of such Series A Senior Note to such office or agency; provided, however, that at the option of the
Company payment of interest, subject to such surrender where applicable, may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) by wire transfer at such place and
to such account at a banking institution in the United States as may be designated in writing to the Trustee at least sixteen (16) days prior to the date for payment by the Person entitled thereto. 
  
  
  

  

 2 

 Reference is hereby made to the further provisions of this Series A Senior Note set forth on the reverse
hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. 
  
 Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Series A
Senior Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 
  
 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. 
  

	Dated:	 	 	 	 	 	Consolidated Natural Gas Company
					
	 	 	 	 	 By:
	 	 	 	 
	 	 	 	 	 	

					
	 	 	 	 	 	 	 Name:
	 	 
	 	 	 	 	 	 	 	

					
	 	 	 	 	 	 	Title:	 	 
	 	 	 	 	 	 	 	

  

 3 

 [REVERSE OF SERIES A SENIOR NOTE] 
  
 This Security is one of a duly authorized issue of securities of the Company (herein called the “Securities”),
issued and to be issued in one or more series under an Indenture, dated as of April 1, 2001, as heretofore supplemented and amended and as further supplemented by a Fifth Supplemental Indenture dated as of December 1, 2003 (collectively, as amended
or supplemented from time to time, herein called the “Indenture”, which term shall have the meaning assigned to it in such instrument), between the Company and The Bank of New York, successor trustee to Bank One Trust Company, National
Association, as Trustee (herein called the “Trustee”, which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof (the
“Series A Senior Notes”) which is unlimited in aggregate principal amount. 
  
 The Series A Senior Notes are redeemable, in whole or in part, at any time, in the manner and with the effect provided in the Indenture. 
  
 If an Event of Default with respect to Series A Senior Notes shall occur and be continuing, the principal of the Series A
Senior Notes may be declared due and payable in the manner and with the effect provided in the Indenture. 
  
 The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time
Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all
Securities of such series, to waive certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Series A Senior Note shall be conclusive and binding upon such Holder and upon all future Holders
of this Series A Senior Note and of any Series A Senior Note issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Series A Senior Note.

  
 As provided in and subject to the provisions of the Indenture,
the Holder of this Series A Senior Note shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously
given the Trustee written notice of a continuing Event of Default with respect to the Series A Senior Notes, the Holders of not less than a majority in principal amount of the Series A Senior Notes at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the 
  

 4 

 Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount
of Series A Senior Notes at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not
apply to any suit instituted by the Holder of this Series A Senior Note for the enforcement of any payment of principal hereof or premium, if any, or interest hereon on or after the respective due dates expressed or provided for herein. 

 
 No reference herein to the Indenture and no provision of this Series A
Senior Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Series A Senior Note at the times, place and rate, and in the
coin or currency, herein prescribed. 
  
 As provided in the
Indenture and subject to certain limitations therein set forth, the transfer of this Series A Senior Note is registrable in the Security Register, upon surrender of this Series A Senior Note for registration of transfer at the office or agency of
the Company in any place where the principal of, premium, if any, and interest on this Series A Senior Note are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Series A Senior Notes and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued
to the designated transferee or transferees. 
  
 The Series A
Senior Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Series A Senior Notes are exchangeable
for a like aggregate principal amount of Series A Senior Notes having the same Stated Maturity and of like tenor of any authorized denominations as requested by the Holder upon surrender of the Series A Senior Note or Series A Senior Notes to be
exchanged at the office or agency of the Company. 
  
 No service
charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. 
  
 Prior to due presentment of this Series A Senior Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Series A Senior Note be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the contrary. 
  
 All terms used in this Series A Senior Note that are defined in the Indenture shall have the meanings assigned to them in the Indenture. 
  

 5 

 ABBREVIATIONS 
  
 The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to
applicable laws or regulations: 
  

	 TEN COM—  
	 	as tenants in common	 	 
			
	 TEN ENT—  
	 	as tenants by the entireties	 	 
			
	 JT TEN—  
	 	as joint tenants with rights of survivorship and not as tenants in common	 	 
			
	 UNIF GIFT MIN ACT—  
	 	
	 	Custodian
	 	 	 For
 (Cust)
  
  
	 	 
			
	 	 	
	 	 
	 	 	(Minor)	 	 
			
	 	 	 Under Uniform Gifts to Minors Act of
  
  
	 	 
			
	 	 	
	 	 
	 	 	(State)	 	 

  
 Additional abbreviations may also be
used though not on the above list.              
  

  

 6 

 FOR VALUE RECEIVED, the undersigned hereby sell(s) and transfer(s) unto
                             (please insert Social Security or other identifying number of assignee).

  

  

  

  
 PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF ASSIGNEE 
  
 the within Series A Senior Note and all rights thereunder, hereby irrevocably constituting
and appointing 
  

  

  

  
  

  

  

  
 agent to transfer said Series A Senior Note on the books of the Company, with full power of substitution in the premises. 
  
 Dated: ______________________ __, ____ 
  
  
 ------------------------------------------------------------------------ 
  
  

NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular without alteration or
enlargement, or any change whatever. 
  

 7 

 EXHIBIT B 
 CERTIFICATE OF AUTHENTICATION 
  
  
 This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. 
  
  
  

	 Dated: December 1, 2003
	 	 	 	 THE BANK OF NEW YORK,
 as
Trustee
  

					
	 	 	 	 	 	 	By:	 	 
	 	 	 	 	 	 	 	

	 	 	 	 	 	 	 	 	Authorized Signatory

  

 8<PAGE>

                                  EXHIBIT 4.104

                           API ELECTRONICS GROUP INC.

                             SUBSCRIPTION AGREEMENT

<PAGE>

                                        1

                           API ELECTRONICS GROUP INC.

                             SUBSCRIPTION AGREEMENT

                                            DATED the 31st day of January, 2003.

TO: API ELECTRONICS GROUP INC. (the "Corporation")

RE: Subscription for and Purchase of Units of the Corporation

     References below to "this Subscription Agreement" are to be read as
references to the agreement resulting from the Corporation's acceptance of your
offer. All dollar amounts referred to herein are in United States dollars.

     The Purchased Securities (as hereinafter defined) may be subject to
statutory hold periods during which they may not be resold, as well as certain
other statutory restrictions on resale. Subscribers are advised to consult their
own legal advisers in connection with any applicable resale restrictions.

1. Definitions

     In this Subscription Agreement:

     (a)  "Closing" has the meaning ascribed in Section 6 of this Subscription
          Agreement;

     (b)  "Closing Date" means February 6, 2003, or such earlier or later date
          as the Corporation and Subscriber shall mutually agree;

     (c)  "Closing Time" means 2:00 p.m. on the Closing Date, or such earlier or
          later time as the Corporation and Subscriber shall mutually agree;

     (d)  "Common Shares" means common shares in the capital stock of the
          Corporation;

     (e)  "Corporation" means API Electronics Group Inc.;

     (f)  "Purchased Securities" means the Common Shares and Warrants comprising
          the Purchased Units and the Common Shares issuable upon the exercise
          of such Warrants;

     (g)  "Purchased Units" means 125,000 Units in the capital stock of the
          Corporation;

     (h)  "Subscriber" means Eusibio Mario Lopez Perez;

     (i)  "Subscription Price" means US$0.40 per Unit;

     (j)  "Total Subscription Price" means US$50,000 (125,000 Units x US$0.40
          per Unit);

<PAGE>

                                       2

     (k)  "Unit" means one (1) Common Share issued for US$0.40 and one-half
          (1/2) Warrant; and

     (l)  "Warrant" means a purchase warrant granting the right to purchase one
          Common Share at a purchase price of US$0.60 per Common Share
          exercisable for a period of two (2) years after Closing, all as more
          particularly set out in and in substantially the form attached hereto
          as Exhibit "B".

2. Purchase of Units

     The undersigned (the "Subscriber") hereby irrevocably subscribes for and
agrees to purchase from the Corporation, subject to the terms and conditions set
forth herein, the Purchased Units in consideration of payment of the Total
Subscription Price.

3. Acknowledgements of the Subscriber

     Subscriber acknowledges and agrees that:

     (a)  It has not received an offering memorandum or similar document and
          that its decision to enter into this Subscription Agreement and to
          purchase the Purchased Units has not been made upon any verbal or
          written representation as to fact or otherwise made by the Corporation
          or any other person associated therewith and that its decision is
          based entirely upon publicly available information concerning the
          Corporation and the representations of the Corporation contained
          herein, including the documents delivered in connection herewith.

     (b)  The distribution of the Purchased Units is being made on a private
          placement basis and has not been qualified pursuant to the securities
          laws of any province or territory of Canada, and any transaction
          involving the Purchased Units in any province or territory of Canada
          may constitute a violation of applicable Canadian provincial
          securities legislation unless carried out pursuant to an applicable
          exemption therefrom.

     (c)  It has been independently advised or is otherwise aware that any
          resale of the Purchased Securities is subject to certain resale
          restrictions provided for in certain securities legislation of the
          provinces and territories of Canada. The Purchased Securities are
          subject to statutory "hold periods" during which they may not be
          resold, except pursuant to a further statutory exemption from the
          applicable prospectus and distribution requirements under securities
          legislation, or unless an appropriate discretionary order is obtained
          pursuant to applicable security laws. It has been advised and afforded
          the full opportunity to consult with its own legal and other
          professional advisors in connection with any applicable re-sale
          restrictions.

     (d)  It has been independently advised that the Purchased Units are being
          offered for sale only on a "private placement" basis and that the sale
          and delivery of the Purchased Securities underlying the Purchased
          Units to the Subscriber is

<PAGE>

                                       3

          conditional upon such sale being exempt from the requirement to file a
          prospectus under any applicable law governing the sale of such
          securities or upon the issuance of such orders, consents or approvals
          as may be required to permit such sale without the requirement of
          filing a prospectus.

     (e)  It has further been independently advised as to applicable resale
          restrictions in the jurisdiction in which it resides, confirms that no
          representation has been made to it by or on behalf of the Corporation
          with respect thereto, acknowledges that it is aware of the
          characteristics of the Purchased Securities underlying the Purchased
          Units, the risks relating to an investment therein and of the fact
          that it may not be able to resell the Purchased Securities underlying
          the Purchased Units except in accordance with exemptions under
          applicable securities legislation and regulatory policy.

     (f)  The Subscriber acknowledges that the Purchased Units are subject to
          the terms, conditions and provisions of this Subscription Agreement.

     (g)  A prospectus will not be filed by the Corporation to qualify the
          Purchased Securities or any of them.

     (h)  The Purchased Securities shall be subject to a forty-one (41) day hold
          period in the U.S., pursuant to "Category 2" of Regulation S under the
          U.S. Securities Act of 1933, as amended, which period shall commence
          from the date of issuance, and the certificates representing the same
          shall be engrossed with the following legend, which shall be the only
          legend engrossed on such certificates relating to resale in the U.S.:

"The securities represented by this certificate may not be sold, transferred,
hypothecated or otherwise traded until               , 2003, pursuant to
                                       --------------
"Category 2" of Regulation S under the U.S. Securities Act of 1933, as amended."

4. Closing

     Delivery and payment for the Purchased Units (the "Closing") will be
completed at the offices of the Corporation's legal counsel, Messrs. WeirFoulds
LLP, The Exchange Tower, Suite 1600, 130 King Street West, Toronto, Ontario M5X
1J5 at the Closing Time on the Closing Date.

     The Subscriber acknowledges that certificates representing the Purchased
Securities comprising the Purchased Units will be available for delivery as soon
as practicable after the Closing Date.

5. Payment

     Payment for the Purchased Units shall be made at the Closing Time on the
Closing Date and shall be made in United States currency by certified cheque or
bank draft drawn on a US

<PAGE>

                                       4

bank and payable to the Corporation's solicitors, WeirFoulds LLP, in Trust or by
direct wire into the trust account maintained by WeirFoulds LLP.

6. Delivery and Payment

     The parties agree that the following shall be delivered to WeirFoulds LLP
at 130 King Street West, Suite 1600, The Exchange Tower, Toronto, Ontario, M5X
1J5, Attention: Wayne T. Egan, not later than 12:00 noon (Toronto time) on the
Closing Date or such other time, date and/or place as the Corporation may
advise:

     (a)  a completed and duly signed copy of this Subscription Agreement,
          including, as to the Subscriber only, Exhibit "A" attached hereto
          (being a direction with respect to registration and delivery
          instructions);

     (b)  as to the Corporation only, the Purchased Units; and

     (c)  as to the Subscriber only, a certified cheque or bank draft made
          payable to WeirFoulds LLP, In Trust, in same day freely transferable
          US funds at par in Toronto, or wired directly into the trust account
          maintained by WeirFoulds LLP, representing payment of the Total
          Subscription Price for the Purchased Units, net of any other amounts
          to be paid otherwise upon written instructions from the Corporation.

7. Conditions of Closing

     The Subscriber acknowledges and agrees that as the sale of the Purchased
Units will not be qualified by a prospectus, such sale is subject to the
condition that the Subscriber execute and return to the Corporation all relevant
documentation required by applicable securities legislation, regulations and
policies. Accordingly, the Subscriber agrees to:

     (a)  provide the Corporation with such information and documents, including
          certificates, statutory declarations and undertakings, as the
          Corporation may reasonably require from time to time to comply with
          any filing or other requirements under applicable provincial
          securities legislation and policies; and

     (b)  comply with the provisions of any applicable securities legislation
          and policies with respect thereto concerning any resale of the
          Purchased Securities.

8. Prospectus Exemptions

     The Subscriber acknowledges and agrees that the sale and delivery of the
Purchased Securities comprising the Purchased Units to the Subscriber are
conditional upon such sale being exempt from the requirements as to the filing
of a prospectus and as to the delivery of an offering memorandum as defined in
the applicable securities legislation or upon the issuance of such rulings,
orders, consents or approvals as may be required to permit such sale without the
requirement of filing a prospectus or delivering an offering memorandum.

<PAGE>

                                       5

     In this regard, the Subscriber acknowledges and agrees that: (a) it was not
provided with, has not requested, and does not need to receive, a prospectus or
an offering memorandum as defined in the applicable securities legislation or
similar document; (b) its decision to execute this Subscription Agreement and to
purchase the Purchased Units has not been based upon any verbal or written
representations as to fact or otherwise made by or on behalf of the Corporation
and that, other than the representations of the Corporation contained herein,
including the documents delivered in connection herewith, its decision is based
entirely upon publicly available information concerning the Corporation; (c) the
sale of the Purchased Units was not accompanied by any advertisement in printed
media of general and regular paid circulation, radio or television; (d) it has
been advised and has been afforded full opportunity to consult its own legal and
other professional advisors with respect to all applicable resale restrictions
relating to the Purchased Securities and it is solely responsible (and the
Corporation is not in any way responsible) for compliance with any and all
applicable resale restrictions.

9. Representations, Warranties and Covenants of the Subscriber

     The Subscriber hereby represents and warrants to and covenants with the
Corporation, acknowledging that the Corporation is relying upon such
representations, warranties and covenants in making its decision to enter into
this Subscription Agreement that:

     (a)  if the Subscriber sells the Purchased Securities, it will comply with
          the securities legislation of the jurisdiction in which said
          Subscriber resides;

     (b)  the purchase of the Purchased Units by the Subscriber does not
          contravene any of the applicable securities legislation in the
          jurisdiction in which it is resident and does not trigger (i) any
          obligation to prepare and file a prospectus or similar document, or
          any other report with respect to such purchase, and (ii) any
          registration or other obligation on the part of the Corporation;

     (c)  the Subscriber is incorporated under the laws of, or is a resident of,
          Mexico (and, without limiting the generality of the foregoing, is not
          a "U.S. Person" (as defined in Rule 902(o) of Regulation S
          ("Regulation S") promulgated by the United States Securities and
          Exchange Commission and meaning, generally, any natural person
          resident in the United States, any corporation or partnership
          incorporated or organized under the laws of the United States, or any
          estate or trust of which any executor, administrator or trustee is a
          U.S. Person), and the Subscriber is not purchasing the Purchased Units
          for the account or benefit of any U.S. Person or for offering, resale
          or delivery for the account or benefit of any U.S. Person or for the
          account of any person in any jurisdiction other than the jurisdiction
          set out in the name and address of the Subscriber below and the
          Subscriber does not have any agreement or understanding (either
          written or oral) with any U.S. Person or a person in the jurisdiction
          referenced above in this Section 9(c):

          (i)  the transfer or assignment of any rights or interest in any of
               the Purchased Securities underlying the Purchased Units; or

<PAGE>

                                       6

          (ii) the division of profits, losses, fees, commissions, or any
               financial stake in connection with this subscription;

     (d)  no offer of Purchased Units was made to the Subscriber in the "United
          States" (as defined in Regulation S under the U.S. Securities Act) and
          the Subscriber did not execute this Subscription Agreement in the
          United States;

     (e)  the activities of the Subscriber contemplated hereunder are not a
          scheme to avoid the registration requirements of the U.S. Securities
          Act;

     (f)  the Subscriber has no intention to distribute, and shall not transfer,
          either directly or indirectly, until after 41 days from the Closing
          Date, any of the Purchased Securities to any person within the United
          States or to "U.S. Persons" (as defined in Regulation S under the U.S.
          Securities Act);

     (g)  the Subscriber is at arm's length to and is not an "insider" (as such
          term is defined by the Securities Act (Ontario)) of the Corporation;

     (h)  the Subscriber is duly incorporated, organized and validly subsisting
          under the laws of the jurisdiction of its incorporation;

     (i)  this Subscription Agreement has been duly authorized, executed and
          delivered by, and constitutes a legal, valid, binding and enforceable
          obligation of, the Subscriber or the beneficial subscriber for whom
          the Subscriber is purchasing;

     (j)  the Subscriber is capable of assessing the proposed investment
          contemplated herein as a result of the Subscriber's experience and
          financial and business acumen or as a result of advice received from a
          registered person other than the Corporation or any affiliates
          thereof, and is capable of evaluating the merits and risks of its
          investment herein and is able to bear the economic risk of loss of its
          entire investment; and

     (k)  the entering into of this Subscription Agreement and the completion of
          the transaction contemplated hereby will not result in the violation
          of any of the terms and provisions of any law applicable to, or the
          constating documents of the Subscriber or of any agreement, written or
          oral, to which the Subscriber is a party or by which the Subscriber is
          bound.

10. Representations and Warranties and Covenants of the Corporation

     The Corporation represents and warrants to and covenants with the
Subscriber, acknowledging that the Subscriber is relying upon such
representations, warranties and covenants in making its decision to enter into
this Subscription Agreement, as follows:

     (a)  it is a company duly amalgamated and organized under the laws of the
          Province of Ontario and is presently in good standing thereunder;

<PAGE>

                                       7

     (b)  the Corporation has full power and authority to enter into this
          Subscription Agreement and to perform the same and do all other acts
          which may be necessary to consummate the transaction contemplated
          hereby;

     (c)  the Common Shares to be issued to the Subscriber hereunder on the
          Closing Date and upon exercise of the Warrants comprising the
          Purchased Units shall be at the time of issuance by the Corporation
          validly issued and outstanding as fully paid and non-assessable Common
          Shares;

     (d)  this Subscription Agreement has been duly executed and delivered by
          the Corporation and is a valid agreement enforceable in accordance
          with its terms;

     (e)  the Corporation is a reporting issuer in good standing under the
          securities laws of the Province of Ontario and its Common Shares are
          listed on the OTC Bulletin Board;

     (f)  the entering into of this Subscription Agreement and the completion of
          the transaction contemplated hereby will not result in the violation
          of any of the terms and provisions of any law applicable to, or the
          constating documents of the Corporation or of any agreement, written
          or oral, to which the Corporation is a party or by which the
          Corporation is bound

     (g)  the Corporation has publicly disclosed all material changes in its
          affairs and since its last public announcement, there has not been a
          material adverse change in the affairs or business of the Corporation;

     (h)  the activities of the Corporation contemplated hereunder are not a
          scheme to avoid the registration requirements of the U.S. Securities
          Act;

     (i)  the Corporation will use its best efforts to cause its Common Shares
          to continue to be registered under Section 12(b) or (g) of the U.S.
          Securities Exchange Act of 1934, as amended (the "Exchange Act"), will
          use its best efforts to comply in all respects with its reporting and
          filing obligations under the Exchange Act, and will not take any
          action or file any document (whether or not permitted by the Exchange
          Act or the rules thereunder) to terminate or suspend such registration
          or to terminate or suspend its reporting and filing obligations under
          the Exchange Act until 270 calendar days after the Closing; and

     (j)  the Corporation hereby agrees to use its best efforts to either
          maintain the listing of the Common Shares on the OTC Bulletin Board or
          complete application and listing on another U.S. market or exchange
          until 270 days after the Closing. The Corporation further agrees, if
          the Corporation applies to have the Common shares traded on any other
          U.S. market, it will include in such application the Purchased
          Securities, if possible to do so, as promptly as possible.

<PAGE>

                                       8

11. Resale Restrictions and Compliance with Securities Legislation

     The Subscriber acknowledges that the Purchased Securities of the
Corporation are being issued pursuant to prospectus and registration exemptions
and, accordingly, are subject to certain resale restrictions as provided in such
securities legislation; provided, however, there shall be no restriction on
resale in the U.S. by the Subscriber beginning 41 days after the Closing Date.
The Corporation and Subscriber each agree to make such filings and to do all
such things necessary to comply with any applicable requirements in relation to
the issuance of Purchased Securities of the Corporation hereunder.

12. Costs

     The parties acknowledge and agree that each party shall pay its own costs
and expenses (including any fees and disbursements of professionals or any
special counsel retained by such party) relating to the purchase of the
Purchased Units.

13. Further Assurances

     The parties hereto covenant and agree to execute and deliver such further
agreements, documents and writings and provide such further assurances as may be
required by the parties to give effect to this Subscription Agreement and, in
particular, to do all acts and things to execute and deliver all documents,
agreements and writings and provide such assurances, undertakings, information
and investment letters, as may be required from time to time by all regulatory
or governmental bodies or stock exchanges having jurisdiction over the
Corporation's affairs.

14. Public Disclosures

     The Corporation will not issue any public announcement, press release or
public document or otherwise concerning the Subscriber and its purchase of the
Purchased Units hereunder without having provided Subscriber with a copy of such
disclosure before release, and incorporating all reasonable comments of
Subscriber into such disclosure, subject to the Corporation taking all necessary
steps which in the opinion of its counsel are necessary to fulfill the
Corporation's obligations to issue timely and complete disclosure of all
material changes in its affairs.

15. Notices

     Any notice to be given by either party to the other will be deemed to be
given when in writing and delivered by hand or communicated by telecopier on any
business day to the address for notice of the intended recipient. The address
for notice of each of the parties will, until changed, be as set forth in this
Subscription Agreement. A party may give notice to the other party of a change
of its address for notice to some other address and will so change its address
for notice whenever the existing address for notice ceased to be adequate for
delivery by hand or communication by telecopier.

<PAGE>

                                       9

16. References

     In this Subscription Agreement a reference to:

     (a)  a statute or code includes every regulation made thereunder from time
          to time, all amendments to the statute, code or to any such regulation
          in force from time to time, and any statute, code or regulation which
          supplements or supersedes such statute, code or any such regulation;
          and

     (b)  any entity includes any entity that is a successor or permitted
          assignee to such entity.

17. Number and Gender

     Wherever the singular and the neuter are used throughout this Subscription
Agreement, the same shall be construed as meaning the plural or the feminine or
masculine or a body corporate where the context or the parties so require.

18. Governing Law

     This Subscription Agreement is governed by the laws of the Province of
Ontario and the federal laws of Canada applicable therein. The Subscriber, in
its personal or corporate capacity and, if applicable, on behalf of each
beneficial subscriber for whom it is acting, irrevocably attorns to the
jurisdiction of the courts of the Province of Ontario.

19. Assignment

     The obligations under this Subscription Agreement are not transferable or
assignable by the parties hereto. The benefits under this Subscription Agreement
are transferable and assignable by the parties hereto, subject to applicable law
and the prior written consent of the other parties.

20. Entire Subscription Agreement

     This Subscription Agreement contains the entire agreement of the parties
hereto relating to the subject matter hereof and there are no representations,
covenants or other agreements relating to the subject matter hereof except as
stated or referred to herein.

<PAGE>

                                       10

21. Facsimile Deliveries

     The parties shall be entitled to rely on delivery of a facsimile
transmission of an executed copy of this Subscription Agreement, including the
completed Schedules hereto, and such facsimile copies shall be legally effective
to create a valid and binding agreement between the Subscriber and the
Corporation in accordance with the terms hereof. This Subscription Agreement may
be executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument.

22. Successors and Assigns

     Except as otherwise expressly provided herein, this Subscription Agreement
shall enure to the benefit of and shall be binding upon each of the parties
hereto and their respective successors and permitted assigns, if any, and the
heirs, executors, administrators and permitted assigns of natural persons who
are or become a party hereto.

23. Survival

     This Subscription Agreement, including, without limitation, the
representations, warranties and covenants contained herein, shall survive and
continue in full force and effect and be binding upon the parties
notwithstanding the completion of the purchase of the Purchased Units and any
subsequent disposition by the Subscriber of the Purchased Securities.

24. Amendments

     The provisions of this Subscription Agreement may be amended in writing
upon the written consent of each of the parties hereto.

25. Language

     The parties hereto confirm their express wish that this Subscription
Agreement and all documents, agreements and notices directly or indirectly
relating thereto be drawn up in the English language.

     Les parties confirment leur volonte expresse que la presente convention
ainsi que tous les documents, contrats et avis s'y rattachant directement ou
indirectement soient rediges en anglais.

26. Time of the Essence

     Time shall be of the essence in this Subscription Agreement and each and
every part hereof.

<PAGE>

NUMBER OF UNITS TO BE PURCHASED
AT US$0.40 EACH:                  125,000 Units

TOTAL SUBSCRIPTION PRICE:         $50,000

None                              Eusibio Mario Lopez Perez
Social Insurance Number or        (Name of Subscriber - please type or
Corporation Tax Account Number    print)
(as appropriate)

                                  /s/ Eusibio Mario Lopez Perez
                                  ----------------------------------------------
                                  (Signature and, if applicable, Office of
                                  Subscriber)

                                  Address of Subscriber:

                                  21 Washington Ave
                                  Suffern, NY 10901

                                  Telephone and Facsimile Number of Subscriber:

                                  845 357-9800
                                  (Telephone Number of Subscriber)

                                  (Fax) 845 357 5753
                                  (Facsimile Number of Subscriber)

                               A C C E P T A N C E

     The above-mentioned Subscription Agreement is hereby accepted and agreed to
by the Corporation.

     DATED at Toronto, Ontario, the      day of                     , 2003.
                                    ----        --------------------

                                        API ELECTRONICS GROUP INC.

                                        Per: /s/ Jason DeZwirek
                                             -----------------------------------
                                             Name:
                                             Title:

<PAGE>

                                   EXHIBIT "A"

                           API ELECTRONICS GROUP INC.
                             Subscription Agreement

--------------------------------------------------------------------------------
API ELECTRONICS GROUP INC.

Dear Sirs:

      Re: API Electronics Group Inc. -
          Private Placement of Units of the Corporation comprised of one (1)
          Common Share and one-half (1/2) Warrant

1.        Delivery - Please deliver the Common Share and Warrant certificates
          to:

          Address: 21 Washington Ave
                   Suffern, NY 10901

          Fax:     845-357-5753

2.        Registration - Registration of the single certificate which is to be
          delivered at closing should be made out as follows:

          Eusibio Mario Lopez Perez
          (Name)

          21 Washington Ave, Suffern, NY 10901
          (Address)

          845-357-9800         845-357-5753
          (Telephone Number)   (Facsimile Number)

DATED the 31st day of January, 2003.

                                       Eusibio Mario Lopez Perez
                                       (Name of Subscriber)

                                       Per: /s/ Eusibio Mario Lopez Perez
                                            ------------------------------------
                                            (signature)

                                            ------------------------------------
                                            (office or position of person
                                             signing, if applicable)

<PAGE>

                                   EXHIBIT "B"

NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE STATE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PURSUANT TO REGULATION S AND
SUCH OTHER SECURITIES LAWS. THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF
ANY U.S. PERSON, AS SUCH TERM IS DEFINED IN RULE 902 OF REGULATION S OF THE
SECURITIES ACT, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE
UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE LAWS INCLUDING
REGULATIONS.

                             STOCK PURCHASE WARRANT

                  To Purchase 62,500 Shares of Common Stock of

                           API ELECTRONICS GROUP INC.

          THIS CERTIFIES that, for value received, Eusibio Mario Lopez Perez
(the "Holder"), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after
                       , 2003 (the "Initial Exercise Date") and on or prior to
-----------------------
the close of business on the final calendar day of the 24th month after the
Initial Exercise Date (the "Termination Date") but not thereafter, to subscribe
for and purchase from API Electronics Group Inc., a corporation incorporated
under the laws of Ontario, Canada (the "Company"), up to 62,500 common shares
(the "Warrant Shares"), no par value per share, of the Company (the "Common
Stock"). The purchase price of one share of Common Stock (the "Exercise Price")
under this Warrant shall be US$0.60. The Exercise Price and the number of
Warrant Shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Subscription Agreement
(the "Purchase Agreement"), dated January 31st, 2003, between the Company and
the Holder.

<PAGE>

1. Title to Warrant. Prior to the Termination Date and subject to compliance
with applicable laws, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the Holder in person
or by duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.

2. Authorization of Shares. The Company covenants that all Warrant Shares which
may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights represented by this Warrant,
be duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other than taxes
in respect of any transfer occurring contemporaneously with such issue).

3. Exercise of Warrant.

     (a) Except as provided in Section 4 herein, exercise of the purchase rights
represented by this Warrant may be made at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by the surrender of
this Warrant and the Notice of Exercise Form annexed hereto duly executed, at
the office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) and upon payment of the
Exercise Price of the shares thereby purchased by wire transfer or cashier's
check drawn on a United States bank, or by means of a cashless exercise, the
Holder shall be entitled to receive a certificate for the number of Warrant
Shares so purchased. Certificates for shares purchased hereunder shall be
delivered to the Holder within three (3) Trading Days after the date on which
this Warrant shall have been exercised as aforesaid. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment to
the Company of the Exercise Price and all taxes required to be paid by the
Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have
been paid.

     (b) If this Warrant shall have been exercised in part, the Company shall,
at the time of delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased Warrant Shares called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.

     (c) Notwithstanding anything herein to the contrary, in no event shall the
Holder be permitted to exercise this Warrant for Warrant Shares to the extent
that (i) the number of shares of Common Stock owned by such Holder (other than
Warrant Shares issuable upon exercise of this Warrant) plus (ii) the number of
Warrant Shares issuable upon exercise of this Warrant, would be equal to or
exceed 4.999% of the number of shares of Common Stock then issued and
outstanding, including shares issuable upon exercise of this Warrant held by
such Holder after application of this Section 3(c). As used herein, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act. To the extent that the limitation contained in this Section 3(c) applies,
the determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder) and of which a portion of this Warrant is
exercisable

                                       2

<PAGE>

shall be in the sole discretion of such Holder, and the submission of a Notice
of Exercise shall be deemed to be such Holder's determination of whether this
Warrant is exercisable (in relation to other securities owned by such Holder)
and of which portion of this Warrant is exercisable, in each case subject to
such aggregate percentage limitation, and the Company shall have no obligation
to verify or confirm the accuracy of such determination. Nothing contained
herein shall be deemed to restrict the right of a Holder to exercise this
Warrant into Warrant Shares at such time as such exercise will not violate the
provisions of this Section 3(c). The provisions of this Section 3(c) may be
waived by the Holder upon, at the election of the Holder, not less than 61 days'
prior notice to the Company, and the provisions of this Section 3(c) shall
continue to apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver). No exercise of this
Warrant in violation of this Section 3(c) but otherwise in accordance with this
Warrant shall affect the status of the Warrant Shares as validly issued,
fully-paid and nonassessable.

4. No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise Price.

5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.

6. Closing of Books. The Company will not close its stockholder books or records
in any manner which prevents the timely exercise of this Warrant.

7. Transfer, Division and Combination.

     (a) Subject to compliance with any applicable securities laws, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company, together with a written
assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. In the event that the
Holder wishes to transfer a portion of this Warrant, the Holder shall transfer
at least                shares underlying this Warrant to any such transferee.
         --------------
Upon such surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A
Warrant, if properly assigned,

                                       3

<PAGE>

may be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued. Notwithstanding the above, the Holder shall not
transfer this Warrant or any rights hereunder to any person or entity which is
then engaged in a business that is in the reasonable judgement of the Company is
in direct competition with the Company.

     (b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney. Subject to
compliance with Section 7(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.

     (c) The Company shall prepare, issue and deliver at its own expense (other
than transfer taxes) the new Warrant or Warrants under this Section 7.

     (d) The Company agrees to maintain, at its aforesaid office, books for the
registration and the registration of transfer of the Warrants.

8. No Rights as Shareholder until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof. Upon the surrender of this Warrant and the payment
of the aggregate Exercise Price or by means of a cashless exercise, the Warrant
Shares so purchased shall be and be deemed to be issued to such Holder as the
record owner of such shares as of the close of business on the later of the date
of such surrender or payment.

9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the Company will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.

10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.

11. Adjustments of Exercise Price and Number of Warrant Shares/Stock Splits,
etc. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of any of the following. In case the Company shall (i) pay a
dividend in shares of Common Stock or make a distribution in shares of Common
Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock into a greater number of shares, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, or (iv) issue any shares of its capital stock in a reclassification of
the Common Stock, then the

                                       4

<PAGE>

number of Warrant Shares purchasable upon exercise of this Warrant immediately
prior thereto shall be adjusted so that the Holder shall be entitled to receive
the kind and number of Warrant Shares or other securities of the Company which
it would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the Holder shall thereafter be entitled to purchase the number of
Warrant Shares or other securities resulting from such adjustment at an Exercise
Price per Warrant Share or other security obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
resulting from such adjustment. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.

12. Reorganization, Reclassification, Merger, Consolidation or Disposition of
Assets. In case the Company shall reorganize its capital, reclassify its capital
stock, consolidate or merge with or into another corporation (where the Company
is not the surviving corporation or where there is a change in or distribution
with respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of all or substantially all its property, assets or business to another
corporation and, pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, shares of common stock of the
successor or acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common stock of
the successor or acquiring corporation ("Other Property"), are to be received by
or distributed to the holders of Common Stock of the Company, then the Holder
shall have the right thereafter to receive, at their option, (a) upon exercise
of this Warrant, the number of shares of Common Stock of the successor or
acquiring corporation or of the Company, if it is the surviving corporation, and
Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event, or (b) cash equal to the value of this Warrant
as determined in accordance with the Black-Sholes option pricing formula. In
case of any such reorganization, reclassification, merger, consolidation or
disposition of assets, the successor or acquiring corporation (if other than the
Company) shall expressly assume the due and punctual observance and performance
of each and every covenant and condition of this Warrant to be performed and
observed by the Company and all the obligations and liabilities hereunder,
subject to such modifications as may be deemed appropriate (as determined in
good faith by resolution of the Board of Directors of the Company) in order to
provide for adjustments of Warrant Shares for which this Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 12. For purposes of this Section 12, "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 12 shall

                                       5

<PAGE>

similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.

13. Voluntary Adjustment by the Company. The Company may at any time during the
term of this Warrant reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the Board of Directors of the
Company.

14. Notice of Adjustment. Whenever the number of Warrant Shares or number or
kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
Holder notice of such adjustment or adjustments setting forth the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made. Such notice, in the absence of manifest error,
shall be conclusive evidence of the correctness of such adjustment.

15. Notice of Corporate Action. If at any time:

     (a) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, or
any right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property, or to receive
any other right, or

     (b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,

     (c) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to

                                       6

<PAGE>

Holder at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 17(d).

16. Authorized Shares. The Company covenants that during the period the Warrant
is outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will take all
such reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the principal market upon which the Common
Stock may be listed.

     The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.

     Before taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof,
or consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof.

17. Miscellaneous.

     (a) Jurisdiction. This Warrant shall constitute a contract under the laws
of Ontario, without regard to its conflict of law, principles or rules, and be
subject to arbitration pursuant to the terms set forth in the Purchase
Agreement.

     (b) Restrictions. The Holder acknowledges that the Warrant Shares acquired
upon the exercise of this Warrant, if not registered, will have restrictions
upon resale imposed by state and federal securities laws.

     (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on

                                       7

<PAGE>

the Termination Date. If the Company willfully and knowingly fails to comply
with any provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to Holder such amounts as shall be sufficient to
cover any costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.

     (d) Notices. Any notice, request or other document required or permitted to
be given or delivered to the Holder by the Company shall be delivered in
accordance with the notice provisions of the Purchase Agreement.

     (e) Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of Holder, shall give rise to any liability
of Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

     (f) Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.

     (g) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.

     (h) Amendment. This Warrant may be modified or amended or the provisions
hereof waived with the written consent of the Company and the Holder.

     (i) Severability. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Warrant.

     (j) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

                             *********************

                                       8

<PAGE>

          IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.

Dated:                       , 2003
       ----------------------

                                          API ELECTRONICS GROUP INC.

                                          By:
                                              ----------------------------------
                                              Name: JASON DEZWIREK
                                              Title: Chairman

                                       9

<PAGE>

                               NOTICE OF EXERCISE

To: API Electronics Group Inc.

     (1) The undersigned hereby elects to purchase 62,500 Warrant Shares (the
"Common Stock"), of API Electronics Group Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.

     (2) Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is specified
below:

          Eusibio Mario Lopez Perez

The Warrant Shares shall be delivered to the following:

          21 Washington Ave

          Suffern, NY 10901

                                     -------------------------------------------
                                     (Name of Subscriber - please type or print)

                                     By: /s/ Eusibio Mario Lopez Perez
                                         ---------------------------------------
                                         Name: Eusibio Mario  Lopez Perez
                                         Title:

                                     Dated: 1/31/03

<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

          FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to

                                                        whose address is
-------------------------------------------------------

--------------------------------------------------------------------------------
                                                                               .
-------------------------------------------------------------------------------

Dated:                ,
       ---------------  -------

Holder's Signature:
                    --------------------------------
Holder's Address:
                    --------------------------------

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

Signature Guaranteed:
                      -----------------------------------------

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.

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