Document:

BioElectronics Corporation: Exhibit 10.12 - Prepared by TNT Filings Inc.

Exhibit 10.12 

SUBSCRIPTION AGREEMENT 

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

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

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

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

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

1.      Closings. 

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

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(b)    
Second Closing. The closing date in relation to the remaining up to Two
Hundred and Fifty Thousand Dollars ($250,000) of the Purchase Price (the "Second
Closing Purchase Price") shall be the third (3rd) Business Day
after the Actual Effective Date [as defined in Section 11.1(iv)] (the "Second
Closing Date"). Subject to the satisfaction or waiver of the Company's
conditions to closing on the Second Closing Date, each Subscriber shall purchase
and the Company shall sell to each Subscriber a Note in the principal amount
designated on the signature page hereto ("Second Closing Notes") and
Warrants as described in Section 2 of this Agreement ("Second Closing
Warrants"). The aggregate Purchase Price of the Second Closing Notes for all
Subscribers shall be equal to the Second Closing Purchase Price. The Second
Closing Notes shall be nearly identical to the Notes issuable on the Initial
Closing Date and have the same maturity date as the Initial Closing Notes. The
Conversion Price (defined in Section 2.1 (b) of the Note) of the Second Closing
Notes shall be the same as the Conversion Price of the Initial Closing Notes.

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

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

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

3.      
Security Interest. The Subscribers will be granted a security interest in
certain assets of the Company and Subsidiaries, if any, as defined in Section
5(a) of this Agreement, including ownership of the Subsidiaries, to be
memorialized in a "Security Agreement", a form of which is 

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annexed hereto as Exhibit D. As of the Initial Closing Date, the
Company does n not have any Subsidiaries. The Company will execute such other
agreements, documents and financing statements reasonably requested by
Subscribers, which will be filed at the Company's expense with such
jurisdictions, states and counties designated by the Subscribers. The Company
will also execute all such documents reasonably necessary in the opinion of
Subscriber to memorialize and further protect the security interest described
herein. The Subscribers will appoint a Collateral Agent to represent them
collectively in connection with the security interest to be granted to the
Subscribers. The appointment will be pursuant to a "Collateral Agent
Agreement", a form of which is annexed hereto as Exhibit E. 

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

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

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

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

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

(e)    
Information on Subscriber. The Subscriber is on the Initial Closing Date,
and will be at the Second Closing Date and at the time of the conversion of the
Notes and exercise of the 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(d)    
Additional Issuances. There are no outstanding agreements or preemptive
or similar rights affecting the Company's common stock or equity and no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with respect to the
sale or issuance of any shares of common stock or equity of the Company or other
equity interest in any of the Subsidiaries of the Company except as described on

Schedule 5(d). The Common Stock of
the Company on a fully diluted basis outstanding as of the last trading day
preceding the Initial Closing Date is set forth on Schedule 5(d). 

(e)    
Consents. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its Affiliates, any Principal Market (as defined in Section 9(b) of
this Agreement), nor the Company's shareholders is required for the execution by
the Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Securities. 

(f)    
No Violation or Conflict. Assuming the representations and warranties of
the Subscribers in Section 4 are true and correct, neither the issuance and sale
of the Securities nor the 

6

performance of the Company's obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company will: 

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

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

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

(iv)     except as described on

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

(g)    
The Securities. The Securities upon issuance: 

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

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

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

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

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

(h)    
Litigation. There is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would affect the 

7

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

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

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

(k)    
Information Concerning Company. The Reports contain all material
information relating to the Company and its operations and financial condition
as of their respective dates and all the information required to be disclosed
therein. Since the date of the most recent financial statements included in the
Reports ("Latest
Financial Date"), and except as modified in the Other Written Information or
in the Schedules hereto, there has been no Material Adverse Event relating to
the Company's business, financial condition or affairs not disclosed in the
Reports. The Reports do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances when made.

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

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

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

8

referred to in Section 6 hereof, relied upon in this Offering or the
Company's ability to timely comply with its obligations hereunder. 

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

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

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

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

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

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

(u)   

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

(v)    
DTC Status. The Company's transfer agent is eligible to participate in,
and the Common Stock is eligible for transfer pursuant to, the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email of the Company's transfer agent is
Holladay Stock Transfer, Inc., 2939 North 67th Place, Scottsdale, 

9

Arizona 85251, fax: 480-481-3941, email: hstransfer1@qwest.net.

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

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

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

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

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

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

7.1.   
Conversion of Note. 

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

10

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

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

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

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

11

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

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

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

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

12

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

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

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

8.        
Broker/Legal Fees. 

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

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

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

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

(b)     Listing.
The Company shall promptly secure the listing of the shares of Common Stock and
the Warrant Shares upon each national securities exchange, or electronic or 

13

automated quotation system upon which they are or become
eligible for listing and shall maintain such listing so long as any Notes or
Warrants are outstanding. Not later than one day following the Actual Effective
Date, the Company will maintain the listing of its Common Stock on the American
Stock Exchange, Nasdaq SmallCap Market, Nasdaq National Market System, OTC
Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock (the "Principal
Market")), and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market,
as applicable. The Company will provide the Subscribers copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market. As of the date of this Agreement, the
Pink Sheets is the Principal Market. 

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

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

(e)     Use of
Proceeds. The proceeds of the Offering will be employed by the Company for
the purposes generally set forth on 

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

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

14

(g)     Taxes. From the
date of this Agreement and until the Conversion or satisfaction of the Note in
its entirety the Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore. 

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

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

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

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

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

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

15

Closing Date. In the Form 8-K or public announcement, the
Company will specifically disclose the amount of common stock outstanding
immediately after the Closing. A form of the proposed Form 8-K or public
announcement to be employed in connection with the Closing is annexed hereto as
Exhibit G. No Form 8-K shall be filed if or to the extent that such
filing would jeopardize the exemption from registration relied upon for the
transactions contemplated herein. 

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

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

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

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

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

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

16

accordance with generally accepted accounting principles; (b) carriers',
warehousemen's, mechanics', materialmen's, repairmen's and other like Liens
imposed by law, arising in the ordinary course of business and securing
obligations that are not overdue by more than 30 days or that are being
contested in good faith and by appropriate proceedings; (c) pledges and deposits
made in the ordinary course of business in compliance with workers'
compensation, unemployment insurance and other social security laws or
regulations; (d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business; (e) Liens created with respect to the financing of the purchase of new
property in the ordinary course of the Company's business up to the amount of
the purchase price of such property, (f) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property, or (g) security interests disclosed on Schedule B to the Security
Agreement (each of (a) through (g), a "Permitted Lien"). 

10.      Covenants of the
Company and Subscriber Regarding Indemnification. 

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

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

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

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

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

(i)      On one
occasion, for a period commencing one hundred and sixteen (116) days after the
Initial Closing Date, but not later than two (2) years after the last Closing
Date, upon a written request therefor from the holders of more than 50% of the
Shares issued and issuable upon conversion of the outstanding Notes and
outstanding Warrant Shares, the Company shall prepare and file with the
Commission a registration statement under the 1933 Act registering the
Registrable Securities, as defined in Section 11.1(iv) hereof, which are the
subject of such request for unrestricted public resale by 

17

the holder thereof. For purposes of Sections 11.1(i) and
11.1(ii), Registrable Securities shall not include Securities which are (A)
registered for resale in an effective registration statement, (B) included for
registration in a pending registration statement, or (C) which have been issued
without further transfer restrictions after a sale or transfer pursuant to Rule
144 under the 1933 Act. Upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within ten (10) days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have exercised
their demand registration right under this Section 11.1(i). 

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

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

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

18

benefit of each Subscriber and Warrant holder, pro rata, and not
issued, employed or reserved for anyone other than each such Subscriber and
Warrant holder. The Registration Statement will promptly be amended or
additional registration statements will be promptly filed by the Company as
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Except with the written consent of the Subscribers, or as described
on Schedule 11.1 hereto, no securities of the Company other than the Registrable
Securities will be included in the Registration Statement. It shall be deemed a
Non-Registration Event if at any time after the date the Registration Statement
is declared effective by the Commission ("Actual Effective Date") the
Company has registered for unrestricted resale on behalf of the Sellers fewer
than 125% of the amount of Common Shares issuable upon full conversion of all
sums due under the Notes and 100% of the Warrant Shares issuable upon exercise
of the Warrants. 

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

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

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

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

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

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

19

(f)     notify the
Subscribers within four hours of the Company's becoming aware that a prospectus
relating thereto is required to be delivered under the 1933 Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing or which becomes
subject to a Commission, state or other governmental order suspending the
effectiveness of the registration statement covering any of the Shares; and 

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

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

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

20

to Commission comments is a Non-Registration Event for which
Liquidated Damages shall accrue and be payable by the Company to the holders of
Registrable Securities at the same rate set forth above. Notwithstanding
anything else in this Section 11.4, the Company shall not be liable to the
Subscriber under this Section 11.4 for any events or delays occurring as a
consequence of the acts or omissions of the Subscribers contrary to the
obligations undertaken by Subscribers in this Agreement. Liquidated Damages will
not accrue nor be payable pursuant to this Section 11.4 nor will a
Non-Registration Event be deemed to have occurred for times during which
Registrable Securities are transferable by the holder of Registrable Securities
pursuant to Rule 144(k) under the 1933 Act. 

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

11.6.   Indemnification and
Contribution. 

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

(b)     In the event
of a registration of any of the Registrable Securities under the 1933 Act
pursuant to Section 11, each Seller severally but not jointly will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company 

21

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

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

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

22

securities offered by the registration statement bears to the
public offering price of all securities offered by such registration statement,
provided, however, that, in any such case, (y) the Seller will not be required
to contribute any amount in excess of the public offering price of all such
securities sold by it pursuant to such registration statement; and (z) no person
or entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation. 

11.7.   Delivery of
Unlegended Shares. 

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

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

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

(d)     In addition
to any other rights available to a Subscriber, if the Company 

23

fails to deliver to a Subscriber Unlegended Shares as required pursuant to
this Agreement, within seven (7) business days after the Unlegended Shares
Delivery Date and the Subscriber purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Subscriber of the shares of Common Stock which the Subscriber was entitled to
receive from the Company (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate purchase price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In. 

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

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

24

Offering. In the event such terms and conditions are modified
during the notice period, the Subscribers shall be given prompt notice of such
modification and shall have the right during the seven (7) business days
following the notice of modification to exercise such right. 

(b)     Offering Restrictions.
Until the expiration of the Exclusion Period and during the pendency of an Event
of Default, except for the Excepted Issuances, the Company will not enter into
an agreement to nor issue any convertible debt or other securities convertible
into common stock or equity of the Company nor modify any of the foregoing which
may be outstanding at anytime, without the prior written consent of at least 50%
of the Subscribers except for the current private placement for up to $1,500,000
as more fully described on Schedule 12(b). For so
long as the Notes are outstanding, the Company will not enter into any equity
line of credit or similar agreement, nor issue nor agree to issue any floating
or variable priced equity linked instruments nor any of the foregoing or equity
with price reset rights.. 

(c)     Favored Nations
Provision. Other than in connection with the Excepted Issuances, if at any
time Notes or Warrants are outstanding the Company shall offer, issue or agree
to issue any Common Stock or securities convertible into or exercisable for
shares of Common Stock (or modify any of the foregoing which may be outstanding)
to any person or entity at a price per share or conversion or exercise price per
share which shall be less than the Conversion Price in respect of the Shares, or
if less than the Warrant exercise price in respect of the Warrant Shares,
without the consent of each Subscriber holding Notes, Shares, Warrants, or
Warrant Shares, then the Company shall issue, for each such occasion, additional
shares of Common Stock to each Subscriber so that the average per share purchase
price of the shares of Common Stock issued to the Subscriber (of only the Common
Stock or Warrant Shares still owned by the Subscriber) is equal to such other
lower price per share and the Conversion Price and Warrant exercise price shall
automatically be adjusted as provided in the Notes and the Warrants. The average
Purchase Price of the Shares and average exercise price in relation to the
Warrant Shares shall be calculated separately for the Shares and Warrant Shares.
The foregoing calculation and issuance shall be made separately for Shares
received upon conversion and separately for Warrant Shares. The delivery to the
Subscriber of the additional shares of Common Stock shall be not later than the
closing date of the transaction giving rise to the requirement to issue
additional shares of Common Stock. The Subscriber is granted the registration
rights described in Section 11 hereof in relation to such additional shares of
Common Stock except that the Filing Date and Effective Date vis-à-vis such
additional common shares shall be, respectively, the thirtieth (30th)
and one hundred twentieth (120th) date after the closing date giving
rise to the requirement to issue the additional shares of Common Stock. For
purposes of the issuance and adjustment described in this paragraph, the
issuance of any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in the issuance of the additional shares of
Common Stock upon the sooner of the written agreement to or actual issuance of
such convertible security, warrant, right or option and again at any time upon
any subsequent issuances of shares of Common Stock upon exercise of such
conversion or purchase rights if such issuance is at a price lower than the
Conversion Price or Warrant exercise price in effect upon such issuance. The
rights of the Subscriber set forth in this Section 12 are in addition to any
other rights the Subscriber has pursuant to this Agreement, the Note, any
Transaction Document, and any other agreement referred to or entered into in
connection herewith. 

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

25

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

13.     
Miscellaneous. 

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

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

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

(d)     Law
Governing this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to conflicts
of laws principles that would result in the application of the substantive laws
of another jurisdiction. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement 

26

shall be brought only in the civil or state courts of New York or in the
federal courts located in New York County. The parties and the
individuals executing this Agreement and other agreements referred to herein or
delivered in connection herewith on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Agreement or
any other agreement delivered in connection herewith is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement. 

(e)     Specific Enforcement,
Consent to Jurisdiction. The Company and Subscriber acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to one or more preliminary and final injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
any of them may be entitled by law or equity. Subject to Section 13(d) hereof,
each of the Company, Subscriber and any signator hereto in his personal capacity
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction in New York of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Nothing
in this Section shall affect or limit any right to serve process in any other
manner permitted by law. 

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

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

27

a presumption that the Subscribers are in any way acting in concert or as a
group with respect to the Transaction Documents or the transactions contemplated
thereby. 

 

28

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A) 

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

	 	BIOELECTRONICS CORPORATION
	 	a Maryland corporation
	 	 
	 	By: /s/ Andrew J. Whelan                              
    
	 	
    Name: Andrew J. Whelan

	 	
    Title: President

	 	
     

	 	
    Dated: December 8, 2005

 

	
    SUBSCRIBER	
    INITIAL CLOSING	
    SECOND CLOSING
	 	
    NOTE PRINCIPAL	
    NOTE PRINCIPAL
	
    ALPHA CAPITAL AKTIENGESELLSCHAFT	
    $400,000.00	
    $133,334.00
	
    Pradafant 7	 	 
	
    9490 Furstentums	 	 
	
    Vaduz, Lichtenstein	 	 
	
    Fax: 011-42-32323196	 	 
	 	 	 
	 	 	 
	
    /s/ Konrad Ackerman                               
    	 	 
	
    (Signature)	 	 
	
    By: Konrad Ackerman	 	 

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B) 

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

	 	BIOELECTRONICS CORPORATION
	 	a Maryland corporation
	 	 
	 	By: /s/ Andrew J. Whelan                              
    
	 	
    Name: Andrew J. Whelan

	 	
    Title: President

	 	
     

	 	
    Dated: December 8, 2005

 

	
    SUBSCRIBER	
    INITIAL CLOSING	
    SECOND CLOSING
	 	
    NOTE PRINCIPAL	
    NOTE PRINCIPAL
	
    WHALEHAVEN CAPITAL FUND LIMITED	
    $250,000.00	
    $83,333.00
	
    3rd Floor,
    14 Par-Laville Road	 	 
	
    Hamilton, Bermuda HM08	 	 
	
    Fax: (441) 292-1373	 	 
	 	 	 
	 	 	 
	
    /s/ Evan Schemenauer                               
    	 	 
	
    (Signature)	 	 
	
    By: Evan Schemenauer, Director	 	 

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C) 

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

	 	BIOELECTRONICS CORPORATION
	 	a Maryland corporation
	 	 
	 	By: /s/ Andrew J. Whelan                              
    
	 	
    Name: Andrew J. Whelan

	 	
    Title: President

	 	
     

	 	
    Dated: December 8, 2005

 

	
    SUBSCRIBER	
    INITIAL CLOSING	
    SECOND CLOSING
	 	
    NOTE PRINCIPAL	
    NOTE PRINCIPAL
	
    HARBORVIEW MASTER FUND LP	
    $100,000.00	
    $33,333.00
	
    850 Third Avenue, Suite
    1801	 	 
	
    New York, NY 10022	 	 
	
    Fax: (646) 218-1401	 	 
	 	 	 
	 	 	 
	
    /s/                                                     
    	 	 
	
    (Signature)	 	 
	
    By: Navigator Mangement
    Ltd.	 	 
	
    Title: Authorized
    Signatory	 	 

 

LIST OF EXHIBITS
AND SCHEDULES

	
    Exhibit A
	Form of Note
	
     
	 
	
    Exhibit B
	Form of Warrant
	
     
	 
	
    Exhibit C
	Escrow Agreement
	
     
	 
	
    Exhibit D
	Form of Security Agreement
	
     
	 
	
    Exhibit E
	Form of Collateral Agent Agreement
	
     
	 
	
    Exhibit F
	Form of Legal Opinion
	
     
	 
	
    Exhibit G
	Form of Form 8-K or Public Announcement
	
     
	 
	
    Exhibit H
	Form of Limited Standstill Agreement
	
     
	 
	
    Schedule 1(b)
	Financial Statements
	
     
	 
	
    Schedule 5(d)
	Additional Issuances / Capitalization
	
     
	 
	
    Schedule 5(q)
	Undisclosed Liabilities
	
     
	 
	
    Schedule 8
	Broker
	
     
	 
	
    Schedule 9(e)
	Use of Proceeds
	
     
	 
	
    Schedule 9.1(q)
	Limited Standstill Providers
	
     
	 
	
    Schedule 12(b)
	Buckman, Buchman & Reid Private Placement

 

EXHIBIT A 

FORM OF NOTE 

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

	Principal Amount: $                     
    	
    Issue Date: December           
    
    , 2005

SECURED CONVERTIBLE PROMISSORY NOTE 

FOR VALUE RECEIVED, BIOELECTRONICS CORPORATION, a
Maryland corporation (hereinafter called "Borrower"), hereby promises to pay to
ALPHA CAPITAL AKTIENGESELLSCHAFT, Pradafant 7, 9490 Furstentums, Vaduz,
Lichtenstein, Fax: 011-42-32323196, (the "Holder") or its registered assigns or
successors in interest or order, without demand, the sum of
[__________________________________] Dollars ($___________) ("Principal
Amount"), on December ____, 2007 (the "Maturity Date"), if not sooner paid. 

This Note has been entered into pursuant to the terms
of a subscription agreement between the Borrower, the Holder and certain other
holders (the "Other Holders") of convertible promissory notes (the "Other
Notes"), dated of even date herewith (the "Subscription Agreement"), and shall
be governed by the terms of such Subscription Agreement. Unless otherwise
separately defined herein, all capitalized terms used in this Note shall have
the same meaning as is set forth in the Subscription Agreement. The following
terms shall apply to this Note: 

ARTICLE I 

INTEREST; AMORTIZATION 

1.1.    
Interest Rate. Subject to Section 5.7 hereof, interest payable on this
Note shall accrue at a rate per annum (the "Interest Rate") of eight percent
(8%). Interest on the Principal Amount shall accrue from the date of this Note
and shall be payable commencing six months from the date of this Note and
monthly thereafter and on the Maturity Date, whether by acceleration or
otherwise. 

1.2.     Minimum Monthly
Principal Payments. Amortizing payments of the outstanding Principal Amount
of this Note shall commence on the nine month anniversary date of this Note and
on the same day of each month thereafter (each a "Repayment Date") until the
Principal Amount has been repaid in full, whether by the payment of cash or by
the conversion of such Principal Amount and interest into Common Stock pursuant
to the terms hereof. Subject to Section 2.1 and Article 3 below, on each
Repayment Date, the Borrower shall make payments to the Holder in an amount
equal to one-sixteenth of the initial Principal Amount, and any other amounts
which are then owing under this Note that have not been paid (collectively, the
"Monthly Amount"). Amounts of conversions of Principal Amount made by the Holder
or Borrower pursuant to Section 2.1 or Article III and amounts redeemed pursuant
to Section 2.3 of this Note shall be applied first against outstanding fees and
damages, then to Monthly Amounts commencing with the Monthly Amount first
payable and then Monthly Amounts thereafter in chronological 

order. Any Principal Amount and any other sum arising under this
Note and the Subscription Agreement that remains outstanding on the Maturity
Date shall be due and payable on the Maturity Date. 

1.3.     Default
Interest Rate. Following the occurrence and during the continuance of an
Event of Default (as defined in Article IV), which, if susceptible to cure is
not cured within twenty (20) days, otherwise then from the first date of such
occurrence, the annual interest rate on this Note shall (subject to Section 5.7)
be fifteen percent (15%). Such interest shall be due and payable on the Maturity
Date, accelerated or otherwise. 

ARTICLE II 

CONVERSION REPAYMENT 

2.1.     Payment
of Monthly Amount in Cash or Common Stock. Subject to Section 3.2 hereof,
the Borrower shall pay the Monthly Amount, at the Borrower's election, in either
of the following manners: (i) in cash within three (3) business days after the
applicable Repayment Date, or (ii) in registered Common Stock at an applied
conversion rate equal to the lesser of (A) the Fixed Conversion Price (as
defined in section 3.1 hereof), or (B) eighty-five percent (85%) of the VWAP (as
defined below) as reported by Bloomberg L.P. for the Principal Market for the
ten trading days preceding such Repayment Date. Unless waived by the Holder, the
Borrower may not elect to pay a Monthly Amount due on a Repayment Date in Common
Stock in an amount of shares of Common Stock which would exceed in the aggregate
for all Holders of Notes similar to this Note, twenty-five percent (25%) of the
aggregate daily trading volume for the seven trading days preceding the
Repayment Date as reported by Bloomberg L.P. for the Principal Market multiplied
by the VWAP for such seven day period. Amounts paid with shares of Common Stock
must be delivered to the Holder not later than three (3) business days after the
applicable Repayment Date. The Borrower must send notice to the Holder by
confirmed telecopier not later than 6:00 PM, New York City time on the fifth
trading day preceding a Repayment Date notifying Holder of Borrower's election
to pay the Monthly Redemption Amount in cash or Common Stock. Elections by the
Borrower must be made to all Other Holders in proportion to the relative Note
principal held by the Holder and the Other Holders. If such notice is not timely
sent or if the Monthly Redemption Amount is not timely delivered, then Holder
shall have the right, instead of the Company, to elect at any time after the
applicable Repayment Date whether to be paid in cash or Common Stock. Such
Holder's election shall not be construed to be a waiver of any default by
Borrower relating to non-timely compliance by Borrower with any of its
obligations under this Note. "VWAP" shall mean the sum of the dollars traded for
every purchase and sale of the Common Stock on the Principal Market (determined
as the price per share of Common Stock at which such purchase and sale occurred
multiplied by the number of shares of Common Stock so purchased and sold)
divided by the total shares of Common Stock traded during the period. 

2.2.     No
Effective Registration. Notwithstanding anything to the contrary herein, no
amount payable hereunder may be paid in shares of Common Stock by the Borrower
without the Holder's consent unless (a) either (i) an effective current
Registration Statement covering the shares of Common Stock to be issued in
satisfaction of such obligations exists, or (ii) an exemption from registration
of the resale of shares of Common Stock to be issued in satisfaction of such
obligations is available pursuant to Rule 144(k) of the 1933 Act, (b) no Event
of Default hereunder (or an event that with the passage of time or the giving of
notice could become an Event of Default), has occurred or is otherwise waived in
writing by the Holder in whole or in part at the Holder's option, and (c) the
Principal Market is either the OTC Bulletin Board, American Stock Exchange, Nasdaq SmallCap Market, Nasdaq National Market, or New York Stock Exchange
("Listing Condition") from and after thirty (30) days prior to a Repayment Date.

2.3.     
Mandatory Conversion. Provided an Event of Default (or an event that with
the passage of time or the giving of notice could become an Event of Default)
has not occurred, then commencing after the date the Registration Statement
described in Section 11.1(iv) of the Subscription Agreement has been declared
effective ("Actual Effective Date"), the Borrower will have the option by 

written notice to the Holder ("Notice of Mandatory Conversion") of compelling
the Holder to convert the outstanding and unpaid principal of this Note into
Common Stock at the Fixed Conversion Price then in affect ("Mandatory
Conversion"). The Notice of Mandatory Conversion may only be given within three
(3) business days following a consecutive ten (10) day trading period ("Lookback
Period") during which the closing bid price for the Borrower's Common Stock as
reported by Bloomberg, LP for the OTC Bulletin Board, American Stock Exchange or Nasdaq SmallCap Market is more than $1.00 each day during the Lookback Period.
The date the Notice of Mandatory Conversion is given is the "Mandatory
Conversion Date." The Notice of Mandatory Conversion shall specify the aggregate
principal amount of the Note which is subject to Mandatory Conversion. Mandatory
Conversion Notices must be given proportionately to all Holders of Notes who
received Notes similar in terms and tenure as this Note. The maximum aggregate
amount for all Notices of Mandatory Conversion that may be given for each
Mandatory Conversion Date may not exceed 25% of the daily trading volume for the
seven (7) trading days preceding the Mandatory Conversion Date multiplied by the
VWAP as reported by Bloomberg L.P. for the OTC Bulletin Board, American Stock
Exchange or Nasdaq SmallCap Market for such seven day trading period. A Notice
of Mandatory Conversion may not be given unless the Registration Statement (as
defined in the Subscription Agreement) has been effective for the unrestricted
public resale of the Registrable Securities (as defined in the Subscription
Agreement) each day during the Lookback Period. The Borrower shall reduce the
amount of Note principal subject to a Notice of Mandatory Conversion by the
amount of Note Principal for which the Holder had delivered a Notice of
Conversion to the Borrower during the twenty (20) trading days preceding the
Mandatory Conversion Date. The amount of Note principal included in a Mandatory
Redemption Notice shall be further reduced to an amount that would not cause the
Holder to exceed the limitation described in Section 3.2 of this Note. A further
Mandatory Conversion Notice may not be given until thirty (30) trading days have
elapsed from the preceding Mandatory Conversion Date. Each Mandatory Conversion
Date shall be a deemed Conversion Date and the Borrower will be required to
deliver the Common Stock issuable pursuant to a Mandatory Conversion Notice in
the same manner and time period as described in Section 2.1 above. 

ARTICLE III 

CONVERSION RIGHTS 

3.1.   Holder's Conversion Rights.
Subject to Section 3.2, the Holder shall have the right, but not the obligation,
to convert all or any portion of the then aggregate outstanding Principal Amount
of this Note, together with interest and fees due hereon, and any sum arising
under the Subscription Agreement, and the Transaction Documents, including but
not limited to Liquidated Damages, into shares of Common Stock, subject to the
terms and conditions set forth in this Article III, at the rate of $0.25 per
share of Common Stock ("Fixed Conversion Price"), as the same may be adjusted
pursuant to this Note and the Subscription Agreement. The Holder may exercise
such right by delivery to the Borrower of a written Notice of Conversion
pursuant to Section 3.3. 

3.2.   Conversion Limitation. The
Holder shall not be entitled to convert on a Conversion Date that amount of the
Note in connection with that number of shares of Common Stock which would be in
excess of the sum of (i) the number of shares of Common Stock beneficially owned
by the Holder and its affiliates on a Conversion Date, (ii) any Common Stock
issuable in connection with the unconverted portion of the Note, and (iii) the
number of shares of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Holder and
its affiliates of more than 4.99% of the outstanding shares of Common Stock of
the Borrower on such Conversion Date. For the purposes of the provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder
shall not be limited to aggregate conversions of only 4.99% and aggregate
conversion by the Holder may exceed 4.99%. The Holder shall have the authority
and obligation to determine whether the restriction contained in this Section
3.2 will limit any conversion hereunder and to the extent that the 

Holder determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may waive the conversion
limitation described in this Section 3.2, in whole or in part, upon and
effective after 61 days prior written notice to the Borrower. The Holder may
decide whether to convert a Note or exercise Warrants to achieve an actual 4.99%
ownership position. 

3.3.   Mechanics of Holder's Conversion.

(a)     In the event that the
Holder elects to convert any amounts outstanding under this Note into Common
Stock, the Holder shall give notice of such election by delivering an executed
and completed notice of conversion (a "Notice of Conversion") to the Borrower,
which Notice of Conversion shall provide a breakdown in reasonable detail of the
Principal Amount, accrued interest and amounts being converted. The original
Note is not required to be surrendered to the Borrower until all sums due under
the Note have been paid. On each Conversion Date (as hereinafter defined) and in
accordance with its Notice of Conversion, the Holder shall make the appropriate
reduction to the Principal Amount, accrued interest and fees as entered in its
records. Each date on which a Notice of Conversion is delivered or telecopied to
the Borrower in accordance with the provisions hereof shall be deemed a
"Conversion Date." A form of Notice of Conversion to be employed by the Holder
is annexed hereto as Exhibit A. 

(b)     Pursuant to the terms of
a Notice of Conversion, the Borrower will issue instructions to the transfer
agent accompanied by an opinion of counsel (if so required by the Borrower's
transfer agent), and, except as otherwise provided below, shall cause the
transfer agent to transmit the certificates representing the Conversion Shares
to the Holder by crediting the account of the Holder's designated broker with
the Depository Trust Corporation ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system within three (3) business days after receipt by the
Borrower of the Notice of Conversion (the "Delivery Date"). In the case of the
exercise of the conversion rights set forth herein, the conversion privilege
shall be deemed to have been exercised and the Conversion Shares issuable upon
such conversion shall be deemed to have been issued upon the date of receipt by
the Borrower of the Notice of Conversion. The Holder shall be treated for all
purposes as the beneficial holder of such shares of Common Stock, or, in the
case that Borrower delivers physical certificates as set forth below, the record
holder of such shares of Common Stock, unless the Holder provides the Borrower
written instructions to the contrary. Notwithstanding the foregoing to the
contrary, the Borrower or its transfer agent shall only be obligated to issue
and deliver the shares to the DTC on the Holder's behalf via DWAC (or
certificates free of restrictive legends) if the registration statement
providing for the resale of the shares of Common Stock issuable upon the
conversion of this Note is effective and the Holder has complied with all
applicable securities laws in connection with the sale of the Common Stock,
including, without limitation, the prospectus delivery requirements and has
provided representations accordingly. In the event that Conversion Shares cannot
be delivered to the Holder via DWAC, the Borrower shall deliver physical
certificates representing the Conversion Shares by the Delivery Date to an
address designated by Holder in the U.S. 

3.4.    Conversion Mechanics.

(a)     The number of shares of
Common Stock to be issued upon each conversion of this Note pursuant to this
Article III shall be determined by dividing that portion of the Principal Amount
and interest and fees to be converted, if any, by the then applicable Fixed
Conversion Price. 

(b)     The Fixed Conversion
Price and number and kind of shares or other securities to be issued upon
conversion shall be subject to adjustment from time to time upon the happening
of certain events while this conversion right remains outstanding, as follows:

A.     
Merger, Sale of Assets, etc. If the Borrower at any time shall consolidate
with or merge into or sell or convey all or substantially all its assets to any
other corporation, this Note, as to the unpaid principal portion thereof and
accrued interest thereon, shall thereafter be deemed to evidence 

the right to convert into such number and kind of shares or other securities
and property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion right immediately prior to such
consolidation, merger, sale, or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale, or
conveyance. 

B.     Reclassification, etc.
If the Borrower at any time shall, by reclassification or otherwise, change the
Common Stock into the same or a different number of securities of any class or
classes, this Note, as to the unpaid principal portion hereof and accrued
interest hereon, shall thereafter be deemed to evidence the right to convert
into an adjusted number of such securities and kind of securities as would have
been issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other change. 

C.     Stock Splits,
Combinations and Dividends. If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, or if a
dividend is paid on the Common Stock in shares of Common Stock, the Conversion
Price shall be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of shares, in
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event. 

D.     Share Issuance. So
long as this Note is outstanding, if the Borrower shall issue any Common Stock
except for the Excepted Issuances (as defined in the Subscription Agreement),
prior to the complete conversion or payment of this Note, for a consideration
less than the Fixed Conversion Price that would be in effect at the time of such
issue, then, and thereafter successively upon each such issuance, the Fixed
Conversion Price shall be reduced to such other lower issue price. For purposes
of this adjustment, the issuance of any security or debt instrument of the
Borrower carrying the right to convert such security or debt instrument into
Common Stock or of any warrant, right or option to purchase Common Stock shall
result in an adjustment to the Fixed Conversion Price upon the issuance of the
above-described security, debt instrument, warrant, right, or option and again
upon the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights if such issuance is at a price lower than the then applicable
Conversion Price. The reduction of the Fixed Conversion Price described in this
paragraph is in addition to the other rights of the Holder described in the
Subscription Agreement. 

(c)     Whenever the Conversion
Price is adjusted pursuant to Section 3.4(b) above, the Borrower shall promptly
mail to the Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a statement of the facts requiring such adjustment.

3.5.  Reservation. During
the period the conversion right exists, Borrower will reserve from its
authorized and unissued Common Stock not less than one hundred seventy-five
percent (175%) of the number of shares to provide for the issuance of Common
Stock upon the full conversion of this Note. Borrower represents that upon
issuance, such shares will be duly and validly issued, fully paid and
non-assessable. Borrower agrees that its issuance of this Note shall constitute
full authority to its officers, agents, and transfer agents who are charged with
the duty of executing and issuing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the conversion of this
Note. 

3.6   
Issuance of Replacement Note. Upon any partial conversion of this Note, a
replacement Note containing the same date and provisions of this Note shall, at
the written request of the Holder, be issued by the Borrower to the Holder for
the outstanding Principal Amount of this Note and accrued interest which shall
not have been converted or paid, provided Holder has surrendered an original
Note to the Borrower. In the event that the Holder elects not to surrender a
Note for reissuance upon partial payment or 

conversion, the Holder hereby indemnifies the Borrower against any and all
loss or damage attributable to a third-party claim in an amount in excess of the
actual amount then due under the Note, and the Borrower is hereby expressly
authorized to offset any such amounts mutually agreed upon by Borrower and
Holder or pursuant to a judgment in Borrower's favor against amounts then due
under the Note. 

ARTICLE IV 

EVENTS OF DEFAULT 

The occurrence of any of the following events of
default ("Event of Default") shall, at the option of the Holder hereof, make all
sums of principal and interest then remaining unpaid hereon and all other
amounts payable hereunder immediately due and payable, upon demand, without
presentment, or grace period, all of which hereby are expressly waived, except
as set forth below: 

4.1    Failure to
Pay Principal or Interest. The Borrower fails to pay any installment of
Principal Amount, interest or other sum due under this Note or any Transaction
Document when due and such failure continues for a period of 5 business days
after the due date. 

4.2    Breach of Covenant. The
Borrower breaches any material covenant or other term or condition of the
Subscription Agreement, this Note or Transaction Document in any material
respect and such breach, if subject to cure, continues for a period of 15
business days after written notice to the Borrower from the Holder. 

4.3    Breach of Representations
and Warranties. Any material representation or warranty of the Borrower made
herein, in the Subscription Agreement, Transaction Document or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith or therewith shall be false or misleading in any material respect as of
the date made and the Closing Date. 

4.4    Receiver or Trustee. The
Borrower or any Subsidiary of Borrower shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for them or for a substantial part of their property or business; or
such a receiver or trustee shall otherwise be appointed. 

4.5    Judgments. Any money
judgment, writ or similar final process shall be entered or filed against
Borrower or any subsidiary of Borrower or any of their property or other assets
for more than $100,000, and shall remain unvacated, unbonded, unappealed,
unsatisfied, or unstayed for a period of 45 days. 

4.6    Non-Payment. The
Borrower shall have received a notice of default, which remains uncured for a
period of more than 30 business days beyond any applicable grace period, on the
payment of any one or more debts or obligations aggregating in excess of
$100,000; 

4.7    Bankruptcy. Bankruptcy,
insolvency, reorganization, or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law, or the issuance of any notice in
relation to such event, for the relief of debtors shall be instituted by or
against the Borrower or any Subsidiary of Borrower and if instituted against
them are not dismissed within 45 days of initiation. 

4.8    Delisting. Failure of
the Common Stock to be quoted or listed on the OTC Bulletin Board ("Bulletin
Board") or other Principal for a period of seven consecutive trading days
commencing seven days after the Actual Effective Date. 

4.9    Stop Trade. An SEC or
judicial stop trade order or Principal Market trading suspension with respect to
Borrower's Common Stock that lasts for five or more consecutive trading days.

4.10    Failure to Deliver Common
Stock or Replacement Note. Borrower's failure to timely deliver Common Stock
to the Holder pursuant to and in the form required by this Note or the
Subscription Agreement, and, if requested by Borrower, a replacement Note, and
such failure continues for a period of 20 business days after the due date. 

4.11    Non-Registration Event.
The occurrence of a Non-Registration Event as described in the Subscription
Agreement. 

4.12    Reverse Splits. The
Borrower effectuates a reverse split of its Common Stock without twenty days
prior written notice to the Holder. 

4.13    Cross Default. A
default by the Borrower of a material term, covenant, warranty or undertaking of
any Transaction Document or other agreement to which the Borrower and Holder are
parties, or the occurrence of a material event of default under any such other
agreement which is not cured after any required notice and/or cure period. 

ARTICLE V 

SECURITY INTEREST 

5.        
Security Interest/Waiver of Automatic Stay. This Note is secured by a
security interest granted to the Collateral Agent for the benefit of the Holder
pursuant to a Security Agreement, as delivered by Borrower to Holder. The
Borrower acknowledges and agrees that should a proceeding under any bankruptcy
or insolvency law be commenced by or against the Borrower, or if any of the
Collateral (as defined in the Security Agreement) should become the subject of
any bankruptcy or insolvency proceeding, then the Holder should be entitled to,
among other relief to which the Holder may be entitled under the Transaction
Documents and any other agreement to which the Borrower and Holder are parties
(collectively, "Loan Documents") and/or applicable law, an order from the court
granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section
362 to permit the Holder to exercise all of its rights and remedies pursuant to
the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE
BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The
Borrower hereby consents to any motion for relief from stay that may be filed by
the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion for
relief from stay filed by the Holder. The Borrower represents, acknowledges and
agrees that this provision is a specific and material aspect of the Loan
Documents, and that the Holder would not agree to the terms of the Loan
Documents if this waiver were not a part of this Note. The Borrower further
represents, acknowledges and agrees that this waiver is knowingly, intelligently
and voluntarily made, that neither the Holder nor any person acting on behalf of
the Holder has made any representations to induce this waiver, that the Borrower
has been represented (or has had the opportunity to he represented) in the
signing of this Note and the Loan Documents and in the making of this waiver by
independent legal counsel selected by the Borrower and that the Borrower has
discussed this waiver with counsel. 

ARTICLE VI 

MISCELLANEOUS 

6.1    Failure or Indulgence Not
Waiver. No failure or delay on the part of Holder hereof in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise available. 

6.2    Notices. All notices,
demands, requests, consents, approvals, and other communications required or
permitted hereunder shall be in writing and, unless otherwise specified herein,
shall be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by
reputable air courier service with charges prepaid, or (iv) transmitted by hand
delivery, telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice. Any
notice or other communication required or permitted to be given hereunder shall
be deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be: (i)
if to the Borrower to: BioElectronics Corporation, 401 Rosemont Avenue,
Rosenstock Hall, Third Floor, Frederick, MD 21701, Attn: Andrew J. Whelan,
President, telecopier: (301) 874-0329, with a copy by telecopier only to: Pryor
Cashman Sherman & Flynn, LLP, 410 Park Avenue, New York, NY 10022, Attn: Eric M.
Hellige, Esq., telecopier: (212) 326-0806, and (ii) if to the Holder, to the
name, address and telecopy number set forth on the front page of this Note, with
a copy by telecopier only to Grushko & Mittman, P.C., 551 Fifth Avenue, Suite
1601, New York, New York 10176, telecopier number: (212) 697-3575. 

6.3   Amendment
Provision. The term "Note" and all reference thereto, as used throughout
this instrument, shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or supplemented. 

6.4    Assignability. This Note
shall be binding upon the Borrower and its successors and assigns, and shall
inure to the benefit of the Holder and its successors and assigns. 

6.5    Cost of Collection. If
default is made in the payment of this Note, Borrower shall pay the Holder
hereof reasonable costs of collection, including reasonable attorneys' fees. 

6.6   
Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York, without regard to conflicts of laws
principles that would result in the application of the substantive laws of
another jurisdiction. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder. 

6.7    Maximum Payments.
Nothing contained herein shall be deemed to establish or require the payment of
a rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest required to be paid or
other charges hereunder exceed the maximum permitted by such law, any payments
in excess of such maximum shall be credited against amounts owed by the Borrower
to the Holder and thus refunded to the Borrower. 

6.8.   
Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Note and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Note to favor any party
against the other. 

6.9     Redemption. This
Note may not be redeemed or called without the consent of the Holder except as
described in this Note or the Subscription Agreement. 

6.10   Shareholder Status. The
Holder shall not have rights as a shareholder of the Borrower with respect to
unconverted portions of this Note. However, the Holder will have the rights of a
shareholder of the Borrower with respect to the Shares of Common Stock to be
received after delivery by the Holder of a Conversion Notice to the Borrower.

IN WITNESS WHEREOF, Borrower has caused this Note
to be signed in its name by an authorized officer as of the ____ day of
December, 2005. 

    	 	BIOELECTRONICS CORPORATION

    	 	 

    	 	 

    	 	By:                                                                          
    

    	 	
    Name: 

    	 	
    Title: 

	 	 

    	Witness:	
     

	 	 
	 	 
	 	 
	                                                                          
    	 

 

NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note) 

 

The undersigned hereby elects to convert $_________
of the principal and $_________ of the interest due on the Note issued by
BioElectronics Corporation on December ____, 2005 into Shares of Common Stock of
BioElectronics Corporation (the "Borrower") according to the conditions set
forth in such Note, as of the date written below. 

Date of
Conversion:____________________________________________________________________

Conversion
Price:______________________________________________________________________ 

Number of Shares of Common Stock Beneficially Owned on the Conversion Date:
Less than 5% of the outstanding Common Stock of BioElectronics Corporation 

Shares To Be
Delivered:_________________________________________________________________

Signature:____________________________________________________________________________

Print
Name:__________________________________________________________________________

Address:_____________________________________________________________________________

    ____________________________________________________________________________
    

    
  

 

EXHIBIT B 

FORM OF WARRANT 

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

    	 	
    Right to Purchase
    ________ shares of Common Stock of BioElectronics Corporation (subject to
    adjustment as provided herein) 

 

COMMON STOCK PURCHASE WARRANT 

	No. 2005-A-001	
    Issue Date: December           
    
    , 2005

BIOELECTRONICS CORPORATION, a corporation organized
under the laws of the State of Maryland (the "Company"), hereby certifies that,
for value received, __________________________________,
___________________________, Fax: _______________ or its assigns (the "Holder"),
is entitled, subject to the terms set forth below, to purchase from the Company
at any time after the Issue Date until 5:00 p.m., E.S.T on the fifth (5th)
anniversary of the Issue Date (the "Expiration Date"), up to ________ fully paid
and nonassessable shares of Common Stock at a per share purchase price of $_____

[120% of the closing bid price on the
Closing Date as reported by Bloomberg L.P. for the last trading day preceding
the Closing Date, which price shall not exceed $0.50]. The aforedescribed
purchase price per share, as adjusted from time to time as herein provided, is
referred to herein as the "Purchase Price." The number and character of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein. The Company may reduce the Purchase Price without the consent
of the Holder. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in that certain Subscription Agreement (the "Subscription
Agreement"), dated December ____, 2005, entered into by the Company and
Holders of the Warrants. 

As used herein the following terms, unless the
context otherwise requires, have the following respective meanings: 

(a)     The term "Company" shall
include BioElectronics Corporation and any corporation which shall succeed or
assume the obligations of BioElectronics Corporation hereunder. 

(b)     The term "Common Stock"
includes (a) the Company's Common Stock, $0.001 par value per share, as
authorized on the date of the Subscription Agreement, and (b) any other
securities into which or for which any of the securities described in (a) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise. 

(c)     The term "Other
Securities" refers to any stock (other than Common Stock) and other securities
of the Company or any other person (corporate or otherwise) which the holder of
this Warrant at any time shall be entitled to receive, or shall have received,
on the exercise of this Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange for or
in replacement of Common Stock or Other Securities pursuant to Section 5 or
otherwise. 

(d)     The term "Warrant Shares"
shall mean the Common Stock issuable upon exercise of this Warrant. 

1.       Exercise of
Warrant. 

1.1.     Number of Shares
Issuable upon Exercise. From and after the Issue Date through and including
the Expiration Date, the Holder hereof shall be entitled to receive, upon
exercise of this Warrant in whole in accordance with the terms of subsection 1.2
or upon exercise of this Warrant in part in accordance with subsection 1.3,
shares of Common Stock of the Company, subject to adjustment pursuant to Section
4. 

1.2.     Full Exercise.
This Warrant may be exercised in full by the Holder hereof by delivery of an
original or facsimile copy of the form of subscription attached as Exhibit A
hereto (the "Subscription Form") duly executed by such Holder and surrender of
the original Warrant within four (4) days of exercise, to the Company at its
principal office or at the office of its Warrant Agent (as provided
hereinafter), accompanied by payment, in cash, wire transfer or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant is
then exercisable by the Purchase Price then in effect. 

1.3.     Partial Exercise.
This Warrant may be exercised in part (but not for a fractional share) by
surrender of this Warrant in the manner and at the place provided in subsection
1.2 except that the amount payable by the Holder on such partial exercise shall
be the amount obtained by multiplying (a) the number of whole shares of Common
Stock designated by the Holder in the Subscription Form by (b) the Purchase
Price then in effect. On any such partial exercise, the Company, at its expense,
will forthwith issue and deliver to or upon the order of the Holder hereof a new
Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may request, the whole
number of remaining shares of Common Stock for which such Warrant may still be
exercised. 

1.4.     Fair Market Value.
Fair Market Value of a share of Common Stock as of a particular date (the
"Determination Date") shall mean: 

(a)     If the Company's Common
Stock is traded on an exchange or is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ"), National Market System,
the NASDAQ SmallCap Market or the American Stock Exchange, LLC, then the closing
or last sale price, respectively, reported for the last business day immediately
preceding the Determination Date; 

(b)     If the Company's Common
Stock is not traded on an exchange or on the NASDAQ National Market System, the
NASDAQ SmallCap Market or the American Stock Exchange, Inc., but is traded in
the over-the-counter market, then the average of the closing bid and ask prices
reported for the last business day immediately preceding the Determination Date;

(c)     Except as provided in
clause (d) below, if the Company's Common Stock is not publicly traded, then as
the Holder and the Company agree, or in the absence of such an agreement, by
arbitration in accordance with the rules then standing of the American
Arbitration Association, before a single arbitrator to be chosen from a panel of
persons qualified by education and training to pass on the matter to be decided;
or 

(d)     If the Determination Date
is the date of a liquidation, dissolution or winding up, or any event deemed to
be a liquidation, dissolution or winding up pursuant to the Company's charter,
then all amounts to be payable per share to holders of the Common Stock pursuant
to 

the charter in the event of such liquidation, dissolution or winding up, plus
all other amounts to be payable per share in respect of the Common Stock in
liquidation under the charter, assuming for the purposes of this clause (d) that
all of the shares of Common Stock then issuable upon exercise of all of the
Warrants are outstanding at the Determination Date. 

1.5.     Company
Acknowledgment. The Company will, at the time of the exercise of this
Warrant, upon the request of the Holder hereof acknowledge in writing its
continuing obligation to afford to such Holder any rights to which such Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant. If the Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to such Holder any such rights. 

1.6.     Trustee for Warrant
Holders. In the event that a bank or trust company shall have been appointed
as trustee for the Holder of the Warrants pursuant to Subsection 3.2, such bank
or trust company shall have all the powers and duties of a warrant agent (as
hereinafter described) and shall accept, in its own name for the account of the
Company or such successor person as may be entitled thereto, all amounts
otherwise payable to the Company or such successor, as the case may be, on
exercise of this Warrant pursuant to this Section 1. 

1.7     Delivery of Stock
Certificates, etc. on Exercise. The Company agrees that the shares of Common
Stock purchased upon exercise of this Warrant shall be deemed to be issued to
the Holder hereof as the record owner of such shares as of the close of business
on the date on which this Warrant shall have been surrendered and payment made
for such shares as aforesaid. As soon as practicable after the exercise of this
Warrant in full or in part, and in any event within three (3) business days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder hereof, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct in compliance with applicable securities
laws, a certificate or certificates for the number of duly and validly issued,
fully paid and nonassessable shares of Common Stock (or Other Securities) to
which such Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such Holder would otherwise be entitled, cash equal to
such fraction multiplied by the then Fair Market Value of one full share of
Common Stock, together with any other stock or other securities and property
(including cash, where applicable) to which such Holder is entitled upon such
exercise pursuant to Section 1 or otherwise. 

2.     Cashless Exercise.

(a)     Payment upon exercise of
this Warrant may be made at the option of the Holder either in (i) cash, wire
transfer or by certified or official bank check payable to the order of the
Company equal to the applicable aggregate Purchase Price, (ii) by cashless
exercise in accordance with Section (b) below or (iii) by a combination of any
of the foregoing methods, for the number of Common Stock specified in such form
(as such exercise number shall be adjusted to reflect any adjustment in the
total number of shares of Common Stock issuable to the holder per the terms of
this Warrant) and the holder shall thereupon be entitled to receive the number
of duly authorized, validly issued, fully-paid and non-assessable shares of
Common Stock (or Other Securities) determined as provided herein. 

(b)     If the Fair Market Value
of one share of Common Stock is greater than the Purchase Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant for cash,
the holder may elect to receive shares equal to the value (as determined below)
of this Warrant (or the portion thereof being cancelled) by surrender of this
Warrant at the principal office of the Company together with the properly
endorsed Subscription Form in which event the Company shall issue to the holder
a number of shares of Common Stock computed using the following formula: 

	
    X=
	Y
    (A-B)
	
     
	    
    A
	
     
	 
	
    
    Where X=
	
    the number of shares of Common Stock to be issued
    to the Holder

	
     
	
     

	
    
    Y=
	
    the number of shares of Common Stock purchasable
    under the Warrant or, if only a portion of the Warrant is being exercised,
    the portion of the Warrant being exercised (at the date of such calculation)

	
     
	
     

	
    
    A=
	
    the Fair Market Value of one share of the
    Company's Common Stock (at the date of such calculation)

	
     
	
     

	
    
    B=
	
    Purchase Price (as adjusted to the date of such
    calculation)

1.     For purposes of Rule 144
promulgated under the 1933 Act, it is intended, understood and acknowledged that
the Warrant Shares issued in a cashless exercise transaction shall be deemed to
have been acquired by the Holder, and the holding period for the Warrant Shares
shall be deemed to have commenced, on the date this Warrant was originally
issued pursuant to the Subscription Agreement. 

3.     Adjustment for
Reorganization, Consolidation, Merger, etc. 

3.1.     Reorganization,
Consolidation, Merger, etc. In case at any time or from time to time, the
Company shall (a) effect a reorganization, (b) consolidate with or merge into
any other person or (c) transfer all or substantially all of its properties or
assets to any other person under any plan or arrangement contemplating the
dissolution of the Company, then, in each such case, as a condition to the
consummation of such a transaction, proper and adequate provision shall be made
by the Company whereby the Holder of this Warrant, on the exercise hereof as
provided in Section 1, at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common Stock (or
Other Securities) issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 4. 

3.2.     Dissolution. In
the event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock and
other securities and property (including cash, where applicable) receivable by
the Holder of the Warrants after the effective date of such dissolution pursuant
to this Section 3 to a bank or trust company (a "Trustee") having its principal
office in New York, NY, as trustee for the Holder of the Warrants. 

3.3.     Continuation of Terms.
Upon any reorganization, consolidation, merger or transfer (and any dissolution
following any transfer) referred to in this Section 3, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to
the Other Securities and property receivable on the exercise of this Warrant
after the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may be,
and shall be binding upon the issuer of any Other Securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transaction described in this Section 3, then only in such
event will the Company's securities and property (including 

cash, where applicable) receivable by the Holder of the Warrants be delivered
to the Trustee as contemplated by Section 3.2. 

3.4     Share Issuance.
Until the Expiration Date, if the Company shall issue any Common Stock except
for the Excepted Issuances (as defined in the Subscription Agreement), prior to
the complete exercise of this Warrant for a consideration less than the Purchase
Price that would be in effect at the time of such issue, then, and thereafter
successively upon each such issue, the Purchase Price shall be reduced to such
other lower issue price. For purposes of this adjustment, the issuance of any
security or debt instrument of the Company carrying the right to convert such
security or debt instrument into Common Stock or of any warrant, right or option
to purchase Common Stock shall result in an adjustment to the Purchase Price
upon the issuance of the above-described security, debt instrument, warrant,
right, or option and again at any time upon any subsequent issuances of shares
of Common Stock upon exercise of such conversion or purchase rights if such
issuance is at a price lower than the Purchase Price in effect upon such
issuance. The reduction of the Purchase Price described in this Section 3.4 is
in addition to the other rights of the Holder described in the Subscription
Agreement. 

4.     Extraordinary Events
Regarding Common Stock. In the event that the Company shall (a) issue
additional shares of the Common Stock as a dividend or other distribution on
outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock,
or (c) combine its outstanding shares of the Common Stock into a smaller number
of shares of the Common Stock, then, in each such event, the Purchase Price
shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Purchase Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Purchase Price then in effect. The Purchase Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 4. The number of
shares of Common Stock that the Holder of this Warrant shall thereafter, on the
exercise hereof as provided in Section 1, be entitled to receive shall be
adjusted to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise. 

5.     Certificate as to
Adjustments. In each case of any adjustment or readjustment in the shares of
Common Stock (or Other Securities) issuable on the exercise of the Warrants, the
Company at its expense will promptly cause its Chief Financial Officer or other
appropriate designee to compute such adjustment or readjustment in accordance
with the terms of the Warrant and prepare a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such adjustment or readjustment and as adjusted
or readjusted as provided in this Warrant. The Company will forthwith mail a
copy of each such certificate to the Holder of the Warrant and any Warrant Agent
of the Company (appointed pursuant to Section 11 hereof). 

6.     Reservation of Stock,
etc. Issuable on Exercise of Warrant; Financial Statements. The Company will
at all times reserve and keep available, solely for issuance and delivery on the
exercise of the Warrants, all shares of Common Stock (or Other Securities) from
time to time issuable on the exercise of this Warrant. This Warrant entitles the
Holder hereof to receive copies of all financial and other information
distributed or required to be distributed to the holders of the Company's Common
Stock. 

7.     Assignment; Exchange of
Warrant. Subject to compliance with applicable securities laws, this
Warrant, and the rights evidenced hereby, may be transferred by any registered
holder hereof (a "Transferor"). On the surrender for exchange of this Warrant,
with the Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form") and together with an opinion of counsel
reasonably satisfactory to the Company that the transfer of this Warrant will be
in compliance with applicable securities laws, the Company at its expense, twice
only, but with payment by the Transferor of any applicable transfer taxes, will
issue and deliver to or on the order of the Transferor thereof a new Warrant or
Warrants of like tenor, in the name of the Transferor and/or the transferee(s)
specified in such Transferor Endorsement Form (each a "Transferee"), calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant so surrendered by the
Transferor. No such transfers shall result in a public distribution of the
Warrant. 

8.     Replacement of Warrant.
On receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction of this Warrant, on delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of this
Warrant, the Company at its expense, twice only, will execute and deliver, in
lieu thereof, a new Warrant of like tenor. 

9.     Registration Rights.
The Holder of this Warrant has been granted certain registration rights by the
Company. These registration rights are set forth in the Subscription Agreement.

10.     Maximum Exercise.
The Holder shall not be entitled to exercise this Warrant on an exercise date,
in connection with that number of shares of Common Stock which would be in
excess of the sum of (i) the number of shares of Common Stock beneficially owned
by the Holder and its affiliates on an exercise date, and (ii) the number of
shares of Common Stock issuable upon the exercise of this Warrant with respect
to which the determination of this limitation is being made on an exercise date,
which would result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock on such date. For the
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Holder shall not be limited to aggregate exercises which would result in the
issuance of more than 4.99%. The restriction described in this paragraph may be
waived, in whole or in part, upon sixty-one (61) days prior notice from the
Holder to the Company. The Holder may decide whether to convert a Note or
exercise this Warrant to achieve an actual 4.99% ownership position. 

11.     Warrant Agent. The
Company may, by written notice to the Holder of the Warrant, appoint an agent (a
"Warrant Agent") for the purpose of issuing Common Stock (or Other Securities)
on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant
pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any
of the foregoing, and thereafter any such issuance, exchange or replacement, as
the case may be, shall be made at such office by such Warrant Agent. 

12.     Transfer on the
Company's Books. Until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary. 

13.     
Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified 

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

14.     Miscellaneous.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be construed and enforced in accordance with and governed by the
laws of New York. Any dispute relating to this Warrant shall be adjudicated in
New York County in the State of New York. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision. 

IN WITNESS WHEREOF, the Company has executed this
Warrant as of the date first written above. 

    	 	BIOELECTRONICS CORPORATION

    	 	 

    	 	 

    	 	By:                                                                          
    

    	 	
    Name: 

    	 	
    Title: 

    	Witness:	
     

	 	 
	 	 
	 	 
	
                                                                              
    	 

 

Exhibit A 

FORM OF SUBSCRIPTION 

(to be signed only on exercise of Warrant) 

TO:   BIOELECTRONICS CORPORATION 

The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box): 

___ ________ shares of the Common Stock covered by such Warrant; or 

___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2. 

The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or 

___ the cancellation of the Warrant to the extent necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2. 

The undersigned requests that the certificates for such shares be issued in
the name of, and delivered to
_____________________________________________________ whose address is
____________________________________________________________________________________
____________________________________________________________________________________
__ Number of Shares of Common Stock Beneficially Owned on the date of exercise:
Less than five percent (5%) of the outstanding Common Stock of BioElectronics
Corporation 

The undersigned represents and warrants that the
representations and warranties in Section 4 of the Subscription Agreement (as
defined in this Warrant) are true and accurate with respect to the undersigned
on the date hereof. 

The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.

 Dated:___________________ 

  	
      (Signature must conform to name of
      holder as
	specified on the face of the
      Warrant)
	 
	 
	 
	
      (Address)
	
       

Exhibit B 

FORM OF TRANSFEROR ENDORSEMENT 

(To be signed only on transfer of Warrant) 

For value received, the undersigned hereby sells, assigns, and transfers unto
the person(s) named below under the heading "Transferees" the right represented
by the within Warrant to purchase the percentage and number of shares of Common
Stock of BIOELECTRONICS CORPORATION to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of BIOELECTRONICS
CORPORATION with full power of substitution in the premises. 

	
    Transferees	
    Percentage Transferred	
    Number Transferred
	 	 	 
	 	 	 
	 	 	 

	 	 
	 	 
	Dated:_________,______	_______________________
	 	(Signature must conform to name of holder as
    specified
	 	on the face of the warrant)
	 	 
	Signed in the presence of:	 
	 	 
	_______________________	_______________________
	(Name)	_______________________
	 	(address)
	 	 
	ACCEPTED AND AGREED:	_______________________
	[TRANSFEREE]	_______________________
	 	(address)
	 	 
	_______________________	 
	(Name)	 
	 	 

EXHIBIT C 

FORM OF ESCROW AGREEMENT 

FUNDS ESCROW AGREEMENT  

This Agreement is dated as of the ____ day of
December, 2005 among BioElectronics Corporation, a Maryland corporation (the
"Company"), the parties identified on Schedule A hereto (each a "Subscriber",
and collectively "Subscribers"), and Grushko & Mittman, P.C. (the "Escrow
Agent"): 

W I T N E S S E T H: 

WHEREAS, the Company and Subscribers have entered
into a Subscription Agreement calling for the sale by the Company to the
Subscriber of secured Promissory Notes and Warrants for an aggregate purchase
price of up to $1,000,000; and 

WHEREAS, the parties hereto require the Company to
deliver the Notes and Warrants against payment therefor, with such Notes,
Warrants and the Escrowed Funds to be delivered to the Escrow Agent to be held
in escrow and released by the Escrow Agent in accordance with the terms and
conditions of this Agreement; and 

WHEREAS, the Escrow Agent is willing to serve as
escrow agent pursuant to the terms and conditions of this Agreement; 

NOW THEREFORE, the parties agree as follows: 

ARTICLE I 

INTERPRETATION 

1.1.    Definitions. Capitalized terms used and
not otherwise defined herein that are defined in the Subscription Agreement
shall have the meanings given to such terms in the Subscription Agreement.
Whenever used in this Agreement, the following terms shall have the following
respective meanings: 

(a)     "Agreement" means this Agreement and all
amendments made hereto and thereto by written agreement between the parties; 

(b)     "Broker" shall mean the entity identified on
Schedule 8 to the Subscription Agreement; 

(c)     "Broker's Fee" shall have the meaning set forth
in Section 8(a) of the Subscription Agreement; 

(d)     "Collateral Agent Agreement" shall have the
meaning set forth in Section 3 of the Subscription Agreement; 

(e)     "Escrowed Payment" means an aggregate cash
payment of up to $1,000,000 which is, collectively, the Initial Closing Purchase
Price and Second Closing Purchase Price; 

(f)     "Initial Closing Date" shall have the meaning set
forth in Section 1(a) of the Subscription Agreement; 

(g)     "Initial Closing Legal Opinion" means the
original signed legal opinion referred to in Section 6 of the Subscription
Agreement; 

(h)     "Initial Closing Notes" shall have the meaning
set forth in Section 1(a) of the Subscription Agreement; 

(i)     "Initial Closing Purchase Price" shall mean up to
$750,000; 

(j)     "Initial Closing Warrants" shall have the meaning
set forth in Section 1(a) of the Subscription Agreement; 

(kl)     "Legal Fees" shall have the meaning set forth in
Section 8(b) of the Subscription Agreement; 

(l)     "Second Closing Certificate" shall have the
meaning set forth in Section 1(d) of the Subscription Agreement; 

(m)     "Second Closing Date" shall have the meaning set
forth in Section 1(b) of the Subscription Agreement; 

(n)     "Second Closing Legal Opinion" shall have the
meaning set forth in Section 1(d) of the Subscription Agreement; 

(o)     "Second Closing Notes" shall have the meaning set
forth in Section 1(b) of the Subscription Agreement; 

(p)     "Second Closing Purchase Price" shall mean up to
$250,000; 

(q)     "Second Closing Warrants" shall have the meaning
set forth in Section 1(b) of the Subscription Agreement; 

(r)     "Security Agreement" shall have the meaning set
forth in Section 3 of the Subscription Agreement and shall refer to the Security
Agreements to be executed by the Company and include the certificates evidencing
ownership of the Subsidiaries as described on Annex 1 to the Security Agreement;

(s)     "Subscription Agreement" means
the Subscription Agreement (and the exhibits thereto) entered into or to be
entered into by the parties in reference to the sale and purchase of the Initial
Closing Notes, Second Closing Notes, and Warrants; 

(t)     "Warrants" " shall have the meaning set forth in
the recitals of the Subscription Agreement; 

(u)     Collectively, the executed Subscription
Agreement, Initial Closing Notes, Initial Closing Warrants, Initial Closing
Legal Opinion, Second Closing Notes, Second Closing Warrants, Second Closing
Legal Opinion, Second Closing Certificates, Security Agreement, and Collateral
Agent Agreement, and Broker's Fee are referred to as "Company Documents"; and

(v)     Collectively, the Escrowed Payment and the
executed Subscription Agreement are referred to as "Subscriber Documents". 

1.2.    Entire Agreement. This Agreement along
with the Company Documents and the Subscriber Documents constitute the entire
agreement between the parties hereto pertaining to the Company Documents and
Subscriber Documents and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties. There are
no warranties, representations and other agreements made by the parties in
connection with the subject matter hereof except as specifically set forth in
this Agreement, the Company Documents and the Subscriber Documents. 

1.3  . Extended Meanings. In this Agreement
words importing the singular number include the plural and vice versa; words
importing the masculine gender include the feminine and neuter genders. The word
"person" includes an individual, body corporate, partnership, trustee or trust
or unincorporated association, executor, administrator or legal representative.

1.4.   Waivers and Amendments. This Agreement
may be amended, modified, superseded, cancelled, renewed or extended, and the
terms and conditions hereof may be waived, only by a written instrument signed
by all parties, or, in the case of a waiver, by the party waiving compliance.
Except as expressly stated herein, no delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right, power or
privilege hereunder preclude any other or future exercise of any other right,
power or privilege hereunder. 

1.5.   Headings. The division of this Agreement
into articles, sections, subsections and paragraphs and the insertion of
headings are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement. 

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

1.7.   Specific Enforcement, Consent to Jurisdiction.
The Company and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injuction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 1.6 hereof, each of the Company and Subscriber hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law. 

ARTICLE II 

DELIVERIES TO THE ESCROW AGENT 

2.1.   Initial Closing Company Deliveries. On or
about the date hereof, the Company shall deliver to the Escrow Agent the
executed Subscription Agreement, the Initial Closing Notes, Initial Closing
Warrants, Initial Closing Legal Opinion, Security Agreement, and Collateral
Agent Agreement (collectively, the "Initial Closing Company Documents"). 

2.2.   Second Closing Company Deliveries. On or
prior to the Second Closing Date the Company will deliver to the Escrow Agent
the Second Closing Notes, Second Closing Warrants, Second Closing Certificate,
and Second Closing Legal Opinion (collectively, the "Second Closing Company
Documents"). 

2.3.   Subscriber Deliveries. On or before the
Initial Closing Date, each Subscriber shall deliver to the Escrow Agent such
Subscriber's portion of the Initial Closing Purchase Price and the executed
Subscription Agreement. On or before the Second Closing Date, each Subscriber
will deliver such Subscriber's portion of the Second Closing Purchase Price to
the Escrow Agent. The Escrowed Payment will be delivered pursuant to the
following wire transfer instructions: 

[Omitted] 

2.4.   Intention to Create Escrow Over Company
Documents and Subscriber Documents. The Subscriber and Company intend that
the Company Documents and Subscriber Documents shall be held in escrow by the
Escrow Agent pursuant to this Agreement for their benefit as set forth herein.

2.5.   Escrow Agent to Deliver Company Documents and
Subscriber Documents. The Escrow Agent shall hold and release the Company
Documents and Subscriber Documents only in accordance with the terms and
conditions of this Agreement. 

ARTICLE III 

RELEASE OF COMPANY DOCUMENTS AND SUBSCRIBER DOCUMENTS

3.1.    Release of Escrow. Subject to the provisions of
Section 4.2, the Escrow Agent shall release the Company Documents and Subscriber
Documents as follows: 

(a)     On the Initial Closing Date, the Escrow Agent
will simultaneously release the Initial Closing Company Documents to the
Subscriber and release the Subscription Agreement and the Initial Closing
Purchase Price to the Company except that (i) the Broker's Fee in connection
with the Initial Closing will be released to the Broker; (ii) the Legal Fees
(less any amounts paid prior to the Initial Closing Date) in connection with the
Initial Closing will be released to the Subscriber's attorneys; and (iii) the
original Security Agreement, and Collateral Agent Agreement will be released to
the Collateral Agent. 

(b)     On the Second Closing Date, the Escrow Agent will
simultaneously release the Second Closing Company Documents to the Subscriber
and release the Second Closing Purchase Price to the Company except that the
Broker's Fee in connection with the Second Closing will be released to the
Broker. 

(c)     All funds to be delivered to the Company shall be
delivered pursuant to the wire instructions to be provided in writing by the
Company to the Escrow Agent. 

(d)     Notwithstanding the above, upon receipt by the
Escrow Agent of joint written instructions ("Joint Instructions") signed by the
Company and the Subscriber, it shall deliver the Company Documents and
Subscriber Documents in accordance with the terms of the Joint Instructions. 

(e)     Notwithstanding the above, upon receipt by the
Escrow Agent of a final and non-appealable judgment, order, decree or award of a
court of competent jurisdiction (a "Court Order"), the Escrow Agent shall
deliver the Company Documents and Subscriber Documents in accordance with the
Court Order. Any Court Order shall be accompanied by an opinion of counsel for
the party presenting the Court Order to the Escrow Agent (which opinion shall be
satisfactory to the Escrow Agent) to the effect that the court issuing the Court
Order has competent jurisdiction and that the Court Order is final and non-appealable.

3.2.     Acknowledgement of Company and Subscriber;
Disputes. The Company and the Subscriber acknowledge that the only terms and
conditions upon which the Company Documents and Subscriber Documents are to be
released are set forth in Sections 3 and 4 of this Agreement. The Company and
the Subscriber reaffirm their agreement to abide by the terms and conditions of
this Agreement with respect to the release of the Company Documents and
Subscriber Documents. Any dispute with respect to the release of the Company
Documents and Subscriber Documents shall be resolved pursuant to Section 4.2 or
by agreement between the Company and Subscriber. 

ARTICLE IV 

CONCERNING THE ESCROW AGENT 

4.1.    Duties and Responsibilities of the Escrow
Agent. The Escrow Agent's duties and responsibilities shall be subject to
the following terms and conditions: 

(a)     The Subscriber and Company acknowledge and agree
that the Escrow Agent (i) shall not be responsible for or bound by, and shall
not be required to inquire into whether either the Subscriber or Company is
entitled to receipt of the Company Documents and Subscriber Documents pursuant
to, any other agreement or otherwise; (ii) shall be obligated only for the
performance of such duties as are specifically assumed by the Escrow Agent
pursuant to this Agreement; (iii) may rely on and shall be protected in acting
or refraining from acting upon any written notice, instruction, instrument,
statement, request or document furnished to it hereunder and believed by the
Escrow Agent in good faith to be genuine and to have been signed or presented by
the proper person or party, without being required to determine the authenticity
or correctness of any fact stated therein or the propriety or validity or the
service thereof; (iv) may assume that any person believed by the Escrow Agent in
good faith to be authorized to give notice or make any statement or execute any
document in connection with the provisions hereof is so authorized; (v) shall
not be under any duty to give the property held by Escrow Agent hereunder any
greater degree of care than Escrow Agent gives its own similar property; and
(vi) may consult counsel satisfactory to Escrow Agent, the opinion of such
counsel to be full and complete authorization and protection in respect of any
action taken, suffered or omitted by Escrow Agent hereunder in good faith and in
accordance with the opinion of such counsel. 

(b)     The Subscriber and Company acknowledge that the
Escrow Agent is acting solely as a stakeholder at their request and that the
Escrow Agent shall not be liable for any action taken by Escrow Agent in good
faith and believed by Escrow Agent to be authorized or within the rights or
powers conferred upon Escrow Agent by this Agreement. The Subscriber and
Company, jointly and severally, agree to indemnify and hold harmless the Escrow
Agent and any of Escrow Agent's partners, employees, agents and representatives
for any action taken or omitted to be taken by Escrow Agent or any of them
hereunder, including the reasonable fees of outside counsel and other costs and
expenses of defending itself against any claim or liability under this
Agreement, except in the case of gross negligence or willful misconduct on
Escrow Agent's part committed in its capacity as Escrow Agent under this
Agreement. The Escrow Agent shall owe a duty only to the Subscriber and Company
under this Agreement and to no other person. 

(c)     The Subscriber and Company jointly and severally
agree to reimburse the Escrow Agent for reasonable outside counsel fees, to the
extent authorized hereunder and incurred in connection with the performance of
its duties and responsibilities hereunder. 

(d)     The Escrow Agent may at any time resign as Escrow
Agent hereunder by giving five (5) days prior written notice of resignation to
the Subscriber and the Company. Prior to the effective date of the resignation
as specified in such notice, the Subscriber and Company will issue to the Escrow
Agent a Joint Instruction authorizing delivery of the Company Documents and
Subscriber Documents to a substitute Escrow Agent selected by the Subscriber and
Company. If no successor Escrow Agent is named by the Subscriber and Company,
the Escrow Agent may apply to a court of competent jurisdiction in the State of
New York for appointment of a successor Escrow Agent, and to deposit the Company
Documents and Subscriber Documents with the clerk of any such court. 

(e)     The Escrow Agent does not have and will not have
any interest in the Company Documents and Subscriber Documents, but is serving
only as escrow agent, having only possession thereof. The Escrow Agent shall not
be liable for any loss resulting from the making or retention of any investment
in accordance with this Escrow Agreement. 

(f)     This Agreement sets forth exclusively the duties
of the Escrow Agent with respect to any and all matters pertinent thereto and no
implied duties or obligations shall be read into this Agreement. 

(g)     The Escrow Agent shall be permitted to act as
counsel for the Subscriber in any dispute as to the disposition of the Company
Documents and Subscriber Documents, in any other dispute between the Subscriber
and Company, whether or not the Escrow Agent is then holding the Company
Documents and Subscriber Documents and continues to act as the Escrow Agent
hereunder. 

(h)     The provisions of this Section 4.1 shall survive
the resignation of the Escrow Agent or the termination of this Agreement. 

4.2.   Dispute Resolution: Judgments. Resolution
of disputes arising under this Agreement shall be subject to the following terms
and conditions: 

(a)     If any dispute shall arise with respect to the
delivery, ownership, right of possession or disposition of the Company Documents
and Subscriber Documents, or if the Escrow Agent shall in good faith be
uncertain as to its duties or rights hereunder, the Escrow Agent shall be
authorized, without liability to anyone, to (i) refrain from taking any action
other than to continue to hold the Company Documents and Subscriber Documents
pending receipt of a Joint Instruction from the Subscriber and Company, or (ii)
deposit the Company Documents and Subscriber Documents with any court of
competent jurisdiction in the State of New York, in which event the Escrow Agent
shall give written notice thereof to the Subscriber and the Company and shall
thereupon be relieved and discharged from all further obligations pursuant to
this Agreement. The Escrow Agent may, but shall be under no duty to, institute
or defend any legal proceedings which relate to the Company Documents and
Subscriber Documents. The Escrow Agent shall have the right to retain counsel if
it becomes involved in any disagreement, dispute or litigation on account of
this Agreement or otherwise determines that it is necessary to consult counsel.

(b)     The Escrow Agent is hereby expressly authorized
to comply with and obey any Court Order. In case the Escrow Agent obeys or
complies with a Court Order, the Escrow Agent shall not be liable to the
Subscriber and Company or to any other person, firm, corporation or entity by
reason of such compliance. 

ARTICLE V 

GENERAL MATTERS 

5.1.   Termination. This escrow shall terminate
upon the release of all of the Company Documents and Subscriber Documents or at
any time upon the agreement in writing of the Subscriber and Company. 

5.2. Notices. All notices, demands, requests,
consents, approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall be (i)
personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be: 

(a)     If to the Company, to: 

  BioElectronics Corporation 

  401 Rosemont Avenue 

  Rosenstock Hall, Third Floor 

  Frederick, MD 21701 

  Attn: Andrew J. Whelan, President 

  Fax: (301) 874-0329 

         With a copy by telecopier only to: 

  Pryor Cashman Sherman & Flynn, LLP 

  410 Park Avenue 

  New York, NY 10022 

  Attn: Eric M. Hellige, Esq. 

  Fax: (212) 326-0806 

(b)      If to the Subscriber, to: the addresses and fax numbers listed on
Schedule A hereto. 

(c)      If to the Escrow Agent, to: 

  Grushko & Mittman, P.C. 

  551 Fifth Avenue, Suite 1601 

  New York, New York 10176 

  Fax: 212-697-3575 

or to such other address as any of them shall give to the others by notice
made pursuant to this Section 5.2. 

5.3.   Interest. The Escrowed Payment shall not
be held in an interest bearing account nor will interest be payable in
connection therewith. In the event the Escrowed Payment is deposited in an
interest bearing account, the Subscriber shall be entitled to receive any
accrued interest thereon, but only if the Escrow Agent receives from the
Subscriber the Subscriber's United States taxpayer identification number and
other requested information and forms. 

5.4.   Assignment; Binding Agreement. Neither
this Agreement nor any right or obligation hereunder shall be assignable by any
party without the prior written consent of the other parties hereto. This
Agreement shall enure to the benefit of and be binding upon the parties hereto
and their respective legal representatives, successors and assigns. 

5.5. Invalidity. In the event that any one or
more of the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal, or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions contained herein shall not be in
any way impaired thereby, it being intended that all of the rights and
privileges of the parties hereto shall be enforceable to the fullest extent
permitted by law. 

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

5.7.  Agreement. Each of the undersigned states
that he has read the foregoing Funds Escrow Agreement and understands and agrees
to it. 

	 	BIOELECTRONICS CORPORATION
	 	the "Company"
	 	 
	 	 
	 	By:_________________________

"SUBSCRIBERS" 

	__________________________________	__________________________________
	ALPHA CAPITAL AKTIENGESELLSCHAFT	WHALEHAVEN CAPITAL FUND LIMITED
	 	 
	 	 
	 	 
	__________________________________	__________________________________
	HARBORVIEW MASTER FUND LP	 
	 	 
	 	 
	 	ESCROW AGENT:
	 	 
	 	 
	 	__________________________________
	 	GRUSHKO & MITTMAN, P.C.
	 	 

SCHEDULE A TO FUNDS ESCROW AGREEMENT  

	
    
    SUBSCRIBER
	
    
    INITIAL CLOSING
	
    
    SECOND CLOSING

	
     
	
    
    PURCHASE PRICE
	
    
    PURCHASE PRICE

	
    
    ALPHA CAPITAL AKTIENGESELLSCHAFT
	
    
    $400,000.00
	
    
    $133,334.00

	
    Pradafant 7
	
     
	
     

	
    9490 Furstentums
	
     
	
     

	
    Vaduz, Lichtenstein
	
     
	
     

	
    
    Fax: 011-42-32323196
	
     
	
     

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

	
    3rd Floor, 14 Par-Laville Road
	
     
	
     

	
    Hamilton, Bermuda HM08
	
     
	
     

	
    
    Fax: (441) 292-1373
	
     
	
     

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

	
    850 Third Avenue, Suite 1801
	
     
	
     

	
    New York, NY 10022
	
     
	
     

	
    
    Fax: (646) 218-1401
	
     
	
     

	
    
    TOTAL
	
    
    $750,000.00
	
    
    $250,000.00

 

EXHIBIT D 

FORM OF SECURITY AGREEMENT 

SECURITY AGREEMENT 

1.       Identification. 

This Security Agreement (the "Agreement"), dated as
of December ___, 2005, is entered into by and between BioElectronics
Corporation, a Maryland corporation ("Debtor"), and Barbara Mittman, as
collateral agent acting in the manner and to the extent described in the
Collateral Agent Agreement defined below (the "Collateral Agent"), for the
benefit of the parties identified on Schedule A hereto (collectively, the
"Lenders"). 

2.      Recitals. 

2.1     The Lenders have made or are making loans and
will make additional loans to Debtor (the "Loans"). It is beneficial to Debtor
that the Loans were made, are being made and will be made. 

2.2     The Loans are evidenced by certain convertible
promissory notes (each a "Convertible Note") issued by Debtor on or about the
date of this Agreement pursuant to subscription agreements (each a "Subscription
Agreement") to which Debtor and Lenders are parties. The Notes are further
identified on Schedule A hereto and were and will be executed by Debtor as
"Borrower" or "Debtor" for the benefit of each Lender as the "Holder" or
"Lender" thereof. 

2.3     In consideration of the Loans made by Lenders to
Debtor and for other good and valuable consideration, and as security for the
performance by Debtor of its obligations under the Notes and as security for the
repayment of the Loans and all other sums due from Debtor to Lenders arising
under the Notes presently outstanding or to be outstanding in the future,
Subscription Agreements, and any other agreement between or among them
(collectively, the "Obligations"), Debtor, for good and valuable consideration,
receipt of which is acknowledged, has agreed to grant to the Collateral Agent,
for the benefit of the Lenders, a security interest in the Collateral (as such
term is hereinafter defined), on the terms and conditions hereinafter set forth.
Obligations include all future advances by Lenders to Debtor advanced on a pro
rata basis by all Lenders on substantially the same terms. 

2.4     The Lenders have appointed Barbara Mittman as
Collateral Agent pursuant to that certain Collateral Agent Agreement dated at or
about December ___, 2005 ("Collateral Agent Agreement"), among the Lenders and
Collateral Agent. 

2.5     The following defined terms which are defined in
the Uniform Commercial Code in effect in the State of New York on the date
hereof are used herein as so defined: Accounts, Chattel Paper, Documents,
Equipment, General Intangibles, Instruments, Inventory and Proceeds. 

3.      Grant of General Security Interest in Collateral. 

1.     As security for the Obligations of Debtor, Debtor
hereby grants the Collateral Agent, for the benefit of the Lenders, a security
interest in the Collateral. 

2.     "Collateral" shall mean all of the following
property of Debtor: 

(A)     All now owned and hereafter acquired right, title
and interest of Debtor in, to and in respect of all Accounts, Goods, real or
personal property, all present and future books and records relating to the
foregoing and all products and Proceeds of the foregoing, and as set forth
below: 

(i)     Accounts: All now owned and hereafter acquired
right, title and interest of Debtor in, to and in respect of all: Accounts,
interests in goods represented by Accounts, returned, reclaimed or repossessed
goods with respect thereto and rights as an unpaid vendor; contract rights;
Chattel Paper; investment property; General Intangibles (including but not
limited to, tax and duty claims and refunds, registered and unregistered
patents, trademarks, service marks, certificates, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, chooses
in action and other claims, and existing and future leasehold interests in
equipment, real estate and fixtures); Documents; Instruments; letters of credit,
bankers' acceptances or guaranties; cash moneys, deposits; securities, bank
accounts, deposit accounts, credits and other property now or hereafter owned or
held in any capacity by Debtor, as well as its affiliates, agreements or
property securing or relating to any of the items referred to above; 

(ii)     Goods: All now owned and hereafter acquired
right, title and interest of Debtor in, to and in respect of goods, including,
but not limited to: 

(a)     All Inventory, wherever located, whether now
owned or hereafter acquired, of whatever kind, nature or description, including
all raw materials, work-in-process, finished goods, and materials to be used or
consumed in Debtor' business; finished goods, timber cut or to be cut, oil, gas,
hydrocarbons, and minerals extracted or to be extracted, and all names or marks
affixed to or to be affixed thereto for purposes of selling same by the seller,
manufacturer, lessor or licensor thereof and all Inventory which may be returned
to Debtor by its customers or repossessed by Debtor and all of Debtor' right,
title and interest in and to the foregoing (including all of Debtor' rights as a
seller of goods); 

(b)     All Equipment and fixtures, wherever located,
whether now owned or hereafter acquired, including, without limitation, all
machinery, motor vehicles, furniture and fixtures, and any and all additions,
substitutions, replacements (including spare parts), and accessions thereof and
thereto (including, but not limited to Debtor' rights to acquire any of the
foregoing, whether by exercise of a purchase option or otherwise); 

(iii)     Property: All now owned and hereafter acquired
right, title and interests of Debtor in, to and in respect of any real or other
personal property in or upon which Debtor has or may hereafter have a security
interest, lien or right of setoff; 

(iv)     Books and Records: All present and future books
and records relating to any of the above including, without limitation, all
computer programs, printed output and computer readable data in the possession
or control of the Debtor, any computer service bureau or other third party; and

(v)     Products and Proceeds: All products and Proceeds
of the foregoing in whatever form and wherever located, including, without
limitation, all insurance proceeds and all claims against third parties for loss
or destruction of or damage to any of the foregoing. 

(B)     All now owned and hereafter acquired right, title
and interest of Debtor in, to and in respect of the following: 

(i)     the shares of stock, partnership interests,
member interests or other equity interests at any time and from time to time
acquired by Debtor of any and all entities now or hereafter existing, all or a
portion of such stock or other equity interests which are acquired by such
entities at any time (such entities,
together with the existing issuers, being hereinafter referred to collectively
as the "Pledged Issuers" and individually as a "Pledged Issuer"), the
certificates representing such shares, partnership interests, member interests
or other interests all options and other rights, contractual or otherwise, in
respect thereof and all dividends, distributions, cash, instruments, investment
property and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such shares,
partnership interests, member interests or other interests; 

(ii)     all additional shares of stock, partnership
interests, member interests or other equity interests from time to time acquired
by Debtor, of any Pledged Issuer, the certificates representing such additional
shares, all options and other rights, contractual or otherwise, in respect
thereof and all dividends, distributions, cash, instruments, investment property
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares, interests or equity; and 

(iii)     all security entitlements of Debtor in, and all
Proceeds of any and all of the foregoing in each case, whether now owned or
hereafter acquired by Debtor and howsoever its interest therein may arise or
appear (whether by ownership, security interest, lien, claim or otherwise). 

3.3     The Collateral Agent is hereby specifically
authorized, after the Maturity Date (defined in the Notes) accelerated or
otherwise, or after an Event of Default (as defined herein) and the expiration
of any applicable cure period, to transfer any Collateral into the name of the
Collateral Agent and to take any and all action deemed advisable to the
Collateral Agent to remove any transfer restrictions affecting the Collateral.

4.     Perfection of Security Interest. 

4.1     Debtor shall prepare, execute and deliver to the
Collateral Agent UCC-1 Financing Statements. The Collateral Agent is instructed
to prepare and file at Debtor's cost and expense, financing statements in such
jurisdictions deemed advisable to the Collateral Agent, including but not
limited to Maryland. The Financing Statements are deemed to have been filed for
the benefit of the Collateral Agent and Lenders identified on Schedule A hereto.

4.2     All other certificates and instruments
constituting Collateral from time to time required to be pledged to Collateral
Agent pursuant to the terms hereof (the "Additional Collateral") shall be
delivered to Collateral Agent promptly upon receipt thereof by or on behalf of
Debtor. All such certificates and instruments shall be held by or on behalf of
Collateral Agent pursuant hereto and shall be delivered in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment or undated stock powers executed in blank, all in form
and substance satisfactory to Collateral Agent. If any Collateral consists of uncertificated securities, unless the immediately following sentence is
applicable thereto, Debtor shall cause Collateral Agent (or its custodian,
nominee or other designee) to become the registered holder thereof, or cause
each issuer of such securities to agree that it will comply with instructions
originated by Collateral Agent with respect to such securities without further
consent by Debtor. If any Collateral consists of security entitlements, Debtor
shall transfer such security entitlements to Collateral Agent (or its custodian,
nominee or other designee) or cause the applicable securities intermediary to
agree that it will comply with entitlement orders by Collateral Agent without
further consent by Debtor. 

4.3     Within five (5) days after the receipt by Debtor
of any Additional Collateral, a Pledge Amendment, duly executed by Debtor, in
substantially the form of Annex I hereto (a "Pledge Amendment"), shall be
delivered to Collateral Agent in respect of the Additional Collateral to be
pledged pursuant to this Agreement. Debtor hereby authorizes Collateral Agent to
attach each Pledge Amendment to this Agreement and agrees that all certificates
or instruments listed on any Pledge Amendment delivered to 
Collateral Agent shall for all purposes hereunder constitute Collateral. 

4.4     If Debtor shall receive, by virtue of Debtor
being or having been an owner of any Collateral, any (i) stock certificate
(including, without limitation, any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split, spin-off or split-off), promissory note or other instrument, (ii)
option or right, whether as an addition to, substitution for, or in exchange
for, any Collateral, or otherwise, (iii) dividends payable in cash (except such
dividends permitted to be retained by Debtor pursuant to Section 5.2 hereof) or
in securities or other property or (iv) dividends or other distributions in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in surplus, Debtor shall
receive such stock certificate, promissory note, instrument, option, right,
payment or distribution in trust for the benefit of Collateral Agent, shall
segregate it from Debtor's other property and shall deliver it forthwith to
Collateral Agent, in the exact form received, with any necessary endorsement
and/or appropriate stock powers duly executed in blank, to be held by Collateral
Agent as Collateral and as further collateral security for the Obligations. 

5.     Distribution on Liquidation. 

5.1     If any sum is paid as a liquidating distribution
on or with respect to the Collateral, Debtor shall deliver same to the
Collateral Agent to be applied to the Obligations, then due, in accordance with
the terms of the Convertible Notes. 

5.2     So long as no Event of Default exists, Debtor
shall be entitled (i) to exercise all voting power pertaining to any of the
Collateral, provided such exercise is not contrary to the interests of the
Lenders and does not impair the Collateral and (ii) may receive and retain any
and all dividends, interest payments or other distributions paid in respect of
the Collateral. 

5.3.     Upon the occurrence and during the continuation
of an Event of Default, all rights of Debtor, upon notice given by Collateral
Agent, to exercise the voting power and receive payments, which it would
otherwise be entitled to pursuant to Section 5.2, shall cease and all such
rights shall thereupon become vested in Collateral Agent, which shall thereupon
have the sole right to exercise such voting power and receive such payments. 

5.4     All dividends, distributions, interest and other
payments which are received by Debtor contrary to the provisions of Section 5.3
shall be received in trust for the benefit of Collateral Agent, shall be
segregated from other funds of Debtor, and shall be forthwith paid over to
Collateral Agent as Collateral in the exact form received with any necessary
endorsement and/or appropriate stock powers duly executed in blank, to be held
by Collateral Agent as Collateral and as further collateral security for the
Obligations. 

6.     Further Action By Debtor; Covenants and Warranties. 

6.1     Collateral Agent at all times shall have a
perfected security interest in the Collateral. Debtor has and will continue to
have full title to the Collateral free from any liens, leases, encumbrances,
judgments or other claims. Collateral Agent's security interest in the
Collateral constitutes and will continue to constitute a first, prior and
indefeasible security interest in favor of Collateral Agent. Debtor will do all
acts and things, and will execute and file all instruments (including, but not
limited to, security agreements, financing statements, continuation statements,
etc.) reasonably requested by Collateral Agent to establish, maintain and
continue the perfected security interest of Collateral Agent in the Collateral,
and will promptly on demand, pay all costs and expenses of filing and recording,
including the costs of any searches reasonably deemed necessary by Collateral
Agent from time to time to establish and determine the validity and the
continuing priority of the security interest of Collateral Agent, and also pay
all other claims and charges that, in the opinion of Collateral Agent, exercised
in good faith, are reasonably likely to materially prejudice, imperil or
otherwise affect the Collateral or Collateral Agent's or Lenders' security
interests therein. 

6.2     Other than in the ordinary course of business,
and except for Collateral which is substituted by assets of identical or greater
value or which has become obsolete or is of inconsequential in value, Debtor
will not sell, transfer, assign or pledge those items of Collateral (or allow
any such items to be sold, transferred, assigned or pledged), without the prior
written consent of Collateral Agent other than a transfer of the Collateral to a
wholly-owned subsidiary on prior notice to Collateral Agent, and provided the
Collateral remains subject to the security interest herein described. Although
Proceeds of Collateral are covered by this Agreement, this shall not be
construed to mean that Collateral Agent consents to any sale of the Collateral,
except as provided herein. Sales of Collateral in the ordinary course of
business shall be free of the security interest of Lenders and Collateral Agent
and Lenders and Collateral Agent shall promptly execute such documents
(including without limitation releases and termination statements) as may be
required by Debtor to evidence or effectuate the same. 

6.3     Debtor will, at all reasonable times and upon
reasonable notice, allow Collateral Agent or its representatives free and
complete access to the Collateral and all of Debtor's records which in any way
relate to the Collateral, for such inspection and examination as Collateral
Agent reasonably deems necessary. 

6.4     Debtor, at its sole cost and
expense, will protect and defend this Security Agreement, all of the rights of
Collateral Agent and Lenders hereunder, and the Collateral against the claims
and demands of all other persons. 

6.5     Debtor will promptly notify
Collateral Agent of any levy, distraint or other seizure by legal process or
otherwise of any part of the Collateral, and of any threatened or filed claims
or proceedings that are reasonably likely to affect or impair any of the rights
of Collateral Agent under this Security Agreement in any material respect. 

6.6     Debtor, at its own expense, will obtain and
maintain in force insurance policies covering losses or damage to those items of
Collateral which constitute physical personal property. The insurance policies
to be obtained by Debtor shall be in form and amounts reasonably acceptable to
Collateral Agent. Debtor shall make the Collateral Agent first a loss payee
thereon to the extent of its interest in the Collateral. Collateral Agent is
hereby irrevocably (until the Obligations are paid in full) appointed Debtor's
attorney-in-fact to endorse any check or draft that may be payable to Debtor so
that Collateral Agent may collect the proceeds payable for any loss under such
insurance. The proceeds of such insurance (subject to the rights of senior
secured parties), less any costs and expenses incurred or paid by Collateral
Agent in the collection thereof, shall be applied either toward the cost of the
repair or replacement of the items damaged or destroyed, or on account of any
sums secured hereby, whether or not then due or payable. 

6.7     Collateral Agent may, at its option, and without
any obligation to do so, pay, perform and discharge any and all amounts, costs,
expenses and liabilities herein agreed to be paid or performed by Debtor. Upon
Debtor's failure to do so, all amounts expended by Collateral Agent in so doing
shall become part of the Obligations secured hereby, and shall be immediately
due and payable by Debtor to Collateral Agent upon demand and shall bear
interest at the lesser of 15% per annum or the highest legal amount from the
dates of such expenditures until paid. 

6.8     Upon the request of Collateral Agent, Debtor will
furnish to Collateral Agent within five (5) business days thereafter, or to any
proposed assignee of this Security Agreement, a written statement in form
reasonably satisfactory to Collateral Agent, duly acknowledged, certifying the
amount of the principal and interest and any other sum then owing under the
Obligations, whether to its knowledge any claims, offsets or defenses exist
against the Obligations or against this Security Agreement, or any of the terms
and provisions of any other agreement of Debtor securing the Obligations. In
connection with any assignment by Collateral Agent of this Security Agreement,
Debtor hereby agrees to cause the insurance policies required hereby to be
carried by Debtor, if any, to be endorsed in form satisfactory to Collateral
Agent or to such assignee, with loss payable clauses in favor of such assignee,
and to cause such endorsements to be delivered to Collateral Agent within ten
(10) calendar days after request therefore by Collateral Agent. 

6.9     Debtor will, at its own expense, make, execute,
endorse, acknowledge, file and/or deliver to the Collateral Agent from time to
time such vouchers, invoices, schedules, confirmatory assignments, conveyances,
financing statements, transfer endorsements, powers of attorney, certificates,
reports and other reasonable assurances or instruments and take further steps
relating to the Collateral and other property or rights covered by the security
interest hereby granted, as the Collateral Agent may reasonably require to
perfect its security interest hereunder. 

6.10     Debtor represents and warrants that it is the
true and lawful exclusive owner of the Collateral, free and clear of any liens
and encumbrances. 

6.11     Debtor hereby agrees not to divest itself of any
right under the Collateral except as permitted herein absent prior written
approval of the Collateral Agent, except to a subsidiary organized and located
in the United States on prior notice to Collateral Agent provided the Collateral
remains subject to the security interest herein described. 

7.     Power of Attorney. 

After the occurrence and during the uncured
continuation of an Event of Default as defined in Section 9 below, Debtor hereby
irrevocably constitutes and appoints the Collateral Agent as the true and lawful
attorney of Debtor, with full power of substitution, in the place and stead of
Debtor and in the name of Debtor or otherwise, at any time or times, in the
discretion of the Collateral Agent, to take any action and to execute any
instrument or document which the Collateral Agent may deem necessary or
advisable to accomplish the purposes of this Agreement. This power of attorney
is coupled with an interest and is irrevocable until the Obligations are
satisfied. 

8.     Performance By The Collateral Agent. 

If Debtor fails to perform any material covenant,
agreement, duty or obligation of Debtor under this Agreement, the Collateral
Agent may, after any applicable cure period, at any time or times in its
discretion, take action to effect performance of such obligation. All reasonable
expenses of the Collateral Agent incurred in connection with the foregoing
authorization shall be payable by Debtor as provided in Paragraph 12.1 hereof.
No discretionary right, remedy or power granted to the Collateral Agent under
any part of this Agreement shall be deemed to impose any obligation whatsoever
on the Collateral Agent with respect thereto, such rights, remedies and powers
being solely for the protection of the Collateral Agent. 

9.      Event of Default. 

An event of default ("Event of Default") shall be
deemed to have occurred hereunder upon the occurrence of any event of default as
defined and described in this Agreement, in the Notes, Subscription Agreement,
and any other agreement to which Debtor and a Lender are parties. Upon and after
any Event of Default, after the applicable cure period, if any, any or all of
the Obligations shall become immediately due and payable at the option of the
Collateral Agent, for the benefit of the Lenders, and the Collateral Agent may
dispose of Collateral as provided below. A default by Debtor of any of its
material obligations pursuant to this Agreement shall be an Event of Default
hereunder and an event of default as defined in the Notes, and Subscription
Agreement. 

10.    Disposition of Collateral. 

Upon and after any Event of Default which is then
continuing, 

10.1     The Collateral Agent may exercise its rights
with respect to each and every component of the Collateral, without regard to
the existence of any other security or source of payment for the Obligations. In
addition to other rights and remedies provided for herein or otherwise available
to it, the Collateral Agent shall have all of the rights and remedies of a
lender on default under the Uniform Commercial Code then in effect in the State
of New York. 

10.2     If any notice to Debtor of the sale or other
disposition of Collateral is required by then applicable law, five (5) business
days prior written notice (which Debtor agrees is reasonable notice within the
meaning of Section 9.612(a) of the Uniform Commercial Code) shall be given to
Debtor of the time and place of any sale of Collateral which Debtor hereby
agrees may be by private sale. The rights granted in this Section are in
addition to any and all rights available to Collateral Agent under the Uniform
Commercial Code. 

10.3     The Collateral Agent is authorized, at any such
sale, if the Collateral Agent deems it advisable to do so, in order to comply
with any applicable securities laws, to restrict the prospective bidders or
purchasers to persons who will represent and agree, among other things, that
they are purchasing the Collateral for their own account for investment, and not
with a view to the distribution or resale thereof, or otherwise to restrict such
sale in such other manner as the Collateral Agent deems advisable to ensure such
compliance. Sales made subject to such restrictions shall be deemed to have been
made in a commercially reasonable manner. 

10.4     All proceeds received by the Collateral Agent
for the benefit of the Lenders in respect of any sale, collection or other
enforcement or disposition of Collateral, shall be applied (after deduction of
any amounts payable to the Collateral Agent pursuant to Paragraph 12.1 hereof)
against the Obligations pro rata among the Lenders in proportion to their
interests in the Obligations. Upon payment in full of all Obligations, Debtor
shall be entitled to the return of all Collateral, including cash, which has not
been used or applied toward the payment of Obligations or used or applied to any
and all costs or expenses of the Collateral Agent incurred in connection with
the liquidation of the Collateral (unless another person is legally entitled
thereto). Any assignment of Collateral by the Collateral Agent to Debtor shall
be without representation or warranty of any nature whatsoever and wholly
without recourse. To the extent allowed by law, each Lender may purchase the
Collateral and pay for such purchase by offsetting up to such Lender's pro rata
portion of the purchase price with sums owed to such Lender by Debtor arising
under the Obligations or any other source. 

11.     Waiver of Automatic Stay. Debtor acknowledges and agrees that should a
proceeding under any bankruptcy or insolvency law be commenced by or against
Debtor, or if any of the Collateral should become the subject of any bankruptcy
or insolvency proceeding, then the Collateral Agent should be entitled to, among
other relief to which the Collateral Agent or Lenders may be entitled under the
Note, Subscription Agreement and any other agreement to which the Debtor,
Lenders or Collateral Agent are parties, (collectively "Loan Documents") and/or
applicable law, an order from the court granting immediate relief from the
automatic stay pursuant to 11 U.S.C. Section 362 to permit the Collateral Agent
to exercise all of its rights and remedies pursuant to the Loan Documents and/or
applicable law. Debtor EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY
IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, Debtor EXPRESSLY ACKNOWLEDGES AND
AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE
BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11
U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY
WAY THE ABILITY OF THE COLLATERAL AGENT TO ENFORCE ANY OF ITS RIGHTS AND
REMEDIES UNDER THE LOAN 

DOCUMENTS AND/OR APPLICABLE LAW. Debtor hereby consents to any motion for
relief from stay which may be filed by the Collateral Agent in any bankruptcy or
insolvency proceeding initiated by or against Debtor, and further agrees not to
file any opposition to any motion for relief from stay filed by the Collateral
Agent. Debtor represents, acknowledges and agrees that this provision is a
specific and material aspect of this Agreement, and that the Collateral Agent
would not agree to the terms of this Agreement if this waiver were not a part of
this Agreement. Debtor further represents, acknowledges and agrees that this
waiver is knowingly, intelligently and voluntarily made, that neither the
Collateral Agent nor any person acting on behalf of the Collateral Agent has
made any representations to induce this waiver, that Debtor has been represented
(or has had the opportunity to be represented) in the signing of this Agreement
and in the making of this waiver by independent legal counsel selected by Debtor
and that Debtor has had the opportunity to discuss this waiver with counsel.
Debtor further agrees that any bankruptcy or insolvency proceeding initiated by
Debtor will only be brought in the Federal Court within the Southern District of
New York. 

12.     Miscellaneous. 

12.1     Expenses. Debtor shall pay to the Collateral
Agent, on demand, the amount of any and all reasonable expenses, including,
without limitation, reasonable attorneys' fees, legal expenses and brokers'
fees, which the Collateral Agent may incur in connection with (a) sale,
collection or other enforcement or disposition of Collateral; (b) exercise or
enforcement of any the rights, remedies or powers of the Collateral Agent
hereunder or with respect to any or all of the Obligations upon breach or
threatened breach; or (c) failure by Debtor to perform and observe any
agreements of Debtor contained herein which are performed by the Collateral
Agent. 

12.2     Waivers, Amendment and Remedies. No course of
dealing by the Collateral Agent and no failure by the Collateral Agent to
exercise, or delay by the Collateral Agent in exercising, any right, remedy or
power hereunder shall operate as a waiver thereof, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or the
exercise of any other right, remedy or power of the Collateral Agent. No
amendment, modification or waiver of any provision of this Agreement and no
consent to any departure by Debtor therefrom, shall, in any event, be effective
unless contained in a writing signed by the Collateral Agent, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. The rights, remedies and powers of the
Collateral Agent, not only hereunder, but also under any instruments and
agreements evidencing or securing the Obligations and under applicable law are
cumulative, and may be exercised by the Collateral Agent from time to time in
such order as the Collateral Agent may elect. 

12.3     Notices. All notices or other communications
given or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being faxed (provided that a copy
is delivered by first class mail) to the party to receive the same at its
address set forth below or to such other address as either party shall hereafter
give to the other by notice duly made under this Section: 

	 	To Debtor:	BioElectronics Corporation
	 	 	401 Rosemont Avenue
	 	 	Rosenstock Hall, Third Floor
	 	 	Frederick, MD 21701
	 	 	Attn: Andrew J. Whelan, President
	 	 	Fax: (301) 874-0329
	 	 	 

	 	With a copy by
    telecopier only to:	 
	 	 	 
	 	 	Pryor Cashman Sherman
    & Flynn, LLP

	 	 	410 Park Avenue
	 	 	New York, NY 10022
	 	 	Attn: Eric M. Hellige,
    Esq.
	 	 	Fax: (212) 326-0806
	 	 	 
	 	To Lenders:	To the addresses and
    telecopier numbers set forth
	 	 	on Schedule A
	 	 	 
	 	To the Collateral
    Agent:	Barbara R. Mittman
	 	 	Grushko & Mittman,
    P.C.
	 	 	551 Fifth Avenue,
    Suite 1601
	 	 	New York, New York
    10176
	 	 	Fax: (212) 697-3575

Any party may change its address by written notice in accordance with this
paragraph. 

12.4     Term; Binding Effect. This Agreement shall (a)
remain in full force and effect until payment and satisfaction in full of all of
the Obligations; (b) be binding upon Debtor, and its successors and permitted
assigns; and (c) inure to the benefit of the Collateral Agent, for the benefit
of the Lenders and their respective successors and assigns. All the rights and
benefits granted by Debtor to the Collateral Agent and Lenders in the Loan
Documents and other agreements and documents delivered in connection therewith
are deemed granted to both the Collateral Agent and Lenders. 

12.5     Captions. The captions of
Paragraphs, Articles and Sections in this Agreement have been included for
convenience of reference only, and shall not define or limit the provisions
hereof and have no legal or other significance whatsoever. 

12.6     Governing Law; Venue; Severability. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without regard to conflicts of laws principles that would
result in the application of the substantive laws of another jurisdiction,
except to the extent that the perfection of the security interest granted hereby
in respect of any item of Collateral may be governed by the law of another
jurisdiction. Any legal action or proceeding against Debtor with respect to this
Agreement may be brought in the courts in the State of New York or of the United
States for the Southern District of New York, and, by execution and delivery of
this Agreement, Debtor hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Debtor hereby irrevocably waives any objection which they may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
aforesaid courts and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum. If any provision of this
Agreement, or the application thereof to any person or circumstance, is held
invalid, such invalidity shall not affect any other provisions which can be
given effect without the invalid provision or application, and to this end the
provisions hereof shall be severable and the remaining, valid provisions shall
remain of full force and effect. 

12.7     Entire Agreement. This Agreement contains the
entire agreement of the parties and supersedes all other agreements and
understandings, oral or written, with respect to the matters contained herein.

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

[THIS SPACE INTENTIONALLY LEFT BLANK] 

IN WITNESS WHEREOF, the undersigned have executed and
delivered this Security Agreement, as of the date first written above. 

	"DEBTOR"	"THE COLLATERAL AGENT"
	BIOELECTRONICS CORPORATION	BARBARA R. MITTMAN
	a Maryland corporation	 
	 	 
	 	 
	By:___________________	___________________
	 	 
	Its:___________________	 

APPROVED BY "LENDERS": 

	___________________	___________________
	ALPHA CAPITAL
    AKTIENGESELLSCHAFT	WHALEHAVEN CAPITAL
    FUND LIMITED
	 	 
	 	 
	 	 
	___________________	 
	HARBORVIEW MASTER FUND
    LP	 
	 	 

This Security Agreement may be signed by facsimile signature
and 

delivered by confirmed facsimile transmission. 

SCHEDULE A TO SECURITY AGREEMENT  

	
    
    LENDER
	
    
    INITIAL CLOSING
	
    
    SECOND CLOSING

	
     
	
    
    PURCHASE PRICE
	
    
    PURCHASE PRICE

	
     
	
    
    $400,000.00
	
    
    $133,334.00

	
    ALPHA CAPITAL AKTIENGESELLSCHAFT
	
     
	
     

	
    Pradafant 7
	
     
	
     

	
    9490 Furstentums
	
     
	
     

	
    Vaduz, Lichtenstein
	
     
	
     

	
    
    Fax: 011-42-32323196
	
     
	
     

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

	
    3rd Floor, 14 Par-Laville Road
	
     
	
     

	
    Hamilton, Bermuda HM08
	
     
	
     

	
    
    Fax: (441) 292-1373
	
     
	
     

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

	
    850 Third Avenue, Suite 1801
	
     
	
     

	
    New York, NY 10022
	
     
	
     

	
    
    Fax: (646) 218-1401
	
     
	
     

	
    
    TOTAL
	
    
    $750,000.00
	
    
    $250,000.00

 

ANNEX I 

TO 

SECURITY AGREEMENT 

PLEDGE AMENDMENT 

This Pledge Amendment, dated _________ __ 200_, is delivered pursuant to
Section 4.3 of the Security Agreement referred to below. The undersigned hereby
agrees that this Pledge Amendment may be attached to the Security Agreement,
dated December ___, 2005, as it may heretofore have been or hereafter may be
amended, restated, supplemented or otherwise modified from time to time and that
the shares listed on this Pledge Amendment shall be hereby pledged and assigned
to Collateral Agent and become part of the Collateral referred to in such
Security Agreement and shall secure all of the Obligations referred to in such
Security Agreement. 

	 	
    Number	 	
    Certificate
	
    Name of Issuer	
    of Shares	
    Class	
    Number(s)
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

 

	 	BIOELECTRONICS
    CORPORATION
	 	 
	 	 
	 	 
	 	
    By:______________________
	 	 

EXHIBIT E 

FORM OF COLLATERAL AGENT AGREEMENT 

COLLATERAL AGENT AGREEMENT 

COLLATERAL AGENT AGREEMENT (this "Agreement") dated
as of December ___, 2005, among Barbara R. Mittman (the "Collateral Agent"), and
the parties identified on Schedule A hereto (each, individually, a "Lender" and
collectively, the "Lenders"), who hold or will acquire variable interest rate
convertible promissory notes issued or to be issued by BioElectronics
Corporation ("Debtor"), a Maryland corporation, at about or prior to the date of
this Agreement as described in the Security Agreements referred to in Section
1(a) below (collectively herein the "Notes"). 

WHEREAS, the Lenders have made, are making and will
be making loans to Debtor to be secured by certain collateral; and 

WHEREAS, it is desirable to provide for the orderly
administration of such collateral by requiring each Lender to appoint the
Collateral Agent, and the Collateral Agent has agreed to accept such appointment
and to receive, hold and deliver such collateral, all upon the terms and subject
to the conditions hereinafter set forth; and 

WHEREAS, it is desirable to allocate the enforcement
of certain rights of the Lenders under the Notes for the orderly administration
thereof. 

NOW, THEREFORE, in consideration of the premises set
forth herein and for other good and valuable consideration, the parties hereto
agree as follows: 

1.     Collateral. 

(a)     Contemporaneously with the execution and delivery
of this Agreement by the Collateral Agent and the Lenders, (i) the Collateral
Agent has or will have entered into a Security Agreement between the Collateral
Agent and Debtor ("Security Agreement"), regarding the grant of a security
interest in assets owned by Debtor (such assets are referred to herein and in
the Security Agreement as the "Collateral") to the Collateral Agent, for the
benefit of the Lenders, (ii) Debtor is issuing the Notes and in the future may
issue additional Notes to the Lenders pursuant to a "Subscription Agreement"
dated at or about the date of this Agreement. Collectively, the Security
Agreement, the Notes and Subscription Agreement and other agreements referred to
therein are referred to herein as Borrower Documents. 

(b)     For purposes solely of perfection of the security
interests granted to the Collateral Agent, as agent on behalf of the Lenders,
and on its own behalf under the Borrower Documents, the Collateral Agent hereby
acknowledges that any Collateral held by the Collateral Agent is held for the
benefit of the Lenders in accordance with this Agreement and the Borrower
Documents. No reference to the Borrower Documents or any other instrument or
document shall be deemed to incorporate any term or provision thereof into this
Agreement unless expressly so provided. 

(c)     The Collateral Agent is to distribute in
accordance with the Borrower Documents any proceeds received from the Collateral
which are distributable to the Lenders in proportion to their respective
interests in the Obligations as defined in the Borrower Documents. 

2.     Appointment of the Collateral Agent. 

The Lenders hereby appoint the Collateral Agent (and
the Collateral Agent hereby accepts such appointment) to take any action
including, without limitation, the registration of any Collateral in the name of
the Collateral Agent or its nominees prior to or during the continuance of an
Event of Default (as defined in the Borrower Documents), the exercise of voting
rights upon the occurrence and during the continuance of an Event of Default,
the application of any cash collateral received by the Collateral Agent to the
payment of the Obligations, the making of any demand under the Borrower
Documents, the exercise of any remedies given to the Collateral Agent pursuant
to the Borrower Documents and the exercise of any authority pursuant to the
appointment of the Collateral Agent as an attorney-in-fact pursuant to the
Security Agreement that the Collateral Agent deems necessary or proper for the
administration of the Collateral pursuant to the Security Agreements. Upon
disposition of the Collateral in accordance with the Borrower Documents, the
Collateral Agent shall promptly distribute any cash or Collateral in accordance
with Section 10.4 of the Security Agreement. Lenders must notify Collateral
Agent in writing of the issuance of Notes to Lenders by Debtor. The Collateral
Agent will not be required to act hereunder in connection with Notes the
issuance of which was not disclosed in writing to the Collateral Agent nor will
the Collateral Agent be required to act on behalf of any assignee of Notes
without the written consent of Collateral Agent. 

3.     Action by the Majority in Interest. 

(a)     Certain Actions. Each of the Lenders covenants
and agrees that only a Majority in Interest shall have the right, but not the
obligation, to undertake the following actions (it being expressly understood
that less than a Majority in Interest hereby expressly waive the following
rights that they may otherwise have under the Borrower Documents): 

(i)     Acceleration. If an Event of Default occurs,
after the applicable cure period, if any, a Majority in Interest may, on behalf
of all the Lenders, instruct the Collateral Agent to provide to Debtor notice to
cure such default and/or declare the unpaid principal amount of the Notes to be
due and payable, together with any and all accrued interest thereon and all
costs payable pursuant to such Notes; 

(ii)     Enforcement. Upon the occurrence of any Event of
Default after the applicable cure period, if any, a Majority in Interest may
instruct the Collateral Agent to proceed to protect, exercise and enforce, on
behalf of all the Lenders, their rights and remedies under the Borrower
Documents against Debtor, and such other rights and remedies as are provided by
law or equity; 

(iii)     Waiver of Past Defaults. A Majority in Interest
may instruct the Collateral Agent to waive any Event of Default by written
notice to Debtor, and the other Lenders; and 

(iv)     Amendment. A Majority in Interest may instruct
the Collateral Agent to waive, amend, supplement or modify any term, condition
or other provision in the Notes or Borrower Documents in accordance with the
terms of the Notes or Borrower Documents so long as such waiver, amendment,
supplement or modification is made with respect to all of the Notes and with the
same force and effect with respect to each of the Lenders. 

(b)     Permitted Subordination. A Majority in Interest
may instruct the Collateral Agent to agree to subordinate any Collateral to any
claim and may enter into any agreement with Debtor to evidence such
subordination; provided, however, that subsequent to any such subordination,
each Note shall remain pari passu with the other Notes held by the Lenders. 

(c)     Further Actions. A
Majority in Interest may instruct the Collateral Agent to take any action that
it may take under this Agreement by instructing the Collateral Agent in writing
to take such action on behalf of all the Lenders. 

  (d) Majority in Interest. For so long as any
  obligations remain outstanding on the Notes, Majority in Interest shall mean
  Lenders who hold not less than sixty-five percent (65%) of the outstanding
  principal amount of the Notes. 

4.     Power of Attorney. 

(a)     To effectuate the terms
and provisions hereof, the Lenders hereby appoint the Collateral Agent as their
attorney-in-fact (and the Collateral Agent hereby accepts such appointment) for
the purpose of carrying out the provisions of this Agreement including, without
limitation, taking any action on behalf of, or at the instruction of, the
Majority in Interest at the written direction of the Majority in Interest and
executing any consent authorized pursuant to this Agreement and taking any
action and executing any instrument that the Collateral Agent may deem necessary
or advisable (and lawful) to accomplish the purposes hereof. 

(b)     All acts done under the
foregoing authorization are hereby ratified and approved and neither the
Collateral Agent nor any designee nor agent thereof shall be liable for any acts
of commission or omission, for any error of judgment, for any mistake of fact or
law except for acts of gross negligence or willful misconduct. 

(c)     This power of attorney,
being coupled with an interest, is irrevocable while this Agreement remains in
effect. 

5.     Expenses of the Collateral
Agent. The Lenders shall pay any and all costs and expenses incurred by the
Collateral Agent, all waivers, releases, discharges, satisfactions,
modifications and amendments of this Agreement, the administration and holding
of the Collateral, insurance expenses, and the enforcement, protection and
adjudication of the parties' rights hereunder by the Collateral Agent,
including, without limitation, the reasonable disbursements, expenses and fees
of the attorneys the Collateral Agent may retain, if any, each of the foregoing
in proportion to their holdings of the Notes. 

6.     Reliance
on Documents and Experts. The Collateral Agent shall be entitled to rely upon
any notice, consent, certificate, affidavit, statement, paper, document, writing
or communication (which may be by telegram, cable, telex, telecopier, or
telephone) reasonably believed by it to be genuine and to have been signed, sent
or made by the proper person or persons, and upon opinions and advice of its own
legal counsel, independent public accountants and other experts selected by the
Collateral Agent. 

7.     Duties of the Collateral
Agent; Standard of Care. 

(a)     The Collateral Agent's
only duties are those expressly set forth in this Agreement, and the Collateral
Agent hereby is authorized to perform those duties in accordance with
commercially reasonable practices. The Collateral Agent may exercise or
otherwise enforce any of its rights, powers, privileges, remedies and interests
under this Agreement and applicable law or perform any of its duties under this
Agreement by or through its officers, employees, attorneys, or agents. 

(b)     The Collateral Agent
shall act in good faith and with that degree of care that an ordinarily prudent
person in a like position would use under similar circumstances. 

(c) Any funds held by the Collateral Agent hereunder
need not be segregated from other funds except to the extent required by law.
The Collateral Agent shall be under no liability for interest on any funds
received by it hereunder. 

8.     Resignation. The
Collateral Agent may resign and be discharged of its duties hereunder at any
time by giving written notice of such resignation to the other parties hereto,
stating the date such resignation is to take effect. Within five (5) days of the
giving of such notice, a successor collateral agent shall be appointed by the
Majority in Interest; provided, however, that if the Lenders are unable so to
agree upon a successor within such time period, and notify the Collateral Agent
during such period of the identity of the successor collateral agent, the
successor collateral agent may be a person designated by the Collateral Agent,
and any and all fees of such successor collateral agent shall be the joint and
several obligation of the Lenders. The Collateral Agent shall continue to serve
until the effective date of the resignation or until its successor accepts the
appointment and receives the Collateral held by the Collateral Agent but shall
not be obligated to take any action hereunder. The Collateral Agent may deposit
any Collateral with the Supreme Court of the State of New York for New York
County or any such other court in New York State that accepts such Collateral.

9.     Exculpation. The
Collateral Agent and its officers, employees, attorneys and agents, shall not
incur any liability whatsoever for the holding or delivery of documents or the
taking of any other action in accordance with the terms and provisions of this
Agreement, for any mistake or error in judgment, for compliance with any
applicable law or any attachment, order or other directive of any court or other
authority (irrespective of any conflicting term or provision of this Agreement),
or for any act or omission of any other person engaged by the Collateral Agent
in connection with this Agreement, unless occasioned by the exculpated person's
own gross negligence or willful misconduct; and each party hereto hereby waives
any and all claims and actions whatsoever against the Collateral Agent and its
officers, employees, attorneys and agents, arising out of or related directly or
indirectly to any or all of the foregoing acts, omissions and circumstances. 

10.     Indemnification. The
Lenders hereby agree to indemnify, reimburse and hold harmless the Collateral
Agent and its directors, officers, employees, attorneys and agents, jointly and
severally, from and against any and all claims, liabilities, losses and expenses
that may be imposed upon, incurred by, or asserted against any of them, arising
out of or related directly or indirectly to this Agreement or the Collateral,
except such as are occasioned by the indemnified person's own gross negligence
or willful misconduct. 

11.     Miscellaneous. 

(a)     Rights and Remedies Not
Waived. No act, omission or delay by the Collateral Agent shall constitute a
waiver of the Collateral Agent's rights and remedies hereunder or otherwise. No
single or partial waiver by the Collateral Agent of any default hereunder or
right or remedy that it may have shall operate as a waiver of any other default,
right or remedy or of the same default, right or remedy on a future occasion.

(b)     Governing Law. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York without regard to conflicts of laws that would result in
the application of the substantive laws of another jurisdiction. 

(c)     Waiver of Jury Trial and
Setoff; Consent to Jurisdiction; Etc. 

(i)     In any
litigation in any court with respect to, in connection with, or arising out of
this Agreement or any instrument or document delivered pursuant to this
Agreement, or the validity, protection, interpretation, collection or
enforcement hereof or thereof, or any other claim or dispute 

howsoever arising, between the Collateral Agent and the Lenders or any
Lender, then each Lender, to the fullest extent it may legally do so, (A) waives
the right to interpose any setoff, recoupment, counterclaim or cross-claim in
connection with any such litigation, irrespective of the nature of such setoff,
recoupment, counterclaim or cross-claim, unless such setoff, recoupment,
counterclaim or cross-claim could not, by reason of any applicable federal or
state procedural laws, be interposed, pleaded or alleged in any other action;
and (B) WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION AND ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES. EACH LENDER AGREES THAT THIS SECTION 11(c) IS A
SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGE THAT THE
COLLATERAL AGENT WOULD NOT ENTER THIS AGREEMENT IF THIS SECTION 11(c) WERE NOT
PART OF THIS AGREEMENT. 

(ii)     Each Lender irrevocably
consents to the exclusive jurisdiction of any State or Federal Court located
within the County of New York, State of New York, in connection with any action
or proceeding arising out of or relating to this Agreement or any document or
instrument delivered pursuant to this Agreement or otherwise. In any such
litigation, each Lender waives, to the fullest extent it may effectively do so,
personal service of any summons, complaint or other process and agree that the
service thereof may be made by certified or registered mail directed to such
Lender at its address for notice determined in accordance with Section 11(e)
hereof. Each Lender hereby waives, to the fullest extent it may effectively do
so, the defenses of forum non conveniens and improper venue. 

(d)     Admissibility of this
Agreement. Each of the Lenders agrees that any copy of this Agreement signed by
it and transmitted by telecopier for delivery to the Collateral Agent shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence. 

(e)     Address for Notices. Any
notice or other communication under the provisions of this Agreement shall be
given in writing and delivered in person, by reputable overnight courier or
delivery service, by facsimile machine (receipt confirmed) with a copy sent by
first class mail on the date of transmissions, or by registered or certified
mail, return receipt requested, directed to such party's addresses set forth
below (or to any new address of which any party hereto shall have informed the
others by the giving of notice in the manner provided herein): 

In the case of the Collateral Agent, to her at: 

Barbara R. Mittman 

551 Fifth Avenue, Suite 1601 New York, 

New York 10176 

Fax: (212) 697-3575 

In the case of the Lenders, to: 

To the address and telecopier number set forth on 

Schedule A hereto. 

In the case of Debtor, to: 

BioElectronics Corporation 

401 Rosemont Avenue 

Rosenstock Hall, Third Floor 

Frederick, MD 21701 

Attn: Andrew J. Whelan, President 

Fax: (301) 874-0329 

With a copy by telecopier only to: 

Pryor Cashman Sherman & Flynn, LLP 

410 Park Avenue 

New York, NY 10022 

Attn: Eric M. Hellige, Esq. 

Fax: (212) 326-0806 

(f)     Amendments and
Modification; Additional Lender. No provision hereof shall be modified, altered,
waived or limited except by written instrument expressly referring to this
Agreement and to such provision, and executed by the parties hereto. Any
transferee of a Note who acquires a Note after the date hereof will become a
party hereto by signing the signature page and sending an executed copy of this
Agreement to the Collateral Agent and receiving a signed acknowledgement from
the Collateral Agent. 

(g)     Fee. Upon the occurrence
of an Event of Default, the Lenders collectively shall pay the Collateral Agent
the sum of $10,000 to apply against an hourly fee of $350 to be paid to the
Collateral Agent by the Lenders for services rendered pursuant to this
Agreement. All payments due to the Collateral Agent under this Agreement
including reimbursements must be paid when billed. The Collateral Agent may
refuse to act on behalf of or make a distribution to any Lender who is not
current in payments to the Collateral Agent. Payments required pursuant to this
Agreement shall be pari passu to the Lenders' interests in the Notes. The
Collateral Agent is hereby authorized to deduct any sums due the Collateral
Agent from Collateral in the Collateral Agent's possession. 

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

(i)     Successors and Assigns.
Whenever in this Agreement reference is made to any party, such reference shall
be deemed to include the successors, assigns, heirs and legal representatives of
such party. No party hereto may transfer any rights under this Agreement, unless
the transferee agrees to be bound by, and comply with all of the terms and
provisions of this Agreement, as if an original signatory hereto on the date
hereof. 

(j)     Captions: Certain
Definitions. The captions of the various sections and paragraphs of this
Agreement have been inserted only for the purposes of convenience; such captions
are not a part of this Agreement and shall not be deemed in any manner to
modify, explain, enlarge or restrict any of the provisions of this Agreement. As
used in this Agreement the term "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a limited liability company, a
trust, an unincorporated organization and a government or any department or
agency thereof. 

(k)     Severability. In the
event that any term or provision of this Agreement shall be finally determined
to be superseded, invalid, illegal or otherwise unenforceable pursuant to
applicable law by an authority having jurisdiction and venue, that determination
shall not impair or otherwise affect the validity, legality or enforceability (i)
by or before that authority of the remaining terms and provisions of this
Agreement, which shall be enforced as if the unenforceable term or provision
were deleted, or (ii) by or before any other authority of any of the terms and
provisions of this Agreement. 

(l)       Entire
Agreement. This Agreement contains the entire agreement of the parties and
supersedes all other agreements and understandings, oral or written, with
respect to the matters contained herein. 

(m)     Schedules. The Collateral
Agent is authorized to annex hereto any schedules referred to herein. 

 

[THIS SPACE INTENTIONALLY LEFT BLANK] 

 

            
          
        
      
    
  

	 	 	 
	 	 	 
	 	 	 
	
    ALPHA CAPITAL AKTIENGESELLSCHAFT	 	
    WHALEHAVEN CAPITAL FUND LIMITED
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	
    HARBORVIEW MASTER FUND LP	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	
    BARBARA R. MITTMAN - Collateral
    Agent
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	Acknowledged:	 	 
	 	 	 
	BIOELECTRONICS
    CORPORATION	 	 
	 	 	 
	 	 	 
	By:                                                                                                  
    	 	 
	
    Name:
	 	 
	
    Title:
	 	 

This Collateral Agent Agreement may be signed by facsimile
signature and delivered by confirmed facsimile transmission. 

SCHEDULE A TO COLLATERAL AGENT AGREEMENT 

	
    
    LENDER
	
    
    INITIAL CLOSING
	
    
    SECOND CLOSING

	
     
	
    
    PURCHASE PRICE
	
    
    PURCHASE PRICE

	
     
	
    
    $400,000.00
	
    
    $133,334.00

	
    ALPHA CAPITAL AKTIENGESELLSCHAFT
	
     
	
     

	
    Pradafant 7
	
     
	
     

	
    9490 Furstentums
	
     
	
     

	
    Vaduz, Lichtenstein
	
     
	
     

	
    
    Fax: 011-42-32323196
	
     
	
     

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

	
    3rd Floor, 14 Par-Laville Road
	
     
	
     

	
    Hamilton, Bermuda HM08
	
     
	
     

	
    
    Fax: (441) 292-1373
	
     
	
     

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

	
    850 Third Avenue, Suite 1801
	
     
	
     

	
    New York, NY 10022
	
     
	
     

	
    
    Fax: (646) 218-1401
	
     
	
     

	
    
    TOTAL
	
    
    $750,000.00
	
    
    $250,000.00

 

EXHIBIT F 

FORM OF LEGAL OPINION 

December ___, 2005 

 

TO: The Subscribers identified on Schedule A hereto: 

We have acted as counsel to BioElectronics Corp., a
Maryland corporation (the "Company") and its wholly-owned subsidiaries, if any,
(each a "Subsidiary" and collectively "Subsidiaries") in connection with the
offer and sale by the Company of up to $1,000,000 principal amount of
Convertible Notes (the "Notes") and issuance of common stock purchase warrants
("Warrants") to the Subscribers identified on Schedule A hereto, pursuant to the
exemption from registration under the Securities Act of 1933, as amended (the
"Act) as set forth in Regulation D ("Regulation D") promulgated thereunder.
Capitalized terms used herein and not otherwise defined shall have the meaning
assigned to them in the subscription agreement (the "Agreement") by and between
the Company and Subscriber entered into at or about the date hereof. The
Agreement, and the agreements described below are sometimes hereinafter referred
to collectively as the "Documents". 

In connection with the opinions expressed herein, I
have made such examination of law as I considered appropriate or advisable for
purposes hereof. As to matters of fact material to the opinions expressed
herein, I have relied, with your permission, upon the representations and
warranties as to factual matters contained in and made by the Company and the
Purchaser pursuant to the Documents and upon certificates and statements of
certain government officials and of officers of the Company as described below.
I have also examined originals or copies of certain corporate documents or
records of the Company as described below: 

	
    (a)
	
    Form of Agreement
	
    (b)
	
    Form of Note
	
    (c)
	
    Forms of Common Stock Purchase Warrants (the "Warrants")
	
    (d)
	
    Funds Escrow Agreement
	
    (e)
	
    Form of Security Agreement
	
    (f)
	
    Form of Collateral Agent Agreement
	
    (g)
	
    Certificate of Incorporation of the Company as amended
	
    (h)
	
    Bylaws of the Company
	
    (i)
	
    Minutes of the action of the Company's Board of Directors, including
    unanimous Board of Directors approval of the Documents, a copy of which is
    annexed hereto.
	
    

In rendering this opinion, I have, with your permission,
assumed: (a) the authenticity of all documents submitted to us as originals; (b)
the conformity to the originals of all documents submitted to us as copies; (c)
the genuiness of all signatures; (d) the legal capacity of natural persons; (e)
the truth, accuracy and completeness of the information, factual matters,
representations and warranties contained in all of such documents; (f) the due
authorization, execution and delivery of all such documents by Subscribers, and
the legal, valid and binding effect thereof on Subscribers; and (g) that the
Company and the Purchasers will act in accordance with their respective
representations and warranties as set forth in the Documents.

 I am a member of the bar of the
State of __________. I express no opinion as to the laws of any 
jurisdiction other than corporate laws of the State of Maryland, New York, and
the federal laws of the United States of America. I express no opinion with
respect to the effect or application of any other laws. Special rulings of
authorities administering any of such laws or opinions of other counsel have not
been sought or obtained by us in connection with rendering the opinions
expressed herein. 

1.     The Company and each
Subsidiary are duly incorporated, validly existing and in good standing in the
states and jurisdictions of their incorporation; have qualified to do business
in each state where required unless the failure to do so would not have a
material impact on their operations; and have the requisite corporate power and
authority to conduct their business, and to own, lease and operate their
properties. 

2.     The Company and each
Subsidiary have the requisite corporate power and authority to execute, deliver
and perform their obligations under the Documents. The Documents, and the
issuance of the Notes, and Warrants and the reservation and issuance of Common
Stock issuable upon conversion of the Notes and exercise of the Warrants have
been (a) duly approved by the Board of Directors of the Company, and (b) all
such Securities, when issued pursuant to the Agreement and upon delivery, shall
be validly issued and outstanding, fully paid and non assessable. 

3.     The execution, delivery
and performance of the Documents by the Company and each Subsidiary and the
consummation of the transactions contemplated thereby, will not, with or without
the giving of notice or the passage of time or both: 

(a)     materially violate the
provisions of the Certificate of Incorporation or bylaws of the Company or each
Subsidiary; or 

(b)     To counsel's knowledge,
violate any judgment, decree, order or award of any court binding upon the
Company or each Subsidiary. 

4.     The Documents constitute
the valid and legally binding obligations of the Company and each Subsidiary and
are enforceable against the Company and each Subsidiary in accordance with their
respective terms. 

5.     The Notes, Warrants and
the Common Stock issuable upon conversion of the Notes, and exercise of the
Warrants, have not been registered under the Securities Act of 1933, as amended
(the "Act") or under the laws of any state or other jurisdiction, and are or
will be issued pursuant to a valid exemption from registration. 

6.     The holders of the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants will
not be subject to the provisions of the anti-takeover statutes of the State of
Maryland. 

7.     The Subscribers have been
granted valid security interests in the Collateral (as defined in each Security
Agreement) pursuant to the Documents, enforceable against the Company and each
Subsidiary in accordance with their respective terms and provisions, and to the
extent such Collateral may be perfected under the NYUCC by the filing of
financing statements, then upon the due and timely filing of Uniform Commercial
Code financing statements respecting the Company and Subsidiary, with the
Secretary of State of the State of Maryland, those security interests will be
perfected in such Collateral to the extent described in those statements. 

8.     The Company, each
Subsidiary and their Boards of Directors have taken all necessary action, if
any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of their state of
incorporation that is or could become applicable to the Subscribers as a result
of the Subscribers, the 

Company and each Subsidiary fulfilling their obligations or exercising their
rights under the Documents, including without limitation as a result of the
Company's issuance of the Notes, Warrants and Common Stock issuable upon
conversion of the Notes and exercise of the Warrants and the Subscribers'
ownership of the Notes, Warrants and Common Stock issuable upon conversion of
the Notes and exercise of the Warrants. 

9.     The Company has either
obtained the approval of the transactions described in the Documents from its
shareholders or no such approval is required. 

Our opinions expressed above are specifically subject
to the following limitations, exceptions, qualifications and assumptions: 

A.     The effect of bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting the relief of debtors or the rights and remedies of creditors
generally, including without limitation the effect of statutory or other law
regarding fraudulent conveyances and preferential transfers. 

B.     Limitations imposed by
state law, federal law or general equitable principles upon the specific
enforceability of any of the remedies, covenants or other provisions of any
applicable agreement and upon the availability of injunctive relief or other
equitable remedies, regardless of whether enforcement of any such agreement is
considered in a proceeding in equity or at law. 

C.     This opinion letter is
governed by, and shall be interpreted in accordance with, the Legal Opinion
Accord (the "Accord") of the ABA Section of Business Law (1991). As a
consequence, it is subject to a number of qualifications, exceptions,
definitions, limitations on coverage and other limitations, all as more
particularly described in the Accord, including the General Qualifications and
the Equitable Principles Limitation, and this opinion letter should be read in
conjunction therewith. 

This opinion is rendered as of the date first written
above, is solely for your benefit in connection with the Agreement and may not
be relief upon or used by, circulated, quoted, or referred to nor may any copies
hereof by delivered to any other person without our prior written consent. I
disclaim any obligation to update this opinion letter or to advise you of facts,
circumstances, events or developments which hereafter may be brought to our
attention and which may alter, affect or modify the opinions expressed herein.

Very truly yours, 

SCHEDULE A TO LEGAL OPTION

	
    
    LENDER
	
    
    INITIAL CLOSING
	
    
    SECOND CLOSING

	
     
	
    
    PURCHASE PRICE
	
    
    PURCHASE PRICE

	
     
	
     	
     
	
    ALPHA CAPITAL AKTIENGESELLSCHAFT
	
     	
     
	
    Pradafant 7
	
     
	
     

	
    9490 Furstentums
	
     
	
     

	
    Vaduz, Lichtenstein
	
     
	
     

	
    
    Fax: 011-42-32323196
	
     
	
     

	
     	
     	
     
	
     	
     	
     
	
    
    TOTAL
	
    
    $750,000.00
	
    
    $250,000.00

 

EXHIBIT G 

FORM OF FORM 8-K 

[The parties did not agree on a form] 

 

EXHIBIT H 

LIMITED STANDSTILL AGREEMENT 

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

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

1.     Background. 

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

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

2.     Share Restriction.

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

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

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

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

provided, that, in the case of any gift or transfer described in clauses (i),
(ii) or (iii), each donee or transferee agrees in writing to be bound by the
terms and conditions contained herein in the same manner as such terms and
conditions apply to the undersigned. For purposes hereof, "immediate family"
means any relationship by blood, marriage or adoption, not more remote than
first cousin. 

3.     Miscellaneous. 

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

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

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

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

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

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

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

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

SCHEDULE 5(d)

ADDITIONAL ISSUANCES/CAPITALIZATION

Please see the attached copy of the Capitalization Table of
the Company. 

	
    SCHEDULE 5(f)
	 	 	 
	 	
    PIGGY-BACK
    REGISTRATION RIGHTS
	 
	 	 	 	 
	 	 	 	 
	Shares issued
    pursuant to the 12/1/04 PPM:	
    3,520,000	 	 
	 	 	 	 
	Shares underlying
    the Investor Warrants:	
    3,520,000	 	 
	 	 	 	 
	Shares underlying
    the Agent Warrants:	
    491,500	 	 
	 	 	 	 
	
    Total:	
    7,531,500	 	 

2

SCHEDULE 5(h)

LITIGATION

On November 5, 2004, an action captioned Edward Meyer, Jr. v.
Andrew J. Whelan, Richard E. Bolton and BioElectronics Corporation, Docket
No. MON-L-4-992-04, was commenced against the Company, Andrew J. Whelan, the
President and Chairman of the Board of Directors of the Company, and Richard E.
Bolton in the Superior Court, Monmouth County, New Jersey. In such action, the
plaintiff is seeking damages arising from a breach by the Company of certain
alleged oral contractual obligations pursuant to which plaintiff claims that he
would have been entitled to receive Common Stock and options to purchase Common
Stock from the Company as compensation for rendering certain services to the
Company. Although this lawsuit is in its preliminary stages and the full amount
of the plaintiff's claim has not been asserted, the Company believes the
potential dollar amount of such claim will not have a material adverse effect on
its operations or financial condition. The Company believes the plaintiff's
claims are without merit and intends to defend such lawsuit and pursue any
counterclaims vigorously. 

3

SCHEDULE 5(q)

UNDISCLOSED LIABILITIES

None. 

4

SCHEDULE 8

 

BROKER'S FEES

	
    BROKER	
    BROKER'S FEE
	
    HUNTER WISE SECURITIES, LLC	
    On each Closing Date, a fee of
	 	
    eight percent (8%) of the
	 	
    Purchase Price.
	 	 
	 	 
	
    LIBRA FINANCE, S.A.	
    On each Closing Date, a fee of
	
    P.O. Box 4603	
    two percent (2%) of the
	
    Zurich, Switzerland	
    Purchase Price.
	
    Fax: 011-411-201-6262	 

BROKER'S WARRANTS 

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

SCHEDULE 9.1(e)

USE OF PROCEEDS

The Company intends to use the net proceeds of the Offering to
increase inventory, finance sales and marketing expenses, purchase capital
equipment, develop new products, seek regulatory approval of new products,
perform clinical trials, and for working capital and general corporate purposes.

SCHEDULE 9.1(g)

LIMITED STANDSTILL AGREEMENT

 

Andrew J. Whelan 

PAW, L.L.C. 

Mary Whelan 

 

2

SCHEDULE 11.1

FURTHER REGISTRATION STATEMENTS

The Company intends to file a registration statement to register the shares
of Common Stock subject to "piggyback" registration rights, as set forth on
Schedule 5(f). 

 

3BioElectronics Corporation: Exhibit 10.19 - Prepared by TNT Filings Inc.

Exhibit 10.19 

Amendment No. 1 to the BioElectronics 

Corporation 2004 Equity Incentive Plan 

This Amendment No. 1 (the "Amendment") to the BioElectronics Corporation 2004
Equity Incentive Plan (the "Plan") is made, effective as of March 22, 2005, by
BioElectronics Corporation, a Maryland corporation (the "Company"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
specified, or ascribed thereto by reference, in the Plan.

W I T N E S S E T H 

Whereas, the Company established the Plan,
effective as of November 30, 2004, to provide qualifying Employees, Independent
Directors and Consultants (the "Grantees") with equity ownership in the Company,
and has granted the right to purchase shares of Common Stock of the Company to
various Grantees; 

Whereas, the Board of Directors deems it necessary and desirable to
permit Awards to be made under the Plan to members of the Medical Advisory Board
of the Company; and 

Whereas, Section 21 of the Plan reserves the right of the Board of
Directors to take such action; 

Now, Therefore, in consideration of the premises, the Plan is hereby
amended as follows: 

1.     The definition of "Consultant" contained in Section 25 of the Plan is
hereby amended to read in its entirety as follows: "Consultant" shall mean any
person, including a Director, who is engaged by the Company or any Parent,
Subsidiary or Affiliate thereof to render services to or for the benefit of the
Company and is compensated for such services, including any member of the
Medical Advisory Board of the Company." 

2.     Except as specifically amended above, the Plan and all provisions
thereof shall remain in full force and effect and are hereby ratified and
confirmed. 

3.     Upon the effectiveness of this Amendment, on and after the date
hereof, each reference in the Plan to "the Plan", "hereunder", "hereof",
"herein" shall mean and be a reference to the Plan as amended hereby. 

4.     This Amendment shall be governed by and construed in accordance with
the laws of the State of Delaware. 

BIOELECTRONICS CORPORATION

2004 EQUITY INCENTIVE PLAN 

This BioElectronics Corporation 2004 Equity Incentive Plan
(the "Plan") is established by BioElectronics Corporation, a Maryland
corporation (the "Company"), effective as of November 30, 2004 (the "Effective
Date"), subject to the approval of the shareholders of the Company within
twelve (12) months thereafter. Capitalized terms not otherwise defined shall
have the meanings set forth in Section 25.

1.    
Purpose. The Plan is intended to provide qualifying Employees (including
officers and Directors), Independent Directors and Consultants with equity
ownership in the Company, thereby strengthening their commitment to the success
of the Company, promoting the identity of interests between the Company’s
shareholders and such Employees, Independent Directors and Consultants and
stimulating their efforts on behalf of the Company, and to assist the Company in
attracting and retaining talented personnel.

2.    
Scope of the Plan. Subject to adjustment in accordance with Section 20,
the total number of Shares for which grants under the Plan shall be available is
10,000,000. If any Shares subject to any Award granted hereunder are forfeited
or such Award otherwise terminates without the issuance of such Shares or for
other consideration in lieu of such Shares, the Shares subject to such Award, to
the extent of any such forfeiture or termination, shall again be available for
grant under the Plan. Shares awarded under the Plan may be treasury shares or
newly-issued shares. 

3.    
Administration. 

(a) 
    The Plan shall be administered by a
Committee which shall consist of at least two or more members of the Board, all
of whom, commencing with the date on which the Company becomes a Public Company,
shall qualify as "non-employee directors" under Section (b)(3)(i) of Rule 16b-3.
The number of members of the Committee may from time to time be increased or
decreased, and commencing with the date on which the Company becomes a Public
Company, shall be subject to such conditions, as the Board deems appropriate to
permit transactions in Shares pursuant to the Plan to satisfy such conditions of
Rule 16b-3 as then in effect. In the event there is no Committee or the
Committee is unable to act, the Board shall take any and all actions required or
permitted to be taken by the Committee under the Plan and shall serve as the
Committee. 

(b) 
    Subject to the express provisions of
the Plan, the Committee has full and final authority and discretion as follows:

(i)     
to determine when and to whom Awards
should be granted and the terms, conditions and restrictions applicable to each
Award, including, without limitation, (A) the exercise price of the Award, (B)
the method of payment for Shares purchased upon the exercise of the Award, (C)
the method of satisfaction of any tax withholding obligation arising in
connection with the Award, (D) the timing, terms and conditions of the
exercisability of the Award or the vesting of any Shares acquired upon the
exercise thereof, (E) the time of the expiration of the vesting of any Shares
acquired upon the exercise thereof, (F) the effect of the Grantee’s termination
of employment or service with the Company on any of the foregoing, (G) all other
terms, conditions and restrictions applicable to the Award or such Shares not
inconsistent with the terms of the Plan, (H) the benefit payable under any SAR
or Performance Share, and (I) whether or not specific Awards shall be identified
with other specific Awards, and if so whether they shall be exercisable
cumulatively with, or alternatively to, such other specific Awards;

(ii)     
to determine the amount, if any, that a
Grantee shall pay for Restricted Shares, whether to permit or require the
payment of cash dividends thereon to be deferred and the terms related thereto,
when Restricted Shares (including Restricted Shares acquired upon the exercise
of any Award) shall be forfeited and whether such Shares shall be held in
escrow; 

(iii)     to interpret the Plan and to make all
determinations necessary or advisable for the administration of the Plan; 

(iv)     to make, amend and rescind rules,
guidelines and policies relating to the Plan, or to adopt supplements to, or
alternative versions of, the Plan, including, without limitation, rules with
respect to the exercisability and forfeitability of Awards upon the termination
of employment or service of a Grantee; 

(v)     to determine the terms, conditions and
restrictions of all Award Agreements (which need not be identical) and, with the
consent of the Grantee, to amend any such Award Agreement at any time, among
other things, to permit transfers of such Awards to the extent permitted by the
Plan, except that the consent of the Grantee shall not be required for any
amendment which (A) does not adversely affect the rights of the Grantee or (B)
is necessary or advisable (as determined by the Committee) to carry out the
purpose of the Award as a result of any change in applicable law; 

(vi)     to cancel, with the consent of the
Grantee, outstanding Awards and to grant new Awards in substitution therefor;

(vii)     to accelerate the
exercisability of, and to accelerate or waive any or all of the terms,
conditions and restrictions applicable to, any Award or any group of Awards for
any reason and at any time, including in connection with a termination of
employment (other than for Cause); 

(viii)     subject to Section 6(c), to extend the
time during which any Award or group of Awards may be exercised; 

(ix)     to make such adjustments or modifications
to Awards to Grantees working outside the United States as are advisable to
fulfill the purposes of the Plan; 

(x)     to impose such additional terms, conditions
and restrictions upon the grant, exercise or retention of Awards as the
Committee may, before or concurrent with the grant thereof, deem appropriate;
and 

(xi)     to take any other action with respect to
any matters relating to the Plan for which it is responsible. 

The determination of the Committee on all matters
relating to the Plan or any Award Agreement shall be final. 

4.     Indemnification and Reimbursement.
Service as a member of the Committee or any other duly appointed subcommittee
shall constitute service as a Board member, and such members shall accordingly
be entitled to full indemnification and reimbursement as Board members for their
service as members of the Committee or any other duly appointed subcommittee. No
Committee or other duly appointed subcommittee member shall be liable for any
act or omission made in good faith with respect to the Plan or any Award granted
under the Plan. 

5.     Eligibility. The Committee may, in
its discretion, grant Awards to any Eligible Person, whether or not he or she
has previously received an Award, except in the case of an ISO, which can only
be granted to an Employee of the Company or any Subsidiary.

6.     Conditions to Grants. 

(a)     General Conditions.
Awards shall be evidenced by written Award Agreements specifying the number of
Shares covered thereby, in such form as the Committee shall from time to time
establish. 

3 

Award Agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions: 

(i)     The Grant Date of an Award shall be the
date on which the Committee grants the Award or such later date as specified in
advance by the Committee; 

(ii)     In the case of an Award of options, the
Option Term shall under no circumstances extend more than ten (10) years after
the Grant Date and shall be subject to earlier termination as herein provided;
and 

(iii)    Any terms and conditions of an Award not
set forth in the Plan shall be set forth in the Award Agreement related to that
Award. 

(b)     Grant of Options. No later than the
Grant Date of any option, the Committee shall determine the Option Price of such
option. Subject to Section 6(c), the Option Price of an option may be the Fair
Market Value of a Share on the Grant Date or may be less than or more than that
Fair Market Value. An option shall be exercisable for unrestricted Shares,
unless the Award Agreement provides that it is exercisable for Restricted
Shares. 

(c)     Grant of ISOs. At the time of the
grant of any option, the Committee may, in its discretion, designate that such
option shall be made subject to additional restrictions to permit the option to
qualify as an "incentive stock option" under the requirements of Section 422 of
the Code. Any option designated as an ISO: 

(i)     shall have an Option Price
that is not less than the Fair Market Value of a Share on the Grant Date and, if
granted to a Ten Percent Owner, have an Option Price that is not less than 110%
of the Fair Market Value of a Share on the Grant Date; 

(ii)     shall be for a period of not more than ten
(10) years and, if granted to a Ten Percent Owner, not more than five (5) years,
from the Grant Date and shall be subject to earlier termination as provided
herein or in the applicable Award Agreement; 

(iii)     shall meet the limitations of this
subparagraph 6(c)(iii). If the aggregate Fair Market Value of Shares with
respect to which ISOs first become exercisable by a Grantee in any calendar year
exceeds the limit determined in accordance with the provisions of Section 422 of
the Code (the "Limit") taking into account Shares subject to all ISOs
granted by the Company that are held by the Grantee, the excess will be treated
as nonqualified options. To determine whether the Limit is exceeded, the Fair
Market Value of Shares subject to options shall be determined as of the Grant
Dates of the options. In reducing the number of options treated as ISOs to meet
the Limit, the most recently granted options will be reduced first. If a
reduction of simultaneously granted options is necessary to meet the Limit, the
Committee may designate which Shares are to be treated as Shares acquired
pursuant to an ISO; 

(iv)     shall be granted within ten (10) years
from the Effective Date; 

(v)     shall require the Grantee to notify the
Committee of any disposition of any Shares issued upon the exercise of the ISO
under the circumstances described in Section 421(b) of the Code (relating to
certain disqualifying dispositions, a "Disqualifying Disposition"),
within ten (10) business days after such Disqualifying Disposition; and 

(vi)     unless otherwise permitted by the Code,
shall by its terms not be assignable or transferable other than by will or the
laws of descent and distribution and may be exercised, during the Grantee's
lifetime, only by the Grantee, except that the Grantee may, in accordance with
Section 7, designate in writing a beneficiary to exercise his or her ISOs after
the Grantee's death. 

4 

(d)     Grant of SARs. 

(i)     When granted, SARs may, but need not, be
identified with a specific option, specific Restricted Shares, or specific
Performance Shares of the Grantee (including any option, Restricted Shares, or
Performance Shares granted on or before the Grant Date of the SARs) in a number
equal to or different from the number of SARs so granted. If SARs are identified
with Shares subject to an option, with Restricted Shares, or with Performance
Shares, then, unless otherwise provided in the applicable Award Agreement, the
Grantee's associated SARs shall terminate upon (A) the expiration, termination,
forfeiture, or cancellation of such option, Restricted Shares or Performance
Shares, (B) the exercise of such option or Performance Shares, or (C) the date
such Restricted Shares become nonforfeitable. 

(ii)     The strike price (the "Strike Price")
of any SAR shall equal, for any SAR that is identified with an option, the
Option Price of such option, or for any other SAR, one hundred percent (100%) of
the Fair Market Value of a Share on the Grant Date of such SAR, except that the
Committee may (A) specify a higher Strike Price in the Award Agreement or (B)
provide that the benefit payable upon exercise of any SAR shall not exceed such
percentage of the Fair Market Value of a Share on such Grant Date as the
Committee shall specify. 

(e)     Grant of Performance Shares. 

(i)     Before the grant of Performance Shares, the
Committee shall: 

(A)     determine objective performance goals,
which may consist of any one or more of the following goals deemed appropriate
by the Committee: earnings (either in the aggregate or on a per share basis),
operating income, cash flow, EBITDA (earnings before interest, taxes,
depreciation and amortization), return on equity, indices related to EVA
(economic value added), per share rate of return on the Common Stock (including
dividends), general indices relative to levels of general customer service
satisfaction, as measured through various randomly-generated customer service
surveys, market share (in one or more markets), customer retention rates, market
penetration rates, revenues, reductions in expense levels, the attainment by the
Common Stock of a specified market value for a specified period of time, and any
other object performance goal deemed appropriate by the Committee, in each case
where applicable to be determined either on a company-wide basis, individual
basis or in respect of any one or more business units, and the amount of
compensation under the goals applicable to such grant; 

(B)     designate a period for the measurement of
the extent to which performance goals are attained, which may begin
simultaneously with, prior to or following the Grant Date (the "Performance
Period"); and 

(C)     assign a performance percentage to each
level of attainment of performance goals during the Performance Period, with the
percentage applicable to minimum attainment being zero percent and the
percentage applicable to maximum attainment to be determined by the Committee
from time to time (the "Performance Percentage"). 

(ii)     If a Grantee is promoted, demoted, or
transferred to a different business unit of the Company during a Performance
Period, then, to the extent the Committee determines any one or more of the
performance goals, Performance Period or Performance Percentage are no longer
appropriate, the Committee may make any changes thereto as it deems appropriate
in order to make them appropriate. 

(iii)     When granted, Performance
Shares may, but need not, be identified with Shares subject to a specific
option, specific Restricted Shares or specific SARs of the Grantee granted under
the Plan in a number equal to or different from the number of the Performance
Shares so granted. If Performance Shares are so identified, then, unless
otherwise provided in the applicable Award Agreement, the Grantee's associated
Performance Shares shall terminate upon (A) the expiration, termination,
forfeiture or cancellation of the option, Restricted Shares or SARs with which
the Performance Shares are identified, (B) the exercise of such option or SARs,
or (C) the date Restricted Shares become nonforfeitable. 

5 

(f)     Grant of Restricted Shares. 

(i)     The Committee shall determine the amount,
if any, that a Grantee shall pay for Restricted Shares, subject to the following
sentence. The Committee shall require the Grantee to pay at least the Minimum
Consideration for each Restricted Share. Such payment shall be made in full by
the Grantee before the delivery of the shares and in any event no later than ten
(10) business days after the Grant Date. In the discretion of the Committee and
to the extent permitted by law, payment may also be made in accordance with
Section 9. 

(ii)     The Committee may, but need not, provide
that all or any portion of a Grantee's Restricted Shares, or Restricted Shares
acquired upon exercise of an option, shall be forfeited: 

(A)     except as otherwise specified in the Plan
or the Award Agreement, upon the Grantee's termination of employment within a
specified time period after the Grant Date; or 

(B)     if the Company or the Grantee does not
achieve specified performance goals (if any) within a specified time period
after the Grant Date and before the Grantee's termination of employment; or

(C)     upon failure to satisfy such other
conditions as the Committee may specify in the Award Agreement. 

(iii)     If Restricted Shares are forfeited and
the Grantee was required to pay for such shares or acquired such Restricted
Shares upon the exercise of an option, the Grantee shall be deemed to have
resold such Restricted Shares to the Company at a price equal to the lesser of
(A) the amount paid by the Grantee for such Restricted Shares or (B) the Fair
Market Value of the Restricted Shares on the date of forfeiture, which shall be
paid to the Grantee in cash as soon as administratively practicable. Such
Restricted Shares shall cease to be outstanding and shall no longer confer on
the Grantee thereof any rights as a shareholder of the Company, from and after
the date of the event causing the forfeiture, whether or not the Grantee accepts
the Company's tender of payment for such Restricted Shares. 

(iv)     The Committee may provide that the
certificates for any Restricted Shares (A) shall be held (together with a stock
power executed in blank by the Grantee) in escrow by the Secretary of the
Company until such Restricted Shares become nonforfeitable or are forfeited or
(B) shall bear an appropriate legend restricting the transfer of such Restricted
Shares. If any Restricted Shares become nonforfeitable, the Company shall cause
certificates for such shares to be issued without such legend. 

(v)     At the time of a grant of Restricted
Shares, the Committee may require the payment of cash dividends thereon to be
deferred and, if the Committee so determines, reinvested in additional
Restricted Shares. Stock dividends or deferred cash dividends issued with
respect to Restricted Shares shall be subject to the same restrictions and other
terms as apply to the Restricted Shares with respect to which such dividends are
issued. The Committee may in its discretion provide for payment of interest on
deferred cash dividends. 

(g)     Grant of Stock Bonuses. The
Committee may grant Bonus Shares to any Eligible Employee. 

6 

7.     Non-Transferability. An Award granted
hereunder shall not be assignable or transferable other than by will or the laws
of descent and distribution and may be exercised during the Grantee's lifetime
only by the Grantee or his or her guardian or legal representative, except that,
subject to Section 6(c) in respect of ISOs, a Grantee may, if permitted by the
Committee, in its discretion, (a) designate in writing a beneficiary to exercise
an Award after his or her death (if that designation has been received by the
Company prior to the Grantee's death) and (b) transfer the Award to one or more
members of the Grantee's Immediate Family or any other individuals or entities.

8.     Exercise. 

(a)     Exercise of Options. 

(i)     Subject to Section 6, each option shall
become exercisable at such time or times as may be specified by the Committee
from time to time in the applicable Award Agreement. 

(ii)     An option shall be exercised by the
delivery to the Company during the Option Term of (A) a written notice of intent
to purchase a specific number of Shares subject to the option in accordance with
the terms of the option by the person entitled to exercise the option and (B)
payment in full of the Option Price of such specific number of Shares in
accordance with Section 8(a)(iii). 

(iii)     Payment of the Option Price may be made
by any one or more of the following means: 

(A)     cash, check, or wire transfer; 

(B)     with the approval of the Committee, Mature
Shares, valued at their Fair Market Value on the date of exercise; 

(C)     with the approval of the
Committee, Restricted Shares held by the Grantee for at least six (6) months
prior to the exercise of the option, each such share valued at the Fair Market
Value of a Share on the date of exercise; 

(D)     following the date on which the Company
becomes a Public Company, in accordance with procedures previously approved by
the Company, through the sale of the Shares acquired on exercise of the option
through a bank or broker-dealer to whom the Grantee has submitted an irrevocable
notice of exercise and irrevocable instructions to deliver promptly to the
Company the amount of sale or loan proceeds sufficient to pay for such Shares,
together with, if requested by the Company, the amount of federal, state, local
or foreign withholding taxes payable by Grantee by reason of such exercise; or

(E)     in the discretion of the Committee,
payment may also be made in accordance with Section 9. 

(F)     with the approval of the Committee, in any
combination of the foregoing or such other manner determined by the Committee.

The Committee may in its discretion specify that,
if any Restricted Shares are used to pay the Option Price ("Tendered Restricted
Shares"), (A) all the Shares acquired on exercise of the option shall be subject
to the same restrictions as the Tendered Restricted Shares, determined as of the
date of exercise of the option or (B) a number of Shares acquired on exercise of
the option equal to the number of Tendered Restricted Shares shall be subject to
the same restrictions as the Tendered Restricted Shares, determined as of the
date of exercise of the option. 

7 

 

(b)   Exercise of SARs. 

(i)      Subject to Section
6(d), (A) each SAR not identified with any other Award shall become exercisable
at such time or times as may be specified by the Committee from time to time in
the applicable Award Agreement and (B) except as otherwise provided in the
applicable Award Agreement, each SAR which is identified with any other Award
shall become exercisable as and to the extent that the option or Restricted
Shares with which such SAR is identified may be exercised or becomes
nonforfeitable, as the case may be. 

(ii)      SARs shall be
exercised by delivery to the Company of written notice of intent to exercise a
specific number of SARs. Unless otherwise provided in the applicable Award
Agreement, the exercise of SARs that are identified with Shares subject to an
option or Restricted Shares shall result in the cancellation or forfeiture of
such option or Restricted Shares, as the case may be, to the extent of such
exercise. 

(iii)      The benefit for
each SAR exercised shall be equal to (A) the Fair Market Value of a Share on the
date of such exercise, minus (B) the Strike Price specified in such SAR. Such
benefit shall be payable in cash, except that the Committee may provide in the
Award Agreement that benefits may be paid wholly or partly in Shares. 

(c)    Payment of Performance
Shares. Unless otherwise provided in the Award Agreement with respect to an
Award of Performance Shares, if the minimum performance goals applicable to such
Performance Shares have been achieved during the applicable Performance Period,
then the Company shall pay to the Grantee of such Award that number of Shares
equal to the product of: 

(i)     the sum of (A) number of
Performance Shares specified in the applicable Award Agreement and (B) the
number of additional Shares that would have been issuable if such Performance
Shares had been Shares outstanding throughout the Performance Period and the
stock dividends, cash dividends (except as otherwise provided in the Award
Agreement), and other property paid in respect of such Shares had been
reinvested in additional Shares as of each dividend payment date, multiplied by

(ii)     the Performance
Percentage achieved during such Performance Period. 

The Committee may, in its discretion, determine that
cash be paid in lieu of some or all of such Shares. The amount of cash payable
in lieu of a Share shall be determined by valuing such Share at its Fair Market
Value on the business day immediately preceding the date such cash is to be
paid. Payments pursuant to this Section 8 shall be made as soon as
administratively practical after the end of the applicable Performance Period.
Any Performance Shares with respect to which the performance goals shall not
have been achieved by the end of the applicable Performance Period shall expire.

9.      Loans. The
Committee may in its discretion allow a Grantee to defer payment to the Company
of all or any portion of (a) the Option Price of an option, (b) the purchase
price of Restricted Shares, or (c) any taxes associated with the exercise,
nonforfeitability of, or payment of benefits in connection with, an Award. Any
such payment deferral by the Company shall be on such terms and conditions as
the Committee may determine, except that a Grantee shall not be entitled to
defer the payment of such Option Price, purchase price, or any related taxes
unless the Grantee (a) enters into a binding obligation to pay the deferred
amount and (b) other than with respect to treasury shares, pays upon exercise of
an option or grant of Restricted Shares, as applicable, an amount at least equal
to the Minimum Consideration therefor. If the Committee has permitted a payment
deferral in accordance with this Section 9, then the Committee may require the
immediate payment of such deferred amount upon the Grantee's termination of
employment or if the Grantee sells or otherwise transfers his or her Shares
purchased pursuant to such deferral. The Committee may at any time in its
discretion forgive the repayment of any or all of the principal of, or interest
on, any such deferred payment obligation. 

8

10.      Notification
under Section 83(b). If the Grantee, in connection with the exercise of any
option or the grant of Restricted Shares, makes the election permitted under
Section 83(b) of the Code to include in such Grantee's gross income in the year
of transfer the amounts specified in Section 83(b) of the Code, then such
Grantee shall notify the Company, in writing, of such election within ten (10)
days after filing the notice of the election with the Internal Revenue Service,
in addition to any filing and notification required pursuant to regulations
issued under Section 83(b) of the Code. The Committee may, in connection with
the grant of an Award or at any time thereafter, prohibit a Grantee from making
the election described in this Section 10. 

11.      Mandatory Tax
Withholding. 

(a)      Whenever under the
Plan, Shares are to be delivered upon exercise or payment of an Award or upon
Restricted Shares becoming nonforfeitable, or any other event with respect to
rights and benefits hereunder, the Company shall be entitled to require (i) that
the Grantee remit an amount in cash, or in the Company's discretion, Mature
Shares or any other form of consideration, sufficient to satisfy all federal,
state and local tax withholding requirements related thereto ("Required
Withholding"), (ii) the withholding of such Required Withholding from
compensation otherwise due to the Grantee or from any Shares due to the Grantee
under the Plan, or (iii) any combination of the foregoing. 

(b)      Any Grantee who
makes a Disqualifying Disposition or an election under Section 83(b) of the Code
shall remit to the Company an amount sufficient to satisfy all resulting
Required Withholding, except that in lieu of or in addition to the foregoing,
the Company shall have the right to withhold such Required Withholding from
compensation otherwise due to the Grantee or from any Shares or other payment
due to the Grantee under the Plan. 

(c)      Any surrender by a
Section 16 Grantee of previously owned shares of Common Stock to satisfy tax
withholding arising upon exercise of the Award must comply with the applicable
provisions of Rule 16b-3(e) under the 1934 Act. 

12.     Elective Share
Withholding. At the Company's discretion, a Grantee may, with the prior
consent of the Committee, elect the withholding by the Company of a portion of
the Shares otherwise deliverable to such Grantee upon the exercise of an Award
or upon Restricted Shares becoming nonforfeitable (each, a "Taxable Event")
having a Fair Market Value equal to the minimum amount necessary to satisfy the
Required Withholding liability attributable to the Taxable Event. 

13.     Termination of
Employment. 

(a)    For Cause. Except as otherwise
provided by the Committee in an Award Agreement, if a Grantee's employment is
terminated for Cause, (i) the Grantee's Restricted Shares (and any SARs
identified therewith) that are then forfeitable shall on the date of the
Grantee's termination of employment be forfeited on such date, subject to the
provisions of Section 6(f)(iii) regarding repayment of certain amounts to the
Grantee; and (ii) any unexercised option, SAR or Performance Share shall
terminate effective immediately upon such termination of employment. 

(b)    On Account of Death. Except as
otherwise provided by the Committee in the Award Agreement, if a Grantee's
employment terminates on account of death, then: 

(i)     the
Grantee's Restricted Shares (and any SARs identified therewith) that are then
forfeitable shall on the date of the Grantee's termination of employment be
forfeited on such date; 

(ii)     any
unexercised option or SAR, to the extent exercisable on the date of such
termination of employment, may be exercised, in whole or in part, within the
first twelve (12) months after such termination of employment (but only during
the Option Term) after the death of the Grantee by (A) his or her  

9

personal representative or by the person to whom the option or SAR, as
applicable, is transferred by will or the applicable laws of descent and
distribution, (B) the Grantee's designated beneficiary, or (C) a Permitted
Transferee; and 

(iii)     any unexercised
Performance Shares may be exercised in whole or in part, at any time within six
(6) months after such termination of employment on account of the death of the
Grantee, by (A) his or her personal representative or by the person to whom the
Performance Shares are transferred by will or the applicable laws of descent and
distribution, (B) the Grantee's designated beneficiary, or (C) a Permitted
Transferee, except that the benefit payable with respect to any Performance
Shares for which the Performance Period has not ended as of the date of such
termination of employment on account of death shall be equal to the product of
Fair Market Value of such Performance Shares multiplied successively by each of
the following: 

(A)     a fraction, the
numerator of which is the number of months (including as a whole month any
partial month) that has elapsed since the beginning of such Performance Period
until the date of such termination of employment and the denominator of which is
the number of months (including as a whole month any partial month) in the
Performance Period; and 

(B)     a percentage determined
in the discretion of the Committee that would be earned under the terms of the
applicable Award Agreement assuming that the rate at which the performance goals
have been achieved as of the date of such termination of employment would
continue until the end of the Performance Period, or, if the Committee elects to
compute the benefit after the end of the Performance Period, the Performance
Percentage, as determined by the Committee, attained during the Performance
Period for such Performance Shares. 

(c)     On Account of Disability.
Except as otherwise provided by the Committee in the Award Agreement, if a
Grantee's employment terminates on account of Disability, then: 

(i)     the Grantee's Restricted
Shares (and any SARs identified therewith) that are then forfeitable shall on
the date of the Grantee's termination of employment be forfeited on such date;

(ii)     any unexercised option
or SAR, to the extent exercisable on the date of such termination of employment,
may be exercised in whole or in part, within the first twelve (12) months after
such termination of employment (but only during the Option Term) by the Grantee,
or by (A) his or her personal representative or by the person to whom the option
or SAR, as applicable, is transferred by will or the applicable laws of descent
and distribution, (B) the Grantee's designated beneficiary, or (C) a Permitted
Transferee; and 

(iii)     any unexercised
Performance Shares may be exercised in whole or in part, at any time within six
(6) months after such termination of employment on account of Disability by the
Grantee, or by (A) his personal representative or by the person to whom the
Performance Shares are transferred by will or the applicable laws of descent and
distribution, (B) the Grantee's designated beneficiary, or (C) a Permitted
Transferee, except that the benefit payable with respect to any Performance
Shares for which the Performance Period has not ended as of the date of such
termination of employment on account of Disability shall be equal to the product
of the Fair Market Value of the Performance Shares multiplied successively by
each of the following: 

(A)     a fraction, the
numerator of which is the number of months (including as a whole month any
partial month) that have elapsed since the beginning of such Performance Period
until the date of such termination of employment and the denominator of which is
the number of months (including as a whole month any partial month) in the
Performance Period; and 

(B)     a percentage determined
in the discretion of the Committee that would be earned under the terms of the
applicable Award Agreement assuming that the rate at which the performance goals
have been achieved as of the date of such termination of employment would
continue until the 

10

end of the Performance Period, or, if the Committee elects to
compute the benefit after the end of the Performance Period, the Performance
Percentage, as determined by the Committee, attained during the Performance
Period for such Performance Shares.

(d)    
Any Reason Other Than For Cause Or
On Account of Death or Disability. Except as otherwise provided by the Committee
in the Award Agreement, if a Grantee's employment terminates for any reason
other than for Cause, or on account of death or Disability, then: 

(i)    
the Grantee's Restricted Shares
(and any SARs identified therewith), that are then forfeitable shall on the date
of the Grantee's termination of employment be forfeited on such date;

(ii)    
any unexercised option or SAR
(other than a SAR identified with a Restricted Share or Performance Share), to
the extent exercisable immediately before the Grantee's termination of
employment, may be exercised in whole or in part, not later than three (3)
months after such termination of employment (but only during the Option Term);
and 

(iii)    
the Grantee's Performance Shares
(and any SARs identified therewith) shall terminate effective immediately upon
such termination of employment. 

14.    
Substituted Awards. If the
Committee cancels any Award (whether granted under the Plan or any plan of any
entity acquired by the Company or a Subsidiary), the Committee may, in its
discretion, substitute a new Award therefor upon such terms and conditions
consistent with the Plan as the Committee may determine, except that (a) the
Option Price of any new option, and the Strike Price of any new SAR, shall not
be less than one hundred percent (100%) (one hundred ten percent (110%) in the
case of an incentive stock option granted to a Ten Percent Owner) of the Fair
Market Value of a Share on the date of the grant of the new Award; and (b) the
Grant Date of the new Award shall be the date on which such new Award is
granted. 

15     Securities Law Matters.

(a)    
If the Committee deems necessary to
comply with any applicable securities law, the Committee may require a written
investment intent representation by the Grantee and may require that a
restrictive legend be affixed to certificates for Shares. If, based upon the
advice of counsel to the Company, the Committee determines that the exercise or
nonforfeitability of, or delivery of benefits pursuant to, any Award would
violate any applicable provision of (i) federal or state securities laws or (ii)
the listing requirements of any national exchange or national market system on
which are listed any of the Company's equity securities, then the Committee may
postpone any such exercise, nonforfeitability or delivery, as applicable, but
the Company shall use all reasonable efforts to cause such exercise,
nonforfeitability or delivery to comply with all such provisions at the earliest
practicable date. 

(b)    
Grants of options to Section 16
Grantees shall comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder for such grants to
qualify for exemption from liability under Section 16(b) of the 1934 Act.

16.    
No Employment Rights.
Neither the establishment of the Plan nor the grant of any Award shall (a) give
any Grantee the right to remain employed by the Company or any Subsidiary or to
any benefits not specifically provided by the Plan or (b) modify the right of
the Company or any Subsidiary to modify, amend, or terminate the Plan or any
other employee benefit plan or employment agreement.

17.    
No Rights as a Shareholder.
A Grantee shall not have any rights as a shareholder of the Company with respect
to the Shares (other than Restricted Shares) which may be deliverable upon
exercise or payment of an Award until such Shares have been delivered to him or
her. Restricted Shares, whether held by a 

11 

Grantee or in escrow by the Company, shall confer on the Grantee all rights
of a shareholder of the Company, except as otherwise provided in the Plan or
applicable Award Agreement.

18.    
Nature of Payments. Awards
shall be special incentive payments to the Grantee and shall not be taken into
account in computing the amount of salary or compensation of the Grantee for
purposes of determining any pension, retirement, death or other benefit under
(a) any pension, retirement, profit-sharing, bonus, insurance or other employee
benefit plan of the Company or any Subsidiary or (b) any agreement between (i)
the Company or any Subsidiary and (ii) the Grantee, except as such plan or
agreement shall otherwise expressly provide.

19.    
Non-uniform Determinations.
The Committee's determinations under the Plan need not be uniform and may be
made by the Committee selectively among persons who receive, or are eligible to
receive, Awards, whether or not such persons are similarly situated. Without
limiting the generality of the foregoing, the Committee shall be entitled to
enter into non-uniform and selective Award Agreements as to (a) the identity of
the Grantees, (b) the terms and provisions of Awards, including, without
limitation, vesting and manner of payment of purchase price upon exercise, and
(c) the treatment of terminations of employment.

20.
    Adjustments.
The Committee shall make equitable adjustment of:

(a) 

  
the aggregate number of Shares available under the Plan for Awards and the
aggregate number of Shares for which Awards may be granted to any individual
Grantee in any calendar year pursuant to the second sentence of Section 2;

(b)
    the number of
Shares, SARs or Performance Shares covered by an Award; and

(c)    
the Option Price of all outstanding
options and the Strike Price of all outstanding SARs;

to reflect a stock dividend, stock
split, reverse stock split, share combination, recapitalization, merger,
consolidation, spin-off, split-off, reorganization, rights offering, liquidation
or similar event of or by the Company.

21.    
Amendment of the Plan. The
Committee may from time to time, in its discretion, amend the Plan without the
approval of the Company's shareholders, except (a) as such shareholder approval
may be required under the listing requirements of any securities exchange or
national market system on which are listed the Company's equity securities and
(b) that the Committee may not without the approval of the Company's
shareholders amend the Plan to increase the total number of shares reserved for
the purposes of the Plan (other than in accordance with Section 20).

22.    
Termination of the Plan. The
Plan shall continue in effect until the earlier of its termination by the
Committee or the date on which all of the shares of Common Stock available for
issuance under the Plan have been issued and all restrictions on such shares
under the terms of the Plan and the agreements evidencing Awards granted under
the Plan have lapsed. However, all Awards shall be granted, if at all, within
ten (10) years from the earlier of the date the Plan is adopted by the Committee
or the date the Plan is duly approved by the shareholders of the Company.
Notwithstanding the foregoing, if the maximum number of shares of Common Stock
issuable pursuant to the Plan has been increased at any time, all Awards shall
be granted, if at all, no later than the last day preceding the ten (10) year
anniversary of the earlier of (a) the date on which the latest such increase in
the maximum number of shares of Common Stock issuable under the Plan was
approved by the shareholders of the Company or (b) the date such amendment was
adopted by the Committee. No termination shall affect any Award then outstanding
under the Plan. 

23.    
No Illegal Transactions. The
Plan and all Awards granted pursuant to it are subject to all applicable laws
and regulations. Notwithstanding any provision of the Plan or any Award,
Grantees shall not be entitled to exercise, or receive benefits under any Award,
and the Company shall not be obligated to deliver any 

12 

Shares or deliver benefits to a Grantee, if such exercise or delivery would
constitute a violation by the Grantee or the Company of any applicable law or
regulation.

24.    
Constructive Sales. The
Grantee shall not directly or indirectly, through related parties or otherwise,
"short" or "short against the box" (as those terms are generally understood in
the securities markets), or otherwise directly or indirectly (through derivative
instruments or otherwise) dispose of or hedge, any securities of the Company
issuable upon exercise of such Grantee’s Award(s). 

25.    
Definitions. The terms set
forth below have the indicated meanings which are applicable to both the
singular and plural forms thereof: 

"Award" shall mean options, including ISOs,
Restricted Shares, Bonus Shares, SARs or Performance Shares granted under the
Plan.

"Award Agreement" shall mean the written
agreement by which an Award shall be evidenced.

"Board" shall mean the Board of Directors of
the Company.

"Bonus Shares" shall mean Shares that are
awarded to a Grantee without cost and without restrictions.

"Cause", with respect to any employee or
consultant of the Company shall have the meaning set forth in such person’s
employment or consulting agreement or, in the absence of such an agreement or if
such term is not defined in such agreement, shall mean any one or more of the
following, as determined by the Committee (in the case of a Section 16 Grantee)
or the Chief Executive Officer or President of the Company (in the case of any
other Grantee):

(i)      
a Grantee's commission of a crime
that is likely to result in injury to the Company or a Subsidiary;

(ii)      
the material violation by the
Grantee of written policies of the Company or a Subsidiary;

(iii)    
the habitual neglect by the Grantee
in the performance of his or her duties to the Company or a Subsidiary; or

(iv)    
a Grantee’s willful misconduct or
inaction in connection with his or her duties to the Company or a Subsidiary
resulting in a material injury to the Company or a Subsidiary. 

"Code" shall mean the Internal Revenue Code of
1986, as amended or superseded, and the regulations and rulings thereunder.
Reference to a particular section of the Code shall include references to
successor provisions.

"Committee" shall mean the committee of the
Board appointed pursuant to Section 3(a), or if not so appointed or unable to
act or with reference to Awards to Independent Directors, shall mean the entire
Board.

"Common Stock" shall mean the common stock,
$0.001 par value per share, of the Company.

"Consultant" shall mean any
person, including a Director, who is engaged by the Company or any Parent,
Subsidiary or Affiliate thereof, to render services to or for the benefit of the
Company and is compensated for such services.

"Director" shall mean a member of
the Board.

13 

"Disability" shall mean a
permanent and total disability, within the meaning of Section 22(e)(3) of the
Code. 

"Effective Date" shall mean the
date set forth in the first paragraph hereof. 

"Eligible Person" shall mean any
Employee, Consultant or Director of the Company or any Subsidiary, including any
prospective Employee or Employee on an approved leave of absence or layoff, if
such leave or layoff does not qualify as a Disability. 

"Employee" shall mean any person
treated as an employee (including officers and directors) in the records of the
Company (or Subsidiary) and who is subject to the control and direction of the
Company (or Subsidiary) with regard to both the work to be performed and the
manner and method of performance. The payment of a director’s fee by the Company
(or Subsidiary) to a Director shall not be sufficient to constitute "employment"
of the Director by the Company (or Subsidiary). 

"Fair Market Value" per share of
Common Stock on any relevant date shall mean such value as determined in
accordance with the following provisions: 

(i)      
If the Common Stock is at that time listed on a national securities exchange,
then the Fair Market Value shall mean the closing selling price per share of
Common Stock on the exchange on which such Common Stock is principally traded on
the relevant date or, if there were no sales on that date, the closing selling
price of such Common Stock on the last preceding date on which there were sales.

(ii)      If
the Common Stock is at that time traded on the Nasdaq National Market®,
Nasdaq Small Cap MarketSM or OTC Bulletin Board®, as the
case may be, then the Fair Market Value shall mean the closing selling price per
share of Common Stock on the relevant date, as the price is reported by the
National Association of Securities Dealers on the Nasdaq National Market®,
Nasdaq Small Cap MarketSM or OTC Bulletin Board®, as the
case may be, or any successor system. If there is no closing selling price for
the Common Stock on the relevant date, then the Fair Market Value shall mean the
closing selling price on the last preceding date for which such quotation
exists. 

(iii)     If the
Common Stock is neither listed on any national securities exchange nor traded on
the Nasdaq National Market®, Nasdaq Small Cap MarketSM or
OTC Bulletin Board®, then the Fair Market Value shall mean that value
determined by the Committee after taking into account such factors as the
Committee shall in good faith deem appropriate. 

"Grant Date" shall have the
meaning specified in Section 6(a). "Grantee" shall mean a person who has been
granted an Award or any Permitted Transferee. "ISO" shall mean an incentive
stock option within the meaning of Section 422 of the Code. 

"Immediate Family" shall mean,
with respect to a particular Grantee, the Grantee's spouse, children and
grandchildren. 

"Independent Director" shall mean
a member of the Board who in not an Employee of the Company. 

"Mature Shares" shall mean Shares
for which the holder thereof has good title, free and clear of all liens and
encumbrances, and which such holder has held for at least six (6) months. 

14 

"Minimum Consideration" shall mean par value
per Share or such other amount that is from time to time considered to be
minimum consideration under applicable law. 

"1934 Act" shall mean the Securities Exchange
Act of 1934, as amended. References to a particular section of the 1934 Act or
rule thereunder, include references to successor provisions. 

"Option Price" shall mean the per share
exercise price of an option. 

"Option Term" shall mean the period beginning
on the Grant Date of an option and ending on the expiration date of such option,
as specified in the Award Agreement for such option and as may, in the
discretion of the Committee and consistent with the provisions of the Plan, be
extended from time to time. 

"Performance Shares" shall mean an Award to a
Grantee pursuant to Section 6(e). 

"Permitted Transferee" shall mean a person to
whom an Award may be transferred or assigned in accordance with Section 7. 

"Public Company" shall mean any entity issuing
any class of equity securities that has been, or is required to be, registered
under Section 12 of the 1934 Act. 

"Restricted Shares" shall mean Shares that are
subject to forfeiture if the Grantee does not satisfy the conditions specified
in the Award Agreement applicable to those Shares. 

"Rule 16b-3" shall mean Rule 16b-3 of the SEC
under the 1934 Act, as amended from time to time, together with any successor
rule. 

"SAR" shall mean a stock appreciation right.

"SEC" shall mean the Securities and Exchange
Commission. 

"Section 16 Grantee" shall mean a person who
is subject to potential liability under Section 16(b) of the 1934 Act with
respect to transactions involving equity securities of the Company. 

"Share" shall mean a share of Common Stock.

"Strike Price" shall have the meaning
specified in Section 6(d)(ii). 

"Subsidiary" shall mean a subsidiary
corporation, as defined in Section 424(f) of the Code (with the Company being
treated as the employer corporation for purposes of this definition). 

"Ten Percent Owner" shall mean
a person who owns capital stock (including stock treated as owned under Section
424(d) of the Code) possessing more than ten percent of the total combined
Voting Power of all classes of capital stock of the Company or any Subsidiary.

"Voting Power" shall mean the combined voting
power of the then-outstanding securities of the Company entitled to vote
generally in the election of directors. 

26.     Controlling Law.
The law of the State of New York, except its law with respect to choice of law,
shall control all matters relating to the Plan. 

27.     
Severability. If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or
part of a Section so declared
to be unlawful or invalid shall, if possible, be construed in a manner which
will given effect to the terms of such Section to the fullest extent possible
while remaining lawful and valid. 

15

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