Crary Partners LLC

November 28, 2001

Mr. Harold K. Fletcher
President
Tel-Instrument Electronics Corp.
728 Garden Street
Carlstadt, NJ 07072

Dear Hal:

Based on our discussions, our preliminary review of the financial and other information submitted to us and representations you have made with regard to the present and proposed business activities of Tel-Instrument Electronics Corp. (the "Company"), its operations and financial condition, we would like to confirm our interest in acting as the Company's exclusive financial advisor and, if a private placement or business combination is decided upon, as placement agent, on a "best efforts" basis, for one or more private equity investments in the Company and as introducing broker in a business combination (a private placement, merger, acquisition, sale of assets, sale of common stock, sale of ownership interest or any other financial transaction hereinafter referred to as a "Transaction"), upon the basic terms and conditions set forth herein (the "Agreement") as well as in providing additional investment banking services. We understand that the Company currently perceives its objectives to be the raising of capital; the funding of appropriate acquisitions or merger candidates and the creation of a broader and more efficient market for its common stock.

Any investment or other Transaction would be made subject to the Securities Act of 1933, as amended, and applicable stare securities laws. It would be subject to, among other things, completion of our due diligence investigation of the Company, the continuation of the Company's normal business operations without material adverse change and the absence of unfavorable market conditions in general.

Section 1: Services to be Rendered

Our services will include (but not be limited to) the following:

(i) Consulting with the Company as to development of a long-term strategic p1an for realizing the value of the Company's assets, for initiating discussions and negotiations with investor candidates, including strategic investment candidates (defined as corporations or other business entities in similar or related businesses or industries, hereinafter referred to as "Strategic investors") and merger or acquisition candidates ("Merger Candidates"), as well as potential financial investment candidates (collectively "Candidates"), and for achieving the other objectives discussed above;

(ii) Advising the Company with respect to effecting a broader and more efficient market for its common stock through encouraging analysts and market commentators to cover the Company, introducing the Company to retail broker-dealers and any other financial institutions that could be candidates for purchasing its stock and otherwise assisting the Company in raising its profile in the investment community;

(iii) Advising the Company with respect to possible merger opportunities or acquisition candidates, including financial analysis, the receptivity of the financial markets and the effects on the Company of pursuing various opportunities;

(iv) Attempting to arrange a sale of existing shares of the Company's stock held by certain shareholders to be identified by the Company, if requested by the Company, as part of an investment or separately, in one or more series of block sales or Transactions at market price or at another price that may be negotiated between the shareholders and one or more buyers introduced by us;

(v) Assisting the Company in raising capital by (a) arranging a private placement of the Company's securities in the amount and on the terms agreed in writing and/or (b) advising on and assisting in obtaining an underwriter for a public offering of the Company's securities in such amount and on such terms as are agreed in writing.

(vi) Providing any other investment banking, financial, advisory or management-consulting services as may be agreed in writing between us and the Company, including (but not limited to) reviewing other business opportunities, rendering an opinion as to the potential impact of such business opportunities on the Company's valuation and assisting management in identifying candidates for the Board of Directors if requested by the Company.

We will advise in connection with the preparation of the Information Memorandum and may recommend the retention of a business plan consultant, which Memorandum may be in one or more formats and will include an executive summary and a business plan with detailed historical and projected financial statements which will describe the Company, its current and proposed future businesses, the Company's management and the investment opportunity. The Information Memorandum will also incorporate any other relevant information that may be customary and necessary or may be deemed by us to be desirable. The Company confirms that, in assisting in the preparation of the Information Memorandum, we will be relying upon information, both written and oral, and documents and data furnished by the Company to us or which have been approved by the Company, as well as information from generally recognized public sources (the "Information").

The Company will furnish to us such information, documents and other materials, respond to requests for information and take such other action as (i) shall be reasonably requested by us so as to permit and facilitate the carrying out of our activities under this Agreement and (ii) shall be reasonably requested by any Candidates in connection with their analysis or due diligence review of a Transaction. If any event shall occur or condition develop as a result of which it is necessary or advisable, in our opinion, to amend or supplement any such previously furnished documents or materials in order that they will not contain an untrue statement of a material fact or omit any material fact necessary to make the statements made therein not misleading, then the Company shall prepare or cause to be prepared such updated, additional or supplemental documentation, which shall be acceptable to us for delivery to Candidates for the purpose of correcting such statement or omission. In the event that the Company determines that no such amendment or supplement is required, we may terminate the Agreement. The Company may unilaterally decide to amend, update, revise or add supplemental data to the Information at any time it chooses and we may distribute such updated information and documents to the Candidates.

We will not provide an Information Memorandum or other confidential information about the Company to any Strategic Investor or Merger Candidate that is in a business similar to or competing with the Company unless such Strategic Investor or Merger Candidate executes a confidentiality or non-disclosure agreement acceptable to the Company. We will use our best efforts to obtain an executed non-disclosure

agreement before providing an Information Memorandum (excluding executive summaries or other similar, limited descriptions of the Company's business) or other confidential information to any other Candidate.

The Company shall be under no obligation to negotiate with any Candidate and the Company has the sole discretion whether or not to enter into a definitive agreement for a Transaction with a Candidate.

Section II: Fees, Expenses and Terms

We will be the exclusive financial advisors to and representatives of the Company for an initial period of six months commencing on the date of execution of this Agreement by both parties, provided however, that either parry may withdraw from this Agreement at any time upon thirty days' written notice to the other party. Otherwise, this engagement and the terms hereunder will continue, until a Transaction is successfully completed or until the Agreement is terminated by written notice to the other party. Within three business days after the effective date of any termination by the Company (the "Termination Date"), we will deliver to the Company a list of all Candidates (the "Covered Parties") with which we can confirm that (a) the Company, at our instigation or by our introduction, has bad discussions or one or more meetings concerning a Transaction during the term of this Agreement and prior to receipt of the notice of termination or (b) such Covered Parties have, prior to such notice of termination, expressed an interest in considering or pursuing a Transaction by requesting a copy of the Information Memorandum after qualifying discussions with us and having received such Information Memorandum. Covered Parties shall not include Candidates contacted by us that have indicated they are not interested in the Company either during a preliminary qualifying conversation or after reading an executive summary or other preliminary business description. On and after the Termination Date, we shall also, upon request, either destroy or return to the Company any and all Information, Information Memoranda and confidential information of the Company (including extracts thereof), which are in our possession or control. The provisions concerning confidentiality, indemnification, compensation and the Company's obligation to pay fees and reimburse expenses contained herein and the Company's obligations contained in the Indemnification provisions will survive any such termination, except to the extent expressly stated otherwise herein. We agree not to use any confidential information about the Company provided to us by the Company for any purpose other than in connection with our services hereunder or as directed by the Company.

The Company agrees to pay us the following compensation for our services hereunder (provided that no such fee shall apply to any Transaction with a current officer, director, shareholder or employee of the Company, or any family member or affiliate of any such person, all contrary provisions notwithstanding):

(i) A non-refundable retainer in the amount of $30,000.00, payable in six installments, the initial $5,000.00 of which shall be paid upon signing this agreement and the remaining five installments of $5,000.00 each shall be paid in thirty-calendar-day increments beginning thirty days after the initial payment such that the second installment shall be paid thirty calendar days after the initial payment, the third shall be paid sixty calendar days after the initial payment and so forth. The retainer is intended to compensate us for investment banking services, particularly as described in subparagraphs (i), (ii) and (iii) in Section 1. The Company considers time of the essence in connection with these services and if, in the Company's reasonable judgment, we have not provided the services contemplated hereunder in a diligent manner, the Company may exercise its termination rights any lime after sixty days from the date hereof, and after such termination, no further amounts specified in this subparagraph
(i) shall be due and payable. In the event that we exercise our termination rights, no further amounts under this subparagraph (i) shall become due and payable.

(ii) A success fee which shall be a percentage (defined below) of the Aggregate Consideration (except as further defined below) received by the Company from a Transaction closed with a Candidate (or upon closing a Transaction with a Covered Party within twelve months after the Termination Date), which amount will be paid when the Company receives the proceeds from the Transaction. The success fee is calculated as a percentage of the proceeds from the Aggregate Consideration (except as further defined in below) of any Transaction on an accumulated basis according to the following formula:

Up to $ 5M 8%, plus
from $ 5M to $l0M: 7%,plus
from $10M to $15M: 6%, plus
from $l5M to $20M: 5%, plus
above $20M: 4%.

(iii) In connection with the compensation set forth in (ii) above, warrants to purchase common stock of the Company, with usual and customary exercise rights, terms and conditions (to be covered in a separate warrant agreement) equal to five percent (5%) of the amount of any investment received from a Candidate or the Aggregate Consideration (defined below) of any Transaction which shall be exercisable at the price paid by the investors or at five percent (5%) of the Aggregate Consideration of the Transaction. For purposes of calculating the five percent warrant compensation, the amount of the investment shall be based on either the exercise price multiplied by the shares issued in the Transaction or the Aggregate Value of the investment, as appropriate.

(iv) Regardless of whether or not the Company completes any other Transaction with a Candidate, the Company will reimburse us for all documented, reasonable, out-of-pocket expenses incurred directly in connection with and during the term of this Agreement including preparation and printing of all necessary documents and other costs incurred, which out-of-pocket expenses shall not exceed $5,000 in the aggregate without the prior written approval of the Company.

If a Transaction is consummated, then at any time thereafter, prior to the second anniversary of the date of termination of this Agreement, if the Company closes any additional Transaction or business combination with any Candidate, we will be entitled to receive a fee in cash payable upon the receipt of the proceeds from any such Transaction or business combination, based on the Aggregate Consideration of the Transaction or business combination using the following formula:

1. Two and one-half percent (2.5%) of the first five million dollars of Aggregate Consideration or part thereof; plus

2 One percent (1%) of any remaining Aggregate Consideration.

For purposes of this Agreement, "introduced" means that we shall have brought the prospective Transaction to the attention of the Company and we shall have been a procuring cause in its consummation of the matter. "Procuring cause" shall mean that we can confirm that (a) the Company, at our instigation or by our introduction, has had discussions or one or more meetings concerning a Transaction dining the term of this Agreement and prior to receipt of the notice of termination or (b) such Covered Parties have, prior to such notice of termination, expressed an interest in considering or pursuing a Transaction by requesting a copy of the Information Memorandum and, after qualifying discussions with us, received such Information Memorandum. Covered Parties shall not include Candidates contacted by us that have indicated they are not interested in the Company either during a preliminary qualifying conversation or after reading an executive summary or other limited business description.

For purposes of this Agreement, "Aggregate Consideration" shall mean the total value of all cash. securities, other property and any other consideration, including, without limitation (as, if and when received), any contingent, earned or other assets or consideration, paid or payable, directly or indirectly, in connection with the Transaction, net of any indebtedness owed upon the same, it being the intention of this provision that the Aggregate Consideration shall mean the net equity value of any cash, tangible assets or measurable intangible assets acquired by, invested in, loaned to or transferred to the Company. The fair market value of any securities (whether debt or equity) or other similar property shall be determined by the closing or last sale prices of these securities on the date of the consummation of the Transaction or the valuation of other assets placed upon them by the parties to the Transaction. If any non-cash consideration is a class of newly-issued, publicly-traded securities, then the fair market value thereof shall be the average of the closing prices for the twenty trading days subsequent to the fifth trading day after the consummation of the Transaction. If no public market exists for any securities issued in the Transaction or a class of securities is not intended to be publicly traded or convertible into publicly-traded securities, then the fair market value thereof shall be determined by the valuation placed upon these securities by the parties to the Transaction.

In the event that the Company completes more than one Transaction during the term hereof, the Aggregate Consideration of all Transactions shall be combined for the purposes of applying the Success Fee Schedule.

Section III: Indemnification

In consideration of our services on behalf of the Company in connection with any offering of securities, the Company agrees to indemnify and hold harmless us and each of our affiliates, stockholders, directors, officers, employees, agents and controlling persons (within the meaning of ss.l5 of the Securities Act of 1933) to the extent and as provided for in the indemnification provisions attached hereto as Addendum A and incorporated herein in their entirety. We agree to indemnify the Company for our own willful misconduct or gross negligence in performing the services herein.

Section IV: Other

During the period that we are engaged by the Company, the Company shall not directly or indirectly initiate any discussions or other contacts or solicit any inquiries or indications of interest concerning a Transaction with any Person without identifying such Person to us within a reasonable period of lime. The Company shall promptly furnish us with the names of all parties with whom the Company, its directors, officers and/or its controlling shareholders have conducted any discussions, received inquiries from or had any other related contacts within three months prior to the date hereof; concerning any potential investment in the Company or in any related Transaction with the Company and shall promptly inform us of the identity of any third parry that subsequently makes any such inquiry and whose interest in a possible investment in the Company or in any other form of Transaction subsequently becomes known to the Company during the term of this Agreement.

Each party to this Agreement agrees to keep in strict confidence the proprietary and non-public information of the other party during the term of this Agreement and thereafter, provided, however, that the foregoing shall not prohibit disclosures (i) pursuant to the exercise of the parties' responsibilities under this Agreement (ii) required by law or legal process (provided notice is given prior to such disclosure); or (iii) of matters which become public other than by the actions of the disclosing party hereunder.

The Company represents that, to the best of its knowledge, there are no brokers, representatives or other persons that have an interest in compensation due from this engagement or any Transaction contemplated hereunder that have not been identified to us.

This Agreement shall be construed and enforced in accordance with the laws of the State of New York and the parties agree to submit themselves to the jurisdiction of the courts located in that state, which shall be the sole tribunals in which either party may institute and maintain a legal proceeding against the other party arising from any dispute hereunder.

If any agreement. covenant, warranty or other provision of this Agreement is invalid, illegal or incapable of being enforced by reason of any rule of law or public policy, all other agreements, covenants, warranties and other provisions of this Agreement shall, nevertheless, remain in full force and effect. No waiver by either party of a breach or non-performance of any provision or obligation of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision of this Agreement. This Agreement is the entire agreement of the parties with respect to the subject matter hereof; supersedes all prior agreements and understandings, oral or written, relating to the subject matter hereof; and may not be amended, supplemented, or modified except by written instrument executed by all parties hereto. Neither party may assign any of its rights or obligations under this Agreement without the prior written consent of the other party.

All notices or other communications under this Agreement must be in writing and sent by prepaid. flint class mail or Federal Express, delivered by hand or transmitted by facsimile or email to the email address or facsimile number of the recipient set out below or such other address, email address or facsimile number as may be furnished in writing by the recipient to the other party. The addresses, email addresses and facsimile numbers of the parties for purposes of this Agreement are:

(i)   Tel-Instrument:                    (ii)  Crary Partners LLC

      Tel-Instrument Electronics Corp.         Crary Partners LLC
      728 Garden Street                        10 Wright Street, Suite 220
      Carlstadt, NJ 07072                      Westport CT 06880
      Attn: Joseph P. Macaluso                 Attn: Calvert D. Crary
      Director, Finance and Administration     Facsimile: 203-349-7030
      Facsimile: 203-461-9421                  Email: ccrary@aol.com
      Email: JMAC@telinst.com

With a copy to:

      Jackson & Nash, LLP
      330 Madison Avenue
      New York, NY 10017
      Attn: Donald S. Bab

General Counsel, Tel-Instrument Electronics Corp. Facsimile: 212-370-8152

If the foregoing is acceptable to you, please indicate your approval by signing in the space provided and returning an executed copy of this Agreement to us.

We are very enthusiastic about working with you toward the successful completion of this assignment.

Sincerely yours,

Calvert D. Crary
CRARY PARTNERS LLC

Accepted and agreed, this twenty-eighth day of November, 2001.

Harold K. Fletcher, President
TEL-INSTRUMENT ELECTRONICS CORP.

ADDENDUM A

INDEMNIFICATION PROVISIONS

1. To the extent permitted by law, the Tel-Instrument Electronics Corp. (the "Company") will indemnify Crary and its affiliates, Stockholders, directors, officers, employees, agents and controlling persons (within the meaning of ss.15 of the Securities Act of 1933, as amended, or ss.2O of the Securities Exchange Act of 1934) against all losses, claims, damages or liabilities, as the same are incurred (including the reasonable fees and expenses of counsel), relating to or arising out of its activities under the Agreement, except to the extent that any losses, claims, damages or liabilities (or actions in respect thereof) are found in a final judgment by a court of law to have resulted from Crary's willful misconduct or gross negligence in performing the services described therein.

2. Promptly after receipt by Crary of notice of any claim or the commencement of any action or proceeding with respect to which Crary is entitled to indemnity under the Agreement, Crary will notify the Company in writing of such action or proceeding, together with copies of any claim or letter or complaint, and the Company will assume the defense of such action or proceeding and will employ counsel reasonably satisfactory to Crary and will pay the reasonable fees and expenses of such counsel. It is the intent of the parties, if same is permitted by the applicable Canons of Ethics governing attorneys and provided that no conflict of interest exists, hereto that counsel for such action, if any, would be shared by the parties. Notwithstanding the preceding sentence, Crary will be entitled to employ counsel separate from counsel for the Company and from any other party in such action if Crary and the Company or court of competent jurisdiction reasonably determines that a conflict of interest exists which makes representation by counsel chosen by the Company not advisable or permitted, provided however that Crary shall seek the Company's consent which shall not unreasonably be withheld or delayed, to the appointment of Crary's counsel and the rates to be charged. In such event, the reasonable fees and disbursements of such separate counsel will be paid by the Company.

3. The Company agrees to notify Crary promptly of the assertion against it or any other person of any claim or the commencement of any action or proceeding relating to a transaction contemplated by the Agreement.

4. In the event that Crary invokes any provision of this indemnification provision and the Company assumes the defense of any claim, the Company shall keep Crazy advised of the status of the defense but the Company shall have the right to control of the defense and Crazy shall cooperate fully with the Company in such defense.

5. If the Company assumes the defense of any claim, pursuant to these indemnification provisions, Crary will not settle any indemnified claim without the written consent of the Company, and the Company will not settle any claim as to which its right to indemnification pursuant to ss.111 of this Agreement is asserted without Crazy's written consent.

6 If for any reason the foregoing indemnity is unavailable to Crary or the Company (the "lndemnified Party") or is insufficient to hold the Indemnified Party harmless, then the Indemnifying Party shall contribute to the amount paid or payable by the Indemnified Party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by the Parties on the other, but also the relative fault of the parties.

7. It is understood and agreed that, in connection with Crary's engagement by the Company. Crary may also be engaged to act for the Company in one or more additional capacities, and that the terms of any such additional engagement may be embodied in one or more separate written agreements. These Indemnification Provisions shall apply to the engagement under the Agreement and to any such additional engagement and any modification of such additional engagement; provided, however, that in the event that the Company engages Crazy to act as a dealer manager in an exchange or tender offer or as an underwriter in connection with the issuance of securities by the Company or to furnish an opinion letter, such further engagement may be subject to separate indemnification and contribution provision as may be usually agreed upon.

8. These Indemnification Provisions shall remain in full force and effect whether or not the transaction contemplated by the Agreement is completed and shall survive the termination of the Agreement, and shall be in addition to any liability that the Company or Crary might otherwise have to any indemnified party under the Agreement or otherwise.

Amendment dated as of June 1, 2002, to Agreement dated November 28, 2001, by and between Tel-Instrument Electronics Corp. ("Tel" of the "Company") and Semaphore Capital Advisors, LLC ("Semaphore").

WHEREAS Tel and Semaphore (previously known as Crary Partners LLC) entered into a letter agreement, dated November 28, 2001 (the "November Agreement"), which provided, inter alia, for Semaphore to render a specified financial services to Tel, in consideration for the compensation set forth therein, and

WHEREAS Tel and Semaphore desire to amend the November Agreement, as hereinafter set forth;

NOW, THEREFORE, it is hereby agreed by and between Tel and Semaphore, for valuable consideration the receipt of which is hereby acknowledged by both parties, as follows:

1. Section II of the November Agreement is hereby amended by deleting subsection (i) thereof and substituting the following paragraphs:

(i)(a) Monthly Payments. Tel shall pay Semaphore a retainer of $10,000 per month, for each of six (6) months commencing with the month of June 2002, and ending with the month of November, 2002, in consideration of Semaphore providing the services set forth in the November Agreement, as supplemented by the services set forth in this Amendment. In December,

2002, the parties shall review the services provided to that date by Semaphore, and their result, and consider the question of additional monthly payments for subsequent months.

The retainer is intended to compensate Semaphore for investment banking services, particularly those described in subparagraphs (i), (ii) and (iii) in Section I of the November Agreement, as amended. The Company considers time of the essence in connection with these services and if, in the Company's reasonable judgment, Semaphore has not provided the services contemplated hereunder in a diligent manner, the Company may exercise its termination rights any time after sixty days from the date hereof, and after such termination, no further amounts specified in this subsection
(i) shall be due and payable. In the event that Semaphore exercises its termination rights, no further amounts under this subsection (i) shall become due and payable.

(b) Credits. The entire amount of retainer payments made by Tel, pursuant to subparagraph (a) above, shall be credited against, and shall reduce amounts otherwise payable by Tel to Semaphore as a Success Fee, pursuant to Section II (ii) of the November Agreement, as amended by this Amendment Agreement; Provided that there shall be no credit or reduction of the Success Fee pursuant to this subparagraph (b) until the value of all Transactions and Aggregate Consideration of all investments exceeds $2 million, and Provided further, that no such credits shall be applied if they reduce cash Success Fees

payable hereunder to Semaphore below the Minimum Amount specified in paragraph 5 of this Amendment Agreement. If a Transaction or investment is completed, and a Success Fee paid to Semaphore without reduction for the monthly retainer amounts, pursuant to this subparagraph (b), then, in the event of another Transaction or investment being concluded, all Transactions and investments pursuant to this Agreement shall be aggregated and the Success Fee required by this subparagraph (b) shall be recalculated.

2. Section II of the November Agreement shall be further amended by adding a new subsection, following subsection (ii), and designated subsection "(iii)", as follows:

(iii) BCG. In recognition of the fact that Tel identified BCG, and already has done a substantial amount of due diligence in connection with BCG, Tel shall pay Semaphore a different Success Fee in respect of BCG, than the Success Fee payable under subsection (ii) on all other Transactions or investments. Tel shall pay a Success Fee upon the closing of a Transaction in respect of BCG, in an amount equal to 4% of the Aggregate Consideration paid by Tel, rather than the Success Fee set forth in the subsection (ii) above, plus warrants, as defined and calculated in Paragraph 3 of this Amendment. In no event will the cash Success Fee payable in respect of BCG be less than $50,000.

by Crary Partners LLC under the November Agreement and (c) Tel will incur no claim from or liability to Crary Partners LLC, its partners, members, assignees or successors, in connection with or growing out of Tel dealing with Semaphore as the other party to the November Agreement. Semaphore will indemnify and hold Tel harmless from and against any and all costs, expenses and damages including reasonable attorneys fees, arising or resulting from or in connection with a breach or claimed breach of this Paragraph. Semaphore's indemnity obligation includes the obligation to defend at its cost, any such claim made against Tel, its officers, directors and representatives. The rights and obligations under this Paragraph are in addition to any and all other rights Tel has under the November Agreement, this Amendment or otherwise.

The Assignment to Semaphore does not waive, qualify or limit the provision Section IV of the November Agreement prohibiting assignments, and any attempted further assignment or transfer will be ineffective to transfer any right or interest in the November Agreement as amended.

8. Terms and provisions defined in the November Agreement shall have the same meaning when used in this Amendment Agreement.

9. The November Agreement and all its terms and provisions, are still in full force and effect and binding on the parties unless expressly changed, modified or deleted by this Amendment Agreement, except that all references to Crary Partners LLC shall be deemed to refer to Semaphore.

WHEREFORE the undersigned parties have executed and accepted this Amendment Agreement as of June 1, 2002.

                                                By: ____________________________
                                                          President

Dated: New York, New York                       SEMAPHORE CAPITAL ADVISORS, LLC
June , 2002
                                                By: ____________________________
                                                            (Office)
                                                            Partner

WHEREFORE the undersigned parties have executed and accepted this Amendment Agreement as of June 1.2002.

                                                By: Harold K. Fletcher
                                                    ----------------------------
                                                          President

Dated: New York, New York                       SEMAPHORE CAPITAL ADVISORS, LLC
June , 2002
                                                By: ____________________________
                                                            (Office)

THIS NOTE MAY NOT BE ENCUMBERED, SOLD, TRANSFERRED OR ASSIGNED, AND THE SALE, TRANSFER, ASSIGNMENT, ENCUMBRANCE OR OTHER DISPOSITION OF THE COMMON SHARES OR OTHER SECURITIES ISSUABLE UPON CONVERSION HEREOF IS RESTRICTED.

Registered $50.000 No. R-1

10% Convertible Subordinated Note Due March 31, 1999

FOR VALUE RECEIVED, Tel-Instrument Electronics Corp. (herein called the "Company"), a corporation duly organized and existing under the laws of New Jersey, hereby promises to pay to Harold K. Fletcher, or successors, the principal sum of $50,000 on March 31, 1999, AND TO PAY interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid balance thereof at the rate of 10% per annum from the date hereof, payable semi-annually on the last day of September and March in each year, commencing with the September 30 next succeeding the date hereof, until the principal hereof shall have become due and payable, (whether at the stated maturity, by acceleration or otherwise) and at the rate of 12% per annum on any overdue installment of principal and (to the extent permitted by law) on any overdue installment of interest until paid.

Payments of the principal of and premium, if any, on this Note will be made at the principal office of the Company in such coin or currency of the United States of America as at the time of payment thereof shall be legal tender for the payment of public and private debts. Payments of the interest on this Note will be made in such coin or currency either at said office or, at the option of the Company, by check mailed to the person in whose name this Note is registered at the address of such person appearing on the registry books of the Company

This Note is subject to the following terms and conditions.

1. Subordination

1.1 Agreement to Subordinate. The indebtedness evidenced by this Note, including the principal thereof and premium, if any, and interest thereon, shall be subordinate and subject in right of payment, to the extent and in the manner hereinafter set forth, to the prior payment in full of all Senior Indebtedness of the Company, whether now outstanding or hereafter incurred, and each holder of Notes, by his acceptance thereof, agrees to and shall be bound by the provisions of this Section 1.

1.2(a) Priority of Senior Indebtedness. No payment or prepayment shall be made by the Company, directly or indirectly, on any Notes, whether in respect of principal (including redemption pursuant to the provisions of Section 6), premium, if any, or interest, and the holders of Notes shall not be entitled to receive any such payment or prepayment, nor shall any asset of the Company or any of its subsidiaries be applied to the purchase of any Notes, if, at the time of such proposed payment, prepayment or purchase or immediately after giving effect thereto, there shall have occurred and be continuing any event of default with respect to any Senior Indebtedness entitling the holders thereof to accelerate the maturity thereof or any default in any payment with respect to any Senior Indebtedness.

(b) Acceleration of Senior Indebtedness; Dissolution, Liquidation, Etc. Upon any acceleration of the principal amount due on any Senior Indebtedness or upon any distribution of all or substantially all of the assets of the Company or upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors in connection with any dissolution, winding-up, total or partial liquidation or reorganization of the Company, whether voluntary or involuntary and whether in bankruptcy, insolvency, receivership, arrangement or other proceeding, or upon an assignment for the benefit of creditors, or upon any other marshalling of the assets and liabilities of the Company, all principal, prepayment charge, if any, and interest due or to become due upon all Senior Indebtedness shall first be paid in full in cash before any holder of Notes shall be entitled to receive any payments or retain any assets so paid or distributed with respect to the Notes, whether for principal, premium, if any, interest or otherwise; and upon any such acceleration, distribution of assets, dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors, marshalling of assets, or similar proceedings, all principal of, premium, if any, and interest on the Notes shall forthwith become due and payable, and any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holder of Notes would, except for the provisions hereof, be entitled with respect to the Notes (whether hereunder or under any subordination or other agreement in favor of the holders of the Notes or otherwise), shall be paid and/or delivered by the Company, or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, directly to the holders of Senior Indebtedness pro rata upon the basis of the respective amounts of Senior Indebtedness held by such holders, to the extent necessary to pay all Senior Indebtedness in full in cash (after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness) before any payment or

distribution is made to the holders of the Notes, and the holders of the Notes at the time outstanding irrevocably authorize, empower and direct the Company and all such receivers, trustees, agents and other persons to effect all such payments and distributions.

(c) Default on Notes. In the event that the Notes are declared due and payable because of the occurrence of an Event of Default described below (under circumstances when the provisions of the foregoing clause (b) shall not be applicable) the holders of the Notes shall be entitled to payment of principal, premium, if any, and interest with respect to the Notes only after there shall first have been paid in full, or such payment shall have been provided for, all principal of and premium, if any, and interest on the Senior Indebtedness outstanding at the time the Notes so become due and payable because of such Event of Default, and the Company hereby agrees, for the benefit of the holders of Senior Indebtedness, that if the Notes are so declared due and payable before their expressed maturity, (i) the Company will give prompt notice in writing thereof to such persons as may then be deemed to be the holders of Senior Indebtedness for the purpose of giving notice in accordance with the terms thereof and (ii) all Senior Indebtedness shall forthwith, for purposes of this Agreement, be deemed to have become immediately due and payable upon demand, regardless of the expressed maturity thereof.

(d) Notice. The Company shall give prompt written notice of any dissolution, winding-up, liquidation or reorganization of the Company within the meaning of this Section 1.2, and the holder hereof shall be entitled to assume that no such event has occurred unless the Company has given such notice. Upon any payment or distribution of assets of the Company referred to in this Section 1.2 the holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending or upon a certificate of the trustee in bankruptcy, receiver, assignee for benefit of creditors or other liquidating agent making such payment or distribution, delivered to the holders of Notes, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 1. In case of any payment or distribution of assets of the Company referred to in this Section 1.2 which is not made pursuant to such an order or decree of a court or a certificate of a trustee in bankruptcy, receiver, assignee for benefit of creditors or other liquidating agent, the holders of the Notes shall be entitled to

rely upon a certificate of a firm of independent certified accountants for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 1.

1.3 Subrogation of Holders of Notes to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness, the holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until the principal of and premium, if any, and interest on the Notes shall be paid in full, and for purposes of such subrogation, no such payments or distributions to the holders of Senior Indebtedness of cash, property or securities, which otherwise would be payable or distributable to the holders of the Notes and no payment over pursuant to the provisions of this Section 1 to the holders of Senior Indebtedness, and the holders of Notes, be deemed to be a payment by the Company to or on account of Senior Indebtedness, it being understood that the provisions of this Section 1 are and are intended solely for the purpose of defining the relative rights of the holders of the Notes on the one hand, and the holders of Senior Indebtedness, on the other hand.

1.4 Obligation of Company Unimpaired. Nothing contained in this Section 1 or elsewhere in the Notes is intended to or shall (a) impair, as between the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Notes, the principal of and premium, if any, and interest on the Notes as and when the same shall become due and payable in accordance with their terms, (b) affect the relative rights of the holders of the Notes and creditors of the Company other than the holders of Senior Indebtedness, or (c) prevent the holder of any Note from exercising all remedies otherwise permitted by applicable law upon an Event of Default, subject to the rights, if any, under this Section 1 of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy.

1.5 Obligation To Pay Holders of Notes Unaffected. Nothing contained in this Section 1, or elsewhere in any of the Notes, shall, except during the pendency of any insolvency, bankruptcy, dissolution, winding-up, liquidation, or reorganization proceedings with respect to the Company, affect the obligation of the Company to make, or prevent the Company from making, at any

time (except under the circumstances described in Section 1.2) payment of principal of or premium, if any, or interest on the Notes.

1.6 When Senior Indebtedness Paid In Full. The term "holder" of any indebtedness shall include any trustee for, or other authorized representative of, the holders of such indebtedness. For the purpose of this Section 1, Senior Indebtedness shall be deemed to be "paid in full in cash" when funds sufficient to make such payment in full have been irrevocably set aside in trust for such purpose on terms making such funds immediately available to the holders of Senior Indebtedness on demand; provided, that, if, in any proceeding for the reorganization of the Company under any bankruptcy or insolvency law, any readily marketable securities shall be received by the holders of Senior Indebtedness directly or indirectly by way of payment or distribution with respect to such Senior Indebtedness (including any such payment or distribution so received by reason of the subordination of the Notes to such Senior Indebtedness) such securities shall, for the purpose of Section 1.2 be deemed to constitute payment in cash of such Senior Indebtedness to the extent of the fair market value of such securities at the time so received by such holders of Senior Indebtedness.

1.7 Senior Indebtedness. Senior Indebtedness shall mean all secured indebtedness incurred, assumed or guaranteed by the Company, outstanding on the date this Note is issued or which is hereafter outstanding and any defaults, renewals or extensions of any Senior Indebtedness or notes or other evidence of indebtedness issued in exchange for Senior Indebtedness.

1.8 Other Debt. Other debt shall mean all indebtedness other than Senior Indebtedness, and the Notes shall be equal in priority to all other debt.

2. Conversion

2.1 Subject to and upon compliance with the provisions hereof, at the option of the holder hereof, this Note or any portion of the principal amount hereof may, at any time on or before the close of business on March 31, 19 , or in case this Note or a portion hereof shall have been designated for redemption prior to such date, then in respect of this Note or the portion hereof so designated until and including, but (unless the Company shall default in payment due on the prepayment hereof) not after, the close of business on the day designated for such redemption, be converted at the principal amount hereof, or of such portion hereof, into newly issued, fully paid and nonassessable Common Shares of the Company, at the conversion

price in effect at the time of the conversion. The price at which Common Shares shall be delivered upon conversion shall be initially $1.50 per share, until March 31, 1998, and thereafter, $2.50 per share, subject to adjustment pursuant to paragraph 2.2 hereof.

2.2. Adjustments. The conversion price and the number of Common Shares issuable upon conversion shall be adjusted proportionately in the following events:

(a) Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc. In case the Company, after the date hereof, (i) effects a capital reorganization or reclassification of any or all of its capital stock or (ii) shall consolidate with or merge into any other person and shall not be the continuing or surviving corporation of such consolidation or merger, or (iii) shall permit any other person to consolidate with or merge into the Company and the Company shall be the continuing or surviving person but, in connection with such consolidation or merger, the Common Stock shall be changed into or exchanged for stock or the securities or property of any other person, or (iv) shall transfer all or substantially all of its properties and assets to any other person, then the Holder will have the right, but not the obligation, to convert this Note at any time permitted pursuant to Section 2.1 above. Upon such conversion, the Holder will have the right to receive the same kind and number of shares of capital stock and other securities as would have been distributed to the Holder upon such reorganization, reclassification, consolidation or merger, had he then held the shares issuable upon conversion of this Note.

(b) Adjustments for Stock Dividends; Combinations. In the event that the Company, at anytime or from time to time hereafter, shall (i) declare or pay any dividend on its capital stock payable in Common Stock; (ii) effect a subdivision of its outstanding shares into a greater number of shares of Common Stock or any equity securities convertible into Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock); or (iii) combine or consolidate its outstanding shares of Common Stock, by reclassification or otherwise, into a lesser number of shares of Common Stock, then, upon the conversion hereof at any time after the occurrence of any event described above, Holder shall be entitled to receive that number of shares of stock to which such Holder would have been entitled, upon the occurrence of such event, if such Holder had converted this Note immediately prior to the occurrence of such event.

(c) Adjustment for Issuance of Lower Priced Shares. If the Company either
(i) authorizes and issues any additional share(s) of Common Stock, or (ii) authorizes and sells any

security convertible into share(s) of its Common Stock, where the net proceeds per share (the "Per Share Selling Price") to be received by the Company are less than the conversion price, as adjusted, in cash, then, under any such circumstances, the conversion price hereunder shall be adjusted and shall be the Per Share Selling Price.

(d) Notice. In the event of any occurrence under this Section 2, which effects an adjustment of the conversion price, or the securities issuable upon conversion, the Company will promptly notify the holder hereof in accordance with Paragraph 8(d) hereof.

(e) Conversion. This Note may be converted in accordance with its terms, into fully paid and non-assessable shares of Common Stock at the conversion price set forth in this Section 2, subject to such adjustments as may be required hereunder, upon surrender of this Note to the Company at its principal office, accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the holder. Interest shall not be paid on the surrendered Note, from the immediately preceeding interest payment date to the date of surrender and no adjustment will be made for accrued interest from such date or for dividends on the common stock issued upon conversion. No fractional shares will be issued upon conversion, but in lieu thereof the Company shall pay therefor in cash at the conversion price.

3. Reservation of Stock.

The Company will at all times reserve and keep available, solely for issuance and delivery upon the conversion of the Notes, the total number of shares of Common Stock issuable upon the conversion of the Notes. All shares of Common Stock issued upon the conversion of the Notes shall be duly authorized, validly issued, fully paid and non-assessable to the extent permitted by applicable law.

4. No Impairment.

The Company will not, by any means, avoid or seek to avoid the observance or performance of any of the terms of this Note. Without limiting the foregoing, the Company (i) will not permit the par value, if any, of any shares of stock receivable upon the conversion of its Note to exceed the amount payable therefor upon such conversion, and (ii) will take such action as may be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of its Note.

5. No Shareholder Rights

This Note shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company and no cash dividend paid out of earnings or surplus shall be payable or accrue in respect of this Note or the shares which may be issuable hereunder, until and unless, and except to the extent that, the conversion rights represented by this Note shall be exercised.

6. Redemption.

The Notes may be redeemed, at the option of the Company, in whole or in part, from time to time, on any date prior to maturity, upon mailing a notice of such redemption, not less than 30 nor more than 60 days prior to the date fixed for redemption, to the holders of Notes to be redeemed, at their last address as set forth in the Company's records, at a redemption price equal to: (a) 120% of principal, plus accrued interest if redeemed two or more years prior to the maturity date; (b) 110% of principal, plus accrued interest, if redeemed more than one year, but less than two years prior to maturity; and (c) the principal, plus accrued interest, if less than one year from maturity. The redemption notice hereunder shall specify the manner in which the called Notes will be surrendered and payment made. No adjustment will be made for interest accrued since the immediately prior interest payment date, and no amount will be paid for such accrued interest.

7. Remedies on Event of Default

7.1 Events of Default. In case one or more of the following Events of Default shall have occurred and be continuing, that is to say:

(a) default in the payment of any installment of interest upon any of the Notes as and when the same shall become due and payable, whether or not such payment is prohibited by the provisions of Section 2, and continuance of such default for a period of thirty days; or

(b) default in the payment of the principal of (and premium, if any, on) any of the Notes as and when the same shall become due and payable either at maturity, upon redemption, by declaration or otherwise, whether or not such payment is prohibited by the provisions of Section 2, and continuance of such default for a period of thirty days; or

(c) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company in the Notes contained, for a period of ninety days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company by registered mail; or

(d) an event of default, as defined in any indenture or instrument evidencing or under which the Company has at the date of this Note or shall hereafter have outstanding any indebtedness for borrowed money, shall happen and be continuing and such indebtedness shall have been accelerated so that the same shall be or become due and payable prior to the date on which the same would otherwise become due and payable, and such acceleration shall not be rescinded or annulled within ten days after written notice thereof to the Company; provided, however, that if such event of default under such indenture or instrument shall be remedied or cured by the Company or be waived by the holder of such indebtedness, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action; or

(e) a decree or order by a court having jurisdiction in the premises shall have been entered adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization or readjustment of the Company under the National Bankruptcy Act or any other similar applicable Federal or State law, and such decree or order shall have continued undischarged or unstayed for a period of sixty days; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver or trustee or assignee in bankruptcy or insolvency of the Company or of all or a major part of its property, or for the winding up or liquidation of its affairs, shall have been entered, and such decree or order shall have remained in force undischarged or unstayed for a period of sixty days; or

(f) the Company shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the institution of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization or readjustment under the National Bankruptcy Act, or any other similar applicable Federal or State law, or shall consent to the filing of any such petition, or shall consent to the appointment of a

receiver or trustee or assignee in bankruptcy or insolvency of it or all or a major part of its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due;

Then and in each and every such case, unless the principal of all of the Notes shall have already become due and payable, the holders of the Notes then outstanding hereunder, by notice in writing to the Company, may declare the principal of all the Notes to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything herein contained to the contrary not withstanding.

7.2 Payment of Notes on Default; Suit Therefor. The Company covenants that in the case of an Event of Default, and acceleration of maturity pursuant to 7.1, or maturity in accordance with their terms, and upon demand, the Company will pay to the holders of the Notes, the whole amount that then shall have become due and payable for principal (and premium, if any) or interest, or both, as the case may be, with interest upon the overdue principal (and premium, if any) and (to the extent that payment of such interest is legally enforceable) upon the overdue installments of interest at the rate per annum expressed above, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation for agents, attorneys and counsel.

7.3 Remedies Cumulative and Continuing. All powers and remedies given by this Section 7, shall to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the holders by judicial proceedings or otherwise to enforce the performance or observance of the covenants and agreements contained in this Note, and no delay or omission of any holder to exercise any right or power accruing upon any default occurring and continuing as aforesaid shall impair such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein.

8. Miscellaneous

(a) This note shall be governed by the domestic laws of the State of New Jersey.

(b) This Note is one of an issue of Notes aggregating $350,000, identical in all respects, except as to

maturity date and principal amount, and all issued by the Company on March 31, 1997.

(c) No recourse for the payment of the principal of or any premium or interest on this Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released.

(d) All notices shall be sufficient if sent by registered or certified mail to the Company, at its principal office and to the holder, at his address set forth in the Company records.

IN WITNESS WHEREOF, Tel-Instrument Electronics Corp. has caused this Note to be executed in its corporate name by the signature of its President, or Vice President or Treasurer.

Dated: March 31, 1997

Tel-Instrument Electronics Corp.

By /s/ Richard J. Wixson
   -----------------------------------------------
   Richard J. Wixson, Vice President Manufacturing
                      (Office)

WITNESS:

/s/ Dolores McGuire
----------------------
Dolores McGuire

1998 Stock Option Plan

of

Tel-Instrument Electronics Corp.

Adopted by the Board of Directors

on June 3rd, 1998.

1. Purpose.

The purposes of this Stock Option Plan (the "Plan") are to: (1) closely associate the interest of the employees of Tel-Instrument Electronics Corp. (the "Company") and others with the shareholders by reinforcing the relationship between participant's rewards and shareholder gains; (2) provide employees with an equity ownership in the Company commensurate with Company performance, as reflected in increased shareholder value; (3) maintain competitive compensation levels; and (4) provide an incentive to employees for continuous employment with the Company.

2. Stock Subject to Plan

The stock to be issued upon exercise of options granted under the Plan shall consist of authorized but unissued, or reacquired shares of the Common Stock, $.l0 per share par value, of the Company. The maximum number of shares for which options may be granted under the Plan is 250,000 shares, subject to adjustment as provided in Section 13.

If any options granted under the Plan expire or terminate for any reason without having been exercised in full, the unpurchased shares shall become available for further options under the Plan.

3. Administration and Nature of Options.

(a) Board of Directors; Committee: The Plan shall be administered by the Board of Directors or, in the discretion of the Board, by a Committee (the "Committee"). Hereinafter, and in the option agreements, the term "Committee" shall mean the Board of Directors, if no other committee is appointed. The Committee, if any, shall be appointed by the Board of Directors and shall consist of not less then three directors. The Board of Directors shall fill all vacancies in the Committee and may remove any member of the Committee at any time, with or without cause. The Committee shall select its own Chairman and shall hold its meetings at such times and places as it may determine. The acts of a majority of the Committee at any meeting, or acts approved in writing by all members of the Committee, shall be the acts of the Committee.

(b) Grant of Options: The Board of Directors, or the Committee, may grant under the plan, (i) non-statutory options to employees, officers, consultants or non-employee directors, or (ii) Incentive Stock Options ("ISOs") to employees, which are intended to qualify as ISOs under Section 422 of the Internal Revenue Code of 1986, as amended.

Subject to the express provisions of the Plan, the Board of Directors or the Committee shall have full authority (A) to determine, in its discretion, the individuals to whom, and the times at which, options shall be granted, whether to grant non-

statutory options or ISOs, the number of shares subject to each option, and the provisions of the respective option agreements (which need not be identical), including provisions concerning the time or times, when and the extent to which, the options may be exercised, the conditions of exercise (including non-competition with the Company after termination of employment) and the effect of approved leaves of absence on continuity of service; (B) to prescribe, amend and rescind rules and regulations relating to the Plan; (C) to interpret the Plan and the respective option agreements; and (D) to make all other determinations necessary or advisable for administering the Plan. The Committee1 if appointed, shall report its actions to the Board of Directors and all determinations and interpretations by the Committee, if approved by the Board of Directors, shall be binding and conclusive upon all parties.

4. Effective Date.

The Plan is effective as of June 3, 1998, but if not approved by the shareholders on or before June 1, 1999, no further ISOs shall be granted. Prior to adoption by the shareholders, any ISO granted shall be expressly made contingent on such shareholder approval, and if not approved by the shareholders by June 1, 1999, all ISOs theretofore granted shall become null and void ab initio.

5. Eligibility of Optionees.

ISOs may be granted under the Plan only to salaried officers and employees who have the capability of making a substantial contribution to the success of the Company. Non-Statutory Options may be granted under the plan to employees, officers, consultants and non-employee Directors. In selecting individuals to receive options and in determining the form and amount of awards, the Committee shall consider any factors deemed relevant, including the individual's functions, responsibilities, value of services to the Company, past and potential contributions to the Company's profitability and sound growth and compensation levels in the industry for comparable jobs.

6. Stock Option Agreements.

The grant of an option shall be evidenced by a written Stock Option Agreement, executed by the Company and the optionee stating the number of shares subject to the option and substantially in the form of Exhibit A annexed.

7. Option Price.

The exercise price per share under each option granted shall be determined by the Board of Directors or the Committee. In no event, however, shall the exercise price per share under each option be less than 100% of the fair market value of a share of Common Stock on the Date of Grant; provided however, that any option granted hereunder to an employee owning 10% or more of the outstanding Common Stock of the Company, shall have an exercise

price per share of 110% of the fair market value of a share of Common Stock on the Date of Grant.

8. Exercise of Options.

(a) Each option granted under the Plan shall become exercisable at such time, or in installments at such times, as may be provided in the option agreement. To the extent that any installment of an option has become exercisable it may be exercised thereafter, until termination, in whole at any time or from time to time in part.

(b) Each option granted under the Plan shall terminate no later than five years after the date on which it was granted, but the Board of Directors or the Committee in its discretion may prescribe a shorter period for any individual option or options.

(c) An option shall be exercised by written notice of such exercise, in the form prescribed by the Board of Directors or the Committee, to the Secretary or Treasurer of the Company, at its principal office. The notice shall specify the number of shares for which the option is being exercised (which number, if less than all of the shares then subject to exercise, shall be 50 or a multiple thereof) and shall be accompanied by payment in full of the purchase price of such shares. No shares shall be delivered upon exercise of any option until all laws, rules and regulations which the Board of Directors or the Committee may deem applicable have been complied with. If a registration statement under the Securities Act of 1933 is not then in effect with respect to the shares issuable upon such exercise, it shall be a condition

precedent that the person exercising the option give to the Company a written representation and undertaking satisfactory in form and substance to the Board of Directors or the Committee, and counsel, that he is acquiring the shares for his own account for investment and not with a view to the distribution thereof.

(d) The person exercising an option shall not be considered a record holder of the stock so purchased for any purpose until the date on which he is actually recorded as the holder of such stock upon the stock records of the Company.

(e) The Company shall pay all original issue and transfer taxes with respect to the issue and transfer of shares of Common Stock of the Company pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith.

(f) The aggregate fair market value (determined as of the date the option is granted) of the stock with respect to which ISOs are exercisable for the first time by any employee during any calendar year under all plans of the Company (and parent and subsidiary corporations) shall not exceed $100,000.

9. Death of Optionee.

(a) Upon the death of the optionee, any ISO exercisable on the date of death may be exercised by the optionee's estate or by a person who acquires the right to exercise such ISO by bequest or inheritance or by reason of the death of the optionee, provided that such exercise occurs within the remaining option term of the ISO.

(b) The provisions of this Section shall apply notwithstanding the fact that the optionee's employment may have terminated prior to death, but only to the extent of any ISOs exercisable on the date of such termination.

10. Retirement. Disability or Involuntary Termination.

Upon the termination of the optionee's employment, the optionee may exercise any ISO to the extent such ISO was exercisable at the date of such termination of employment, within (a) 12 months after the date of termination of employment due to permanent disability as defined by the Committee or (b) ninety days after the date of termination of employment due to retirement, or due to involuntary termination for reasons other than negligence, insubordination, breach of contract or moral turpitude.

11. Termination for Other Reasons.

Except as provided in Sections 9 and 10 or except as otherwise determined by the Committee, all Options shall terminate upon the termination date of the optionee's employment.

12. Other Option Conditions.

(a) Nothing in the Plan or in any option granted pursuant thereto shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate his employment at any time.

(b) No holder of any option under the Plan shall, by virtue of holding such option, be entitled to any rights of a stockholder in the Company.

13. Adjustments Upon Changes in Capitalization.

The option agreements shall contain such provisions as the Board of Directors or the Committee shall determine to be appropriate for the adjustment of the kind and number of shares subject to each outstanding option, or the exercise prices, or both, in the event of any changes in the outstanding Common Stock of the Company by reason of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, sales or exchanges of assets, combinations or exchange of shares, offering of subscription rights or any other type of change.

14. Term of Plan.

The Board of Directors may terminate this Plan at any time. Termination of the Plan will not affect rights and obligations theretofore granted and then in effect. No options may be granted later than 10 years from the date listed on page 1 hereof as the date of the Plan's adoption.

15. Transferability.

Options granted under this Plan shall provide that they will not be transferable other than by will or the laws of descent and cannot be exercised by anyone other than the option holder during his lifetime, except that in the case of disability, the holder's legal representative may exercise the option on the holders behalf, and after the Grantee's death, the option may be exercised in accordance with Section 9 above.

16. Amendment and Revocation.

The Board of Directors alone shall have the right to alter, amend or revoke the Plan or any part thereof at any time and from time to time, provided, however, that without the consent of the optionees, no change may be made in any option theretofore granted which will impair the rights of existing optionees; and provided further that the Board of Directors may not, without the approval of the holders of a majority of the outstanding Common Stock, make any alteration or amendment to the Plan which changes the aggregate number of shares of Common Stock which may be issued under the Plan, extend the term of the Plan or of options granted thereunder, reduce the option price below that now provided for in the Plan, or change the employees or class of employees eligible to receive options thereunder.

17. Ratification of the Plan.

This plan shall be submitted to the stockholders of the Company for approval at a meeting to be held within twelve months following its adoption by the Board.

INCENTIVE STOCK OPTION

Date of Grant:____________________

THIS INCENTIVE STOCK OPTION, dated as of the date of grant first stated above (the "Date of Grant"), is granted and delivered by Tel-Instrument Electronics Corp., a New Jersey Corporation (the "Company") to_________________________ (the "Grantee"), who is an employee of the Company.

WHEREAS, the Board of Directors (the "Board") adopted on June 3rd, 1998, with subsequent stockholder approval, [until the date of approval substitute:
"Subject to shareholder approval by June 1, 1999] the Company's 1998 Stock Option Plan (the "Plan");

WHEREAS, the Plan provides for the granting of incentive stock options, by a committee to be appointed by the Board (the "Committee") to directors, officers and employees (excluding directors and officers who are not employees) to purchase shares of the Common Stock of the Company, par value $.l0 per share (the "Stock"), in accordance with the terms and provisions thereof; and

WHEREAS, the Committee considers the Grantee to be a person who is eligible for a grant of incentive stock options under the Plan, and has determined that it would be in the interest of the Company to grant the incentive stock options documented herein;

NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows:

1. Grant of Option.

Subject to the terms and conditions hereinafter set forth, the Company, with the approval and at the direction of the Committee, hereby grants to the Grantee, pursuant to the Plan, as of the Date of Grant, an option to purchase up to ______________ shares of Stock at a price of $______________ per share, the fair market value on the date hereof. Such option is hereinafter referred to as the "Option" and the shares of Stock purchasable upon exercise of the Option are hereinafter sometimes referred to as the "Option Shares." The Option is intended by the parties hereto to be, and shall be treated as, an incentive stock option, (as such term is defined under section 422 of the Internal Revenue Code of 1986). [This option is expressly contingent on shareholder approval of the Plan, and, if such approval is not obtained by June 1, 1999, this option, and any shares issued upon its exercise, shall be null and void, ab initio].

2. Installment Exercise.

Subject to such further limitations as are provided herein, the Option shall become exercisable in four (4) installments, the Grantee having the right hereunder to purchase from the Company the following number of Option Shares upon exercise of the Option, on and after the following dates, in cumulative fashion:

(a) on and after the first anniversary of the Date of Grant, up to twenty percent (ignoring fractional shares) of the total number of Option Shares:

(b) on and after the second anniversary of the Date of Grant, up to an additional twenty percent (ignoring fractional shares) of the total number of Option Shares;

(c) on and after the third anniversary of the Date of Grant up to an additional twenty percent (ignoring fractional shares of the total number of Option Shares; and

(d) on and after the fourth anniversary of the Date of Grant, the remaining Option Shares.

3. Termination of Option.

(a) This Option and all rights hereunder with respect thereto, to the extent such rights shall not have been exercised, shall terminate and become null and void after the expiration of five (5) years from the Date of Grant (the "Option Term").

(b) Upon the occurrence of the Grantee's ceasing for any reason to be employed by the Employer (such occurrence being a "termination of the Grantee's employment"), the Option, to the extent not previously exercised, shall terminate and become null and void immediately upon such termination of the Grantee's employment, unless such termination is by reason of retirement, disability, death or involuntary termination for any reason other than negligence, insubordination, breach of contract or moral turpitude.

Upon termination of the Grantee's employment by reason of retirement, disability, death or involuntary termination for any reason other than negligence, insubordination, breach of contract or moral turpitude, this Option may be exercised during the

following periods, but only to the extent that the Option was outstanding and exercisable on the date of termination of the grantee's employment: (i) in the case of termination for disability (within the meaning of Section 22(e) (3) of the Code), this Option may be exercised within one year of. such termination;
(ii) in the case of termination for retirement, or of involuntary termination for any reason other than negligence, insubordination, breach of contract, or moral turpitude, this Option may be exercised within 90 days following the date of such termination, and (iii) in the case of death, this Option may be exercised at any time during its term, by the holder's estate or by any person who acquires the right to exercise the Option by bequest, inheritance or by reason of the death of the Optionee; provided, however, that in no event shall any such exercise period extend beyond the Option Term.

(c) Notwithstanding any other provisions set forth herein or in the Plan, if the Grantee shall (i) commit any act of malfeasance or wrongdoing affecting the Company, (ii) breach any covenant not to compete, or employment contract, with the Company, or (iii) engage in conduct that would warrant the Grantee's discharge for cause (excluding general dissatisfaction with the performance of the Grantee's duties, but including any act of disloyalty or any conduct clearly tending to bring discredit upon the Company), any unexercised portion of the Option shall immediately terminate and be void.

4. Exercise of Options.

(a) During the Grantee's lifetime, the Option shall be exercisable only by the Grantee, or his legal guardian or representative (herein "Grantee" shall include his legal guardian or representative). In the event of the death of the Grantee, the Option may be exercised by the Grantee's legal representative(s), but only to the extent that the Option would otherwise have been exercisable by the Grantee.

(b) The Grantee, may exercise the Option with respect to all or any part of the number of Option Shares then exercisable hereunder by giving the Secretary of the Company written notice of intent to exercise. The notice of exercise shall specify the number of Option Shares as to which the Option is to be exercised and the date of exercise thereof, which date shall be at least five days after the giving of such notice unless an earlier time shall have been mutually agreed upon.

(c) Full payment (in U.S. dollars) by the Grantee of the option price for the Option Shares purchased shall be made on or before the exercise date specified in the notice of exercise in cash, or, with the prior written consent of the Committee, in whole or in part through the surrender of previously acquired options or shares of stock at their fair market value on the exercise date.

On the exercise date specified in the Grantee's notice or as soon thereafter as is practicable, the Company shall cause to be delivered to the Grantee, a certificate or certificates for the

Option Shares then being purchased (out of theretofore unissued stock or reacquired stock, as the Company may elect) upon full payment for such Option Shares. The obligation of the Company to deliver Stock shall, however, be subject to the condition that if at any time the Committee shall determine in its discretion that the listing, registration or qualification of the Option. or the Option Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the Option or the issuance or purchase of Stock thereunder, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.

(d) If the Grantee fails to pay for any of the Option Shares specified in such notice or fails to accept delivery thereof, the Grantee's right to purchase such Option Shares may be terminated by the Company. The date specified in the Grantee's notice as the date of exercise shall be deemed the date of exercise of the Option, provided that payment in full for the Option Shares to be purchased upon such exercise shall have been received by such date.

5. Adjustment of and Changes of the Company.

In the event of a reorganization, recapitalization, change of shares, stock split, spin-off, stock dividend, reclassification, subdivision or combination of shares, merger,

consolidation, rights offering, or any other change in the corporate structure or shares of capital of the Company (a "Transaction"), the Committee shall make such adjustment in the number and kind of shares of Stock subject to the Option or in the option price so that the shares subject to the Option, and their purchase price shall maintain the same proportion to the Company's outstanding Common Stock after the Transaction as they bore to the Common Stock immediately prior to the Transaction.

6. Fair Market Value.

As used herein, the "fair market value" of a share of Stock shall be the average of the closing bid and asked prices per share of Stock, on the over-the-counter market, or the average of the high and low sale price of the Stock on such other recognized Stock Market on which the Stock may trade, on the Date of Grant, or if there is no sale on such date, then the average of such high and low sale prices on the last previous day on which a sale is reported.

7. No Rights of Stockholders.

Neither the Grantee nor any personal representative shall be, or shall have any of the rights and privileges of, a stockholder with respect to any shares of Stock purchasable or issuable upon the exercise of the Option, in whole or in part, prior to the date of exercise of the Option.

8. Non-Transferability of Option.

During the Grantee's lifetime, the Option hereunder shall be exercisable only by the Grantee or any guardian or legal

representative of the Grantee, and the Option shall not be transferable except, in case of the death of the Grantee, by will or the laws of descent and distribution, nor shall the Option be subject to attachment, execution or other similar process. In event of (a) any attempt by the Grantee to alienate, assign, pledge, hypothecate or otherwise dispose of the Option, except, as provided for herein, or (b) the levy of any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Option by notice to the Grantee and it shall thereupon become null and void.

9. Employment Not Affected.

The granting of the Option or its exercise shall not be construed as granting to the Grantee any right with respect to the continuance of employment by the Employer. Except as may otherwise be limited by a written agreement between the Employer and the Grantee, the right of the Employer to terminate at will the Grantee's employment with it at any time (whether by dismissal, discharge, retirement or otherwise) is specifically reserved by the Company, as the Employer, and acknowledged by the Grantee.

10. Amendment of Option.

This Option may be amended by the Board or the Committee at any time (i) if the Board or the Committee determines, in its sole discretion, that amendment is necessary or advisable in the light of any addition to or change in the Internal Revenue Code or in the regulations issued thereunder, or any federal or state

securities law or other law or regulation, which change occurs after the Date of Grant and by its terms applies to the Option; or (ii) other than in the circumstances described in clause (i), with the consent of the Grantee.

11. Notice.

Any notice to the Company provided for in this instrument shall be addressed to it in care of its Secretary at its executive offices at 728 Garden Street, Carlstadt, New Jersey 07072 and any notice to the Grantee shall be addressed to the Grantee at the current address shown on the payroll records of the Employer. Any notice shall be deemed to be duly given if and when properly addressed and posted by registered or certified mail, postage prepaid.

12. Incorporation of Plan by Reference.

The Option is granted pursuant to the terms of the Plan, the terms of which are incorporated herein by reference, and the Option shall in all respects be interpreted in accordance with the Plan. The Committee shall interpret and construe the Plan and this instrument, and its interpretations and determinations shall be conclusive and binding on the parties hereto and any other person claiming an interest hereunder, with respect to any issue arising hereunder or thereunder.

13. Governing Law.

The validity, construction, interpretation and effect of this instrument shall exclusively be governed by and determined in accordance with the law of the State of New Jersey, except to

the extent preempted by federal law, which shall to that extent govern.

IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute an attest this Grant of Incentive Stock Option, and to apply the corporate seal hereto, and the Grantee has placed his or her signature hereon, effective as of the Date of Grant.

TEL-INSTRUMENT ELECTRONICS CORP.

By: __________________________________
Secretary/President

ACCEPTED AND AGREED TO;

By: __________________________________
Grantee