DIGITAL ANGEL CORP
EX-10.2
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<DESCRIPTION>EX-10.2
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<p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Exhibit 10.2</font></b></p>

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<p style="margin:0in 0in .0001pt .5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">THIS NOTE AND THE COMMON SHARES
ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.&#160;
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 DIGITAL ANGEL CORPORATION, THAT SUCH
REGISTRATION IS NOT REQUIRED.</font></b></p>

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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">SECURED
MINIMUM BORROWING CONVERTIBLE NOTE</font></u></b></p>

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<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">FOR VALUE RECEIVED,
DIGITAL ANGEL CORPORATION, a Delaware corporation (hereinafter called &#147;<b><font style="font-weight:bold;">Borrower</font></b>&#148;)
promises to pay to LAURUS MASTER FUND, LTD., c/o Ironshore Corporate Services
Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman,
Cayman Islands, Fax: 345-949-9877 (the &#147;<b><font style="font-weight:bold;">Holder</font></b>&#148;) or its registered assigns, on
order, without demand, the sum of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000) (the &#147;<b><font style="font-weight:bold;">Principal Amount</font></b>&#148;), together with any
accrued and unpaid interest, on August 28, 2006 (the &#147;<b><font style="font-weight:bold;">Maturity Date</font></b>&#148;).</font></p>

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<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Capitalized terms used
herein without definition shall have the meanings ascribed to such terms in the
Security Agreement between Borrower and the Holder dated the date hereof (as
amended, modified and supplemented from time to time, the &#147;<b><font style="font-weight:bold;">Security Agreement</font></b>&#148;).</font></p>

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<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><a name="ArticleI"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">ARTICLE I</font></b></a></h1>

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<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">INTEREST</font></b></h1>

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<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Interest Rate</u>.&#160; Interest on this Note shall be payable at an
interest rate per annum equal to the Prime Rate plus two and one half percent
(2.5%) .</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><a name="ArticleIi"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">ARTICLE II</font></b></a></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">ADVANCES, PAYMENTS UNDER NOTE</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></h1>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Mechanics of Advances</u>.&#160; All Loans evidenced by this Note shall be
made in accordance with the terms and provisions of the Security Agreement.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Borrower&#146;s Conversion Rights</u>.&#160; Subject to adjustment as provided in
Sections 3.2 and 3.6 hereof, the Conversion Price (defined below) per share of
Common Stock shall be $2.64 (the &#147;<b><font style="font-weight:bold;">Fixed Conversion Price</font></b>&#148;).&#160; If the Common Stock trades on the principal
trading exchange or market for the Common Stock, (the &#147;<b><font style="font-weight:bold;">Principal Market</font></b>&#148;) at a price
greater</font></h2>

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<h2 style="font-size:10.0pt;font-weight:normal;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">than 110% of the Fixed Conversion Price for a period
of at least eleven (11) consecutive trading days, then the Borrower may, at its
sole option, provide the Holder irrevocable written notice (&#147;<b><font style="font-weight:bold;">Call Notice</font></b>&#148;)
requiring the conversion at the Fixed Conversion Price of all or a portion of
the Note held by the Holder (subject to the limitation provided for in Section
3.3 hereof) as of the date set forth in such Call Notice (the &#147;<b><font style="font-weight:bold;">Call Date</font></b>&#148;).
The Call Date shall be at least eleven (11) trading days following the date of
the Call Notice, provided a registration statement covering resales of that
number of Conversion Shares provided for in the Call Notice has been declared
effective and is available for use.&#160; The
number of Conversion Shares to be issued in connection with any such conversion
pursuant to a particular Call Notice pursuant to this Section 2.2 shall not
exceed 25% of the aggregate dollar trading volume of the Common Stock for the
eleven (11) trading days immediately preceding the Call Date. If the price of
the Common Stock falls below 110% of the Conversion Price during the eleven
(11) trading day period preceding the Call Date, then the Holder will be
required to convert only such amount of the Note pursuant to such Call Notice
as will equal twenty five percent (25%) of the aggregate dollar trading volume
for each day during such 11 day period that the closing price of the Common
Stock was greater than one hundred ten percent (110%) of the then applicable
Fixed Conversion Price. The Borrower</font> shall not be permitted to give the Investor more than one Call
Notice during any twenty-two (22) day period</h2>

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<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><a name="ArticleIii"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">ARTICLE III</font></b></a></h1>

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<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">CONVERSION RIGHTS</font></b></h1>

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<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Holder&#146;s Conversion Rights</u>.
Subject to the terms of this Article III, the Holder shall have the right, but
not the obligation, at any time beginning on May28, 2004 until the Maturity
Date, including at any time prior to a Prepayment Date, or thereafter during an
Event of Default (as defined in Article V), to convert all or any portion of
the outstanding Principal Amount (subject to the volume restriction set forth
in Section 3.3 hereof) and/or accrued interest and fees due and payable into
fully paid and nonassessable shares of Borrower&#146;s common stock, as currently
constituted (the &#147;<b><font style="font-weight:bold;">Common Stock</font></b>&#148;), at the conversion price set
forth in Section 3.2 (the &#147;<b><font style="font-weight:bold;">Conversion Price</font></b>&#148;). The shares of Common
Stock to be issued upon such conversion are herein referred to as the &#147;<b><font style="font-weight:bold;">Conversion
Shares</font></b>.&#148;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Conversion Price Adjustment</u>.&#160; The Fixed Conversion Price shall be adjusted
upward (as hereafter provided) immediately following each conversion under
Sections 2.2 and/or 3.1 hereof (calculated on a cumulative basis) of $2,000,000
(each, a &#147;Specified Event&#148;).&#160; Following
the occurrence of each Specified Event, the Fixed Conversion Price shall be
equal to 110% of the average closing prices for the Common Stock on the
Principal Market, or on any securities exchange or other securities market on
which the Common Stock is then being listed or traded, for the three (3)
trading days immediately prior to the occurrence of the Specified Event.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Conversion Limitation</u>.
Notwithstanding anything contained herein to the contrary, the Holder shall not
be entitled to convert pursuant to the terms of this Note an amount that would
be convertible into that number of Conversion Shares which would exceed the
difference between the number of shares of Common Stock beneficially owned by
such Holder or issuable upon exercise of warrants held by such Holder and 4.99%
of the outstanding shares</font></h2>

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<h2 style="font-weight:normal;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">of Common Stock of the Borrower.&#160; For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder.&#160; The Holder may void the Conversion Share
limitation described in this Section 3.3 upon 75 days&#146; prior notice to the
Borrower or without any notice requirement upon an Event of Default.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Mechanics of Conversion</u>. In the
event that the Holder elects to convert this Note into Common Stock, the Holder
shall give notice of such election by delivering an executed and completed
notice of conversion (&#147;<b><font style="font-weight:bold;">Notice of Conversion</font></b>&#148;) to the Borrower, and
such Notice of Conversion shall provide a breakdown in reasonable detail of the
amount of Principal Amount, accrued interest and fees that are being
converted.&#160; 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 and shall provide written notice
thereof to the Borrower within two (2) Business Days after the Conversion
Date.&#160; 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 (the &#147;<b><font style="font-weight:bold;">Conversion Date</font></b>&#148;).&#160; A form of Notice of Conversion that may be
employed by the Holder is annexed hereto as Exhibit A.&#160; The Borrower will cause the transfer agent
to transmit the certificates representing the Conversion Shares to the Holder
by crediting the account of the Holder&#146;s designated broker with the Depository
Trust Corporation (&#147;<b><font style="font-weight:bold;">DTC</font></b>&#148;) through its Deposit Withdrawal Agent
Commission (&#147;DWAC&#148;) system within three (3) Business Days after receipt by the
Borrower of the Notice of Conversion (the &#147;<b><font style="font-weight:bold;">Delivery Date</font></b>&#148;).</font></h2>

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<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">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.&#160;
The Holder shall be treated for all purposes as the record holder of
such Common Stock, unless the Holder provides the Borrower written instructions
to the contrary.</font></p>

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<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Late Payments</u>. The Borrower
understands that a delay in the delivery of the shares of Common Stock in the
form required pursuant to this Article beyond the Delivery Date could result in
economic loss to the Holder.&#160; As
compensation to the Holder for such loss, the Borrower agrees to pay late
payments to the Holder for late issuance of such shares in the form required
pursuant to this Article III upon conversion of the Note in the amount equal to
the greater of (i) $500 per Business Day after the Delivery Date and (ii) the
Holder&#146;s actual damages from such delayed delivery.&#160; The Borrower shall pay any payments incurred under this Section
in immediately available funds upon demand and, in the case of actual damages,
accompanied by reasonable documentation of the amount of such damages.</font></h2>

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<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.6.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Adjustment Provisions</u>. The
Fixed Conversion Price and number and kind of shares or other securities to be
issued upon conversion determined pursuant to Sections 3.1 and 3.2 shall be
subject to adjustment from time to time upon the happening of certain events
while this conversion right remains outstanding, as follows:</font></h2>

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<h4 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">A.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Reclassification, etc</u>.&#160; 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
Amount and accrued</font></h4>

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<h4 style="font-weight:normal;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">interest thereon, shall thereafter be deemed to evidence
the right to purchase 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.</font></h4>

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<h4 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">B.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Stock Splits, Combinations and Dividends</u>.&#160; 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 Fixed
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.</font></h4>

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<h4 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">C.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Share Issuances</u>.&#160;
Subject to the provisions of this Section 3.6, if the Borrower shall at
any time prior to the conversion or repayment in full of the Principal Amount
issue any shares of Common Stock to a person other than the Holder (otherwise
than (i) pursuant to Subsections A or B above; (ii) pursuant to options,
warrants, or other obligations to issue shares outstanding on the date hereof
as disclosed to Holder in writing; or (iii) pursuant to options that may be
issued under any employee incentive stock option and/or any qualified stock
option plan adopted by the Borrower) for a consideration per share (the &#147;Offer
Price&#148;) less than the Fixed Conversion Price in effect at the time of such
issuance, the Fixed Conversion Price shall, simultaneously with the happening
of such event, be adjusted by multiplying the then current Fixed Conversion
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 Fixed
Conversion Price then in effect. The Fixed Conversion Price, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
event or events described herein in this subsection C. For purposes hereof, the
issuance of any security of the Borrower convertible into or exercisable or
exchangeable for Common Stock shall result in an adjustment to the Fixed
Conversion Price only upon the conversion, exercise or exchange of such
securities.</font></h4>

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<h4 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">D.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Computation of Consideration</u>.&#160; For purposes of any computation respecting
consideration received pursuant to Subsection C above, the following shall
apply:</font></h4>

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<h4 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; in the case of the issuance of shares
of Common Stock for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Borrower for any underwriting of
the issue or otherwise in connection therewith;</font></h4>

<h4 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h4>

<h4 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; in the case of the issuance of shares
of Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market value
thereof as determined in good faith by the Board of Directors of the Borrower
(irrespective of the accounting treatment thereof); and</font></h4>

<h4 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h4>

<h4 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; in the case of the issuance of
securities convertible into or exchangeable for shares of Common Stock, the
aggregate consideration received therefor shall</font></h4>

<h4 align="center" style="font-weight:normal;margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h4>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

<h4 style="font-weight:normal;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">be deemed to be the consideration received by the
Borrower for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Borrower upon the conversion or
exchange thereof (the consideration in each case to be determined in the same
manner as provided in clauses (a) and (b) of this Subsection (D)).</font></h4>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.7.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Reservation of Shares</u>. During
the period the conversion right exists, the Borrower will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of Common Stock upon the full conversion of this Note.&#160; The Borrower represents that upon issuance,
such shares will be duly and validly issued, fully paid and
non-assessable.&#160; The 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.</font></h2>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.8.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Registration Rights</u>.&#160; The Holder has been granted registration
rights with respect to the shares of Common Stock issuable upon conversion of
this Note as more fully set forth in a Registration Rights Agreement dated the
date hereof.</font></h2>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">ARTICLE
IV</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">EVENTS OF DEFAULT</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></h1>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The occurrence of any of
the following events is an Event of Default (&#147;<b><font style="font-weight:bold;">Event of Default</font></b>&#148;):</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Failure to Pay Principal, Interest
or other Fees</u>.&#160; The Borrower fails
to pay any installment of principal, interest or other fees hereon or on any
other promissory note issued pursuant to the Security Agreement, when due:
provided however, that the Borrower shall have a period of three (3) Business
Days in which to cure such failure to pay such monetary amounts.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Breach of Covenant</u>.&#160; The Borrower breaches any covenant or other
term or condition of this Note in any material respect and such breach, if
subject to cure, continues for a period of ten (10)&#160; days after the occurrence thereof.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Breach of Representations and
Warranties</u>.&#160; Any material
representation or warranty of the Borrower made herein, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith shall be false or misleading.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Stop Trade</u>.&#160; An SEC stop trade order or Principal Market
trading suspension of the Common Stock for five (5) consecutive trading days or
five (5) trading days during a period of ten (10) consecutive days, excluding
in all cases a suspension of all trading on a Principal Market.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Default Under Related Agreement</u>.&#160; The occurrence of an Event of Default under
and as defined in the Security Agreement.</font></h2>

<h2 align="center" style="font-weight:normal;margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<h2 align="center" style="font-size:10.0pt;font-weight:normal;margin:0in 0in .0001pt;text-align:center;">&nbsp;</h2>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">ARTICLE
V</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">DEFAULT PAYMENTS</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></h1>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Default Payment</u>.&#160; If an Event of Default occurs and is
continuing beyond any applicable cure period, the Holder, at its option, may
elect, in addition to all rights and remedies of Holder under the Security
Agreement and all obligations of Borrower under the Security Agreement, to
require the Borrower to make a Default Payment (&#147;<b><font style="font-weight:bold;">Default Payment</font></b>&#148;).&#160; The Default Payment shall be 105% of the
outstanding principal amount of the Note, plus accrued but unpaid interest, all
other fees then remaining unpaid, and all other amounts payable hereunder. The
Default Payment shall be applied, at the Holder&#146;s discretion, first any fees
due and owing to Holder, then to accrued and unpaid interest and then principal
outstanding under this Note.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Default Payment Date and Default
Notice Period</u>.&#160; The Default Payment
shall be due and payable on the fifth business day after the date written
notice is sent from the Holder to the Borrower of an Event of Default as
defined in Article IV (&#147;<b><font style="font-weight:bold;">Default Payment Date</font></b>&#148;).&#160; The period between the date of the written
notice from the Holder to the Borrower of an Event of Default and the Default
Payment Date shall be the &#147;<b><font style="font-weight:bold;">Default Notice Period</font></b>.&#148;&#160; If during the Default Notice Period, the
Borrower cures the Event of Default, the Event of Default will no longer exist
and any rights the Holder had pertaining to the Event of Default will no longer
exist.&#160; If the Event of Default is not
cured during the Default Notice Period, all amounts payable hereunder shall be
due and payable on the Default Payment Date, all without further demand,
presentment or notice, or grace period, all of which hereby are expressly waived.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u> Default Interest Rate</u>.&#160; Following the occurrence and during the
continuance of an Event of Default, the then current interest rate on this Note
shall automatically be increased by five percent (5%) per annum and all
outstanding Obligations, including unpaid interest, shall continue to accrue
interest from the date of such Event of Default at such default interest rate
applicable to such Obligations until such Event of Default is cured or waived.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5.4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Cumulative Remedies</u>.&#160; The remedies under this Note shall be
cumulative.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">ARTICLE
VI</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">MISCELLANEOUS</font></b></h1>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></h1>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Failure or Indulgence Not Waiver</u>.&#160; No failure or delay on the part of the
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.&#160;
All rights and remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise available.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Notices</u>.&#160; Any notice herein required or permitted to
be given shall be in writing and provided in accordance with the terms of the
Security Agreement.</font></h2>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u> Amendment Provision</u>.&#160; The term &#147;Note&#148; 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.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Assignability</u>.&#160; 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, and may be assigned by the Holder with five (5)
days&#146; prior written notice to Borrower.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Costs of Collection</u>.&#160; If default is made in the payment of this
Note, the Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys&#146; fees.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.6.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Governing Law</u>.&#160; THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE WITHOUT REGARD TO THE CONFLICT OF
LAWS PROVISIONS THEREOF. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND HOLDER PERTAINING TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS OR AS TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR
ANY OF THE ANCILLARY AGREEMENTS; <u>PROVIDED</u>, THAT HOLDER AND BORROWER
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; <u>AND FURTHER
PROVIDED</u>, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
IN FAVOR OF HOLDER.&#160; BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH IT
MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR <u>FORUM
NON CONVENIENS</u>.&#160; BORROWER HEREBY
WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN
ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, ADDRESSED TO
BORROWER, AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER
OF BORROWER&#146;S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID. THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED
BY A JUDGE APPLYING SUCH APPLICABLE LAWS.&#160;
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE
JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN HOLDER AND</font></h2>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<h2 style="font-weight:normal;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">BORROWER ARISING OUT OF, CONNECTED WITH, RELATED OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED THERETO. THE
PREVAILING PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ITS
REASONABLE ATTORNEY&#146;S FEES AND COSTS.&#160;
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.&#160; 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.&#160; NOTHING CONTAINED HEREIN SHALL BE DEEMED OR OPERATE TO PRECLUDE
HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION AGAINST THE BORROWER IN
ANY OTHER JURISDICTION TO COLLECT ON THE BORROWER&#146;S OBLIGATIONS TO HOLDER, TO
REALIZE ON ANY COLLATERAL OR ANY OTHER SECURITY FOR SUCH OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF HOLDER..</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.7.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Maximum Payments</u>.&#160; 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.&#160; 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.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.8.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Security Interest</u>.&#160; The Holder of this Note has been granted a
security interest in certain assets of the Borrower more fully described in the
Security Agreement.</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></h2>

<h2 style="font-weight:normal;margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.9.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Construction</u>.&#160; 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.</font></h2>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<br clear="all" style="page-break-before:always;">
</font>

<p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">IN WITNESS WHEREOF</font></b>,
the Borrower has caused this Note to be signed in its name effective as of this
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; day of August, 2003.</p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:48.5%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="51%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:51.5%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">DIGITAL ANGEL
  CORPORATION</font></p>
  </td>
 </tr>
 <tr>
  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:48.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="51%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:51.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:48.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="51%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:51.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:48.5%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="3%" valign="top" style="padding:0in .7pt 0in .7pt;width:3.42%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="39%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:39.62%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="8%" valign="top" style="padding:0in .7pt 0in .7pt;width:8.46%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:48.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="51%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:51.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:48.5%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">WITNESS:</font></p>
  </td>
  <td width="51%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:51.5%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:48.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="51%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:51.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:48.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="51%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:51.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="25%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:25.0%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="51%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:51.5%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr height="0">
  <td width="180" style="border:none;"></td>
  <td width="170" style="border:none;"></td>
  <td width="25" style="border:none;"></td>
  <td width="286" style="border:none;"></td>
  <td width="61" style="border:none;"></td>
 </tr>
</table>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">NOTICE
OF CONVERSION</font></u></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(To be executed by the
Holder in order to convert the Note)</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The undersigned hereby elects to convert
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
the principal and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
the interest due on the Note issued by DIGITAL ANGEL CORPORATION on
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2003
into Shares of Common Stock of DIGITAL ANGEL CORPORATION (the &#147;Borrower&#148;)
according to the conditions set forth in such Note, as of the date written
below.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Date of Conversion:</font></p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Conversion Price:</font></p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Shares To Be Delivered:</font></p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Signature:</font></p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Print Name:</font></p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Address:</font></p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="23%" valign="top" style="padding:0in .7pt 0in .7pt;width:23.22%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="76%" valign="top" style="padding:0in .7pt 0in .7pt;width:76.78%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
</table>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

</div>


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