THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS.  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 EITHER: AN EFFECTIVE REGISTRATION STATEMENT AS TO
THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS; OR, AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO POWERCOLD CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.

SECURED CONVERTIBLE TERM NOTE

FOR VALUE RECEIVED, POWERCOLD CORPORATION, a Nevada  corporation (the
“Borrower”), hereby 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 “Holder”) or its
registered assigns or successors in interest, on order, the sum of Five Million
Dollars ($5,000,000), together with any accrued and unpaid interest hereon, on
July 29, 2007 (the “Maturity Date”) if not sooner paid.

Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder (the “Purchase Agreement”).

The following terms shall apply to this Note:

ARTICLE I

INTEREST & AMORTIZATION

1.1(a)

Interest Rate.  Subject to Sections 4.11 and 5.6 hereof, interest payable on
this Note shall accrue at a rate per annum (the “Interest Rate”) equal to the
“prime rate” published in The Wall Street Journal from time to time, plus one
percent (1.0%).  The prime rate shall be increased or decreased as the case may
be for each increase or decrease in the prime rate in an amount equal to such
increase or decrease in the prime rate; each change to be effective as of the
day of the change in such rate.  Subject to Section 1.1(b) hereof, the Interest
Rate shall not be less than five percent (5.0%) and no more than eight percent
(8.0%).  Interest shall be (i) calculated on the basis of a 360 day year, and
(ii) payable monthly, in arrears, commencing on August 1, 2004 and on the first
business day of each consecutive calendar month thereafter until the Maturity
Date (and on the Maturity Date), whether by acceleration or otherwise (each, a
“Repayment Date”).

1.1 (b) Interest Rate Adjustment. The Interest Rate shall be calculated on the
last business day of each month hereafter until the Maturity Date (each a
“Determination Date”) and shall be subject to adjustment as set forth herein.
 If (i) the Borrower shall have registered the shares of the Borrower’s common
stock underlying each of the conversion of the Note and that certain warrant
issued to Holder on a registration statement declared effective by the
Securities and Exchange Commission (the “SEC”), and (ii) the market price (the
“Market Price”) of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market (as defined below) for the five (5) trading days immediately
preceding a Determination Date exceeds the then applicable Fixed Conversion
Price by at least twenty five percent (25%), the Interest Rate for the
succeeding calendar month shall automatically be reduced by 200 basis points
(200 b.p.) (2.0.%) for each incremental twenty five percent (25%) increase in
the Market Price of the Common Stock above the then applicable Fixed Conversion
Price. If (i) the Borrower shall not have registered the shares of the
Borrower’s common stock underlying the conversion of the Note and that certain
warrant issued to Holder on a registration statement declared effective by the
SEC and which remains effective, and (ii) the Market Price of the Common Stock
as reported by Bloomberg, L.P. on the principal market for the five (5) trading
days immediately preceding a Determination Date exceeds the then applicable
Fixed Conversion Price by at least twenty five percent (25%), the Interest Rate
for the succeeding calendar month shall automatically be decreased by 100 basis
points (100 b.p.) (1.0.%) for each incremental twenty five percent (25%)
increase in the Market Price of the Common Stock above the then applicable Fixed
Conversion Price.  Notwithstanding the foregoing (and anything to the contrary
contained in herein), in no event shall the Interest Rate be less than zero
percent (0%).      

1.2

Minimum Monthly Principal Payments. Amortizing payments of the aggregate
principal amount outstanding under this Note at any time  (the “Principal
Amount”) shall begin on February 1,  2005 and shall recur on the first business
day of each succeeding month thereafter until the Maturity Date (each, an
“Amortization Date”).  Subject to Article 3 below, beginning on the first
Amortization Date, the Borrower shall make monthly payments to the Holder on
each Repayment Date, each in the amount of $166,666.67, together with any
accrued and unpaid interest to date on such portion of the Principal Amount plus
any and all other amounts which are then owing under this Note, the Purchase
Agreement or any other Related Agreement (specifically excluding the Common
Stock Purchase Warrant) but have not been paid (collectively, the “Monthly
Amount”). Any Principal Amount that remains outstanding on the Maturity Date
shall be due and payable on the Maturity Date.

ARTICLE II

CONVERSION REPAYMENT

2.1

(a) Payment of Monthly Amount in Cash or Common Stock.  Subject to paragraph (b)
each month by the fifth (5th) business day prior to each Repayment Date (the
“Notice Date”), the Holder shall deliver to Borrower a written notice in the
form of Exhibit B attached hereto (each, a “Repayment Notice”) stating whether,
according to the Conversion Criteria (as defined below), the Monthly Amount
payable on the next Repayment Date shall be paid in cash or Common Stock, or a
combination of both.  If a Repayment Notice is not delivered by the Holder on or
before the applicable Notice Date for such Repayment Date, then the Borrower
shall pay the Monthly Amount due on such Repayment Date in cash.  Any portion of
the Monthly Amount paid in cash on a Repayment Date, shall be paid to the Holder
in an amount equal to 102% of such amount.   The number of such shares to be
issued by the Borrower to the Holder on such Repayment Date (in respect of such
portion of the Monthly Amount converted into in shares of Common Stock pursuant
to Section 2.1(b)), shall be the number determined by dividing (x) the portion
of the Monthly Amount converted into shares of Common Stock, by (y) the then
applicable Fixed Conversion Price.    For purposes hereof, the initial “Fixed
Conversion Price” means $1.87 (which has been determined on the date of this
Note as an amount equal to 107% of the average closing price for the twenty two
(22) trading days immediately prior to the date of this Note) provided, however,
that the Fixed Conversion Price set on the date hereof shall not exceed $2.10 or
be less than $1.80.

(b)

Monthly Amount Conversion Guidelines-Automatic Conversion.  Subject to Sections
2.1(a), 2.2, and 3.2 hereof, the Holder shall convert into shares of Common
Stock all or a portion of the Monthly Amount due on each Repayment Date
according to the following guidelines (the “Conversion Criteria”): (i) the
average closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for the five (5) trading days immediately preceding such
 Repayment Date shall be greater than or equal to 110% of the Fixed Conversion
Price and (ii) the amount of such conversion does not exceed  thirty-five
percent (35.0%) of the aggregate dollar trading volume of the Common Stock for
the twenty-two (22) day trading period immediately preceding delivery of a
Repayment Notice.   If the Conversion Criteria are not met, the Holder shall
convert only such part of the Monthly Amount that meets the Conversion Criteria.
Any part of the Monthly Amount due on a Repayment Date that the Holder has not
been able to convert into shares of Common Stock due to failure to meet the
Conversion Criteria, shall be paid by the Borrower in cash at the rate of 102%
of the Monthly Amount otherwise due on such Repayment Date, within five (5)
business days of the applicable Repayment Date.

(c)

Subject to Sections 2.1,  2.2 hereof, if the average closing price of the Common
Stock on the Principal Market is less than one hundred ten percent (110%) of the
Fixed Conversion Price for the  five (5) trading days immediately preceding a
Repayment Date, then the Holder shall, , provide the Borrower with a Repayment
Notice requiring the conversion of the Monthly Amount (together with accrued and
unpaid interest and applicable fees), as of the date of the Repayment Notice at
a Fixed Conversion Price equal to ninety percent (90%) of the average of the
five (5) lowest trading days preceding such Repayment Date closing prices of the
Common Stock during the twenty-two (22) trading days  immediately prior to the
date of the delivery of such respective Repayment Notice, provided, however,
that such conversion of the Monthly Amount due on each  Repayment Date does not
exceed  thirty five percent (35.0%) of the aggregate dollar trading volume of
the Common Stock for the   twenty-two (22) day trading period immediately
preceding delivery of a Repayment Notice. Any part of the Monthly Amount due on
such Repayment Date that the Holder has not been able to convert into shares of
Common Stock as set forth in this Section 2.1(c) shall be paid in cash at the
rate of 102% of the Monthly Amount otherwise due on such Repayment Date, within
five (5) business days of the applicable Repayment Date. In no event shall the
Fixed Conversion Price for the purposes of this Section 2.1(c) be less than
$1.10.

2.2

No Effective Registration.  Notwithstanding anything to the contrary herein,
none of  the Borrower’s  obligations to the Holder  may be converted  into
 Common Stock unless (i) either (x) an effective current Registration Statement
(as defined in the Registration Rights Agreement) covering the shares of Common
Stock to be issued in connection with satisfaction of such obligations exists or
(y) an exemption from registration of the Common Stock is available to pursuant
to Rule 144 of the Securities Act and  (ii)  no  Event of Default hereunder
exists and is continuing, unless such Event of Default which has had, or could
reasonably be expected to have a Material Adverse Effect is cured within any
applicable cure period or  is otherwise waived in writing by the Holder in whole
or in part at the Holder’s option.

2.3

Optional Redemption in Cash.  The Borrower will have the option of prepaying
this Note (“Optional Redemption”) by paying to the Holder, within a period up to
and including twelve (12) months from the date herein, a sum of money equal to
one hundred  twenty-five percent (125%) of the remaining principal balance
amount of this Note together with accrued but unpaid interest thereon.  Optional
Redemption after twelve (12) months and up until twenty-four (24) months after
the date herein, will be at a sum equal to one hundred and fifteen  percent
(115%) of the remaining principal balance amount of this Note together with
accrued but unpaid interest.  Option Redemption after twenty-four (24) months
shall be effected by the Borrower paying to the Holder a sum equal to one
hundred and two percent (110%) of the principal balance amount plus accrued but
unpaid interest at Redemption and any and all other sums due, accrued or payable
to the Holder arising under this Note, the Purchase Agreement, or any Related
Agreement (the “Redemption Amount”) outstanding on the day written notice of
redemption (the “Notice of Redemption”) is given to the Holder. The Notice of
Redemption shall specify the date for such Optional Redemption (the “Redemption
Payment Date”) which date shall be seven (7) business days after the date of the
Notice of Redemption (the “Redemption Period”). A Notice of Redemption shall not
be effective with respect to any portion of this Note for which the Holder has a
pending election to convert pursuant to Section 3.1, or for conversions
initiated or made by the Holder pursuant to Section 3.1 during the Redemption
Period.  The Redemption Amount shall be determined as if such Holder’s
conversion elections had been completed immediately prior to the date of the
Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must
be paid in good funds to the Holder.  In the event the Borrower fails to pay the
Redemption Amount on the Redemption Payment Date as set forth  herein, then such
Redemption Notice will be null and void.

ARTICLE III

CONVERSION RIGHTS

3.1.

Holder’s Conversion Rights.  The Holder shall have the right, but not the
obligation, to convert all or any portion of the then aggregate outstanding
principal amount  of this Note, together with interest and fees due hereon, into
shares of Common Stock subject to the terms and conditions set forth in this
Article III.  The Holder may exercise such right by delivery to the Borrower of
a written notice of conversion not less than three (3) business days prior to
the date upon which such conversion shall occur.  

3.2

Conversion Limitation.  Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to convert pursuant to the terms of
the Note an amount that would (a) be convertible into that number of shares of
Common Stock which, when added to the number of shares of Common Stock otherwise
beneficially owned by such Holder including those issuable upon exercise of
warrants held by such Holder would exceed 4.99% of the outstanding shares of
Common Stock of the Borrower at the time of conversion or (b) exceed thirty-five
percent (35%) of the aggregate dollar trading volume of the Common Stock for the
twenty-two (22) day trading period immediately preceding delivery of a Notice of
Conversion to the Borrower.  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.  The conversion
limitation described in this Section 3.2 shall automatically become null and
void without any notice to Borrower upon the occurrence and during the
continuance beyond any applicable grace period of an Event of Default which has
had, or could reasonably be expected to have a Material Adverse Effect, or upon
75 days prior notice to the Borrower, except that at no time shall the
beneficial ownership exceed 19.99% of the Common Stock.  Notwithstanding
anything contained herein to the contrary, the number of shares of Common Stock
issuable by the Borrower and acquirable by the Holder at a price below $1.75 per
share pursuant to the terms of this Note, the Purchase Agreement or any Related
Agreement, shall not exceed an aggregate of 4,457,995  shares of the Borrower’s
Common Stock (subject to appropriate adjustment for stock splits, stock
dividends, or other similar recapitalizations affecting the Common Stock) (the
“Maximum Common Stock Issuance”), unless the issuance of shares hereunder in
excess of the Maximum Common Stock Issuance shall first be approved by the
Borrower’s shareholders, if required by applicable law or regulation.  If at any
point in time and from time to time the number of shares of Common Stock issued
pursuant to the terms of this Note or the Warrant, would exceed the Maximum
Common Stock Issuance but for this Section 3.2, the Borrower shall promptly call
a shareholders meeting to solicit shareholder approval for the issuance of the
shares of Common Stock hereunder in excess of the Maximum Common Stock Issuance.

3.3

Mechanics of Holder’s Conversion. (a) 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 (“Notice
of Conversion”) to the Borrower and such Notice of Conversion shall provide a
breakdown in reasonable detail of the Principal Amount, accrued interest and
fees being converted.  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.  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 “Conversion Date”). A
form of Notice of Conversion to be employed by the Holder is annexed hereto as
Exhibit A.  

(b) Pursuant to the terms of the Notice of Conversion, the Borrower will issue
instructions to the transfer agent accompanied by an opinion of counsel within
three (3) business day of the date of the delivery to Borrower of the  Notice of
Conversion  and shall cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Holder by crediting the account of the
Holder’s designated broker with the Depository Trust Corporation (“DTC”) through
its Deposit Withdrawal Agent Commission (“DWAC”) system within three (3)
business days after receipt by the Borrower of the Notice of Conversion (the
“Delivery Date”).  In the case of the exercise of the conversion rights set
forth herein the conversion privilege shall be deemed to have been exercised and
the Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Borrower of the Notice of Conversion.
 The Holder shall be treated for all purposes as the record holder of such
Common Stock, unless the Holder provides the Borrower written instructions to
the contrary.

3.4

Conversion Mechanics.

(a)

The number of shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing that portion of the principal and interest
and fees to be converted, if any, by the then applicable Fixed Conversion Price.
 In the event of any conversions of outstanding principal amount under this Note
in part pursuant to this Article III, such conversions shall be deemed to
constitute conversions of outstanding principal amount applying to Monthly
Amounts for the remaining Repayment Dates in chronological order.  

(b)

The Fixed Conversion Price and number and kind of shares or other securities to
be issued upon conversion is subject to adjustment from time to time upon the
occurrence of certain events, as follows:

A.

Stock Splits, Combinations and Dividends.  If the shares of Common Stock are
subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock in shares of Common Stock,
the Fixed Conversion Price or the Conversion Price, as the case may be, 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.

B.

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.
 The Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable.  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.

C.

Share Issuances.  Subject to the provisions of this Section 3.4, if the Borrower
shall at any time prior to the conversion or repayment in full of the Principal
Amount issue to a person other than the Holder except (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 in filings with the Securities and Exchange Commission or
the Securities Purchase Agreement; 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 "Offer
Price") less than the Fixed Conversion Price in effect at the time of such
issuance, then the Fixed Conversion Price shall be immediately reset to pursuant
to the formula below. 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 at the time of issuance of
such securities.

If the Corporation issues any additional shares pursuant to Section 3.4 above
then, and thereafter successively upon each such issue, the Fixed Conversion
Price shall be adjusted by multiplying the then applicable Fixed Conversion
Price by the following fraction:  

A + B

(A + B) + [((C – D) x B) / C]

A = Total amount of shares convertible pursuant to this Note.

B =  Actual shares sold in the successive offering

C = Fixed Conversion Price

D = Offering price

D.  

Reclassification, etc.  If the Borrower at any time shall, by reclassification
or otherwise, change the Common Stock into the same or a different number of
securities of any class or classes, this Note, as to the unpaid Principal Amount
and accrued 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.

3.5

Issuance of New Note.  Upon any partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Borrower to the Holder for the principal balance of
this Note and interest which shall not have been converted or paid. Subject to
the provisions of Article IV, the Borrower will pay no costs, fees or any other
consideration to the Holder for the production and issuance of a new Note.

3.6

Shareholder Rights. The Holder shall not, by virtue hereof, be entitled to any
rights of a shareholder in the Company, either at law or equity, and the rights
of the Holder are limited to those expressed in this Note and are not
enforceable against the Company except to the extent set forth herein.

ARTICLE IV

EVENTS OF DEFAULT

  Upon the occurrence and continuance of an Event of Default beyond any
applicable grace period, the Holder may make all sums of principal, interest and
other fees then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable.  In the event of such an acceleration, the amount
due and owing to the Holder shall be one hundred twenty percent 120% of the
outstanding principal amount of the Note (plus accrued and unpaid interest and
fees, if any) (the “Default Payment”).  The Default Payment shall be applied
first to any fees due and payable to Holder pursuant to the Note or the Related
Agreements, then to accrued and unpaid interest due on the Note and then to
outstanding principal balance of the Note.

The occurrence of any of the following events set forth in Sections 4.1 through
4.10, inclusive, is an “Event of Default”:

4.1

Failure to Pay Principal, Interest or other Fees.  The Borrower fails to pay
when due any installment of principal, interest or other fees hereon in
accordance herewith, or the Borrower fails to pay when due any amount due under
any other promissory note issued by Borrower which has had, or  could
 reasonably be expected  to have, a Material Adverse Effect, and in any such
case, such failure shall continue for a period of five (5) days following the
date upon which any such payment was due.

4.2

Breach of Covenant.  The Borrower breaches any covenant or any other term or
condition of this Note or the Purchase Agreement in any material respect, or the
Borrower or any of its Subsidiaries breaches any covenant or any other term or
condition of any Related Agreement which has had, or could reasonably be
expected  to have, a Material Adverse Effect  and, in any such case, such
breach, if subject to cure, continues for a period of fifteen (15) days after
the occurrence thereof.

4.3

Breach of Representations and Warranties.  Any representation or warranty made
by the Borrower in this Note or the Purchase Agreement, or by the Borrower or
any of its Subsidiaries in any Related Agreement, shall, in any such case, be
false or misleading in any material respect on the date that such representation
or warranty was made or deemed made and which has had, or  could reasonably be
 expected  to have, a Material Adverse Effect.

4.4

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

4.5

Judgments.  Any money judgment, writ or similar final process shall be entered
or filed against the Borrower or any of its Subsidiaries or any of their
respective property or other assets for more than an aggregate of $250,000 in
any calendar year, and shall remain unvacated, unbonded or unstayed for a period
of thirty (30) days.

4.6

Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings or relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Borrower or any of its
Subsidiaries.

4.7

Stop Trade.  An SEC stop trade order or Principal Market trading suspension of
the Common Stock shall be in effect for five (5) consecutive days or five (5)
days during a period of ten (10) consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, provided that the Borrower
shall not have been able to cure such trading suspension within thirty (30) days
of the notice thereof or list the Common Stock on another Principal Market
within sixty (60) days of such notice.  The “Principal Market” for the Common
Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ
National Market System, American Stock Exchange, or New York Stock Exchange
(whichever of the foregoing is at the time the principal trading exchange or
market for the Common Stock, or any securities exchange or other securities
market on which the Common Stock is then being listed or traded.

4.8    Failure to Deliver Common Stock or Replacement Note.  The Borrower shall
fail (i) to timely deliver Common Stock to the Holder pursuant to and in the
form required by this Note, and Section 9 of the Purchase Agreement, if such
failure to timely deliver Common Stock shall not be cured within three(3)
business days not withstanding a failure of the Stock Transfer Agent  to comply
with the requested issuance or (ii) to deliver a replacement Note to Holder
within seven (7) business days following the required date of such issuance
pursuant to this Note, the Purchase Agreement or any Related Agreement (to the
extent required under such agreements).

4.9

Default Under Related Agreements or Other Agreements.  The occurrence and
continuance of any  Event of Default (as defined in the Purchase Agreement or
any Related Agreement) or any event of default (or similar term) under any other
indebtedness that has had, or  could  reasonably be expected  to have, a
Material Adverse Effect.

4.10

Change in Control.

 In the event of a Change in Control, no Event of Default shall exist, and
Borrower shall have such Optional Redemption rights as set forth in section 2.3.

DEFAULT RELATED PROVISIONS

4.11

Payment Grace Period.  Following the occurrence and continuance of an Event of
Default beyond any applicable cure period hereunder, the Borrower shall pay the
Holder a default interest rate of one percent (1.0%) per month on all amounts
due and owing under the Note, which default interest shall be payable upon
demand.

4.12

Conversion Privileges.  The conversion privileges set forth in Article III shall
remain in full force and effect immediately from the date hereof and until this
Note is paid in full.

4.13

Cumulative Remedies.  The remedies under this Note shall be cumulative.

ARTICLE V

MISCELLANEOUS

5.1

Failure or Indulgence Not Waiver.  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.  All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise available.

5.2

Notices.   All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given:

upon personal delivery to the party to be notified;

when sent by confirmed facsimile if sent during normal business hours of the
recipient, if not, then on the next business day;

three (3) business days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or

one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.

All communications shall be sent as follows:

If to the Company, to:

PowerCold Corporation

566 South Bethlehem Pike

Fort Washington, PA

Attention:

Chief Financial Officer

Facsimile:

(215) 591-9882

    

with a copy to:

    

Attention:

Charles A. Cleveland, P.S.

      Suite 304, 1212 North Washington

                        Spokane, WA  99202-2401

Facsimile:        (509) 325-1872

  

If to the Purchaser, 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

Facsimile:

345-949-9877

    

with a copy to:

    

John E. Tucker, Esq.

825 Third Avenue 14th Floor

New York, NY 10022

Facsimile:

212-541-4434

or at such other address as the Company or the Purchaser may designate by ten
(10) days' advance written notice to the other parties hereto given in
accordance herewith.

5.3

Amendment Provision.  The term “Note” and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented, and any
successor instrument issued pursuant to Section 3.5 hereof, as it may be amended
or supplemented.

5.4

Assignability.  Subject to applicable securities laws, 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. in accordance with the requirements of the Purchase Agreement.  This
Note shall not be assigned by the Borrower without the consent of the Holder.
This Note may not be sold, transferred, assigned or hypothecated unless an
exemption from the registration requirements of the United States Securities Act
of 1933, as amended (the “1933 Act”), is available.  Any such assignment shall
be made by surrender of this Note to the Company or at the office of its stock
transfer agent, together with a  written opinion of counsel to the effect that
the proposed assignment will not violate applicable securities laws; whereupon
the Company shall, without charge, execute and deliver a new Note in the name of
the assignee named in such instrument or assignment and this Note shall promptly
be cancelled.  

5.5

Governing Law.  This Note shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
laws.   Any controversy arising out of, connected to, or relating to any matters
herein of the transactions between Holder and Company (including for purposes of
arbitration, partners, officers, directors, employees, controlling persons,
affiliates, professional advisors, attorneys, agents), on behalf of the
undersigned, or this Agreement, or the breach thereof, including, but not
limited to any claims of violations of Federal and/or State Securities Acts,
Banking Statutes, Consumer Protection Statutes, Federal and/or State
anti-Racketeering (e.g. RICO) claims as well as any claims relating  or deriving
from the Warrants, or underlying securities law and any State Law claims of
fraud, negligence, negligent misrepresentations, and/or conversion or any
foreign laws, shall be settled by arbitration; and in accordance with this
paragraph and judgment on the arbitrator's award may be entered in any court
having jurisdiction thereof in accordance with the provisions of New York Law.
In the event of such a dispute, each party to the conflict shall select an
arbitrator, both of whom shall then select a third arbitrator, which shall
constitute the three person arbitration board.  The decision of a majority of
the board of arbitrators, who shall render their decision within thirty (30)
days of appointment of the final arbitrator, shall be binding upon the parties.
Tthe prevailing party on any action to enforce rights hereunder shall be
entitled, in addition to any court awarded damages, their costs and reasonable
attorney's fees, whether at trial, or on appeal. Venue for any proceeding herein
shall lie in the borough of Manhatten, City of New York.

The prevailing party shall be entitled to recover from the other party its
reasonable attorney’s fees and costs.  In the event that any provision of this
Note is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or unenforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Borrower
in any other jurisdiction to collect on the Borrower’s obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.

5.6

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

5.7

Security Interest and Guarantee.  The Holder has been granted a security
interest (i) in certain assets of the Borrower and its Subsidiaries as more
fully described in the Master Security Agreement dated as of the date hereof and
(ii) pursuant to the Stock Pledge Agreement dated as of the date hereof.  The
principal and interest payment obligations of the Borrower under this Note are
guaranteed by certain Subsidiaries of the Borrower pursuant to the Subsidiary
Guaranty dated as of the date hereof.

5.8

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

5.9

Cost of Collection.  If default is made in the payment of this Note, the
Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorney’s fees.

5.10

COMPLIANCE WITH THE 1933 ACT .  

(a)

Neither this Note nor the Common Stock issuable upon exercise thereof have been
registered under the 1933 Act or under the laws of any state of the United
States. This Note or the Common Stock or any other security issued or issuable
upon exercise of this Note, may not be sold, transferred or otherwise disposed
of unless registered under the 1933 or pursuant to an exemption from the
registration requirements of the 1933 Act and all applicable state securities
laws.  

(b)

By accepting this Note, the Holder hereby represents and warrants to the
Company: that this Note and the Common Stock to be issued herein, have not been
approved or disapproved by the United States Securities and Exchange Commission,
the State of Nevada, any other state securities agencies, or foreign
jurisdictions and that it’s representations and warranties to the Company as set
forth in the Securities Purchase Agreement are true and correct on the date
hereof.

(c)

The rights of this Note may only be exercised by or on behalf of a Holder who,
at the time of exercise, either:

(i)

Provides written confirmation that the undersigned was the original Purchaser
(the “Initial Purchaser”) under which the Note was issued and the
representations and warranties made to the Company in the Securities Purchase
Agreement executed and delivered in connection with the acquisition of the Note
remain true and correct on the Exercise Date; or

(ii)

Provides a written opinion of counsel, in a form and from counsel reasonably
acceptable to the Company, that the Common Stock to be delivered upon exercise
of the Note is exempt from such registration requirements, the 1933 Act, the
securities laws of all applicable states of the United States, and any relevant
foreign jurisdictions.

[Balance of page intentionally left blank; signature page follows.]

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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its name
effective as of this 29th day of July, 2004.

POWERCOLD CORPORATION

By:________________________________

Name: Joseph C. Cahill

Title: Secretary

WITNESS:

_______________________________

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

EXHIBIT A

NOTICE OF CONVERSION

(To be executed by the Holder in order to convert all or part of the Note into
Common Stock

[Name and Address of Holder]

The Undersigned hereby converts  $_________ of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note issued by POWERCOLD
CORPORATION dated July __, 2004 by delivery of Shares of Common Stock of
POWERCOLD CORPORATION on and subject to the conditions set forth in Article III
of such Note.

1.

Date of Conversion

_______________________

2.

Shares To Be Delivered:

_______________________

By:_______________________________

Name:_____________________________

Title:______________________________

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

EXHIBIT B

CONVERSION NOTICE

(To be executed by the Holder in order to convert  all or part of a Monthly
Amount into Common Stock)

[Name and Address of Holder]

Holder  hereby converts  $_________ of the Monthly Amount due on [specify
applicable Repayment Date] under the Convertible Term Note issued by POWERCOLD
CORPORATION dated _______, 200__ by delivery of Shares of Common Stock of
POWERCOLD CORPORATION on and subject to the conditions set forth in Article III
of such Note.

1.

Fixed Conversion Price:

$_______________________

2.

Amount to be paid:

$_______________________

3.

Shares To Be Delivered (2 divided by 1):

__________________

4.

Cash payment to be made by Borrower :

$_____________________

Date: ____________

LAURUS  MASTER FUND, LTD.

By:_______________________________

Name:_____________________________

Title:______________________________