Exhibit 10.2


THIS NOTE AND THE COMMON SHARES  ISSUABLE UPON  CONVERSION OF THIS NOTE HAVE NOT
BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED,  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 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 PACIFIC BIOMETRICS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.


                          SECURED CONVERTIBLE TERM NOTE

         FOR VALUE RECEIVED,  PACIFIC BIOMETRICS,  INC., a Delaware  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 Two
Million Five Hundred Thousand Dollars ($2,500,000.00), together with any accrued
and unpaid interest hereon,  on May 28, 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 from June 3, 2004 to the  Maturity  Date at a
rate per annum (the "Interest  Rate") equal to the "prime rate" published in The
Wall Street  Journal from time to time,  plus two percent  (2%).  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.
Interest  shall  be (i)  calculated  on the  basis of a 360 day  year,  and (ii)
payable  monthly,  in  arrears,  commencing  on July 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

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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 December 1, 2004 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 $83,333.33, 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  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.  Each month by
               the fifth (5th) business day prior to each Amortization Date (the
               "Notice  Date"),  the Holder shall  deliver to Borrower a written
               notice in the form of Exhibit B attached  hereto  converting  the
               Monthly  Amount payable on the next Repayment Date in either cash
               or Common  Stock,  or a combination  of both (each,  a "Repayment
               Notice"). 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 an amount
               equal to 102% of the principal  portion of the Monthly Amount due
               and owing to Holder on the Repayment Date. If the Holder converts
               all or a portion of the Monthly  Amount in shares of Common Stock
               as provided herein, the number of such shares to be issued by the
               Borrower to the Holder on such Repayment Date shall be the number
               determined  by dividing (x) the portion of the Monthly  Amount to
               be paid in  shares of Common  Stock,  by (y) the then  applicable
               Fixed Conversion  Price. For purposes hereof,  the initial "Fixed

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<PAGE>

               Conversion  Price" means $1.06 (which has been  determined on the
               date  of this  Note as an  amount  equal  to 102% of the  average
               closing price for the ten (10) trading days immediately  prior to
               the date of this Note).

          (b)  Monthly Amount Conversion Guidelines. Subject to Sections 2.1(a),
               2.2, and 3.2 hereof, the Holder shall convert all or a portion of
               the Monthly Amount due on each Repayment Date in shares of Common
               Stock  if 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 was
               greater  than or equal  to 115% of the  Fixed  Conversion  Price,
               provided,  however, that such conversions shall not exceed twenty
               five percent (25%) of the aggregate  dollar trading volume of the
               Common  Stock  for the five (5) day  trading  period  immediately
               preceding delivery of a Notice of Conversion to the Borrower. Any
               part of the  Monthly  Amount  due on a  Repayment  Date  that the
               Holder has not  converted  into  shares of Common  Stock shall be
               paid by the Borrower in cash on such Repayment  Date. Any part of
               the Monthly  Amount due on such Repayment Date which must be paid
               in cash (as a result of the closing  price of the Common Stock on
               one or more of the five (5) trading days preceding the applicable
               Repayment  Date  being  less than  115% of the  Fixed  Conversion
               Price) shall be paid in cash,  within three (3) business  days of
               the applicable Repayment Date.



         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 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.

         Any amounts  converted by the Holder pursuant to this Section 2.2 shall
be deemed to constitute  payments of  outstanding  fees,  interest and principal
arising in connection with Monthly Amounts for the remaining Repayment Dates, in
chronological order.

         2.3 Optional  Redemption in Cash.  The Borrower will have the option of
prepaying  this Note  ("Optional  Redemption")  by paying to the Holder a sum of
money  equal to one  hundred  thirty  percent  (130%)  of the  then  outstanding
principal  amount of this Note together with accrued but unpaid interest thereon
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

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<PAGE>

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 one (1) day 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 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 of Common Stock of 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 Holder may void the Conversion Share
limitation  described  in this  Section  3.2 upon 75 days  prior  notice  to the
Borrower or without any notice requirement upon an Event of Default.

         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.

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<PAGE>

          (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 one (1) 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. By way of example, if the
               original  principal  amount  of this Note is  $2,500,000  and the
               Holder converted $100,000 of such original principal amount prior
               to the first Repayment Date, then (1) the principal amount of the
               Monthly  Amount due on the first  Repayment  Date would equal $0,
               (2) the principal  amount of the Monthly Amount due on the second
               Repayment  Date  would  equal  $66,666.67  and (3) the  principal
               amount of the  Monthly  Amount due on the third  Repayment  Dates
               would be $83,333.33.

          (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.  Borrower
               Covenants.  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 any shares of

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<PAGE>

               Common  Stock or  securities  convertible  into Common Stock to a
               person other than the Holder  (except (i) pursuant to Subsections
               A or B above;  (ii)  pursuant to currently  outstanding  options,
               warrants,  or other  rights to acquire  the  Common  Stock of the
               Borrower  outstanding  on the date  hereof  as  disclosed  in the
               Borrower's   Securities  Exchange  Act  of  1934  filings  or  as
               disclosed  to  to  Holder  in  writing;   or  (iii)  pursuant  to
               securities  that may be issued  under any  employee  stock option
               and/or any stock plan adopted by the  Borrower)  (iv) pursuant to
               stock options  and/or stock granted  under the  Borrower's  stock
               option plan for  Borrower's  officers,  directors,  employees and
               advisors pursuant to arrangements, plans or contracts approved by
               the  Borrower's  board of directors;  (v) upon  conversion of any
               preferred  stock of the Borrower  outstanding on the date hereof,
               or (vi) in connection with acquisition  transactions  approved by
               the Borrower's  board of directors  provided,  however,  that the
               aggregate  consideration  for any individual  acquisition f shall
               not exceed $2,500,000 in the aggregate, without the prior written
               consent  of  Laurus,  which  consent  shall  not be  unreasonably
               withheld) 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 such  lower  Offer  Price.  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.

          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.
The Borrower will pay no costs,  fees or any other  consideration  to the Holder
for the production and issuance of a new Note.

                                   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

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<PAGE>

immediately due and payable.  In the event of such an acceleration,  within five
(5) days after written notice from Holder to Borrower (each  occurrence  being a
"Default Notice Period") the amount due and owing to the Holder shall be 130% of
the outstanding  principal  amount of the Note (plus accrued and unpaid interest
and fees,  if any) (the  "Default  Payment").  If, with  respect to any Event of
Default,  the Borrower cures the Event of Default,  the Event of Default will be
deemed to no longer  exist and any rights and remedies of Holder  pertaining  to
such Event of Default will be of no further force or effect. 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,  and in any such case,
such failure  shall  continue for a period of three (3) 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 in any material  respect and,
any such case, such breach, if subject to cure, continues for a period of thirty
(30) 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.

         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  $250,000,  and shall
remain unvacated, unbonded or unstayed for a period of forty four (44) days.

         4.6 Bankruptcy.  Borrower shall (i) apply for, consent to, or suffer to
exist the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or other fiduciary of itself or of all or a substantial part
of its property,  (ii) make a general  assignment  for the benefit of creditors,
(iii) commence a voluntary case under any state or federal  bankruptcy  laws (as

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<PAGE>

now or hereafter in effect),  (iv) be  adjudicated a bankrupt or insolvent,  (v)
file a petition  seeking to take  advantage of any other law  providing  for the
relief of debtors,  (vi) acquiesce to, or fail to have  dismissed,  within sixty
(60) days,  any petition  filed  against it in any  involuntary  case under such
bankruptcy  laws,  or (vii) take any action for the purpose of effecting  any of
the.

         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  two (2)
business days or (ii) to deliver a  replacement  Note to Holder within seven (7)
business  days  following  receipt  by  Borrower  of notice  from  Holder of 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 any Related
Agreement)   or  any  event  of  default  (or  similar  term)  under  any  other
indebtedness.

                           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 and one half percent (1.5%)
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

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<PAGE>

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.  Any notice herein required or permitted to be given shall
be in writing and shall be deemed  effectively given: (a) upon personal delivery
to the party  notified,  (b) when sent by  confirmed  telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day,  (c) five days after  having been sent by  registered  or  certified  mail,
return receipt requested,  postage prepaid,  or (d) one day after deposit with a
nationally  recognized  overnight  courier,  specifying next day delivery,  with
written  verification  of  receipt.  All  communications  shall  be  sent to the
Borrower  at  the  address  provided  in  the  Purchase  Agreement  executed  in
connection  herewith with a copy to Cairncross  and  Hempleman,  P.S. 254 Second
Avenue #500  Seattle,  WA 98104  Attn:  Tim  Woodland,  and to the Holder at the
address provided in the Purchase Agreement for such Holder,  with a copy to John
E.  Tucker,  Esq.,  825 Third  Avenue,  14th  Floor,  New York,  New York 10022,
facsimile number (212) 541-4434, or at such other address as the Borrower or the
Holder may  designate by ten days advance  written  notice to the other  parties
hereto.  A Notice of Conversion  shall be deemed given when made to the Borrower
pursuant to the Purchase Agreement.

         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. 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 so long as (i) no
assignment may be made to a competitor of the Borrower and (ii) the Holder shall
make no more than two (2) assignments  hereof in the aggregate . This Note shall
not be assigned by the Borrower without the consent of the Holder.

         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 action  brought by either  party  against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York.  Both  parties and the  individual  signing this Note on behalf of the
Borrower  agree to submit to the  jurisdiction  of such courts.  The  prevailing
party  shall  be  entitled  to  recover  from the  other  party  its  reasonable
attorney's  fees and  costs.  In the event  that any  provision  of this Note is
invalid or unenforceable  under any applicable statute or rule of law, then such
provision  shall  be  deemed  inoperative  to the  extent  that it may  conflict
therewith  and shall be deemed  modified to conform with such statute or rule of

                                       9
<PAGE>

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  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.



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


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<PAGE>

         IN WITNESS WHEREOF,  the Borrower has caused this Convertible Term Note
to be signed in its name effective as of the 28th day of May, 2004.


                                           PACIFIC BIOMETRICS, INC.


                                           By:    /s/ Ronald R. Helm
                                                  ------------------------------
                                           Name:  Ronald R. Helm
                                           Title: Chief Executive Officer

WITNESS:


_______________________________



                                       11
<PAGE>

                                    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 PACIFIC
BIOMETRICS, INC. dated May 28, 2004 by delivery of Shares of Common Stock of
PACIFIC BIOMETRICS, INC. 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:____________________________



                                       12
<PAGE>

                                    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 PACIFIC
BIOMETRICS, INC. dated _______, 200__ by delivery of Shares of Common Stock of
PACIFIC BIOMETRICS, INC. 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:____________________________



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