Document:

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                                                                   Exhibit 10.3

                             BRIDGE LOAN AGREEMENT

     THIS BRIDGE LOAN AGREEMENT ("Agreement") is made and entered into effective
                                  ---------
as of April 19, 2001, by and among Optical Sensors Incorporated, a Delaware
corporation (the "Company"), with its principal place of business at 7615 Golden
                  -------
Triangle Drive, Suite A, Eden Prairie, Minnesota 55344, and Circle F Ventures
LLC (the "Investor").
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     A.   The Company currently needs up to $85,000 to fund its operation until
such time as it is able raise additional equity capital.

     B.   The Investor desires to make an investment in the Company on the terms
and conditions set forth in this Agreement.

     Accordingly, in consideration of the foregoing, the mutual promises set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

1.   Purchase of Convertible Promissory Note. Upon the terms and subject to the
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     conditions set forth in this Agreement, the Company agrees to issue to the
     Investor, and the Investor agrees to purchase from the Company, a
     convertible promissory note in the form attached hereto as Exhibit A in the
                                                                ---------
     principal amount of up to Eighty Five Thousand Dollars ($85,000) (the
     "Note"). The Note shall not bear interest and shall be due and payable in
      ----
     full one (1) year from the date of issuance (the "Maturity Date") unless
                                                       -------------
     converted into shares of Common Stock of the Company prior to the Maturity
     Date. After April 30, 2001, the Company shall have the right to prepay the
     Note, in whole or in part, at any time or from time to time, on ten (10)
     days' prior written notice to the Investors, without premium or penalty
     pursuant to Section 1 of the Note.

2.   Conversion. The Investor shall have the right to convert all or any portion
     ----------
     of principal balance and accrued interest under the Note, at the option of
     the Investor, into shares of Common Stock of the Company at any time, and
     from time to time. If the Company completes a private placement of equity
     securities (the "Financing") by April 30, 2001, the conversion price of the
     Note shall be equal to the per share price of the securities sold in the
     Financing. If the Company does not complete the Financing by April 30,
     2001, the conversion price of the Note shall be $.25 per share. The shares
     of Common Stock issuable upon conversion of the Note are referred to as the
     "Conversion Securities." Notwithstanding any other provision of this
      ---------------------
     Agreement or the Note to the contrary, the maximum number of shares of
     Common Stock into which the Note may be converted is the maximum number of
     shares that, when added to all of the other shares of Common Stock for
     which the Investor is the "beneficial owner (as defined in Rule 13d-3 of
     the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
                                                           ------------
     would result in the Investor becoming the "beneficial owner" of 49.8% of
     the Company's common stock.

3.   Representations and Warranties of the Company. The Company represents and
     ---------------------------------------------
     warrants to the Investor as follows:
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(a)  Organization. The Company is a corporation duly organized, validly existing
     ------------
     and in good standing under the laws of the State of Delaware and has the
     requisite corporate power and authority to own, lease or operate its
     properties and to carry on its business as it is now being conducted and as
     it is proposed to be conducted. The Company has no subsidiaries or direct
     or indirect ownership in any firm, corporation or business which either,
     individually or in the aggregate, is material to the business of the
     Company. The Company is qualified to do business and is in good standing as
     a foreign corporation in every jurisdiction in which its ownership of
     property or conduct of business requires it so to be qualified and in which
     the failure to so qualify would have a material adverse effect on the
     financial condition or business of the Company.

(b)  Authorization. The Company has the corporate power and authority to execute
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     and deliver this Agreement and the Note and to perform its obligations
     hereunder and thereunder, including the issuance of the Note and the
     Conversion Securities. This Agreement and the Note have been duly
     authorized by all necessary corporate action on behalf of the Company, have
     been duly executed and delivered by authorized officers of the Company, are
     valid and binding agreements on the part of the Company and are enforceable
     against the Company in accordance with their respective terms, except as
     the enforceability thereof may be limited by bankruptcy, insolvency,
     moratorium, reorganization or other similar laws affecting the enforcement
     of creditors rights generally and to judicial limitations on the
     enforcement of the remedy of specific performance and other equitable
     remedies. All corporate actions necessary for reservation and issuance of
     the Conversion Securities has been taken. The Conversion Securities when
     issued pursuant to conversion of the Note will be duly authorized, validly
     issued, fully paid and nonassessable, free and clear of any and all liens,
     charges, claims, encumbrances and preemptive rights.

(c)  No Violation. Neither the execution and delivery of this Agreement or the
     ------------
     Note by the Company, nor the performance by the Company of its obligations
     hereunder or thereunder, nor the consummation of the transactions
     contemplated hereby or thereby will: (a) conflict with or result in any
     breach of any provision of the Certificate of Incorporation or By-Laws of
     the Company; (b) result in a default (or give rise to any right of
     termination, cancellation or acceleration) under any of the terms,
     conditions or provisions of any note, lease, mortgage, license, agreement
     or other instrument or obligation to which the Company is a party or by
     which any of its assets may be bound, except for such defaults (or rights
     of termination, cancellation or acceleration) as to which requisite waivers
     or consents have been obtained or which, in the aggregate, would not result
     in a material adverse effect on the Company; (c) violate any order, writ,
     injunction, decree, statute, rule or regulation applicable to the Company
     or any of its assets, except for violations which would not result in a
     material adverse effect on the Company; or (d) result in the creation or
     imposition of any liens, charges or encumbrances upon any assets of the
     Company.

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(d)  SEC Reports. The Company has filed all reports, registration statements and
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     other filings with the Securities and Exchange Commission (the
     "Commission") required to be filed by it pursuant to the Securities Act of
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     1933, as amended (the "Securities Act") and the Exchange Act. All such
                            --------------
     reports, registration statements and other filings (including all notes,
     exhibits and schedules thereto, all documents incorporated by reference
     therein, and any amendments thereto) are collectively referred to herein as
     the "SEC Reports." As of their respective dates of filing with the
          -----------
     Commission, the SEC Reports complied in all material respects with all of
     the rules and regulations of the Commission and did not contain any untrue
     statement of a material fact or omit to state a material fact required to
     be stated therein or necessary in order to make the statements made
     therein, in light of the circumstances under which they were made, not
     misleading.

(e)  Financial Statements. The financial statements of the Company included in
     --------------------
     the SEC Reports (the "Financial Statements") have been prepared in
                           --------------------
     accordance with United States generally accepted accounting principles
     consistently applied and fairly present the financial position of the
     Company at the dates thereof and the results of the Company's operations
     and cash flows for the periods then ended (subject, in the case of
     unaudited statements, to normal adjustments and the omission of footnotes).
     The Company has no material liabilities, known or unknown, absolute,
     contingent or otherwise, except for (i) liabilities that are set forth in
     the Financial Statements, the notes thereto or the SEC Reports and (ii)
     liabilities that have been incurred in the ordinary course of business
     since December 31, 2000.

(f)  No Material Adverse Change. There have not been any changes in the assets,
     --------------------------
     properties, liabilities, financial condition, business or operations of the
     Company from that reflected in the Financial Statements except for (i)
     changes in the ordinary course of business which have not been, either
     individually or in the aggregate, materially adverse and (ii) the Company's
     continued operating losses and negative cash flow.

(g)  Authorized Capital Stock. The authorized capital stock of the Company is as
     ------------------------
     set forth in the SEC Reports. The issued and outstanding shares of capital
     stock of the Company have been duly authorized, validly issued and are
     fully paid and nonassessable. As of the date hereof, the Company has
     outstanding options and warrants to purchase 1,824,084 shares of Common
     Stock, convertible promissory notes in the aggregate principal amount of
     One Million Six Hundred Fifty Thousand Dollars ($1,650,000), warrants to
     purchase an aggregate of 1,050,000 shares of Common Stock that are issuable
     upon conversion of the foregoing convertible promissory notes. Except as
     set forth in the preceding sentence, there are no other outstanding
     warrants, options or other rights to acquire any shares of capital stock of
     the Company, except for the shares issued upon conversion of the Note and
     as disclosed in the SEC Reports. All of the above securities of the Company
     were issued in compliance with all applicable federal and state securities
     laws and were not issued in violation of or subject to any preemptive
     rights or other rights to subscribe for or purchase securities. Except for

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     Instrumentation Laboratory Company ("IL"), no holder of any security of the
                                          --
     Company is entitled to any preemptive or -- similar rights to purchase any
     securities of the Company.

(h)  Intellectual Property. The Company owns or possesses adequate rights to use
     ---------------------
     all patents, patent rights, inventions, trademarks, trade names,
     copyrights, licenses, domain names, governmental authorizations, trade
     secrets and know-how that are used or necessary for the conduct of its
     business; the Company has not received any notice of, and has no knowledge
     of, any infringement of or conflict with asserted rights of others with
     respect to any patents, patent rights, inventions, trademarks, trade names,
     copyrights, licenses, governmental authorizations, trade secret or know-how
     that, individually or in the aggregate, if the subject of an unfavorable
     decision, ruling or finding, would have a material adverse effect on the
     condition (financial or otherwise), earnings, operations or business of the
     Company and its subsidiaries considered as a whole.

(i)  Securities Laws. Subject to the accuracy of the representations of the
     ---------------
     Investor in Section 4, no consent, authorization, approval, permit or order
     of or filing with any governmental or regulatory authority is required
     under current laws and regulations in connection with the execution and
     delivery of this Agreement or the offer, issuance, sale or delivery to the
     Investor of the Note or the Conversion Securities other than the filing
     with the Commission of a Form D pursuant to Regulation D under the
     Securities Act, and the qualification thereof, if required, under
     applicable state securities laws, which qualification has been or will be
     effected as a condition of the sale of the Shares and the issuance of the
     Conversion Securities. Under the circumstances contemplated by this
     Agreement, the offer, issuance, sale and delivery of the Note will not,
     under current laws and regulations, require compliance with the prospectus
     delivery or registration requirements of the Securities Act.

(j)  Litigation. There are no actions, suits, proceedings or investigations
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     pending or, to the best of the Company's knowledge, threatened against the
     Company or any of its properties before or by any court or arbitrator or
     any governmental body, agency or official in which there is a reasonable
     likelihood (in the judgment of the Company) of an adverse decision that (a)
     would have a material adverse effect on the Company's properties or assets
     or the business of the Company as presently conducted or proposed to be
     conducted or (b) would impair the ability of the Company to perform in any
     material respect its obligations under this Agreement. The Company is not
     in default with respect to any judgment, order or decree of any court or
     governmental agency or instrumentality which, individually or in the
     aggregate, would have a material adverse effect on the assets, properties
     or business of the Company.

(k)  Properties. The Company has good and marketable title to all the properties
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     and assets reflected as owned in the Financial Statements, subject to no
     lien, mortgage, pledge, charge or encumbrance of any kind except (i) those,
     if any, reflected in such Financial Statements, or (ii) those which are not
     material in

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          amount and do not adversely affect the use made and promised to be
          made of such property by the Company. The Company holds its leased
          properties under valid and binding leases, with such exceptions as are
          not materially significant in relation to the business of the Company.
          The Company owns or leases all such properties as are necessary to its
          operations as now conducted or as proposed to be conducted.

     (l)  Brokers or Finders. To the knowledge of the Company, no person, firm
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          or corporation has or will have, as a result of any act or omission of
          the Company, any right, interest or valid claim against the Investor
          for any commission, fee or other compensation as a finder or broker in
          connection with the transactions contemplated by this Agreement. The
          Company shall indemnify and hold the Investor harmless for any claims
          made for any commission, fee or other compensation concerning the
          transactions contemplated by this Agreement.

4.   Representations and Warranties of the Investor. The Investor represents and
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     warrants to the Company as follows:

     (a)  The Note is being purchased for investment for the Investor's own
          account and not with the view to, or for resale in connection with,
          any distribution or public offering thereof. The Investor understands
          that neither the Note nor the Conversion Securities have been
          registered under the Securities Act or any state securities laws by
          reason of their contemplated issuance in transactions exempt from the
          registration requirements of the Securities Act and applicable state
          securities laws and that the reliance of the Company and others upon
          these exemptions is predicated in part upon this representation by the
          Investor. The Investor further understands that the Note and the
          Conversion Securities may not be transferred or resold without
          registration under the Securities Act and any applicable state
          securities laws, or pursuant to an exemption from the requirements of
          the Securities Act and applicable state securities laws.

     (b)  The Investor's principal place of business is located at the address
          set forth on the signature page hereto. The Investor qualifies as an
          "accredited investor," as defined in Rule 501 of Regulation D under
          the Securities Act. The Investor acknowledges that the Company has
          made available to the Investor at a reasonable time prior to the
          execution of this Agreement the opportunity to ask questions and
          receive answers concerning the business, operations and financial
          condition of the Company and the terms and conditions of the sale of
          securities contemplated by this Agreement and to obtain any additional
          information requested by such Investor. The Investor is able to bear
          the loss of its entire investment in the Shares and the Conversion
          Securities and has such knowledge and experience of financial and
          business matters that he is capable of evaluating the merits and risks
          of the investment to be made pursuant to this Agreement. However,
          neither the foregoing nor any other due diligence investigation
          conducted by such Investor or on its behalf shall limit, modify or
          affect the representations and warranties of the Company set forth in
          Section 3 of this Agreement or the right of such Investor to rely
          thereon.

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     (c)  This Agreement has been duly authorized by all necessary action on the
          part of the Investor, has been duly executed and delivered by such
          Investor and is a valid and binding agreement of such Investor.

5.   Registration Rights. The Company shall register the Conversion Securities
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     with Securities and Exchange Commission on any registration statement filed
     by the Company pursuant to Section 7 of the Securities Purchase Agreement,
     dated as of August 11, 2000, between the Company and the Investor.

6.   Miscellaneous.
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     (a)  The Company will file with the Commission, on a timely basis, all SEC
          Reports required to be filed under the Exchange Act and any other
          documents required to meet the public information requirements of Rule
          144(c) under the Securities Act.

     (b)  This Agreement and the rights and obligations of the parties hereunder
          shall not be assignable, in whole or in part, by the Company without
          the prior written consent of the Investor. This Agreement and the
          rights and obligations of the parties hereunder shall not be
          assignable, in whole or in part, by the Investor without the prior
          written consent of the Company, except that the Investor may assign
          its rights under this Agreement to any affiliate without the prior
          written consent of the Company. This Agreement shall inure to the
          benefit of and be binding upon and be enforceable by the successors
          and permitted assigns of the parties hereto. Neither this Agreement
          nor any provision hereof may be amended, modified, waived or
          discharged without the written consent of the parties hereto.

     (c)  This Agreement, including the exhibits attached hereto, constitutes
          the entire agreement of the parties relative to the subject matter
          hereof and supersedes any and all other agreements and understanding,
          whether written or oral, relative to the matters discussed herein.

     (d)  All representations and warranties contained herein shall survive
          after the execution and delivery of this Agreement for a period of two
          (2) years from the date hereof. All covenants and agreements which by
          their terms are to be performed after the date hereof will survive
          indefinitely, unless such covenants and agreements by their terms
          expire at an earlier date, in which case they will expire on such
          earlier date.

     (e)  All notices, requests, consents and other communications required or
          permitted hereunder shall be in writing and shall be given in writing
          by personal delivery, facsimile, commercial air delivery service or by
          registered or certified mail, postage prepaid, return receipt
          requested, addressed to the Company at the address set forth in the
          introductory paragraph to this Agreement and to the Investor at the
          addresses set forth on the signature page hereto, or at such other
          address as the respective parties may designate by like notice from
          time to time. Notices so given shall be effective upon the earlier of:
          (a) receipt by the party to which notice is given (which, in the
          instance of a facsimile, shall be deemed to

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          have occurred at the time that the machine transmitting the facsimile
          verifies a successful transmission of the facsimile); (b) on the fifth
          business day following the date such notice was deposited in the mail;
          or (c) on the second business day following the date such notice was
          delivered to a commercial air delivery service.

     (f)  This Agreement shall be construed and enforced in accordance with the
          laws of the State of Minnesota.

     (g)  This Agreement may be executed in two or more counterparts, each of
          which shall be deemed an original, but all of which together shall
          constitute one and the same instrument. This Agreement may be executed
          by facsimile.

                          [Next Page is Signature Page]

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         IN WITNESS WHEREOF, the Company and the Investor have executed this
Agreement effective as of the date first written above.

                                      OPTICAL SENSORS INCORPORATED

                                      By________________________________________
                                         Paulita LaPlante,
                                         President and Chief Executive Officer

                                      CIRCLE F VENTURES LLC

                                      By________________________________________

                                      Its_______________________________________

                                      Address:
                                      17797 North Perimeter Drive
                                      Suite 105
                                      Scottsdale, Arizona 85255

                                       8<PAGE>

                                                                    Exhibit 10.4

                          OPTICAL SENSORS INCORPORATED
                           CONVERTIBLE PROMISSORY NOTE

$85,000                                                   April 19, 2001
                                                          Minneapolis, Minnesota

         Optical Sensors Incorporated, a Delaware corporation (the "Company"),
for value received, hereby promises to pay to Circle F Ventures LLC, or any
person to whom this Note is subsequently transferred and who becomes a
registered holder of this Note (the "Holder"), at the Holder's office or to any
account designated by the Holder to the Company in writing, the principal sum of
Eighty-Five Thousand Dollars ($85,000), or such lesser amount as may be advanced
hereunder from time to time, on the first anniversary date of this Note (the
"Maturity Date"). This Note shall not bear interest.

         This Note is issued pursuant to the Bridge Loan Agreement, dated as of
April 19, 2001, by and among the Company and the Holder (the "Agreement"). This
Note is subject to the terms and condition of the Agreement, which is hereby
incorporated by reference.

         The Company waives demand, presentment, protest, notice of dishonor and
any other form of notice, not expressly required by the Agreement, that may be
required to hold the Company liable hereunder.

         This Note is subject to the following terms and conditions:

1. Payment. After April 30, 2001, this Note may be prepaid in whole or in part
at any time or from time to time, on ten (10) days' prior written notice to the
Holder, without premium or penalty.

2. Conversion.

         2.1 Terms of Conversion. The Holder shall have the right to convert all
or any portion of principal balance and accrued interest under this Note, at the
option of the Holder, into shares of the Company's common stock, $.01 par value
(the "Common Stock") at any time, and from time to time. If the Company
completes a private placement of equity securities (the "Financing") by April
30, 2001, the conversion price of this Note shall be equal to the per share
price of the securities sold in the Financing. If the Company does not complete
the Financing by April 30, 2001, the conversion price of this Note shall be $.25
per share. The conversion price is subject to adjustment pursuant to Section 2.4
below. Upon conversion, this Note must be surrendered and accompanied by a
written conversion notice (hereinafter referred to as the "Conversion Notice")
delivered to the Company at its principal office during usual business hours.
Notwithstanding any other provision of this Note or the Agreement to the
contrary, the maximum number of shares of Common Stock into which the Note may
be converted is the maximum number of shares that, when added to all of the
other shares of Common Stock for which the Investor is the "beneficial owner (as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), would result in the Investor becoming the "beneficial owner"
of 49.8% of the Company's common stock.

         2.2 Conversion Securities. The securities issuable upon conversion of
this Note pursuant to this Article 2 are referred to herein as the "Conversion
Securities."
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         2.3 Issuance of Common Stock. The conversion of this Note will be
deemed to have been made at the close of business on the date on which this Note
has been surrendered for conversion with the Conversion Notice duly executed
(the "Conversion Date"). As of the Conversion Date, the rights of the Holder as
a noteholder with respect to that portion of this Note which is so converted
will cease and the Holder will be treated for all purposes as having become the
record holder or holders of the Conversion Securities as of such Conversion
Date. No fractional shares of Conversion Securities will be issued upon the
conversion of this Note, but, instead of any fraction of a share which would
otherwise be issuable, the Company will deliver an amount of cash equal to such
fraction multiplied by the then applicable conversion price.

         2.4 Adjustment of Conversion Price for Optional Conversion. The
conversion price shall be subject to adjustment from time to time as follows:

                  (a) In case the Company shall subdivide its outstanding shares
         of Common Stock into a greater number of shares at any time, the then
         applicable conversion price in effect immediately prior to such
         subdivision shall be proportionately reduced, and conversely, in case
         the outstanding shares of Common Stock of the Company shall be combined
         into a smaller number of shares, the then applicable conversion price
         in effect immediately prior to such combination shall be
         proportionately increased.

                  (b) If any capital reorganization or reclassification of the
         capital stock of the Company, or consolidation or merger of the Company
         with another corporation, or the sale of all or substantially all of
         its assets to another corporation shall be effected in such a way that
         holders of Common Stock shall be entitled to receive stock, securities
         or assets with respect to or in exchange for Common Stock, then, as a
         condition of such reorganization, reclassification, consolidation,
         merger or sale, lawful and adequate provision shall be made whereby the
         Holder shall thereafter have the right to receive upon the basis and
         upon the terms and conditions specified herein and in lieu of the
         Conversion Securities immediately theretofore receivable upon the
         conversion of this Note, such shares of stock, securities or assets as
         may be issued or payable with respect to or in exchange for a number of
         outstanding shares of such Common Stock equal to the number theretofore
         receivable upon the conversion of this Note had such reorganization,
         reclassification, consolidation, merger or sale not taken place, and in
         any such case appropriate provision shall be made with respect to the
         rights and interests of the Holder to the end that the provisions
         hereof (including, without limitation, provisions for adjustments of
         the then applicable conversion price and of the number of securities
         receivable upon the conversion of this Note) shall thereafter be
         applicable, as nearly as may be practicable, in relation to any shares
         of stock, securities or assets thereafter receivable upon the
         conversion of this Note.

                  (c) In any case in which this Section 2.4 shall require that
         an adjustment shall become effective immediately after a record date
         for an event, and if the Holder should convert after such record date
         and before the occurrence of such event, then the Company may defer
         until the occurrence of such event (i) issuing the additional shares of
         Common Stock issuable upon such conversion by reason of the adjustment
         required by such event over and above the shares issuable upon such
         conversion before giving effect to such adjustment and (ii) paying to
         the Holder any amount of cash in lieu of a fractional share pursuant to
         Section 2.3 above.

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                  (d) All calculations under this Article 2 shall be made to the
         nearest cent or to the nearest one-hundredth of a share, as the case
         may be.

                  (e) Upon any adjustment of the conversion price, then and in
         each such case, the Company shall give written notice thereof, by
         first-class mail, postage prepaid, addressed to the Holder, at the
         address of the Holder as shown on the books of the Company, which
         notice shall state the conversion price resulting from such adjustment
         and the increase or decrease, if any, in the number of Conversion
         Securities issuable upon conversion of this Note at such price, setting
         forth in reasonable detail the method of calculation and the facts upon
         which such calculation is based.

                  (f) The Company shall give the Holder 20 days' written notice
         prior to the effective date of any of the events described in Sections
         2.4(a) or 2.4(b) above.

         2.5 Adjustment of Number of Shares. Upon each adjustment of the
conversion price pursuant to Section 2.4, the number of Conversion Securities
shall be adjusted by dividing the then unpaid principal amount hereof by the
applicable per share conversion price in effect immediately following such
adjustment.

         2.6 Covenants of Company. The Company covenants that all of the
Conversion Securities will, upon issuance, be duly authorized and issued, fully
paid, nonassessable and free from all taxes, liens and charges with respect to
the issue thereof. The Company further covenants that during the period within
which this Note may be converted, the Company will at all times have authorized,
and reserved free of preemptive or other rights for the purpose of issue, such
number of shares of Conversion Securities as shall then be issuable upon
conversion of this Note as herein provided.

3. Consolidation, Merger, Sale or Conveyance

         3.1 Generally. Nothing contained in this Note will prevent any
consolidation or merger of the Company with or into any other corporation or
corporations or successive consolidations or mergers in which the Company or its
successor or successors is a party or parties, or will prevent any sale or
conveyance of the property of the Company as an entirety or substantially as an
entirety to any other corporation authorized to acquire and operate the same.
However, the Company hereby covenants and agrees that any such consolidation,
merger, sale or conveyance will be upon the condition that (a) immediately after
such consolidation, merger, sale or conveyance the corporation (whether the
Company or such other corporation) formed by or surviving any such consolidation
or merger, or to which such sale or conveyance will have been made, will not be
in default in the performance or observance of any of the terms, covenants and
conditions of this Note to be kept or performed by the Company; and (b) the
corporation (whether the Company or such other corporation) formed by or
surviving any such consolidation or merger, or to which such sale or conveyance
will have been made, will expressly assume the due and punctual payment of the
principal of this Note, according to the terms of this Note, and the faithful
performance and observance of all of the covenants, conditions, and requirements
of this Note to be performed by the Company by a supplemental instrument
executed and delivered to the Holder by such corporation.

         3.2 Release; Liability of Successor Corporation. In case of any such
consolidation, merger, sale or conveyance, and upon the assumption by any
successor corporation pursuant to Section 3.1 above, such successor corporation
will succeed to and be substituted for the

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Company, with the same effect as if it had been named in this Note in the
Company's place, and the Company (including any intervening successor to the
Company which has become obligated under this Note) will be relieved of any
further obligation under this Note. All of the covenants, stipulations,
promises, and agreements contained in this Note by or on behalf of the Company
will bind its successors and assigns, whether so expressed or not.

4. Default

         4.1 Events of Default. An "Event of Default" will be deemed to occur
upon the happening of any of the following: (a) the failure to pay when due any
amount of principal payable hereunder, (b) the filing against the Company which
is not dismissed within 60 days thereafter, or by the Company, of a petition in
bankruptcy or for an arrangement or reorganization, (c) the making by the
Company of a general assignment for the benefit of creditors, (d) the
appointment of a receiver or trustee for the Company, (e) the institution of
liquidation or dissolution or reorganization proceedings with respect to the
Company, (f) the Company becoming unable or admitting in writing an inability to
pay its debts generally as they become due, or (g) the occurrence of any breach
by the Company of any representation, warranty or covenant of the Company under
the Agreement, which is not cured within thirty (30) days of written notice from
the Holder.

         4.2 Rights on Default. If an Event of Default occurs and is continuing,
the Holder may declare the principal of this Note, if not already due, to be due
and payable immediately, by written notice to the Company; provided, however,
that all amounts due under this Note shall be automatically due and payable,
without any action of the Holder, upon an Event of Default pursuant to Sections
4.1(b) - 4.1(f) above. Upon any such declaration, such principal will become due
and payable immediately, anything contained in this Note to the contrary
notwithstanding.

         4.3 Enforcement. If the principal of this Note becomes due and payable
immediately, whether by declaration of the Holder or automatically, the Holder
may proceed to protect and enforce its rights by an action at law, suit in
equity, or other appropriate proceeding. The Company shall pay all costs and
expenses of collection, including, without limitation, attorneys' fees and
disbursements in the event that any action, suit or proceeding shall be brought
by the Holder hereof to collect this Note.

5. Miscellaneous.

         5.1 Headings. The headings in this Note are inserted for convenience
only and will not affect the meaning or interpretation of all or any part of
this Note.

         5.2 Governing Law. This Note will be deemed to be a contract made under
the laws of the State of Minnesota, and for all purposes will be construed in
accordance with the laws of the State of Minnesota.

         5.3 Construction. Wherever possible, each provision of this Note will
be interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Note is prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Note.

                                       4
<PAGE>

         5.4 Amendments. This Note may not be and will not be deemed or
construed to have been modified, amended, rescinded, canceled or waived, in
whole or in part, except by a written instrument signed by the Company and the
Holder.

         5.5 Payment Date. In case the Maturity Date or the date fixed for
prepayment of this Note is not a business day, then payment of principal to the
Holder need not be made on such date, but may be made on the next succeeding
business day with the same force and effect as if made on the Maturity Date or
the date fixed for prepayment.

         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the date set forth above.

                                       OPTICAL SENSORS INCORPORATED

                                       By
                                           -------------------------------------
                                           Paulita LaPlante
                                           President and Chief Executive Officer

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

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED,
PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS COVERING THIS NOTE OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT, OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT
AND SUCH LAWS.
                                 ---------------

                                       5

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