Document:

10-Q

                                                                    EXHIBIT 10.1

EMPLOYMENT AGREEMENT

Made and entered into this 13th day of April, 2008 (the "Effective Date").

Between: INKSURE TECHNOLOGIES INC. a Delaware corporation (the "Company"), with
offices at 1770 N.W. 64th St., Suite 350, Fort Lauderdale, FL 33309, USA

(HEREINAFTER THE "COMPANY");

ON THE FIRST PART

And: Mr., Tzlil Peker, a citizen of Israel, ID Number ___________, with an
address at _____________________________________, Israel

                                                    (HEREINAFTER THE "EMPLOYEE")

ON THE SECOND PART

Whereas             The Company is engaged in the development, production and
                    marketing of systems for Brand and Document protection,
                    track and trace and RFID technologies; and

Whereas             The Employee has the experience, know-how and qualifications
                    to serve as Vice President and Chief Financial Officer
                    ("CFO") of the Company and its subsidiaries, InkSure Inc.,
                    InkSure RF Inc. and InkSure Ltd. (the "Subsidiaries"); and

Whereas             The Company has offered that the Employee undertakes
                    employment with the Company as its Vice President and CFO,
                    on a half-time engagement basis, and the Employee agrees to
                    be employed as such, all in accordance with the terms and
                    conditions of this Agreement; and

NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth, it is agreed by the parties as follows:

1.   PREAMBLE

The Preamble to this Agreement forms an integral part thereof.

2.   POSITION.

2.1  The Company hereby employs the Employee, and the Employee hereby agrees to
     serve as Vice President and CFO of the Company and the Subsidiaries, on a
     half-time engagement basis, effective not later than 4/13/2008.

3.   As CFO of the Company and subject to section 2.1, the Employee shall devote
     his full business time and efforts to the affairs of the Company, and shall
     have all the responsibilities and powers that usually apply to this job.
     The company acknowledges and agrees that the employee is employed by others
     and/or provides financial services to others. The company agrees that the
     employee can perform certain part of his duties remotely outside the
     company premises. The Employee undertakes to attend at least 2 working days
     per full working week at the company premises.

3.1  The Employee shall report to the CEO of the Company.

3.2  The Employee shall serve as the Secretary of the Company and the
     Subsidiaries.

4.   SALARY.

4.1  The Company shall pay the Employee a monthly salary of 20,000 NIS gross for
     the first two months of his employment and 17,500 NIS gross after the first
     two months. (hereinafter the "Base Salary"), payable each month not later
     than the fifth day of each month

4.2  The Employee and the Company both acknowledge and agree, that upon the
     mutual agreement of the Company and the Employee, the Employee's salary
     from time-to-time may be paid by either of the Subsidiaries on behalf of
     the Company. The Company further acknowledges that this Section 3.3 does
     not affect the Company's obligation to pay the Employee's Base Salary or
     benefits pursuant to this Agreement.

4.3  The Employee shall be entitled to a refund for all expenses incurred by him
     in the performance of his duties hereunder (in accordance with the
     prevailing laws and regulations).

5.   BENEFITS.

5.1  The Company shall pay every month, an amount up to 15.83%(5% "tagmulim",
     8.33% "pitzuim" and up to 2.5% for disability insurance) of the Base Salary
     to an insurance policy, pension fund or combination between them, according
     to the request of the Employee, (hereinafter "Bituach Menahalim") in the
     name of the Employee. The Employee shall pay to such insurance policy,
     every month, an amount equal to 5% of the Base Salary.

5.2  The Company shall pay every month, an amount equal to 7.5% of the Base
     Salary to an educational fund (hereinafter "Keren Hishtalmut") in the name
     of the Employee. The Employee shall pay to such fund, every month, an
     amount equal to 2.5% of the Base Salary.

5.3  The Employee's payments pursuant to Sections 4.1 and 4.2 above shall be
     deducted at source from the Base Salary.

                                       2

5.4  The parties here adopt the Israeli Labor Ministry warrant from 30.6.98 and
     declare that the Company's payment to the Bituach Menahalim/ pension fund
     (8.33% for the severance payment) shall constitute the Company's whole
     obligation for Severance payments according to Section 14 of the Severance
     Payment Law - 1963(Israel).

5.5  The Employee shall be entitled to a vacation leave of eleven (11) days per
     year, (equivalent to full time position, or 22 vacation days for 50%
     position) which may be carried forward, from year to year.

5.6  The Company shall pay the employee an amount of 2,000 NIS to cover his
     monthly travelling expenses. In addition, the Company shall pay the
     employee an monthly amount of 400 NIS to cover his monthly mobile phone
     expenses. The Company shall also arrange a dedicated parking space for the
     employee (at the company' premises) and cover the parking costs, if any.

5.7  The Company will maintain a directors' and officers' liability insurance in
     the name of the Employee, covering all the Employee's duties under this
     Agreement.

5.8  The Employee shall be entitled to Dmey Havra'a as provided in a Collective
     Bargaining Agreement to which the General Labor Union of the Workers in
     Israel is a party regarding the payment of Dmey Havra'a that is force and
     effect.

5.9  Not later than fourteen (14) days after the termination of this Agreement,
     for any cause, the Company shall assign its rights to the Bituach Menahalim
     and/or pension fund and the Keren Hishtalmut to the Employee.

5.10 The Company will grant the employee 25,000 stock options no later than 90
     days after the effective date. Such stock options shall be exercisable at
     market price known at the grant date, vested equally over 3 years starting
     the effective date. The vesting will be fully accelerated in case of an
     M&A transaction. Such grant will be subject to Board and/or
     Compensation Committee' approval, if and when applicable. If the capacity
     of the CFO position will be extended beyond 50%, the Company will grant
     further stock options under the same terms to proportionally reflect the
     extended CFO capacity. Furthermore, no later than 12 months after the
     effective date, the Company will consider further grant of stock options to
     the employee, subject to the performance of the Employee.

5.11 In addition, the Company shall pay the employee a one-time retention bonus
     in amount of US$4,000 payable in 3 equal installments on Dec-2008, Feb-2009
     and Apr-2009.

                                       3

6.   PROPRIETARY INFORMATION.

6.1  Employee recognizes and understands that his employment creates a
     relationship of confidence and trust between him and the Company, and that
     proprietary information obtained by the Employee as a result of this
     Agreement is the sole property of the Company. At all times, both during
     his employment with the Company and after its termination, the Employee
     will keep in confidence and in trust all such proprietary information and
     will not use or disclose any such information or anything relating to it
     without the written consent of the Company, except as may be necessary in
     the ordinary course of performing his duties as the CFO of the Company.
     This Section 5 shall survive the termination of this Agreement.

6.2  In the event of termination of the Employee's employment with the Company
     for any reason, the Employee will deliver to the Company all documents and
     data of any nature pertaining to his work with the Company or the
     Subsidiaries.

7.   COMPETITION.

The Employee shall not, during the term of his employment with the Company, and
for a period of one (1) year after termination of this Agreement, render
services similar to his duties as Vice President and CFO of the Company, to any
entity or business which competes with the Company or the Subsidiaries directly
or indirectly.

8.   CONFIDENTIALITY.

The Employee undertakes that during the term of this Agreement and after its
termination, he shall not disclose to others confidential information of the
Company or the Subsidiaries, including but not limited to, information relating
to the business concerns of the Company or the Subsidiaries, their customers,
their financial position, their plans for the future and their proprietary
information, including confidential intellectual property. This Section 7 shall
survive the termination of this Agreement.

9.   TERM AND TERMINATION.

9.1  The Employee may terminate this Agreement for any reason upon sixty (60)
     days' prior written notice, and the Company may terminate this Agreement
     for any reason upon sixty (60) days' prior written notice (each such period
     being a "Prior Notice Period"), provided, however, that the Company may
     terminate this Agreement for a "Justifiable Cause" (as hereinafter defined)
     without prior notice. During the Prior Notice Period the Employee shall be
     entitled to payment of the Base Salary and all benefits pursuant to this
     Agreement. In addition, any unvested stock options held by the Employee
     shall continue to vest during the Prior Notice Period.

                                       4

9.1.1 "Justifiable Cause" shall mean: (a) conviction of the Employee of a felony
     which in the Company's view is injurious to the Company; (b) any willful
     breach by the Employee of his fiduciary duties as an officer of the Company
     pursuant to court decision; provided, however, that the Company may not
     terminate the Employee's employment for Justifiable Cause unless it has
     given the Employee (i) written notice of the basis for the proposed
     termination and (ii) if possible, at least fifteen (15) days during which
     the Employee shall be entitled to cure such basis.

10.  MISCELLANEOUS.

10.1 The Employee shall not disclose the terms of this Agreement to any person
     or entity within or outside the Company, except as may be required by law.

10.2 This Agreement constitutes the entire understanding between the parties
     with respect to the subject matter hereof. Any prior understandings,
     undertakings or representations, written or oral, shall be of no force or
     effect.

10.3 This Agreement may be amended only through a document signed by both
     parties.

10.4 No rights of any party shall be prejudiced or restricted by an indulgence
     or forbearance to any party, and no waiver by any party in respect of any
     breach shall operate as a waiver in respect to a subsequent breach.

10.5 Any notice, demand, call or request under this Agreement (hereinafter a
     "Communication") which a party may desire to serve, or be required to serve
     upon the other party, shall be in writing and shall be deemed sufficiently
     served if: (a) delivered by hand; or (b) if sent by courier that guarantees
     delivery of such Communication within twenty four (24) hours, addressed to
     the other party's address as set forth in the preamble to this Agreement;
     or (c) sent by facsimile with a confirmation of receipt.

10.6 The addresses of the parties for the purpose of this Agreement are as forth
     in the preamble to this Agreement.

                                       5

IN WITNESS WHEREOF, The parties hereunto cause this Agreement to be duly
executed.

                                                     INKSURE TECHNOLOGIES INC.

                                                     _________________________
                                               By:
                                               Title:

                                                     TZLIL PEKER

                                                     _________________________

Agreed and Accepted:

INKSURE LTD.

______________________________
By:
Title:

INKSURE INC.

______________________________
By:
Title:

                                       6ex4-1.htm

    
      

    

     

    
      EXHIBIT
4.1

      

      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 APPLICABLE 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 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IDO
SECURITY INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

      

      Principal
Amount
$___________                                                                                                                                            Issue Date:
____________

      

      SECURED CONVERTIBLE
PROMISSORY NOTE

      

      FOR VALUE RECEIVED, IDO SECURITY INC.,
a Nevada corporation (hereinafter called "Borrower"), hereby promises to pay to
______________________________,
______________________________________________________________ (the "Holder") or
order, without demand, the sum of __________________________________ Dollars
($_________) (“Principal Amount”), with simple and unpaid interest accruing
thereon, on __________ (the "Maturity Date"), if not retired
sooner.

      

      This Note
has been entered into pursuant to the terms of a subscription agreement between
the Borrower and the Holder, dated of even date herewith (the “Subscription
Agreement”), and shall be governed by the terms of such Subscription
Agreement.  Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement.  The following terms shall apply to
this Note:

      

      ARTICLE
I

      

      INTEREST:
AMORTIZATION; SECURITY AGREEMENT

      

                    1.1.    Interest
Rate.   Subject to Section
6.7 hereof, interest payable on this Note shall accrue on the outstanding
Principal Amount at a rate per annum (the "Interest Rate") of ten percent
(10%).  Interest on the outstanding Principal Amount shall accrue from
the date of this Note and shall be payable in arrears together with, at the same
time and in the same manner as payment of Principal Amount and on the Maturity
Date, whether by acceleration or otherwise.  For purposes of
calculating the conversion price pursuant to Section 2.1(ii)(B), each interest
due date shall be deemed the Repayment Date, as defined in Section
1.2.

      
             
1.2.    Minimum
Monthly Principal Payments.   Amortizing payments
of the outstanding Principal Amount of this Note and accrued interest shall
commence on the fourth month anniversary date of this Note and on the same day
of each month thereafter (each a “Repayment Date”) until the Principal Amount
has been repaid in full, whether by the payment of cash or by the conversion of
such Principal Amount and interest into Common Stock pursuant to the terms
hereof.  Subject to Section 2.1 and Article 3 below, on each Repayment
Date, the Borrower shall make payments to the Holder in an amount equal to
5% of the initial Principal Amount, the
amount of accrued but unpaid or unconverted interest on the entire Principal
Amount as of such Repayment Date, and any other amounts which are then owing
under this Note that have not been paid (collectively, the “Monthly
Amount”).  Amounts of conversions of Principal Amount and made by the
Holder or Borrower pursuant to Section 2.1 or Article III and amounts redeemed
pursuant to Section
2.3 of this Note shall be applied first against outstanding fees
and damages, then outstanding already payable accrued interest and then to
Principal Amounts of not yet due Monthly Amounts commencing with the last
Monthly Amount next payable and thereafter to Monthly Amounts in reverse
chronological order.  Any Principal Amount, interest and any other sum
arising under this Note and the Subscription Agreement that remains outstanding
on the Maturity Date shall be due and payable on the Maturity Date.

       

      
        
           

        

        
          1

          
            

          

        

        
           

        

         

      

                   
1.3.    Default Interest
Rate.  Following the occurrence and during the continuance of
an Event of Default (as defined in Article IV), which, if susceptible to cure is
not cured within five (5) days, otherwise then from the first date of such
occurrence, the annual interest rate on this Note shall (subject to Section 4.7)
be fifteen percent (15%).  Such interest shall be due and payable
together with regular scheduled Monthly Amounts.

      

      ARTICLE II

      

      CONVERSION REPAYMENT

      

                    2.1.    Payment of
Monthly Amount in Cash or Common Stock.  Subject to Section 3.2 hereof, the
Borrower, at the Borrower’s election, shall pay the Monthly Amount (i) in cash
in an amount equal to 110% of the Principal Amount component of the Monthly
Amount and 100% of all other components of the Monthly Amount, within four (4)
business days after the applicable Repayment Date, or (ii) in registered Common
Stock at an applied conversion rate equal to the lesser of (A) the Fixed
Conversion Price (as defined in section 3.1 hereof), or (B) seventy-five percent
(75%) of the average of the closing bid price of the common stock as reported by
Bloomberg L.P. for the Principal Market for the ten trading days preceding the
date a Notice of Conversion, if any, [as described in Section 3(a)] is
given to the Borrower by Holder after Borrower notifies Holder of its election
to pay the Monthly Amount with shares of Common Stock pursuant to the following
sentence.  The
Borrower must send notice to the Holder by confirmed telecopier not later than
6:00 P.M., New York City time on the twenty-second trading day
preceding a Repayment Date notifying Holder of Borrower’s election to pay the
Monthly Redemption Amount in cash or Common Stock.  The Notice must
state the amount of cash to be paid and include supporting
calculations.  If the Borrower elects to pay the Monthly Amount with
Common Stock and if the Holder does not give Notice of Conversion then the
Repayment Date shall be deemed the Conversion Date and the Conversion Price
shall be the lessor of (A) the Fixed Conversion Price (as defined in section 3.1
hereof) or (B) seventy five (75%) of the average of the closing bid price for
the five trading days preceding the Repayment Date.  Until fifteen
(15) trading days after notice is given by the Borrower that the Borrower has
elected to pay the Monthly Amount with Common Stock, the holder may elect to
defer such payment of Common Stock until the Holder has elected to deliver a
Notice of Conversion with respect to such Monthly Amount.  The
Conversion Price with respect to such deferred Monthly Amount shall be the
Conversion Price set forth above in subsection (ii) of this Section
2.1.  Amounts paid with shares of Common Stock must be delivered to
the Holder as described in Section 3.3(b).    Elections by
the Borrower must be made to all Other Holders in proportion to the relative
Note principal held by the Holder and the Other Holders.  If such
notice is not timely sent or if the Monthly Redemption Amount is not timely
delivered, then Holder shall have the right, instead of the Company, to elect at
any time from when such notice was required to be given until the applicable
Repayment Date whether to be paid in cash or Common Stock.  Such
Holder’s election shall not be construed to be a waiver of any default by
Borrower relating to non-timely compliance by Borrower with any of its
obligations under this Note.

      

      
        
           

        

        
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                    2.2.    No Effective
Registration.   Notwithstanding
anything to the contrary herein, no amount payable hereunder may be paid
in shares of Common Stock by the
Borrower without the consent of 66.67% of the Holders of the outstanding
principal amounts of the Notes, unless (a) either (i) an effective current
Registration Statement covering the shares of Common Stock to be issued in
satisfaction of such obligations exists,  (ii) an
exemption from registration of the Common Stock is available pursuant to Rule
144(k) of the 1933 Act without volume restriction, or (iii) such shares can be
under Rule 144 within the volume limitations specified in subsection (e)
thereof, and (b) no Event of Default hereunder (or an event that with the
passage of time or the giving of notice could become an Event of Default), exists and is continuing, unless such
event or 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.   Shares
issued pursuant to sections
(ii) and (iii) in the
immediately preceding sentence must be immediately resellable and
transferable by the Holder without any additional holding
period.  Such shares, when delivered to the
Holder, must be accompanied by an opinion of
Borrower’s counsel reasonably acceptable to
Holder and the Borrower’s transfer agent that all such
shares are immediately resellable or
transferable pursuant to Rule 144 of the 1933 Act, by each Holder who receives such shares.

      
             
2.3.    Optional Redemption of
Principal Amount.  Provided an Event of Default or an event
which with the passage of time or the giving of notice could become an Event of
Default has not occurred, whether or not such Event of Default has been cured,
the Borrower will have the option of prepaying the outstanding Principal amount
of this Note ("Optional Redemption"), in whole or in part, by paying to the
Holder its pro-rata portion of a sum of money equal to one hundred and fifteen
percent (115%) of the Principal amount to be redeemed, together with accrued but
unpaid interest thereon and any and all other sums due, accrued or payable to
the Holder arising under this Note or any Transaction Document through the
Redemption Payment Date as defined below (the "Redemption
Amount").  Borrower’s election to exercise its right to prepay must be
by notice in writing (“Notice of Redemption”).  The Notice of
Redemption shall specify the date for such Optional Redemption (the "Redemption
Payment Date"), which date shall be thirty (30) 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 the Principal Amount for which
the Holder has a pending election to convert, or for conversions initiated or
made by the Holder during the Redemption Period.   On the
Redemption Payment Date, the Redemption Amount, less any portion of the
Redemption Amount against which the Holder has exercised its conversion rights,
shall 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 (i) such Notice of Redemption will be null and void, (ii) Borrower will
have no right to deliver another Notice of Redemption, and (iii) Borrower’s
failure may be deemed by Holder to be a non-curable Event of
Default.  A Redemption Notice may be given only at a time a
Registration Statement is effective.  A Notice of Redemption may not
be given nor may the Borrower effectuate a Redemption without the consent of the
Holder, if at any time during the Redemption Period an Event of Default or an
Event which with the passage of time or giving of notice could become an Event
of Default (whether or not such Event of Default has been cured), has occurred
or the Registration Statement registering the Registrable Securities is not
effective each day during the Redemption Period.

       

                   
2.4     Mandatory
Conversion.  Provided an Event of Default or an event which
with the passage of time or giving of notice could become an Event of Default
has not occurred, then, commencing after the Actual Effective Date, the Borrower
will have the option by written notice to the Holder (“Notice of Mandatory
Conversion”) of compelling the Holder to convert all or a portion of the
outstanding and unpaid principal of the Note and accrued interest, thereon, into
Common Stock at the Conversion Price then in affect (“Mandatory Conversion”).
The Notice of Mandatory Conversion, which notice must be given on the first day
following twenty (20) consecutive trading days (“Lookback Period”) during which
the closing price for the Common Stock as reported by Bloomberg, LP for the
Principal Market shall be greater than Five Dollars ($5.00) each such trading
day and during which twenty (20) trading days, the daily trading volume as
reported by Bloomberg L.P. for the Principal Market is greater than 100,000
shares. The date the Notice of Mandatory Conversion is given is the “Mandatory
Conversion Date.” The Notice of Mandatory Conversion shall specify the aggregate
principal amount of the Note which is subject to Mandatory
Conversion.  Mandatory Conversion Notices must be given
proportionately to all Holders of Notes. The Borrower shall reduce the amount of
Note principal subject to a Notice of Mandatory Conversion by the amount of Note
Principal and interest for which the Holder had delivered a Notice of Conversion
to the Borrower during the twenty (20) trading days preceding the Mandatory
Conversion Date. Each Mandatory Conversion Date shall be a deemed Conversion
Date and the Borrower will be required to deliver the Common Stock issuable
pursuant to a Mandatory Conversion Notice in the same manner and time period as
described in Section 2.1 above and the Subscription Agreement.  A
Notice of Mandatory Conversion may be given only in connection with an amount of
Common Stock which would not cause a Holder to exceed the 4.99% (or if
increased, 9.99%) beneficial ownership limitation set forth in Section 3.2 of
this Note.  A Notice of Mandatory Conversion may be given only in
connection with Common Stock that has been included for resale in an effective
Registration Statement during the entire Lookback Period and through the
Mandatory Conversion Date.

      

      
        
           

        

        
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      ARTICLE III

      

      CONVERSION RIGHTS

      

                    3.1.    Holder's
Conversion Rights.   Subject to Section
3.2, the Holder shall have the right, but not the obligation at all times, to
convert all or any portion of the then aggregate outstanding Principal Amount of
this Note, into shares of Common Stock, subject to the terms and conditions set
forth in this Article III at the rate of $1.00 per share of Common Stock (“Fixed
Conversion Price”) as same may be adjusted pursuant to this Note and the
Subscription Agreement. The Holder may exercise such right by delivery to the
Borrower of a written Notice of Conversion pursuant to Section
3.3.  After the occurrence of an Event of Default, the Fixed
Conversion Price shall be the lesser of the Fixed Conversion Price or 75% of the
average of the closing bid prices of the Common Stock for the five trading days
prior to a Conversion Date.

       

                   
3.2.    Conversion
Limitation.   The Holder
shall not be entitled to convert on a Conversion Date that amount of the Note in
connection with that number of shares of Common Stock which would be in excess
of the sum of (i) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates on a Conversion Date, (ii) any Common Stock issuable
in connection with the unconverted portion of the Note, and (iii) the number of
shares of Common Stock issuable upon the conversion of the Note with respect to
which the determination of this provision is being made on a Conversion Date,
which would result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock of the Borrower on
such Conversion Date.  For the purposes of the provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder.  Subject to the foregoing,
the Holder shall be limited to aggregate conversions of 4.99%.  The
Holder shall have the authority and obligation to determine whether the
restriction contained in this Section 2.3 will limit any conversion hereunder
and to the extent that the Holder determines that the limitation contained in
this Section applies, the determination of which portion of the Notes are
convertible shall be the responsibility and obligation of the
Holder.   The Holder may waive the conversion limitation
described in this Section 2.3, in whole or in part, upon and effective after 61
days prior written notice to the Borrower to increase such percentage to up to
9.99%.  In all circumstances, the delivery by the Holder of a Notice of
Conversion as provided below shall be deemed to be the Holder’s representation
that such conversion conforms to the provisions of this Section 3.2 and the
Company shall be under no obligation to verify or ascertain compliance by the
Holder with this provision.

       

      
        
           

        

        
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3.3.    Mechanics of
Holder's Conversion.

      

                             
(a)           In the event that the Holder elects to
convert any amounts outstanding under this Note into Common Stock, the Holder
shall give notice of such election by delivering an executed and completed
notice of conversion (a "Notice of Conversion") to the Borrower, which Notice of
Conversion shall provide a breakdown in reasonable detail of the Principal
Amount, accrued interest and amounts being converted.  The original
Note is not required to be surrendered to the
Borrower until all sums due
under the Note have been paid.  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.  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." A form of Notice of
Conversion to be employed by the Holder is annexed hereto as Exhibit
A.

      

                             
(b)           Pursuant to
the terms of a Notice of Conversion, the Borrower will issue instructions to the
transfer agent accompanied by an opinion of counsel, if so required by the
Borrower's transfer agent 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
four (4) 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 shares of
Common Stock, unless the Holder provides the Borrower written instructions to
the contrary.   Notwithstanding the foregoing to the contrary,
the Borrower or its transfer agent shall only be obligated to issue and deliver
the shares to the DTC on the Holder’s behalf via DWAC (or certificates free of
restrictive legends) if the registration statement providing for the resale of
the shares of Common Stock issuable upon the conversion of this Note is
effective and the Holder has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without limitation, the
prospectus delivery requirements.  In the event that Conversion Shares
cannot be delivered to the Holder via DWAC, the Borrower shall deliver physical
certificates representing the Conversion Shares by the Delivery
Date.

      

                    3.4.    Conversion
Mechanics.

      

                           
  (a)           The number of shares of Common Stock to
be issued upon each conversion of this Note pursuant to this Article III shall
be determined by dividing that portion of the Principal Amount and interest and
fees to be converted, if any, by the then applicable Fixed Conversion
Price.

       

              (b)           The Fixed Conversion Price and number
and kind of shares or other securities to be issued upon conversion shall be
subject to adjustment from time to time upon the happening of certain events
while this conversion right remains outstanding, as follows:

       

                     
A.         Merger,
Sale of Assets,
etc.  If the
Borrower at any time shall consolidate with or merge into or sell or convey all
or substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance.  The foregoing
provision shall similarly apply to successive transactions of a similar nature
by any such successor or purchaser.  Without limiting the generality
of the foregoing, the anti-dilution provisions of this Section shall apply to
such securities of such successor or purchaser after any such consolidation,
merger, sale or conveyance.

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

         

      

                             
B.          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 portion thereof 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.

       

                             
C.          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 Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the case
of combination of shares, in each such case by the ratio which the total number
of shares of Common Stock outstanding immediately after such event bears to the
total number of shares of Common Stock outstanding immediately prior to such
event.

      

                             
D.         
Share
Issuance.   So long as this Note
is outstanding, if the Borrower shall issue any Common Stock except for the
Excepted Issuances (as defined in the Subscription Agreement), prior to the
complete conversion or payment of this Note, for a consideration less than the
Fixed Conversion Price that would be in effect at the time of such issue, then,
and thereafter successively upon each such issuance, the Fixed Conversion Price
shall be reduced to such other lower issue price.  For purposes of
this adjustment, the issuance of any security or debt instrument of the Borrower
carrying the right to convert such security or debt instrument into Common Stock
or of any warrant, right or option to purchase Common Stock shall result in an
adjustment to the Fixed Conversion Price upon the issuance of the
above-described security, debt instrument, warrant, right, or option and again
upon the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights if such issuance is at a price lower than the then applicable
Conversion Price.  The reduction of the Fixed Conversion Price
described in this paragraph is in addition to the other rights of the Holder
described in the Subscription Agreement.

       

              (c)           Whenever the Conversion Price is
adjusted pursuant to Section 3.4(b) above, the Borrower shall promptly mail to
the Holder a notice setting forth the Conversion Price after such adjustment and
setting forth a statement of the facts requiring such
adjustment.

       

                   
3.5.    Reservation.   During the period the
conversion right exists, Borrower will reserve from its authorized and unissued
Common Stock not less than 125% of the number of shares to provide for
the issuance of Common Stock upon the full conversion of this Note. Borrower shall reserve Common Stock
issuable upon conversion of this Note as described in the Subscription
Agreement.  Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and
non-assessable.  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.

       

                   
3.6     Issuance of
Replacement Note.  Upon any partial conversion
of this Note, a replacement Note containing the same date and provisions of this
Note shall, at the written
request of the Holder, be
issued by the Borrower to the Holder for the outstanding Principal Amount of
this Note and accrued interest which shall not have been converted or paid,
provided Holder has surrendered an original Note to the Company. In the event
that the Holder elects not to surrender a Note for reissuance upon partial
payment or conversion, the Holder hereby indemnifies the Borrower against any
and all loss or damage attributable to a third-party claim in an amount in
excess of the actual amount then due under the Note.

      

      
        
           

        

        
          6

          
            

          

        

        
           

        

         

      

      ARTICLE IV

      

      SECURITY INTEREST

       

                   
4.       Security
Interest/Waiver of Automatic Stay.   This Note is secured
by a security interest granted to the Collateral Agent for the benefit of the
Holder pursuant to a Security Agreement, as delivered by Borrower to
Holder.  The Borrower acknowledges and agrees that should a proceeding
under any bankruptcy or insolvency law be commenced by or against the Borrower,
or if any of the Collateral (as defined in the Security Agreement) should become
the subject of any bankruptcy or insolvency proceeding, then the Holder should
be entitled to, among other relief to which the Holder may be entitled under the
Transaction Documents and any other agreement to which the Borrower and Holder
are parties (collectively, "Loan Documents") and/or applicable law, an order
from the court granting immediate relief from the automatic stay pursuant to 11
U.S.C. Section 362 to permit the Holder to exercise all of its rights and
remedies pursuant to the Loan Documents and/or applicable law.  TO THE
EXTENT PERMITTED BY LAW, THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE
AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362.  FURTHERMORE, THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE
LAW.  The Borrower hereby consents to any motion for relief from stay
that may be filed by the Holder in any bankruptcy or insolvency proceeding
initiated by or against the Borrower and, further, agrees not to file any
opposition to any motion for relief from stay filed by the
Holder.  The Borrower represents, acknowledges and agrees that this
provision is a specific and material aspect of the Loan Documents, and that the
Holder would not agree to the terms of the Loan Documents if this waiver were
not a part of this Note. The Borrower further represents, acknowledges and
agrees that this waiver is knowingly, intelligently and voluntarily made, that
neither the Holder nor any person acting on behalf of the Holder has made any
representations to induce this waiver, that the Borrower has been represented
(or has had the opportunity to he represented) in the signing of this Note and
the Loan Documents and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has discussed this waiver with
counsel.

      

      ARTICLE V

       

      EVENTS OF DEFAULT

      

           The occurrence of
any of the following events of default ("Event of Default") shall, at the option
of the Holder hereof, make all sums of principal and interest then remaining
unpaid hereon and all other amounts payable hereunder immediately due and
payable, upon demand, without presentment, or grace period, all of which hereby
are expressly waived, except as set forth below:

       

                   
5.1     Failure to
Pay Principal or Interest.  The Borrower fails to pay
any installment of Principal Amount, interest or other sum due under this Note
or any Transaction Document when due and such failure continues for a period of
five (5) business days after the due date.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

         

      

           
5.2     Breach of
Covenant.  The
Borrower breaches any material covenant or other material term or condition of
the Subscription Agreement, this Note, or other Transaction Document in any
material respect and such breach, if subject to cure, continues for a period of
ten (10) business days after written notice to the Borrower from the
Holder.

       

           
5.3     Breach of
Representations and Warranties.  Any material representation
or warranty of the Borrower made herein, in the Subscription Agreement,
Transaction Document or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith or therewith shall be false or
misleading in any material respect as of the date made and the Closing
Date.

       

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

       

           
5.5     Judgments.  Any money judgment, writ or
similar final process shall be entered or filed against Borrower or any
subsidiary of Borrower or any of their property or other assets for more than
$500,000, and shall remain unpaid, unvacated,
unbonded or unstayed for a period of forty-five (45) days.

       

           
5.6     Non-Payment.   A default by the
Borrower under any one or more obligations in an aggregate monetary amount in
excess of two hundred thousand dollars ($200,000.00) for more than twenty days
after the due date unless the Borrower is contesting the validity of such
obligation in good faith, beyond any applicable grace
period;

       

           
5.7     Bankruptcy.  Bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings or relief under
any bankruptcy law or any law, or the issuance of any notice in relation to such
event, for the relief of debtors shall be instituted by or against the Borrower
or any Subsidiary of Borrower and if instituted against them are not dismissed
within sixty (60) days of
initiation.

       

           
5.8     Delisting.   Failure of the Common
Stock to be quoted or listed on the OTC Bulletin Board (“Bulletin Board”) or
other Principal Market; failure to comply with the requirements for continued
listing on the Bulletin Board for a period of 15 consecutive trading
days.

       

           
5.9     Stop
Trade.  An SEC or
judicial stop trade order or Principal Market trading suspension with respect to
Borrower’s Common Stock that lasts for five or more consecutive trading
days.

       

           
5.10   Failure to Deliver Common
Stock or Replacement Note.  Borrower's failure to timely
deliver Common Stock to the Holder pursuant to and in the form required by this
Note and Sections 7 and 11 of the Subscription Agreement, and, if required, a
replacement Note, within 10 business days following the required delivery
date.

       

           
5.11   Non-Registration
Event.  The
occurrence of a Non-Registration Event as described in the Subscription
Agreement, subject to Section 11.1(v)  of the Subscription
Agreement.

       

           
5.12   Reverse
Splits.   The Borrower
effectuates a reverse split of its Common Stock without twenty days prior
written notice to the Holder.

       

           
5.13   Reservation
Default.  Failure
by the Borrower to have reserved for issuance upon conversion of the Note the
amount of Common Stock as set forth in this Note and the Subscription
Agreement.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

         

      

           
5.14   Restated
Numbers.  A
material restatement by the Borrower of any prior financial statements included
in any of the Reports.

       

           
5.15   Material
Breach of Security Agreement.   Any default by the
Company of any of its material obligations pursuant to the Security
Agreement.

       

            5.16   Cross
Default.  A
default by the Borrower of a material term, covenant, warranty or undertaking of
any Transaction Document or other agreement to which the Borrower and Holder are
parties, or the occurrence of a material event of default under any such other
agreement which is not cured after any required notice and/or cure
period.

      

      ARTICLE VI

      

      MISCELLANEOUS

       

           
6.1     Failure or
Indulgence Not Waiver.  No failure or delay on the
part of 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.

       

           
6.2     Notices.  All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.  The
addresses for such communications shall be: (i) if to the Borrower to: IDO
Security Inc., 17 State Street,
New York, NY 10004, Fax: (646) 285-0026, with a copy by telecopier only
to: Aboudi & Brounstein, 3 Gavish St., Kfar Saba, Israel, Fax:
972-9-764-4834, and (ii) if to the Holder, to the name, address and telecopy
number set forth on the front page of this Note, with a copy by telecopier only
to Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York
10176, Fax: (212) 697-3575.

       

           
6.3     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.

       

           
6.4     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.

       

           
6.5     Cost of
Collection.  If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

         

      

           
6.6     Governing
Law.  This Note shall be governed by and construed in
accordance with the laws of the State of New York.  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 Agreement 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.

       

           
6.7     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.

       

           
6.8     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.

       

           
6.9     Remedies.   This
Note shall be deemed an unconditional obligation of Borrower for the payment of
money and, without limitation to any other remedies available to
Holder.  This Note may be enforced against Borrower by summary
proceeding pursuant to N.Y. Civil Procedure Law and rules Sect. 3213 or any
similar rule or statute in the jurisdiction where enforcement is
sought.

      

      

      [THIS
SPACE INTENTIONALLY LEFT BLANK]

      

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

      IN WITNESS WHEREOF, Borrower
has caused this Note to be signed in its name by an authorized officer as of the
____ day of ____________.

      

                                              IDO SECURITY
INC.

      

      

      

                                              By:________________________________

                                              Name:

                                              Title:

      

      WITNESS:

      

      

      

      ______________________________________

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

      NOTICE OF
CONVERSION

      

      (To be
executed by the Registered Holder in order to convert the Note)

      

      

      The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by IDO Security Inc. on ___________ into
Shares of Common Stock of IDO Security Inc. (the "Borrower") according to the
conditions set forth in such Note, as of the date written below.

      

      

      

      Date of
Conversion:____________________________________________________________________

      

      

      Conversion
Price:______________________________________________________________________

      

      

      Shares To
Be
Delivered:_________________________________________________________________

      

      

      Signature:____________________________________________________________________________

      

      

      Print
Name:__________________________________________________________________________

      

      

      Address:_____________________________________________________________________________

      

         ____________________________________________________________________________

       

      12

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