e. Digital Corporation (the "Company") previously issued (i) a 15% Promissory
Note, as amended, in the original principal amount of $750,000.00 and (ii) a 15%
Unsecured Promissory Note in the original principal amount of $290,164.36
(collectively, the "15% Notes") to Davric Corporation ("Davric"). The Company's
aggregate obligation under the 15% Notes inclusive of accrued interest was
$970,752 at November 30, 2006. The 15% Notes were due on December 31, 2006.

On December 12, 2006 the Company and Davric completed an exchange of the 15%
Notes ("Exchange Agreement") for (i) a new 7.5% Convertible Subordinated Term
Note issued by the Company in the principal amount of $970,752.00 due November
30, 2009 (the "Exchange Note") and (ii) 500,000 shares of common stock, $.001
par value of the Company (the "Exchange Shares"). The previous 15% Notes were
cancelled. The Exchange Shares were issued as consideration for extending the
maturity date and reducing the interest rate from 15% to 7.5%.

The Exchange Note is payable by the Company to Davric in monthly principal and
interest installments of $6,000 starting December 2006, increasing to $15,000
starting in February 2007, $30,000 starting in December 2007 and $50,000
starting in December 2008 with maturity November 30, 2009. Commencing with the
February 2007 installment payment, the Company may, subject to certain
limitations, elect to make such installment payments either in cash or in shares
of common stock ("Monthly Installment Shares"). Monthly Installment Shares shall
be valued at the arithmetic average of the closing prices for the last five
trading days of the applicable month without discount. Installment note payments
must be paid in cash if the computed average price is less than $0.10 per share.
Subject to certain notice periods and other limitations, the balance of the
Exchange Note is convertible by Davric at $0.30 per common share beginning
February 1, 2007 and the Company may elect to call the Exchange Note for
mandatory conversion if the closing sale price of the Company's common stock is
at least $0.40 per share for ten consecutive trading days. The Company may also
prepay the Exchange Note in full or in minimum parts of $50,000 on ten-day
notice. The Exchange Note may be subordinate to certain future senior
indebtedness as defined in the Exchange Note.

The Company is not obligated to register the Exchange Shares, any Monthly
Installment Shares or any shares issuable on conversion of the Exchange Note.

A complete copy of the Exchange Agreement and the Exchange Note are filed
herewith as Exhibits 99.1 and 99.2, respectively, and are incorporated herein by
reference [except that we do not intend for any person other than Davric to rely
upon the representations and warranties contained in the exhibits]. The summary
of the transaction set forth above does not purport to be complete and is
qualified in its entirety by reference to such exhibits.

Upon completion of the exchange transaction described above, the Company is no
longer obligated on the 15% Notes which are being cancelled. Without the
exchange and the cancellation of the 15% Notes, the Company would have been
obligated to make total payments of approximately $982,300 at December 31, 2006.
The cancelled 15% Notes were last amended effective June 30, 2006 and are
further described in the Company's report on Form 8-K dated July 26, 2006.

The Company became obligated on the new 7.5% Convertible Subordinated Term Note
in the principal amount of $970,752.00 effective as of December 1, 2006 as
described above. A description of the material terms of the obligation are
described above. The Company is obligated to make principal and interest
payments, subject to prepayment or conversion in whole or in part, in cash or
shares of common stock in the following amounts:

                  Fiscal year ending:
                           March 31, 2007   $ 42,000
                           March 31, 2008   $240,000
                           March 31, 2009   $440,000
                           March 31, 2010   $398,165