VIEWPOINT CORP/NY/
FORM OF REPLACEMENT 4.95% CONVERTIBLE NOTE
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>6
<FILENAME>y84760exv10w5.txt
<DESCRIPTION>FORM OF REPLACEMENT 4.95% CONVERTIBLE NOTE
<TEXT>
<PAGE>
                                                                    Exhibit 10.5


                     [FORM OF REPLACEMENT CONVERTIBLE NOTE]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL ADDRESSED TO THE COMPANY, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE
SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(C)(III) AND
19(A) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY,
THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(C)(III) OF THIS NOTE.

                                CONVERTIBLE NOTE

Issuance Date: March 25, 2003                   Principal: U.S. $____________(1)

      FOR VALUE RECEIVED, VIEWPOINT CORPORATION, a Delaware corporation (the
"COMPANY"), hereby promises to pay to the order of __________________ or
registered assigns ("HOLDER") the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the "PRINCIPAL") when due, whether upon the Maturity Date (as defined
below), acceleration, redemption or otherwise (in each case in accordance with
the terms hereof) and to pay interest ("INTEREST") on any outstanding Principal
at the rate of 4.95% per annum, subject to periodic adjustment pursuant to
Section 2 (the "INTEREST RATE"), from the Original Issuance Date (as defined
below) until the same becomes due and payable, whether upon an Interest Date (as
defined below), the Maturity Date (as defined below), acceleration, conversion,
redemption or otherwise (in each case in accordance with the terms hereof). This
Convertible Note (including all Convertible Notes issued in exchange, transfer
or replacement hereof, this "NOTE") is one of an issue of Convertible

--------
(1)   Insert one-third of Holder's pro rata portion of $2,700,000; Holder will
      be issued three Replacement Convertible Notes in equal aggregate amounts,
      which will be identical other than the defined term "Alternate Conversion
      Price".
<PAGE>
Notes with an identical Calculation Date (as defined below) (collectively, the
"NOTES" and such other Convertible Notes, the "OTHER NOTES") issued on the date
set out above as the Issuance Date (the "ISSUANCE DATE") pursuant to the
Redemption, Amendment and Exchange Agreement, which Notes are being issued in
exchange for the notes (the "INITIAL NOTES") originally issued on the Original
Issuance Date. Certain capitalized terms are defined in Section 29.

            (1) MATURITY. On the Maturity Date, the Holder shall surrender this
Note to the Company and the Company shall pay to the Holder an amount in cash
representing all outstanding Principal, accrued and unpaid Interest and accrued
and unpaid Late Charges, if any. The "Maturity Date" shall be December 31, 2007
as extended at the option of the Holder (i) in the event that, and for so long
as, an Event of Default (as defined in Section 4(a)) shall have occurred and be
continuing or any event shall have occurred and be continuing which with the
passage of time and the failure to cure would result in an Event of Default and
(ii) through the date that is ten days after the consummation of a Change of
Control (as defined in Section 5(a)) in the event that a Change of Control is
publicly announced or a Change of Control Notice (as defined in Section 5(a)) is
delivered prior to the Maturity Date.

            (2) INTEREST; INTEREST RATE. Interest on this Note shall commence
accruing on the Original Issuance Date and shall be computed on the basis of a
365-day year and actual days elapsed and shall be payable in arrears on the
first day of each Calendar Quarter during the period beginning on the Original
Issuance Date and ending on, and including, the Maturity Date (each, an
"INTEREST DATE") with the first Interest Date being April 1, 2003. Interest
shall be payable on each Interest Date in cash or, at the option of the Company,
in shares of Common Stock ("INTEREST SHARES") provided that the Interest which
accrued during any period shall be payable in Interest Shares only if the
Company delivers written notice of such election ("INTEREST ELECTION NOTICE") to
each holder of the Notes and the Separate Tranche Notes at least seven (7)
Trading Days prior to the Interest Date (an "INTEREST ELECTION DATE"). Interest
to be paid on an Interest Date in Interest Shares shall be paid in a number of
fully paid and nonassessable shares (rounded to the nearest whole share in
accordance with Section 3(a)) of Common Stock equal to the quotient of (a) the
Interest payable and (b) the Interest Conversion Price on the applicable
Interest Date. If any Interest Shares are to be paid on an Interest Date, then
the Company shall (X) issue and deliver on the applicable Interest Date, to such
address as specified by the Holder in writing to the Company at least two
Business Days prior to the applicable Interest Date, a certificate, registered
in the name of the Holder or its designee, for the number of Interest Shares to
which the Holder shall be entitled, or (Y) provided that the Company's transfer
agent (the "TRANSFER AGENT") is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer Program, upon the request of the
Holder, credit such aggregate number of Interest Shares to which the Holder
shall be entitled to the Holder's or its designee's balance account with DTC
through its Deposit Withdrawal Agent Commission system. Notwithstanding the
foregoing, the Company shall not be entitled to pay Interest in Interest Shares
and shall be required to pay such Interest in cash on the applicable Interest
Date if (x) any event constituting an Event of Default or an event that with the
passage of time and assuming it were not cured would constitute an Event of
Default has occurred and is


                                       2
<PAGE>
continuing on the applicable Interest Election Date or the Interest Date, unless
consented to in writing by the Holder, (y) the Registration Statement (as
defined in the Registration Rights Agreement) covering the Interest Shares is
not effective and available for the resale of all of the Registrable Securities
(as defined in the Registration Rights Agreement) relating to this Note on the
Interest Election Date or on the Interest Date or (z) the Company has not
obtained the Stockholder Approval (as defined in the Securities Purchase
Agreement) prior to the Interest Election Date. Prior to the payment of Interest
on an Interest Date, Interest on this Note shall accrue at the Interest Rate and
be payable upon conversion by way of inclusion of the Interest in the Conversion
Amount in accordance with Section 3(b)(i). From and after the occurrence of an
Event of Default, the Interest Rate shall be increased to 12%. In the event that
such Event of Default is subsequently cured, the adjustment referred to in the
preceding sentence shall cease to be effective as of the date of such cure;
provided that the Interest as calculated at such increased rate during the
continuance of such Event of Default shall continue to apply to the extent
relating to the days after the occurrence of such Event of Default through and
including the date of cure of such Event of Default. The Company shall pay any
and all documentary stamp, transfer or similar taxes that may be payable with
respect to the issuance and delivery of Interest Shares.

            (3) CONVERSION OF NOTES. This Note shall be convertible into shares
of the Company's common stock, par value $0.001 per share (the "COMMON STOCK"),
on the terms and conditions set forth in this Section 3.

                  (a) Conversion Right. Subject to the provisions of Section
3(d), at any time or times on or after the Issuance Date, the Holder shall be
entitled to convert any portion of the outstanding and unpaid Conversion Amount
(as defined below) into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined below). The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
documentary stamp, transfer or similar taxes that may be payable with respect to
the issuance and delivery of Common Stock upon conversion of any Conversion
Amount.

                  (b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(as defined below) (the "CONVERSION RATE").

      (i) "ALTERNATE CONVERSION PRICE" means [Insert for first Replacement
      Convertible Note: the Market Price on the eleventh (11th) Trading Day
      following May 16, 2003] [Insert for second Replacement Convertible Note:
      the Market Price on the eleventh (11th) Trading Day following August 16,
      2003] [Insert for third Replacement Convertible Note: the Market Price on
      the eleventh (11th) Trading Day following November 16, 2003] (such date
      being the "CALCULATION DATE").


                                       3
<PAGE>
      (ii) "CONVERSION AMOUNT" means the sum of (A) the portion of the Principal
      to be converted, redeemed or otherwise with respect to which this
      determination is being made, (B) accrued and unpaid Interest with respect
      to such Principal and (C) accrued and unpaid Late Charges with respect to
      such Principal and Interest.

      (iii) "CONVERSION PRICE" means, as of any Conversion Date (as defined
      below) or other date of determination, the lower of (x) the Fixed
      Conversion Price and (y) the Alternate Conversion Price, each in effect as
      of such date and subject to adjustment as provided herein.

      (iv) "FIXED CONVERSION PRICE" means $2.26, subject to adjustment as
      provided herein.

                  (c) Mechanics of Conversion.

      (i) Optional Conversion. To convert any Conversion Amount into shares of
      Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A)
      transmit by facsimile (or otherwise deliver), for receipt on or prior to
      11:59 p.m., New York Time, on such date, a copy of an executed notice of
      conversion in the form attached hereto as Exhibit I (the "CONVERSION
      NOTICE") to the Company and (B) if required by Section 3(c)(iii),
      surrender this Note to a common carrier for delivery to the Company as
      soon as practicable on or following such date (or an indemnification
      undertaking with respect to this Note in the case of its loss, theft or
      destruction). On or before the first Business Day following the date of
      receipt of a Conversion Notice, the Company shall transmit by facsimile a
      confirmation of receipt of such Conversion Notice to the Holder and the
      Transfer Agent. On or before the second Business Day following the date of
      receipt of a Conversion Notice (the "SHARE DELIVERY DATE"), the Company
      shall (X) issue and deliver to the address as specified in the Conversion
      Notice, a certificate, registered in the name of the Holder or its
      designee, for the number of shares of Common Stock to which the Holder
      shall be entitled, or (Y) provided that the Transfer Agent is
      participating in DTC Fast Automated Securities Transfer Program, upon the
      request of the Holder, credit such aggregate number of shares of Common
      Stock to which the Holder shall be entitled to the Holder's or its
      designee's balance account with DTC through its Deposit Withdrawal Agent
      Commission system. If this Note is physically surrendered for conversion
      as required by Section 3(c)(iii) and the outstanding Principal of this
      Note is greater than the Principal portion of the Conversion Amount being
      converted, then the Company shall as soon as practicable and in no event
      later than three Business Days after receipt of this Note and at its own
      expense, issue and deliver to the holder a new Note (in accordance with
      Section 19(d)) representing the outstanding Principal not converted. The
      Person or Persons entitled to receive the shares of Common Stock issuable
      upon a conversion of this Note shall be treated for all purposes as the
      record holder or holders of such shares of Common Stock on the Conversion
      Date.


                                       4
<PAGE>
      (ii) Company's Failure to Timely Convert. If the Company shall fail to
      issue a certificate to the Holder or credit the Holder's balance account
      with DTC for the number of shares of Common Stock to which the Holder is
      entitled upon conversion of any Conversion Amount on or prior to the date
      which is five Business Days after the Conversion Date (a "CONVERSION
      FAILURE"), then (A) the Company shall pay damages to the Holder for each
      date of such Conversion Failure in an amount equal to 1.0% of the product
      of (I) the sum of the number of shares of Common Stock not issued to the
      Holder on or prior to the Share Delivery Date and to which the Holder is
      entitled, and (II) the Closing Sale Price of the Common Stock on the Share
      Delivery Date and (B) the Holder, upon written notice to the Company, may
      void its Conversion Notice with respect to, and retain or have returned,
      as the case may be, any portion of this Note that has not been converted
      pursuant to such Conversion Notice; provided that the voiding of a
      Conversion Notice shall not affect the Company's obligations to make any
      payments which have accrued prior to the date of such notice pursuant to
      this Section 3(c)(ii) or otherwise.

      (iii) Book-Entry. Notwithstanding anything to the contrary set forth
      herein, upon conversion of any portion of this Note in accordance with the
      terms hereof, the Holder shall not be required to physically surrender
      this Note to the Company unless (A) the full Conversion Amount represented
      by this Note is being converted or (B) the Holder has provided the Company
      with prior written notice (which notice may be included in a Conversion
      Notice) requesting physical surrender and reissue of this Note. The Holder
      and the Company shall maintain records showing the Principal, Interest,
      and Late Charges converted and the dates of such conversions or shall use
      such other method, reasonably satisfactory to the Holder and the Company,
      so as not to require physical surrender of this Note upon conversion.

      (iv) Pro Rata Conversion; Disputes. In the event that the Company receives
      a Conversion Notice from more than one holder of Notes or Separate Tranche
      Notes for the same Conversion Date and the Company can convert some, but
      not all, of such portions of the Notes submitted for conversion, the
      Company, subject to Section 3(d), shall convert from each holder of Notes
      or Separate Tranche Notes electing to have Notes or Separate Tranche Notes
      converted on such date a pro rata amount of such holder's portion of its
      Notes or Separate Tranche Notes submitted for conversion based on the
      principal amount of Notes and Separate Tranche Notes submitted for
      conversion on such date by such holder relative to the aggregate principal
      amount of all Notes and Separate Tranche Notes submitted for conversion on
      such date. In the event of a dispute as to the number of shares of Common
      Stock issuable to the Holder in connection with a conversion of this Note,
      the Company shall issue to the Holder the number of shares of Common Stock
      not in dispute and resolve such dispute in accordance with Section 24.


                                       5
<PAGE>
                  (d) Limitations on Conversions.


      (i) Beneficial Ownership. The Company shall not effect any conversion of
      this Note, and the Holder of this Note shall not have the right to convert
      any portion of this Note pursuant to Section 3(a), to the extent that
      after giving effect to such conversion, the Holder (together with the
      Holder's affiliates) would beneficially own in excess of 3.33% of the
      number of shares of Common Stock outstanding immediately after giving
      effect to such conversion. For purposes of the foregoing sentence, the
      number of shares of Common Stock beneficially owned by the Holder and its
      affiliates shall include the number of shares of Common Stock issuable
      upon conversion of this Note with respect to which the determination of
      such sentence is being made, but shall exclude the number of shares of
      Common Stock which would be issuable upon (A) conversion of the remaining,
      nonconverted portion of this Note beneficially owned by the Holder or any
      of its affiliates and (B) exercise or conversion of the unexercised or
      nonconverted portion of any other securities of the Company (including,
      without limitation, any Other Notes, Separate Tranche Notes or warrants)
      subject to a limitation on conversion or exercise analogous to the
      limitation contained herein beneficially owned by the Holder or any of its
      affiliates. Except as set forth in the preceding sentence, for purposes of
      this Section 3(d)(i), beneficial ownership shall be calculated in
      accordance with Section 13(d) of the Securities Exchange Act of 1934, as
      amended. For purposes of this Section 3(d)(i), in determining the number
      of outstanding shares of Common Stock, the Holder may rely on the number
      of outstanding shares of Common Stock as reflected in (x) the Company's
      most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent
      public announcement by the Company or (z) any other notice by the Company
      or the Transfer Agent setting forth the number of shares of Common Stock
      outstanding. For any reason at any time, upon the written or oral request
      of the Holder, the Company shall within two Business Days confirm in
      writing to the Holder the number of shares of Common Stock then
      outstanding. In any case, the number of outstanding shares of Common Stock
      shall be determined after giving effect to the conversion or exercise of
      securities of the Company, including this Note, by the Holder or its
      affiliates since the date as of which such number of outstanding shares of
      Common Stock was reported.

      (ii) Principal Market Regulation. The Company shall not be obligated to
      issue any shares of Common Stock upon conversion of this Note if the
      issuance of such shares of Common Stock would exceed that number of shares
      of Common Stock which the Company may issue upon conversion of the Notes
      and the Separate Tranche Notes without breaching the Company's obligations
      under the rules or regulations of the Principal Market (the "EXCHANGE
      CAP"), except that such limitation shall not apply in the event that the
      Company obtains the approval of its stockholders as required by the
      applicable rules of the Principal Market for issuances of Common Stock in
      excess of such amount. Until such approval is obtained, no purchaser of
      the Notes or Separate Tranche Notes (the "PURCHASERS") pursuant to a
      Redemption, Amendment and Exchange Agreement or the Securities Purchase
      Agreement (collectively, the "PURCHASE


                                       6
<PAGE>
      AGREEMENTS") shall be issued, upon conversion of Notes or Separate Tranche
      Notes, shares of Common Stock in an amount greater than the product of the
      Exchange Cap multiplied by a fraction, the numerator of which is the
      principal amount of Notes issued to such Purchaser pursuant to a Purchase
      Agreement on the Initial Issuance Date and the denominator of which is the
      aggregate principal amount of all Notes issued to the Purchasers pursuant
      to all of the Purchase Agreements on the Initial Issuance Date (with
      respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event
      that any Purchaser shall sell or otherwise transfer any of such
      Purchaser's Notes or Separate Tranche Notes, the transferee shall be
      allocated a pro rata portion of such Purchaser's Exchange Cap Allocation,
      and the restrictions of the prior sentence shall apply to such transferee
      with respect to the portion of the Exchange Cap Allocation allocated to
      such transferee. In the event that any holder of Notes or Separate Tranche
      Notes shall convert all of such holder's Notes or Separate Tranche Notes
      into a number of shares of Common Stock which, in the aggregate, is less
      than such holder's Exchange Cap Allocation, then the difference between
      such holder's Exchange Cap Allocation and the number of shares of Common
      Stock actually issued to such holder shall be allocated to the respective
      Exchange Cap Allocations of the remaining holders of Notes and Separate
      Tranche Notes on a pro rata basis in proportion to the aggregate principal
      amount of the Notes and Separate Tranche Notes then held by each such
      holder.

            (4) RIGHTS UPON EVENT OF DEFAULT.

                  (a) Event of Default. Each of the following events shall
constitute an "EVENT OF DEFAULT":

      (i) while the applicable Registration Statement is required to be
      maintained effective pursuant to the terms of the Registration Rights
      Agreement, the effectiveness of the applicable Registration Statement
      lapses for any reason (including, without limitation, the issuance of a
      stop order) or is unavailable to any holder of the Notes for sale of all
      of such holder's Registrable Securities (as defined in the Registration
      Rights Agreement) in accordance with the terms of the Registration Rights
      Agreement, and such lapse or unavailability continues for a period of 10
      consecutive days or for more than an aggregate of 30 days in any 365-day
      period (other than days during an Allowable Grace Period (as defined in
      the Registration Rights Agreement)) or, only if the Company receives prior
      to March 31, 2004, any "going concern" or other qualification from its
      independent outside accountants on its financial statements, the failure
      of the applicable Registration Statement required to be filed pursuant to
      the Registration Rights Agreement to be declared effective by the SEC on
      or prior to the date that is 60 days after the applicable Effectiveness
      Deadline (as defined in the Registration Rights Agreement);

      (ii) (A) prior to March 31, 2004, only if the Company receives any "going
      concern" or other qualification from its independent outside accountants
      on its financial statements, the suspension from trading or failure of the
      Common Stock to be listed on


                                       7
<PAGE>
      the Principal Market for a period of five consecutive days or for more
      than an aggregate of 10 days in any 365-day period (a "LISTING FAILURE")
      and (B) from and after March 31, 2004, the occurrence of a Listing
      Failure;

      (iii) the Company's (A) failure to cure a Conversion Failure by delivery
      of the required number of shares of Common Stock, as applicable, within 10
      days after the applicable Conversion Date or (B) written notice to any
      holder of the Notes, including by way of public announcement or through
      any of its agents, at any time, of its intention not to comply with a
      request for conversion of any Notes into shares of Common Stock that is
      tendered in accordance with the provisions of the Notes;

      (iv) upon the Company's receipt of a Conversion Notice, the Company is not
      obligated to issue shares of Common Stock upon such conversion due to the
      provisions of Section 3(d)(ii);

      (v) at any time following the tenth consecutive Business Day that the
      Holder's Authorized Share Allocation is less than the number of shares of
      Common Stock that the Holder would be entitled to receive upon a
      conversion of the full Conversion Amount of this Note (without regard to
      any limitations on conversion set forth in Section 3(d) or otherwise);

      (vi) the Company's failure to pay to the Holder any amount of Principal,
      Interest, Late Charges or other amounts when and as due under this Note,
      the Securities Purchase Agreement, the Redemption, Amendment and Exchange
      Agreements, the Registration Rights Agreement, the Pledge Agreement (as
      defined in the Securities Purchase Agreement) or the Control Agreement (as
      defined in the Pledge Agreement), except, in the case of a failure to pay
      Interest and Late Charges and such other amounts when and as due, in which
      case only if such failure continues for a period of at least five Business
      Days;

      (vii) any default under, redemption of or acceleration prior to maturity
      of any Indebtedness (as defined in Section 3(r) of the Securities Purchase
      Agreement) or any Permitted Indebtedness of the Company or any of its
      Subsidiaries (as defined in Section 3(a) of the Securities Purchase
      Agreement) other than with respect to any Other Notes or Separate Tranche
      Notes or with respect to Purchase Money Indebtedness;

      (viii) the Company or any of its Subsidiaries, pursuant to or within the
      meaning of Title 11, U.S. Code, or any similar Federal or state law for
      the relief of debtors (collectively, "BANKRUPTCY LAW"), (A) commences a
      voluntary case, (B) consents to the entry of an order for relief against
      it in an involuntary case, (C) consents to the appointment of a receiver,
      trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
      makes a general assignment for the benefit of its creditors or (E) admits
      in writing that it is generally unable to pay its debts as they become
      due;


                                       8
<PAGE>
      (ix) any proceeding shall be instituted against the Company or any of its
      Significant Subsidiaries (as defined in Rule 405 of the 1933 Act) seeking
      to adjudicate it a bankrupt or insolvent, or seeking dissolution,
      liquidation, winding up, reorganization, arrangement, adjustment,
      protection, relief of debtors, or seeking the entry of an order for relief
      or the appointment of a Custodian for the Company or any such Subsidiary
      or for any substantial part of its assets or properties, and either such
      proceeding shall remain undismissed or unstayed for a period of 60 days or
      any of the actions sought in such proceeding (including, without
      limitation, the entry of an order for relief against the Company or any
      such Subsidiary or the appointment of a Custodian for it or for any
      substantial part of its assets or properties) shall occur;

      (x) a final judgment or judgments for the payment of money aggregating in
      excess of $1,000,000 are rendered against the Company or any of its
      Subsidiaries and which judgments are not, within 60 days after the entry
      thereof, bonded, discharged or stayed pending appeal, or are not
      discharged within 60 days after the expiration of such stay; provided,
      however, that any judgment which is covered by insurance or an indemnity
      from a credit worthy party shall not be included in calculating the
      $1,000,000 amount set forth above so long as the Company provides the
      Holder a written statement from such insurer or indemnity provider (which
      written statement shall be reasonably satisfactory to the Holder) to the
      effect that such judgment is covered by insurance or an indemnity and the
      Company will receive the proceeds of such insurance or indemnity within 30
      days of the issuance of such judgment;

      (xi) on or after the Initial Issuance Date, the Company breaches any
      representation, warranty, covenant or other term or condition of the
      Securities Purchase Agreement, the Redemption, Amendment and Exchange
      Agreements, the Registration Rights Agreement, this Note, the Other Notes,
      the Separate Tranche Notes, the Pledge Agreement, the Control Agreement or
      any other agreement, document, certificate or other instrument delivered
      in connection with the transactions contemplated thereby and hereby to
      which the Holder is a party, except to the extent that such breach would
      not have a Material Adverse Effect (as defined in Section 3(a) of the
      Securities Purchase Agreement) and except, in the case of a breach of a
      covenant which is curable, only if such breach continues for a period of
      at least five consecutive Business Days;

      (xii) any breach or failure in any respect to comply with Section 15 of
      this Note;

      (xiii) any Event of Default (as defined in the Other Notes or the Separate
      Tranche Notes) occurs with respect to any Other Notes or Separate Tranche
      Notes; or

      (xiv) the Company shall, directly or indirectly, repay, prepay, redeem,
      defease or otherwise make any payment on any Indebtedness (other than
      Purchase Money Indebtedness) existing on the Initial Issuance Date
      (including, without limitation, any


                                       9
<PAGE>
      Indebtedness due to Computer Associates International, Inc. or any of its
      affiliates) in cash or cash equivalents.

                  (b) Redemption Right. Promptly after the occurrence of an
Event of Default with respect to this Note or any Other Note, the Company shall
deliver written notice thereof via facsimile and overnight courier (an "EVENT OF
DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's
receipt of an Event of Default Notice and the Holder becoming aware of an Event
of Default, the Holder may require the Company to redeem all or any portion of
this Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION
NOTICE") to the Company, which Event of Default Redemption Notice shall indicate
the portion of this Note the Holder is electing to redeem. Each portion of this
Note subject to redemption by the Company pursuant to this Section 4(b) shall be
redeemed by the Company at a price equal to the greater of (i) the product of
(x) the Conversion Amount to be redeemed and (y) the Redemption Premium and (ii)
the product of (A) the Conversion Rate with respect to such Conversion Amount in
effect at such time as the Holder delivers an Event of Default Redemption Notice
and (B) the Closing Sale Price of the Common Stock on the date immediately
preceding such Event of Default (the "EVENT OF DEFAULT REDEMPTION PRICE").
Redemptions required by this Section 4(b) shall be made in accordance with the
provisions of Section 12.

                  (c) Listing Failure Redemption. If at any time prior to March
31, 2004, a Listing Failure shall occur, then the Company promptly shall deliver
written notice thereof via facsimile and overnight courier (a "LISTING FAILURE
NOTICE") to the Holder. At any time during the first 30 days after the
occurrence of a Listing Failure, the Company shall have the option to redeem all
or any portion of this Note by delivering written notice thereof (the "LISTING
FAILURE REDEMPTION NOTICE") to the Holder, which Listing Failure Redemption
Notice shall indicate the portion of this Note the Company is electing to
redeem. Each portion of this Note subject to redemption by the Company pursuant
to this Section 4(c) shall be redeemed by the Company at a price equal to the
greater of (i) the product of (x) the Conversion Amount to be redeemed and (y)
1.2 and (ii) the product of (A) the Conversion Rate with respect to such
Conversion Amount in effect at such time as the occurrence of the Listing
Failure and (B) the Closing Sale Price of the Common Stock on the date
immediately preceding such Listing Failure (the "LISTING FAILURE REDEMPTION
PRICE"). Redemptions required by this Section 4(c) shall be made in accordance
with the provisions of Section 12. In the event that the Company does not elect
redemption of the entire Note or does not deliver the Listing Failure Redemption
Price for the entire Note during the first 30 days after the occurrence of a
Listing Failure, then as partial relief for the damages to the Holder by reason
of any such election or failure to pay the Listing Failure Redemption Price
(which remedy shall not be exclusive of any other remedies available at law or
in equity), the Company shall pay to the Holder an amount in cash equal to the
product of (A) the Conversion Amount of this entire Note (or portion thereof)
then outstanding multiplied by (B) the sum of (x) the product of (I) 0.001
multiplied by (II) the number of


                                       10
<PAGE>
days after the 30th day through the 60th day after the applicable Listing
Failure that the Listing Failure Redemption Price is not paid, plus (y) the
product of (I) 0.0015 multiplied by (II) the number of days after the 60th day
after the applicable Listing Failure that the Listing Failure Redemption Price
is not paid (the "LISTING FAILURE PENALTY PAYMENTS"). In lieu of paying Listing
Failure Penalty Payments in cash, the Company may deliver a number of shares of
Common Stock equal to the quotient of (x) the amount of the Listing Failure
Penalty Payments required to be paid divided by (y) the Listing Failure
Calculation Price. Listing Failure Penalty Payments shall be paid on the earlier
of (I) the last day of the calendar month during which such Listing Failure
Penalty Payments are incurred and (II) the third Business Day after the event or
failure giving rise to the Listing Failure Penalty Payments is cured.

            (5) RIGHTS UPON CHANGE OF CONTROL.

                  (a) Change of Control. Each of the following events shall
constitute a "CHANGE OF CONTROL":

      (i) the consolidation, merger or other business combination (including,
      without limitation, a reorganization or recapitalization) of the Company
      with or into another Person (other than (A) a consolidation, merger or
      other business combination (including, without limitation, reorganization
      or recapitalization) in which holders of the Company's voting power
      immediately prior to the transaction continue after the transaction to
      hold, directly or indirectly, the voting power of the surviving entity or
      entities necessary to elect a majority of the members of the board of
      directors (or their equivalent if other than a corporation) of such entity
      or entities, or (B) pursuant to a migratory merger effected solely for the
      purpose of changing the jurisdiction of incorporation of the Company);

      (ii) the sale or transfer of all or substantially all of the Company's
      assets; or

      (iii) a purchase, tender or exchange offer made to and accepted by the
      holders of more than the 50% of the outstanding shares of Common Stock.

No sooner than the public announcement of such Change of Control nor later than
10 days prior to the consummation of a Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL NOTICE").

                  (b) Assumption. Prior to the consummation of any Change of
Control, the Company will secure from any Person purchasing the Company's assets
or Common Stock or any successor resulting from such Change of Control (in each
case, an "ACQUIRING ENTITY") a written agreement (in form and substance
reasonably satisfactory to the holders of Notes representing at least two-thirds
of the aggregate principal amount of the Notes then outstanding) to deliver to
each holder of Notes in exchange for such Notes, a security of the Acquiring
Entity evidenced by a written instrument substantially similar in form and
substance to the Notes, including, without limitation, having a principal amount
and interest rate equal to the principal amounts and the interest rates of the
Notes held by such holder, and reasonably satisfactory to the holders of Notes
representing at least two-thirds of the principal amount of the Notes then


                                       11
<PAGE>
outstanding. In the event that an Acquiring Entity is directly or indirectly
controlled by a company or entity whose common stock or similar equity interest
is listed, designated or quoted on a securities exchange or trading market, the
holders of Notes representing at least two-thirds of the aggregate principal
amount of the Notes then outstanding may elect to treat such Person as the
Acquiring Entity for purposes of this Section 5(b).

                  (c) Holder Redemption Right. At any time during the period
beginning after the Holder's receipt of a Change of Control Notice and ending on
the date of the consummation of such Change of Control (or, in the event a
Change of Control Notice is not delivered at least 10 days prior to a Change of
Control, at any time on or after the date which is 10 days prior to a Change of
Control and ending 10 days after the consummation of such Change of Control),
the Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to
redemption pursuant to this Section 5(c) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion Amount being
redeemed and (y) the quotient determined by dividing (A) the Closing Sale Price
of the Common Stock immediately following the public announcement of such
proposed Change of Control by (B) the Conversion Price and (ii) 115% of the
Conversion Amount being redeemed (the "CHANGE OF CONTROL REDEMPTION PRICE").
Redemptions required by this Section 5(c) shall be made in accordance with the
provisions of Section 12 and shall have priority to payments to other
stockholders in connection with a Change of Control.

                  (d) Acquiring Entity Redemption Right. At any time from and
after the delivery of a Change of Control Notice but not later than the day
immediately preceding the consummation of such Change of Control, the Acquiring
Entity may deliver a written notice via facsimile and overnight courier to the
Holder indicating that if the Company shall not receive from the Holder a Change
of Control Redemption Notice in accordance with Section 5(c), then the Acquiring
Entity is electing to redeem all, but not less than all, of this Note, all Other
Notes and all Separate Tranche Notes (an "ACQUIRING ENTITY CHANGE OF CONTROL
REDEMPTION NOTICE"). The Acquiring Entity Change of Control Redemption Notice
shall be irrevocable. If the Company shall not receive from the Holder a Change
of Control Redemption Notice in accordance with Section 5(c) and the Conditions
to Acquiring Entity Redemption (as set forth below) are satisfied or waved in
writing by the Holder, then this Note shall be redeemed by the Acquiring Entity
at a price equal to the greater of (i) the Change of Control Redemption Price
and (ii) the Note Valuation Amount (the "ACQUIRING ENTITY CHANGE OF CONTROL
REDEMPTION PRICE"). Notwithstanding the foregoing, the Holder may continue to
convert this Note into Common Stock pursuant to Section 3(a) on or prior to the
date immediately preceding the Acquiring Entity Change of Control Redemption
Date. Redemptions required by this Section 5(d) shall be made in accordance with
the provisions of Section 12 and shall have priority to payments to other
stockholders in connection with a Change of Control. "CONDITIONS TO ACQUIRING
ENTITY REDEMPTION" means the following conditions: (i) on each day during the
period beginning on the date of delivery of the Acquiring Entity Change of
Control Redemption Notice to each holder of the Notes and Separate Tranche Notes
and ending on and including the date immediately preceding the Acquiring Entity
Change of Control Redemption


                                       12
<PAGE>
Date, no Grace Period (as defined in the Registration Rights Agreement) shall be
in effect and either (x) the Registration Statement or Registration Statements
required pursuant to the Registration Rights Agreement shall be effective and
available for the sale for all of the Registrable Securities in accordance with
the terms of the Registration Rights Agreement or (y) all shares of Common Stock
issuable upon conversion of the Notes and the Separate Tranche Notes and shares
of Common Stock issuable upon exercise of the Warrants and the Separate Tranche
Warrants shall be eligible for sale without restriction pursuant to Rule 144(k)
and the state securities laws, (ii) the Company shall have no knowledge of any
fact that would cause (x) the Registration Statements required pursuant to the
Registration Rights Agreement not to be effective and available for the sale of
at least all of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) any shares of Common Stock issuable upon
conversion or redemption of the Notes and the Separate Tranche Notes and shares
of Common Stock issuable upon exercise of the Warrants and the Separate Tranche
Warrants not to be eligible for sale without restriction pursuant to Rule 144(k)
and any applicable state securities laws; (iii) on each day during the period
beginning on the date of delivery of the Acquiring Entity Change of Control
Redemption Notice and ending on and including the date immediately preceding the
Acquiring Entity Change of Control Redemption Date, the Common Stock is
designated for quotation on the Principal Market and shall not have been
suspended from trading on such exchange or market nor shall delisting or
suspension by such exchange or market been threatened or pending either (A) in
writing by such exchange or market or (B) by falling below the minimum listing
maintenance requirements of such exchange or market; (iv) during the period
beginning on the Initial Issuance Date and ending on and including the date
immediately preceding the Acquiring Entity Change of Control Redemption Date,
the Company shall have delivered shares of Common Stock upon any conversion of
Conversion Amounts on a timely basis as set forth in Section 3(c)(i) of this
Note (and analogous provisions under the Other Notes) and the Separate Tranche
Notes and delivered shares of Common Stock upon exercise of any Warrants and the
Separate Tranche Warrants on a timely basis as set forth in Section 1(a) of the
Warrants and the Separate Tranche Warrants; (v) the Company has obtained the
Stockholder Approval prior to the date of delivery of the Acquiring Entity
Change of Control Redemption Notice; and (vi) the Company otherwise shall have
been in material compliance with and shall not have breached, in any material
respect, any provision, covenant, representation or warranty of the Securities
Purchase Agreement, the Redemption, Amendment and Exchange Agreements, the
Registration Rights Agreement, any of the Warrants or the Separate Tranche
Warrants, the Pledge Agreement, the Control Agreement or any of the Notes or
Separate Tranche Notes.

            (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE
EVENTS.

                  (a) Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "PURCHASE RIGHTS"),


                                       13
<PAGE>
then the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Note (without taking into account any
limitations or restrictions on the convertibility of this Note) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.

                  (b) Other Corporate Events. Prior to the consummation of any
recapitalization, reorganization, consolidation, merger, spin-off or other
business combination (other than a Change of Control) pursuant to which holders
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for Common Stock (a "CORPORATE EVENT"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, (i) in addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event or (ii) in lieu of the shares of Common
Stock otherwise receivable upon such conversion, such securities or other assets
received by the holders of Common Stock in connection with the consummation of
such Corporate Event in such amounts as the Holder would have been entitled to
receive had this Note initially been issued with conversion rights for the form
of such consideration (as opposed to shares of Common Stock) at a conversion
rate for such consideration commensurate with the Conversion Rate. Provision
made pursuant to the preceding sentence shall be in a form and substance
reasonably satisfactory to the holders of Notes representing at least two-thirds
of the aggregate principal amount of the Notes then outstanding.

            (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

                  (a) Adjustment of Conversion Price upon Issuance of Common
Stock. If and whenever after December 31, 2003, the Company issues or sells, or
in accordance with this Section 7(a) is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding shares of
Common Stock deemed to have been issued or sold by the Company (I) in connection
with any employee benefit plan which has been approved by the Board of Directors
of the Company, pursuant to which the Company's securities may be issued to any
employee, officer or director for services provided to the Company (an "APPROVED
STOCK PLAN"), (II) upon conversion of the Notes or the Separate Tranche Notes or
upon exercise of the Warrants or the Separate Tranche Warrants, (III) in
connection with the payment of any Interest Shares on the Notes or (IV) in
connection with any Excluded Security) for a consideration per share less than a
price (the "APPLICABLE PRICE") equal to the Conversion Price in effect
immediately prior to such issue or sale (the foregoing, a "DILUTIVE ISSUANCE"),
then immediately after such issue or sale, the Conversion Price then in effect
shall be reduced to an amount equal


                                       14
<PAGE>
to the Applicable Price. For purposes of determining the adjusted Conversion
Price under this Section 7(a), the following shall be applicable:

(i) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of such Option is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such Option for such price per share. For purposes of
this Section 7(a)(i), the "lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange or exercise of any Convertible Securities issuable upon exercise of
such Option" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon granting or sale of the Option, upon exercise of the Option
and upon conversion or exchange or exercise of any Convertible Security issuable
upon exercise of such Option. No further adjustment of the Conversion Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange or exercise of such
Convertible Securities.

(ii) Issuance of Convertible Securities. If the Company in any manner issues or
sells any Convertible Securities and the lowest price per share for which one
share of Common Stock is issuable upon such conversion or exchange or exercise
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance of sale of such Convertible Securities for such price
per share. For the purposes of this Section 7(a)(ii), the "price per share for
which one share of Common Stock is issuable upon such conversion or exchange or
exercise" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion or exchange or exercise of such Convertible Security. No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such Common Stock upon conversion or exchange or exercise of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustment of the Conversion Price had
been or are to be made pursuant to other provisions of this Section 7(a), no
further adjustment of the Conversion Price shall be made by reason of such issue
or sale.

(iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exchange or exercise of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable or exercisable for Common Stock changes at any time, the Conversion
Price in effect at the time of such change shall be adjusted to the Conversion
Price which would have been in effect at such time had such Options or
Convertible Securities


                                       15
<PAGE>
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold. For purposes of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Original Issuance Date are
changed in the manner described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change. No adjustment shall be made if such adjustment would
result in an increase of the Conversion Price then in effect.

(iv) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the gross
amount received by the Company therefor. If any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company will be
the fair value of such consideration, except where such consideration consists
of securities, in which case the amount of consideration received by the Company
will be the Closing Sale Price of such securities on the date of receipt. If any
Common Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined in good faith by the Board of Directors of
the Company. The holders of Notes and Separate Tranche Notes representing at
least two-thirds of the principal amounts of the Notes and Separate Tranche
Notes then outstanding shall be entitled to dispute the determination of the
Board of Directors of the Company. If such holders and the Company are unable to
reach agreement within ten days after the occurrence of an event requiring
valuation (the "VALUATION EVENT"), the fair value of such consideration will be
determined within five Business Days after the tenth day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Notes representing at least two-thirds of the principal amounts
of the Notes and Separate Tranche Notes then outstanding. The determination of
such appraiser shall be deemed binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne equally by the
Company and the holders.

(v) Record Date. If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the


                                       16
<PAGE>
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

                  (b) Adjustment of Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

                  (c) Other Events.

      (i) If any event occurs of the type contemplated by the provisions of this
      Section 7 but not expressly provided for by such provisions (including,
      without limitation, the granting of stock appreciation rights, phantom
      stock rights or other rights with equity features), then the Company's
      Board of Directors will make an appropriate adjustment in the Conversion
      Price so as to protect the rights of the Holder under this Note; provided
      that no such adjustment will increase the Conversion Price as otherwise
      determined pursuant to this Section 7.

      (ii) In the event that the Holder has participated in any dividend or
      distribution in accordance with the terms of Section 16, no other
      adjustment shall be made to the Conversion Price pursuant to this Section
      7.

            (8) HOLDER RIGHT OF OPTIONAL REDEMPTION.

                  (a) Holder Initial Redemption Option. If at any time during
the Holder Initial Redemption Period, the Weighted Average Price of the Common
Stock is less than the Conversion Price for any 25 consecutive Trading Days (a
"HOLDER INITIAL REDEMPTION MEASURING PERIOD"), the Holder shall have the right,
in its sole discretion, to require that the Company redeem all or any portion of
this Note (a "HOLDER INITIAL REDEMPTION") by delivering written notice thereof
(a "HOLDER INITIAL REDEMPTION NOTICE") to the Company at any time during the
Holder Initial Redemption Period, which Holder Initial Redemption Notice shall
indicate the Conversion Amount the Holder is electing to redeem. The portion of
this Note subject to redemption pursuant to this Section 8(a) shall be redeemed
by the Company at a price equal to the Conversion Amount being redeemed (the
"HOLDER INITIAL REDEMPTION PRICE"). Redemptions required by this Section 8(a)
shall be made in accordance with the provisions of Section 12.

                  (b) Holder Secondary Redemption Option. If at any time during
the Holder Secondary Redemption Period, the Weighted Average Price of the Common
Stock is less


                                       17
<PAGE>
than the Conversion Price for any 25 consecutive Trading Days, the Holder shall
have the right, in its sole discretion, to require that the Company redeem all
or any portion of this Note (a "HOLDER SECONDARY REDEMPTION") by delivering
written notice thereof (a "HOLDER SECONDARY REDEMPTION NOTICE") to the Company
at any time during the Holder Secondary Redemption Period, which Holder
Secondary Redemption Notice shall indicate the Conversion Amount the Holder is
electing to redeem. The portion of this Note subject to redemption pursuant to
this Section 8(b) shall be redeemed by the Company at a price equal to the
product derived by multiplying (x) .83 by (y) the sum of (i) the Principal being
redeemed, (ii) accrued and unpaid Interest with respect to such Principal and
(iii) accrued and unpaid Late Charges with respect to such Principal and
Interest on the Conversion Amount being redeemed (the "HOLDER SECONDARY
REDEMPTION PRICE"). Redemptions required by this Section 8(b) shall be made in
accordance with the provisions of Section 12.

                  (c) Definitions.

                        (i) "HOLDER INITIAL REDEMPTION PERIOD" means the period
commencing on and including the twenty-fifth (25th) Trading Day prior to June
30, 2004 and ending on and including the twenty-fourth (24th) Trading Day after
January 1, 2006.

                        (ii) "HOLDER SECONDARY REDEMPTION PERIOD" means the
period commencing on and including January 1, 2006 and ending on and including
the Maturity Date.

                  (d) Partial Redemption In Shares. The Company shall have the
option to indicate in a notice delivered to all holders of Notes, no later than
the close of business on the fifth (5th) consecutive Trading Day that comprises
the first five(5) Trading Days of a Holder Initial Redemption Measuring Period
during which the Weighted Average Price of the Common Stock is less than the
Conversion Price, the percentage, if any (not to exceed 20%) (the "COMPANY
REDEMPTION SHARE PERCENTAGE"), of the applicable Holder Initial Redemption Price
that the Company shall satisfy through the delivery of shares of Common Stock
upon receipt of Holder Initial Redemption Notices (a "COMPANY REDEMPTION SHARE
ELECTION"). Each Company Redemption Share Election shall be irrevocable. The
number of shares of Common Stock to be delivered in connection with a Company
Redemption Share Election shall equal a number of fully paid and nonassessable
shares (rounded to the nearest whole share in accordance with Section 3(a)) of
Common Stock equal to the quotient of (x) the applicable portion of the Holder
Initial Redemption Price, if any, and (b) the Redemption Conversion Price. If
any portion of the Holder Initial Redemption Price is to be paid in shares of
Common Stock, then the Company shall, on the Initial Redemption Date, (X) issue
and deliver to the address as specified in the Holder Initial Redemption Notice
a certificate, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Company is required to issue and
deliver pursuant to a Company Redemption Share Election, or (Y) provided that
the Transfer Agent is participating in DTC Fast Automated Securities Transfer
Program, upon the request of the Holder, credit such aggregate number of shares
of Common Stock to


                                       18
<PAGE>
which the Company is required to issue and deliver pursuant to a Company
Redemption Share Election to the Holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system. Notwithstanding the
foregoing, the Company shall not be entitled to pay any of the Holder Initial
Redemption Price in shares of Common Stock and shall be required to pay such
Holder Initial Redemption Price entirely in cash if the Conditions to Holder
Initial Redemption in Shares are not satisfied. "CONDITIONS TO HOLDER INITIAL
REDEMPTION IN SHARES" means the following conditions: (i) during the period
beginning on the Initial Issuance Date and ending on and including the date
immediately preceding the Initial Redemption Date, the Company shall have
delivered shares of Common Stock upon any conversion of Conversion Amounts on a
timely basis as set forth in Section 3(c)(i) of this Note (and analogous
provisions under the Other Notes) and the Separate Tranche Notes and delivered
shares of Common Stock upon exercise of any Warrants and the Separate Tranche
Warrants on a timely basis as set forth in Section 1(a) of the Warrants and the
Separate Tranche Warrants; (ii) on each day during the period beginning on the
first Trading Day of the Holder Initial Redemption Period and ending on and
including the Initial Redemption Date, the Common Stock shall be listed on the
Principal Market and delisting or suspension by such market or exchange shall
not have been threatened either (A) in writing by such market or exchange or (B)
by falling below the minimum listing maintenance requirements of such market or
exchange; (iii) during the period beginning on the Initial Issuance Date and
ending on and including the Initial Redemption Date, there shall not have
occurred either (x) the public announcement of a pending, proposed or intended
Change of Control which has not been abandoned, terminated or consummated or (y)
an Event of Default; (iv) during the period beginning on the first Trading Day
of the Holder Initial Redemption Period and ending on and including the Initial
Redemption Date, there shall not have occurred an event that with the passage of
time or giving of notice would constitute an Event of Default; (v) any of the
shares of Common Stock to be issued in payment of the Holder Initial Redemption
Price shall be either (x) registered pursuant to an effective Registration
Statement available for the sale for all of such shares of Common Stock in
accordance with the terms set forth in the Registration Rights Agreement or (y)
eligible for sale without restriction pursuant to Rule 144(k) and any applicable
state securities laws; (vi) the Company shall have no knowledge of any fact that
would cause (x) the Registration Statements required pursuant to the
Registration Rights Agreement not to be effective and available for the sale of
at least all of the Registrable Securities (including the shares of Common Stock
to be delivered pursuant to a Company Redemption Share Election) in accordance
with the terms of the Registration Rights Agreement or (y) any shares of Common
Stock issuable upon conversion or redemption of the Notes and the Separate
Tranche Notes and shares of Common Stock issuable upon exercise of the Warrants
and the Separate Tranche Warrants not to be eligible for sale without
restriction pursuant to Rule 144(k) and any applicable state securities laws;
(vii) the Company otherwise shall have been in material compliance with and
shall not have breached, in any material respect, any provision, covenant,
representation or warranty of the Securities Purchase Agreement, the Amendment
and Exchange Agreement, the Registration Rights Agreement, any of the Warrants
or Separate Tranche Warrants, the Pledge Agreement, the


                                       19
<PAGE>
Control Agreement or any of the Notes or Separate Tranche Notes; and (viii) the
Company has obtained the Stockholder Approval prior to making the Company
Redemption Share Election.

                  (e) New Capital Redemption Option. If and whenever on or after
March 31, 2003, the Company issues or sells, or in accordance with Section 7(a)
is deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
or sold by the Company (I) in connection with an Approved Stock Plan or (II)
upon exercise of the Warrants or the Separate Tranche Warrants) (the foregoing,
a "NEW CAPITAL ISSUANCE") then, no sooner than the public announcement of such
New Capital Issuance nor later than 2 days after the consummation of a New
Capital Issuance, the Company shall deliver written notice thereof via facsimile
and overnight courier to the Holder (a "NEW CAPITAL NOTICE"). At any time within
10 days after the earlier of the Holder's receipt of a New Capital Notice and
the Holder becoming aware of a New Capital Issuance, the Holder shall have the
right, in its sole discretion, to require that the Company redeem, subject to
the final sentence of this Section 8(e), all or any portion of this Note by
delivering written notice thereof (the "NEW CAPITAL REDEMPTION NOTICE") to the
Company, which New Capital Redemption Notice shall indicate the maximum portion
of this Note the Holder is electing to redeem. Each portion of this Note subject
to redemption by the Company pursuant to this Section 8(e) shall be redeemed by
the Company at a price equal to the Conversion Amount being redeemed (the "NEW
CAPITAL REDEMPTION PRICE"). Redemptions required by this Section 8(e) shall be
made in accordance with the provisions of Section 12. Notwithstanding the
foregoing, the Company shall not be obligated to redeem any portion of this Note
or of any Other Note to the extent that the New Capital Redemption Price with
respect to this Note and all Other Notes required to be redeemed exceeds in the
aggregate 20% of the net proceeds to the Company in connection with the New
Capital Issuance.

            (9) COMPANY'S RIGHT OF MANDATORY CONVERSION; COMPANY OPTIONAL
REDEMPTION.

                  (a) Company's Right of Mandatory Conversion.

                        (i) Mandatory Conversion. If at any time from and after
April 15, 2004, the arithmetic average of the Weighted Average Price of the
Common Stock exceeds (x) from the Issuance Date until the Calculation Date,
$3.39 and (y) from and after the Calculation Date, the lower of (1) $3.39 and
(2) 150% of the Alternate Conversion Price (in the case of (x) and (y), subject
to appropriate adjustments for stock splits, stock dividends, stock combinations
and other similar transactions after the Original Issuance Date) for any 25
consecutive Trading Days following April 15, 2004 (the "MANDATORY CONVERSION
MEASURING PERIOD") and the Conditions to Mandatory Conversion (as set forth in
Section 9(a)(iii)) are satisfied or waived in writing by the Holder, the Company
shall have the right to require the Holder to convert all or any such portion of
the Conversion Amount of this Note designated in


                                       20
<PAGE>
the Mandatory Conversion Notice into fully paid, validly issued and
nonassessable shares of Common Stock in accordance with Section 3(c) hereof at
the Conversion Rate as of the Mandatory Conversion Date (as defined below) (a
"MANDATORY CONVERSION"). The Company may exercise its right to require
conversion under this Section 9(a) by delivering within not more than three
Trading Days following the end of such Mandatory Conversion Measuring Period a
written notice thereof by facsimile and overnight courier to all, but not less
than all, of the holders of Notes and Separate Tranche Notes and the Transfer
Agent (the "MANDATORY CONVERSION NOTICE" and the date all of the holders
received such notice is referred to as the "MANDATORY CONVERSION NOTICE DATE").
The Mandatory Conversion Notice shall be irrevocable.

                        (ii) Pro Rata Conversion Requirement. If the Company
elects to cause a conversion of all or any portion of the Conversion Amount of
this Note pursuant to Section 9(a)(i), then it must simultaneously take the
similar action with respect to the Other Notes. If the Company elects to cause
the conversion of this Note pursuant to Section 9(a)(i) (or similar provisions
under the Other Notes) with respect to less than all of the Conversion Amounts
of the Notes then outstanding, then the Company shall require conversion of a
Conversion Amount from each of the holders of the Notes equal to the product of
(I) the aggregate Conversion Amount of Notes which the Company has elected to
cause to be converted pursuant to Section 9(a)(i), multiplied by (II) the
fraction, the numerator of which is the sum of the aggregate principal amount of
the Notes initially purchased by such holder on the Issuance Date and the
denominator of which is the sum of the aggregate principal amount of the Notes
purchased by all holders on the Issuance Date (such fraction with respect to
each holder is referred to as its "ALLOCATION PERCENTAGE", and such amount with
respect to each holder is referred to as its "PRO RATA CONVERSION AMOUNT"). In
the event that the initial holder of any Notes shall sell or otherwise transfer
any of such holder's Notes, the transferee shall be allocated a pro rata portion
of such holder's Allocation Percentage. The Mandatory Conversion Notice shall
state (A) the Trading Day selected for the Mandatory Conversion in accordance
with Section 9(a)(i), which Trading Day shall be at least 20 Business Days but
not more than 60 Business Days following the Mandatory Conversion Notice Date
(the "MANDATORY CONVERSION DATE"), (B) the aggregate Conversion Amount of the
Notes which the Company has elected to be subject to mandatory conversion from
all of the holders of the Notes pursuant to this Section 9(a) (and analogous
provisions under the Other Notes), (C) each holder's Pro Rata Conversion Amount
of the Conversion Amount of the Notes the Company has elected to cause to be
converted pursuant to this Section 9(a) (and analogous provisions under the
Other Notes) and (D) the number of shares of Common Stock to be issued to such
Holder as of the Mandatory Conversion Date. All Conversion Amounts converted by
the Holder after the Mandatory Conversion Notice Date shall reduce the
Conversion Amount of this Note required to be converted on the Mandatory
Conversion Date. If the Company has elected a Mandatory Conversion, the
mechanics of conversion set forth in Section 3(c) shall apply, to the extent
applicable, as if the Company and the Transfer Agent had received from the
Holder on the Mandatory Conversion Date a Conversion Notice with respect to the
Conversion Amount being converted pursuant to the Mandatory Conversion.


                                       21
<PAGE>
                        (iii)    Conditions to Mandatory Conversion.  For
purposes of this Section 9(a), "CONDITIONS TO MANDATORY CONVERSION" means the
following conditions: (A) during the period beginning on the Initial Issuance
Date and ending on and including the Mandatory Conversion Date, the Company
shall have delivered shares of Common Stock upon any conversion of Conversion
Amounts on a timely basis as set forth in Section 3(c)(i) of this Note (and
analogous provisions under the Other Notes) and the Separate Tranche Notes and
delivered shares of Common Stock upon exercise of any Warrants and the Separate
Tranche Warrants on a timely basis as set forth in Section 1(a) of the Warrants
and the Separate Tranche Warrants; (B) on each day during the period beginning
on the first Trading Day of the Mandatory Conversion Measuring Period, and
ending on and including the Mandatory Conversion Date, the Common Stock shall be
listed on the Principal Market and delisting or suspension by such market or
exchange shall not have been threatened either (I) in writing by such market or
exchange or (II) by falling below the minimum listing maintenance requirements
of such market or exchange; (C) during the period beginning on the Initial
Issuance Date and ending on and including the Mandatory Conversion Date, there
shall not have occurred either (I) the public announcement of a pending,
proposed or intended Change of Control which has not been abandoned, terminated
or consummated or (II) an Event of Default; (D) during the period beginning on
the date which is the first Trading Day of the Mandatory Conversion Measuring
Period and ending on and including the Mandatory Conversion Date, there shall
not have occurred an event that with the passage of time or giving of notice
would constitute an Event of Default; (E) on each day of the period beginning on
the date of delivery of the Mandatory Conversion Notice and ending on the
Mandatory Conversion Date either (I) the Registration Statement or Registration
Statements required pursuant to the Registration Rights Agreement shall be
effective and available for the sale for all of the Registrable Securities in
accordance with the terms of the Registration Rights Agreement or (II) all
shares of Common Stock issuable upon conversion of the Notes and the Separate
Tranche Notes and shares of Common Stock issuable upon exercise of the Warrants
and the Separate Tranche Warrants shall be eligible for sale without restriction
pursuant to Rule 144(k) and any applicable state securities laws, (F) the
Company shall have no knowledge of any fact that would cause (I) the
Registration Statements required pursuant to the Registration Rights Agreement
not to be effective and available for the sale of at least all of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement or (II) any shares of Common Stock issuable upon conversion or
redemption of the Notes and the Separate Tranche Notes and shares of Common
Stock issuable upon exercise of the Warrants and the Separate Tranche Warrants
not to be eligible for sale without restriction pursuant to Rule 144(k) and any
applicable state securities laws, and (G) the Company otherwise shall have been
in material compliance with and shall not have breached, in any material
respect, any provision, covenant, representation or warranty of the Securities
Purchase Agreement, the Redemption, Amendment and Exchange Agreements, the
Registration Rights Agreement, any of the Warrants or the Separate Tranche
Warrants, the Pledge Agreement, the Control Agreement or any of the Notes or
Separate Tranche Notes.


                                       22
<PAGE>
                  (b)   Company Optional Redemption Right.

                        (i)      Company Optional Redemption.  If at any time
from and after the Issuance Date, the Conditions to Company Redemption (as set
forth below) are satisfied or waived in writing by the Holder, the Company shall
have the right to redeem all or any portion of this Note (a "COMPANY OPTIONAL
REDEMPTION"). The Company may exercise its right of redemption under this
Section 9(b)(i) by delivering a written notice thereof by facsimile and
overnight courier to all of the holders of Notes and the Transfer Agent (the
"COMPANY OPTIONAL REDEMPTION NOTICE", and, collectively with an Event of Default
Redemption Notice, a Listing Failure Redemption Notice, a Change of Control
Redemption Notice, an Acquiring Entity Change of Control Redemption Notice, a
Holder Initial Redemption Notice, a Holder Secondary Redemption Notice, and a
New Capital Redemption Notice, "REDEMPTION NOTICES" and, individually, each, a
"REDEMPTION NOTICE")), which Company Optional Redemption Notice shall indicate
the maximum portion of this Note that the Company is electing to redeem. The
Company shall not issue a Company Optional Redemption Notice with respect to
this Note and the Other Notes to the extent that any Separate Tranche Notes with
a conversion price that is greater than the Conversion Price pursuant to this
Note and the Other Notes shall remain outstanding. The Company Optional
Redemption Notice shall be irrevocable. This Note shall be redeemed by the
Company pursuant to this Section 9(b)(i) in exchange for (i) an amount equal to
the Conversion Amount of this Note being redeemed and (ii) if the Company
Optional Redemption occurs after April 30, 2003, delivery of the applicable
Redemption Warrants to the Holder, substantially in the form attached hereto as
Exhibit II, duly executed and authorized by the Company (the "COMPANY OPTIONAL
REDEMPTION PRICE" and, together with the Event of Default Redemption Price, the
Listing Failure Redemption Price, the Change of Control Redemption Price, the
Acquiring Entity Change of Control Redemption Price, the Holder Initial
Redemption Price, the Holder Secondary Redemption Price, and the New Capital
Redemption Price, the "REDEMPTION PRICE"). Notwithstanding the foregoing, the
Holder may continue to convert this Note into Common Stock pursuant to Section
3(a) on or prior to the date immediately preceding the Company Optional
Redemption Date. Redemptions required by this Section 9(b) shall be made in
accordance with the provisions of Section 12.

                        (ii)     Pro Rata Redemption Requirement.  If the
Company elects to cause a redemption of all or any portion of the Conversion
Amount of this Note pursuant to Section 9(b)(i), then it must simultaneously
take the similar action with respect to the Other Notes. If the Company elects
to cause the redemption of this Note pursuant to Section 9(b)(i) (or similar
provisions under the Other Notes) with respect to less than all of the
Conversion Amounts of the Notes then outstanding, then the Company shall redeem
a Conversion Amount from each of the holders of the Notes equal to the product
of (I) the aggregate Conversion Amount of Notes which the Company has elected to
redeem pursuant to Section 9(b)(i) (or similar provisions under the Other
Notes), multiplied by (II) a fraction, the numerator of which is the sum of the
aggregate principal amount of the Notes initially purchased by such holder on
the applicable Issuance Date and the denominator of which is the sum of the
aggregate principal amount of the Notes purchased by all holders on the
applicable Issuance Date


                                       23
<PAGE>

(such fraction with respect to each holder is referred to as its "REDEMPTION
ALLOCATION PERCENTAGE", and such amount with respect to each holder is referred
to as its "PRO RATA REDEMPTION AMOUNT"). In the event that the initial holder of
any Notes shall sell or otherwise transfer any of such holder's Notes, the
transferee shall be allocated a pro rata portion of such holder's Redemption
Allocation Percentage. The Company Optional Redemption Notice shall state (A)
the Trading Day selected for the Company Optional Redemption in accordance with
Section 9(b)(i), which Trading Day shall be at least 20 Business Days but not
more than 60 Business Days following the Company Optional Redemption Notice Date
(the "COMPANY OPTIONAL REDEMPTION DATE"), (B) the aggregate Conversion Amount of
the Notes which the Company has elected to redeem from all of the holders of the
Notes pursuant to this Section 9(b) (and analogous provisions under the Other
Notes), (C) each holder's Pro Rata Redemption Amount of the Conversion Amount of
the Notes the Company has elected to redeem pursuant to this Section 9(b) (and
analogous provisions under the Other Notes) and (D) the Company Optional
Redemption Price to be paid to such Holder as of the Company Optional Redemption
Date. All Conversion Amounts converted by the Holder after delivery of the
Company Optional Redemption Notice Date shall reduce the Conversion Amount of
this Note required to be redeemed on the Company Optional Redemption Date.
Redemptions required by this Section 9(b) shall be made in accordance with the
provisions of Section 12.

                        (iii)    Conditions to Company Redemption.  For
purposes of this Section 9(b), "CONDITIONS TO COMPANY REDEMPTION" means the
following conditions: (i) during the period beginning on the Initial Issuance
Date and ending on and including the Company Optional Redemption Date, there
shall not have occurred either (x) the public announcement of a pending,
proposed or intended Change of Control which has not been abandoned, terminated
or consummated or (y) an Event of Default or any event which with the passage of
time and the failure to cure would result in an Event of Default, (ii) during
the period beginning on the Initial Issuance Date and ending on and including
the Company Optional Redemption Date, there shall not have occurred any Listing
Failure, and (iii) during the period beginning on the Initial Issuance Date and
ending on and including the date immediately preceding the Company Optional
Redemption Date, the Company shall have delivered shares of Common Stock upon
any conversion of Conversion Amounts on a timely basis as set forth in Section
3(c)(i) of this Note (and analogous provisions under the Other Notes) and the
Separate Tranche Notes and delivered shares of Common Stock upon exercise of any
Warrants and the Separate Tranche Warrants on a timely basis as set forth in
Section 1(a) of the Warrants and the Separate Tranche Warrants;.

            (10) NONCIRCUMVENTION. The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this Note,
and will at all times in good faith carry out all of the provisions of this
Note.


                                       24
<PAGE>

            (11) RESERVATION OF AUTHORIZED SHARES.

                  (a) Reservation. The Company shall initially reserve out of
its authorized and unissued Common Stock a number of shares of Common Stock for
each of the Notes equal to 130% of the Conversion Rate with respect to the
Conversion Amount of each such Note as of the Issuance Date. Thereafter, the
Company shall, so long as any of the Notes are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Notes,
110% of the number of shares of Common Stock as shall from time to time be
necessary to effect the conversion of all of the Notes then outstanding;
provided that at no time shall the number of shares of Common Stock so reserved
be less than the number of shares required to be reserved by the previous
sentence (without regard to any limitations on conversions) (the "REQUIRED
RESERVE AMOUNT"). The initial number of shares of Common Stock reserved for
conversions of the Notes and each increase in the number of shares so reserved
shall be allocated pro rata among the holders of the Notes based on the
principal amount of the Notes held by each holder at the time of Issuance Date
or increase in the number of reserved shares, as the case may be (the
"AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or
otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share Allocation. Any
shares of Common Stock reserved and allocated to any Person which ceases to hold
any Notes shall be allocated to the remaining holders of Notes, pro rata based
on the principal amount of the Notes then held by such holders.

                  (b) Insufficient Authorized Shares. If at any time while any
of the Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of shares of
Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE
FAILURE"), then the Company shall immediately take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding. Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than 60 days after the occurrence of such Authorized Share
Failure, the Company shall hold a meeting of its stockholders for the approval
of an increase in the number of authorized shares of Common Stock. In connection
with such meeting, the Company shall provide each stockholder with a proxy
statement and shall use its best efforts to solicit its stockholders' approval
of such increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.

            (12) HOLDER'S REDEMPTIONS.

                  (a) Mechanics. In the event that the Holder has either sent a
Redemption Notice to the Company pursuant to Section 4(b), Section 5(c), Section
8(a), Section 8(b), or Section 8(e), or the Holder has received a Listing
Failure Redemption Notice pursuant to


                                       25
<PAGE>

Section 4(c), an Acquiring Entity Change of Control Redemption Notice pursuant
to Section 5(d) or a Company Optional Redemption Notice pursuant to Section
9(b), then the Holder shall promptly after receipt of the applicable Redemption
Price (and (i) shares of Common Stock to which the Company is required to issue
and deliver pursuant to the Company Redemption Share Election and (ii)
Redemption Warrants that the Company is required to issue and deliver pursuant
to the Company Optional Redemption, in each case, as applicable (clauses (i) and
(ii) being collectively the "SECURITIES CONSIDERATION")) submit this Note to the
Company. The Company shall deliver the applicable Event of Default Redemption
Price to the Holder within five Business Days after the Company's receipt of the
Holder's Event of Default Redemption Notice. The Company shall deliver the
applicable Listing Failure Redemption Price to the Holder within five Business
Days after the Company's delivery of the Listing Failure Redemption Notice. If
the Holder has submitted a Change of Control Redemption Notice in accordance
with Section 5(c), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder concurrently with the consummation of such Change
of Control if such notice is received prior to the consummation of such Change
of Control and within five Business Days after the Company's receipt of such
notice otherwise. If the Holder has received an Acquiring Entity Change of
Control Redemption Notice and the Conditions to Acquiring Entity Redemption are
satisfied pursuant to Section 5(d), then the Company shall deliver the
applicable Acquiring Entity Change of Control Redemption Price to the Holder
concurrently with the consummation of such Change of Control if such notice is
received at least five (5) days prior to the consummation of such Change of
Control and within five Business Days after the Company's delivery of such
notice otherwise (the "ACQUIRING ENTITY CHANGE OF CONTROL REDEMPTION DATE"). The
Company shall deliver the applicable Holder Initial Redemption Price to the
Holder within five Business Days after the Company's receipt of the Holder
Initial Redemption Notice (the "INITIAL REDEMPTION DATE"). The Company shall
deliver the applicable Holder Secondary Redemption Price to the Holder on (i)
April 15, 2006, if the Holder delivers the Holder Secondary Redemption Notice to
the Company on or before April 13, 2006 and (ii) within five Business Days after
the Company's receipt of the Holder Secondary Redemption Notice if delivered
after April 13, 2006. If the Holder has submitted a New Capital Redemption
Notice in accordance with Section 8(e), the Company shall deliver the applicable
New Capital Redemption Price to the Holder concurrently with the consummation of
such New Capital Issuance if such notice is received prior to the consummation
of such New Capital Issuance and within five Business Days after the Company's
receipt of such notice otherwise. The Company shall deliver the Company Optional
Redemption Price to the Holder on the fifth Business Day after the Company
Optional Redemption Date. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 19(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the Redemption Price to the Holder (or deliver any
Securities Consideration to be issued pursuant to a Company Redemption Share
Election or a Company Optional Redemption, as applicable) within the time period
required, at any time thereafter and until the Company pays such unpaid
Redemption Price (and issues any Securities Consideration required pursuant to a


                                       26
<PAGE>

Company Redemption Share Election or a Company Optional Redemption, as
applicable) in full, the Holder shall have the option, in lieu of redemption, to
require the Company to promptly return to the Holder all or any portion of this
Note representing the Conversion Amount that was submitted for redemption and
for which the applicable Redemption Price (or any Securities Consideration
required to be issued pursuant to a Company Redemption Share Election or a
Company Optional Redemption, as applicable) (together with any Late Charges
thereon) has not been paid. Upon the Company's receipt of such notice, (x) the
Redemption Notice shall be null and void with respect to such Conversion Amount,
(y) the Company shall immediately return this Note, or issue a new Note (in
accordance with Section 19(d)) to the Holder representing such Conversion Amount
and (z) the Conversion Price of this Note or such new Notes shall be adjusted to
the lesser of (A) the Conversion Price as in effect on the date on which the
Redemption Notice is voided and (B) the lowest Closing Bid Price during the
period beginning on and including the date on which the Redemption Notice is
delivered to or by the Company and ending on and including the date on which the
Redemption Notice is voided. The Holder's delivery of a notice voiding a
Redemption Notice and exercise of its rights following such notice shall not
affect the Company's obligations to make any payments of Late Charges which have
accrued prior to the date of such notice with respect to the Conversion Amount
subject to such notice.

                  (b) Redemption by Other Holders. Upon the Company's receipt of
notice from any of the holders of the Other Notes or the Separate Tranche Notes
for redemption or repayment as a result of an event or occurrence substantially
similar to the events or occurrences described in Section 4(b), Section 5(c),
Section 8(a), Section 8(b) or Section 8(e), or the delivery to the holders of
the Other Notes or the Separate Tranche Notes of a Listing Failure Redemption
Notice, an Acquiring Entity Change of Control Redemption Notice or Company
Optional Redemption Notice or similar notice based on events or occurrences
substantially similar to the events or occurrences described in Section 4(c),
Section 5(d) and Section 9(b) (each, an "OTHER REDEMPTION NOTICE"), the Company
shall immediately forward to the Holder by facsimile a copy of such notice. If
the Company receives, or the Acquiring Entity or the Company delivers, as the
case may be, a Redemption Notice and one or more Other Redemption Notices during
the seven Business Day period beginning on and including the date which is three
Business Days prior to the Company's receipt of the Holder's Redemption Notice,
or the Acquiring Entity's delivery of an Acquiring Entity Change of Control
Redemption Notice or the Company's delivery of a Listing Failure Redemption
Notice or Company Optional Redemption Notice, as the case may be, and ending on
and including the date which is three Business Days after the Company's receipt
of the Holder's Redemption Notice, or the Acquiring Entity's delivery of an
Acquiring Entity Change of Control Redemption Notice or the Company's delivery
of the Listing Failure Redemption Notice or the Company Optional Redemption
Notice, as the case may be, and the Company is unable or, pursuant to the final
sentence of Section 8(e), not obligated to redeem all principal, interest and
other amounts designated in such Redemption Notice and such Other Redemption
Notices received or delivered, as the case may be, during such seven Business
Day period, then the Company shall redeem a pro rata amount from each holder of
the Notes (including the Holder) and the Separate Tranche Notes based on (i) in
the


                                       27
<PAGE>


case of a New Capital Redemption Notice, the principal amount of the Notes
submitted for redemption and (ii) in the case of any other Redemption Notice,
the principal amount of the Notes and the Separate Tranche Notes submitted for
redemption, in either case pursuant to such Redemption Notice and such Other
Redemption Notices received or delivered, as the case may be, during such seven
Business Day period.

            (13) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the
Notes have been converted, redeemed or otherwise satisfied in accordance with
their terms, the Company shall not, directly or indirectly, redeem, repurchase
or declare or pay any cash dividend or distribution on, its capital stock
without the prior express written consent of the holders of Notes representing
at least two-thirds of the aggregate principal amount of the Notes then
outstanding.

            (14) VOTING RIGHTS. The Holder shall have no voting rights as the
holder of this Note, except as required by law, including but not limited to the
Delaware General Corporation Law, and as expressly provided in this Note.

            (15) RANK; ADDITIONAL INDEBTEDNESS; LIENS.

                  (a) Rank. Payments of Principal and Interest and other
payments due under this Note (a) shall rank pari passu with all Other Notes and
Separate Tranche Notes and (b) shall be senior to all other Indebtedness (as
defined in Section 3(r) of the Securities Purchase Agreement) of the Company and
its Subsidiaries (as defined in the Securities Purchase Agreement), other than
Purchase Money Indebtedness (as defined below); provided, that for so long as no
Event of Default has occurred and is continuing, the foregoing shall not
prohibit the Company from paying principal and interest when due on, and in
accordance with the terms of, the $3,500,000 aggregate principal amount of 4.95%
notes of the Company being issued to certain investors on the date hereof
pursuant to a Securities Purchase Agreement by and among the Company and such
investors (a copy of which has been provided to the Holders).

                  (b) Incurrence of Indebtedness. So long as this Note is
outstanding the Company shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to
exist any Indebtedness, other than (i) the Indebtedness evidenced by this Note,
the Other Notes and the Separate Tranche Notes, (ii) Purchase Money Indebtedness
and (iii) Permitted Indebtedness.

                  (c) Existence of Liens. So long as this Note is outstanding
the Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries other than pursuant to the Pledge Agreement and other than
Permitted Liens.


                                       28
<PAGE>

            (16) PARTICIPATION. The Holder, as the holder of this Note, shall be
entitled to such dividends paid and distributions made to the holders of Common
Stock to the same extent as if the Holder had converted this Note into Common
Stock (without regard to any limitations on conversion herein or elsewhere) and
had held such shares of Common Stock on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of Common Stock.

            (17) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative
vote at a meeting duly called for such purpose or the written consent without a
meeting, of the holders of Notes representing not less than two-thirds of the
aggregate principal amount of the then outstanding Notes, shall be required for
any change or amendment to this Note or the Other Notes.

            (18) TRANSFER. This Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement.

            (19) REISSUANCE OF THIS NOTE.

                  (a) Transfer. If this Note is to be transferred, the Holder
shall surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance with
Section 19(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance
with Section 19(d)) to the Holder representing the outstanding Principal not
being transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) and
this Section 19(a), following conversion or redemption of any portion of this
Note, the outstanding Principal represented by this Note may be less than the
Principal stated on the face of this Note.

                  (b) Lost, Stolen or Mutilated Note. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and reasonably acceptable to the Company (based in part on the
net worth of, or security provided by, the Holder) and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 19(d))
representing the outstanding Principal.

                  (c) Note Exchangeable for Different Denominations. This Note
is exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Note or Notes (in accordance with Section 19(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such


                                       29
<PAGE>

new Note will represent such portion of such outstanding Principal as is
designated by the Holder at the time of such surrender.

                  (d) Issuance of New Notes. Whenever the Company is required to
issue a new Note pursuant to the terms of this Note, such new Note (i) shall be
of like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 19(a) or Section 19(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent
accrued Interest and Late Charges on the Principal and Interest of this Note,
from the Issuance Date.

            (20) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note, the Securities
Purchase Agreement, the Pledge Agreement, the Control Agreement, the Warrants
and the Registration Rights Agreement, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit the Holder's right to pursue actual and consequential damages for
any failure by the Company to comply with the terms of this Note. Amounts set
forth or provided for herein with respect to payments, conversion and the like
(and the computation thereof) shall be the amounts to be received by the Holder
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.

            (21) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. The Company
agrees to pay, on demand, all costs and expenses of collection or enforcement of
this Note and/or the enforcement of Holder's rights with respect to, or the
administration, supervision, preservation, protection of, or realization upon,
any property securing payment hereof, including, without limitation, reasonable
attorney's fees, including fees related to any suit, mediation or arbitration
proceeding, out of court payment agreement, trial, appeal, bankruptcy,
reorganization, receivership or other proceeding.

            (22) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed against
any person as


                                       30
<PAGE>

the drafter hereof. The headings of this Note are for convenience of reference
and shall not form part of, or affect the interpretation of, this Note.

            (23) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of the Holder 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.

            (24) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Redemption Price or the arithmetic calculation of the
Conversion Rate or the Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile within one Business Day
of receipt of the Conversion Notice or Redemption Notice giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are
unable to agree upon such determination or calculation of the Conversion Rate
within one Business Day of such disputed determination or arithmetic calculation
being submitted to the Holder, then the Company shall, within one Business Day
submit via facsimile (a) the disputed determination of the Closing Bid Price or
the Closing Sale Price to an independent, reputable investment bank selected by
the Company and approved by the Holder or (b) the disputed arithmetic
calculation of the Conversion Rate or the Redemption Price to the Company's
independent, outside accountant. The Company shall instruct the investment bank
or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
five Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error. The expenses of the investment bank or accountant, as the
case may be, shall be borne by the party whose determination or calculation was
furthest away from the determination or calculation reached by the investment
bank or accountant, as the case may be.

            (25) NOTICES; PAYMENTS.

                  (a) Notices. Whenever notice is required to be given under
this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least twenty days
prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Change of Control, dissolution or
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder. Notwithstanding the foregoing,


                                       31
<PAGE>

Section 4(i) of the Securities Purchase Agreement shall apply to all notices
given pursuant to this Note.

                  (b) Payments. Whenever any payment of cash is to be made by
the Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers (as defined in Section 3(d)(ii)), shall initially
be as set forth on the Schedule of Buyers attached to the Securities Purchase
Agreement); provided that the Holder may elect to receive a payment of cash via
wire transfer of immediately available funds by providing the Company with prior
written notice setting out such request and the Holder's wire transfer
instructions. Whenever any amount expressed to be due by the terms of this Note
is due on any day which is not a Business Day, the same shall instead be due on
the next succeeding day which is a Business Day and, in the case of any Interest
Date which is not the date on which this Note is paid in full, the extension of
the due date thereof shall not be taken into account for purposes of determining
the amount of Interest due on such date. Any amount of Interest, Principal or
other amounts due under this Note which is not paid when due shall result in a
late charge being incurred and payable by the Company in an amount equal to
interest on such amount at the rate of 15% per annum from the date such amount
was due until the same is paid in full ("LATE CHARGE").

            (26) CANCELLATION. After all Principal, accrued Interest and other
amounts at any time owed on this Note has been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

            (27) WAIVER OF NOTICE. To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Securities Purchase Agreement.

            (28) GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.

            (29) CERTAIN DEFINITIONS. For purposes of this Note, the following
terms shall have the following meanings:

                  (a) "BLOOMBERG" means Bloomberg Financial Markets.


                                       32
<PAGE>

                  (b) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

                  (c) "CALENDAR QUARTER" means, each of the period beginning on
and including January 1 and ending on and including March 31, the period
beginning on and including April 1 and ending on and including June 30, the
period beginning on and including July 1 and ending on and including September
30, and the period beginning on and including October 1 and ending on and
including December 31.

                  (d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 24. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

                  (e) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.

                  (f) "EXCLUDED SECURITIES" means any shares of Common Stock
issued or issuable (i) in connection with one or more strategic partnerships or
joint ventures in which there is a significant commercial relationship with the
Company, in an amount not to exceed, in the aggregate, gross proceeds to the
Company of $10,000,000 or an aggregate of 5,000,000 shares of Common Stock, (ii)
in connection with any acquisition by the Company, whether through an
acquisition for stock or a merger, of any business, assets or technologies the


                                       33
<PAGE>

primary purpose of which is not to raise equity capital, in an amount not to
exceed, in the aggregate, 19.99% of the total outstanding shares of Common Stock
in any calendar year, (iii) pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter which generates gross
proceeds to the Company in excess of $22,500,000 (other than an "at-the-market
offering" as defined in Rule 415(a)(4) under the 1933 Act and "equity lines")
and (iv) upon conversion of any Options or Convertible Securities which are
outstanding under any stock option plan of the Company on the day immediately
preceding the Original Issuance Date, provided that the terms of such Options or
Convertible Securities are not amended, modified or changed on or after the
Original Issuance Date.

                  (g) "INITIAL ISSUANCE DATE" means March 25, 2003.

                  (h) "INTEREST CONVERSION PRICE" means, with respect to any
Interest Date, that price which shall be computed as 95% of the arithmetic
average of the Weighted Average Price of the Common Stock on each of the five
consecutive Trading Days immediately preceding such Interest Date. All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction during such period.

                  (i) "LISTING FAILURE CALCULATION PRICE" means that price which
shall be computed as 95% of the arithmetic average of the Weighted Average Price
of the Common Stock on each of the five consecutive Trading Days immediately
preceding date of delivery of the applicable shares of Common Stock. All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction during such period.

                  (j) "MARKET PRICE" means, as of any date of determination,
that price which shall be computed as the arithmetic average of the Weighted
Average Price of the Common Stock on each of the ten consecutive Trading Days
immediately preceding such date of determination; provided that the Market Price
shall not be less than $1.00 (as adjusted for stock splits, stock dividends,
reclassifications and similar transactions). All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during such period.

                  (k) "NOTE VALUATION AMOUNT" means, as of the Acquiring Entity
Change of Control Redemption Date, the current value of this Note as determined
(using established methodologies for valuing convertible instruments similar to
this Note) by an independent, reputable investment bank or major financial
institution jointly selected by the Company and the holders of Notes and
Separate Tranche Notes representing at least two-thirds of the principal amounts
of the Notes and Separate Tranche Notes then outstanding. The determination of
such investment bank or financial institution shall be made prior to the date of
the Acquiring Entity Change of Control Redemption Date and shall be deemed
binding upon all parties absent manifest error. The fees and expenses of such
investment bank or financial institution shall be borne by the Company.


                                       34
<PAGE>

                  (l) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.

                  (m) "ORIGINAL ISSUANCE DATE" means December 31, 2002.

                  (n) "PERMITTED INDEBTEDNESS" means Indebtedness that is
unsecured, that is subordinate in right of payment to this Note, the Other Notes
and the Separate Tranche Notes and that provides for an interest that is no
greater than market rate interests; provided that the amount of Permitted
Indebtedness shall not in the aggregate exceed the sum of $5,000,000.

                  (o) "PERMITTED LIENS" means (i) any lien for taxes not yet due
or delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with generally
acceptable accounting principles in the United States applied on a consistent
basis, (ii) any statutory lien arising in the ordinary course of business by
operation of law with respect to a liability that is not yet due or delinquent
and (iii) any minor imperfection of title or similar lien which individually or
in the aggregate with other such liens would not reasonably be expected to have
a Material Adverse Effect.

                  (p) "PERSON" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

                  (q) "PRINCIPAL MARKET" means The NASDAQ National Market or in
the event that the Company is no longer listed with The NASDAQ National Market,
the market or exchange on which the Common Stock is then listed and traded,
which only may be The New York Stock Exchange, Inc., the American Stock Exchange
or The NASDAQ SmallCap Market.

                  (r) "PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the
Company or any Subsidiary incurred solely for the purpose of financing all or
any part of the purchase price of equipment, furniture or fixtures or the cost
of construction or improvement of any property; provided, however, that the
aggregate principal amount of any such Indebtedness does not exceed the lesser
of the fair market value of such property, as determined in the good faith
judgment of the Company's Board of Directors, or such purchase price or cost,
including any refinancing of such Indebtedness that does not increase the
aggregate principal amount (or accreted amount, if less) thereof as of the date
of refinancing.

                  (s) "REDEMPTION, AMENDMENT AND EXCHANGE AGREEMENTS" means
those certain redemption, amendment and exchange agreements between the Company
and each of the initial holders of the Notes pursuant to which the Company
issued the Notes.

                  (t) "REDEMPTION CONVERSION PRICE" means with respect to the
Holder Initial Redemption, that price which shall be computed as 95% of the
arithmetic average of the Weighted Average Price of the Common Stock on each of
the twenty consecutive Trading Days immediately preceding the applicable Initial
Redemption Date. All such determinations to


                                       35
<PAGE>

be appropriately adjusted for any stock split, stock dividend, stock combination
or other similar transaction during such period.

                  (u) "REDEMPTION PREMIUM" means (i) in the case of the Events
of Default described in Section 4(a)(i) - (vii) and (xi) - (xiv), 120% or (ii)
in the case of the Events of Default described in Section 4(a)(vii) - (x), 100%.

                  (v) "REDEMPTION WARRANTS" means a warrant to purchase Common
Stock in substantially the form of the Warrant attached as Exhibit B to the
Redemption, Amendment and Exchange Agreements.

                  (w) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement between the Company and the initial holders of the
Notes relating to the registration of the resale of the shares of Common Stock
issuable upon conversion of the Notes.

                  (x) "SEC" means the United States Securities and Exchange
Commission.

                  (y) "SECURITIES PURCHASE AGREEMENT" means that certain
securities purchase agreement, dated as of December 31, 2002 (as amended),
between the Company and the initial holders of the Initial Notes pursuant to
which the Company issued the Initial Notes.

                  (z) "SEPARATE TRANCHE NOTES" means the convertible notes which
have been issued or may be issued (i) pursuant to the Securities Purchase
Agreement at one or more separate closings following the Original Issuance Date
and (ii) that have a different Calculation Date.

                  (aa) "SEPARATE TRANCHE WARRANTS" means the warrants which have
been issued or may be issued pursuant to the Securities Purchase Agreement at
one or more separate closings following the Original Issuance Date.

                  (bb) "TRADING DAY" means any day on which the Common Stock is
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00 p.m., Eastern Time).

                  (cc) "WARRANTS" has the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all warrants issued in exchange
therefore or replacement thereof.


                                       36
<PAGE>

                  (dd) "WEIGHTED AVERAGE PRICE" means, for any security as of
any date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
the Principal Market publicly announces is the official close of trading), as
reported by Bloomberg through its "Volume at Price" functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
the Principal Market publicly announces is the official close of trading) as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). If the Weighted Average Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Weighted Average Price of such security on such date shall be the
fair market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 24. All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.


                            [SIGNATURE PAGE FOLLOWS]


                                       37
<PAGE>

      IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
as of the Issuance Date set out above.

                                    VIEWPOINT CORPORATION



                                    By:
                                         -------------------------------
                                          Name:  Brian J. O'Donoghue
                                          Title: Executive Vice President


                                       38
<PAGE>
                                                                       EXHIBIT I

                              VIEWPOINT CORPORATION
                                CONVERSION NOTICE


Reference is made to the Convertible Note (the "NOTE") issued to the undersigned
by Viewpoint Corporation (the "COMPANY"). In accordance with and pursuant to the
Note, the undersigned hereby elects to convert the Conversion Amount (as defined
in the Note) of the Note indicated below into shares of Common Stock, par value
$0.001 per share (the "COMMON STOCK"), of the Company as of the date specified
below.

      Date of Conversion:
                         -----------------------------------------------------

      Aggregate Conversion Amount to be converted:
                                                  ----------------------------
Please confirm the following information:

      Conversion Price:
                       -------------------------------------------------------

      Number of shares of Common Stock to be issued:


Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

      Issue to:
               ---------------------------------------------------------------


      Facsimile Number:
                       -------------------------------------------------------

      Authorization:
                    ----------------------------------------------------------

            By:
                 -------------------------------------------------------------
                                                      Title:
                                                              ----------------

Dated:
      ------------------------------------------------------------------------

      Account Number:
                     ---------------------------------------------------------
        (if electronic book entry transfer)

      Transaction Code Number:
                              ------------------------------------------------
        (if electronic book entry transfer)


                                       39
<PAGE>




                                 ACKNOWLEDGMENT

      The Company hereby acknowledges this Conversion Notice and hereby directs
Equiserve Trust Company to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated December 31,
2002, from the Company and acknowledged and agreed to by Equiserve Trust
Company.

                                    VIEWPOINT CORPORATION




                                    By:
                                       --------------------------------------
                                          Name:
                                          Title:


                                       40

</TEXT>
</DOCUMENT>
