SPATIALIGHT INC
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>6
<FILENAME>exb.txt
<TEXT>
                                                                    Exhibit 10.5

                         SENIOR SECURED 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 (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. 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.

                                SPATIALIGHT, INC.


                         SENIOR SECURED CONVERTIBLE NOTE


Issuance Date:  November 30, 2004                       Principal: U.S. $600,000

         FOR VALUE RECEIVED, SpatiaLight, Inc., a New York corporation (the
"COMPANY"), hereby promises to pay to the order of BLUEGRASS GROWTH FUND, L.P.
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 a rate per annum equal to the ten percent (10%) per annum (the "INTEREST
RATE"), from the date set out above as the Issuance Date (the "ISSUANCE DATE")
until the same becomes due and payable, whether upon an Interest Date (as
defined below), the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof). This Senior
Secured Convertible Note (including all Senior Secured Convertible Notes issued
in exchange, transfer or replacement hereof, this "NOTE") is one of an issue of
Senior Secured Convertible Notes (collectively, the "NOTES" and such other
Senior Secured Convertible Notes, the "OTHER NOTES") issued pursuant to the
Securities Purchase Agreement (as defined below). Certain capitalized terms are
defined in Section 29.

<PAGE>

         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 November 30, 2007,
as may be 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) solely with respect to the provisions of Section 5(b), through the date
that is ten days after the consummation of a Change of Control in the event that
a Change of Control is publicly announced or a Change of Control Notice (as
defined in Section 5) is delivered prior to the Maturity Date.

         2. INTEREST; INTEREST RATE. (a) Interest on this Note shall commence
accruing on the 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 last day of
each February, May, August and November during the period beginning on the
Issuance Date and ending on, and including, the Maturity Date (each, an
"INTEREST DATE") with the first Interest Date being February 28, 2005. Interest
shall be payable on each Interest Date, to the record holder of this Note on the
applicable Interest Date, in cash ("CASH Interest") 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 if,
and only if, the Company delivers written notice (each, an "INTEREST ELECTION
NOTICE") of such election to each holder of the Notes on or prior to the fifth
(5th) Trading Day prior to the Interest Date (each, an "INTEREST NOTICE DUE
DATE"); provided, that the Company may indicate in such notice that the election
therein applies for subsequent Interest Payment Dates until so modified, and
provided further, that the Company shall certify that the Equity Conditions have
been satisfied as of the date of the Interest Election Notice, shall notify the
Holder if at any time the Equity Conditions are not satisfied, and shall be
deemed to have certified that the Equity Conditions have been satisfied with
respect to any subsequent Interest Payment Date. Each Interest Election Notice
shall be irrevocable. 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 amount of Interest payable on such Interest Date and (b)
the Interest Conversion Price in effect on the applicable Interest Date. If any
Interest Shares are to be paid on an Interest Date, then the Company shall (X)
provided that the Company's transfer agent (the "TRANSFER AGENT") is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program and such action is not prohibited by applicable law or
regulation or any applicable policy of DTC, 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, or (Y) if the foregoing shall not apply, issue and deliver on
the applicable Interest Date, to the address set forth in the register
maintained by the Company for such purpose pursuant to the Securities Purchase
Agreement or 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. 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 as Cash Interest on
the applicable Interest Date if, unless consented to in writing by the Holder,
on each Trading Day during the period from the applicable Interest Notice Due

                                      -2-
<PAGE>

Date through the  applicable  Interest Date (i) the Equity  Conditions  have not
been  satisfied or (ii) the Weighted  Average  Price of the Common Stock on each
day during the applicable  Interest  Measuring  Period (as defined in Section 29
below) is not at least $1.00.

            (b) Prior to the payment of Interest on an Interest Date, Interest
on this Note shall accrue at the Interest Rate and be payable 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 twelve percent (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 taxes that may
be payable with respect to the issuance and delivery of Interest Shares;
provided that the Company shall not be required to pay any tax that may be
payable (i) in respect of any issuance of Interest Shares to any Person other
than the Holder or (ii) with respect to any income tax or capital gains tax due
by the Holder with respect to such Interest Shares.

         3. CONVERSION OF NOTES. This Note shall be convertible into shares of
common stock of the Company, par value $.01 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 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
(the "CONVERSION RATE").

                  (i)   "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.

                  (ii)  "CONVERSION  PRICE" means, as of any Conversion Date (as
defined  below) or other date of  determination,  and subject to  adjustment  as
provided herein, $9.72, subject to adjustment as provided herein.

                                      -3-
<PAGE>

            (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
7:00  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 Company's transfer agent (the "TRANSFER AGENT"). On or before the
third (3rd)  Business Day following  the date of receipt of a Conversion  Notice
(the "SHARE DELIVERY  DATE"),  the Company shall (X) provided the Transfer Agent
is  participating  in  the  Depository  Trust  Company  ("DTC")  Fast  Automated
Securities  Transfer  Program 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
or (Y) if the  Transfer  Agent is not  participating  in the DTC Fast  Automated
Securities  Transfer  Program,  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.  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 (3) 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.

              (ii) Company's  Failure to Timely  Convert.  If the Company  shall
fail to issue a certificate to the Holder or, if applicable, 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 (5) 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 1.5% 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
Weighted  Average  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. In lieu of the foregoing,
if within three (3) Trading Days after the  Company's  receipt of the  facsimile
copy of a  Conversion  Notice  the  Company  shall  fail to issue and  deliver 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 such
holder's  conversion of any Conversion  Amount,  and if on or after such Trading

                                      -4-
<PAGE>

Day the Holder  purchases in order to prevent a trade failure (in an open market
transaction or otherwise)  Common Stock to deliver in  satisfaction of a sale by
the  Holder of  Common  Stock  issuable  upon such  conversion  that the  Holder
anticipated  receiving  from the Company (a "Buy-In"),  then the Company  shall,
within  three (3) Business  Days after the Holder's  request and in the Holder's
discretion, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased  (the "BUY-IN  PRICE"),  at which point the  Company's
obligation  to deliver such  certificate  (and to issue such Common Stock) shall
terminate,  or (ii)  promptly  honor its  obligation  to deliver to the Holder a
certificate or certificates  representing  such Common Stock and pay cash to the
Holder in an amount  equal to the excess  (if any) of the Buy-In  Price over the
product of (A) such  number of shares of Common  Stock,  times (B) the  Weighted
Average Price on the Conversion Date.

              (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 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 electing to have Notes converted on such
date a pro rata  amount of such  holder's  portion  of its Notes  submitted  for
conversion  based on the principal  amount of Notes  submitted for conversion on
such date by such holder relative to the aggregate principal amount of all 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.

            (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 4.99% 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

                                      -5-
<PAGE>

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  or any Other 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-K,  Form 10-Q or Form 8-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 (2)  Business  Days
confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding;  provided,  however, that if such information shall constitute
material  nonpublic  information,  the Company shall  provide such  confirmation
solely to the Legal Counsel (as defined in the Registration  Rights  Agreement).
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.  Other than in connection with
a Fundamental  Transaction  pursuant to Section 5(a),  the Company may not 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  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 (A) 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 or (B) obtains a written  opinion  from  outside  counsel to the
Company that such  approval is not  required,  which opinion shall be reasonably
satisfactory to the Required Holders.  Until such approval or written opinion is
obtained,  no  purchaser  of  the  Notes  pursuant  to the  Securities  Purchase
Agreement  (the  "Purchasers")  shall be issued,  upon  conversion of the 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 the Purchasers  pursuant to the Securities Purchase Agreement on
the Closing Date and the denominator of which is the aggregate  principal amount
of all Notes  issued  to the  Purchasers  pursuant  to the  Securities  Purchase
Agreement on the Closing 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,  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 shall convert all of such holder's 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

                                      -6-
<PAGE>

Notes on a pro rata basis in proportion to the aggregate principal amount of the
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)   the failure of the  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 Effectiveness Deadline
(as defined in the Registration  Rights  Agreement),  or, while the Registration
Statement is required to be  maintained  effective  pursuant to the terms of the
Registration Rights Agreement,  the effectiveness of the 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 15 consecutive days
or for more than an aggregate of 45 days in any 365-day  period (other than days
during  an  Allowable  Grace  Period  (as  defined  in the  Registration  Rights
Agreement));

              (ii)  the suspension  from trading or failure of the Common  Stock
to be listed on an Eligible Market for a period of five (5) consecutive  Trading
Days or for more  than an  aggregate  of ten (10)  Trading  Days in any  365-day
period;

              (iii) the Company's (A) failure to  cure a Conversion  Failure  by
delivery  of the  required  number of shares of  Common  Stock  within  ten (10)
Business 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)  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);

              (v)   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 or any other  Transaction  Document (as defined in the Securities  Purchase
Agreement),  except,  in the case of a failure to pay  Interest and Late Charges
when and as due or any other  amounts under any other  Transaction  Document (as
defined  in the  Securities  Purchase  Agreement),  in which  case  only if such
failure continues for a period of at least five (5) Business Days;

              (vi)  any default under,  redemption  of or acceleration  prior to
maturity of any  "INDEBTEDNESS"  (as defined in Section  3(s) of the  Securities
Purchase  Agreement)  of the Company or any of its  Subsidiaries  (as defined in
Section 3(a) of the Securities Purchase Agreement) in excess of $500,000 (in the
aggregate) other than with respect to any Other Notes;

                                      -7-
<PAGE>

              (vii) the  Company  or  any of its  Subsidiaries,  pursuant to  or
within the meaning of Title 11, U.S.  Code, or any similar  Federal,  foreign 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;

              (viii) a court of  competent  jurisdiction  enters an order or
decree under any  Bankruptcy  Law that (A) is for relief  against the Company or
any of its Subsidiaries in an involuntary  case, (B) appoints a Custodian of the
Company or any of its  Subsidiaries or (C) orders the liquidation of the Company
or any of its Subsidiaries;

              (ix)  a final  judgment  or  judgments  for  the payment of  money
aggregating in excess of $500,000 (in the  aggregate)  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 $500,000 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;

              (x)   the  Company  breaches   in   any   material   respect   any
representation,  warranty,  covenant  or other term or  condition  (except  with
respect to any  representation,  warranty,  covenant or other term or  condition
which is qualified by materiality or Material  Adverse Effect in which case, the
Company  breaches in any respect) of any Transaction  Document,  except,  in the
case of a breach of a covenant which is curable,  only if such breach  continues
for a period of at least ten (10) consecutive Business Days;

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

              (xii) any Event of Default (as defined in the Other  Notes) occurs
with respect to any Other Notes.

            (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

                                      -8-
<PAGE>

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 Weighted  Average 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.

        5.    RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

            (a) Assumption. Except as set forth in Section 5(d) below, the
Company shall not enter into or be party to a Fundamental Transaction unless the
Successor Entity offers to assume in writing all of the obligations of the
Company under this Note and the other Transaction Documents in accordance with
the provisions of this Section 5(a) pursuant to written agreements that are
reasonably proposed by the Successor Entity to the Required Holders prior to
such Fundamental Transaction, including agreements to deliver to each holder of
Notes in exchange for such Notes a security of the Successor 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 having similar ranking to the Notes; provided, that upon receipt of such
proposed agreements from the Successor Entity, the Required Holders shall have
an opportunity to propose comments to the Successor Entity with respect to such
agreements for a period of no longer than 10 days. The Successor Entity may
choose to accept any or all of such comments and deliver revised final
agreements to the Required Holders within five (5) days thereafter upon which
time, the Required Holders may choose to accept or reject the Successor Entity's
final offer to assume the obligations of the Company under this Note and the
other Transaction Documents pursuant to the terms and conditions of such
agreements; provided, that the Required Holders must choose to accept or reject
such offer no later than three (3) days prior to the scheduled consummation of
the Fundamental Transaction. If the foregoing obligations are assumed, as set
forth above, upon the occurrence of any Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the date
of such Fundamental Transaction, the provisions of this Note referring to the
"Company" shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Note with the same effect as if such Successor Entity had
been named as the Company herein. If the foregoing obligations are assumed, as
set forth above, upon consummation of the Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the consummation of the
Fundamental Transaction, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) purchasable upon the conversion or
redemption of the Notes prior to such Fundamental Transaction, such shares of
stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights) which the Holder would have
been entitled to receive upon the happening of such Fundamental Transaction had
this Note been converted immediately prior to such Fundamental Transaction, as

                                      -9-
<PAGE>

adjusted in accordance with the provisions of this Note. If the Required Holders
reject the Successor  Entity's offer to assume the  obligations  under this Note
and the other Transaction  Documents and the Required Holders have not exercised
their  redemption  or conversion  rights  hereunder,  the Successor  Entity may,
effective as of the  consummation  of the  Fundamental  Transaction,  redeem the
remaining Notes at a price equal to the Change of Control  Redemption Price. The
provisions  of this Section 5 shall apply  similarly  and equally to  successive
Fundamental  Transactions and shall be applied without regard to any limitations
on the conversion or redemption of this Note.

            (b) Fundamental Transaction Redemption Right. If the Successor
Entity is not a publicly traded corporation whose common stock or equivalent
security is quoted on or listed for trading on an Eligible Market then no sooner
than 15 days nor later than 10 days prior to the consummation of such
Fundamental Transaction, but not prior to the public announcement of such
Fundamental Transaction, the Company shall deliver written notice thereof via
facsimile and overnight courier to the Holder (a "FUNDAMENTAL TRANSACTION
NOTICE"). At any time during the period beginning after the Holder's receipt of
a Fundamental Transaction Notice and ending on the date of the consummation of
such Fundamental Transaction (or, in the event a Fundamental Transaction Notice
is not delivered at least 10 days prior to a Fundamental Transaction, at any
time on or after the date which is 10 days prior to a Fundamental Transaction
and ending 10 days after the consummation of such Fundamental Transaction), the
Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof ("FUNDAMENTAL TRANSACTION REDEMPTION NOTICE")
to the Company, which Fundamental Transaction 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(b) shall be redeemed by the
Company at a price equal to the Change of Control Redemption Price (as defined
in Section 5(c) below) plus the Holder shall receive in cash the Present Value
of Interest with respect to such portion redeemed. Redemptions required by this
Section 5(b) shall be made in accordance with the provisions of Section 12 and
shall have priority to payments to stockholders in connection with a Fundamental
Transaction. Notwithstanding anything to the contrary in this Section 5(b), but
subject to Section 3(d), until the Change of Control Redemption Price (together
with any interest thereon) is paid in full, the Conversion Amount submitted for
redemption under this Section 5(b) (together with any interest thereon) may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3.

            (c) Change of Control Redemption Right. No sooner than 15 days nor
later than 10 days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL NOTICE"). 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 shall be redeemed by the Company at a price equal to

                                      -10-
<PAGE>

(i) if the amount per share that the Holders are entitled to receive pursuant to
the Change of Control is equal to or less than the Conversion Price, 112% of the
Conversion  Amount  being  redeemed  and (ii) if the  amount  per share that the
Holders  are  entitled  to receive  pursuant to the Change of Control is greater
than the Conversion  Price,  100% of the  Conversion  Amount being redeemed (the
redemption price of the Note in (i) and (ii), the "CHANGE OF CONTROL  REDEMPTION
PRICE"),  plus in each of the foregoing  cases, the Holder shall receive in cash
the Present Value of Interest with respect to such portion redeemed. 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  stockholders  in  connection
with a Change of  Control.  Notwithstanding  anything  to the  contrary  in this
Section  5(c),  but  subject  to  Section  3(d),  until the  Change  of  Control
Redemption  Price  (together  with any  interest  thereon) is paid in full,  the
Conversion  Amount  submitted for  redemption  under this Section 5(c) (together
with any interest thereon) may be converted,  in whole or in part, by the Holder
into Common Stock pursuant to Section 3.

            (d) Successor 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 Successor
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 Successor
Entity is electing to redeem all, but not less than all, of this Note and all
Other Notes (an "SUCCESSOR ENTITY CHANGE OF CONTROL REDEMPTION NOTICE");
provided, that upon any such redemption, the Successor Entity shall be required
to pay to the Holder on the date of such Change of Control, the Present Value of
Interest. The Successor Entity Change of Control Redemption Notice shall be
irrevocable. If (i) the Company shall not receive from the Holder a Change of
Control Redemption Notice in accordance with Section 5(c), (ii) the Equity
Conditions are satisfied or waived in writing by the Holder on each day during
the period commencing with delivery of the Successor Entity Change of Control
Redemption Notice through the consummation of such Change of Control, and (iii)
the stockholders of the Company are to receive and shall receive consideration
in such Change of Control consisting of no less than 90% cash, then this Note
may be redeemed by the Successor Entity at a price equal to the Change of
Control Redemption Price. Notwithstanding the foregoing, the Holder may convert
this Note into Common Stock pursuant to Section 3(a) on or prior to the date
immediately preceding the Successor 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.

            (e) Pro Rata Redemption Requirement. If the Company elects to cause
a conversion of any Conversion Amount of this Note pursuant to Section 5(d),
then it must simultaneously take the same action in the same proportion with
respect to the Other Notes. All Conversion Amounts converted by the Holder after
the Successor Entity Change of Control Redemption Notice shall reduce the
Conversion Amount of this Note required to be converted on the Mandatory
Conversion Date.

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

                                      -11-
<PAGE>

            (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"), 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. In addition to and not in substitution
for any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
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 (without taking into account any limitations or
restrictions on the convertibility of this Note) 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 shares 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 Required Holders. The
provisions of this Section 6 shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations or
restrictions on the conversion of this Note.

         7. ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF
COMMON STOCK. If the Company at any time on or after the Subscription Date
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 on or
after the Subscription Date 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.

        8. COMPANY'S RIGHT OF MANDATORY CONVERSION.

             (a)  Mandatory Conversion. If at any time from and after the twelve
(12) month  anniversary  of the Effective  Date (as defined in the  Registration
Rights  Agreement)  relating  to  any  shares  of  Common  Stock  issuable  upon
conversion of the Notes (the "MANDATORY  CONVERSION  ELIGIBILITY DATE"), (i) the
Weighted  Average  Price of the  Common  Stock  equals  or  exceeds  150% of the

                                      -12-
<PAGE>

Conversion  Price on the Closing Date (subject to  appropriate  adjustments  for
stock splits, stock dividends, stock combinations and other similar transactions
after the  Subscription  Date) for each of any twenty (20)  consecutive  Trading
Days  following  the  Mandatory  Conversion  Eligibility  Date  (the  "MANDATORY
CONVERSION  MEASURING  PERIOD") and (ii) the Equity  Conditions  shall have been
satisfied  or waived in  writing  by the  Holder on each day  during  the period
commencing on the Mandatory  Conversion  Notice Date and ending on the Mandatory
Conversion  Date (each,  as defined  below) the Company  shall have the right to
require  the Holder to convert  all,  but not less than all,  of the  Conversion
Amount  then  remaining  under this Note plus the  Present  Value of Interest as
designated  in the  Mandatory  Conversion  Notice (as defined  below) 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")  or, at the Company's  option and
solely with respect to the Present Value of Interest,  cash or a combination  of
Common Stock and cash. The Company may exercise its right to require  conversion
under this Section 8A(a) by delivering within not more than two (2) 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 the Transfer Agent (the "MANDATORY  CONVERSION  NOTICE" and
the date all of the holders  received such notice by facsimile is referred to as
the "MANDATORY  CONVERSION NOTICE DATE"). The Mandatory  Conversion Notice shall
be irrevocable.  The Mandatory Conversion Notice shall state (i) the Trading Day
selected for the Mandatory  Conversion in  accordance  with Section 8(a),  which
Trading Day shall be at least twenty (20)  Business Days but not more than sixty
(60)  Business  Days  following  the  Mandatory   Conversion  Notice  Date  (the
"MANDATORY  CONVERSION DATE"), (ii) the aggregate Conversion Amount of the Notes
subject to mandatory conversion from all of the holders of the Notes pursuant to
this  Section 8 (and  analogous  provisions  under the Other  Notes),  (iii) the
number of shares of Common  Stock to be  issued  to,  and the  Present  Value of
Interest to be paid to, such Holder on the  Mandatory  Conversion  Date and (iv)
the portion, if any, of the Present Value of Interest that shall be paid in cash
and the portion, if any, that shall be paid in Common Stock.

            (b) Pro Rata Conversion Requirement. If the Company elects to cause
a conversion of any Conversion Amount of this Note pursuant to Section 8(a),
then it must simultaneously take the same action in the same proportion with
respect to the Other Notes. 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.

         9. SECURITY. This Note and the Other Notes are secured to the extent
and in the manner set forth in the Security Documents (as defined in the
Securities Purchase Agreement).

         10. NONCIRCUMVENTION. The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any other voluntary

                                      -13-
<PAGE>

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 and take all action as may be  required  to protect the
rights of the Holder of this Note.

         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 Note equal to (i) 100% of the maximum number of shares of Common Stock
issuable upon conversion of each such Note as of the Issuance Date and (ii) 150%
of the maximum number of shares of Common Stock issuable as Interest Shares
pursuant to the terms of each such Note as of the Issuance Date. So long as any
of the Notes are outstanding, the Company shall 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, (i) 100% of the
maximum number of shares of Common Stock issuable upon conversion as of the
Issuance Date and (ii) 150% of the maximum number of shares of Common Stock
issuable as Interest Shares pursuant to the terms of the Note as of the Issuance
Date, 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
Closing (as defined in the Securities Purchase Agreement) 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 promptly 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.

                                      -14-
<PAGE>

        12. REDEMPTIONS.

            (a) Mechanics. 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. If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(b), 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 15 Business Days after the Company's receipt of such
notice otherwise. 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 applicable Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company
pays such unpaid Redemption Price 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 (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 Weighted
Average Price of the Common Stock during the period beginning on and including
the date on which the Redemption Notice is delivered to 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 for redemption or repayment as
a result of an event or occurrence substantially similar to the events or
occurrences described in Section 4(b) or Section 5(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 a Redemption Notice and
one or more Other Redemption Notices, during the seven (7) Business Day period
beginning on and including the date which is three (3) Business Days prior to
the Company's receipt of the Holder's Redemption Notice and ending on and
including the date which is three (3) Business Days after the Company's receipt
of the Holder's Redemption Notice and the Company is unable to redeem all
principal, interest and other amounts designated in such Redemption Notice and
such Other Redemption Notices received during such seven (7) Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven Business Day
period.

        13. RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the

                                      -15-
<PAGE>

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 Required Holders.

        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
New York Business Corporation Law, and as expressly provided in this Note.

        15. RANK; ADDITIONAL INDEBTEDNESS; LIENS.

            (a) Rank. All payments due under this Note (i) shall rank pari passu
with all Other Notes and Permitted Bank Debt, and (ii) shall be senior to all
other Indebtedness of the Company and its Subsidiaries.

            (b) Incurrence of Indebtedness. So long as this Note is outstanding,
(i)the Company shall not, directly or indirectly, incur or guarantee, assume or
suffer to exist any Indebtedness, other than (x) the Indebtedness evidenced by
this Note and the Other Notes, and (y) Permitted Indebtedness, and (ii) the
Company shall not permit any of its Subsidiaries (including, without limitation,
SpatiaLight Korea, Inc.) to, directly or indirectly, incur or guarantee, assume
or suffer to exist any Indebtedness.

            (c) Existence of Liens. So long as this Note is outstanding, (i) the
Company shall not, 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 (collectively, "LIENS") other than Permitted
Liens; provided, however, that Liens on all accounts receivable, contract rights
with respect to products of the Company or its Subsidiaries and inventory
(together, in each case, with all proceeds thereof) of the Company and/or its
Subsidiaries securing their obligations with respect to Credit Loans under
Permitted Bank Debt shall be senior to the Liens securing the Notes in
accordance with the terms of the lien subordination agreement referred to in
clause (iv) of the definition of Permitted Liens; and (ii) the Company shall not
permit any of its Subsidiaries (including, without limitation, SpatiaLight
Korea, Inc.) to, directly or indirectly, allow or suffer to exist any Liens,
other than Permitted Liens.

            (d) Restricted Payments. The Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any portion
of any Permitted Indebtedness, whether by way of payment in respect of principal
of (or premium, if any) or interest on, such Indebtedness if at the time such
payment is due or is otherwise made or, after giving effect to such payment, an
event constituting, or that with the passage of time and without being cured
would constitute, an Event of Default has occurred and is continuing.

        16. PARTICIPATION. The Holder, as the holder of this Note, shall be
entitled to receive 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

                                      -16-
<PAGE>

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 Required Holders shall be required for any change or amendment to
this Note or the Other Notes.

        18. TRANSFER. This Note and any shares of Common Stock issued upon
conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of
Sections 2(g) and 2(h) 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 and shall comply with Sections 2(g) and 2(h)
of the Securities Purchase Agreement, 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),
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, 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 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

                                      -17-
<PAGE>

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 and be subject to the same obligations
and restrictions 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 and any of the other
Transaction Documents 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 material 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. If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
but not limited to, attorneys' fees and disbursements.

         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 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 Weighted Average Price or the arithmetic calculation of the
Conversion Rate or the Redemption Price, the Company shall submit the disputed

                                      -18-
<PAGE>

determinations or arithmetic calculations via facsimile within three (3)
Business Days of receipt, or deemed receipt, of the Conversion Notice or
Redemption Notice or other event 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 within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within one (1) Business Day submit via facsimile (a) the disputed
determination of the Weighted Average 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, at the Company's
expense, shall cause 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.

        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 (20)
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 Fundamental Transaction,
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.

            (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, 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 Principal or other amounts due under the Transaction
Documents, other than Interest, which is not paid when due shall result in a
late charge being incurred and payable by the Company in an amount equal to

                                      -19-
<PAGE>

interest on such amount at the rate of twelve percent (12%) 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 have 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) "ADDITIONAL INVESTMENT RIGHTS" has the meaning ascribed to such
term in the Securities Purchase Agreement and shall include additional
investment rights issued in exchange therefor.

             (b) "APPROVED STOCK PLAN" means 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.

             (c)   "BLOOMBERG" means Bloomberg Financial Markets.

             (d) "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.

             (e) "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.

             (f) "CHANGE OF CONTROL" means any Fundamental Transaction with an
unaffiliated third party other than (A) a Fundamental Transaction in which
holders of the Company's voting power immediately prior to the Fundamental
Transaction continue after the Fundamental Transaction to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of

                                      -20-
<PAGE>

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.

             (g) "CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company initially
issued Notes pursuant to the terms of the Securities Purchase Agreement.

             (h) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus
the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
Common Stock owned or held by or for the account of the Company or issuable upon
conversion of the Notes.

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

             (j) "ELIGIBLE MARKET" means the Principal Market, The New York
Stock Exchange, Inc., the Nasdaq National Market or The Nasdaq SmallCap Market.

             (k) "EQUITY CONDITIONS" means that each of the following conditions
is satisfied: (i) on each day during the period beginning three (3) months prior
to the applicable date of determination and ending on and including the
applicable date of determination (the "EQUITY CONDITIONS MEASURING Period"),
either (x) the Registration Statement filed pursuant to the Registration Rights
Agreement shall be effective and available for the resale of all remaining
Registrable Securities in accordance with the terms of the Registration Rights
Agreement and there shall not have been any Grace Periods (as defined in the
Registration Rights Agreement) or (y) all shares of Common Stock issuable upon
conversion of the Notes shall be eligible for sale under Rule 144(k); (ii) on
each day during the Equity Conditions Measuring Period, the Common Stock is
designated for quotation on the Principal Market and shall not have been
suspended from trading on such exchange or market (other than suspensions of not
more than two (2) days and occurring prior to the applicable date of
determination due to business announcements by the Company) 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; (iii) during the
one (1) year period ending on and including the date immediately preceding the
applicable date of determination, the Company shall have delivered Conversion
Shares upon conversion of the Notes to the holders on a timely basis as set
forth in Section 2(c)(ii) hereof (and analogous provisions under the Other
Notes) and Notes upon exercise of the Additional Investment Rights; (iv) any
applicable shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating Section 3(d)
hereof and the rules or regulations of the Principal Market; (v) during the
Equity Conditions Measuring Period, the Company shall not have failed to timely
make any payments within five (5) Business Days of when such payment is due
pursuant to any Transaction Document; (vi) during the Equity Conditions
Measuring Period, there shall not have occurred either (A) the public
announcement of a pending, proposed or intended Fundamental Transaction that is

                                      -21-
<PAGE>

not a Change of Control which has not been abandoned, terminated or consummated
or (B) an Event of Default or an event that with the passage of time or giving
of notice would constitute an Event of Default; (vii) the Company shall have no
knowledge of any fact that would cause any one of the following: (x) the
Registration Statements required pursuant to the Registration Rights Agreement
not to be effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Registration Rights Agreement or
(y) any shares of Common Stock issuable upon conversion of the Notes not to be
eligible for sale without restriction pursuant to Rule 144(k) and any applicable
state securities laws; (viii) the Company shall not be in violation of Section
3(d)(ii) (assuming conversion of all of the Notes and the Notes issuable upon
exercise of the Additional Investment Rights); and (ix) the Company otherwise
shall have been in material compliance with and shall not have materially
breached any provision, covenant, representation or warranty of any Transaction
Document.

             (l) "EXCLUDED SECURITIES" means any Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan; (ii) upon conversion
of the Notes; (iii) pursuant to a bona fide firm commitment underwritten public
offering with a nationally recognized underwriter (other than an "at-the-market
offering" as defined in Rule 415(a)(4) under the 1933 Act, "equity lines" or a
non-underwritten offering that is effected on a shelf registration statement);
(iv) in connection with the payment of any Interest Shares on the Notes or any
shares payable pursuant to the "Argyle Notes" (as defined in the Securities
Purchase Agreement); and (v) in connection with any acquisition by the Company,
whether through an acquisition of stock or a merger of any business, assets or
technologies the primary purpose of which is not to raise equity capital in an
amount not to exceed, in the aggregate 20% of the outstanding shares of Common
Stock in any calendar year.

             (m) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of the outstanding
shares of Common Stock (not including any shares of Common Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock.

             (n) "GAAP" means United States generally accepted accounting
principles, consistently applied.

             (o) "INTEREST CONVERSION PRICE" means, with respect to any Interest
Date, the greater of (i) the Conversion Price, and (ii) that price which shall
be computed as 95% of the arithmetic average of the Weighted Average Price of

                                      -22-
<PAGE>

the Common Stock on each of the ten (10) consecutive Trading Days commencing two
(2) Trading Days after the Interest Notice Due Date and ending on the third
(3rd) Trading Day immediately preceding the applicable Interest Date (each, an
"INTEREST MEASURING PERIOD"). All such determinations to be appropriately
adjusted for any stock split, stock dividend, stock combination or other similar
transaction during such period.

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

             (q) "PERMITTED BANK DEBT" means the principal of (and premium, if
any), interest on, and all fees and other amounts (including, without
limitation, any reasonable out-of-pocket costs, enforcement expenses (including
reasonable out-of-pocket legal fees and disbursements), collateral protection
expenses and other reimbursement or indemnity obligations relating thereto)
payable by Company and/or its Subsidiaries under or in connection with any
credit facility to be entered into by the Company and/or its Subsidiaries with
one or more financial institutions (and on terms and conditions) reasonably
satisfactory to the Required Holders (together with any amendments,
restatements, renewals, refundings, refinancings or other extensions thereof);
provided, however, that the aggregate outstanding amount of such Permitted Bank
Debt (taking into account the maximum amounts which may be advanced under the
loan documents evidencing such Permitted Bank Debt) does not as of the date on
which any such Permitted Bank Debt is incurred exceed (i) $20,000,000, with
respect to the unpaid principal balance of loans thereunder (collectively,
"CREDIT LOANS"), and (ii) $0, with respect to all reimbursement and other
payment obligations of the Company in connection with letters of credit issued
for the account of the Company to secure real estate lease obligations with
respect to the manufacturing facility located in Korea and operated by
SpatiaLight Korea, Inc. (collectively, "L/C OBLIGATIONS"), provided, further,
that any such L/C Obligations shall be fully secured by cash pledged to and held
by as the issuers (or confirming issuers) of such letters of credit and no other
assets.

             (r) "PERMITTED INDEBTEDNESS" means (i) Permitted Bank Debt, (ii)
the Argyle Notes, subordinated in accordance the "Argyle Subordination
Agreement" (as defined in the Securities Purchase Agreement), (iii) other
Indebtedness approved by the Required Holders in writing, and (iv) Indebtedness
incurred by the Company that is made expressly subordinate in right of payment
to the Indebtedness evidenced by this Note, as reflected in a written agreement
reasonably acceptable to the Required Holders and approved by the Required
Holders in writing, which such consent may not be unreasonably withheld, and
which Indebtedness does not provide at any time for (A) the payment, prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any principal or
premium, if any, thereon until ninety-one (91) days after the Maturity Date or
later and (B) total interest and fees at a rate in excess of fifteen percent
(15%) per annum.

             (s) "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 GAAP, (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, (iii) any Lien
created by operation of law, such as materialmen's liens, mechanics' liens and

                                      -23-
<PAGE>

other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens on all accounts receivable,
contract rights with respect to products of the Company or its Subsidiaries and
inventory (together, in each case, with all proceeds thereof) of the Company
and/or its Subsidiaries securing their obligations with respect to Credit Loans
under Permitted Bank Debt, provided, that any Liens securing such obligations
shall be limited solely to the accounts receivable, contract rights with respect
to products of the Company or its Subsidiaries and inventory (together, in each
case, with all proceeds thereof) of the Company and/or its Subsidiaries, which
Liens shall be senior to the Liens securing the Notes in accordance with the
terms of a lien subordination agreement to be entered into with the "Collateral
Agent" (under and as defined in the Pledge and Security Agreement) on behalf of
the Holders, and in form and substance reasonably satisfactory to the Collateral
Agent, (v) Liens on cash of the Company securing the Company's L/C Obligations,
provided, that any Liens securing such L/C Obligations shall be limited solely
to cash of the Company in an aggregate amount any time not exceeding the L/C
Obligations, which Liens shall be senior to the Liens securing the Notes, (vi)
Liens securing the Argyle Notes that are junior and subordinated to the Lines
securing the Note in accordance with the "Argyle Subordination Agreement" (as
defined in the Securities Purchase Agreement, (vii) Liens securing the Company's
obligations under the Notes, and (viii) other Liens approved by the Collateral
Agent in writing.

             (t) "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.

             (u) "PRESENT VALUE OF INTEREST" means the amount of any interest
that, but for such conversion or redemption, as applicable, would have accrued
under this Note at the Interest Rate for the period from the conversion or
redemption, as applicable, through the Maturity Date discounted to the present
value of such interest using a discount rate equal to ten percent (10%).

             (v) "PRINCIPAL MARKET" means The NASDAQ SmallCap Market.

             (w) "REDEMPTION PREMIUM" means (i) in the case of the Events of
Default described in Section 4(a)(i) - (vii) and (x) - (xiv), 115% or (ii) in
the case of the Events of Default described in Section 4(a)(viii) - (ix), 100%.

             (x) "REGISTRATION RIGHTS AGREEMENT" means that certain registration
rights agreement dated as of the Subscription Date by and among the Company and
the initial holders of the Notes relating to, among other things, the
registration of the resale of the Common Stock issuable upon conversion of the
Notes.

             (y) "REQUIRED HOLDERS" means the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding.

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

                                      -24-
<PAGE>

             (aa) "SECURITIES PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement dated as of the Subscription Date by and among the Company
and the initial holders of the Notes pursuant to which the Company issued the
Notes.

             (bb) "SUBSCRIPTION DATE" means November 30, 2004.

             (cc) "SUCCESSOR ENTITY" means the Person, which may be the Company,
formed by, resulting from or surviving any Fundamental Transaction or the Person
with which such Fundamental Transaction shall have been made.

             (dd) "TRADING DAY" means any day on which the Common Stock are
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 are then traded; provided that
"Trading Day" shall not include any day on which the Common Stock are scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock are 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 4:00:00 p.m., New York Time).

             (ee) "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 such 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 such
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]

                                      -25-
<PAGE>

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


                                          SPATIALIGHT, INC.


                                          By: /s/ Robert A. Olins
                                             -----------------------------------
                                              Name:  Robert A. Olins
                                              Title: Chief Executive Officer


<PAGE>

                                    EXHIBIT I

                                SPATIALIGHT, INC.
                                CONVERSION NOTICE

Reference is made to the Senior Secured Convertible Note (the "NOTE") issued to
the undersigned by SpatiaLight, Inc. (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 the
Company's Common Stock par value $.01 per share (the "COMMON STOCK"), 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)

<PAGE>

                                 ACKNOWLEDGMENT

        The Company hereby acknowledges this Conversion Notice and hereby
directs American Stock Transfer & Trust Company to issue the above indicated
number of shares of Common Stock in accordance with the Transfer Agent
Instructions dated November __, 2004 from the Company and acknowledged and
agreed to by American Stock Transfer & Trust Company.


                                          SPATIALIGHT, INC.

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




</TEXT>
</DOCUMENT>
