<PAGE>

                                                                     EXHIBIT 4.1

                                  FORM OF NOTE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM

[THE COMPANY MAY PLACE THE FOLLOWING PARAGRAPH ON THE FACE OF EACH NOTE HELD BY
OR TRANSFERRED TO AN "AFFILIATE" (AS DEFINED IN RULE 501(B) OF REGULATION D
UNDER THE SECURITIES ACT) OF THE COMPANY:]

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE HELD BY A PERSON WHO MAY BE
DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144 PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY BE
SOLD ONLY IN COMPLIANCE WITH RULE 144, PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A VALID EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT.

                           CHAMPPS ENTERTAINMENT, INC.

                  5.50% CONVERTIBLE SUBORDINATED NOTES DUE 2007

No.:_______                                                   $_______________
CUSIP No.:_____________

         THIS 5.50% CONVERTIBLE SUBORDINATED NOTE DUE 2007 (this "Note") is one
of a duly authorized issue of Notes of Champps Entertainment, Inc., a
corporation duly organized and existing under the laws of the State of Delaware
(the "Company"), designated as its 5.50% Convertible Subordinated Notes Due
2007, in an aggregate principal amount of up to Fifteen Million United States
Dollars ($15,000,000) (the "Notes"). For value received, the Company hereby
promises to pay to __________________, or registered assigns (the "Holder"), the
principal sum of _______________ United States Dollars ($_________) on December
15, 2007 (the "Maturity Date") and to pay interest (an "Interest Payment") on
the principal sum outstanding from time to time under this Note, at the rate per
annum specified in the title of this Note, accrued from the date of issuance of
this Note and due and payable semi-annually on June 1 and December 1 of each
year (each, an "Interest Payment Date"), commencing June 1, 2003. If an Interest
Payment Date is not a Business Day (as defined below), then the Interest Payment
shall be due and payable on the Business Day immediately following such Interest
Payment Date. Interest Payments will be paid to the Person (as defined below) in
whose name this Note


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<PAGE>

(or one or more predecessor Notes) is registered at the close of business on the
record date (as defined below) for such Interest Payment on the Notes Register
(as defined in Section 6 of this Note). In the event that any Note or portion
thereof is called for redemption and the redemption date is subsequent to a
record date with respect to any Interest Payment Date and prior to such Interest
Payment Date, interest on such Note will be paid upon presentation and surrender
of such Note as provided in Section 2 of this Note. Any accrued and unpaid
interest which is not paid within five (5) Business Days of the Interest Payment
Date on which such payment of interest was due shall bear interest at the rate
of 12% per annum from such Interest Payment Date until the same is paid in full
(or, if less, the maximum interest rate then permitted by applicable law) (the
"Default Interest").

         This Note is one of a series of Notes issued in connection with the
transactions described in that certain Securities Purchase Agreement dated as of
December 12, 2002, by and between the Company and the parties listed on the
Schedule of Buyers attached thereto as Exhibit A (as such agreement may be
amended, supplemented and modified from time to time as provided in such
agreement, the "Securities Purchase Agreement") and certain other related
documents and agreements including, without limitation, the Transaction
Documents (as defined below). The Conversion Shares (as defined below) issued
upon conversion of this Note and the Holder hereof and thereof shall be entitled
to all of the rights and privileges set forth in the Transaction Documents.

SECTION 1. Definitions. Terms not defined herein have the meanings ascribed to
them in the Securities Purchase Agreement. The following terms as used in this
Note shall have the following meanings:

         (a) "Automatic Conversion Date" means the date fixed for Automatic
Conversion pursuant to Section 3(c) of this Note.

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

         (c) "Common Stock" means (i) the common stock, $0.01 par value per
share, of the Company, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.

         (d) "Conversion Price" shall be equal to $10.66, subject to further
adjustment as hereinafter provided.

         (e) "Conversion Shares" means all shares of Common Stock into which
this Note is convertible pursuant to Section 3 of this Note.

         (f) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exchangeable or exercisable
for Common Stock.

         (g) "Maturity Date" means December 15, 2007 or, if such date does not
fall on a Business Day or on a Trading Day, then the next Business Day.


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         (h) "Option" means any rights, warrants or options to subscribe for or
purchase or otherwise acquire Common Stock or Convertible Securities.

         (i) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization or association and a government or any department or agency
thereof.

         (j) "Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for purposes of this definition, any Note authenticated
and delivered under Section 10 of this Note in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note.

         (k) "Principal Market" means The Nasdaq National Market ("NASDAQ") or
if the Common Stock is not traded on NASDAQ then the principal securities
exchange or trading market for the Common Stock.

         (l) "Registration Rights Agreement" means that certain Registration
Rights Agreement, dated as of December 12, 2002, between the Company, U.S.
Bancorp Piper Jaffray Inc. and the initial purchasers of the Notes, as such
agreement may be amended, supplemented and modified from time to time in a
writing signed by all of the signatories thereto.

         (m) "record date" means, with respect to any Interest Payment Date, the
4th day of the month in which an Interest Payment Date shall occur, whether or
not such date is a Business Day.

         (n) "Securities Act " means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

         (o) "Shelf Registration Statement" means the Shelf Registration
Statement contemplated by the Registration Rights Agreement.

         (p) "Trading Day" means (x) a day on which the Principal Market is open
for business or (y) if the applicable security is not so listed on a Principal
Market or admitted for trading or quotation, a Business Day.

         (q) "Transaction Documents" means the Securities Purchase Agreement,
the Registration Rights Agreement, the Notes, the Warrants and each of the other
agreements entered into by the parties hereto and thereto in connection with the
transactions contemplated by the Securities Purchase Agreement.

         (r) "Warrants" means the warrants to purchase shares of Common Stock
issued pursuant to the Securities Purchase Agreement and all warrants issued in
exchange, transfer or replacement thereof.

         (s) "Warrant Shares" means all shares of Common Stock issuable upon
exercise of the Warrants.


                                       3

<PAGE>

SECTION 2. Redemption.

         (a) Redemption Price. From and after December 15, 2005, the Company
may, at its option, redeem all or part of the Notes, upon notice as set forth in
Section 2(b) of this Note, and at a redemption price equal to One Thousand
United States Dollars ($1,000) per One Thousand United States Dollars ($1,000)
principal amount of the Notes to be redeemed, plus accrued and unpaid interest
thereon, if any, to, but excluding, the date of redemption; provided that, to
the extent that the Shelf Registration Statement is required by the terms of the
Registration Rights Agreement to still remain effective as of the Notice Date,
the Shelf Registration Statement is effective and available during the 30 day
period prior to the Notice Date.

         (b) Notice of Redemption. In case the Company shall desire to exercise
such right to redeem all or, as the case may be, a portion of the Notes in
accordance with the right reserved so to do, the Company shall give notice of
such redemption to Holders of the Notes to be redeemed a notice of such
redemption not less than thirty (30) days and not more than ninety (90) days
before the date fixed for redemption to such Holders at their last addresses as
they shall appear upon the Notes Register (the date of such notice, the "Notice
Date"). Such notice shall be irrevocable. Any notice that is mailed in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not the registered holder receives the notice. In any case, failure
to duly give such notice to the Holder of any Notes designated for redemption in
whole or in part, or any defect in such notice, shall not affect the validity of
the proceedings for the redemption of any other Notes. In the case of any
redemption of Notes prior to the expiration of any restriction on such
redemption provided in the terms of this Note, the Company shall provide in such
notice to Holders evidence of compliance with any such restriction.

         Each such notice of redemption shall specify the aggregate principal
amount of Notes to be redeemed, the "CUSIP" number or numbers of such Notes, the
date fixed for redemption, the redemption price at which Notes are to be
redeemed, the place or places of payment, that payment will be made upon
presentation and surrender of such Notes, that interest accrued to, but
excluding, the date fixed for redemption will be paid as specified in said
notice, and that on and after said date interest thereon or on the portion
thereof to be redeemed will cease to accrue. Such notice shall also state the
current Conversion Price and the date on which the right to convert such Notes
or portions thereof into Common Stock will expire. In case this Note is to be
redeemed in part only, the notice of redemption shall state the portion of the
principal amount thereof to be redeemed and shall state that on and after the
date fixed for redemption, upon surrender of this Note, a new Note or Notes in
principal amount equal to the unredeemed portion thereof will be issued.

         On or prior to the redemption date specified in the notice of
redemption given as provided in this Section 2(b), the Company will deposit with
one or more paying agents (or, if the Company is acting as its own paying agent,
set aside, segregate and hold in trust as provided in Section 5 of this Note) an
amount of money sufficient to redeem on the redemption date all the Notes (or
portions thereof) so called for redemption (other than those theretofore
surrendered for conversion into Common Stock) at the appropriate redemption
price, together with accrued interest to, but excluding, the date fixed for
redemption; provided, however, that if such payment is made on the redemption
date it must be received by the paying agent by 1:00 p.m. New York time, on such
date. If this Note when called for redemption is converted pursuant hereto, any


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<PAGE>

money deposited with the paying agent or so segregated and held in trust for the
redemption of the Note shall be paid to the Company upon its request, or, if
then held by the Company, shall be discharged from such trust.

         If less than all the Notes are to be redeemed, the Company shall give
the Holders at least thirty (30) days' notice in advance of the date fixed for
redemption as to the aggregate principal amount of Notes to be redeemed, and the
Notes shall be redeemed pro rata. The Company may, if and whenever it shall so
elect, by delivery of instructions signed on its behalf by any authorized
officer, instruct any paying agent to call all or any part of the Notes for
redemption and to give notice of redemption in the manner set forth in this
Section 2(b), such notice to be in the name of the Company or its own name as
such paying agent may deem advisable. In any case in which notice of redemption
is to be given by any such paying agent, the Company shall deliver or cause to
be delivered to, or permit to remain with, such paying agent, such Note
Register, transfer books or other records, or suitable copies or extracts
therefrom, sufficient to enable the paying agent to give any notice by mail that
may be required under the provisions of this Section 2(b).

         (c) Payment Upon Redemption. If notice of redemption has been given as
above provided, the Notes or portion of Notes with respect to which such notice
has been given shall, unless converted into Common Stock pursuant to the terms
of this Note, become due and payable on the date and at the place or places
stated in such notice at the applicable redemption price and interest accrued
to, but excluding, the date fixed for redemption, and on and after said date
(unless the Company shall default in the payment of such Notes at the redemption
price and interest accrued to, but excluding, said date) interest on the Notes
or portion of Notes so called for redemption shall cease to accrue and such
Notes shall cease after the close of business on the Business Day next preceding
the date fixed for redemption to be convertible into Common Stock and to be
entitled to any benefit or security under this Note, and the holders thereof
shall have no right in respect of such Notes except the right to receive the
redemption price thereof and unpaid interest to, but excluding, the date fixed
for redemption. On presentation and surrender of such Notes at a place of
payment specified in said notice, the said Notes or the specified portions
thereof to be redeemed shall be paid and redeemed by the Company at the
applicable redemption price and interest accrued thereon to, but excluding, the
date fixed for redemption; provided, however, that, if the applicable redemption
date is an Interest Payment Date, the semi-annual payment of interest becoming
due on such date shall be payable to the holders of such Notes registered as
such on the relevant record date.

         Upon presentation of any Note redeemed in part only, the Company shall
execute and deliver to the Holder, at its own expense, a new Note or Notes, of
authorized denominations, in principal amount equal to the unredeemed portion of
the Notes so presented.

         If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and premium, if any, shall, until paid or
duly provided for, bear interest from the date fixed for redemption at the rate
borne by the Note and such Note shall remain convertible into Common Stock until
the principal and premium, if any, shall have been paid or duly provided for.


                                       5

<PAGE>

SECTION 3. Conversion of Note.

         (a) Right to Convert. Subject to and upon compliance with the
provisions of this Note, the Holder of any Note shall have the right, at his
option, at any time following the date of original issuance of the Notes and
prior to the close of business on December 15, 2007 (except that, with respect
to any Note or portion of a Note that shall be called for redemption, such right
to convert shall terminate at the close of business on the Business Day next
preceding the date fixed for redemption of such Note or portion of a Note unless
the Company shall default in payment due upon redemption thereof), to convert
the principal amount of any such Note, or any portion of such principal amount
which is One Thousand United States Dollars ($1,000) or an integral multiple
thereof, into that number of fully paid and non-assessable shares of Common
Stock (as such shares shall then be constituted) obtained by dividing the
principal amount of the Note or portion thereof surrendered for conversion by
the Conversion Price in effect at such time, by surrender of the Note so to be
converted in whole or in part in the manner provided in Section 2(b) of this
Note. A Note with respect to which a Holder has delivered a notice in accordance
with Section 8(b) of this Note regarding such Holder's election to require the
Company to repurchase such Holder's Notes following the occurrence of a
Repurchase Event (as defined in Section 8(c) may be converted in accordance with
this Section 3 only if such Holder withdraws such notice by delivering a written
notice of withdrawal to the Company prior to the close of business on the last
Business Day prior to the day fixed for repurchase.

         Subject to Section 9, if a holder of this Note exercises the right of
conversion set forth in this Section 3(a) prior to December 15, 2003, the
Company shall make an additional payment in cash to such Holder with respect to
the portion of this Note converted, in an amount (a "Holder Conversion
Provisional Payment") equal to $55.00 per each One Thousand United States
Dollars ($1,000) principal amount of the portion of the Note converted, less the
amount of any interest actually paid on this Note prior to the Conversion Date
(and, if this Note is converted between a record date and the next payment date,
less interest payable on each One Thousand United States Dollars ($1,000)
principal amount of the portion of this Note being converted on such next
interest payment date).

         (b) Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion. In order to exercise the conversion privilege with respect to any
Note in definitive form, the Holder of any such Note to be converted in whole or
in part shall (i) surrender such Note, duly endorsed, at the Company's principal
executive offices (or such other office or agency of the Company as it may
designate in writing to the Holder hereof), accompanied by the funds, if any,
required by the last paragraph of this Section 3(b), (ii) shall transmit via
facsimile (or otherwise physically deliver) a copy of a properly completed
Conversion Notice in the form attached hereto as Exhibit A (the "Conversion
Notice") (iii) shall provide copies of the Conversion Notice via facsimile to
the Company's transfer agent, American Stock Transfer and Trust Company, 6201
15th Ave., Brooklyn, NY 11219, 718-921-8223, attention Kevin Jennings and the
Company's legal counsel, Jeffrey Knetsch, Brownstein Hyatt & Farber, P.C., 410
17th Street, Denver, Colorado 80202, 303-223-1100, and (iv) shall provide such
additional documentation or certification as the Company may reasonably request
to the office or agency specified in the Conversion Notice that the Holder
elects to convert this Note or such portion thereof. The Conversion Notice shall
also state the name or names (with address) in which the shares of Common Stock
which shall be issuable on such conversion shall be issued, and shall be
accompanied by transfer taxes, if


                                       6

<PAGE>

required pursuant to Section 4 of this Note. Each such Note surrendered for
conversion shall, unless the shares issuable on conversion are to be issued in
the same name as the registration of such Note, be duly endorsed by, or be
accompanied by instruments of transfer (including a broker's letter regarding
compliance with the prospectus delivery requirement, if applicable) in form
satisfactory to the Company duly executed by the Holder or his duly authorized
attorney.

         The Company shall use its best efforts to, within three (3) Business
Days after the Conversion Date (as defined below) with respect to any Note,
subject to compliance with any restrictions on transfer if shares issuable on
conversion are to be issued in a name other than that of the Holder (as if such
transfer were a transfer of the Note or Notes (or portion thereof) so
converted), cause its transfer agent to issue and deliver to such Holder at the
address specified in the Conversion Notice (a) a Certificate, registered in the
name of the Holder or its designee, for the number of full shares of Common
Stock issuable upon the conversion of such Note or portion thereof in accordance
with the provisions of this Section 3, or, at the holder's request, 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 The Depository Trust
Company ("DTC") through its Deposit Withdrawal Agent Commission system and (b) a
check or cash in respect of (i) any fractional interest in respect of a share of
Common Stock arising upon such conversion, as provided in Section 3(d) and (ii)
the Holder Conversion Provisional Payment, if any (which payments, if any, shall
be paid no later than five (5) Business Days after the Conversion Date). In case
any Note of a denomination greater than One Thousand United States Dollars
($1,000) shall be surrendered for partial conversion, the Company shall execute
and deliver to the Holder of the Note so surrendered, without charge to him, a
new Note or Notes in authorized denominations in an aggregate principal amount
equal to the unconverted portion of the surrendered Note.

         Subject to Section 9, if the Company shall not have (i) delivered the
number of shares of Common Stock issued upon conversion of Notes by any Holder
within five (5) Business Days after the Conversion Date with respect to such
Notes, or (ii) made any Holder Conversion Provisional Payment required pursuant
to this Section 3, within five (5) Business Days after the Conversion Date with
respect to such Notes, the Company shall pay liquidated damages to such Holder
in the amount of one-half percent (0.5%) per month of the outstanding principal
amount of Notes so converted by such Holder.

         The conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements set forth above
in this Section 3(b) have been satisfied as to such Note (or portion thereof)
(such date, the "Conversion Date"), and the person in whose name any shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become on the Conversion Date the Holder of record of the shares represented
thereby; provided, however, that any such surrender on any date when the stock
transfer books of the Company shall be closed shall constitute the person in
whose name the certificates are to be issued as the record holder thereof for
all purposes on the next succeeding day on which such stock transfer books are
open, but such conversion shall be at the Conversion Price in effect on the date
upon which such Note shall be surrendered. For purposes of determining
satisfaction of the requirement set forth above with respect to the Conversion
Date for any Note, any facsimile required to be sent shall be deemed to have
been sent on a given day if such facsimile was sent before 1:00 p.m., New York
time, on such date, to the number listed above and a confirmation of


                                       7

<PAGE>

transmission of such facsimile is obtained.

         The Company shall pay in cash, on any Note or portion thereof
surrendered for conversion during the period from the close of business on any
Interest Payment Date to which interest has been fully paid through the close of
business on the Business Day preceding the record date for the next such
Interest Payment Date, accrued and unpaid interest, if any, to, but excluding,
the date of conversion and liquidated damages, if any. Subject to Section 9, any
such payment of interest shall be made with respect to such Note within ten (10)
Business Days after the Conversion Date. Notwithstanding the foregoing, any Note
or portion thereof surrendered for conversion during the period from the close
of business on the record date for any Interest Payment Date to which interest
has been fully paid through the close of business on the Business Day next
preceding such Interest Payment Date shall (unless such Note or portion thereof
being converted shall have been called for redemption pursuant to a redemption
notice mailed to the Holders in accordance with Section 2(b) of this Note or
shall have become due prior to such Interest Payment Date as a result of a
Repurchase Event) be accompanied by payment, in immediately available funds or
other funds acceptable to the Company, of an amount equal to the interest
otherwise payable on such Interest Payment Date on the principal amount being
converted; provided, however, that no such payment need be made if there shall
exist at the time of conversion a default in the payment of interest on the
Notes. Except as provided in this Section 3(b), no adjustment shall be made for
interest accrued on any Note converted or for dividends on any shares issued
upon the conversion of such Note as provided in this Section 3.

         (c) Company Right to Force Automatic Conversion.

                  (1) The Company may, at its option, automatically convert all
         or a portion of the Notes (an "Automatic Conversion") at any time prior
         to December 15, 2004 if the Closing Sale Price (as defined in Section
         3(e)(6) of this Note) per share of the Common Stock has exceeded 150%
         of the Conversion Price then in effect for at least fifteen (15)
         Trading Days within a period of twenty (20) consecutive Trading Days
         ending five (5) Trading Days prior to the Automatic Conversion Date,
         provided that a registration statement covering the resale of the
         Conversion Shares is effective and available from the date of the
         Automatic Conversion Notice (as defined below) through and including
         the Automatic Conversion Date to the extent required under the
         Registration Rights Agreement. Subject to Section 9, if the Company
         exercises this right of conversion prior to December 15, 2004, the
         Company shall make an additional payment in cash to each Holder of
         Notes with respect to the Notes converted, in an amount equal to
         $110.00 per each One Thousand United States Dollars ($1,000) principal
         amount of this Note (the "Company Conversion Provisional Payment"),
         less the amount of any interest actually paid on this Note prior to the
         Conversion Date (and, if this Note is converted between a record date
         and the next interest payment date, less interest payable on each One
         Thousand United States Dollars ($1,000) principal amount of this Note
         on such next interest payment date).

                  (2) Unless the Company shall have theretofore called for
         redemption all of the Notes then outstanding, the Company shall give to
         all Holders of Notes a notice (the "Automatic Conversion Notice") of
         the Automatic Conversion not more than thirty (30) days but not less
         than five (5) days before the Automatic Conversion Date to such Holders
         at their last addresses as they shall appear upon the Notes Register.
         Such notice shall be irrevocable. Any notice that is mailed in the
         manner herein provided shall be conclusively presumed to have been duly
         given,


                                       8

<PAGE>

         whether or not the registered Holder receives the notice. In any case,
         failure to duly give such notice to the Holder of any Notes designated
         for redemption in whole or in part, or any defect in the notice, shall
         not affect the validity of the proceedings for the automatic conversion
         of any other Notes.

                  Each Automatic Conversion Notice shall state:

                           (A) the Automatic Conversion Date,

                           (B) the CUSIP number(s) of the Note(s) to be
                  automatically converted,

                           (C) the place or places where such Notes are to be
                  surrendered for conversion, and

                           (D) the Conversion Price then in effect.

                  If any of the foregoing provisions or other provisions of this
         Section are inconsistent with applicable law, such law shall govern.

                  (3) In the event of an Automatic Conversion, the Company shall
         issue and deliver a certificate or certificates for the number of full
         shares of Common Stock issuable upon conversion of the Notes or, at the
         holder's request, credit such aggregate number of shares of Common
         Stock to which the holder shall be entitled to the holder's balance
         account with DTC through its Deposit Withdrawal Agent Commission
         system, along with (i) any cash in respect of any fractional shares of
         Common Stock otherwise issuable upon conversion (as provided in Section
         3(d) of this Note), and the Company Conversion Provisional Payment, if
         any, for payment to the Holder as promptly after the Automatic
         Conversion Date as practicable in accordance with the provisions of
         this Section 3.

                  (4) All Notes subject to the Automatic Conversion shall be
         delivered to the Company to be canceled. Failure to deliver such Notes
         shall not affect their automatic cancellation.

         (d) Cash Payments in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon
conversion of Notes. If more than one Note shall be surrendered for conversion
at one time by the same Holder, the number of full shares which shall be
issuable upon conversion thereof shall be computed on the basis of the aggregate
principal amount of the Notes (or specified portions thereof to the extent
permitted hereby) so surrendered for conversion. If any fractional share of
stock otherwise would be issuable upon the conversion of any Note or Notes, the
Company shall calculate and pay a cash adjustment in lieu of such fractional
share at the current market value thereof to the Holder of Notes. For the
purposes of this Section 3(d), the current market value of a share of Common
Stock shall be the Closing Sale Price (determined as provided in Section 3(e)(6)
of this Note) on the first Trading Day immediately preceding the day on which
the Notes (or specified portions thereof) are deemed to have been converted;
provided, however, that if the Common Stock is not listed on a Principal Market
or quoted, then the Closing Sale Price shall be determined in good faith by the
Company's Board of Directors.


                                       9

<PAGE>

         (e) Adjustment of Conversion Price. The Conversion Price shall be
adjusted from time to time by the Company as follows:

                  (1) In case the Company shall hereafter pay a dividend or make
         a distribution to all holders of the outstanding Common Stock in shares
         of Common Stock, the Conversion Price in effect at the opening of
         business on the date following the date fixed for the determination of
         stockholders entitled to receive such dividend or other distribution
         shall be reduced by multiplying such Conversion Price by a fraction of
         which (i) the numerator shall be the number of shares of Common Stock
         outstanding at the close of business on the Record Date (as defined in
         Section 3(e)(6) of this Note) fixed for such determination and (ii) the
         denominator shall be the sum of such number of shares and the total
         number of shares constituting such dividend or other distribution, such
         reduction in the Conversion Price to become effective immediately after
         the opening of business on the day following the Record Date. If any
         dividend or distribution of the type described in this Section 3(e)(1)
         is declared but not so paid or made, the Conversion Price shall again
         be adjusted to the Conversion Price which would then be in effect if
         such dividend or distribution had not been declared.

                  (2) In case the outstanding shares of Common Stock shall be
         subdivided into a greater number of shares of Common Stock, the
         Conversion Price in effect at the opening of business on the day
         following the day upon which such subdivision becomes effective shall
         be proportionately reduced, and conversely, in case outstanding shares
         of Common Stock shall be combined into a smaller number of shares of
         Common Stock, the Conversion Price in effect at the opening of business
         on the day following the day upon which such combination becomes
         effective shall be proportionately increased, such reduction or
         increase, as the case may be, to become effective immediately after the
         opening of business on the day following the day upon which such
         subdivision or combination becomes effective.

                  (3) In case the Company shall issue rights or warrants to all
         holders of its outstanding shares of Common Stock entitling them to
         subscribe for or purchase shares of Common Stock at a price per share
         less than the Current Market Price (as defined in Section 3(e)(6) of
         this Note) on the Record Date fixed for the determination of
         stockholders entitled to receive such rights or warrants, the
         Conversion Price shall be adjusted so that the same shall equal the
         price determined by multiplying the Conversion Price in effect at the
         opening of business on the date after such Record Date by a fraction of
         which (i) the numerator shall be the sum of the number of shares of
         Common Stock outstanding at the close of business on the Record Date
         plus the number of shares that the aggregate offering price of the
         total number of shares so offered for subscription or purchase would
         purchase at such Current Market Price, and of which (ii) the
         denominator shall be the sum of the number of shares of Common Stock
         outstanding at the close of business on the Record Date plus the total
         number of additional shares of Common Stock so offered for subscription
         or purchase. Such adjustment shall become effective immediately after
         the opening of business on the day following the Record Date fixed for
         determination of stockholders entitled to receive such rights or
         warrants. To the extent that shares of Common Stock are not delivered
         pursuant to such rights or warrants, upon the expiration or termination
         of such rights or warrants the Conversion Price shall be readjusted to
         the Conversion Price that would then be in effect had the adjustments
         made upon the issuance of such rights or warrants been made on the
         basis of delivery of only the number of shares of Common Stock actually
         delivered. In the event that such rights or warrants are not so issued,
         the


                                       10

<PAGE>

         Conversion Price shall again be adjusted to be the Conversion Price
         that would then be in effect if such date fixed for the determination
         of stockholders entitled to receive such rights or warrants had not
         been fixed. In determining whether any rights or warrants entitle the
         holders to subscribe for or purchase shares of Common Stock at less
         than such Current Market Price, and in determining the aggregate
         offering price of such shares of Common Stock, there shall be taken
         into account any consideration received for such rights or warrants,
         the value of such consideration, if other than cash, to be determined
         in good faith by the Company's Board of Directors.

                  (4) In case the Company shall, by dividend or otherwise,
         distribute to all holders of its Common Stock shares of any class of
         capital stock of the Company (other than any dividends or distributions
         to which Section 3(e)(1) of this Note applies) or evidences of its
         indebtedness or other assets (including securities, but excluding (1)
         any rights or warrants referred to in Section 3(e)(3) of this Note and
         (2) dividends and distributions paid exclusively in cash (except as set
         forth in Section 3(e)(5) of this Note (the foregoing hereinafter in
         this Section 3(e)(4) called the "Additional Securities")), unless the
         Company elects to reserve such Additional Securities for distribution
         to the Holders upon conversion of the Notes so that any such Holder
         converting Notes will receive upon such conversion, in addition to the
         shares of Common Stock to which such Holder is entitled, the amount and
         kind of such Additional Securities which such Holder would have
         received if such Holder had converted its Notes into Common Stock
         immediately prior to the Record Date for such distribution of the Notes
         then, in each such case, the Conversion Price shall be reduced so that
         the same shall be equal to the price determined by multiplying the
         Conversion Price in effect immediately prior to the close of business
         on the Record Date with respect to such distribution by a fraction of
         which (i) the numerator shall be the Current Market Price on such date
         less the fair market value (as determined in good faith by the
         Company's Board of Directors, whose determination shall be conclusive)
         on such date of the portion of the Additional Securities so distributed
         applicable to one share of Common Stock and (ii) the denominator shall
         be such Current Market Price, such reduction to become effective
         immediately prior to the opening of business on the day following the
         Record Date; provided, however, that in the event the then fair market
         value (as so determined) of the portion of the Additional Securities so
         distributed applicable to one share of Common Stock is equal to or
         greater than the Current Market Price on the Record Date, in lieu of
         the foregoing adjustment, adequate provision shall be made so that each
         Holder shall have the right to receive upon conversion of a Note (or
         any portion thereof) the amount of Common Stock such Holder would have
         received had such Holder converted such Note (or portion thereof)
         immediately prior to such Record Date. In the event that such dividend
         or distribution is not so paid or made, the Conversion Price shall
         again be adjusted to be the Conversion Price which would then be in
         effect if such dividend or distribution had not been declared. If the
         Company's Board of Directors determines the fair market value of any
         distribution for purposes of this Section 3(e)(4) by reference to the
         actual or when issued trading market for any securities comprising all
         or part of such distribution, it must in doing so consider the prices
         in such market over the same period (the "Reference Period") used in
         computing the Current Market Price pursuant to Section 3(e)(6) of this
         Note to the extent possible, unless the Company's Board of Directors
         determines in good faith that to do so would not be in the best
         interest of the Holder.

                  In the event that the Company implements a new stockholder
         rights plan, such rights plan shall provide that, upon conversion of
         the Notes, the Holders will receive, in addition


                                       11

<PAGE>

         to the Common Stock issuable upon such conversion, the rights issued
         under such rights plan (as if the Holder had converted the Notes prior
         to implementing the rights plan and notwithstanding the occurrence of
         an event causing such rights to separate from the Common Stock at or
         prior to the time of conversion). Any distribution of rights or
         warrants pursuant to a stockholder rights plan complying with the
         requirements set forth in the immediately preceding sentence of this
         paragraph shall not constitute a distribution of rights or warrants for
         the purposes of this Section 3(e)(4).

                  Rights or warrants distributed by the Company to all holders
         of Common Stock entitling the holders thereof to subscribe for or
         purchase shares of the Company's capital stock (either initially or
         under certain circumstances), which rights or warrants, until the
         occurrence of a specified event or events ("Trigger Event"): (i) are
         deemed to be transferred with such shares of Common Stock; (ii) are not
         exercisable; and (iii) are also issued in respect of future issuances
         of Common Stock, shall be deemed not to have been distributed for
         purposes of this Section 3(e)(4) (and no adjustment to the Conversion
         Price under this Section 3(e)(4) will be required) until the occurrence
         of the earliest Trigger Event. If such right or warrant is subject to
         subsequent events, upon the occurrence of which such right or warrant
         shall become exercisable to purchase different securities, evidences of
         indebtedness or other assets or entitles the holder to purchase a
         different number or amount of the foregoing or to purchase any of the
         foregoing at a different purchase price, then the occurrence of each
         such event shall be deemed to be the date of issuance and record date
         with respect to a new right or warrant (and a termination or expiration
         of the existing right or warrant without exercise by the holder
         thereof). In addition, in the event of any distribution (or deemed
         distribution) of rights or warrants, or any Trigger Event or other
         event (of the type described in the preceding sentence) with respect
         thereto, that resulted in an adjustment to the Conversion Price under
         this Section 3(e)(4), (1) in the case of any such rights or warrants
         that shall all have been redeemed or repurchased without exercise by
         any holders thereof, the Conversion Price shall be readjusted upon such
         final redemption or repurchase to give effect to such distribution or
         Trigger Event, as the case may be, as though it were a cash
         distribution, equal to the per share redemption or repurchase price
         received by a holder of Common Stock with respect to such rights or
         warrants (assuming such holder had retained such rights or warrants),
         made to all holders of Common Stock as of the date of such redemption
         or repurchase, and (2) in the case of such rights or warrants all of
         which shall have expired or been terminated without exercise, the
         Conversion Price shall be readjusted as if such rights and warrants had
         never been issued.

                  For purposes of this Section 3(e)(4) and Sections 3(e)(1) and
         (3) of this Note, any dividend or distribution to which this Section
         3(e)(4) is applicable that also includes shares of Common Stock, or
         rights or warrants to subscribe for or purchase shares of Common Stock
         to which Sections 3(e)(1) or 3(e)(3) of this Note applies (or both),
         shall be deemed instead to be (1) a dividend or distribution of the
         evidences of indebtedness, assets, shares of capital stock, rights or
         warrants other than such shares of Common Stock or rights or warrants
         to which Section 3(e)(3) of this Note applies (and any Conversion Price
         reduction required by this Section 3(e)(4) with respect to such
         dividend or distribution shall then be made) immediately followed by
         (2) a dividend or distribution of such shares of Common Stock or such
         rights or warrants (and any further Conversion Price reduction required
         by Sections 3(e)(1) and (3) of this Note with respect to such dividend
         or distribution shall then be made, except (A) the Record Date of such
         dividend or distribution shall be substituted as "the date fixed for
         the determination of stockholders


                                       12

<PAGE>

         entitled to receive such dividend or other distribution," "Record Date
         fixed for such determination" and "Record Date" within the meaning of
         Section 3(e)(1) of this Note and as "the date fixed for the
         determination of stockholders entitled to receive such rights or
         warrants," "the Record Date fixed for the determination of the
         stockholders entitled to receive such rights or warrants" and "such
         Record Date" within the meaning of Section 3(e)(3) of this Note and (B)
         any shares of Common Stock included in such dividend or distribution
         shall not be deemed "outstanding at the close of business on the date
         fixed for such determination" within the meaning of Section 3(e)(1) of
         this Note.

                  (5) In case the Company shall, by dividend or otherwise,
         distribute to all holders of its Common Stock cash (excluding any cash
         that is distributed upon a merger or consolidation to which Section
         3(f) of this Note applies or as part of a distribution referred to in
         Section 3(e)(4) of this Note), in an aggregate amount that, combined
         together with the aggregate amount of any other such distributions to
         all holders of its Common Stock made in cash within the twelve (12)
         months preceding the date of payment of such distribution, and in
         respect of which no adjustment pursuant to this Section 3(e)(5) has
         been made, exceeds five percent (5%) of the product of the Current
         Market Price on the Record Date with respect to such distribution times
         the number of shares of Common Stock outstanding on such date, then,
         and in each such case, immediately after the close of business on such
         date, the Conversion Price shall be reduced so that the same shall
         equal the price determined by multiplying the Conversion Price in
         effect immediately prior to the close of business on such Record Date
         by a fraction (i) the numerator of which shall be equal to the Current
         Market Price on the Record Date less an amount equal to the quotient of
         (x) such combined amount and (y) the number of shares of Common Stock
         outstanding on the Record Date and (ii) the denominator of which shall
         be equal to the Current Market Price on such date; provided, however,
         that in the event the portion of the cash so distributed applicable to
         one (1) share of Common Stock is equal to or greater than the Current
         Market Price of the Common Stock on the Record Date, in lieu of the
         foregoing adjustment, adequate provision shall be made so that each
         Holder shall have the right to receive upon conversion of a Note (or
         any portion thereof) the amount of cash such Holder would have received
         had such Holder converted such Note (or portion thereof) immediately
         prior to such Record Date. In the event that such dividend or
         distribution is not so paid or made, the Conversion Price shall again
         be adjusted to be the Conversion Price that would then be in effect if
         such dividend or distribution had not been declared.

                  (6) For purposes of this Section 3(e), the following terms
         shall have the meaning indicated:

                           (A) "Closing Sale Price" with respect to any
                  securities on any day shall mean the closing sale price
                  regular way on such day or, in case no such sale takes place
                  on such day, the average of the reported closing bid and asked
                  prices, regular way, in each case on the Nasdaq National
                  Market or New York Stock Exchange, as applicable, or, if such
                  security is not listed or admitted to trading on such National
                  Market or Exchange, on the principal national security
                  exchange or quotation system on which such security is quoted
                  or listed or admitted to trading, or, if not quoted or listed
                  or admitted to trading on any national securities exchange or
                  quotation system, the average of the closing bid and asked
                  prices of such security on the over-the-counter market on the
                  day in question as reported by the National Quotation Bureau
                  Incorporated, or a similar generally accepted reporting
                  service, or if not so available, in such


                                       13

<PAGE>

                  manner as furnished by any New York Stock Exchange member firm
                  selected from time to time by the Board of Directors for that
                  purpose, whose determination shall be conclusive.

                           (B) "Current Market Price" shall mean the average of
                  the daily Closing Sale Prices per share of Common Stock for
                  the ten (10) consecutive Trading Days immediately prior to the
                  date in question; provided, however, that (1) if the "ex" date
                  (as hereinafter defined) for any event (other than the
                  issuance or distribution requiring such computation) that
                  requires an adjustment to the Conversion Price pursuant to
                  Section 3(e)(1), (2), (3), (4) or (5) of this Note occurs
                  during such ten (10) consecutive Trading Days, the Closing
                  Sale Price for each Trading Day prior to the "ex" date for
                  such other event shall be adjusted by multiplying such Closing
                  Sale Price by the same fraction by which the Conversion Price
                  is so required to be adjusted as a result of such other event,
                  (2) if the "ex" date for any event (other than the issuance or
                  distribution requiring such computation) that requires an
                  adjustment to the Conversion Price pursuant to Section
                  3(e)(1), (2), (3), (4) or (5) of this Note occurs on or after
                  the "ex" date for the issuance or distribution requiring such
                  computation and prior to the day in question, the Closing Sale
                  Price for each Trading Day on and after the "ex" date for such
                  other event shall be adjusted by multiplying such Closing Sale
                  Price by the reciprocal of the fraction by which the
                  Conversion Price is so required to be adjusted as a result of
                  such other event, and (3) if the "ex" date for the issuance or
                  distribution requiring such computation is prior to the day in
                  question, after taking into account any adjustment required
                  pursuant to clause (1) or (2) of this proviso, the Closing
                  Sale Price for each Trading Day on or after such "ex" date
                  shall be adjusted by adding thereto the amount of any cash and
                  the fair market value (as determined in good faith by the
                  Company's Board of Directors in a manner consistent with any
                  determination of such value for purposes of Section 3(e)(4) of
                  this Note, whose determination shall be conclusive) of the
                  evidences of indebtedness, shares of capital stock or assets
                  being distributed applicable to one share of Common Stock as
                  of the close of business on the day before such "ex" date. For
                  purposes of this paragraph, the term "ex" date, (1) when used
                  with respect to any issuance or distribution, means the first
                  date on which the Common Stock trades regular way on the
                  relevant exchange or in the relevant market from which the
                  Closing Price was obtained without the right to receive such
                  issuance or distribution and (2) when used with respect to any
                  subdivision or combination of shares of Common Stock, means
                  the first date on which the Common Stock trades regular way on
                  such exchange or in such market after the time at which such
                  subdivision or combination becomes effective. Notwithstanding
                  the foregoing, whenever successive adjustments to the
                  Conversion Price are called for pursuant to this Section 3(e),
                  such adjustments shall be made to the Current Market Price as
                  may be necessary or appropriate to effectuate the intent of
                  this Section 3(e) and to avoid unjust or inequitable results
                  as determined in good faith by the Board of Directors.

                           (C) "Fair market value" shall mean the amount which a
                  willing buyer would pay a willing seller in an arm's length
                  transaction.

                           (D) "Record Date" shall mean, with respect to any
                  dividend, distribution or other transaction or event in which
                  the holders of Common Stock have the right to receive any
                  cash, securities or other property or in which the Common
                  Stock (or other applicable security) is exchanged for or
                  converted into any combination of cash, securities or other
                  property, the date fixed for determination of stockholders
                  entitled to receive such cash, securities


                                       14

<PAGE>

                  or other property (whether such date is fixed by the Board of
                  Directors or by statute, contract or otherwise).

                  (7) The Company may make such reductions in the Conversion
         Price, in addition to those required by Sections 3(e)(1), (2), (3), (4)
         or (5) of this Note, as the Board of Directors considers to be
         advisable to avoid or diminish any income tax to holders of Common
         Stock or rights to purchase Common Stock resulting from any dividend or
         distribution of stock (or rights to acquire stock) or from any event
         treated as such for income tax purposes.

                  (8) To the extent permitted by applicable law, the Company
         from time to time may reduce the Conversion Price by any amount for any
         period of time if the period is at least twenty (20) days, the
         reduction is irrevocable during the period and the Board of Directors
         shall have made a determination that such reduction would be in the
         best interests of the Company, which determination shall be conclusive
         and described in a Board Resolution. Whenever the Conversion Price is
         reduced pursuant to the preceding sentence, the Company shall mail to
         the Holder of each Note at his last address appearing on the Note
         Register a notice of the reduction at least five (5) days prior to the
         date the reduced Conversion Price takes effect, and such notice shall
         state the reduced Conversion Price and the period during which it will
         be in effect.

                  (9) No adjustment in the Conversion Price shall be required
         under this Section 3(e) unless such adjustment would require an
         increase or decrease of at least one percent (1%) in such price;
         provided, however, that any adjustments which by reason of this Section
         3(e)(9) are not required to be made shall be carried forward and taken
         into account in any subsequent adjustment. All calculations under this
         Section 3 shall be made by the Company and shall be made to the nearest
         cent or to the nearest one hundredth of a share, as the case may be. No
         adjustment need be made for a change in the par value or no par value
         of the Common Stock.

                  (10) Subject to Section 3(e)(8), whenever the Conversion Price
         is adjusted as provided in this Section 3(e), the Company shall
         promptly prepare a notice of such adjustment of the Conversion Price
         setting forth the adjusted Conversion Price and the date on which each
         adjustment becomes effective and shall mail such notice of such
         adjustment of the Conversion Price to the Holder of each Note at his
         last address appearing on the Note Register, within twenty (20) days of
         the effective date of such adjustment. Failure to deliver such notice
         shall not effect the legality or validity of any such adjustment.

                  (11) In any case in which this Section 3(e) provides that an
         adjustment shall become effective immediately after a Record Date for
         an event, the Company may defer until the occurrence of such event (i)
         issuing to the Holder of any Note converted after such Record Date and
         before the occurrence of such event the additional shares of Common
         Stock issuable upon such conversion by reason of the adjustment
         required by such event over and above the Common Stock issuable upon
         such conversion before giving effect to such adjustment and (ii) paying
         to such Holder any amount in cash in lieu of any fraction pursuant to
         Section 3(d) of this Note.

                  (12) For purposes of this Section 3(e), the number of shares
         of Common Stock at any time outstanding shall not include shares held
         in the treasury of the Company but shall include shares issuable in
         respect of scrip certificates issued in lieu of fractions of shares of


                                       15

<PAGE>

         Common Stock. The Company will not pay any dividend or make any
         distribution on shares of Common Stock held in the treasury of the
         Company.

         (f) Effect of Reclassification, Consolidation, Merger or Sale. Subject
to the provisions of Section 8, if any of the following events occur, namely (i)
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii) any
consolidation, merger or combination of the Company with another person as a
result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock (other than as a result of a change in name, a
change in par value or a change in the jurisdiction of incorporation), (iii) any
statutory exchange as a result of which holders of Common Stock generally shall
be entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for such Common Stock (such transaction, a
"Statutory Exchange"), or (iv) any sale or conveyance of the properties and
assets of the Company as, or substantially as, an entirety to any other person
as a result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, then the Company or the successor or purchasing
person, as the case may be, shall execute and deliver to the Holder a successor
Note providing that such Note shall be convertible into the kind and amount of
shares of stock and other securities or property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger,
combination, Statutory Exchange, sale or conveyance by a holder of a number of
shares of Common Stock issuable upon conversion of such Notes (assuming, for
such purposes, a sufficient number of authorized shares of Common Stock
available to convert all such Notes) immediately prior to such reclassification,
change, consolidation, merger, combination, Statutory Exchange, sale or
conveyance assuming such holder of Common Stock did not exercise his rights of
election, if any, that holders of Common Stock who were entitled to vote or
consent to such transaction had as to the kind or amount of securities, cash or
other property receivable upon such consolidation, merger, combination,
Statutory Exchange, sale or conveyance (provided that, if the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
combination, Statutory Exchange, sale or conveyance is not the same for each
share of Common Stock in respect of which such rights of election shall not have
been exercised ("non-electing share"), then for the purposes of this Section
3(f) the kind and amount of securities, cash or other property receivable upon
such consolidation, merger, combination, Statutory Exchange, sale or conveyance
for each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). Such successor
Note shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 3. If, in the case
of any such reclassification, change, consolidation, merger, combination,
Statutory Exchange, sale or conveyance, the stock or other securities and assets
receivable thereupon by a holder of shares of Common Stock include shares of
stock or other securities and assets of a person other than the successor or
purchasing person, as the case may be, in such reclassification, change,
consolidation, merger, combination, Statutory Exchange, sale or conveyance, then
such successor Note shall also be executed by such other person and shall
contain such additional provisions to protect the interests of the Holders of
the Notes as the Company's Board of Directors shall reasonably consider
necessary by reason of the foregoing, including to the extent practicable the
provisions providing for the repurchase rights set forth in Section 8 of this
Note.


                                       16

<PAGE>

         The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.

         If this Section 3(f) applies to any event or occurrence, Section 3(e)
of this Note shall not apply.

         (g) Reservation of Shares; Shares to be Fully Paid; Listing of Common
Stock. The Company shall provide, free from preemptive rights, out of its
authorized but unissued shares or shares held in treasury, reserved for the
purpose of issuance, no less than one hundred five percent (105%) of the number
of shares of Common Stock needed to provide for the issuance of the Conversion
Shares upon conversion of all of the Notes without regard to any limitations on
conversion.

         The Company will not, by amendment of its certificate of incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder. Without limiting the generality of the
foregoing, the Company (i) will not increase the par value of any shares of
Common Stock issuable upon conversion of this Note above the Conversion Price
then in effect, (ii) will take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares of Common Stock upon conversion of this Note and (iii)
will not take any action which results in any adjustment of the Conversion Price
if the total number of shares of Common Stock issuable after the conversion of
all of the Notes and exercise of all of the Warrants would exceed the total
number of shares of Common Stock then authorized by the Company's certificate of
incorporation and available for the purpose of issue upon such exercise.

          The Company covenants that all shares of Common Stock issuable upon
conversion of the Notes will be fully paid and non-assessable by the Company and
free from all taxes, liens and charges with respect to the issue thereof.

          The Company is obligated to register the shares of Common Stock
issuable upon conversion of the Notes for resale under the Securities Act
pursuant to the Registration Rights Agreement. The shares of Common Stock
issuable upon conversion of the Notes shall constitute Registrable Securities
(as such term is defined in the Registration Rights Agreement). Each Holder of
Notes shall be entitled to all of the benefits afforded to a Holder of any such
Registrable Securities under the Registration Rights Agreement and such Holder,
by its acceptance of this Note, agrees and shall agree to be bound by and to
comply with the terms and conditions of the Registration Rights Agreement
applicable to such Holder as a Holder of such Registrable Securities.

          The Company shall use commercially reasonable efforts to promptly
secure the listing of the shares of Common Stock issuable upon exercise of this
Note upon each national securities exchange and automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance upon exercise of this Note) and shall use commercially
reasonable efforts to maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the


                                       17

<PAGE>

exercise of this Note; and the Company shall use commercially reasonable efforts
to list on the Principal Market or automated quotation system, as the case may
be, and shall maintain such listing of, any other shares of capital stock of the
Company issuable upon conversion of the Notes if and so long as any shares of
the same class shall be listed on such Principal Market or automated quotation
system. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 3(g).

         (h) Notice to Holders Prior to Certain Actions. In case:

                  (1) the Company shall declare a dividend (or any other
         distribution) on its Common Stock; or

                  (2) the Company shall authorize the granting to the holders of
         its Common Stock of rights or warrants to subscribe for or purchase any
         share of any class or any other rights or warrants; or

                  (3) of any reclassification of the Common Stock of the Company
         (other than a subdivision or combination of its outstanding Common
         Stock or a change from no par value to par value), or of any
         consolidation or merger to which the Company is a party and for which
         approval of any stockholders of the Company is required, or of the sale
         or transfer of all or substantially all of the assets of the Company;
         or

                  (4) of the voluntary or involuntary dissolution, liquidation
         or winding-up of the Company;

                  the Company shall mail to each Holder of Notes at his address
         appearing on the Note Register as promptly as possible but in any event
         at least fifteen (15) days prior to the applicable date hereinafter
         specified, a notice stating (x) the date on which a record is to be
         taken for the purpose of such dividend, distribution or rights or
         warrants, or, if a record is not to be taken, the date as of which the
         holders of Common Stock of record to be entitled to such dividend,
         distribution or rights are to be determined, or (y) the date on which
         such reclassification, consolidation, merger, sale, transfer,
         dissolution, liquidation or winding-up is expected to become effective
         or occur, and the date as of which it is expected that holders of
         Common Stock of record shall be entitled to exchange their Common Stock
         for securities or other property deliverable upon such
         reclassification, consolidation, merger, sale, transfer, dissolution,
         liquidation or winding-up. Failure to give such notice, or any defect
         therein, shall not affect the legality or validity of such dividend,
         distribution, reclassification, consolidation, merger, sale, transfer,
         dissolution, liquidation or winding-up.

         (i) Holder Not Deemed a Stockholder. Except as otherwise specifically
provided herein, prior to the Holder's receipt of Common Stock upon conversion
of this Note, the Holder of this Note shall not be entitled, as such, to any
rights of a stockholder of the Company, including, without limitation, the right
to vote or to consent to any action of the stockholders of the Company, to
receive dividends or other distributions, to exercise any preemptive right or to
receive dividends or other distributions, to exercise any preemptive right or to
receive any notice of meetings of stockholders of the Company, and shall not be
entitled to receive any notice of any proceedings of the Company. In addition,
nothing contained in this Note shall be construed


                                       18

<PAGE>

as imposing any liabilities on such Holder to purchase any securities (upon
exercise of this Note or otherwise) or as a stockholder of the Company, whether
such liabilities are asserted by the Company or by creditors of the Company.

         (j) [INCLUDE EITHER OF THE FOLLOWING PARAGRAPHS ONLY BASED UPON
HOLDER'S ELECTION UNDER SECTION 2(k) OF PURCHASE AGREEMENT] [Conversion
Limitation. The Holder hereby agrees that in no event will it convert any of the
Notes in excess of the number of such Notes upon the conversion of which (x) the
number of shares of Common Stock beneficially owned by such Holder (other than
the shares which would otherwise be deemed beneficially owned except for being
subject to a limitation on conversion analogous to the limitation contained in
this Section 3(j)) plus (y) the number of shares of Common Stock issuable upon
the conversion of such Notes would be equal to or exceed 9.99% of the number of
shares of Common Stock then issued and outstanding (after giving effect to such
conversion), it being the intent of the Company and the Holder that the Holder
not be deemed at any time to have the power to vote or dispose of greater than
9.99% of the number of shares of Common Stock issued and outstanding. As used
herein, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
To the extent that the limitation contained in this Section 3(j) applies (and
without limiting any rights the Company may otherwise have), the Company may
rely on the Holder's determination of whether the Notes are convertible pursuant
to the terms hereof, the Company having no obligation whatsoever to verify or
confirm the accuracy of such determination, and the submission of the Conversion
Notice by the Holder shall be deemed to be the Holder's representation that the
Notes specified therein are convertible pursuant to the terms hereof. Nothing
contained herein shall be deemed to restrict the right of a Holder to convert
the Notes at such time as the conversion thereof will not violate the provisions
of this Section 3(j).]

         [Each Holder hereby agrees that in no event will it convert any of the
Notes in excess of the number of such Notes upon the conversion of which (x) the
number of shares of Common Stock beneficially owned by such Holder (other than
the shares which would otherwise be deemed beneficially owned except for being
subject to a limitation on conversion analogous to the limitation contained in
this Section 3(j)) plus (y) the number of shares of Common Stock issuable upon
the conversion of such Notes, would be equal to or exceed 4.99% of the number of
shares of Common Stock then issued and outstanding (after giving effect to such
conversion), it being the intent of the Company and the Holder that the Holder
not be deemed at any time to have the power to vote or dispose of greater than
4.99% of the number of shares of Common Stock issued and outstanding. As used
herein, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
To the extent that the limitation contained in this Section 3(j) applies (and
without limiting any rights the Company may otherwise have), the Company may
rely on the Holder's determination of whether the Notes are convertible pursuant
to the terms hereof, the Company having no obligation whatsoever to verify or
confirm the accuracy of such determination, and the submission of the Conversion
Notice by the Holder shall be deemed to be the Holder's representation that the
Notes specified therein are convertible pursuant to the terms hereof. Nothing
contained herein shall be deemed to restrict the right of a Holder to convert
the Notes at such time as the conversion thereof will not violate the provisions
of this Section 3(j).]


                                       19

<PAGE>

SECTION 4. Taxes.

         (a) Taxes on Shares Issued. The issue of stock certificates on
conversions of Notes shall be made without charge to the converting Holder for
any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the Holder of
any Note converted, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.

         (b) Notwithstanding any other provision of this Note or any other
Transaction Document, for income tax purposes, any assignee or transferee shall
agree that the Company and the Company's Transfer Agent shall be permitted to
withhold from any amounts payable to such assignee or transferee any taxes
required by law to be withheld from such amounts. Unless exempt from the
obligation to do so, each assignee or transferee shall execute and deliver to
the Company or the Company's transfer agent, as applicable, properly completed
Form W-8 or W-9, indicating that such assignee or transferee is not subject to
back-up withholding for United States Federal income tax purposes. Each assignee
or transferee that does not deliver such a form pursuant to the preceding
sentence shall have the burden of proving to the Company's reasonable
satisfaction that it is exempt from such requirement.

SECTION 5. Covenants.

         (a) Payment of Principal, Premium and Interest. The Company will duly
and punctually pay or cause to be paid the principal of (and premium, if any)
and interest on this Note at the places, at the respective times and in the
manner provided herein. Liquidated damages paid pursuant to Section 3(b) of this
Note, if any, shall be paid at the times and in the manner provided herein for
payment of principal, premium and interest within ten (10) Business Days of the
date from which such liquidated damages accrued pursuant to Section 3(b) of this
Note. Each installment of interest on the Notes due on any Interest Payment Date
may be paid by mailing checks for the interest payable to or upon the written
order of the Holders of Notes entitled thereto as they shall appear on the Notes
Register; provided, however, that, with respect to any Holder of Notes with an
aggregate principal amount equal to or in excess of Five Hundred Thousand United
States Dollars ($500,000), at the request of such Holder in writing to the
Company, interest on such Holder's Notes shall be paid by wire transfer in
immediately available funds in accordance with the wire transfer instructions
supplied by such Holder from time to time to the paying agent (if any) or the
Company at least five (5) Business Days prior to the applicable record date.

         (b) Paying Agents. The Company may, from time to time, appoint one or
more paying agents for the Notes, and shall cause each such paying agent to
execute and deliver to the Company an instrument pursuant to which such agent
shall agree with the Company that it will hold all sums held by it as such agent
for the payment of the principal of (and premium, if any) or interest on the
Notes (whether such sums have been paid to it by the Company or by any other
obligor of such Notes) in trust for the benefit of the Holders entitled thereto.
If the Company shall act as its own paying agent with respect to the Notes, it
will on or before each due date of


                                       20

<PAGE>

the principal of (and premium, if any) or interest on the Notes, set aside,
segregate and hold in trust for the benefit of the Holders entitled thereto a
sum sufficient to pay such principal (and premium, if any) or interest so
becoming due on Notes until such sums shall be paid to such Holders or otherwise
disposed of as herein provided and will promptly notify the Holders of such
action, or any failure (by it or any other obligor on such Notes) to take such
action. Whenever the Company shall have one or more paying agents for the Notes,
it will, prior to each due date of the principal of (and premium, if any) or
interest on any Notes, deposit with the paying agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Holders entitled to such principal, premium or
interest, and the Company will promptly notify the Holders of this action or
failure so to act.

SECTION 6. Registration of Transfer and Exchange.

         (a) Notes may be exchanged upon presentation thereof at the principal
executive offices of the Company (or such other office or agency of the Company
as it may designate in writing to the Holder hereof) for other Notes of
authorized denominations, and for a like aggregate principal amount, upon
payment of a sum sufficient to cover any tax or other governmental charge in
relation thereto as provided in Section 4 of this Note. In respect of any Notes
so surrendered for exchange, the Company shall execute and deliver in exchange
therefor the Note or Notes that the Holder making the exchange shall be entitled
to receive, bearing numbers not contemporaneously outstanding.

         (b) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate in writing to the
Holder hereof) a register (the "Notes Register"), in which the Company shall
record the name and address of the Person in whose name this Note has been
issued, as well as the name and address of each transferee. The Company may
treat the Person in whose name any Note is registered on the Notes Register as
the owner and Holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Note.

         (c) Upon surrender for registration of transfer of any Note to the
Company at the principal executive offices of the Company (or such other office
or agency of the Company as it may designate in writing to the Holder hereof),
and satisfaction of the requirements for such transfer set forth in this Section
6, the Company shall execute and deliver in the name of the designated
transferee or transferees, one or more new Notes of any authorized denominations
and of a like aggregate principal amount and bearing such restrictive legends as
may be required under this Section 6.

         All Notes presented or surrendered for exchange or registration of
transfer, as provided in this Section 6, shall be accompanied by a notice
substantially in the form attached hereto as Exhibit C (the "Notice of
Transfer"), duly executed by the registered Holder or by such Holder's duly
authorized attorney in writing.

         Prior to and as a condition to any sale or transfer of a Note or the
Common Stock issued upon conversion thereof that bears either or both of the
restrictive legends set forth in Section 6(d) of this Note, respectively (other
than pursuant to a registration statement that has been declared effective under
the Securities Act), such transferee shall, unless the Company otherwise


                                       21

<PAGE>

agrees in writing, furnish to the Company a signed letter containing
representations and agreements relating to restrictions on transfer
substantially in the form set forth in Exhibit D attached to this Note (the
"Form of Transfer Letter of Representations").

         (d) Every Note that bears or is required under this Section 6(d) to
bear the legends set forth below (together with any Common Stock issued upon
conversion of the Notes and required to bear such legends set forth below,
collectively, the "Restricted Securities") shall be subject to the restrictions
on transfer set forth in this Section 6(d) (including the legends set forth
below), unless such restrictions on transfer shall be waived by written consent
of the Company, and the Holder of each such Restricted Security, by such
Holder's acceptance thereof, agrees to be bound by all such restrictions on
transfer. As used in this Section 6(d), the term "transfer" encompasses any
sale, transfer or other disposition whatsoever of any Restricted Security.
Notwithstanding the foregoing, the Notes may be pledged in connection with a
bona fide margin account or other loan secured by the Notes hereunder, and no
Holder effecting a pledge of Notes shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Note, including, without limitation, this Section 6(d); provided, however,
that in order to make any sale, transfer or assignment of Notes, such Holder and
its pledgee makes such disposition in accordance with or pursuant to a
registration statement or an exemption under the Securities Act.

         Any certificate evidencing a Note (and all securities issued in
exchange therefor or substitution thereof, including Common Stock, if any,
issued upon conversion thereof) shall bear a restrictive legend in the following
form:

                  THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
                  UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
                  STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
                  SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
                  EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
                  SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
                  SECURITIES LAWS OR AN APPLICABLE EXEMPTION THEREFROM. THE
                  SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
                  MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.

In addition, any Note or Conversion Shares held by or transferred to an
"affiliate" (as defined in Rule 501(b) of Regulation D under the Securities Act)
of the Company may be stamped or imprinted with a legend substantially in the
following form:

                  THE SECURITIES REPRESENTED HEREBY ARE HELD BY A PERSON WHO MAY
                  BE DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF
                  RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
                  AMENDED (THE "SECURITIES ACT"), AND MAY BE SOLD ONLY IN
                  COMPLIANCE WITH RULE 144, PURSUANT TO AN EFFECTIVE
                  REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
                  A VALID


                                       22

<PAGE>

                  EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.

         The legends set forth above shall be removed and the Company (in the
case of Notes) or the transfer agent (in the case of Conversion Shares) shall
issue a new Note or Notes of like tenor and aggregate principal amount, or a
certificate or certificates representing Conversion Shares, as appropriate,
without such legends to the Holder of the Note(s) or Conversion Shares upon
which they are stamped, (i) if such Note(s) or Conversion Shares are registered
for resale under the Securities Act and are transferred or sold pursuant to such
registration, (ii) if, in connection with a sale transaction, such holder
provides the Company with an opinion of counsel reasonably acceptable to the
Company to the effect that a public sale, assignment or transfer of the Note(s)
or Conversion Shares may be made without registration under the Securities Act,
or (iii) upon expiration of the two (2)-year period under Rule 144(k)
promulgated under the Securities Act (or any successor rule) if the holder of
the Securities has not been an "affiliate" (as defined in Rule 501(b) of
Regulation D under the Securities Act) during the preceding three (3) months. In
the event Rule 144(k) (or any successor rule) is amended to change the two
(2)-year period, the reference in the preceding sentence shall be deemed to be a
reference to such changed period, provided that such change shall not become
effective if it is otherwise prohibited by, or would otherwise cause a violation
of, the then-applicable federal securities laws.

SECTION 7. Events of Default. The following shall constitute "Events of
Default":

         (a) any Event of Default under any other Note; or

         (b) the Company shall default in the payment when due of (i) any
installment of interest or liquidated damages as provided in Section 3(b) of
this Note upon any of the Notes, and such default shall continue for thirty (30)
calendar days after the due date thereof, (ii) the principal of and premium
(including, without limitation, the Holder Conversion Provisional Payment or the
Company Conversion Provisional Payment), if any, on any of the Notes, either at
maturity or in connection with any redemption, by declaration or otherwise, or
(iii) a default in the payment of the Repurchase Price in respect of any Note on
the repurchase date therefor in accordance with the provisions of Section 8 of
this Note; or

         (c) any of the representations or warranties made by the Company herein
or in the Transaction Documents shall be false or misleading in any material
respect at the time made and such condition (to the extent capable of being
cured) shall continue uncured for a period of ten (10) Business Days after
notice from the Holders of not less than twenty percent (20%) in aggregate
principal amount of the Notes then outstanding of such condition; or

         (d) the Company shall fail to duly observe or perform any of the
covenants on the part of the Company in the Transaction Documents, (including
without limitation, (i) the failure to deliver shares of Common Stock required
to be delivered upon conversion of this Note in accordance with Section 3 of
this Note within (30) Business Days of such Conversion Date, (ii) failure on the
part of the Company to provide a written notice of a Repurchase Event in
accordance with Section 8(b) of this Note) and such failure shall continue for
thirty (30) days after notice by the Holders of not less than twenty percent
(20%) in aggregate principal amount of the Notes then outstanding; or


                                       23

<PAGE>

         (e) the Company or any Subsidiary shall fail to make any payment at
maturity, including any applicable grace period, in respect of indebtedness of,
or guaranteed or assumed by, the Company or any Subsidiary, in a principal
amount then outstanding in excess of Two Million United States Dollars
($2,000,000), and the continuance of such failure for a period of fifteen (15)
days after there shall have been given, by registered or certified mail, to the
Company by the Holders of not less than twenty percent (20%) in aggregate
principal amount of the Notes then outstanding, a written notice specifying such
default and requiring the Company to cause such default to be cured or waived
and stating that such notice is a "Notice of Default" hereunder; or

         (f) the Company or any Subsidiary shall default with respect to any
Indebtedness of, or guaranteed or assumed by, the Company or any Subsidiary,
which default results in the acceleration of Indebtedness in a principal amount
then outstanding in excess of Two Million United States Dollars ($2,000,000),
and such Indebtedness shall not have been discharged or such acceleration shall
not have been rescinded or annulled for a period of fifteen (15) days after
there shall have been given, by registered or certified mail, to the Company by
the Holders of not less than twenty percent (20%) in aggregate principal amount
of the Notes then outstanding, a written notice specifying such default and
requiring the Company to cause such Indebtedness to be discharged or cause such
default to be cured or waived or such acceleration to be rescinded or annulled
and stating that such notice is a "Notice of Default" hereunder; or

         (g) the Company or any Subsidiary shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due; or

         (h) an involuntary case or other proceeding shall be commenced against
the Company or any Subsidiary seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) consecutive
days.

         Unless an Event of Default shall have been waived in writing by the
Holder (which waiver shall not be deemed to be a waiver of any subsequent
default), upon the occurrence of an Event of Default, and for so long as such
Event of Default shall be continuing, at the option of and (except in the case
of clause (i) above) on notice by the Holder to the Company in writing and in
the Holder's sole discretion, the Holder may consider this Note immediately due
and payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, anything herein or in any other instruments
contained to the contrary notwithstanding to the extent permitted by applicable
law, and the Holder may immediately, and without expiration of any further
period of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law. In such event
the


                                       24

<PAGE>

principal of and premium, if any, on all the Notes and the interest accrued
thereon (including liquidated damages and the Registration Delay Payments to the
extent accrued and unpaid) shall be due and payable immediately, anything in
this Note contained to the contrary notwithstanding. If an Event of Default
specified in Section 7(i) of this Note occurs and is continuing with respect to
the Company, the principal of all the Notes and the interest accrued thereon
shall be immediately due and payable. In addition to the foregoing, upon an
Event of Default, the rate of interest on this Note shall, to the maximum extent
of the law, be permanently increased by five percent (5%) per annum (i.e., from
5.50% to 10.50% per annum) commencing on the first day of the thirty (30) day
period (or part thereof) following the Event of Default. Any such interest which
is not paid when due shall, to the maximum extent permitted by law, accrue
interest until paid at the rate from time to time applicable to interest on the
Notes as to which the Event of Default has occurred. The Company shall within
one (1) Business Day notify each Holder of Notes at their last address in the
Notes Register upon becoming aware of the occurrence of any default or Event of
Default (whether or not waived by any other Holder of Notes) or of any action
taken by any Holder of Notes with respect to the occurrence of any Event of
Default, and shall deliver to the Holders a statement specifying such default or
Event of Default and the action the Company has taken, is taking or proposes to
take with respect thereto.

         (i) Collection of Indebtedness and Suits for Enforcement.

                  (1) The Company covenants that (i) in case it shall default in
         the payment of any installment of interest on any of the Notes as and
         when the same shall have become due and payable, and such default shall
         have continued for a period of thirty (30) days, or (ii) in case it
         shall default in the payment of the principal of (or premium, if any,
         on) any of the Notes when the same shall have become due and payable,
         whether upon maturity of the Notes or upon redemption, repurchase or
         upon declaration or otherwise, then, upon demand of the Holders of not
         less than twenty percent (20%) in aggregate principal amount of the
         Notes then outstanding, the Company will pay to the Holders of the
         Notes, the whole amount that then shall have been become due and
         payable on all such Notes for principal (and premium, if any) or
         interest, or all of the foregoing, as the case may be, with interest
         upon the overdue principal (and premium, if any) and (to the extent
         that payment of such interest is enforceable under applicable law) upon
         overdue installments of interest at the rate per annum expressed in the
         Notes; and, in addition thereto, such further amount as shall be
         sufficient to cover the costs and expenses of collection.

                  (2) If the Company shall fail to pay such amounts forthwith
         upon such demand, the Holders of not less than twenty percent (20%) in
         aggregate principal amount of the Notes then outstanding shall be
         entitled and empowered to institute any action or proceedings at law or
         in equity for the collection of the sums so due and unpaid, and may
         prosecute any such action or proceeding to judgment or final decree,
         and may enforce any such judgment or final decree against the Company
         or other obligor upon the Notes and collect the moneys adjudged or
         decreed to be payable in the manner provided by law out of the property
         of the Company or other obligor upon the Notes, wherever situated.

                  (3) In case of any receivership, insolvency, liquidation,
         bankruptcy, reorganization, readjustment, arrangement, composition or
         judicial proceedings affected the Company, or its creditors or
         property, the Holders of not less than twenty percent (20%) in
         aggregate principal amount of the Notes then outstanding shall have
         power to intervene in such


                                       25

<PAGE>

         proceedings and take any action therein that may be permitted by the
         court and shall (except as may be otherwise provided by law) be
         entitled to file such proofs of claim and other papers and documents as
         may be necessary or advisable in order to have the claims of the
         Holders of Notes allowed for the entire amount due and payable by the
         Company under the Notes at the date of institution of such proceedings
         and for any additional amount that may become due and payable by the
         Company after such date, and to collect and receive any moneys or other
         property payable or deliverable on any such claim, and to distribute
         the same.

                  Nothing contained herein shall be deemed to authorize any
         Holder to authorize or consent to or accept or adopt on behalf of any
         other Holder any plan of reorganization, arrangement, adjustment or
         composition affecting the Notes or the rights of any Holder thereof or
         to authorize another Holder to vote in respect of the claim of any
         other Holder in any such proceeding.

         (j) Application of Moneys Collected. Any moneys collected pursuant to
this Section 7 shall be applied in the following order, in case of the
distribution of such moneys on account of principal (or premium, if any) or
interest, upon presentation of the Notes, and notation thereon the payment, if
only partially paid, and upon surrender thereof if fully paid:

                  FIRST: To the payment of all Senior Indebtedness of the
         Company if and to the extent required by Section 9 of this Note; and

                  SECOND: To the payment of the amounts then due and unpaid upon
         Notes for principal (and premium, if any) and interest, in respect of
         which or for the benefit of which such money has been collected,
         ratably, without preference or priority of any kind, according to the
         amounts due and payable on such Notes for principal (and premium, if
         any) and interest, respectively.

         (k) Limitation on Suits. No Holder of any Note shall have any right by
virtue or by availing of any provision of this Note to institute any suit,
action or proceeding in equity or at law upon or under or with respect to this
Note or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless the Holders of not less than fifteen percent (15%) in
aggregate principal amount of the Notes then outstanding shall have determined
to institute such action, suit or proceeding.

         Notwithstanding anything contained herein to the contrary, the right of
any Holder of any Note to receive payment of the principal of (and premium, if
any) and interest on such Note, as therein provided, on or after the respective
due dates expressed in such Note (or in the case of redemption, on the
redemption date), or to institute suit for the enforcement of any such payment
on or after such respective dates or redemption date, shall not be impaired or
affected without the consent of such Holder, and by accepting a Note hereunder
it is expressly understood, intended and covenanted by the taker and Holder of
every Note with every other such taker and Holder, that no one or more Holders
of Notes shall have any right in any manner whatsoever by virtue or by availing
of any provision of this Note to affect, disturb or prejudice the rights of the
Holders of any other of such Notes, or to obtain or seek to obtain priority over
or preference to any other such Holder, or to enforce any right under this Note,
except in the manner herein provided and for the equal, ratable and common
benefit of all Holders of Notes. For the protection and


                                       26

<PAGE>

enforcement of the provisions of this Section 7(k), each and every Holder and
shall be entitled to such relief as can be given either at law or in equity.

         (l) Rights and Remedies Cumulative; Delay or Omission Not Waiver.

                  (1) All powers and remedies given by this Section 7 to the
         Holders of Notes shall, to the extent permitted by law, be deemed
         cumulative and not exclusive of any other powers and remedies available
         to the Holders of the Notes, by judicial proceedings or otherwise, to
         enforce the performance or observance of the covenants and agreements
         contained in this Note or otherwise established with respect to such
         Notes.

                  (2) No delay or omission of any Holder of any of the Notes to
         exercise any right or power accruing upon any Event of Default
         occurring and continuing as aforesaid shall impair any such right or
         power, or shall be construed to be a waiver of any such default or on
         acquiescence therein; and, subject to the provisions of Section 7(k) of
         this Note, every power and remedy given by this Section 7 or by law to
         the Holders of Notes may be exercised from time to time, and as often
         as shall be deemed expedient, by the Holders of Notes.

         (m) Control by Holders of Notes. The Holders of a majority in aggregate
principal amount of the Notes at the time outstanding (determined in accordance
with Section 12(g) of this Note), shall have the right to direct the time,
method and place of conducting any proceeding for any remedy; provided, however,
that such direction shall not be in conflict with any rule of law or with this
Note or be unduly prejudicial to the rights of Holders of Notes at the time
outstanding. The Holders of a majority in aggregate principal amount of the
Notes at the time outstanding (determined in accordance with Section 12(g) of
this Note) affected thereby may on behalf of the Holders of all of the Notes
waive any past default in the performance of any of the covenants contained
herein and its consequences, except a default in the payment of the principal of
(or premium, if any) or interest on, any of the Notes as and when the same shall
become due by the terms of such Notes otherwise than by acceleration. Upon any
such waiver, the default covered thereby shall be deemed to be cured for all
purposes of this Note and the Company and the Holders of the Notes shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon.

         (n) Undertaking to Pay Costs. The Company and each Holder of any Notes,
by such Holder's acceptance thereof, shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under the Notes, the filing by any party litigant in such suit
of an undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by any Holder
of Notes, or group of Holders of Notes holding more than fifteen percent (15%)
in aggregate principal amount of the Notes then outstanding (determined in
accordance with Section 12(f) of this Note), or to any suit instituted by any
Holder of Notes for the enforcement of the payment of the principal of or
interest on (or liquidated damages or Registration Delay Payments with respect
to) any Note, on or after the respective due dates expressed in such Note.


                                       27

<PAGE>

SECTION 8. Repurchase Upon a Repurchase Event.

         (a) Repurchase Right. If, at any time prior to December 15, 2007 there
shall occur a Repurchase Event (as defined in Section 8(c)), then each Holder
shall have the right, at such Holder's option, to require the Company to
repurchase all of such Holder's Notes, or any portion thereof (in principal
amounts of One Thousand United States Dollars ($1,000) or integral multiples
thereof), on the date (the "repurchase date") that is forty (40) calendar days
after the date of the Company Notice (as defined in Section 8(b) below) of such
Repurchase Event (or, if such 40th day is not a Business Day, the next
succeeding Business Day). Such repurchase shall be made in cash at a price equal
to one hundred and ten percent (110%) of the principal amount of Notes such
Holder elects to require the Company to repurchase, together with accrued
interest, if any, to the repurchase date (the "Repurchase Price").
Notwithstanding anything in this Section 8 to the contrary, if a redemption date
pursuant to Section 2 of this Note shall occur prior to any repurchase date
established pursuant to a Company Notice under Section 8(b) of this Note,
provided that the Company shall have deposited or set aside an amount of money
sufficient to redeem such Notes as set forth in Section 2(b) of this Note on or
before such repurchase date, all such Notes shall be redeemed pursuant to
Section 2 of this Note and the repurchase rights hereunder shall have no effect.

         (b) Notices; Method of Exercising Repurchase Right, Etc.

                  (1) Unless the Company shall have theretofore called for
         redemption all of the outstanding Notes and deposited or set aside an
         amount of money sufficient to redeem such Notes on the redemption date
         as set forth in Section 2(b) of this Note, on or before the tenth
         (10th) calendar day after the occurrence of a Repurchase Event, the
         Company shall mail to all Holders of record of the Notes a notice (the
         "Company Notice") in the form as prepared by the Company of the
         occurrence of the Repurchase Event and of the repurchase right set
         forth herein arising as a result thereof. The Company Notice shall
         contain the following information:

                           (A) a brief description of the Repurchase Event;

                           (B) the repurchase date;

                           (C) the CUSIP number(s) of the Note(s) subject to the
                  repurchase right;

                           (D) the date by which the repurchase right must be
                  exercised;

                           (E) the last date by which the election to require
                  repurchase, if submitted, must be revoked;

                           (F) the Repurchase Price;

                           (G) a description of the procedure which a Holder
                  must follow to exercise a repurchase right; and


                                       28

<PAGE>

                           (H) the Conversion Price then in effect, the date on
                  which the right to convert the principal amount of the Notes
                  to be repurchased will terminate and the place or places where
                  Notes may be surrendered for conversion.

         No failure of the Company to give the foregoing notices or defect
         therein shall limit any Holder's right to exercise a repurchase right
         or affect the validity of the proceedings for the repurchase of Notes.

                  (2) To exercise a repurchase right, a Holder shall deliver to
         the Company on or before the close of business on the thirty-fifth
         (35th) day after the Company Notice was mailed (i) written notice to
         the Company (or agent designated by the Company for such purpose) of
         the Holder's exercise of such right in substantially the form attached
         hereto as Exhibit B (the "Repurchase Notice"), which Repurchase Notice
         shall set forth the name of the Holder, the principal amount of the
         Notes to be repurchased, a statement that an election to exercise the
         repurchase right is being made thereby, and (ii) the Notes with respect
         to which the repurchase right is being exercised, duly endorsed for
         transfer to the Company. Election of repurchase by a Holder shall be
         revocable at any time prior to, but excluding, the repurchase date, by
         delivering written notice to that effect to the Company prior to the
         close of business on the Business Day prior to the repurchase date.

                  (3) If the Company fails to repurchase on the repurchase date
         any Notes (or portions thereof) as to which the repurchase right has
         been properly exercised, then the principal of such Notes shall, until
         paid, bear interest to the extent permitted by applicable law from the
         repurchase date at the rate borne by the Note and each such Note shall
         be convertible into Common Stock in accordance with Section 3 of this
         Note (without giving effect to Section 8(b)(2) of this Note) until the
         principal of such Note shall have been paid or duly provided for.

                  (4) Any Note that is to be repurchased only in part shall be
         surrendered duly endorsed for transfer to the Company and accompanied
         by appropriate evidence of genuineness and authority satisfactory to
         the Company duly executed by the Holder thereof (or his attorney duly
         authorized in writing), and the Company shall execute and deliver to
         the Holder of such Note without service charge, a new Note or Notes,
         containing identical terms and conditions, of any authorized
         denomination as requested by such Holder in aggregate principal amount
         equal to and in exchange for the unrepurchased portion of the principal
         of the Note so surrendered.

                  (5) On or prior to the repurchase date, the Company shall
         deposit with a paying agent (or, if the Company is acting as its own
         paying agent, segregate and hold in trust as provided in Section 5 of
         this Note) the Repurchase Price in cash for payment to the Holder on
         the repurchase date; provided that if payment is to be made in cash and
         such cash payment is to be made on the repurchase date, it must be
         received by the paying agent, as the case may be, by 1:00 p.m., New
         York time, on such date.

                  (6) If the Company is unable to repurchase on the repurchase
         date all of the Notes (or portions thereof) as to which the repurchase
         right has been properly exercised, the aggregate amount of Notes the
         Company may repurchase shall be allocated pro rata among each Note (or
         portion thereof) surrendered for repurchase, based on the principal
         amount of such Note (or portion thereof), in proportion to the
         aggregate amount of Notes surrendered for repurchase.


                                       29

<PAGE>

                  (7) All Notes delivered for repurchase shall be canceled by
         the Company.

         (c) Certain Definitions. For purposes of this Section 8:

                  (1) the term "beneficial owner" shall be determined in
         accordance with Rule 13d-3 and 13d-5, as in effect on the date of the
         original execution of this Note, promulgated by the Securities and
         Exchange Commission pursuant to the Exchange Act;

                  (2) the term "person" or "group" shall include any syndicate
         or group which would be deemed to be a "person" under Section 13(e) and
         14(d) of the Exchange Act as in effect on the date of the original
         execution of this Note; and

                  (3) the term "Continuing Director" means at any date a member
         of the Company's Board of Directors (i) who was a member of such board
         on the date of the Securities Purchase Agreement or (ii) who was
         nominated or elected by at least a majority of the directors who were
         Continuing Directors at the time of such nomination or election or
         whose election to the Company's Board of Directors was recommended or
         endorsed by at least a majority of the directors who were Continuing
         Directors at the time of such nomination or election or such lesser
         number comprising a majority of a nominating committee if authority for
         such nominations or elections has been delegated to a nominating
         committee whose authority and composition have been approved by at
         least a majority of the directors who were continuing directors at the
         time such committee was formed. (Under this definition, if the Board of
         Directors of the Company as of the date of this Note were to approve a
         new director or directors and then resign, no Change in Control would
         occur even though all of the current members of the Board of Directors
         would thereafter cease to be in office).

                  (4) the term "Repurchase Event" means a Change in Control or a
         Termination of Trading.

                  (5) a "Change in Control" shall be deemed to have occurred
         when (i) any "person" or "group" (as such terms are used in Sections
         13(e) and 14(d) of the Exchange Act) is or becomes the beneficial owner
         of shares representing more than fifty percent (50%) of the combined
         voting power of the then outstanding securities entitled to vote
         generally in elections of directors of the Company (the "Voting
         Stock"); (ii) approval by the stockholders of the Company of any plan
         or proposal for the liquidation, dissolution or winding up of the
         Company; (iii) the Company (A) consolidates with or merges into any
         other corporation or any other corporation merges into the Company, and
         in the case of any such transaction, the outstanding Common Stock of
         the Company is changed or exchanged into other assets or securities as
         a result, unless the stockholders of the Company immediately before
         such transaction own, directly or indirectly immediately following such
         transaction, at least a majority of the combined voting power of the
         outstanding voting securities of the corporation resulting from such
         transaction in substantially the same proportion as their ownership of
         the Voting Stock immediately before such transaction, or (B) conveys,
         transfers or leases all or substantially all of its assets to any
         person (other than a wholly-owned subsidiary as a result of which the
         Company becomes a holding company); or (iv) any time Continuing
         Directors do not constitute a majority of the Board of Directors of the
         Company (or, if applicable, a successor corporation to the Company);
         provided that a Change in Control shall not be deemed to have occurred
         if at least ninety percent


                                       30

<PAGE>

         (90%) of the consideration (excluding cash payments for fractional
         shares) in the transaction or transactions constituting the Change in
         Control consists of (and the capital stock into which the Notes would
         be convertible consists of) shares of capital stock that are, or upon
         issuance will be, traded on a United States national securities
         exchange or approved for trading on an established automated
         over-the-counter trading market in the United States.

                  (6) the term "Termination of Trading" means that the Common
         Stock is not listed for trading on a national securities exchange.

SECTION 9. Subordination of Notes

         (a) Subordination to Senior Indebtedness. The Company covenants and
agrees, and each Holder of a Note, by his or her acceptance thereof, likewise
covenants and agrees, that all Notes shall be issued subject to the provisions
of this Section 9 and to the extent and in the manner hereinafter set forth in
this Section 9, the indebtedness represented by the Notes and the payment of the
principal amount, Conversion Price, and interest thereon, liquidated damages or
any other amounts in respect of each and all of the Notes are hereby expressly
made subordinate and junior and subject in right of payment to the prior payment
in full of all Senior Indebtedness of the Company now outstanding or hereinafter
incurred. "Senior Indebtedness" means the principal of, and premium, if any, and
interest on, fees, costs and expenses in connection with and other amounts due
on (i) all indebtedness of the Company for monies borrowed, including, without
limitation, (x) commercial paper and accounts receivable sold or assigned by the
Company, and (y) indebtedness secured by a mortgage, security interest or other
lien on an assets, that is (A) existing on such asset at the time of its
acquisition, or (B) given to secure all or part of the purchase price of such
asset, (ii) all obligations of the Company evidenced by any notes, debentures,
bonds or other instruments issued to banks, trust companies, insurance
companies, other financial institutions and other entities that in the ordinary
course of business make loans, (iii) all obligations of the Company under any
interest or currency swap agreements, hedging agreements, cap, floor and collar
agreements, spot and forward contracts and other similar agreements, (iv)
obligations in respect of letters of credit, bank guarantees and bankers
acceptances, (v) obligations of the Company as lessee under leases of personal
property (whether or not required to be capitalized under GAAP), (vi)
obligations secured by a mortgage, pledge, security interest, lien or
encumbrance affecting title to any of the Company's assets, whether or not the
Company is directly liable or has guaranties such obligations, (vii) obligations
consisting of the balance of the deferred or unpaid purchase price of assets,
(vi) principal of, and interest on any indebtedness or obligations of others of
the kinds described in (i) through (vii) above assumed or guaranteed in any
manner by the Company, (viii) deferrals, renewals, extensions and refundings of
any such indebtedness or obligations described in (i) through (vii) above, in
each case unless the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that the same is not senior in
right of payment to the Notes. Senior Indebtedness includes, with respect to the
foregoing, interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company, whether or not
post-filing interest is allowed in such proceeding. Notwithstanding the
foregoing, "Senior Indebtedness" with respect to any Note shall not include
indebtedness of the Company evidenced by the other Notes, which shall rank
equally and ratably with such Note.


                                       31

<PAGE>

         (b) No Payment if Default in Senior Indebtedness. No payment on account
of principal of or interest on the Notes shall be made, and no Notes shall be
redeemed or purchased directly or indirectly by the Company (or any of its
Subsidiaries), if at the time of such payment or purchase or immediately after
giving effect thereto, (i) a default in the payment of principal, premium, if
any, interest, rent or other obligations in respect of any Senior Indebtedness
occurs and is continuing (a "Payment Default") , unless and until such Payment
Default shall have been cured or waived or shall have ceased to exist or (ii)
the Company shall have received notice (a "Payment Blockage Notice") from the
holder or holders of Senior Indebtedness that there exists under such Senior
Indebtedness a default, which shall not have been cured or waived, permitting
the holder or holders thereof to declare Senior Indebtedness in an aggregate
amount equal to or in excess of Two Million United States Dollars ($2,000,000)
due and payable, but only for the period (the "Payment Blockage Period")
commencing on the date of receipt of the Payment Blockage Notice and ending on
the earlier of (a) the date such default shall have been cured or waived, or (b)
180 days after the date of receipt of the Payment Blockage Notice.

         The Company shall resume payments on and distributions in respect of
the Notes, including any past scheduled payments of the principal of (and
premium, if any) and interest on such Notes to which the Holders of the Notes
would have been entitled but for the provisions of this Section 9(b) in the case
of a Payment Default, on the date upon which such Payment Default is cured or
waived or ceases to exist. In addition, notwithstanding clauses (i) and (ii),
unless the holders of Senior Indebtedness in an aggregate amount equal to or in
excess of Two Million United States Dollars ($2,000,000) shall have accelerated
the maturity of such Senior Indebtedness, the Company shall resume payments on
the Note after the end of each Payment Blockage Period. Not more than one
Payment Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to Senior Indebtedness
during such period.

         (c) Payment upon Dissolution, Etc.

                  (1) In the event of any bankruptcy, insolvency,
         reorganization, receivership, composition, assignment for benefit of
         creditors or other similar proceeding initiated by or against the
         Company or any dissolution or winding up or total or partial
         liquidation or reorganization of the Company (being hereinafter
         referred to as a "Proceeding"), the Holders of the Notes agree that
         they shall, upon request of a holder of Senior Indebtedness, and at
         their own expense take all reasonable actions (including but not
         limited to the execution and filing of documents and the giving of
         testimony in any Proceeding, whether or not such testimony could have
         been compelled by process) necessary to prove the full amount of all
         their claims in any Proceeding, and the Holders of the Notes shall not
         waive any claim in any Proceeding without the written consent of such
         Holder.

                  (2) Upon payment or distribution to creditors in a Proceeding
         of assets of the Company of any kind or character, whether in cash,
         property or securities, all principal and interest due upon any Senior
         Indebtedness shall first be paid in full before any Holders of the
         Notes shall be entitled to receive or, if received, to retain any
         payment or distribution on account of the Notes, and upon any such
         Proceeding, any payment or distribution of assets of the Company of any
         kind or character, whether in cash, property or securities, to which
         any Holders of the Notes would be entitled except for the provisions of
         this Section 9 shall be paid by the


                                       32

<PAGE>

         Company or by any receiver, trustee in bankruptcy, liquidating trustee,
         agent or other person making such payment or distribution, or by any
         Holders of the Notes who shall have received such payment or
         distribution, directly to the holders of the Senior Indebtedness (pro
         rata to each such holder on the basis of the respective amounts of such
         Senior Indebtedness held by such holder) or their representatives to
         the extent necessary to pay all such Senior Indebtedness in full after
         giving effect to any concurrent payment or distribution to or for the
         holders of such Senior Indebtedness, before any payment or distribution
         is made to any Holders of the Notes.

         (d) Payments on Notes. Subject to Section 9(c) of this Note, the
Company may make payments of the principal of, and any interest or premium on,
the Notes, if at the time of payment, and immediately after giving effect
thereto, (i) there exists no Payment Default or a Payment Blockage Period and
(ii) the Company is permitted to make payments under Section 9(c) of this Note.

         (e) Subrogation. Subject to payment in full of all Senior Indebtedness,
the Holders of the Notes shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of the assets of the
Company made on such Senior Indebtedness until all principal and interest on the
Notes shall be paid in full; and for purposes of such subrogation, no payments
or distributions to the holders of Senior Indebtedness of any cash, property or
securities to which any Holders of the Notes would be entitled except for the
subordination provisions of this Section 9(e) shall, as between the Holders of
the Notes and the Company and/or its creditors other than the holders of the
Senior Indebtedness, be deemed to be a payment on account of the Senior
Indebtedness.

         (f) Remedies. Notwithstanding any contrary provisions of this Note or
the Notes, no Holder of the Notes shall take or continue any action or exercise
any remedies under or with respect to the Notes if (i) there exists a Payment
Default or (ii) the Company is prohibited from making payments under Section
9(c) of this Note. Nothing in this Section 9 shall prevent any Holder from
exercising any right of conversion, or exercising any remedies or taking or
continuing any action in connection therewith, pursuant to Section 3(a) of this
Note.

         (g) Rights of Holders Unimpaired. The provisions of this Section 9 are
and are intended solely for the purposes of defining the relative rights of the
Holders of the Notes and the holders of Senior Indebtedness and nothing in this
Section 9 shall impair, as between the Company and any Holders of the Notes, the
obligation of the Company, which is unconditional and absolute, to pay to the
Holders of the Notes the principal thereof (and premium, if any) and interest
thereon, in accordance with the terms of the Notes.

         (h) Holders of Senior Indebtedness. These provisions regarding
subordination will constitute a continuing offer to all persons who, in reliance
upon such provisions, become holders of, or continue to hold, Senior
Indebtedness; such provisions are made for the benefit of the holders of Senior
Indebtedness, and such holders are hereby made obligees under such provisions to
the same extent as if they were named therein, and they or any of them may
proceed to enforce such subordination. The Holders shall execute and deliver to
any holder of Senior Indebtedness any such instrument as such holder of Senior
Indebtedness may reasonably request in order to confirm the subordination of the
Notes to such Senior Indebtedness upon the terms set forth in this Note. The
holders of Senior Indebtedness may, at any time and from time


                                       33

<PAGE>

to time, without the consent of or notice to any of the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provisions of the Notes, (i) change the manner, terms or place of
payment of, or renew or alter, any Senior Indebtedness, or otherwise amend or
supplement the same, (ii) sell, exchange or release any collateral mortgaged,
pleaded or otherwise securing the Senior Indebtedness, (iii) release any person
liable in any manner for the Senior Indebtedness and (iv) exercise or refrain
from exercising any rights against the Company or any other person.

SECTION 10. Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall
become mutilated or be destroyed, lost or stolen, the Company (subject to the
next succeeding sentence) shall execute and deliver a new Note bearing a number
not contemporaneously outstanding, in exchange and substitution for the
mutilated Note, or in lieu of and in substitution for the Note so destroyed,
lost or stolen. In every case, the applicant for a substituted Note shall
furnish to the Company such security or indemnity as may be required by the
Company to save it harmless, and, in every case of destruction, loss or theft,
the applicant shall also furnish to the Company evidence to its satisfaction of
the destruction, loss or theft of the applicant's Note and of the ownership
thereof. Upon the issuance of any substituted Note, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith.
In case any Note that has matured or is about to mature shall become mutilated
or be destroyed, lost or stolen, the Company may, instead of issuing a
substitute Note, pay or authorize the payment of the same (without surrender
thereof except in the case of a mutilated Note) if the applicant for such
payment shall furnish to the Company such security or indemnity as the Company
may require to save it harmless, and, in case of destruction, loss or theft,
evidence to the satisfaction of the Company of the destruction, loss or theft of
such Note and of the ownership thereof.

         Every replacement Note issued pursuant to the provisions of this
Section shall constitute an additional contractual obligation of the Company
whether or not the mutilated, destroyed, lost or stolen Note shall be found at
any time, or be enforceable by anyone, and shall be entitled to all the benefits
of this Note equally and proportionately with any and all other Notes duly
issued hereunder. All Notes shall be held and owned upon the express condition
that the foregoing provisions are exclusive with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes, and shall preclude (to
the extent lawful) any and all other rights or remedies, notwithstanding any law
or statute existing or hereafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
their surrender.

SECTION 11. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Note must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (evidenced by
mechanically or electronically generated receipt by the sender's facsimile
machine); or (iii) one (1) Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. If notice is to be sent to the Company, the Holder
shall use its reasonable best efforts to provide additional copies to the
individuals listed below; provided, however, that the failure of such Holder to
send such additional copies shall in no way limit the effectiveness of any
notice sent to the Company as provided for below. The addresses and facsimile
numbers for such communications shall be:


                                       34

<PAGE>

                  If to the Company:

                                   Champps Entertainment, Inc.
                                   10375 Park Meadows Drive, Suite 560
                                   Littleton, Colorado
                                   Telephone: (303) 804-1333
                                   Facsimile: (720) 529-9392
                                   Attention: William H. Baumhauer

                  with a copy to:

                                   Brownstein Hyatt & Farber, P.C.
                                   410 Seventeenth Street, Twenty-Second Floor
                                   Denver, Colorado 80202-4437
                                   Telephone: (303) 223-1100
                                   Facsimile: (303) 223-1111
                                   Attention: Jeffrey M. Knetsch

                  If to the Transfer Agent:

                                   American Stock Transfer and Trust Company
                                   6201 15th Avenue
                                   Brooklyn, New York 11219
                                   Telephone: (718) 921-8124
                                   Facsimile: (718) 236-2641
                                   Attention: Kevin Jennings

         If to a Holder of this Note, to it at the address and facsimile number
set forth on the Schedule of Buyers attached as Exhibit A to the Securities
Purchase Agreement, with copies to such Holder's representatives as set forth on
such Schedule of Buyers, or at such other address and facsimile as shall be set
forth on the Notes Register maintained by the Company upon the issuance or
transfer of this Note. Each party may by written notice to the other party
change its address or facsimile number.

SECTION 12. Miscellaneous Provisions.

         (a) Successors and Assigns. All of the covenants, stipulations,
promises and agreements in this Note contained by or on behalf of the Company
shall bind its successors and assigns, whether so expressed or not.

         (b) Amendments. This Note and any term hereof may be amended, changed,
waived, discharged, or terminated only by an instrument in writing signed by the
Company and the Holders of not less than fifty percent (50%) in aggregate
principal amount of the Notes then outstanding. Such amendment, change, waiver,
discharge or termination shall be binding on the Company and all of the Holder's
assignees and transferees; provided, however, that, without the written consent
of all of the Holders of the Notes, no such action may extend the Maturity Date,
or reduce the rate or extend the time of payment of interest thereon (except in
the case of a


                                       35

<PAGE>

Payment Blockage Period), or reduce the principal amount thereof or premium, if
any, thereon, or reduce any amount payable on redemption or repurchase thereof,
impair, or change in any respect adverse to the Noteholders, the obligation of
the Company to repurchase any Note at the option of the holder upon the
happening of a Repurchase Event, or change the currency in which the Notes are
payable, or impair or change in any respect adverse to the Noteholders the right
to convert the Notes into Common Stock subject to the terms set forth herein, or
reduce the aforesaid percentage of Notes, the Holders of which are required to
consent to any such amendment or supplemental indenture. No waivers of any term,
condition or provision of this Note in any one or more instances shall be deemed
to be or construed as a further or continuing waiver of any such term, condition
or provision.

         (c) Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation 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. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting the City of New York, borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Note shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Note in that jurisdiction or the validity or enforceability of
any provision of this Note in any other jurisdiction. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

         (d) Payments on Business Days. In any case where the date of maturity
of principal or interest of this Note or the date of redemption of this Note
shall not be a Business Day, then payment of principal (and premium, if any) or
interest of this Note may be made on the next succeeding Business Day with the
same force and effect as if made on the nominal date of maturity or redemption,
and no interest shall accrue for the period after such nominal date.

         (e) Separability. In case any one or more of the provisions contained
in this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Note, but this Note shall be
construed as if such invalid or illegal or unenforceable provision had never
been contained herein.


                                       36

<PAGE>

         (f) Descriptive Headings. The headings of this Note are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

         (g) Certain Notes Owned by Company Disregarded. In determining whether
the Holders of the requisite aggregate principal amount of Notes have concurred
in any direction, consent or waiver under this Note, the Notes that are owned by
the Company or any other obligor on the Notes or by any Person directly or
indirectly controlling or controlled by or under common control with the Company
or any other obligor on the Notes shall be disregarded and deemed not to be
outstanding for the purpose of any such determination.

         (h) No Waivers. No failure on the part of the Holder to exercise, and
no delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.


                                       37

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of day and year first above written.

                                        "COMPANY"

                                        CHAMPPS ENTERTAINMENT, INC.


                                        By:
                                             ---------------------------------
                                        Its:
                                             ---------------------------------



                                      S-1

<PAGE>

                                EXHIBIT A TO NOTE

                            FORM OF CONVERSION NOTICE

To: Champps Entertainment, Inc.

         The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is One
Thousand United States Dollars ($1,000) principal amount or an integral multiple
thereof) below designated, into shares of Common Stock in accordance with the
terms of the Note, and directs that the shares issuable and deliverable upon
such conversion, together with any check in payment for fractional shares and
any Notes representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Note not converted are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto. Any amount required to be
paid by the undersigned on account of interest accompanies this Note.

Dated: ________________________

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

                                                -------------------------------
                                                Signature(s)


-------------------------------
Signature Guarantee


Signature(s) must be guaranteed
by an eligible Guarantor
Institution (banks, stock
brokers, savings and loan
associations and credit unions)
with membership in an approved
signature guarantee medallion
program pursuant to Securities
and Exchange Commission Rule
17Ad-15 if shares of Common
Stock are to be issued, or Notes
to be delivered, other than to
and in the name of the
registered holder.



                                      A-1

<PAGE>

Fill in for registration of
shares if to be issued, and
Notes if to be delivered, other
than to and in the name of the
registered holder:



-------------------------------
(Name)



-------------------------------
(Street Address)



-------------------------------
(City, State and Zip Code)


Please print name and address

                                                Principal amount to be converted
                                                (if less than all):  $______,000


                                                -------------------------------
                                                Social Security or Other
                                                Taxpayer Identification Number



                                      A-2

<PAGE>

                                EXHIBIT B TO NOTE

                            FORM OF REPURCHASE NOTICE

To: Champps Entertainment, Inc.

         The undersigned registered owner of this Note hereby acknowledges
receipt of a notice from Champps Entertainment, Inc. (the "Company") as to the
occurrence of a Repurchase Event with respect to the Company and requests and
instructs the Company to repay the entire principal amount of this Note, or the
portion thereof (which is One Thousand United States Dollars ($1,000) principal
amount or an integral multiple thereof) below designated, in accordance with the
terms of the Note, together with accrued interest (including liquidated damages
pursuant to Section 3(b) of the Note or Registration Delay Payments, if any) to,
but excluding, such date, to the registered holder hereof.

Dated: ________________________

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


                                                -------------------------------
                                                Signature(s)


                                                -------------------------------
                                                Social Security or Other
                                                Taxpayer Identification Number

                                                Principal amount to be repaid
                                                (if less than all):  $______,000

                                                NOTICE: The above signatures of
                                                the holder(s) hereof must
                                                correspond with the name as
                                                written upon the face of the
                                                Note in every particular without
                                                alteration or enlargement or any
                                                change whatever.

                                      B-1

<PAGE>

                                EXHIBIT C TO NOTE

                           FORM OF NOTICE OF TRANSFER

         For value received ____________________________ hereby sell(s),
assign(s) and transfer(s) unto _________________ (Please insert social security
or Taxpayer Identification Number of assignee) the within Note, and hereby
irrevocably constitutes and appoints ________ _____________ attorney to transfer
the said Note on the books of the Company, with full power of substitution in
the premises.

         In connection with any transfer of the within Note occurring within two
years of the original issuance of such Note (unless such Note is being
transferred pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such Note is
being transferred:

         o *To Champps Entertainment, Inc. or a subsidiary thereof; or

         o *To an "accredited investor" within the meaning of Rule 501(a) of the
Securities Act pursuant to and in compliance with the Securities Act; or

         o *In an offshore transaction pursuant to and in compliance with
Regulation S under the Securities Act; or

         o *Pursuant to and in compliance with Rule 144 under the Securities
Act; and unless the box below is checked, the undersigned confirms that such
Note is not being transferred to an "affiliate" of the Company as defined in
Rule 144 under the Securities Act (an "Affiliate"):

         o *The transferee is an Affiliate of the Company.


Dated: ________________________


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

-------------------------------
Signature(s)

-------------------------------
Signature Guarantee

Signature(s) must be guaranteed
by an eligible Guarantor
Institution (banks, stock
brokers, savings and loan
associations and credit unions)
with membership in an approved
signature guarantee medallion
program pursuant to Securities
and Exchange Commission Rule
17Ad-15 if shares of Common
Stock are to be issued, or Notes
to be delivered, other than to
and in the name of the
registered holder.


                                      C-1

<PAGE>


         NOTICE: The signature on the conversion notice, the option to elect
repurchase upon a Repurchase Event or the assignment must correspond with the
name as written upon the face of the Note in every particular without alteration
or enlargement or any change whatever.















                                      C-2

<PAGE>

                                EXHIBIT D TO NOTE

                   FORM OF TRANSFER LETTER OF REPRESENTATIONS

                           (TO BE DELIVERED BY HOLDER
                     UPON CERTAIN TRANSFERS OF NOTES WITHOUT
                        EFFECTIVE REGISTRATION STATEMENT)

         We are delivering this letter in connection with the sale or transfer
to us of 5.50% Convertible Subordinated Notes due 2007 of Champps Entertainment,
Inc., a Delaware corporation (the "Company") other than pursuant to a
registration statement that has been declared effective under the Securities Act
of 1933, as amended (the "Securities Act").

         We hereby confirm that:

                  (i) we are an "accredited investor" within the meaning of Rule
         501(a) under the Securities Act;

                  (ii) any purchase or receipt of the Notes by us will be for
         investment purposes and for our own account, not as a nominee or agent;

                  (iii) we have such knowledge and experience in financial and
         business matters that we are capable of evaluating the merits and risks
         of purchasing or receiving the Notes;

                  (iv) we do not have need for liquidity in our investment in
         the Notes, we have the ability to bear the economic risks of our
         investment in the Notes for an indefinite period of time and we are
         able to afford the complete loss of our investment in the Notes;

                  (v) we are not acquiring the Notes with a view to any
         distribution thereof in a transaction that would violate the Securities
         Act or the securities laws of any State of the United States or any
         other applicable jurisdiction, and we have no present intention of
         selling, granting any participation in, or otherwise distributing the
         same;

                  (vi) we have had access to such information regarding the
         Company necessary in order for us to make an informed decision and any
         such information which we have requested have been made available for
         us or our attorney, accountant, or advisor; and

                  (vii) we or our attorney, accountant, or advisor have had a
         reasonable opportunity to ask questions of and receive answers from a
         person or persons acting on behalf of the Company concerning the
         business, management and financial affairs of the Company and the terms
         and conditions of the acquisition by us of the Notes and all such
         questions have been answered to our full satisfaction, and we have
         acquired sufficient information about the Company to make an informed
         and knowledgeable decision to acquire the Notes.

         We understand that the Notes have not been registered under the
Securities Act, and we agree, on our own behalf and on behalf of each account
for which we acquire any Notes, that such Notes may be offered, resold, pledged
or otherwise transferred only (i) in accordance with an exemption from the
registration requirements of the Securities Act, (ii) to the Company or (iii)


                                      D-1

<PAGE>

pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any State of the United States
or any other applicable jurisdiction. We agree that we will furnish the Company
an opinion of counsel reasonably acceptable to the Company, if the Company so
requests, that the foregoing restrictions on transfer have been complied with.
We understand that the Company will not be required to accept for registration
of transfer any Notes, except upon presentation of evidence satisfactory to it,
including an opinion of counsel reasonably acceptable to the Company if the
Company so requests, that the foregoing restrictions on transfer have been
complied with.

         We acknowledge that the Company and others will rely upon our
confirmations, acknowledgements and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.


                                        ---------------------------------------
                                        (Name)

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

                                        Address:
                                                 ------------------------------

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



                                      D-2