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                                                                   EXHIBIT 10.02


                                                                       EXHIBIT A
                                                                              TO
                                                                      SECURITIES
                                                                        PURCHASE
                                                                       AGREEMENT


THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR AN
OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.


                              CONVERTIBLE DEBENTURE

February 24, 2000                                                  $5,000,000.00

     FOR VALUE RECEIVED, SMARTSOURCES.COM, INC., a corporation organized under
the laws of the State of Colorado (hereinafter called the "BORROWER"), hereby
promises to pay to the order of RGC INTERNATIONAL INVESTORS, LDC or its
registered assigns (the "HOLDER") the sum of Five Million Dollars
($5,000,000.00) on February 24, 2005 (the "MATURITY DATE") and to pay interest
on the unpaid principal balance hereof at the rate of seven percent (7%) per
annum from the date hereof (the "ISSUE DATE") until the same becomes due and
payable (which interest shall accrue on a daily basis), whether at maturity or
upon conversion, redemption, acceleration or otherwise. Any amount of principal
of or interest on this Debenture which, to the extent not converted in
accordance with the provisions hereof, is not paid when due shall bear interest
at the rate of seventeen percent (17%) per annum ("DEFAULT INTEREST") from the
due date thereof until the same is paid. Interest shall be calculated based on a
360-day year and shall commence accruing on the Issue Date and, to the extent
not converted in accordance with the provisions hereof, shall be payable in
arrears at such time as the outstanding principal balance hereof with respect to
which such interest has accrued becomes due and payable hereunder. All payments
of principal and interest (to the extent not converted into shares of the
Borrower's common stock, no par value ("COMMON STOCK"), in accordance with the
terms hereof) shall be made in, and all references herein to monetary
denominations shall refer to, lawful money of the United States of America. All
payments shall be made at such address as the Holder shall hereafter give to the
Borrower by written notice made in accordance with the provisions of this
Debenture. The Maturity Date is subject to extension, at the option of the
Holder, as provided in Article IV hereof. This Debenture is being issued by the
Borrower pursuant to the Securities Purchase Agreement, dated as of February 24,
2000, between


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the Borrower and the Holder (the "PURCHASE AGREEMENT"). Each capitalized term
used, but not otherwise defined, herein shall have the meaning ascribed thereto
in the Purchase Agreement. For purposes hereof, the term "DEBENTURES" shall be
deemed to refer to this Debenture, all other convertible debentures issued
pursuant to the Purchase Agreement and all convertible debentures issued in
replacement hereof or thereof or otherwise with respect hereto or thereto.


                                  I. REDEMPTION

     A. MANDATORY REDEMPTION. If any of the following events (each, a "MANDATORY
REDEMPTION EVENT") shall occur:

          1. The Borrower fails to pay the principal hereof or interest thereon
when due on this Debenture, whether at maturity, upon mandatory prepayment
pursuant to Article I.B, upon acceleration or otherwise.

          2. The Borrower (i) fails to issue shares of Common Stock to any
holder of the Debentures upon exercise by the holder of its conversion rights in
accordance with the terms of the Debentures (including upon exercise of or
otherwise pursuant to the Investment Options (as defined in Article II.E.
below)) (for a period of at least sixty (60) days if such failure is solely as a
result of the circumstances governed by the second paragraph of Article II.F
below and the Borrower is using its best efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable), (ii) fails to transfer
or to cause its transfer agent to transfer (electronically or in certificated
form) any certificate for shares of Common Stock issued to any Holder upon
conversion of or otherwise pursuant to the Debentures (or upon exercise of or
otherwise pursuant to the Investment Options) as and when required by the
Debentures or the Registration Rights Agreement, dated as of February 24, 2000,
by and among the Borrower and the other signatories thereto (the "REGISTRATION
RIGHTS AGREEMENT"), (iii) fails to remove any restrictive legend (or to withdraw
any stop transfer instructions in respect thereof) on any certificate or any
shares of Common Stock issued to the holders of the Debentures upon conversion
of or otherwise pursuant to the Debentures (or upon exercise of or otherwise
pursuant to the Investment Options) as and when required by the Debentures, the
Purchase Agreement or the Registration Rights Agreement, or (iv) fails to
fulfill its obligations pursuant to Sections 4(c), 4(d), 4(e), 4(h), 4(i), 4(j),
or 5 of the Purchase Agreement (or makes any announcement, statement or threat
that it does not intend to honor the obligations described in this paragraph),
and any such failure shall continue uncured (or any announcement, statement or
threat not to honor its obligations shall not be rescinded in writing) for ten
(10) days after the Borrower shall have been notified thereof in writing by any
holder of the Debentures;

          3. The Borrower fails to obtain effectiveness with the Securities and
Exchange Commission (the "SEC") prior to August 24, 2000 of the Registration
Statement (as defined in the Registration Rights Agreement, the "REGISTRATION
STATEMENT") required to be filed pursuant to Section 2(a) of the Registration
Rights Agreement, or fails to obtain the effectiveness of any additional
Registration Statement (required to be filed pursuant to Section 3(b)of the
Registration Rights Agreement) within sixty (60) days after the Registration
Trigger Date (as defined in the


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Registration Rights Agreement), or any such Registration Statement, after its
initial effectiveness and during the Registration Period (as defined in the
Registration Rights Agreement), lapses in effect or sales of all of the
Registrable Securities (as defined in the Registration Rights Agreement, the
"REGISTRABLE SECURITIES") otherwise cannot be made thereunder (whether by reason
of the Borrower's failure to amend or supplement the prospectus included therein
in accordance with the Registration Rights Agreement, the Borrower's failure to
file and obtain effectiveness with the SEC of an additional Registration
Statement required pursuant to Section 3(b) of the Registration Rights Agreement
or otherwise) for more than twenty (20) consecutive days or more than forty-five
(45) days in any twelve (12) month period after such Registration Statement
becomes effective;

          4. The Borrower or any subsidiary of the Borrower shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for all or substantially all of
its property or business; or such a receiver or trustee shall otherwise be
appointed;

          5. Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower;

          6. The Borrower shall: (i) fail to maintain the listing of the Common
Stock on the Over-the-Counter Bulletin Board (the "OTC BB"); (ii) following the
date on which listing or quotation of the Common Stock on the Nasdaq National
Market ("Nasdaq"), the New York Stock Exchange (the "NYSE") or the American
Stock Exchange ("AMEX") or, if the Corporation is not eligible for Nasdaq, the
NYSE or AMEX, the Nasdaq SmallCap Market (the "Nasdaq SmallCap") has been
secured by the Corporation, fail to maintain such listing on any of Nasdaq,
Nasdaq SmallCap, the NYSE or AMEX;

          7. The sale, conveyance or disposition of all or substantially all of
the assets of the Borrower, the effectuation by the Borrower of a transaction or
series of related transactions in which more than 50% of the voting power of the
Borrower is disposed of (other than a disposition of more than 50% of the voting
power of the Borrower to the Holder), or the consolidation, merger or other
business combination of the Borrower with or into any other individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization (each, a "PERSON") or Persons when the Borrower is not
the survivor; or

          8. The Borrower breaches any covenant contained in Article III hereof
and such breach continues uncured for a period of ten (10) days after written
notice thereof to the Borrower from any holder of Debentures,

then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs 1, 2, 3, 6, 7 or 8 at the option of
the holders of at least 50% of the then outstanding principal amount of the
Debentures exercisable by the delivery of written notice (the"MANDATORY
REDEMPTION NOTICE") to the Borrower of such Mandatory Redemption Event, or upon
the occurrence of any Mandatory Redemption Event specified in subparagraphs 4 or
5, the then


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outstanding Debentures shall become immediately redeemable and the Borrower
shall purchase each holder's outstanding Debentures for an amount equal to the
greater of (i) 120% multiplied by the sum of (a) the then outstanding principal
amount of the Debentures, plus (b) all accrued and unpaid interest thereon for
the period beginning on the Issue Date and ending on the date of payment of the
Mandatory Redemption Amount (the "MANDATORY REDEMPTION DATE"), plus (c) Default
Interest, if any, on the amounts referred to in clauses (a) and/or (b), plus (d)
all Conversion Default Payments (as defined in Article II.E below), Delivery
Default Payments (as defined in Article II.D.3 below) and any other amounts owed
to such holder pursuant to Section 2(c) of the Registration Rights Agreement,
and (ii) the "PARITY VALUE" of the Debentures to be redeemed, where parity value
means the product of (a) the highest number of shares of Common Stock issuable
upon conversion of or otherwise pursuant to such Debentures in accordance with
the terms hereof (without giving any effect to any limitations on conversions of
Debentures contained herein, and treating the Trading Day (as defined in Article
II.B.1) immediately preceding the Mandatory Redemption Date as the "CONVERSION
DATE" (as defined in Article II.D.5) for purposes of determining the lowest
applicable Conversion Price, unless the Mandatory Redemption Event arises as a
result of a breach in respect of a specific Conversion Date in which case such
Conversion Date shall be the Conversion Date), multiplied by (b) the highest
Closing Price (as defined below) for the Common Stock during the period
beginning on the date of first occurrence of the Mandatory Redemption Event and
ending one day prior to the Mandatory Redemption Date (the greater of such
amounts being referred to as the "MANDATORY REDEMPTION AMOUNT"). The Mandatory
Redemption Amount, together with all other ancillary amounts payable hereunder,
shall immediately become due and payable, all without demand, presentment or
notice (other than the Mandatory Redemption Notice), all of which hereby are
expressly waived, together with all costs, including, without limitation,
reasonable legal fees and expenses of collection, and Holder shall be entitled
to exercise all other rights and remedies available at law or in equity.
"CLOSING PRICE," as of any date, means the last sale price of the Common Stock
on the OTC BB as reported by Bloomberg Financial Markets or an equivalent
reliable reporting service mutually acceptable to and hereafter designated by
the holders of a majority of the outstanding principal amount of the Debentures
and the Borrower ("BLOOMBERG") or, if the OTC BB is not the principal trading
market for such security, the last sale price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or, if no last sale price of such security is available
in any of the foregoing manners on the electronic bulletin board for such
security or in any of the foregoing manners, the average of the bid prices of
any market makers for such security that are listed in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Price cannot be calculated for
such security on such date in the manner provided above, the Closing Price shall
be the fair market value as mutually determined by the Borrower and the holders
of a majority of the outstanding principal amount of the Debentures for which
the calculation of the Closing Price is required.

     B. TRADING MARKET REDEMPTION. If any Debentures cease to be convertible by
any holder of the Debentures as a result of the limitations described in Article
II.A.3 below (a "TRADING MARKET REDEMPTION EVENT"), and the Borrower has not,
prior to, or within thirty (30) days of, the date that such Trading Market
Redemption Event arises, either (i) obtained the Stockholder Approval (as
defined in Article II.A.3) or (ii) eliminated any prohibitions under applicable
law or the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization


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with jurisdiction over the Borrower or any of its securities on the Borrower's
ability to issue shares of Common Stock in excess of the Maximum Share Amount
(as defined in Article II.A.3), then the Borrower shall be obligated to redeem
immediately all of the then outstanding principal amount of the Debentures, in
accordance with this Article I.B. An irrevocable redemption notice (the "TRADING
MARKET REDEMPTION NOTICE") shall be delivered promptly to the holders of the
Debentures in accordance with the terms hereof and shall state (i) that the
Maximum Share Amount (as defined in Article II.A.3) has been issued upon
conversion of the Debentures, (ii) that the Borrower is obligated to redeem all
of the outstanding Debentures and (iii) the Mandatory Redemption Date, which
shall be a date within five (5) business days of the earlier of (a) the date of
the Trading Market Redemption Notice or (b) the date on which the holders of the
Debentures notify the Borrower of the occurrence of a Trading Market Redemption
Event. On the Mandatory Redemption Date, the Borrower shall make payment of the
Mandatory Redemption Amount (as defined in Article I.A above) in cash.

     C. REDEMPTION IN LIEU OF CONVERSION. Notwithstanding anything to the
contrary contained in this Article I and subject to the terms of this Article
I.D, after August 24, 2000, if (i) the Closing Price of the Common Stock is less
than the Fixed Conversion Price (as defined in Article II.B.1) (the "REDEMPTION
THRESHOLD"), (ii) there is no Mandatory Redemption Event or Trading Market
Redemption Event and (iii) (a) any Registration Statement required to be filed
and be effective pursuant to the Registration Rights Agreement is then in effect
and has been in effect and sales of all of the Registrable Securities can be
made thereunder for at least thirty (30) Trading Days prior to the date the
Notice of Conversion is submitted and (b) the Borrower has a sufficient number
of authorized shares of Common Stock reserved for issuance upon full conversion
of the Debentures (including upon full exercise of the Investment Options), on
any day a Notice of Conversion (as defined in Article II.D below) is given, the
Borrower shall have the option, in lieu of issuing shares of Common Stock to the
holders upon conversion in accordance with the terms of Article II below, to
redeem all or any portion of principal amount of the Debentures submitted for
conversion for an amount in cash equal to the number of shares of Common Stock
that would have otherwise been issued upon conversion of the Debentures at the
applicable Conversion Price (as defined in Article II) multiplied by the
Redemption Market Price (as defined herein) (the "REDEMPTION IN LIEU OF
CONVERSION AMOUNT"). "REDEMPTION MARKET PRICE" shall be equal to the Closing
Price of the Common Stock on the Conversion Date. If the Closing Price of the
Common Stock is at any time below the Redemption Threshold (a "REDEMPTION IN
LIEU OF CONVERSION NOTICE TRIGGER DATE"), the Borrower shall promptly notify the
holders of the Debentures as to whether the Borrower will issue shares of Common
Stock, deliver cash in redemption or any combination thereof in respect of the
Debentures submitted for conversion pursuant to Article II. The Borrower will be
bound by such notice for a period of thirty (30) Trading Days (the "TERM") from
the date of such notice, at the end of which the Borrower may elect to renew
such notice. A failure to issue or renew within one (1) Trading Day of the
Redemption In Lieu of Conversion Notice Trigger Date or the end of a Term shall
be deemed to be an election to issue Common Stock upon conversion of the
Debentures during the subsequent Term. Any redemption amounts payable hereunder
shall be paid to the converting Holder within two (2) Trading Days of the
Conversion Date.


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     D. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a Mandatory Redemption
Event or the delivery of a Redemption In Lieu of Conversion Notice, if the
Borrower fails to pay the Mandatory Redemption Amount or Redemption In Lieu of
Conversion Amount, as applicable, within five (5) business days of written
notice that such amount is due and payable, then (assuming there are sufficient
authorized shares) in addition to all other available remedies, the Holder shall
have the right at anytime, so long as the Mandatory Redemption Event continues,
or at any time after the Redemption In Lieu of Conversion Date, to require the
Borrower, upon written notice, to issue as soon as practicable thereafter (in
accordance with and subject to the terms of Article II below), in lieu of the
Mandatory Redemption Amount, Redemption In Lieu of Conversion Amount, as
applicable, the number of shares of Common Stock of the Borrower equal to such
applicable redemption amount divided by any Conversion Price (as defined below),
as chosen in the sole discretion of Holder, in effect from the date of the
Mandatory Redemption Event (or the date of delivery of a Redemption In Lieu of
Conversion Notice) until the date Holder elects to exercise its rights pursuant
to this Article I.D.


                     II. CONVERSION AT THE OPTION OF HOLDER

     A. OPTIONAL CONVERSION

          1. CONVERSION AMOUNT. Subject to Article II.A.2 below, the Holder may,
at its option at any time and from time to time, upon surrender of this
Debenture, convert all or any portion of this Debenture into Common Stock as set
forth below (an "OPTIONAL CONVERSION"). This Debenture shall be convertible into
such number of fully paid and nonassessable shares of Common Stock as such
Common Stock exists on the Issue Date, or any other shares of capital stock or
other securities of the Borrower into which such Common Stock is thereafter
changed or reclassified, as is determined by dividing (a) the Conversion Amount
(as defined below) by (b) the Conversion Price (as defined in Article II.B
below); provided, however, that in no event shall Holder be entitled to convert
this Debenture (or exercise Investment Options in connection with any such
conversion) to the extent that the sum of (x) the number of shares of Common
Stock beneficially owned by Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of this Debenture, the unexercised Investment Options or the
unexercised or unconverted portion of any other securities of the Borrower
(including, without limitation, the warrants issued by the Borrower pursuant to
the Purchase Agreement) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (y) the number of shares of
Common Stock issuable upon the conversion of the portion of this Debenture (and
upon the exercise, if any, of Investment Options in connection therewith) with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by Holder and Holder's affiliates of more than 4.9% of
the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, (i) beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(x) of such proviso and (ii) such proviso may not be amended without (a) the
written consent of the Holder and the Borrower and (b) the approval of the
holders of a majority of Borrower's Common Stock present, or represented by
proxy,


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and voting at any meeting called to vote on such proviso. "CONVERSION AMOUNT"
means (i) the portion of the principal amount of this Debenture being converted,
plus (ii) all accrued and unpaid interest thereon for the period beginning on
the Issue Date and ending on the Conversion Date (as defined in Article II.B.1),
plus (iii) Default Interest, if any, on the amounts referred to in the
immediately preceding clauses (i) and/or (ii), plus (iv) any Conversion Default
Payments (as defined in Article II.E) and Delivery Default Payments (as defined
in Article II.D.3) payable with respect thereto, together with any other amounts
owed to Holder pursuant to Section 2(c) of the Registration Rights Agreement.

          2. CONVERSION RESTRICTIONS. The Holder may convert this Debenture
beginning on August 24, 2000; provided, however, that the restriction on
conversion of this Debenture prior to August 24, 2000 shall not apply to
conversions taking place on any Conversion Date (i) on which the Trade Price (as
defined below) of the Common Stock is greater than or equal to either (a) one
hundred twenty percent (120%) of the then applicable Market Price (as defined in
Article II.B.1) or (b) $9.25 (subject to adjustment for stock splits, stock
dividends and similar transactions) or (ii) occurring on or after the date the
Borrower makes a public announcement that it intends to merge or consolidate
with any other corporation or sell or transfer substantially all of the assets
of the Borrower or (iii) occurring on or after the date any person, group or
entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower's Common Stock (or any other takeover scheme) or
(iv) occurring on or after the date on which there is a material adverse change
in the business, operation, assets, financial condition or prospects of the
Borrower or its subsidiaries, taken as a whole, or (v) occurring on or after the
occurrence of any Mandatory Redemption Event. "TRADE PRICE" means, for any
security as of any date, the trade price of the Common Stock on the OTC BB as
reported by Bloomberg Financial Markets or an equivalent reliable reporting
service mutually acceptable to and hereafter designated by the holders of a
majority of the outstanding principal amount of the Debentures and the Borrower
("BLOOMBERG") or, if the OTC BB is not the principal trading market for such
security, the trade price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or, if no trade price of such security is available in any of the
foregoing manners, the bid price of any market maker for such security that is
listed in the "pink sheet" by the National Quotation Bureau, Inc. If the Trade
Price cannot be calculated for such security on such date in the manner provided
above, the Trade Price shall be the fair market value as mutually determined by
the Borrower and the holders of a majority of the outstanding principal amount
of the Debentures.

          3. TRADING MARKET LIMITATION. Unless the Borrower either (i) is
permitted (or not prohibited) by the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or traded to
issue shares of Common Stock upon conversion of or otherwise pursuant to the
Debentures in excess of the Maximum Share Amount (as defined below) or (ii) has
obtained stockholder approval of the issuance of shares of Common Stock upon
conversion of or otherwise pursuant to the Debentures and upon exercise of or
otherwise pursuant to the Investment Options in excess of the Maximum Share
Amount in accordance with applicable law and the rules and regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Borrower or any of its securities (the


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"STOCKHOLDER APPROVAL"), in no event shall the total number of shares of Common
Stock issued upon conversion of or otherwise pursuant to the Debentures and upon
exercise of or otherwise pursuant to the Investment Options (including any
shares of capital stock or rights to acquire shares of capital stock issued by
the Borrower which are aggregated or integrated with the Common Stock issued or
issuable upon conversion of or otherwise pursuant to the Debentures and upon
exercise of or otherwise pursuant to the Investment Options for purposes of any
such rule or regulation) exceed 2,282,648 (19.99% of the total shares of Common
Stock outstanding on the Issue Date) (the "MAXIMUM SHARE AMOUNT"), subject to
equitable adjustments from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the Issue Date. With respect to each Holder of Debentures,
the Maximum Share Amount shall refer to such Holder's pro rata share thereof
determined in accordance with Article V.I below. In the event that the sum of
(x) the aggregate number of shares of Common Stock actually issued upon
conversion of or otherwise pursuant to the Debentures and upon exercise of or
otherwise pursuant to the Investment Options plus (y) the aggregate number of
shares of Common Stock that remain issuable upon conversion of or otherwise
pursuant to the then outstanding Debentures at the then effective Conversion
Price, represents at least one hundred percent (100%) of the Maximum Share
Amount (the "TRIGGERING EVENT"), the Borrower will use its best efforts to seek
and obtain Stockholder Approval (or obtain such other relief as will allow
conversions hereunder in excess of the Maximum Share Amount) as soon as
practicable following the Triggering Event.

     B. CONVERSION PRICE

          1. CALCULATION OF CONVERSION PRICE. Subject to subparagraph 2 below,
the "CONVERSION PRICE" shall be (x) the Applicable Percentage, multiplied by (y)
the lesser of the Variable Conversion Price (as defined herein) and the Fixed
Conversion Price (as defined herein). The Conversion Price shall be subject to
adjustments pursuant to the provisions of Article II.C below. "VARIABLE
CONVERSION PRICE" shall mean the Market Price (as defined below). "MARKET PRICE"
shall mean the average of the Closing Bid Prices for any seven (7) Trading Days
(which need not be consecutive) (the "MARKET PRICE DAYS") during the thirty-five
(35) consecutive Trading Day period ending one (1) Trading Day prior to the date
the Notice of Conversion (as defined in Article II.D) is sent by the Holder to
the Borrower via facsimile (the "PRICING PERIOD"). The Market Price Days shall
be designated by the converting Holder (from among the days comprising the
Pricing Period) in the Notice of Conversion. "FIXED CONVERSION PRICE" shall mean
$9.7125. "APPLICABLE PERCENTAGE" shall mean 100%; provided, however, that if the
Common Stock (i) is not listed on the Nasdaq SmallCap or the Amex prior to
October 24, 2000, (ii) is not listed on the Nasdaq SmallCap or the AMEX prior to
October 24, 2000 and is not listed on Nasdaq prior to February 24, 2001
(provided that if the Common Stock is not listed on the Nasdaq SmallCap or the
AMEX prior to October 24, 2000 in accordance with clause (i) hereof but is
listed on Nasdaq prior to February 24, 2001, the Applicable Percentage will be
80% for the period beginning on October 24, 2000 and ending on the date prior to
February 24, 2001 on which the Common Stock is first listed on Nasdaq), or (iii)
if so listed on or prior to such dates, is at any time thereafter delisted from
Nasdaq, Nasdaq SmallCap or AMEX (other than delisting, for no more that two (2)
Trading Days, solely in connection with the simultaneous listing of the Common
Stock on the NYSE), the Applicable


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Percentage shall mean 80%: provided, further, however, that the Applicable
Percentage shall be further reduced by 2.5% for each Default Period (as defined
in the Registration Rights Agreement) (prorated for partial Default Periods) as
set forth in the Registration Rights Agreement. "Closing Bid Price" means, for
any security as of any date, the closing bid price on the OTC BB as reported by
Bloomberg or, if the OTC BB is not the principal trading market for such
security, the closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or, if no closing bid price of such security is available in any
of the foregoing manners, the average of the bid prices of any market makers for
such security that are listed in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date in the manner provided above, the Closing Bid Price shall be the fair
market value as mutually determined by the Borrower and the holders of a
majority of the principal amount of the Debentures being converted for which the
calculation of the Closing Bid Price is required in order to determine the
Conversion Price of such Debentures. "Trading Day" shall mean any day on which
the Common Stock is traded for any period on the OTC BB, or on the principal
securities exchange or other securities market on which the Common Stock is then
being traded.

          2. CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Notwithstanding
anything contained in subparagraph 1 of this Paragraph B to the contrary, in the
event the Borrower (a) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Borrower is the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets of the
Borrower or (b) any person, group or entity (including the Borrower) publicly
announces a tender offer to purchase 50% or more of the Borrower's Common Stock
(or any other takeover scheme) (the date of the announcement referred to in
clause (a) or (b) is hereinafter referred to as the "ANNOUNCEMENT DATE"), then
the Conversion Price shall, effective on the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be
equal, for each such date, to the lower of (x) the Conversion Price which would
have been applicable for an Optional Conversion occurring on the Announcement
Date and (y) the Conversion Price that would otherwise be in effect on such
date. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in subparagraph 1 of this
Article II.B. For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE"
shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this
subparagraph 2 has been made, the date upon which the Borrower (in the case of
clause (a) above) or the person, group or entity (in the case of clause (b)
above) consummates or publicly announces the termination or abandonment of the
proposed transaction or tender offer (or takeover scheme) which caused this
subparagraph 2 to become operative.

     C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall be subject
to adjustment from time to time as follows:

          1. ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK DIVIDEND,
ETC. If at any time when this Debenture is outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock split,
stock dividend, combination, reclassification rights


                                       9
<PAGE>   10


offering below the Trading Price (as defined below) to all holders of Common
Stock or other similar event, which event shall have taken place during the
reference period for determination of the Conversion Price for any Optional
Conversion or Maturity, then the Conversion Price shall be calculated giving
appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event. In such event, the Borrower shall
notify the Transfer Agent of such change on or before the effective date
thereof. "TRADING PRICE," which shall be measured as of the record date in
respect of the rights offering, means (i) the average of the last reported sale
prices for the shares of Common Stock on the OTC BB as reported by Bloomberg, as
applicable, for the five Trading Days immediately preceding such date, or (ii)
if the OTC BB is not the principal trading market for the shares of Common
Stock, the average of the last reported sale prices on the principal trading
market for the Common Stock during the same period as reported by Bloomberg, or
(iii) if market value cannot be calculated as of such date on any of the
foregoing bases, the Trading Price shall be the fair market value as reasonably
determined in good faith by (x) the Board of Directors of the Borrower or, (y)
at the option of the holders of a majority of the then outstanding principal
amount of the Debentures, by an independent investment bank of nationally
recognized standing in the valuation of businesses similar to the business of
the Borrower.

          2. ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time when
this Debenture is outstanding and prior to the conversion of all Debentures,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Borrower shall be changed into the same or a different number of
shares of another class or classes of stock or securities of the Borrower or
another entity, or in case of any sale or conveyance of all or substantially all
of the assets of the Borrower other than in connection with a plan of complete
liquidation of the Borrower (each, a "CHANGE OF CONTROL TRANSACTION"), then
Holder shall thereafter have the right to receive upon conversion of this
Debenture (and upon exercise of the Investment Options), upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion (and upon exercise of the
Investment Options), such stock, securities or assets which Holder would have
been entitled to receive in such transaction had this Debenture been converted
(and had the Investment Options been exercised) in full immediately prior to
such transaction (without regard to any limitations on conversion contained
herein), and in any such case appropriate provisions shall be made with respect
to the rights and interests of Holder to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares of Common Stock issuable upon conversion of
this Debenture (and upon exercise of the Investment Options) shall thereafter be
applicable, as nearly as may be practicable in relation to any securities or
assets thereafter deliverable upon the conversion of this Debenture (and
exercise of the Investment Options). The Borrower shall not effect any
transaction described in this subparagraph 2 unless (i) it first gives, to the
extent practical, thirty (30) days' prior written notice (but in any event at
least fifteen (15) business days prior written notice) of the record date of the
special meeting of stockholders to approve, or if there is no such record date,
the consummation of, such Change of Control Transaction (during which time
Holder shall be entitled to convert this Debenture (and exercise the Investment
Options)), which notice shall be given concurrently with the first public
announcement of such transaction, and (ii) the resulting successor or acquiring
entity (if not the Borrower) and, if an entity different from the successor or
acquiring


                                       10
<PAGE>   11


entity, the entity whose capital stock or assets the holders of the Common Stock
are entitled to receive as a result of such Change of Control Transaction,
assumes by written instrument the obligations of the Borrower hereunder
(including under this subparagraph 2). The above provisions shall similarly
apply to successive consolidations, mergers, sales, transfers or share
exchanges.

          3. ADJUSTMENT DUE TO DISTRIBUTION. Subject to Article III.A, if the
Borrower shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
by way of return of capital or otherwise (including any dividend or distribution
to the Borrower's shareholders in cash or shares (or rights to acquire shares)
of capital stock of a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then
Holder shall be entitled, upon any conversion of this Debenture (and upon any
exercise of Investment Options) after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to Holder with respect to the shares of Common
Stock issuable upon such conversion (or upon such exercise of Investment
Options) had Holder been the holder of such shares of Common Stock on the record
date for the determination of shareholders entitled to such Distribution.

          4. PURCHASE RIGHTS. Subject to Article III.A, if at any time when this
Debenture is outstanding the Borrower issues any convertible securities or
rights to purchase stock, warrants, securities or other property (the "PURCHASE
RIGHTS") pro rata to the record holders of any class of Common Stock, then
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which Holder could have acquired if Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Debenture (including upon exercise of the Investment Options)
(without regard to any limitations on conversion contained herein and based upon
the Conversion Price as would then be in effect) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

          5. ADJUSTMENT FOR RESTRICTED PERIODS. In the event that (a) the
Borrower fails to obtain effectiveness with the SEC of any Registration
Statement required to be filed pursuant to the Registration Rights Agreement on
or prior to the date on which such Registration Statement is required to become
effective pursuant to the terms of the Registration Rights Agreement, (b) any
such Registration Statement, after its initial effectiveness and during the
Registration Period, lapses in effect, or sales of all of the Registrable
Securities (as defined in the Registration Rights Agreement) otherwise cannot be
made thereunder, whether by reason of the Borrower's failure or inability to
amend or supplement the prospectus (the "PROSPECTUS") included therein in
accordance with the Registration Rights Agreement or otherwise (including
without, limitation, during an Allowed Delay (as defined in Section 3(f) of the
Registration Rights Agreement)) or (c) a Trading Market Redemption Event occurs
(each of such events described in clauses (a), (b) and (c) being referred to as
an "EXTENDED LOOKBACK EVENT"), then, at the election of the Holder, the Pricing
Period shall be comprised of (x) in the case of an event described in clause
(a), the thirty-five (35) Trading Days preceding the date on which such
Registration Statement is required to become effective pursuant to the terms of
the Registration Rights Agreement, plus all Trading Days through


                                       11
<PAGE>   12


and including the third (3rd) Trading Day following the actual date of
effectiveness of the Registration Statement, (y) in the case of an event
described in clause (b), the thirty-five (35) Trading Days preceding the date on
which Holder is first notified that sales may not be made under the Prospectus
plus all Trading Days through and including the third (3rd) Trading Day
following the date on which Holder is first notified that such sales may again
be made under the Prospectus or (z) in the case of an event described in clause
(c), the thirty-five (35) Trading Days preceding the occurrence of the Trading
Market Redemption Event, plus all Trading Days through and including the third
(3rd) Trading Day following the date the Stockholders' Approval is obtained or
the Borrower is permitted by the applicable rules and regulations of the
principle securities market on which the Common Stock is listed or traded to
issue shares in excess of the Maximum Share Amount (each of such periods
referred to in clauses (x), (y) and (z) being defined as an "EXTENDED LOOKBACK
PERIOD"). If Holder determines that sales may not be made pursuant to the
Prospectus (whether by reason of the Borrower's failure or inability to amend or
supplement the Prospectus or otherwise) it shall so notify the Borrower in
writing and, unless the Borrower provides such Holder with a written opinion of
the Borrower's counsel to the contrary, such determination shall be binding for
purposes of this paragraph. In the event that an Extended Lookback Event occurs
within three (3) Trading Day-period following the cure of any other Extended
Lookback Event, the Extended Lookback Periods shall be cumulative.

     D. MECHANICS OF CONVERSION. In order to convert this Debenture into shares
of Common Stock, Holder shall: (1) submit a copy of the fully executed notice of
conversion in the form attached hereto as Exhibit A ("NOTICE OF CONVERSION") to
the Borrower by facsimile dispatched prior to Midnight, New York City time (the
"CONVERSION NOTICE DEADLINE"), on the date specified therein as the Conversion
Date (as defined in Article II.D.5) (or by other means resulting in, or
reasonably expected to result in, written notice to the Borrower on the date
specified therein as the Conversion Date) to the office of the Borrower or its
designated Transfer Agent for the Debentures, which notice shall specify the
principal amount of this Debenture to be converted, the applicable Conversion
Price and a calculation of the number of shares of Common Stock issuable upon
such conversion (including the number of shares issuable upon exercise of the
Investment Options, if any); and (2) subject to Article II.D.1 below, surrender
this Debenture along with a copy of the Notice of Conversion to the office of
the Borrower as soon as practicable thereafter. In the case of a dispute as to
the calculation of the Conversion Price, the Borrower shall promptly issue that
number of shares of Common Stock as is not disputed in accordance with
subparagraph (3) below. The Borrower shall submit the disputed calculations to
its outside accountant via facsimile within two (2) business days of receipt of
the Notice of Conversion. The accountant shall audit the calculations and notify
the Borrower and Holder of the results no later than 48 hours from the time it
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive absent manifest error.

          1. SURRENDER OF DEBENTURE UPON CONVERSION. Notwithstanding anything to
the contrary set forth herein, upon conversion of this Debenture in accordance
with the terms hereof, Holder shall not be required to physically surrender this
Debenture to the Borrower unless the entire unpaid principal amount of this
Debenture is so converted. Holder and the Borrower shall maintain records
showing the principal amount so converted and the dates of such conversions or
shall use


                                       12
<PAGE>   13


such other method, reasonably satisfactory to Holder and the Borrower, so as not
to require physical surrender of this Debenture upon each such conversion. In
the event of any dispute or discrepancy, such records of the Borrower shall be
controlling and determinative in the absence of manifest error. Notwithstanding
the foregoing, if any portion of this Debenture is converted as aforesaid,
Holder may not transfer this Debenture unless Holder first physically surrenders
this Debenture to the Borrower, whereupon the Borrower will forthwith issue and
deliver upon the order of Holder a new Debenture of like tenor, registered as
Holder may request, representing in the aggregate the remaining unpaid principal
amount of this Debenture. Holder and any assignee, by acceptance of this
Debenture, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the unpaid and
unconverted principal amount of this Debenture may be less than the amount
stated on the face hereof.

          2. LOST OR STOLEN DEBENTURES. Upon receipt by the Borrower of evidence
of the loss, theft, destruction or mutilation of this Debenture, and (in the
case of loss, theft or destruction) of indemnity reasonably satisfactory to the
Borrower, and upon surrender and cancellation of this Debenture, if mutilated,
the Borrower shall execute and deliver a new Debenture of like tenor and date.

          3. DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the submission of a
Notice of Conversion, the Borrower shall, within two (2) business days after the
Conversion Date (the "DELIVERY PERIOD"), issue and deliver (or cause its
Transfer Agent to so issue and deliver) in accordance with the terms hereof and
the Purchase Agreement (including, without limitation, in accordance with the
requirements of Section 2(g) of the Purchase Agreement) to or upon the order of
Holder that number of shares of Common Stock for the portion of this Debenture
converted (and, if applicable, the number of shares of Common Stock issuable
upon exercise of Investment Options in connection therewith) as shall be
determined in accordance herewith. In addition to any other remedies available
to Holder, including actual damages and/or equitable relief, the Borrower shall
pay to Holder $2,000 per day in cash for each day beyond a two (2) day grace
period following the Delivery Period that the Borrower fails to deliver Common
Stock (a "DELIVERY DEFAULT") issuable upon conversion of this Debenture pursuant
to the Notice of Conversion until such time as the Borrower has delivered all
such Common Stock (the "DELIVERY DEFAULT PAYMENTS"). Such Delivery Default
Payments shall be paid to Holder by the fifth (5th) day of the month following
the month in which they have accrued or, at the option of Holder (by written
notice to the Borrower by the first day of the month following the month in
which they have accrued), shall be convertible into Common Stock in accordance
with the terms of this Article II.

          In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Borrower's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon written request of Holder and its compliance
with the provisions contained in Article II.A and in this Article II.D, the
Borrower shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to Holder by
crediting the account of Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time


                                       13
<PAGE>   14


periods for delivery and penalties described in the immediately preceding
paragraph shall apply to the electronic transmittals described herein.

          4. NO FRACTIONAL SHARES. If any conversion of this Debenture would
result in a fractional share of Common Stock or the right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion of this Debenture
shall be the next higher number of shares.

          5. CONVERSION DATE. The "CONVERSION DATE" shall be the date specified
in the Notice of Conversion, provided that the Notice of Conversion is submitted
by facsimile (or by other means resulting in, or reasonably expected to result
in, written notice) to the Borrower or its Transfer Agent before Midnight, New
York City time, on the date so specified, otherwise the Conversion Date shall be
the first business day after the date so specified on which the Notice of
Conversion is actually received by the Borrower or its Transfer Agent. The
person or persons entitled to receive the shares of Common Stock issuable upon
conversion of this Debenture (or exercise of Investment Options) shall be
treated for all purposes as the record holder or holders of such securities as
of the Conversion Date and all rights with respect to this Debenture (or portion
thereof) surrendered shall forthwith terminate except the right to receive the
shares of Common Stock or other securities or property issuable on such
conversion (or exercise) and except that the holders preferential rights as a
Holder of this Debenture shall survive to the extent the Borrower fails to
deliver such securities.

     E. INVESTMENT OPTIONS. On any Conversion Date relating to a conversion of
this Debenture by Holders, the Holder shall have the option to purchase one
additional share of Common Stock for every share of Common Stock issuable as a
result of such conversion, at an exercise price equal to the Fixed Conversion
Price (the option to purchase such additional shares shall be referred to herein
as the "Investment Options"). Holder (i) shall indicate on the Notice of
Conversion in respect of such Conversion Date that it is exercising its
Investment Option with respect to such conversion and shall specify the number
of shares of Common Stock with respect to which the Investment Option is being
so exercised, and (ii) shall pay to the Borrower, in immediately available
funds, on or within one (1) business day following the Conversion Date, the
aggregate purchase price for the shares of Common Stock issuable as a result of
the exercise of such Investment Options. The provisions of paragraphs A, D.3 (so
long as the Holder has delivered to the Borrower the aggregate purchase price
due in connection with the exercise of the Investment Options) and F of this
Article II shall apply to any exercise by the Holder of Investment Options.

     F. RESERVATION OF SHARES. A number of shares of the authorized but unissued
Common Stock sufficient to provide for the conversion in full of the Debentures
outstanding (based on the lesser of the Applicable Percentage multiplied by the
Variable Conversion Price in effect from time to time and the Applicable
Percentage multiplied by the Fixed Conversion Price in effect from time to time)
and the exercise in full of the Investment Options shall at all times be
reserved by the Borrower, free from preemptive rights, for such conversion. As
of the Issue Date, 3,072,716 authorized and unissued shares of Common Stock have
been duly reserved for issuance upon conversion of the Debentures and upon
exercise of the Investment Options (the "RESERVED AMOUNT"). The Reserved Amount
shall be increased from time to time in accordance with the


                                       14
<PAGE>   15


Borrower's obligations pursuant to Section 4(h) of the Purchase Agreement. In
addition, if the Borrower shall issue any securities or make any change in its
capital structure which would change the number of shares of Common Stock into
which the Debentures shall be convertible and for which the Investment Options
shall be exercisable, the Borrower shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the Debentures and exercise of the Investment Options.

     If at any time Holder submits a Notice of Conversion, and the Borrower does
not have sufficient authorized but unissued shares of Common Stock duly reserved
and available for issuance to effect such conversion in accordance with the
provisions of this Article II (including any Investment Options exercised in
connection therewith) (a "CONVERSION DEFAULT"), subject to Article V.I, the
Borrower shall issue to Holder all of the shares of Common Stock which are
available to effect such conversion. The portion of the principal amount of this
Debenture (or the number of shares of Common Stock including the Investment
Options) included in the Notice of Conversion which exceeds the amount which is
then convertible into available shares of Common Stock (the "EXCESS AMOUNT")
shall, notwithstanding anything to the contrary contained herein, not be
convertible (or exercisable) into Common Stock in accordance with the terms
hereof until (and at Holder's option at any time after) the date additional
shares of Common Stock are authorized and duly reserved by the Borrower to
permit such conversion (or exercise), at which time the Conversion Price in
respect thereof shall be the lesser of (i) the Conversion Price on the
Conversion Default Date (as defined below) and (ii) the Conversion Price on the
Conversion Date elected by Holder in respect thereof. The Borrower shall use its
best efforts to effect an increase in the authorized number of shares of Common
Stock as soon as possible following the earlier of (x) such time that Holder
notifies the Borrower or that the Borrower otherwise becomes aware that there
are or likely will be insufficient authorized and unissued shares to allow full
conversion hereof and (y) a Conversion Default. In addition, the Borrower shall
pay to Holder payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default
in the amount of (a) .24, multiplied by (b) the Conversion Default Amount (as
defined below), multiplied by (c)(N/365), where N = the number of days from the
day Holder submits a Notice of Conversion giving rise to a Conversion Default
(the "CONVERSION DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that the
Borrower authorizes a sufficient number of shares of Common Stock to effect
conversion of the Debentures. "CONVERSION DEFAULT AMOUNT" means the then
outstanding principal amount of all Debentures held by Holder plus the aggregate
accrued interest thereon as of the first day of the Conversion Default. The
Borrower shall send notice to Holder of the authorization of additional shares
of Common Stock, the Authorization Date and the amount of Holder's accrued
Conversion Default Payments. The accrued Conversion Default Payment for each
calendar month shall be paid in cash or shall be convertible into Common Stock
at the applicable Conversion Price, at the Borrower's option, as follows:

          1. In the event Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth (5th) day of the month following
the month in which it has accrued.

          2. In the event the Holder elects to take such payment in Common
Stock, Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the


                                       15
<PAGE>   16


time of Conversion) at any time after the fifth day of the month following the
month in which it has accrued in accordance with the terms of this Article II
(so long as there is then a sufficient number of authorized shares of Common
Stock).

          Holder's election shall be made in writing to the Borrower at any time
prior to 9:00 p.m, New York City time, on the third (3rd) day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Borrower's failure
to maintain a sufficient number of authorized shares of Common Stock, and Holder
shall have the right to pursue all remedies available at law or in equity
(including a decree of specific performance and/or injunctive relief).

     G. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Article II,
the Borrower, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
Holder a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of Holder, furnish or cause
to be furnished to Holder a like certificate setting forth (i) such adjustment
or readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of this Debenture.


                             III. CERTAIN COVENANTS

     A. DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent (a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities) on shares of
capital stock or (b) directly or indirectly through any subsidiary make any
other payment or distribution in respect of its capital stock.

     B. RESTRICTION ON STOCK REPURCHASES. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any one transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.

     C. BORROWINGS. So long as the Borrower shall have any obligation under this
Debenture, the Borrower shall not, without the written consent of the holders of
a majority of the then outstanding principal amount of the Debentures, create,
incur, assume or suffer to exist any liability for borrowed money, except (a)
borrowings in existence or committed on the date hereof and of which the
Borrower has informed Holder in writing prior to the date hereof, (b) borrowings
from a


                                       16
<PAGE>   17


bona fide financial lending institution, (c) indebtedness to trade creditors
incurred in the ordinary course of business or (d) borrowings, the proceeds of
which shall be used to repay this Debenture.

     D. SALE OF ASSETS. So long as the Borrower shall have any obligation under
this Debenture, the Borrower shall not, without the written consent of the
holders of a majority of the then outstanding principal amount of the
Debentures, sell, lease or otherwise dispose of any of its assets outside the
ordinary course of business. Any consent to the disposition of any assets may be
conditioned on a specified use of the proceeds of disposition.

     E. ADVANCES AND LOANS. So long as the Borrower shall have any obligation
under this Debenture, the Borrower shall not, without the written consent of the
holders of a majority of the then outstanding principal amount of the
Debentures, lend money, give credit or make advances to any person, firm, joint
venture or corporation, including, without limitation, officers, directors,
employees, subsidiaries and affiliates of the Borrower, except loans, credits or
advances (a) in existence or committed on the date hereof and which the Borrower
has informed Holder in writing prior to the date hereof, and (b) made in the
ordinary course of business.

     F. CONTINGENT LIABILITIES. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the written
consent of the holders of a majority of the then outstanding principal amount of
the Debentures, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed Holder in writing prior to the date here of,
and (b) similar transactions in the ordinary course of business.


                                  IV. MATURITY

          The entire principal amount of the Debentures then outstanding
(together with any accrued and unpaid interest thereon, Default Interest,
Conversion Default Payments, Delivery Default Payments and all other amounts due
and payable by the Borrower pursuant to Section 2(c) of the Registration Rights
Agreement) on the Maturity Date, shall be paid by the Borrower to the Holder in
cash. At the option of the Holder, the Maturity Date shall be delayed by one (1)
Trading Day for each Trading Day occurring prior thereto and prior to the full
conversion of the Debentures that (i) any Registration Statement required to be
filed and to be effective pursuant to the Registration Rights Agreement is not
effective or sales of all of the Registrable Securities otherwise cannot be made
thereunder during the Registration Period (whether by reason of the Borrower's
failure to properly supplement or amend the prospectus included therein in
accordance with the terms of the Registration Rights Agreement or otherwise),
(ii) any Mandatory Redemption Event or Trading Market Redemption Event exists,
without regard to whether any cure periods shall have run or (iii) the Borrower
is in breach of any of its obligations pursuant to Section 4(h) of the Purchase
Agreement.


                                       17
<PAGE>   18


                                V. MISCELLANEOUS

     A. FAILURE OF INDULGENCE NOT WAIVER. No failure or delay on the part of
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.

     B. NOTICES. Any notices required or permitted to be given under the terms
of this Debenture shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier or by facsimile, in each case
addressed to a party. The addresses for such communications shall be:

                         If to the Borrower:

                         SmartSources.com, Inc.
                         2030 Marine Drive, Suite 100
                         North Vancouver, B.C., V7P IV7
                         Attention: Chief Executive Officer
                         Facsimile: (604) 986-0869


                         With copy to:

                         Wolin, Ridley & Miller LLP
                         3100 Bank One Center
                         1717 Main Street
                         Dallas, Texas 75201-4681
                         Attention: Norman Miller
                         Facsimile: (214) 939-4949

     If to Holder, to the address set forth immediately below Holder's name on
the signature pages to the Purchase Agreement or such other address as is
communicated to the Borrower by notice by Holder in accordance with the terms
hereof.

                           With copy to:
                           Bradley D. Houser
                           Akerman, Senterfitt & Eidson, P.A.
                           One Southeast Third Avenue, 28th Floor
                           Miami, Florida 33131
                           Facsimile: (305) 374-5095


                                       18
<PAGE>   19


     C. AMENDMENT PROVISION. The Debentures may be amended only by an instrument
in writing signed by the Borrower and the holders of a majority of the then
outstanding principal amount of the Debentures.

     D. ASSIGNABILITY. This Debenture shall be binding upon the Borrower and its
successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. In the event Holder shall sell or otherwise transfer any
portion of this Debenture, each transferee shall be allocated a pro rata portion
of such transferor's Maximum Share Amount and Reserved Amount. Any portion of
the Maximum Share Amount or Reserved Amount which remains allocated to any
person or entity which does not hold any Debentures shall be allocated to the
remaining holders of Debentures, pro rata based on the total principal amount of
Debentures then held by such holders.

     E. COST OF COLLECTION. If default is made in the payment of this Debenture,
the Borrower shall pay Holder costs of collection, including reasonable
attorneys' fees.

     F. GOVERNING LAW. This Debenture shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in the State of Delaware (without regard to principles of
conflict of laws). The Borrower and Holder irrevocably consent to the
jurisdiction of the United States federal courts and state courts located in
Delaware in any suit or proceeding based on or arising under this Debenture, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts. The Borrower and Holder
irrevocably waive the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Borrower and Holder further agree that service of
process upon a party mailed by first class mail shall be deemed in every respect
effective service of process upon the party in any such suit or proceeding.
Nothing herein shall affect Holder's right to serve process in any other manner
permitted by law. The Borrower and Holder agree that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.

     G. DENOMINATIONS. At the request of Holder, upon surrender of this
Debenture, the Borrower shall promptly issue new Debentures in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $25,000 as Holder shall request.

     H. PAYMENT OF CASH; DEFAULTS. Whenever the Borrower is required to make any
cash payment to Holder under this Debenture (as a Conversion Default Payment or
otherwise but not including payments of principal and interest hereunder), such
cash payment shall be made to Holder within five Trading Days after delivery by
Holder of a notice specifying that Holder elects to receive such payment in cash
and the method (e.g., by check, wire transfer) in which such payment should be
made and appropriate delivery instructions, including any necessary wire
transfer instructions. If such payment is not delivered within such five-Trading
Day period, Holder shall thereafter be entitled to interest on the unpaid amount
at a per annum rate equal to the lower of 24% and the highest interest rate
permitted by applicable law until such amount is paid in full to Holder.


                                       19
<PAGE>   20


     I. PRO RATA ALLOCATIONS. The Maximum Share Amount and the Reserved Amount
(including any increases thereto) shall be allocated by the Borrower pro rata
among the holders of the Debentures based on the total principal amount of
Debentures originally issued to each holder of the Debentures. Each increase to
the Maximum Share Amount and the Reserved Amount shall be allocated pro rata
among the holders of the Debentures based on the total principal amount of
Debentures held by each holder at the time of the increase in the Maximum Share
Amount or Reserved Amount. In the event a holder shall sell or otherwise
transfer any of such holder's shares of the Debentures, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any the
Debentures shall be allocated to the remaining holders of shares of the
Debentures, pro rata based on the total principal amount of Debentures held by
such holders.

     J. REMEDIES CUMULATIVE. The remedies provided in this Debenture shall be
cumulative and in addition to all other remedies available under this Debenture,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance giving rise to such remedy and nothing herein shall limit Holder's
right to pursue actual damages for any failure by the Borrower to comply with
the terms of this Debenture. The Borrower acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to Holder and that the
remedy at law for any such breach may be inadequate. The Borrower therefore
agrees, in the event of any such breach or threatened breach, Holder shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

     K. USURY. Nothing herein contained, nor any transaction related hereto,
shall be construed or so operate as to require the Borrower to pay interest at a
greater rate than is now lawful in such case to contract for, or to make any
payment, or to do any act contrary to law. Should any interest or other charges
paid by the Borrower, or parties liable for the payment of this Debenture, in
connection with the loan evidenced by this Debenture, or any document delivered
in connection with said loan, result in the computation or earning of interest
in excess of the maximum rate of interest which is legally permitted by law,
then any and all such interest in excess of the maximum legal rate of interest
shall be and the same is hereby waived by the Holder hereof, and any and all
such interest in excess of the maximum legal rate which has been paid shall be
automatically credited against and in reduction of the balance due under this
Debenture, and the portion of said excess which exceeds the balance due under
this Debenture shall be paid by the Holder to the Borrower.


                                       20
<PAGE>   21


     IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in its
name by its duly authorized officer as of the date first above written.


                                  SMARTSOURCES.COM, INC.



                                  By: /s/ DARRYL CARDEY
                                     -------------------------------------------
                                      Darryl Cardey,
                                      Chief Financial Officer and
                                      Vice President - Finance


                                       21
<PAGE>   22


                                                                       EXHIBIT A

                              NOTICE OF CONVERSION

                    (To be Executed by the Registered Holder
                       in order to Convert the Debentures)

     The undersigned hereby irrevocably elects to convert $________principal
amount of the Debenture (defined below) into shares of common stock, par value
$_____ per share ("COMMON STOCK"), of SmartSources.com, Inc., a Colorado
corporation (the "BORROWER") according to the conditions of the convertible
debentures of the Borrower dated as of _______ __, 200_ (the "DEBENTURES"), as
of the date written below. If securities 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 and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any.

     The Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
TRANSFER").

         Name of DTC Prime Broker:
                                  ----------------------------------------------
         Account Number:
                        --------------------------------------------------------

[ ]      In lieu of receiving shares of Common Stock issuable pursuant to this
         Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
         requests that the Borrower issue a certificate or certificates for the
         number of shares of Common Stock set forth below (which numbers are
         based on the Holder's calculation attached hereto) in the name(s)
         specified immediately below or, if additional space is necessary, on an
         attachment hereto:

         Name:
              ------------------------------------------------------------------
         Address:
                 ---------------------------------------------------------------

     The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Debentures shall be made pursuant to registration of the securities under the
Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.

                  Date of Conversion:
                                     ---------------------------
                  Market Price Days:
                                    ----------------------------
                  Applicable Conversion Price:
                                              ------------------
                  Number of Shares of Common Stock to be Issued
                  Pursuant to (i) Conversion of the Debentures:
                                                               --------------
                  (ii) Conversion of Conversion Default Payments, Delivery
                  Default Payments and/or payments pursuant to Section 2(c) of
                  the Registration Rights Agreement:
                                                     ----------
                  Signature:
                            ------------------------------------
                  Name:
                       -----------------------------------------
                  Address:
                          --------------------------------------

*Subject to Article II.D of the Debenture(s), the Borrower is not required to
issue shares of Common Stock until the original Debenture(s) (or evidence of
loss, theft or destruction thereof) to be converted are received by the Borrower
or its Transfer Agent. The Borrower shall issue and deliver shares of Common
Stock to an overnight courier not later than three business days following
receipt of the original Debenture(s) to be converted, and shall make payments
pursuant to the Debentures for the number of business days such issuance and
delivery is late.


                                      A-1