EXHIBIT 10.3

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

                                            Date of Issuance: September __, 2003

                                                                $_______________


                            8% CONVERTIBLE DEBENTURE
                              DUE FEBRUARY 20, 2006

         THIS DEBENTURE is one of a series of duly authorized and issued 8%
Convertible Debentures of The Singing Machine Company, Inc., a Delaware
corporation, having a principal place of business at 6601 Lyons Road, Building
A-7, Coconut Creek, FL 33073 (the "Company"), designated as its 8% Convertible
Debenture, due February __, 2006 (the "Debentures").


         FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), the principal
sum of $_______________ on February __, 2006 or such earlier date as the
Debentures are required or permitted to be repaid as provided hereunder (the
"Maturity Date"), and to pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Debenture at the rate of 8% per
annum, payable quarterly on March 1, June 1, September 1 and December 1,
beginning on the first such date after the Original Issue Date and on each
Conversion Date (as to that principal amount then being converted) and on the
Maturity Date (except that, if any such date is not a Business Day, then such
payment shall be due on the next succeeding Business Day) (each such date, an
"Interest Payment Date"), in cash or shares of Common Stock at the Interest
Conversion Rate, or a combination thereof; provided, however, payment in shares
of Common

<PAGE>

Stock may only occur if: (i) there is an effective Underlying Shares
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares of Common Stock to be issued
in lieu of cash (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (ii) the
Common Stock is listed for trading on a Principal Market (and the Company
believes, in good faith, that trading of the Common Stock on a Principal Market
will continue uninterrupted for the foreseeable future), (iii) there is a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares issuable pursuant to the
Transaction Documents, including the shares to be issued for interest in lieu of
cash and (iv) there is then existing no Event of Default or event which, with
the passage of time or the giving of notice, would constitute and Event of
Default, and (v) the issuance of such shares, when added to the shares issued or
issuable upon conversion of the Debentures in full and issued and issuable upon
exercise of the Warrants in full would violate the limitations set forth in
Section 4(a)(ii). Subject to the terms and conditions herein, the decision
whether to pay interest hereunder in shares of Common Stock or cash shall be at
the discretion of the Company. Not less than 20 Trading Days prior to each
Interest Payment Date, the Company shall provide the Holder with written notice
of its election to pay interest hereunder either in cash or shares of Common
Stock (the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised). Within 20 Trading
Days prior to an Interest Payment Date, the Company's election (whether specific
to an Interest Payment Date or continuous) shall be irrevocable as to such
Interest Payment Date. Subject to the aforementioned conditions, failure to
timely provide such written notice shall be deemed an election by the Company to
pay the interest on such Interest Payment Date in cash. Interest shall be
calculated on the basis of a 360-day year and shall accrue daily commencing on
the Original Issue Date until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Payment of interest in shares of Common Stock shall
otherwise occur pursuant to Section 4(b) and only for purposes of the payment of
interest in shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal amount
converted, provided that the Company in fact delivers the Underlying Shares
within the time period required by Section 4(b)(i). Interest hereunder will be
paid to the Person in whose name this Debenture is registered on the records of
the Company regarding registration and transfers of Debentures (the "Debenture
Register"). Except as otherwise provided herein, if at anytime the Company pays
interest partially in cash and partially in shares of Common Stock, then such
payment shall be distributed ratably among the Holders based upon the principal
amount of Debentures held by each Holder. All overdue accrued and unpaid
interest to be paid hereunder shall entail a late fee at the rate of 18% per
annum (or such lower maximum amount of interest permitted to be charged under
applicable law) ("Late Fee") which will accrue daily, from the date such
interest is due hereunder through and including the date of payment.
Notwithstanding anything to the contrary contained herein, if on any Interest
Payment Date the Company has elected to pay interest in Common Stock and is not
able to pay accrued interest in the form of Common Stock because it does not
then satisfy the conditions for payment in the form of Common Stock set forth
above, then, at the option of the Holder, the Company, in lieu of delivering
either shares of Common Stock pursuant to this

                                       2
<PAGE>

Section 4 or paying the regularly scheduled cash interest payment, shall
deliver, within three Trading Days of each applicable Interest Payment Date, an
amount in cash equal to the product of the number of shares of Common Stock
otherwise deliverable to the Holder in connection with the payment of interest
due such Interest Payment Date and the highest VWAP during the period commencing
on the Interest Payment Date and ending on the Trading Day prior to the date
such payment is made. EXCEPT AS SET FORTH IN SECTION 5, THE COMPANY MAY NOT
PREPAY ANY PORTION OF THE PRINCIPAL AMOUNT OF THIS DEBENTURE WITHOUT THE PRIOR
WRITTEN CONSENT OF THE HOLDER.

         This Debenture is subject to the following additional provisions:

         Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange. THIS DEBENTURE IS ALSO SUBJECT TO
THE TERMS AND CONDITIONS OF A SUBORDINATION AGREEMENT (THE "LASALLE
SUBORDINATION AGREEMENT") THAT THE HOLDER HAS SIGNED WITH LASALLE BUSINESS
CREDIT, LLC, THE COMPANY'S COMMERCIAL LENDER, ON ABOUT THE DATE HEREOF AND ANY
FUTURE SUBORDINATION AGREEMENTS THAT IT IS REQUIRED TO SIGN DURING THE TIME
PERIOD THAT THE COMPANY HAS ANY OBLIGATIONS UNDER THE TRANSACTION DOCUMENTS
(COLLECTIVELY, ANY OR ALL SUCH AGREEMENTS SHALL BE REFERRED TO AS THE
"SUBORDINATION AGREEMENT"). ANY INCONSISTENCIES BETWEEN THIS DEBENTURE AND THE
SUBORDINATION AGREEMENT WILL BE RESOLVED IN FAVOR OF THE TERMS OF THE
SUBORDINATION AGREEMENT.

         Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations. Prior to due
presentment to the Company for transfer of this Debenture, the Company and any
agent of the Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

         Section 3. Events of Default.

                 (a) "Event of Default", wherever used herein, means any one of
         the following events (whatever the reason and whether it shall be
         voluntary or involuntary or effected by operation of law or pursuant to
         any judgment, decree or order of any court, or any order, rule or
         regulation of any administrative or governmental body):

                          (i) any default in the payment of the principal of,
                  interest (including Late Fees) on, or liquidated damages in
                  respect of, any Debentures, free of any claim of
                  subordination, as and when the same shall become due and
                  payable

                                       3
<PAGE>

                  (whether on a Conversion Date or the Maturity Date or
                  by acceleration or otherwise) which default is not cured, if
                  possible to cure, within 5 days of written notice of such
                  default sent by the Holder;

                          (ii) the Company shall fail to observe or perform any
                  other covenant, agreement or warranty contained in, or
                  otherwise commit any breach of any of the Transaction
                  Documents (other than a breach by the Company of its
                  obligations to deliver shares of Common Stock to the Holder
                  upon conversion or interest payment which breach is addressed
                  in clause (x) below) which is not cured, if possible to cure,
                  within 5 days of written notice of such default sent by the
                  Holder;

                          (iii) the Company or any of its subsidiaries shall
                  commence, or there shall be commenced against the Company or
                  any such subsidiary a case under any applicable bankruptcy or
                  insolvency laws as now or hereafter in effect or any successor
                  thereto, or the Company commences any other proceeding under
                  any reorganization, arrangement, adjustment of debt, relief of
                  debtors, dissolution, insolvency or liquidation or similar law
                  of any jurisdiction whether now or hereafter in effect
                  relating to the Company or any subsidiary thereof or there is
                  commenced against the Company or any subsidiary thereof any
                  such bankruptcy, insolvency or other proceeding which remains
                  undismissed for a period of 60 days; or the Company or any
                  subsidiary thereof is adjudicated insolvent or bankrupt; or
                  any order of relief or other order approving any such case or
                  proceeding is entered; or the Company or any subsidiary
                  thereof suffers any appointment of any custodian or the like
                  for it or any substantial part of its property which continues
                  undischarged or unstayed for a period of 60 days; or the
                  Company or any subsidiary thereof makes a general assignment
                  for the benefit of creditors; or the Company shall fail to
                  pay, or shall state that it is unable to pay, or shall be
                  unable to pay, its debts generally as they become due; or the
                  Company or any subsidiary thereof shall call a meeting of its
                  creditors with a view to arranging a composition, adjustment
                  or restructuring of its debts; or the Company or any
                  subsidiary thereof shall by any act or failure to act
                  expressly indicate its consent to, approval of or acquiescence
                  in any of the foregoing; or any corporate or other action is
                  taken by the Company or any subsidiary thereof for the purpose
                  of effecting any of the foregoing;

                          (iv) the Company shall default in any of its
                  obligations under any other Debenture or any mortgage, credit
                  agreement or other facility, indenture agreement, factoring
                  agreement or other instrument under which there may be issued,
                  or by which there may be secured or evidenced any indebtedness
                  for borrowed money or money due under any long term leasing or
                  factoring arrangement of the Company in an amount exceeding
                  $500,000, whether such indebtedness now exists or shall
                  hereafter be created and such default shall result

                                       4
<PAGE>

                  in such indebtedness becoming or being declared due and
                  payable prior to the date on which it would otherwise become
                  due and payable;

                          (v) the Common Stock shall not be eligible for
                  quotation on or quoted for trading on a Principal Market and
                  shall not again be eligible for and quoted or listed for
                  trading thereon within five Trading Days;

                          (vi) the Company shall agree to sell or dispose of all
                  or in excess of 51% of its assets in one or more transactions
                  (whether or not such sale would constitute a Change of Control
                  Transaction) or shall redeem or repurchase more than a de
                  minimis number of its outstanding shares of Common Stock or
                  other equity securities of the Company (other than redemptions
                  of Underlying Shares and repurchases of shares of Common Stock
                  or other equity securities of departing officers and directors
                  of the Company; provided no repurchase shall exceed $100,000
                  for any officer or director);

                          (vii) an Underlying Shares Registration Statement
                  shall not have been declared effective by the Commission on or
                  prior to the 180th calendar day after the Original Issue Date;

                          (viii) if, during the Effectiveness Period (as defined
                  in the Registration Rights Agreement), the effectiveness of
                  the Underlying Shares Registration Statement lapses for any
                  reason or the Holder shall not be permitted to resell
                  Registrable Securities (as defined in the Registration Rights
                  Agreement) under the Underlying Shares Registration Statement,
                  in either case, for more than 20 consecutive Trading Days or
                  30 non-consecutive Trading Days during any 12 month period;
                  provided, however, that in the event that the Company is
                  negotiating a merger, consolidation, acquisition or sale of
                  all or substantially all of its assets or a similar
                  transaction or other fundamental event and in the written
                  opinion of counsel to the Company, the Underlying Shares
                  Registration Statement, would be required to be amended to
                  include information concerning such transactions or the
                  parties thereto that is not available or may not be publicly
                  disclosed at the time, the Company shall be permitted an
                  additional 20 consecutive Trading Days during any 12 month
                  period relating to such an event;

                          (ix) an Event (as defined in the Registration Rights
                  Agreement) shall not have been cured to the satisfaction of
                  the Holder prior to the expiration of thirty days from the
                  Event Date (as defined in the Registration Rights Agreement)
                  relating thereto (other than an Event resulting from a failure
                  of an Underlying Shares Registration Statement to be declared
                  effective by the Commission on or prior to the Effectiveness
                  Date (as defined in the Registration Rights Agreement), which
                  shall be covered by Section 3(a)(vii));

                                       5
<PAGE>

                          (x) the Company shall fail for any reason to deliver
                  certificates to a Holder prior to the seventh Trading Day
                  after a Conversion Date pursuant to and in accordance with
                  Section 4(b) or the Company shall provide notice to the
                  Holder, including by way of public announcement, at any time,
                  of its intention not to comply with requests for conversions
                  of any Debentures in accordance with the terms hereof;

                           (xi) the Company shall fail for any reason to deliver
                  the payment in cash pursuant to a Buy-In (as defined herein)
                  within five days after notice thereof is delivered hereunder;
                  or

                           (xii) any Person shall breach the agreements
                  delivered to the initial Holders pursuant to Section 2.2(a)(v)
                  of the Purchase Agreement and the Company does not obtain
                  Shareholder Approval.

         b) If any Event of Default occurs and is continuing, the full principal
amount of this Debenture, together with interest and other amounts owing in
respect thereof, to the date of acceleration shall become at the Holder's
election, immediately due and payable in cash. The aggregate amount payable upon
an Event of Default shall be equal to the Mandatory Prepayment Amount. Interest
shall accrue on the Mandatory Prepayment Amount hereunder from the fifth (5th)
day after such amount is due (being the date of an Event of Default) through the
date of prepayment in full thereof in an amount equal to the Late Fee, to accrue
daily from the date such payment is due hereunder through and including the date
of payment. All Debentures for which the full prepayment price hereunder shall
have been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder and the Holder shall have all
rights as a Debenture holder until such time, if any, as the full payment under
this Section shall have been received by it. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon. All the remedies set forth in this paragraph are subject to the terms
and conditions of the Subordination Agreement.

         Section 4. Conversion.

        (a)  (i) At any time after the Closing Date, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time (subject to the limitations on
conversion set forth in Section 4(a)(ii) hereof). The Holder shall effect
conversions by delivering to the Company the form of Notice of Conversion
attached hereto as Annex A (a

                                       6

<PAGE>

         "Notice of Conversion"), specifying therein the principal amount of
         Debentures to be converted and the date on which such conversion is to
         be effected (a "Conversion Date"). If no Conversion Date is specified
         in a Notice of Conversion, the Conversion Date shall be the date that
         such Notice of Conversion is provided hereunder. To effect conversions
         hereunder, the Holder shall not be required to physically surrender
         Debentures to the Company unless the entire principal amount of this
         Debenture plus all accrued and unpaid interest thereon has been so
         converted. Conversions hereunder shall have the effect of lowering the
         outstanding principal amount of this Debenture in an amount equal to
         the applicable conversion. The Holder and the Company shall maintain
         records showing the principal amount converted and the date of such
         conversions. The Company shall deliver any objection to any Notice of
         Conversion within 1 Business Day of receipt of such notice. In the
         event of any dispute or discrepancy, the records of the Holder shall be
         controlling and determinative in the absence of manifest error. The
         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.

                  (ii) Conversion Limitations.

                           (A) Notwithstanding anything herein to the contrary,
                  if the Company has not obtained Shareholder Approval (as
                  defined below), if required by the applicable rules and
                  regulations of the Principal Market (or any successor entity),
                  then the Company may not issue upon conversion of the
                  Debentures, in the aggregate, in excess of (1) 19.999% of the
                  number of shares of Common Stock outstanding on the Trading
                  Day immediately preceding the Original Issue Date, (2) less
                  any shares of Common Stock issued as payment of interest or
                  upon exercise of the Warrants issued Holders of the Debentures
                  on the Original Issue Date pursuant to the Purchase Agreement
                  (such number of shares, the "Issuable Maximum"). Each Holder
                  shall be entitled to a portion of the Issuable Maximum equal
                  to the quotient obtained by dividing (x) the aggregate
                  principal amount of the Debenture(s) issued and sold to such
                  Holder on the Original Issue Date by (y) the aggregate
                  principal amount of all Debentures issued and sold by the
                  Company on the Original Issue Date. If any Holder shall no
                  longer hold the Debenture(s), then such Holder's remaining
                  portion of the Issuable Maximum shall be allocated pro-rata
                  among the remaining Holders. If on any Conversion Date: (1)
                  the applicable Set Price then in effect is such that the
                  shares issuable under this Debenture on any Conversion Date
                  together with the aggregate number of shares of Common Stock
                  that would then be issuable upon conversion in full of all

                                       7
<PAGE>

                  then outstanding Debentures would exceed the Issuable Maximum,
                  and (2) the Company's shareholders shall not have previously
                  approved the transactions contemplated by the Transaction
                  Documents, as may be required by the applicable rules and
                  regulations of the Principal Market (or any successor entity),
                  if any (the "Shareholder Approval"), then the Company shall
                  issue to the Holder requesting a conversion a number of shares
                  of Common Stock equal to such Holder's pro-rata portion (which
                  shall be calculated pursuant to the terms hereof) of the
                  Issuable Maximum and, with respect to the remainder of the
                  aggregate principal amount of the Debentures (including any
                  accrued interest) then held by such Holder for which a
                  conversion in accordance with the applicable conversion price
                  would result in an issuance of shares of Common Stock in
                  excess of such Holder's pro-rata portion (which shall be
                  calculated pursuant to the terms hereof) of the Issuable
                  Maximum (the "Excess Principal"), the Company shall be
                  prohibited from converting such Excess Principal, and shall
                  notify the Holder of the reason therefor. This Debenture shall
                  thereafter be unconvertible until and unless Shareholder
                  Approval is subsequently obtained or is otherwise not
                  required, but this Debenture shall otherwise remain in full
                  force and effect. The Company and the Holder understand and
                  agree that shares of Common Stock issued to and then held by
                  the Holder as a result of conversions of Debentures shall not
                  be entitled to cast votes on any resolution to obtain
                  Shareholder Approval pursuant hereto. Additionally, this
                  Debenture is subject to that certain letter agreement by and
                  among the initial Holders of the Debentures and the Company
                  relating to the restriction on the issuance of shares of
                  Common Stock until the Company obtains approval of the
                  transaction from the Principal Market.

                           (B) The Company shall not effect any conversion of
                  this Debenture, and the Holder shall not have the right to
                  convert any portion of this Debenture, pursuant to Section
                  4(a)(i), Section 5b) or otherwise, to the extent that after
                  giving effect to such conversion, the Holder (together with
                  the Holder's affiliates), as set forth on the applicable
                  Notice of Conversion, would beneficially own in excess of
                  4.99% of the number of shares of the Common Stock outstanding
                  immediately after giving effect to such conversion. For
                  purposes of the foregoing sentence, the number of shares of
                  Common Stock beneficially owned by the Holder and its
                  affiliates shall include the number of shares of Common Stock
                  issuable upon conversion of this Debenture with respect to
                  which the determination of such sentence is being made, but
                  shall exclude the number of shares of Common Stock which would
                  be issuable upon (A) conversion of the remaining, nonconverted
                  portion of this Debenture beneficially owned by the Holder or
                  any of its affiliates and (B) exercise or conversion of the
                  unexercised or nonconverted portion of any other securities of
                  the

                                       8
<PAGE>

                  Company (including, without limitation, any other Debentures
                  or the Warrants) subject to a limitation on conversion or
                  exercise analogous to the limitation contained herein
                  beneficially owned by the Holder or any of its affiliates.
                  Except as set forth in the preceding sentence, for purposes of
                  this Section 4(a)(ii), beneficial ownership shall be
                  calculated in accordance with Section 13(d) of the Exchange
                  Act. To the extent that the limitation contained in this
                  section applies, the determination of whether this Debenture
                  is convertible (in relation to other securities owned by the
                  Holder) and of which a portion of this Debenture is
                  convertible shall be in the sole discretion of such Holder. To
                  ensure compliance with this restriction, the Holder will be
                  deemed to represent to the Company each time it delivers a
                  Notice of Conversion that such Notice of Conversion has not
                  violated the restrictions set forth in this paragraph and the
                  Company shall have no obligation to verify or confirm the
                  accuracy of such determination. For purposes of this Section
                  4(a)(ii), in determining the number of outstanding shares of
                  Common Stock, the Holder may rely on the number of outstanding
                  shares of Common Stock as reflected in (x) the Company's most
                  recent Form 10-Q or Form 10-K, as the case may be, (y) a more
                  recent public announcement by the Company or (z) any other
                  notice by the Company or the Company's Transfer Agent setting
                  forth the number of shares of Common Stock outstanding. Upon
                  the written or oral request of the Holder, the Company shall
                  within two Trading Days confirm orally and in writing to the
                  Holder the number of shares of Common Stock then outstanding.
                  In any case, the number of outstanding shares of Common Stock
                  shall be determined after giving effect to the conversion or
                  exercise of securities of the Company, including this
                  Debenture, by the Holder or its affiliates since the date as
                  of which such number of outstanding shares of Common Stock was
                  reported. The provisions of this Section 4(a)(ii) may be
                  waived by the Holder upon, at the election of the Holder, not
                  less than 61 days' prior notice to the Company, and the
                  provisions of this Section 4(a)i) shall continue to apply
                  until such 61st day (or such later date, as determined by the
                  Holder, as may be specified in such notice of waiver).

                  (ii) Underlying Shares Issuable Upon Conversion of Principal
         Amount. The number of shares of Common Stock issuable upon a conversion
         shall be determined by the quotient obtained by dividing (x) the
         outstanding principal amount of this Debenture to be converted by (y)
         the Set Price.

         (b) (i) Not later than three Trading Days after any Conversion Date,
         the Company will deliver to the Holder a certificate or certificates
         representing the Underlying Shares which shall be free of restrictive
         legends and trading restrictions (other than those required by the
         Purchase Agreement) representing

                                       9

<PAGE>

         the number of shares of Common Stock being acquired upon the conversion
         of Debentures (including, if so timely elected by the Company, shares
         of Common Stock representing the payment of accrued interest) and (B) a
         bank check in the amount of accrued and unpaid interest (if the Company
         is required to pay accrued interest in cash). The Company shall, if
         available and if allowed under applicable securities laws, use its best
         efforts to deliver any certificate or certificates required to be
         delivered by the Company under this Section electronically through the
         Depository Trust Corporation or another established clearing
         corporation performing similar functions. If in the case of any Notice
         of Conversion such certificate or certificates are not delivered to or
         as directed by the applicable Holder by the fifth Trading Day after a
         Conversion Date, the Holder shall be entitled by written notice to the
         Company at any time on or before its receipt of such certificate or
         certificates thereafter, to rescind such conversion, in which event the
         Company shall immediately return the certificates representing the
         principal amount of Debentures tendered for conversion.

         (ii) Subject to the terms of the Subordination Agreement, if the
         Company fails for any reason to deliver to the Holder such certificate
         or certificates pursuant to Section 4(b)(i) by the third Trading Day
         after the Conversion Date, the Company shall pay to such Holder, in
         cash, as liquidated damages and not as a penalty, for each $5,000 of
         principal amount being converted, $50 per Trading Day (increasing to
         $100 per Trading Day after 3 Trading Days after such damages begin to
         accrue and increasing to $200 per Trading Day 6 Trading Days after such
         after such damages begin to accrue) for each Trading Day after such
         third Trading Day until such certificates are delivered. The Company's
         obligations to issue and deliver the Underlying Shares upon conversion
         of this Debenture in accordance with the terms hereof are absolute and
         unconditional, irrespective of any action or inaction by the Holder to
         enforce the same, any waiver or consent with respect to any provision
         hereof, the recovery of any judgment against any Person or any action
         to enforce the same, or any setoff, counterclaim, recoupment,
         limitation or termination, or any breach or alleged breach by the
         Holder or any other Person of any obligation to the Company or any
         violation or alleged violation of law by the Holder or any other
         person, and irrespective of any other circumstance which might
         otherwise limit such obligation of the Company to the Holder in
         connection with the issuance of such Underlying Shares; provided,
         however, such delivery shall not operate as a waiver by the Company of
         any such action the Company may have against the Holder. In the event a
         Holder of this Debenture shall elect to convert any or all of the
         outstanding principal amount hereof, the Company may not refuse
         conversion based on any claim that the Holder or any one associated or
         affiliated with the Holder of has been engaged in any violation of law,
         agreement or for any other reason, unless, an injunction from a court,
         on notice, restraining and or enjoining conversion of all or part of
         this Debenture shall have been sought and obtained and the Company
         posts a surety bond for the

                                       10

<PAGE>

         benefit of the Holder in the amount of 150% of the principal amount of
         this Debenture outstanding, which is subject to the injunction, which
         bond shall remain in effect until the completion of
         arbitration/litigation of the dispute and the proceeds of which shall
         be payable to such Holder to the extent it obtains judgment. In the
         absence of an injunction precluding the same, the Company shall issue
         Conversion Shares or, if applicable, cash, upon a properly noticed
         conversion. Subject to the terms of the Subordination Agreement,
         nothing herein shall limit a Holder's right to pursue actual damages or
         declare an Event of Default pursuant to Section 3 herein for the
         Company's failure to deliver Conversion Shares within the period
         specified herein and such Holder shall have the right to pursue all
         remedies available to it at law or in equity including, without
         limitation, a decree of specific performance and/or injunctive relief.
         Subject to the terms of the Subordination Agreement, the exercise of
         any such rights shall not prohibit the Holders from seeking to enforce
         damages pursuant to any other Section hereof or under applicable law.

         (iii) In addition to any other rights available to the Holder, if the
         Company fails for any reason to deliver to the Holder such certificate
         or certificates pursuant to Section 4(b)(i) by the third Trading Day
         after the Conversion Date, and if after such third Trading Day the
         Holder is required by its brokerage firm to purchase (in an open market
         transaction or otherwise) Common Stock to deliver in satisfaction of a
         sale by such Holder of the Underlying Shares which the Holder
         anticipated receiving upon such conversion (a "Buy-In"), then the
         Company shall, subject to the terms in the Subordination Agreement, (A)
         pay in cash to the Holder (in addition to any remedies available to or
         elected by the Holder) the amount by which (x) the Holder's total
         purchase price (including brokerage commissions, if any) for the Common
         Stock so purchased exceeds (y) the product of (1) the aggregate number
         of shares of Common Stock that such Holder anticipated receiving from
         the conversion at issue multiplied by (2) the actual sale price of the
         Common Stock at the time of the sale (including brokerage commissions,
         if any) giving rise to such purchase obligation and (B) at the option
         of the Holder, either reissue Debentures in principal amount equal to
         the principal amount of the attempted conversion or deliver to the
         Holder the number of shares of Common Stock that would have been issued
         had the Company timely complied with its delivery requirements under
         Section 4(b)(i). For example, if the Holder purchases Common Stock
         having a total purchase price of $11,000 to cover a Buy-In with respect
         to an attempted conversion of Debentures with respect to which the
         actual sale price of the Underlying Shares at the time of the sale
         (including brokerage commissions, if any) giving rise to such purchase
         obligation was a total of $10,000 under clause (A) of the immediately
         preceding sentence, the Company shall be required to pay the Holder
         $1,000. The Holder shall provide the Company written notice indicating
         the amounts payable to the Holder in respect of the Buy-In.
         Notwithstanding anything contained herein to the

                                       11
<PAGE>

         contrary, if a Holder requires the Company to make payment in respect
         of a Buy-In for the failure to timely deliver certificates hereunder
         and the Company timely pays in full such payment, the Company shall not
         be required to pay such Holder liquidated damages under Section
         4(b)(ii) in respect of the certificates resulting in such Buy-In.

         (c) (i) The conversion price in effect on any Conversion Date shall be
         equal to $3.85 (subject to adjustment herein)(the "Set Price").

         (ii) If the Company, at any time while the Debentures are outstanding:
         (A) shall pay a stock dividend or otherwise make a distribution or
         distributions on shares of its Common Stock or any other equity or
         equity equivalent securities payable in shares of Common Stock (which,
         for avoidance of doubt, shall not include any shares of Common Stock
         issued by the Company pursuant to this Debenture, including as interest
         thereon), (B) subdivide outstanding shares of Common Stock into a
         larger number of shares, (C) combine (including by way of reverse stock
         split) outstanding shares of Common Stock into a smaller number of
         shares, or (D) issue by reclassification of shares of the Common Stock
         any shares of capital stock of the Company, then the Set Price shall be
         multiplied by a fraction of which the numerator shall be the number of
         shares of Common Stock (excluding treasury shares, if any) outstanding
         before such event and of which the denominator shall be the number of
         shares of Common Stock outstanding after such event. Any adjustment
         made pursuant to this Section shall become effective immediately after
         the record date for the determination of stockholders entitled to
         receive such dividend or distribution and shall become effective
         immediately after the effective date in the case of a subdivision,
         combination or re-classification.


         (iii) If the Company or any subsidiary thereof, as applicable, at any
         time while Debentures are outstanding, shall offer, sell, grant any
         option to purchase or offer, sell or grant any right to reprice its
         securities, or otherwise dispose of or issue (or announce any offer,
         sale, grant or any option to purchase or other disposition) any Capital
         Shares or Capital Shares Equivalent entitling any Person to acquire
         shares of Common Stock, at an effective price per share less than the
         then Set Price ("Dilutive Issuance"), as adjusted hereunder (if the
         holder of the Capital Shares or Capital Shares Equivalent so issued
         shall at any time, whether by operation of purchase price adjustments,
         reset provisions, floating conversion, exercise or exchange prices or
         otherwise, or due to warrants, options or rights per share which is
         issued in connection with such issuance, be entitled to receive shares
         of Common Stock at an effective price per share which is less than the
         Set Price, such issuance shall be deemed to have occurred for less than
         the Set Price), then, (A) if such Dilutive Issuance occurs on or prior
         to the first anniversary of the Original Issue Date, the Set Price
         shall be reduced by an amount equal to 75% of the difference between
         the Set Price and the effective conversion, exchange or purchase price
         for such Capital Shares or Capital Shares Equivalents (including any
         reset provisions thereof) at issue and (B) if such Dilutive Issuance
         occurs after the first anniversary of the Original Issue Date, the Set
         Price shall be reduced by an amount equal to 50% of the difference
         between the Set Price and the effective conversion, exchange or

                                       12
<PAGE>

         purchase price for such Capital Shares or Capital Shares Equivalents
         (including any reset provisions thereof) at issue. Such adjustment
         shall be made whenever such Capital Shares or Capital Shares
         Equivalents are issued. The Company shall notify the Holder in writing,
         no later than the business day following the issuance of any Capital
         Shares or Capital Shares Equivalent subject to this section, indicating
         therein the applicable issuance price, or of applicable reset price,
         exchange price, conversion price and other pricing terms.

         (iv) If the Company, at any time while Debentures are outstanding,
         shall distribute to all holders of Common Stock (and not to Holders)
         evidences of its indebtedness or assets or rights or warrants to
         subscribe for or purchase any security, then in each such case the Set
         Price shall be determined by multiplying such price in effect
         immediately prior to the record date fixed for determination of
         stockholders entitled to receive such distribution by a fraction of
         which the denominator shall be the VWAP determined as of the record
         date mentioned above, and of which the numerator shall be such VWAP on
         such record date less the then fair market value at such record date of
         the portion of such assets or evidence of indebtedness so distributed
         applicable to one outstanding share of the Common Stock as determined
         by the Board of Directors in good faith. In either case the adjustments
         shall be described in a statement provided to the Holders of the
         portion of assets or evidences of indebtedness so distributed or such
         subscription rights applicable to one share of Common Stock. Such
         adjustment shall be made whenever any such distribution is made and
         shall become effective immediately after the record date mentioned
         above.

         (v) All calculations under this Section 4 shall be made to the nearest
         cent or the nearest 1/100th of a share, as the case may be. For
         purposes of this Section 4, the number of shares of Common Stock
         outstanding as of a given date shall be the sum of the number of shares
         of Common Stock (excluding treasury shares, if any) outstanding.

         (vi) Whenever the Set Price is adjusted pursuant to any of Section
         4(c)(ii) - (v), the Company shall promptly mail to each Holder a notice
         setting forth the Set Price after such adjustment and setting forth a
         brief statement of the facts requiring such adjustment. If the Company
         issues a variable rate security, despite the prohibition thereon in the
         Purchase Agreement, the Company shall be deemed to have issued Capital
         Shares or Capital Shares Equivalents at the lowest possible conversion
         or exercise price at which such securities may be converted or

                                       13
<PAGE>

         exercised in the case of a Variable Rate Transaction (as defined in the
         Purchase Agreement), or the lowest possible adjustment price in the
         case of an MFN Transaction (as defined in the Purchase Agreement).

         (vii) If (A) the Company shall declare a dividend (or any other
         distribution) on the Common Stock; (B) the Company shall declare a
         special nonrecurring cash dividend on or a redemption of the Common
         Stock; (C) the Company shall authorize the granting to all holders of
         the Common Stock rights or warrants to subscribe for or purchase any
         shares of capital stock of any class or of any rights; (D) the approval
         of any stockholders of the Company shall be required in connection with
         any reclassification of the Common Stock, any consolidation or merger
         to which the Company is a party, any sale or transfer of all or
         substantially all of the assets of the Company, of any compulsory share
         exchange whereby the Common Stock is converted into other securities,
         cash or property; (E) the Company shall authorize the voluntary or
         involuntary dissolution, liquidation or winding up of the affairs of
         the Company; then, in each case, the Company shall cause to be filed at
         each office or agency maintained for the purpose of conversion of the
         Debentures, and shall cause to be mailed to the Holders at their last
         addresses as they shall appear upon the stock books of the Company, at
         least 20 calendar days prior to the applicable record or effective date
         hereinafter specified, a notice stating (x) the date on which a record
         is to be taken for the purpose of such dividend, distribution,
         redemption, rights or warrants, or if a record is not to be taken, the
         date as of which the holders of the Common Stock of record to be
         entitled to such dividend, distributions, redemption, rights or
         warrants are to be determined or (y) the date on which such
         reclassification, consolidation, merger, sale, transfer or share
         exchange is expected to become effective or close, and the date as of
         which it is expected that holders of the Common Stock of record shall
         be entitled to exchange their shares of the Common Stock for
         securities, cash or other property deliverable upon such
         reclassification, consolidation, merger, sale, transfer or share
         exchange; provided, that the failure to mail such notice or any defect
         therein or in the mailing thereof shall not affect the validity of the
         corporate action required to be specified in such notice. Holders are
         entitled to convert Debentures during the 20-day period commencing the
         date of such notice to the effective date of the event triggering such
         notice.

         viii) If, at any time while this Debenture is outstanding, (A) the
         Company effects any merger or consolidation of the Company with or into
         another Person, (B) the Company effects any sale of all or
         substantially all of its assets in one or a series of related
         transactions, (C) any tender offer or exchange offer (whether by the
         Company or another Person) is completed pursuant to which holders of
         Common Stock are permitted to tender or exchange their shares for other
         securities, cash or property, or (D) the Company effects any
         reclassification of the Common Stock or any compulsory share exchange
         pursuant to which the

                                       14
<PAGE>

         Common Stock is effectively converted into or exchanged for other
         securities, cash or property (in any such case, a "Fundamental
         Transaction"), then upon any subsequent conversion of this Debenture,
         the Holder shall have the right to receive, for each Underlying Share
         that would have been issuable upon such conversion absent such
         Fundamental Transaction, the same kind and amount of securities, cash
         or property as it would have been entitled to receive upon the
         occurrence of such Fundamental Transaction if it had been, immediately
         prior to such Fundamental Transaction, the holder of one share of
         Common Stock (the "Alternate Consideration"). For purposes of any such
         conversion, the determination of the Set Price shall be appropriately
         adjusted to apply to such Alternate Consideration based on the amount
         of Alternate Consideration issuable in respect of one share of Common
         Stock in such Fundamental Transaction, and the Company shall apportion
         the Set Price among the Alternate Consideration in a reasonable manner
         reflecting the relative value of any different components of the
         Alternate Consideration. If holders of Common Stock are given any
         choice as to the securities, cash or property to be received in a
         Fundamental Transaction, then the Holder shall be given the same choice
         as to the Alternate Consideration it receives upon any conversion of
         this Debenture following such Fundamental Transaction. To the extent
         necessary to effectuate the foregoing provisions, any successor to the
         Company or surviving entity in such Fundamental Transaction shall issue
         to the Holder a new debenture consistent with the foregoing provisions
         and evidencing the Holder's right to convert such debenture into
         Alternate Consideration. The terms of any agreement pursuant to which a
         Fundamental Transaction is effected shall include terms requiring any
         such successor or surviving entity to comply with the provisions of
         this paragraph (c) and insuring that this Debenture (or any such
         replacement security) will be similarly adjusted upon any subsequent
         transaction analogous to a Fundamental Transaction. If any Fundamental
         Transaction constitutes or results in a Change of Control Transaction,
         then at the request of the Holder delivered before the 90th day after
         such Fundamental Transaction, the Company (or any such successor or
         surviving entity) will purchase the Debenture from the Holder for a
         purchase price, payable in cash within five Trading Days after such
         request (or, if later, on the effective date of the Fundamental
         Transaction), equal to the 100% of the remaining unconverted principal
         amount of this Debenture on the date of such request, plus all accrued
         and unpaid interest thereon, plus all other accrued and unpaid amounts
         due hereunder. Notwithstanding anything in this Debenture to the
         Contrary, if any Change of Control occurs, including a Fundamental
         Transaction that constitutes or results in a Change of Control
         Transaction, then at the request of the Holder delivered before the
         90th day after such Change of Control event, the Company (or any such
         successor or surviving entity) will purchase the Debenture from the
         Holder for a purchase price, payable in cash within five Trading Days
         after such request (or, if later, on the effective date of the Change
         of Control), equal to the 100% of the remaining unconverted principal
         amount of this

                                       15
<PAGE>

         Debenture on the date of such request, plus all accrued and unpaid
         interest thereon, plus all other accrued and unpaid amounts due
         hereunder.

         (ix) Notwithstanding the foregoing, no adjustment will be made under
         this paragraph (c) in respect of (A) the granting or issuance of shares
         of capital stock or of options to employees, officers, directors and
         key consultants of the Company pursuant to any stock option plan
         agreement or other compensation agreement duly adopted or approved by a
         majority of the non-employee members of the Board of Directors of the
         Company or a majority of the members of a committee of non-employee
         directors established for such purpose, (B) upon the exercise of this
         Debenture or any other Debenture of this series or of any other series
         or security issued by the Company in connection with the offer and sale
         of this Company's securities pursuant to the Purchase Agreement, or (C)
         upon the exercise of or conversion of any Capital Shares Equivalents,
         rights, options or warrants issued and outstanding on the Original
         Issue Date, provided such securities have not been amended since the
         date of the Purchase Agreement except as a result of the Purchase
         Agreement, (D) issuance of securities in connection with acquisitions,
         strategic investments, or strategic partnering arrangements, the
         primary purpose of which is not to raise capital, or (E) the granting
         of stock, stock options and/or warrants to an investment group in
         connection with the advancement of $1 million to the Company, which
         transaction is described in Item 13 of the Company's Annual Report on
         Form 10-K for the fiscal year ended March 31, 2003.


         (d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement is then
effective under the Securities Act, registered for public sale in accordance
with such Underlying Shares Registration Statement.

         (e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the VWAP at such time. If the Company elects not,
or is unable, to make such a

                                       16
<PAGE>

cash payment, the Holder shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.

         (f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance 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.

         (g) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile, sent by
a nationally recognized overnight courier service, addressed to the Company, at
the address set forth above, facsimile number (____) ___-_______, ATTN:
_____________ or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance with
this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile telephone number or address of such
Holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:30 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) the second Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.

Section 5. Redemption.

         (a) Optional Redemption by the Company. If after the Effective Date
each of the Closing Prices for any 15 consecutive Trading Days (such period
commencing only after the Effective Price) exceeds the then Set Price by 200%,
the Company shall have the right to redeem no less than the entire principal
amount of this Debenture then held by the Holder, at a cash price equal to the
100% of the principal amount outstanding plus any

                                       17
<PAGE>

accrued but unpaid interest and fees owing thereon (the "Optional Redemption
Price"). The Company may only effect an Optional Redemption Notice if each of
the following shall be true: (i) the Company shall have duly honored all
conversions occurring by virtue of one or more Conversion Notices prior to the
Forced Conversion Date, (ii) there is an effective Underlying Shares
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the Underlying Shares issued to the
Holder and all of the Underlying Shares as are issuable to the Holder upon
conversion in full of this Debenture subject to the Forced Conversion Notice
(and the Company believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (iii) the Common Stock is listed for
trading on a Principal Market (and the Company believes, in good faith, that
trading of the Common Stock on a Principal Market will continue uninterrupted
for the foreseeable future), (iv) all liquidated damages and other amounts owing
in respect of the Debentures and Underlying Shares shall have been paid or will,
concurrently with the issuance of the Underlying Shares, be paid in cash; (v)
there is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all the Underlying Shares as are
issuable to the Holder upon conversion in full of the Debentures subject to the
Forced Conversion Notice; (vi) no Event of Default nor any event that with the
passage of time would constitute an Event of Default has occurred and is
continuing; (vii) the issuance of such shares upon conversion of the Debentures
in full and issued and issuable upon exercise of the Warrants in full would
violate the limitations set forth in Section 4(a)(ii)and (viii) no public
announcement of a pending or proposed Change of Control Transaction or
Fundamental Transaction has occurred that has not been consummated. If any of
the foregoing conditions shall cease to be in effect during the period between
the Notice Date and the date the Optional Redemption Price is paid in full, then
the Holders subject to such redemption may elect, by written notice to the
Company given at any time after any of the foregoing conditions shall cease to
be in effect, to invalidate ab initio such redemption, notwithstanding anything
herein contained to the contrary. In any case, the Holders may convert any
portion of the outstanding principal amount of the Debentures subject to an
Optional Redemption Notice prior to the date that the Optional Redemption Price
is due and paid in full.

         (b) Redemption Procedure. The Optional Redemption Price is due on the
20th Trading Day following the Notice Date. If any portion of the Optional
Redemption Price shall not be paid by the Company by the date such payment is
due, interest shall accrue thereon at the rate of 18% per annum (or the maximum
rate permitted by applicable law, whichever is less) until such redemption price
plus all such interest is paid in full. In addition, if any portion of the
Optional Redemption Price remains unpaid after such date, the Holders subject to
such redemption may elect, by written notice to the Company given at any time
thereafter, to invalidate ab initio such redemption, notwithstanding anything
herein contained to the contrary. If a Holder elects to invalidate such
redemption the Company shall promptly, and, in any event, not later than 3
Trading Days

                                       18
<PAGE>

from receipt of such Holder's notice of such election, return to such Holder all
of the Debentures for which the Optional Redemption Price shall not have been
paid in full.

         Section 6. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:

                  "Business Day" means any day except Saturday, Sunday and any
         day which shall be a federal legal holiday in the United States or a
         day on which banking institutions in the State of New York are
         authorized or required by law or other government action to close.

                  "Change of Control Transaction" means the occurrence after the
         date hereof of any of (i) an acquisition after the date hereof by an
         individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
         promulgated under the Exchange Act) of effective control (whether
         through legal or beneficial ownership of capital stock of the Company,
         by contract or otherwise) of in excess of 33% of the voting securities
         of the Company, or (ii) a replacement at one time or within a three
         year period of more than one-half of the members of the Company's board
         of directors which is not approved by a majority of those individuals
         who are members of the board of directors on the date hereof (or by
         those individuals who are serving as members of the board of directors
         on any date whose nomination to the board of directors was approved by
         a majority of the members of the board of directors who are members on
         the date hereof), or (iii) the execution by the Company of an agreement
         to which the Company is a party or by which it is bound, providing for
         any of the events set forth above in (i) or (ii).

                  "Commission" means the Securities and Exchange Commission.

                  "Common Stock" means the common stock, $0.001 par value per
         share, of the Company and stock of any other class into which such
         shares may hereafter have been reclassified or changed.

                  "Conversion Date" shall have the meaning set forth in Section
         4(a)(i) hereof.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
         amended.

                  "Interest Conversion Rate" means the lesser of (i) the Set
         Price and (ii) 90% of the lesser of (a) the average of the 20 VWAPs
         immediately prior to the applicable Interest Payment Date or (b) the
         average of the 20 VWAPs immediately prior to the date the applicable
         interest payment shares are issued and delivered if after the Interest
         Payment Date.

                                       19
<PAGE>

                  "Late Fees" shall have the meaning set forth in the second
         paragraph to this Debenture.

                  "Mandatory Prepayment Amount" for any Debentures shall equal
         the sum of (i) the greater of: (A) 130% of the principal amount of
         Debentures to be prepaid, plus all accrued and unpaid interest thereon
         and all other accrued and unpaid amounts due hereunder, or (B) the
         principal amount of Debentures to be prepaid, plus all other accrued
         and unpaid interest hereon and other amounts due hereunder, divided by
         the Set Price on (x) the date the Mandatory Prepayment Amount is
         demanded or otherwise due or (y) the date the Mandatory Prepayment
         Amount is paid in full, whichever is less, multiplied by the VWAP on
         (x) the date the Mandatory Prepayment Amount is demanded or otherwise
         due or (y) the date the Mandatory Prepayment Amount is paid in full,
         whichever is greater, and (ii) all other amounts, costs, expenses and
         liquidated damages due in respect of such Debentures.

                  "Notice Date" shall have the meaning set forth in Section
         5(a).

                  "Optional Redemption Notice" shall have the meaning set forth
         in Section 5(a).

                  "Optional Redemption Price" shall have the meaning set forth
         in Section 5(a).

                  "Original Issue Date" shall mean the date of the first
         issuance of the Debentures regardless of the number of transfers of any
         Debenture and regardless of the number of instruments which may be
         issued to evidence such Debenture.

                  "Person" means a corporation, an association, a partnership,
         organization, a business, an individual, a government or political
         subdivision thereof or a governmental agency.

                  "Purchase Agreement" means the Securities Purchase Agreement,
         dated as of September 20, 2003, to which the Company and the original
         Holder are parties, as amended, modified or supplemented from time to
         time in accordance with its terms.

                  "Registration Rights Agreement" means the Registration Rights
         Agreement, dated as of the date of the Purchase Agreement, to which the
         Company and the original Holder are parties, as amended, modified or
         supplemented from time to time in accordance with its terms.

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

                  "Set Price" shall have the meaning set forth in Section
         4(c)(i).

                                       20
<PAGE>

                  "Trading Day" means (a) a day on which the shares of Common
         Stock are traded on a Principal Market on which the shares of Common
         Stock are then listed or quoted, or (b) if the shares of Common Stock
         are not quoted on a Principal Market, a day on which the shares of
         Common Stock are quoted in the over-the-counter market as reported by
         the National Quotation Bureau Incorporated (or any similar organization
         or agency succeeding its functions of reporting prices); provided, that
         in the event that the shares of Common Stock are not listed or quoted
         as set forth in (a), (b) and (c) hereof, then Trading Day shall mean a
         Business Day.

                  "Transaction Documents" shall have the meaning set forth in
         the Purchase Agreement.

                  "Underlying Shares" means the shares of Common Stock issuable
         upon conversion of Debentures or as payment of interest in accordance
         with the terms hereof.

                  "Underlying Shares Registration Statement" means a
         registration statement meeting the requirements set forth in the
         Registration Rights Agreement, covering among other things the resale
         of the Underlying Shares and naming the Holder as a "selling
         stockholder" thereunder.

                  "VWAP" means, for any date, the price determined by the first
         of the following clauses that applies: (a) if the Common Stock is then
         listed or quoted on a Trading Market, the daily volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the Trading Market on which the Common Stock is then listed or
         quoted as reported by Bloomberg Financial L.P. (based on a trading day
         from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
         Common Stock is not then listed or quoted on a Trading Market and if
         prices for the Common Stock are then quoted on the OTC Bulletin Board,
         the volume weighted average price of the Common Stock for such date (or
         the nearest preceding date) on the OTC Bulletin Board; (c) if the
         Common Stock is not then listed or quoted on the OTC Bulletin Board and
         if prices for the Common Stock are then reported in the "Pink Sheets"
         published by the National Quotation Bureau Incorporated (or a similar
         organization or agency succeeding to its functions of reporting
         prices), the most recent bid price per share of the Common Stock so
         reported; or (d) in all other cases, the fair market value of a share
         of Common Stock as determined by an independent appraiser selected in
         good faith by the Purchasers and reasonably acceptable to the Company.

         Section 7. Except as expressly provided herein and in the Subordination
Agreement, no provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed. This Debenture is a
direct debt obligation of the Company. This Debenture ranks pari passu with all
other Debentures now or hereafter issued under the terms set forth herein and is
subordination to

                                       21
<PAGE>

the Company's credit agreement with LaSalle Business Credit, Inc. which is
outstanding as of the date of this Debenture and any other senior secured credit
facilities that the Company may enter into after the date hereof with another
reputable commercial lender in place of such credit agreement. As long as this
Debenture is outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holder, (a) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holder; (b) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimis number of shares of its Common Stock or
other equity securities other than as to the Underlying Shares to the extent
permitted or required under the Transaction Documents or as otherwise permitted
by the Transaction Documents; or (c) enter into any agreement with respect to
any of the foregoing.

         Section 8. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.

         Section 9. So long as any portion of this Debenture is outstanding, the
Company will not and will not permit any of its subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom that is senior in any respect to the Company's obligations under the
Debentures without the prior consent of the Holder, which consent shall not be
unreasonably withheld.

         Section 10. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the "New
York Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), 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, or such New York Courts are improper or
inconvenient venue for such proceeding. 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 via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such
service shall constitute good and sufficient service

                                       22
<PAGE>

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. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Debenture or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

         Section 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.

         Section 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on the Debentures as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.

         Section 13. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.

                              *********************

                                       23
<PAGE>


         IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.

                                    THE SINGING MACHINE COMPANY, INC.


                                    By:_________________________________________
                                        Name:
                                        Title:

                                       24
<PAGE>


                                     ANNEX A

                              NOTICE OF CONVERSION


The undersigned hereby elects to convert principal under the 8% Convertible
Debenture of The Singing Machine Company, Inc. (the "Company"), due on February
__, 2006, into shares of common stock, $____ par value per share (the "Common
Stock"), of the Company according to the conditions hereof, as of the date
written below. If shares 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 and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Company's Common Stock does
not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this Debenture.

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.

Conversion calculations:
                               Date to Effect Conversion:

                               Principal Amount of Debentures to be Converted:

                               Payment of Interest in Common Stock __ yes  __ no
                                        If yes,  $_____ of Interest  Accrued on
                                        Account of  Conversion at Issue.

                               Number of shares of Common Stock to be issued:


                               Signature:

                               Name:

                               Address:


                                       25
<PAGE>


                                   Schedule 1

                               CONVERSION SCHEDULE

8% Convertible Debentures due on February ___, 2006, in the aggregate principal
amount of $____________ issued by The Singing Machine Company, Inc. This
Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.

<TABLE>
<CAPTION>
                                     Dated:

=============================== ------------------------- ======================= ------------------------------

                                                           Aggregate Principal
                                                             Amount Remaining
      Date of Conversion                                      Subsequent to
(or for first entry, Original                                   Conversion
         Issue Date)              Amount of Conversion         (or original              Company Attest
                                                            Principal Amount)
=============================== ------------------------- ======================= ------------------------------


<S>                               <C>                      <C>                            <C>

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



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



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



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



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



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



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



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



=============================== ------------------------- ======================= ------------------------------
</TABLE>

                                       26