THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
        REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
        "ACT").  THE  SECURITIES  MAY NOT BE  SOLD,  TRANSFERRED  OR
        ASSIGNED  IN  THE  ABSENCE  OF  AN  EFFECTIVE   REGISTRATION
        STATEMENT FOR THE  SECURITIES  UNDER SAID 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 SAID ACT.


                          SECURED CONVERTIBLE DEBENTURE


Tacoma, Washington
July 3, 2002                                                            $83,333

     FOR VALUE  RECEIVED,  INSYNQ,  INC.,  a Delaware  corporation  (hereinafter
called the  "Borrower"),  hereby promises to pay to the order of PEGASUS CAPITAL
PARTNERS,  LLC or  registered  assigns (the  "Holder")  the sum of  Eighty-Three
Thousand,  Three Hundred  Thirty-Three  Dollars ($83,333),  on July 3, 2003 (the
"Maturity Date"),  and to pay interest on the unpaid principal balance hereof at
the rate of twelve  percent (12%) per annum from July 3, 2002 (the "Issue Date")
until the same becomes due and payable, whether at maturity or upon acceleration
or by  prepayment  or  otherwise.  Any amount of  principal  or interest on this
Debenture  which is not paid when due shall bear interest at the rate of fifteen
percent  (15%)  per  annum  from the due  date  thereof  until  the same is paid
("Default Interest").  Interest shall commence accruing on the issue date, shall
be computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable, at the option of the Holder, either quarterly on March 31,
June 30,  September 30 and December 31 of each year  beginning on September  30,
2002,  or at the time of  conversion  of the  principal  to which such  interest
relates in accordance  with Article I below.  All payments due hereunder (to the
extent not  converted  into common  stock,  par value  $0.001 per share,  of the
Borrower (the "Common Stock") in accordance with the terms hereof) shall be made
in lawful money of the United States of America.  Payments of interest  shall be
made, at the option of Borrower, in cash or shares of Common Stock. In the event
that the Company elects to make interest payments due hereunder in Common Stock,
such payments shall be made at the Conversion  Price then prevailing at the time
such payment is made.  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. Whenever any amount expressed to be due by the
terms of this  Debenture is due on any day which is not a business day, the same
shall instead be due on the next  succeeding day which is a business day and, in
the case of any  interest  payment  date  which  is not the  date on which  this
Debenture is paid in full,  the  extension of the due date thereof  shall not be
taken into  account for  purposes of  determining  the amount of interest due on
such date. As used in this Debenture, the term "business day" shall mean any day
other than a  Saturday,  Sunday or a day on which  commercial  banks in New York
City,  New York are  authorized or required by law or executive  order to remain
closed.  This Debenture  shall be secured  pursuant to the terms of that certain
Security  Agreement  by and  between  the  Borrower  and the Holder of even date
herewith.  Each capitalized term used herein, and not otherwise  defined,  shall
have the meaning ascribed thereto in that certain Securities Purchase Agreement,
dated January 24, 2002,  pursuant to which this Debenture was originally  issued
(the "Purchase Agreement").

     The following terms shall apply to this Debenture:


                          ARTICLE I. CONVERSION RIGHTS

     1.1  Conversion  Right.  The Holder shall have the right from time to time,
and at any time on or prior to the earlier of (i) the Maturity Date and (ii) the
date of payment of the Default  Amount (as defined in Article  III)  pursuant to
Section  1.6(a) or Article III, the  Optional  Prepayment  Amount (as defined in
Section  5.1) or any payments  pursuant to Section  1.7,  each in respect of the
remaining outstanding principal amount of this Debenture,  to convert all or any
part of the outstanding and unpaid principal amount of this Debenture into fully
paid and  non-assessable  shares of Common Stock, as such Common Stock exists on
the Issue  Date,  or any  shares of  capital  stock or other  securities  of the
Borrower into which such Common Stock shall hereafter be changed or reclassified
at the conversion price (the "Conversion  Price")  determined as provided herein
(a  "Conversion");  provided,  however,  that in no event  shall  the  Holder be
entitled to convert any portion of this  Debenture) in excess of that portion of
this Debenture  upon  conversion of which the sum of (1) the number of shares of
Common Stock  beneficially  owned by the Holder and its  affiliates  (other than
shares  of Common  Stock  which may be deemed  beneficially  owned  through  the
ownership of the  unconverted  portion of the  Debentures or the  unexercised or
unconverted  portion of any other security 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 (2) the  number of  shares of Common  Stock
issuable upon the  conversion of the portion of this  Debenture  with respect to
which  the  determination  of this  proviso  is  being  made,  would  result  in
beneficial  ownership by the Holder and its  affiliates of more than 4.9% of the
outstanding  shares  of  Common  Stock.  For  purposes  of  the  proviso  to the
immediately  preceding  sentence,  beneficial  ownership  shall be determined in
accordance  with  Section  13(d) of the  Securities  Exchange  Act of  1934,  as
amended,  and  Regulations  13D-G  thereunder,  except as otherwise  provided in
clause  (1) of  such  proviso.  The  Holder  of this  Debenture  may  waive  the
limitations  set forth herein by sixty-one (61) days prior written notice to the
Company.  The number of shares of Common Stock to be issued upon each conversion
of this  Debenture  shall be  determined by dividing the  Conversion  Amount (as
defined  below) by the  applicable  Conversion  Price then in effect on the date
specified in the notice of conversion,  in the form attached hereto as Exhibit A
(the  "Notice  of  Conversion"),  delivered  to the  Borrower  by the  Holder in
accordance  with Section 1.4 below;  provided  that the Notice of  Conversion is
submitted by facsimile (or by other means  resulting in, or reasonably  expected
to result in, notice) to the Borrower  before 9:00 p.m., New York City, New York
time on such  conversion  date (the  "Conversion  Date").  The term  "Conversion
Amount" means, with respect to any conversion of this Debenture,  the sum of (1)
the principal  amount of this Debenture to be converted in such  conversion plus
(2)  accrued  and  unpaid  interest,  if any,  on such  principal  amount at the
interest  rates  provided  in this  Debenture  to the  Conversion  Date plus (3)
Default  Interest,  if  any,  on the  amounts  referred  to in  the  immediately
preceding  clauses (1) and/or (2) plus (4) at the Holder's  option,  any amounts
owed to the Holder  pursuant  to Sections  1.3 and 1.4(g)  hereof or pursuant to
Section 2(c) of that certain Registration Rights Agreement,  dated as of January
24, 2002, executed in connection with the initial issuance of this Debenture and
the  other  Debentures  issued  on the  Issue  Date  (the  "Registration  Rights
Agreement").

     1.2 Conversion Price.

     (a)  Calculation of Conversion  Price.  The  Conversion  Price shall be the
lesser of (i) the  Variable  Conversion  Price (as defined  herein) and (ii) the
Fixed Conversion Price (as defined herein) (subject,  in each case, to equitable
adjustments  for  stock  splits,  stock  dividends  or rights  offerings  by the
Borrower  relating  to  the  Borrower's  securities  or  the  securities  of any
subsidiary of the Borrower, combinations,  recapitalization,  reclassifications,
extraordinary distributions and similar events). The "Variable Conversion Price"
shall mean the  Applicable  Percentage  (as defined  herein)  multiplied  by the
Market Price (as defined herein). "Market Price" means the average of the lowest
three (3) Trading  Prices (as  defined  below) for the Common  Stock  during the
twenty  (20)  Trading  Day period  ending one  Trading Day prior to the date the
Conversion  Notice is sent by the  Holder to the  Borrower  via  facsimile  (the
"Conversion Date").  "Trading Price" means, for any security as of any date, the
inter-day trading price on the Over-the-Counter  Bulletin Board (the "OTCBB") as
reported by a reliable  reporting  service mutually  acceptable to and hereafter
designated  by  Holders  of a  majority  in  interest  of  the  Debentures  (the
"Reporting  Service") or, if the OTCBB is not the principal  trading  market for
such  security,  the  inter-day  trading price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by the  Reporting  Service or, if no  inter-day  trading  price of such
security  is  available  in any of the  foregoing  manners,  the  average of the
inter-day  trading prices of any market makers for such security that are listed
in the "pink sheets" by the National Quotation Bureau, Inc. If the Trading Price
cannot be  calculated  for such  security  on such date in the  manner  provided
above,  the Trading Price shall be the fair market value as mutually  determined
by the  Borrower  and the Holders of a majority  in  interest of the  Debentures
being  converted for which the  calculation  of the Trading 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 OTCBB, or
on the principal  securities  exchange or other  securities  market on which the
Common Stock is then being traded. "Applicable Percentage" shall mean 50.0%. The
"Fixed Conversion Price" shall mean $.008.

     (b) Conversion Price During Major Announcements.  Notwithstanding  anything
contained in Section 1.2(a) to the contrary, in the event the Borrower (i) 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 (ii) 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  (i) or  (ii) is  hereinafter
referred  to as the  "Announcement  Date"),  then the  Conversion  Price  shall,
effective  upon  the  Announcement  Date and  continuing  through  the  Adjusted
Conversion Price  Termination Date (as defined below),  be equal to the lower of
(x) the  Conversion  Price which  would have been  applicable  for a  Conversion
occurring  on the  Announcement  Date and (y) the  Conversion  Price  that would
otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date,  the  Conversion  Price shall be  determined  as set forth in this Section
1.2(a). 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 Section 1.2(b)
has been  made,  the date upon  which the  Borrower  (in the case of clause  (i)
above)  or the  person,  group or  entity  (in the case of  clause  (ii)  above)
consummates or publicly announces the termination or abandonment of the proposed
transaction  or tender  offer (or  takeover  scheme)  which  caused this Section
1.2(b) to become operative.

     1.3 Authorized  Shares.  The Borrower  covenants that during the period the
conversion right exists,  the Borrower will use its best efforts to reserve from
its authorized  and unissued  Common Stock a sufficient  number of shares,  free
from  preemptive  rights,  to provide for the  issuance of Common Stock upon the
full  conversion of this Debenture and the other  Debentures  issued pursuant to
the  Purchase  Agreement.  As  of  the  date  of  issuance  of  this  Debenture,
121,157,143  authorized  and  unissued  shares  of Common  Stock  have been duly
reserved for issuance upon conversion of this Debenture and the other Debentures
issued pursuant to the Purchase Agreement (the "Reserved Amount").  The Reserved
Amount shall be increased  from time to time in accordance  with the  Borrower's
obligations  pursuant to Section  4(h) of the Purchase  Agreement.  The Borrower
represents  that upon  issuance,  such shares  will be duly and validly  issued,
fully paid and  non-assessable.  In addition,  if the  Borrower  shall issue any
securities  or make any change to its capital  structure  which would change the
number of shares of Common Stock into which the Debentures  shall be convertible
at the then current  Conversion  Price, the Borrower shall at the same time 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 outstanding Debentures.  The Borrower (i) acknowledges that it
has  irrevocably  instructed  its transfer agent to issue  certificates  for the
Common Stock issuable upon  conversion of this  Debenture,  and (ii) agrees that
its issuance of this Debenture  shall  constitute full authority to its officers
and agents who are charged  with the duty of  executing  stock  certificates  to
execute  and issue the  necessary  certificates  for  shares of Common  Stock in
accordance with the terms and conditions of this Debenture.

If, at any time a Holder of this Debenture  submits a Notice of Conversion,  and
the Borrower does not have  sufficient  authorized but unissued shares of Common
Stock  available to effect such  conversion in accordance with the provisions of
this Article I (a  "Conversion  Default"),  subject to Section 4.8, the Borrower
shall  issue to the  Holder  all of the  shares of Common  Stock  which are then
available to effect such  conversion.  The portion of this  Debenture  which the
Holder  included in its Conversion  Notice and 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  into Common Stock in accordance with the terms hereof until (and at
the  Holder's  option at any time  after) the date  additional  shares of Common
Stock are  authorized by the Borrower to permit such  conversion,  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  thereafter  elected by the Holder in
respect  thereof.  In addition,  the Borrower  shall pay to the Holder  payments
("Conversion  Default  Payments") for a Conversion  Default in the amount of (x)
the sum of (1) the then outstanding  principal amount of this Debenture plus (2)
accrued and unpaid  interest on the unpaid  principal  amount of this  Debenture
through the Authorization Date (as defined below) plus (3) Default Interest,  if
any, on the amounts  referred  to in clauses (1) and/or (2),  multiplied  by (y)
..24,  multiplied  by (z) (N/365),  where N = the number of days from the day the
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 full  outstanding  principal  balance of this  Debenture.  The
Borrower  shall use its best efforts to authorize a sufficient  number of shares
of Common Stock as soon as  practicable  following  the earlier of (i) such time
that the 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  thereof  and (ii) a  Conversion  Default.  The
Borrower  shall send  notice to the 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 Payments for
each calendar  month shall be paid in cash or shall be  convertible  into Common
Stock (at such time as there are sufficient  authorized  shares of Common Stock)
at the applicable Conversion Price, at the Holder's option, as follows:

(a)  In the event the 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; and

(b)  In the event the Holder  elects to take such payment in Common  Stock,  the
     Holder may convert such payment  amount into Common Stock at the Conversion
     Price (as in effect at the time of  conversion) at any time after the fifth
     (5th)  day of the month  following  the  month in which it has  accrued  in
     accordance  with the  terms of this  Article  I (so long as there is then a
     sufficient number of authorized shares of Common Stock).

     The Holder's  election shall be made in writing to the Borrower at any time
prior to 9:00 p.m.,  New York City, New York time, on the third day of the month
following the month in which  Conversion  Default  payments have accrued.  If no
election is made,  the Holder shall be deemed to have  elected to receive  cash.
Nothing  herein shall limit the 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 each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).

     1.4 Method of Conversion.

     (a) Mechanics of Conversion.  Subject to Section 1.1, this Debenture may be
converted  by the Holder in whole or in part  (together  with accrued and unpaid
interest  thereon)  at any time from time to time after the Issue  Date,  by (A)
submitting  to the  Borrower  a Notice  of  Conversion  (by  facsimile  or other
reasonable  means of  communication  dispatched on the Conversion  Date prior to
9:00 p.m.,  New York City,  New York  time) and (B)  subject to Section  1.4(b),
surrendering this Debenture at the principal office of the Borrower.

     (b) Surrender of Debenture Upon Conversion. Notwithstanding anything to the
contrary set forth herein,  upon conversion of this Debenture in accordance with
the terms hereof, the 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.  The Holder and the Borrower shall  maintain  records
showing the principal  amount so converted and the dates of such  conversions or
shall use such  other  method,  reasonably  satisfactory  to the  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,  the Holder may not transfer this  Debenture  unless the
Holder first physically surrenders this Debenture to the Borrower, whereupon the
Borrower  will  forthwith  issue and deliver  upon the order of the Holder a new
Debenture of like tenor, registered as the Holder (upon payment by the Holder of
any applicable  transfer  taxes) may request,  representing in the aggregate the
remaining  unpaid  principal  amount  of  this  Debenture.  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
represented  by this  Debenture  may be less than the amount  stated on the face
hereof.

     (c)  Payment of  Taxes.The  Borrower  shall not be  required to pay any tax
which may be  payable  in  respect  of any  transfer  involved  in the issue and
delivery of shares of Common Stock or other securities or property on conversion
of this  Debenture in a name other than that of the Holder (or in street  name),
and the  Borrower  shall not be  required to issue or deliver any such shares or
other  securities or property unless and until the person or persons (other than
the Holder or the  custodian in whose street name such shares are to be held for
the Holder's  account)  requesting  the issuance  thereof shall have paid to the
Borrower  the  amount  of  any  such  tax  or  shall  have  established  to  the
satisfaction of the Borrower that such tax has been paid.

     (d) Delivery of Common Stock Upon Conversion.  Upon receipt by the Borrower
from the  Holder  of a  facsimile  transmission  (or other  reasonable  means of
communication) of a Notice of Conversion meeting the requirements for conversion
as provided in this Section  1.4, the Borrower  shall issue and deliver or cause
to be issued and delivered to or upon the order of the Holder  certificates  for
the Common Stock  issuable  upon such  conversion  within two (2) business  days
after such receipt  (and,  solely in the case of conversion of the entire unpaid
principal amount hereof,  surrender of this Debenture) (such second business day
being  hereinafter  referred to as the  "Deadline") 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  that
certificates for shares of Common Stock issued on or after the effective date of
the Registration  Statement upon conversion of this Debenture shall not bear any
restrictive legend).

     (e)  Obligation of Borrower to Deliver  Common  Stock.  Upon receipt by the
Borrower of a Notice of Conversion,  the Holder shall be deemed to be the holder
of record of the Common Stock  issuable upon such  conversion,  the  outstanding
principal amount and the amount of accrued and unpaid interest on this Debenture
shall be reduced to reflect such conversion,  and, unless the Borrower  defaults
on its obligations  under this Article I, all rights with respect to the portion
of this Debenture being so converted shall forthwith  terminate except the right
to receive the Common Stock or other securities, cash or other assets, as herein
provided,  on such  conversion.  If the  Holder  shall  have  given a Notice  of
Conversion as provided  herein,  the Borrower's  obligation to issue and deliver
the  certificates  for  Common  Stock  shall  be  absolute  and   unconditional,
irrespective of the absence of any action by the Holder to enforce the same, any
waiver or consent with  respect to any  provision  thereof,  the recovery of any
judgment  against any person or any action to enforce  the same,  any failure or
delay in the  enforcement of any other  obligation of the Borrower to the holder
of record, or any setoff, counterclaim,  recoupment,  limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Borrower,
and  irrespective  of any other  circumstance  which might  otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion. The
Conversion  Date  specified in the Notice of Conversion  shall be the Conversion
Date so long as the Notice of Conversion is received by the Borrower before 9:00
p.m., New York City, New York time, on such date.

     (f) Delivery of Common Stock by Electronic Transfer.  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
request  of the Holder  and its  compliance  with the  provisions  contained  in
Section 1.1 and in this Section 1.4, the Borrower  shall use its best efforts to
cause its transfer  agent to  electronically  transmit the Common Stock issuable
upon  conversion to the Holder by crediting the account of Holder's Prime Broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system.

     (g) Failure to Deliver  Common Stock Prior to Deadline.  Without in any way
limiting the Holder's right to pursue other remedies,  including  actual damages
and/or equitable relief,  the parties agree that if delivery of the Common Stock
issuable upon  conversion of this  Debenture is more than two (2) days after the
Deadline (other than a failure due to the circumstances described in Section 1.3
above,  which failure shall be governed by such Section) the Borrower  shall pay
to the Holder $2,000 per day in cash,  for each day beyond the Deadline that the
Borrower  fails to deliver such Common Stock.  Such cash amount shall be paid to
Holder by the fifth day of the month following the month in which it has accrued
or, at the option of the Holder (by written  notice to the Borrower by the first
day of the month following the month in which it has accrued), shall be added to
the principal  amount of this  Debenture,  in which event  interest shall accrue
thereon  in  accordance  with the terms of this  Debenture  and such  additional
principal  amount shall be convertible  into Common Stock in accordance with the
terms of this Debenture.

     1.5  Concerning  the  Shares.  The  shares of Common  Stock  issuable  upon
conversion  of this  Debenture  may not be sold or  transferred  unless (i) such
shares are sold pursuant to an effective registration statement under the Act or
(ii) the  Borrower  or its  transfer  agent  shall have been  furnished  with an
opinion  of  counsel  (which  opinion  shall be in  form,  substance  and  scope
customary for opinions of counsel in comparable transactions) to the effect that
the shares to be sold or transferred  may be sold or transferred  pursuant to an
exemption  from such  registration  or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a successor  rule)  ("Rule  144") or (iv)
such shares are  transferred to an  "affiliate"  (as defined in Rule 144) of the
Borrower who agrees to sell or otherwise  transfer the shares only in accordance
with this  Section  1.5 and who is an  Accredited  Investor  (as  defined in the
Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and
subject  to the  removal  provisions  set forth  below),  until such time as the
shares of Common Stock  issuable  upon  conversion of this  Debenture  have been
registered under the Act as contemplated by the Registration Rights Agreement or
otherwise  may be sold  pursuant to Rule 144 without any  restriction  as to the
number of securities as of a particular date that can then be immediately  sold,
each  certificate  for shares of Common Stock  issuable upon  conversion of this
Debenture that has not been so included in an effective  registration  statement
or that has not been sold pursuant to an effective  registration statement or an
exemption that permits removal of the legend,  shall bear a legend substantially
in the following form, as appropriate:

        "THE  SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN
        REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED.  THE
        SECURITIES  MAY  NOT BE  SOLD,  TRANSFERRED  OR  ASSIGNED  IN THE
        ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
        UNDER SAID 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
        UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."

     The legend set forth above shall be removed and the Borrower shall issue to
the Holder a new  certificate  therefor  free of any transfer  legend if (i) the
Borrower or its  transfer  agent shall have  received an opinion of counsel,  in
form,  substance  and scope  customary  for  opinions  of counsel in  comparable
transactions,  to the effect that a public sale or transfer of such Common Stock
may be made  without  registration  under the Act and the  shares are so sold or
transferred,  (ii) such Holder  provides the Borrower or its transfer agent with
reasonable  assurances  that the Common Stock  issuable upon  conversion of this
Debenture (to the extent such securities are deemed to have been acquired on the
same date) can be sold  pursuant  to Rule 144 or (iii) in the case of the Common
Stock issuable upon  conversion of this  Debenture,  such security is registered
for sale by the Holder under an effective registration statement filed under the
Act or otherwise may be sold pursuant to Rule 144 without any  restriction as to
the number of  securities as of a particular  date that can then be  immediately
sold. Nothing in this Debenture shall (i) limit the Borrower's  obligation under
the  Registration  Rights  Agreement  or (ii)  affect  in any  way the  Holder's
obligations to comply with applicable  prospectus delivery requirements upon the
resale of the securities referred to herein.

     1.6 Effect of Certain Events.

     (a) Effect of Merger, Consolidation,  Etc. At the option of the Holder, 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 33% of the  voting  power of the  Borrower  is
disposed of, or the consolidation,  merger or other business  combination of the
Borrower  with or into any other  Person (as defined  below) or Persons when the
Borrower  is not the  survivor  shall  either:  (i) be  deemed to be an Event of
Default (as defined in Article  III)  pursuant  to which the  Borrower  shall be
required to pay to the Holder  upon the  consummation  of and as a condition  to
such  transaction  an amount equal to the Default  Amount (as defined in Article
III) or (ii) be treated  pursuant to Section 1.6(b) hereof.  "Person" shall mean
any   individual,   corporation,   limited   liability   company,   partnership,
association, trust or other entity or organization.

     (b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this
Debenture  is  issued  and  outstanding  and prior to  conversion  of all of the
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,  then the Holder of this Debenture
shall  thereafter  have the right to receive upon  conversion of this Debenture,
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,
such stock,  securities  or assets which the Holder would have been  entitled to
receive  in  such   transaction  had  this  Debenture  been  converted  in  full
immediately  prior to such  transaction  (without  regard to any  limitations on
conversion set forth herein), and in any such case appropriate  provisions shall
be made with respect to the rights and interests of the Holder of this Debenture
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter  deliverable upon
the conversion hereof.  The Borrower shall not effect any transaction  described
in this Section  1.6(b)  unless (a) it first gives,  to the extent  practicable,
thirty (30) days prior  written  notice (but in any event at least  fifteen (15)
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   merger,   consolidation,   exchange  of  shares,   recapitalization,
reorganization  or other similar event or sale of assets  (during which time the
Holder  shall be  entitled  to convert  this  Debenture)  and (b) the  resulting
successor  or  acquiring  entity  (if  not  the  Borrower)  assumes  by  written
instrument the obligations of this Section 1.6(b).  The above  provisions  shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.

     (c) Adjustment Due to  Distribution.  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 the Holder of this Debenture shall
be entitled,  upon any conversion of this Debenture 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 the Holder  with  respect to the
shares of Common Stock  issuable upon such  conversion  had such Holder been the
holder of such shares of Common  Stock on the record date for the  determination
of shareholders entitled to such Distribution.

     (d)  Adjustment  Due to  Dilutive  Issuance.  If,  at  any  time  when  any
Debentures  are issued and  outstanding,  the  Borrower  issues or sells,  or in
accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any
shares of Common Stock for no  consideration  or for a  consideration  per share
(before  deduction  of  reasonable   expenses  or  commissions  or  underwriting
discounts or allowances in connection  therewith) less than the Fixed Conversion
Price in effect on the date of such issuance (or deemed issuance) of such shares
of Common  Stock (a "Dilutive  Issuance"),  then  immediately  upon the Dilutive
Issuance,  the Fixed  Conversion  Price  will be  reduced  to the  amount of the
consideration  per share  received by the  Borrower in such  Dilutive  Issuance;
provided that only one adjustment will be made for each Dilutive Issuance.

     The Borrower  shall be deemed to have issued or sold shares of Common Stock
if the Borrower in any manner issues or grants any warrants,  rights or options,
whether or not immediately  exercisable,  to subscribe for or to purchase Common
Stock or other  securities  convertible  into or exchangeable  for Common Stock,
other than  pursuant to the  Company's  existing  Long Term  Incentive  Plan and
Executive Long Term Incentive Plan  ("Convertible  Securities")  (such warrants,
rights and  options to  purchase  Common  Stock or  Convertible  Securities  are
hereinafter  referred to as "Options")  and the price per share for which Common
Stock is  issuable  upon the  exercise  of such  Options  is less than the Fixed
Conversion Price then in effect,  then the Fixed Conversion Price shall be equal
to such price per share. For purposes of the preceding sentence,  the "price per
share for which Common Stock is issuable  upon the exercise of such  Options" is
determined by dividing (i) the total amount,  if any,  received or receivable by
the Borrower as consideration  for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional  consideration,  if any, payable
to the Borrower  upon the  exercise of all such  Options,  plus,  in the case of
Convertible  Securities issuable upon the exercise of such Options,  the minimum
aggregate  amount of  additional  consideration  payable upon the  conversion or
exchange  thereof  at  the  time  such   Convertible   Securities  first  become
convertible  or  exchangeable,  by (ii) the  maximum  total  number of shares of
Common  Stock  issuable  upon the exercise of all such  Options  (assuming  full
conversion of Convertible Securities,  if applicable).  No further adjustment to
the Conversion  Price will be made upon the actual issuance of such Common Stock
upon  the  exercise  of such  Options  or upon the  conversion  or  exchange  of
Convertible Securities issuable upon exercise of such Options.

     Additionally, the Borrower shall be deemed to have issued or sold shares of
Common  Stock if the  Borrower  in any  manner  issues or sells any  Convertible
Securities,  whether or not immediately  convertible  (other than where the same
are issuable  upon the  exercise of Options),  and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the Fixed
Conversion Price then in effect,  then the Fixed Conversion Price shall be equal
to such price per share. For the purposes of the preceding sentence,  the "price
per share for which Common Stock is issuable  upon such  conversion or exchange"
is determined by dividing (i) the total amount,  if any,  received or receivable
by the  Borrower  as  consideration  for  the  issuance  or  sale  of  all  such
Convertible  Securities,   plus  the  minimum  aggregate  amount  of  additional
consideration,  if any,  payable to the Borrower upon the conversion or exchange
thereof at the time such  Convertible  Securities  first become  convertible  or
exchangeable,  by (ii) the  maximum  total  number of  shares  of  Common  Stock
issuable upon the conversion or exchange of all such Convertible Securities.  No
further  adjustment to the Fixed  Conversion  Price will be made upon the actual
issuance of such Common Stock upon  conversion  or exchange of such  Convertible
Securities.

     (e) Purchase  Rights.  If, at any time when any  Debentures  are issued and
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 the Holder of
this  Debenture will be entitled to acquire,  upon the terms  applicable to such
Purchase  Rights,  the  aggregate  Purchase  Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Debenture (without regard to any limitations on
conversion  contained herein)  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.

     (f)  Notice of  Adjustments.  Upon the  occurrence  of each  adjustment  or
readjustment of the Conversion Price as a result of the events described in this
Section  1.6,  the  Borrower,  at  its  expense,  shall  promptly  compute  such
adjustment  or  readjustment  and  prepare  and  furnish  to  the  Holder  of  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 the  Holder,  furnish to such
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 the Debenture.

     1.7 Trading Market  Limitations.  Unless  permitted by the applicable rules
and regulations of the principal  securities market on which the Common Stock is
then listed or traded,  in no event shall the Borrower issue upon  conversion of
or otherwise pursuant to this Debenture and the other Debentures issued pursuant
to the Purchase Agreement more than the maximum number of shares of Common Stock
that the Borrower can issue pursuant to any rule of the principal  United States
securities  market on which the Common Stock is then traded (the "Maximum  Share
Amount"),  which, as of the Issue Date shall be 10,402,669 shares (19.99% of the
total shares  outstanding  on the Issue Date),  subject to equitable  adjustment
from time to time for  stock  splits,  stock  dividends,  combinations,  capital
reorganizations  and similar events relating to the Common Stock occurring after
the date  hereof.  Once the  Maximum  Share  Amount has been issued (the date of
which is  hereinafter  referred to as the  "Maximum  Conversion  Date"),  if the
Borrower fails to eliminate any  prohibitions  under applicable law or the rules
or  regulations of any stock  exchange,  interdealer  quotation  system or other
self-regulatory  organization  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 (a "Trading Market  Prepayment  Event"),  in lieu of
any further right to convert this  Debenture,  and in full  satisfaction  of the
Borrower's  obligations  under this  Debenture,  the  Borrower  shall pay to the
Holder,  within fifteen (15) business days of the Maximum  Conversion  Date (the
"Trading Market Prepayment  Date"), an amount equal to 130% times the sum of (a)
the then outstanding  principal amount of this Debenture  immediately  following
the Maximum  Conversion Date, plus (b) accrued and unpaid interest on the unpaid
principal  amount of this Debenture to the Trading Market  Prepayment Date, plus
(c) Default  Interest,  if any, on the amounts  referred to in clause (a) and/or
(b)  above,  plus (d) any  optional  amounts  that may be added  thereto  at the
Maximum  Conversion  Date by the Holder in accordance with the terms hereof (the
then outstanding  principal amount of this Debenture  immediately  following the
Maximum  Conversion  Date, plus the amounts  referred to in clauses (b), (c) and
(d) above  shall  collectively  be  referred  to as the  "Remaining  Convertible
Amount").  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 Section 4.8 below. In the event that the sum of (x) the aggregate number of
shares of Common Stock issued upon  conversion  of this  Debenture and the other
Debentures  issued  pursuant to the Purchase  Agreement  plus (y) the  aggregate
number of shares of Common Stock that remain  issuable  upon  conversion of this
Debenture and the other  Debentures  issued pursuant to the Purchase  Agreement,
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 and before the Maximum  Conversion Date. As used
herein,  "Stockholder  Approval"  means  approval  by  the  stockholders  of the
Borrower to authorize  the issuance of the full number of shares of Common Stock
which would be issuable upon full conversion of the then outstanding  Debentures
but for the Maximum Share Amount.

     1.8 Status as  Stockholder.  Upon submission of a Notice of Conversion by a
Holder,  (i) the shares covered  thereby  (other than the shares,  if any, which
cannot be issued  because their  issuance  would exceed such Holder's  allocated
portion  of the  Reserved  Amount  or  Maximum  Share  Amount)  shall be  deemed
converted  into shares of Common Stock and (ii) the Holder's  rights as a Holder
of such converted portion of this Debenture shall cease and terminate, excepting
only the right to receive  certificates  for such shares of Common  Stock and to
any remedies provided herein or otherwise  available at law or in equity to such
Holder  because of a failure by the  Borrower  to comply  with the terms of this
Debenture.   Notwithstanding  the  foregoing,  if  a  Holder  has  not  received
certificates  for all shares of Common Stock prior to the tenth (10th)  business
day after the  expiration  of the Deadline  with respect to a conversion  of any
portion of this  Debenture  for any reason,  then  (unless the Holder  otherwise
elects to retain  its  status as a holder of Common  Stock by so  notifying  the
Borrower) the Holder shall regain the rights of a Holder of this  Debenture with
respect to such  unconverted  portions of this Debenture and the Borrower shall,
as soon as practicable,  return such unconverted  Debenture to the Holder or, if
the Debenture has not been surrendered,  adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies  (including,  without limitation,  (i) the
right to receive  Conversion  Default  Payments  pursuant  to Section 1.3 to the
extent  required  thereby  for  such  Conversion   Default  and  any  subsequent
Conversion  Default and (ii) the right to have the Conversion Price with respect
to subsequent  conversions  determined  in accordance  with Section 1.3) for the
Borrower's failure to convert this Debenture.


                          ARTICLE II. CERTAIN COVENANTS

     2.1  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 other than  dividends on shares of Common Stock solely in the form
of  additional  shares of Common Stock or (b) directly or  indirectly or through
any subsidiary  make any other payment or distribution in respect of its capital
stock except for distributions  pursuant to any shareholders'  rights plan which
is approved by a majority of the Borrower's disinterested directors.

     2.2  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.

     2.3  Borrowings.  So long as the Borrower shall have any  obligation  under
this Debenture,  the Borrower shall not,  without the Holder's  written consent,
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)
indebtedness  to trade  creditors  or  financial  institutions  incurred  in the
ordinary  course of business or (c)  borrowings,  the proceeds of which shall be
used to repay this Debenture.

     2.4 Sale of Assets. So long as the Borrower shall have any obligation under
this Debenture,  the Borrower shall not,  without the Holder's  written consent,
sell,  lease or  otherwise  dispose  of any  significant  portion  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.

     2.5 Advances and Loans.  So long as the Borrower  shall have any obligation
under this  Debenture,  the Borrower  shall not,  without the  Holder's  written
consent,  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 or (b) made in the
ordinary course of business.

     2.6  Contingent  Liabilities.  So  long  as the  Borrower  shall  have  any
obligation  under this Debenture,  the Borrower shall not,  without the Holder's
written consent, 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 hereof,
and (b) similar transactions in the ordinary course of business.


                         ARTICLE III. EVENTS OF DEFAULT

     If any of the  following  events of default  (each,  an "Event of Default")
shall occur:

     3.1 Failure to Pay  Principal  or Interest.  The Borrower  fails to pay the
principal  hereof or interest  thereon  when due on this  Debenture,  whether at
maturity,  upon a Trading Market  Prepayment Event pursuant to Section 1.7, upon
acceleration or otherwise;

     3.2 Conversion and the Shares. The Borrower fails to issue shares of Common
Stock to the  Holder  (or  announces  or  threatens  that it will not  honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance  with the terms of this Debenture (for a period of at least
sixty (60)  days,  if such  failure  is solely as a result of the  circumstances
governed by Section 1.3 and the  Borrower is using its best efforts to authorize
a sufficient number of shares of Common Stock as soon as practicable),  fails to
transfer  or  cause  its  transfer  agent  to  transfer  (electronically  or  in
certificated  form) any  certificate  for shares of Common  Stock  issued to the
Holder upon  conversion of or otherwise  pursuant to this  Debenture as and when
required by this Debenture or the  Registration  Rights  Agreement,  or fails to
remove any restrictive legend (or to withdraw any stop transfer  instructions in
respect thereof) on any certificate for any shares of Common Stock issued to the
Holder upon  conversion of or otherwise  pursuant to this  Debenture as and when
required by this Debenture or the  Registration  Rights  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 the Holder;

     3.3 Failure to Maintain Registration.  The Registration Statement lapses in
effect (or sales  cannot  otherwise  be made  thereunder  effective,  whether by
reason of the Borrower's failure to amend or supplement the prospectus  included
therein in accordance with the  Registration  Rights Agreement or otherwise) for
more than ten (10)  consecutive  days or fifteen  (15) days in any twelve  month
period after the Registration Statement becomes effective;

     3.4 Breach of  Covenants.  The Borrower  breaches any material  covenant or
other  material term or condition  contained in Sections 1.3, 1.6 or 1.7 of this
Debenture,  or  Sections  4(c),  4(e),  4(h),  4(i),  4(j) or 5 of the  Purchase
Agreement and such breach  continues for a period of ten (10) days after written
notice thereof to the Borrower from the Holder;

     3.5  Breach  of  Representations  and  Warranties.  Any  representation  or
warranty  of  the  Borrower  made  herein  or in  any  agreement,  statement  or
certificate  given  in  writing  pursuant  hereto  or  in  connection   herewith
(including,  without  limitation,  the Purchase  Agreement and the  Registration
Rights  Agreement),  shall be false or misleading  in any material  respect when
made and the  breach of which  has (or with the  passage  of time  will  have) a
material  adverse  effect  on the  rights of the  Holder  with  respect  to this
Debenture, the Purchase Agreement or the Registration Rights Agreement;

     3.6  Receiver or Trustee.  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 a substantial  part of
its  property or  business,  or such a receiver or trustee  shall  otherwise  be
appointed;

     3.7 Judgments. Any money judgment, writ or similar process shall be entered
or filed  against the Borrower or any  subsidiary  of the Borrower or any of its
property or other  assets for more than  $25,000,  and shall  remain  unvacated,
unbonded or unstayed for a period of twenty (20) days unless otherwise consented
to by the Holder, which consent will not be unreasonably withheld;

     3.8  Bankruptcy.  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;

     3.9  Delisting of Common  Stock.  The  Borrower  shall fail to maintain the
listing of the Common  Stock on at least one of the OTCBB,  the Nasdaq  National
Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American
Stock Exchange; or

     3.10 Default Under Other  Debentures.  An Event of Default has occurred and
is continuing under any of the other Debentures  issued pursuant to the Purchase
Agreement; then, upon the occurrence and during the continuation of any Event of
Default  specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the
option of the Holders of a majority  of the  aggregate  principal  amount of the
outstanding  Debentures  issued pursuant to the Purchase  Agreement  exercisable
through the  delivery of written  notice to the  Borrower by such  Holders  (the
"Default  Notice"),  and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become  immediately due and payable and
the Borrower shall pay to the Holder,  in full  satisfaction  of its obligations
hereunder,  an amount  equal to the greater of (i) 130% times the sum of (w) the
then outstanding  principal amount of this Debenture plus (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the date of payment
(the  "Mandatory  Prepayment  Date") plus (y) Default  Interest,  if any, on the
amounts  referred to in clauses (w) and/or (x) plus (z) any amounts  owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement (the then outstanding principal amount of this
Debenture  to the date of payment  plus the amounts  referred to in clauses (x),
(y) and (z)  shall  collectively  be  known  as the  "Default  Sum") or (ii) the
"parity  value" of the Default Sum to be prepaid,  where  parity value means (a)
the highest  number of shares of Common Stock  issuable  upon  conversion  of or
otherwise  pursuant to such Default Sum in  accordance  with Article I, treating
the Trading Day  immediately  preceding  the  Mandatory  Prepayment  Date as the
"Conversion Date" for purposes of determining the lowest  applicable  Conversion
Price,  unless the Default  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 for the Common
Stock during the period  beginning on the date of first  occurrence of the Event
of  Default  and  ending  one day prior to the  Mandatory  Prepayment  Date (the
"Default  Amount") and all other amounts  payable  hereunder  shall  immediately
become due and payable, all without demand,  presentment or notice, all of which
hereby  are  expressly  waived,  together  with all  costs,  including,  without
limitation,  legal fees and  expenses,  of  collection,  and the Holder shall be
entitled  to  exercise  all other  rights and  remedies  available  at law or in
equity. If the Borrower fails to pay the Default Amount within five (5) business
days of written  notice  that such  amount is due and  payable,  then the Holder
shall  have the right at any time,  so long as the  Borrower  remains in default
(and so long and to the extent that there are sufficient  authorized shares), to
require the Borrower,  upon written notice, to immediately issue, in lieu of the
Default  Amount,  the number of shares of Common Stock of the Borrower  equal to
the Default Amount divided by the Conversion Price then in effect.


                            ARTICLE IV. MISCELLANEOUS

     4.1 Failure or  Indulgence  Not Waiver.  No failure or delay on the part of
the Holder in the  exercise of any power,  right or  privilege  hereunder  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are  cumulative  to, and not  exclusive  of, any  rights or  remedies  otherwise
available.

     4.2 Notices.  Any notice herein  required or permitted to be given shall be
in  writing  and may be  personally  served or  delivered  by courier or sent by
United  States  mail and  shall be deemed to have been  given  upon  receipt  if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after  being  deposited  in the United  States
mail, certified,  with postage pre-paid and properly addressed, if sent by mail.
For the  purposes  hereof,  the  address of the Holder  shall be as shown on the
records of the Borrower;  and the address of the Borrower shall be 1127 Broadway
Plaza, Suite 10, Tacoma,  Washington 98402 (facsimile  number:  (253) 284-2035).
Both the Holder and the  Borrower  may change the address for service by service
of written notice to the other as herein provided.

     4.3 Amendments. This Debenture and any provision hereof may only be amended
by an  instrument  in writing  signed by the Borrower  and the Holder.  The term
"Debenture" and all reference thereto, as used throughout this instrument, shall
mean this instrument (and the other  Debentures  issued pursuant to the Purchase
Agreement) as originally executed, or if later amended or supplemented,  then as
so amended or supplemented.

     4.4  Assignability.  This Debenture  shall be binding upon the Borrower and
its successors and assigns,  and shall inure to be the benefit of the Holder and
its  successors  and  assigns.  Each  transferee  of this  Debenture  must be an
"accredited   investor"   (as   defined  in  Rule   501(a)  of  the  1933  Act).
Notwithstanding  anything in this Debenture to the contrary,  this Debenture may
be pledged as collateral in connection  with a bona fide margin account or other
lending arrangement.

     4.5  Cost  of  Collection.  If  default  is  made  in the  payment  of this
Debenture,  the  Borrower  shall  pay the  Holder  hereof  costs of  collection,
including reasonable attorneys' fees.

     4.6  Governing  Law.  THIS  DEBENTURE  SHALL BE  ENFORCED,  GOVERNED BY AND
CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK  APPLICABLE  TO
AGREEMENTS MADE AND TO BE PERFORMED  ENTIRELY WITHIN SUCH STATE,  WITHOUT REGARD
TO THE  PRINCIPLES  OF  CONFLICT OF LAWS.  THE  BORROWER  HEREBY  SUBMITS TO THE
EXCLUSIVE  JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW  YORK  WITH  RESPECT  TO ANY  DISPUTE  ARISING  UNDER  THIS  DEBENTURE,  THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS  CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES 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 EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY  OTHER  MANNER   PERMITTED  BY  LAW.   BOTH  PARTIES   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.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE  ARISING  UNDER
THIS  DEBENTURE  SHALL  BE  RESPONSIBLE  FOR ALL FEES  AND  EXPENSES,  INCLUDING
ATTORNEYS'  FEES,  INCURRED  BY THE  PREVAILING  PARTY IN  CONNECTION  WITH SUCH
DISPUTE.

     4.7 Certain  Amounts.  Whenever  pursuant to this Debenture the Borrower is
required to pay an amount in excess of the outstanding  principal amount (or the
portion  thereof  required  to be paid at that  time)  plus  accrued  and unpaid
interest  plus Default  Interest on such  interest,  the Borrower and the Holder
agree that the actual  damages to the Holder from the receipt of cash payment on
this Debenture may be difficult to determine and the amount to be so paid by the
Borrower  represents  stipulated  damages  and not a penalty  and is intended to
compensate  the  Holder  in part for loss of the  opportunity  to  convert  this
Debenture and to earn a return from the sale of shares of Common Stock  acquired
upon  conversion  of this  Debenture  at a price in excess of the price paid for
such shares pursuant to this Debenture. The Borrower and the Holder hereby agree
that such amount of stipulated  damages is not plainly  disproportionate  to the
possible  loss to the Holder  from the  receipt of a cash  payment  without  the
opportunity to convert this Debenture into shares of Common Stock.

     4.8  Allocations of Maximum Share Amount and Reserved  Amount.  The Maximum
Share Amount and Reserved  Amount shall be allocated  pro rata among the Holders
of Debentures  based on the principal  amount of such Debentures  issued to each
Holder.  Each increase to the Maximum Share Amount and Reserved  Amount shall be
allocated pro rata among the Holders of Debentures based on the principal amount
of such  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  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
Debentures shall be allocated to the remaining  Holders of Debentures,  pro rata
based on the principal amount of such Debentures then held by such Holders.

     4.9 Damages Shares.  The shares of Common Stock that may be issuable to the
Holder  pursuant to Sections 1.3 and 1.4(g)  hereof and pursuant to Section 2(c)
of the  Registration  Rights  Agreement  ("Damages  Shares") shall be treated as
Common Stock issuable upon  conversion of this Debenture for all purposes hereof
and shall be subject to all of the limitations and afforded all of the rights of
the  other  shares  of  Common  Stock  issuable  hereunder,   including  without
limitation,  the  right  to be  included  in the  Registration  Statement  filed
pursuant to the  Registration  Rights  Agreement.  For  purposes of  calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein,  amounts  convertible  into Damages Shares ("Damages  Amounts")
shall not bear  interest but must be converted  prior to the  conversion  of any
outstanding  principal amount hereof,  until the outstanding  Damages Amounts is
zero.

     4.10  Denominations.  At the request of the 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 $50,000 as the Holder shall request.

     4.11 Purchase Agreement.  By its acceptance of this Debenture,  each Holder
agrees to be bound by the applicable terms of the Purchase Agreement.

     4.12 Notice of Corporate  Events.  Except as otherwise  provided below, the
Holder of this Debenture shall have no rights as a Holder of Common Stock unless
and only to the extent that it converts this  Debenture  into Common Stock.  The
Borrower shall provide the Holder with prior  notification of any meeting of the
Borrower's  shareholders  (and copies of proxy  materials and other  information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive  payment of any dividend or other  distribution,  any right to subscribe
for, purchase or otherwise acquire  (including by way of merger,  consolidation,
reclassification  or  recapitalization)  any  share of any  class  or any  other
securities  or property,  or to receive any other  right,  or for the purpose of
determining  shareholders  who  are  entitled  to vote in  connection  with  any
proposed sale, lease or conveyance of all or substantially  all of the assets of
the  Borrower  or any  proposed  liquidation,  dissolution  or winding up of the
Borrower,  the Borrower shall mail a notice to the Holder,  at least twenty (20)
days prior to the record  date  specified  therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  right or other event, and a brief statement  regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public  announcement  of any event
requiring notification to the Holder hereunder substantially simultaneously with
the  notification  to the Holder in  accordance  with the terms of this  Section
4.12.

     4.13  Remedies.  The  Company  acknowledges  that  a  breach  by it of  its
obligations  hereunder will cause  irreparable harm to the Holder,  by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly,  the
Company  acknowledges  that the  remedy at law for a breach  of its  obligations
under this Debenture will be inadequate and agrees,  in the event of a breach or
threatened  breach by the Company of the provisions of this Debenture,  that the
Holder shall be entitled,  in addition to all other available remedies at law or
in equity, and in addition to the penalties  assessable herein, to an injunction
or  injunctions  restraining,  preventing or curing any breach of this Debenture
and to  enforce  specifically  the terms and  provisions  thereof,  without  the
necessity of showing  economic loss and without any bond or other security being
required.


                         ARTICLE V. OPTIONAL PREPAYMENT

     5.1.  Optional  Prepayment.   Notwithstanding   anything  to  the  contrary
contained  in this  Article V, for not more than  thirty (30) days from the date
hereof,  so long as (i) no Event of Default or Trading Market  Prepayment  Event
shall have  occurred and be  continuing,  and (ii) the Borrower has a sufficient
number of  authorized  shares of Common Stock  reserved  for issuance  upon full
conversion  of the  Debentures,  then at any time  after  the  Issue  Date,  the
Borrower  shall have the right,  exercisable  on not less than ten (10)  Trading
Days prior written notice to the Holders of the Debentures (which notice may not
be sent to the Holders of the  Debentures  until the  Borrower is  permitted  to
prepay  the  Debentures  pursuant  to this  Section  5.1),  to prepay all of the
outstanding  Debentures  in  accordance  with this  Section  5.1.  Any notice of
prepayment  hereunder  (an  "Optional  Prepayment")  shall be  delivered  to the
Holders of the Debentures at their registered  addresses  appearing on the books
and records of the Borrower and shall state (1) that the Borrower is  exercising
its right to prepay all of the  Debentures  issued on the Issue Date and (2) the
date of prepayment  (the "Optional  Prepayment  Notice").  On the date fixed for
prepayment (the "Optional  Prepayment Date"), the Borrower shall make payment of
the Optional  Prepayment  Amount (as defined  below) to or upon the order of the
Holders as  specified by the Holders in writing to the Borrower at least one (1)
business day prior to the Optional  Prepayment  Date. If the Borrower  exercises
its right to prepay the  Debentures,  the  Borrower  shall  make  payment to the
holders of an amount in cash (the  "Optional  Prepayment  Amount") equal to 130%
multiplied  by the sum of (w) the  then  outstanding  principal  amount  of this
Debenture plus (x) accrued and unpaid interest on the unpaid principal amount of
this Debenture to the Optional  Prepayment  Date plus (y) Default  Interest,  if
any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed
to the Holder  pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section
2(c) of the Registration Rights Agreement (the then outstanding principal amount
of this Debenture to the date of payment plus the amounts referred to in clauses
(x), (y) and (z) shall collectively be known as the "Optional  Prepayment Sum").
Notwithstanding notice of an Optional Prepayment, the Holders shall at all times
prior to the Optional  Prepayment  Date maintain the right to convert all or any
portion  of the  Debentures  in  accordance  with  Article I and any  portion of
Debentures so converted after receipt of an Optional Prepayment Notice and prior
to the  Optional  Prepayment  Date set forth in such  notice and  payment of the
aggregate Optional Prepayment Amount shall be deducted from the principal amount
of Debentures which are otherwise subject to prepayment pursuant to such notice.
If the  Borrower  delivers  an Optional  Prepayment  Notice and fails to pay the
Optional  Prepayment  Amount due to the Holders of the Debentures within two (2)
business days following the Optional Prepayment Date, the Borrower shall forever
forfeit its right to redeem the Debentures pursuant to this Section 5.1.







                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>


                  IN WITNESS WHEREOF, Borrower has caused this Debenture to be
signed in its name by its duly authorized officer this 3rd day of July, 2002.


                                              INSYNQ, INC.



                                              By:      /s/ John P. Gorst
                                                       -----------------
                                                       John P. Gorst
                                                       Chief Executive Officer



<PAGE>




                                    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
$0.001 per share ("Common Stock"), of Insynq,  Inc., a Delaware corporation (the
"Borrower")  according to the  conditions of the  convertible  debentures of the
Borrower dated as of January 24, 2002 (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. A copy of each
Debenture  is  attached  hereto  (or  evidence  of loss,  theft  or  destruction
thereof).

     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:___________________________
                  Applicable Conversion Price:____________________
                  Number of Shares of Common Stock to be Issued
                  Pursuant to Conversion of the Debentures:______________
                  Signature:___________________________________
Name:______________________________________
Address:____________________________________

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.