Exhibit 10.2

     THIS NOTE AND THE COMMON SHARES  ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
     NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR ANY
     STATE  SECURITIES  LAWS.  THIS NOTE AND THE  COMMON  SHARES  ISSUABLE  UPON
     CONVERSION  OF THIS  NOTE MAY NOT BE SOLD,  OFFERED  FOR SALE,  PLEDGED  OR
     HYPOTHECATED  IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT AS TO
     THIS NOTE UNDER SAID ACT AND ANY  APPLICABLE  STATE  SECURITIES  LAWS OR AN
     OPINION OF COUNSEL  REASONABLY  SATISFACTORY  TO FRONT PORCH DIGITAL,  INC.
     THAT SUCH REGISTRATION IS NOT REQUIRED.


                          SECURED CONVERTIBLE TERM NOTE


         FOR VALUE  RECEIVED,  FRONT PORCH DIGITAL,  INC., a Nevada  corporation
(the  "BORROWER"),  hereby  promises to pay to LAURUS  MASTER  FUND,  LTD.,  c/o
Ironshore  Corporate Services Ltd., P.O. Box 1234 G.T.,  Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "HOLDER") or
its  registered  assigns or  successors in interest,  on order,  the sum of Five
Million  Dollars  ($5,000,000),  together  with any accrued and unpaid  interest
hereon,  on May 13, 2007 (the "MATURITY  DATE") if not sooner paid. The original
principal amount of this Note subject to amortizing payments pursuant to Section
1.2 hereof is hereinafter  referred to as the "AMORTIZING  PRINCIPAL AMOUNT" and
the remaining original principal amount of this Note is hereinafter  referred to
as the "NON-AMORTIZING PRINCIPAL AMOUNT."

         Capitalized  terms  used  herein  without  definition  shall  have  the
meanings ascribed to such terms in that certain  Securities  Purchase  Agreement
dated as of the date hereof  between the Borrower and the Holder (the  "PURCHASE
AGREEMENT").

         The following terms shall apply to this Note:

                                    ARTICLE I
                             INTEREST & AMORTIZATION

         1.1      (a) INTEREST RATE.  Subject to Sections  1.1(b),  4.12 and 5.6
hereof,  interest  payable  on this Note  shall  accrue at a rate per annum (the
"Interest  Rate") equal to the "prime rate" published in THE WALL STREET JOURNAL
from time to time, plus one percent (1.0%). The prime rate shall be increased or
decreased as the case may be for each  increase or decrease in the prime rate in
an amount equal to such  increase or decrease in the prime rate;  each change to
be effective as of the day of the change in such rate. Subject to Section 1.1(b)
hereof,  the  Interest  Rate  shall not be less than  five (5)  percent  (5.0%).
Interest  shall be  calculated  on the basis of a 360 day year.  Interest  shall
accrue but not be payable  during the period  commencing  on the date hereof and
ending on August 31, 2004.  Commencing  on  September  1, 2004,  interest on the
Amortizing Principal Amount shall be payable monthly, in arrears,  commencing on
September  1,  2004 and on the  first  day of each  consecutive  calendar  month
thereafter  (each,  a  "REPAYMENT  DATE") and on the Maturity  Date,  whether by
acceleration  or otherwise.  Accrued  interest on the  Non-Amortizing  Principal
Amount  shall be  payable  only on the  Maturity  Date or,  in the  event of the
redemption or conversion of all or any portion of the  Non-Amortizing  Principal
Amount, accrued interest on the

<PAGE>

amount so  redeemed  or  converted  shall be paid on the date of  redemption  or
conversion, as the case may be.

         1.1.     (b)  INTEREST  RATE  ADJUSTMENT.  The  Interest  Rate shall be
subject to adjustment on the last business day of each month hereafter until the
Maturity Date (each a "Determination  Date"). If on any  Determination  Date (i)
the Borrower shall have registered  under the Securities Act of 1933, as amended
(the  "SECURITIES  ACT"),  the  shares of Common  Stock  underlying  each of the
conversion of this Note and the exercise of the Warrant issued on a registration
statement  declared  effective by the  Securities and Exchange  Commission  (the
"SEC"),  and (ii) the market price (the  "Market  Price") of the Common Stock as
reported by Bloomberg,  L.P. on the Principal  Market (as defined below) for the
five (5) consecutive trading days immediately  preceding such Determination Date
exceeds  the then  applicable  Fixed  Conversion  Price by at least  twenty five
percent  (25%),  the  Interest  Rate for the  succeeding  calendar  month  shall
automatically  be  reduced  by 200 basis  points  (200  b.p.)  (2.0.%)  for each
incremental twenty five percent (25%) increase in the Market Price of the Common
Stock above the then applicable Fixed Conversion  Price. If on any Determination
Date (i) the Borrower  shall not have  registered  under the  Securities Act the
shares of Common Stock  underlying  the conversion of this Note and the exercise
of the Warrant on a registration  statement declared effective by the SEC or the
Borrower shall have  registered such shares under the Securities Act but on such
Determination Date the related registration statement is not effective, and (ii)
the Market  Price of the Common  Stock as  reported  by  Bloomberg,  L.P. on the
Principal Market for the five (5) consecutive trading days immediately preceding
such Determination Date exceeds the then applicable Fixed Conversion Price by at
least twenty five percent (25%),  the Interest Rate for the succeeding  calendar
month shall  automatically  be decreased by 100 basis points (100 b.p.)  (1.0.%)
for each  incremental  twenty five percent (25%) increase in the Market Price of
the  Common   Stock  above  the  then   applicable   Fixed   Conversion   Price.
Notwithstanding  the  foregoing  (and  anything  to the  contrary  contained  in
herein),  (i) if on any Determination  Date the Market Price of the Common Stock
for  the  five  (5)  consecutive   trading  days   immediately   preceding  such
Determination  Date is below the then Fixed Conversion  Price, the Interest Rate
for the next succeeding month will be equal to the "prime rate" published in The
Wall Street Journal from time to time plus one percent (1%) and (ii) in no event
shall the Interest Rate be less than zero percent (0%).

         1.2.     MINIMUM  MONTHLY PRINCIPAL  PAYMENTS.  Amortizing  payments of
$1,500,000 of the original  aggregate  principal amount  outstanding  under this
Note (the  "PRINCIPAL  AMOUNT") shall begin on September 1, 2004 and shall recur
on each  succeeding  Repayment Date  thereafter  until the Amortizing  Principal
Amount  has  been  repaid  in full,  whether  by the  payment  of cash or by the
conversion  of such  principal  into Common Stock  pursuant to the terms hereof.
Subject to Section 2.1 and Article 3 below, on each Repayment Date, the Borrower
shall make  payments  to the Holder in the amount of  $45,454.54  (the  "MONTHLY
PRINCIPAL  AMOUNT"),  together with any accrued and unpaid  interest then due on
such portion of the Amortizing  Principal  Amount plus any and all other amounts
which are then  owing  under  this  Note  that  have not been paid (the  Monthly
Principal Amount,  together with such accrued and unpaid interest and such other
amounts,  collectively,  the "MONTHLY AMOUNT").  Any Amortizing Principal Amount
that remains  outstanding  on the Maturity  Date shall be due and payable on the
Maturity Date.

<PAGE>

                                   ARTICLE II
                              CONVERSION REPAYMENT

         2.1.     (a)  PAYMENT OF MONTHLY  AMOUNT IN CASH OR COMMON  STOCK.  Not
later  than the  fifth  (5th)  business  day prior to each  Repayment  Date (the
"NOTICE DATE"),  the Holder may deliver to Borrower a written notice in the form
of Exhibit B attached  hereto  directing the Borrower to pay the Monthly  Amount
payable  on the  next  Repayment  Date in  either  cash or  Common  Stock,  or a
combination of both (each, a "REPAYMENT  NOTICE").  If a Repayment Notice is not
delivered  by the  Holder  on or  before  the  applicable  Notice  Date for such
Repayment  Date,  then,  subject to Section  2.1(b),  the Borrower shall pay the
Monthly  Amount due on such  Repayment  Date in cash.  In the event the Borrower
shall be  required  to pay any  portion  of the  Monthly  Amount in  respect  of
principal  in cash,  the  Borrower  shall pay to the  Holder in  respect to such
payment an amount equal to 101% of such principal  amount.  If the Holder elects
to convert all or a portion of any Monthly Amount into shares of Common Stock as
provided  herein,  the number of such shares to be issued by the Borrower to the
Holder on such Repayment Date shall be the number determined by dividing (x) the
portion of the Monthly  Amount to be paid in shares of Common Stock,  by (y) the
then applicable Fixed Conversion Price. For purposes hereof,  the initial "FIXED
CONVERSION PRICE" means $0.50.

                  (b) MONTHLY AMOUNT CONVERSION GUIDELINES.  Subject to Sections
2.1(a),  2.2 and 3.2 hereof,  on each Notice Date,  the Holder shall convert the
Monthly Amount due on the related  Repayment Date into shares of Common Stock if
the average closing price of the Common Stock as reported by Bloomberg,  L.P. on
the  Principal  Market for the five (5)  consecutive  trading  days  immediately
preceding  such  Notice  Date is  greater  than or  equal  to 110% of the  Fixed
Conversion Price,  provided,  however, that the portion of the Monthly Amount to
be converted  shall not exceed  twenty  percent  (20%) of the  aggregate  dollar
trading  volume of the  Common  Stock  for the  twenty  (20)-trading-day  period
immediately  preceding such Notice Date. Any such conversion  shall be set forth
in a Repayment Notice delivered to the Borrower.  Any part of the Monthly Amount
due on a Repayment  Date that the Holder has not converted into shares of Common
Stock shall be paid by the Borrower in cash on such Repayment Date.  pursuant to
Section 2.1(a).

                  (c) CONVERSION OF NON-AMORTIZING PRINCIPAL AMOUNT ON REPAYMENT
DATE.  Subject to Sections 2.2 and 3.2, on each Repayment Date, the Holder shall
convert the aggregate Non-Amortizing Principal Amount outstanding hereunder into
shares of Common  Stock if the  average  closing  price of the  Common  Stock as
reported by Bloomberg, L.P. on the Principal Market for the five (5) consecutive
trading days immediately  preceding such Repayment Date is greater than or equal
to  120%  of  the  Fixed  Conversion   Price,   provided,   however,   that  the
Non-Amortizing  Principal Amount to be converted on any Repayment Date shall not
exceed twenty percent (20%) of the aggregate dollar trading volume of the Common
Stock  for  the  twenty   (20)-trading-day  period  immediately  preceding  such
Repayment Date.

                  (d) APPLICATION OF CONVERSION  AMOUNTS.  Any amounts converted
by the Holder  pursuant to Section  2.1(b) or (c) shall be deemed to  constitute
payments  of, or  applied  against,  first  outstanding  fees,  second,  accrued
interest, and then principal.

<PAGE>

         2.2.     NO  EFFECTIVE  REGISTRATION.  Notwithstanding  anything to the
contrary herein,  no amount payable hereunder may be converted into Common Stock
unless (a) either (i) an effective current Registration Statement (as defined in
the  Registration  Rights  Agreement)  covering the shares of Common Stock to be
issued in satisfaction  of such  obligations  exists,  or (ii) an exemption from
registration  of the  Common  Stock  is  available  pursuant  to Rule 144 of the
Securities Act, and (b) no Event of Default  hereunder exists and is continuing,
unless such Event of Default is cured  within any  applicable  cure period or is
otherwise  waived in writing  by the Holder in whole or in part at the  Holder's
option.

         2.3.     OPTIONAL   REDEMPTION  OF  AMORTIZING  PRINCIPAL  AMOUNT.  The
Borrower will have the option of prepaying the outstanding  Amortizing Principal
Amount ("OPTIONAL AMORTIZING REDEMPTION"), in whole or in part, by paying to the
Holder a sum of money equal to one  hundred  twenty-five  percent  (125%) of the
Amortizing  Principal  Amount to be redeemed,  together  with accrued but unpaid
interest  thereon  and any and all other  sums due,  accrued  or  payable to the
Holder arising under this Note, the Purchase  Agreement or any Related Agreement
(the  "AMORTIZING  REDEMPTION  AMOUNT") on the day written  notice of redemption
(the "NOTICE OF AMORTIZING  REDEMPTION")  is given to the Holder.  The Notice of
Amortizing  Redemption  shall  specify  the date for  such  Optional  Amortizing
Redemption (the "AMORTIZING  REDEMPTION PAYMENT DATE"),  which date shall be not
less than seven (7)  business  days  after the date of the Notice of  Amortizing
Redemption (the "REDEMPTION  PERIOD").  A Notice of Amortizing  Redemption shall
not be effective with respect to any portion of the Amortizing  Principal Amount
for which the Holder has a pending  election to convert pursuant to Section 3.1,
or for  conversions  initiated  or made by the Holder  pursuant  to Section  3.1
during  the  Redemption  Period.  The  Amortizing  Redemption  Amount  shall  be
determined  as  if  such  Holder's  conversion   elections  had  been  completed
immediately  prior to the date of the Notice of  Amortizing  Redemption.  On the
Amortizing  Redemption  Payment Date, the Amortizing  Redemption Amount shall be
paid in good funds to the  Holder.  In the event the  Borrower  fails to pay the
Amortizing  Redemption Amount on the Amortizing  Redemption  Payment Date as set
forth herein, then such Notice of Amortizing Redemption will be null and void.

         2.4.     OPTIONAL  REDEMPTION OF NON-AMORTIZING  PRINCIPAL AMOUNT.  The
Borrower  will  have the  option  of  repaying  the  outstanding  Non-Amortizing
Principal Amount ("OPTIONAL NON-AMORTIZING REDEMPTION"), in whole or in part, by
paying  the Holder a sum of money  equal to one  hundred  percent  (100%) of the
Non-Amortizing Principal Amount to be redeemed, together with accrued but unpaid
interest  thereon (the  "NON-AMORTIZING  REDEMPTION  AMOUNT") on the day written
notice of redemption  (the "NOTICE OF  NON-AMORTIZING  REDEMPTION") is giving to
the  Holder;  provided,  however,  that the  Borrower  shall not be  entitled to
deliver to the Holder a Notice of Non-Amortizing Redemption on any date on which
the average of the eleven (11) highest closing prices of the Common Stock on the
Principal  Market for the twenty-two (22)  consecutive  trading days immediately
preceding  such  date  exceeds  the  Fixed  Conversion   Price.  The  Notice  of
Non-Amortizing   Redemption   shall   specify   the  date   for  such   Optional
Non-Amortizing  Redemption (the  "NON-AMORTIZING  REDEMPTION DATE"),  which date
shall be not less than seven (7)  business  days after the date of the Notice of
Non-Amortizing Redemption (the "NON-AMORTIZING  REDEMPTION PERIOD"). A Notice of
Non-Amortizing  Redemption shall not be effective with respect to any portion of
the Non-Amortizing  Principal Amount for which the Holder has a pending election
to convert  pursuant to Section

<PAGE>

31, or for  conversions  initiated or made by the Holder pursuant to Section 3.1
during the  Non-Amortizing  Redemption  Period.  The  Non-Amortizing  Redemption
Amount shall be  determined  as if the Holder's  conversion  elections  had been
completed  immediately  prior  to the  date  of  the  Notice  of  Non-Amortizing
Redemption. On the Non-Amortizing Redemption Date, the Non-Amortizing Redemption
Amount  shall be paid (i) in good funds to the Holder,  (ii) by  furnishing  the
Holder written  direction to notify the bank holding the  Restricted  Account to
release  from the  Restricted  Account  and deliver to the Holder a sum of money
equal to the Non-Amortizing Redemption Amount, or (iii) if the amount on deposit
in the Restricted Account is less than the Non-Amortizing  Redemption Amount, by
furnishing  the  Holder  written  direction  to  notify  the  bank  holding  the
Restricted  Account to release all amounts on deposit in the Restricted  Account
to the Holder and  delivering to the Holder good funds in an amount equal to the
balance of the Non-Amortizing Redemption Amount.

                                   ARTICLE III
                                CONVERSION RIGHTS

         3.1.     HOLDER'S CONVERSION RIGHTS. Subject to Section 2.2, the Holder
shall have the right,  but not the obligation,  to convert all or any portion of
the then  aggregate  outstanding  Principal  Amount of this Note,  together with
interest and fees due hereon, into shares of Common Stock,  subject to the terms
and conditions set forth in this Article III. The Holder may exercise such right
by  delivery  to the  Borrower  of a written  Notice of  Conversion  pursuant to
Section 3.3.

         3.2      CONVERSION  LIMITATION.   Notwithstanding  anything  contained
herein to the contrary,  the Holder shall not be entitled to convert pursuant to
the terms of this Note an amount that would be  convertible  into that number of
Conversion Shares which would exceed the difference between the number of shares
of Common Stock  beneficially  owned by such Holder or issuable upon exercise of
Warrants  held by such  Holder  and  4.99% of the  outstanding  shares of Common
Stock.  For the  purposes  of the  immediately  preceding  sentence,  beneficial
ownership  shall be determined in accordance  with Section 13(d) of the Exchange
Act and Regulation  13d-3  thereunder.  The Holder may void the Conversion Share
limitation  described  in this  Section  3.2 upon 75 days  prior  notice  to the
Borrower or without any notice requirement upon an Event of Default.

         3.3      MECHANICS  OF HOLDER'S  CONVERSION.  (a) In the event that the
Holder  elects to convert  any amounts  outstanding  under this Note into Common
Stock,  the Holder shall give notice of such  election by delivering an executed
and completed  notice of conversion (a "NOTICE OF  CONVERSION") to the Borrower,
which Notice of Conversion shall provide a breakdown in reasonable detail of the
Principal Amount, accrued interest and fees being converted.  On each Conversion
Date (as  hereinafter  defined) and in accordance with its Notice of Conversion,
the Holder shall make the appropriate reduction to the Principal Amount, accrued
interest  and fees as entered in its records and shall  provide  written  notice
thereof to the Borrower within two (2) business days after the Conversion  Date.
Each date on which a Notice of  Conversion  is  delivered or  telecopied  to the
Borrower in accordance with the provisions  hereof shall be deemed a "CONVERSION
DATE".  A form of Notice of  Conversion  to be employed by the Holder is annexed
hereto as Exhibit A.

<PAGE>

         (b) Pursuant to the terms of a Notice of Conversion,  the Borrower will
issue  instructions to the transfer agent  accompanied by an opinion of counsel,
if so required by the Borrower's transfer agent, within two (2) business days of
the date of the delivery to Borrower of the Notice of Conversion and shall cause
the transfer  agent to transmit the  certificates  representing  the  Conversion
Shares to the Holder by crediting the account of the Holder's  designated broker
with the Depository  Trust  Corporation  ("DTC") through its Deposit  Withdrawal
Agent Commission ("DWAC") system within three (3) business days after receipt by
the Borrower of the Notice of Conversion (the "DELIVERY  DATE").  In the case of
the exercise of the conversion rights set forth herein the conversion  privilege
shall be deemed to have been exercised and the Conversion  Shares  issuable upon
such conversion  shall be deemed to have been issued upon the date of receipt by
the  Borrower of the Notice of  Conversion.  The Holder shall be treated for all
purposes as the record holder of such shares of Common Stock,  unless the Holder
provides the Borrower written instructions to the contrary.


         3.4      CONVERSION MECHANICS.

                  (a) The  number of shares  of Common  Stock to be issued  upon
each conversion of this Note pursuant to this Article III shall be determined by
dividing  that  portion  of the  Principal  Amount and  interest  and fees to be
converted,  if any, by the then applicable Fixed Conversion  Price. In the event
of any conversions of outstanding  obligations  under this Note in part pursuant
to this Article III, such conversions shall be deemed to constitute  conversions
(i) first, of the Monthly Amount for the current  calendar  month,  (ii) then of
the accrued  interest on the  Non-Amortizing  Principal  Amount,  (iii) then, of
outstanding  Non-Amortizing  Principal Amount and (iv) after the  Non-Amortizing
Principal  Amount has been paid in full,  of  outstanding  Amortizing  Principal
Amount by applying the  conversion  amount to Monthly  Amounts for the remaining
Repayment Dates in chronological order.

                  (b) The Fixed  Conversion  Price and number and kind of shares
or other  securities to be issued upon  conversion is subject to adjustment from
time to time upon the occurrence of certain events, as follows:

                           A. STOCK SPLITS,  COMBINATIONS AND DIVIDENDS.  If the
         shares of Common  Stock are  subdivided  or combined  into a greater or
         smaller  number of shares of Common Stock,  or if a dividend is paid on
         the Common Stock in shares of Common Stock,  the Fixed Conversion Price
         or the Conversion  Price, as the case may be, shall be  proportionately
         reduced  in  case  of  subdivision  of  shares  or  stock  dividend  or
         proportionately increased in the case of combination of shares, in each
         such case by the ratio which the total number of shares of Common Stock
         outstanding  immediately  after such event bears to the total number of
         shares of Common Stock outstanding immediately prior to such event.

                           B. During the period the conversion right exists, the
         Borrower will reserve from its authorized  and unissued  Common Stock a
         sufficient number of shares to provide for the issuance of Common Stock
         upon the full  conversion of this Note.  The Borrower  represents  that
         upon issuance,  such shares will be duly and validly issued, fully paid
         and non-assessable.  The Borrower agrees that its issuance of this Note

<PAGE>

         shall constitute full authority to its officers,  agents,  and transfer
         agents who are charged  with the duty of  executing  and issuing  stock
         certificates to execute and issue the necessary certificates for shares
         of Common Stock upon the conversion of this Note.

                           C. SHARE ISSUANCES. Subject to the provisions of this
         Section 3.4, if the Borrower  shall at any time prior to the conversion
         or repayment in full of the Principal Amount issue any shares of Common
         Stock or  securities  convertible  into Common  Stock to a person other
         than the Holder (except (i) pursuant to Subsections A or B above;  (ii)
         pursuant to  options,  warrants or other  obligations  to issue  shares
         outstanding  on the date hereof as disclosed  to Holder in writing;  or
         (iii)  pursuant  to  options  that may be  issued  under  any  employee
         incentive  stock option and/or any qualified  stock option plan adopted
         by the Borrower) for a consideration per share (the "OFFER PRICE") less
         than the Fixed Conversion Price in effect at the time of such issuance,
         then the Fixed  Conversion  Price  shall be  immediately  reset to such
         lower Offer Price at the time of issuance of such securities.

                           D. RECLASSIFICATION, ETC. If the Borrower at any time
         shall, by reclassification  or otherwise,  change the Common Stock into
         the same or a different  number of  securities of any class or classes,
         this Note,  as to the unpaid  Principal  Amount  and  accrued  interest
         thereon,  shall  thereafter be deemed to evidence the right to purchase
         an adjusted  number of such  securities and kind of securities as would
         have been  issuable as the result of such  change  with  respect to the
         Common  Stock  immediately  prior  to such  reclassification  or  other
         change.

         3.5      ISSUANCE OF REPLACEMENT  NOTE. Upon any partial  conversion of
this Note, a replacement  Note  containing  the same date and provisions of this
Note shall, at the written  request of the Holder,  be issued by the Borrower to
the  Holder  for the  outstanding  Principal  Amount  of this  Note and  accrued
interest which shall not have been converted or paid.  Subject to the provisions
of Article IV, the Borrower will pay no costs,  fees or any other  consideration
to the Holder for the production and issuance of a replacement Note.

                                   ARTICLE IV
                                EVENTS OF DEFAULT

         4.1      Upon the  occurrence  and  continuance  of an Event of Default
beyond  any  applicable  grace  period,  the  Holder  may  declare  all  sums of
principal,  interest and other fees then  remaining  unpaid hereon and all other
amounts payable hereunder  immediately due and payable.  In the event of such an
acceleration,  within five (5) days after written notice from Holder to Borrower
(each  occurrence being a "DEFAULT NOTICE PERIOD") the Borrower shall pay to the
Holder an amount equal to 125% of the outstanding  Principal Amount of this Note
(plus accrued and unpaid interest and fees, if any) (the "DEFAULT PAYMENT"). If,
with respect to any Event of Default,  the Borrower  cures the Event of Default,
the  Event of  Default  will be deemed to no  longer  exist and any  rights  and
remedies  of Holder  pertaining  to such Event of Default  will be of no further
force or effect.  The Default Payment shall be applied first to any fees due and
payable  to Holder  pursuant  to this Note or the  Related  Agreements,  then to
accrued and unpaid  interest due on this Note and then to outstanding  Principal
Amount of this Note.

<PAGE>

                  The  occurrence  of any of the  following  events  shall be an
"EVENT OF DEFAULT":

                  (a) FAILURE TO PAY  PRINCIPAL,  INTEREST  OR OTHER  FEES.  The
         Borrower fails to pay when due any  installment of principal,  interest
         or other fees hereon in accordance herewith, and in any such case, such
         failure shall continue for a period of five (5) days following the date
         upon which any such payment was due.

                  (b) BREACH OF  COVENANT.  The  Borrower  breaches any material
         covenant or any other  material  term or  condition  of this Note,  the
         Purchase  Agreement or any Related  Agreement in any material  respect,
         and, in any such case, such breach, if subject to cure, continues for a
         period of  fifteen  (15) days  after the  receipt  by the  Borrower  of
         written notice from the Holder of the occurrence thereof.

                   (c) BREACH OF  REPRESENTATIONS  AND WARRANTIES.  Any material
         representation  or  warranty  made by the  Borrower  in this Note,  the
         Purchase  Agreement  or in any Related  Agreement,  shall,  in any such
         case, be false or  misleading in any material  respect on the date that
         such  representation  or warranty was made or deemed made and shall not
         be cured by the  Borrower  for a period of fifteen  (15) days after the
         receipt  by the  Borrower  of  written  notice  from the  Holder of the
         occurrence thereof.

                  (d)   RECEIVER  OR  TRUSTEE.   The  Borrower  or  any  of  its
         Subsidiaries 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.

                  (e)  JUDGMENTS.  Any money  judgment,  writ or  similar  final
         process  shall be entered or filed  against the  Borrower or any of its
         Subsidiaries  or any of their  respective  property or other assets for
         more than $250,000,  and shall remain  unvacated,  unbonded or unstayed
         for a period of ninety (90) days.

                  (f)  BANKRUPTCY.  Bankruptcy,  insolvency,  reorganization  or
         liquidation  proceedings  or other  proceedings  or  relief  under  any
         bankruptcy law or any law for the relief of debtors shall be instituted
         by or against the Borrower or any of its material  Subsidiaries that is
         not vacated within ninety (90) days.

                  (g) STOP TRADE.  An SEC stop trade order or  Principal  Market
         trading  suspension of the Common Stock shall be in effect for five (5)
         consecutive  days  or  five  (5)  days  during  a  period  of ten  (10)
         consecutive days, excluding in all cases a suspension of all trading on
         a Principal Market, PROVIDED that the Borrower shall not have been able
         to cure such trading  suspension  within thirty (30) days of the notice
         thereof or list the Common  Stock on another  Principal  Market  within
         sixty (60) days of such notice.  The "Principal  Market" for the Common
         Stock  shall  include  the NASD OTC  Bulletin  Board,  NASDAQ  SmallCap
         Market, NASDAQ National Market System,  American Stock Exchange, or New
         York Stock  Exchange  (whichever  of the  foregoing  is at the time the
         principal  trading  exchange  or market  for the Common  Stock,  or any

<PAGE>

         securities  exchange  or other  securities  market on which the  Common
         Stock is then being listed or traded.

                  (h) FAILURE TO DELIVER COMMON STOCK OR  REPLACEMENT  NOTE. The
         Borrower  shall fail (i) to timely  deliver  Common Stock to the Holder
         pursuant to and in the form  required by this Note and Section 9 of the
         Purchase  Agreement,  if such  failure to timely  deliver  Common Stock
         shall not be cured  within  two (2)  business  days of  receipt  by the
         Borrower of written  notice  thereof by the Holder or (ii) to deliver a
         replacement  Note to Holder within ten (10) business days following the
         required date of such issuance pursuant to this Note.

                  (i) DEFAULT  UNDER  RELATED  AGREEMENTS.  The  occurrence  and
         continuance  of any  Event  of  Default  (as  defined  in  any  Related
         Agreement).

                  (j)   LITIGATION.   The   Borrower  or  any  of  its  material
         Subsidiaries shall be required,  pursuant to a judgment,  settlement or
         otherwise,  to pay  $2,500,000  or  more to any  person  or  entity  in
         connection   with  any   litigation,   action,   suit,   proceeding  or
         investigation  set forth in any  Schedule  to the  Purchase  Agreement,
         disclosed in any Exchange Act Filing or arising after the date hereof.

         4.2      PAYMENT GRACE PERIOD. Following the occurrence and continuance
of an Event of Default beyond any applicable cure period hereunder, the Borrower
shall pay the Holder a default  interest rate of one and one-half percent (1.5%)
per month on all amounts due and owing under this Note,  which default  interest
shall be payable upon demand.

         4.3      CONVERSION PRIVILEGES.  The conversion privileges set forth in
Article  III shall  remain in full  force and effect  immediately  from the date
hereof and until this Note is paid in full.

         4.4      CUMULATIVE  REMEDIES.  The  remedies  under this Note shall be
cumulative.

                                    ARTICLE V
                                  MISCELLANEOUS

         5.1      FAILURE OR INDULGENCE  NOT WAIVER.  No failure or delay on the
part of the  Holder  hereof in the  exercise  of any power,  right or  privilege
hereunder  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  such  power,  right or  privilege  preclude  other or  further
exercise  thereof  or of any other  right,  power or  privilege.  All rights and
remedies existing  hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.

         5.2      NOTICES.  Any notice herein  required or permitted to be given
shall be in writing and shall be deemed  effectively  given:  (a) upon  personal
delivery to the party  notified,  (b) when sent by  confirmed  facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day,  (c) five days after  having been sent by  registered  or  certified  mail,
return receipt requested,  postage prepaid,  or (d) one day after deposit with a
nationally  recognized  overnight  courier,  specifying next day delivery,  with
written  verification  of  receipt.  All  communications  shall  be  sent to the
Borrower  at  the  address  provided  in  the  Purchase  Agreement  executed  in
connection herewith,  with a copy to Pryor Cashman Sherman & Flynn LLP, 410

<PAGE>

Park  Avenue,  New York,  New York  10022,  Attention:  Eric M.  Hellige,  Esq.,
facsimile  number (212) 798-6380,  and to the Holder at the address  provided in
the Purchase Agreement for such Holder, with a copy to John E. Tucker, Esq., 825
Third  Avenue,  14th Floor,  New York,  New York 10022,  facsimile  number (212)
541-4434,  or at such other  address as the Borrower or the Holder may designate
by ten days advance  written  notice to the other  parties  hereto.  A Notice of
Conversion  shall be deemed  given  when made to the  Borrower  pursuant  to the
Purchase Agreement.

         5.3      AMENDMENT  PROVISION.   The  term  "Note"  and  all  reference
thereto,  as used  throughout  this  instrument,  shall mean this  instrument as
originally executed, or if later amended or supplemented,  then as so amended or
supplemented,  and any  successor  instrument  issued  pursuant  to Section  3.5
hereof, as it may be amended or supplemented.

         5.4      ASSIGNABILITY.  This Note shall be binding  upon the  Borrower
and its successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder in accordance with
the requirements of the Purchase Agreement.

         5.5      GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York,  without regard to principles
of  conflicts  of laws.  Any action  brought by either  party  against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York.  Both  parties and the  individual  signing this Note on behalf of the
Borrower  agree to submit to the  jurisdiction  of such courts.  The  prevailing
party  shall  be  entitled  to  recover  from the  other  party  its  reasonable
attorney's  fees and  costs.  In the event  that any  provision  of this Note is
invalid or unenforceable  under any applicable statute or rule of law, then such
provision  shall  be  deemed  inoperative  to the  extent  that it may  conflict
therewith  and shall be deemed  modified to conform with such statute or rule of
law. Any such provision which may prove invalid or  unenforceable  under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from  bringing  suit or taking  other legal  action  against the Borrower in any
other  jurisdiction  to  collect on the  Borrower's  obligations  to Holder,  to
realize on any  collateral  or any other  security for such  obligations,  or to
enforce a judgment or other court in favor of the Holder.

         5.6      MAXIMUM PAYMENTS.  Nothing contained herein shall be deemed to
establish  or require  the  payment of a rate of  interest  or other  charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest  required  to be paid or other  charges  hereunder  exceed the  maximum
permitted by such law, any payments in excess of such maximum  shall be credited
against  amounts  owed by the  Borrower  to the Holder and thus  refunded to the
Borrower.

         5.7      SECURITY  INTEREST.  The  Holder  has been  granted a security
interest in certain assets of the Borrower as more fully described in the Master
Security Agreement dated as of the date hereof.

         5.8      CONSTRUCTION.  Each party  acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that

<PAGE>

the  rule of  construction  that  ambiguities  are to be  resolved  against  the
drafting party shall not be applied in the  interpretation of this Note to favor
any party against the other.

         5.9      COST OF COLLECTION.  If default is made in the payment of this
Note, the Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorney's fees.

         5.10     BUSINESS DAY. If any Repayment Date is a Saturday, Sunday or a
day on which banking  institutions in Denver,  Colorado or New York City are not
required  to be open for  business  (each,  a "LEGAL  HOLIDAY"),  payment of any
Monthly  Amount due on such day may be made on the next  succeeding  day that is
not a Legal Holiday, and no interest shall accrue in respect of such payment for
the intervening period.

       [Balance of page intentionally left blank; signature page follows.]

<PAGE>


         IN WITNESS WHEREOF,  the Borrower has caused this Convertible Term Note
to be signed in its name effective as of this 13th day of May, 2004.

                                           FRONT PORCH DIGITAL, INC.


                                           By:/s/ Thomas P. Sweeney III
                                              --------------------------------
                                               Name: Thomas P. Sweeney III
                                               Title: Chairman

WITNESS:


/s/ Robin Densler
---------------------------


<PAGE>


                                                                       EXHIBIT A

                              NOTICE OF CONVERSION

(To be  executed  by the Holder in order to convert all or part of the Note into
Common Stock

[Name and Address of Holder]


The  Undersigned  hereby  converts  $_________  of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note issued by Front Porch
Digital,  Inc. dated May 13, 2004 by delivery of Shares of Common Stock of Front
Porch Digital, Inc. on and subject to the conditions set forth in Article III of
such Note.


1.       Date of Conversion           _______________________

2.       Shares To Be Delivered:    _______________________


                                            By:_______________________________
                                            Name:_____________________________
                                            Title:______________________________

<PAGE>

                                                                       EXHIBIT B

                                CONVERSION NOTICE

(To be  executed  by the  Holder  in order to  convert  all or part of a Monthly
Amount into Common Stock)

[Name and Address of Holder]


Holder  hereby  converts  $_________  of the  Monthly  Amount  due  on  [specify
applicable Repayment Date] under the Convertible Term Note issued by Front Porch
Digital,  Inc. dated May 13, 2004 by delivery of Shares of Common Stock of Front
Porch Digital, Inc. on and subject to the conditions set forth in Article III of
such Note.


1.       Fixed Conversion Price:    $_______________________

2.       Amount to be paid: $_______________________

3.       Shares To Be Delivered (2 divided by 1):    __________________

4.       Cash payment to be made by Borrower : $_____________________




Date: ____________                                   LAURUS MASTER FUND, LTD.


                                            By:_______________________________
                                            Name:_____________________________
                                            Title:______________________________