Document:

Exhibit 10.1

                            FRONT PORCH DIGITAL, INC.

                          SECURITIES PURCHASE AGREEMENT

                                  MAY 13, 2004

<PAGE>

                                TABLE OF CONTENTS
                                                                            PAGE
                                                                            ----

1.       Agreement to Sell and Purchase........................................1

2.       Fees and Warrant......................................................1

3.       Closing, Delivery and Payment.........................................2
         3.1        Closing....................................................2
         3.2        Delivery...................................................2

4.       Representations and Warranties of the Company.........................2
         4.1        Organization, Good Standing and Qualification..............3
         4.2        Subsidiaries...............................................3
         4.3        Capitalization; Voting Rights..............................3
         4.4        Authorization; Binding Obligations.........................4
         4.5        Liabilities................................................5
         4.6        Agreements; Action.........................................5
         4.7        Obligations to Related Parties.............................6
         4.8        Changes....................................................6
         4.9        Title to Properties and Assets; Liens, Etc.................7
         4.10       Intellectual Property......................................8
         4.11       Compliance with Other Instruments..........................9
         4.12       Litigation.................................................9
         4.13       Tax Returns and Payments...................................9
         4.14       Employees.................................................10
         4.15       Registration Rights and Voting Rights.....................10
         4.16       Compliance with Laws; Permits.............................11
         4.17       Environmental and Safety Laws.............................11
         4.18       Valid Offering............................................11
         4.19       Full Disclosure...........................................11
         4.20       Insurance.................................................12
         4.21       SEC Reports...............................................12
         4.22       Listing...................................................12
         4.23       No Integrated Offering....................................12
         4.24       Stop Transfer.............................................13
         4.25       Dilution..................................................13
         4.26       Patriot Act...............................................13

5.       Representations and Warranties of the Purchaser......................14
         5.1        No Shorting...............................................14
         5.2        Requisite Power and Authority.............................14
         5.3        Investment Representations................................14
         5.4        Purchaser Bears Economic Risk.............................15
         5.5        Acquisition for Own Account...............................15
         5.6        Purchaser Can Protect Its Interest........................15
         5.7        Accredited Investor.......................................15
         5.8        Legends...................................................15

6.       Covenants of the Company.............................................16
         6.1        Stop-Orders...............................................16
         6.2        Listing...................................................16
         6.3        Market Regulations........................................16
         6.4        Reporting Requirements....................................17
         6.5        Use of Funds..............................................17
         6.6        Access to Facilities......................................17

                                       i
<PAGE>

         6.7        Taxes.....................................................17
         6.8        Insurance.................................................18
         6.9        Intellectual Property.....................................19
         6.10       Properties................................................19
         6.11       Confidentiality...........................................19
         6.12       Required Approvals........................................19
         6.13       Reissuance of Securities..................................20
         6.14       Opinion...................................................20
         6.15       Margin Stock..............................................20
         6.16       Pledge of Subsidiary Capital Stock........................20
         6.17       Notice of Default.........................................19

7.       Covenants of the Purchaser...........................................21
         7.1        Confidentiality...........................................21
         7.2        Non-Public Information....................................21

8.       Covenants of the Company and Purchaser Regarding Indemnification.....21
         8.1        Company Indemnification...................................21
         8.2        Purchaser's Indemnification...............................22
         8.3        Procedures................................................22

9.       Conversion of Convertible Note.......................................22
         9.1        Mechanics of Conversion...................................22

10.      Registration Rights..................................................23
         10.1       Registration Rights Granted...............................23
         10.2       Offering Restrictions.....................................24

11.      Miscellaneous........................................................24
         11.1       Governing Law.............................................24
         11.2       Survival..................................................24
         11.3       Successors................................................25
         11.4       Entire Agreement..........................................25
         11.5       Severability..............................................25
         11.6       Amendment and Waiver......................................25
         11.7       Delays or Omissions.......................................25
         11.8       Notices...................................................25
         11.9       Titles and Subtitles......................................26
         11.10      Facsimile Signatures; Counterparts........................26
         11.11      Broker's Fees.............................................26
         11.12      Construction..............................................27

                                       ii
<PAGE>

                                LIST OF EXHIBITS

Form of Convertible Term Note........................................  Exhibit A
Form of Warrant......................................................  Exhibit B
Form of Opinion......................................................  Exhibit C
Form of Escrow Agreement.............................................  Exhibit D
Form of Disbursement Letter..........................................  Exhibit E
Form of Subsidiary Guarantee.........................................  Exhibit F

                                       i
<PAGE>

                          SECURITIES PURCHASE AGREEMENT

         THIS  SECURITIES  PURCHASE  AGREEMENT  (this  "Agreement")  is made and
entered into as of May 13, 2004,  by and between  FRONT PORCH  DIGITAL,  INC., a
Nevada  corporation  (the  "Company"),  and LAURUS  MASTER FUND,  LTD., a Cayman
Islands company (the "Purchaser").

                                    RECITALS

         WHEREAS,  the Company has  authorized  the sale to the  Purchaser  of a
Convertible Term Note in the aggregate  principal amount of Five Million Dollars
($5,000,000)  (the  "Note"),  which  Note  is  convertible  into  shares  of the
Company's common stock,  $0.001 par value per share (the "Common Stock"),  at an
initial  fixed  conversion  price of $0.50  per share of  Common  Stock  ("Fixed
Conversion Price");

         WHEREAS,  the  Company  wishes to issue a warrant to the  Purchaser  to
purchase  up to  4,435,500  shares of the  Company's  Common  Stock  (subject to
adjustment as set forth therein) in connection with Purchaser's  purchase of the
Note;

         WHEREAS,  Purchaser  desires to  purchase  the Note and the Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and

         WHEREAS,  the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.

                                    AGREEMENT

         NOW,  THEREFORE,  in  consideration  of the foregoing  recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable  consideration,  the receipt and  sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

         1.       AGREEMENT TO SELL AND PURCHASE

         Pursuant to the terms and  conditions set forth in this  Agreement,  on
the Closing  Date (as  defined in Section 3), the Company  agrees to sell to the
Purchaser,  and the Purchaser hereby agrees to purchase from the Company, a Note
in  the  aggregate  principal  amount  of  Five  Million  Dollars   ($5,000,000)
convertible in accordance  with the terms thereof into shares of Common Stock in
accordance  with the terms of the Note and this  Agreement.  The offering of the
Note  purchased on the Closing Date shall be known as the  "Offering." A form of
the Note is annexed  hereto as Exhibit A. The Note will  mature on the  Maturity
Date (as  defined  in the  Note).  Collectively,  the Note and the  Warrant  (as
defined in Section 2) and the Common Stock issuable in payment of the Note, upon
conversion  of the Note and upon  exercise of the Warrant are referred to as the
"Securities."

         2.       FEES AND WARRANT

         On the Closing Date:

                  (a) The  Company  will issue and  deliver to the  Purchaser  a
         Warrant  to  purchase  up  to  4,435,500  shares  of  Common  Stock  in

<PAGE>

         connection  with the  Offering  (the  "Warrant")  pursuant to Section 1
         hereof.  The Warrant must be  delivered on the Closing  Date. A form of
         Warrant  is annexed  hereto as  Exhibit  B. The shares of Common  Stock
         issuable upon exercise of the Warrant are hereinafter as referred to as
         the "Warrant Shares".

                  (b) Subject to the terms of Section  2(d)  below,  the Company
         shall  pay to  Laurus  Capital  Management,  LLC,  the  manager  of the
         Purchaser,   a  closing  payment  in  an  amount  equal  to  three  and
         nine-tenths  percent (3.90%) of the aggregate  principal  amount of the
         Note. The foregoing fee is referred to herein as the "Closing Payment."

                  (c)  The  Company  shall   reimburse  the  Purchaser  for  its
         reasonable  legal  fees  for  services  rendered  to the  Purchaser  in
         preparation   of  this   Agreement  and  the  Related   Agreements  (as
         hereinafter defined), and reasonable out-of-pocket expenses incurred in
         connection with the Purchaser's due diligence review of the Company and
         its  Subsidiaries  (as defined in Section 6.8) and all related matters.
         Amounts required to be paid under this Section 2(c) will be paid on the
         Closing  Date and shall not exceed  $27,000  for legal fees and $17,500
         for expenses  incurred while performing due diligence  inquiries on the
         Company and its Subsidiaries.

                  (d) The Closing Payment,  the legal fees and the due diligence
         expenses (net of deposits previously paid by the Company) shall be paid
         at closing out of funds held  pursuant to a Funds  Escrow  Agreement of
         even date herewith among the Company,  Purchaser and an Escrow Agent in
         the form attached  hereto as Exhibit D (the "Funds  Escrow  Agreement")
         and a disbursement letter in the form attached hereto as Exhibit E (the
         "Disbursement Letter").

         3.       CLOSING, DELIVERY AND PAYMENT.

                  3.1      CLOSING

         Subject to the terms and  conditions  set forth herein,  the closing of
the transactions  contemplated hereby (the "Closing"),  shall take place on such
date,  and at such time or place,  as the Company and Purchaser  shall  mutually
agree (such date is hereinafter referred to as the "Closing Date").

                  3.2      DELIVERY

         Pursuant to the Funds Escrow  Agreement in the form attached  hereto as
Exhibit C, at the Closing on the Closing  Date,  the Company will deliver to the
Purchaser,  among  other  things,  a Note in the  form  attached  as  Exhibit  A
representing the aggregate principal amount of Five Million Dollars ($5,000,000)
and a  Warrant  in the  form  attached  as  Exhibit  B in the  Purchaser's  name
representing  4,435,500  Warrant  Shares and the  Purchaser  will deliver to the
Company, among other things, the amounts set forth in the Disbursement Letter by
wire transfer of immediately available funds to an account of the Company as the
Company shall direct in writing.

         4.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company hereby  represents and warrants to the Purchaser as follows
(which representations and warranties are qualified by the information set

<PAGE>

forth  in the  Company's  filings  under  the  Securities  Exchange  Act of 1934
(collectively,  the "Exchange Act Filings"),  copies of which have been provided
to the Purchaser):

                  4.1      ORGANIZATION, GOOD STANDING AND QUALIFICATION

         Each of the  Company  and each of its  Subsidiaries  is a  corporation,
partnership or limited  liability  company,  as the case may be, duly organized,
validly  existing and in good  standing  under the laws of its  jurisdiction  of
organization. Each of the Company and each of its Subsidiaries has the corporate
power and authority to own and operate its  properties  and assets.  The Company
has the corporate power and authority to execute and deliver (i) this Agreement,
(ii) the Note and the Warrant to be issued in  connection  with this  Agreement,
(iii) the Master  Security  Agreement  dated as of the date  hereof  between the
Company and the Purchaser  (as amended,  modified or  supplemented  from time to
time, the "Master Security  Agreement"),  (iv) the Registration Rights Agreement
relating to the  Securities  dated as of the date hereof between the Company and
the Purchaser,  (v) the Escrow  Agreement  dated as of the date hereof among the
Company,  the  Purchaser  and the escrow agent  referred to therein and (vi) all
other  agreements  related to this Agreement and the Note and referred to herein
(the   preceding   clauses  (ii)  through  (vi),   collectively,   the  "Related
Agreements"), to issue and sell the Note and the shares of Common Stock issuable
upon conversion of the Note (the "Note  Shares"),  to issue and sell the Warrant
and the Warrant  Shares,  and to carry out the  provisions of this Agreement and
the Related Agreements and to carry on its business as presently conducted. Each
of the Company and each of its  Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation,  partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature of its  activities  and of its  properties  (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have,  individually  or in
the aggregate, a material adverse effect on the business,  assets,  liabilities,
condition (financial or otherwise),  properties,  operations or prospects of the
Company and it  Subsidiaries,  taken  individually  and as a whole (a  "Material
Adverse Effect").

                  4.2      SUBSIDIARIES

         Each direct and indirect Subsidiary of the Company, the direct owner of
such Subsidiary and its percentage  ownership thereof,  is set forth on Schedule
4.2. For the purpose of this  Agreement,  a "SUBSIDIARY" of any person or entity
means (i) a corporation or other entity whose shares of stock or other ownership
interests  having  ordinary  voting power  (other than stock or other  ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority  of the  directors  of such  corporation,  or other  persons or
entities  performing  similar  functions  for such person or entity,  are owned,
directly or indirectly,  by such person or entity or (ii) a corporation or other
entity in which such person or entity owns,  directly or  indirectly,  more than
50% of the equity interests at such time.

                  4.3      CAPITALIZATION; VOTING RIGHTS

                  (a) The  authorized  capital  stock of the Company,  as of the
         date  hereof and  without  giving  effect to the  proposed  increase in
         authorized

<PAGE>

         capital stock  contemplated  by the Company's  Schedule 14C Information
         Statement  filed with the Securities  and Exchange  Commission on April
         30, 2004, consists of 55,000,000 shares, of which 50,000,000 are shares
         of Common Stock,  56,342,222 shares of which are issued and outstanding
         (including 12,523,810 shares for which the company has received notices
         of conversion of its 8.0% Unsecured Convertible Notes due September 30,
         2004),  and 5,000,000 are shares of preferred  stock,  par value $0.001
         per  share,  none of which  shares of  preferred  stock are  issued and
         outstanding.  The  authorized  capital stock of each  Subsidiary of the
         Company is set forth on Schedule 4.3.

                  (b) Except as disclosed on Schedule 4.3,  other than:  (i) the
         shares reserved for issuance under the Company's 2000 Equity  Incentive
         Plan or the Company's  Executive  Bonus Plan; and (ii) shares which may
         be granted pursuant to this Agreement and the Related Agreements, there
         are no outstanding options,  warrants,  rights (including conversion or
         preemptive  rights and rights of first  refusal),  proxy or stockholder
         agreements,  or arrangements or agreements of any kind for the purchase
         or  acquisition  from the Company of any of its  securities.  Except as
         disclosed on Schedule 4.3,  neither the offer,  issuance or sale of the
         Note or the  Warrant,  or the  issuance  of any of the Note  Shares  or
         Warrant Shares,  nor the  consummation of any transaction  contemplated
         hereby will result in a change in the price or number of any securities
         of the  Company  outstanding,  under  anti-dilution  or  other  similar
         provisions contained in or affecting any such securities.

                  (c) All issued and outstanding  shares of the Company's Common
         Stock:  (i) have been duly  authorized and validly issued and are fully
         paid and  nonassessable;  and (ii) were issued in  compliance  with all
         applicable   state  and  federal  laws   concerning   the  issuance  of
         securities.

                  (d) The rights,  preferences,  privileges and  restrictions of
         the  shares  of the  Common  Stock  are  as  stated  in  the  Company's
         Certificate  of  Incorporation  (the  "Charter").  The Note  Shares and
         Warrant Shares have been duly and validly  reserved for issuance.  When
         issued in  compliance  with the  provisions  of this  Agreement and the
         Company's  Charter,  the Securities will be validly issued,  fully paid
         and  nonassessable,  and  will be free of any  liens  or  encumbrances;
         provided,  however,  that the Securities may be subject to restrictions
         on transfer  under state and/or  federal  securities  laws as set forth
         herein or as otherwise  required by such laws at the time a transfer is
         proposed.

                  4.4      AUTHORIZATION; BINDING OBLIGATIONS

         All corporate action on the part of the Company (including its officers
and directors) necessary for the authorization of this Agreement and the Related
Agreements,  the  performance of all  obligations  of the Company  hereunder and
under the other Related Agreements at the Closing and, the authorization,  sale,
issuance  and  delivery  of the Note and Warrant has been taken or will be taken
prior to the Closing.  This  Agreement  and the other Related  Agreements,  when
executed and  delivered,  will be valid and binding  obligations of the Company,
enforceable against the Company in accordance with their terms, except:

<PAGE>

                  (a)  as  limited   by   applicable   bankruptcy,   insolvency,
         reorganization,   moratorium  or  other  laws  of  general  application
         affecting enforcement of creditors' rights; and

                  (b)   general   principles   of  equity  that   restrict   the
         availability of equitable or legal remedies.

The sale of the Note and the subsequent  conversion of the Note into Note Shares
are not and will not be  subject  to any  preemptive  rights  or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the  subsequent  exercise of the Warrant for Warrant  Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.

                  4.5      LIABILITIES

         To  the  Company's  knowledge,  neither  the  Company  nor  any  of its
Subsidiaries has any material contingent liabilities, except current liabilities
incurred in the  ordinary  course of business and  liabilities  disclosed in any
Exchange Act Filings.

                  4.6      AGREEMENTS; ACTION

         Except as set forth on Schedule 4.6 or as disclosed in any Exchange Act
Filings:

                  (a)  there  are no  agreements,  understandings,  instruments,
         contracts,  proposed transactions,  judgments, orders, writs or decrees
         to which the Company or any of its  Subsidiaries is a party or by which
         it  is  bound  which  may  involve:  (i)  obligations   (contingent  or
         otherwise)  of, or payments to, the Company in excess of $50,000 (other
         than obligations of, or payments to, the Company arising from purchase,
         sale or  license  agreements  entered  into in the  ordinary  course of
         business);  or (ii) the  transfer or license of any patent,  copyright,
         trade secret or other  proprietary  right to or from the Company (other
         than  licenses  arising  from the  purchase of "off the shelf" or other
         standard  products);  or (iii) provisions  restricting the development,
         manufacture or distribution of the Company's  products or services;  or
         (iv)  indemnification  by the Company with respect to  infringements of
         proprietary rights.

                  (b) Since  December 31,  2003,  neither the Company nor any of
         its Subsidiaries has: (i) declared or paid any dividends, or authorized
         or made any distribution upon or with respect to any class or series of
         its capital stock; (ii) incurred any indebtedness for money borrowed or
         any  other  liabilities   (other  than  ordinary  course   obligations)
         individually  in excess  of  $50,000  or,  in the case of  indebtedness
         and/or  liabilities  individually  less  than  $50,000,  in  excess  of
         $100,000  in the  aggregate;  (iii) made any loans or  advances  to any
         person not in excess,  individually  or in the aggregate,  of $100,000,
         other than ordinary course advances for travel expenses;  or (iv) sold,
         exchanged or otherwise  disposed of any of its assets or rights  valued
         in excess of $50,000, other than in the ordinary course of business.

                  (c) For the  purposes of  subsections  (a) and (b) above,  all
         indebtedness,  liabilities,  agreements,  understandings,  instruments,

<PAGE>

         contracts and proposed transactions involving the same person or entity
         (including  persons or  entities  the Company has reason to believe are
         affiliated  therewith)  shall be aggregated  for the purpose of meeting
         the individual minimum dollar amounts of such subsections.

                  4.7      OBLIGATIONS TO RELATED PARTIES

         Except as set forth on Schedule 4.7,  there are no  obligations  of the
Company or any of its  Subsidiaries  to  officers,  directors,  stockholders  or
employees of the Company or any of its Subsidiaries other than:

                  (a) for payment of salary for services  rendered and for bonus
         payments;

                  (b) reimbursement  for reasonable  expenses incurred on behalf
         of the Company and its Subsidiaries;

                  (c)  for  other  standard  employee  benefits  made  generally
         available  to  all  employees   (including   stock  option   agreements
         outstanding  under  any  stock  option  plan  approved  by the Board of
         Directors of the Company); and

                  (d) obligations listed in the Company's  financial  statements
         or disclosed in any of its Exchange Act Filings.

Except as  described  above or set  forth on  Schedule  4.7 or in the  Company's
Exchange Act Filings,  none of the  officers,  directors  or, to the best of the
Company's knowledge, key employees or stockholders of the Company or any members
of their immediate families, are indebted to the Company, individually or in the
aggregate,  in excess  of  $50,000  or have any  direct  or  indirect  ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship,  or any firm or corporation which
competes with the Company,  other than passive  investments  in publicly  traded
companies  (representing  less than one percent (1%) of such company)  which may
compete with the Company.  Except as described  above,  no officer,  director or
stockholder,  or any  member  of  their  immediate  families,  is,  directly  or
indirectly,  interested  in  any  material  contract  with  the  Company  and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. Except as set forth on Schedule 4.7, the Company is
not a guarantor or indemnitor of any  indebtedness of any other person,  firm or
corporation.

                  4.8      CHANGES

         Since December 31, 2003, except as disclosed in any Exchange Act Filing
or in any Schedule to this Agreement or to any of the Related Agreements,  there
has not been:

                  (a) any change in the business, assets, liabilities, condition
         (financial or  otherwise),  properties,  operations or prospects of the
         Company  or any  of  its  Subsidiaries,  which  individually  or in the
         aggregate   has  had,  or  could   reasonably   be  expected  to  have,
         individually or in the aggregate, a Material Adverse Effect;

                  (b)  any  resignation  or  termination  of  any  officer,  key
         employee  or  group  of   employees  of  the  Company  or  any  of  its
         Subsidiaries;

<PAGE>

                  (c) any  material  change,  except in the  ordinary  course of
         business,  in the  contingent  obligations of the Company or any of its
         Subsidiaries by way of guaranty,  endorsement,  indemnity,  warranty or
         otherwise;

                  (d) any damage, destruction or loss, whether or not covered by
         insurance,   has  had,  or  could   reasonably  be  expected  to  have,
         individually or in the aggregate, a Material Adverse Effect;

                  (e) any waiver by the Company or any of its  Subsidiaries of a
         valuable right or of a material debt owed to it;

                  (f) any direct or indirect loans made by the Company or any of
         its Subsidiaries to any stockholder,  employee,  officer or director of
         the Company or any of its Subsidiaries, other than advances made in the
         ordinary course of business;

                  (g) any material  change in any  compensation  arrangement  or
         agreement  with any employee,  officer,  director or stockholder of the
         Company or any of its Subsidiaries;

                  (h) any  declaration  or  payment  of any  dividend  or  other
         distribution of the assets of the Company or any of its Subsidiaries;

                  (i) any labor organization  activity related to the Company or
         any of its Subsidiaries;

                  (j) any debt,  obligation  or liability  incurred,  assumed or
         guaranteed by the Company or any of its Subsidiaries,  except those for
         immaterial amounts and for current liabilities incurred in the ordinary
         course of business;

                  (k)  any  sale,   assignment   or  transfer  of  any  patents,
         trademarks,  copyrights, trade secrets or other intangible assets owned
         by the Company or any of its Subsidiaries;

                  (l) any change in any material  agreement to which the Company
         or any of its Subsidiaries is a party or by which either the Company or
         any of its  Subsidiaries  is bound which either  individually or in the
         aggregate   has  had,  or  could   reasonably   be  expected  to  have,
         individually or in the aggregate, a Material Adverse Effect;

                  (m) any other event or condition of any character that, either
         individually  or in the  aggregate,  has had,  or could  reasonably  be
         expected to have,  individually or in the aggregate, a Material Adverse
         Effect; or

                  (n) any arrangement or commitment by the Company or any of its
         Subsidiaries  to do any of the acts described in subsection (a) through
         (m) above.

                  4.9      TITLE TO PROPERTIES AND ASSETS; LIENS, ETC.

         Except as set forth on  Schedule  4.9,  each of the Company and each of
its Subsidiaries has good and marketable title to its properties and assets,

<PAGE>

and good title to its  leasehold  estates,  in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than:

                  (a) those  resulting  from  taxes  which  have not yet  become
         delinquent;

                  (b)  minor  liens  and  encumbrances  which do not  materially
         detract from the value of the property  subject  thereto or  materially
         impair the operations of the Company or any of its Subsidiaries; and

                  (c) those that have otherwise arisen in the ordinary course of
         business.

All facilities,  machinery,  equipment,  fixtures, vehicles and other properties
owned,  leased or used by the Company and its Subsidiaries are in good operating
condition and repair  (ordinary  wear and tear  excepted) and are reasonably fit
and usable for the purposes  for which they are being used.  Except as set forth
on Schedule 4.9, the Company and its  Subsidiaries  are in  compliance  with all
material terms of each lease to which it is a party or is otherwise bound.

                  4.10     INTELLECTUAL PROPERTY

                  (a) Each of the Company and each of its  Subsidiaries  owns or
         possesses sufficient legal rights to all patents,  trademarks,  service
         marks, trade names, copyrights,  trade secrets,  licenses,  information
         and other proprietary  rights and processes  necessary for its business
         as now conducted and to the Company's knowledge,  as presently proposed
         to be  conducted  (the  "Intellectual  Property"),  without  any  known
         infringement of the rights of others. There are no outstanding options,
         licenses  or   agreements   of  any  kind  relating  to  the  foregoing
         proprietary rights, nor is the Company or any of its Subsidiaries bound
         by or a party to any options,  licenses or  agreements of any kind with
         respect  to  the  patents,  trademarks,  service  marks,  trade  names,
         copyrights, trade secrets, licenses,  information and other proprietary
         rights  and  processes  of any other  person or entity  other than such
         licenses or agreements  arising from the purchase of "off the shelf" or
         standard products.

                  (b)  Neither  the  Company  nor  any of its  Subsidiaries  has
         received  any  communications  alleging  that the Company or any of its
         Subsidiaries  has  violated  any of the  patents,  trademarks,  service
         marks,  trade names,  copyrights or trade secrets or other  proprietary
         rights of any other person or entity,  nor is the Company or any of its
         Subsidiaries aware of any basis therefor.

                  (c) The Company does not believe it is or will be necessary to
         utilize any inventions, trade secrets or proprietary information of any
         of its employees  made prior to their  employment by the Company or any
         of  its   Subsidiaries,   except  for  inventions,   trade  secrets  or
         proprietary  information  that have  been  rightfully  assigned  to the
         Company or any of its Subsidiaries.

<PAGE>

                  4.11     COMPLIANCE WITH OTHER INSTRUMENTS

         Neither the  Company nor any of its  Subsidiaries  is in  violation  or
default of (x) any term of its Charter or Bylaws, or (y) of any provision of any
indebtedness, mortgage, indenture, contract, agreement or instrument to which it
is party or by which  it is  bound or of any  judgment,  decree,  order or writ,
which  violation  or default,  in the case of this clause (y), has had, or could
reasonably  be expected to have,  either  individually  or in the  aggregate,  a
Material  Adverse  Effect.  The  execution,  delivery  and  performance  of  and
compliance  with this  Agreement  and the  Related  Agreements  to which it is a
party,  and the  issuance  and sale of the  Note by the  Company  and the  other
Securities by the Company,  each pursuant hereto and thereto,  will not, with or
without  the  passage of time or giving of notice,  result in any such  material
violation, or be in conflict with or constitute a default under any such term or
provision, or result in the creation of any mortgage,  pledge, lien, encumbrance
or charge  upon any of the  properties  or assets of the  Company  or any of its
Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal
of any permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.

                  4.12     LITIGATION

         Except as set forth on Schedule 4.12 hereto,  there is no action, suit,
proceeding or investigation  pending or, to the Company's  knowledge,  currently
threatened  against the Company or any of its  Subsidiaries  that  prevents  the
Company or any of its  Subsidiaries  from  entering  into this  Agreement or the
other Related  Agreements,  or from  consummating the transactions  contemplated
hereby or thereby,  or which has had, or could  reasonably  be expected to have,
either individually or in the aggregate, a Material Adverse Effect or any change
in the current equity ownership of the Company or any of its  Subsidiaries,  nor
is the  Company  aware that  there is any basis to assert any of the  foregoing.
Neither  the Company  nor any of its  Subsidiaries  is a party or subject to the
provisions of any order,  writ,  injunction,  judgment or decree of any court or
government agency or instrumentality.  There is no action,  suit,  proceeding or
investigation  by the Company or any of its  Subsidiaries  currently  pending or
which the Company or any of its Subsidiaries intends to initiate.

                  4.13     TAX RETURNS AND PAYMENTS

         Except as set forth on Schedule  4.13,  each of the Company and each of
its  Subsidiaries  has timely filed all tax returns  (federal,  state and local)
required  to be filed by it.  All  taxes  shown  to be due and  payable  on such
returns,  any  assessments  imposed,  and all other taxes due and payable by the
Company or any of its  Subsidiaries on or before the Closing,  have been paid or
will be paid prior to the time they  become  delinquent.  Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:

                  (a) that any of its  returns,  federal,  state or other,  have
         been or are being audited as of the date hereof; or

                  (b) of any  deficiency in  assessment or proposed  judgment to
         its federal, state or other taxes.

<PAGE>

The Company has no knowledge of any  liability of any tax to be imposed upon its
properties  or assets as of the date of this  Agreement  that is not  adequately
provided for.

                  4.14     EMPLOYEES

         Except as set forth on  Schedule  4.14,  neither the Company nor any of
its  Subsidiaries  has any  collective  bargaining  agreements  with  any of its
employees.  There is no labor  union  organizing  activity  pending  or,  to the
Company's  knowledge,  threatened  with  respect  to the  Company  or any of its
Subsidiaries.  Except as  disclosed  in the  Exchange Act Filings or on Schedule
4.14,  neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract,  deferred compensation arrangement,
bonus plan,  incentive plan, profit sharing plan,  retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the  Company or any of its  Subsidiaries,  nor any  consultant  with whom the
Company or any of its Subsidiaries  has contracted,  is in violation of any term
of any  employment  contract,  proprietary  information  agreement  or any other
agreement  relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its  Subsidiaries  because of the nature of
the business to be conducted by the Company or any of its  Subsidiaries;  and to
the Company's  knowledge  the continued  employment by the Company or any of its
Subsidiaries of its present employees,  and the performance of the Company's and
its Subsidiaries' contracts with its independent contractors, will not result in
any such  violation.  Neither the Company nor any of its  Subsidiaries  is aware
that any of its employees is obligated under any contract  (including  licenses,
covenants or  commitments of any nature) or other  agreement,  or subject to any
judgment,  decree or order of any court or  administrative  agency,  that  would
interfere with their duties to the Company or any of its  Subsidiaries.  Neither
the Company nor any of its  Subsidiaries  has received any notice  alleging that
any such  violation  has  occurred.  Except  for  employees  who have a  current
effective employment  agreement with the Company or any of its Subsidiaries,  no
employee of the Company or any of its Subsidiaries has been granted the right to
continued  employment  by the  Company  or any  of  its  Subsidiaries  or to any
material  compensation  following  termination of employment with the Company or
any of its  Subsidiaries.  Except as set forth on Schedule  4.14, the Company is
not aware  that any  officer,  key  employee  or group of  employees  intends to
terminate  his,  her  or  their  employment  with  the  Company  or  any  of its
Subsidiaries,  nor does the  Company or any of its  Subsidiaries  have a present
intention to terminate the  employment of any officer,  key employee or group of
employees.

                  4.15     REGISTRATION RIGHTS AND VOTING RIGHTS

         Except  as set  forth on  Schedule  4.15 and  except  as  disclosed  in
Exchange  Act  Filings,  neither  the  Company  nor any of its  Subsidiaries  is
presently  under  any  obligation,  and  neither  the  Company  nor  any  of its
Subsidiaries  has granted any rights,  to register  any of the  Company's or its
Subsidiaries' presently outstanding securities or any of its securities that may
hereafter  be  issued.  Except  as set  forth on  Schedule  4.15 and  except  as
disclosed in Exchange Act Filings, to the Company's knowledge, no stockholder of
the Company or any of its  Subsidiaries  has  entered  into any  agreement  with
respect  to  the  voting  of  equity  securities  of the  Company  or any of its
Subsidiaries.

<PAGE>

                  4.16     COMPLIANCE WITH LAWS; PERMITS

         Neither the Company nor any of its  Subsidiaries is in violation of any
applicable statute,  rule,  regulation,  order or restriction of any domestic or
foreign  government or any  instrumentality  or agency thereof in respect of the
conduct of its  business or the  ownership of its  properties  which has had, or
could reasonably be expected to have, either individually or in the aggregate, a
Material  Adverse  Effect.  No  governmental  orders,   permissions,   consents,
approvals or authorizations  are required to be obtained and no registrations or
declarations  are  required to be filed in  connection  with the  execution  and
delivery of this  Agreement or any other  Related  Agreement and the issuance of
any of the  Securities,  except  such as has been duly and  validly  obtained or
filed,  or with respect to any filings  that must be made after the Closing,  as
will be filed in a timely manner.  Each of the Company and its  Subsidiaries has
all material franchises,  permits,  licenses and any similar authority necessary
for the conduct of its business as now being  conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

                  4.17     ENVIRONMENTAL AND SAFETY LAWS

         Neither the Company nor any of its  Subsidiaries is in violation of any
applicable   statute,   law  or  regulation   relating  to  the  environment  or
occupational health and safety, and to its knowledge,  no material  expenditures
are or will be required in order to comply with any such existing  statute,  law
or regulation.  Except as set forth on Schedule 4.17, no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the Company
or any of its Subsidiaries or, to the Company's  knowledge,  by any other person
or entity on any  property  owned,  leased or used by the  Company or any of its
Subsidiaries.  For the purposes of the preceding sentence, "Hazardous Materials"
shall mean:

                  (a)  materials  which  are  listed  or  otherwise  defined  as
         "hazardous"  or "toxic"  under any  applicable  local,  state,  federal
         and/or foreign laws and  regulations  that govern the existence  and/or
         remedy of contamination on property,  the protection of the environment
         from   contamination,   the  control  of  hazardous  wastes,  or  other
         activities   involving   hazardous   substances,   including   building
         materials; or

                  (b) any petroleum products or nuclear materials.

                  4.18     VALID OFFERING

         Assuming  the accuracy of the  representations  and  warranties  of the
Purchaser  contained  in this  Agreement,  the offer,  sale and  issuance of the
Securities will be exempt from the  registration  requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and will have been registered or
qualified  (or  are  exempt  from  registration  and  qualification)  under  the
registration,  permit or  qualification  requirements  of all  applicable  state
securities laws.

                  4.19     FULL DISCLOSURE

         Each of the  Company  and each of its  Subsidiaries  has  provided  the
Purchaser with all information requested by the Purchaser in connection with

<PAGE>

its  decision to purchase  the Note and Warrant.  Neither  this  Agreement,  the
Related Agreements,  the exhibits and schedules hereto and thereto nor any other
document delivered by the Company or any of its Subsidiaries to Purchaser or its
attorneys or agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby,  contain any untrue statement of a material fact
nor omit to state a  material  fact  necessary  in order to make the  statements
contained  herein or therein,  in light of the  circumstances  in which they are
made, not misleading.  Any financial projections and other estimates provided to
the  Purchaser  by the  Company  or any of its  Subsidiaries  were  based on the
Company's and its Subsidiaries' experience in the industry and on assumptions of
fact  and  opinion  as to  future  events  which  the  Company  or  any  of  its
Subsidiaries,  at the date of the  issuance of such  projections  or  estimates,
believed to be reasonable.

                  4.20     INSURANCE

         Each  of  the  Company  and  each  of  its   Subsidiaries  has  general
commercial,  product  liability,  fire  and  casualty  insurance  policies  with
coverages  which the Company  believes are  customary  for  companies  similarly
situated to the Company and its Subsidiaries in the same or similar business.

                  4.21     SEC REPORTS

         Except as set forth on Schedule  4.21,  the Company has filed all proxy
statements,  reports  and other  documents  required to be filed by it under the
Securities  Exchange Act 1934, as amended (the "Exchange  Act"). The Company has
furnished the Purchaser  with a copy of its Annual Report on Form 10-KSB for its
fiscal year ended December 31, 2003 (the "SEC Report").  To the knowledge of the
Company,  the  SEC  Report  was,  at the  time  of its  filing,  in  substantial
compliance with the  requirements  of its form and neither the SEC Reports,  nor
the financial  statements (and the notes thereto) included in the SEC Report, as
of its filing date, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated  therein or necessary to make the
statements  therein,  in light of the circumstances  under which they were made,
not misleading.

                  4.22     LISTING

         The  Company's  Common  Stock is listed  for  trading  on the  National
Association of Securities Dealers,  Inc.  Over-the-Counter  Bulletin Board ("OTC
BB") and satisfies all requirements  for the  continuation of such listing.  The
Company has not received any notice that its Common Stock will be delisted  from
OTC BB or that its Common Stock does not meet all requirements for listing.

                  4.23     NO INTEGRATED OFFERING

         Neither the Company, nor any of its Subsidiaries or affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales of any  security  or  solicited  any offers to buy any  security  under
circumstances  that would cause the offering of the Securities  pursuant to this
Agreement or any of the Related Agreements to be integrated with prior offerings
by the  Company  for  purposes of the  Securities  Act which  would  prevent the
Company from selling the  Securities  pursuant to Rule 506 under the  Securities
Act, or any applicable  exchange-related  stockholder approval  provisions,  nor
will the Company or any of its  affiliates  or  Subsidiaries

<PAGE>

take any action or steps that would cause the offering of the  Securities  to be
integrated with other offerings.

                  4.24     STOP TRANSFER

         The  Securities  are  restricted  securities  as of the  date  of  this
Agreement.  Neither the Company nor any of its Subsidiaries  will issue any stop
transfer  order or other  order  impeding  the sale and  delivery  of any of the
Securities at such time as the  Securities  are registered for public sale or an
exemption  from  registration  is  available,  except as  required  by state and
federal securities laws.

                  4.25     DILUTION

                  The Company  specifically  acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Note and exercise of the
Warrant is binding upon the Company and  enforceable  regardless of the dilution
such issuance may have on the ownership  interests of other  shareholders of the
Company.

                  4.26     PATRIOT ACT

                  The  Company   certifies   that,  to  the  best  of  Company's
knowledge,  neither the Company nor any of its Subsidiaries has been designated,
and is not  owned or  controlled,  by a  "suspected  terrorist"  as  defined  in
Executive Order 13224. The Company hereby  acknowledges that the Purchaser seeks
to comply with all  applicable  laws  concerning  money  laundering  and related
activities.  In  furtherance of those  efforts,  the Company hereby  represents,
warrants and agrees that:  (i) none of the cash or property  that the Company or
any of its Subsidiaries will pay or will contribute to the Purchaser has been or
shall be derived from, or related to, any activity that is deemed criminal under
United States law; and (ii) no  contribution or payment by the Company or any of
its  Subsidiaries  to the  Purchaser,  to the  extent  that they are  within the
Company's  and/or its  Subsidiaries'  control shall cause the Purchaser to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering  Control Act of 1986 or the United States  International  Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations  ceases to be true
and  accurate  regarding  the  Company or any of its  Subsidiaries.  The Company
agrees to provide the Purchaser any additional information regarding the Company
or any of its  Subsidiaries  that the Purchaser deems necessary or convenient to
ensure  compliance  with all applicable  laws  concerning  money  laundering and
similar activities. The Company understands and agrees that if at any time it is
discovered  that  any of the  foregoing  representations  are  incorrect,  or if
otherwise  required by applicable law or regulation  related to money laundering
similar  activities,  the Purchaser may undertake  appropriate actions to ensure
compliance  with  applicable  law or  regulation,  including  but not limited to
segregation and/or redemption of the Purchaser's  investment in the Company. The
Company  further  understands  that  the  Purchaser  may  release   confidential
information  about the Company and its  Subsidiaries  and,  if  applicable,  any
underlying  beneficial  owners, to proper  authorities if the Purchaser,  in its
sole discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and  regulations  under the laws set forth in subsection
(ii) above.

<PAGE>

         5.       REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

         The Purchaser hereby  represents and warrants to the Company as follows
(such   representations   and   warranties   do  not  lessen  or   obviate   the
representations and warranties of the Company set forth in this Agreement):

                  5.1      NO SHORTING

         The Purchaser or any of its affiliates and investment partners has not,
will not and will not cause any person or entity,  directly  or  indirectly,  to
engage in "short  sales" of the  Company's  Common  Stock,  or any other hedging
strategies  utilizing the Company's  Common Stock,  as long as the Note shall be
outstanding.

                  5.2      REQUISITE POWER AND AUTHORITY

         The  Purchaser  has  all  necessary   power  and  authority  under  all
applicable  provisions  of law to execute and  deliver  this  Agreement  and the
Related  Agreements and to carry out their  provisions.  All corporate action on
Purchaser's  part  required  for  the  lawful  execution  and  delivery  of this
Agreement  and the Related  Agreements  have been or will be  effectively  taken
prior to the Closing. Upon their execution and delivery,  this Agreement and the
Related  Agreements  will  be  valid  and  binding   obligations  of  Purchaser,
enforceable in accordance with their terms, except:

                  (a)  as  limited   by   applicable   bankruptcy,   insolvency,
         reorganization,   moratorium  or  other  laws  of  general  application
         affecting enforcement of creditors' rights; and

                  (b) as limited by general  principles  of equity that restrict
         the availability of equitable and legal remedies.

                  5.3      INVESTMENT REPRESENTATIONS

         Purchaser  understands  that the  Securities are being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon Purchaser's representations contained in the Agreement,  including,
without  limitation,  that the Purchaser is an "accredited  investor" within the
meaning of Regulation D under the Securities Act. The Purchaser confirms that it
has  received  or has had  full  access  to all  the  information  it  considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant,  respectively.  The Purchaser further confirms that
it has had an opportunity to ask questions and receive  answers from the Company
regarding the Company's and its Subsidiaries' business, management and financial
affairs and the terms and conditions of the Offering,  the Note, the Warrant and
the Securities and to obtain  additional  information (to the extent the Company
possessed such  information or could acquire it without  unreasonable  effort or
expense)  necessary to verify any  information  furnished to the Purchaser or to
which the Purchaser had access.

<PAGE>

                  5.4      PURCHASER BEARS ECONOMIC RISK

         The Purchaser has substantial experience in evaluating and investing in
private placement transactions of securities in companies similar to the Company
so that it is capable of  evaluating  the merits and risks of its  investment in
the Company and has the  capacity to protect its own  interests.  The  Purchaser
must bear the economic risk of this  investment  until the  Securities  are sold
pursuant to: (i) an effective  registration  statement under the Securities Act;
or (ii) an exemption from registration is available with respect to such sale.

                  5.5      ACQUISITION FOR OWN ACCOUNT

         The Purchaser is acquiring the Note and Warrant and the Note Shares and
the Warrant Shares for the Purchaser's own account for investment  only, and not
as a nominee or agent and not with a view  towards  or for resale in  connection
with their distribution.

                  5.6      PURCHASER CAN PROTECT ITS INTEREST

         By  reason  of its,  or of its  management's,  business  and  financial
experience,  the  Purchaser has the capacity to evaluate the merits and risks of
its  investment in the Note,  the Warrant and the  Securities and to protect its
own interests in connection with the transactions contemplated in this Agreement
and the other Related Agreements.  Further, Purchaser is aware of no publication
of any  advertisement  in connection with the  transactions  contemplated in the
Agreement or the Related Agreements.

                  5.7      ACCREDITED INVESTOR

         The  Purchaser  is  an  accredited   investor  within  the  meaning  of
Regulation D under the Securities Act.

                  5.8      LEGENDS

         The Note shall bear substantially the following legend:

                  "THIS NOTE AND THE COMMON STOCK  ISSUABLE  UPON  CONVERSION OF
                  THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
                  1933, AS AMENDED,  OR ANY APPLICABLE,  STATE  SECURITIES LAWS.
                  THIS NOTE AND THE COMMON STOCK  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 OR SUCH  SHARES  UNDER SAID ACT AND
                  APPLICABLE  STATE  SECURITIES  LAWS OR AN  OPINION  OF COUNSEL
                  REASONABLY SATISFACTORY TO FRONT PORCH DIGITAL, INC. THAT SUCH
                  REGISTRATION IS NOT REQUIRED."

                  (a) The Note Shares and the Warrant  Shares,  if not issued by
         DWAC system (as hereinafter  defined),  shall bear a legend which shall
         be in substantially the following form until such shares are covered by
         an effective registration statement filed with the SEC:

                  "THE  SHARES  REPRESENTED  BY THIS  CERTIFICATE  HAVE NOT BEEN
                  REGISTERED  UNDER THE SECURITIES  ACT OF 1933, AS AMENDED,  OR
                  ANY APPLICABLE  STATE SECURITIES LAWS. THESE SHARES MAY NOT

<PAGE>

                  BE SOLD,  OFFERED  FOR SALE,  PLEDGED OR  HYPOTHECATED  IN THE
                  ABSENCE  OF AN  EFFECTIVE  REGISTRATION  STATEMENT  UNDER SUCH
                  SECURITIES  ACT AND  APPLICABLE  STATE  LAWS OR AN  OPINION OF
                  COUNSEL REASONABLY  SATISFACTORY TO FRONT PORCH DIGITAL,  INC.
                  THAT SUCH REGISTRATION IS NOT REQUIRED."

                  (b) The Warrant shall bear substantially the following legend:

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

         6.       COVENANTS OF THE COMPANY

         The Company  covenants and agrees with the  Purchaser  that, so long as
the Note remains outstanding:

                  6.1      STOP-ORDERS

         The  Company  will  advise the  Purchaser,  promptly  after it receives
notice of issuance by the Securities and Exchange  Commission  (the "SEC"),  any
state securities  commission or any other regulatory authority of any stop order
or of any order  preventing or suspending  any offering of any securities of the
Company,  or of the suspension of the  qualification  of the Common Stock of the
Company  for  offering or sale in any  jurisdiction,  or the  initiation  of any
proceeding for any such purpose.

                  6.2      LISTING

         The Company shall  promptly  secure the listing of the shares of Common
Stock issuable upon  conversion of the Note and upon the exercise of the Warrant
on the trading market (the "Principal Market") upon which shares of Common Stock
are listed  (subject to official notice of issuance),  if applicable,  and shall
maintain  such  listing so long as any other  shares of Common Stock shall be so
listed.  The  Company  will  maintain  the  listing of its  Common  Stock on the
Principal  Market or on Nasdaq or any  securities  exchange,  and, to the extent
applicable  to the  Company,  will  comply  in all  material  respects  with the
Company's  reporting,  filing and other obligations under the bylaws or rules of
the National  Association of Securities Dealers ("NASD") and such exchanges,  as
applicable.

                  6.3      MARKET REGULATIONS

         The  Company   shall  notify  the  SEC,  NASD  and   applicable   state
authorities, in accordance with their requirements,  to the extent applicable to
the Company, of the transactions  contemplated by this Agreement, and shall take
all other  necessary  action and proceedings as may be required and permitted by
applicable  law, rule and  regulation,  for the legal and valid

<PAGE>

issuance of the Securities to the Purchaser and promptly  provide copies thereof
to the Purchaser.

                  6.4      REPORTING REQUIREMENTS

         The Company  will  timely file with the SEC all reports  required to be
filed pursuant to the Exchange Act and refrain from terminating its status as an
issuer  required by the  Exchange  Act to file  reports  thereunder  even if the
Exchange  Act  or  the  rules  or  regulations   thereunder  would  permit  such
termination.

                  6.5      USE OF FUNDS

         The  Company  agrees  that it will use the  proceeds of the sale of the
Note and the Warrant for general working capital and general business purposes.

                  6.6      ACCESS TO FACILITIES

         Each of the  Company  and  each of its  Subsidiaries  will  permit  any
representatives designated by the Purchaser (or any successor of the Purchaser),
upon  reasonable  notice and during  normal  business  hours,  at such  person's
expense and accompanied by a representative of the Company, to:

                  (a) visit and inspect any of the  properties of the Company or
         any of its Subsidiaries;

                  (b) examine the corporate and financial records of the Company
         or any of its Subsidiaries (unless such examination is not permitted by
         federal,  state or local law or by contract) and make copies thereof or
         extracts therefrom; and

                  (c) discuss the affairs,  finances and accounts of the Company
         or any of its Subsidiaries with the directors, officers and independent
         accountants of the Company or any of its Subsidiaries.

Notwithstanding  the foregoing,  neither the Company nor any of its Subsidiaries
will provide any material,  non-public  information to the Purchaser  unless the
Purchaser  signs  a  confidentiality   agreement  and  otherwise  complies  with
Regulation FD, under the federal securities laws.

                  6.7      TAXES

         Each of the Company and each of its Subsidiaries  will promptly pay and
discharge, or cause to be paid and discharged,  when due and payable, all lawful
taxes,  assessments and governmental  charges or levies imposed upon the income,
profits,  property or business  of the Company and its  Subsidiaries;  provided,
however,  that any such tax, assessment,  charge or levy need not be paid if the
validity  thereof  shall  currently be  contested  in good faith by  appropriate
proceedings  and if the Company and/or such  Subsidiary  shall have set aside on
its books adequate reserves with respect thereto,  and provided,  further,  that
the Company and its Subsidiaries will pay all such taxes,  assessments,  charges
or levies  forthwith upon the  commencement of proceedings to foreclose any lien
which may have attached as security therefor.

<PAGE>

                  6.8      INSURANCE

         Each of the Company and its Subsidiaries will keep its assets which are
of an insurable  character insured by financially  sound and reputable  insurers
against loss or damage by fire,  explosion and other risks  customarily  insured
against by companies in similar business  similarly  situated as the Company and
its  Subsidiaries;  and the Company and its  Subsidiaries  will  maintain,  with
financially  sound and reputable  insurers,  insurance against other hazards and
risks and  liability  to persons  and  property  to the extent and in the manner
which the Company  reasonably  believes is  customary  for  companies in similar
business  similarly  situated  as the Company  and its  Subsidiaries  and to the
extent available on commercially  reasonable  terms. The Company and each of its
Subsidiaries will jointly and severally bear the full risk of loss from any loss
of any nature  whatsoever with respect to the assets pledged to the Purchaser as
security for its obligations hereunder and under the Related Agreements.  At the
Company's  and each of its  Subsidiaries'  joint and several cost and expense in
amounts and with carriers  reasonably  acceptable to Purchaser,  the Company and
each of its  Subsidiaries  shall  (i)  keep  all its  insurable  properties  and
properties  in which it has an  interest  insured  against  the hazards of fire,
flood,  sprinkler leakage,  those hazards covered by extended coverage insurance
and such other  hazards,  and for such  amounts,  as is customary in the case of
companies  engaged in  businesses  similar to the  Company's  or the  respective
Subsidiary's including business interruption insurance; (ii) maintain public and
product  liability  insurance  against  claims  for  personal  injury,  death or
property damage suffered by others, in each case consistent with past practices;
(iii)  maintain all such worker's  compensation  or similar  insurance as may be
required under the laws of any state or jurisdiction in which the Company or the
respective Subsidiary is engaged in business; and (iv) furnish Purchase with (x)
copies of all policies and evidence of the maintenance of such policies at least
thirty  (30) days  before any  expiration  date,  (y)  excepting  the  Company's
workers'  compensation policy,  endorsements to such polices naming Purchaser as
"co insured" or "additional  insured" and appropriate loss payable  endorsements
in form and substance satisfactory to Purchaser, naming Purchaser as loss payee,
an (z)  evidence  that as to  Purchaser  the  insurance  coverage  shall  not be
impaired or  invalidated  by any act or neglect of the Company or any Subsidiary
and the insurer  will  provide  Purchaser  with at least thirty (30) days notice
prior to  cancellation.  The  Company and each  Subsidiary  shall  instruct  the
insurance carriers that in the event of any loss thereunder,  the carriers shall
make payment for such loss to the Company  and/or the  Subsidiary  and Purchaser
jointly.  In the event that as of the date of receipt of each loss recovery upon
any such  insurance,  the  Purchaser  has not  declared an Event of Default with
respect to this  Agreement  or any of the Related  Agreements,  then the Company
and/or such Subsidiary shall be permitted to direct the application of such loss
recovery proceeds toward investment in property,  plant and equipment that would
comprise  "Collateral"  secured by Purchaser's  security interest pursuant to is
security  agreement,  with any  surplus  funds to be applied by the  Company for
working capital  purposes.  In the event that Purchaser has properly declared an
Event  of  Default  with  respect  to  this  Agreement  or any  of  the  Related
Agreements,  then  all  loss  recoveries  received  by  Purchaser  upon any such
insurance  thereafter may be applied to the obligations of the Company hereunder
and under the Related Agreements,  in such order as the Purchaser may determine.
Any surplus  (following  satisfaction  of all Company  obligations to Purchaser)
shall  be paid by  Purchaser  to the  Company  or  applied  as may be  otherwise
required  by law.  Any  deficiency  thereon  shall be paid by the Company or the
Subsidiary, as applicable, to Purchaser, on demand.

<PAGE>

                  6.9      INTELLECTUAL PROPERTY

         Each  of the  Company  and  each  of its  material  Subsidiaries  shall
maintain in full force and effect its  existence,  rights and franchises and all
licenses and other rights to use Intellectual  Property owned or possessed by it
and reasonably deemed to be necessary to the conduct of its business.

                  6.10     PROPERTIES

         Each  of the  Company  and  each  of its  Subsidiaries  will  keep  its
properties in good repair, working order and condition, reasonable wear and tear
excepted,  and from time to time make all needful and proper repairs,  renewals,
replacements,  additions and improvements  thereto;  and each of the Company and
each of its  Subsidiaries  will at all times  comply with each  provision of all
leases to which it is a party or under which it occupies  property if the breach
of such provision could, either individually or in the aggregate,  reasonably be
expected to have a Material Adverse Effect.

                  6.11     CONFIDENTIALITY

         The Company  agrees that it will not disclose,  and will not include in
any public announcement,  the name of the Purchaser,  unless expressly agreed to
by the  Purchaser  or unless and until such  disclosure  is  required  by law or
applicable  regulation,  and  then  only  to the  extent  of  such  requirement.
Notwithstanding the foregoing, the Company may disclose Purchaser's identity and
the terms of this  Agreement  to its  current  and  prospective  debt and equity
financing sources.

                  6.12     REQUIRED APPROVALS

         For so long as twenty-five percent (25%) of the principal amount of the
Note is  outstanding,  the  Company,  without the prior  written  consent of the
Purchaser (which consent shall not be unreasonably withheld), shall not:

                  (a) Directly or indirectly declare or pay any dividends, other
         than  dividends  paid  to  the  Company  or any  of  its  wholly  owned
         Subsidiaries;

                  (b)  liquidate,  dissolve or effect a material  reorganization
         (it  being  understood  that in no event  shall the  Company  dissolve,
         liquidate or merge with any other person or entity  (unless the Company
         is the surviving entity);

                  (c) become subject to (including,  without limitation,  by way
         of amendment to or modification  of) any agreement or instrument  which
         by its terms would (under any circumstances)  restrict the Company's or
         any of its  Subsidiaries  right  to  perform  the  provisions  of  this
         Agreement,  any  other  Related  Agreement  or any  of  the  agreements
         contemplated hereby or thereby;

                  (d) (i) create,  incur,  assume or suffer to exist any secured
         indebtedness  (exclusive of trade debt and debt incurred to finance the
         purchase of equipment  (not in excess of five percent (5%) per annum of
         the fair  market  value of the  Company's  assets)  other  than (x) the
         Company's  indebtedness  to  Laurus,  (y)  indebtedness  set  forth  on
         SCHEDULE  6.12(c)  attached  hereto  and  made a part  hereof  and  any

<PAGE>

         refinancings or replacements  thereof on terms no less favorable to the
         Purchaser than the indebtedness  being refinanced or replaced,  and (z)
         any debt  incurred  in  connection  with the  purchase of assets in the
         ordinary  course  of  business,  or any  refinancings  or  replacements
         thereof  on  terms  no  less   favorable  to  the  Purchaser  than  the
         indebtedness  being  refinanced  or  replaced;  or (ii) cancel any debt
         owning to it in excess of $250,000 in the aggregate during any 12 month
         period; and

                  (e) create or acquire  any  Subsidiary  after the date  hereof
         unless (i) such Subsidiary is a wholly-owned  Subsidiary of the Company
         and (ii) such Subsidiary becomes party to the Master Security Agreement
         (either by executing a counterpart  thereof or an assumption or joinder
         agreement in respect thereof), executes and delivers to the Purchaser a
         guarantee  agreement  substantially  in the  form  attached  hereto  as
         Exhibit F and, to the extent required by the Purchaser,  satisfies each
         condition  of this  Agreement  and the  Related  Agreements  as if such
         Subsidiary were a Subsidiary on the Closing Date.

                  6.13     REISSUANCE OF SECURITIES

         The Company agrees to reissue certificates  representing the Securities
without the legends set forth in Section 5.7 above at such time as:

                  (a)  the  holder  thereof  is  permitted  to  dispose  of such
         Securities pursuant to Rule 144(k) under the Securities Act; or

                  (b) upon resale subject to an effective registration statement
         after such Securities are registered under the Securities Act.

The Company  agrees to  cooperate  with the  Purchaser  in  connection  with all
resales  pursuant  to Rule 144(d) and Rule  144(k) and  provide  legal  opinions
necessary  to allow such resales  provided  the Company and its counsel  receive
reasonably  requested  representations from the selling Purchaser and broker, if
any.

                  6.14     OPINION

         On the Closing  Date,  the Company  will  deliver to the  Purchaser  an
opinion in the form attached  hereto as Exhibit C. The Company will provide,  at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Warrant.

                  6.15     MARGIN STOCK.

         The  Company  will not  permit any of the  proceeds  of the Note or the
Warrant to be used  directly or  indirectly  to  "purchase"  or "carry"  "margin
stock" or to repay indebtedness incurred to "purchase" or "carry" "margin stock"
within the respective meanings of each of the quoted terms under Regulation U of
the Board of  Governors  of the Federal  Reserve  System as now and from time to
time hereafter in effect.

<PAGE>

                  6.16     PLEDGE OF SUBSIDIARY CAPITAL STOCK.

                  The Company will use its reasonable  best efforts to pledge to
the Purchaser as additional collateral to secure its obligations under the Note,
or otherwise  grant to the  Purchaser a security  interest in, within 60 days of
the  date  hereof,  all  of  the  shares  of  capital  stock  of  the  Company's
wholly-owned subsidiary, Front Porch Digital International, Inc.

                  6.17     NOTICE OF DEFAULT

                  The  Company  shall  from time to time  diligently  review its
obligations hereunder and under the Related Agreements to confirm its compliance
in all material  respects with its duties  hereunder and  thereunder,  and shall
promptly notify the Purchaser of any event or circumstance that has resulted in,
or could  reasonably be expected to result in, the  occurrence of any default or
Event of Default (as defined in the Note) hereunder or thereunder.  For purposes
of this Section 6.17,  the term  "default"  shall mean an event or condition the
occurrence  of which is,  or with the  lapse of time or the  giving of notice or
both would be, an Event of Default.

         7.       COVENANTS OF THE PURCHASER

         The Purchaser covenants and agrees with the Company as follows:

                  7.1      CONFIDENTIALITY

         The Purchaser agrees that it will not disclose, and will not include in
any public announcement,  the name of the Company, unless expressly agreed to by
the Company or unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.

                  7.2      NON-PUBLIC INFORMATION

         The  Purchaser  agrees  not to effect  any  sales in the  shares of the
Company's Common Stock while in possession of material,  non-public  information
regarding the Company if such sales would violate applicable securities law.

         8.       COVENANTS   OF   THE   COMPANY   AND    PURCHASER    REGARDING
                  INDEMNIFICATION

                  8.1      COMPANY INDEMNIFICATION

         The Company agrees to indemnify,  hold  harmless,  reimburse and defend
the Purchaser, each of the Purchaser's officers,  directors, agents, affiliates,
control persons, and principal  shareholders,  against any claim, cost, expense,
liability,  obligation,  loss or damage (including reasonable legal fees) of any
nature,  incurred by or imposed upon the Purchaser which results,  arises out of
or is  based  upon:  (i)  any  misrepresentation  by the  Company  or any of its
Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries
in this Agreement,  any other Related  Agreement or in any exhibits or schedules
attached  hereto or  thereto;  or (ii) any breach or default in  performance  by
Company  or  any of  its  Subsidiaries  of any  covenant  or  undertaking  to be
performed by the Company or any of its Subsidiaries  hereunder,  under any other
Related  Agreement or any other agreement entered into by the Company and/or any
of its Subsidiaries and Purchaser relating hereto or thereto.

<PAGE>

                  8.2      PURCHASER'S INDEMNIFICATION

         Purchaser agrees to indemnify, hold harmless,  reimburse and defend the
Company  and each of the  Company's  officers,  directors,  agents,  affiliates,
control  persons and  principal  shareholders,  at all times  against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature,  incurred by or imposed  upon the  Company  which  results,
arises out of or is based upon: (i) any misrepresentation by Purchaser or breach
of any warranty by Purchaser  in this  Agreement or any Related  Agreement or in
any  exhibits or  schedules  attached  hereto;  or (ii) any breach or default in
performance  by  Purchaser  of any  covenant or  undertaking  to be performed by
Purchaser hereunder,  under any Related Agreement or any other agreement entered
into by the Company and Purchaser relating hereto or thereto.

                  8.3      PROCEDURES

         The procedures  and  limitations  set forth in Section  10.2(c) and (d)
shall apply to the indemnifications set forth in Sections 8.1 and 8.2 above.

         9.       CONVERSION OF CONVERTIBLE NOTE

                  9.1      MECHANICS OF CONVERSION

                  (a) Provided the Purchaser has notified the Company in writing
         of the  Purchaser's  intention  to sell  the Note  Shares  and the Note
         Shares are  included  in an  effective  registration  statement  or are
         otherwise exempt from  registration  when sold: (i) upon the conversion
         of the Note or part  thereof,  the Company  shall,  at its own cost and
         expense,  take all  necessary  action  (including  the  issuance  of an
         opinion of counsel reasonably  acceptable to the Purchaser  following a
         request by the  Purchaser) to assure that the Company's  transfer agent
         shall issue  shares of the  Company's  Common  Stock in the name of the
         Purchaser  (or its nominee) or such other  persons as designated by the
         Purchaser  in  accordance  with  Section  9.1(b)  hereof  and  in  such
         denominations  to be specified  representing  the number of Note Shares
         issuable upon such  conversion;  and (ii) the Company  warrants that no
         instructions  other than these  instructions have been or will be given
         to the transfer agent of the Company's  Common Stock and that,  subject
         to  Section  7(d)  of the  Registration  Rights  Agreement,  after  the
         Effectiveness  Date (as defined in the Registration  Rights  Agreement)
         the Note  Shares  issued  will be freely  transferable  subject  to the
         prospectus  delivery   requirements  of  the  Securities  Act  and  the
         provisions of this Agreement, and will not contain a legend restricting
         the resale or transferability of the Note Shares.

                  (b) Purchaser will give notice of its decision to exercise its
         right to convert the Note or part thereof by  telecopying  or otherwise
         delivering an executed and completed  notice of the number of shares to
         be converted to the Company (the "Notice of Conversion"). The Purchaser
         will not be required to surrender the Note until the Purchaser receives
         a credit to the account of the  Purchaser's  prime  broker  through the
         DWAC system (as defined below),  representing  the Note Shares or until
         the Note has  been  fully  satisfied.  Each  date on which a Notice  of
         Conversion is telecopied or delivered to the Company in accordance with
         the provisions hereof shall be deemed a "Conversion  Date." Pursuant to

<PAGE>

         the  terms  of the  Notice  of  Conversion,  the  Borrower  will  issue
         instructions to the transfer agent accompanied by an opinion of counsel
         (if required)  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 Purchaser's  prime broker
         with  the  Depository   Trust  Company   ("DTC")  through  its  Deposit
         Withdrawal Agent  Commission  ("DWAC") system within three (3) business
         days after  receipt by the  Company  of the Notice of  Conversion  (the
         "Delivery Date").

                  (c) The Company  understands  that a delay in the  delivery of
         the Note  Shares  in the form  required  pursuant  to  Section 9 hereof
         beyond  the  Delivery  Date  could  result  in  economic  loss  to  the
         Purchaser.  In the event that the Company  fails to direct its transfer
         agent to deliver the Note Shares to the  Purchaser  via the DWAC system
         within the time frame set forth in  Section  9.1(b)  above and the Note
         Shares are not  delivered to the  Purchaser by the  Delivery  Date,  as
         compensation  to the Purchaser for such loss, the Company agrees to pay
         late  payments to the Purchaser for late issuance of the Note Shares in
         the form required  pursuant to Section 9 hereof upon  conversion of the
         Note in the amount  equal to the greater of: (i) $500 per  business day
         after the Delivery  Date; or (ii) the  Purchaser's  actual damages from
         such delayed delivery.  Notwithstanding the foregoing, the Company will
         not owe the Purchaser any late payments if the delay in the delivery of
         the Note Shares  beyond the Delivery  Date is solely out of the control
         of the Company and the Company is actively  trying to cure the cause of
         the delay.  The  Company  shall pay any  payments  incurred  under this
         Section in immediately  available funds upon demand and, in the case of
         actual damages,  accompanied by reasonable  documentation of the amount
         of such damages.  Such documentation shall show the number of shares of
         Common  Stock the  Purchaser  is forced to purchase  (in an open market
         transaction)  which  the  Purchaser  anticipated  receiving  upon  such
         conversion,  and  shall be  calculated  as the  amount by which (A) the
         Purchaser's  total  purchase  price  (including   customary   brokerage
         commissions,  if any) for the  shares  of  Common  Stock  so  purchased
         exceeds (B) the aggregate principal and/or interest amount of the Note,
         for which such Conversion Notice was not timely honored.

Nothing  contained herein or in any document  referred to herein or delivered in
connection  herewith  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 or dividends  required to
be paid or other charges  hereunder  exceed the maximum amount permitted by such
law, any payments in excess of such maximum  shall be credited  against  amounts
owed by the Company to a Purchaser and thus refunded to the Company.

         10.      REGISTRATION RIGHTS

                  10.1     REGISTRATION RIGHTS GRANTED

         At the  Closing,  the Company  shall grant  registration  rights to the
Purchaser  pursuant to a  Registration  Rights  Agreement  dated as of even date
herewith between the Company and the Purchaser.

<PAGE>

                  10.2     OFFERING RESTRICTIONS

         Except as  previously  disclosed  in the SEC Reports or in the Exchange
Act Filings,  or stock or stock options granted to employees or directors of the
Company (these exceptions  hereinafter referred to as the "Excepted Issuances"),
neither the Company nor any of its Subsidiaries will issue any securities with a
continuously  variable/floating  conversion  feature  which  are or could be (by
conversion or registration)  free-trading  securities (i.e. common stock subject
to a  registration  statement)  prior to the full repayment or conversion of the
Note  (together with all accrued and unpaid  interest and fees related  thereto)
(the "Exclusion Period").

                  10.3     RESTRICTED CASH ACCOUNT

         At Closing,  the Company will place $3,500,000 in a restricted  account
at North Fork  Bank,  and,  subject to the terms of the Note and the  Restricted
Account  Agreement  dated as of the date hereof  between the  Purchaser  and the
Company,  maintain  such  amount in the  restricted  account  for as long as the
Purchaser  shall hold the Note.  The account  shall be pledged to  Purchaser  as
security for the performance of the Company's obligations.

         11.      MISCELLANEOUS

                  11.1     GOVERNING LAW

                  THIS AGREEMENT AND EACH RELATED AGREEMENT 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 AND
EACH RELATED  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
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE
COMPANY  AGREE TO SUBMIT TO THE  JURISDICTION  OF SUCH COURTS AND WAIVE TRIAL BY
JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
DELIVERED  IN  CONNECTION   HEREWITH  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  ENFORCEABILITY  OF ANY OTHER  PROVISION  OF THIS  AGREEMENT  OR ANY  RELATED
AGREEMENT.

                  11.2     SURVIVAL

         The representations,  warranties,  covenants and agreements made herein
shall  survive any  investigation  made by the  Purchaser and the closing of the
transactions  contemplated hereby to the extent provided therein. All statements
as to factual matters contained in any certificate or other instrument delivered
by  or on  behalf  of  the  Company  pursuant  hereto  in  connection  with  the
transactions  contemplated  hereby  shall be  deemed to be  representations  and
warranties by the Company hereunder solely as of the date of such certificate or
instrument.

<PAGE>

                  11.3     SUCCESSORS

         Except as otherwise  expressly  provided herein,  the provisions hereof
shall inure to the  benefit  of, and be binding  upon,  the  successors,  heirs,
executors  and  administrators  of the  parties  hereto  and shall  inure to the
benefit  of and be  enforceable  by each  person  who  shall be a holder  of the
Securities  from time to time,  other than the holders of Common Stock which has
been sold by the  Purchaser  pursuant to Rule 144 or an  effective  registration
statement.  Purchaser may not assign its rights hereunder to a competitor of the
Company.

                  11.4     ENTIRE AGREEMENT

         This  Agreement,  the Related  Agreements,  the exhibits and  schedules
hereto and thereto and the other documents  delivered pursuant hereto constitute
the full and entire  understanding and agreement between the parties with regard
to the subjects hereof and no party shall be liable or bound to any other in any
manner by any  representations,  warranties,  covenants and agreements except as
specifically set forth herein and therein.

                  11.5     SEVERABILITY

         In case any  provision of the  Agreement  shall be invalid,  illegal or
unenforceable,  the  validity,  legality  and  enforceability  of the  remaining
provisions shall not in any way be affected or impaired thereby.

                  11.6     AMENDMENT AND WAIVER

                  (a) This  Agreement  may be amended or modified  only upon the
         written consent of the Company and the Purchaser.

                  (b) The  obligations  of the  Company  and the  rights  of the
         Purchaser  under this  Agreement  may be waived  only with the  written
         consent of the Purchaser.

                  (c) The  obligations  of the  Purchaser  and the rights of the
         Company  under  this  Agreement  may be waived  only  with the  written
         consent of the Company.

                  11.7     DELAYS OR OMISSIONS

         It is agreed that no delay or omission to exercise any right,  power or
remedy  accruing to any party,  upon any  breach,  default or  noncompliance  by
another party under this Agreement or the Related  Agreements,  shall impair any
such right,  power or remedy,  nor shall it be  construed  to be a waiver of any
such breach, default or noncompliance,  or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. All remedies,
either  under this  Agreement  or the Related  Agreements,  by law or  otherwise
afforded to any party, shall be cumulative and not alternative.

                  11.8     NOTICES

         All notices  required or  permitted  hereunder  shall be in writing and
shall be deemed effectively given:

                  (a) upon personal delivery to the party to be notified;

<PAGE>

                  (b) when sent by  confirmed  facsimile  if sent during  normal
         business hours of the recipient, if not, then on the next business day;

                  (c)  three  (3)  business  days  after  having  been  sent  by
         registered  or  certified  mail,  return  receipt  requested,   postage
         prepaid; or

                  (d) one (1) day after  deposit  with a  nationally  recognized
         overnight   courier,   specifying  next  day  delivery,   with  written
         verification of receipt.

All communications shall be sent as follows:

         IF TO THE COMPANY, TO:         Front Porch Digital, Inc.
                                        1140 Pearl Street
                                        Boulder, Colorado  80302
                                        Attention: Chief Financial Officer
                                        Facsimile:  (303) 449-9584

         WITH A COPY TO:                Pryor Cashman Sherman & Flynn LLP
                                        410 Park Avenue
                                        New York, New York  10022
                                        Attention: Eric M. Hellige, Esq.
                                        Facsimile:  (212) 798-6380

         IF TO THE PURCHASER, 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
                                        Facsimile: 345-949-9877

         WITH A COPY TO:                John E. Tucker, Esq.
                                        825 Third Avenue, 14th Floor
                                        New York, New York  10022
                                        Facsimile: 212-541-4434

or at such  other  address as the  Company or the  Purchaser  may  designate  by
written notice to the other parties hereto given in accordance herewith.

                  11.9     TITLES AND SUBTITLES

         The titles of the sections and  subsections  of this  Agreement are for
convenience  of reference  only and are not to be considered in construing  this
Agreement.

                  11.10    FACSIMILE SIGNATURES; COUNTERPARTS

         This  Agreement  may be executed  by  facsimile  signatures  and in any
number of  counterparts,  each of which shall be an  original,  but all of which
together shall constitute one instrument.

                  11.11    BROKER'S FEES

         Except  as set  forth on  Schedule  11.11  hereof,  each  party  hereto
represents and warrants that no agent, broker, investment banker, person or firm
acting on behalf of or under the  authority  of such party  hereto is or

<PAGE>

will be  entitled  to any  broker's  or  finder's  fee or any  other  commission
directly or indirectly in connection with the transactions  contemplated herein.
Each party hereto  further  agrees to indemnify each other party for any claims,
losses  or   expenses   incurred  by  such  other  party  as  a  result  of  the
representation in this Section 11.11 being untrue.

                  11.12    CONSTRUCTION

         Each party  acknowledges  that its legal  counsel  participated  in the
preparation  of  this  Agreement  and the  Related  Agreements  and,  therefore,
stipulates  that the rule of  construction  that  ambiguities are to be resolved
against the drafting  party shall not be applied in the  interpretation  of this
Agreement to favor any party against the other.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

<PAGE>

         IN WITNESS  WHEREOF,  the parties  hereto have executed the  SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.

COMPANY:                               PURCHASER:

FRONT PORCH DIGITAL, INC.              LAURUS MASTER FUND, LTD.

By:    /s/ Thomas P. Sweeney III       By:         /s/ David Grin
       ----------------------------                -----------------------------
Name:  Thomas P. Sweeney III           Name:       David Grin
       ----------------------------                -----------------------------
Title: Chairman                        Title:      Director
       ----------------------------                -----------------------------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:______________________________

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00066-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00066-of-00352.parquet"}]]