Document:

SERIES  A  10%  SENIOR  SECURED  CONVERTIBLE  NOTE

     MERLIN  SOFTWARE  TECHNOLOGIES  INTERNATIONAL  INC.

THE  SECURITIES  REPRESENTED  BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE  SECURITIES  ACT  OF  1933,  AS  AMENDED  (THE  "ACT"),  AND  ARE SUBJECT TO
RESTRICTIONS  ON  TRANSFERABILITY  AS  SET  FORTH  IN  THIS  CERTIFICATE.  THE
SECURITIES  REPRESENTED  HEREBY  MAY  NOT  BE  SOLD,  TRANSFERRED,  OR OTHERWISE
DISPOSED OF IN THE AB-SENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR  AN  OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO
THE  EFFECT THAT THE PROPOSED SALE, TRANS-FER, OR DISPOSITION MAY BE EFFECTUATED
WITHOUT  REGISTRATION  UNDER  THE  ACT.

Principal  Sum:  $420,000     August  18,  2000

Holder:  Pequot  Scout  Fund,  L.P.

     FOR  VALUE  RECEIVED,  the  undersigned  MERLIN  SOFTWARE  TECHNOLOGIES
INTERNATIONAL  INC.,  a --Nevada corporation (the "Company," which term includes
all  Subsidiaries  of  the  Company), hereby promises to pay to the holder named
above,  or  its  registered  assigns (the "Hol-der") the Principal Sum set forth
above,  together  with interest thereon at the rate provided herein, and payable
on  the  terms  set  forth  below.  This Note is one of an issue of Series A 10%
Senior  Secured  Convertible Notes (the "Notes") of the Company in the aggregate
principal  amount  of  up to $2,100,000 issued pursuant to that certain Note and
Warrant  Purchase  Agreement  dated  as  of  August  18,  2000  (the  "Purchase
Agreement").  Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Purchase Agreement.  The holders of the
Notes  are  sometimes  collectively  referred  to  as  the  "Holders."

1.  INTEREST;  PAYMENT  OF  INTEREST  AND  PRINCIPAL
    ------------------------------------------------

     1.1     Interest.  This  Note  shall  bear  interest  on  the  outstanding
principal amount from the date hereof (the "Issue Date") until this Note is paid
in  full at an annual rate of 10% (computed on the basis of a 365-day year) (the
"Interest  Rate").  Interest  on  this  Note  shall  be payable semi-annually in
shares  of  Common Stock computed based upon the Conversion Price (as defined in
Section  3.6,  as adjusted pursuant to Section 3.7) at the time of such payment;
provided, however, if an Event of Default shall have occurred, Holder shall have
the  right  to  require  the  Company  to  pay  interest  in  cash.

     1.2     Principal.  The  principal  on  this  Note  shall  be  paid  upon
conversion  or  at  maturity  of  this  Note,  whichever  occurs  first.

     1.3     Maturity.  All  principal and interest on this Note shall be due on
August  __,  2003  (the  "Maturity  Date").

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     1.4     Seniority to all Other Liabilities.  In the event of any  voluntary
or  involuntary liquidation, dissolution or winding up of the Company, this Note
shall  be  senior  in right of payment to all secured and unsecured indebtedness
of  the  Company  evidenced  by  any securities issued by the Company. All other
indebtedness  of  the  Company  shall  be  subordinate  to  this  Note.  Without
limiting  the  generality  of  the fore-going, nothing herein or in the Purchase
Agreement or in any document or instrument con-tem-plated thereby shall obligate
any  holder  of  any  Note  to  subordinate  this  Note or any other Note to any
institutional  or  other  debt  of  any  kind  or  nature.

     1.5     Security  Interest.  As  security for the full, prompt and complete
payment  and  performance  of  the  Company's obligations hereunder, the Company
hereby  grants to the Holder of this Note, equally and ratably with the security
interests  granted  to  the  other  Holders,  a  security interest in and to the
Collateral  (as  collectively  defined, and more fully provided, in the Security
Agreement  referred  to  in  the  Purchase  Agreement).

     1.6     Prepayment.  The  Company  may  not  prepay  this  Note without the
written  consent  of  50% of the Holders; provided, however, that all or part of
the Notes with respect to which the Holder sends a conversion notice pursuant to
Section  3.2  hereof may be prepaid at a rate of 105% of the principal amount of
the  Notes, together with interest thereon, at any time the Conversion Price, as
calculated  pursuant to Section 3.6 hereof, is less than $1.00.  Such prepayment
right  can  only  be  exercised  by  delivering  such  prepayment in immediately
available funds to the Holders at their principal offices within three (3)  days
of  the  Conversion  Date,  as  hereinafter  defined.

SECTION  2.  EVENTS  OF  DEFAULT
             -------------------

     2.1     Nature  of Events.  An "Event of Default" shall exist if any of the
following  occurs:

     (a)     Failure  to  pay interest on any of the Notes on or before the date
such  payment  is  due  or  within  10  days  after  such  date;

     (b)     Failure  to pay principal on any of the Notes on or before the date
such  payment is due (whether or not such payment is prohibited by Section 1.5);

     (c)     The failure of the Company to convert the Notes in accordance with,
or  otherwise  comply  with,  Section  3.2 hereof, which failure continues for a
period  of  15  business  days.

     (d)     Failure  by the Company to perform or observe any other covenant or
agreement  of  the  Company  contained  in this Note or any material covenant or
material agreement, as determined in the discretion of the holders of the Notes,
contained  in  the  Purchase  Agreement,  the  Warrants, the Registration Rights
Agreement, the Pledge Agreement, the Security Agreement, the Subsidiary Security
Agreement,  the  Intellectual  Property  Security  Agreement and Assignment, the
Subsidiary  Intellectual  Property  Security  Agreement  and  Assignment  or the
Subsidiary Guaranty (collectively, the "Related Documents") which remain uncured
for  more  than  ten  (10)  days  after  written  notice  thereof;

 (e)     Failure by the Company or any of its Subsidiaries (as defined below) to
pay  principal  on  the Maturity Date (or otherwise when due) of, or interest on
the  Notes,  or  the  occurrence, not cured within ten (10) days thereafter, and
continuation  of  any  other  event  of  default under any loan agreement, note,

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     mortgage,  indenture or other instrument under which there is issued, or by
which  there  is  secured  or  evidenced, any indebtedness of the Company or its
Subsidiaries  (other  than  the  Notes), whether such indebtedness exists on the
date  of  the  issuance  of  this  Note  or  is  created  hereafter;

     (f)     A  custodian, receiver, liquidator or trustee of the Company, or of
any  of  its  property,  is  appointed or takes possession of the Company or its
property;  or  an  order for relief is entered under the Federal Bankruptcy Code
against  the  Company;  or  any of the property of the Company is sequestered by
court  order;  or  a  petition  or other proceeding is filed against the Company
under  any  bankruptcy, reorganization, arrangement, insolvency, readjustment of
indebtedness, dissolution or liquidation law of any jurisdiction, whether now or
hereafter  in  effect;

     (g)     The  Company  files  a  petition in voluntary bankruptcy or seeking
relief  under  any  provision  of  any  bankruptcy, reorganization, arrangement,
insolvency,  readjustment of indebtedness, dissolution or liquidation law of any
jurisdiction,  whether  now or hereafter in effect, or consents to the filing of
any  petition  against  it  under  any  such  law;

     (h)     The  Company  makes an assignment for the benefit of its creditors,
or generally fails to pay its obligations as they become due, or consents to the
appointment  of  or  taking  possession  by a custodian, receiver, liquidator or
trustee  of  the  Company  of  all  or  any  material  part  of  its  property;

     (i)     The  rendering  of  one  or more final judgments, orders or decrees
against  the  Company  and/or  any  Subsidiary (as defined below) of the Company
(including  for  seizure,  forfeiture, garnishment or abatement) in an aggregate
amount  equal  to  or  in  excess  of $100,000 which are not vacated, satisfied,
discharged or execution thereof stayed within a period of 30 days from the entry
thereof;

     (j)     The  failure  of the Company or any of its Subsidiaries (as defined
below) to comply with any law or regulation, whether with respect to the conduct
of  its  business  or  otherwise,  which  failure has a Material Adverse Effect;

     (k)     If  the  Company or any Subsidiary (as defined below) shall suspend
all  or  any  part  of  its  operations  and such suspension would reasonably be
expected  to  have  a  Material  Adverse  Effect;

     (l)     Any  representation  or  warranty made by the Company or any of its
Subsidiaries  under  any  of  the  Related  Documents was, when made, materially
untrue  or  misleading;

     (m)     The  failure  of  the  Company  to  timely  deliver the information
required  by  Section  5.3,  of  the  Purchase  Agreement;

     (n)     The  commencement  by the Company or any of its Subsidiaries of any
action,  suit, proceeding, claim or investigation against the holder of any Note
or  any  of  its  affiliates;

     (o)     The assignment, pledge, hypothecation, transfer, exchange, grant of
any  option  with  respect to, or other disposition or encumbrance (other than a
Permitted  Lien)  of  all or any part of the capital stock of the Subsidiary; or

<PAGE>

     (p)     The failure to have a registration statement registering the common
stock  underlying  the  Notes  and Warrants under the Securities Act of 1933, as
amended,  be  declared  effective  within  150  days  of  the  Issue  Date.
     "Subsidiary"  or  "Subsidiaries"  shall  mean  any  corporation  or  other
organization, whether incorporated or unincorporated, in which the Company owns,
directly or indirectly, any equity or other ownership interest and in which such
ownership  interest  entitles  the  Company  to elect a majority of the Board of
Directors  or  similar  governing  body.

     2.2     Default  Remedies.
             -----------------

     (a)     In  case  an  Event  of  Default  (other  than  an Event of Default
described  in  paragraphs  (f),  (g) or (h)) has occurred and is continuing, the
Holders  of Notes, by notice to the Company from the Holders of more than 50% of
the  principal  amount of the Notes then out-standing, may declare the principal
of  the  Notes,  plus  accrued interest, to be immediately due and pay-able, and
upon  any  such declaration such principal and accrued interest shall become due
and  payable  im-mediately.  Upon  such declaration, the rate of interest on the
unpaid  principal  shall be increased to eighteen 18% percent or such lower rate
that  is  the  maximum rate allowed by law (the "Default Rate") from the date of
such  declaration until such unpaid principal is repaid in full.  The provisions
herein for a Default Rate shall not be deemed to extend the time for any payment
hereunder  or  to constitute a "grace period" giving the Company a right to cure
any  default.  In  case an Event of Default described in para-graphs (f), (g) or
(h)  occurs,  such  amounts  will become immediately due and payable without any
declaration  or  any  act  on  the  part  of  the  holders  of  the Notes.  Such
declaration  of  acceleration  may  be rescinded and past defaults may be waived
(except  with  respect  to  defaults  in payment of principal or interest on any
Note)  by  the holders of at least 50% of the principal amount of the Notes then
outstanding  as provided herein.  Additionally, the Holder shall have all rights
and  remedies  available  under  each  of  the Related Documents, as well as all
rights  and  remedies  available  at  law or in equity.  Upon the occurrence and
during  the continuation of an Event of Default, the Holder is hereby authorized
at  any  time  to set off and charge against any money, instruments, securities,
documents,  chattel  paper,  credits,  claims,  demands,  income  and  any other
property,  rights and interests of the Company which at any time shall come into
the  possession  or  custody  or  under  the control of the Holder or any of its
agents  or  affiliates,  with-out  notice or demand, any and all obligations due
hereunder.

     (b)     No  course of dealing or delay or failure on the part of the Holder
to  exercise  any right under this Section 2.2 shall operate as a waiver of such
right  or  otherwise  prejudice  such Holder's rights, powers and remedies.  The
Company  will  pay  or reimburse the Holder, to the extent permitted by law, for
all costs and expenses, including but not limited to reasonable attorneys' fees,
incurred by it in collecting any sums due on this Note or in otherwise enforcing
any  of  its  rights.

     (c)     In  case  any  one  or  more  Events  of Default shall occur and be
continuing,  the  Holder,  if  authorized  to  do  so  by  the Holders of 50% in
principal  amount  of  the  Notes then outstanding,  may protect and enforce its
rights  or  remedies  either  by  suit  in  equity or by action at law, or both,
whether  for  the  specific  performance  of  any  covenant,  agreement or other
provision  contained  herein,  in  the  Purchase Agreement or in any document or
instrument  delivered in connection with or pursuant to this Note, or to enforce
the  payment  of  the outstanding Notes or any other legal or equitable right or
remedy.

(d)     No  right  or  remedy herein conferred upon the Holder is intended to be
exclusive  of  any  other  right  or  remedy  contained herein or in the Related
Documents,  and  every  such  right  or  remedy  shall

<PAGE>

     be  cumulative and shall be in addition to every other such right or remedy
contained  herein and therein or now or hereafter existing at law, in equity, by
statute,  or  otherwise.

SECTION  3.     CONVERSION
                ----------

     3.1     Optional Conversion Privilege.  Subject to and upon compliance with
the  provisions of this Section 3, at the option of the Holder, this Note or any
portion of the principal amount thereof and the interest related thereto may, at
any  time  and  from time to time be converted into fully paid and nonassessable
shares  of Common Stock of the Company, at the Conversion Price in effect at the
date  of  conversion.

     3.2     Manner  of  Exercise of Optional Conversion Privilege.  To exercise
the  conversion  privilege,  the Holder shall give written notice to the Company
via  facsimile  of  the  amount  of  this  Note to be converted (the "Conversion
Notice") in the form attached hereto as Exhibit A and shall surrender this Note,
together  with  the original Conversion Notice, to the Company at its  principal
office within four (4) trading days of the Conversion Date.  The Conversion Date
is  the  date on which the Holder serves the Company with the Conversion Notice.
Provided  the Company does not exercise its prepayment right pursuant to Section
1.6  hereof, this Note or portion thereof shall be deemed to have been converted
immediately  prior  to the close of business on the Conversion Date, even if the
Company's  stock  transfer books are on that date closed, and the Holder, or the
nominee  or  nominees  of  such Holder, shall be treated for all purposes as the
record holder of the shares of Common Stock de-liverable upon such conversion as
of  the  close  of  business  on  such date. Within three (3) trading days after
receipt  by  the  Company  of  this  Note and the Conversion Notice, the Company
shall  issue  and  deliver,  at its expense, to the Holder, or to the nominee or
nominees  of such Holder, a certificate or certificates for the number of shares
of its Common Stock due on such conversion.  Interest shall accrue on the unpaid
principal  amount  of  this  Note  converted  to the date of conversion, and the
Company  shall pay such interest at the time  of  conversion; provided, however,
that  in  the  case  of  a  conversion  of  only  a portion of the out-stan-ding
principal  amount  of  this  Note,  the Company shall execute and deliver to the
Holder  a  replacement  Note  in  a  principal  amount  equal to the unconverted
portion  of  such  Note  and  dated  and bearing interest from the date to which
interest  has  been  paid  on  such  Note  or  dated the date of such Note if no
interest  has  been  paid  thereon.

     3.3     Mandatory  Conversion.  Subject  to  and  upon  compliance with the
provisions of this Section 3.3, the Company shall have the right to require (the
"Mandatory Conversion Right") the Holders to convert their Notes to Common Stock
if  (i)  the  Common  Stock, as reported by Bloomberg, L.P. (or other nationally
recognized  financial  reporting  company  if  such  information  shall  not  be
available  through  Bloomberg,  L.P.), has a closing bid price of at least $4.00
for  twenty  (20)  consecutive trading days immediately prior to the exercise of
the  Mandatory  Conversion Right, (ii) the registration statement required to be
filed  pursuant  to the Related Documents has been in effect, without lapse, for
the  immediately preceding thirty (30) trading days; and (iii) the average daily
trading  volume  of  the  Common  Stock  over  the  previous two month period as
reported  by  Bloomberg,  L.P.  exceeds  90,000  shares  per  day. The Mandatory
Conversion Right shall be exercised (i) with respect to a maximum of $250,000 in
any  thirty  (30) day period, less any prior conversions pursuant to Section 3.1
hereof,  and (ii) pro rata among the Holders of the then outstanding Notes based
upon  the  aggregate  principal  amount  of  Notes held by each such Holder. The
Mandatory  Conversion  Right  shall terminate if an Event of Default or an event
that with the giving of notice or the passage of time, shall have occurred or be
continuing.

<PAGE>

     3.4     Manner  of Exercise of Mandatory Conversion Right.  To exercise the
Mandatory Conversion Right, the Company shall notify the Holders (the "Mandatory
Conversion Notice"), via facsimile, to surrender this Note to the Company at its
prin-cipal office within five (5) trading days of the Mandatory Conversion Date,
and  the  Chief  Executive Officer of the Company shall certify in the Mandatory
Conversion  Notice  that  no  Event  of Default or event that with the giving of
notice  or  the  passage of time shall result in an Event of Default, shall have
occurred  or be continuing.  Upon receipt of such notice, the Holders shall then
surrender this Note, together with a copy of the Mandatory Conversion Notice, to
the  Company  at  its  principal  office  within  five  (5)  trading days of the
Mandatory  Conversion  Date.  The Mandatory Conversion Date is the date on which
the  Company serves the Holder with a Mandatory Conversion notice via facsimile.
This  Note or portion thereof shall be deemed to have been converted immediately
prior  to  the  close of business on the date of giving the Mandatory Conversion
Notice  to  the  Holder,  even if the Company's stock transfer books are on that
date closed, and the Holder, or the nominee or nominees of such Holder, shall be
treated  for  all  purposes  as  the record holder of the shares of Common Stock
deliverable  upon  such  conversion  as  of the close of business on such  date.
Within three (3) trading days after receipt by the  Company of this Note and the
Mandatory  Conversion  Notice,  the  Company  shall  issue  and  deliver, at its
expense,  to  the  Holder,  or  to  the  nominee  or  nominees of such Holder, a
certificate  or certificates for the number of shares of its Common Stock due on
such  conversion.  Interest  shall accrue on the unpaid principal amount of this
Note  converted  to  the  date  of  conversion,  and  the Company shall pay such
interest  at  the time of  conversion;  provided, however, that in the case of a
conversion  of  only a portion of the outstanding principal amount of this Note,
the  Company  shall  execute  and deliver to the Holder a  replacement Note in a
principal  amount  equal  to  the unconverted portion of such Note and dated and
bearing  interest  from the date to which interest has been paid on such Note or
dated  the  date  of  such  Note  if  no  interest  has  been  paid  thereon.

     3.5     Fractional  Shares.  No  fractional shares of Common Stock shall be
issued  upon conversion of this Note.  Instead of any fractional share of Common
Stock  which  would  otherwise  be  issuable  upon  conversion of this Note, the
Company shall pay a cash adjustment in respect of such fractional interest.  The
Holder,  by  its  acceptance  thereof, expressly waives any right to receive any
fractional  share  upon  conversion  of  the  Note.

     3.6     Conversion  Price.

     The  Conversion  Price shall equal the lesser of the Fixed Conversion Price
and  the  Adjustable  Conversion  Price.  Fixed  Conversion  Price  means $1.60.
Adjustable Conversion Price means 95% of the average of the two lowest intra-day
trading  prices  of the Common Stock for the thirty day trading period ending on
the  trading  day  immediately  preceding  the  Conversion  Date.

     3.7     Adjustments  to  Fixed Conversion Price.  The adjustment provisions
of  this  Section  3.7  shall  apply  only  to  the  Fixed  Conversion  Price.

     (a)     Stock Dividends, Subdivisions and Combinations.  If at any time the
Company  shall:

     (i)     take a record of the holders of its Common Stock for the purpose of
entitling  them  to  receive  a  dividend  payable in, or other distribution of,
additional  shares  of  Common  Stock,

     (ii)     subdivide  its  outstanding  shares  of Common Stock into a larger
number  of  shares  of  Common  Stock,  or

<PAGE>

     (iii)     combine  its  outstanding  shares  of Common Stock into a smaller
number  of  shares  of  Common  Stock,

then  (A)  the  number  of  shares  of  Common  Stock  into  which  this Note is
convertible immediately after the occurrence of any such event shall be adjusted
to  equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock into which this Note is convertible immediately
prior  to the occurrence of such event would own or be entitled to receive after
the  happening  of such event, and (B) the Conversion Price shall be adjusted to
equal  (x)  the  current  Conversion Price multiplied by the number of shares of
Common  Stock  into  which  this  Note  is  convertible immediately prior to the
adjustment  divided  by (y) the number of shares of Common Stock into which this
Note  is  convertible  immediately  after  such  adjustment.

     (b)     Certain Other Distributions.  If at any time the Company shall take
a record of the holders of its Common Stock for the purpose of entitling them to
receive  any  dividend  or  other  distribution  of:

     (i)     cash  (other than a cash dividend payable out of earnings or earned
surplus  legally  available  for  the payment of dividends under the laws of the
jurisdiction  of  incorporation  of  the  Company),

     (ii)     any  evidences  of  its  indebtedness,  any shares of stock of any
class  or  any other securities or property of any nature whatsoever (other than
cash,  convertible  securities  or  additional  shares  of  Common  Stock),  or

     (iii)     any  warrants  or  other  rights to subscribe for or purchase any
evidences  of  its  indebtedness,  any shares of stock of any class or any other
securities  or  property  of any nature whatsoever (other than cash, convertible
securities  or  additional  shares  of  Common  Stock),

then  (A)  the  number  of  shares  of  Common  Stock  into  which  this Note is
convertible  shall  be adjusted to equal the product (I) of the number of shares
of  Common  Stock  into which this Note is convertible immediately prior to such
adjustment multiplied by (II) a fraction (x) the numerator of which shall be the
current  Conversion  Price  per share of Common Stock at the date of taking such
record  and  (y) the denominator of which shall be such current Conversion Price
minus  the  amount  allocable  to  one share of Common Stock of any such cash so
distributable and of the fair value (as determined in good faith by the Board of
Directors of the Company), of any and all such evidences of indebtedness, shares
of  stock,  other  securities  or  property or warrants or other subscription or
purchase rights so distributable, and (B) the Conversion Price shall be adjusted
to  equal  (x) the Conversion Price multiplied by the number of shares of Common
Stock  into  which  this Note is convertible immediately prior to the adjustment
divided  by  (y)  the  number  of shares of Common Stock into which this Note is
convertible immediately after such adjustment.  A reclassification of the Common
Stock  (other  than  a change in par value, or from par value to no par value or
from  no  par  value to par value) into shares of Common Stock and shares of any
other  class  of  stock  shall  be  deemed  a distribution by the Company to the
holders  of  its Common Stock of such shares of such other class of stock within
the  meaning  of  this  Section  3.7(b) and, if the outstanding shares of Common
Stock shall be changed into a larger or smaller number of shares of Common Stock
as  a  part  of such reclassification, such change shall be deemed a subdivision

<PAGE>

or  combination,  as  the case may be, of the outstanding shares of Common Stock
within  the  meaning  of  Section  3.7(a).

      (c)  (i)     Issuance  of Additional Shares of Common Stock.  In the event
the  Company  shall, at any time, or from time to time, issue or sell any shares
of  Common Stock (including Treasury Shares), other than any such sales pursuant
to  options  or warrants that are outstanding the date hereof and sales of up to
an  additional  750,000  options  to  incoming  management  or current or future
employees,  having an exercise price of at least 80% of the fair market value of
the Common Stock on the date hereof (the "New Management and Employee Options"),
for consideration per share less than the Conversion Price in effect immediately
prior  to  the  time  of  such issue or sale, then, forthwith upon such issue or
sale, the Conversion Price for the Note shall be reduced to a price equal to the
consideration  per  share  paid  for  such  Common  Stock.

     (ii)     In the event the Company shall, at any time, or from time to time,
issue or sell any shares of Common Stock (including Treasury Shares), other than
any  such  sales  pursuant  to options or warrants that are outstanding the date
hereof  or New Management and Employee Options, for consideration per share less
than  the  Current  Market Price in effect immediately prior to the time of such
issue or sale, then, forthwith upon such issue or sale, the Conversion Price for
the  Note shall be reduced by the product of such Conversion Price multiplied by
the  Dilution  Percentage.  "Dilution  Percentage"  shall mean the percentage by
which  such  issuance  or  sale  is  below  the  Current  Market  Price.

     (iii)     "Current  Market  Price" means, in respect of any share of Common
Stock  on  any date herein specified, if there shall not then be a public market
for  the  Common  Stock, the lower of (A) the value per share of Common Stock at
such  date as is determined in the good faith judgment of the Board of Directors
of  the  Company,  or (B) the value per share in any Qualified Financing;  or if
there  shall  then  be  a public market for the Common Stock, the average of the
daily  market prices for 30 consecutive business days ending on the business day
prior  to such date.  The daily market price for each such business day shall be
(i)  the  last  sale  price on such day on the principal stock exchange on which
such  Common  Stock is then listed or admitted to trading, (ii) if no sale takes
place on such day on any such exchange, the average of the last reported closing
bid  and  asked  prices  on  such day as officially quoted on any such exchange,
(iii) if the Common Stock is not then listed or admitted to trading on any stock
exchange,  the average of the last reported closing bid and asked prices on such
day  in the over-the-counter market, as furnished by the National Association of
Securities  Dealers Automated Quotation System or the National Quotation Bureau,
Inc., (iv) if neither such corporation at the time is engaged in the business of
reporting  such  prices,  as  furnished by any similar firm then engaged in such
business,  or  (v)  if  there is no such firm, as furnished by any member of the
NASD  selected  by the Holders of at least 50% of the aggregate principal amount
of  the  Notes.

     (iv)   If at any time the Company shall issue or sell any additional shares
of Common Stock in exchange for consideration in an amount per additional shares
of  Common  Stock  which  is  less  than the current Conversion Price or Current
Market  Price  at  the  time the additional shares of Common Stock are issued or
sold,  the  adjustment  required  under Section 3.7(c)(i) or 3.7(c)(ii) shall be
made in accordance with the formula contained therein which results in the lower
current  Conversion  Price  following  such  adjustment.  The  provisions  of
paragraphs  3.7(c)(i)  and  3.7(c)(ii)

<PAGE>

     shall  not  apply  to any issuance of additional shares of Common Stock for
which  an  adjustment is provided under Section 3.7(a) or 3.7(b).  No adjustment
of the number of shares of Common Stock for which this Note shall be convertible
into  shall be made under paragraph 3.7(c)(i) or 3.7(c)(ii) upon the issuance of
any  additional shares of Common Stock which are issued pursuant to the exercise
of  any  warrants  or  other  subscription or purchase rights or pursuant to the
exercise  of any conversion or exchange rights in any convertible securities, if
any  such  adjustment  shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such convertible securities (or
upon  the  issuance of any warrant or other rights therefor) pursuant to Section
3.7(d)  or  Section  3.7(e).

     (d)     Issuance  of  Warrants or Other Rights.  If at any time the Company
shall  take  a  record  of  the  holders  of its Common Stock for the purpose of
entitling  them  to  receive  a distribution of, or shall in any manner (whether
directly  or  by  assumption  in  a merger in which the Company is the surviving
corporation)  issue  or  sell,  any warrants or other rights to subscribe for or
purchase  any  additional  shares of Common Stock or any convertible securities,
whether  or  not  the  rights  to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such warrants or other rights or upon conversion or exchange of such
convertible  securities  shall  be less than the current Conversion Price or the
Current  Market  Price  in effect immediately prior to the time of such issue or
sale,  then  the  number  of  shares  of  Common  Stock  into which this Note is
convertible  and  the  current Conversion Price shall be adjusted as provided in
Section  3.7(c)  on  the  basis  that the maximum number of additional shares of
Common Stock issuable pursuant to all such warrants or other rights or necessary
to effect the conversion or exchange of all such convertible securities shall be
deemed  to  have been issued and outstanding and the Company shall have received
all  of the consideration payable therefor, if any, as of the date of the actual
issuance  of such warrants or other rights.  If the maximum number of additional
shares  of  Common  Stock  necessary  to  effect  the  conversion or exchange is
indeterminable  as a result of a conversion or exercise price which adjusts over
time  (whether  based on the market price of the Common Stock or otherwise), the
determination of adjustments pursuant to this Section 3.7(e) shall be determined
at  the time of actual conversion or exercise of such convertible securities and
an  adjustment shall be made only upon actual conversions or exchanges which are
below  the  Conversion  Price  or  the  Current  Market Price on the date of the
conversion  of  such  convertible  securities.  No  further  adjustments  of the
current  Conversion  Price  shall  be  made upon the actual issue of such Common
Stock  or of such convertible securities upon exercise of such warrants or other
rights  or  upon  the  actual issue of such Common Stock upon such conversion or
exchange  of  such  convertible  securities.

     (iii)  If at any time the Company shall issue or sell any additional shares
of Common Stock in exchange for consideration in an amount per additional shares
of  Common  Stock which is less than the current Conversion Price or the Current
Market  Price  at  the  time the additional shares of Common Stock are issued or
sold,  the  adjustment  required  under Section 3.7(c)(i) or 3.7(c)(ii) shall be
made in accordance with the formula contained therein which results in the lower
current  Conversion  Price  following  such  adjustment.  The  provisions  of
paragraphs  3.7(c)(i)  and  3.7(c)(ii)  shall  not  apply  to  any  issuance  of
additional  shares  of  Common  Stock  for which an adjustment is provided under
Section 3.7(a) or 3.7(b).  No adjustment of the number of shares of Common Stock
for  which  this  Note  shall  be convertible into shall be made under paragraph
3.7(c)(i)  or  3.7(c)(ii)  upon  the issuance of any additional shares of Common
Stock  which  are  issued  pursuant  to  the  exercise  of any warrants or other
subscription  or  purchase  rights  or  pursuant  to  the  exercise

<PAGE>

     of  any conversion or exchange rights in any convertible securities, if any
such  adjustment  shall  previously  have  been  made  upon the issuance of such
warrants or other rights or upon the issuance of such convertible securities (or
upon  the  issuance of any warrant or other rights therefor) pursuant to Section
3.7(d)  or  Section  3.7(e).

     (e)     Issuance  of  Convertible  Securities.  If  at any time the Company
shall  take  a  record  of  the  holders  of its Common Stock for the purpose of
entitling  them  to  receive  a distribution of, or shall in any manner (whether
directly  or  by  assumption  in  a merger in which the Company is the surviving
corporation)  issue  or  sell,  any  convertible  securities, whether or not the
rights  to  exchange  or convert thereunder are immediately exercisable, and the
price  per  share  for  which  Common  Stock is issuable upon such conversion or
exchange  shall  be less than the current Conversion Price or the Current Market
Price  in  effect  immediately prior to the time of such issue or sale, then the
number  of  shares  of  Common Stock into which this Note is convertible and the
current  Conversion Price shall be adjusted as provided in Section 3.7(c) on the
basis  that the maximum number of additional shares of Common Stock necessary to
effect  the  conversion  or exchange of all such convertible securities shall be
deemed  to  have been issued and outstanding and the Company shall have received
all  of  the  consideration  payable  therefor, if any, as of the date of actual
issuance  of  such  convertible securities.  If the maximum number of additional
shares  of  Common  Stock  necessary  to  effect  the  conversion or exchange is
indeterminable  as a result of a conversion or exercise price which adjusts over
time  (whether  based on the market price of the Common Stock or otherwise), the
determination of adjustments pursuant to this Section 3.7(e) shall be determined
at  the time of actual conversion or exercise of such convertible securities and
an  adjustment shall be made only upon actual conversions or exchanges which are
below  the  Conversion  Price  or  the  Current  Market Price on the date of the
conversion  of such convertible securities.  No further adjustment of the number
of  shares  of  Common Stock into which this Note is convertible and the current
Conversion  Price  shall  be made under this Section 3.7(e) upon the issuance of
any  convertible  securities  which  are  issued pursuant to the exercise of any
warrants  or  other  subscription  or  purchase  rights  therefor,  if  any such
adjustment shall previously have been made upon the issuance of such warrants or
other  rights  pursuant to Section 3.7(d).  No further adjustments of the number
of  shares  of  Common Stock into which this Note is convertible and the current
Conversion  Price  shall be made upon the actual issue of such Common Stock upon
conversion  or  exchange  of  such  convertible  securities.

     (f)     Superseding  Adjustment.

(i)     If,  at  any time after any adjustment of the number of shares of Common
Stock into which this Note is convertible and the current Conversion Price shall
have been made pursuant to Section 3.7(d) or Section 3.7(e) as the result of any
issuance  of  warrants,  other  rights  or convertible securities, then (x) such
warrants  or  other rights, or the right of conversion or exchange in such other
convertible  securities,  shall expire, and all or a portion of such warrants or
other  rights,  or  the right of conversion or exchange with respect to all or a
portion  of such other convertible securities, as the case may be shall not have
been  exercised,  or  (y) the consideration per share for which shares of Common
Stock  are  issuable  pursuant to such warrants or other rights, or the terms of
such  other  convertible  securities,  shall  be  increased  solely by virtue of
provisions therein contained for an automatic increase in such consideration per
share  upon  the occurrence of a specified date or event, then any such previous
adjustments  to  this  Note  shall  be rescinded and annulled and the additional
shares  of  Common  Stock  which  were  deemed  to  have

<PAGE>

     been  issued  by  virtue  of  the  computation  made in connection with the
adjustment  so  rescinded  and  annulled  shall no longer be deemed to have been
issued  by  virtue  of  such  computation.

     (ii)     Upon  the  occurrence  of  an event set forth in Section 3.7(f)(i)
above there shall be, a recomputation made of the effect of such warrants, other
rights or options or other convertible securities on the basis of:  (a) treating
the  number  of  additional  shares  of  Common Stock or other property, if any,
theretofore actually issued or issuable pursuant to the previous exercise of any
such  warrants  or  other rights or any such right of conversion or exchange, as
having  been  issued  on  the  date  or  dates  of any such exercise and for the
consideration  actually  received  and receivable therefor, and (b) treating any
such  warrants  or  other  rights or any such other convertible securities which
then  remain  outstanding as having been granted or issued immediately after the
time  of such increase of the consideration per share for which shares of Common
Stock  or  other  property  are  issuable under such warrants or other rights or
other convertible securities; whereupon a new adjustment of the number of shares
of  Common  Stock  for which this Note and the current Conversion Price shall be
made,  which new adjustment shall supersede the previous adjustment so rescinded
and  annulled.

     (g)     Other  Provisions  Applicable  to  Adjustments.  The  following
provisions  shall  be  applicable  to the making of adjustments of the number of
shares  of  Common  Stock  into  which  this Note is convertible and the current
Conversion  Price  provided  for  in  this  Section  3.7:

(i)     Computation  of Consideration.  To the extent that any additional shares
of Common Stock or any convertible securities or any warrants or other rights to
subscribe  for  or  purchase  any  additional  shares  of  Common  Stock  or any
convertible securities shall be issued for cash consideration, the consideration
received by the Company therefor shall be the amount of the cash received by the
Company  therefor,  or, if such additional shares of Common Stock or convertible
securities  are offered by the Company for subscription, the subscription price,
or, if such additional shares of Common Stock or convertible securities are sold
to  underwriters or dealers for public offering without a subscription offering,
the initial public offering price (in any such case subtracting any amounts paid
or  receivable for accrued interest or accrued dividends and without taking into
account  any compensation, discounts or expenses paid or incurred by the Company
for  and  in  the underwriting of, or otherwise in connection with, the issuance
thereof).  To  the  extent that such issuance shall be for a consideration other
than  cash,  then,  except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair value of such consideration at
the  time of such issuance as determined in good faith by the Board of Directors
of  the  Company.  In  case  any  additional  shares  of  Common  Stock  or  any
convertible  securities  or  any  warrants  or  other rights to subscribe for or
purchase  such additional shares of Common Stock or convertible securities shall
be  issued  in  connection  with  any  merger  in  which  the Company issues any
securities,  the amount of consideration therefor shall be deemed to be the fair
value,  as determined in good faith by the Board of Directors of the Company, of
such  portion of the assets and business of the nonsurviving corporation as such
Board in good faith shall determine to be attributable to such additional shares
of  Common  Stock, convertible securities, warrants or other rights, as the case
may  be.  The  consideration  for any additional shares of Common Stock issuable
pursuant  to  any warrants or other rights to subscribe for or purchase the same
shall  be the consideration received by the Company for issuing such warrants or
other  rights  plus  the  additional  consideration  payable to the Company upon
exercise  of  such  warrants  or  other

<PAGE>

     rights.  The  consideration  for  any  additional  shares  of  Common Stock
issuable  pursuant  to  the  terms  of  any  convertible securities shall be the
consideration  received  by  the Company for issuing warrants or other rights to
subscribe  for  or  purchase such convertible securities, plus the consideration
paid or payable to the Company in respect of the subscription for or purchase of
such  convertible securities, plus the additional consideration, if any, payable
to  the Company upon the exercise of the right of conversion or exchange in such
convertible  securities.  In  case of the issuance at any time of any additional
shares  of  Common Stock or convertible securities in payment or satisfaction of
any dividends upon any class of stock other than Common Stock, the Company shall
be  deemed  to  have  received  for  such  additional  shares of Common Stock or
convertible  securities  a consideration equal to the amount of such dividend so
paid  or  satisfied.  Whenever  the  Board  of Directors of the Company shall be
required  to  make  a  determination  in  good  faith  of  the fair value of any
consideration,  such  determination  shall,  if  requested by the holder of this
Note,  be  supported  by  an opinion of an investment banking firm of recognized
national  standing  selected  by  the  holder of this Note and acceptable to the
Company.

     (ii)     When  Adjustments to Be Made.  The adjustments required by Section
3  shall  be  made  whenever  and  as  often as any specified event requiring an
adjustment  shall  occur,  except that any adjustment of the number of shares of
Common  Stock  into  which  this  Note  is  convertible  that would otherwise be
required may be postponed (except in the case of a subdivision or combination of
shares  of  the  Common Stock, as provided for in Section 3.7(a)) up to, but not
beyond  the  date  of exercise if such adjustment either by itself or with other
adjustments  not previously made adds or subtracts less than 1% of the shares of
Common Stock into which this Note is convertible immediately prior to the making
of  such  adjustment.  Any  adjustment  representing  a change of less than such
minimum  amount  (except  as  aforesaid)  which  is  postponed  shall be carried
forward  and  made as soon as such adjustment, together with  other  adjustments
required  by this Section 3.7 and not previously made, would result in a minimum
adjustment  or  on the date of exercise.  For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date  of  its  occurrence.

     (iii)     Fractional  Interests.  In  computing  adjustments  under  this
Section  3,  fractional interests in Common Stock shall be taken into account to
the  nearest  1/100th  of  a  share.

     (iv)     When  Adjustment  Not  Required.

     (A)     If  the  Company  shall  take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or distribution or
subscription  or  purchase  rights  and  shall,  thereafter  and  before  the
distribution to stockholders thereof, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and any such
adjustment  previously  made in respect thereof shall be rescinded and annulled.

     (B)     No  adjustment  shall be required pursuant to this Section 3.7 upon
the  exercise of any warrants, options or convertible securities granted, issued
and  outstanding  on  the date of issuance of this Note or the conversion of the
Notes.

<PAGE>

     (v)     Escrow  of  Stock.  If  after  any  property  becomes distributable
pursuant  to Section 3.7 by reason of the taking of any record of the holders of
Common  Stock, but prior to the occurrence of the event for which such record is
taken,  and  the  holder  of  this Note converts this Note, any shares of Common
Stock  issuable  upon  exercise by reason of such adjustment shall be deemed the
last  shares  of  Common Stock for which this Note is converted (notwithstanding
any  other  provision  to the contrary herein) and such shares or other property
shall  be held in escrow for the holder of this Note by the Company to be issued
to  holder  of  this  Note  upon and to the extent that the event actually takes
place,  upon payment of the current Conversion Price.  Notwithstanding any other
provision  to  the contrary herein, if the event for which such record was taken
fails  to  occur or is rescinded, then such escrowed shares shall be canceled by
the  Company  and  escrowed  property  returned.

     (h)     Other  Action  Affecting Common Stock.  In case at any time or from
time  to  time the Company shall take any action in respect of its Common Stock,
other  than  the  payment  of dividends or any other action described in Section
3.7, then, unless such action will not have a materially adverse effect upon the
rights of the Holder of this Note, the number of shares of Common Stock or other
stock  into which this Note is convertible exercisable and/or the purchase price
thereof  shall  be  adjusted  in  such  manner  as  may  be  equitable  in  the
circumstances.

     (i)     Certain  Limitations.  Notwithstanding  anything  herein  to  the
contrary,  the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the current Conversion Price to be less
than  the  par  value  per  share  of  Common  Stock.  Notwithstanding  anything
contained  herein  to  the  contrary,  the  Conversion Price shall always be the
lesser  of  (i) the price determined in accordance with Section 3.6 and (ii) the
price  as  adjusted  pursuant  to  this  Section  3.7.

     (j)     Certificate  as  to  Adjustments.  Upon  the  occurrence  of  each
adjustment or readjustment of the Conversion Price, the Company, at its expense,
shall  promptly  compute  such adjustment or readjustment in accordance with the
terms  hereof and prepare and furnish to each Holder a certificate setting forth
such  adjustment or readjustment and showing in detail the facts upon which such
adjustment  or  readjustment  is  based.  The  Company  shall,  upon the written
request at any time of any Holder of a Note, furnish or cause to be furnished to
such  holder  a  like  certificate  setting  forth  (i)  such  adjustments  and
readjustments, (ii) the Conversion Price at the time in effect for this Note and
(iii)  the  number  of  shares  of Common Stock and the amount, if any, or other
property  which  at  the  time would be received upon the conversion of the Note
owned  by  such  Holder.

     (k)     Notices  of Record Date.  In the event of any fixing by the Company
of  a  record date for the holders of any class of securities for the purpose of
determining  the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any shares of Common Stock or other
securities, or any right to subscribe for, purchase or otherwise acquire, or any
option  for  the  purchase  of,  any  shares  of stock of any class or any other
securities or property, or to receive any other right, the Company shall mail to
the  Holder  of  this Note at least thirty (30) days prior to the date specified
therein,  a  notice  specifying the date on which any such record is to be taken
for  the  purpose  of  such dividend, distribution or rights, and the amount and
character  of  such  dividend,  distribution  or  right.

<PAGE>

     (l)     The  Holders  of  50%  or more of the principal amount of the Notes
then  outstanding  shall  have the right to waive the provisions of this Section
3.7  with  respect  to  any  issuance of securities by the Company.  Such waiver
shall  be  in  writing  and  addressed  to  the  Company.

     3.8     Restrictions on Conversion Amount.  Notwithstanding anything to the
contrary  contained  herein, in no event shall the Holder be entitled to convert
this  Note, where such conversion would result in the Holder together with other
members  of a "group" within the meaning of the Securities Exchange Act of 1934,
as  amended,  that it is deemed a part of, becoming the beneficial owner of more
than  9%  of  the  outstanding  shares  of  the  Common  Stock.

     3.9     Fundamental Change.  In the event that the Company shall be a party
to  (i) any recapitalization or reclassification of the Common Stock (other than
a  change  in  par  value  or as a result of a subdivision or combination of the
Common  Stock);  (ii)  any  consolidation  or merger of the Company with or into
another  corporation  as  a  result  of  which  holders of Common Stock shall be
entitled to receive securities or other property or assets (including cash) with
respect  to  or in exchange for Common Stock (other than a merger which does not
result  in  a  reclassification,  conversion,  exchange  or  cancellation of the
outstanding  Common  Stock);  (iii) any sale or transfer of all or substantially
all  of  the  assets  of  the  Company;  or  (iv) any compulsory share exchange,
pursuant  to  any  of which holders of Common Stock shall be entitled to receive
other  securities,  cash or other property (each, a "Fundamental Change"), then,
if  this  Note  is  not  converted prior to such Fundamental Change, appropriate
provision  shall  be made so that the holder of each Note then outstanding shall
have the right thereafter to convert such security only into the kind and amount
of  the  securities, cash or other property that would have been receivable upon
such  recapitalization,  reclassification, consolidation, merger, sale, transfer
or  share  exchange by a holder of the number of shares of Common Stock issuable
upon  conversion  of  such  Note  immediately  prior  to  such recapitalization,
reclassification,  consolidation,  merger,  sale, transfer or share exchange, at
the  Conversion  Price  (subject  to  adjustment  pursuant to Section 3.7).  The
Company  may  not  be  consolidated  with or merged into another entity, or have
transferred  all  or  substantially  all  of  its  assets in one or more related
transactions,  unless  (i)  the  Company  shall  be  the surviving entity or the
successor  shall be an entity organized in the United States and shall expressly
assume  all  of  the  obligations specified in the Notes; (ii) immediately after
giving  effect to such transaction, no Event of Default shall have occurred; and
(iii)  the  assuming  entity  has a net worth not less than the consolidated net
worth of the Company at the time of such merger, consolidation or transfer.  The
foregoing  provisions  of  this  Section 3.9 shall similarly apply to successive
reorganizations,  reclassifications,  mergers,  consolidations or disposition of
assets.

     3.10     Registration  Rights.  The Company will grant certain registration
rights  to the Holders of this Note pursuant to that certain Registration Rights
Agreement  dated  of  even  date  hereof.

     3.11     No  Impairment.  The  Company  will  not,  by  amendment  of  its
Certificate  of  Incorporation  or through any reorganization, recapitalization,
transfer  of  assets,  consolidation,  merger,  dissolution,  issue  or  sale of
securities  or any other voluntary action, avoid or seek to avoid the observance
or  per-for-mance  of  any of the terms to be observed or performed hereunder by
the  Company,  but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be  necessary  or  appropriate  in order to protect the conversion rights of the
Holder  of  this  Note  against  impairment.

<PAGE>

     3.12     Stock  Transfer  Taxes.  The  issue  of  stock  certificates  upon
conversion  of  this  Note shall be made without charge to the converting Holder
for  any  tax  in  respect  of  such  issue.  The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares in any name other than that of the Holder of
any  of  this  Note converted, and the Company shall not be required to issue or
deliver  any  such  stock  certificate  unless  and  until the person or persons
requesting  the  issue thereof shall have paid to the Company the amount of such
tax  or  shall have established to the satisfaction of the Company that such tax
has  been  paid.

SECTION  4.  REDEMPTION
             ----------

     4.1     Optional  Redemption.  The  Holders,  upon  written  notice  to the
Company,  shall have a right to require the Company to redeem the Notes upon the
occurrence  of  (i)  a  Fundamental  Change  (other than a transaction solely to
change  the  domicile  of  the Company) or (ii) the acquisition by any person or
group  of the beneficial ownership of more than 30% of the combined voting power
of  the  Company's outstanding securities.  The Company shall notify the Holders
at  least  thirty  (30)  days prior to the consummation of any such transaction.

     In  the  event  of any redemption pursuant hereto, the Company shall effect
such  redemption  as  follows:

     (a)     The  number  of  Notes subject to redemption shall be allocated pro
rata among the Holders of the then outstanding Notes requesting redemption based
upon  the  number  of  Notes held by each such Holder.  The Company shall pay in
cash  for  each  such Note to be redeemed an amount equal to the total principal
amount  remaining  (plus  any  accumulated  and unpaid interest thereon) on such
Notes  on  the  Redemption Date (as hereinafter defined) (such total amounts are
hereinafter  referred  to  as  the  "Redemption  Price").

     (b)     At  least five (5) but no more than ten (10) days prior to the date
fixed  for  any  redemption  of the Notes, which date shall be at least ten (10)
days  prior  to  the consummation of the transaction giving rise to the Optional
Redemption  (the  "Redemption  Date"),  written  notice  shall  be  mailed  by
first-class  certified  or  registered  mail,  return receipt requested, postage
prepaid,  to  each Holder of record of the Notes  to be redeemed, notifying such
holder  of  the  redemption  to be effected, specifying the Redemption Date, the
place at which payment may be obtained and calling upon such Holder to surrender
to  the  Company,  in  the  manner  and  at the place designated, his Note to be
redeemed  (the  "Redemption  Notice").  On  or  after  the Redemption Date, each
Holder  of  the Notes to be redeemed shall surrender to the Company the Note, in
the  manner  and at the place designated in the Redemption Notice, and thereupon
the  principal  amount  outstanding, together with any accrued interest thereon,
(the  "Redemption  Price")  of  such  Notes shall be payable to the order of the
person whose name appears on such Note as the owner thereof and each surrendered
Note  shall  be  cancelled.  In the event less than all the Notes represented by
any  such  Note  are  redeemed,  a  new  Note  shall  be issued representing the
unredeemed  Notes.

     (c)  Three days prior to the Redemption Date, the Company shall deposit the
Redemption  Price  of  all  outstanding  Notes  designated for redemption in the
Redemption  Notice,  and  not  yet redeemed, with a bank or trust company having
aggregate  capital  and surplus in excess of $50,000,000 as a trust fund for the
benefit of the respective Holders of the Notes designated for redemption and not
yet

<PAGE>

     redeemed.  Simultaneously,  the  Company  shall  deposit  irrevocable
instructions  and  authorize such bank or trust company to pay, on and after the
date fixed for redemption or prior thereto, the Redemption Price of the Notes to
the  Holders  thereof  upon surrender of their Notes.  The balance of any monies
deposited  by the Company pursuant to this Section 4.1(c) remaining unclaimed at
the  expiration  of  two years following the Redemption Date shall thereafter be
returned  to the Company, provided that the Holder to which such monies would be
payable hereunder shall be entitled, upon proof of its ownership of the Note and
payment of any bond requested by the Company, to receive such monies but without
interest  from  the  Redemption  Date.

SECTION  5.     COVENANTS
                ---------

     (a)     So  long  as 10% of the aggregate principal amount of the Notes are
outstanding,  the  consent of the Holders of at least 50% of aggregate principal
amount  of  the  Notes  shall  be  necessary  for  effecting  or  validating any
transactions,  or  the  taking  of  any  action, described in Section 5.1 of the
Purchase  Agreement.

     (b)     If an order for relief is entered with regard to the Company in any
proceeding  pursuant  to  Title  11  of  the United States Code (the "Bankruptcy
Code"),  the Company shall immediately con-sent to the entry of an order, by any
Bankruptcy  Court having jurisdiction, vacating the auto-ma-tic stay with regard
to  the  Holder,  and  the  Holder  shall be entitled to exercise all rights and
remedies  granted  to  it  pursuant  to  or  existing under this Note, all other
applicable agreements, and all applicable law, including without limitation, all
rights  the  Holder  may  have  as  a  secured  party  to take possession of its
Collateral under Article 9 of the New York Uniform Commercial Code.  The Company
shall  not  oppose  any request by the Holder for entry of an order vacating the
automatic stay.  The Company agrees that, by virtue of the foregoing, the Holder
has  shown  cause to support the entry of an order  vacating the  automatic stay
as  required  by  Sec.  362(d)(2).

     As  of  the  date  hereof,  the Company agrees that debt represented by the
Notes  and  other  Notes  issued  by  the  Company  secured  by the property and
obligations  securing  the Notes is no less than the reasonably realizable value
of  the  property and obligations securing the Notes.  Any action of the Company
that  is  inconsistent  with the foregoing shall be deemed bad faith conduct and
independent  grounds  to  support relief from the automatic stay or dismissal of
the  Company's  case  under  the  Bankruptcy  Code  for  bad  faith.

     The  Company  recognizes  that  the  Holder  purchased  the  Notes with the
explicit  understanding  that  the  Company  is obligated to waive the automatic
stay  with  respect  to  the Holder.  The Company further recognizes that if the
Holder had not purchased all the Notes, the Company would have been illiquid and
out  of  business.

     (c)     The  Company  shall  remain  in  compliance with the Annual Budget.

<PAGE>

SECTION  6.     REPORTING  OBLIGATIONS
                ----------------------

     The  Company  shall furnish to the Holder the financial statements, reports
and  other  information  referred to in Section 5.3 of the Purchase Agreement at
the  time  and  in  the  manner identified in such Section. The Holder is hereby
authorized to deliver a copy of any financial statement or any other information
relating to the business, operations or financial condition of the Company which
may have been furnished to the Holder  hereunder or otherwise, to any regulatory
body  or agency having jurisdiction over the Holder or to any Person which shall
have  succeeded, or shall have the right or obligation to succeed, to all or any
part  of  the  Holder's interest in the Company or this Note; provided, however,
that  in connection with a transfer or assignment of Notes by the Holder to such
regulatory  body  or  agency, as a condition to such transfer or assignment, any
such  regulatory body or agency shall be required to agree to and to be bound by
the  same  confidentiality  provisions  applicable  to  the Holder in connection
herewith; and provided further, that in connection with the delivery of any such
information  by the Holder to any regulatory body or agency as herein described,
the  Holder  shall  give prior written notice of the same to the Company and the
Company shall, at the Company's sole cost and expense, be free to seek to obtain
a  protective  order  with  respect  to  any  such  disclosure.

SECTION  7.  MISCELLANEOUS
             -------------

     7.1     Successors  and  Assigns.  The  terms  and  conditions of this Note
shall  inure to the benefit of and be binding upon the respective successors and
assigns  of  the parties.  Nothing in this Note, express or implied, is intended
to  confer  upon  any  party  other  than the parties hereto or their respective
successors  and  assigns any rights, remedies, obligations, or liabilities under
or  by  reason  of  this  Note,  except  as  expressly  provided  in  this Note.

     7.2     Governing Law; Jurisdiction and Venue.  This Note shall be governed
by  and construed under the laws of the State of Nevada as applied to agreements
entered  into  and  to  be performed entirely within Nevada.  The Company hereby
irrevocably consents to the exclusive jurisdiction of the courts of the State of
New  York  and  of  any  federal  court  located  in  New York City, New York in
connection  with  any  action  or  proceeding arising out of or relating to this
Note.  In  any  such  litigation  the  Company  waives  personal  service of any
summons,  complaint  or other process and agrees that the service thereof may be
made  by certified or registered mail directed to the chief executive officer of
the  Company  at  its  address  set  forth  in  Section  7.4  hereof.

     7.3     Titles  and  Subtitles.  The titles and subtitles used in this Note
are  used  for  convenience  only  and are not to be considered in construing or
interpreting  this  Note.

     7.4     Notices.  Any  notice, authorization, request or demand required or
permitted  to be given hereunder shall be in writing and shall be deemed to have
been  duly  given  two days after it is sent by an overnight delivery service or
sent  by  facsimile  with machine confirmation of delivery addressed as follows:

<PAGE>

     TO  THE  COMPANY:

     Merlin  Software  Technologies  International,  Inc.
     Suite  420-6450  Roberts  Street
     Burnaby,  British  Columbia,  Canada  V5G  4E1

     Attn:  Robert  Heller
     FAX:  (604)  320-7277

     With  copies  to:

     Clark,  Wilson
     HSBC  Building,  800-885  West  Georgia  Street
     Vancouver,  BC  V6C  3H1

     Attn:  Virgil  Z.  Hlus,  Esq.
     FAX:  (604)  687-6314

     TO  THE  HOLDER:

     Pequot  Scout  Fund,  L.P.
     500  Nyala  Farm  Road
     Westport,  CT  06880
     Attn:  Chief  Accounting  Officer
     FAX:  (203)  429-2430

     With  a  copy  to:

     Kane  Kessler,  P.C.
     1350  Avenue  of  the  Americas  -  26th  Floor
     New  York,  NY  10019
     Attention:  Robert  L.  Lawrence,  Esquire
     FAX:  (212)  245-3009

     Any  party  may change its address for such communications by giving notice
thereof  to  the  other  parties  in conformity with this Section. Any notice by
facsimile  sent  after  the  recipient's  normal  business hours shall be deemed
received  at  the  opening  of  business  on  the  next  business  day.

     7.5    Amendments and Waivers. Any term  of  the  Notes  may  be amended or
supplemented  and  the observance of any term of this Note may be waived (either
generally  or  in  a  particular  instance  and  either  retroactively  or
prospectively), only with the written consent of the Company and, subject to any
express  provisions  hereof  to  the  contrary, at least a majority in principal
amount  of the outstanding Notes; provided, however, that without the consent of
each  holder  of a Note affected, an amendment, waiver or supplement may not (i)
extend the final maturity of this Note; (ii) reduce the principal amount of this
Note;  (iii)  reduce  the  rate or extend the time of payment of any interest on
this  Note;  (iv)  reduce  any  amount payable upon redemption of this Note; (v)
increase  the  Conversion Price of this Note; (vi) impair or affect the right of
any  Holder  of  any  Note  to institute suit for the payment or conversion of a
Note;  (vii)  change  the  currency  for

<PAGE>

     payment  of  principal  of,  premium, if any, or interest on, this Note; or
(viii)  materially  and  adversely  affect  the  right  to  convert the Notes in
accordance  herewith without the consent of the holder of each Note so affected;
and  further, provided, however, that an amendment, waiver or supplement may not
reduce  the percentage of Notes, the consent of the holders of which is required
for  any  such  supplemental  indenture  or  waiver,  without the consent of the
holders  of  all  Notes  then  outstanding.

     7.6     Severability.  If  one  or more provisions of this Note are held to
be  unenforceable  under  applicable  law, such provision shall be excluded from
this Note and the balance of this Note shall be interpreted as if such provision
was  so  excluded  and  shall  be  enforceable  in  accordance  with  its terms.

     7.7     Replacement  of  Note.  If  the Holder loses this Note, the Company
shall  issue  an  identical  replacement  Note  to  the Holder upon the Holder's
delivery  to  the  Company  of  a  customary  agreement to indemnify the Company
reasonably satisfactory to the Company for any losses resulting from issuance of
the  replacement  Note.

     7.8     Waivers  and  Consents.

     (a)  The  Company,  any  endorser,  or  guarantor  hereof  or in the future
(individually an "Obligor" and collectively "Obligors") and each of them jointly
and severally:  (a) waive presentment, demand, protest, notice of demand, notice
of  intent to accelerate, notice of acceleration of maturity, notice of protest,
notice  of  nonpayment,  notice of dishonor, and any other notice required to be
given  under the law to any Obligor in connection with the delivery, acceptance,
performance, default or enforcement of this Note, any endorsement or guaranty of
this  Note,  any  pledge,  security,  guaranty  or  other  documents executed in
connection  with this Note or the Related  Documents; (b) consent to all delays,
extensions,  renewals  or  other  modifications  of  this  Note  or  the Related
Documents made with the consent of the Company, or waivers of any term hereof or
of  the  Related  Documents,  or  release  or  discharge by the Holder of any of
Obligors,  or  release, substitution or exchange of any security for the payment
hereof,  or the failure to act on the part of the Holder or any indulgence shown
by  the  Holder  (without notice to or further assent from any of Obligors), and
agree  that  no  such action, failure to act or failure to exercise any right or
remedy  by  the  Holder  shall  in  any way affect or impair the Obligations (as
hereinafter  defined)  of any Obligors or be construed as a waiver by the Holder
of,  or  otherwise affect, any of the Holder's rights under this Note, under any
endorsement  or guaranty of this Note or under any of the Related Documents; (c)
if  the Company fails to fulfill its obligations hereunder when due, the Company
agrees to pay, on demand, all costs and expenses of enforcement of collection of
this Note or of any endorsement or guaranty hereof and/or the enforcement of the
Holder's  rights  with  respect  to,  or  the  administration,  supervision,
preservation,  protection of, or realization upon, any property securing payment
hereof,  including,  without  limitation,  reasonable attorney's fees, including
fees  related  to  any  suit,  mediation or arbitration proceeding, out of court
payment  agreement,  trial,  appeal, bankruptcy proceedings or other proceeding;
and (d) waive the right to interpose any defense, set-off or counterclaim of any
nature  or description. "Obligation" or "Obligations" shall mean and include all
indebtedness,  obligations,  covenants  and  duties owing by the Company, or any
corporation  or  other  entity  owned or under the sole or shared control of the
Company, to the Holder or any affiliate of the Holder arising under this Note or
any  of  the  other  Related  Documents.

     (b)  Unless  expressly provided otherwise, whenever any determination is to
be  made by the Holders, such determination shall be made only in writing by the
holders  of  at  least  a majority in principal amount of the outstanding Notes.

<PAGE>

     7.9     Exchange  of Notes; Cancellation of Surrendered Notes.  At any time
upon  the  written  request  of  the  Holder  to the Company, the Company at its
expense  (except  for  any  transfer  tax  or  any  other tax arising out of the
exchange)  will issue and deliver to or upon the order of the Holder in exchange
therefor  new  Notes,  in  such denomination or denominations as such holder may
request  (which must be in denominations of at least $25,000, plus one Note in a
lesser  denomination,  if  required), in aggregate principal amount equal to the
unpaid  principal  amount  of the Note or Notes surrendered and substantially in
the  form  thereof,  dated as of the date to which interest has been paid on the
Note or Notes surrendered (or, if no interest has yet been so paid thereon, then
dated  the  date of the Note or Notes so surrendered) and payable to such person
or persons and registered assigns as may be designated by such holder.  Upon any
prepayment  if  only a portion of the principal amount of a Note is paid in such
prepayment,  then  the Company, if so requested, shall execute and deliver to or
on the order of the holder thereof, at the expense of the Company, a new Note or
Notes  in  principal  amount  equal  to  the  unused  portion  of  such  Note.

     7.10     Transfers;  Assignment.  The  Company shall register this and each
other  Note  upon  records  to  be  maintained  by the Company for that purpose,
including  the name of each record holder of a Note, from time to time.  Subject
to  any  required  compliance  with the legend endorsed hereon and in accordance
with the terms of the Purchase Agreement, this Note shall be freely transferable
and  the  Holder may assign, transfer or sell all or a portion of its rights and
interests  to  and  under this Note to one or more persons and that such persons
shall  thereupon become vested with all of the rights and benefits of the Holder
in  respect  hereof  as to all or that portion of the Note which is so assigned,
transferred  or  sold.  The Company shall promptly register the transfer of this
Note  upon  records  to  be  maintained  by  the  Company for that purpose, upon
surrender  of  the  Note for assignment with appropriate instruments of transfer
duly  completed  and  signed,  to the Company at its principal office.  Upon any
such  registration  of  transfer, a Note in substantially the form of this Note,
evidencing  the  Note  so  transferred,  shall  be  issued  to  the  transferee.

     7.11     Non-Waiver.  The failure at any time of the Holder to exercise any
of  its  options  or  any  other  rights hereunder shall not constitute a waiver
thereof,  nor  shall it be a bar to the exercise of any of its options or rights
at  a later date.  All rights and remedies of the Holder shall be cumulative and
may  be  pursued  singly, successively or together, at the option of the Holder.
The  acceptance  by  the  Holder  of  any partial payment shall not constitute a
waiver  of  any  default  or  of any of the Holder's rights under this Note.  No
waiver  of any of its rights hereunder, and no modification or amendment of this
Note,  shall  be  deemed  to  be  made by the Holder unless the same shall be in
writing,  duly  signed on behalf of the Holder; and each such waiver shall apply
only  with respect to the specific instance involved, and shall in no way impair
the  rights  of  the  Holder  in  any  other  respect  at  any  other  time.

     7.12     Binding  Effect.  This Note shall be binding upon and inure to the
benefit  of  Company,  and  the Holder and their respective successors, assigns,
heirs  and  personal  representatives, provided, however, that no obligations of
the  Company hereunder can be assigned without prior written consent of at least
a  majority  in  principal  amount  of  the  outstanding  Notes.

7.13     Controlling  Document.  To  the extent that this Note conflicts with or
is  in  any way incompatible with any other document concerning this obligation,
this  Note  shall  control  over  any  other document, and if this Note does not
address  an  issue,  then the document shall control to the extent that it deals
most  specifically  with  an issue.  In the event that one or more provisions of
this  Note  shall  be  invalid,  illegal

<PAGE>

     or  unenforceable in any respect, the validity, legality and enforceability
of the remaining provisions contained herein shall not in any way be affected or
impaired  thereby.

     7.14     WAIVER  OF JURY TRIAL.  THE COMPANY HEREBY WAIVES TRIAL BY JURY IN
ANY  LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT
OF  THIS  NOTE  OR  THE  VALIDITY,  PROTECTION,  INTERPRETATION,  COLLECTION  OR
ENFORCEMENT  HEREOF  AND  THE  COMPANY  HEREBY WAIVES THE RIGHT TO INTERPOSE ANY
SETOFF OR NON-COMPULSORY COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY SUCH
LITIGATION,  IRRESPECTIVE  OF  THE  NATURE  OF  SUCH  SETOFF,  COUNTERCLAIM  OR
CROSS-CLAIM.

     IN  WITNESS  WHEREOF, MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC., has
caused  this  Note to be dated, executed and issued on its behalf by its officer
or  officers  thereunto  duly  authorized.

Attest:                         MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.

By:/s/ Trevor McConnell         By:/s/ Robert Heller
Trevor McConnell, CFO
Name  and  Title:               Robert  Heller,  Chief  Executive  Officer
-----------------               ------------------------------------------

<PAGE>

                               EXHIBIT  A

           MERLIN  SOFTWARE  TECHNOLOGIES  INTERNATIONAL,  INC.
                          CONVERSION  NOTICE

Reference  is  made  to  the  Series  A 10% Senior Secured Convertible Note (the
"Note")  issued  to  the  below-named  Holder  by  Merlin  Software Technologies
International,  Inc.  (the  "Company").  In  accordance with and pursuant to the
Note,  the undersigned hereby elects to convert the amount of the Note indicated
below  into  shares  of  Common  Stock,  par  value $.001 per share (the "Common
Stock"),  of  the Company, by tendering the Note as of the date specified below.

Holder:                    _______________________________________

Date  of  Conversion:               _______________________________________

Amount  of  Note  to  be  converted     _______________________________________

Please  confirm  the  following  information:

Conversion  Price:               _______________________________________

     Number  of  shares  of  Common  Stock
to  be  issued:                    _______________________________________

Please  issue  the  Common  Stock into which the Note is being converted and, if
applicable,  any  check drawn on an account of the Company in the following name
and  to  the  following  address:

Issue  to:                    ________________________________________

Facsimile  Number:               ________________________________________

Authorization:               ________________________________________
By:_____________________________________
Title:____________________________________

     Dated:SERIES  A  10%  SENIOR  SECURED  CONVERTIBLE  NOTE

     MERLIN  SOFTWARE  TECHNOLOGIES  INTERNATIONAL  INC.

THE  SECURITIES  REPRESENTED  BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE  SECURITIES  ACT  OF  1933,  AS  AMENDED  (THE  "ACT"),  AND  ARE SUBJECT TO
RESTRICTIONS  ON  TRANSFERABILITY  AS  SET  FORTH  IN  THIS  CERTIFICATE.  THE
SECURITIES  REPRESENTED  HEREBY  MAY  NOT  BE  SOLD,  TRANSFERRED,  OR OTHERWISE
DISPOSED OF IN THE AB-SENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR  AN  OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO
THE  EFFECT THAT THE PROPOSED SALE, TRANS-FER, OR DISPOSITION MAY BE EFFECTUATED
WITHOUT  REGISTRATION  UNDER  THE  ACT.

Principal  Sum:  $156,000     August  18,  2000

Holder:  SDS  Merchant  Fund,  L.P.

     FOR  VALUE  RECEIVED,  the  undersigned  MERLIN  SOFTWARE  TECHNOLOGIES
INTERNATIONAL  INC.,  a --Nevada corporation (the "Company," which term includes
all  Subsidiaries  of  the  Company), hereby promises to pay to the holder named
above,  or  its  registered  assigns (the  "Holder") the Principal Sum set forth
above,  together  with interest thereon at the rate provided herein, and payable
on  the  terms  set  forth  below.  This Note is one of an issue of Series A 10%
Senior  Secured  Convertible Notes (the "Notes") of the Company in the aggregate
principal  amount  of  up to $2,100,000 issued pursuant to that certain Note and
Warrant  Purchase  Agreement  dated  as  of  August  18,  2000  (the  "Purchase
Agreement").  Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Purchase Agreement.  The holders of the
Notes  are  sometimes  collectively  referred  to  as  the  "Holders."

1.     INTEREST;  PAYMENT  OF  INTEREST  AND  PRINCIPAL
       ------------------------------------------------

     1.1     Interest.  This  Note  shall  bear  interest  on  the  outstanding
principal amount from the date hereof (the "Issue Date") until this Note is paid
in  full at an annual rate of 10% (computed on the basis of a 365-day year) (the
"Interest  Rate").  Interest  on  this  Note  shall  be payable semi-annually in
shares  of  Common Stock computed based upon the Conversion Price (as defined in
Section  3.6,  as adjusted pursuant to Section 3.7) at the time of such payment;
provided, however, if an Event of Default shall have occurred, Holder shall have
the  right  to  require  the  Company  to  pay  interest  in  cash.

     1.2     Principal.  The  principal  on  this  Note  shall  be  paid  upon
conversion  or  at  maturity  of  this  Note,  whichever  occurs  first.

     1.3     Maturity.  All  principal and interest on this Note shall be due on
August  __,  2003  (the  "Maturity  Date").

<PAGE>

     1.4     Seniority to all Other Liabilities.  In the event of any  voluntary
or  involuntary liquidation, dissolution or winding up of the Company, this Note
shall  be  senior  in right of payment to all secured and unsecured indebtedness
of  the  Company  evidenced  by  any securities issued by the Company. All other
indebtedness  of  the  Company  shall  be  subordinate  to  this  Note.  Without
limiting  the  generality  of  the fore-going, nothing herein or in the Purchase
Agreement or in any document or instrument con-tem-plated thereby shall obligate
any  holder  of  any  Note  to  subordinate  this  Note or any other Note to any
institutional  or  other  debt  of  any  kind  or  nature.

     1.5     Security  Interest.  As  security for the full, prompt and complete
payment  and  performance  of  the  Company's obligations hereunder, the Company
hereby  grants to the Holder of this Note, equally and ratably with the security
interests  granted  to  the  other  Holders,  a  security interest in and to the
Collateral  (as  collectively  defined, and more fully provided, in the Security
Agreement  referred  to  in  the  Purchase  Agreement).

     1.6     Prepayment.  The  Company  may  not  prepay  this  Note without the
written  consent  of  50% of the Holders; provided, however, that all or part of
the Notes with respect to which the Holder sends a conversion notice pursuant to
Section  3.2  hereof may be prepaid at a rate of 105% of the principal amount of
the  Notes, together with interest thereon, at any time the Conversion Price, as
calculated  pursuant to Section 3.6 hereof, is less than $1.00.  Such prepayment
right  can  only  be  exercised  by  delivering  such  prepayment in immediately
available funds to the Holders at their principal offices within three (3)  days
of  the  Conversion  Date,  as  hereinafter  defined.

SECTION  2.  EVENTS  OF  DEFAULT
             -------------------

     2.1     Nature  of Events.  An "Event of Default" shall exist if any of the
following  occurs:

     (a)     Failure  to  pay interest on any of the Notes on or before the date
such  payment  is  due  or  within  10  days  after  such  date;

     (b)     Failure  to pay principal on any of the Notes on or before the date
such  payment is due (whether or not such payment is prohibited by Section 1.5);

     (c)     The failure of the Company to convert the Notes in accordance with,
or  otherwise  comply  with,  Section  3.2 hereof, which failure continues for a
period  of  15  business  days.

     (d)     Failure  by the Company to perform or observe any other covenant or
agreement  of  the  Company  contained  in this Note or any material covenant or
material agreement, as determined in the discretion of the holders of the Notes,
contained  in  the  Purchase  Agreement,  the  Warrants, the Registration Rights
Agreement, the Pledge Agreement, the Security Agreement, the Subsidiary Security
Agreement,  the  Intellectual  Property  Security  Agreement and Assignment, the
Subsidiary  Intellectual  Property  Security  Agreement  and  Assignment  or the
Subsidiary Guaranty (collectively, the "Related Documents") which remain uncured
for  more  than  ten  (10)  days  after  written  notice  thereof;

(e)     Failure  by the Company or any of its Subsidiaries (as defined below) to
pay  principal  on  the Maturity Date (or otherwise when due) of, or interest on
the  Notes,  or  the  occurrence, not cured within ten (10) days thereafter, and
continuation  of  any  other  event  of  default under any loan agreement, note,

<PAGE>

     mortgage,  indenture or other instrument under which there is issued, or by
which  there  is  secured  or  evidenced, any indebtedness of the Company or its
Subsidiaries  (other  than  the  Notes), whether such indebtedness exists on the
date  of  the  issuance  of  this  Note  or  is  created  hereafter;

     (f)     A  custodian, receiver, liquidator or trustee of the Company, or of
any  of  its  property,  is  appointed or takes possession of the Company or its
property;  or  an  order for relief is entered under the Federal Bankruptcy Code
against  the  Company;  or  any of the property of the Company is sequestered by
court  order;  or  a  petition  or other proceeding is filed against the Company
under  any  bankruptcy, reorganization, arrangement, insolvency, readjustment of
indebtedness, dissolution or liquidation law of any jurisdiction, whether now or
hereafter  in  effect;

     (g)     The  Company  files  a  petition in voluntary bankruptcy or seeking
relief  under  any  provision  of  any  bankruptcy, reorganization, arrangement,
insolvency,  readjustment of indebtedness, dissolution or liquidation law of any
jurisdiction,  whether  now or hereafter in effect, or consents to the filing of
any  petition  against  it  under  any  such  law;

     (h)     The  Company  makes an assignment for the benefit of its creditors,
or generally fails to pay its obligations as they become due, or consents to the
appointment  of  or  taking  possession  by a custodian, receiver, liquidator or
trustee  of  the  Company  of  all  or  any  material  part  of  its  property;

     (i)     The  rendering  of  one  or more final judgments, orders or decrees
against  the  Company  and/or  any  Subsidiary (as defined below) of the Company
(including  for  seizure,  forfeiture, garnishment or abatement) in an aggregate
amount  equal  to  or  in  excess  of $100,000 which are not vacated, satisfied,
discharged or execution thereof stayed within a period of 30 days from the entry
thereof;

     (j)     The  failure  of the Company or any of its Subsidiaries (as defined
below) to comply with any law or regulation, whether with respect to the conduct
of  its  business  or  otherwise,  which  failure has a Material Adverse Effect;

     (k)     If  the  Company or any Subsidiary (as defined below) shall suspend
all  or  any  part  of  its  operations  and such suspension would reasonably be
expected  to  have  a  Material  Adverse  Effect;

     (l)     Any  representation  or  warranty made by the Company or any of its
Subsidiaries  under  any  of  the  Related  Documents was, when made, materially
untrue  or  misleading;

     (m)     The  failure  of  the  Company  to  timely  deliver the information
required  by  Section  5.3,  of  the  Purchase  Agreement;

     (n)     The  commencement  by the Company or any of its Subsidiaries of any
action,  suit, proceeding, claim or investigation against the holder of any Note
or  any  of  its  affiliates;

     (o)     The assignment, pledge, hypothecation, transfer, exchange, grant of
any  option  with  respect to, or other disposition or encumbrance (other than a
Permitted  Lien)  of  all or any part of the capital stock of the Subsidiary; or

<PAGE>

     (p)     The failure to have a registration statement registering the common
stock  underlying  the  Notes  and Warrants under the Securities Act of 1933, as
amended,  be  declared  effective  within  150  days  of  the  Issue  Date.

     "Subsidiary"  or  "Subsidiaries"  shall  mean  any  corporation  or  other
organization, whether incorporated or unincorporated, in which the Company owns,
directly or indirectly, any equity or other ownership interest and in which such
ownership  interest  entitles  the  Company  to elect a majority of the Board of
Directors  or  similar  governing  body.

     2.2     Default  Remedies.
             -----------------

     (a)     In  case  an  Event  of  Default  (other  than  an Event of Default
described  in  paragraphs  (f),  (g) or (h)) has occurred and is continuing, the
Holders  of Notes, by notice to the Company from the Holders of more than 50% of
the  principal  amount of the Notes then out-standing, may declare the principal
of  the  Notes,  plus  accrued interest, to be immediately due and pay-able, and
upon  any  such declaration such principal and accrued interest shall become due
and  payable  immediately.  Upon  such  declaration, the rate of interest on the
unpaid  principal  shall be increased to eighteen 18% percent or such lower rate
that  is  the  maximum rate allowed by law (the "Default Rate") from the date of
such  declaration until such unpaid principal is repaid in full.  The provisions
herein for a Default Rate shall not be deemed to extend the time for any payment
hereunder  or  to constitute a "grace period" giving the Company a right to cure
any  default.  In  case an Event of Default described in para-graphs (f), (g) or
(h)  occurs,  such  amounts  will become immediately due and payable without any
declaration  or  any  act  on  the  part  of  the  holders  of  the Notes.  Such
declaration  of  acceleration  may  be rescinded and past defaults may be waived
(except  with  respect  to  defaults  in payment of principal or interest on any
Note)  by  the holders of at least 50% of the principal amount of the Notes then
outstanding  as provided herein.  Additionally, the Holder shall have all rights
and  remedies  available  under  each  of  the Related Documents, as well as all
rights  and  remedies  available  at  law or in equity.  Upon the occurrence and
during  the continuation of an Event of Default, the Holder is hereby authorized
at  any  time  to set off and charge against any money, instruments, securities,
documents,  chattel  paper,  credits,  claims,  demands,  income  and  any other
property,  rights and interests of the Company which at any time shall come into
the  possession  or  custody  or  under  the control of the Holder or any of its
agents  or  affiliates,  with-out  notice or demand, any and all obligations due
hereunder.

     (b)     No  course of dealing or delay or failure on the part of the Holder
to  exercise  any right under this Section 2.2 shall operate as a waiver of such
right  or  otherwise  prejudice  such Holder's rights, powers and remedies.  The
Company  will  pay  or reimburse the Holder, to the extent permitted by law, for
all costs and expenses, including but not limited to reasonable attorneys' fees,
incurred by it in collecting any sums due on this Note or in otherwise enforcing
any  of  its  rights.

     (c)     In  case  any  one  or  more  Events  of Default shall occur and be
continuing,  the  Holder,  if  authorized  to  do  so  by  the Holders of 50% in
principal  amount  of  the  Notes then outstanding,  may protect and enforce its
rights  or  remedies  either  by  suit  in  equity or by action at law, or both,
whether  for  the  specific  performance  of  any  covenant,  agreement or other
provision  contained  herein,  in  the  Purchase Agreement or in any document or
instrument  delivered in connection with or pursuant to this Note, or to enforce
the  payment  of  the outstanding Notes or any other legal or equitable right or
remedy.

(d)     No  right  or  remedy herein conferred upon the Holder is intended to be
exclusive  of  any  other  right  or  remedy  contained herein or in the Related
Documents,  and  every  such  right  or  remedy  shall

<PAGE>

     be  cumulative and shall be in addition to every other such right or remedy
contained  herein and therein or now or hereafter existing at law, in equity, by
statute,  or  otherwise.

SECTION  3.     CONVERSION
                ----------

     3.1     Optional Conversion Privilege.  Subject to and upon compliance with
the  provisions of this Section 3, at the option of the Holder, this Note or any
portion of the principal amount thereof and the interest related thereto may, at
any  time  and  from time to time be converted into fully paid and nonassessable
shares  of Common Stock of the Company, at the Conversion Price in effect at the
date  of  conversion.

     3.2     Manner  of  Exercise of Optional Conversion Privilege.  To exercise
the  conversion  privilege,  the Holder shall give written notice to the Company
via  facsimile  of  the  amount  of  this  Note to be converted (the "Conversion
Notice") in the form attached hereto as Exhibit A and shall surrender this Note,
together  with  the original Conversion Notice, to the Company at its  principal
office within four (4) trading days of the Conversion Date.  The Conversion Date
is  the  date on which the Holder serves the Company with the Conversion Notice.
Provided  the Company does not exercise its prepayment right pursuant to Section
1.6  hereof, this Note or portion thereof shall be deemed to have been converted
immediately  prior  to the close of business on the Conversion Date, even if the
Company's  stock  transfer books are on that date closed, and the Holder, or the
nominee  or  nominees  of  such Holder, shall be treated for all purposes as the
record holder of the shares of Common Stock  deliverable upon such conversion as
of  the  close  of  business  on  such date. Within three (3) trading days after
receipt  by  the  Company  of  this  Note and the Conversion Notice, the Company
shall  issue  and  deliver,  at its expense, to the Holder, or to the nominee or
nominees  of such Holder, a certificate or certificates for the number of shares
of its Common Stock due on such conversion.  Interest shall accrue on the unpaid
principal  amount  of  this  Note  converted  to the date of conversion, and the
Company  shall pay such interest at the time of conversion;  provided,  however,
that  in  the  case  of  a  conversion  of  only  a portion of  the  outstanding
principal  amount  of  this  Note,  the Company shall execute and deliver to the
Holder  a  replacement  Note  in  a  principal  amount  equal to the unconverted
portion  of  such  Note  and  dated  and bearing interest from the date to which
interest  has  been  paid  on  such  Note  or  dated the date of such Note if no
interest  has  been  paid  thereon.

     3.3     Mandatory  Conversion.  Subject  to  and  upon  compliance with the
provisions of this Section 3.3, the Company shall have the right to require (the
"Mandatory Conversion Right") the Holders to convert their Notes to Common Stock
if  (i)  the  Common  Stock, as reported by Bloomberg, L.P. (or other nationally
recognized  financial  reporting  company  if  such  information  shall  not  be
available  through  Bloomberg,  L.P.), has a closing bid price of at least $4.00
for  twenty  (20)  consecutive trading days immediately prior to the exercise of
the  Mandatory  Conversion Right, (ii) the registration statement required to be
filed  pursuant  to the Related Documents has been in effect, without lapse, for
the  immediately preceding thirty (30) trading days; and (iii) the average daily
trading  volume  of  the  Common  Stock  over  the  previous two month period as
reported  by  Bloomberg,  L.P.  exceeds  90,000  shares  per  day. The Mandatory
Conversion Right shall be exercised (i) with respect to a maximum of $250,000 in
any  thirty  (30) day period, less any prior conversions pursuant to Section 3.1
hereof,  and (ii) pro rata among the Holders of the then outstanding Notes based
upon  the  aggregate  principal  amount  of  Notes held by each such Holder. The
Mandatory  Conversion  Right  shall terminate if an Event of Default or an event
that with the giving of notice or the passage of time, shall have occurred or be
continuing.

<PAGE>

     3.4     Manner  of Exercise of Mandatory Conversion Right.  To exercise the
Mandatory Conversion Right, the Company shall notify the Holders (the "Mandatory
Conversion Notice"), via facsimile, to surrender this Note to the Company at its
principal  office within five (5) trading days of the Mandatory Conversion Date,
and  the  Chief  Executive Officer of the Company shall certify in the Mandatory
Conversion  Notice  that  no  Event  of Default or event that with the giving of
notice  or  the  passage of time shall result in an Event of Default, shall have
occurred  or be continuing.  Upon receipt of such notice, the Holders shall then
surrender this Note, together with a copy of the Mandatory Conversion Notice, to
the  Company  at  its  principal  office  within  five  (5)  trading days of the
Mandatory  Conversion  Date.  The Mandatory Conversion Date is the date on which
the  Company serves the Holder with a Mandatory Conversion notice via facsimile.
This  Note or portion thereof shall be deemed to have been converted immediately
prior  to  the  close of business on the date of giving the Mandatory Conversion
Notice  to  the  Holder,  even if the Company's stock transfer books are on that
date closed, and the Holder, or the nominee or nominees of such Holder, shall be
treated  for  all  purposes  as  the record holder of the shares of Common Stock
deliverable  upon  such  conversion  as  of  the close of business on such date.
Within  three (3) trading days after receipt by the Company of this Note and the
Mandatory  Conversion  Notice,  the  Company  shall  issue  and  deliver, at its
expense,  to  the  Holder,  or  to  the  nominee  or  nominees of such Holder, a
certificate  or certificates for the number of shares of its Common Stock due on
such  conversion.  Interest  shall accrue on the unpaid principal amount of this
Note  converted  to  the  date  of  conversion,  and  the Company shall pay such
interest  at  the time of  conversion;  provided, however, that in the case of a
conversion of only a portion of the outstanding  principal  amount of this Note,
the  Company  shall  execute  and deliver to the Holder a  replacement Note in a
principal  amount  equal  to the  unconverted portion of such Note and dated and
bearing  interest  from the date to which interest has been paid on such Note or
dated  the  date  of  such  Note  if  no  interest  has  been  paid  thereon.

     3.5     Fractional  Shares.  No  fractional shares of Common Stock shall be
issued  upon conversion of this Note.  Instead of any fractional share of Common
Stock  which  would  otherwise  be  issuable  upon  conversion of this Note, the
Company shall pay a cash adjustment in respect of such fractional interest.  The
Holder,  by  its  acceptance  thereof, expressly waives any right to receive any
fractional  share  upon  conversion  of  the  Note.

     3.6     Conversion  Price.
             -----------------

     The  Conversion  Price shall equal the lesser of the Fixed Conversion Price
and  the  Adjustable  Conversion  Price.  Fixed  Conversion  Price  means $1.60.
Adjustable Conversion Price means 95% of the average of the two lowest intra-day
trading  prices  of the Common Stock for the thirty day trading period ending on
the  trading  day  immediately  preceding  the  Conversion  Date.

     3.7     Adjustments  to  Fixed Conversion Price.  The adjustment provisions
of  this  Section  3.7  shall  apply  only  to  the  Fixed  Conversion  Price.

     (a)     Stock Dividends, Subdivisions and Combinations.  If at any time the
Company  shall:

     (i)     take a record of the holders of its Common Stock for the purpose of
entitling  them  to  receive  a  dividend  payable in, or other distribution of,
additional  shares  of  Common  Stock,

     (ii)     subdivide  its  outstanding  shares  of Common Stock into a larger
number  of  shares  of  Common  Stock,  or

<PAGE>

     (iii)     combine  its  outstanding  shares  of Common Stock into a smaller
number  of  shares  of  Common  Stock,

then  (A)  the  number  of  shares  of  Common  Stock  into  which  this Note is
convertible immediately after the occurrence of any such event shall be adjusted
to  equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock into which this Note is convertible immediately
prior  to the occurrence of such event would own or be entitled to receive after
the  happening  of such event, and (B) the Conversion Price shall be adjusted to
equal  (x)  the  current  Conversion Price multiplied by the number of shares of
Common  Stock  into  which  this  Note  is  convertible immediately prior to the
adjustment  divided  by (y) the number of shares of Common Stock into which this
Note  is  convertible  immediately  after  such  adjustment.

     (b)     Certain Other Distributions.  If at any time the Company shall take
a record of the holders of its Common Stock for the purpose of entitling them to
receive  any  dividend  or  other  distribution  of:

     (i)     cash  (other than a cash dividend payable out of earnings or earned
surplus  legally  available  for  the payment of dividends under the laws of the
jurisdiction  of  incorporation  of  the  Company),

     (ii)     any  evidences  of  its  indebtedness,  any shares of stock of any
class  or  any other securities or property of any nature whatsoever (other than
cash,  convertible  securities  or  additional  shares  of  Common  Stock),  or

     (iii)     any  warrants  or  other  rights to subscribe for or purchase any
evidences  of  its  indebtedness,  any shares of stock of any class or any other
securities  or  property  of any nature whatsoever (other than cash, convertible
securities  or  additional  shares  of  Common  Stock),

then  (A)  the  number  of  shares  of  Common  Stock  into  which  this Note is
convertible  shall  be adjusted to equal the product (I) of the number of shares
of  Common  Stock  into which this Note is convertible immediately prior to such
adjustment multiplied by (II) a fraction (x) the numerator of which shall be the
current  Conversion  Price  per share of Common Stock at the date of taking such
record  and  (y) the denominator of which shall be such current Conversion Price
minus  the  amount  allocable  to  one share of Common Stock of any such cash so
distributable and of the fair value (as determined in good faith by the Board of
Directors of the Company), of any and all such evidences of indebtedness, shares
of  stock,  other  securities  or  property or warrants or other subscription or
purchase rights so distributable, and (B) the Conversion Price shall be adjusted
to  equal  (x) the Conversion Price multiplied by the number of shares of Common
Stock  into  which  this Note is convertible immediately prior to the adjustment
divided  by  (y)  the  number  of shares of Common Stock into which this Note is
convertible immediately after such adjustment.  A reclassification of the Common
Stock  (other  than  a change in par value, or from par value to no par value or
from  no  par  value to par value) into shares of Common Stock and shares of any
other  class  of  stock  shall  be  deemed  a distribution by the Company to the
holders  of  its Common Stock of such shares of such other class of stock within
the  meaning  of  this  Section  3.7(b) and, if the outstanding shares of Common
Stock shall be changed into a larger or smaller number of shares of Common Stock
as  a  part  of such reclassification, such change shall be deemed a subdivision

<PAGE>

or  combination,  as  the case may be, of the outstanding shares of Common Stock
within  the  meaning  of  Section  3.7(a).

     (c)  (i)     Issuance  of  Additional Shares of Common Stock.  In the event
the  Company  shall, at any time, or from time to time, issue or sell any shares
of  Common Stock (including Treasury Shares), other than any such sales pursuant
to  options  or warrants that are outstanding the date hereof and sales of up to
an  additional  750,000  options  to  incoming  management  or current or future
employees,  having an exercise price of at least 80% of the fair market value of
the Common Stock on the date hereof (the "New Management and Employee Options"),
for consideration per share less than the Conversion Price in effect immediately
prior  to  the  time  of  such issue or sale, then, forthwith upon such issue or
sale, the Conversion Price for the Note shall be reduced to a price equal to the
consideration  per  share  paid  for  such  Common  Stock.

     (ii)     In the event the Company shall, at any time, or from time to time,
issue or sell any shares of Common Stock (including Treasury Shares), other than
any  such  sales  pursuant  to options or warrants that are outstanding the date
hereof  or New Management and Employee Options, for consideration per share less
than  the  Current  Market Price in effect immediately prior to the time of such
issue or sale, then, forthwith upon such issue or sale, the Conversion Price for
the  Note shall be reduced by the product of such Conversion Price multiplied by
the  Dilution  Percentage.  "Dilution  Percentage"  shall mean the percentage by
which  such  issuance  or  sale  is  below  the  Current  Market  Price.

     (iii)     "Current  Market  Price" means, in respect of any share of Common
Stock  on  any date herein specified, if there shall not then be a public market
for  the  Common  Stock, the lower of (A) the value per share of Common Stock at
such  date as is determined in the good faith judgment of the Board of Directors
of  the  Company,  or (B) the value per share in any Qualified Financing;  or if
there  shall  then  be  a public market for the Common Stock, the average of the
daily  market prices for 30 consecutive business days ending on the business day
prior  to such date.  The daily market price for each such business day shall be
(i)  the  last  sale  price on such day on the principal stock exchange on which
such  Common  Stock is then listed or admitted to trading, (ii) if no sale takes
place on such day on any such exchange, the average of the last reported closing
bid  and  asked  prices  on  such day as officially quoted on any such exchange,
(iii) if the Common Stock is not then listed or admitted to trading on any stock
exchange,  the average of the last reported closing bid and asked prices on such
day  in the over-the-counter market, as furnished by the National Association of
Securities  Dealers Automated Quotation System or the National Quotation Bureau,
Inc., (iv) if neither such corporation at the time is engaged in the business of
reporting  such  prices,  as  furnished by any similar firm then engaged in such
business,  or  (v)  if  there is no such firm, as furnished by any member of the
NASD  selected  by the Holders of at least 50% of the aggregate principal amount
of  the  Notes.

(iv)     If at any time the Company shall issue or sell any additional shares of
Common Stock in exchange for consideration in an amount per additional shares of
Common  Stock  which is less than the current Conversion Price or Current Market
Price  at the time the additional shares of Common Stock are issued or sold, the
adjustment  required  under  Section  3.7(c)(i)  or  3.7(c)(ii) shall be made in
accordance with the formula contained therein which results in the lower current
Conversion  Price  following  such  adjustment.  The  provisions  of  paragraphs
3.7(c)(i)  and  3.7(c)(ii)

<PAGE>

     shall  not  apply  to any issuance of additional shares of Common Stock for
which  an  adjustment is provided under Section 3.7(a) or 3.7(b).  No adjustment
of the number of shares of Common Stock for which this Note shall be convertible
into  shall be made under paragraph 3.7(c)(i) or 3.7(c)(ii) upon the issuance of
any  additional shares of Common Stock which are issued pursuant to the exercise
of  any  warrants  or  other  subscription or purchase rights or pursuant to the
exercise  of any conversion or exchange rights in any convertible securities, if
any  such  adjustment  shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such convertible securities (or
upon  the  issuance of any warrant or other rights therefor) pursuant to Section
3.7(d)  or  Section  3.7(e).

     (d)     Issuance  of  Warrants or Other Rights.  If at any time the Company
shall  take  a  record  of  the  holders  of its Common Stock for the purpose of
entitling  them  to  receive  a distribution of, or shall in any manner (whether
directly  or  by  assumption  in  a merger in which the Company is the surviving
corporation)  issue  or  sell,  any warrants or other rights to subscribe for or
purchase  any  additional  shares of Common Stock or any convertible securities,
whether  or  not  the  rights  to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such warrants or other rights or upon conversion or exchange of such
convertible  securities  shall  be less than the current Conversion Price or the
Current  Market  Price  in effect immediately prior to the time of such issue or
sale,  then  the  number  of  shares  of  Common  Stock  into which this Note is
convertible  and  the  current Conversion Price shall be adjusted as provided in
Section  3.7(c)  on  the  basis  that the maximum number of additional shares of
Common Stock issuable pursuant to all such warrants or other rights or necessary
to effect the conversion or exchange of all such convertible securities shall be
deemed  to  have been issued and outstanding and the Company shall have received
all  of the consideration payable therefor, if any, as of the date of the actual
issuance  of such warrants or other rights.  If the maximum number of additional
shares  of  Common  Stock  necessary  to  effect  the  conversion or exchange is
indeterminable  as a result of a conversion or exercise price which adjusts over
time  (whether  based on the market price of the Common Stock or otherwise), the
determination of adjustments pursuant to this Section 3.7(e) shall be determined
at  the time of actual conversion or exercise of such convertible securities and
an  adjustment shall be made only upon actual conversions or exchanges which are
below  the  Conversion  Price  or  the  Current  Market Price on the date of the
conversion  of  such  convertible  securities.  No  further  adjustments  of the
current  Conversion  Price  shall  be  made upon the actual issue of such Common
Stock  or of such convertible securities upon exercise of such warrants or other
rights  or  upon  the  actual issue of such Common Stock upon such conversion or
exchange  of  such  convertible  securities.

     (iii)  If at any time the Company shall issue or sell any additional shares
of Common Stock in exchange for consideration in an amount per additional shares
of  Common  Stock which is less than the current Conversion Price or the Current
Market  Price  at  the  time the additional shares of Common Stock are issued or
sold,  the  adjustment  required  under Section 3.7(c)(i) or 3.7(c)(ii) shall be
made in accordance with the formula contained therein which results in the lower
current  Conversion  Price  following  such  adjustment.  The  provisions  of
paragraphs  3.7(c)(i)  and  3.7(c)(ii)  shall  not  apply  to  any  issuance  of
additional  shares  of  Common  Stock  for which an adjustment is provided under
Section 3.7(a) or 3.7(b).  No adjustment of the number of shares of Common Stock
for  which  this  Note  shall  be convertible into shall be made under paragraph
3.7(c)(i)  or  3.7(c)(ii)  upon  the issuance of any additional shares of Common
Stock  which  are  issued  pursuant  to  the  exercise  of any warrants or other
subscription  or  purchase  rights  or  pursuant  to  the  exercise

<PAGE>

     of  any conversion or exchange rights in any convertible securities, if any
such  adjustment  shall  previously  have  been  made  upon the issuance of such
warrants or other rights or upon the issuance of such convertible securities (or
upon  the  issuance of any warrant or other rights therefor) pursuant to Section
3.7(d)  or  Section  3.7(e).

     (e)     Issuance  of  Convertible  Securities.  If  at any time the Company
shall  take  a  record  of  the  holders  of its Common Stock for the purpose of
entitling  them  to  receive  a distribution of, or shall in any manner (whether
directly  or  by  assumption  in  a merger in which the Company is the surviving
corporation)  issue  or  sell,  any  convertible  securities, whether or not the
rights  to  exchange  or convert thereunder are immediately exercisable, and the
price  per  share  for  which  Common  Stock is issuable upon such conversion or
exchange  shall  be less than the current Conversion Price or the Current Market
Price  in  effect  immediately prior to the time of such issue or sale, then the
number  of  shares  of  Common Stock into which this Note is convertible and the
current  Conversion Price shall be adjusted as provided in Section 3.7(c) on the
basis  that the maximum number of additional shares of Common Stock necessary to
effect  the  conversion  or exchange of all such convertible securities shall be
deemed  to  have been issued and outstanding and the Company shall have received
all  of  the  consideration  payable  therefor, if any, as of the date of actual
issuance  of  such  convertible securities.  If the maximum number of additional
shares  of  Common  Stock  necessary  to  effect  the  conversion or exchange is
indeterminable  as a result of a conversion or exercise price which adjusts over
time  (whether  based on the market price of the Common Stock or otherwise), the
determination of adjustments pursuant to this Section 3.7(e) shall be determined
at  the time of actual conversion or exercise of such convertible securities and
an  adjustment shall be made only upon actual conversions or exchanges which are
below  the  Conversion  Price  or  the  Current  Market Price on the date of the
conversion  of such convertible securities.  No further adjustment of the number
of  shares  of  Common Stock into which this Note is convertible and the current
Conversion  Price  shall  be made under this Section 3.7(e) upon the issuance of
any  convertible  securities  which  are  issued pursuant to the exercise of any
warrants  or  other  subscription  or  purchase  rights  therefor,  if  any such
adjustment shall previously have been made upon the issuance of such warrants or
other  rights  pursuant to Section 3.7(d).  No further adjustments of the number
of  shares  of  Common Stock into which this Note is convertible and the current
Conversion  Price  shall be made upon the actual issue of such Common Stock upon
conversion  or  exchange  of  such  convertible  securities.

     (f)     Superseding  Adjustment.

     (i)  If, at any time after any adjustment of the number of shares of Common
Stock into which this Note is convertible and the current Conversion Price shall
have been made pursuant to Section 3.7(d) or Section 3.7(e) as the result of any
issuance  of  warrants,  other  rights  or convertible securities, then (x) such
warrants  or  other rights, or the right of conversion or exchange in such other
convertible  securities,  shall expire, and all or a portion of such warrants or
other  rights,  or  the right of conversion or exchange with respect to all or a
portion  of such other convertible securities, as the case may be shall not have
been  exercised,  or  (y) the consideration per share for which shares of Common
Stock  are  issuable  pursuant to such warrants or other rights, or the terms of
such  other  convertible  securities,  shall  be  increased  solely by virtue of
provisions therein contained for an automatic increase in such consideration per
share  upon  the occurrence of a specified date or event, then any such previous
adjustments  to  this  Note  shall  be rescinded and annulled and the additional
shares  of  Common  Stock  which  were  deemed  to  have

<PAGE>

     been  issued  by  virtue  of  the  computation  made in connection with the
adjustment  so  rescinded  and  annulled  shall no longer be deemed to have been
issued  by  virtue  of  such  computation.

     (ii)     Upon  the  occurrence  of  an event set forth in Section 3.7(f)(i)
above there shall be, a recomputation made of the effect of such warrants, other
rights or options or other convertible securities on the basis of:  (a) treating
the  number  of  additional  shares  of  Common Stock or other property, if any,
theretofore actually issued or issuable pursuant to the previous exercise of any
such  warrants  or  other rights or any such right of conversion or exchange, as
having  been  issued  on  the  date  or  dates  of any such exercise and for the
consideration  actually  received  and receivable therefor, and (b) treating any
such  warrants  or  other  rights or any such other convertible securities which
then  remain  outstanding as having been granted or issued immediately after the
time  of such increase of the consideration per share for which shares of Common
Stock  or  other  property  are  issuable under such warrants or other rights or
other convertible securities; whereupon a new adjustment of the number of shares
of  Common  Stock  for which this Note and the current Conversion Price shall be
made,  which new adjustment shall supersede the previous adjustment so rescinded
and  annulled.

     (g)     Other  Provisions  Applicable  to  Adjustments.  The  following
provisions  shall  be  applicable  to the making of adjustments of the number of
shares  of  Common  Stock  into  which  this Note is convertible and the current
Conversion  Price  provided  for  in  this  Section  3.7:

     (i)  Computation of Consideration. To the extent that any additional shares
of Common Stock or any convertible securities or any warrants or other rights to
subscribe  for  or  purchase  any  additional  shares  of  Common  Stock  or any
convertible securities shall be issued for cash consideration, the consideration
received by the Company therefor shall be the amount of the cash received by the
Company  therefor,  or, if such additional shares of Common Stock or convertible
securities  are offered by the Company for subscription, the subscription price,
or, if such additional shares of Common Stock or convertible securities are sold
to  underwriters or dealers for public offering without a subscription offering,
the initial public offering price (in any such case subtracting any amounts paid
or  receivable for accrued interest or accrued dividends and without taking into
account  any compensation, discounts or expenses paid or incurred by the Company
for  and  in  the underwriting of, or otherwise in connection with, the issuance
thereof).  To  the  extent that such issuance shall be for a consideration other
than  cash,  then,  except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair value of such consideration at
the  time of such issuance as determined in good faith by the Board of Directors
of  the  Company.  In  case  any  additional  shares  of  Common  Stock  or  any
convertible  securities  or  any  warrants  or  other rights to subscribe for or
purchase  such additional shares of Common Stock or convertible securities shall
be  issued  in  connection  with  any  merger  in  which  the Company issues any
securities,  the amount of consideration therefor shall be deemed to be the fair
value,  as determined in good faith by the Board of Directors of the Company, of
such  portion of the assets and business of the nonsurviving corporation as such
Board in good faith shall determine to be attributable to such additional shares
of  Common  Stock, convertible securities, warrants or other rights, as the case
may  be.  The  consideration  for any additional shares of Common Stock issuable
pursuant  to  any warrants or other rights to subscribe for or purchase the same
shall  be the consideration received by the Company for issuing such warrants or
other  rights  plus  the  additional  consideration  payable to the Company upon
exercise  of  such  warrants  or  other

<PAGE>

     rights.  The  consideration  for  any  additional  shares  of  Common Stock
issuable  pursuant  to  the  terms  of  any  convertible securities shall be the
consideration  received  by  the Company for issuing warrants or other rights to
subscribe  for  or  purchase such convertible securities, plus the consideration
paid or payable to the Company in respect of the subscription for or purchase of
such  convertible securities, plus the additional consideration, if any, payable
to  the Company upon the exercise of the right of conversion or exchange in such
convertible  securities.  In  case of the issuance at any time of any additional
shares  of  Common Stock or convertible securities in payment or satisfaction of
any dividends upon any class of stock other than Common Stock, the Company shall
be  deemed  to  have  received  for  such  additional  shares of Common Stock or
convertible  securities  a consideration equal to the amount of such dividend so
paid  or  satisfied.  Whenever  the  Board  of Directors of the Company shall be
required  to  make  a  determination  in  good  faith  of  the fair value of any
consideration,  such  determination  shall,  if  requested by the holder of this
Note,  be  supported  by  an opinion of an investment banking firm of recognized
national  standing  selected  by  the  holder of this Note and acceptable to the
Company.

     (ii)     When  Adjustments to Be Made.  The adjustments required by Section
3  shall  be  made  whenever  and  as  often as any specified event requiring an
adjustment  shall  occur,  except that any adjustment of the number of shares of
Common  Stock  into  which  this  Note  is con-ver-tible that would otherwise be
required may be postponed (except in the case of a subdivision or combination of
shares  of  the  Common Stock, as provided for in Section 3.7(a)) up to, but not
beyond  the  date  of exercise if such adjustment either by itself or with other
adjustments  not previously made adds or subtracts less than 1% of the shares of
Common Stock into which this Note is convertible immediately prior to the making
of  such  adjustment.  Any  adjustment  representing  a change of less than such
minimum  amount  (except  as  aforesaid)  which  is  post-poned shall be carried
forward  and  made as soon as such adjustment, together with other ad-just-ments
required  by this Section 3.7 and not previously made, would result in a minimum
ad-justment  or on the date of exercise.  For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date  of  its  occurrence.

     (iii)     Fractional  Interests.  In  computing  adjustments  under  this
Section  3,  fractional interests in Common Stock shall be taken into account to
the  nearest  1/100th  of  a  share.

     (iv)     When  Adjustment  Not  Required.

     (A)     If  the  Company  shall  take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or distribution or
subscription  or  purchase  rights  and  shall,  thereafter  and  before  the
distribution to stockholders thereof, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and any such
adjustment  previously  made in respect thereof shall be rescinded and annulled.

     (B)     No  adjustment  shall be required pursuant to this Section 3.7 upon
the  exercise of any warrants, options or convertible securities granted, issued
and  outstanding  on  the date of issuance of this Note or the conversion of the
Notes.

<PAGE>

     (v)     Escrow  of  Stock.  If  after  any  property  becomes distributable
pursuant  to Section 3.7 by reason of the taking of any record of the holders of
Common  Stock, but prior to the occurrence of the event for which such record is
taken,  and  the  holder  of  this Note converts this Note, any shares of Common
Stock  issuable  upon  exercise by reason of such adjustment shall be deemed the
last  shares  of  Common Stock for which this Note is converted (notwithstanding
any  other  provision  to the contrary herein) and such shares or other property
shall  be held in escrow for the holder of this Note by the Company to be issued
to  holder  of  this  Note  upon and to the extent that the event actually takes
place,  upon payment of the current Conversion Price.  Notwithstanding any other
provision  to  the contrary herein, if the event for which such record was taken
fails  to  occur or is rescinded, then such escrowed shares shall be canceled by
the  Company  and  escrowed  property  returned.

     (h)     Other  Action  Affecting Common Stock.  In case at any time or from
time  to  time the Company shall take any action in respect of its Common Stock,
other  than  the  payment  of dividends or any other action described in Section
3.7, then, unless such action will not have a materially adverse effect upon the
rights of the Holder of this Note, the number of shares of Common Stock or other
stock  into which this Note is convertible exercisable and/or the purchase price
thereof  shall  be  adjusted  in  such  manner  as  may  be  equitable  in  the
circumstances.

     (i)     Certain  Limitations.  Notwithstanding  anything  herein  to  the
contrary,  the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the current Conversion Price to be less
than  the  par  value  per  share  of  Common  Stock.  Notwithstanding  anything
contained  herein  to  the  contrary,  the  Conversion Price shall always be the
lesser  of  (i) the price determined in accordance with Section 3.6 and (ii) the
price  as  adjusted  pursuant  to  this  Section  3.7.

     (j)     Certificate  as  to  Adjustments.  Upon  the  occurrence  of  each
adjustment or readjustment of the Conversion Price, the Company, at its expense,
shall  promptly  compute  such adjustment or readjustment in accordance with the
terms  hereof and prepare and furnish to each Holder a certificate setting forth
such  adjustment or readjustment and showing in detail the facts upon which such
adjustment  or  readjustment  is  based.  The  Company  shall,  upon the written
request at any time of any Holder of a Note, furnish or cause to be furnished to
such  holder  a  like  certificate  setting  forth  (i)  such  adjustments  and
readjustments, (ii) the Conversion Price at the time in effect for this Note and
(iii)  the  number  of  shares  of Common Stock and the amount, if any, or other
property  which  at  the  time would be received upon the conversion of the Note
owned  by  such  Holder.

     (k)     Notices  of Record Date.  In the event of any fixing by the Company
of  a  record date for the holders of any class of securities for the purpose of
determining  the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any shares of Common Stock or other
securities, or any right to subscribe for, purchase or otherwise acquire, or any
option  for  the  purchase  of,  any  shares  of stock of any class or any other
securities or property, or to receive any other right, the Company shall mail to
the  Holder  of  this Note at least thirty (30) days prior to the date specified
therein,  a  notice  specifying the date on which any such record is to be taken
for  the  purpose  of  such dividend, distribution or rights, and the amount and
character  of  such  dividend,  distribution  or  right.

<PAGE>

     (l)     The  Holders  of  50%  or more of the principal amount of the Notes
then  outstanding  shall  have the right to waive the provisions of this Section
3.7  with  respect  to  any  issuance of securities by the Company.  Such waiver
shall  be  in  writing  and  addressed  to  the  Company.

     3.8     Restrictions on Conversion Amount.  Notwithstanding anything to the
contrary  contained  herein, in no event shall the Holder be entitled to convert
this  Note, where such conversion would result in the Holder together with other
members  of a "group" within the meaning of the Securities Exchange Act of 1934,
as  amended,  that it is deemed a part of, becoming the beneficial owner of more
than  9%  of  the  outstanding  shares  of  the  Common  Stock.

     3.9     Fundamental Change.  In the event that the Company shall be a party
to  (i) any recapitalization or reclassification of the Common Stock (other than
a  change  in  par  value  or as a result of a subdivision or combination of the
Common  Stock);  (ii)  any  consolidation  or merger of the Company with or into
another  corporation  as  a  result  of  which  holders of Common Stock shall be
entitled to receive securities or other property or assets (including cash) with
respect  to  or in exchange for Common Stock (other than a merger which does not
result  in  a  reclassification,  conversion,  exchange  or  cancellation of the
outstanding  Common  Stock);  (iii) any sale or transfer of all or substantially
all  of  the  assets  of  the  Company;  or  (iv) any compulsory share exchange,
pursuant  to  any  of which holders of Common Stock shall be entitled to receive
other  securities,  cash or other property (each, a "Fundamental Change"), then,
if  this  Note  is  not  converted prior to such Fundamental Change, appropriate
provision  shall  be made so that the holder of each Note then outstanding shall
have the right thereafter to convert such security only into the kind and amount
of  the  securities, cash or other property that would have been receivable upon
such  recapitalization,  reclassification, consolidation, merger, sale, transfer
or  share  exchange by a holder of the number of shares of Common Stock issuable
upon  conversion  of  such  Note  immediately  prior  to  such recapitalization,
reclassification,  consolidation,  merger,  sale, transfer or share exchange, at
the  Conversion  Price  (subject  to  adjustment  pursuant to Section 3.7).  The
Company  may  not  be  consolidated  with or merged into another entity, or have
transferred  all  or  substantially  all  of  its  assets in one or more related
transactions,  unless  (i)  the  Company  shall  be  the surviving entity or the
successor  shall be an entity organized in the United States and shall expressly
assume  all  of  the  obligations specified in the Notes; (ii) immediately after
giving  effect to such transaction, no Event of Default shall have occurred; and
(iii)  the  assuming  entity  has a net worth not less than the consolidated net
worth of the Company at the time of such merger, consolidation or transfer.  The
foregoing  provisions  of  this  Section 3.9 shall similarly apply to successive
reorganizations,  reclassifications,  mergers,  consolidations or disposition of
assets.

     3.10     Registration  Rights.  The Company will grant certain registration
rights  to the Holders of this Note pursuant to that certain Registration Rights
Agreement  dated  of  even  date  hereof.

     3.11     No  Impairment.  The  Company  will  not,  by  amendment  of  its
Certificate  of  Incorporation  or through any reorganization, recapitalization,
transfer  of  assets,  consolidation,  merger,  dissolution,  issue  or  sale of
securities  or any other voluntary action, avoid or seek to avoid the observance
or  performance  of  any  of  the terms to be observed or performed hereunder by
the  Company,  but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be  necessary  or  appropriate  in order to protect the conversion rights of the
Holder  of  this  Note  against  impairment.

<PAGE>

     3.12     Stock  Transfer  Taxes.  The  issue  of  stock  certificates  upon
conversion  of  this  Note shall be made without charge to the converting Holder
for  any  tax  in  respect  of  such  issue.  The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares in any name other than that of the Holder of
any  of  this  Note converted, and the Company shall not be required to issue or
deliver  any  such  stock  certificate  unless  and  until the person or persons
requesting  the  issue thereof shall have paid to the Company the amount of such
tax  or  shall have established to the satisfaction of the Company that such tax
has  been  paid.

SECTION  4.  REDEMPTION
             ----------

     4.1     Optional  Redemption.  The  Holders,  upon  written  notice  to the
Company,  shall have a right to require the Company to redeem the Notes upon the
occurrence  of  (i)  a  Fundamental  Change  (other than a transaction solely to
change  the  domicile  of  the Company) or (ii) the acquisition by any person or
group  of the beneficial ownership of more than 30% of the combined voting power
of  the  Company's outstanding securities.  The Company shall notify the Holders
at  least  thirty  (30)  days prior to the consummation of any such transaction.

     In  the  event  of any redemption pursuant hereto, the Company shall effect
such  redemption  as  follows:

     (a)     The  number  of  Notes subject to redemption shall be allocated pro
rata among the Holders of the then outstanding Notes requesting redemption based
upon  the  number  of  Notes held by each such Holder.  The Company shall pay in
cash  for  each  such Note to be redeemed an amount equal to the total principal
amount  remaining  (plus  any  accumulated  and unpaid interest thereon) on such
Notes  on  the  Redemption Date (as hereinafter defined) (such total amounts are
hereinafter  referred  to  as  the  "Redemption  Price").

     (b)     At  least five (5) but no more than ten (10) days prior to the date
fixed  for  any  redemption  of the Notes, which date shall be at least ten (10)
days  prior  to  the consummation of the transaction giving rise to the Optional
Redemption  (the  "Redemption  Date"),  written  notice  shall  be  mailed  by
first-class  certified  or  registered  mail,  return receipt requested, postage
prepaid,  to  each Holder of record of the Notes  to be redeemed, notifying such
holder  of  the  redemption  to be effected, specifying the Redemption Date, the
place at which payment may be obtained and calling upon such Holder to surrender
to  the  Company,  in  the  manner  and  at the place designated, his Note to be
redeemed  (the  "Redemption  Notice").  On  or  after  the Redemption Date, each
Holder  of  the Notes to be redeemed shall surrender to the Company the Note, in
the  manner  and at the place designated in the Redemption Notice, and thereupon
the  principal  amount  outstanding, together with any accrued interest thereon,
(the  "Redemption  Price")  of  such  Notes shall be payable to the order of the
person whose name appears on such Note as the owner thereof and each surrendered
Note  shall  be  cancelled.  In the event less than all the Notes represented by
any  such  Note  are  redeemed,  a  new  Note  shall  be issued representing the
unredeemed  Notes.

     (c)  Three days prior to the Redemption Date, the Company shall deposit the
Redemption  Price  of  all  outstanding  Notes  designated for redemption in the
Redemption  Notice,  and  not  yet redeemed, with a bank or trust company having
aggregate  capital  and surplus in excess of $50,000,000 as a trust fund for the
benefit of the respective Holders of the Notes designated for redemption and not
yet

<PAGE>

     redeemed.  Simultaneously,  the  Company  shall  deposit  irrevocable
instructions  and  authorize such bank or trust company to pay, on and after the
date fixed for redemption or prior thereto, the Redemption Price of the Notes to
the  Holders  thereof  upon surrender of their Notes.  The balance of any monies
deposited  by the Company pursuant to this Section 4.1(c) remaining unclaimed at
the  expiration  of  two years following the Redemption Date shall thereafter be
returned  to the Company, provided that the Holder to which such monies would be
payable hereunder shall be entitled, upon proof of its ownership of the Note and
payment of any bond requested by the Company, to receive such monies but without
interest  from  the  Redemption  Date.

SECTION  5.     COVENANTS
                ---------

     (a)     So  long  as 10% of the aggregate principal amount of the Notes are
outstanding,  the  consent of the Holders of at least 50% of aggregate principal
amount  of  the  Notes  shall  be  necessary  for  effecting  or  validating any
transactions,  or  the  taking  of  any  action, described in Section 5.1 of the
Purchase  Agreement.

     (b)     If an order for relief is entered with regard to the Company in any
proceeding  pursuant  to  Title  11  of  the United States Code (the "Bankruptcy
Code"),  the Company shall immediately con-sent to the entry of an order, by any
Bankruptcy  Court having jurisdiction, vacating the auto-ma-tic stay with regard
to  the  Holder,  and  the  Holder  shall be entitled to exercise all rights and
remedies  granted  to  it  pursuant  to  or  existing under this Note, all other
applicable agreements, and all applicable law, including without limitation, all
rights  the  Holder  may  have  as  a  secured  party  to take possession of its
Collateral under Article 9 of the New York Uniform Commercial Code.  The Company
shall  not  oppose  any request by the Holder for entry of an order vacating the
automatic stay.  The Company agrees that, by virtue of the foregoing, the Holder
has  shown  cause to support the entry of an order  vacating the  automatic stay
as  required  by  Sec.  362(d)(2).

     As  of  the  date  hereof,  the Company agrees that debt represented by the
Notes  and  other  Notes  issued  by  the  Company  secured  by the property and
obligations  securing  the Notes is no less than the reasonably realizable value
of  the  property and obligations securing the Notes.  Any action of the Company
that  is  inconsistent  with the foregoing shall be deemed bad faith conduct and
independent  grounds  to  support relief from the automatic stay or dismissal of
the  Company's  case  under  the  Bankruptcy  Code  for  bad  faith.

     The  Company  recognizes  that  the  Holder  purchased  the  Notes with the
explicit  understanding  that  the  Company  is obligated to waive the automatic
stay  with  respect  to  the Holder.  The Company further recognizes that if the
Holder had not purchased all the Notes, the Company would have been illiquid and
out  of  business.

     (c)     The  Company  shall  remain  in  compliance with the Annual Budget.

<PAGE>

SECTION  6.     REPORTING  OBLIGATIONS
                ----------------------

     The  Company  shall furnish to the Holder the financial statements, reports
and  other  information  referred to in Section 5.3 of the Purchase Agreement at
the  time  and  in  the  manner identified in such Section. The Holder is hereby
authorized to deliver a copy of any financial statement or any other information
relating to the business, operations or financial condition of the Company which
may have been furnished to the Holder  hereunder or otherwise, to any regulatory
body  or agency having jurisdiction over the Holder or to any Person which shall
have  succeeded, or shall have the right or obligation to succeed, to all or any
part  of  the  Holder's interest in the Company or this Note; provided, however,
that  in connection with a transfer or assignment of Notes by the Holder to such
regulatory  body  or  agency, as a condition to such transfer or assignment, any
such  regulatory body or agency shall be required to agree to and to be bound by
the  same  confidentiality  provisions  applicable  to  the Holder in connection
herewith; and provided further, that in connection with the delivery of any such
information  by the Holder to any regulatory body or agency as herein described,
the  Holder  shall  give prior written notice of the same to the Company and the
Company shall, at the Company's sole cost and expense, be free to seek to obtain
a  protective  order  with  respect  to  any  such  disclosure.

SECTION  7.  MISCELLANEOUS
             -------------

     7.1     Successors  and  Assigns.  The  terms  and  conditions of this Note
shall  inure to the benefit of and be binding upon the respective successors and
assigns  of  the parties.  Nothing in this Note, express or implied, is intended
to  confer  upon  any  party  other  than the parties hereto or their respective
successors  and  assigns any rights, remedies, obligations, or liabilities under
or  by  reason  of  this  Note,  except  as  expressly  provided  in  this Note.

     7.2     Governing Law; Jurisdiction and Venue.  This Note shall be governed
by  and construed under the laws of the State of Nevada as applied to agreements
entered  into  and  to  be performed entirely within Nevada.  The Company hereby
irrevocably consents to the exclusive jurisdiction of the courts of the State of
New  York  and  of  any  federal  court  located  in  New York City, New York in
connection  with  any  action  or  proceeding arising out of or relating to this
Note.  In  any  such  litigation  the  Company  waives  personal  service of any
summons,  complaint  or other process and agrees that the service thereof may be
made  by certified or registered mail directed to the chief executive officer of
the  Company  at  its  address  set  forth  in  Section  7.4  hereof.

     7.3     Titles  and  Subtitles.  The titles and subtitles used in this Note
are  used  for  convenience  only  and are not to be considered in construing or
interpreting  this  Note.

     7.4     Notices.  Any  notice, authorization, request or demand required or
permitted  to be given hereunder shall be in writing and shall be deemed to have
been  duly  given  two days after it is sent by an overnight delivery service or
sent  by  facsimile  with machine confirmation of delivery addressed as follows:

<PAGE>

     TO  THE  COMPANY:

     Merlin  Software  Technologies  International,  Inc.
     Suite  420-6450  Roberts  Street
     Burnaby,  British  Columbia,  Canada  V5G  4E1

     Attn:  Robert  Heller
     FAX:  (604)  320-7277

     With  copies  to:

     Clark,  Wilson
     HSBC  Building,  800-885  West  Georgia  Street
     Vancouver,  BC  V6C  3H1

     Attn:  Virgil  Z.  Hlus,  Esq.
     FAX:  (604)  687-6314

     TO  THE  HOLDER:

     SDS  Merchant  Fund,  L.P.
     375  Park  Avenue
     New  York,  New  York  10152
     Attn:  Managing  Director
     FAX:  (212)  521-5029

     With  a  copy  to:

     Kane  Kessler,  P.C.
     1350  Avenue  of  the  Americas  -  26th  Floor
     New  York,  NY  10019
     Attention:  Robert  L.  Lawrence,  Esquire
     FAX:  (212)  245-3009

     Any  party  may change its address for such communications by giving notice
thereof  to  the  other  parties  in conformity with this Section. Any notice by
facsimile  sent  after  the  recipient's  normal  business hours shall be deemed
received  at  the  opening  of  business  on  the  next  business  day.

     7.5     Amendments and Waivers. Any term of  the  Notes  may  be amended or
supplemented  and  the observance of any term of this Note may be waived (either
generally  or  in  a  particular  instance  and  either  retroactively  or
prospectively), only with the written consent of the Company and, subject to any
express  provisions  hereof  to  the  contrary, at least a majority in principal
amount  of the outstanding Notes; provided, however, that without the consent of
each  holder  of a Note affected, an amendment, waiver or supplement may not (i)
extend the final maturity of this Note; (ii) reduce the principal amount of this
Note;  (iii)  reduce  the  rate or extend the time of payment of any interest on
this  Note;  (iv)  reduce  any  amount payable upon redemption of this Note; (v)
increase  the  Conversion Price of this Note; (vi) impair or affect the right of
any  Holder  of  any  Note  to institute suit for the payment or conversion of a
Note;  (vii)  change  the  currency  for

<PAGE>

     payment  of  principal  of,  premium, if any, or interest on, this Note; or
(viii)  materially  and  adversely  affect  the  right  to  convert the Notes in
accordance  herewith without the consent of the holder of each Note so affected;
and  further, provided, however, that an amendment, waiver or supplement may not
reduce  the percentage of Notes, the consent of the holders of which is required
for  any  such  supplemental  indenture  or  waiver,  without the consent of the
holders  of  all  Notes  then  outstanding.

     7.6     Severability.  If  one  or more provisions of this Note are held to
be  unenforceable  under  applicable  law, such provision shall be excluded from
this Note and the balance of this Note shall be interpreted as if such provision
was  so  excluded  and  shall  be  enforceable  in  accordance  with  its terms.

     7.7     Replacement  of  Note.  If  the Holder loses this Note, the Company
shall  issue  an  identical  replacement  Note  to  the Holder upon the Holder's
delivery  to  the  Company  of  a  customary  agreement to indemnify the Company
reasonably satisfactory to the Company for any losses resulting from issuance of
the  replacement  Note.

     7.8     Waivers  and  Consents.

     (a)  The  Company,  any  endorser,  or  guarantor  hereof  or in the future
(individually an "Obligor" and collectively "Obligors") and each of them jointly
and severally:  (a) waive presentment, demand, protest, notice of demand, notice
of  intent to accelerate, notice of acceleration of maturity, notice of protest,
notice  of  nonpayment,  notice of dishonor, and any other notice required to be
given  under the law to any Obligor in connection with the delivery, acceptance,
performance, default or enforcement of this Note, any endorsement or guaranty of
this  Note,  any  pledge,  security,  guaranty  or  other  documents executed in
connection  with this Note or the Related  Documents; (b) consent to all delays,
extensions,  renewals  or  other  modifications  of  this  Note  or  the Related
Documents made with the consent of the Company, or waivers of any term hereof or
of  the  Related  Documents,  or  release  or  discharge by the Holder of any of
Obligors,  or  release, substitution or exchange of any security for the payment
hereof,  or the failure to act on the part of the Holder or any indulgence shown
by  the  Holder  (without notice to or further assent from any of Obligors), and
agree  that  no  such action, failure to act or failure to exercise any right or
remedy  by  the  Holder  shall  in  any way affect or impair the Obligations (as
hereinafter  defined)  of any Obligors or be construed as a waiver by the Holder
of,  or  otherwise affect, any of the Holder's rights under this Note, under any
endorsement  or guaranty of this Note or under any of the Related Documents; (c)
if  the Company fails to fulfill its obligations hereunder when due, the Company
agrees to pay, on demand, all costs and expenses of enforcement of collection of
this Note or of any endorsement or guaranty hereof and/or the enforcement of the
Holder's  rights  with  respect  to,  or  the  administration,  supervision,
preservation,  protection of, or realization upon, any property securing payment
hereof,  including,  without  limitation,  reasonable attorney's fees, including
fees  related  to  any  suit,  mediation or arbitration proceeding, out of court
payment  agreement,  trial,  appeal, bankruptcy proceedings or other proceeding;
and (d) waive the right to interpose any defense, set-off or counterclaim of any
nature  or description. "Obligation" or "Obligations" shall mean and include all
indebtedness,  obligations,  covenants  and  duties owing by the Company, or any
corporation  or  other  entity  owned or under the sole or shared control of the
Company, to the Holder or any affiliate of the Holder arising under this Note or
any  of  the  other  Related  Documents.

     (b)  Unless  expressly provided otherwise, whenever any determination is to
be  made by the Holders, such determination shall be made only in writing by the
holders  of  at  least  a majority in principal amount of the outstanding Notes.

<PAGE>

     7.9     Exchange  of Notes; Cancellation of Surrendered Notes.  At any time
upon  the  written  request  of  the  Holder  to the Company, the Company at its
expense  (except  for  any  transfer  tax  or  any  other tax arising out of the
exchange)  will issue and deliver to or upon the order of the Holder in exchange
therefor  new  Notes,  in  such denomination or denominations as such holder may
request  (which must be in denominations of at least $25,000, plus one Note in a
lesser  denomination,  if  required), in aggregate principal amount equal to the
unpaid  principal  amount  of the Note or Notes surrendered and substantially in
the  form  thereof,  dated as of the date to which interest has been paid on the
Note or Notes surrendered (or, if no interest has yet been so paid thereon, then
dated  the  date of the Note or Notes so surrendered) and payable to such person
or persons and registered assigns as may be designated by such holder.  Upon any
prepayment  if  only a portion of the principal amount of a Note is paid in such
prepayment,  then  the Company, if so requested, shall execute and deliver to or
on the order of the holder thereof, at the expense of the Company, a new Note or
Notes  in  principal  amount  equal  to  the  unused  portion  of  such  Note.

     7.10     Transfers;  Assignment.  The  Company shall register this and each
other  Note  upon  records  to  be  maintained  by the Company for that purpose,
including  the name of each record holder of a Note, from time to time.  Subject
to  any  required  compliance  with the legend endorsed hereon and in accordance
with the terms of the Purchase Agreement, this Note shall be freely transferable
and  the  Holder may assign, transfer or sell all or a portion of its rights and
interests  to  and  under this Note to one or more persons and that such persons
shall  thereupon become vested with all of the rights and benefits of the Holder
in  respect  hereof  as to all or that portion of the Note which is so assigned,
transferred  or  sold.  The Company shall promptly register the transfer of this
Note  upon  records  to  be  maintained  by  the  Company for that purpose, upon
surrender  of  the  Note for assignment with appropriate instruments of transfer
duly  completed  and  signed,  to the Company at its principal office.  Upon any
such  registration  of  transfer, a Note in substantially the form of this Note,
evidencing  the  Note  so  transferred,  shall  be  issued  to  the  transferee.

     7.11     Non-Waiver.  The failure at any time of the Holder to exercise any
of  its  options  or  any  other  rights hereunder shall not constitute a waiver
thereof,  nor  shall it be a bar to the exercise of any of its options or rights
at  a later date.  All rights and remedies of the Holder shall be cumulative and
may  be  pursued  singly, successively or together, at the option of the Holder.
The  acceptance  by  the  Holder  of  any partial payment shall not constitute a
waiver  of  any  default  or  of any of the Holder's rights under this Note.  No
waiver  of any of its rights hereunder, and no modification or amendment of this
Note,  shall  be  deemed  to  be  made by the Holder unless the same shall be in
writing,  duly  signed on behalf of the Holder; and each such waiver shall apply
only  with respect to the specific instance involved, and shall in no way impair
the  rights  of  the  Holder  in  any  other  respect  at  any  other  time.

     7.12     Binding  Effect.  This Note shall be binding upon and inure to the
benefit  of  Company,  and  the Holder and their respective successors, assigns,
heirs  and  personal  representatives, provided, however, that no obligations of
the  Company hereunder can be assigned without prior written consent of at least
a  majority  in  principal  amount  of  the  outstanding  Notes.

     7.13     Controlling Document.  To the extent that this Note conflicts with
or  is  in  any  way  incompatible  with  any  other  document  concerning  this
obligation,  this  Note  shall control over any other document, and if this Note
does not address an issue, then the document shall control to the extent that it
deals most specifically with an issue.  In the event that one or more provisions
of  this  Note  shall  be  invalid, illegal

<PAGE>

or unenforceable in any respect, the validity,  legality  and  enforceability of
the remaining provisions contained herein  shall  not  in  any  way  be affected
or  impaired  thereby.

     7.14     WAIVER  OF JURY TRIAL.  THE COMPANY HEREBY WAIVES TRIAL BY JURY IN
ANY  LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT
OF  THIS  NOTE  OR  THE  VALIDITY,  PROTECTION,  INTERPRETATION,  COLLECTION  OR
ENFORCEMENT  HEREOF  AND  THE  COMPANY  HEREBY WAIVES THE RIGHT TO INTERPOSE ANY
SETOFF OR NON-COMPULSORY COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY SUCH
LITIGATION,  IRRESPECTIVE  OF  THE  NATURE  OF  SUCH  SETOFF,  COUNTERCLAIM  OR
CROSS-CLAIM.

     IN  WITNESS  WHEREOF, MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC., has
caused  this  Note to be dated, executed and issued on its behalf by its officer
or  officers  thereunto  duly  authorized.

Attest:                         MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.

By:/s/ Trevor McConnell         By: ./s/ Robert Heller
Trevor McConnell, CFO
Name  and  Title:               Robert  Heller,  Chief  Executive  Officer
-----------------     ------------------------------------------

<PAGE>

                                EXHIBIT  A

             MERLIN  SOFTWARE  TECHNOLOGIES  INTERNATIONAL,  INC.
                           CONVERSION  NOTICE

Reference  is  made  to  the  Series  A 10% Senior Secured Convertible Note (the
"Note")  issued  to  the  below-named  Holder  by  Merlin  Software Technologies
International,  Inc.  (the  "Company").  In  accordance with and pursuant to the
Note,  the undersigned hereby elects to convert the amount of the Note indicated
below  into  shares  of  Common  Stock,  par  value $.001 per share (the "Common
Stock"),  of  the Company, by tendering the Note as of the date specified below.

Holder:                    _______________________________________

Date  of  Conversion:               _______________________________________

Amount  of  Note  to  be  converted     _______________________________________

Please  confirm  the  following  information:

Conversion  Price:               _______________________________________

Number  of  shares  of  Common  Stock
to  be  issued:                    _______________________________________

Please  issue  the  Common  Stock into which the Note is being converted and, if
applicable,  any  check drawn on an account of the Company in the following name
and  to  the  following  address:

Issue  to:                    ________________________________________

Facsimile  Number:               ________________________________________

Authorization:               ________________________________________
By:_____________________________________
Title:____________________________________

     Dated:

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