Document:

TARGOFF-RS, LLC NOTE
                               PURCHASE AGREEMENT

        This Targoff-RS, LLC Note Purchase Agreement (the "Agreement"), dated as
of September 5, 2001, is made by and between The Right Start, Inc., a California
corporation (the "Issuer") and Fred Kayne, an individual, Richard Kayne, an
individual, ARBCO Associates, L.P., Kayne Anderson Diversified Capital Partners,
L.P., Kayne Anderson Non-Traditional Investments, L.P., Kayne Anderson Offshore
Limited and Kayne Anderson Capital Partners, L.P., Palomar Ventures I, L.P.,
Marina Corporate LLC, (collectively "Note Sellers"), with reference to the
following facts:

     A. Targoff-RS,  LLC, a New York limited liability  company  ("Targoff") has
issued to the Note Sellers its Term Notes (the "Notes") in the amounts set forth
on Exhibit A.

     B. Issuer has filed a  Certificate  of  Determinations  with respect to its
Series F  Convertible  Preferred  Stock,  par value  $.01 per share  ("Series  F
Preferred Stock"), with the California Secretary of State.

     C. As a condition to the  purchase of Targoff  pursuant to the LLC Purchase
Agreement of even date herewith,  Issuer has required that Note Sellers sell the
Notes in  exchange  for not more than  1,609.447  shares  of Series F  Preferred
Stock.

     D. Issuer desires to purchase and Note Sellers desire to sell the Notes for
an aggregate of 1,609.447 shares of Series F Preferred Stock (in the amounts per
Note Seller as agreed  among the Note Sellers and set forth on Exhibit A hereto)
convertible,  upon approval of Issuer's  shareholders,  into 1,609,447 shares of
Issuer's common stock, no par value ("Common Stock"), as herein provided.

               It is therefore agreed as follows:

1.  Purchase  and Sale.  Subject  to and upon the terms and  conditions  of this
Agreement,  at the Closing (as hereinafter  defined),  Issuer shall purchase the
Notes  from Note  Sellers  in  exchange  for  1,609.447  shares of the  Series F
Preferred Stock.

2. Authorization; Closing.

        Issuer has, on or prior to the date of this Agreement, caused the
Certificate of Determination setting forth the rights, preferences and
privileges of the Series F Convertible Preferred Stock ("Series F Preferred"),
in the form attached as Exhibit B (the "Certificate"), to be filed with the
California Secretary of State. Subject to and upon the terms and conditions of
this Agreement, at the Closing, Issuer shall sell to Note Sellers 1,609.447
shares of Series F Preferred (the "Shares"). At the Closing, Issuer shall
deliver to Note Sellers the Shares by delivery to Note Sellers of stock
certificate(s) representing the Shares and Sellers shall deliver the Notes
endorsed in blank.

               The consummation of the purchase and sale of the Notes (the
"Closing") shall take place at the Note Sellers' offices located at 1800 Avenue

<PAGE>

of the Stars, Second Floor, Los Angeles, California 90067 on September 5, 2001
or such other date or at such other time as the parties may mutually agree. At
the Closing, (i) Note Sellers shall deliver the Notes and (ii) Issuer shall
deliver the stock certificate(s) representing the Shares.

3.  Representations and Warranties of Note Sellers.  Each Note Seller represents
and warrants to Issuer as follows:

        3.1 Organization and Authority. Such Note Seller (other than Fred Kayne)
is a limited  partnership  or, in the case of Kayne Anderson  Offshore  Limited,
a  British  Virgin  Islands company duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization.

        3.2 Authorization. The execution and delivery of this Agreement, and the
consummation of the transactions called for hereunder, has been duly authorized
by all necessary action on the part of such Note Seller. This Agreement
constitutes a valid and binding obligation of such Note Seller, enforceable
against such Note Seller in accordance with its terms except as limited by
bankruptcy and insolvency laws and other laws affecting the rights of creditors
generally.

        3.3 Investment. Such Note Seller is acquiring the Shares in good faith
for his or its own account and for the purpose of investment in Issuer and not
with a view to or for sale in connection with any distribution of such Shares or
any interest therein. Such Note Seller has a preexisting business or personal
relationship with Issuer or its officer, directors or controlling persons and,
by reason of such Note Seller's business and financial experience, has the
capacity to protect its own interest in connection with the acquisition of the
Shares. Such Note Seller represents and warrants that it is an "accredited
investor" within the meaning of paragraph (1), (2), (3), (7) or (8) of Rule
501(a) of the Act. Such Note Seller acknowledges that it has reviewed the
publicly filed information about Issuer, that it has received such other
information (from sources other than Issuer) as it has deemed necessary and
appropriate to make its own investment analysis and decision to acquire
securities of Issuer and that it has independently and without reliance on
Issuer or any oral or written representation or warranty from Issuer, its
officers, shareholders, directors or other representatives (other than
representations or warranties made by Issuer in this Agreement), made its own
decision to acquire such securities and enter into this Agreement. Such Note
Seller shall have no recourse against Issuer, its officers, shareholders,
directors or other representatives, nor shall any such person incur any
liability, for any misstatement (whether material or immaterial) or omission.

        Except for the foregoing representations and warranties, there are not
representations or warranties of any kind being given by any Note Seller to
Issuer in connection with this Agreement or the transactions contemplated by
this Agreement.

4.  Representations and Warranties of Issuer.  Issuer represents and warrants to
Note Sellers as follows:

        4.1 Organization and Authority. Issuer is a corporation duly organized,
validly existing and in good standing under the laws of California, and has all
necessary power to enter into and perform this Agreement.

                                       2
<PAGE>

        4.2 Authorization. The execution and delivery of this Agreement, and the
consummation of the transactions called for hereunder, has been duly authorized
by all necessary corporate and, subject to Section 5.1 hereof, shareholder
action on the part of Issuer, will not conflict with or result in a breach of
the articles of incorporation or bylaws of Issuer. This Agreement constitutes a
valid and binding obligation of Issuer, enforceable against Issuer in accordance
with its terms except as limited by bankruptcy and insolvency laws and other
laws affecting the rights of creditors generally.

        4.3 Offering. Subject in part to the truth and accuracy of the
representations of Note Sellers set forth in this Agreement, the offer, sale and
issuance of the Shares and the shares of Common Stock issuable upon conversion
of the Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act of 1933, as amended, and applicable state
securities laws.

        4.4 Validity of Shares. Upon issuance, the Shares will be duly and
validly issued, fully paid, non-assessable and free and clear of all Liens.
Subject to Section 5.1 hereof, the shares of Common Stock issuable upon
conversion of the Shares will be duly and validly reserved and, upon issuance in
accordance with the conversion provisions of the Shares, will be duly and
validly issued, fully paid, non-assessable and free and clear of all Liens.

5. Covenants of Issuer. Following the Closing, Issuer hereby covenants with each
Note Seller as follows:

        5.1 Shareholder Approval. As promptly as practicable after the Closing
and in any event prior to the earlier of January 15, 2001 and such date as
Issuer clears its proxy statement (filed prior to November 15, 2001) with the
Securities and Exchange Commission (the "SEC"), Issuer shall convene a meeting
of its shareholders at which such shareholders will be asked to approve, among
other matters: (a) an amendment to Issuer's Articles of Incorporation to
increase the authorized number of shares of Common Stock to allow for the
issuance of shares of Common Stock upon conversion of the Shares pursuant to the
Certificate; (b) the conversion feature of the Series F Preferred set forth in
Article IV of the Certificate; and (c) the issuance of shares of Common Stock to
Note Sellers upon conversion of the Shares pursuant to the Certificate. Issuer
shall promptly prepare and file with the SEC pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and as promptly as practicable
after receipt of comments from the SEC staff with respect thereto and any
required or appropriate amendments thereto shall mail to stockholders of Issuer,
a proxy statement (as amended or supplemented from time to time the "Proxy
Statement") in connection with such special meeting of shareholders
("Shareholders' Meeting"). Issuer shall notify Note Sellers promptly of the
receipt by it of any comments from the SEC or its staff and of any request by
the SEC for amendments or supplements to the Proxy Statement or for additional
information, and will supply Note Sellers with copies of all correspondence
between it and its representatives, on the one hand, and the SEC or the members
of its staff or any other governmental officials, on the other hand, with
respect to the Proxy Statement.

        5.2 Registration Rights Agreement. As promptly as practicable after the
Closing and in any event prior to filing the preliminary Proxy Statement with
the SEC, Issuer will enter into a written registration rights agreement with
each Note Seller (the "Registration Rights Agreement") (i) granting demand and

                                       3
<PAGE>

piggyback rights to cause the registration for resale of the Common Stock
issuable upon conversion of the Shares and (ii) confirming such rights with
respect to all other Common Stock now held, or available upon exercise or
conversion of other securities now held, by the Note Sellers or their
affiliates. Any registration rights so granted shall, with respect to
registrations on Form S-3, also provide that if Form S-3 is not available at the
time, Issuer will use Form S-1 and agree to file post-effective amendments to
such registration statement until all shares covered by the registration
statement have been distributed.

6. Agreements of the Parties.

     6.1 Conditions to Closing.

        (a) The obligation of Issuer to sell and of Note Sellers to acquire the
Shares at the Closing pursuant to this Agreement shall be subject to there being
no order of any court or administrative agency in effect which restrains or
prohibits the transactions contemplated hereby, and no suit, action,
investigation, inquiry or other legal or administrative proceeding having been
instituted and remaining pending on the date of the Closing, or threatened on
that date, which challenges the validity or legality of the transactions
contemplated hereby and which (i) has a reasonable likelihood of success on the
merits and (ii) if adversely determined, would render it unlawful, as of such
date, to effect the transactions contemplated by this Agreement substantially in
accordance with its terms.

        (b) The obligations of Note Sellers to purchase the Shares at the
Closing pursuant to the terms of this Agreement shall be subject to the
performance by Issuer in all material respects of its covenants and obligations
hereunder to be performed at or prior to the Closing and to all of Issuer's
representations and warranties hereunder being true and correct in all material
respects as if made on and, except if some other date is specifically set forth
therein, as of the date of the Closing.

        (c) The obligations of Issuer to sell the Shares at the Closing pursuant
to the terms of this Agreement shall be subject to the performance by Note
Sellers in all material respects of its covenants and obligations hereunder to
be performed at or prior to the Closing and to all of Note Sellers'
representations and warranties hereunder being true and correct in all material
respects as if made on and, except if some other date is specifically set forth
therein, as of the date of the Closing.

        6.2 Amendment to Certificate of Determinations. The Note Sellers hereby
agree that Issuer may, to the file an amendment to the Certificate of
Determinations which sets forth the rights, privileges and preferences of the
Shares to correct errors therein; provided such amendment does not materially
adversely affect the rights, privileges or preferences pertaining to the Shares.

7.      Termination of Agreement.  This Agreement may be terminated:

        (a) at any time by mutual agreement of the parties;

                                       4
<PAGE>

        (b) by either party, without prejudice to any other rights or remedies
it may have, if the Closing does not occur on or before October 15, 2001;
provided that the terminating party shall not be entitled to terminate this
Agreement if it is then in breach of this Agreement;

        (c) Note Sellers may terminate this Agreement at any time prior to the
Closing, without prejudice to any other rights or remedies it may have, if
Issuer shall have failed to comply with any of Issuer's covenants or obligations
contained in or contemplated by this Agreement or failed to deliver in a timely
manner any of the items to be delivered by Issuer pursuant to this Agreement in
form and substance reasonably satisfactory to Note Sellers and their counsel or
if any of the conditions to Closing to be satisfied by Issuer has not been
satisfied; or

        (d) Issuer may terminate this Agreement at any time prior to the
Closing, without prejudice to any other rights or remedies it may have, if Note
Sellers shall have failed to comply with any of Note Sellers' covenants or
obligations contained in or contemplated by this Agreement or failed to deliver
in a timely manner any of the items to be delivered by Note Sellers pursuant to
this Agreement in form and substance reasonably satisfactory to Issuer and its
counsel or if any of the conditions to Closing to be satisfied by Note Sellers
has not been satisfied.

8.      Miscellaneous.

        8.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, or by fax (and if by fax, sent concurrently by one of the other
methods provided herein), addressed to the parties at the addresses shown below,
or at any other address designated in writing by one party to the other party.
All notices shall be deemed to have been given upon delivery in the case of
notices personally delivered, or at the expiration of one business day following
delivery to the private delivery service, or two business days following the
deposit thereof in the United States mail, with postage prepaid or on the first
business day of receipt in the case of notices sent by fax.

                If to Note Sellers: Kayne Anderson Investment Management, Inc.
                                            and Fred Kayne
                                    1800 Avenue of the Stars, Second Floor
                                    Los Angeles, California 90067
                                Fax: 310-284-6444

                                    With a copy to:

                                    Fred Kayne
                                Fortune Fashions
                                    1800 Avenue of the Stars, Third Floor
                                    Los Angeles, California 90067
                                Fax: 310-278-1522

                                       5
<PAGE>

               If to Issuer:        The Right Start, Inc.
                                    26610 Agoura Road, Suite 250
                                    Calabasas, California 91302
                              Attn: General Counsel
                                Fax: 818.735.7242

        8.2 Integration: Amendment. This Agreement and the Registration Rights
Agreement sets forth in full the terms of the agreement between Note Sellers and
Issuer with respect to the subject matter hereof and is intended as the full,
complete and exclusive contract governing the agreement between Note Sellers and
Issuer regarding the subject hereof. This Agreement supersedes all prior
discussions, promises, representations, warranties, agreements and
understandings between Note Sellers and Issuer regarding the subject hereof.
This Agreement may not be modified or amended, nor may any rights hereunder be
waived, except in a writing signed by the party against whom enforcement of the
modification, amendment or waiver is sought. No course of dealing between the
parties, no usage of trade, and no parol or extrinsic evidence of any nature
shall be used or be relevant to supplement, explain or modify any term or
provision of this Agreement or any supplement or amendment thereto.

        8.3 General. Any waiver of any breach of this Agreement in a particular
instance shall not operate as a waiver of subsequent breaches of the same or a
different kind. Any party's exercise or failure to exercise any rights under
this Agreement in a particular instance shall not operate as a waiver of the
party's right to exercise the same or different rights in subsequent instances.
Nothing herein constitutes a waiver of any of Note Sellers' rights and remedies
against Rightstart.com Inc. or any other person, firm or corporation. In the
event of any litigation between the parties based upon or arising out of this
Agreement, the prevailing party shall be entitled to recover all of its
reasonable costs and expenses (including without limitation reasonable attorneys
fees) from the non-prevailing party. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. This Agreement does not create, and shall not be construed as
creating, any rights enforceable by any person other than Note Sellers and
Issuer. There are no third party beneficiaries of this Agreement. If any
provision of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal or unenforceable, the remaining provisions of this Agreement
shall nevertheless remain in full force and effect. The headings in this
Agreement are solely for convenience and shall be given no effect in the
construction or interpretation of this Agreement. This Agreement may be executed
in any number of counterparts, which together shall constitute one and the same
agreement. Time is of the essence in the performance of the obligations of the
parties hereunder. The Recitals at the beginning of this Agreement are hereby
incorporated herein and are part of this Agreement.

        8.4 WAIVER OF RIGHT TO JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO THIS AGREEMENT, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.

                                       6
<PAGE>

     8.5  Governing  Law.  This  Agreement is being entered into in the State of
California.  This Agreement  shall be governed by the internal laws (and not the
conflict of laws rules) of the State of California.

     8.6  Expenses.  Each of the  parties  shall  bear its own  legal  and other
expenses in connection  with this  Agreement and the  transactions  contemplated
hereby.

     8.7   Counterparts.   This  Agreement  may  be  executed  in  one  or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

                                            Note Sellers:

                                             /s/ Richard Kayne
                                            -------------------------
                                            Richard Kayne,

                                             /s/ Fred Kayne
                                            ------------------------
                                            Fred Kayne

                                            Palomar Ventures I, L.P.,
                                            By: Palomar Management Partners I,
                                                  LLP
                                            Its: General Partner

                                            By: /s/ Jim Gauer
                                            -----------------
                                            Its: Managing Member

                                            Marina Corporate LLC,

                                             /s/ Joseph Tang
                                             ---------------
                                            By: Joseph Tang
                                            Its: President

                                       7
<PAGE>

                                            ARBCO ASSOCIATIONS, L.P.

                                             /s/ David Shladovsky
                                             --------------------
                                            By:  David Shladovsky
                                            Its: General Counsel

                                            KAYNE ANDERSON DIVERSIFIED
                                             CAPITAL PARTNERS, L.P.

                                             /s/ David Shladovsky
                                             --------------------
                                            By:  David Shladovsky
                                            Its: General Counsel

                                            KAYNE ANDERSON NON-TRADITIONAL
                                             INVESTMENTS, L.P.

                                            /s/ David Shladovsky
                                             --------------------
                                            By:  David Shladovsky
                                            Its: General Counsel

                                            KAYNE ANDERSON OFFSHORE LIMITED

                                             /s/ David Shladovsky
                                             --------------------
                                            By:  David Shladovsky
                                            Its: General Counsel

                                            KAYNE ANDERSON CAPITAL PARTNERS,
                                              L.P.

                                             /s/ David Shladovsky
                                             --------------------
                                            By:  David Shladovsky
                                            Its: General Counsel

                                       8
<PAGE>

<PAGE>

                                     Issuer:

                                            THE RIGHT START, INC.

                                            By:/s/ Jerry R. Welch
                                               -------------------------
                                            Jerry R. Welch
                                            Chairman and Chief Executive Officer

                                       9
<PAGE>

<TABLE>
<CAPTION>

                                    EXHIBIT A

                       Amounts of Targoff-RS, LLC Notes per Note Seller

---------------------------------------- ------------- ----------------- -----------------
Name                                     No. of        No of                Aggregate
                                         Preferred     underlying        Principal Amount
                                         Shares        Common Shares

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

<S>                                        <C>             <C>              <C>
Richard Kayne                              498.038         498,038          $1,000,000

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

Fred Kayne                                 580.322         580,322         $1,200,000

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

ARBCO Associates, L.P.                      82.284          82,284           $200,000

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

Kayne Anderson Diversified Capital          41.142          41,142           $100,000
Partners, L.P.

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

Kayne Anderson Non-Traditional              41.142          41,142           $100,000
Investments, L.P.

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

Kayne Anderson Offshore Limited             30.857          30,857           $75,000

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

Kayne Anderson Capital Partners, L.P.      133.712         133,712           $325,000

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

Palomar Ventures I, L.P.                   132.954         132,954           $180,000

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

Marina Corporate LLC                        68.995          68,995           $95,055

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

</TABLE>

                                       10
<PAGE>

                                    EXHIBIT B
    Certificate of Determinations of the Series F Convertible Preferred Stock

                                       11
<PAGE><PAGE>
                                                                     EXHIBIT 4.1

                                    EXHIBIT B

                                  FORM OF NOTE

[THE FOLLOWING PARAGRAPH SHALL APPEAR ON THE FACE OF EACH RESTRICTED NOTE.]

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM

[THE COMPANY SHALL PLACE THE FOLLOWING PARAGRAPH ON THE FACE OF EACH NOTE HELD
BY OR TRANSFERRED TO AN "AFFILIATE" (AS DEFINED IN RULE 501(B) OF REGULATION D
UNDER THE SECURITIES ACT) OF THE COMPANY:]

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE HELD BY A PERSON WHO MAY BE
DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144 PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY BE
SOLD ONLY IN COMPLIANCE WITH RULE 144, PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A VALID EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT.

                                   XICOR, INC.

                  5.5% CONVERTIBLE SUBORDINATED NOTES DUE 2006

No.:_______                                                     $_______________
CUSIP No.: 984903 AC 8

        THIS 5.5% CONVERTIBLE SUBORDINATED NOTE DUE 2006 (this "Note") is one of
a duly authorized issue of Notes of Xicor, Inc., a corporation duly organized
and existing under the laws of the State of California (the "Company"),
designated as its 5.5% Convertible Subordinated Notes Due 2006, in an aggregate
principal amount of up to Forty-Five Million United States Dollars ($45,000,000)
(the "Notes"). For value received, the Company hereby promises to pay to
[______________], or registered assigns (the "Holder"), the principal sum of
[_____________] United States Dollars ($[______]) on November 19, 2006 (the
"Maturity Date") and to pay interest (an "Interest Payment") on the principal
sum outstanding from time to time under this Note, at the rate per annum
specified in the title of this Note, accrued from the date of issuance of this
Note and due and payable semi-annually on May 19 and November 19 of each year
(each, an "Interest Payment Date"), commencing May 19, 2002. If an Interest
Payment Date is not a Business Day (as defined below), then the Interest Payment
shall be due and payable on the Business Day immediately following such Interest
Payment Date. Interest

                                       1
<PAGE>
Payments will be paid to the Person (as defined below) in whose name this Note
(or one or more predecessor Notes) is registered at the close of business on the
record date (as defined below) for such Interest Payment on the Notes Register
(as defined in Section 6 of this Note). In the event that any Note or portion
thereof is called for redemption and the redemption date is subsequent to a
record date with respect to any Interest Payment Date and prior to such Interest
Payment Date, interest on such Note will be paid upon presentation and surrender
of such Note as provided in Section 2 of this Note. Any accrued and unpaid
interest which is not paid within five (5) Business Days of the Interest Payment
Date on which such payment of interest was due shall bear interest at the rate
of 12% per annum from such Interest Payment Date until the same is paid in full
(or, if less, the maximum interest rate then permitted by applicable law) (the
"Default Interest").

        This Note is one of a series of Notes issued in connection with the
transactions described in that certain Securities Purchase Agreement dated as of
November 16, 2001, by and between the Company and the parties listed on the
Schedule of Buyers attached thereto as Exhibit A (as such agreement may be
amended, supplemented and modified from time to time as provided in such
agreement, the "Securities Purchase Agreement") and certain other related
documents and agreements including, without limitation, the Transaction
Documents (as defined below). The Conversion Shares (as defined below) issued
upon conversion of this Note and the Holder hereof and thereof shall be entitled
to all of the rights and privileges set forth in the Transaction Documents.

SECTION 1. DEFINITIONS. Terms not defined herein have the meanings ascribed to
them in the Securities Purchase Agreement. The following terms as used in this
Note shall have the following meanings:

        (a) "Automatic Conversion Date" means the date fixed for Automatic
Conversion pursuant to Section 3(c) of this Note.

        (b) "Business Day" means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are required by law to
remain closed.

        (c) "Common Stock" means (i) the common stock, no par value per share,
of the Company, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of such
Common Stock.

        (d) "Conversion Price" shall be equal to $11.22, subject to further
adjustment as hereinafter provided.

        (e) "Conversion Shares" means all shares of Common Stock into which this
Note is convertible pursuant to Section 3 of this Note.

        (f) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exchangeable or exercisable
for Common Stock.

        (g) "Maturity Date" means November 19, 2006 or, if such date does not
fall on a Business Day or on a Trading Day, then the next Business Day.

                                       2
<PAGE>
        (h) "Option" means any rights, warrants or options to subscribe for or
purchase or otherwise acquire Common Stock or Convertible Securities.

        (i) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization or association and a government or any department or agency
thereof.

        (j) "Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for purposes of this definition, any Note authenticated
and delivered under Section 10 of this Note in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note.

        (k) "Principal Market" means The Nasdaq National Market ("NASDAQ") or if
the Common Stock is not traded on NASDAQ then the principal securities exchange
or trading market for the Common Stock.

        (l) "Registration Rights Agreement" means that certain Registration
Rights Agreement, dated as of November 16, 2001, between the Company, Robertson
Stephens, Inc. ("Robertson") and the initial purchasers of the Notes, as such
agreement may be amended, supplemented and modified from time to time in a
writing signed by all of the signatories thereto.

        (m) "record date" means, with respect to any Interest Payment Date, the
4th day of the month in which an Interest Payment Date shall occur, whether or
not such date is a Business Day.

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

        (o) "Trading Day" means (x) a day on which the Principal Market is open
for business or (y) if the applicable security is not so listed on a Principal
Market or admitted for trading or quotation, a Business Day.

        (p) "Transaction Documents" means the Securities Purchase Agreement, the
Registration Rights Agreement, the Notes, the Warrants (as defined below) and
each of the other agreements entered into by the parties hereto and thereto in
connection with the transactions contemplated by the Securities Purchase
Agreement.

        (q) "Warrants" means the warrants to purchase shares of Common Stock
issued pursuant to the Securities Purchase Agreement and all warrants issued in
exchange, transfer or replacement thereof.

        (r) "Warrant Shares" means all shares of Common Stock issuable upon
exercise of the Warrants.

                                       3
<PAGE>
SECTION 2. REDEMPTION.

        (a) Redemption Price.

               (1) Subject to Section 2(a)(2) of this Note, the Company may, at
its option, redeem all or part of the Notes, upon notice as set forth in Section
2(b) of this Note, and at a redemption price equal to One Thousand United States
Dollars ($1,000) per One Thousand United States Dollars ($1,000) principal
amount of the Notes to be redeemed, plus accrued and unpaid interest thereon, if
any, to, but excluding, the date of redemption; provided, however, that the
Company shall only have the right of redemption if (a) the Closing Sale Price
(as defined in Section 3(e)(6) of this Note) per share of the Common Stock has
exceeded 175% of the Conversion Price then in effect (not including the effect
of any adjustment to the Conversion Price made pursuant to Section 3(k) of this
Note) for at least fifteen (15) Trading Days (as defined in Section 3(e)(6) of
this Note) within a period of twenty (20) consecutive Trading Days (the
"Determination Period") and (b) within ten (10) days following the Determination
Period, the Company mails to holders the notice required pursuant to Section
2(b) of this Note (the date of such notice, the "Notice Date"), and provided
further that prior to the last date on which the shelf registration statement
(the "Shelf Registration Statement") contemplated by the Registration Rights
Agreement covering resales of all of the Common Stock issuable upon conversion
of the Notes and the Warrants is required to remain effective, the Shelf
Registration Statement covering all of such Common Stock is effective and
available for use at all times during the period beginning thirty (30) days
prior to the Notice Date and ending on the earlier of the redemption date or the
last date on which the Shelf Registration Statement is required to remain
effective and available pursuant to the Registration Rights Agreement, and is
expected to remain effective and available for use until the earlier of thirty
(30) days following the redemption date or the last date on which the Shelf
Registration Statement is required to remain effective pursuant to the
Registration Rights Agreement.

               (2) From and after November 19, 2004, if the Company, at its
option, redeems all or part of the Notes, upon notice as set forth in Section
2(b) of this Note, the Company shall pay the Holder the appropriate redemption
price (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest thereon, if any, to, but not including, the date of
redemption, if redeemed during the 12-month period beginning on November 19 of
the years indicated below:

<TABLE>
<CAPTION>
                       YEAR                               REDEMPTION PRICE
                       ----                               ----------------
<S>                                                       <C>
                       2004                                    102.2%
                       2005                                    101.1%
                       2006                                     100%
</TABLE>

        (b) Notice of Redemption. In case the Company shall desire to exercise
such right to redeem all or, as the case may be, a portion of the Notes in
accordance with the right reserved so to do, the Company shall give notice of
such redemption to Holders of the Notes to be redeemed by mailing, first class
postage prepaid, a notice of such redemption not less than thirty (30) days and
not more than ninety (90) days before the date fixed for redemption to such
Holders at their

                                       4
<PAGE>
last addresses as they shall appear upon the Notes Register. Any notice that is
mailed in the manner herein provided shall be conclusively presumed to have been
duly given, whether or not the registered holder receives the notice. In any
case, failure duly to give such notice to the Holder of any Notes designated for
redemption in whole or in part, or any defect in the notice, shall not affect
the validity of the proceedings for the redemption of any other Notes. In the
case of any redemption of Notes prior to the expiration of any restriction on
such redemption provided in the terms of this Note, the Company shall provide in
such notice to Holders evidence of compliance with any such restriction.

        Each such notice of redemption shall specify the aggregate principal
amount of Notes to be redeemed, the "CUSIP" number or numbers of such Notes, the
date fixed for redemption, the redemption price at which Notes are to be
redeemed, the place or places of payment, that payment will be made upon
presentation and surrender of such Notes, that interest accrued to, but
excluding, the date fixed for redemption will be paid as specified in said
notice, and that on and after said date interest thereon or on the portion
thereof to be redeemed will cease to accrue. Such notice shall also state the
current Conversion Price and the date on which the right to convert such Notes
or portions thereof into Common Stock will expire. If fewer than all the Notes
are to be redeemed, the notice of redemption shall identify the Notes to be
redeemed. In case this Note is to be redeemed in part only, the notice of
redemption shall state the portion of the principal amount thereof to be
redeemed and shall state that on and after the date fixed for redemption, upon
surrender of this Note, a new Note or Notes in principal amount equal to the
unredeemed portion thereof will be issued.

        On or prior to the redemption date specified in the notice of redemption
given as provided in this Section 2(b), the Company will deposit with one or
more paying agents (or, if the Company is acting as its own paying agent, set
aside, segregate and hold in trust as provided in Section 5 of this Note) an
amount of money sufficient to redeem on the redemption date all the Notes (or
portions thereof) so called for redemption (other than those theretofore
surrendered for conversion into Common Stock) at the appropriate redemption
price, together with accrued interest to, but excluding, the date fixed for
redemption; provided, however, that if such payment is made on the redemption
date it must be received by the paying agent by 1:00 p.m. Eastern Standard Time,
on such date. If this Note when called for redemption is converted pursuant
hereto, any money deposited with the paying agent or so segregated and held in
trust for the redemption of the Note shall be paid to the Company upon its
request, or, if then held by the Company, shall be discharged from such trust.

        If less than all the Notes are to be redeemed, the Company shall give
the Holders at least thirty (30) days' notice in advance of the date fixed for
redemption as to the aggregate principal amount of Notes to be redeemed, and the
Notes shall be redeemed pro rata. The Company may, if and whenever it shall so
elect, by delivery of instructions signed on its behalf by its President or the
Chief Financial Officer, instruct any paying agent to call all or any part of
the Notes for redemption and to give notice of redemption in the manner set
forth in this Section 2(b), such notice to be in the name of the Company or its
own name as such paying agent may deem advisable. In any case in which notice of
redemption is to be given by any such paying agent, the Company shall deliver or
cause to be delivered to, or permit to remain with, such paying agent, such Note
Register, transfer books or other records, or suitable copies or extracts
therefrom, sufficient to enable the paying agent to give any notice by mail that
may be required under the

                                       5
<PAGE>
provisions of this Section 2(b).

        (c) Payment Upon Redemption. If notice of redemption has been given as
above provided, the Notes or portion of Notes with respect to which such notice
has been given shall, unless converted into Common Stock pursuant to the terms
of this Note, become due and payable on the date and at the place or places
stated in such notice at the applicable redemption price and interest accrued
to, but excluding, the date fixed for redemption, and on and after said date
(unless the Company shall default in the payment of such Notes at the redemption
price and interest accrued to, but excluding, said date) interest on the Notes
or portion of Notes so called for redemption shall cease to accrue and such
Notes shall cease after the close of business on the Business Day next preceding
the date fixed for redemption to be convertible into Common Stock and to be
entitled to any benefit or security under this Note, and the holders thereof
shall have no right in respect of such Notes except the right to receive the
redemption price thereof and unpaid interest to, but excluding, the date fixed
for redemption. On presentation and surrender of such Notes at a place of
payment specified in said notice, the said Notes or the specified portions
thereof to be redeemed shall be paid and redeemed by the Company at the
applicable redemption price and interest accrued thereon to, but excluding, the
date fixed for redemption; provided, however, that, if the applicable redemption
date is an Interest Payment Date, the semi-annual payment of interest becoming
due on such date shall be payable to the holders of such Notes registered as
such on the relevant record date.

        Upon presentation of any Note redeemed in part only, the Company shall
execute and deliver to the Holder, at its own expense, a new Note or Notes, of
authorized denominations, in principal amount equal to the unredeemed portion of
the Notes so presented.

        Notwithstanding the foregoing, the Company shall not be entitled to
redeem any Notes or mail any notice of optional redemption during the
continuance of a default in payment of interest or premium on the Notes or of
any Event of Default. If any Note called for redemption shall not be so paid
upon surrender thereof for redemption, the principal and premium, if any, shall,
until paid or duly provided for, bear interest from the date fixed for
redemption at the rate borne by the Note and such Note shall remain convertible
into Common Stock until the principal and premium, if any, shall have been paid
or duly provided for.

SECTION 3. CONVERSION OF NOTE.

        (a) Right to Convert. Subject to and upon compliance with the provisions
of this Note, the Holder of any Note shall have the right, at his option, at any
time following the date of original issuance of the Notes and prior to the close
of business on November 19, 2006 (except that, with respect to any Note or
portion of a Note that shall be called for redemption, such right to convert
shall terminate, except as provided in the fifth paragraph of Section 3(b) and
Section 2(c) of this Note, at the close of business on the Business Day next
preceding the date fixed for redemption of such Note or portion of a Note unless
the Company shall default in payment due upon redemption thereof), to convert
the principal amount of any such Note, or any portion of such principal amount
which is One Thousand United States Dollars ($1,000) or an integral multiple
thereof, into that number of fully paid and non-assessable shares of Common
Stock (as such shares shall then be constituted) obtained by dividing the
principal amount of the Note or portion thereof surrendered for conversion by
the Conversion Price in effect at such time, by

                                       6
<PAGE>
surrender of the Note so to be converted in whole or in part in the manner
provided in Section 2(b) of this Note. A Note with respect to which a Holder has
delivered a notice in accordance with Section 8(b) of this Note regarding such
Holder's election to require the Company to repurchase such Holder's Notes
following the occurrence of a Repurchase Event may be converted in accordance
with this Section 3 only if such Holder withdraws such notice by delivering a
written notice of withdrawal to the Company prior to the close of business on
the last Business Day prior to the day fixed for repurchase.

        (b) Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion. In order to exercise the conversion privilege with respect to any
Note in definitive form, the Holder of any such Note to be converted in whole or
in part shall (i) surrender such Note, duly endorsed, at the Company's principal
executive offices (or such other office or agency of the Company as it may
designate in writing to the Holder hereof), accompanied by the funds, if any,
required by the last paragraph of this Section 3(b), (ii) shall transmit via
facsimile (or otherwise physically deliver) a copy of a properly completed
Conversion Notice in the form attached hereto as Exhibit A (the "Conversion
Notice") (iii) shall provide copies of the Conversion Notice via facsimile to
the Company's transfer agent, American Stock Transfer & Trust Company,
attention: Joe Alicia (fax: (718) 921-8355) and the Company's legal counsel,
Wilson Sonsini Goodrich & Rosati, attention: Don S. Williams, Esq. (fax: (650)
496-4084), and (iv) shall provide such additional documentation or certification
as the Company may reasonably request to the office or agency specified in the
Conversion Notice that the Holder elects to convert this Note or such portion
thereof. The Conversion Notice shall also state the name or names (with address)
in which the shares of Common Stock which shall be issuable on such conversion
shall be issued, and shall be accompanied by transfer taxes, if required
pursuant to Section 4 of this Note. Each such Note surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the same
name as the registration of such Note, be duly endorsed by, or be accompanied by
instruments of transfer (including a broker's letter regarding compliance with
the prospectus delivery requirement, if applicable) in form satisfactory to the
Company duly executed by the Holder or his duly authorized attorney.

        The Company shall use its commercially reasonable efforts to, within
five (5) Business Days after the Conversion Date (as defined below) with respect
to any Note, subject to compliance with any restrictions on transfer if shares
issuable on conversion are to be issued in a name other than that of the Holder
(as if such transfer were a transfer of the Note or Notes (or portion thereof)
so converted), cause its transfer agent to issue and deliver to such Holder at
the address specified in the Conversion Notice (i) a Certificate, registered in
the name of the Holder or its designee, for the number of full shares of Common
Stock issuable upon the conversion of such Note or portion thereof in accordance
with the provisions of this Section 3 and (ii) a check or cash in respect of any
fractional interest in respect of a share of Common Stock arising upon such
conversion, as provided in Section 3(d) (which payment, if any, shall be paid no
later than ten (10) Business Days after the Conversion Date). In case any Note
of a denomination greater than One Thousand United States Dollars ($1,000) shall
be surrendered for partial conversion, the Company shall execute and deliver to
the Holder of the Note so surrendered, without charge to him, a new Note or
Notes in authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note.

        If the Company shall not have delivered the number of shares of Common
Stock issued

                                       7
<PAGE>
upon conversion of Notes by any Holder within ten (10) Business Days after the
Conversion Date with respect to such Notes, the Company shall pay liquidated
damages to such Holder in the amount of one-half percent (0.5%) per month of the
outstanding principal amount of Notes so converted by such Holder.

        The conversion shall be deemed to have been effected as to any such Note
(or portion thereof) on the date on which the requirements set forth above in
this Section 3(b) have been satisfied as to such Note (or portion thereof) (such
date, the "Conversion Date"), and the person in whose name any shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become on
the Conversion Date the Holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Note shall be surrendered. For purposes of determining satisfaction of the
requirement set forth above with respect to the Conversion Date for any Note,
any facsimile required to be sent shall be deemed to have been sent on a given
day if such facsimile was sent before 1:00 p.m., Eastern Standard Time, on such
date, to the number listed above and a confirmation of transmission of such
facsimile is obtained.

        The Company shall pay in cash, on any Note or portion thereof
surrendered for conversion during the period from the close of business on any
Interest Payment Date to which interest has been fully paid through the close of
business on the Business Day preceding the record date for the next such
Interest Payment Date, accrued and unpaid interest, if any, to, but excluding,
the date of conversion and liquidated damages, if any. Any such payment of
interest shall be made with respect to such Note within ten (10) Business Days
after the Conversion Date. Notwithstanding the foregoing, any Note or portion
thereof surrendered for conversion during the period from the close of business
on the record date for any Interest Payment Date to which interest has been
fully paid through the close of business on the Business Day next preceding such
Interest Payment Date shall (unless such Note or portion thereof being converted
shall have been called for redemption pursuant to a redemption notice mailed to
the Holders in accordance with Section 2(b) of this Note or shall have become
due prior to such Interest Payment Date as a result of a Repurchase Event) be
accompanied by payment, in immediately available funds or other funds acceptable
to the Company, of an amount equal to the interest otherwise payable on such
Interest Payment Date on the principal amount being converted; provided,
however, that no such payment need be made if there shall exist at the time of
conversion a default in the payment of interest on the Notes. Except as provided
in this Section 3(b), no adjustment shall be made for interest accrued on any
Note converted or for dividends on any shares issued upon the conversion of such
Note as provided in this Section 3.

        (c) Company Right to Force Automatic Conversion.

               (1) The Company may, at its option, automatically convert all or
a portion of the Notes (an "Automatic Conversion") at any time prior to the
Maturity Date if the Closing Sale Price (as defined in Section 3(e)(6) of this
Note) per share of the Common Stock has exceeded 175% of the Conversion Price
then in effect for at least fifteen (15) Trading Days (as defined in Section
3(e)(6) of this Note) within a period of twenty (20) consecutive Trading Days
ending

                                       8
<PAGE>
five (5) Trading Days prior to the Automatic Conversion Date, provided that a
registration statement covering the resale of the Conversion Shares is effective
from the date of the Automatic Conversion Notice (as defined below) through and
including the Automatic Conversion Date to the extent required under the
Registration Rights Agreement.

               (2) Unless the Company shall have theretofore called for
redemption all of the Notes then outstanding, the Company shall give to all
Holders of Notes by mailing, first class postage prepaid, a notice (the
"Automatic Conversion Notice") of the Automatic Conversion not more than thirty
(30) days but not less than five (5) days before the Automatic Conversion Date
to such Holders at their last addresses as they shall appear upon the Notes
Register. Any notice that is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the registered
Holder receives the notice. In any case, failure to duly give such notice to the
Holder of any Notes designated for redemption in whole or in part, or any defect
in the notice, shall not affect the validity of the proceedings for the
automatic conversion of any other Notes.

               Each Automatic Conversion Notice shall state:

                      (A) the Automatic Conversion Date,

                      (B) the CUSIP number(s) of the Note(s) to be automatically
converted,

                      (C) the place or places where such Notes are to be
surrendered for conversion, and

                      (D) the Conversion Price then in effect.

               If any of the foregoing provisions or other provisions of this
Section are inconsistent with applicable law, such law shall govern.

               (3) In the event of an Automatic Conversion, the Company shall
issue and deliver a certificate or certificates for the number of full shares of
Common Stock issuable upon conversion of the Notes along with any cash in
respect of any fractional shares of Common Stock otherwise issuable upon
conversion (as provided in Section 3(d) of this Note), for payment to the Holder
as promptly after the Automatic Conversion Date as practicable in accordance
with the provisions of this Section 3.

               (4) All Notes subject to the Automatic Conversion shall be
delivered to the Company to be canceled.

        (d) Cash Payments in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon
conversion of Notes. If more than one Note shall be surrendered for conversion
at one time by the same Holder, the number of full shares which shall be
issuable upon conversion thereof shall be computed on the basis of the aggregate
principal amount of the Notes (or specified portions thereof to the extent
permitted hereby) so surrendered for conversion. If any fractional share of
stock otherwise would be issuable upon the conversion of any Note or Notes, the
Company shall calculate and pay a cash adjustment in lieu of such fractional
share at the current market value thereof to the Holder of

                                       9
<PAGE>
Notes. For the purposes of this Section 3(d), the current market value of a
share of Common Stock shall be the Closing Sale Price (determined as provided in
Section 3(e)(6) of this Note) on the first Trading Day immediately preceding the
day on which the Notes (or specified portions thereof) are deemed to have been
converted; provided, however, that if the Common Stock is not listed on a
Principal Market or quoted, then the Closing Sale Price shall be determined in
good faith by the Company's Board of Directors.

        (e) Adjustment of Conversion Price. The Conversion Price shall be
adjusted from time to time by the Company as follows:

               (1) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which (i) the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the Record Date
(as defined in Section 3(e)(6) of this Note) fixed for such determination and
(ii) the denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, such
reduction in the Conversion Price to become effective immediately after the
opening of business on the day following the Record Date. If any dividend or
distribution of the type described in this Section 3(e)(1) is declared but not
so paid or made, the Conversion Price shall again be adjusted to the Conversion
Price which would then be in effect if such dividend or distribution had not
been declared.

               (2) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Price
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and
conversely, in case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective.

               (3) In case the Company shall issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than the
Current Market Price (as defined in Section 3(e)(6) of this Note) on the Record
Date fixed for the determination of shareholders entitled to receive such rights
or warrants, the Conversion Price shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price in effect at the
opening of business on the date after such Record Date by a fraction of which
(i) the numerator shall be the sum of the number of shares of Common Stock
outstanding at the close of business on the Record Date plus the number of
shares that the aggregate offering price of the total number of shares so
offered for subscription or purchase would purchase at such Current Market
Price, and of which (ii) the denominator shall be the sum of the number of
shares of Common Stock outstanding at the close of business on the Record Date
plus the total number of additional shares of Common Stock so offered for
subscription or purchase. Such adjustment shall become

                                       10
<PAGE>
effective immediately after the opening of business on the day following the
Record Date fixed for determination of shareholders entitled to receive such
rights or warrants. To the extent that shares of Common Stock are not delivered
pursuant to such rights or warrants, upon the expiration or termination of such
rights or warrants the Conversion Price shall be readjusted to the Conversion
Price that would then be in effect had the adjustments made upon the issuance of
such rights or warrants been made on the basis of delivery of only the number of
shares of Common Stock actually delivered. In the event that such rights or
warrants are not so issued, the Conversion Price shall again be adjusted to be
the Conversion Price that would then be in effect if such date fixed for the
determination of shareholders entitled to receive such rights or warrants had
not been fixed. In determining whether any rights or warrants entitle the
holders to subscribe for or purchase shares of Common Stock at less than such
Current Market Price, and in determining the aggregate offering price of such
shares of Common Stock, there shall be taken into account any consideration
received for such rights or warrants, the value of such consideration, if other
than cash, to be determined in good faith by the Company's Board of Directors.

               (4) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of capital
stock of the Company (other than any dividends or distributions to which Section
3(e)(1) of this Note applies) or evidences of its indebtedness or other assets
(including securities, but excluding (1) any rights or warrants referred to in
Section 3(e)(3) of this Note and (2) dividends and distributions paid
exclusively in cash (except as set forth in Section 3(e)(5) and (6) of this
Note, (the foregoing hereinafter in this Section 3(e)(4) called the "Additional
Securities")), unless the Company elects to reserve such Additional Securities
for distribution to the Holders upon conversion of the Notes so that any such
Holder converting Notes will receive upon such conversion, in addition to the
shares of Common Stock to which such Holder is entitled, the amount and kind of
such Additional Securities which such Holder would have received if such Holder
had converted its Notes into Common Stock immediately prior to the Record Date
(as defined in Section 3(e)(6) of this Note) for such distribution of the Notes
then, in each such case, the Conversion Price shall be reduced so that the same
shall be equal to the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on the Record Date (as defined
in Section 3(e)(6) of this Note) with respect to such distribution by a fraction
of which (i) the numerator shall be the Current Market Price (determined as
provided in Section 3(e)(6) of this Note) on such date less the fair market
value (as determined in good faith by the Company's Board of Directors, whose
determination shall be conclusive) on such date of the portion of the Additional
Securities so distributed applicable to one share of Common Stock and (ii) the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day following the
Record Date; provided, however, that in the event the then fair market value (as
so determined) of the portion of the Additional Securities so distributed
applicable to one share of Common Stock is equal to or greater than the Current
Market Price on the Record Date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each Holder shall have the right to receive upon
conversion of a Note (or any portion thereof) the amount of Common Stock such
Holder would have received had such Holder converted such Note (or portion
thereof) immediately prior to such Record Date. In the event that such dividend
or distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
dividend or distribution had not been declared. If the Company's Board of
Directors determines the fair

                                       11
<PAGE>
market value of any distribution for purposes of this Section 3(e)(4) by
reference to the actual or when issued trading market for any securities
comprising all or part of such distribution, it must in doing so consider the
prices in such market over the same period (the "Reference Period") used in
computing the Current Market Price pursuant to Section 3(e)(6) of this Note to
the extent possible, unless the Company's Board of Directors determines in good
faith that the fair market value during the Reference Period would not be in the
best interest of the Holder.

               In the event that the Company implements a new shareholder rights
plan, such rights plan shall provide that, upon conversion of the Notes, the
Holders will receive, in addition to the Common Stock issuable upon such
conversion, the rights issued under such rights plan (as if the Holder had
converted the Notes prior to implementing the rights plan and notwithstanding
the occurrence of an event causing such rights to separate from the Common Stock
at or prior to the time of conversion). Any distribution of rights or warrants
pursuant to a shareholder rights plan complying with the requirements set forth
in the immediately preceding sentence of this paragraph shall not constitute a
distribution of rights or warrants for the purposes of this Section 3(e)(4).

               Rights or warrants distributed by the Company to all holders of
Common Stock entitling the holders thereof to subscribe for or purchase shares
of the Company's capital stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a specified
event or events ("Trigger Event"): (i) are deemed to be transferred with such
shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in
respect of future issuances of Common Stock, shall be deemed not to have been
distributed for purposes of this Section 3(e)(4) (and no adjustment to the
Conversion Price under this Section 3(e)(4) will be required) until the
occurrence of the earliest Trigger Event. If such right or warrant is subject to
subsequent events, upon the occurrence of which such right or warrant shall
become exercisable to purchase different securities, evidences of indebtedness
or other assets or entitle the holder to purchase a different number or amount
of the foregoing or to purchase any of the foregoing at a different purchase
price, then the occurrence of each such event shall be deemed to be the date of
issuance and record date with respect to a new right or warrant (and a
termination or expiration of the existing right or warrant without exercise by
the holder thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other event (of the
type described in the preceding sentence) with respect thereto, that resulted in
an adjustment to the Conversion Price under this Section 3(e)(4), (1) in the
case of any such rights or warrants that shall all have been redeemed or
repurchased without exercise by any holders thereof, the Conversion Price shall
be readjusted upon such final redemption or repurchase to give effect to such
distribution or Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase price received by
a holder of Common Stock with respect to such rights or warrants (assuming such
holder had retained such rights or warrants), made to all holders of Common
Stock as of the date of such redemption or repurchase, and (2) in the case of
such rights or warrants all of which shall have expired or been terminated
without exercise, the Conversion Price shall be readjusted as if such rights and
warrants had never been issued.

        For purposes of this Section 3(e)(4) and Sections 3(e)(1) and (3) of
this Note, any dividend or distribution to which this Section 3(e)(4) is
applicable that also includes shares of Common Stock, or rights or warrants to
subscribe for or purchase shares of Common Stock to

                                       12
<PAGE>
which Sections 3(e)(1) or 3(e)(3) of this Note applies (or both), shall be
deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other than
such shares of Common Stock or rights or warrants to which Section 3(e)(3) of
this Note applies (and any Conversion Price reduction required by this Section
3(e)(4) with respect to such dividend or distribution shall then be made)
immediately followed by (2) a dividend or distribution of such shares of Common
Stock or such rights or warrants (and any further Conversion Price reduction
required by Sections 3(e)(1) and (3) of this Note with respect to such dividend
or distribution shall then be made, except (A) the Record Date of such dividend
or distribution shall be substituted as "the date fixed for the determination of
shareholders entitled to receive such dividend or other distribution," "Record
Date fixed for such determination" and "Record Date" within the meaning of
Section 3(e)(1) of this Note and as "the date fixed for the determination of
shareholders entitled to receive such rights or warrants," "the Record Date
fixed for the determination of the shareholders entitled to receive such rights
or warrants" and "such Record Date" within the meaning of Section 3(e)(3) of
this Note and (B) any shares of Common Stock included in such dividend or
distribution shall not be deemed "outstanding at the close of business on the
date fixed for such determination" within the meaning of Section 3(e)(1) of this
Note.

               (5) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any cash that is
distributed upon a merger or consolidation to which Section 3(f) of this Note
applies or as part of a distribution referred to in Section 3(e)(4) of this
Note), in an aggregate amount that, combined together with (1) the aggregate
amount of any other such distributions to all holders of its Common Stock made
in cash within the twelve (12) months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to this Section
3(e)(5) has been made, and (2) the aggregate of any cash plus the fair market
value (as determined by the Company's Board of Directors, whose determination
shall be conclusive) of consideration payable in respect of any tender offer by
the Company or any of its Subsidiaries for all or any portion of the Common
Stock concluded within the twelve (12) months preceding the date of payment of
such distribution exceeds ten percent (10%) of the product of the Current Market
Price (determined as provided in Section 3(e)(6) of this Note) on the Record
Date with respect to such distribution times the number of shares of Common
Stock outstanding on such date, then, and in each such case, immediately after
the close of business on such date, the Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the close of business on such Record Date
by a fraction of which (i) the numerator of which shall be equal to the Current
Market Price on the Record Date less an amount equal to the quotient of (x) such
combined amount and (y) the number of shares of Common Stock outstanding on the
Record Date and (ii) the denominator of which shall be equal to the Current
Market Price on such date; provided, however, that in the event the portion of
the cash so distributed applicable to one (1) share of Common Stock is equal to
or greater than the Current Market Price of the Common Stock on the Record Date,
in lieu of the foregoing adjustment, adequate provision shall be made so that
each Holder shall have the right to receive upon conversion of a Note (or any
portion thereof) the amount of cash such Holder would have received had such
Holder converted such Note (or portion thereof) immediately prior to such Record
Date. In the event that such dividend or distribution is not so paid or made,
the Conversion Price shall again be adjusted to be the Conversion Price that
would then be in effect if such dividend or distribution had not been declared.

                                       13
<PAGE>
               (6) For purposes of this Section 3(e), the following terms shall
have the meaning indicated:

                      (A) "Closing Sale Price" with respect to any securities on
any day shall mean the closing sale price regular way on such day or, in case no
such sale takes place on such day, the average of the reported closing bid and
asked prices, regular way, in each case on the Nasdaq National Market or New
York Stock Exchange, as applicable, or, if such security is not listed or
admitted to trading on such National Market or Exchange, on the principal
national security exchange or quotation system on which such security is quoted
or listed or admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the average of
the closing bid and asked prices of such security on the over-the-counter market
on the day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service, or if not so
available, in such manner as furnished by any New York Stock Exchange member
firm selected from time to time by the Board of Directors for that purpose,
whose determination shall be conclusive.

                      (B) "Current Market Price" shall mean the average of the
daily Closing Sale Prices per share of Common Stock for the ten (10) consecutive
Trading Days immediately prior to the date in question; provided, however, that
(1) if the "ex" date (as hereinafter defined) for any event (other than the
issuance or distribution requiring such computation) that requires an adjustment
to the Conversion Price pursuant to Section 3(e)(1), (2), (3), (4) or (5) of
this Note occurs during such ten (10) consecutive Trading Days, the Closing Sale
Price for each Trading Day prior to the "ex" date for such other event shall be
adjusted by multiplying such Closing Sale Price by the same fraction by which
the Conversion Price is so required to be adjusted as a result of such other
event, (2) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 3(e)(1), (2), (3), (4) or (5) of this Note
occurs on or after the "ex" date for the issuance or distribution requiring such
computation and prior to the day in question, the Closing Sale Price for each
Trading Day on and after the "ex" date for such other event shall be adjusted by
multiplying such Closing Sale Price by the reciprocal of the fraction by which
the Conversion Price is so required to be adjusted as a result of such other
event, and (3) if the "ex" date for the issuance or distribution requiring such
computation is prior to the day in question, after taking into account any
adjustment required pursuant to clause (1) or (2) of this proviso, the Closing
Sale Price for each Trading Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value (as determined
in good faith by the Company's Board of Directors in a manner consistent with
any determination of such value for purposes of Section 3(e)(4) of this Note,
whose determination shall be conclusive) of the evidences of indebtedness,
shares of capital stock or assets being distributed applicable to one share of
Common Stock as of the close of business on the day before such "ex" date.

                      (C) "Fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's length transaction.

                      (D) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which the holders of
Common Stock have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other

                                       14
<PAGE>
property, the date fixed for determination of shareholders entitled to receive
such cash, securities or other property (whether such date is fixed by the Board
of Directors or by statute, contract or otherwise).

               (7) The Company may make such reductions in the Conversion Price,
in addition to those required by Sections 3(e)(1), (2), (3), (4) or (5) of this
Note, as the Board of Directors considers to be advisable to avoid or diminish
any income tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes.

               (8) To the extent permitted by applicable law, the Company from
time to time may reduce the Conversion Price by any amount for any period of
time if the period is at least twenty (20) days, the reduction is irrevocable
during the period and the Board of Directors shall have made a determination
that such reduction would be in the best interests of the Company, which
determination shall be conclusive and described in a Board Resolution. Whenever
the Conversion Price is reduced pursuant to the preceding sentence, the Company
shall mail to the Holder of each Note at his last address appearing on the Note
Register a notice of the reduction at least fifteen (15) days prior to the date
the reduced Conversion Price takes effect, and such notice shall state the
reduced Conversion Price and the period during which it will be in effect.

               (9) No adjustment in the Conversion Price shall be required under
this Section 3(e) unless such adjustment would require an increase or decrease
of at least one percent (1%) in such price; provided, however, that any
adjustments which by reason of this Section 3(e)(9) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 3 shall be made by the Company and shall be
made to the nearest cent or to the nearest one hundredth of a share, as the case
may be. No adjustment need be made for a change in the par value or no par value
of the Common Stock.

               (10) Whenever the Conversion Price is adjusted as provided in
this Section 3(e), the Company shall promptly prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted Conversion Price
and the date on which each adjustment becomes effective and shall mail such
notice of such adjustment of the Conversion Price to the Holder of each Note at
his last address appearing on the Note Register, within twenty (20) days of the
effective date of such adjustment. Failure to deliver such notice shall not
effect the legality or validity of any such adjustment.

               (11) In any case in which this Section 3(e) provides that an
adjustment shall become effective immediately after a Record Date for an event,
the Company may defer until the occurrence of such event (i) issuing to the
Holder of any Note converted after such Record Date and before the occurrence of
such event the additional shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event over and above the Common
Stock issuable upon such conversion before giving effect to such adjustment and
(ii) paying to such Holder any amount in cash in lieu of any fraction pursuant
to Section 3(d) of this Note.

               (12) For purposes of this Section 3(e), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of

                                       15
<PAGE>
Common Stock. The Company will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the Company.

        (f) Effect of Reclassification, Consolidation, Merger or Sale. Subject
to the provisions of Section 8, if any of the following events occur, namely (i)
any reclassification or change of the outstanding shares of 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, or as a result of a subdivision or combination), (ii) any
consolidation, merger or combination of the Company with another person as a
result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock (other than as a result of a change in name, a
change in par value or a change in the jurisdiction of incorporation), (iii) any
statutory exchange as a result of which holders of Common Stock generally shall
be entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for such Common Stock (such transaction, a
"Statutory Exchange"), or (iv) any sale or conveyance of the properties and
assets of the Company as, or substantially as, an entirety to any other person
as a result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, then the Company or the successor or purchasing
person, as the case may be, shall execute and deliver to the Holder a successor
Note providing that such Note shall be convertible into the kind and amount of
shares of stock and other securities or property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger,
combination, Statutory Exchange, sale or conveyance by a holder of a number of
shares of Common Stock issuable upon conversion of such Notes (assuming, for
such purposes, a sufficient number of authorized shares of Common Stock
available to convert all such Notes) immediately prior to such reclassification,
change, consolidation, merger, combination, Statutory Exchange, sale or
conveyance assuming such holder of Common Stock did not exercise his rights of
election, if any, that holders of Common Stock who were entitled to vote or
consent to such transaction had as to the kind or amount of securities, cash or
other property receivable upon such consolidation, merger, combination,
Statutory Exchange, sale or conveyance (provided that, if the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
combination, Statutory Exchange, sale or conveyance is not the same for each
share of Common Stock in respect of which such rights of election shall not have
been exercised ("non-electing share"), then for the purposes of this Section
3(f) the kind and amount of securities, cash or other property receivable upon
such consolidation, merger, combination, Statutory Exchange, sale or conveyance
for each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). Such successor
Note shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 3. If, in the case
of any such reclassification, change, consolidation, merger, combination,
Statutory Exchange, sale or conveyance, the stock or other securities and assets
receivable thereupon by a holder of shares of Common Stock include shares of
stock or other securities and assets of a person other than the successor or
purchasing person, as the case may be, in such reclassification, change,
consolidation, merger, combination, Statutory Exchange, sale or conveyance, then
such successor Note shall also be executed by such other person and shall
contain such additional provisions to protect the interests of the Holders of
the Notes as the Company's Board of Directors shall reasonably consider
necessary by reason of the foregoing, including to the extent practicable the
provisions providing for the repurchase rights set forth in Section 8 of this
Note.

                                       16
<PAGE>
        The above provisions of this Section shall similarly apply to successive
reclassifications, changes, consolidations, mergers, combinations, sales and
conveyances.

        If this Section 3(f) applies to any event or occurrence, Section 3(e) of
this Note shall not apply.

        (g) Reservation of Shares; Shares to be Fully Paid; Listing of Common
Stock. The Company shall provide, free from preemptive rights, out of its
authorized but unissued shares or shares held in treasury, reserved for the
purpose of issuance, no less than one hundred five percent (105%) of the number
of shares of Common Stock needed to provide for the issuance of the Conversion
Shares upon conversion of all of the Notes and the Warrant Shares upon exercise
of all of the Warrants without regard to any limitations on conversions or
exercise.

        The Company will not, by amendment of its articles of incorporation or
through any reorganization, 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 by it hereunder. Without limiting the generality of the
foregoing, the Company (i) will not increase the par value of any shares of
Common Stock issuable upon conversion of this Note above the Exercise Price then
in effect, (ii) will take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon conversion of this Note and (iii)
will not take any action which results in any adjustment of the Conversion Price
if the total number of shares of Common Stock issuable after the conversion of
all of the Notes and exercise of all of the Warrants would exceed the total
number of shares of Common Stock then authorized by the Company's article of
incorporation and available for the purpose of issue upon such exercise.

         The Company covenants that all shares of Common Stock issuable upon
conversion of the Notes will be fully paid and non-assessable by the Company and
free from all taxes, liens and charges with respect to the issue thereof.

         The Company is obligated to register the shares of Common Stock
issuable upon conversion of the Notes for resale under the Securities Act
pursuant to the Registration Rights Agreement. The shares of Common Stock
issuable upon conversion of the Notes shall constitute Registrable Securities
(as such term is defined in the Registration Rights Agreement). Each Holder of
Notes shall be entitled to all of the benefits afforded to a Holder of any such
Registrable Securities under the Registration Rights Agreement and such Holder,
by its acceptance of this Note, agrees and shall agree to be bound by and to
comply with the terms and conditions of the Registration Rights Agreement
applicable to such Holder as a Holder of such Registrable Securities.

        The Company shall use commercially reasonable efforts to promptly secure
the listing of the shares of Common Stock issuable upon exercise of this Note
upon each national securities exchange and automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of this Note) and shall use commercially reasonable
efforts to maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to time issuable
upon the

                                       17
<PAGE>
exercise of this Note; and the Company shall use commercially reasonable efforts
to list on the Principal Market or automated quotation system, as the case may
be, and shall maintain such listing of, any other shares of capital stock of the
Company issuable upon conversion of the Notes if and so long as any shares of
the same class shall be listed on such Principal Market or automated quotation
system. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 3(g).

        (h) Notice to Holders Prior to Certain Actions. In case:

               (1) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or

               (2) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any share of
any class or any other rights or warrants; or

               (3) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding Common Stock or a
change from no par value to par value), or of any consolidation or merger to
which the Company is a party and for which approval of any shareholders of the
Company is required, or of the sale or transfer of all or substantially all of
the assets of the Company; or

               (4) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;

               the Company shall mail to each Holder of Notes at his address
appearing on the Note Register as promptly as possible but in any event at least
fifteen (15) days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.

        (i) Holder Not Deemed a Shareholder. Except as otherwise specifically
provided herein, prior to the Holder's receipt of Common Stock upon conversion
of this Note, the Holder of this Note shall not be entitled, as such, to any
rights of a shareholder of the Company, including, without limitation, the right
to vote or to consent to any action of the shareholders of the Company, to
receive dividends or other distributions, to exercise any preemptive right or to
receive dividends or other distributions, to exercise any preemptive right or to
receive any notice of meetings of shareholders of the Company, and shall not be
entitled to receive any notice of any proceedings of the Company. In addition,
nothing contained in this Note shall be construed

                                       18
<PAGE>
as imposing any liabilities on such Holder to purchase any securities (upon
exercise of this Note or otherwise) or as a shareholder of the Company, whether
such liabilities are asserted by the Company or by creditors of the Company.

SECTION 4. TAXES.

        (a) Taxes on Shares Issued. The issue of stock certificates on
conversions of Notes shall be made without charge to the converting Holder for
any tax in respect of the issue thereof. 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 stock in any name other than that of the Holder of
any 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.

        (b) Notwithstanding any other provision of this Note or any other
Transaction Document, for income tax purposes, any assignee or transferee shall
agree that the Company and the Company's Transfer Agent shall be permitted to
withhold from any amounts payable to such assignee or transferee any taxes
required by law to be withheld from such amounts. Unless exempt from the
obligation to do so, each assignee or transferee shall execute and deliver to
the Company or the Company's transfer agent, as applicable, properly completed
Form W-8 or W-9, indicating that such assignee or transferee is not subject to
back-up withholding for United States Federal income tax purposes. Each assignee
or transferee that does not deliver such a form pursuant to the preceding
sentence shall have the burden of proving to the Company's reasonable
satisfaction that it is exempt from such requirement.

SECTION 5. COVENANTS.

        (a) Payment of Principal, Premium and Interest. The Company will duly
and punctually pay or cause to be paid the principal of (and premium, if any)
and interest on this Note at the places, at the respective times and in the
manner provided herein. Liquidated damages paid pursuant to Section 3(b) of this
Note, if any, shall be paid at the times and in the manner provided herein for
payment of principal, premium and interest within ten (10) Business Days of the
date from which such liquidated damages accrued pursuant to Section 3(b) of this
Note. Registration Delay Payments on the Notes paid pursuant to Section 2(f) of
the Registration Rights Agreement, if any, shall be paid at the times and in the
manner provided therein. Each installment of interest on the Notes due on any
semi-annual interest payment date may be paid by mailing checks for the interest
payable to or upon the written order of the Holders of Notes entitled thereto as
they shall appear on the Notes Registry; provided, however, that, with respect
to any Holder of Notes with an aggregate principal amount equal to or in excess
of Five Hundred Thousand United States Dollars ($500,000), at the request of
such Holder in writing to the Company, interest on such Holder's Notes shall be
paid by wire transfer in immediately available funds in accordance with the wire
transfer instructions supplied by such Holder from time to time to the paying
agent (if any) or the Company at least five (5) Business Days prior to the
applicable record date.

                                       19
<PAGE>
        (b) Paying Agents. The Company may, from time to time, appoint one or
more paying agents for the Notes, and shall cause each such paying agent to
execute and deliver to the Company an instrument pursuant to which such agent
shall agree with the Company that it will hold all sums held by it as such agent
for the payment of the principal of (and premium, if any) or interest on the
Notes (whether such sums have been paid to it by the Company or by any other
obligor of such Notes) in trust for the benefit of the Holders entitled thereto.
If the Company shall act as its own paying agent with respect to the Notes, it
will on or before each due date of the principal of (and premium, if any) or
interest on Notes, set aside, segregate and hold in trust for the benefit of the
Holders entitled thereto a sum sufficient to pay such principal (and premium, if
any) or interest so becoming due on Notes until such sums shall be paid to such
Holders or otherwise disposed of as herein provided and will promptly notify the
Holders of such action, or any failure (by it or any other obligor on such
Notes) to take such action. Whenever the Company shall have one or more paying
agents for the Notes, it will, prior to each due date of the principal of (and
premium, if any) or interest on any Notes, deposit with the paying agent a sum
sufficient to pay the principal (and premium, if any) or interest so becoming
due, such sum to be held in trust for the benefit of the Holders entitled to
such principal, premium or interest, and the Company will promptly notify the
Holders of this action or failure so to act.

SECTION 6. REGISTRATION OF TRANSFER AND EXCHANGE.

        (a) Notes may be exchanged upon presentation thereof at the principal
executive offices of the Company (or such other office or agency of the Company
as it may designate in writing to the Holder hereof) for other Notes of
authorized denominations, and for a like aggregate principal amount, upon
payment of a sum sufficient to cover any tax or other governmental charge in
relation thereto as provided in Section 4 of this Note. In respect of any Notes
so surrendered for exchange, the Company shall execute and deliver in exchange
therefor the Note or Notes that the Holder making the exchange shall be entitled
to receive, bearing numbers not contemporaneously outstanding.

        (b) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate in writing to the
Holder hereof) a register (the "Notes Register"), in which the Company shall
record the name and address of the Person in whose name this Note has been
issued, as well as the name and address of each transferee. The Company may
treat the Person in whose name any Note is registered on the Notes Register as
the owner and Holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Note.

        (c) Upon surrender for registration of transfer of any Note to the
Company at the principal executive offices of the Company (or such other office
or agency of the Company as it may designate in writing to the Holder hereof),
and satisfaction of the requirements for such transfer set forth in this Section
6, the Company shall execute and deliver in the name of the designated
transferee or transferees, one or more new Notes of any authorized denominations
and of a like aggregate principal amount and bearing such restrictive legends as
may be required under this Section 6.

        All Notes presented or surrendered for exchange or registration of
transfer, as provided in this Section 6, shall be accompanied by a notice
substantially in the form attached hereto as

                                       20
<PAGE>
Exhibit C (the "Notice of Transfer"), duly executed by the registered Holder or
by such Holder's duly authorized attorney in writing.

        Prior to and as a condition to any sale or transfer of a Note or the
Common Stock issued upon conversion thereof that bears either or both of the
restrictive legends set forth in Section 6(d) of this Note, respectively (other
than pursuant to a registration statement that has been declared effective under
the Securities Act), such transferee shall, unless the Company otherwise agrees
in writing, furnish to the Company a signed letter containing representations
and agreements relating to restrictions on transfer substantially in the form
set forth in Exhibit D attached to this Note (the "Form of Transfer Letter of
Representations").

        (d) Every Note that bears or is required under this Section 6(d) to bear
the legends set forth below (together with any Common Stock issued upon
conversion of the Notes and required to bear such legends set forth below,
collectively, the "Restricted Securities") shall be subject to the restrictions
on transfer set forth in this Section 6(d) (including the legends set forth
below), unless such restrictions on transfer shall be waived by written consent
of the Company, and the Holder of each such Restricted Security, by such
Holder's acceptance thereof, agrees to be bound by all such restrictions on
transfer. As used in this Section 6(d), the term "transfer" encompasses any
sale, transfer or other disposition whatsoever of any Restricted Security.
Notwithstanding the foregoing, the Notes may be pledged in connection with a
bona fide margin account or other loan secured by the Notes hereunder, and no
Holder effecting a pledge of Notes shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Note, including, without limitation, this Section 6(d); provided, however,
that in order to make any sale, transfer or assignment of Notes, such Holder and
its pledgee makes such disposition in accordance with or pursuant to a
registration statement or an exemption under the Securities Act.

        Until two (2) years after the original issuance date of any Note, any
certificate evidencing such Note (and all securities issued in exchange therefor
or substitution thereof, including Common Stock, if any, issued upon conversion
thereof) shall bear a restrictive legend in the following form:

               THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
               THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
               SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
               SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
               REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
               ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR
               AN APPLICABLE EXEMPTION THEREFROM. THE SECURITIES MAY BE PLEDGED
               IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
               SECURED BY THE SECURITIES.

In addition, any Note or Conversion Shares held by or transferred to an
"affiliate" (as defined in Rule 501(b) of Regulation D under the Securities Act)
of the Company shall be stamped or imprinted with a legend substantially in the
following form:

                                       21
<PAGE>
               THE SECURITIES REPRESENTED HEREBY ARE HELD BY A PERSON WHO MAY BE
               DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144
               PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
               "SECURITIES ACT"), AND MAY BE SOLD ONLY IN COMPLIANCE WITH RULE
               144, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
               SECURITIES ACT OR PURSUANT TO A VALID EXEMPTION FROM REGISTRATION
               UNDER THE SECURITIES ACT.

        The legends set forth above shall be removed and the Company (in the
case of Notes) or the transfer agent (in the case of Conversion Shares) shall
issue a new Note or Notes of like tenor and aggregate principal amount, or a
certificate or certificates representing Conversion Shares, as appropriate,
without such legends to the Holder of the Note(s) or Conversion Shares upon
which they are stamped, (i) if such Note(s) or Conversion Shares are registered
for resale under the Securities Act and are transferred or sold pursuant to such
registration, (ii) if, in connection with a sale transaction, such holder
provides the Company with an opinion of counsel reasonably acceptable to the
Company to the effect that a public sale, assignment or transfer of the Note(s)
or Conversion Shares may be made without registration under the Securities Act,
or (iii) upon expiration of the two (2)-year period under Rule 144(k)
promulgated under the Securities Act (or any successor rule). In the event Rule
144(k) (or any successor rule) is amended to change the two (2)-year period, the
reference in the preceding sentence shall be deemed to be a reference to such
changed period, provided that such change shall not become effective if it is
otherwise prohibited by, or would otherwise cause a violation of, the
then-applicable federal securities laws. The Company shall not require such
opinion of counsel for the sale of Securities in accordance with Rule 144 of the
Securities Act, provided the Seller provides such representations that the
Company shall reasonably request confirming compliance with the requirements of
Rule 144.

SECTION 7. EVENTS OF DEFAULT. The following shall constitute "Events of
Default":

        (a) any Event of Default under any other Note; or

        (b) the Company shall default in the payment when due of (i) any
installment of interest or liquidated damages as provided in Section 3(b) of
this Note or the Registration Delay Payment, if any, upon any of the Notes, and
such default shall continue for thirty (30) calendar days after the due date
thereof, (ii) the principal of and premium, if any, on any of the Notes, either
at maturity or in connection with any redemption, by declaration or otherwise,
or (iii) a default in the payment of the Repurchase Price in respect of any Note
on the repurchase date therefor in accordance with the provisions of Section 8
of this Note; or

        (c) any of the representations or warranties made by the Company herein
or in the Transaction Documents shall be false or misleading in any material
respect at the time made and such condition (to the extent capable of being
cured) shall continue uncured for a period of ten (10) Business Days after
notice from the Holders of not less than fifteen percent (15%) in aggregate
principal amount of the Notes then outstanding of such condition; or

                                       22
<PAGE>
        (d) the Company shall fail to duly observe or perform any of the
covenants on the part of the Company in the Transaction Documents, (including
without limitation, (i) the failure to deliver shares of Common Stock required
to be delivered upon conversion of this Note in accordance with Section 3 of
this Note within (30) Business Days of such Conversion Date, (ii) failure on the
part of the Company to provide a written notice of a Repurchase Event in
accordance with Section 8(b) of this Note) and such failure shall continue for
thirty (30) days after notice by the Holders of not less than fifteen percent
(15%) in aggregate principal amount of the Notes then outstanding; or

        (e) the Company or any Subsidiary shall fail to make any payment at
maturity, including any applicable grace period, in respect of Indebtedness of,
or guaranteed or assumed by, the Company or any Subsidiary, in a principal
amount then outstanding in excess of Three Million United States Dollars
($3,000,000), and the continuance of such failure for a period of fifteen (15)
days after there shall have been given, by registered or certified mail, to the
Company by the Holders of not less than fifteen percent (15%) in aggregate
principal amount of the Notes then outstanding, a written notice specifying such
default and requiring the Company to cause such default to be cured or waived
and stating that such notice is a "Notice of Default" hereunder; or

        (f) the Company or any Subsidiary shall default with respect to any
Indebtedness of, or guaranteed or assumed by, the Company or any Subsidiary,
which default results in the acceleration of Indebtedness in a principal amount
then outstanding in excess of Three Million United States Dollars ($3,000,000),
and such Indebtedness shall not have been discharged or such acceleration shall
not have been rescinded or annulled for a period of fifteen (15) days after
there shall have been given, by registered or certified mail, to the Company by
the Holders of not less than fifteen percent (15%) in aggregate principal amount
of the Notes then outstanding, a written notice specifying such default and
requiring the Company to cause such Indebtedness to be discharged or cause such
default to be cured or waived or such acceleration to be rescinded or annulled
and stating that such notice is a "Notice of Default" hereunder; or

        (g) the Company or any Subsidiary shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due; or

        (h) an involuntary case or other proceeding shall be commenced against
the Company or any Subsidiary seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) consecutive
days.

        Unless an Event of Default shall have been waived in writing by the
Holder (which

                                       23
<PAGE>
waiver shall not be deemed to be a waiver of any subsequent default), upon the
occurrence of an Event of Default, and for so long as such Event of Default
shall be continuing, at the option of and (except in the case of clause (i)
above) on notice by the Holder to the Company in writing and in the Holder's
sole discretion, the Holder may consider this Note immediately due and payable,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any other instruments contained
to the contrary notwithstanding to the extent permitted by applicable law, and
the Holder may immediately, and without expiration of any further period of
grace, enforce any and all of the Holder's rights and remedies provided herein
or any other rights or remedies afforded by law. In such event the principal of
and premium, if any, on all the Notes and the interest accrued thereon
(including liquidated damages and the Registration Delay Payments to the extent
accrued and unpaid) shall be due and payable immediately, anything in this Note
contained to the contrary notwithstanding. If an Event of Default specified in
Section 7(i) of this Note occurs and is continuing with respect to the Company,
the principal of all the Notes and the interest accrued thereon shall be
immediately due and payable. In addition to the foregoing, upon an Event of
Default, the rate of interest on this Note shall, to the maximum extent of the
law, be permanently increased by two percent (2%) per annum (i.e., from 5.5% to
7.5% per annum) commencing on the first day of the thirty (30) day period (or
part thereof) following the Event of Default. Any such interest which is not
paid when due shall, to the maximum extent permitted by law, accrue interest
until paid at the rate from time to time applicable to interest on the Notes as
to which the Event of Default has occurred. The Company shall within one (1)
Business Day notify each Holder of Notes at their last address in the Notes
Register upon becoming aware of the occurrence of any default or Event of
Default (whether or not waived by any other Holder of Notes) or of any action
taken by any Holder of Notes with respect to the occurrence of any Event of
Default, and shall deliver to the Holders a statement specifying such default or
Event of Default and the action the Company has taken, is taking or proposes to
take with respect thereto.

        (i) Collection of Indebtedness and Suits for Enforcement.

               (1) The Company covenants that (i) in case it shall default in
the payment of any installment of interest on any of the Notes as and when the
same shall have become due and payable, and such default shall have continued
for a period of thirty (30) days, or (ii) in case it shall default in the
payment of the principal of (or premium, if any, on) any of the Notes when the
same shall have become due and payable, whether upon maturity of the Notes or
upon redemption, repurchase or upon declaration or otherwise, then, upon demand
of the Holders of not less than fifteen percent (15%) in aggregate principal
amount of the Notes then outstanding, the Company will pay to the Holders of the
Notes, the whole amount that then shall have been become due and payable on all
such Notes for principal (and premium, if any) or interest, or all of the
foregoing, as the case may be, with interest upon the overdue principal (and
premium, if any) and (to the extent that payment of such interest is enforceable
under applicable law) upon overdue installments of interest at the rate per
annum expressed in the Notes; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection.

               (2) If the Company shall fail to pay such amounts forthwith upon
such demand, the Holders of not less than fifteen percent (15%) in aggregate
principal amount of the Notes then outstanding, shall be entitled and empowered
to institute any action or proceedings at law or in equity for the collection of
the sums so due and unpaid, and may prosecute any such

                                       24
<PAGE>
action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or other obligor upon the Notes, wherever
situated.

               (3) In case of any receivership, insolvency, liquidation,
bankruptcy, reorganization, readjustment, arrangement, composition or judicial
proceedings affected the Company, or its creditors or property, the Holders of
not less than fifteen percent (15%) in aggregate principal amount of the Notes
then outstanding shall have power to intervene in such proceedings and take any
action therein that may be permitted by the court and shall (except as may be
otherwise provided by law) be entitled to file such proofs of claim and other
papers and documents as may be necessary or advisable in order to have the
claims of the Holders of Notes allowed for the entire amount due and payable by
the Company under the Notes at the date of institution of such proceedings and
for any additional amount that may become due and payable by the Company after
such date, and to collect and receive any moneys or other property payable or
deliverable on any such claim, and to distribute the same.

               Nothing contained herein shall be deemed to authorize any Holder
to authorize or consent to or accept or adopt on behalf of any other Holder any
plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof or to authorize another Holder to vote
in respect of the claim of any other Holder in any such proceeding.

        (j) Application of Moneys Collected. Any moneys collected pursuant to
this Section 7 shall be applied in the following order, in case of the
distribution of such moneys on account of principal (or premium, if any) or
interest, upon presentation of the Notes, and notation thereon the payment, if
only partially paid, and upon surrender thereof if fully paid:

               FIRST: To the payment of all Senior Indebtedness of the Company
if and to the extent required by Section 9 of this Note; and

               SECOND: To the payment of the amounts then due and unpaid upon
Notes for principal (and premium, if any) and interest, in respect of which or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Notes for principal (and premium, if any) and interest, respectively.

        (k) Limitation on Suits. No Holder of any Note shall have any right by
virtue or by availing of any provision of this Note to institute any suit,
action or proceeding in equity or at law upon or under or with respect to this
Note or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless the Holders of not less than fifteen percent (15%) in
aggregate principal amount of the Notes then outstanding shall have determined
to institute such action, suit or proceeding.

        Notwithstanding anything contained herein to the contrary, the right of
any Holder of any Note to receive payment of the principal of (and premium, if
any) and interest on such Note, as therein provided, on or after the respective
due dates expressed in such Note (or in the case of

                                       25
<PAGE>
redemption, on the redemption date), or to institute suit for the enforcement of
any such payment on or after such respective dates or redemption date, shall not
be impaired or affected without the consent of such Holder, and by accepting a
Note hereunder it is expressly understood, intended and covenanted by the taker
and Holder of every Note with every other such taker and Holder, that no one or
more Holders of Notes shall have any right in any manner whatsoever by virtue or
by availing of any provision of this Note to affect, disturb or prejudice the
rights of the Holders of any other of such Notes, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Note, except in the manner herein provided and for the equal, ratable
and common benefit of all Holders of Notes. For the protection and enforcement
of the provisions of this Section 7(k), each and every Holder and shall be
entitled to such relief as can be given either at law or in equity.

        (l) Rights and Remedies Cumulative; Delay or Omission Not Waiver.

               (1) All powers and remedies given by this Section 7 to the
Holders of Notes shall, to the extent permitted by law, be deemed cumulative and
not exclusive of any other powers and remedies available to the Holders of the
Notes, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Note or otherwise
established with respect to such Notes.

               (2) No delay or omission of any Holder of any of the Notes to
exercise any right or power accruing upon any Event of Default occurring and
continuing as aforesaid shall impair any such right or power, or shall be
construed to be a waiver of any such default or on acquiescence therein; and,
subject to the provisions of Section 7(k) of this Note, every power and remedy
given by this Section 7 or by law to the Holders of Notes may be exercised from
time to time, and as often as shall be deemed expedient, by the Holders of
Notes.

        (m) Control by Holders of Notes. The Holders of a majority in aggregate
principal amount of the Notes at the time outstanding (determined in accordance
with Section 12(g) of this Note), shall have the right to direct the time,
method and place of conducting any proceeding for any remedy; provided, however,
that such direction shall not be in conflict with any rule of law or with this
Note or be unduly prejudicial to the rights of Holders of Notes at the time
outstanding. The Holders of a majority in aggregate principal amount of the
Notes at the time outstanding (determined in accordance with Section 12(g) of
this Note) affected thereby may on behalf of the Holders of all of the Notes
waive any past default in the performance of any of the covenants contained
herein and its consequences, except a default in the payment of the principal of
(or premium, if any) or interest on, any of the Notes as and when the same shall
become due by the terms of such Notes otherwise than by acceleration. Upon any
such waiver, the default covered thereby shall be deemed to be cured for all
purposes of this Note and the Company and the Holders of the Notes shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon.

        (n) Undertaking to Pay Costs. The Company and each Holder of any Notes,
by such Holder's acceptance thereof, shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under the Notes, the filing by any party litigant in such suit
of an undertaking to pay the costs of such suit, and that such court may

                                       26
<PAGE>
in its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by any Holder
of Notes, or group of Holders of Notes holding more than fifteen percent (15%)
in aggregate principal amount of the Notes then outstanding (determined in
accordance with Section 12(f) of this Note), or to any suit instituted by any
Holder of Notes for the enforcement of the payment of the principal of or
interest on (or liquidated damages or Registration Delay Payments with respect
to) any Note, on or after the respective due dates expressed in such Note.

SECTION 8. REPURCHASE UPON A REPURCHASE EVENT.

        (a) Repurchase Right. If, at any time prior to November 19, 2006 there
shall occur a Repurchase Event, then each Holder shall have the right, at such
Holder's option, to require the Company to repurchase all of such Holder's
Notes, or any portion thereof (in principal amounts of One Thousand United
States Dollars ($1,000) or integral multiples thereof), on the date (the
"repurchase date") that is forty (40) calendar days after the date of the
Company Notice (as defined in Section 8(b) below) of such Repurchase Event (or,
if such 40th day is not a Business Day, the next succeeding Business Day). Such
repurchase shall be made in cash at a price equal to one hundred and five
percent (105%) of the principal amount of Notes such Holder elects to require
the Company to repurchase, together with accrued interest, if any, to the
repurchase date (the "Repurchase Price"); provided, however, that if such
repurchase date is May 19 or November 19 then the interest payable on such date
shall be paid to the Holder of record of the Note on the next preceding November
19 or May 19, respectively. Notwithstanding anything in this Section 8 to the
contrary, if a redemption date pursuant to Section 2 of this Note shall occur
prior to any repurchase date established pursuant to a Company Notice under
Section 8(b) of this Note, provided that the Company shall have deposited or set
aside an amount of money sufficient to redeem such Notes as set forth in Section
2(b) of this Note on or before such repurchase date, all such Notes shall be
redeemed pursuant to Section 2 of this Note and the repurchase rights hereunder
shall have no effect.

        (b) Notices; Method of Exercising Repurchase Right, Etc.

               (1) Unless the Company shall have theretofore called for
redemption all of the outstanding Notes and deposited or set aside an amount of
money sufficient to redeem such Notes on the redemption date as set forth in
Section 2(b) of this Note, on or before the tenth (10th) calendar day after the
occurrence of a Repurchase Event, the Company shall mail to all Holders of
record of the Notes a notice (the "Company Notice") in the form as prepared by
the Company of the occurrence of the Repurchase Event and of the repurchase
right set forth herein arising as a result thereof. The Company shall also cause
a copy of such notice of a repurchase right, or a summary of the information
contained therein, to be published once in a newspaper of general circulation in
the City of New York. The Company Notice shall contain the following
information:

                      (A) the repurchase date;

                                       27
<PAGE>
                      (B) the CUSIP number(s) of the Note(s) subject to the
repurchase right;

                      (C) the date by which the repurchase right must be
exercised;

                      (D) the last date by which the election to require
repurchase, if submitted, must be revoked;

                      (E) the Repurchase Price;

                      (F) a description of the procedure which a Holder must
follow to exercise a repurchase right; and

                      (G) the Conversion Price then in effect, the date on which
the right to convert the principal amount of the Notes to be repurchased will
terminate and the place or places where Notes may be surrendered for conversion.

No failure of the Company to give the foregoing notices or defect therein shall
limit any Holder's right to exercise a repurchase right or affect the validity
of the proceedings for the repurchase of Notes.

               (2) To exercise a repurchase right, a Holder shall deliver to the
Company on or before the close of business on the thirty-fifth (35th) day after
the Company Notice was mailed (i) written notice to the Company (or agent
designated by the Company for such purpose) of the Holder's exercise of such
right in substantially the form attached hereto as Exhibit B (the "Repurchase
Notice"), which Repurchase Notice shall set forth the name of the Holder, the
principal amount of the Notes to be repurchased, a statement that an election to
exercise the repurchase right is being made thereby, and (ii) the Notes with
respect to which the repurchase right is being exercised, duly endorsed for
transfer to the Company. Election of repurchase by a Holder shall be revocable
at any time prior to, but excluding, the repurchase date, by delivering written
notice to that effect to the Company prior to the close of business on the
Business Day prior to the repurchase date.

               (3) If the Company fails to repurchase on the repurchase date any
Notes (or portions thereof) as to which the repurchase right has been properly
exercised, then the principal of such Notes shall, until paid, bear interest to
the extent permitted by applicable law from the repurchase date at the rate
borne by the Note and each such Note shall be convertible into Common Stock in
accordance with Section 3 of this Note (without giving effect to Section 8(b)(2)
of this Note) until the principal of such Note shall have been paid or duly
provided for.

               (4) Any Note that is to be repurchased only in part shall be
surrendered duly endorsed for transfer to the Company and accompanied by
appropriate evidence of genuineness and authority satisfactory to the Company
duly executed by the Holder thereof (or his attorney duly authorized in
writing), and the Company shall execute and deliver to the Holder of such Note
without service charge, a new Note or Notes, containing identical terms and
conditions, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the Note so surrendered.

                                       28
<PAGE>
               (5) On or prior to the repurchase date, the Company shall deposit
with a paying agent (or, if the Company is acting as its own paying agent,
segregate and hold in trust as provided in Section 5 of this Note) the
Repurchase Price in cash for payment to the Holder on the repurchase date;
provided that if payment is to be made in cash and such cash payment is to be
made on the repurchase date, it must be received by the paying agent, as the
case may be, by 1:00 p.m., Eastern Standard Time, on such date.

               (6) If the Company is unable to repurchase on the repurchase date
all of the Notes (or portions thereof) as to which the repurchase right has been
properly exercised, the aggregate amount of Notes the Company may repurchase
shall be allocated pro rata among each Note (or portion thereof) surrendered for
repurchase, based on the principal amount of such Note, in proportion to the
aggregate amount of Notes surrendered for repurchase.

               (7) All Notes delivered for repurchase shall be canceled by the
Company.

        (c) Certain Definitions. For purposes of this Section 8:

               (1) the term "beneficial owner" shall be determined in accordance
with Rule 13d-3 and 13d-5, as in effect on the date of the original execution of
this Note, promulgated by the Securities and Exchange Commission pursuant to the
Exchange Act;

               (2) the term "person" or "group" shall include any syndicate or
group which would be deemed to be a "person" under Section 13(e) and 14(d) of
the Exchange Act as in effect on the date of the original execution of this
Note; and

               (3) the term "Continuing Director" means at any date a member of
the Company's Board of Directors (i) who was a member of such board on the date
of the Securities Purchase Agreement or (ii) who was nominated or elected by at
least a majority of the directors who were Continuing Directors at the time of
such nomination or election or whose election to the Company's Board of
Directors was recommended or endorsed by at least a majority of the directors
who were Continuing Directors at the time of such nomination or election or such
lesser number comprising a majority of a nominating committee if authority for
such nominations or elections has been delegated to a nominating committee whose
authority and composition have been approved by at least a majority of the
directors who were continuing directors at the time such committee was formed.
(Under this definition, if the Board of Directors of the Company as of the date
of this Note were to approve a new director or directors and then resign, no
Change in Control would occur even though all of the current members of the
Board of Directors would thereafter cease to be in office).

               (4) the term "Repurchase Event" means a Change in Control or a
Termination of Trading.

               (5) a "Change in Control" shall be deemed to have occurred when
(i) any "person" or "group" (as such terms are used in Sections 13(e) and 14(d)
of the Exchange Act) is or becomes the beneficial owner of shares representing
more than fifty percent (50%) of the combined voting power of the then
outstanding securities entitled to vote generally in elections of directors of
the Company (the "Voting Stock"); (ii) approval by the shareholders of the
Company of any plan or proposal for the liquidation, dissolution or winding up
of the Company;

                                       29
<PAGE>
(iii) the Company (A) consolidates with or merges into any other corporation or
any other corporation merges into the Company, and in the case of any such
transaction, the outstanding Common Stock of the Company is changed or exchanged
into other assets or securities as a result, unless the shareholders of the
Company immediately before such transaction own, directly or indirectly
immediately following such transaction, at least a majority of the combined
voting power of the outstanding voting securities of the corporation resulting
from such transaction in substantially the same proportion as their ownership of
the Voting Stock immediately before such transaction, or (B) conveys, transfers
or leases all or substantially all of its assets to any person (other than a
wholly-owned subsidiary as a result of which the Company becomes a holding
company); or (iv) any time Continuing Directors do not constitute a majority of
the Board of Directors of the Company (or, if applicable, a successor
corporation to the Company); provided that a Change in Control shall not be
deemed to have occurred if at least ninety percent (90%) of the consideration
(excluding cash payments for fractional shares) in the transaction or
transactions constituting the Change in Control consists of (and the capital
stock into which the Notes would be convertible consists of) shares of capital
stock that are, or upon issuance will be, traded on a United States national
securities exchange or approved for trading on an established automated
over-the-counter trading market in the United States.

               (6) the term "Termination of Trading" means that the Common Stock
is neither listed for trading on a national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States.

SECTION 9. SUBORDINATION OF NOTES.

        (a) Subordination to Senior Indebtedness. The Company covenants and
agrees, and each Holder of a Note, by his or her acceptance thereof, likewise
covenants and agrees, that all Notes shall be issued subject to the provisions
of this Section 9 and to the extent and in the manner hereinafter set forth in
this Section 9, the indebtedness represented by the Notes and the payment of the
principal amount, Conversion Price, and interest thereon, liquidated damages or
any other amounts in respect of each and all of the Notes are hereby expressly
made subordinate and junior and subject in right of payment to the prior payment
in full of all Senior Indebtedness of the Company now outstanding or hereinafter
incurred. "Senior Indebtedness" means the principal of, and premium, if any, and
interest on, fees, costs and expenses in connection with and other amounts due
on (i) all indebtedness of the Company for monies borrowed, including, without
limitation, (x) commercial paper and accounts receivable sold or assigned by the
Company, (y) indebtedness secured by a mortgage, security interest or other lien
on an assets, that is (i) existing on such asset at the time of its acquisition,
or (ii) given to secure all or part of the purchase price of such asset, and (z)
any indebtedness from time to time outstanding from the Company to Coast
Business Credit, (ii) all obligations of the Company evidenced by any notes,
debentures, bonds or other instruments issued to banks, trust companies,
insurance companies, other financial institutions and other entities that in the
ordinary course of business make loans, (iii) all obligations of the Company
under any interest or currency swap agreements, hedging agreements, cap, floor
and collar agreements, spot and forward contracts and other similar agreements,
(iv) obligations in respect of letters of credit, bank guarantees and bankers
acceptances, (v) obligations of the Company as lessee under leases of personal
property (whether or not required to be capitalized under GAAP), (vi)
obligations secured by a mortgage, pledge, security interest, lien or
encumbrance affecting title to any of the Company's assets, whether or

                                       30
<PAGE>
not the Company is directly liable or has guaranties such obligations, (vii)
obligations consisting of the balance of the deferred or unpaid purchase price
of assets, (vi) principal of, and interest on any indebtedness or obligations of
others of the kinds described in (i) through (vii) above assumed or guaranteed
in any manner by the Company, (viii) deferrals, renewals, extensions and
refundings of any such indebtedness or obligations described in (i) through
(vii) above, in each case unless the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that the same is
not senior in right of payment to the Notes. Senior Indebtedness includes, with
respect to the foregoing, interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company, whether or
not post-filing interest is allowed in such proceeding. Notwithstanding the
foregoing, "Senior Indebtedness" with respect to any Note shall not include
indebtedness of the Company evidenced by the other Notes, which shall rank
equally and ratably with such Note.

        (b) No Payment if Default in Senior Indebtedness. No payment on account
of principal of or interest on the Notes shall be made, and no Notes shall be
redeemed or purchased directly or indirectly by the Company (or any of its
Subsidiaries), if at the time of such payment or purchase or immediately after
giving effect thereto, (i) a default in the payment of principal, premium, if
any, interest, rent or other obligations in respect of any Senior Indebtedness
occurs and is continuing (a "Payment Default") , unless and until such Payment
Default shall have been cured or waived or shall have ceased to exist or (ii)
the Company shall have received notice (a "Payment Blockage Notice") from the
holder or holders of Senior Indebtedness that there exists under such Senior
Indebtedness a default, which shall not have been cured or waived, permitting
the holder or holders thereof to declare Senior Indebtedness in an aggregate
amount equal to or in excess of Three Million United States Dollars ($3,000,000)
due and payable, but only for the period (the "Payment Blockage Period")
commencing on the date of receipt of the Payment Blockage Notice and ending on
the earlier of (a) the date such default shall have been cured or waived, or (b)
the day after the next Interest Payment Date (unless a Payment Blockage Notice
is delivered on an Interest Payment Date, in which case, it shall be the day
after such Interest Payment Date).

        The Company shall resume payments on and distributions in respect of the
Notes, including any past scheduled payments of the principal of (and premium,
if any) and interest on such Notes to which the Holders of the Notes would have
been entitled but for the provisions of this Section 9(b) in the case of a
Payment Default, on the date upon which such Payment Default is cured or waived
or ceases to exist. In addition, notwithstanding clauses (i) and (ii), unless
the holders of Senior Indebtedness in an aggregate amount equal to or in excess
of Three Million United States Dollars ($3,000,000) shall have accelerated the
maturity of such Senior Indebtedness, the Company shall resume payments on the
Note after the end of each Payment Blockage Period. Not more than one Payment
Blockage Notice may be given in any consecutive 360-day period, irrespective of
the number of defaults with respect to Senior Indebtedness during such period.

        (c) Payment upon Dissolution, Etc.

               (1) In the event of any bankruptcy, insolvency, reorganization,
receivership, composition, assignment for benefit of creditors or other similar
proceeding initiated by or against the Company or any dissolution or winding up
or total or partial liquidation or

                                       31
<PAGE>
reorganization of the Company (being hereinafter referred to as a "Proceeding"),
the Holders of the Notes agree that they shall, upon request of a holder of
Senior Indebtedness, and at their own expense take all reasonable actions
(including but not limited to the execution and filing of documents and the
giving of testimony in any Proceeding, whether or not such testimony could have
been compelled by process) necessary to prove the full amount of all their
claims in any Proceeding, and the Holders of the Notes shall not waive any claim
in any Proceeding without the written consent of such Holder.

               (2) Upon payment or distribution to creditors in a Proceeding of
assets of the Company of any kind or character, whether in cash, property or
securities, all principal and interest due upon any Senior Indebtedness shall
first be paid in full before any Holders of the Notes shall be entitled to
receive or, if received, to retain any payment or distribution on account of the
Notes, and upon any such Proceeding, any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to which any Holders of the Notes would be entitled except for the provisions of
this Section 9 shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, or by any Holders of the Notes who shall have received such
payment or distribution, directly to the holders of the Senior Indebtedness (pro
rata to each such holder on the basis of the respective amounts of such Senior
Indebtedness held by such holder) or their representatives to the extent
necessary to pay all such Senior Indebtedness in full after giving effect to any
concurrent payment or distribution to or for the holders of such Senior
Indebtedness, before any payment or distribution is made to any Holders of the
Notes.

        (d) Payments on Notes. Subject to Section 9(c) of this Note, the Company
may make payments of the principal of, and any interest or premium on, the
Notes, if at the time of payment, and immediately after giving effect thereto,
(i) there exists no Payment Default or a Payment Blockage Period and (ii) the
Company is permitted to make payments under Section 9(c) of this Note.

        (e) Subrogation. Subject to payment in full of all Senior Indebtedness,
the Holders of the Notes shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of the assets of the
Company made on such Senior Indebtedness until all principal and interest on the
Notes shall be paid in full; and for purposes of such subrogation, no payments
or distributions to the holders of Senior Indebtedness of any cash, property or
securities to which any Holders of the Notes would be entitled except for the
subordination provisions of this Section 8(e) shall, as between the Holders of
the Notes and the Company and/or its creditors other than the holders of the
Senior Indebtedness, be deemed to be a payment on account of the Senior
Indebtedness.

        (f) Remedies. Notwithstanding any contrary provisions of this Note or
the Notes, no Holder of the Notes shall take or continue any action or exercise
any remedies under or with respect to the Notes if (i) there exists a Payment
Default or (ii) the Company is prohibited from making payments under Section
9(c) of this Note. Nothing in this Section 9 shall prevent any Holder from
exercising any right of conversion, or exercising any remedies or taking or
continuing any action in connection therewith, pursuant to Section 3(a) of this
Note.

                                       32
<PAGE>
        (g) Rights of Holders Unimpaired. The provisions of this Section 9 are
and are intended solely for the purposes of defining the relative rights of the
Holders of the Notes and the holders of Senior Indebtedness and nothing in this
Section 9 shall impair, as between the Company and any Holders of the Notes, the
obligation of the Company, which is unconditional and absolute, to pay to the
Holders of the Notes the principal thereof (and premium, if any) and interest
thereon, in accordance with the terms of the Notes.

        (h) Holders of Senior Indebtedness. These provisions regarding
subordination will constitute a continuing offer to all persons who, in reliance
upon such provisions, become holders of, or continue to hold, Senior
Indebtedness; such provisions are made for the benefit of the holders of Senior
Indebtedness, and such holders are hereby made obligees under such provisions to
the same extent as if they were named therein, and they or any of them may
proceed to enforce such subordination. The Holders shall execute and deliver to
any holder of Senior Indebtedness any such instrument as such holder of Senior
Indebtedness may reasonably request in order to confirm the subordination of the
Notes to such Senior Indebtedness upon the terms set forth in this Note. The
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to any of the Holders, without incurring responsibility
to the Holders and without impairing or releasing the subordination provisions
of the Notes, (i) change the manner, terms or place of payment of, or renew or
alter, any Senior Indebtedness, or otherwise amend or supplement the same, (ii)
sell, exchange or release any collateral mortgaged, pleaded or otherwise
securing the Senior Indebtedness, (iii) release any person liable in any manner
for the Senior Indebtedness and (iv) exercise or refrain from exercising any
rights against the Company or any other person.

SECTION 10. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. In case any Note shall
become mutilated or be destroyed, lost or stolen, the Company (subject to the
next succeeding sentence) shall execute and deliver a new Note bearing a number
not contemporaneously outstanding, in exchange and substitution for the
mutilated Note, or in lieu of and in substitution for the Note so destroyed,
lost or stolen. In every case, the applicant for a substituted Note shall
furnish to the Company such security or indemnity as may be required by the
Company to save it harmless, and, in every case of destruction, loss or theft,
the applicant shall also furnish to the Company evidence to its satisfaction of
the destruction, loss or theft of the applicant's Note and of the ownership
thereof. Upon the issuance of any substituted Note, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith.
In case any Note that has matured or is about to mature shall become mutilated
or be destroyed, lost or stolen, the Company may, instead of issuing a
substitute Note, pay or authorize the payment of the same (without surrender
thereof except in the case of a mutilated Note) if the applicant for such
payment shall furnish to the Company such security or indemnity as the Company
may require to save it harmless, and, in case of destruction, loss or theft,
evidence to the satisfaction of the Company of the destruction, loss or theft of
such Note and of the ownership thereof.

        Every replacement Note issued pursuant to the provisions of this Section
shall constitute an additional contractual obligation of the Company whether or
not the mutilated, destroyed, lost or stolen Note shall be found at any time, or
be enforceable by anyone, and shall be entitled to all the benefits of this Note
equally and proportionately with any and all other Notes duly issued hereunder.
All Notes shall be held and owned upon the express condition that the foregoing

                                       33
<PAGE>
provisions are exclusive with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes, and shall preclude (to the extent
lawful) any and all other rights or remedies, notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement or
payment of negotiable instruments or other securities without their surrender.

SECTION 11. NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Note must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile; or (iii) one
(1) Business Day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. If
notice is to be sent to the Company, the Holder shall use its reasonable best
efforts to provide additional copies to the individuals listed below; provided,
however, that the failure of such Holder to send such additional copies shall in
no way limit the effectiveness of any notice sent to the Company to the
attention of Chief Financial Officer as provided for below. The addresses and
facsimile numbers for such communications shall be:

               If to the Company:

                      Xicor, Inc.
                      1511 Buckeye Drive
                      Milpitas, California  95035-7431
                      Telephone: (408) 546-3507
                      Facsimile: (408) 546-3406
                      Attention: Ms. Gerri N. Hench, Vice President of Finance

               with a copy to:

                      Wilson Sonsini Goodrich & Rosati, P.C.
                      650 Page Mill Road
                      Palo Alto, California  94304
                      Telephone: (650) 320-4644
                      Facsimile: (650) 493-6811
                      Attention: Page Mailliard, Esq.
                                 Don S. Williams, Esq.

               If to the Transfer Agent:

                      American Stock Transfer & Trust Company
                      6201 15th Avenue, 3rd Floor
                      Brooklyn, New York  11219
                      Telephone: (212) 936-5100
                      Facsimile: (718)  921-8355
                      Attention: Joe Alicia

        If to a Holder of this Note, to it at the address and facsimile number
set forth on the Schedule of Buyers attached as Exhibit A to the Securities
Purchase Agreement, with copies to such Holder's representatives as set forth on
such Schedule of Buyers, or at such other address and facsimile as shall be set
forth on the Notes Register maintained by the Company upon the

                                       34
<PAGE>
issuance or transfer of this Note. Each party shall provide five days' prior
written notice to the other party of any change in address or facsimile number.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.

SECTION 12. MISCELLANEOUS PROVISIONS.

        (a) Successors and Assigns. All of the covenants, stipulations, promises
and agreements in this Note contained by or on behalf of the Company shall bind
its successors and assigns, whether so expressed or not.

        (b) Amendments. This Note and any term hereof may be amended, changed,
waived, discharged, or terminated only by an instrument in writing signed by the
Company and the Holders of not less than fifty percent (50%) in aggregate
principal amount of the Notes then outstanding. Such amendment, change, waiver,
discharge or termination shall be binding on the Company and all of the Holder's
assignees and transferees; provided, however, that, without the written consent
of all of the Holders of the Notes, no such action may extend the Maturity Date,
or reduce the rate or extend the time of payment of interest thereon (except in
the case of a Payment Blockage Period), or reduce the principal amount thereof
or premium, if any, thereon, or reduce any amount payable on redemption or
repurchase thereof, impair, or change in any respect adverse to the Noteholders,
the obligation of the Company to repurchase any Note at the option of the holder
upon the happening of a Repurchase Event, or change the currency in which the
Notes are payable, or impair or change in any respect adverse to the Noteholders
the right to convert the Notes into Common Stock subject to the terms set forth
herein, or reduce the aforesaid percentage of Notes, the Holders of which are
required to consent to any such amendment or supplemental indenture. No waivers
of any term, condition or provision of this Note in any one or more instances
shall be deemed to be or construed as a further or continuing waiver of any such
term, condition or provision.

        (c) Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Note shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting the City of New York, borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Note and agrees that such service

                                       35
<PAGE>
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Note shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Note in that jurisdiction or the validity or enforceability of
any provision of this Note in any other jurisdiction. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

        (d) Payments on Business Days. In any case where the date of maturity of
principal or interest of this Note or the date of redemption of this Note shall
not be a Business Day, then payment of principal (and premium, if any) or
interest of this Note may be made on the next succeeding Business Day with the
same force and effect as if made on the nominal date of maturity or redemption,
and no interest shall accrue for the period after such nominal date.

        (e) Separability. In case any one or more of the provisions contained in
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Note, but this Note shall be construed as if such
invalid or illegal or unenforceable provision had never been contained herein.

        (f) Descriptive Headings. The headings of this Note are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

        (g) Certain Notes Owned by Company Disregarded. In determining whether
the Holders of the requisite aggregate principal amount of Notes have concurred
in any direction, consent or waiver under this Note, the Notes that are owned by
the Company or any other obligor on the Notes or by any Person directly or
indirectly controlling or controlled by or under common control with the Company
or any other obligor on the Notes shall be disregarded and deemed not to be
outstanding for the purpose of any such determination.

        (h) No Waivers. No failure on the part of the Holder to exercise, and no
delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.

                                       36
<PAGE>
        IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
as of day and year first above written.

                                       "COMPANY"

                                       XICOR, INC.

                                       By: /s/ Louis DiNardo
                                           -------------------------------------
                                       Its: Louis DiNardo, President and
                                            Chief Executive Officer
                                            ------------------------------------

                                      S-1
<PAGE>
                                EXHIBIT A TO NOTE

                            FORM OF CONVERSION NOTICE

To: Xicor, Inc.

        The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is One
Thousand United States Dollars ($1,000) principal amount or an integral multiple
thereof) below designated, into shares of Common Stock in accordance with the
terms of the Note, and directs that the shares issuable and deliverable upon
such conversion, together with any check in payment for fractional shares and
any Notes representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Note not converted are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto. Any amount required to be
paid by the undersigned on account of interest accompanies this Note.

Dated:
      ----------------------------
                                       -----------------------------------------

                                       -----------------------------------------
                                       Signature(s)

----------------------------------
Signature Guarantee

Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or
Notes to be delivered, other than to and in the name of the registered holder.

                                      A-1

<PAGE>
Fill in for registration of shares if to be issued, and Notes if to be
delivered, other than to and in the name of the registered holder:

----------------------------------
(Name)

----------------------------------
(Street Address)

----------------------------------
(City, State and Zip Code)

Please print name and address

                                            Principal amount to be converted
                                            (if less than all):  $______,000

                                            ------------------------------------
                                            Social Security or Other Taxpayer
                                            Identification Number

                                      A-2
<PAGE>
                                EXHIBIT B TO NOTE

                            FORM OF REPURCHASE NOTICE

To: Xicor, Inc.

        The undersigned registered owner of this Note hereby acknowledges
receipt of a notice from Xicor, Inc. (the "Company") as to the occurrence of a
Repurchase Event with respect to the Company and requests and instructs the
Company to repay the entire principal amount of this Note, or the portion
thereof (which is One Thousand United States Dollars ($1,000) principal amount
or an integral multiple thereof) below designated, in accordance with the terms
of the Note, together with accrued interest (including liquidated damages
pursuant to Section 3(b) of the Note or Registration Delay Payments, if any) to,
but excluding, such date, to the registered holder hereof.

Dated: ________________________

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

                                            ------------------------------------
                                            Signature(s)

                                            Social Security or Other Taxpayer
                                            Identification Number

                                            Principal amount to be repaid (if
                                            less than all):  $______,000

                                            NOTICE: The above signatures of the
                                            holder(s) hereof must correspond
                                            with the name as written upon the
                                            face of the Note in every particular
                                            without alteration or enlargement or
                                            any change whatever.

                                      B-1
<PAGE>
                                EXHIBIT C TO NOTE

                           FORM OF NOTICE OF TRANSFER

        For value received ____________________________ hereby sell(s),
assign(s) and transfer(s) unto _________________ (Please insert social security
or Taxpayer Identification Number of assignee) the within Note, and hereby
irrevocably constitutes and appoints ________ _____________ attorney to transfer
the said Note on the books of the Company, with full power of substitution in
the premises.

        In connection with any transfer of the within Note occurring within two
years (or such shorter holding period required under Rule 144(k) of the
Securities Act) of the original issuance of such Note (unless such Note is being
transferred pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such Note is
being transferred:

        -  *To Xicor, Inc. or a subsidiary thereof; or

        -  *To an Institutional Accredited Investor pursuant to and in
           compliance with the Securities Act; or

        -  *To an Individual Accredited Investor pursuant to and in compliance
           with the Securities Act; or

        -  *In an offshore transaction pursuant to and in compliance with
           Regulation S under the Securities Act; or

        -  *Pursuant to and in compliance with Rule 144 under the Securities
           Act; and unless the box below is checked, the undersigned confirms
           that such Note is not being transferred to an "affiliate" of the
           Company as defined in Rule 144 under the Securities Act (an
           "Affiliate"):

        -  *The transferee is an Affiliate of the Company.

Dated:
      ----------------------------

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

----------------------------------
Signature(s)

----------------------------------
Signature Guarantee

Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to

                                      C-1
<PAGE>
be issued, or Notes to be delivered, other than to and in the name of the
registered holder.

        NOTICE: The signature on the conversion notice, the option to elect
repurchase upon a Repurchase Event or the assignment must correspond with the
name as written upon the face of the Note in every particular without alteration
or enlargement or any change whatever.

                                      C-2
<PAGE>
                                EXHIBIT D TO NOTE

                   FORM OF TRANSFER LETTER OF REPRESENTATIONS

                           (TO BE DELIVERED BY HOLDER
                     UPON CERTAIN TRANSFERS OF NOTES WITHOUT
                        EFFECTIVE REGISTRATION STATEMENT)

        We are delivering this letter in connection with the sale or transfer to
us of 5.5% Convertible Subordinated Notes due 2006 of Xicor, Inc., a California
corporation (the "Company") other than pursuant to a registration statement that
has been declared effective under the Securities Act of 1933, as amended (the
"Securities Act").

        We hereby confirm that:

               (i) we are an "accredited investor" within the meaning of Rule
501(a)(1),(2), (3), (5), (6) or (7) under the Securities Act;

               (ii) any purchase or receipt of the Notes by us will be for
investment purposes and for our own account, not as a nominee or agent;

               (iii) we have such knowledge and experience in financial and
business matters that we are capable of evaluating the merits and risks of
purchasing or receiving the Notes;

               (iv) we do not have need for liquidity in our investment in the
Notes, we have the ability to bear the economic risks of our investment in the
Notes for an indefinite period of time and we are able to afford the complete
loss of our investment in the Notes;

               (v) we are not acquiring the Notes with a view to any
distribution thereof in a transaction that would violate the Securities Act or
the securities laws of any State of the United States or any other applicable
jurisdiction, and we have no present intention of selling, granting any
participation in, or otherwise distributing the same;

               (vi) we have had access to such information regarding the Company
necessary in order for us to make an informed decision and any such information
which we have requested have been made available for us or our attorney,
accountant, or advisor; and

               (vii) we or our attorney, accountant, or advisor have had a
reasonable opportunity to ask questions of and receive answers from a person or
persons acting on behalf of the Company concerning the business, management and
financial affairs of the Company and the terms and conditions of the acquisition
by us of the Notes and all such questions have been answered to our full
satisfaction, and we have acquired sufficient information about the Company to
make an informed and knowledgeable decision to acquire the Notes.

        We understand that the Notes have not been registered under the
Securities Act, and we agree, on our own behalf and on behalf of each account
for which we acquire any Notes, that such Notes may be offered, resold, pledged
or otherwise transferred only (i) in accordance with an exemption from the
registration requirements of the Securities Act, (ii) to the Company or (iii)

                                      D-1
<PAGE>
pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any State of the United States
or any other applicable jurisdiction. We agree that we will furnish the Company
an opinion of counsel reasonably acceptable to the Company, if the Company so
requests, that the foregoing restrictions on transfer have been complied with.
We understand that the Company will not be required to accept for registration
of transfer any Notes, except upon presentation of evidence satisfactory to it,
including an opinion of counsel reasonably acceptable to the Company if the
Company so requests, that the foregoing restrictions on transfer have been
complied with.

        We acknowledge that the Company and others will rely upon our
confirmations, acknowledgements and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.

                                       -----------------------------------------
                                       (Name)

                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:

                                       Address:
                                               ---------------------------------

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

                                      D-2

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