Document:

Exhibit 10.1

                                                                       EXHIBIT A

                    [FORM OF SENIOR SECURED CONVERTIBLE NOTE]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES  REPRESENTED BY THIS CERTIFICATE
NOR THE  SECURITIES  INTO  WHICH  THESE  SECURITIES  ARE  CONVERTIBLE  HAVE 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 (I) IN THE ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR
THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR (B) AN OPINION
OF COUNSEL,  IN A GENERALLY  ACCEPTABLE FORM, THAT  REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD  PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING  ARRANGEMENT  SECURED
BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS
OF THIS NOTE,  INCLUDING  SECTIONS  3(C)(III)  AND 19(A)  HEREOF.  THE PRINCIPAL
AMOUNT REPRESENTED BY THIS NOTE AND,  ACCORDINGLY,  THE SECURITIES ISSUABLE UPON
CONVERSION  HEREOF  MAY BE LESS THAN THE  AMOUNTS  SET FORTH ON THE FACE  HEREOF
PURSUANT TO SECTION 3(C)(III) OF THIS NOTE.

                                SPATIALIGHT, INC.

                         SENIOR SECURED CONVERTIBLE NOTE

Issuance Date:  November 30, 2004                 Principal: U.S. $_____________

                  FOR VALUE RECEIVED,  SpatiaLight, Inc., a New York corporation
(the  "COMPANY"),  hereby  promises to pay to the order of [PORTSIDE  GROWTH AND
OPPORTUNITY  FUND]  [SMITHFIELD  FIDUCIARY  LLC]  [BLUEGRASS  GROWTH  FUND L.P.]
[BLUEGRASS  GROWTH FUND LTD.], or registered  assigns  ("HOLDER") the amount set
out above as the Principal (as reduced  pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon the
Maturity Date (as defined below), acceleration, redemption or otherwise (in each
case in accordance  with the terms hereof) and to pay interest  ("INTEREST")  on
any outstanding Principal at a rate per annum equal to the ten percent (10%) per
annum (the  "INTEREST  RATE"),  from the date set out above as the Issuance Date
(the  "ISSUANCE  DATE") until the same becomes due and payable,  whether upon an
Interest Date (as defined below), the Maturity Date,  acceleration,  conversion,
redemption or otherwise (in each case in accordance with the terms hereof). This
Senior Secured  Convertible Note (including all Senior Secured Convertible Notes
issued in exchange,  transfer or replacement  hereof,  this "NOTE") is one of an
issue of Senior Secured  Convertible Notes  (collectively,  the "NOTES" and such
other Senior Secured  Convertible Notes, the "OTHER NOTES") originally issued on
the Issuance  Date  pursuant to the  Securities  Purchase  Agreement (as defined
below) and exchanged pursuant to the Amendment and Exchange Agreement,  dated as

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of December  __, 2004,  by and among the Company and the initial  Holder of this
Note  (collectively,  the  "NOTES"  and such other  Notes,  the "OTHER  NOTES").
Certain capitalized terms used herein are defined in Section 29.

         1. MATURITY. On the Maturity Date, the Holder shall surrender this Note
to the  Company  and the  Company  shall  pay to the  Holder  an  amount in cash
representing all outstanding Principal,  accrued and unpaid Interest and accrued
and unpaid Late Charges, if any. The "MATURITY DATE" shall be November 30, 2007,
as may be extended at the option of the Holder (i) in the event that, and for so
long as, an Event of Default  (as defined in Section  4(a)) shall have  occurred
and be continuing or any event shall have occurred and be continuing  which with
the passage of time and the failure to cure would  result in an Event of Default
and (ii) solely with respect to the provisions of Section 5(b), through the date
that is ten days after the consummation of a Change of Control in the event that
a Change of  Control is  publicly  announced  or a Change of Control  Notice (as
defined in Section 5) is delivered prior to the Maturity Date.

         2.  INTEREST;  INTEREST  RATE. (a) Interest on this Note shall commence
accruing  on the  Issuance  Date and shall be computed on the basis of a 365-day
year and actual days  elapsed and shall be payable in arrears on the last day of
each  February,  May,  August and  November  during the period  beginning on the
Issuance  Date and  ending  on, and  including,  the  Maturity  Date  (each,  an
"INTEREST DATE") with the first Interest Date being February 28, 2005.  Interest
shall be payable on each Interest Date, to the record holder of this Note on the
applicable  Interest  Date, in cash ("CASH  INTEREST")  or, at the option of the
Company,  in  shares of  Common  Stock  ("INTEREST  SHARES")  provided  that the
Interest which accrued during any period shall be payable in Interest Shares if,
and only if, the Company  delivers  written notice (each, an "INTEREST  ELECTION
NOTICE")  of such  election to each holder of the Notes on or prior to the fifth
(5th)  Trading Day prior to the Interest  Date (each,  an  "INTEREST  NOTICE DUE
DATE"); provided, that the Company may indicate in such notice that the election
therein  applies for subsequent  Interest  Payment Dates until so modified,  and
provided further, that the Company shall certify that the Equity Conditions have
been satisfied as of the date of the Interest Election Notice,  shall notify the
Holder if at any time the  Equity  Conditions  are not  satisfied,  and shall be
deemed to have  certified  that the Equity  Conditions  have been satisfied with
respect to any subsequent  Interest Payment Date. Each Interest  Election Notice
shall be irrevocable. Interest to be paid on an Interest Date in Interest Shares
shall be paid in a number of fully paid and nonassessable shares (rounded to the
nearest  whole share in  accordance  with Section 3(a)) of Common Stock equal to
the quotient of (a) the amount of Interest payable on such Interest Date and (b)
the Interest  Conversion Price in effect on the applicable Interest Date. If any
Interest  Shares are to be paid on an Interest Date,  then the Company shall (X)
provided  that  the  Company's   transfer  agent  (the   "TRANSFER   AGENT")  is
participating in the Depository Trust Company ("DTC") Fast Automated  Securities
Transfer  Program  and  such  action  is not  prohibited  by  applicable  law or
regulation or any  applicable  policy of DTC,  credit such  aggregate  number of
Interest  Shares to which the Holder  shall be entitled  to the  Holder's or its
designee's  balance  account  with DTC  through  its  Deposit  Withdrawal  Agent
Commission system, or (Y) if the foregoing shall not apply, issue and deliver on
the  applicable  Interest  Date,  to the  address  set  forth  in  the  register
maintained by the Company for such purpose  pursuant to the Securities  Purchase
Agreement  or to such  address  as  specified  by the  Holder in  writing to the

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Company at least two  Business  Days prior to the  applicable  Interest  Date, a
certificate,  registered  in the name of the  Holder  or its  designee,  for the
number of Interest Shares to which the Holder shall be entitled. Notwithstanding
the  foregoing,  the Company  shall not be entitled to pay  Interest in Interest
Shares and shall be  required to pay such  Interest in cash as Cash  Interest on
the applicable  Interest Date if, unless  consented to in writing by the Holder,
on each Trading Day during the period from the  applicable  Interest  Notice Due
Date through the  applicable  Interest Date (i) the Equity  Conditions  have not
been  satisfied or (ii) the Weighted  Average  Price of the Common Stock on each
day during the applicable  Interest  Measuring  Period (as defined in Section 29
below) is not at least $1.00.

                  (b) Prior to the  payment of  Interest  on an  Interest  Date,
Interest on this Note shall accrue at the Interest Rate and be payable by way of
inclusion of the Interest in the  Conversion  Amount in accordance  with Section
3(b)(i). From and after the occurrence of an Event of Default, the Interest Rate
shall be  increased  to twelve  percent  (12%).  In the event that such Event of
Default is  subsequently  cured,  the  adjustment  referred to in the  preceding
sentence shall cease to be effective as of the date of such cure;  provided that
the Interest as calculated at such increased rate during the continuance of such
Event of Default  shall  continue  to apply to the extent  relating  to the days
after the occurrence of such Event of Default  through and including the date of
cure of such Event of Default.  The Company shall pay any and all taxes that may
be payable  with  respect to the  issuance  and  delivery  of  Interest  Shares;
provided  that the  Company  shall  not be  required  to pay any tax that may be
payable (i) in respect of any  issuance of Interest  Shares to any Person  other
than the Holder or (ii) with respect to any income tax or capital  gains tax due
by the Holder with respect to such Interest Shares.

         3. CONVERSION OF NOTES.  This Note shall be convertible  into shares of
common stock of the Company,  par value $.01 per share (the "COMMON STOCK"),  on
the terms and conditions set forth in this Section 3.

                  (a)  Conversion  Right.  Subject to the  provisions of Section
3(d),  at any time or times on or after the Issuance  Date,  the Holder shall be
entitled to convert any portion of the outstanding and unpaid  Conversion Amount
(as defined below) into fully paid and  nonassessable  shares of Common Stock in
accordance  with Section 3(c), at the Conversion  Rate (as defined  below).  The
Company  shall not  issue  any  fraction  of a share of  Common  Stock  upon any
conversion.  If the  issuance  would  result in the  issuance of a fraction of a
share of Common  Stock,  the  Company  shall  round such  fraction of a share of
Common Stock up to the nearest  whole share.  The Company  shall pay any and all
taxes that may be payable  with  respect to the  issuance and delivery of Common
Stock upon conversion of any Conversion Amount.

                  (b)  Conversion  Rate.  The  number of shares of Common  Stock
issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(the "CONVERSION RATE").

                           (i)  "CONVERSION  AMOUNT"  means  the  sum of (A) the
portion of the Principal to be converted,  redeemed or otherwise with respect to
which this  determination  is being made,  (B) accrued and unpaid  Interest with
respect to such  Principal  and (C) accrued and unpaid Late Charges with respect
to such Principal and Interest.

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                           (ii)  "CONVERSION  PRICE" means, as of any Conversion
Date  (as  defined  below)  or  other  date of  determination,  and  subject  to
adjustment as provided herein, $9.72, subject to adjustment as provided herein.

                  (c) Mechanics of Conversion.

                           (i) Optional  Conversion.  To convert any  Conversion
Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder
shall (A) transmit by facsimile (or otherwise deliver),  for receipt on or prior
to 7:00 p.m.,  New York  Time,  on such date,  a copy of an  executed  notice of
conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to
the Company and (B) if required by Section  3(c)(iii),  surrender this Note to a
common  carrier  for  delivery  to the  Company  as  soon as  practicable  on or
following such date (or an indemnification undertaking with respect to this Note
in the case of its loss, theft or destruction).  On or before the first Business
Day  following  the date of receipt of a Conversion  Notice,  the Company  shall
transmit by facsimile a confirmation of receipt of such Conversion Notice to the
Holder and the Company's transfer agent (the "TRANSFER AGENT"). On or before the
third (3rd)  Business Day following  the date of receipt of a Conversion  Notice
(the "SHARE DELIVERY  DATE"),  the Company shall (X) provided the Transfer Agent
is  participating  in  the  Depository  Trust  Company  ("DTC")  Fast  Automated
Securities  Transfer  Program credit such  aggregate  number of shares of Common
Stock to which the Holder  shall be entitled to the  Holder's or its  designee's
balance account with DTC through its Deposit  Withdrawal Agent Commission system
or (Y) if the  Transfer  Agent is not  participating  in the DTC Fast  Automated
Securities  Transfer  Program,  issue and deliver to the address as specified in
the Conversion  Notice,  a certificate,  registered in the name of the Holder or
its designee, for the number of shares of Common Stock to which the Holder shall
be entitled.  If this Note is physically  surrendered for conversion as required
by Section 3(c)(iii) and the outstanding  Principal of this Note is greater than
the Principal portion of the Conversion Amount being converted, then the Company
shall as soon as practicable  and in no event later than three (3) Business Days
after  receipt  of this Note and at its own  expense,  issue and  deliver to the
holder  a  new  Note  (in  accordance  with  Section  19(d))   representing  the
outstanding  Principal not converted.  The Person or Persons entitled to receive
the shares of Common  Stock  issuable  upon a  conversion  of this Note shall be
treated  for all  purposes  as the record  holder or  holders of such  shares of
Common Stock on the Conversion Date.

                           (ii)  Company's  Failure  to Timely  Convert.  If the
Company  shall fail to issue a  certificate  to the  Holder  or, if  applicable,
credit the Holder's  balance account with DTC for the number of shares of Common
Stock to which the Holder is entitled upon  conversion of any Conversion  Amount
on or prior to the date which is five (5)  Business  Days  after the  Conversion
Date (a  "CONVERSION  FAILURE"),  then (A) the Company  shall pay damages to the
Holder for each date of such  Conversion  Failure in an amount  equal to 1.5% of
the product of (I) the sum of the number of shares of Common Stock not issued to
the  Holder on or prior to the Share  Delivery  Date and to which the  Holder is
entitled,  and (II) the Weighted  Average Price of the Common Stock on the Share
Delivery Date and (B) the Holder,  upon written notice to the Company,  may void
its Conversion Notice with respect to, and retain or have returned,  as the case
may be, any  portion of this Note that has not been  converted  pursuant to such
Conversion  Notice;  provided that the voiding of a Conversion  Notice shall not
affect the Company's  obligations  to make any payments which have accrued prior

                                      -4-
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to the date of such notice  pursuant to this Section  3(c)(ii) or otherwise.  In
lieu of the  foregoing,  if within  three (3) Trading  Days after the  Company's
receipt of the facsimile  copy of a Conversion  Notice the Company shall fail to
issue and deliver a  certificate  to the Holder or credit the  Holder's  balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon such holder's  conversion of any Conversion  Amount,  and if on or
after such Trading Day the Holder  purchases in order to prevent a trade failure
(in an open  market  transaction  or  otherwise)  Common  Stock  to  deliver  in
satisfaction  of a sale  by the  Holder  of  Common  Stock  issuable  upon  such
conversion that the Holder anticipated  receiving from the Company (a "BUY-IN"),
then the  Company  shall,  within  three (3)  Business  Days after the  Holder's
request and in the Holder's discretion,  either (i) pay cash to the Holder in an
amount  equal  to  the  Holder's  total  purchase  price  (including   brokerage
commissions,  if any) for the shares of Common Stock so  purchased  (the "BUY-IN
PRICE"),  at which point the Company's  obligation  to deliver such  certificate
(and to issue such Common Stock) shall  terminate,  or (ii)  promptly  honor its
obligation to deliver to the Holder a certificate or  certificates  representing
such  Common  Stock and pay cash to the Holder in an amount  equal to the excess
(if any) of the Buy-In  Price over the  product of (A) such  number of shares of
Common Stock, times (B) the Weighted Average Price on the Conversion Date.

                           (iii)  Book-Entry.  Notwithstanding  anything  to the
contrary  set forth  herein,  upon  conversion  of any  portion  of this Note in
accordance with the terms hereof, the Holder shall not be required to physically
surrender  this  Note to the  Company  unless  (A) the  full  Conversion  Amount
represented  by this Note is being  converted or (B) the Holder has provided the
Company with prior written  notice (which notice may be included in a Conversion
Notice)  requesting  physical surrender and reissue of this Note. The Holder and
the Company shall  maintain  records  showing the  Principal,  Interest and Late
Charges  converted  and the dates of such  conversions  or shall use such  other
method,  reasonably  satisfactory  to the Holder and the  Company,  so as not to
require physical surrender of this Note upon conversion.

                           (iv) Pro Rata Conversion; Disputes. In the event that
the Company receives a Conversion  Notice from more than one holder of Notes for
the same  Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for conversion,  the Company, subject to Section
3(d),  shall convert from each holder of Notes electing to have Notes  converted
on such date a pro rata amount of such holder's  portion of its Notes  submitted
for conversion  based on the principal  amount of Notes submitted for conversion
on such date by such holder  relative to the aggregate  principal  amount of all
Notes submitted for conversion on such date. In the event of a dispute as to the
number of shares of Common  Stock  issuable to the Holder in  connection  with a
conversion  of this Note,  the  Company  shall issue to the Holder the number of
shares of Common  Stock not in dispute and resolve  such  dispute in  accordance
with Section 24.

                  (d) Limitations on Conversions.

                           (i)  Beneficial  Ownership.  The  Company  shall  not
effect any  conversion of this Note,  and the Holder of this Note shall not have
the right to convert any portion of this Note  pursuant to Section  3(a), to the
extent that after giving effect to such  conversion,  the Holder  (together with
the Holder's affiliates) would beneficially own in excess of 4.99% of the number
of shares of Common Stock  outstanding  immediately  after giving effect to such
conversion.  For  purposes of the  foregoing  sentence,  the number of shares of
Common Stock  beneficially  owned by the Holder and its affiliates shall include
the number of shares of Common Stock issuable upon  conversion of this Note with

                                      -5-
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respect to which the  determination  of such  sentence is being made,  but shall
exclude the number of shares of Common  Stock  which would be issuable  upon (A)
conversion  of the  remaining,  nonconverted  portion of this Note  beneficially
owned by the Holder or any of its  affiliates  and (B) exercise or conversion of
the unexercised or nonconverted  portion of any other  securities of the Company
(including,  without  limitation  or any Other Notes or  warrants)  subject to a
limitation  on  conversion  or exercise  analogous to the  limitation  contained
herein beneficially owned by the Holder or any of its affiliates.  Except as set
forth  in  the  preceding  sentence,  for  purposes  of  this  Section  3(d)(i),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities  Exchange  Act of 1934,  as amended.  For  purposes  of this  Section
3(d)(i),  in determining the number of outstanding  shares of Common Stock,  the
Holder may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company's  most recent Form 10-K,  Form 10-Q or Form 8-K, as the case
may be (y) a more  recent  public  announcement  by the Company or (z) any other
notice by the Company or the Transfer  Agent  setting forth the number of shares
of Common  Stock  outstanding.  For any reason at any time,  upon the written or
oral  request of the Holder,  the Company  shall  within two (2)  Business  Days
confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding;  provided,  however, that if such information shall constitute
material  nonpublic  information,  the Company shall  provide such  confirmation
solely to the Legal Counsel (as defined in the Registration  Rights  Agreement).
In any  case,  the  number  of  outstanding  shares  of  Common  Stock  shall be
determined  after giving  effect to the  conversion or exercise of securities of
the Company, including this Note, by the Holder or its affiliates since the date
as of which such number of outstanding shares of Common Stock was reported.

                           (ii)  Principal  Market  Regulation.  Other  than  in
connection with a Fundamental  Transaction pursuant to Section 5(a), the Company
may not issue any  shares of Common  Stock upon  conversion  of this Note if the
issuance  of such shares of Common  Stock would  exceed that number of shares of
Common Stock which the Company may issue upon  conversion  of the Notes  without
breaching  the  Company's  obligations  under  the rules or  regulations  of the
Principal  Market (the "EXCHANGE  CAP"),  except that such limitation  shall not
apply in the event that the Company (A) obtains the approval of its stockholders
as required by the  applicable  rules of the  Principal  Market for issuances of
Common  Stock in excess of such  amount or (B)  obtains a written  opinion  from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders. Until such approval or
written  opinion  is  obtained,  no  purchaser  of  the  Notes  pursuant  to the
Securities   Purchase  Agreement  (the  "PURCHASERS")   shall  be  issued,  upon
conversion  of the Notes,  shares of Common Stock in an amount  greater than the
product of the Exchange Cap multiplied by a fraction,  the numerator of which is
the  principal  amount  of  Notes  issued  to  the  Purchasers  pursuant  to the
Securities  Purchase  Agreement on the Closing Date and the denominator of which
is the aggregate principal amount of all Notes issued to the Purchasers pursuant
to the Securities  Purchase  Agreement on the Closing Date (with respect to each
Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall
sell or otherwise  transfer any of such Purchaser's  Notes, the transferee shall
be allocated a pro rata portion of such Purchaser's Exchange Cap Allocation, and

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the  restrictions  of the prior  sentence  shall apply to such  transferee  with
respect  to the  portion  of the  Exchange  Cap  Allocation  allocated  to  such
transferee.  In the event that any  holder of Notes  shall  convert  all of such
holder's Notes into a number of shares of Common Stock which,  in the aggregate,
is less than such holder's Exchange Cap Allocation,  then the difference between
such holder's  Exchange Cap  Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective Exchange Cap
Allocations of the remaining  holders of Notes on a pro rata basis in proportion
to the aggregate principal amount of the Notes then held by each such holder.

          4. RIGHTS UPON EVENT OF DEFAULT.

                  (a)  Event of  Default.  Each of the  following  events  shall
constitute an "EVENT OF DEFAULT":

                           (i)  the  failure  of  the   Registration   Statement
required  to be  filed  pursuant  to the  Registration  Rights  Agreement  to be
declared  effective by the SEC on or prior to the date that is 60 days after the
Effectiveness  Deadline (as defined in the Registration  Rights Agreement),  or,
while the Registration Statement is required to be maintained effective pursuant
to the terms of the  Registration  Rights  Agreement,  the  effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is  unavailable to any holder of the Notes for sale
of all of such holder's  Registrable  Securities (as defined in the Registration
Rights  Agreement)  in  accordance  with the  terms of the  Registration  Rights
Agreement,  and  such  lapse or  unavailability  continues  for a  period  of 15
consecutive  days or for more than an aggregate of 45 days in any 365-day period
(other  than  days  during  an  Allowable   Grace  Period  (as  defined  in  the
Registration Rights Agreement));

                           (ii) the  suspension  from  trading or failure of the
Common  Stock to be  listed  on an  Eligible  Market  for a  period  of five (5)
consecutive  Trading Days or for more than an aggregate of ten (10) Trading Days
in any 365-day period;

                           (iii) the  Company's (A) failure to cure a Conversion
Failure by delivery of the required  number of shares of Common Stock within ten
(10) Business Days after the applicable Conversion Date or (B) written notice to
any holder of the Notes,  including by way of public announcement or through any
of its agents,  at any time,  of its  intention not to comply with a request for
conversion  of any Notes  into  shares  of  Common  Stock  that is  tendered  in
accordance with the provisions of the Notes;

                           (iv) at any  time  following  the  tenth  consecutive
Business  Day that the Holder's  Authorized  Share  Allocation  is less than the
number of shares of Common  Stock that the Holder  would be  entitled to receive
upon a conversion of the full Conversion  Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or otherwise);

                           (v) the  Company's  failure  to pay to the Holder any
amount of  Principal,  Interest,  Late Charges or other  amounts when and as due
under this Note or any other Transaction  Document (as defined in the Securities
Purchase  Agreement),  except, in the case of a failure to pay Interest and Late
Charges  when  and as due or any  other  amounts  under  any  other  Transaction
Document (as defined in the Securities Purchase  Agreement),  in which case only
if such failure continues for a period of at least five (5) Business Days;

                                      -7-
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                           (vi) any default under, redemption of or acceleration
prior to  maturity  of any  "INDEBTEDNESS"  (as  defined in Section  3(s) of the
Securities  Purchase  Agreement) of the Company or any of its  Subsidiaries  (as
defined in  Section  3(a) of the  Securities  Purchase  Agreement)  in excess of
$500,000 (in the aggregate) other than with respect to any Other Notes;

                           (vii)  the  Company  or  any  of  its   Subsidiaries,
pursuant  to or within  the  meaning  of Title 11,  U.S.  Code,  or any  similar
Federal,  foreign  or  state  law  for  the  relief  of  debtors  (collectively,
"BANKRUPTCY  LAW"), (A) commences a voluntary case, (B) consents to the entry of
an order for relief  against it in an  involuntary  case,  (C)  consents  to the
appointment of a receiver, trustee, assignee,  liquidator or similar official (a
"CUSTODIAN"), (D) makes a general assignment for the benefit of its creditors or
(E)  admits  in  writing  that it is  generally  unable to pay its debts as they
become due;

                           (viii) a court of  competent  jurisdiction  enters an
order or decree  under any  Bankruptcy  Law that (A) is for relief  against  the
Company  or any of its  Subsidiaries  in an  involuntary  case,  (B)  appoints a
Custodian  of  the  Company  or  any  of its  Subsidiaries  or  (C)  orders  the
liquidation of the Company or any of its Subsidiaries;

                           (ix) a final judgment or judgments for the payment of
money  aggregating in excess of $500,000 (in the aggregate) are rendered against
the Company or any of its  Subsidiaries  and which  judgments are not, within 60
days after the entry thereof,  bonded,  discharged or stayed pending appeal,  or
are not discharged  within 60 days after the expiration of such stay;  provided,
however,  that any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $500,000 amount set
forth above so long as the Company provides the Holder a written  statement from
such insurer or indemnity  provider (which written statement shall be reasonably
satisfactory  to the  Holder) to the  effect  that such  judgment  is covered by
insurance  or an  indemnity  and the Company  will  receive the proceeds of such
insurance or indemnity within 30 days of the issuance of such judgment;

                           (x) the Company  breaches in any material respect any
representation,  warranty,  covenant  or other term or  condition  (except  with
respect to any  representation,  warranty,  covenant or other term or  condition
which is qualified by materiality or Material  Adverse Effect in which case, the
Company  breaches in any respect) of any Transaction  Document,  except,  in the
case of a breach of a covenant which is curable,  only if such breach  continues
for a period of at least ten (10) consecutive Business Days;

                           (xi) any breach or failure in any material respect to
comply with Section 15 of this Note; or

                           (xii) any Event of Default  (as  defined in the Other
Notes) occurs with respect to any Other Notes.

                  (b)  Redemption  Right.  Promptly  after the  occurrence of an
Event of Default with respect to this Note or any Other Note,  the Company shall
deliver written notice thereof via facsimile and overnight courier (an "EVENT OF
DEFAULT  NOTICE") to the Holder.  At any time after the earlier of the  Holder's

                                      -8-
<PAGE>

receipt of an Event of Default Notice and the Holder  becoming aware of an Event
of  Default,  the Holder may require the Company to redeem all or any portion of
this Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION
NOTICE") to the Company, which Event of Default Redemption Notice shall indicate
the portion of this Note the Holder is electing to redeem.  Each portion of this
Note subject to redemption by the Company pursuant to this Section 4(b) shall be
redeemed  by the  Company at a price  equal to the greater of (i) the product of
(x) the Conversion Amount to be redeemed and (y) the Redemption Premium and (ii)
the product of (A) the Conversion Rate with respect to such Conversion Amount in
effect at such time as the Holder delivers an Event of Default Redemption Notice
and (B) the Weighted  Average Price of the Common Stock on the date  immediately
preceding  such Event of Default  (the  "EVENT OF  DEFAULT  REDEMPTION  PRICE").
Redemptions  required by this Section 4(b) shall be made in accordance  with the
provisions of Section 12.

         5. RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

                  (a) Assumption. Except as set forth in Section 5(d) below, the
Company shall not enter into or be party to a Fundamental Transaction unless the
Successor  Entity  offers to assume in  writing  all of the  obligations  of the
Company under this Note and the other  Transaction  Documents in accordance with
the  provisions  of this Section 5(a)  pursuant to written  agreements  that are
reasonably  proposed by the  Successor  Entity to the Required  Holders prior to
such Fundamental Transaction,  including agreements to deliver to each holder of
Notes in exchange for such Notes a security of the Successor Entity evidenced by
a written instrument  substantially  similar in form and substance to the Notes,
including, without limitation, having a principal amount and interest rate equal
to the principal amounts and the interest rates of the Notes held by such holder
and having  similar  ranking to the Notes;  provided,  that upon receipt of such
proposed  agreements from the Successor Entity,  the Required Holders shall have
an opportunity to propose  comments to the Successor Entity with respect to such
agreements  for a period of no longer  than 10 days.  The  Successor  Entity may
choose  to  accept  any  or all of  such  comments  and  deliver  revised  final
agreements to the Required  Holders within five (5) days  thereafter  upon which
time, the Required Holders may choose to accept or reject the Successor Entity's
final offer to assume the  obligations  of the  Company  under this Note and the
other  Transaction  Documents  pursuant  to the  terms  and  conditions  of such
agreements;  provided, that the Required Holders must choose to accept or reject
such offer no later than three (3) days prior to the scheduled  consummation  of
the Fundamental  Transaction.  If the foregoing  obligations are assumed, as set
forth above, upon the occurrence of any Fundamental  Transaction,  the Successor
Entity shall succeed to, and be substituted for (so that from and after the date
of such  Fundamental  Transaction,  the provisions of this Note referring to the
"Company" shall refer instead to the Successor  Entity),  and may exercise every
right and power of the Company and shall  assume all of the  obligations  of the
Company  under this Note with the same  effect as if such  Successor  Entity had
been named as the Company herein. If the foregoing  obligations are assumed,  as
set forth above, upon consummation of the Fundamental Transaction, the Successor
Entity shall deliver to the Holder  confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the  consummation of the
Fundamental  Transaction,  in lieu of the shares of the  Common  Stock (or other
securities,  cash, assets or other property)  purchasable upon the conversion or

                                      -9-
<PAGE>

redemption of the Notes prior to such  Fundamental  Transaction,  such shares of
stock,  securities,  cash,  assets or any other property  whatsoever  (including
warrants or other purchase or  subscription  rights) which the Holder would have
been entitled to receive upon the happening of such Fundamental  Transaction had
this Note been converted immediately prior to such Fundamental  Transaction,  as
adjusted in accordance with the provisions of this Note. If the Required Holders
reject the Successor  Entity's offer to assume the  obligations  under this Note
and the other Transaction  Documents and the Required Holders have not exercised
their  redemption  or conversion  rights  hereunder,  the Successor  Entity may,
effective as of the  consummation  of the  Fundamental  Transaction,  redeem the
remaining Notes at a price equal to the Change of Control  Redemption Price. The
provisions  of this Section 5 shall apply  similarly  and equally to  successive
Fundamental  Transactions and shall be applied without regard to any limitations
on the conversion or redemption of this Note.

                  (b) Fundamental Transaction Redemption Right. If the Successor
Entity is not a publicly  traded  corporation  whose common stock or  equivalent
security is quoted on or listed for trading on an Eligible Market then no sooner
than  15  days  nor  later  than  10  days  prior  to the  consummation  of such
Fundamental  Transaction,  but not  prior  to the  public  announcement  of such
Fundamental  Transaction,  the Company shall deliver  written notice thereof via
facsimile  and  overnight  courier  to the  Holder (a  "FUNDAMENTAL  TRANSACTION
NOTICE").  At any time during the period beginning after the Holder's receipt of
a Fundamental  Transaction  Notice and ending on the date of the consummation of
such Fundamental  Transaction (or, in the event a Fundamental Transaction Notice
is not  delivered at least 10 days prior to a  Fundamental  Transaction,  at any
time on or after the date  which is 10 days prior to a  Fundamental  Transaction
and ending 10 days after the consummation of such Fundamental Transaction),  the
Holder may  require  the  Company  to redeem all or any  portion of this Note by
delivering written notice thereof ("FUNDAMENTAL  TRANSACTION REDEMPTION NOTICE")
to the Company,  which Fundamental  Transaction Redemption Notice shall indicate
the Conversion Amount the Holder is electing to redeem. The portion of this Note
subject to  redemption  pursuant to this  Section  5(b) shall be redeemed by the
Company at a price equal to the Change of Control  Redemption  Price (as defined
in Section 5(c) below) plus the Holder shall  receive in cash the Present  Value
of Interest with respect to such portion redeemed.  Redemptions required by this
Section 5(b) shall be made in accordance  with the  provisions of Section 12 and
shall have priority to payments to stockholders in connection with a Fundamental
Transaction.  Notwithstanding anything to the contrary in this Section 5(b), but
subject to Section 3(d), until the Change of Control  Redemption Price (together
with any interest  thereon) is paid in full, the Conversion Amount submitted for
redemption  under this Section 5(b) (together with any interest  thereon) may be
converted,  in whole or in part,  by the Holder  into Common  Stock  pursuant to
Section 3.

                  (c) Change of Control Redemption Right. No sooner than 15 days
nor later than 10 days prior to the consummation of a Change of Control, but not
prior to the public  announcement  of such Change of Control,  the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL  NOTICE").  At any time during the period  beginning after
the Holder's receipt of a Change of Control Notice and ending on the date of the
consummation  of such  Change of Control  (or,  in the event a Change of Control
Notice is not  delivered  at least 10 days prior to a Change of Control,  at any
time on or after  the date  which is 10 days  prior to a Change of  Control  and
ending 10 days after the consummation of such Change of Control), the Holder may
require  the  Company  to redeem all or any  portion of this Note by  delivering

                                      -10-
<PAGE>

written notice thereof ("CHANGE OF CONTROL  REDEMPTION  NOTICE") to the Company,
which Change of Control  Redemption  Notice shall indicate the Conversion Amount
the Holder is electing to redeem. The portion of this Note subject to redemption
pursuant to this  Section 5 shall be redeemed by the Company at a price equal to
(i) if the amount per share that the Holders are entitled to receive pursuant to
the Change of Control is equal to or less than the Conversion Price, 112% of the
Conversion  Amount  being  redeemed  and (ii) if the  amount  per share that the
Holders  are  entitled  to receive  pursuant to the Change of Control is greater
than the Conversion  Price,  100% of the  Conversion  Amount being redeemed (the
redemption price of the Note in (i) and (ii), the "CHANGE OF CONTROL  REDEMPTION
PRICE"),  plus in each of the foregoing  cases, the Holder shall receive in cash
the Present Value of Interest with respect to such portion redeemed. Redemptions
required by this Section 5(c) shall be made in accordance with the provisions of
Section 12 and shall have  priority to payments to  stockholders  in  connection
with a Change of  Control.  Notwithstanding  anything  to the  contrary  in this
Section  5(c),  but  subject  to  Section  3(d),  until the  Change  of  Control
Redemption  Price  (together  with any  interest  thereon) is paid in full,  the
Conversion  Amount  submitted for  redemption  under this Section 5(c) (together
with any interest thereon) may be converted,  in whole or in part, by the Holder
into Common Stock pursuant to Section 3.

                  (d) Successor  Entity  Redemption  Right. At any time from and
after the  delivery  of a Change of  Control  Notice  but not later than the day
immediately  preceding the consummation of such Change of Control, the Successor
Entity may deliver a written  notice via facsimile and overnight  courier to the
Holder indicating that if the Company shall not receive from the Holder a Change
of Control Redemption Notice in accordance with Section 5(c), then the Successor
Entity is electing  to redeem  all,  but not less than all, of this Note and all
Other  Notes (an  "SUCCESSOR  ENTITY  CHANGE  OF  CONTROL  REDEMPTION  NOTICE");
provided, that upon any such redemption,  the Successor Entity shall be required
to pay to the Holder on the date of such Change of Control, the Present Value of
Interest.  The  Successor  Entity Change of Control  Redemption  Notice shall be
irrevocable.  If (i) the Company  shall not receive  from the Holder a Change of
Control  Redemption  Notice in  accordance  with Section  5(c),  (ii) the Equity
Conditions  are  satisfied or waived in writing by the Holder on each day during
the period  commencing  with delivery of the Successor  Entity Change of Control
Redemption Notice through the consummation of such Change of Control,  and (iii)
the  stockholders of the Company are to receive and shall receive  consideration
in such Change of Control  consisting  of no less than 90% cash,  then this Note
may be  redeemed  by the  Successor  Entity  at a price  equal to the  Change of
Control Redemption Price.  Notwithstanding the foregoing, the Holder may convert
this Note into Common  Stock  pursuant  to Section  3(a) on or prior to the date
immediately  preceding the Successor  Entity Change of Control  Redemption Date.
Redemptions  required by this Section 5(d) shall be made in accordance  with the
provisions  of  Section  12  and  shall  have  priority  to  payments  to  other
stockholders in connection with a Change of Control.

                  (e) Pro Rata Redemption Requirement.  If the Company elects to
cause a conversion  of any  Conversion  Amount of this Note  pursuant to Section
5(d),  then it must  simultaneously  take the same action in the same proportion
with respect to the Other Notes. All Conversion  Amounts converted by the Holder
after the Successor Entity Change of Control  Redemption Notice shall reduce the
Conversion  Amount  of this  Note  required  to be  converted  on the  Mandatory
Conversion Date.

                                      -11-
<PAGE>

         6. RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

                  (a) Purchase Rights. If at any time the Company grants, issues
or sells any  Options,  Convertible  Securities  or rights  to  purchase  stock,
warrants,  securities  or other  property pro rata to the record  holders of any
class of Common Stock (the "PURCHASE RIGHTS"),  then the Holder will be entitled
to acquire,  upon the terms  applicable to such Purchase  Rights,  the aggregate
Purchase  Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock  acquirable  upon  complete  conversion of this
Note  (without  taking  into  account any  limitations  or  restrictions  on the
convertibility  of this Note)  immediately  before the date on which a record is
taken for the grant,  issuance or sale of such Purchase  Rights,  or, if no such
record is taken,  the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.

                  (b)  Other  Corporate  Events.  In  addition  to  and  not  in
substitution  for any other rights  hereunder,  prior to the consummation of any
Fundamental  Transaction pursuant to which holders of shares of Common Stock are
entitled to receive  securities  or other  assets with respect to or in exchange
for  shares of Common  Stock (a  "CORPORATE  EVENT"),  the  Company  shall  make
appropriate  provision to insure that the Holder will  thereafter have the right
to receive  upon a  conversion  of this Note,  (i) in  addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder would have been  entitled with respect to such shares of Common
Stock  had  such  shares  of  Common  Stock  been  held by the  Holder  upon the
consummation   of  such  Corporate   Event  (without  taking  into  account  any
limitations or restrictions on the  convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise  receivable upon such  conversion,  such
securities or other assets  received by the holders of shares of Common Stock in
connection with the  consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note  initially  been issued
with conversion rights for the form of such  consideration (as opposed to shares
of Common Stock) at a conversion rate for such  consideration  commensurate with
the Conversion Rate.  Provision made pursuant to the preceding sentence shall be
in a form and substance  reasonably  satisfactory to the Required  Holders.  The
provisions  of this Section 6 shall apply  similarly  and equally to  successive
Corporate  Events  and shall be applied  without  regard to any  limitations  or
restrictions on the conversion of this Note.

         7.  ADJUSTMENT OF CONVERSION  PRICE UPON  SUBDIVISION OR COMBINATION OF
COMMON  STOCK.  If the  Company  at any time on or after the  Subscription  Date
subdivides (by any stock split, stock dividend,  recapitalization  or otherwise)
one or more  classes of its  outstanding  shares of Common  Stock into a greater
number of  shares,  the  Conversion  Price in effect  immediately  prior to such
subdivision will be  proportionately  reduced.  If the Company at any time on or
after the  Subscription  Date combines (by  combination,  reverse stock split or
otherwise) one or more classes of its outstanding  shares of Common Stock into a
smaller number of shares,  the Conversion Price in effect  immediately  prior to
such combination will be proportionately increased.

                                      -12-
<PAGE>

         8. COMPANY'S RIGHT OF MANDATORY CONVERSION.

                  (a)  Mandatory  Conversion.  If at any time from and after the
twelve  (12)  month  anniversary  of  the  Effective  Date  (as  defined  in the
Registration  Rights Agreement)  relating to any shares of Common Stock issuable
upon conversion of the Notes (the "MANDATORY CONVERSION  ELIGIBILITY DATE"), (i)
the  Weighted  Average  Price of the Common  Stock equals or exceeds 150% of the
Conversion  Price on the Closing Date (subject to  appropriate  adjustments  for
stock splits, stock dividends, stock combinations and other similar transactions
after the  Subscription  Date) for each of any twenty (20)  consecutive  Trading
Days  following  the  Mandatory  Conversion  Eligibility  Date  (the  "MANDATORY
CONVERSION  MEASURING  PERIOD") and (ii) the Equity  Conditions  shall have been
satisfied  or waived in  writing  by the  Holder on each day  during  the period
commencing on the Mandatory  Conversion  Notice Date and ending on the Mandatory
Conversion  Date (each,  as defined  below) the Company  shall have the right to
require  the Holder to convert  all,  but not less than all,  of the  Conversion
Amount  then  remaining  under this Note plus the  Present  Value of Interest as
designated  in the  Mandatory  Conversion  Notice (as defined  below) into fully
paid, validly issued and nonassessable shares of Common Stock in accordance with
Section 3(c) hereof at the Conversion  Rate as of the Mandatory  Conversion Date
(as defined below) (a "MANDATORY  CONVERSION")  or, at the Company's  option and
solely with respect to the Present Value of Interest,  cash or a combination  of
Common Stock and cash. The Company may exercise its right to require  conversion
under this Section 8A(a) by delivering within not more than two (2) Trading Days
following the end of such Mandatory Conversion Measuring Period a written notice
thereof by facsimile and overnight courier to all, but not less than all, of the
holders of Notes and the Transfer Agent (the "MANDATORY  CONVERSION  NOTICE" and
the date all of the holders  received such notice by facsimile is referred to as
the "MANDATORY  CONVERSION NOTICE DATE"). The Mandatory  Conversion Notice shall
be irrevocable.  The Mandatory Conversion Notice shall state (i) the Trading Day
selected for the Mandatory  Conversion in  accordance  with Section 8(a),  which
Trading Day shall be at least twenty (20)  Business Days but not more than sixty
(60)  Business  Days  following  the  Mandatory   Conversion  Notice  Date  (the
"MANDATORY  CONVERSION Date"), (ii) the aggregate Conversion Amount of the Notes
subject to mandatory conversion from all of the holders of the Notes pursuant to
this  Section 8 (and  analogous  provisions  under the Other  Notes),  (iii) the
number of shares of Common  Stock to be  issued  to,  and the  Present  Value of
Interest to be paid to, such Holder on the  Mandatory  Conversion  Date and (iv)
the portion, if any, of the Present Value of Interest that shall be paid in cash
and the portion, if any, that shall be paid in Common Stock.

                  (b) Pro Rata Conversion Requirement.  If the Company elects to
cause a conversion  of any  Conversion  Amount of this Note  pursuant to Section
8(a),  then it must  simultaneously  take the same action in the same proportion
with respect to the Other Notes. All Conversion  Amounts converted by the Holder
after the Mandatory Conversion Notice Date shall reduce the Conversion Amount of
this Note  required to be converted on the  Mandatory  Conversion  Date.  If the
Company has elected a Mandatory  Conversion,  the  mechanics of  conversion  set
forth in Section 3(c) shall apply, to the extent  applicable,  as if the Company
and the Transfer Agent had received from the Holder on the Mandatory  Conversion
Date a Conversion  Notice with respect to the Conversion  Amount being converted
pursuant to the Mandatory Conversion.

         9.  SECURITY.  This Note and the Other  Notes are secured to the extent
and in the  manner  set  forth in the  Security  Documents  (as  defined  in the
Securities Purchase Agreement).

                                      -13-
<PAGE>

         10. NONCIRCUMVENTION.  The Company hereby covenants and agrees that the
Company will not, by amendment of its  Certificate of  Incorporation,  Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement,  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
of  this  Note,  and  will  at all  times  in good  faith  carry  out all of the
provisions  of this Note and take all action as may be  required  to protect the
rights of the Holder of this Note.

         11. RESERVATION OF AUTHORIZED SHARES.

                  (a)  Reservation.  The Company shall initially  reserve out of
its authorized and unissued  Common Stock a number of shares of Common Stock for
each of the Note  equal to (i) 100% of the  maximum  number  of shares of Common
Stock  issuable  upon  conversion  of each such Note as of the Issuance Date and
(ii) 150% of the maximum  number of shares of Common Stock  issuable as Interest
Shares  pursuant to the terms of each such Note as of the Issuance Date. So long
as any of the Notes are outstanding, the Company shall take all action necessary
to reserve and keep available out of its  authorized and unissued  Common Stock,
solely for the purpose of effecting the conversion of the Notes, (i) 100% of the
maximum  number of shares of Common Stock  issuable  upon  conversion  as of the
Issuance  Date and (ii) 150% of the  maximum  number  of shares of Common  Stock
issuable as Interest Shares pursuant to the terms of the Note as of the Issuance
Date, as shall from time to time be necessary to effect the conversion of all of
the Notes then outstanding;  provided that at no time shall the number of shares
of Common  Stock so  reserved  be less than the number of shares  required to be
reserved  by  the  previous  sentence  (without  regard  to any  limitations  on
conversions) (the "REQUIRED  RESERVE  AMOUNT").  The initial number of shares of
Common Stock  reserved  for  conversions  of the Notes and each  increase in the
number of shares so reserved  shall be  allocated  pro rata among the holders of
the Notes based on the principal  amount of the Notes held by each holder at the
Closing (as defined in the  Securities  Purchase  Agreement)  or increase in the
number  of  reserved  shares,   as  the  case  may  be  (the  "AUTHORIZED  SHARE
ALLOCATION"). In the event that a holder shall sell or otherwise transfer any of
such holder's Notes,  each  transferee  shall be allocated a pro rata portion of
such holder's  Authorized Share Allocation.  Any shares of Common Stock reserved
and allocated to any Person which ceases to hold any Notes shall be allocated to
the remaining  holders of Notes,  pro rata based on the principal  amount of the
Notes then held by such holders.

                  (b) Insufficient  Authorized  Shares. If at any time while any
of the Notes remain outstanding the Company does not have a sufficient number of
authorized  and  unreserved  shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of shares of
Common  Stock  equal  to the  Required  Reserve  Amount  (an  "AUTHORIZED  SHARE
FAILURE"), then the Company shall promptly take all action necessary to increase
the Company's authorized shares of Common Stock to an amount sufficient to allow
the  Company  to  reserve  the  Required  Reserve  Amount  for  the  Notes  then
outstanding.  Without limiting the generality of the foregoing sentence, as soon
as practicable  after the date of the occurrence of an Authorized Share Failure,
but in no event later than 60 days after the occurrence of such Authorized Share
Failure,  the Company shall hold a meeting of its  stockholders for the approval
of an increase in the number of authorized shares of Common Stock. In connection
with such  meeting,  the Company  shall  provide each  stockholder  with a proxy

                                      -14-
<PAGE>

statement and shall use its best efforts to solicit its  stockholders'  approval
of such increase in authorized  shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.

         12. REDEMPTIONS.

                  (a) Mechanics.  The Company shall deliver the applicable Event
of Default  Redemption  Price to the Holder  within five Business Days after the
Company's  receipt of the Holder's Event of Default  Redemption  Notice.  If the
Holder has submitted a Change of Control  Redemption  Notice in accordance  with
Section  5(b),  the  Company  shall  deliver  the  applicable  Change of Control
Redemption Price to the Holder concurrently with the consummation of such Change
of Control if such notice is received prior to the  consummation  of such Change
of Control  and within 15  Business  Days  after the  Company's  receipt of such
notice  otherwise.  In  the  event  of a  redemption  of  less  than  all of the
Conversion  Amount of this Note,  the Company shall  promptly cause to be issued
and  delivered  to the  Holder a new Note (in  accordance  with  Section  19(d))
representing the outstanding Principal which has not been redeemed. In the event
that the  Company  does not pay the  applicable  Redemption  Price to the Holder
within the time period  required,  at any time  thereafter and until the Company
pays such unpaid  Redemption Price in full, the Holder shall have the option, in
lieu of redemption,  to require the Company to promptly return to the Holder all
or any  portion  of this  Note  representing  the  Conversion  Amount  that  was
submitted for redemption and for which the applicable Redemption Price (together
with any Late Charges thereon) has not been paid. Upon the Company's  receipt of
such notice,  (x) the  Redemption  Notice shall be null and void with respect to
such Conversion  Amount,  (y) the Company shall immediately return this Note, or
issue a new Note (in accordance  with Section 19(d)) to the Holder  representing
such  Conversion  Amount and (z) the  Conversion  Price of this Note or such new
Notes shall be adjusted to the lesser of (A) the  Conversion  Price as in effect
on the date on which the Redemption Notice is voided and (B) the lowest Weighted
Average  Price of the Common Stock during the period  beginning on and including
the date on which the  Redemption  Notice is delivered to the Company and ending
on and including the date on which the Redemption Notice is voided. The Holder's
delivery  of a notice  voiding a  Redemption  Notice and  exercise of its rights
following  such notice shall not affect the  Company's  obligations  to make any
payments of Late  Charges  which have  accrued  prior to the date of such notice
with respect to the Conversion Amount subject to such notice.

                  (b) Redemption by Other Holders. Upon the Company's receipt of
notice from any of the holders of the Other Notes for redemption or repayment as
a result  of an event or  occurrence  substantially  similar  to the  events  or
occurrences  described  in  Section  4(b)  or  Section  5(b)  (each,  an  "OTHER
REDEMPTION  NOTICE"),  the Company  shall  immediately  forward to the Holder by
facsimile a copy of such notice. If the Company receives a Redemption Notice and
one or more Other Redemption  Notices,  during the seven (7) Business Day period
beginning on and  including  the date which is three (3) Business  Days prior to
the  Company's  receipt  of the  Holder's  Redemption  Notice  and ending on and
including the date which is three (3) Business Days after the Company's  receipt
of the  Holder's  Redemption  Notice  and the  Company  is unable to redeem  all
principal,  interest and other amounts  designated in such Redemption Notice and
such Other  Redemption  Notices  received  during  such seven (7)  Business  Day
period,  then the Company shall redeem a pro rata amount from each holder of the
Notes  (including  the  Holder)  based  on the  principal  amount  of the  Notes

                                      -15-
<PAGE>

submitted  for  redemption  pursuant  to such  Redemption  Notice and such Other
Redemption  Notices  received by the  Company  during  such seven  Business  Day
period.

         13.  RESTRICTION  ON REDEMPTION  AND CASH  DIVIDENDS.  Until all of the
Notes have been  converted,  redeemed or otherwise  satisfied in accordance with
their terms, the Company shall not, directly or indirectly,  redeem,  repurchase
or declare or pay any cash dividend or distribution on its capital stock without
the prior express written consent of the Required Holders.

         14. VOTING RIGHTS. The Holder shall have no voting rights as the holder
of this Note,  except as required by law,  including  but not limited to the New
York Business Corporation Law, and as expressly provided in this Note.

         15. RANK; ADDITIONAL INDEBTEDNESS; LIENS.

                  (a) Rank. All payments due under this Note (i) shall rank pari
passu with all Other Notes and Permitted  Bank Debt, and (ii) shall be senior to
all other Indebtedness of the Company and its Subsidiaries.

                  (b)  Incurrence  of  Indebtedness.  So long  as  this  Note is
outstanding,  (i)the  Company  shall  not,  directly  or  indirectly,  incur  or
guarantee,  assume  or  suffer to exist  any  Indebtedness,  other  than (x) the
Indebtedness  evidenced  by this Note and the  Other  Notes,  and (y)  Permitted
Indebtedness,  and (ii) the  Company  shall not permit  any of its  Subsidiaries
(including,  without  limitation,  SpatiaLight  Korea,  Inc.)  to,  directly  or
indirectly, incur or guarantee, assume or suffer to exist any Indebtedness.

                  (c) Existence of Liens.  So long as this Note is  outstanding,
(i) the Company shall not, directly or indirectly,  allow or suffer to exist any
mortgage,  lien, pledge, charge,  security interest or other encumbrance upon or
in any property or assets (including  accounts and contract rights) owned by the
Company or any of its Subsidiaries (collectively,  "LIENS") other than Permitted
Liens; provided, however, that Liens on all accounts receivable, contract rights
with  respect to  products  of the  Company or its  Subsidiaries  and  inventory
(together,  in each case,  with all proceeds  thereof) of the Company and/or its
Subsidiaries  securing  their  obligations  with  respect to Credit  Loans under
Permitted  Bank  Debt  shall  be  senior  to the  Liens  securing  the  Notes in
accordance  with the terms of the lien  subordination  agreement  referred to in
clause (iv) of the definition of Permitted Liens; and (ii) the Company shall not
permit  any of its  Subsidiaries  (including,  without  limitation,  SpatiaLight
Korea,  Inc.) to,  directly or  indirectly,  allow or suffer to exist any Liens,
other than Permitted Liens.

                  (d)  Restricted  Payments.  The  Company  shall  not,  and the
Company shall not permit any of its  Subsidiaries  to,  directly or  indirectly,
redeem,  defease,  repurchase,  repay or make any payments in respect of, by the
payment of cash or cash equivalents (in whole or in part, whether by way of open
market purchases,  tender offers, private transactions or otherwise), all or any
portion of any Permitted  Indebtedness,  whether by way of payment in respect of
principal of (or premium,  if any) or interest on, such  Indebtedness  if at the
time such  payment is due or is otherwise  made or, after giving  effect to such
payment,  an event  constituting,  or that with the  passage of time and without

                                      -16-
<PAGE>

being  cured  would  constitute,  an  Event  of  Default  has  occurred  and  is
continuing.

         16.  PARTICIPATION.  The Holder,  as the holder of this Note,  shall be
entitled to receive such dividends paid and distributions made to the holders of
Common  Stock to the same extent as if the Holder had  converted  this Note into
Common  Stock  (without  regard  to any  limitations  on  conversion  herein  or
elsewhere)  and had held such shares of Common Stock on the record date for such
dividends and distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock

         17. VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES.  The affirmative vote
at a meeting  duly  called for such  purpose or the  written  consent  without a
meeting of the Required Holders shall be required for any change or amendment to
this Note or the Other Notes.

         18.  TRANSFER.  This Note and any shares of Common  Stock  issued  upon
conversion of this Note may be offered,  sold,  assigned or  transferred  by the
Holder  without the consent of the Company,  subject only to the  provisions  of
Sections 2(g) and 2(h) of the Securities Purchase Agreement.

         19. REISSUANCE OF THIS NOTE.

                  (a) Transfer.  If this Note is to be  transferred,  the Holder
shall surrender this Note to the Company and shall comply with Sections 2(g) and
2(h) of the Securities Purchase Agreement,  whereupon the Company will forthwith
issue and deliver  upon the order of the Holder a new Note (in  accordance  with
Section  19(d)),  registered  as  the  Holder  may  request,   representing  the
outstanding  Principal  being  transferred  by the Holder  and, if less then the
entire  outstanding  Principal is being  transferred,  a new Note (in accordance
with Section 19(d)) to the Holder  representing  the  outstanding  Principal not
being  transferred.  The Holder and any  assignee,  by  acceptance of this Note,
acknowledge  and agree that, by reason of the  provisions of Section  3(c)(iii),
following  conversion or redemption of any portion of this Note, the outstanding
Principal  represented by this Note may be less than the Principal stated on the
face of this Note.

                  (b) Lost,  Stolen  or  Mutilated  Note.  Upon  receipt  by the
Company of evidence  reasonably  satisfactory to the Company of the loss, theft,
destruction  or  mutilation  of this Note,  and,  in the case of loss,  theft or
destruction,  of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation,  upon surrender and  cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 19(d)) representing the outstanding Principal.

                  (c) Note Exchangeable for Different  Denominations.  This Note
is exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Note or Notes (in accordance with Section 19(d) and in
principal  amounts  of at least  $100,000)  representing  in the  aggregate  the
outstanding  Principal of this Note,  and each such new Note will represent such

                                      -17-
<PAGE>

portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

                  (d) Issuance of New Notes. Whenever the Company is required to
issue a new Note pursuant to the terms of this Note,  such new Note (i) shall be
of like tenor with this Note, (ii) shall represent,  as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being  issued  pursuant  to  Section  19(a)  or  Section  19(c),  the  Principal
designated by the Holder which,  when added to the principal  represented by the
other new Notes issued in  connection  with such  issuance,  does not exceed the
Principal  remaining  outstanding  under  this  Note  immediately  prior to such
issuance of new Notes),  (iii) shall have an issuance  date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions and be subject to the same obligations
and restrictions as this Note, and (v) shall represent accrued Interest and Late
Charges on the Principal and Interest of this Note, from the Issuance Date.

         20.  REMEDIES,  CHARACTERIZATIONS,   OTHER  OBLIGATIONS,  BREACHES  AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other  remedies  available  under this Note and any of the other
Transaction  Documents  at law or in  equity  (including  a decree  of  specific
performance and/or other injunctive relief),  and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments,  conversion  and the like (and the  computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly  provided herein, be subject to any other obligation of the Company
(or the performance  thereof).  The Company  acknowledges that a breach by it of
its material obligations hereunder will cause irreparable harm to the Holder and
that the  remedy  at law for any such  breach  may be  inadequate.  The  Company
therefore agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled,  in addition to all other  available  remedies,  to an
injunction  restraining  any breach,  without the necessity of showing  economic
loss and without any bond or other security being required.

         21. PAYMENT OF  COLLECTION,  ENFORCEMENT  AND OTHER COSTS.  If (a) this
Note is placed in the hands of an attorney for  collection or  enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect  amounts due under this Note or to enforce the  provisions  of
this Note or (b) there occurs any  bankruptcy,  reorganization,  receivership of
the  Company  or other  proceedings  affecting  Company  creditors'  rights  and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such  collection,  enforcement or action or in connection with
such bankruptcy,  reorganization,  receivership or other proceeding,  including,
but not limited to, attorneys' fees and disbursements.

         22.  CONSTRUCTION;  HEADINGS.  This Note  shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed against
any person as the drafter hereof.  The headings of this Note are for convenience
of reference and shall not form part of, or affect the  interpretation  of, this
Note.

                                      -18-
<PAGE>

         23. FAILURE OR INDULGENCE  NOT WAIVER.  No failure or delay on the part
of the Holder in the exercise of any power,  right or privilege  hereunder shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

         24.  DISPUTE   RESOLUTION.   In  the  case  of  a  dispute  as  to  the
determination of the Weighted Average Price or the arithmetic calculation of the
Conversion Rate or the Redemption  Price,  the Company shall submit the disputed
determinations  or  arithmetic  calculations  via  facsimile  within  three  (3)
Business  Days of  receipt,  or  deemed  receipt,  of the  Conversion  Notice or
Redemption  Notice or other event giving rise to such  dispute,  as the case may
be, to the  Holder.  If the Holder and the Company are unable to agree upon such
determination  or  calculation  within  one (1)  Business  Day of such  disputed
determination or arithmetic  calculation being submitted to the Holder, then the
Company shall, within one (1) Business Day submit via facsimile (a) the disputed
determination  of  the  Weighted  Average  Price  to an  independent,  reputable
investment  bank  selected by the Company and  approved by the Holder or (b) the
disputed  arithmetic  calculation of the Conversion Rate or the Redemption Price
to the Company's independent,  outside accountant. The Company, at the Company's
expense, shall cause the investment bank or the accountant,  as the case may be,
to perform the  determinations  or  calculations  and notify the Company and the
Holder of the results no later than five Business Days from the time it receives
the  disputed   determinations  or  calculations.   Such  investment  bank's  or
accountant's determination or calculation,  as the case may be, shall be binding
upon all parties absent demonstrable error.

         25. NOTICES; PAYMENTS.

                  (a)  Notices.  Whenever  notice is  required to be given under
this Note,  unless  otherwise  provided  herein,  such notice  shall be given in
accordance with Section 9(f) of the Securities Purchase  Agreement.  The Company
shall  provide  the Holder  with  prompt  written  notice of all  actions  taken
pursuant to this Note,  including in  reasonable  detail a  description  of such
action  and  the  reason  therefore.  Without  limiting  the  generality  of the
foregoing,  the Company will give written  notice to the Holder (i)  immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least twenty (20)
days prior to the date on which the  Company  closes its books or takes a record
(A) with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining  rights  to  vote  with  respect  to  any  Fundamental  Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the  public  prior to or in  conjunction  with such  notice  being
provided to the Holder.

                  (b)  Payments.  Whenever  any payment of cash is to be made by
the Company to any Person  pursuant to this Note,  such payment shall be made in
lawful money of the United  States of America by a check drawn on the account of
the  Company  and sent via  overnight  courier  service  to such  Person at such
address as previously  provided to the Company in writing (which address, in the
case of each of the Purchasers,  shall initially be as set forth on the Schedule
of Buyers  attached to the  Securities  Purchase  Agreement);  provided that the
Holder may elect to receive a payment of cash via wire  transfer of  immediately
available  funds by providing the Company with prior written  notice setting out
such request and the Holder's  wire transfer  instructions.  Whenever any amount

                                      -19-
<PAGE>

expressed  to be due by the  terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next  succeeding day which is
a Business  Day and, in the case of any  Interest  Date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall not
be taken into account for purposes of determining  the amount of Interest due on
such date.  Any amount of Principal or other  amounts due under the  Transaction
Documents,  other than  Interest,  which is not paid when due shall  result in a
late charge  being  incurred  and  payable by the Company in an amount  equal to
interest on such amount at the rate of twelve  percent  (12%) per annum from the
date such amount was due until the same is paid in full ("LATE Charge").

         26.  CANCELLATION.  After all  Principal,  accrued  Interest  and other
amounts  at any time owed on this Note have been paid in full,  this Note  shall
automatically  be deemed  canceled,  shall be  surrendered  to the  Company  for
cancellation and shall not be reissued.

         27.  WAIVER OF NOTICE.  To the extent  permitted  by law,  the  Company
hereby  waives  demand,  notice,  protest  and all other  demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Securities Purchase Agreement.

         28.  GOVERNING  LAW.  This Note  shall be  construed  and  enforced  in
accordance  with,  and all  questions  concerning  the  construction,  validity,
interpretation  and  performance 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.

         29. CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:

                  (a) "ADDITIONAL INVESTMENT RIGHTS" has the meaning ascribed to
such term in the  Securities  Purchase  Agreement and shall  include  additional
investment rights issued in exchange therefor.

                  (b)  "APPROVED  STOCK PLAN" means any  employee  benefit  plan
which has been  approved by the Board of Directors  of the Company,  pursuant to
which  the  Company's  securities  may be  issued to any  employee,  officer  or
director for services provided to the Company.

                  (c) "BLOOMBERG" means Bloomberg Financial Markets.

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

                  (e) "CALENDAR  QUARTER" means each of: the period beginning on
and  including  January 1 and  ending on and  including  March  31;  the  period
beginning  on and  including  April 1 and ending on and  including  June 30; the
period  beginning on and including July 1 and ending on and including  September
30;  and the  period  beginning  on and  including  October 1 and  ending on and
including December 31.

                                      -20-
<PAGE>

                  (f) "CHANGE OF CONTROL" means any Fundamental Transaction with
an  unaffiliated  third party other than (A) a Fundamental  Transaction in which
holders of the  Company's  voting  power  immediately  prior to the  Fundamental
Transaction  continue after the Fundamental  Transaction to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or  entities  necessary  to elect a  majority  of the  members  of the  board of
directors (or their  equivalent if other than a  corporation)  of such entity or
entities,  or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.

                  (g)  "CLOSING  DATE"  shall have the  meaning set forth in the
Securities  Purchase  Agreement,  which date is the date the  Company  initially
issued Notes pursuant to the terms of the Securities Purchase Agreement.

                  (h) "COMMON  STOCK  DEEMED  OUTSTANDING"  means,  at any given
time,  the number of shares of Common Stock  actually  outstanding at such time,
plus the number of shares of Common Stock deemed to be  outstanding  pursuant to
Sections  7(a)(i)  and  7(a)(ii)  hereof  regardless  of whether  the Options or
Convertible  Securities are actually exercisable at such time, but excluding any
Common Stock owned or held by or for the account of the Company or issuable upon
conversion of the Notes.

                  (i)  "CONVERTIBLE  SECURITIES"  means any stock or  securities
(other than Options)  directly or indirectly  convertible into or exercisable or
exchangeable for Common Stock.

                  (j) "ELIGIBLE MARKET" means the Principal Market, The New York
Stock Exchange, Inc., the Nasdaq National Market or The Nasdaq SmallCap Market.

                  (k)  "EQUITY  CONDITIONS"  means  that  each of the  following
conditions is satisfied:  (i) on each day during the period  beginning three (3)
months prior to the applicable date of determination and ending on and including
the applicable date of determination (the "EQUITY CONDITIONS MEASURING PERIOD"),
either (x) the Registration  Statement filed pursuant to the Registration Rights
Agreement  shall be  effective  and  available  for the resale of all  remaining
Registrable  Securities in accordance with the terms of the Registration  Rights
Agreement  and there  shall not have been any Grace  Periods  (as defined in the
Registration  Rights  Agreement) or (y) all shares of Common Stock issuable upon
conversion  of the Notes shall be eligible for sale under Rule  144(k);  (ii) on
each day during the Equity  Conditions  Measuring  Period,  the Common  Stock is
designated  for  quotation  on the  Principal  Market  and  shall  not have been
suspended from trading on such exchange or market (other than suspensions of not
more  than  two  (2)  days  and  occurring  prior  to  the  applicable  date  of
determination due to business  announcements by the Company) nor shall delisting
or suspension by such exchange or market been  threatened or pending  either (A)
in  writing  by such  exchange  or market or (B) by  falling  below the  minimum
listing  maintenance  requirements of such exchange or market;  (iii) during the
one (1) year period ending on and including the date  immediately  preceding the
applicable date of  determination,  the Company shall have delivered  Conversion
Shares  upon  conversion  of the Notes to the  holders on a timely  basis as set
forth in Section  2(c)(ii)  hereof  (and  analogous  provisions  under the Other
Notes) and Notes upon exercise of the  Additional  Investment  Rights;  (iv) any
applicable  shares of Common  Stock to be  issued in  connection  with the event

                                      -21-
<PAGE>

requiring  determination  may be issued in full without  violating  Section 3(d)
hereof and the rules or  regulations  of the  Principal  Market;  (v) during the
Equity Conditions  Measuring Period, the Company shall not have failed to timely
make any  payments  within five (5)  Business  Days of when such  payment is due
pursuant  to  any  Transaction  Document;  (vi)  during  the  Equity  Conditions
Measuring  Period,   there  shall  not  have  occurred  either  (A)  the  public
announcement of a pending,  proposed or intended Fundamental Transaction that is
not a Change of Control which has not been abandoned,  terminated or consummated
or (B) an Event of Default  or an event that with the  passage of time or giving
of notice would constitute an Event of Default;  (vii) the Company shall have no
knowledge  of any  fact  that  would  cause  any one of the  following:  (x) the
Registration  Statements  required pursuant to the Registration Rights Agreement
not to be effective and  available  for the resale of all remaining  Registrable
Securities in accordance with the terms of the Registration  Rights Agreement or
(y) any shares of Common Stock  issuable upon  conversion of the Notes not to be
eligible for sale without restriction pursuant to Rule 144(k) and any applicable
state securities  laws;  (viii) the Company shall not be in violation of Section
3(d)(ii)  (assuming  conversion of all of the Notes and the Notes  issuable upon
exercise of the Additional  Investment  Rights);  and (ix) the Company otherwise
shall  have been in  material  compliance  with and  shall  not have  materially
breached any provision, covenant,  representation or warranty of any Transaction
Document.

                  (l)  "EXCLUDED  SECURITIES"  means any Common  Stock issued or
issuable:  (i) in connection  with any Approved Stock Plan; (ii) upon conversion
of the Notes; (iii) pursuant to a bona fide firm commitment  underwritten public
offering with a nationally recognized  underwriter (other than an "at-the-market
offering" as defined in Rule 415(a)(4)  under the 1933 Act,  "equity lines" or a
non-underwritten  offering that is effected on a shelf registration  statement);
(iv) in connection  with the payment of any Interest  Shares on the Notes or any
shares  payable  pursuant  to the "Argyle  Notes" (as defined in the  Securities
Purchase Agreement);  and (v) in connection with any acquisition by the Company,
whether  through an acquisition of stock or a merger of any business,  assets or
technologies  the primary  purpose of which is not to raise equity capital in an
amount not to exceed,  in the aggregate 20% of the outstanding  shares of Common
Stock in any calendar year.

                  (m)  "FUNDAMENTAL  TRANSACTION"  means that the Company shall,
directly or indirectly, in one or more related transactions,  (i) consolidate or
merge with or into  (whether  or not the Company is the  surviving  corporation)
another Person, or (ii) sell, assign,  transfer,  convey or otherwise dispose of
all or  substantially  all of the properties or assets of the Company to another
Person,  or (iii) allow  another  Person to make a purchase,  tender or exchange
offer that is accepted  by the  holders of more than the 50% of the  outstanding
shares of Common  Stock (not  including  any shares of Common  Stock held by the
Person or  Persons  making or party to, or  associated  or  affiliated  with the
Persons making or party to, such purchase,  tender or exchange  offer),  or (iv)
consummate a stock purchase agreement or other business combination  (including,
without limitation,  a reorganization,  recapitalization,  spin-off or scheme of
arrangement)  with another Person  whereby such other Person  acquires more than
the 50% of the  outstanding  shares of Common Stock (not including any shares of
Common  Stock held by the other Person or other  Persons  making or party to, or
associated or affiliated  with the other Persons  making or party to, such stock
purchase   agreement  or  other  business   combination),   or  (v)  reorganize,
recapitalize or reclassify its Common Stock.

                                      -22-
<PAGE>

                  (n) "GAAP" means United States generally  accepted  accounting
principles, consistently applied.

                  (o) "INTEREST  CONVERSION  PRICE"  means,  with respect to any
Interest Date,  that price which shall be computed as the arithmetic  average of
the  Weighted  Average  Price  of the  Common  Stock  on each  of the  ten  (10)
consecutive  Trading  Days  commencing  two (2) Trading  Days after the Interest
Notice Due Date and ending on the third (3rd) Trading Day immediately  preceding
the applicable Interest Date (each, an "INTEREST  MEASURING  PERIOD").  All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction during such period.

                  (p)  "OPTIONS"  means  any  rights,  warrants  or  options  to
subscribe for or purchase Common Stock or Convertible Securities.

                  (q) "PERMITTED BANK DEBT" means the principal of (and premium,
if any),  interest  on,  and all  fees and  other  amounts  (including,  without
limitation,  any reasonable out-of-pocket costs, enforcement expenses (including
reasonable  out-of-pocket legal fees and disbursements),  collateral  protection
expenses and other  reimbursement  or indemnity  obligations  relating  thereto)
payable  by Company  and/or its  Subsidiaries  under or in  connection  with any
credit facility to be entered into by the Company and/or its  Subsidiaries  with
one or more  financial  institutions  (and on terms and  conditions)  reasonably
satisfactory   to  the  Required   Holders   (together   with  any   amendments,
restatements,  renewals, refundings,  refinancings or other extensions thereof);
provided,  however, that the aggregate outstanding amount of such Permitted Bank
Debt (taking into account the maximum  amounts  which may be advanced  under the
loan documents  evidencing  such Permitted Bank Debt) does not as of the date on
which any such  Permitted  Bank Debt is incurred  exceed (i)  $20,000,000,  with
respect  to the unpaid  principal  balance  of loans  thereunder  (collectively,
"CREDIT  LOANS"),  and (ii) $0,  with  respect  to all  reimbursement  and other
payment  obligations of the Company in connection  with letters of credit issued
for the  account of the Company to secure real  estate  lease  obligations  with
respect  to  the  manufacturing  facility  located  in  Korea  and  operated  by
SpatiaLight Korea, Inc. (collectively,  "L/C OBLIGATIONS"),  provided,  further,
that any such L/C Obligations shall be fully secured by cash pledged to and held
by as the issuers (or confirming issuers) of such letters of credit and no other
assets.

                  (r)  "PERMITTED  INDEBTEDNESS"  means (i) Permitted Bank Debt,
(ii) the Argyle  Notes,  subordinated  in accordance  the "Argyle  Subordination
Agreement"  (as  defined in the  Securities  Purchase  Agreement),  (iii)  other
Indebtedness  approved by the Required Holders in writing, and (iv) Indebtedness
incurred by the Company that is made  expressly  subordinate in right of payment
to the Indebtedness  evidenced by this Note, as reflected in a written agreement
reasonably  acceptable  to the  Required  Holders and  approved by the  Required
Holders in writing,  which such consent may not be  unreasonably  withheld,  and
which Indebtedness does not provide at any time for (A) the payment, prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any principal or
premium,  if any,  thereon until ninety-one (91) days after the Maturity Date or
later and (B) total  interest  and fees at a rate in excess of  fifteen  percent
(15%) per annum.

                                      -23-
<PAGE>

                  (s) "PERMITTED LIENS" means (i) any Lien for taxes not yet due
or delinquent or being  contested in good faith by appropriate  proceedings  for
which adequate  reserves have been established in accordance with GAAP, (ii) any
statutory  Lien arising in the  ordinary  course of business by operation of law
with respect to a liability  that is not yet due or  delinquent,  (iii) any Lien
created by operation of law, such as materialmen's  liens,  mechanics' liens and
other similar liens,  arising in the ordinary course of business with respect to
a liability  that is not yet due or  delinquent  or that are being  contested in
good faith by appropriate  proceedings,  (iv) Liens on all accounts  receivable,
contract rights with respect to products of the Company or its  Subsidiaries and
inventory  (together,  in each case,  with all proceeds  thereof) of the Company
and/or its Subsidiaries  securing their obligations with respect to Credit Loans
under Permitted Bank Debt,  provided,  that any Liens securing such  obligations
shall be limited solely to the accounts receivable, contract rights with respect
to products of the Company or its Subsidiaries and inventory (together,  in each
case, with all proceeds thereof) of the Company and/or its  Subsidiaries,  which
Liens shall be senior to the Liens  securing  the Notes in  accordance  with the
terms of a lien subordination  agreement to be entered into with the "Collateral
Agent" (under and as defined in the Pledge and Security  Agreement) on behalf of
the Holders, and in form and substance reasonably satisfactory to the Collateral
Agent,  (v) Liens on cash of the Company securing the Company's L/C Obligations,
provided,  that any Liens securing such L/C Obligations  shall be limited solely
to cash of the Company in an  aggregate  amount any time not  exceeding  the L/C
Obligations,  which Liens shall be senior to the Liens securing the Notes,  (vi)
Liens  securing the Argyle Notes that are junior and  subordinated  to the Lines
securing the Note in accordance  with the "Argyle  Subordination  Agreement" (as
defined in the Securities Purchase Agreement, (vii) Liens securing the Company's
obligations  under the Notes,  and (viii) other Liens approved by the Collateral
Agent in writing.

                  (t) "PERSON" means an individual, a limited liability company,
a  partnership,  a joint  venture,  a corporation,  a trust,  an  unincorporated
organization,  any other entity and a  government  or any  department  or agency
thereof.

                  (u)  "PRESENT  VALUE OF  INTEREST"  means  the  amount  of any
interest that, but for such conversion or redemption, as applicable,  would have
accrued under this Note at the Interest Rate for the period from the  conversion
or  redemption,  as  applicable,  through the Maturity  Date  discounted  to the
present value of such interest using a discount rate equal to ten percent (10%).

                  (v) "PRINCIPAL MARKET" means The NASDAQ SmallCap Market.

                  (w)  "REDEMPTION  PREMIUM" means (i) in the case of the Events
of Default described in Section 4(a)(i) - (vii) and (x) - (xiv), 115% or (ii) in
the case of the Events of Default described in Section 4(a)(viii) - (ix), 100%.

                  (x)   "REGISTRATION   RIGHTS  AGREEMENT"  means  that  certain
registration rights agreement dated as of the Subscription Date by and among the
Company and the initial  holders of the Notes  relating to, among other  things,
the  registration  of the resale of the Common Stock issuable upon conversion of
the Notes.

                                      -24-
<PAGE>

                  (y) "REQUIRED HOLDERS" means the holders of Notes representing
at  least a  majority  of the  aggregate  principal  amount  of the  Notes  then
outstanding.

                  (z) "SEC"  means the United  States  Securities  and  Exchange
Commission.

                  (aa)  "SECURITIES   PURCHASE  AGREEMENT"  means  that  certain
Securities Purchase Agreement dated as of the Subscription Date by and among the
Company  and the  initial  holders of the Notes  pursuant  to which the  Company
issued the Notes.

                  (bb) "SUBSCRIPTION DATE" means November 30, 2004.

                  (cc)  "SUCCESSOR  ENTITY"  means the Person,  which may be the
Company,  formed by, resulting from or surviving any Fundamental  Transaction or
the Person with which such Fundamental Transaction shall have been made.

                  (dd) "TRADING DAY" means any day on which the Common Stock are
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal  securities  exchange
or  securities  market on which the Common Stock are then traded;  provided that
"Trading  Day" shall not include any day on which the Common Stock are scheduled
to trade on such  exchange or market for less than 4.5 hours or any day that the
Common Stock are suspended from trading during the final hour of trading on such
exchange or market (or if such  exchange or market does not designate in advance
the closing  time of trading on such  exchange  or market,  then during the hour
ending at 4:00:00 p.m., New York Time).

                  (ee) "WEIGHTED  AVERAGE  PRICE" means,  for any security as of
any date,  the dollar  volume-weighted  average  price for such  security on the
Principal  Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly  announces is the official open
of trading),  and ending at 4:00:00  p.m.,  New York Time (or such other time as
the Principal  Market  publicly  announces is the official  close of trading) as
reported  by  Bloomberg  through  its  "Volume at Price"  functions,  or, if the
foregoing  does not apply,  the  dollar  volume-weighted  average  price of such
security in the  over-the-counter  market on the  electronic  bulletin board for
such security  during the period  beginning at 9:30:01  a.m.,  New York Time (or
such  other time as such  market  publicly  announces  is the  official  open of
trading),  and ending at 4:00:00 p.m., New York Time (or such other time as such
market  publicly  announces  is the  official  close of  trading) as reported by
Bloomberg,  or, if no dollar volume-weighted  average price is reported for such
security by  Bloomberg  for such hours,  the average of the highest  closing bid
price and the  lowest  closing  ask price of any of the  market  makers for such
security  as  reported in the "pink  sheets" by Pink  Sheets LLC  (formerly  the
National  Quotation  Bureau,  Inc.).  If the  Weighted  Average  Price cannot be
calculated  for a security on a particular  date on any of the foregoing  bases,
the  Weighted  Average  Price of such  security  on such date  shall be the fair
market  value as mutually  determined  by the  Company  and the  Holder.  If the
Company  and the Holder are unable to agree upon the fair  market  value of such
security,  then such dispute shall be resolved  pursuant to Section 24. All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.

                                      -25-
<PAGE>

                  IN WITNESS  WHEREOF,  the  Company  has caused this Note to be
duly executed as of the Issuance Date set out above.

                                                SPATIALIGHT, INC.
                                                By:
                                                    ----------------------
                                                    Name:
                                                    Title:

<PAGE>

                                    EXHIBIT I

                                SPATIALIGHT, INC.
                                CONVERSION NOTICE

Reference is made to the Senior Secured  Convertible Note (the "NOTE") issued to
the undersigned by  SpatiaLight,  Inc. (the  "COMPANY").  In accordance with and
pursuant to the Note,  the  undersigned  hereby elects to convert the Conversion
Amount (as defined in the Note) of the Note  indicated  below into shares of the
Company's Common Stock par value $.01 per share (the "COMMON STOCK"),  as of the
date specified below.

         Date of Conversion:
                             ---------------------------------------------------

        Aggregate Conversion Amount to be converted:
                                                     ---------------------------

Please confirm the following information:

         Conversion Price:
                           -----------------------------------------------------

         Number of shares of Common Stock to be issued:
                                                        ------------------------

Please  issue the Common  Stock into  which the Note is being  converted  in the
following name and to the following address:

         Issue to:
                  --------------------------------------------------------------

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

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

         Facsimile Number:
                           -----------------------------------------------------

         Authorization:
                        --------------------------------------------------------

                  By:
                     -----------------------------------------------------------

                        Title:
                              --------------------------------------------------

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

         Account Number:
                         -------------------------------------------------------
           (if electronic book entry transfer)

         Transaction Code Number:
                                  ----------------------------------------------
         (if electronic book entry transfer)

<PAGE>

                                 ACKNOWLEDGMENT

                  The Company hereby  acknowledges  this  Conversion  Notice and
hereby  directs  American  Stock  Transfer  & Trust  Company  to issue the above
indicated number of shares of Common Stock in accordance with the Transfer Agent
Instructions  dated  November  30, 2004 from the Company  and  acknowledged  and
agreed to by American Stock Transfer & Trust Company.

                                            SPATIALIGHT, INC.
                                            By:
                                                ---------------------------
                                                Name:
                                                Title:Exhibit 10.2

                                                                       Exhibit B

                      [FORM OF ADDITIONAL INVESTMENT RIGHT]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.

                                SPATIALIGHT, INC.

                           ADDITIONAL INVESTMENT RIGHT

Additional Investment Right No.: __________
Principal Amount of Additional Notes: __________
Date of Issuance:  November 30, 2004 ("Issuance Date")

SpatiaLight, Inc., a New York corporation (the "Company"), hereby certifies
that, for value received, the receipt and sufficiency of which are hereby
acknowledged, [PORTSIDE GROWTH AND OPPORTUNITY FUND] [SMITHFIELD FIDUCIARY LLC]
[BLUEGRASS GROWTH FUND L.P.] [BLUEGRASS GROWTH FUND LTD.], the registered holder
hereof or its permitted assigns (the "Holder"), is entitled, subject to the
terms set forth below to purchase from the Company, at the Exercise Price (as
defined below) then in effect, at any time or times on or after the date hereof,
but not after 11:59 P.M., New York Time, on the Expiration Date (as defined
below), up to a total of $______1, in principal amount of Additional Notes (as
defined in the Securities Purchase Agreement (as defined below)). Except as
otherwise defined herein, capitalized terms in this Additional Investment Right
shall have the meanings set forth in Section 15 or in that certain Securities
Purchase Agreement, dated as of November 30, 2004, by and among the Company and
the buyers referred to therein, including the Holder (the "Securities Purchase
Agreement"). This Additional Investment Right (including all Additional
Investment Rights issued in exchange, transfer or replacement hereof, each an
"AIR", such other AIRs, the "Other AIRs" and collectively, the "AIRs") is one of
the Additional Investment Rights (as defined in the Securities Purchase
Agreement) originally issued on the Issuance Date pursuant to Section 1 of the
Securities Purchase Agreement (as defined below) and exchanged pursuant to the
Amendment and Exchange Agreement, dated as of December __, 2004, by and among
the Company and the initial Holder of this AIR.
1. EXERCISE OF AIR.

--------
1 Insert number set forth opposite such Buyer's name in column 5 of the Schedule
of Buyers set forth in the Securities Purchase Agreement.

<PAGE>

            (a) Mechanics of Exercise. Subject to the terms and conditions
hereof, this AIR may be exercised by the Holder hereof on any day beginning
after the date hereof and ending on and including August 31, 2005 (the
"Expiration Date"), in whole or in part (but in no event for an amount less than
$500,000), by (i) delivery of a written notice, in the form attached hereto as
Exhibit A (the "Exercise Notice"), by facsimile and by a reputable overnight
courier, of such Holder's election to exercise this AIR and (ii) payment to the
Company of an amount equal to $1.00 for each $1.00 of principal amount of
Additional Notes as to which this AIR is being exercised (the "Exercise Price")
in cash or wire transfer of immediately available funds. The date the Exercise
Notice and the Exercise Price are delivered to the Company (as determined in
accordance with the notice provisions hereof) is an "Exercise Date." Execution
and delivery of the Exercise Notice with respect to less than all of the
Additional Notes shall have the same effect as cancellation of the original AIR
and issuance of a new AIR evidencing the right to purchase the remaining number
of Additional Notes. On or before the third Business Day following the Exercise
Date, the Company shall transmit by facsimile an acknowledgment of confirmation
of receipt of the Exercise Notice and the Exercise Price to the Holder hereof.
On or before the third Business Day following the Exercise Date, the Company
shall issue and deliver to the address as specified in the Exercise Notice an
Additional Note, registered in the name of the Holder of this AIR or its
designee, in the principal amount as to which the Holder of this AIR is entitled
pursuant to such exercise. On the Exercise Date, the Holder of this AIR shall be
deemed for all corporate purposes to have become the Holder of record of the
Additional Note with respect to which this AIR has been exercised, irrespective
of the date of delivery of such Additional Note. Upon surrender of this AIR to
the Company following one or more partial exercises, the Company shall as soon
as practicable and in no event later than three Business Days after receipt of
the AIR and at its own expense, issue a new AIR (in accordance with Section
5(d)) representing the right to purchase the number of Additional Notes
purchasable immediately prior to such exercise under this AIR, less the
principal amount of Additional Notes with respect to which this AIR is
exercised. The Company shall pay any and all taxes which may be payable with
respect to the issuance and delivery of Additional Notes upon exercise of this
AIR.

            (b) Absolute and Unconditional Obligation. The Company's obligations
to issue and deliver Additional Notes in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by the Holder
to enforce the same, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person. Nothing herein shall limit the Holder's
right to pursue any other remedies available to it hereunder, at law or in
equity, including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
Additional Notes upon exercise of the AIR as required pursuant to the terms
hereof.

      2. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTION.

            (a) Purchase Rights. If at any time the Company grants, issues or
sells pro rata to the record holders of any class of Common Stock any Options
(as defined in the Additional Notes), Convertible Securities (as defined in the
Additional Notes) or rights to purchase stock, warrants, securities or other
property (the "Purchase Rights"), then the Holder of this AIR will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate

                                      -2-
<PAGE>

Purchase Rights which such Holder could have acquired if such Holder had held
the number of shares of Common Stock acquirable upon conversion of all of the
Additional Notes issuable upon complete exercise of this AIR (without regard to
any limitations on the exercise of this AIR or the conversion of the Additional
Notes) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

            (b) Change of Control Transactions. The Company shall give notice to
the Holder of this AIR at least 10 Business Days prior to the occurrence of a
Change of Control. This AIR shall automatically expire and become null and void
10 Business Days after such notice is received by the Holder of this AIR.

                  (i) "Change of Control" means any Fundamental Transaction with
an unaffiliated third party other than (A) a Fundamental Transaction in which
holders of the Company's voting power immediately prior to the Fundamental
Transaction continue after the Fundamental Transaction to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.

                  (ii) "Fundamental Transaction" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of the outstanding
shares of Common Stock (not including any shares of Common Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock.

            (c) Fundamental Transactions. The Company shall not enter into or be
party to a Fundamental Transaction that is not a Change of Control, unless (i)
the Person formed by or surviving any such Fundamental Transaction (if other
than the Company) or the Person to which such Fundamental Transaction shall have
been made assumes all the obligations of the Company under this AIR and the
other Transaction Documents (as defined in the Securities Purchase Agreement)
pursuant to written agreements in form and substance satisfactory to the
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, and including agreements to deliver to each holder of AIRs in
exchange for such AIRs, a security of the Person formed by or surviving any such
Fundamental Transaction (if other than the Company) or the Person to which such
Fundamental Transaction shall have been made evidenced by a written instrument
substantially similar in form and substance to this AIR, including, without
limitation, a right to exercise for Additional Notes that have been adjusted and

                                      -3-
<PAGE>

approved as set forth in Sections 5 and 6 of the Additional Notes as if such
Additional Notes were outstanding at the time of such Fundamental Transaction
and (ii) the Company or the Person formed by or surviving any such Fundamental
Transaction or to which such Fundamental Transaction shall have been made is a
publicly traded entity whose common stock or equivalent equity security is
quoted on or listed for trading on an Eligible Market (as defined in the Notes).
Upon any Fundamental Transaction, the successor entity to such Fundamental
Transaction shall succeed to, and be substituted for (so that from and after the
date of such Fundamental Transaction, the provisions of this AIR referring to
such "Company" shall refer instead to the successor entity or, if so elected by
the Required Holders, by the entity that, directly or indirectly, controls such
successor entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this AIR with the same
effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from its
obligations under the Transaction Documents except in the case of a Fundamental
Transaction that meets the requirements of this section. The provisions of this
Section shall apply similarly and equally to successive Fundamental
Transactions.

      3. COMPANY'S RIGHT OF MANDATORY FUNDING.

            (a) Mandatory Funding. If at any time from and after the Effective
Date (as defined in the Registration Rights Agreement) until August 31, 2005
(the "Mandatory Funding Eligibility Date"), (i) the Weighted Average Price (as
defined in the Notes) of the Common Stock equals or exceeds $14.58 (subject to
appropriate adjustments for stock splits, stock dividends, stock combinations
and other similar transactions after the Issuance Date) for each of any twenty
(20) consecutive Trading Days (as defined in the Notes) following the Mandatory
Funding Eligibility Date (the "Mandatory Funding Measuring Period") and (ii) the
AIR Equity Conditions (as defined below) shall have been satisfied or waived in
writing by the Holder during the period commencing with the Mandatory Funding
Notice Date and ending with the Mandatory Funding Date (each, as defined below),
the Company shall have the right to require the Holder to exercise all or any
designated portion of the AIR and purchase from the Company, at the Exercise
Price then in effect, all or any designated portion of the Additional Notes in
accordance with Section 1(a) hereof as of the Mandatory Funding Date (a
"Mandatory Funding"). The Company may exercise its right to require purchase of
Additional Notes under this Section 3(a) by delivering within not more than
three Trading Days following the end of any such Mandatory Funding Measuring
Period a written notice thereof by facsimile and overnight courier to all, but
not less than all, of the holders of AIRs (the "Mandatory Funding Notice" and
the date all of the holders received such notice is referred to as the
"Mandatory Funding Notice Date"). The Mandatory Funding Notice shall be
irrevocable. The Mandatory Funding Notice shall state (i) the Trading Day
selected for the Mandatory Funding in accordance with Section 3(a), which
Trading Day shall be at least 20 Business Days but not more than 60 Business
Days following the Mandatory Funding Notice Date (the "Mandatory Funding Date"),
(ii) the aggregate amount of the Additional Notes to be issued upon mandatory
exercise from all of the holders of the AIRs pursuant to this Section 3 (and
analogous provisions under the Other AIRS) and (iii) the principal amount of
Additional Notes to be issued. The Company may only deliver one (1) Mandatory
Funding Notice pursuant hereto.

                                      -4-
<PAGE>

            As used herein, "AIR Equity Conditions" means that each of the
following conditions is satisfied: (i) on each day during the period beginning
on the earlier of the Effective Date and the Effectiveness Deadline (as defined
in the Registration Rights Agreement) and ending on and including the applicable
date of determination (the "AIR Equity Conditions Measuring Period"), the
Registration Statement filed pursuant to the Registration Rights Agreement shall
be effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Registration Rights Agreement and
there shall not have been any Grace Periods (as defined in the Registration
Rights Agreement); (ii) on each day during the AIR Equity Conditions Measuring
Period, the Common Stock is designated for quotation on the Principal Market and
shall not have been suspended from trading on such exchange or market (other
than suspensions of not more than two (2) days and occurring prior to the
applicable date of determination due to business announcements by the Company)
nor shall delisting or suspension by such exchange or market been threatened or
pending either (A) in writing by such exchange or market or (B) by falling below
the minimum listing maintenance requirements of such exchange or market; (iii)
during the period beginning on the Issuance Date and ending on and including the
date immediately preceding the applicable date of determination, the Company
shall have delivered Additional Notes upon exercise of the AIRs and Conversion
Shares upon conversion of the Notes to the holders thereof on a timely basis as
set forth in Section 1(a) of the AIRs (and analogous provisions under the Other
AIRs) and Section 2(c)(ii) of the Notes, respectively; (iv) all shares of Common
Stock issuable pursuant to Additional Notes to be issued in connection with the
proposed Mandatory Funding may be converted in full without violating Section
3(d) of the Notes or the rules or regulations of the Principal Market; (v)
during the AIR Equity Conditions Measuring Period, the Company shall not have
failed to timely make any payments within five (5) Business Days of when such
payment is due pursuant to any Transaction Document; (vi) during the AIR Equity
Conditions Measuring Period, there shall not have occurred either (A) the public
announcement of a pending, proposed or intended Fundamental Transaction which
has not been abandoned, terminated or consummated or (B) an Event of Default or
an event that with the passage of time or giving of notice would constitute an
Event of Default; (vii) the Company shall have no knowledge of any fact that
would cause the Registration Statements required pursuant to the Registration
Rights Agreement not to be effective and available for the resale of all
remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement; and (viii) the Company otherwise shall have been
in material compliance with and shall not have materially breached any
provision, covenant, representation or warranty of any Transaction Document.

            (b) Pro Rata Funding Requirement. If the Company elects to cause an
exercise of this AIR pursuant to Section 3(a), then it must simultaneously take
the same action in the same proportion with respect to the Other AIRs. All AIRs
exercised by the Holder after the Mandatory Funding Notice Date shall reduce the
amount of Additional Notes required to be issued on the Mandatory Funding Date.
If the Company has elected a Mandatory Funding, the mechanics of exercise set
forth in Section 1(a) shall apply, to the extent applicable, as if the Company
had received from the Holder on the Mandatory Funding Date an Exercise Notice
with respect to the Additional Notes being issued pursuant to the Mandatory
Funding.

                                      -5-
<PAGE>

      4. NONCIRCUMVENTION.

            (a) The Company hereby covenants and agrees that the Company will
not, by amendment of its Certificate of Incorporation, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms under this AIR, and will at all times in good
faith carry out all the provisions of this AIR and take all action as may be
required to protect the rights of the Holder of this AIR.

            (b) Under this AIR, the Holder hereby covenants and agrees that the
Holder will not, through any voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this AIR, and will at all times
in good faith carry out all the provisions of this AIR and take all action as
may be required to protect the rights of the Company.

      5. REISSUANCE OF AIRS.

            (a) Transfer of AIR. If this AIR is to be transferred, the Holder
shall surrender this AIR to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder of this AIR a new AIR (in
accordance with Section 5(d)), registered as the Holder of this AIR may request,
representing the right to purchase the principal amount of Additional Notes
being transferred by the Holder and, if less then the total number of Additional
Notes then underlying this AIR is being transferred, a new AIR (in accordance
with Section 5(d)) to the Holder of this AIR representing the right to purchase
the principal amount of Additional Notes not being transferred. Notwithstanding
the foregoing, the Holder may only transfer this AIR if it is also transferring
a pro rata portion of Notes.

            (b) Lost, Stolen or Mutilated AIR. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this AIR, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder of this AIR to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this AIR, the Company shall execute and deliver to the Holder a new AIR (in
accordance with Section 5(d)) representing the right to purchase the principal
amount of Additional Notes then underlying this AIR.

            (c) AIR Exchangeable for Multiple AIRs. This AIR is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new AIR or AIR (in accordance with Section 5(d)) representing in the
aggregate the right to purchase the principal amount of Additional Notes then
underlying this AIR, and each such new AIR will represent the right to purchase
such portion of such Additional Notes as is designated by the Holder of this AIR
at the time of such surrender.

            (d) Issuance of New AIR. Whenever the Company is required to issue a
new AIR pursuant to the terms of this AIR, such new AIR (i) shall be of like
tenor with this AIR, (ii) shall represent, as indicated on the face of such new
AIR, the right to purchase the principal amount of Additional Notes then
underlying this AIR (or in the case of a new AIR being issued pursuant to
Section 5(a) or Section 5(c), the principal amount of Additional Notes
designated by the Holder of this AIR which, when added to the principal amount
of Additional Notes underlying the other new AIR issued in connection with such
issuance, does not exceed the principal amount of Additional Notes then
underlying this AIR), (iii) shall have an issuance date, as indicated on the
face of such new AIR which is the same as the Issuance Date, and (iv) shall have
the same rights and conditions as this AIR.

                                      -6-
<PAGE>

      6. COVENANTS. Disclosure of Transactions and Other Material Information.
On or before 8:30 a.m., New York Time, on the first Business Day following each
Exercise Date, the Company shall file a Current Report on Form 8-K describing
the terms of the transactions contemplated by the exercise of this AIR in the
form required by the 1934 Act. On the Exercise Date, the Company shall confirm
that the representations and warranties of the Company set forth in the
Securities Purchase Agreement are true and correct as of such Exercise Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and that the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
by the Transaction Documents (as defined in the Securities Purchase Agreement)
to be performed, satisfied or complied with by the Company at or prior to such
Exercise Date.

      7. NOTICES. Whenever notice is required to be given under this AIR, unless
otherwise provided herein, such notice shall be given in accordance with Section
9(f) of the Securities Purchase Agreement. The Company shall provide the Holder
of this AIR with prompt written notice of all actions taken pursuant to this
AIR, including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder of this AIR no sooner than 15 days but no
later than 10 days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, or (B) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such Holder; provided, however, that the Company
shall not be obligated to provide multiple notices to the Holder if such Holder
is entitled to receive such notice pursuant to another Transaction Document.

      8. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this AIR may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Required Holders;
provided that no such action may increase the exercise price of any AIRs or
decrease the principal amount of Additional Notes obtainable upon exercise of
any AIRs without the written consent of the Holder of this AIR. No such
amendment shall be effective to the extent that it applies to less than all of
the Holders of the AIRs then outstanding.

      9. GOVERNING LAW. This AIR shall be construed and enforced in accordance
with, and all questions concerning the construction, validity, interpretation
and performance of this AIR 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.

                                      -7-
<PAGE>

      10. CONSTRUCTION; HEADINGS. This AIR shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any person as
the drafter hereof. The headings of this AIR are for convenience of reference
and shall not form part of, or affect the interpretation of, this AIR.

      11. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this AIR shall be cumulative and in addition to all other
remedies available under this AIR, the Securities Purchase Agreement and the
other Transaction Documents (as defined in the Securities Purchase Agreement),
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder of
this AIR or the Company, as the case may be, to pursue actual damages for any
failure by the Company or the Holder, as the case may be, to comply with the
terms of this AIR. The Company and the Holder acknowledge that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder of this AIR
or the Company, as the case may be, and that the remedy at law for any such
breach may be inadequate. The Company and the Holder therefore agree that, in
the event of any such breach or threatened breach, the Holder of this AIR or the
Company, as the case may be, shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

      12. CERTAIN DEFINITIONS. For purposes of this AIR, the following terms
shall have the following meanings:

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

            (b) "Common Stock" means (i) the Company's common stock, par value
$.01 per share, 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.

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

            (d) "Registration Rights Agreement" means that certain registration
rights agreement dated as of the Closing Date (as defined in the Securities
Purchase Agreement) by and among the Company and the Purchasers.

            (e) "Required Holders" means the holders of AIRs representing the
right to acquire at least a majority of the principal amount of Additional Notes
underlying the AIRs then outstanding.

                            [Signature Page Follows]

                                      -8-
<PAGE>

      IN WITNESS WHEREOF, the Company has caused this AIR to be duly executed as
of the Issuance Date set out above.

                                         SPATIALIGHT, INC.

                                         By:
                                            ------------------------------------
                                            Name:
                                            Title:
<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE

            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                           ADDITIONAL INVESTMENT RIGHT

                                SPATIALIGHT, INC.

To:      SpatiaLight, Inc.

      The undersigned is the holder of Additional Investment Right No. _____
(the "AIR") issued by SpatiaLight, Inc., a New York corporation (the "Company").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the AIR.

      1. The AIR is currently exercisable to purchase a total of $_______
principal amount of Additional Notes.

      2. The undersigned holder hereby exercises its right to purchase $_______
principal amount of Additional Notes pursuant to the AIR.

      3. The holder shall pay the sum of $___________________ to the Company in
accordance with the terms of the AIR.

      4. Pursuant to this exercise, the Company shall deliver to the holder
$_______ principal amount of Additional Notes in accordance with the terms of
the AIR.

      5. Following this exercise, the AIR shall be exercisable to purchase a
total of $_______ principal amount of Additional Notes.

         Please issue the Additional Notes in the following name and to the
following address:

         Issue to:
                  --------------------------------------------------------------

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

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

Date: _______________ __, ______

--------------------------------
Name of Registered Holder

By:
   -----------------------------
   Name:
   Title:
<PAGE>

                               FORM OF ASSIGNMENT

             [To be completed and signed only upon transfer of AIR]

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within AIR to
purchase $________ principal amount of Additional Notes of SpatiaLight, Inc., to
which the within AIR relates and appoints ________________ attorney to transfer
said right on the books of SpatiaLight, Inc. with full power of substitution in
the premises.

Dated:                      ,
       ---------------------

                                ------------------------------------------------
                                (Signature must conform in all respects to name
                                of holder as specified on the face of the AIR)

                                ------------------------------------------------
                                Address of Transferee

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

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

In the presence of:

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

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