Document:

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                                                                     EXHIBIT 4.4

                          SECURITIES PURCHASE AGREEMENT

         SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of September
17, 2002, by and among Zix Corporation (formerly known as Zixit Corporation), a
Texas corporation, with headquarters located at 2711 N. Haskell Avenue, Suite
2300, LB36, Dallas, Texas 75204-2960 (the "COMPANY"), and the investors listed
on the Schedule of Buyers attached hereto (individually, a "BUYER" and
collectively, the "BUYERS").

         WHEREAS:

         A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");

         B. The Company has authorized secured convertible notes of the Company
substantially in the form attached as Exhibit A (together with any secured
convertible notes issued in exchange therefor or replacement thereof in
accordance with the terms thereof, the "CONVERTIBLE NOTES"), which shall be
convertible into shares of the Company's common stock, par value $0.01 per share
(the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in accordance with
the terms of the Convertible Notes.

         C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, (I) Convertible Notes in an aggregate principal amount of
$8,000,000 in the respective amounts set forth opposite each Buyer's name on the
Schedule of Buyers (the "NOTES") and (II) warrants substantially in the form
attached as Exhibit B (the "WARRANTS") to acquire that number of shares of
Common Stock for each $1,000 principal amount of the Notes purchased equal to
the quotient of (i) $200, divided by (ii) the Warrant Exercise Price (as defined
in the Warrant)(as exercised, collectively, the "WARRANT SHARES"); and

         D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached as Exhibit C (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

         E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Security Agreement
substantially in the form attached as Exhibit F (the "SECURITY AGREEMENT")
pursuant to which the Company has agreed to provide the Buyers with a security
interest in certain assets of the Company.

         NOW THEREFORE, the Company and the Buyers hereby agree as follows:

         1. PURCHASE AND SALE OF NOTES AND WARRANTS.

                  a. Purchase of Notes and Warrants. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer and each Buyer severally agrees to purchase
from the Company the Notes in the principal amount set forth opposite such
Buyer's name on the Schedule of Buyers, along with the related Warrants to
acquire that number of Warrant Shares for each $1,000 principal amount of Notes

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purchased equal to the quotient of (i) $200, divided by (ii) the Warrant
Exercise Price (the "CLOSING"). The purchase price (the "PURCHASE PRICE") of the
Notes and the related Warrants at the Closing shall be equal to $1.00 for each
$1.00 of principal amount of the Notes purchased (representing an aggregate
Purchase Price of $8,000,000 for the aggregate principal amount of $8,000,000 of
Notes, along with the related Warrants, to be purchased at the Closing).
"BUSINESS DAYS" 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. The Closing Date. The date and time of the Closing (the
"CLOSING DATE") shall be 10:00 a.m. Central Time, on September 18, 2002, subject
to the satisfaction (or waiver) of all of the conditions to the Closing set
forth in Sections 6 and 7 (or such later date as is mutually agreed to by the
Company and the Buyers). The Closing shall occur on the Closing Date at the
offices of Katten Muchin Zavis Rosenman, 525 West Monroe Street, Suite 1600,
Chicago, Illinois 60661-3693 or at such other time, date and place as the
Company and the Buyers may collectively designate in writing.

                  c. Form of Payment. On the Closing Date, (i) each Buyer shall
pay the Purchase Price to the Company for the Notes and the related Warrants to
be issued and sold to such Buyer at such Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, less any amount withheld for expenses pursuant to Section 4(h),
and (ii) the Company shall deliver to each Buyer, Notes (in the principal
amounts as such Buyer shall request) (the "NOTE CERTIFICATES") representing such
principal amount of the Notes that such Buyer is then purchasing hereunder along
with warrants representing the related Warrants, duly executed on behalf of the
Company and registered in the name of such Buyer or its designee.

         2. BUYER'S REPRESENTATIONS AND WARRANTIES.

                  Each Buyer represents and warrants with respect to only itself
that:

                  a. Investment Purpose. Such Buyer (i) is acquiring the Notes
and the Warrants, (ii) upon conversion of the Notes, will acquire the Conversion
Shares then issuable and (iii) upon exercise of the Warrants, will acquire the
Warrant Shares issuable upon exercise thereof (the Notes, the Conversion Shares,
the Warrants and the Warrant Shares collectively are referred to herein as the
"SECURITIES"), for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.

                  b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.

                  c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying in part upon

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the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Securities.

                  d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
that have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(l) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.

                  e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

                  f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act, as amended (or a successor rule thereto) ("RULE 144"); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register the Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. 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.

                  g. Legends. Such Buyer understands that the certificates or
other instruments representing the Notes and the Warrants and, until such time
as the sale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Conversion Shares and the Warrant Shares,
except as set forth below, shall bear a restrictive

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legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
         SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
         TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
         REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
         1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION
         OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
         REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II)
         UNLESS SOLD PURSUANT TO RULE 144 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.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144(k), or (iv) such holder provides the
Company reasonable assurances that the Securities have been or are being sold
pursuant to Rule 144.

                  h. Authorization; Enforcement; Validity. Such Buyer is a
validly existing corporation, partnership, limited liability company or other
entity and has the requisite corporate, partnership, limited liability or other
organizational power and authority to purchase the Securities pursuant to this
Agreement. This Agreement and the Registration Rights Agreement have been duly
and validly authorized, executed and delivered on behalf of such Buyer and are
valid and binding agreements of such Buyer enforceable against such Buyer in
accordance with their respective terms, subject as to enforceability to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.

                  i. Residency. Such Buyer is a resident of that jurisdiction
specified in its address on the Schedule of Buyers.

                  j. Representations Regarding Sales. During the period
beginning 90 days prior to the date of this Agreement and ending on the Closing
Date (or the date this Agreement is terminated pursuant to Section 9(k)),
neither such Buyer nor any of its affiliates has engaged or will engage,
directly or indirectly, in any sales of Common Stock, including any "short
sales" (as defined in Rule 3b-3 under the 1934 Act) of Common Stock or has
established or will establish

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an open "put equivalent position" (within the meaning of Rule 16a-1(h) under the
1934 Act) with respect to the Common Stock. As of the Closing Date, neither such
Buyer nor any of its affiliates shall have any short position or put equivalent
position.

         3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

                  The Company represents and warrants to each of the Buyers
that:

                  a. Organization and Qualification. Set forth in Schedule 3(a)
is a true and correct list of all of the Company's subsidiaries (which for
purposes of the schedule means any entity in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest), as well
as a list designating each of the Company's Subsidiaries (as defined below). The
Company and its "SUBSIDIARIES" (which for purposes of this Agreement means any
entity in which the Company, directly or indirectly, owns capital stock or holds
an equity or similar interest, other than entities in which the Company (i) has
less than 25% of the voting control of such entity, (ii) has less than 25% of
the equity interest in such entity and (iii) has no exposure to any liability,
contingent or otherwise, that could result in a Material Adverse Effect (as
defined below)) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power and authority to own their properties and to
carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below). The Company has no Subsidiaries except as set forth in Schedule 3(a).

                  b. Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5), the Notes,
the Warrants, the Security Agreement and each of the other agreements entered
into by the parties hereto in connection with the transactions contemplated by
this Agreement (collectively, the "TRANSACTION DOCUMENTS"), and to issue the
Securities in accordance with the terms hereof and thereof. The execution and
delivery of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated hereby and thereby, including without
limitation the issuance of the Notes and the Warrants, the reservation for
issuance and the issuance of the Conversion Shares and Warrant Shares issuable
upon conversion or exercise thereof, have been duly authorized by the Company's
Board of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders. This Agreement and the
other Transaction Documents dated of even date herewith have been duly executed
and delivered by the Company and constitute the valid and binding obligations of
the Company enforceable against the Company in accordance

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with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies. As of the Closing, the Transaction Documents dated after the date
hereof shall have been duly executed and delivered by the Company and shall
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.

                  c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 175,000,000 shares of Common Stock,
of which as of the date hereof, 18,119,284 shares are issued and outstanding,
7,857,380 shares are reserved for issuance pursuant to the Company's stock
option, restricted stock and stock purchase plans and 3,235,279 shares are
issuable and reserved for issuance pursuant to securities (other than the Notes
and the Warrants and the Company's Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock and the related Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii)
10,000,000 shares of Preferred Stock, $1.00 par value, of which as of the date
hereof, 819,886 shares have been designated Series A Convertible Preferred
Stock, of which as of 9:59 a.m. Central Time on the date hereof none are issued
and outstanding, and 1,304,815 shares have been designated Series B Convertible
Preferred Stock, of which as of 9:59 a.m. Central Time on the date hereof none
are issued and outstanding. All of such outstanding or issuable shares have
been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(c), (A) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (B)
except for certain obligations under the terms of the Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock, there is no
outstanding Indebtedness (as defined in the Notes) of the Company nor are there
any outstanding leasing or similar arrangements that, in accordance with
generally accepted accounting principals, are classified as a capital lease; (C)
except for the Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock and the related warrants, there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
for, any shares of capital stock of the Company or any of its Subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable for, any
shares of capital stock of the Company or any of its Subsidiaries; (D) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement), except for the registration rights
agreements entered into by the Company on or prior to the date of this Agreement
with the holders of the Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock; (E) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries that contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, except for the Series A Convertible Preferred Stock and Series B
Convertible

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Preferred Stock; (F) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (G) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to each Buyer true and
correct copies of the Company's Restated Articles of Incorporation, as amended
and as in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the
Company's Bylaws, as amended and as in effect on the date hereof (the "BYLAWS"),
and the terms of all securities convertible into, or exercisable or exchangeable
for Common Stock, and the material rights of the holders thereof in respect
thereto, other than options granted pursuant to employee benefits plans adopted
by the Company prior to the date hereof.

                  d. Issuance of Securities. The Notes are duly authorized and,
upon issuance in accordance with the terms hereof, shall be (i) free from all
taxes, liens and charges with respect to the issuance thereof and (ii) entitled
to the rights set forth in the Notes. At least 2,753,163 shares of Common Stock
(subject to adjustment pursuant to the Company's covenant set forth in Section
4(f) below) have been duly authorized and reserved for issuance upon conversion
of the Notes and upon exercise of the Warrants. Upon conversion or exercise in
accordance with the Notes or the Warrants, as the case may be, the Conversion
Shares and the Warrant Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. In reliance in part, as to factual matters, on the
representations and warranties of the Buyers in Section 2, the issuance by the
Company of the Securities is exempt from registration under the 1933 Act.

                  e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the reservation for issuance and
issuance of the Conversion Shares and the Warrant Shares) will not (i) result in
a violation of the Articles of Incorporation or the Bylaws; (ii) conflict with,
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party; (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market (as defined below)) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
term of its Articles of Incorporation or Bylaws or their organizational charter
or bylaws, respectively. Except as disclosed in Schedule 3(e), neither the
Company nor any of its Subsidiaries is in violation of any term of or in default
under any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, except where such violations or defaults would not
result, either individually or in the aggregate, in a Material Adverse Effect.
The business of the Company and its Subsidiaries is not being conducted, and
shall not be conducted, in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect. Except as
specifically contemplated by this Agreement including

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without limitation the filings and listings described in Section 4(b) and
Section 4(g), and as required under the 1933 Act, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents in accordance
with the terms hereof or thereof. Except as disclosed in Schedule 3(e), all
consents, authorizations, orders, filings and registrations that the Company is
required to obtain as described in the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its Subsidiaries are
unaware of any facts or circumstances that might give rise to any of the
foregoing. The Company is not in violation of the listing requirements of the
Principal Market, including, without limitation, the requirements set forth in
Rule 4350(i)(1)(D) of the Principal Market (as defined in Section 4(g)) and has
no actual knowledge of any facts that would lead to delisting or suspension of
the Common Stock by the Principal Market in the foreseeable future.

                  f. SEC Documents; Financial Statements. Since December 31,
2000, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof (including all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein) being hereinafter referred to as the "SEC
DOCUMENTS"). A complete and accurate list of the SEC Documents is set forth on
Schedule 3(f) and the Company has made available to the Buyers or their
respective representatives true and complete copies of the SEC Documents. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents. None of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers (excluding
information contained in any un-executed drafts of documents relating to the
transactions contemplated by this Agreement, the offer and sale of the Company's
Series A Preferred Stock or the offer and sale of the Company's Series B
Preferred Stock) which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d), contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they are or were made, not misleading. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have
provided the Buyers with any material, nonpublic information. The Company meets
the requirements for use

                                      -8-
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of Form S-3 for registration of the resale of Registrable Securities (as defined
in the Registration Rights Agreement). The Company is not required to file and
will not be required to file any agreement, note, lease, mortgage, deed or other
instrument entered into prior to the date hereof and to which the Company is a
party or by which the Company is bound that has not been previously filed as an
exhibit (including by way of incorporation by reference) to its reports filed or
made with the SEC under the 1933 Act or the 1934 Act, other than the documents
referred to in Section 7(xiv).

                  g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), since December 31, 2001 there has been no material adverse change and no
material adverse development in the business, properties, assets, operations,
results of operations, financial conditions or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact that would reasonably lead a creditor to do so. The
Company is not as of the date hereof, and after giving effect to the
transactions contemplated hereby, will not be Insolvent (as defined below). For
purposes of this Section 3(g), "INSOLVENT" means (i) the present fair saleable
value of the Company's assets is less than the amount required to pay the
Company's total indebtedness, contingent or otherwise, (ii) the Company is
unable to pay its debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured, (iii) the Company
intends to incur, prior to October 1, 2004, or believes that it will incur,
prior to October 1, 2004, debts that would be beyond its ability to pay as such
debts mature or (iv) the Company has unreasonably small capital with which to
conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted. Except as disclosed in Schedule 3(g), since
June 30, 2002 the Company has not declared or paid any dividends, sold any
assets, individually or in the aggregate, in excess of $300,000 outside of the
ordinary course of business or had capital expenditures, individually or in the
aggregate, in excess of $300,000.

                  h. Absence of Litigation. Except as set forth in Schedule
3(h), (i) there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Subsidiaries or any of the Company's or the Subsidiaries' officers or directors
in their capacities as such, (ii) to the knowledge of the Company there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body threatened
against or affecting the Company, the Common Stock or any of the Subsidiaries or
any of the Company's or the Subsidiaries' officers or directors in their
capacities as such, and (iii) to the knowledge of the Company none of the
directors or officers of the Company have been involved in securities related
litigation during the past five years. The disclosure in item 1 of Schedule 3(h)
does not constitute material information within the meaning of federal
securities laws and does not constitute a material adverse change to the
business, properties, assets, operations, results of operations, financial
condition or prospects of the Company and its subsidiaries, taken as a whole.
The Company has no arrangements or agreements currently in effect with Entrust,
Inc. other than the Marketing and Distribution Agreement referred to in item 1
of Schedule 3(h) and an Enterprise and CA Services Agreement dated November 6,
2000, between the Company and Entrust, Inc.

                                      -9-
<PAGE>

                  i. Acknowledgment Regarding Buyer's Purchase of Notes and
Warrants. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of an arm's length purchaser with respect to the Company
in connection with the Transaction Documents and the transactions contemplated
hereby and thereby. The Company further acknowledges that each Buyer is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and any advice given by any of the Buyers or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.

                  j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Notes and Warrants contemplated by
this Agreement and except for the issuance by the Company of its Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock and the
related warrants, no event, liability, development or circumstance has occurred
or exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
that has not been publicly disclosed.

                  k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.

                  l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of (i) the 1933 Act
(other than the offer and sale by the Company of shares of its Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock and related
warrants) or (ii) any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated (other than the shares of Common Stock issuable upon conversions of
or as a redemption of the Series A Convertible Preferred Stock or the Series B
Convertible Preferred Stock). Neither the Company nor any of its Subsidiaries
take any action or steps that would require registration of any of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings. The Company has received verbal guidance from
Nasdaq (as defined below) that none of (i) the shares of Common Stock issuable
upon exercise of the warrants issued

                                      -10-
<PAGE>

in connection with the offering of the Series A Convertible Preferred Stock or
(ii) the shares of Common Stock issuable upon exercise of the warrants issued in
connection with the offering of the Series B Convertible Preferred Stock would
be included in the calculation to determine whether the Company had exceeded the
Nasdaq's limitation generally requiring shareholder approval prior to issuances
of a company's common stock at prices either below market or subject to certain
future pricing, and equal to or in excess of 20% of the number of shares
outstanding at the time of issuance.

                  m. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Notes and
the Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Notes in accordance with this
Agreement and the Notes and its obligation to issue the Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Warrants is,
in each case, absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.

                  n. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union that relates to
such employee's relationship with the Company, neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. Except as set forth in Schedule 3(n), no executive officer (as defined
in Rule 501(f) of the 1933 Act) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company. No executive officer, to the best knowledge of the Company and
its Subsidiaries, is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters.

                  o. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted. Except as set forth in
Schedule 3(o), none of the Company's trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, trade secrets or other intellectual property rights of
others, or of any development of similar or identical trade secrets or technical
information by others. Except as set forth in Schedule 3(o), there is no claim,
action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its Subsidiaries regarding
its trademarks, trade names,

                                      -11-
<PAGE>

service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, trade secrets, or infringement of
other intellectual property rights. The Company and its Subsidiaries are unaware
of any facts or circumstances that might give rise to any of the foregoing. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties.

                  p. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where, in each of the
three foregoing cases, the failure to so comply would not have, either
individually or in the aggregate, a Material Adverse Effect.

                  q. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them that is material to the business of
the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(q) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and facilities by the
Company and its Subsidiaries. Except as set forth in Schedule 3(q), the Company
has not pledged any of its assets as collateral or granted any security interest
in any of its assets or otherwise subjected any of its assets to any
encumbrances or liens.

                  r. Insurance. Except as set forth on Schedule 3(r), the
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Except as set forth on
Schedule 3(r), neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

                  s. Regulatory Permits. Except for Permits (as defined below)
the absence of which would not result, either individually or in the aggregate,
in a Material Adverse Effect, the Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses (the "PERMITS"), and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

                                      -12-
<PAGE>

                  t. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of liability
is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for any significant assets
and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
differences.

                  u. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement that in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.

                  v. Tax Status. The Company and each of its Subsidiaries (i)
has made or filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes), (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and for which the Company has made appropriate
reserves for on its books, and (iii) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations (referred to in clause
(i) above) apply. Except as set forth in Schedule 3(v), there are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.

                  w. Transactions With Affiliates. Except as set forth in
Schedule 3(w), and in the SEC Documents filed at least ten (10) days prior to
the date hereof, and other than the grant of stock options disclosed in Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.

                  x. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of Texas
that is or could become applicable to the Buyers as a result of the transactions

                                      -13-
<PAGE>

contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and the Buyers' ownership of the Securities.

                  y. Rights Agreement. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.

                  z. Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any of its Subsidiaries has, in the course of
its actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.

                  aa. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.

                  bb. Series A and B Investors. Each purchaser of shares of the
Company's Series A Preferred Stock, par value $1.00 per share, shares of the
Company's Series B Preferred Stock, par value $1.00 per share, or the related
warrants to purchase Common Stock (each an "Other Investor") has been provided
with a copy of the final form of the Transaction Documents. Each Other Investor
has represented to the Company as follows (with the defined terms and section
references in the following being the terms and references from the Other
Investors' transaction documents):

                  During the period beginning ninety (90) days prior to the date
                  hereof and ending on the Closing date (or the date this
                  Agreement is terminated pursuant to Section 8.1), neither such
                  Investor nor any of its affiliates has engaged or will engage,
                  directly or indirectly, in any sales of Common Stock,
                  including any "short sales" (as defined in Rule 3b-3
                  promulgated under the Exchange Act) of Common Stock or has
                  established or will establish an open "put equivalent
                  position" (within the meaning of Rule 16a-1(h) promulgated
                  under the Exchange Act) with respect to the Common Stock. As
                  of the Closing date, neither such Investor nor any of its
                  affiliates shall have any short position or put equivalent
                  position.

         4. COVENANTS.

                  a. Best Efforts. Each party shall use its best efforts to
timely satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.

                  b. Form D and Blue Sky. The Company agrees to file a Form D
with respect

                                      -14-
<PAGE>

to the Securities as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States, and shall
provide evidence of any such action so taken to the Buyers on or prior to the
Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or "Blue
Sky" laws of the states of the United States following the Closing Date.

                  c. Reporting Status. Until the later of (i) the date that is
one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date on which no Notes or Warrants
remain outstanding (the "REPORTING PERIOD"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.

                  d. Use of Proceeds. The Company will use the proceeds from the
sale of the Notes and the Warrants for general corporate purposes. The Company
shall not use the proceeds from the sale of the Notes and Warrants in violation
of any applicable law.

                  e. Financial Information. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Reporting Period: (i) unless the following are filed with
the SEC through EDGAR and are available to the public through EDGAR, within one
(1) day after the filing thereof with the SEC, a copy of its Annual Reports on
Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K
and any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act; (ii) on the same day as the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries,
unless available through Bloomberg Financial Markets (or any successor thereto)
contemporaneously with the release; and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.

                  f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 110% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares upon conversion of all
outstanding Notes (without regard to any limitations on conversions) and 110% of
the number of shares of Common Stock needed to provide for the issuance of the
Warrant Shares upon exercise of all outstanding Warrants (without regard to any
limitations on exercises).

                  g. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from

                                      -15-
<PAGE>

time to time issuable under the terms of the Transaction Documents. The Company
shall maintain the Common Stock's authorization for quotation on the Nasdaq
National Market ("NASDAQ") or listed on The New York Stock Exchange, Inc.
("NYSE") or The American Stock Exchange, Inc. ("AMEX") (as applicable, the
"PRINCIPAL MARKET"). Neither the Company nor any of its Subsidiaries shall take
any action that would be reasonably expected to result in the delisting or
suspension of the Common Stock from the Principal Market. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(g).

                  h. Expenses. Subject to Section 9(k) below, at the Closing,
the Company shall pay, as a deduction from the proceeds of the Purchase Price,
an expense allowance of $30,000 (which amount is in addition to any amounts paid
by the Company prior to the date of this Agreement) to HFTP Investment L.L.C. (a
Buyer) or its designee(s) which amount shall be withheld by such Buyer from its
Purchase Price to be paid at the Closing.

                  i. Disclosure of Transactions and Other Material Information.
Before 8:00 a.m. (New York Time) on the second (2nd) Business Day following the
Closing Date, the Company shall file a Form 8-K with the SEC describing the
terms of the transactions contemplated by the Transaction Documents and the
occurrence of the Closing and including a description of the matter disclosed in
item 1 of Schedule 3(h) and including as exhibits to such Form 8-K this
Agreement (including the schedules hereto), the Form of Note, the Registration
Rights Agreement and the Form of Warrant, in the form required by the 1934 Act
(the "ANNOUNCING FORM 8-K"). If not already contained in a Form 8-K filed with
the SEC prior to the date of the Announcing Form 8-K, the Announcing Form 8-K
shall also contain a description of the terms of the recent transaction
involving the sale of preferred stock and warrants to certain of its directors
and officers as well as a description of the terms of the recent transaction
involving the sale of preferred stock and warrants to certain strategic
investors, including information concerning the occurrence of each closing and
including as exhibits to the Announcing Form 8-K any purchase agreements
(including the schedules thereto), any statements of designations, any
registration rights agreements and any forms of warrant relating to such
transactions, in the form required by the 1934 Act. From and after the filing of
the Announcing Form 8-K with the SEC, no Buyer shall be in possession of any
material nonpublic information received from the Company, any of its
Subsidiaries or any of its respective officers, directors, employees or agents
that is not disclosed in the Announcing Form 8-K. The Company shall not, and
shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents not to, provide any Buyer with any
material nonpublic information regarding the Company or any of its Subsidiaries
from and after the filing of the Announcing Form 8-K with the SEC without the
express written consent of such Buyer. In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, a Buyer shall have the
right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Buyer shall have any
liability to the Company, its Subsidiaries, or any of its or their respective
officers, directors, employees, shareholders or agents for any such disclosure.
Subject to the foregoing, neither the Company nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby or disclosing the name of any Buyer; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make
any press

                                      -16-
<PAGE>

release or other public disclosure with respect to such transactions (i) in
substantial conformity with the Announcing Form 8-K and contemporaneously
therewith and (ii) as is required by applicable law and regulations (provided
that in the case of clause (i) each Buyer shall be consulted by the Company in
connection with any such press release or other public disclosure prior to its
release).

                  j. Transactions With Affiliates. So long as any Note or
Warrants are outstanding, the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or affiliates of the Company or its Subsidiaries or with any
individual related by blood, marriage or adoption to any such individual or with
any entity in which any such entity or individual owns a 5% or more beneficial
interest (each a "RELATED PARTY"), except for (a) customary employment
arrangements and benefit programs on reasonable terms, (b) any agreement,
transaction, commitment or arrangement on an arms-length basis on terms no less
favorable than terms that would have been obtainable from a person other than
such Related Party, or (c) any agreement, transaction, commitment or arrangement
that is approved by a majority of the disinterested directors of the Company.
For purposes hereof, any director who is also an officer of the Company or any
Subsidiary shall not be a disinterested director with respect to any such
agreement, transaction, commitment or arrangement. "AFFILIATE" for purposes
hereof means, with respect to any person or entity, another person or entity
that, directly or indirectly, (i) has a 5% or more equity interest in that
person or entity, (ii) has 5% or more common ownership with that person or
entity, (iii) controls that person or entity, (iv) is controlled by that person
or entity or (v) shares common control with that person or entity. "CONTROL" or
"CONTROLS" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.

                  k. Corporate Existence. So long as any Buyer beneficially owns
any Notes or Warrants, the Company shall maintain its corporate existence and
shall not sell all or substantially all of the Company's assets, except in the
event of a merger or consolidation or sale or transfer of all or substantially
all of the Company's assets, where either: (A) the surviving or successor entity
in such transaction (i) assumes the Company's obligations hereunder and under
the agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on Nasdaq, AMEX or NYSE; or (B) the consideration to be received by the
Company or its shareholders in connection with such merger, consolidation, sale
or transfer consists entirely of cash (each a "Cash Private Transaction") and
the Company is in compliance with its obligations set forth in Sections 4(a) and
4(b) of the Notes and Sections 8(g) and 9 of the Warrants.

                  l. Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by an Investor (as defined in the
Registration Rights Agreement) in connection with a bona fide margin agreement
or other loan secured by the Securities. The pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no
Investor effecting any such pledge of Securities shall be required to provide
the Company with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement or any other Transaction Document, including
without limitation, Section 2(f) of this Agreement; provided that an Investor
and its pledgee shall be required to comply with the

                                      -17-
<PAGE>

provisions of Section 2(f) in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor;
provided, however, this sentence shall not obligate the Company to deliver any
certificate updating the representations and warranties contained herein, or to
provide any legal opinion in connection with such pledge.

                  m. Priority of Notes. For so long as any of the Notes is
outstanding, in the event that the Company or any of its Subsidiaries issues or
incurs any Indebtedness (as defined in the Notes), including without limitation
any note referenced in Section 7 of the Company's Series B Statement of
Designations or Series A Statement of Designations, it shall, or it shall cause
any Subsidiary to, first enter into, and cause the lender to enter into, a
Subordination Agreement, either in the form attached as Exhibit G, or containing
terms and conditions otherwise acceptable to the Buyers. The provisions of this
Section 4(m) are in furtherance of Section 12 of the Notes, and in no way limit
the other restrictions on or obligations of the Company pursuant to Section 12
of the Notes or otherwise. The Company agrees that any notes referenced in
Section 7 of the Company's Series B Statement of Designations and Series A
Statement of Designations shall be unsecured.

                  n. Restriction on Cash Acquisitions. For so long as any of the
Notes is outstanding, the Company shall not, and shall not permit any of its
Subsidiaries to, use any cash or cash equivalents as consideration for mergers
or consolidations or acquisitions of businesses or their tangible or intangible
assets.

                  o. Certain Trading Restrictions. So long as a Buyer holds any
Notes or Warrants, neither such Buyer nor any of its affiliates shall, directly
or indirectly, engage in any transaction constituting a "short sale" (as defined
in Rule 3b-3 under the 1934 Act) of shares of Common Stock or establish an open
"put equivalent position" (within the meaning of Rule 16a-1(h) under the 1934
Act) with respect to the Common Stock (each a "SHORT SALE"), except on those
days (each a "PERMITTED DAY") on which the aggregate short position (including
aggregate open "put equivalent positions") with respect to the Common Stock of
such Buyer and its affiliates prior to giving effect to any Short Sales by such
Buyer or its affiliates on such Permitted Day does not exceed such Buyer's
Permitted Share Position (as defined below) on such Permitted Day; provided,
however, that such Buyer and its affiliates shall only be entitled to engage in
transactions which constitute Short Sales on a Permitted Day to the extent that
following such transaction, the aggregate short position (including aggregate
open "put equivalent positions") with respect to the Common Stock of such Buyer
and its affiliates does not exceed such Buyer's Permitted Share Position.
Notwithstanding the foregoing, the restriction on Short Sales set forth in the
first sentence of this Section 4(o) shall not apply (a) on and after the first
day after the Closing Date on which there shall have occurred a Triggering Event
or an Event of Default (each as defined in the Notes as if the Notes where then
outstanding); (b) on or after the first date after the Closing Date on which a
Change of Control (as defined in the Notes as if the Notes were then
outstanding) shall have been consummated or there shall have been a public
announcement of a pending, proposed or intended Change of Control; or (c) with
respect to a Short Sale (and such Short Sale shall be excluded for purposes of
determining compliance with the first sentence of this Section 4(o)) so long as
such Buyer or its affiliates delivers, or is deemed pursuant to Section 8 of the
Notes to have delivered, a Conversion Notice (as defined in the Notes) or an
Exercise Notice (as defined in the Warrants)

                                      -18-
<PAGE>

on or before 11:59 p.m. (New York time) on the Business Day following the day of
such Short Sale entitling the Holder to receive a number of shares of Common
Stock at least equal to the number of shares of Common Stock sold or subject to
such Short Sale. Subject to the foregoing restrictions, the Company acknowledges
and agrees that nothing in this Section 4(o) or elsewhere in this Agreement, the
Notes, the Warrants or the Registration Rights Agreement prohibits any Buyer (or
any of its affiliates) from, and each Buyer (and its affiliates) is permitted
to, engage, directly or indirectly, in hedging transactions involving the Notes,
the Warrants and the Common Stock (including, without limitation, by way of
short sales, purchases and sales of options, swap transactions and synthetic
transactions) at any time. For purposes of this Section 4(o), "PERMITTED SHARE
POSITION" means, with respect to any date of determination, the number of shares
of Common Stock issuable upon exercise of the Warrants held by the applicable
Buyer and its affiliates (without regard to any limitations on exercise) on such
date.

                  p. Restrictions on Other Investors. For so long as any Notes
or Warrants are outstanding, the Company shall require that each Other Investor
agree in writing to substantially similar restrictions to the restrictions in
Section 4(o), and the Company shall not waive, or agree to any amendment of,
such restrictions with respect to any Other Investor.

                  q. Cash Balances. The Company shall not permit the aggregate
amount of cash (in United States dollars) and Cash Equivalents (as defined
below) of the Company in the Pledged Accounts (as defined in the Security
Agreement) to fall below the lesser of (i) $5,000,000 and (ii) the dollar amount
of the Secured Obligations (as defined in the Security Agreement) then
outstanding (such lesser amount is referred to as the "MINIMUM BALANCE"). The
Company agrees that there shall be no more than two (2) Pledged Accounts at any
time. If at any time the aggregate amount of cash (in United States dollars) and
Cash Equivalents in the Pledged Accounts falls below the Minimum Balance, then
the Company shall deliver written notice thereof to each holder of the Notes
within one (1) Business Day, and shall publicly disclose such information prior
to or simultaneous with such notice. The Company shall not permit the collected
balances of all accounts, other than the Excluded Account (as defined in the
Security Agreement) and the Pledged Accounts, maintained by or on behalf of the
Company or any of its Subsidiaries (including, without limitation, any Deposit
Account or Securities Account (as both terms are defined in the Security
Agreement)) to (A) collectively exceed $400,000 in the aggregate for more than
two (2) consecutive Business Days, and (B) collectively exceed $800,000 in the
aggregate at any time. The Company shall not permit the balance of the Excluded
Account to exceed $300,000. If at any time the Company fails to be in compliance
with the requirements of either or both of the previous two sentences, then the
Company shall deliver written notice thereof to each holder of the Notes within
one (1) Business Day, and shall publicly disclose such information prior to or
simultaneous with such notice. "CASH EQUIVALENTS" means: (x) securities issued
or fully guaranteed or insured by the United States Government having maturities
of not more than one (1) year from the date of acquisition, and (y) any other
securities agreed to in writing by the holders of at least two-thirds (2/3) of
the aggregate principal of the Notes then outstanding. So long as any of the
Notes remain outstanding, within five (5) Business Days after the end of each
calendar month the Company shall cause to be delivered to each Buyer a written
certificate signed by the chief financial officer or president of the Company
(each a "COMPLIANCE CERTIFICATE") certifying that the Company has complied with
the provisions of this Section 4(q) through the date of such certificate or, if
the Company has not so complied, the manner in which the Company has failed to
comply with the provisions of this Section 4(q). If a Compliance Certificate
fails to certify that the Company has

                                      -19-
<PAGE>

complied in all respects with this Section 4(q) or contains any information
concerning the Company's noncompliance (a "NONCOMPLIANCE CERTIFICATE"), then
prior to or concurrent with the Company's delivery of such Compliance
Certificate to a Buyer the Company shall publicly disclose the information
contained in such Compliance Certificate. If the Company fails to publicly
disclose the information contained in any notice or Noncompliance Certificate
required by this Section 4(q) prior to or concurrent with the delivery thereof
to a Buyer, then a Buyer shall have the right to make a public disclosure, in
the form of a press release, public advertisement or otherwise, of such
information without the prior approval by the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees or agents. No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, shareholders or agents for any
such disclosure. On or prior to the date which is ten (10) days after the
Closing, the Company shall cause to be delivered to each Buyer the opinion of
Hughes & Luce L.L.P., in form and substance reasonably acceptable to such Buyer,
dated as of a then current date, which opinion shall confirm the perfection and
first priority security interest in the Collateral (as defined in the Security
Agreement) based on a Uniform Commercial Code search to be conducted at the
office of the Secretary of State of the State of Texas (the "SUPPLEMENTAL
OPINION"). The Company will deposit the proceeds from its sale of the Notes and
the Warrants and the proceeds from the Company's sale of its Series A Preferred
Stock and Series B Preferred Stock and related warrants (the "AGGREGATE
PROCEEDS") in the Pledged Accounts. Prior to the time that the Supplemental
Opinion is delivered to each Buyer, the Company shall keep the Aggregate
Proceeds in cash (in United States dollars) and Cash Equivalents and the Company
shall not withdraw any of the Aggregate Proceeds from the Pledged Accounts.

                  r. Registrations Statements. The Company shall not file any
registration statement with the SEC that registers for resale any shares of
Common Stock held by any Other Investor (for purposes of this Section 4(r), such
term also includes any successors, assigns, transferees or designees of any
Other Investor) (including any shares of Common Stock owned prior to, on or
after the date hereof), except for (i) any registration statement filed pursuant
to the registration rights agreement entered into among the Company and the
Other Investors on or before the date hereof, but only to the extent such
registration statement includes only the resale of shares of Common Stock
issuable upon conversion of the Company's Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock and upon exercise of the related
warrants; (ii) any registration statement on Form S-8 (or any successor form);
(iii) any registration statement filed at least 270 days after the Closing Date,
provided that the aggregate number of shares of Common Stock registered for
resale by all of the Other Investors pursuant to this clause (iii) does not
exceed 2,000,000 shares (subject to adjustment for stock splits, stock
dividends, stock combinations and other similar transactions after the Closing
Date) of Common Stock in the aggregate; and (iv) any registration statement
filed after the Closing Date and when none of the Notes and none of the Warrants
are outstanding.

                  s. Shareholder Approval. As contemplated by Section 14 of the
Notes and Section 12 of the Warrants, the approval of the shareholders of the
Company is required under the rules and regulations of the Principal Market
before the Company may issue Common Stock upon certain conversions and exercises
of the Notes and Warrants, respectively (such affirmative approval being
referred to herein as the "SHAREHOLDER APPROVAL"). The Company covenants that it
will (a) prepare and file with the SEC a proxy statement relating to the
Shareholder Approval on or before October 25, 2002, (b) use all reasonable
efforts to obtain the Shareholder

                                      -20-
<PAGE>

Approval on or before February 28, 2003 and (c) in any event, seek Shareholder
Approval no later than the 2003 Annual Meeting of Shareholders of the Company.

         5. TRANSFER AND DEPOSITARY AGENT INSTRUCTIONS.

                  The Company shall issue irrevocable instructions to its
transfer agent in the form attached hereto as Exhibit D (the "IRREVOCABLE
TRANSFER AGENT INSTRUCTIONS"), and any subsequent transfer agent, to issue
certificates, registered in the name of each Buyer or its respective nominee(s),
for the Conversion Shares and the Warrant Shares in such amounts as specified
from time to time by each Buyer to the Company upon conversion of the Notes or
exercise of the Warrants. Prior to registration of the Conversion Shares and the
Warrant Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g). The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5 and stop transfer instructions to give effect to Section 2(f)
(in the case of the Conversion Shares and the Warrant Shares, prior to
registration of the Conversion Shares and the Warrant Shares under the 1933 Act)
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
If a Buyer provides the Company with an opinion of counsel, in a generally
acceptable form, to the effect that a public sale, assignment or transfer of the
Securities may be made without registration under the 1933 Act or the Buyer
provides the Company with reasonable assurances that the Securities can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold, the Company
shall permit the transfer, and, in the case of the Conversion Shares and the
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer
and without any restrictive legend. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyers shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.

         6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

                  The obligation of the Company to issue and sell the Notes and
the Warrants to each Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:

         (i) Such Buyer shall have executed each of the Transaction Documents to
         which it is a party and delivered the same to the Company.

         (ii) Such Buyer shall have delivered to the Company the Purchase Price
         (less in the case of HFTP Investment L.L.C., the amounts withheld
         pursuant to Section 4(h)) for the

                                      -21-
<PAGE>

         Notes and the Warrants being purchased by such Buyer at the Closing by
         wire transfer of immediately available funds pursuant to the wire
         instructions provided by the Company.

         (iii) The representations and warranties of such Buyer shall be true
         and correct as of the date when made and as of the Closing Date as
         though made at that time (except for representations and warranties
         that speak as of a specific date, which shall be true and correct as of
         such date), and such Buyer shall have performed, satisfied and complied
         with the covenants, agreements and conditions required by the
         Transaction Documents to be performed, satisfied or complied with by
         such Buyer at or prior to the Closing Date.

         (iv) The Purchase Price for the Notes and Warrants being purchased by
         the Buyers at Closing shall, in the aggregate, equal $8,000,000 (less
         the amounts withheld pursuant to Section 4(h)).

         7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

                  The obligation of each Buyer hereunder to purchase the Notes
and the Warrants from the Company at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for each Buyer's sole benefit and may be waived by
such Buyer at any time in its sole discretion by providing the Company with
prior written notice thereof:

         (i) The Company shall have executed each of the Transaction Documents
         and delivered the same to such Buyer.

         (ii) The Common Stock (x) shall be designated for quotation or listed
         on the Principal Market and (y) shall not have been suspended by the
         SEC or the Principal Market from trading on the Principal Market nor
         shall suspension by the SEC or the Principal Market have been
         threatened either (A) in writing by the SEC or the Principal Market or
         (B) by falling below the minimum listing maintenance requirements of
         the Principal Market; and the Conversion Shares and the Warrant Shares
         issuable upon conversion or exercise of the Notes and the related
         Warrants, as the case may be, shall be listed upon the Principal
         Market.

         (iii) The representations and warranties of the Company shall be true
         and correct as of the date when made and as of the Closing Date as
         though made at that time (except for representations and warranties
         that speak as of a specific date, which shall be true and correct as of
         such date) and the Company shall have performed, satisfied and complied
         with the covenants, agreements and conditions required by the
         Transaction Documents to be performed, satisfied or complied with by
         the Company at or prior to the Closing Date. Such Buyer shall have
         received a certificate, executed by either the Chief Executive Officer
         or the Chief Financial Officer of the Company, dated as of the Closing
         Date, to the foregoing effect and as to such other matters as may be
         reasonably requested by such Buyer, including, without limitation, an
         update as of the Closing Date of the representation contained in
         Section 3(c) above.

         (iv) Such Buyer shall have received the opinion of Hughes & Luce
         L.L.P., dated as of the Closing Date, in form, scope and substance
         reasonably satisfactory to such Buyer and

                                      -22-
<PAGE>

         in substantially the form of Exhibit E attached hereto.

         (v) The Company shall have executed and delivered to such Buyer the
         Note Certificates and the Warrants (in such denominations as such Buyer
         shall request) for the Notes and the Warrants being purchased by such
         Buyer at the Closing.

         (vi) The Board of Directors of the Company shall have adopted
         resolutions consistent with Section 3(b) above and in a form reasonably
         acceptable to such Buyer (the "RESOLUTIONS").

         (vii) As of the Closing Date, the Company shall have reserved out of
         its authorized and unissued Common Stock, solely for the purpose of
         effecting the conversion of the Notes and the exercise of the Warrants,
         at least 2,753,163 shares of Common Stock.

         (viii) The Irrevocable Transfer Agent Instructions shall have been
         delivered to and acknowledged in writing by the Company's transfer
         agent and the Company shall deliver a copy thereof to such Buyer.

         (ix) The Company shall have delivered to such Buyer a certificate
         evidencing the incorporation and good standing of the Company and each
         Subsidiary in such entity's state of incorporation or organization
         issued by the Secretary of State of such state of incorporation or
         organization as of a date within ten (10) days of the Closing Date.

         (x) The Company shall have delivered to such Buyer a secretary's
         certificate, dated as of the Closing Date, certifying as to (A) the
         Resolutions, (B) the Articles of Incorporation, certified as of a date
         within 10 days of the Closing Date, by the Secretary of State of the
         State of Texas and (C) the Bylaws, each as in effect at the Closing.

         (xi) The Company shall have made all filings under all applicable
         federal and state securities laws necessary to consummate the issuance
         of the Securities pursuant to this Agreement in compliance with such
         laws.

         (xii) The Company shall have delivered to such Buyer a letter from the
         Company's transfer agent certifying the number of shares of Common
         Stock outstanding as of a date within five (5) days of the Closing
         Date.

         (xiii) The Company shall have closed on the sale of its Series A
         Preferred Stock and Series B Preferred Stock and related warrants and
         received net proceeds from such sales of at least $7,425,000 and the
         Company shall have delivered evidence thereof to such Buyer in a form
         satisfactory to such Buyer.

         (xiv) The Company shall have delivered executed copies of each of the
         securities purchase agreements, registration rights agreements, and
         Statements of Designations (with evidence of filing with the Secretary
         of State of the State of Texas), entered into or filed in connection
         with its sale of the Series A Preferred Stock and Series B Preferred
         Stock as well as the Form of Warrant issued in each offering.

         (xv) The Company shall have delivered to such Buyer executed copies of
         the requested

                                      -23-
<PAGE>

         bank agency and control agreements and executed UCC financing
         statements as required under the Security Agreement, each in a form
         acceptable to such Buyer.

         (xvi) The Company shall have delivered to such Buyer such other
         documents relating to the transactions contemplated by this Agreement
         as such Buyer or its counsel may reasonably request.

         8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
officers, directors, employees and direct or indirect investors and any of the
foregoing persons' agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitees is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitees as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitees and arising out of or resulting from the
execution, delivery, performance or enforcement of the Transaction Documents in
accordance with the terms thereof or any other certificate, instrument or
document contemplated hereby or thereby in accordance with the terms thereof
(other than a cause of action, suit or claim brought or made against an
Indemnitee by such Indemnitee's owners, investors or affiliates), (d) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (e) the
status of such Buyer or holder of the Securities as an investor in the Company.
To the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities that is permissible
under applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 8 shall
be the same as those set forth in Sections 6(a) and (d) of the Registration
Rights Agreement, including, without limitation, those procedures with respect
to the settlement of claims and the Company's rights to assume the defense of
claims.

         9. GOVERNING LAW; MISCELLANEOUS.

                  a. Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement 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 jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan,
for the adjudication of any dispute

                                      -24-
<PAGE>

hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. The Parties acknowledge that each of the Buyers have
executed each of the Transaction Documents to be executed by it in the State of
New York and have made the payment of the Purchase Price from their respective
bank accounts located in the State of New York. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

                  b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

                  c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

                  d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.

                  e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers that purchased at least two-thirds (2/3) of the aggregate
principal amount of the Notes on the Closing Date, or if prior to the Closing,
by the Buyers listed on the Schedule of Buyers as being obligated to purchase at
least two-thirds (2/3) of the aggregate principal amount of the Notes. Any such
amendment shall bind all holders of Notes. No such amendment shall be effective
to the extent that it applies to less than all of the holders of the Notes or
Warrants then outstanding. No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration also is offered to
all of the parties to the Transaction Documents or holders of Notes, as the case
may be.

                                      -25-
<PAGE>

                  f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:

         If to the Company:

                  Zix Corporation
                  2711 N. Haskell Avenue, Suite 2300, LB36
                  Dallas, Texas 75204-2960
                  Telephone:        214-370-2000
                  Facsimile:        214-515-7385
                  Attention:        General Counsel

         With a copy to:

                  Hughes & Luce L.L.P.
                  111 Congress Avenue, 9th Floor
                  Austin, Texas 78701
                  Telephone:        512-482-6800
                  Facsimile:        512-482-6859
                  Attention:        Bryan C. Wittman, Esq.

         If to the Transfer Agent:

                  Computer Share Investor Services LLC
                  1601 Elm Street, Suite 4340
                  Dallas, Texas 75201
                  Telephone:        214-665-6031
                  Facsimile:        214-969-1859
                  Attention:        Mark Asbury

If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or, in the case of a Buyer or any other party named
above, at such other address and/or facsimile number and/or to the attention of
such other person as the recipient party has specified by written notice given
to each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.

                                      -26-
<PAGE>

                  g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Notes. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds (2/3) of the aggregate principal
of the Notes then outstanding, including by merger or consolidation, except
pursuant to a Change of Control (as defined in Section 4(b) of the Notes) with
respect to which the Company is in compliance with Section 4(k) of this
Agreement, Section 4 of the Notes and Section 9 of the Warrants. A Buyer may
assign some or all of its rights hereunder without the consent of the Company,
provided, however, that any such assignment shall not release such Buyer from
its obligations hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and assumption, which consent
shall not be unreasonably withheld. Notwithstanding anything to the contrary
contained in the Transaction Documents, the Buyers shall be entitled to pledge
the Securities in connection with a bona fide margin account or other loan or
financing arrangement secured by the Securities.

                  h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.

                  i. Survival. Unless this Agreement is terminated under Section
9(k), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive the
Closing. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.

                  j. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

                  k. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before five (5) Business Days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(k), the Company shall remain obligated to reimburse any
nonbreaching Buyers for the expenses described in Section 4(h) above.

                  l. Placement Agent. The Company acknowledges that it has
engaged SoundView Technology Group as placement agent in connection with the
sale of the Notes and the related Warrants, which placement agent may have
formally or informally engaged other agents on its behalf. The Company shall be
responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the transactions contemplated hereby.
The Company shall pay, and hold each Buyer harmless against, any liability, loss
or expense (including, without limitation, attorneys' fees and out of pocket
expenses) arising in connection with any such claim.

                                      -27-
<PAGE>

                  m. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

                  n. Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies that such holders have been granted at any time under
any other agreement or contract and all of the rights that such holders have
under any law. Any person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.

                  o. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Registration
Rights Agreement, the Notes or Warrants or the Buyers enforce or exercise their
rights hereunder or thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
by a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

                                   * * * * * *

                                      -28-
<PAGE>
         IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.

COMPANY:                                 BUYERS:

ZIX CORPORATION                          HFTP INVESTMENT L.L.C.
                                         By: Promethean Asset Management L.L.C.
                                             Its: Investment Manager
By:    /s/ Ronald A. Woessner
    ---------------------------------
    Name:  Ronald A. Woessner
    Title: Senior Vice President and
           General Counsel               By: /s/ James F. O'Brien
                                             -----------------------------------
                                             Name:  James F. O'Brien
                                             Title: Managing Member

                                         GAIA OFFSHORE MASTER FUND, LTD.
                                         By:  Promethean Asset Management L.L.C.
                                         Its: Investment Manager

                                         By: /s/ James F. O'Brien
                                             -----------------------------------
                                             Name:  James F. O'Brien
                                             Title: Managing Member

                                         CAERUS FUND LTD.
                                         By:  Promethean Asset Management L.L.C.
                                         Its: Investment Manager

                                         By: /s/ James F. O'Brien
                                             -----------------------------------
                                             Name:  James F. O'Brien
                                             Title: Managing Member

<PAGE>

                               SCHEDULE OF BUYERS

<Table>
<Caption>

                                                                                  INITIAL
                                                                                 PRINCIPAL
                                                INVESTOR ADDRESS                 AMOUNT OF         BUYER'S LEGAL REPRESENTATIVES'
         INVESTOR'S NAME                      AND FACSIMILE NUMBER                 NOTES            ADDRESS AND FACSIMILE NUMBER
--------------------------------     ---------------------------------------   --------------   -----------------------------------

<S>                                  <C>                                       <C>              <C>
HFTP Investment L.L.C.               c/o Promethean Asset Management L.L.C.     $3,750,000      Promethean Investment Group, L.L.C.
                                     750 Lexington Avenue, 22nd Floor                           750 Lexington Ave., 22nd Floor
                                     New York, New York 10022                                   New York, New York 10022
                                     Attention: David M. Kittay                                 Attention: David M. Kittay
                                                Greg Carney                                                Greg Carney
                                     Telephone: (212) 702-5200                                  Telephone: 212-702-5200
                                     Facsimile: (212) 758-9334                                  Facsimile: 212-758-9334
                                     Residence: New York
                                                                                                Katten Muchin Zavis Rosenman
                                                                                                525 W. Monroe Street
                                                                                                Chicago, Illinois 60661-3693
                                                                                                Attention: Robert J. Brantman, Esq.
                                                                                                Telephone: (312) 902-5200
                                                                                                Facsimile: (312) 902-1061

Gaia Offshore Master Fund, Ltd.      c/o Promethean Asset Management L.L.C.     $3,750,000      Promethean Investment Group, L.L.C.
                                     750 Lexington Avenue, 22nd Floor                           750 Lexington Ave., 22nd Floor
                                     New York, New York 10022                                   New York, New York 10022
                                     Attention: David M. Kittay                                 Attention: David M. Kittay
                                                Greg Carney                                                Greg Carney
                                     Telephone: (212) 702-5200                                  Telephone: 212-702-5200
                                     Facsimile: (212) 758-9334                                  Facsimile: 212-758-9334
                                     Residence: New York
                                                                                                Katten Muchin Zavis Rosenman
                                                                                                525 W. Monroe Street
                                                                                                Chicago, Illinois 60661-3693
                                                                                                Attention: Robert J. Brantman, Esq.
                                                                                                Telephone: (312) 902-5200
                                                                                                Facsimile: (312) 902-1061

Caerus Fund Ltd.                     c/o Promethean Asset Management L.L.C.      $500,000       Promethean Investment Group, L.L.C.
                                     750 Lexington Avenue, 22nd Floor                           750 Lexington Ave., 22nd Floor
                                     New York, New York 10022                                   New York, New York 10022
                                     Attention: David M. Kittay                                 Attention: David M. Kittay
                                                Greg Carney                                                Greg Carney
                                     Telephone: (212) 702-5200                                  Telephone: 212-702-5200
                                     Facsimile: (212) 758-9334                                  Facsimile: 212-758-9334
                                     Residence: New York
                                                                                                Katten Muchin Zavis Rosenman
                                                                                                525 W. Monroe Street
                                                                                                Chicago, Illinois 60661-3693
                                                                                                Attention: Robert J. Brantman, Esq.
                                                                                                Telephone: (312) 902-5200
                                                                                                Facsimile: (312) 902-1061
</Table>

<PAGE>

                                    SCHEDULES

Schedule 3(a)              Subsidiaries
Schedule 3(c)              Capitalization
Schedule 3(e)              Conflicts
Schedule 3(f)              SEC Documents
Schedule 3(g)              Material Changes
Schedule 3(h)              Litigation
Schedule 3(n)              Employee Relations
Schedule 3(o)              Intellectual Property
Schedule 3(q)              Liens
Schedule 3(r)              Insurance
Schedule 3(v)              Tax Status
Schedule 3(w)              Certain Transactions

                                    EXHIBITS

Exhibit A                  Form of Note
Exhibit B                  Form of Warrant
Exhibit C                  Form of Registration Rights Agreement
Exhibit D                  Form of Irrevocable Transfer Agent Instructions
Exhibit E                  Form of Company Counsel Opinion
Exhibit F                  Form of Security Agreement
Exhibit G                  Form of Subordination Agreement

<PAGE>
                                                               Execution Version

                   SCHEDULES TO SECURITIES PURCHASE AGREEMENT

         All capitalized terms used but not otherwise defined in the attached
Schedules have the meanings given them in the Securities Purchase Agreement by
and among Zix Corporation, a Texas corporation ("Company"), and each of the
purchasers set forth on the signature pages thereto (the "Buyers"), dated as of
September 17, 2002 (the "Agreement"). Each of the disclosures set forth in the
Schedules are made as an exception to or as required by the Agreement.
Disclosure of any matters in the Schedules should not be construed as indicating
that such matter is necessarily required to be disclosed in order for any
representation or warranty in the Agreement to be true and correct to the extent
required in the Agreement. Disclosure of any matter in the Schedules relating to
(a) any known or contingent liabilities; (b) the compliance or failure to comply
with any contracts or laws; and (c) any pending or threatened actions, or any
potential basis therefore, will not be deemed to be an admission or denial of
the matters relating thereto so disclosed or an assessment of the likelihood or
magnitude of the outcome thereof.

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(a)

                                  SUBSIDIARIES

1.       Anacom Communications, Inc., a Delaware corporation (inactive)*

2.       Anacom Communications, Inc., a Texas corporation (active)*

3.       CustomTracks, Inc., a Delaware corporation (inactive)*

4.       Petabyte Corporation, a Delaware corporation (inactive)*

5.       SecureDelivery.com, Inc., a Delaware corporation (inactive)*

6.       SecureDelivery Technology Company, a Delaware corporation (inactive)*

7.       ZixCharge.com, Inc., a Delaware corporation (inactive)*

8.       ZixIt.com, Inc., a Delaware corporation*

9.       ZixIt Management Services Corporation, a Delaware corporation*

10.      ZixMail.com, Inc., a Delaware corporation*

11.      ZixMail Technology Company, a Delaware corporation*

12.      Maptuit Corporation, an Ontario corporation (not a "Subsidiary")

13.      CStone Consulting, Inc., a California corporation (not a "Subsidiary")

*  Is a "Subsidiary"

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(c)

                                 CAPITALIZATION

(A)(C)

      1.    There are options outstanding to employees, directors, and
            consultants and former employees, directors, and consultants to
            purchase an aggregate 6,589,583 shares of the Company's common stock
            at an average exercise price per share of $8.75 (exercise prices
            range from $2.50 to $73.75 per share), with expiration dates through
            2012, of which approximately 3,422,848 option shares are currently
            exercisable.

      2.    There are warrants outstanding held by approximately 68
            persons/entities, who were investors in the Company's May 2000
            equity financing, to purchase an aggregate 3,055,557 shares of the
            Company's common stock on the following terms:

                  a.    1,222,223 warrant shares with an exercise price of
                        $12.00 per share, expiration of 4/30/04, 100%
                        exercisable.

                  b.    916,667 warrant shares with an exercise price of $57.60
                        per share, expiration of 4/30/10, 100% exercisable.

                  c.    916,667 warrant shares with an exercise price of $7.00
                        per share, expiration of 4/29/03, 100% exercisable.

      3.    There are options outstanding to former third party vendors to
            purchase an aggregate 179,722 shares of the Company's common stock
            at prices ranging from $7.94 to $80.00, with expiration dates
            through 2007.

      4.    The Series A Preferred Shares and the Series B Preferred Shares (and
            related warrants) being issued on or about the date of the
            securities issuance to which these schedules relate are convertible
            into shares of the Company's common stock.

(B)      NONE

(D)      OBLIGATIONS TO REGISTER SECURITIES

   The following active Registration Statements were filed pursuant to
contractual or statutory registration rights obligations:

1.       Huizenga Investor Group
         $12.00 Warrants to purchase 1,222,223 shares of common stock
         Registration Statement on Form S-3 (No. 333-36556)

<PAGE>
                                                               Execution Version

2.       Huizenga Investor Group
         $57.60 Warrants to purchase 916,667 shares of common stock Registration
         Statement on Form S-3 (No. 333-36556)

3.       Huizenga Investor Group
         $7.00 Warrants to purchase 916,667 shares of common stock Registration
         Statement on Form S-3 (No. 333-83934)

4.       Tumbleweed Communications Corp.
         116,833 shares of common stock  [All shares sold.]
         Registration Statement on Form S-3 (No. 333-89052)

5.       Yahoo! Inc.
         625,000 shares of common stock
         Registration Statement on Form S-3 (No. 333-89056)  [All shares sold.]

6.       Henry Kuehne
         25,000 shares of common stock
         Registration Statement on Form S-3 (No. 333-33708)

7.       The Company has various registration statements on Form S-8 filed with
         the SEC covering the option grants to employees and consultants,
         referred to above.

8.       The Company is in the process of preparing for filing registration
         statement(s) with respect to 68,622 shares of its common stock to be
         issued to two former employees in connection with their separation from
         employment.

9.       The Company is in the process of preparing for filing registration
         statement(s) with respect to 104, 722 option shares, at exercise prices
         ranging from $7.94 - $80.00 per share, and 5,000 restricted shares held
         by various former consultants to the Company.

10.      A former consultant holds options to acquire 50,000 shares, at an
         exercise price of $25.00 per share, which are accompanied by demand
         registration rights.

11.      The Company is obligated to register the common stock shares into which
         the Series A and Series B Preferred Shares (and related warrants) are
         convertible or exercisable.

(E)-(G)           NONE

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(e)

                                    CONFLICTS

None.

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(f)

                                  SEC DOCUMENTS

<Table>
<Caption>
                                                PERIOD ENDING OR
            FORM                                   DATE FILED
            ----                                ----------------
<S>                                           <C>

       10-K                                   December 31, 2000
       S-8                                    February 6, 2001
       10-Q                                   March 31, 2001
       DEF 14A                                April 2, 2001
       S-8                                    May 29, 2001
       S-8                                    June 8, 2001
       10-Q                                   June 30, 2001
       10-Q                                   September 30, 2001
       S-8                                    December 11, 2001
       10-K                                   December 31, 2001
       10-K/A                                 December 31, 2001
       10-K/A                                 December 31, 2001
       PRE 14A                                March 11, 2002
       REG D Filing                           March 13, 2002
       10-Q                                   March 31, 2002
       10-Q/A                                 March 31, 2002
       REG D Filing                           April 12, 2002
       DEF 14A                                June 10, 2002
       10-Q                                   June 30, 2002
       S-8                                    July 18, 2002
</Table>

The Company has also filed various Forms S-3 and S-8 as noted on Schedule 3(c).

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(g)

                                MATERIAL CHANGES

The Company did not prevail in its recently concluded (July 2002) lawsuit, as
plaintiff, against Visa U.S.A., Inc. and Visa International Service Association,
Inc.

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(h)

                                   LITIGATION

1.       The Company recently received an informal telephone inquiry from the
         Fort Worth SEC Enforcement Office relating to its accounting treatment
         of an aggregate of $4.25 million of guaranteed payments (of which
         $500,000 and $469,000, respectively, was recognized in 2001 and 2002)
         due the Company from Entrust, Inc. pursuant to a Marketing and
         Distribution Agreement, dated November 6, 2000, between the Company and
         Entrust, Inc.

2.       The Company's President and CEO, John A. Ryan, is a defendant (in his
         capacity as a director and officer) in a securities related lawsuit,
         which arose while he was an officer and director of Entrust, Inc.

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(n)

                               EMPLOYEE RELATIONS

The Company's former President and Chief Executive Officer and a director, David
P. Cook, recently resigned from his position as "Founder" and as a director of
the Company.

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(o)

                              INTELLECTUAL PROPERTY

None.

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(q)

                                      LIENS

The Company has pledged a $250,000 (plus accrued interest) certificate of
deposit to support a credit card processing agreement with Bank of America.

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(r)

                                    INSURANCE

The Company is considering whether to add to its insurance coverage by obtaining
errors and omission and cybercrime insurance. The Company is also considering
reducing the amount of its director and officer insurance, i.e., the Company is
not planning on renewing its director and officer insurance at current levels.

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(v)

                                      TAXES

The Company is awaiting a determination from the Texas sales tax authorities as
to whether or not approximately $280,000 is owed with respect to digital
certificates the Company acquired in 2000.

<PAGE>
                                                               Execution Version

                                  SCHEDULE 3(w)

                              CERTAIN TRANSACTIONS

The Company is a party to severance agreements with various employees, which
require the Company to pay approximately $3MM, in the aggregate, if within 180
days after the occurrence of a "change in control," the employment of such
employees is terminated voluntarily, for cause, good reason or any other reason.
For the purposes of these agreements, a "change of control" includes (i) any
person or group of persons becoming the beneficial owners of 35% of the
outstanding voting securities of the Company; (ii) mergers, consolidations and
similar transactions; (iii) substantial asset sales by the Company; (iv) changes
in the composition of the Company's board of directors; (v) any event that the
Company's board, in its sole discretion, determines to be a "change of control."

Contemporaneously with the closing of the transactions contemplated by the
Securities Purchase Agreement to which these schedules are attached, the Company
is entering into an Securities Purchase Agreement to issue a Series A
Convertible Preferred Stock and a Series B Convertible Preferred Stock to
certain investors, including affiliates of the Company.<PAGE>
                                                                     EXHIBIT 4.5

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO
RULE 144 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 SECTION 2(d)(VIII) HEREOF.
THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(d)(VIII) HEREOF.

                            SECURED CONVERTIBLE NOTE

September 18, 2002                                                 $____________

         FOR VALUE RECEIVED, ZIX CORPORATION, a Texas corporation (the
"COMPANY"), hereby promises to pay to the order of __________________ or
registered assigns (the "HOLDER") the principal amount of ___________________
United States Dollars ($________________) when due, whether upon maturity,
acceleration, redemption or otherwise.

                  (1) Payments of Principal. All payments of principal of this
Note (to the extent such principal is not converted into Shares (as defined
below) in accordance with the terms hereof) shall be made in lawful money of the
United States of America by wire transfer of immediately available funds to such
account as the Holder may from time to time designate by written notice in
accordance with the provisions of this Note. Whenever any amount expressed to be
due by the terms of this Note is due on any day that is not a Business Day (as
defined below), the same shall instead be due on the next succeeding day that is
a Business Day. Each capitalized term used herein, and not otherwise defined,
shall have the meaning ascribed thereto in the Securities Purchase Agreement,
dated September 17, 2002, pursuant to which this Note and the Other Notes (as
defined below) were originally issued (as such agreement may be amended from
time to time as provided in such agreement, the "SECURITIES PURCHASE
AGREEMENT"). This Note and the Other Notes issued by the Company pursuant to the
Securities

<PAGE>

Purchase Agreement on the Closing Date (as defined in the Securities Purchase
Agreement) and all convertible notes issued in exchange therefor or replacement
thereof are collectively referred to in this Note as the "NOTES."

                  (2) Conversion of this Note. This Note shall be converted into
Shares on the terms and conditions set forth in this Section 2.

                           (a) Certain Defined Terms. For purposes of this Note,
the following terms shall have the following meanings:

                  (i) "ADDITIONAL AMOUNT" means the result of the following
                  formula: (.065)(N/365) (P).

                  (ii) "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.

                  (iii) "COMMON STOCK" means (A) the Company's common stock,
                  $0.01 par value per share, and (ii) any capital stock
                  resulting from a reclassification of such common stock.

                  (iv) "COMPANY REDEMPTION DATE" means each Interim Company
                  Redemption Date and the Final Company Redemption Date.

                  (v) "CONVERSION AMOUNT" means the sum of (1) the principal
                  amount of this Note to be converted, redeemed or otherwise
                  with respect to which this determination is being made and (2)
                  the Additional Amount with respect to the amount referred to
                  in the immediately preceding clause (1).

                  (vi) "CONVERSION PRICE" means as of any Conversion Date or
                  other date of determination, $3.78, subject to adjustment as
                  provided herein.

                  (vii) "DOLLARS" or "$" means United States Dollars.

                  (viii) "FINAL COMPANY REDEMPTION DATE" means October 1, 2003.

                  (ix) "INSTALLMENT AMOUNT" means, (I) with respect to any
                  Interim Company Redemption Date, the lesser of (A) $500,000
                  multiplied by the quotient of (x) the original principal
                  amount of this Note on the Issuance Date divided by (y) the
                  aggregate original principal amount of the Notes on the
                  Issuance Date, and (B) the principal amount then outstanding
                  under this Note; and (II) with respect to the Final Company
                  Redemption Date, the lesser of (C) $5,000,000 multiplied by
                  the quotient of (w) the original principal amount of this Note
                  on the Issuance Date divided by (z) the aggregate original
                  principal amount of the Notes on the

                                       2
<PAGE>

                  Issuance Date, and (D) the principal amount then outstanding
                  under this Note; in each case subject to the reduction of any
                  Installment Amount in accordance with Section 2(d)(ix) and
                  Section 7(b). In the event the Holder shall sell or otherwise
                  transfer any portion of this Note, the transferee shall be
                  allocated a pro rata portion of the applicable Installment
                  Amount.

                  (x) "INTERIM COMPANY REDEMPTION DATE" means the first Business
                  Day of each calendar month during the period beginning on and
                  including January 1, 2003 and ending on and including June 30,
                  2003.

                  (xi) "ISSUANCE DATE" means the original date of issuance of
                  this Note pursuant to the Securities Purchase Agreement,
                  regardless of any exchange or replacement hereof.

                  (xii) "MATURITY DATE" means the Business Day immediately
                  following the Final Company Redemption Date.

                  (xiii) "N" means the number of days from, but excluding, the
                  Issuance Date through and including the Conversion Date or
                  other date of determination.

                  (xiv) "OTHER NOTES" means the convertible notes, other than
                  this Note, issued by the Company pursuant to the Securities
                  Purchase Agreement and all convertible notes issued in
                  exchange therefor or replacement thereof.

                  (xv) "P" means the principal amount of this Note to be
                  converted, redeemed or with respect to which the determination
                  of the Additional Amount is otherwise being made.

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

                  (xvii) "PRINCIPAL" means the outstanding principal amount of
                  this Note as of any date of determination.

                  (xviii) "PRINCIPAL MARKET" means the Nasdaq National Market
                  or, if the Common Stock is not traded on the Nasdaq National
                  Market, then the principal securities exchange or trading
                  market for the Common Stock.

                  (xix) "REGISTRATION RIGHTS AGREEMENT" means that certain
                  registration rights agreement among the Company and the
                  initial holders of the Notes relating to the filing of a
                  registration statement covering the resale of the Shares
                  issuable upon conversion of the Notes, as such agreement may
                  be amended from time to time as provided in such agreement.

                                       3
<PAGE>

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

                  (xxi) "SECURITY AGREEMENT" means that certain security
                  agreement among the Company and the initial holders of the
                  Notes relating to the granting by the Company of a security
                  interest in certain assets of the Company, as such agreement
                  may be amended from time to time as provided in such
                  agreement.

                  (xxii) "SHARES" means shares of Common Stock.

                  (xxiii) "WARRANTS" means the warrants issued to the holders of
                  the Notes pursuant to the Securities Purchase Agreement, and
                  all warrants issued in exchange therefor or replacement
                  thereof pursuant to the terms of such warrants.

                  (xxiv) "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 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 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 Financial
                  Markets ("BLOOMBERG") through its "Volume at Price" functions
                  (ignoring any trade of more than 30,000 shares of such
                  security pursuant to an individual transaction (subject to
                  adjustment for stock splits, stock dividends, stock
                  combinations and other similar transactions involving such
                  security after the Issuance Date)), 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 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 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, 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 the National Quotation Bureau, Inc. If the
                  Weighted Average Price cannot be calculated for such security
                  on such 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
                  holders of Notes representing at least two-thirds of the
                  aggregate principal amount of the Notes then outstanding. If
                  the Company and the holders of the Notes representing at least
                  two-thirds of the aggregate principal amount of the Notes then
                  outstanding are unable to agree upon the fair market value of
                  the Common Stock, then such dispute shall be resolved pursuant
                  to Section 2(d)(iii) below with the term "Weighted Average
                  Price" being substituted for the term "Conversion Price." All
                  such determinations to be appropriately adjusted for any

                                       4
<PAGE>

                  stock dividend, stock split, stock combination or other
                  similar transaction during any period during which the
                  Weighted Average Price is being determined.

                           (b) Holder's Conversion Right; Mandatory Redemption
at Maturity. Subject to the provisions of Section 5 and Section 14, at any time
or times on or after the Issuance Date, the Holder shall be entitled to convert
all or any part of the Principal (and the Additional Amount relating thereto)
into fully paid and nonassessable Shares in accordance with Section 2(d), at the
Conversion Rate (as defined below). The Company shall not issue any fraction of
a Share upon any conversion. If the issuance would result in the issuance of a
fraction of a Share, then the Company shall round such fraction of a Share up or
down to the nearest whole share. If any Principal remains outstanding on the
Maturity Date, then all such Principal shall be redeemed as of such date in
accordance with Section 2(d)(vii).

                           (c) Conversion Rate. The number of Shares issuable
upon conversion of any portion of this Note pursuant to Section 2(b) shall be
determined according to the following formula (the "CONVERSION RATE"):

                                Conversion Amount
                                -----------------
                                Conversion Price

                           (d) Mechanics of Conversion. The conversion of this
Note shall be conducted in the following manner:

                  (i) Holder's Delivery Requirements. To convert a Conversion
                  Amount into Shares on any date (the "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 conversion notice in the form
                  attached hereto as Exhibit I (the "CONVERSION NOTICE") to the
                  Company and (B) if required by Section 2(d)(viii), surrender
                  to a common carrier for delivery to the Company as soon as
                  practicable following such date the original Note being
                  converted (or an indemnification undertaking reasonably
                  acceptable to the Company with respect to this Note in the
                  case of its loss, theft or destruction).

                  (ii) Company's Response. Upon receipt or deemed receipt (which
                  for purposes hereof shall mean pursuant to Section 8) by the
                  Company of a copy of a Conversion Notice, the Company (I)
                  shall immediately send, via facsimile, a confirmation of
                  receipt of such Conversion Notice to the Holder and the
                  Company's designated transfer agent (the "TRANSFER AGENT"),
                  which confirmation shall constitute an instruction to the
                  Transfer Agent to process such Conversion Notice in accordance
                  with the terms herein and (II) on or before the second (2nd)
                  Business Day following the date of receipt or deemed receipt
                  by the Company of such Conversion Notice (such second (2nd)
                  Business Day, the "SHARE DELIVERY DATE") (A) provided that the
                  Transfer Agent is participating in The Depository Trust
                  Company ("DTC") Fast Automated Securities Transfer Program

                                       5
<PAGE>

                  and provided that the Holder is eligible to receive Shares
                  through DTC, credit such aggregate number of 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 (B) 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 to which the Holder shall be entitled. If this Note is
                  submitted for conversion, as may be required by Section
                  2(d)(viii), and the principal amount represented by this Note
                  is greater than the principal 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 (such
                  third (3rd) Business Day, the "NOTE DELIVERY DATE") and at its
                  own expense, issue and deliver to the Holder a new Note
                  representing the Principal not converted.

                  (iii) Dispute Resolution. In the case of a dispute as to the
                  determination of the Conversion Price or the arithmetic
                  calculation of the Conversion Rate, the Company shall instruct
                  the Transfer Agent to issue to the Holder the Shares
                  representing the number of Shares that is not disputed and
                  shall transmit an explanation of the disputed determinations
                  or arithmetic calculations to the Holder via facsimile within
                  one (1) Business Day of receipt or deemed receipt of the
                  Holder's Conversion Notice or other date of determination. If
                  the Holder and the Company are unable to agree upon the
                  determination of the Conversion Price or arithmetic
                  calculation of the Conversion Rate within one (1) Business Day
                  of such disputed determination or arithmetic calculation being
                  transmitted to the Holder, then the Company shall within two
                  (2) Business Days submit via facsimile (A) the disputed
                  determination of the Conversion Price to an independent,
                  reputable investment bank selected from a list of such
                  investment banks agreed to by the Company and the holders of
                  Notes representing at least two-thirds of the aggregate
                  original principal amount of the Notes at or prior to the
                  Issuance Date or (B) the disputed arithmetic calculation of
                  the Conversion Rate to the Company's independent, outside
                  accountant. The Company 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 three (3) 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 error.

                  (iv) Record Holder. The person or persons entitled to receive
                  the Shares issuable upon a conversion of this Note shall be
                  treated for all purposes as the legal and record holder or
                  holders of such Shares on the Conversion Date.

                  (v) Company's Failure to Timely Convert.

                                       6
<PAGE>

                           (A) Cash Damages. If within three (3) Business Days
after the Company's receipt of the facsimile copy of a Conversion Notice or
deemed receipt of a Conversion Notice the Company shall fail to issue and
deliver a certificate to the Holder for, or credit the Holder's balance account
with DTC with, the number of Shares to which the Holder is entitled upon the
Holder's conversion of any Conversion Amount, or if the Company fails to issue
and deliver a new Note representing the Principal to which such Holder is
entitled on or before the Note Delivery Date pursuant to Section 2(d)(ii), then
in addition to all other available remedies that the Holder may pursue hereunder
and under the Securities Purchase Agreement (including indemnification pursuant
to Section 8 thereof), the Company shall pay additional damages to the Holder
for each day after the Share Delivery Date such conversion is not timely
effected and/or each day after the Note Delivery Date such Note is not delivered
in an amount equal to 0.5% of the sum of (a) the product of (I) the number of
Shares 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 (such product is referred to herein as the
"SHARE PRODUCT AMOUNT"), and (b) in the event the Company has failed to deliver
a Note to the Holder on or prior to the Note Delivery Date, the product of (y)
the number of Shares issuable upon conversion of the Principal represented by
the Note as of the Note Delivery Date and (z) the Weighted Average Price of the
Common Stock on the Note Delivery Date; provided that in no event shall cash
damages accrue pursuant to this Section 2(d)(v)(A) with respect the Share
Product Amount during the period, if any, in which the Conversion Price or the
arithmetic calculation of the Conversion Rate is subject to a bona fide dispute
that is subject to and being resolved pursuant to, and in compliance with the
time periods and other provisions of, the dispute resolution provisions of
Section 2(d)(iii). Alternatively, subject to Section 2(d)(iii), at the election
of the Holder made in the Holder's sole discretion, the Company shall pay to the
Holder, in lieu of the additional damages referred to in the preceding sentence
(but in addition to all other available remedies that the Holder may pursue
hereunder and under the Securities Purchase Agreement (including indemnification
pursuant to Section 8 thereof)), 110% of the amount by which (A) the Holder's
total purchase price (including brokerage commissions, if any) for the shares
purchased to make delivery in satisfaction of a sale by such holder of the
Shares to which such holder is entitled but has not received upon a conversion
exceeds (B) the net proceeds received by such holder from the sale of the Shares
to which the Holder is entitled but has not received upon such conversion. If
the Company fails to pay the additional damages set forth in this Section
2(d)(v) within five (5) Business Days of the date incurred, then the Holder
entitled to such payments shall have the right at any time, so long as the
Company continues to fail to make such payments, to require the Company, upon
written notice, to immediately issue, in lieu of such cash damages, the number
of Shares equal to the quotient of (X) the aggregate amount of the damages
payments described herein divided by (Y) the Conversion Price in effect on such
Conversion Date as specified by the holder in the Conversion Notice.

                           (B) Void Conversion Notice; Adjustment to Conversion
Price. If for any reason the Holder has not received all of the Shares prior to
the tenth (10th) Business Day after the Share Delivery Date with respect to a
conversion of this Note, then the Holder, upon written notice to the Company (a
"VOID CONVERSION NOTICE"), may void its Conversion Notice with respect to, and
retain or have returned, as the case may be, any portion

                                       7
<PAGE>

of this Note that has not been converted pursuant to the Holder's Conversion
Notice; provided that the voiding of the Holder's Conversion Notice shall not
affect the Company's obligations to make any payments that have accrued prior to
the date of such notice pursuant to Section 2(d)(v)(A) or otherwise. Thereafter,
the Conversion Price with respect to all of the Principal shall be adjusted to
the lesser of (I) the Conversion Price as in effect on the date on which the
Holder voided the Conversion Notice and (II) the lowest Weighted Average Price
during the period beginning on the Conversion Date and ending on the date such
holder voided the Conversion Notice, subject to further adjustment as provided
in this Note; provided that in no event shall an adjustment to the Conversion
Price with respect to any Principal be made pursuant to this Section 2(d)(v)(B)
with respect to any conversion of this Note that is the subject of a bona fide
dispute that is subject to and being resolved pursuant to, and in compliance
with the time periods and other provisions of, the dispute resolution provisions
of Section 2(d)(iii), provided the Shares are delivered to the Holder within one
(1) Business Day of the resolution of such bona fide dispute. Upon delivery of a
Void Conversion Notice, cash amounts shall stop accruing under Section
2(d)(v)(A) on the Shares subject to such Void Conversion Notice, provided that
the voiding of the Holder's Conversion Notice shall not affect the Company's
obligations to make any payments that have accrued prior to the date of such
Void Conversion Notice pursuant to Section 2(d)(v)(A) or otherwise.

                           (C) Redemption. If for any reason the Holder has not
received all of the Shares prior to the tenth (10th) Business Day after the
Share Delivery Date with respect to a conversion of this Note (a "CONVERSION
FAILURE"), then the Holder, upon written notice to the Company, may require that
the Company redeem, in accordance with Section 3, all of the Principal,
including the Principal previously submitted for conversion and with respect to
which the Company has not delivered shares of Common Stock; provided that in the
event the Holder has delivered to the Company a Void Conversion Notice with
respect to a Conversion Failure, the Company shall not be required to redeem the
amount of principal specified in and represented by such Void Conversion Notice;
and further provided that the Holder shall not be entitled to require redemption
of any Principal pursuant to this clause (C) solely as a result of a Conversion
Failure caused by any Principal being the subject of a bona fide dispute that is
subject to and being resolved pursuant to, and in compliance with the time
periods and other provisions of, the dispute resolution provisions of Section
2(d)(iii), provided the Shares are delivered to the Holder within one (1)
Business Day of the resolution of such bona fide dispute.

                  (vi) Pro Rata Conversion. In the event the Company receives a
                  Conversion Notice from more than one holder of the Notes for
                  the same Conversion Date and the Company can convert some, but
                  not all, of such Notes, then, subject to Section 14, the
                  Company shall convert from each holder of the Notes electing
                  to have Notes converted at such time a pro rata amount of such
                  holder's Note submitted for conversion based on the principal
                  amount of the Note submitted for conversion on such date by
                  such holder relative to the principal amount of the Notes
                  submitted for conversion on such date.

                                       8
<PAGE>

                  (vii) Mechanics of Mandatory Redemption. If any Principal
                  remains outstanding on the Maturity Date, then the Holder
                  shall surrender this Note, duly endorsed for cancellation, to
                  the Company and such Principal shall be redeemed as of the
                  Maturity Date by payment on the Maturity Date to the Holder of
                  an amount equal to the sum of (A) 105% of such Principal plus
                  (B) the Additional Amount with respect to such Principal.

                  (viii) Book-Entry. Notwithstanding anything to the contrary
                  set forth herein, upon conversion of this Note in accordance
                  with the terms hereof, the Holder shall not be required to
                  physically surrender this Note to the Company unless all of
                  the Principal is being converted. The Holder and the Company
                  shall maintain records showing the principal amount converted
                  or redeemed and the dates of such conversions or redemptions
                  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 each such conversion or
                  redemption. In the event of any dispute or discrepancy, such
                  records of the Company establishing the Principal to which the
                  Holder is entitled shall be controlling and determinative in
                  the absence of error. Notwithstanding the foregoing, if this
                  Note is converted or redeemed as aforesaid, the Holder may not
                  transfer this Note unless the Holder first physically
                  surrenders this Note to the Company, whereupon the Company
                  will forthwith issue and deliver upon the order of the Holder
                  a new Note of like tenor, registered as the Holder may
                  request, representing in the aggregate the remaining Principal
                  represented by this Note. The Holder and any assignee, by
                  acceptance of this Note, acknowledge and agree that, by reason
                  of the provisions of this paragraph, following conversion or
                  redemption of any portion of this Note, the Principal of this
                  Note may be less than the principal amount stated on the face
                  hereof. Each Note shall bear the following legend:

                  ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS
                  OF THIS NOTE, INCLUDING SECTION 2(d)(viii) HEREOF. THE
                  PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE PRINCIPAL
                  AMOUNT STATED ON THE FACE HEREOF PURSUANT TO SECTION
                  2(d)(viii) HEREOF.

                  (ix) Application of Conversion Amounts. Any principal amount
                  that the Holder elects, or is deemed pursuant to Section 8 to
                  have elected, to convert in accordance with this Section 2
                  shall be deducted first from the Installment Amount relating
                  to the Company Redemption Date immediately following the
                  Conversion Date with respect to such conversion and then
                  sequentially from the immediately succeeding Company
                  Redemption Date.

                           (e) Taxes. The Company shall pay any and all taxes
that may be payable with respect to the issuance and delivery of Shares upon the
conversion of this Note;

                                       9
<PAGE>

provided, however, that the holder of this Note shall pay any taxes in
connection with any transfers of this Note or the transfer of the Shares
issuable upon conversion hereof.

                           (f) Adjustments to Conversion Price. The Conversion
Price will be subject to adjustment from time to time as provided in this
Section 2(f).

                  (i) Adjustment of Conversion Price upon Issuance of Common
                  Stock. If and whenever on or after the Issuance Date, the
                  Company issues or sells, or in accordance with this Section
                  2(f) is deemed to have issued or sold, any Shares (including
                  the issuance or sale of Shares owned or held by or for the
                  account of the Company, but excluding Exempted Issuances) for
                  a consideration per share less than a price (the "APPLICABLE
                  PRICE") equal to the Conversion Price in effect immediately
                  prior to such time, then immediately after such issue or sale,
                  the Conversion Price then in effect shall be reduced to an
                  amount equal to such consideration per share. For purposes of
                  determining the adjusted Conversion Price under this Section
                  2(f)(i), the following shall be applicable:

                                            (A) Issuance of Options. If the
Company in any manner grants or sells any Options (as defined below) and the
lowest price per share for which one Share is issuable upon the exercise of any
such Option or upon conversion, exchange or exercise of any Convertible
Securities (as defined below) issuable upon exercise of such Option is less than
the Applicable Price, then such Share shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the granting or sale of
such Option for such price per share. For purposes of this Section 2(f)(i)(A),
the "lowest price per share for which one Share is issuable upon the exercise of
any such Option or upon conversion, exchange or exercise of any Convertible
Securities issuable upon exercise of such Option" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one Share upon granting or sale of the Option, upon
exercise of the Option and upon conversion, exchange or exercise of any
Convertible Security issuable upon exercise of such Option. No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such Share or of such Convertible Securities upon the exercise of such Options
or upon the actual issuance of such Share upon conversion, exchange or exercise
of such Convertible Securities.

                                            (B) Issuance of Convertible
Securities. If the Company in any manner issues or sells any Convertible
Securities and the lowest price per share for which one Share is issuable upon
such conversion, exchange or exercise thereof is less than the Applicable Price,
then such Share shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this Section
2(f)(i)(B), the "lowest price per share for which one Share is issuable upon
such conversion, exchange or exercise" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one Share upon the issuance or sale of the Convertible Security
and upon the conversion, exchange or exercise of such Convertible Security. No
further adjustment of the Conversion

                                       10
<PAGE>

Price shall be made upon the actual issuance of such Share upon conversion,
exchange or exercise of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 2(f)(i), then no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.

                                            (C) Change in Option Price or Rate
of Conversion. If the purchase, exchange or exercise price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exchange or exercise of any Convertible Securities, or the rate at
which any Options or Convertible Securities are convertible into or exchangeable
or exercisable for Shares changes at any time, then the Conversion Price in
effect at the time of such change shall be adjusted to the Conversion Price that
would have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase, exchange or exercise price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold. For purposes of this Section 2(f)(i)(C),
if the terms of any Option or Convertible Security that was outstanding as of
the Issuance Date are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Shares
deemed issuable upon exercise, conversion or exchange thereof shall be deemed to
have been issued as of the date of such change. No adjustment shall be made if
such adjustment would result in an increase of the Conversion Price then in
effect.

                                            (D) Calculation of Consideration
Received. In case any Option is issued in connection with the issue or sale of
other securities of the Company, together comprising one integrated transaction
in which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a consideration of
$0.01. If any Shares, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received therefor
will be deemed to be the net amount received by the Company therefor. If any
Shares, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration received by the Company consists of marketable securities, in
which case the amount of consideration received by the Company will be the
Weighted Average Price of such securities on the date of receipt of such
securities. If any Shares, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Shares, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the Company and the
holders of Notes representing at least two-thirds of the aggregate principal
amount of the Notes then outstanding. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser jointly selected by
the Company and the holders representing at least two-thirds of the aggregate
principal amount of

                                       11
<PAGE>

the Notes then outstanding. The determination of such appraiser shall be final
and binding upon all parties absent error and the fees and expenses of such
appraiser shall be borne by the Company.

                                            (E) Record Date. If the Company
takes a record of the holders of Shares for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Shares, Options or in
Convertible Securities or (2) to subscribe for or purchase Shares, Options or
Convertible Securities, then such record date will be deemed to be the date of
the issue or sale of the Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

                                            (F) Certain Definitions. For
purposes of this Section 2(f)(i), the following terms have the respective
meanings set forth below:

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

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

                                                     (III) "EXEMPTED ISSUANCES"
shall mean: (A) Shares issued or deemed to have been issued by the Company in
connection with an Approved Stock Plan (as defined above) and up to 4,000,000
shares (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions after the Issuance Date) issued in
connection with a Future Approved Stock Plan (as defined below); (B) Shares
issued or deemed to have been issued upon the conversion, exchange or exercise
of any Option or Convertible Security outstanding on the date prior to the
Issuance Date and set forth in Schedule 3(c) of the Securities Purchase
Agreement, provided that the terms of such Option or Convertible Security are
not amended on or after the Issuance Date; (C) Shares deemed to have been issued
by the Company upon the issuance of its Series A Convertible Preferred Stock or
Series B Convertible Preferred Stock and the warrants issued in connection
therewith, so long as the number and terms of such Series A and Series B
Convertible Preferred Stock and such warrants are not amended or otherwise
altered on or after the Issuance Date; (D) Shares issued by the Company upon
conversion of the Series A Convertible Preferred Stock or Series B Convertible
Preferred Stock, and Shares issued by the Company upon exercise of the warrants
issued in connection with the issuance of the Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock, so long as the number and terms
of such Series A and Series B Convertible Preferred Stock and the number and
terms of such warrants have not been amended or otherwise altered on or after
the Issuance Date; (E) Shares issued or deemed to have been issued by the
Company upon conversion of the Notes or exercise of the Warrants; (F) Shares

                                       12
<PAGE>

issued or deemed to have been issued either (x) to parties that are suppliers,
customers or strategic partners investing in connection with a commercial
relationship with the Company, the primary purpose of which is not to raise
capital, or (y) as consideration for mergers or consolidations or acquisitions
of businesses or their tangible or intangible assets (each an "ACQUISITION
TRANSACTION"), excluding Acquisition Transactions in which cash or cash
equivalents represent a majority of the assets acquired; provided that such
issuances or deemed issuances pursuant to this clause (F) shall not exceed
400,000 Shares in the aggregate (subject to adjustment for stock splits, stock
dividends, stock combinations or other similar transactions after the Issuance
Date); (G) Shares issued or deemed to have been issued in connection with
leases; and (H) Shares issued or deemed to have been issued to former employees
in satisfaction of severance obligations of the Company.

                                                     (IV) "FUTURE APPROVED STOCK
PLAN" means any employee benefit plan that has been approved by the shareholders
of the Company after the date of the Securities Purchase Agreement, pursuant to
which the Company's securities may be issued to any consultant, employee,
officer or director for services provided to the Company.

                                                     (V) "OPTIONS" means any
rights, warrants or options to subscribe for or purchase Shares or Convertible
Securities.

                  (ii) Adjustment of Conversion Price upon Subdivision or
                  Combination of Common Stock. If the Company at any time after
                  the Issuance Date subdivides (by any stock split, stock
                  dividend, recapitalization or otherwise) outstanding Shares
                  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 after the
                  Issuance Date combines (by combination, reverse stock split or
                  otherwise) its outstanding Shares into a smaller number of
                  shares, the Conversion Price in effect immediately prior to
                  such combination will be proportionately increased.

                  (iii) Holder's Right of Alternative Conversion Price Following
                  Issuance of Convertible Securities. If the Company in any
                  manner issues or sells any Options or Convertible Securities
                  after the Issuance Date (other than the issuance of Series A
                  Preferred Stock and Series B Preferred Stock and the related
                  warrants on the Closing Date, each such issuance on the terms
                  and in accordance with the forms and agreements provided to
                  the Purchasers (as defined in Section 14) at the Closing (as
                  defined in the Securities Purchase Agreement)) that are
                  convertible into or exchangeable or exercisable for Shares at
                  a price that varies or may vary with the market price of the
                  Shares, including by way of one or more resets to a fixed
                  price, or at a price that upon the passage of time or the
                  occurrence of certain events is automatically reduced or is
                  adjusted to a price that is based on some formulation of the
                  then current market price of the Shares (each of the
                  formulations for such variable price being herein referred to
                  as a "VARIABLE PRICE"; provided, however, that a price that
                  upon the passage of time or the

                                       13
<PAGE>

                  occurrence of certain events is automatically reduced or is
                  adjusted to a price that is based on some formulation of the
                  then current market price of the Shares shall not constitute a
                  Variable Price until the passage of such time or the
                  occurrence of such event, as the case may be), then the
                  Company shall provide written notice thereof via facsimile and
                  overnight courier to the Holder ("VARIABLE NOTICE") on the
                  date of issuance of such Convertible Securities or Options.
                  From and after the date the Company issues any such
                  Convertible Securities or Options with a Variable Price, the
                  Holder shall have the right, but not the obligation, in its
                  sole discretion to substitute the Variable Price for the
                  Conversion Price upon conversion of any Principal by
                  designating in the Conversion Notice delivered upon conversion
                  of such Principal that solely for purposes of such conversion
                  the Holder is relying on the Variable Price rather than the
                  Conversion Price then in effect. The Holder's election to rely
                  on a Variable Price for a particular conversion of Principal
                  shall not obligate the holder to rely on a Variable Price for
                  any future conversions of Principal.

                  (iv) Other Events. If any event occurs of the type
                  contemplated by the provisions of this Section 2(f) but not
                  expressly provided for by such provisions (including, without
                  limitation, the granting of stock appreciation rights, phantom
                  stock rights or other rights with equity features), then the
                  Company's Board of Directors will make an appropriate
                  adjustment in the Conversion Price so as to protect the rights
                  of the Holder; provided that no such adjustment will increase
                  the Conversion Price as otherwise determined pursuant to this
                  Section 2(f).

                  (v) Adjustment of Conversion Price upon Announcement of Cash
                  Private Transaction. If after the Issuance Date there is the
                  public announcement of the pending, proposed, intended or
                  consummated Cash Private Transaction (as defined in Section
                  4(k) of the Securities Purchase Agreement (the date of such
                  announcement is referred to as the "ANNOUNCEMENT DATE"), then
                  on and after the Announcement Date the Conversion Price shall
                  be equal to the lower of (A) the Conversion Price in effect
                  immediately prior to the Announcement Date and (B) the
                  Weighted Average Price of the Common Stock on the trading day
                  immediately preceding the Announcement Date, subject to
                  further adjustment after the Announcement Date as provided in
                  this Note.

                  (vi) Notices.

                                            (A) Promptly upon any adjustment of
the Conversion Price, the Company will give written notice thereof to the
Holder, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.

                                            (B) The Company will give written
notice to the Holder at least ten (10) Business Days prior to the date on which
the Company closes its books or takes a record (I) with respect to any dividend
or distribution upon the Common Stock, (II) with

                                       14
<PAGE>

respect to any pro rata subscription offer to holders of Common Stock or (III)
for determining rights to vote with respect to any Organic Change (as defined in
Section 4(a)), dissolution or liquidation, provided that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to the Holder.

                                            (C) The Company will also give
written notice to the Holder at least ten (10) Business Days prior to the date
on which any Organic Change (as defined in Section 4(a)), dissolution or
liquidation will take place, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to the
Holder.

                  (3) Redemption at Option of the Holder.

                           (a) Redemption Option Upon Triggering Event. In
addition to all other rights of the Holder contained herein, after a Triggering
Event (as defined below), the Holder shall have the right, at the Holder's
option, to require the Company to redeem all or a portion of the Principal at a
price ("REDEMPTION PRICE") equal to (x) in the case of a Triggering Event other
than a Triggering Event described in clauses (vi) or (ix) of Section 3(b), the
greater of (i) the sum of (x) 125% of such Principal plus (y) the Additional
Amount with respect to such Principal and (ii) the product of (A) the Conversion
Rate in effect at such time as the Holder delivers a Notice of Redemption at
Option of Holder (as defined below), multiplied by (B) the Weighted Average
Price of the Common Stock on the trading day immediately preceding such
Triggering Event on which the Principal Market is open for trading, (y) in the
case of a Triggering Event described in clause (vi) of Section 3(b), the sum of
(I) 100% of such Principal plus (II) the Additional Amount with respect to such
Principal or (z) in the case of a Triggering Event described in clause (ix) of
Section 3(b), the product of (A) the Conversion Rate in effect at such time as
the Holder delivers a Notice of Redemption at Option of Holder, multiplied by
(B) the Weighted Average Price of the Common Stock on the trading day
immediately preceding such Triggering Event on which the Principal Market is
open for trading; provided that the maximum principal amount that the Holder
shall have the right to require the Company to redeem after a Triggering Event
described in clause (ix) of Section 3(b) shall be the Installment Amount with
respect to the applicable Company Redemption Date.

                           (b) Triggering Event. A "TRIGGERING EVENT" shall be
deemed to have occurred at such time as any of the following events:

                  (i) the failure of the Registration Statement (as defined in
                  the Registration Rights Agreement) to be declared effective by
                  the SEC on or prior to the date that is 30 days after the
                  Effectiveness Deadline (as defined in the Registration Rights
                  Agreement);

                  (ii) 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,

                                       15
<PAGE>

                  the issuance of a stop order) or is unavailable to the Holder
                  for sale of all of the 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 five (5) consecutive
                  trading days or for more than an aggregate of ten (10) trading
                  days in any 365-day period (other than days during an
                  Allowable Grace Period (as defined in the Registration Rights
                  Agreement));

                  (iii) the suspension from trading or failure of the Common
                  Stock to be listed on the Nasdaq National Market or The New
                  York Stock Exchange, Inc. 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;

                  (iv) the Company's or the Transfer Agent's notice to any
                  holder of the Notes, including by way of public announcement,
                  at any time, of its intention not to comply with a request for
                  conversion of any Notes into Shares that is tendered in
                  accordance with the provisions of the Notes (excluding,
                  however, notices that relate solely to a bona fide dispute
                  that is subject to and being resolved pursuant to, and in
                  compliance with the time periods and other provisions of, the
                  dispute resolution provisions of Section 2(d)(iii) provided
                  neither such dispute nor such notice is publicly disclosed
                  (other than public disclosures made solely to comply with the
                  rules and regulations of the SEC));

                  (v) a Conversion Failure (as defined in Section 2(d)(v)(C));

                  (vi) upon the Company's receipt or deemed receipt of a
                  Conversion Notice, the Company shall not be obligated to issue
                  Shares upon such conversion due to the provisions of Section
                  14;

                  (vii) the Company breaches any representation, warranty,
                  covenant or other term or condition of the Securities Purchase
                  Agreement, the Registration Rights Agreement, the Warrants,
                  this Note or any other agreement, document, certificate or
                  other instrument delivered in connection with the transactions
                  contemplated thereby and hereby, except to the extent that
                  such breach would not have a Material Adverse Effect (as
                  defined in Section 3(a) of the Securities Purchase Agreement)
                  and except, in the case of a breach of a covenant or other
                  term that is curable, only if such breach continues for a
                  period of at least ten (10) days;

                  (viii) the Company does not comply with the provisions of
                  Section 6 (including, without limitation, the Company's
                  failure to pay the required Company Redemption Price on the
                  applicable Company Redemption Date); or

                  (ix) with respect to a Company Redemption Date, the failure of
                  the Registration Statement to be declared effective by the SEC
                  on or prior to fifth (5th) Business Day prior to such Company
                  Redemption Date.

                                       16
<PAGE>

                           (c) Mechanics of Redemption at Option of Holder.
Within one (1) day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("NOTICE OF
TRIGGERING EVENT") to the Holder and each holder of the Other Notes. At any time
after the earlier of the Holder's receipt of a Notice of Triggering Event and
the Holder becoming aware of a Triggering Event, the Holder may require the
Company to redeem up to all of the Principal by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF
HOLDER") to the Company, which Notice of Redemption at Option of Holder shall
indicate (i) the Principal that the Holder is electing to have the Company
redeem from it and (ii) the applicable Redemption Price, as calculated pursuant
to Section 3(a) above; provided that a Notice of Redemption at Option of Holder
may only be sent during the period beginning on and including the date of the
Triggering Event and ending on and including the later of the date which is (I)
20 Business Days after the date on which the Holder receives a Notice of
Triggering Event from the Company with respect to such Triggering Event and (II)
10 Business Days after the date on which such Triggering Event is cured and the
Holder receives written notice from the Company confirming such Triggering Event
has been cured.

                           (d) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Holder from any holder of the
Other Notes, the Company shall promptly notify the Holder by facsimile of the
Company's receipt of such notice(s). Each holder that has sent such a notice
shall, if required pursuant to Section 2(d)(viii), promptly submit to the
Company such holder's Note that such holder has elected to have redeemed. The
Company shall deliver the applicable Redemption Price to the Holder within five
(5) Business Days after the Company's receipt of a Notice of Redemption at
Option of Holder; provided that a holder's Note shall have been so delivered to
the Company. If the Company is unable to redeem all of the Notes submitted for
redemption, the Company shall (i) redeem a pro rata amount from each holder of
the Notes based on the principal amount of the Notes submitted for redemption by
such holder relative to the aggregate principal amount of the Notes submitted
for redemption by all holders of the Notes and (ii) in addition to any remedy
the Holder may have under this Note and the Securities Purchase Agreement, pay
to the Holder interest at the rate of the lesser of 2.0% per month (prorated for
partial months) or the highest lawful maximum interest rate in respect of the
unredeemed Principal until paid in full.

                           (e) Void Redemption. In the event that the Company
does not pay the Redemption Price within the time period set forth in Section
3(d), at any time thereafter and until the Company pays such unpaid Redemption
Price in full, the Holder shall have the option (the "VOID OPTIONAL REDEMPTION
OPTION") to, in lieu of redemption, require the Company to promptly return to
the Holder any or all of the Notes representing the Principal that was submitted
for redemption by the Holder under this Section 3 and for which the Redemption
Price (together with any interest thereon) has not been paid, by sending written
notice thereof to the Company via facsimile (the "VOID OPTIONAL REDEMPTION
NOTICE"). Upon the Company's receipt of such Void Optional Redemption Notice,
(i) the Notice of Redemption at Option of

                                       17
<PAGE>

Holder shall be null and void with respect to the Principal subject to the Void
Optional Redemption Notice, (ii) the Company shall immediately return any Note
subject to the Void Optional Redemption Notice, (iii) the Conversion Price with
respect to all the Principal shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Void Optional Redemption
Notice is delivered to the Company and (B) the lowest Weighted Average Price
during the period beginning on and including the date on which the Notice of
Redemption at Option of Holder is delivered to the Company and ending on and
including the date on which the Void Optional Redemption Notice is delivered to
the Company.

                           (f) Disputes; Miscellaneous. In the event of a bona
fide dispute as to the determination of the arithmetic calculation of the
Redemption Price, such dispute shall be resolved pursuant to Section 2(d)(iii)
above with the term "Redemption Price" being substituted for the term
"Conversion Rate." A holder's delivery of a Void Optional Redemption Notice and
exercise of its rights following such notice shall not affect the Company's
obligations to make any payments that have accrued prior to the date of such
notice (other than the payment of the Redemption Price in respect of the
redemption so voided). In the event of a redemption pursuant to this Section 3
of less than all of the Principal, the Company shall promptly cause to be issued
and delivered to the Holder a Note representing the remaining Principal that has
not been redeemed, if necessary.

                  (4) Other Rights of Holders.

                           (a) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction that is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "ACQUIRING ENTITY") a written agreement (in form and substance
satisfactory to the holders representing at least two-thirds of the Notes then
outstanding) to deliver to the Holder in exchange for this Note, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Note and satisfactory to the holders representing at
least two-thirds of the principal amount then outstanding under the Notes. Prior
to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders
representing at least two-thirds of the Notes then outstanding) to ensure that
the Holder will thereafter have the right to acquire and receive in lieu of or
in addition to (as the case may be) the Shares immediately theretofore
acquirable and receivable upon the conversion of this Note (without regard to
any limitations on conversion) such shares of stock, securities or assets that
would have been issued or payable in such Organic Change with respect to or in
exchange for the number of Shares that would have been acquirable and receivable
upon the conversion of this Note as of the date of such Organic Change (without
taking into account any limitations or restrictions on the convertibility of
this Note).

                                       18
<PAGE>

                           (b) Optional Redemption Upon Change of Control. In
addition to the rights of the Holder under Section 4(a), upon a Change of
Control (as defined below) of the Company the Holder shall have the right, at
the Holder's option, to require the Company to redeem all or a portion of the
Principal at a price equal to the greater of (A) the sum of (x) 115% of the
Principal plus (y) the Additional Amount with respect to such Principal, and (B)
the product of (I) the Conversion Rate on the date the Holder gives a Notice of
Redemption Upon Change of Control (as defined below), multiplied by (II) the
arithmetic average of the Weighted Average Prices of the Common Stock during the
five (5) trading days immediately preceding such date ("CHANGE OF CONTROL
REDEMPTION PRICE"). No sooner than 40 nor later than 30 Business 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 (a "NOTICE OF CHANGE OF CONTROL") to
the Holder. At any time during the period beginning after receipt of a Notice of
Change of Control (or, in the event a Notice of Change of Control is not
delivered at least thirty (30) Business Days prior to a Change of Control, at
any time on or after the date which is thirty (30) Business Days prior to a
Change of Control) and ending on and including the date that is ten (10)
Business Days prior to the date of such Change of Control, the Holder may
require the Company to redeem all or a portion of the Principal by delivering
written notice thereof via facsimile and overnight courier (a "NOTICE OF
REDEMPTION UPON CHANGE OF CONTROL") to the Company, which Notice of Redemption
Upon Change of Control shall indicate (i) the Principal that the Holder is
submitting for redemption, and (ii) the applicable Change of Control Redemption
Price, as calculated pursuant to this Section 4(b). Upon the Company's receipt
of a Notice(s) of Redemption Upon Change of Control from any holder of the Other
Notes, the Company shall promptly, but in no event later than one (1) Business
Day following such receipt, notify the Holder by facsimile of the Company's
receipt of such Notice(s) of Redemption Upon Change of Control. The Company
shall deliver the Change of Control Redemption Price simultaneously with the
consummation of the Change of Control; provided that, if required by Section
2(d)(viii), this Note shall have been so delivered to the Company. The Company
shall not enter into any binding agreement or other arrangement with respect to
a Change of Control unless the Company provides that the payments provided for
in this Section 4(b) shall have priority to payments to stockholders in
connection with such Change of Control and the Company complies with such
provision. For purposes of this Section 4(b), "CHANGE OF CONTROL" means (i) the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) a consolidation, merger or other business
combination in which holders of the Company's voting power immediately prior to
the transaction continue after the transaction to hold, 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) the sale or transfer of all or substantially
all of the Company's assets, (iii) the consummation of a purchase, tender or
exchange offer made to and accepted by the holders of more than the 50% of the
outstanding Shares, or (iv) the occurrence of

                                       19
<PAGE>

a "change of control" as that term is referred to in any of the agreements
referred to in the first paragraph of Schedule 3(w) to the Securities Purchase
Agreement.

                           (c) 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 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 that such holder could have acquired if the Holder had
held the number of Shares 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.

                  (5) Limitations on Conversion. The Company shall not effect
any conversion of this Note and the Holder shall not have the right to convert
Principal in excess of that portion of the Principal that, upon giving effect to
such conversion, would cause the aggregate number of Shares beneficially owned
by the Holder and its affiliates to exceed 4.99% of the total outstanding Shares
following such conversion. For purposes of the foregoing proviso, the aggregate
number of Shares beneficially owned by the Holder and its affiliates shall
include the Shares issuable upon conversion of this Note with respect to which
the determination of such proviso is being made, but shall exclude the Shares
that would be issuable upon (i) conversion of the remaining, nonconverted
Principal beneficially owned by the Holder and its affiliates and (ii) exercise,
conversion or exchange of the unexercised, unconverted or unexchanged portion of
any other securities of the Company (including, without limitation, any warrants
or convertible preferred stock) subject to a limitation on conversion, exercise
or exchange analogous to the limitation contained herein beneficially owned by
the Holder and its affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 5, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 ACT"). For purposes of this Section 5, in determining the number of
outstanding Shares the Holder may rely on the number of outstanding Shares as
reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as the case
may be, (2) a more recent public announcement by the Company or (3) any other
notice by the Company or its transfer agent setting forth the number of Shares
outstanding. Upon the written request of the Holder, the Company shall promptly,
but in no event later than two (2) Business Days following the receipt of such
request, confirm in writing to the Holder the number of Shares then outstanding.
In any case, the number of outstanding Shares shall be determined after giving
effect to the conversion, exercise or exchange of securities of the Company,
including the Notes and the Warrants, since the date as of which such number of
outstanding Shares was reported.

                  (6) Company Installment Redemption. On each Company Redemption
Date the Company shall redeem the applicable Installment Amount (the "COMPANY
REDEMPTION AMOUNT") in accordance with this Section 6 (a "COMPANY REDEMPTION").
The Company Redemption Amount shall be redeemed by the Company on such Company
Redemption Date,

                                       20
<PAGE>

and the Company shall pay to the Holder on such Company Redemption Date, by wire
transfer of immediately available funds, an amount in cash (the "COMPANY
REDEMPTION PRICE") equal to the sum of (A) 100% of the Company Redemption
Amount, plus (B) the Additional Amount with respect to the Company Redemption
Amount calculated as of such Company Redemption Date. If the Company fails to
redeem any Company Redemption Amount that is outstanding on the respective
Company Redemption Date by payment to the Holder of the applicable Company
Redemption Price, then in addition to any remedy the Holder may have under this
Note (including, without limitation, Section 3) and the Securities Purchase
Agreement (including indemnification pursuant to Section 8 thereof), the Company
Redemption Price payable in respect of such unredeemed Company Redemption Amount
shall bear interest at the rate of the lesser of 2.0% per month (prorated for
partial months) or the highest lawful maximum interest rate until paid in full.
Notwithstanding anything to the contrary in this Section 6, but subject to
Section 14, until the Company Redemption Price (together with any interest
thereon) is paid in full, the Company Redemption Amount (together with any
interest thereon) may be converted, in whole or in part, by the Holder into
Shares pursuant to Section 2.

                  (7) Company Alternative Redemption.

                           (a) General. After the Issuance Date, the Company
shall have the right to redeem some or all of the Principal (a "COMPANY
ALTERNATIVE REDEMPTION") for an amount in cash equal to the sum of (a) 105% of
the principal amount of this Note being redeemed pursuant to this Section 7,
plus (b) the Additional Amount with respect to such principal amount as of the
Company Alternative Redemption Date (as defined below) (the "COMPANY ALTERNATIVE
REDEMPTION PRICE"); provided that the Conditions to Company Alternative
Redemption (as set forth in Section 7(c)) and the conditions of this Section
7(a) and Section 7(b) are satisfied (or waived in writing by the Holder). The
Company may exercise its right to Company Alternative Redemption by delivering
to the Holder written notice ("COMPANY ALTERNATIVE REDEMPTION NOTICE") at least
ten (10) Business Days but not more than 20 Business Days prior to the date of
consummation of such redemption ("COMPANY ALTERNATIVE REDEMPTION DATE"). The
date on which the Holder receives the Company Alternative Redemption Notice is
referred to as the "COMPANY ALTERNATIVE REDEMPTION NOTICE DATE." The Company
Alternative Redemption Notice shall be irrevocable. If the Company elects a
Company Alternative Redemption pursuant to this Section 7(a), then it must
simultaneously take the similar action with respect to the Other Notes. If the
Company elects a Company Alternative Redemption (or similar action under the
Other Notes) with respect to less than all of the aggregate principal amount of
the Notes then outstanding (ignoring for such purposes all principal amounts
that are part of Installment Amounts for any Company Redemption Date occurring
prior to the Company Alternative Redemption Date or the corresponding provisions
under the Other Notes), then the Company shall require redemption of a principal
amount (together with the related Additional Amount) from each of the holders of
the Notes equal to the product of (I) the aggregate principal amount of Notes
that the Company has elected to redeem pursuant to this Section 7 (or the
similar provisions of the Other Notes), multiplied by (II) the fraction, the
numerator of which is the aggregate

                                       21
<PAGE>

principal amount of the Notes initially purchased by such holder on the Issuance
Date and the denominator of which is the aggregate principal amount of the Notes
purchased by all holders on the Issuance Date (such fraction with respect to
each holder is referred to as its "ALLOCATION PERCENTAGE," and such amount with
respect to each holder is referred to as its "PRO RATA REDEMPTION AMOUNT"). In
the event that the initial holder of any Notes shall sell or otherwise transfer
any of such holder's Notes, the transferee shall be allocated a pro rata portion
of such holder's Allocation Percentage. The Company Alternative Redemption
Notice shall state (i) the date selected by the Company for the Company
Alternative Redemption Date in accordance with this Section 7(a), (ii) the
aggregate principal amount of the Notes that the Company has elected to redeem
from all of the holders of the Notes pursuant to this Section 7 and (iii) each
holder's Pro Rata Redemption Amount of the principal amount of the Notes the
Company has elected to redeem pursuant to this Section 7(a).

                           (b) Mechanics of Company Alternative Redemption. If
the Company has exercised its right to Company Alternative Redemption in
accordance with Section 7(a) and the conditions of this Section 7 are satisfied
(including the Conditions to Company Alternative Redemption as set forth in
Section 7(c)) (or waived in writing by the Holder), then the Holder's Pro Rata
Redemption Amount, if any, that remains outstanding on the Company Alternative
Redemption Date shall be redeemed by the Company on such Company Alternative
Redemption Date by the payment by the Company to the Holder on the Company
Alternative Redemption Date, by wire transfer of immediately available funds, of
an amount equal to the Company Alternative Redemption Price for the Holder's Pro
Rata Redemption Amount. Notwithstanding anything to the contrary in this Section
7, but subject to Section 14, until the Company Alternative Redemption Price is
paid in full to the Holder, the Holder may convert its Pro Rata Redemption
Amount (together with the related Additional Amount) into Shares in accordance
with Section 2. All principal amounts of this Note redeemed pursuant to this
Section 7 shall be deducted first from the Installment Amount relating to the
Company Redemption Date immediately following the Conversion Date with respect
to such conversion and then sequentially from the immediately succeeding Company
Redemption Date.

                           (c) Conditions to Company Alternative Redemption. For
purposes of this Section 7, "CONDITIONS TO COMPANY ALTERNATIVE REDEMPTION" means
the following conditions: (i) during the period beginning on and including the
Company Alternative Redemption Notice Date and ending on and including the
Company Alternative Redemption Date, the Company shall have delivered Shares
upon conversion of Conversion Amounts on a timely basis as set forth in Section
2(d)(ii) and delivered Shares upon exercise of the Warrants on a timely basis as
set forth in Section 2(a) of the Warrants; (ii) on each day during the period
beginning on and including the Company Alternative Redemption Notice Date and
ending on and including the applicable Company Alternative Redemption Date, the
Common Stock shall be listed, and trading in the Common Stock shall not have
been suspended, on the Nasdaq National Market or The New York Stock Exchange,
Inc.; (iii) during the period beginning on the Issuance Date and ending on and
including the applicable Company Alternative Redemption Date, there shall not
have occurred either (x) the public announcement of a pending, proposed or
intended Change of Control that has not been abandoned, terminated or
consummated or (y) a Triggering Event or an Event of Default (as defined in
Section 11); (iv) on each day during the period beginning on and including the
Company Alternative Redemption Notice Date and ending

                                       22
<PAGE>

on and including the applicable Company Alternative Redemption Date, the
Registration Statement (as defined in the Registration Rights Agreement) shall
be effective and available for the sale of at least all of the Registrable
Securities (as defined in the Registration Rights Agreement) and there shall not
have been any Grace Period (as defined in the Registration Rights Agreement)
during such period; (v) if a Change of Control is consummated after the Issuance
Date, the Company Alternative Redemption Date is at least 20 Business Days after
the consummation and public announcement of such Change of Control; and (vi) on
each day during the period beginning on and including the Company Alternative
Redemption Notice Date and ending on and including the applicable Company
Alternative Redemption Date, the Company otherwise shall have been in compliance
with in all respects and shall not have breached or been in breach of any
provision or covenant of the Securities Purchase Agreement, the Registration
Rights Agreement, any of the Warrants or any of the Notes.

                           (d) Remedies. In the event that the Company does not
pay the Company Alternative Redemption Price in full for the Holder's Pro Rata
Redemption Amount on the Company Alternative Redemption Date and the Conditions
to the Company Alternative Redemption were satisfied, or to the extent not
satisfied, were waived by the Holder, then in addition to any remedy the Holder
may have under this Note and the Securities Purchase Agreement (including
indemnification pursuant to Section 8 thereof) (i) the Company Alternative
Redemption Price payable in respect of such unredeemed Pro Rata Redemption
Amount shall bear interest at the rate of the lesser of 2.0% per month (prorated
for partial months) or the highest lawful maximum interest rate until paid in
full and (ii) the Company shall not be permitted to submit another Company
Alternative Redemption Notice without the prior written consent of the Holder.

                  (8) Conversion at the Company's Election. On any day after the
date that is ten (10) trading days after the Registration Statement has been
declared effective by the SEC, the Company shall have the right, in its sole
discretion, to require that all or any portion of the Principal of this Note
(together with the Additional Amount with respect thereto) be converted
("COMPANY'S CONVERSION ELECTION") at the applicable Conversion Price; provided
that the Conditions to Conversion at the Company's Election (as set forth below)
are satisfied. The Company may exercise its right to Company's Conversion
Election by delivering to the Holder written notice ("COMPANY'S CONVERSION
ELECTION NOTICE") at least 20 Business Days but not more than 40 Business Days
prior to the date of consummation of such Company's Conversion Election
("COMPANY'S ELECTION CONVERSION DATE"). The date on which the Holder receives
the Company's Conversion Election Notice is referred to as the "COMPANY'S
CONVERSION ELECTION NOTICE DATE"). The Company's Conversion Election Notice
shall be irrevocable by the Company. If the Company elects a Company's
Conversion Election pursuant to this Section 8, then it must simultaneously take
the similar action with respect to the Other Notes. The Company shall require
conversion of a principal amount (together with the related Additional Amount)
from each holder of the Notes equal to the product of (I) the aggregate
principal amount of Notes that the Company has elected to convert pursuant to
this Section 8 (or the similar provisions of the Other Notes), multiplied by
(II) such holder's Allocation Percentage (such amount with respect to each
holder is referred to as its "PRO RATA CONVERSION AMOUNT").

                                       23
<PAGE>

The Company's Conversion Election Notice shall indicate (x) the date selected by
the Company for the Company's Election Conversion Date in accordance with this
Section 8, (y) the aggregate principal amount of the Notes that the Company has
elected to convert from all the holders of the Notes pursuant to this Section 8
(or other similar provisions in the Other Notes) and (z) each holder's Pro Rata
Conversion Amount of the principal amount of the Notes the Company has elected
to convert pursuant to this Section 8 (or other similar provisions in the Other
Notes). Subject to the satisfaction of all the conditions of this Section 8, on
the Company's Election Conversion Date the Holder of this Note will be deemed to
have submitted a Conversion Notice in accordance with Section 2(d) for a
Conversion Amount equal to the result of (a) the Holder's Pro Rata Conversion
Amount (together with the related Additional Amount), minus (b) the Conversion
Amount of this Note converted by the Holder during the Company's Mandatory
Conversion Period (as defined below), minus (c) the Excluded Principal Amount
(as defined below) (including the related Additional Amount). "CONDITIONS TO
CONVERSION AT THE COMPANY'S ELECTION" means the following conditions: (i) on
each day during the period beginning on the date the SEC declares the
Registration Statement effective and ending on and including the date that is 20
days prior to the Company's Conversion Election Notice Date, the Registration
Statement shall be effective and available for the sale of all of the
Registrable Securities (other than any day during an Allowable Grace Period);
(ii) on each day during the period beginning on and including the date that is
20 days prior to the Company's Conversion Election Notice Date and ending on and
including the Company's Election Conversion Date, the Registration Statement
shall be effective and available for the sale of all of the Registrable
Securities and no Grace Period (as defined in the Registration Rights Agreement)
shall have occurred; (iii) on each day during the period beginning on and
including the date that is 20 days prior to the Company's Conversion Election
Notice Date and ending on and including the Company's Election Conversion Date,
the Common Stock is designated for quotation on the Nasdaq National Market or
listed on The New York Stock Exchange, Inc. and shall not have been suspended
from trading on such exchanges nor shall delisting or suspension by such
exchanges have been threatened either (A) in writing by such exchanges or (B) by
falling below the minimum listing maintenance requirements of such exchanges;
(iv) on each day during the ten (10) consecutive trading days immediately
preceding the Company's Conversion Election Notice Date, the Weighted Average
Price of the Common Stock is at least 120% of the Conversion Price in effect on
the Issuance Date (subject to adjustment for stock splits, stock dividends,
stock combinations and other similar transactions after the Issuance Date); (v)
during the period beginning on the Issuance Date and ending on and including the
Company's Election Conversion Date, there shall not have occurred either (x) the
public announcement of a pending, proposed or intended Change of Control that
has not been abandoned, terminated or consummated or (y) a Triggering Event or
an Event of Default (as defined in Section 11) (other than an Event of Default
described in Section 11(a)(iii) that has been cured, provided that such cure has
been publicly disclosed at least 20 days prior to the Company's Conversion
Election Notice Date); (vi) the aggregate principal amount of the Notes selected
for conversion by the Company as reflected in the Company's Conversion Election
Notice is at least $1,000,000 (or, if less, the aggregate principal amount of
the Notes then outstanding); (vii) during the period beginning on the Issuance
Date and ending on and including the Company's Election Conversion Date, the
Company shall have delivered Shares upon conversion of this Note and upon
exercise

                                       24
<PAGE>

of the Warrants to the Holder on a timely basis as set forth in Section 2(d)(ii)
of this Note and Sections 2(a) of the Warrants, respectively; (viii) the Company
shall not have delivered the Company's Conversion Election Notice during any
Company's Mandatory Conversion Period; (ix) on each day during the Company's
Mandatory Conversion Period, the Company otherwise shall have been in compliance
with in all respects and shall not have breached or been in breach of any
provision, covenant, of the Securities Purchase Agreement, the Registration
Rights Agreement, any of the Warrants or any of the Notes; and (x) the
representations and warranties of the Company shall have been true and correct
as of the date of the Securities Purchase Agreement and as of the Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date, which shall have been true and correct as of such
date, and except for representations and warranties the breach of which would
not have a Material Adverse Effect (as defined in the Securities Purchase
Agreement)). "COMPANY'S MANDATORY CONVERSION PERIOD" means, with respect to any
Company's Conversion Election, the period beginning on and including the
Company's Conversion Election Notice Date and ending on and including the
Company's Election Conversion Date. "EXCLUDED PRINCIPAL AMOUNT" means, with
respect to the Holder with respect to any Company's Conversion Election, the
result of (I) the Holder's Pro Rata Conversion Amount multiplied by (II) the
quotient of (A) the number of trading days during the applicable Company's
Mandatory Conversion Period on which the Weighted Average Price of the Common
Stock is less than or equal to the Conversion Price in effect on the Issuance
Date (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions after the Issuance Date), divided by
(B) the aggregate number of trading days during such Company's Mandatory
Conversion Period.

                  (9) Reservation of Shares.

                           (a) Reservation. The Company shall, so long as any of
the Notes are outstanding, 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, such number of Shares as shall
from time to time be sufficient to effect the conversion of all of the principal
amount then outstanding under the Notes (together with accrued Additional
Amounts thereon); provided that the number of Shares so reserved shall at no
time be less than 110% of the number of Shares for which the Notes are at any
time convertible (without regard to any limitations on conversions) (the
"REQUIRED RESERVE AMOUNT"). The initial number of Shares 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 time of issuance of the
Notes or increase in the number of reserved Shares, as the case may be. In the
event the Holder shall sell or otherwise transfer any portion of the Holder's
Notes, each transferee shall be allocated a pro rata portion of the number of
Shares reserved for such transferor. Any Shares reserved and allocated to any
Person that ceases to hold any Notes shall be allocated to the remaining holders
of the Notes, pro rata based on the principal amount of the Notes then held by
such holders.

                                       25
<PAGE>

                           (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 to satisfy its obligation to reserve
for issuance upon conversion of the Notes at least a number of Shares equal to
the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company
shall immediately take all action necessary to increase the Company's authorized
Shares 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 90 days
after the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the authorization of an increase in the number
of authorized Shares. In connection with such meeting, the Company shall provide
each stockholder with a proxy statement and shall use its best efforts to
solicit its stockholders' approval of such increase in authorized Shares and to
cause its Board of Directors to recommend to the stockholders that they approve
such proposal.

                  (10) Voting Rights. Holders of the Notes shall have no voting
rights, except as required by law and as expressly provided in this Note.

                  (11) Defaults and Remedies.

                           (a) Events of Default. An "EVENT OF DEFAULT" is (i)
default in payment of any principal amount of this Note, the Company Redemption
Price or the Company Alternative Redemption Price when and as due; (ii) failure
by the Company for ten (10) days after notice to it to comply with any other
provision of this Note in all material respects; (iii) any default in payment of
at least $100,000, individually or in the aggregate, under or acceleration prior
to maturity of, or any event or circumstances arising such that, any person is
entitled, or could, with the giving of notice and/or lapse of time and/or the
fulfillment of any condition and/or the making of any determination, become
entitled, to require repayment before its stated maturity of, or to take any
step to enforce any security for, any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed of at least $100,000 by the Company or for money
borrowed the repayment of at least $100,000 of which is guaranteed by the
Company, whether such indebtedness or guarantee now exists or shall be created
hereafter; (iv) if the Company pursuant to or within the meaning of any
Bankruptcy Law (as defined below); (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 Custodian of it or any of its Subsidiaries (as
defined in the Securities Purchase Agreement) for all or substantially all of
its property; (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 the
same become due; (v) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (1) is for relief against the Company in an
involuntary case; (2) appoints a Custodian (as defined below) of the Company or
any subsidiary for all or substantially all of its property; or (3) orders the
liquidation of the Company or any subsidiary; (vi) the Company fails to file, or
is determined to have failed to file, in a timely manner (without giving effect
to any extension provided by Rule 12b-25 under the 1934 Act or any successor
thereto) any report required to be filed with the SEC pursuant to the 1934 Act;
(vii) failure by the

                                       26
<PAGE>

Company to comply with any provision set forth in Section 4(q) of the Securities
Purchase Agreement; or (viii) the making of any claim(s) against or demand(s) of
the Company by any holder(s) of the Company's Series A Convertible Preferred
Stock or Series B Convertible Preferred Stock or the related warrants relating
to such preferred stock or warrants or any document or transaction relating
thereto which exceed $100,000, individually or in the aggregate. The term
"BANKRUPTCY LAW" means Title 11, U.S. Code, or any similar federal or state law
for the relief of debtors. The term "CUSTODIAN" means any receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy Law. Within five
(5) Business Days after the occurrence of any Event of Default set forth in
clause (iii) or clause (vi) above, the Company shall deliver written notice
thereof to the Holder.

                           (b) Remedies. If an Event of Default occurs and is
continuing, the Holder of this Note may declare all of this Note, including all
amounts due hereunder (the "ACCELERATION AMOUNT"), to be due and payable
immediately, except that in the case of an Event of Default arising from events
described in clauses (iv) and (v) of Section 11(a), this Note shall become due
and payable without further action or notice. In addition to any remedy the
Holder may have under this Note and the Securities Purchase Agreement, such
unpaid amount shall bear interest at the rate of the lesser of 2.0% per month
(prorated for partial months) or the highest lawful maximum interest rate until
paid in full. Nothing in this Section 11 shall limit any other rights the Holder
may have under this Note and the Securities Purchase Agreement, including
Section 3 of this Note.

                           (c) Void Acceleration. In the event that the Company
does not pay the Acceleration Amount within five (5) Business Days of this Note
becoming due under Section 11(b), at any time thereafter and until the Company
pays such unpaid Acceleration Amount in full, the Holder shall have the option
(the "VOID ACCELERATION OPTION") to, in lieu of redemption, require the Company
to promptly return this Note (to the extent this Note has been previously
delivered to the Company) to the Holder, by sending written notice thereof to
the Company via facsimile (the "VOID ACCELERATION NOTICE"). Upon the Company's
receipt of such Void Acceleration Notice, (i) the acceleration pursuant to
Section 11(b) shall be null and void, (ii) the Company shall promptly return
this Note (to the extent this Note has been previously delivered to the
Company), (iii) the Conversion Price with respect to the Principal shall be
adjusted to the lesser of (A) the Conversion Price as in effect on the date on
which the Void Acceleration Notice is delivered to the Company and (B) the
lowest Weighted Average Price of the Common Stock during the period beginning on
and including the date on which this Note became due under Section 11(b) and
ending on and including the date on which the Void Acceleration Notice is
delivered to the Company.

                  (12) Other Indebtedness. Payments of principal and other
payments due under this Note shall not be subordinated to any obligations of the
Company. The Holder of this Note is entitled to the benefits of the Security
Agreement, and in the event of a transfer of this Note in accordance with the
terms hereof and the Securities Purchase Agreement, the Holder shall be deemed
to have assigned its rights under the Security Agreement. For so long as this
Note is outstanding, the Company shall not, and shall not permit any of its
Subsidiaries (as defined in the

                                       27
<PAGE>

Securities Purchase Agreement) to, (a) issue or incur any Indebtedness (as
defined below), except for Indebtedness the holders of which agree in writing to
be subordinate to this Note either (i) pursuant to the terms of a subordination
agreement in the form attached as Exhibit G to the Securities Purchase Agreement
or (ii) on terms and conditions otherwise acceptable to the Holder, including
with regard to interest payments or repayment of principal, (b) issue or incur
any Indebtedness which would mature or require repayment prior to the Maturity
Date; (c) issue or incur any Indebtedness which is secured by any of the
Collateral (as defined in the Security Agreement); or (d) issue any capital
stock of the Company redeemable prior to the Maturity Date (other than the
shares of Series A Preferred Stock and shares of Series B Preferred Stock issued
on the Closing Date, each issuance on the terms and in accordance with the forms
and agreements provided to the Purchasers (as defined below) at the Closing).
For purposes of this Note: (x) "INDEBTEDNESS" of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or services
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all indebtedness referred to in clauses (A) through (E)
above secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any mortgage, lien, pledge,
change, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person that owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (G) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (F) above; provided, however, that "INDEBTEDNESS" shall not include any
monetary obligation under any leasing or similar arrangement incurred in the
Company's ordinary course of business, and (y) "CONTINGENT OBLIGATION" means, as
to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto.

                  (13) Participation; Restrictions. The Holder shall be entitled
to such dividends paid and distributions made to the holders of Common Stock to
the same extent as if the Holder had converted this Note in full into Shares
(without taking into account any limitations or restrictions on the
convertibility of this Note) immediately prior to the record date for such
dividend or distribution, or, if no such record date is taken, immediately prior
to the date as of which the record holders of Common Stock are to be determined
for such dividend or

                                       28
<PAGE>

distribution. Payments made pursuant to the previous sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.
While this Note is outstanding, the Company shall not, directly or indirectly,
redeem, repay, or purchase any of the Company's capital stock without the prior
express written consent of the Holder (except for the repayment or redemption of
the Notes in accordance with the terms thereof or, with respect to the Warrants,
pursuant to Section 12 of the Warrants and other than pursuant to conversions or
redemptions of Series A Convertible Preferred Stock or Series B Convertible
Preferred Stock made solely in shares of Common Stock pursuant to the terms of
the Statement of Designations for such preferred stock as in effect on the
Issuance Date, and except for the redemption of Series A Convertible Preferred
Stock or Series B Convertible Preferred Stock pursuant to the terms of the
Statement of Designations for such preferred stock as in effect on the Issuance
Date upon the occurrence of an event described in Section 4(c)(i) of such
Statement of Designations provided that (A) such event constitutes a Change of
Control and (B) the Company has delivered written notice of such redemption
(which notice shall include the amount which will be redeemed) to the Holder at
least 20 Business Days prior to the consummation of such Change of Control).
While this Note is outstanding, the Company shall not enter into any agreement
which would limit or restrict the Company's ability to perform under, or take
any other voluntary action to avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by it under, this
Note, the Securities Purchase Agreement, the Registration Rights Agreement and
the Warrants. While this Note is outstanding, the Company shall not declare or
pay any dividend on any of the Company's capital stock, other than with respect
to its Common Stock and other than pursuant to conversions or redemptions of
Series A Convertible Preferred Stock or Series B Convertible Preferred Stock
made solely in shares of Common Stock pursuant to the terms of the Statement of
Designations for such preferred stock as in effect on the Issuance Date.

                  (14) Limitation on Number of Conversion Shares. The Company
shall not be obligated to issue any Shares upon conversion of the Notes and
exercise of the Warrants in excess of 2,753,163 Shares (subject to adjustment
for stock splits, stock dividends, stock combinations and other similar
transactions involving the Common Stock after the Issuance Date, and further
subject to increase as described below, the "EXCHANGE CAP"), except that such
limitation shall not apply in the event that the Company obtains the approval of
its stockholders as required by the applicable rules of the Principal Market (or
any successor rule or regulation) for issuances of Shares in excess of the
number of Shares that the Company may issue upon conversion of the Notes and
exercise of the Warrants without breaching the Company's obligations under the
rules and regulations of the Principal Market. Until such approval is obtained,
no purchaser of the Notes pursuant to the Securities Purchase Agreement (the
"PURCHASERS") shall be issued, upon conversion of the Notes or exercise of the
Warrants, Shares in an amount greater than the product of (i) the Exchange Cap
amount then in effect multiplied by (ii) a fraction, the numerator of which is
the principal amount of the Notes issued to such Purchaser pursuant to the
Securities Purchase Agreement and the denominator of which is the aggregate
principal amount of all the Notes issued to the Purchasers pursuant to the
Securities Purchase Agreement (the "CAP ALLOCATION AMOUNT"). 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 Cap
Allocation Amount. In the event that any holder of the Notes

                                       29
<PAGE>

shall convert and exercise, as the case may be, all of such holder's Notes and
Warrants into a number of shares of Common Stock which, in the aggregate, is
less than such holder's Cap Allocation Amount, then the difference between such
holder's Cap Allocation Amount and the number of Shares actually issued to such
holder shall be allocated to the respective Cap Allocation Amounts of the
remaining holders of Notes and Warrants on a pro rata basis in proportion to the
number of Shares then issuable under the Notes and Warrants then held by each
such holder. The Company may increase the Exchange Cap from time to time by
delivering written notice (each an "INCREASE NOTICE") of such increase to the
holder of this Note at least five (5) Business Days prior to the effective date
of such increase, provided that prior to delivering such Increase Notice the
Company shall have obtained all necessary shareholder and governmental or
regulatory approvals in connection with the relevant increase of the Exchange
Cap. Each Increase Notice shall (A) state the number of Shares by which the
Exchange Cap has been increased and the resulting new Exchange Cap, (B) state
that the Company has obtained all necessary shareholder and governmental or
regulatory approvals in connection with the relevant increase of the Exchange
Cap and (C) attach to such Increase Notice evidence of the Company's
satisfaction of its statement in the immediately preceding clause (B). The
increase in the Exchange Cap shall be effective on the fifth (5th) Business Day
(or such later date as the Company may specify in the Increase Notice) following
the Holder's receipt of an Increase Notice complying with the immediately
preceding sentence.

                  (15) Vote to Change the Terms of the Notes. The written
consent of the Company and the holders representing at least two-thirds of the
principal amount then outstanding under the Notes shall be required for any
change to the Notes (including this Note) and upon receipt of such consent, each
Note shall be deemed amended thereby.

                  (16) Lost or Stolen Notes. 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
an indemnification undertaking by the Holder to the Company in customary form
and reasonably satisfactory to the Company and, in the case of mutilation, upon
surrender and cancellation of this Note, the Company shall execute and deliver a
new Note of like tenor and date; provided, however, the Company shall not be
obligated to re-issue a Note if the Holder contemporaneously requests the
Company to convert this Note into Shares as permitted hereunder.

                  (17) 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, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such remedy and nothing herein shall limit the
Holder's right to pursue actual damages for any failure by the Company to comply
with the terms of this Note. The Company covenants to the Holder that there
shall be no characterization concerning this instrument other than as expressly
provided herein. 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 thereof and shall not,

                                       30
<PAGE>

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 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.

                  (18) Specific Shall Not Limit General; Construction. No
specific provision contained in this Note shall limit or modify any more general
provision contained herein. This Note shall be deemed to be jointly drafted by
the Company and all Purchasers and shall not be construed against any person as
the drafter hereof.

                  (19) Failure or Indulgence Not Waiver. No failure or delay on
the part of a 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.

                  (20) Notice. 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.

                  (21) Transfer of this Note. The Holder may assign or transfer
some or all of its rights hereunder, subject to compliance with the 1933 Act and
the provisions of Section 2(f) of the Securities Purchase Agreement without the
consent of the Company.

                  (22) 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 (b) an
attorney is retained to represent the Holder in 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,
including but not limited to reasonable attorneys' fees and disbursements.

                  (23) Cancellation. After all principal and other amounts at
any time owed under this Note have been paid in full or converted into Shares in
accordance with the terms hereof, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.

                  (24) 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 containing the same terms and conditions
and representing in the aggregate the Principal, and each such new Note will
represent such portion of such Principal as is designated by the Holder at the
time of such surrender. The date the Company initially issues

                                       31
<PAGE>

this Note will be deemed to be the "Issuance Date" hereof regardless of the
number of times a new Note shall be issued.

                  (25) 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.

                  (26) 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
country or jurisdiction) that would cause the application of the laws of any
jurisdiction or country other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Note and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

                  (27) Reissuance of Notes. Subject to Section 2(d)(viii), in
the event of a conversion or redemption pursuant to this Note of less than all
of the Principal, the Company shall promptly cause to be issued and delivered to
the Holder, upon tender by the Holder of this Note, a new Note of like tenor
representing the remaining Principal that has not been so converted or redeemed.
The date the Company issued this Note shall be the "Issuance Date" hereof
regardless of the number of times a new Note shall be issued.

                  (28) Effect of Redemption or Conversion; No Prepayment. Upon
payment of the Redemption Price, the Change of Control Redemption Price, the
Company Redemption Price, the Company Alternative Redemption Price or the amount
provided for in Section 2(d)(vii), each in accordance with the terms hereof with
respect to any portion of the principal of this Note, or delivery of Shares upon
conversion of any portion of the principal of this Note in accordance with the
terms hereof, such portion of the principal of this Note shall be deemed paid in
full and shall no longer be deemed outstanding for any purpose. Except as
specifically set

                                       32
<PAGE>

forth in this Note, the Company does not have any right, option, or obligation,
to pay any portion of the Principal at any time prior to the Maturity Date.

                  (29) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Holder hereunder or the Holder enforces or exercises
its rights hereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
by a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, U.S. state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.

                                   * * * * * *

                                       33
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Note to be signed by
Ronald A. Woessner, its Senior Vice President and General Counsel, as of the
18th day of September 2002.

                                          ZIX CORPORATION

                                          By:
                                              ---------------------------------
                                          Name:      Ronald A. Woessner
                                          Title:   Senior Vice President and
                                                            General Counsel

<PAGE>

                                    EXHIBIT I

                                 ZIX CORPORATION
                                CONVERSION NOTICE

         Reference is made to the Convertible Note (the "NOTE") of Zix
Corporation (formerly known as Zixit Corporation), a Texas corporation (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 Common Stock, par value $0.01 per share (the
"COMMON STOCK"), of the Company, 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:
                                                       -------------------------

         Is the Variable Price being relied on pursuant to Section 2(f)(iii) of
         the Note? (check one) YES _____ NO _____

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:
               -----------------------------------------------

         DTC Participant Number and Name (if electronic book entry transfer):

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

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

<PAGE>

                                 ACKNOWLEDGMENT

         The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated ___________ ___,
200_ from the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                     ZIX CORPORATION

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

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