Convertible Promissory Note

THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND IS A "RESTRICTED SECURITY" AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT. THE NOTE MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE NOTE UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144 OR ANOTHER EXEMPTION FROM THE ACT.


PRINCETON VIDEO IMAGE, INC.
CONVERTIBLE PROMISSORY NOTE


$5,000,000 Lawrenceville, New Jersey
June 25, 2002


1. Obligation. Princeton Video Image, Inc., a Delaware corporation (the "Maker"), promises to pay to the order of PVI Holding, LLC, a Delaware limited liability company (the "Payee"), the principal sum of Five Million Dollars ($5,000,000), plus interest at the rate specified herein. The unpaid principal from time to time outstanding shall bear interest prior to maturity at an annual rate of interest equal to 10% per annum. Interest hereon shall be compounded semi-annually based on the actual number of days elapsed.


2. Maturity Date. The unpaid principal balance of this Convertible Note and all accrued interest thereon (together, the "Convertible Debt") shall be due and payable in arrears in full on March 31, 2003 (the "Maturity Date").


3. Conversion.


(a) By Payee. Upon the terms set forth in this Section 3(a), Payee shall have the right, at its option, at any time prior to Maker's conversion pursuant to Section 3(b) below or repayment of this Convertible Note, to convert the Convertible Debt, in whole or in part, into the number of fully paid and nonassessable shares of Maker's common stock equal to the quotient obtained by dividing the Convertible Debt by the Conversion Price (as defined below). Payee may exercise the conversion right pursuant to Section 3(a) by delivering to Maker, at the address set forth below, written notice stating that Payee elects to convert the Convertible Debt and stating the name or names (with address) in which the certificate or certificates for the shares of common stock are to be issued. Conversion shall be deemed to have been effected on the date when such delivery is made (the "Effective Date"). As promptly as practicable thereafter, Maker shall issue and deliver to Payee, to the place designated by Payee, a certificate or certificates for the number of full shares of common stock to which Payee is entitled and cash in payment of the portion of the Convertible Debt represented by any fractional interest in a share of common stock and a new convertible promissory note representing any portion of this Convertible Note not so converted. The person in whose name the certificate or certificates for common stock are to be issued shall be deemed to have become a holder of record of such common stock on the Effective Date unless the transfer books of Maker are closed on that date, in which event such person shall be deemed to have become a stockholder of record on the next succeeding date on which the transfer books are open, but the Conversion Price shall be that in effect on the Effective Date. As promptly as practicable following the Effective Date, and upon receipt of an new convertible note, if applicable, Payee shall deliver to Maker this Convertible Note marked "Cancelled", provided, however, that this Convertible Note shall be deemed cancelled and the Convertible Debt shall cease to be outstanding as of the Effective Date, whether or not this Convertible Note has been actually delivered to the Maker.


(b) By Maker. Upon the terms set forth in this Section 3(b), Maker shall have the right, at any time following the first date after the date hereof and prior to the Maturity Date on which it has consummated the sale or sales of shares of its common stock resulting in aggregate cash proceeds to the Maker of at least ten million dollars ($10,000,000), determined on the basis of an appropriate allocation of consideration paid by the purchasers of such common stock between the common stock and other benefits (as such allocation is determined and reported in Maker's financial statements in consultation with Maker's outside auditors), to convert all or part of the Convertible Debt into the number of fully paid and nonassessable shares of Maker's common stock equal to the quotient obtained by dividing that portion of the Convertible Debt to be converted by the Conversion Price. If Maker elects to convert the Convertible Debt into shares of common stock pursuant to this Section 3(b), it shall send notice of such conversion to Payee. Such notice shall specify the effective date of conversion (the "Mandatory Conversion Date"). Following the Mandatory Conversion Date, Maker shall issue and deliver to Payee, to the place designated by Payee, a certificate or certificates for the number of full shares of common stock to which Payee is entitled, and cash in payment of the portion of the Convertible Debt represented by any fractional interest in a share of common stock and a new convertible promissory note representing any portion of this Convertible Note not so converted. Payee shall be deemed to have become a holder of record of such common stock on the Mandatory Conversion Date and upon receipt of a new convertible note, if applicable. As promptly as practicable following the Mandatory Conversion Date, and upon receipt of a new convertible promissory note, if applicable, Payee shall deliver to Maker this Convertible Note marked "Cancelled;" provided, however that this Convertible Note shall be deemed cancelled and the Convertible Debt shall cease to be outstanding as of the Mandatory Conversion Date, whether or not this Convertible Note has been actually delivered to Maker. If the Maker determines that approval by its stockholders of the issuance of common stock upon conversion of the Convertible Debt under this Section 3(b) is required pursuant to applicable rules of the Nasdaq Stock Market (e.g., because such conversion would result in the issuance of more than 3,684,494 shares at a price of less than $0.89 per share) or pursuant to applicable law, it will promptly seek such approval and will not exercise its rights under Section 3(b) hereof prior to such approval. Notwithstanding the foregoing, no failure to receive such approval prior to the Maturity Date of this Convertible Note or any other event shall extend o ...