CONVERSION AGREEMENT

     THIS AGREEMENT,  dated as of the 29th day of August, 1996 between Heuristic
Development  Group,  Inc.,  a  Delaware  corporation   (hereinafter  called  the
"Company")  and Nautilus Group Japan Ltd., a Delaware  corporation  (hereinafter
called "NGJ")

     WHEREAS, the Company has entered into a letter of intent (the "Letter") for
a proposed  initial public  offering of its securities (the "IPO") through D. H.
Blair Investment Banking Corp. ("Blair"), as underwriter; and

     WHEREAS,  the Letter  contains as a  condition  to the IPO that the Company
effect  a  recapitalization   which  includes  the  conversion  of  all  of  its
outstanding  shares of Series A Preferred Stock,  $.01 par value (the "Preferred
Stock") into Common Stock, $.01 par value (the "Common Stock"); and

     WHEREAS, the Letter contains as as further condition to the IPO that the
Company not have any outstanding indebtedness on its books other than as
contemplated by the Letter and subsequent discussions between the Company and
Blair; and

     WHEREAS,  NGJ holds 600 shares of Preferred Stock,  plus accrued and unpaid
dividends, representing  all of the  Company's  outstanding  shares of Preferred
Stock; and

     WHEREAS,  at the date  heeof,  the Company  had a total of  $783,143.66  of
outstanding  indebtedness , including  accrued  interest,  owed to NGJ (the "NGJ
Debt"); and

     WHEREAS, the Company and NGJ believe it is their mutual best interests
for the IPO contemplated by the Letter to go forward.

     NOW, THEREFOR, in consideration of the foregoing and the mutual promises
and covenants herein contained, it is hereby agreed as follows:

     1.   Conversion  of Preferred  Stock.  Effective on the closing date of the
          IPO (the "Closing  Date"),  all shares of Preferred Stock held by NGJ
          shall be  converted  into  175,792.48  shares  of  Common  Stock (on a
          post-split basis.)

     2.   Conversion of Debt.  Effective on the Closing Date, the NGJ Debt shall
          be converted into  190,721.99  shares of Common Stock (on a post-split
          basis), representing a conversion rate of $4.40 per share.


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          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
     date first above written.

                                              HEURISTIC DEVELOPMENT GROUP, INC.


                                              By:/s/ Deborah E. Griffin
                                                 -------------------------
                                                   Chief Operating Officer



                                              NAUTILUS GROUP JAPAN, LTD.


                                              By: /s/ Gregory L. Zink
                                                 -------------------------
                                                    Chief Operating Officer


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