CALLABLE SECURED CONVERTIBLE NOTE

 

                                  Exhibit 10.2

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

 

 

 

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED

         UNDER   THE   SECURITIES   ACT   OF   1933,   AS   AMENDED   (THE   "ACT").   THE

         SECURITIES   MAY NOT BE SOLD,   TRANSFERRED OR ASSIGNED IN THE ABSENCE OF

         AN EFFECTIVE   REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT,

         OR AN OPINION OF COUNSEL IN FORM,   SUBSTANCE   AND SCOPE   CUSTOMARY   FOR

         OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT

         REQUIRED   UNDER   SAID   ACT OR   UNLESS   SOLD   PURSUANT   TO   RULE   144 OR

         REGULATION S UNDER SAID ACT.

 

 

                        CALLABLE SECURED CONVERTIBLE NOTE

 

Salt Lake City, Utah

April 27, 2005 $425,000

 

         FOR VALUE   RECEIVED,   PARADIGM   MEDICAL   INDUSTRIES,   INC.,   a Delaware

corporation   (hereinafter called the "Borrower"),   hereby promises to pay to the

order of AJW   Offshore,   Ltd. or   registered   assigns (the   "Holder") the sum of

$425,000,   on April 27, 2008 (the "Maturity   Date"),   and to pay interest on the

unpaid principal balance hereof at the rate of eight percent (8%) (the "Interest

Rate") per annum from April 27, 2005 (the "Issue   Date")   until the same becomes

due and payable,   whether at maturity or upon   acceleration   or by prepayment or

otherwise.   Any amount of   principal   or interest on this Note which is not paid

when due shall bear interest at the rate of fifteen percent (15%) per annum from

the due date thereof until the same is paid ("Default Interest"). Interest shall

commence accruing on the Issue Date, shall be computed on the basis of a 365-day

year and the   actual   number   of days   elapsed   and shall be   payable   quarterly

provided   that no   interest   shall be due and payable for any month in which the

Trading   Price (as such term is defined   below) is greater   than $.0945 for each

Trading   Day (as such term is defined   below) of the   month.   All   payments   due

hereunder   (to the extent not converted   into common stock,   $.001 par value per

share (the "Common Stock") in accordance with the terms hereof) shall be made in

lawful   money of the United   States of America   provided   that   interest due and

payable for the first six (6) months   following   the Issue Date shall be paid on

the date hereof.   All payments shall be made at such address as the Holder shall

hereafter   give to the Borrower by written   notice made 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 which is not a business   day, the same shall instead

be due on the next   succeeding   day which is a business   day and, in the case of

any   interest   payment   date which is not the date on which this Note is paid in

full,   the extension of the due date thereof shall not be taken into account for

purposes of determining the amount of interest due on such date. As used in this

 

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Note, the term   "business day" shall mean any day other than a Saturday,   Sunday

or a day on   which   commercial   banks   in the   city of New   York,   New   York are

authorized   or   required   by law or   executive   order   to   remain   closed.   Each

capitalized term used herein, and not otherwise defined,   shall have the meaning

ascribed thereto in that certain Securities Purchase Agreement,   dated April 27,

2005,   pursuant   to   which   this   Note   was   originally   issued   (the   "Purchase

Agreement").

 

         This Note is free from all taxes,   liens,   claims and encumbrances with

respect to the issue   thereof and shall not be subject to   preemptive   rights or

other   similar   rights   of   shareholders   of the   Borrower   and will not   impose

personal   liability   upon the holder   thereof.   The   obligations of the Borrower

under   this   Note   shall be   secured   by that   certain   Security   Agreement   and

Intellectual   Property   Security   Agreement,   each dated   April 27,   2005 by and

between the Borrower and the Holder.

 

         The following terms shall apply to this Note:

 

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                          ARTICLE I. CONVERSION RIGHTS

 

         1.1   Conversion   Right.   The   Holder   shall have the right from time to

time,   and at any time on or prior to the earlier of (i) the   Maturity   Date and

(ii) the date of   payment of the   Default   Amount   (as   defined in Article   III)

pursuant to Section   1.6(a) or Article III, the Optional   Prepayment   Amount (as

defined in Section 5.1 or any payments   pursuant to Section 1.7, each in respect

of the remaining outstanding principal amount of this Note to convert all or any

part of the outstanding and unpaid principal amount of this Note into fully paid

and   non-assessable   shares of Common Stock,   as such Common Stock exists on the

Issue Date, or any shares of capital   stock or other   securities of the Borrower

into which such Common Stock shall   hereafter be changed or   reclassified at the

conversion   price (the   "Conversion   Price")   determined   as provided   herein (a

"Conversion");   provided, however, that in no event shall the Holder be entitled

to convert any portion of this Note in excess of that   portion of this Note upon

conversion   of   which   the sum of (1) the   number   of   shares   of   Common   Stock

beneficially owned by the Holder and its affiliates (other than shares of Common

Stock   which may be deemed   beneficially   owned   through   the   ownership   of the

unconverted   portion of the Notes or the   unexercised or unconverted   portion of

any other security of the Borrower (including,   without limitation, the warrants

issued   by   the   Borrower   pursuant   to the   Purchase   Agreement)   subject   to a

limitation   on   conversion or exercise   analogous to the   limitations   contained

herein)   and (2) the   number   of   shares   of   Common   Stock   issuable   upon   the

conversion   of the portion of this Note with respect to which the   determination

of this   proviso is being made,   would   result in   beneficial   ownership   by the

Holder and its affiliates of more than 4.99% of the outstanding shares of Common

Stock and provided   further that the Holder shall not be entitled to convert any

portion of this Note during any month   immediately   succeeding   a   Determination

Date on which the Borrower   exercises its prepayment   option pursuant to Section

5.2 of this Note.   For   purposes   of the   proviso to the   immediately   preceding

sentence,   beneficial   ownership   shall be determined in accordance with Section

13(d) of the Securities Exchange Act of 1934, as amended,   and Regulations 13D-G

thereunder,   except as   otherwise   provided in clause (1) of such   proviso.   The

number of shares of Common Stock to be issued upon each   conversion of this Note

shall be determined by dividing the Conversion   Amount (as defined below) by the

applicable   Conversion   Price then in effect on the date specified in the notice

of   conversion,   in the form   attached   hereto   as   Exhibit   A (the   "Notice   of

Conversion"), delivered to the Borrower by the Holder in accordance with Section

1.4 below;   provided that the Notice of Conversion is submitted by facsimile (or

by other means resulting in, or reasonably expected to result in, notice) to the

Borrower   before 6:00 p.m., New York, New York time on such conversion date (the

"Conversion   Date").   The term   "Conversion   Amount" means,   with respect to any

conversion of this Note, the sum of (1) the principal   amount of this Note to be

converted in such   conversion plus (2) accrued and unpaid   interest,   if any, on

such   principal   amount   at the   interest   rates   provided   in this   Note to the

Conversion Date plus (3) Default Interest, if any, on the amounts referred to in

the   immediately   preceding   clauses   (1)   and/or   (2) plus (4) at the   Holder's

option,   any amounts   owed to the Holder   pursuant   to   Sections   1.3 and 1.4(g)

 

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hereof   or   pursuant   to   Section   2(c)   of   that   certain   Registration   Rights

Agreement,   dated as of April [ ], 2005, executed in connection with the initial

issuance   of this   Note and the   other   Notes   issued   on the   Issue   Date   (the

"Registration   Rights Agreement").   The term "Determination Date" means the last

business day of each month after the Issue Date.

 

         1.2 Conversion Price.

 

         (a) Calculation of Conversion   Price. The Conversion Price shall be the

lesser of (i) the   Variable   Conversion   Price (as defined   herein) and (ii) the

Fixed Conversion Price (as defined herein) (subject,   in each case, to equitable

adjustments   for   stock   splits,   stock   dividends   or rights   offerings   by the

Borrower   relating   to   the   Borrower's   securities   or   the   securities   of any

subsidiary of the Borrower, combinations,   recapitalization,   reclassifications,

extraordinary distributions and similar events). The "Variable Conversion Price"

shall mean the   Applicable   Percentage   (as defined   herein)   multiplied   by the

Market Price (as defined herein). "Market Price" means the average of the lowest

three (3) Trading   Prices (as   defined   below) for the Common   Stock   during the

twenty   (20)   Trading   Day period   ending one   Trading Day prior to the date the

Conversion   Notice is sent by the   Holder to the   Borrower   via   facsimile   (the

"Conversion Date").   "Trading Price" means, for any security as of any date, the

intraday trading price on the   Over-the-Counter   Bulletin Board (the "OTCBB") as

reported by a reliable   reporting   service mutually   acceptable to and hereafter

designated   by Holders of a majority in   interest of the Notes and the   Borrower

or, if the OTCBB is not the   principal   trading   market for such   security,   the

intraday trading price of such security on the principal   securities exchange or

trading   market   where   such   security   is listed or traded   or, if no   intraday

trading price of such security is available in any of the foregoing manners, the

average of the intraday   trading   prices of any market   makers for such security

that are listed in the "pink sheets" by the National   Quotation Bureau,   Inc. If

the Trading   Price cannot be   calculated   for such   security on such date in the

manner   provided   above,   the Trading   Price   shall be the fair market   value as

mutually determined by the Borrower and the holders of a majority in interest of

the Notes being   converted   for which the   calculation   of the Trading   Price is

required in order to determine the Conversion Price of such Notes. "Trading Day"

shall   mean any day on which the   Common   Stock is traded   for any period on the

OTCBB, or on the principal   securities   exchange or other   securities   market on

which the Common Stock is then being traded.   "Applicable Percentage" shall mean

60.0%. The "Fixed Conversion Price" shall mean $.09.

 

         (b)   Conversion   Price   During   Major   Announcements.    Notwithstanding

anything contained in Section 1.2(a) to the contrary,   in the event the Borrower

(i) makes a public announcement that it intends to consolidate or merge with any

other corporation (other than a merger in which the Borrower is the surviving or

continuing   corporation   and its capital stock is unchanged) or sell or transfer

all or substantially all of the assets of the Borrower or (ii) any person, group

or entity (including the Borrower) publicly announces a tender offer to purchase

50% or more of the Borrower's   Common Stock (or any other takeover   scheme) (the

date of the   announcement   referred   to in   clause   (i) or   (ii) is   hereinafter

referred   to as the   "Announcement   Date"),   then the   Conversion   Price   shall,

effective   upon   the   Announcement   Date and   continuing   through   the   Adjusted

Conversion Price   Termination Date (as defined below),   be equal to the lower of

(x) the   Conversion   Price which   would have been   applicable   for a   Conversion

occurring   on the   Announcement   Date and (y) the   Conversion   Price   that would

otherwise be in effect. From and after the Adjusted Conversion Price Termination

Date,   the   Conversion   Price shall be   determined   as set forth in this Section

1.2(a). For purposes hereof,   "Adjusted Conversion Price Termination Date" shall

 

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<PAGE>

 

mean,   with   respect to any   proposed   transaction   or tender offer (or takeover

scheme) for which a public   announcement   as contemplated by this Section 1.2(b)

has been   made,   the date upon   which the   Borrower   (in the case of clause   (i)

above)   or the   person,   group or   entity   (in the case of   clause   (ii)   above)

consummates or publicly announces the termination or abandonment of the proposed

transaction   or tender   offer (or   takeover   scheme)   which   caused this Section

1.2(b) to become operative.

 

         1.3 Authorized Shares.   Subject to the Stockholder Approval (as defined

in the Agreement),   the Borrower covenants that during the period the conversion

right exists,   the Borrower will reserve from its authorized and unissued Common

Stock a sufficient number of shares, free from preemptive rights, to provide for

the issuance of Common Stock upon the full conversion of this Note and the other

Notes issued pursuant to the Purchase Agreement. The Borrower is required at all

times to have   authorized   and   reserved   two times the number of shares that is

actually   issuable upon full   conversion   of the Notes (based on the   Conversion

Price of the Notes or the Exercise   Price of the Warrants in effect from time to

time) (the "Reserved Amount").   The Reserved Amount shall be increased from time

to time in accordance with the Borrower's   obligations   pursuant to Section 4(h)

of the Purchase   Agreement.   The Borrower   represents   that upon issuance,   such

shares   will be duly and   validly   issued,   fully   paid and   non-assessable.   In

addition,   if the Borrower   shall issue any securities or make any change to its

capital   structure   which would change the number of shares of Common Stock into

which the Notes shall be convertible at the then current   Conversion   Price, the

Borrower shall at the same time make proper   provision so that thereafter   there

shall be a sufficient   number of shares of Common Stock authorized and reserved,

free from   preemptive   rights,   for   conversion of the   outstanding   Notes.   The

Borrower (i) acknowledges that it has irrevocably   instructed its transfer agent

to issue   certificates   for the Common Stock   issuable   upon   conversion of this

Note,   and (ii) agrees   that its   issuance   of this Note shall   constitute   full

authority   to its officers and agents who are charged with the duty of executing

stock certificates to execute and issue the necessary certificates for shares of

Common Stock in accordance with the terms and conditions of this Note.

 

         If, at any time a Holder of this Note   submits a Notice of   Conversion,

and the Borrower   does not have   sufficient   authorized   but unissued   shares of

Common   Stock   available   to   effect   such   conversion   in   accordance   with the

provisions of this Article I (a "Conversion   Default"),   subject to Section 4.8,

the   Borrower   shall issue to the Holder all of the shares of Common Stock which

are then available to effect such conversion. The portion of this Note which the

Holder   included in its Conversion   Notice and which exceeds the amount which is

then   convertible   into available   shares of Common Stock (the "Excess   Amount")

shall,   notwithstanding   anything   to   the   contrary   contained   herein,   not be

convertible   into Common Stock in accordance with the terms hereof until (and at

 

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<PAGE>

 

the   Holder's   option at any time   after) the date   additional   shares of Common

Stock are   authorized by the Borrower to permit such   conversion,   at which time

the   Conversion   Price   in   respect   thereof   shall   be the   lesser   of (i)   the

Conversion Price on the Conversion   Default Date (as defined below) and (ii) the

Conversion   Price on the   Conversion   Date   thereafter   elected by the Holder in

respect   thereof.   In addition,   the Borrower   shall pay to the Holder   payments

("Conversion   Default   Payments") for a Conversion   Default in the amount of (x)

the sum of (1) the then   outstanding   principal   amount   of this   Note   plus (2)

accrued and unpaid interest on the unpaid   principal amount of this Note through

the Authorization Date (as defined below) plus (3) Default Interest,   if any, on

the   amounts   referred   to in clauses   (1) and/or   (2),   multiplied   by (y) .24,

multiplied by (z) (N/365),   where N = the number of days from the day the holder

submits   a   Notice   of   Conversion   giving   rise to a   Conversion   Default   (the

"Conversion   Default   Date") to the date   (the   "Authorization   Date")   that the

Borrower   authorizes   a   sufficient   number of shares of Common   Stock to effect

conversion of the full outstanding   principal balance of this Note. The Borrower

shall use its best efforts to authorize a sufficient   number of shares of Common

Stock as soon as   practicable   following   the   earlier of (i) such time that the

Holder notifies the Borrower or that the Borrower   otherwise   becomes aware that

there are or likely will be insufficient authorized and unissued shares to allow

full conversion thereof and (ii) a Conversion   Default.   The Borrower shall send

notice to the Holder of the   authorization of additional shares of Common Stock,

the   Authorization   Date and the amount of Holder's accrued   Conversion   Default

Payments.   The accrued Conversion Default Payments for each calendar month shall

be paid in cash or shall be convertible into Common Stock (at such time as there

are sufficient   authorized shares of Common Stock) at the applicable   Conversion

Price, at the Borrower's option, as follows:

 

         (a) In the   event   Holder   elects to take such   payment   in cash,   cash

payment   shall be made to Holder by the fifth   (5th) day of the month   following

the month in which it has accrued; and

 

         (b) In the event Holder   elects to take such   payment in Common   Stock,

the Holder may convert such payment   amount into Common Stock at the   Conversion

Price (as in effect at the time of   conversion)   at any time after the fifth day

of the month   following the month in which it has accrued in accordance with the

terms   of this   Article   I (so   long as there   is then a   sufficient   number   of

authorized shares of Common Stock).

 

         The Holder's   election   shall be made in writing to the Borrower at any

time prior to 6:00 p.m.,   New York, New York time, on the third day of the month

following the month in which   Conversion   Default   payments have accrued.   If no

election is made,   the Holder shall be deemed to have   elected to receive   cash.

Nothing   herein shall limit the Holder's   right to pursue actual damages (to the

extent in excess of the Conversion   Default Payments) for the Borrower's failure

to maintain a sufficient   number of authorized   shares of Common Stock, and each

holder shall have the right to pursue all remedies available at law or in equity

(including degree of specific performance and/or injunctive relief).

 

         1.4 Method of Conversion.

 

         (a) Mechanics of   Conversion.   Subject to Section 1.1, this Note may be

converted   by the Holder in whole or in part at any time from time to time after

the Issue Date, by (A)   submitting   to the Borrower a Notice of   Conversion   (by

facsimile   or   other   reasonable   means   of   communication    dispatched   on   the

Conversion   Date prior to 6:00 p.m., New York, New York time) and (B) subject to

Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

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<PAGE>

 

         (b) Surrender of Note Upon Conversion.   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 Borrower   unless the entire   unpaid   principal   amount of this Note is so

converted.   The Holder and the   Borrower   shall   maintain   records   showing   the

principal   amount so converted   and the dates of such   conversions   or shall use

such other method, reasonably satisfactory to the Holder and the Borrower, so as

not to require physical surrender of this Note upon each such conversion. In the

event of any   dispute or   discrepancy,   such   records of the   Borrower   shall be

controlling and determinative in the absence of manifest error.   Notwithstanding

the foregoing, if any portion of this Note is converted as aforesaid, the Holder

may not transfer this Note unless the Holder first   physically   surrenders   this

Note to the Borrower,   whereupon the Borrower will   forthwith   issue and deliver

upon the order of the Holder a new Note of like tenor,   registered as the Holder

(upon   payment   by the Holder of any   applicable   transfer   taxes) may   request,

representing   in the   aggregate the remaining   unpaid   principal   amount of 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

of a portion of this Note, the unpaid and unconverted   principal   amount of this

Note   represented   by this Note may be less than the   amount   stated on the face

hereof.

 

         (c) Payment of Taxes. The Borrower shall not be required to pay any tax

which may be   payable   in   respect   of any   transfer   involved   in the issue and

delivery of shares of Common Stock or other securities or property on conversion

of this Note in a name other than that of the   Holder (or in street   name),   and

the Borrower   shall not be required to issue or deliver any such shares or other

securities   or property   unless and until the person or persons   (other than the

Holder or the   custodian in whose street name such shares are to be held for the

Holder's   account)   requesting   the   issuance   thereof   shall   have   paid to the

Borrower   the   amount   of   any   such   tax   or   shall   have   established   to   the

satisfaction of the Borrower that such tax has been paid.

 

         (d)   Delivery   of Common   Stock Upon   Conversion.   Upon   receipt by the

Borrower from the Holder of a facsimile   transmission (or other reasonable means

of   communication)   of a Notice   of   Conversion   meeting   the   requirements   for

conversion as provided in this Section 1.4, the Borrower shall issue and deliver

or   cause   to be   issued   and   delivered   to or upon   the   order   of the   Holder

certificates   for the Common Stock issuable upon such conversion   within two (2)

business days after such receipt   (and,   solely in the case of conversion of the

entire   unpaid   principal   amount   hereof,   surrender of this Note) (such second

business day being hereinafter referred to as the "Deadline") in accordance with

the terms hereof and the Purchase Agreement (including,   without limitation,   in

accordance with the requirements of Section 2(g) of the Purchase   Agreement that

certificates for shares of Common Stock issued on or after the effective date of

the   Registration   Statement   upon   conversion   of this Note   shall not bear any

restrictive legend).

 

          (e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the

Borrower of a Notice of Conversion,   the Holder shall be deemed to be the holder

of record of the Common Stock   issuable upon such   conversion,   the   outstanding

 

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principal   amount   and the amount of accrued   and unpaid   interest   on this Note

shall be reduced to reflect such conversion,   and, unless the Borrower   defaults

on its obligations   under this Article I, all rights with respect to the portion

of this Note being so converted   shall forthwith   terminate   except the right to

receive the Common Stock or other   securities,   cash or other assets,   as herein

provided,   on such   conversion.   If the   Holder   shall   have   given a Notice   of

Conversion as provided   herein,   the Borrower's   obligation to issue and deliver

the   certificates   for   Common   Stock   shall   be   absolute   and    unconditional,

irrespective of the absence of any action by the Holder to enforce the same, any

waiver or consent with   respect to any   provision   thereof,   the recovery of any

judgment   against any person or any action to enforce   the same,   any failure or

delay in the   enforcement of any other   obligation of the Borrower to the holder

of record, or any setoff, counterclaim,   recoupment,   limitation or termination,

or any breach or alleged breach by the Holder of any obligation to the Borrower,

and   irrespective   of any other   circumstance   which might   otherwise limit such

obligation of the Borrower to the Holder in connection with such conversion. The

Conversion   Date   specified in the Notice of Conversion   shall be the Conversion

Date so long as the Notice of Conversion is received by the Borrower before 6:00

p.m., New York, New York time, on such date.

 

         (f)   Delivery   of   Common   Stock   by   Electronic   Transfer.   In lieu of

delivering   physical   certificates   representing   the Common Stock issuable upon

conversion,   provided the   Borrower's   transfer   agent is   participating   in the

Depository   Trust Company ("DTC") Fast Automated   Securities   Transfer   ("FAST")

program,   upon   request   of the Holder and its   compliance   with the   provisions

contained in Section 1.1 and in this   Section   1.4,   the Borrower   shall use its

best efforts to cause its transfer agent to   electronically   transmit the Common

Stock   issuable   upon   conversion   to the   Holder by   crediting   the   account of

Holder's Prime Broker with DTC through its Deposit   Withdrawal   Agent Commission

("DWAC") system.

 

         (g) Failure to Deliver   Common Stock Prior to Deadline.   Without in any

way limiting   the Holder's   right to pursue   other   remedies,   including   actual

damages   and/or   equitable   relief,   the   parties   agree that if delivery of the

Common Stock issuable upon conversion of this Note is more than two (2) business

days after the Deadline (other than a failure due to the circumstances described

in Section 1.3 above,   which   failure   shall be governed   by such   Section)   the

Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the

Deadline that the Borrower fails to deliver such Common Stock.   Such cash amount

shall be paid to Holder by the   fifth   day of the month   following   the month in

which it has accrued   or, at the option of the Holder (by written   notice to the

Borrower   by the   first   day of the   month   following   the month in which it has

accrued),   shall be added to the   principal   amount of this Note, in which event

interest shall accrue thereon in accordance with the terms of this Note and such

additional principal amount shall be convertible into Common Stock in accordance

with the terms of this Note.

 

         1.5   Concerning   the Shares.   The shares of Common Stock   issuable upon

conversion   of this Note may not be sold or   transferred   unless (i) such shares

are sold pursuant to an effective   registration   statement under the Act or (ii)

the Borrower or its transfer   agent shall have been furnished with an opinion of

counsel   (which   opinion   shall be in form,   substance   and scope   customary for

opinions of counsel in comparable transactions) to the effect that the shares to

be sold or transferred may be sold or transferred   pursuant to an exemption from

 

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such registration or (iii) such shares are sold or transferred   pursuant to Rule

144 under the Act (or a   successor   rule)   ("Rule   144") or (iv) such shares are

transferred   to an   "affiliate"   (as   defined in Rule 144) of the   Borrower   who

agrees to sell or   otherwise   transfer the shares only in   accordance   with this

Section   1.5 and who is an   Accredited   Investor   (as   defined   in the   Purchase

Agreement).   Except as otherwise provided in the Purchase Agreement (and subject

to the removal   provisions   set forth   below),   until such time as the shares of

Common Stock issuable upon   conversion of this Note have been   registered   under

the Act as contemplated by the Registration Rights Agreement or otherwise may be

sold pursuant to Rule 144 without any restriction as to the number of securities

as of a particular date that can then be immediately   sold, each certificate for

shares of Common Stock   issuable upon   conversion of this Note that has not been

so included in an   effective   registration   statement   or that has not been sold

pursuant to an effective   registration   statement   or an exemption   that permits

removal of the legend,   shall bear a legend substantially in the following form,

as appropriate:

 

         "THE   SECURITIES    REPRESENTED   BY   THIS    CERTIFICATE   HAVE   NOT   BEEN

         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES

         MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE

         REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION

         OF COUNSEL IN FORM,   SUBSTANCE   AND SCOPE   CUSTOMARY   FOR   OPINIONS   OF

         COUNSEL IN COMPARABLE   TRANSACTIONS,   THAT REGISTRATION IS NOT REQUIRED

         UNDER SAID ACT UNLESS SOLD   PURSUANT TO RULE 144 OR   REGULATION S UNDER

         SAID ACT."

 

          The legend set forth   above   shall be removed   and the   Borrower   shall

issue to the Holder a new   certificate   therefor free of any transfer   legend if

(i) the   Borrower   or its   transfer   agent   shall   have   received   an opinion of

counsel,   in form,   substance   and scope   customary   for   opinions of counsel in

comparable   transactions,   to the effect   that a public sale or transfer of such

Common Stock may be made without   registration   under the Act and the shares are

so sold or   transferred,   (ii) such Holder provides the Borrower or its transfer

agent with reasonable   assurances that the Common Stock issuable upon conversion

of this Note (to the extent such   securities are deemed to have been acquired on

the   same   date)   can be sold   pursuant   to Rule 144 or (iii) in the case of the

Common Stock issuable upon   conversion of this Note, such security is registered

for sale by the Holder under an effective registration statement filed under the

Act or otherwise may be sold pursuant to Rule 144 without any   restriction as to

the number of   securities as of a particular   date that can then be   immediately

sold.   Nothing in this Note shall (i) limit the Borrower's   obligation under the

Registration Rights Agreement or (ii) affect in any way the Holder's obligations

to comply with applicable   prospectus   delivery   requirements upon the resale of

the securities referred to herein.

 

                                       9

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         1.6 Effect of Certain Events.

 

         (a) Effect of Merger, Consolidation,   Etc. At the option of the Holder,

the sale, conveyance or disposition of all or substantially all of the assets of

the Borrower,   the   effectuation   by the Borrower of a transaction   or series of

related   transactions in which more than