CALLABLE SECURED CONVERTIBLE NOTE

 

EXHIBIT 4.2

 

         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

 

Doylestown, Pennsylvania

May 18, 2005                                                              $200,000

 

                  FOR   VALUE   RECEIVED,   COLLECTIBLE   CONCEPTS   GROUP,   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 $200,000,   on May 18, 2008 (the "MATURITY DATE"),   and to pay interest on the

unpaid principal   balance hereof at the rate of ten percent (10%) per annum from

May 18, 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   $.002375 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   eight   (8)   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

 

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of   determining   the amount of interest due on such date.   As used in this 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 May 18, 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   by and

between the Borrower and the Holder of even date herewith.

 

      The following terms shall apply to this Note:

 

                          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 4.9% of the outstanding   shares of Common

Stock.   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

 

 

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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)

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

Agreement,   dated as of May 18, 2005,   executed in   connection   with the initial

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

"REGISTRATION RIGHTS AGREEMENT").

 

            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   ("REPORTING    SERVICE")   mutually

acceptable to the Borrower and Holder 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 25.0%. The "FIXED CONVERSION

PRICE" shall mean $.0016.

 

                  (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

 

 

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<PAGE>

 

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 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. 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 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

 

 

                                       4

<PAGE>

 

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

 

 

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<PAGE>

 

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.

 

                  (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   principal   amount and the amount of accrued and unpaid   interest on

 

 

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<PAGE>

 

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) 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

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

 

 

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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