CALLABLE SECURED CONVERTIBLE NOTE

 

 

 

      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

 

New York, New York

March 23, 2005                                                           $160,000

 

            FOR VALUE RECEIVED,   IGIA, INC., a Delaware corporation (hereinafter

called the "Borrower"), hereby promises to pay to the order of AJW PARTNERS, LLC

or registered assigns (the "Holder") the sum of $160,000, on March 23, 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 March 23,

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 $.03125 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 Note,

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

day on which   commercial   banks in

 

 

<PAGE>

 

 

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   March 23,   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   March 23,   2005 by and

between the Borrower and the Holder.

 

            The following terms shall apply to this Note:

 

                          ARTICLE I. CONVERSION RIGHTS

 

            1.1   Conversion Right. To the extent the Company is able to register

shares on the initial   Registration   Statement   without the Amendment Filing (as

such term is defined   in Section   4(p) of the   Purchase   Agreement),   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

 

 

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

Rights   Agreement,   dated as of March 23, 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.   Notwithstanding   anything in

this   Section 1.1 to the   contrary,   after the   Company   has done the   Amendment

Filing,   the Buyers   shall be able to   exercise   any and all   conversion   rights

granted herein

 

            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

50.0%. The "Fixed Conversion Price" shall mean $.04.

 

 

                                       3

<PAGE>

 

 

                 (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 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   Amendment   Filing (as

defined in the   Purchase   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

 

 

                                       4

<PAGE>

 

 

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 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

 

 

                                       5

<PAGE>

 

 

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.

 

                 (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

 

 

                                       6

<PAGE>

 

 

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

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

 

 

                                       7

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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

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

 

 

                                        8

<PAGE>

 

 

Holder's obligations to comply with applicable   prospectus delivery requirements

upon the resale of the securities referred to herein.

 

            1.6   Effect of Certain Events.

 

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

Holder,   the