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

 

Surrey, British Columbia

September 20, 2005                                                      $226,920

 

                  FOR VALUE RECEIVED, GPS Industries, Inc., a Nevada corporation

(hereinafter called the "Borrower"), hereby promises to pay to the order of AJW

PARTNERS, LLC or registered assigns (the "Holder") the sum of $226,920, on

September 20, 2008 (the "Maturity Date"). Any amount of principal 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"). 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. 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. 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 September 20, 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 September 20, 2005 by and

between the Borrower and the Holder.

 

<PAGE>

 

         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 4.99% 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) Default   Interest,   if any, on the amounts

referred to in the   immediately   preceding   clause (1) plus (3) 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 September   20,   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.

 

                                       2

 

<PAGE>

 

     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   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 60.0%. The "Fixed Conversion

Price" shall mean $.10.

 

     (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.

 

                                       3

 

<PAGE>

 

     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"),   provided,

however,   that   Borrower   shall have forty   (40) days from the   Closing   Date to

increase   the   authorized   shares   or effect a   reverse   split so as to   satisfy

Borrower's   obligations   hereunder.   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   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) Default Interest, if

any, on the amounts referred to in clause (1), 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

 

                                       4

 

<PAGE>

 

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.

 

     (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.

 

                                        5

 

<PAGE>

 

     (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 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.

 

                                       6

 

<PAGE>

 

     (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

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.

 

     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 50% of the   voting   power of the   Borrower   is

disposed of, or the consolidation,   merger or other business   combination of the

Borrower   with or into any other   Person (as defined   below) or Persons when the

Borrower   is not the   survivor   shall   either:   (i) be   deemed to be an Event of

Default (as defined in Article   III)   pursuant   to which the   Borrower   shall be

required to pay to the Holder   upon the   consummation   of and as a condition   to

such   transaction   an amount equal to the Default   Amount (as defined in Article

III) or (ii) be treated   pursuant to Section 1.6(b) hereof.   "Person" shall mean

any    individual,    corporation,    limited    liability    company,    partnership,

association, trust or other entity or organization.

 

                                       8

 

<PAGE>

 

     (b) Adjustment Due to