EXHIBIT 10.1 CALLABLE SECURED CONVERTIBLE NOTE

 

 

EXHIBIT 10.1

 

 

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

 

St. Petersberg, Florida

April 1, 2005                                                            $240,000

 

 

     FOR VALUE   RECEIVED,   CYBER DEFENSE   SYSTEMS,   INC., a Florida   corporation

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

PARTNERS, LLC or registered assigns (the "Holder") the sum of $240,000, on April

1, 2008 (the   "Maturity   Date"),   and to pay   interest   on the unpaid   principal

balance hereof at the rate of eight percent (8%) (the "Interest Rate") per annum

from April 1, 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 $4.21 for each Trading Day (as

such term is defined   below) of the month.   All payments due   hereunder   (to the

extent not converted   into class A 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

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 April 1, 2005, pursuant to

which this Note was originally issued (the "Purchase Agreement").

 

 

 

                                       1

<PAGE>

 

 

 

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

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

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

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

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

Intellectual   Property   Security   Agreement,   each   dated   April 1,   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. 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

 

 

 

                                       2

<PAGE>

 

 

 

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 April 1, 2005,   executed in connection   with the initial

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

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

business day of each month after the Issue Date.

 

1.2 Conversion Price.

 

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

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

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

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

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

subsidiary of the Borrower, combinations,   recapitalization,   reclassifications,

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

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

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

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

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

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

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

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

reported by a reliable   reporting   service mutually   acceptable to and hereafter

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

60.0%. The "Fixed Conversion Price" shall mean $3.65.

 

     (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

 

 

 

                                       3

<PAGE>

 

 

 

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 Stockholder   Approval (as defined in the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Borrower does not have sufficient authorized but unissued shares of Common Stock

available to effect such   conversion in accordance   with the   provisions of this

Article I (a "Conversion   Default"),   subject to Section 4.8, the Borrower shall

issue to the Holder all of the shares of Common   Stock which are then   available

to effect such conversion. The portion of this Note which the Holder included in

its   Conversion   Notice and which   exceeds the amount which is then   convertible

into    available    shares   of   Common    Stock   (the   "Excess    Amount")    shall,

 

 

 

                                        4

<PAGE>

 

 

 

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 shall

have the right to pursue all remedies   available at law or in equity   (including

degree of specific performance and/or injunctive relief).

 

 

 

                                       5

<PAGE>

 

 

 

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 three (3) business days

after such receipt   (and,   solely in the case of conversion of the entire unpaid

principal amount hereof,   surrender of this Note) (such third business day being

hereinafter   referred to as the   "Deadline") in accordance with the terms hereof

 

 

 

                                       6

<PAGE>

 

 

 

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   principal   amount

shall be   convertible   into Common   Stock in   accordance   with the terms of this

Note.

 

 

                                       7

<PAGE>

 

 

 

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.

 

 

 

                                       8

<PAGE>

 

 

 

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   Borrow